The recent U.S. Supreme Court decision Campbell-Ewald v. Gomez is critical for businesses battling class action lawsuits.
1. Class Plaintiff Settlement Offers
In recent years, creative defense counsel have attempted to defeat potentially expensive class action litigation by “picking off” lead class representatives, especially in situations where plaintiffs’ attorneys may not easily be able to locate another viable class representative. In federal court, a defendant can make an “offer of judgment” under Federal Rule 68, which has certain cost-shifting consequences. In some class actions brought for discrete statutory violations, the damages available are limited. In these cases, a defendant can make an offer of judgment for the full amount of the available damage, potentially mooting the lead plaintiff’s claim and ending the class action. For example, under the Telephone Consumer Protection Act (“TCPA”), the maximum damage available per an unauthorized call or text message is $1,500.00. In TCPA cases involving a single or very low number of phone calls or texts, a defendant can make an offer of judgment that would fully compensate the plaintiff and be much less expensive and involve much less potential exposure than a full class action. Several cases have previously held that if a defendant made such an offer, and the plaintiff rejected it or let it lapse, plaintiff’s individual claim would be moot and the putative class action could potentially be dismissed because the representative plaintiff no longer had a claim.
2. The Supreme Court’s Decision
The Supreme Court took up the case of Campbell-Ewald v. Gomez to consider whether such a situation would in fact lead to a dismissal of a class action. Several opinions in federal appeals courts across the country had come to different conclusions. The plaintiff in Campbell-Ewald sued for TCPA violations as the lead plaintiff of a putative nationwide class. Before plaintiff moved for class certification, defendant filed a Rule 68 offer of judgment in an amount that indisputably covered the plaintiff’s maximum damage recovery as well as court costs. Plaintiff did not accept the Rule 68 offer, which thereafter expired. Defendant then moved to dismiss the case. The lower court initially denied the dismissal motion, but after discovery defendant renewed the motion on different grounds, and the trial court granted it. The Ninth Circuit Court of Appeals reversed the dismissal, and also held that “an unaccepted Rule 68 offer that would fully satisfy a plaintiff’s individual claim is insufficient to render that claim moot.” As noted, other Circuits had held otherwise.
In the majority opinion issued on January 20, 2016, authored by Justice Ginsburg and joined by Justices Kennedy, Breyer, Sotomayor, and Kagan, the Supreme Court upheld the Ninth Circuit’s decision. The Court first conceded that it had previously ruled in Genesis Healthcare Corp. that “if an intervening circumstance deprives the plaintiff of a personal stake in the outcome of the lawsuit, at any point during litigation, the action can no longer proceed and must be dismissed as moot.” However, the Court adopted reasoning from Justice Kagan’s dissent in the Genesis Healthcare case: “An unaccepted settlement offer – like any unaccepted contract offer – is a legal nullity, with no operative effect.” The Supreme Court therefore ruled that the lead class plaintiff’s claim was not mooted by defendant’s unaccepted offer.
3. Issue Left Open—Actual Payment To Lead Plaintiff
However, the case expressly left a huge open question. What if, rather than making an offer for the full amount claimed, a defendant actually pays the full damage amount to a lead class plaintiff, or deposits the full amount with the court? Justice Ginsburg observed: “We need not, and do not, now decide whether the result would be different if a defendant deposits the full amount of the plaintiff’s individual claim in an account payable to the plaintiff, and the court then enters judgment for the plaintiff in that amount. That question is appropriately reserved for a case in which it is not hypothetical.” Chief Justice Roberts, joined by Justices Scalia and Alito, latched on to this alternative in their dissenting opinion: “To the extent there is a question whether [defendant] is willing and able to pay, there is an easy answer: Have the firm deposit a certified check with the trial court.” Justice Alito’s separate dissent echoed this: “I am heartened that the Court appears to endorse the proposition that a plaintiff’s claim is moot once he has received full redress from the defendant for the injuries he has asserted…Today’s decision thus does not prevent a defendant who actually pays complete relief – either directly to the plaintiff or to a trusted intermediary – from seeking dismissal on mootness grounds.”
Accordingly, the majority opinion’s mention of, without deciding, the potential of actually paying off a lead class plaintiff, together with its confirmation in two dissenting opinions, leaves the door wide open for a defendant to defeat potentially expensive class litigation by actually paying the full damage claim to a lead class plaintiff. No doubt, a case will come along eventually which will require the Supreme Court to formally decide whether this works.
In any event, this avenue is only available in class actions seeking damages that are discrete and easily calculated. Complexities can also arise when the class action is brought for violations of a statute which provides for attorney fees to the prevailing party (which is common in such consumer protection statutes). In cases brought under statutes that provide for attorney fee awards, an offer must be made very early in the case to “fully compensate” a plaintiff who is often quickly incurring attorney fees.
4. Implications For The Future?
Another observation from this case, and particularly its dissenting opinions, relates to what may be the next issue decided by the Supreme Court in the consumer protection field. The Supreme Court is currently reviewing the case of Spokeo, Inc. v. Robins, which addresses whether a plaintiff suing under a statute that provides for specified damages or fines, rather than damage actually suffered by a plaintiff, has standing under the United States Constitution to sue. The dissents in Campbell-Ewald drop several hints that those Justices are prepared to rule against standing by plaintiffs in those cases. The Court’s answer on that issue must await another day, perhaps soon.
Donald E. Bradley is a partner in Musick, Peeler & Garrett’s Orange County, California, office, and is the Chair of the firm’s Business Litigation Practice Group. He specializes in consumer credit and privacy issues, including individual and class action defense under the TCPA, Fair Credit Reporting Act, Fair Debt Collection Practices Act, and numerous other federal and state consumer protection statutes. His full bio and contact information can be found at http://www.musickpeeler.com/professional/Donald_Bradley/.