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Carducci v. Aetna U.S. Healthcare

April 17, 2003


The opinion of the court was delivered by: Jerome B. Simandle, United States District Judge


The two named plaintiffs in this ERISA putative class action accepted a Rule 68, Fed. R. Civ. P. offer of judgment from defendant equal to the total amount of their individual claims plus reasonable costs and attorneys' fees in an amount to be determined by the Court. Presently, the Court must determine whether the proposed judgments are subject to Rule 23(e), Fed. R. Civ. P., which requires court approval for any dismissal or compromise of a class action, and if so, whether the judgments are fair, adequate, and reasonable to the two named plaintiffs and to the putative class.

The judgments offered to the named plaintiffs only affect the individual claims of the named plaintiffs; they neither grant nor deny any relief of any kind to the putative class. For reasons expressed in this opinion, the Court finds that the individual judgments for these two individual plaintiffs will not prejudice the unnamed members of the putative class. Importantly, the recovery for the two named plaintiffs is relatively small and will not deplete the defendant's funds in a way that will affect the future rights of the putative class, nor does it appear that the putative class will be deprived of effective representatives.

Aside from the judgments for the two named plaintiffs, however, the Court is also asked to voluntarily dismiss without prejudice the claims of the putative class. The Court will approve this dismissal, but only because the rights of the putative class are currently being simultaneously represented by the same counsel in another identical action before this Court captioned Rothenberg v. Aetna U.S. Healthcare, Civ. No. 02-6122 (JBS), for reasons now explained.


Plaintiffs Caroline Carducci and David Labinski filed a class action complaint in New Jersey Superior Court in Camden County on August 27, 2001 alleging that their health insurer, Aetna U.S. Healthcare, was unjustly enriched because it placed subrogation and reimbursement liens on their personal injury lawsuit settlements for amounts of health care benefits paid to the plaintiffs by reason of the injury which was the subject of each plaintiff's tort recovery. Aetna had collected $180.40 from Ms. Carducci's settlement proceeds and $536.50 from Mr. Labinski's settlement proceeds. This case was filed based on the Perreira v. Rediger decision, 169 N.J. 399 (2001), where the New Jersey Supreme Court held that, under New Jersey law, a health insurer who expended funds on behalf of an insured cannot recoup the funds through a subrogation lien on the recovery the insured obtains from a tortfeasor.

Defendant removed the case to this Court on October 5, 2001, arguing that there was federal jurisdiction pursuant to the Employee Retirement Income Security Act of 1974 ("ERISA") because plaintiffs were subject to plans governed by ERISA and were seeking to recover benefits due under those plans. Plaintiffs filed a motion to remand the action to state court for lack of subject matter jurisdiction; defendant filed a motion to dismiss.

Meanwhile, six similar ERISA cases about health insurance subrogation clauses were filed in New Jersey court and were removed to this Court. Defendants moved for consolidation of the actions with the Carducci action because they involved similar legal issues on motions to remand and motions to dismiss. This Court heard oral argument and granted the motion to consolidate on January 28, 2002, but only for the limited purpose of considering the motions for remand and for dismissal. *fn1 See Carducci, et al. v. Aetna U.S. Healthcare, Civil No. 01-4675 (JBS).

On January 25, 2002 and on April 4, 2002, this Court heard oral argument on the remand motions. The principal issue was whether the monies that plaintiffs sought--which were monies that the insurers took pursuant to the subrogation clauses in the employee benefit healthcare contracts--were "benefits due" under ERISA section 502(a)(1)(B). This Court, in an Opinion and Order dated May 28, 2002, agreed with defendants' position and determined that the monies were "benefits due" under section 502(a)(1)(B), so that the state law unjust enrichment claims were completely preempted by federal law and were properly removed to federal court. See Carducci, et al. v. Aetna U.S. Healthcare, 204 F. Supp. 2d 796 (D.N.J. 2002). *fn2

On August 28, 2002, a panel of the United States Court of Appeals for the Third Circuit filed its opinion in Colbert v. Dymacol, Inc., No. 01-4397, 2002 WL 1974538 (3d Cir. Aug. 28, 2002), a case unrelated to Carducci, but a case that would greatly influence the parties' behavior in Carducci. In Colbert, in the district court, the defendants had made an Offer of Judgment to a named plaintiff pursuant to Rule 68, Fed. R. Civ. P., before he had filed a motion for class certification. The offer provided the plaintiff with the maximum monetary statutory relief that he could obtain if he won on the merits plus attorneys' fees and costs. The named Colbert plaintiff rejected the offer of judgment and moved for class certification, which was granted. Defendants filed an interlocutory appeal from the class certification under Rule 23(f), Fed. R. Civ. P., arguing that defendants' tendering of an offer of judgment to the named plaintiff, prior to class certification, provided full relief to the plaintiff, mooted his claim, and precluded further maintenance of the class action. Initially, a panel of the Third Circuit agreed with the defendants and found that the offer of full monetary relief to the individual named plaintiff constituted complete relief, which mooted the plaintiff's claim, left the case without a plaintiff who had a justiciable claim, and required the court to dismiss the action for lack of case or controversy. The Third Circuit panel held that the only exception to this "class action mootness precept" would occur if a plaintiff filed a class certification motion before receiving the Offer of Judgment; then he could continue to argue the class certification motion before the district court and on appeal. The Third Circuit panel's Colbert decision was filed on August 28, 2002.

Based on the Colbert decision, defendant Aetna on August 29, 2002 made an offer of judgment to plaintiff Carducci for $180.40 plus reasonable attorneys' fees and costs incurred to date and to plaintiff Labinski for $536.50 plus reasonable attorneys' fees and costs incurred to date, representing the maximum monetary relief that plaintiffs could obtain for their individual claims if they won on the merits. Plaintiffs accepted the offers of judgment on August 30, 2002 because they felt that the Colbert decision gave them no choice but to accept. They filed their notices of acceptance of the offer of judgment in September and October 2002. [Docket Items 55-1, 57-1.] Plaintiffs received the offers of judgment on August 29, 2002 before they filed their motion for class certification, though the motion was filed later in the day on August 29, 2002. *fn3

On October 3, 2002, the Third Circuit vacated its decision in Colbert and ordered the matter to be reheard en banc. Colbert v. Dymacol, Inc., 305 F.3d 1256 (3d Cir. 2002). On October 4, 2002, counsel for plaintiffs, Natalie Finkelman Bennett, Esquire, sent the Court a copy of the Colbert Order and requested "a hearing concerning the pending Notices of Acceptance of Defendant's Offer of Judgment Pursuant to Fed. R. Civ. P. 68 and accompanying requests for Entry of Judgment." (10/4/02 Letter.) The Court replied with a letter to all counsel in the consolidated cases on October 16, 2002. (10/16/02 Letter.) The Court explained that "from her letter, it is not clear what relief Ms. Bennett seeks," and asked that "Ms. Bennett clarify her request and state her position on the merits" regarding the offers of judgment before the Court set a hearing date. (Id.)

Ms. Bennett responded on October 22, 2002 that "the request for a hearing stems from our desire to comply in all respects with the requirements of Rule 23(e), which provides that a class action may not be compromised without court approval and notice to absent class members." (10/22/02 Letter.) Although the Colbert panel decision had by that time been vacated, Ms. Bennett did not ask the Court to invalidate plaintiffs' acceptances of the offers of judgment; instead she asked the Court to approve the offers pursuant to Rule 23(e) prior to entering judgment pursuant to Rule 68. *fn4 She explained that she had not previously asked for a Rule 23(e) inquiry because she did not think Colbert required it. (Id.) However, "now that Colbert is no longer controlling, we return to our pre-Colbert position that no Offer of Judgment under Fed. R. Civ. P. 68 can be accepted without court approval pursuant to Rule 23(e)." (Id.)

On November 8, 2002, plaintiff, in filing a fee petition to determine the amount of "reasonable fees and costs" referred to in the offers of judgment, *fn5 informed the Court that "plaintiffs will not be filing a request to substitute additional plaintiffs in the current action," so that the claims of the putative class in Carducci should be dismissed without prejudice. (11/8/02 Letter.) Counsel for plaintiffs stressed that they had "protected the interests of all of the Class by filing a new action against Aetna U.S. Healthcare on behalf of new individual plaintiffs with the same claims," so that the Carducci class's interest, if dismissed in Carducci would continue in the new action. (Atty Fee Reply Br. at 2 n.3.) At oral argument on March 25, 2003, plaintiffs' counsel informed the Court that this "new action" is Rothenberg v. Aetna U.S. Healthcare, Civil No. 02-6122, which was removed to this Court on December 27, 2002. *fn6

On March 10, 2003, the Third Circuit, after rehearing Colbert en banc, dismissed the appeal as improvidently granted. See Colbert v. Dymacol, et al., 2003 LEXIS 4531 (3d Cir. Mar. 10, 2003). As defendants had argued before the initial Third Circuit panel, they again argued before the en banc court that the offer of judgment given to the named plaintiff for the full monetary amount of the named plaintiff's individual claim mooted his case and required dismissal of the putative class action. Therefore, according to the Colbert defendants, the district court's October 2, 2001 order granting class certification was improper because there was no live case or controversy before the court. In its dismissal order, the Third Circuit disagreed, stating:

[T]he question presented by Appellants in their Application Pursuant to Fed. R. Civ. P. 23(f) for Permission to Appeal from the October 2, 2001 Order was inaccurate in that Appellee had not received all relief requested in his complaint. (Id.)

The Rule 68 relief in Colbert was thus not all that plaintiff had requested because it did not include class certification. The Colbert plaintiff was thus free to reject the Rule 68 offer, even though it offered all monetary relief, because it did not offer class relief.

This Court heard oral argument on March 25, 2003 to determine whether judgment should be entered in favor of plaintiffs in accordance with the offers of judgment accepted from defendant Aetna, considering the effect of the Third Circuit's dismissal in Colbert on this action and the requirements of Rules 68 and 23(e), Fed. R. Civ. P. *fn7

For the reasons that follow, this Court will approve the judgments accepted by plaintiffs and will allow the claims of the putative class to be dismissed without prejudice. The Court only does so because the individual judgments offered to the named plaintiffs do not in any way affect the claims of the putative class, and because the rights of the putative class are currently being simultaneously represented in another action before this Court captioned Rothenberg v. Aetna U.S. Healthcare, Civil No. 02-6122.


Before entering judgment for the named plaintiffs and dismissing without prejudice the claims of the putative class, this Court must determine (1) whether a Rule 68 offer of judgment can be made in the class action context; (2) whether a Rule 68 offer of judgment made to plaintiffs in a putative class action is subject to Rule 23(e) approval; and (3) whether the Rule 68 offers of judgment and the voluntary dismissals without prejudice of the claims of the putative class in this case should be approved pursuant to Rule 23(e).

A. Rule 68 Offers of Judgment in Class Actions

This Court finds that a Rule 68 offer of judgment can be used to settle the claims of the named plaintiffs in this putative class action. Rule 68 allows a defendant to offer his adverse party a judgment in that party's favor for a certain specified amount prior to trial. Fed. R. Civ. P. 68. *fn8 The "plain purpose of Rule 68 is to encourage settlement and avoid litigation." see also Marek v. Chesny, 473 U.S. 1, 5 (1985). If the defendant's offer is accepted, judgment is entered against the defendant and the parties are spared the expense of trial. If the offer is rejected, the parties proceed to trial but, if the plaintiff does not obtain a judgment that is more favorable than what she was offered, she must pay any costs incurred after defendant made the offer. Fed. R. Civ. P. 68. An offer of judgment, thus, forces a plaintiff to weigh her own exposure to liability for the defendant's subsequent costs against her own expected recovery and encourages settlement by "shift[ing] the risk of going forward with a lawsuit to the [plaintiff], who becomes exposed to the prospect of being saddled with the substantial expense of trial." Mallory v. Eyrich, 922 F.2d 1273, 1277-78 (6th Cir. 1991).

Most courts allow defendants to make Rule 68 offers to named plaintiffs in class actions. See Gordon v. Gouline, 81 F.3d 235, 239 (D.C. Cir. 1996); White v. Alabama, 74 F.3d 1058, 1062-63 (11th Cir. 1996); Blair v. Shanahan, 28 F.3d 1514, 1517-18 (9th Cir. 1994); Cotton v. Hinton, 559 F.2d 1326, 1329 (5th Cir. 1977). Entering judgment pursuant to the offer ...

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