Supreme Court Rules on Effect of Offers to Named Class Plaintiffs

The U.S. Supreme Court issued a decision earlier this week in a case raising the issue whether a defendant can cut off a Telephone Consumer Protection Act class action by making an offer of full relief to individual named plaintiffs. See Campbell-Ewald Co. v. Gomez, No. 14-857 (U.S. 1/20/16).

Here is the background: the Navy contracted with petitioner Campbell to develop a multimedia recruiting campaign that included the sending of text messages to young adults, but only if those individuals had “opted in” to receipt of marketing solicitations on topics that included Navy service. Respondent Gomez alleged that he did not consent to receive text messages and, at age 40, was not in the Navy’s targeted age group anyway. Gomez filed a nationwide class action, alleging that Campbell violated the Telephone Consumer Protection Act (TCPA), 47 U. S. C. §227(b)(1)(A)(iii), which prohibits “using any automatic dialing system” to send a text message to a cellular telephone, absent the recipient’s prior express consent. He sought treble statutory damages for a willful and knowing TCPA violation and an injunction against Campbell’s involvement in unsolicited messaging.

Before the deadline for Gomez to file a motion for class certification, Campbell proposed to settle Gomez’s individual claim and filed an offer of judgment pursuant to Federal Rule of Civil Procedure 68. Gomez did not accept the offer and allowed the Rule 68 submission to lapse on expiration of the time (14 days) specified in the Rule. Campbell then moved to dismiss the case pursuant to Rule 12(b)(1) for lack of subject-matter jurisdiction. Campbell argued first that its offer mooted Gomez’s individual claim by providing him with complete relief. Next, Campbell urged that Gomez’s failure to move for class certification before his individual claim became moot caused the putative class claims to become moot as well.

The District Court denied the motion. After limited discovery, the District Court then granted
Campbell’s motion for summary judgment on the merits, relying on the Navy’s sovereign
immunity from suit under the TCPA. The Ninth Circuit reversed. It agreed that Gomez’s case remained live but concluded that Campbell was not entitled to “derivative sovereign immunity.” 

The Supreme Court took the case and ruled that a mere unaccepted settlement offer or offer of judgment does not automatically moot a plaintiff’s case, so the District Court retained jurisdiction to adjudicate Gomez’s complaint.  While Article III’s “cases” and “controversies” limitation requires that “an actual controversy . . . be extant at all stages of review, not merely at the time the complaint is filed,” Arizonans for Official English v. Arizona, 520 U. S. 43, 67, a case does not become moot as “long as the parties have a concrete interest, however small,” in the litigation’s outcome. Here Gomez’s complaint was not effaced by Campbell’s unaccepted offer to satisfy his individual claim. Under principles of contract law, Campbell’s settlement bid and Rule 68 offer of judgment, once rejected, had no continuing efficacy. With no settlement offer operative, the parties remained adverse; both retained the same stake in the litigation they had at the outset. (Of course, our readers may well recognize that laying a legal controversy to rest may not be quite the same thing as making a contract.) 

On the merits, less interesting to our readers, Campbell’s status as a federal contractor did not entitle it to immunity from suit for its violation of the TCPA. Unlike the United States and its agencies, federal contractors do not enjoy absolute immunity. A federal contractor who simply performs as directed by the Government may be shielded from liability for injuries caused by its conduct. But no “derivative immunity” exists when the contractor has exceeded its authority or its authority was not validly conferred.

The decision resolved a circuit split on the settlement offer issue, and closed the loop on an issue left open by the Court in its 2013 decision in Genesis Healthcare Corp. v. Symczyk.

Interestingly, the majority declined to address the related issue whether the result would have been different if Campbell had actually paid up rather than merely offered to pay. “That question is appropriately reserved for a case in which it is not hypothetical. "

The Chief Justice dissented, arguing that “The problem for Gomez is that the federal courts exist to solve real disputes, not to rule on a plaintiff’s entitlement to relief already there for the taking.”  It seemed beyond dispute that the offer made would have fully satisfied Gomez’s claims. "That makes the case moot, and Gomez is not entitled to a ruling on the merits of a moot case.”  

The ruling may impact other consumer type claims under statutes, such as the TCPA, under which damages can be easily calculated.  But one has to wonder about a rule in which  federal courts are forced to preside over cases where plaintiffs insist on litigating, with all of the burden and expenses, even when they have been offered 100% of what they could possibly recover. 

 

First Circuit Rejects Use of Rule 68 Offer to Moot Class

Just an FYI for our loyal readers involved in class action work that the First Circuit is the latest federal appeals court to reject a defendant's attempt to moot a proposed a class action by an offer of judgment to the lead plaintiff.  See Bais Yaakov of Spring Valley v. ACT Inc., No. 14-1789 (1st Cir. 8/21/15).

The case arose from alleged unsolicited facsimiles reminding plaintiffs of testing deadlines and test sites, sent in violation of the federal Telephone Consumer Protection Act ("TCPA"), 47 U.S.C. § 227, and an analogous New York state law.  Defendant tendered to Bais Yaakov an offer for judgment under Federal Rule of Civil Procedure 68. And later moved to dismiss this lawsuit for lack of subject matter jurisdiction, arguing that its unaccepted and withdrawn Rule 68 offer fully resolved any case or controversy between the parties, rendering Bais Yaakov's claims moot. The district court denied ACT's motion to dismiss, holding that an unaccepted offer of judgment did not moot Bais Yaakov's claim. The district court accepted ACT's contention that the offer, had it been accepted before it was
withdrawn, would have provided Bais Yaakov with everything to which it would have been entitled on its individual claim, had it prevailed.

The question of whether an unaccepted offer for individual relief in a putative class action moots the action is a question of law that the court of appeals reviewed de novo.  Plaintiffs seeking to pursue a lawsuit brought in a representative capacity must prove their authorization to bring the lawsuit. For example, a person who is not a guardian cannot sue as such, and so on. Unlike most other representative plaintiffs, however, plaintiffs seeking to proceed as representatives of a class under Rule 23 must show both that they are members of the class and that they adequately represent the class. Fed. R. Civ. P. 23(a).  Against this background, ACT advanced "a nifty stratagem" for defeating motions for class certification: offer only the named plaintiff full payment for its individual claims, and then move to dismiss the suit as moot before the court has a chance to consider whether the plaintiff should be allowed to represent the putative class. In recent years, this stratagem has become a popular way to try to thwart class actions, said the court.

The First Circuit observed this strategy seemed to run against the grain of the Supreme Court's holding in Deposit Guaranty National Bank v. Roper, 445 U.S. 326, 340 (1980). Plaintiff argued that under this precedent, Bais Yaakov had a continuing economic interest in the controversy: the interest in sharing attorney's fees with other class members, and the interest in a possible incentive award for serving as a lead plaintiff.  But the court questioned whether this was a sufficient interest.  It also rejected plaintiff's argument that its interest in having a class certified is enough to defeat ACT's mootness argument.  

In order to decide whether an unaccepted Rule 68 offer triggers mootness, the court concluded it must first decide that a plaintiff who has refused such an offer has "received complete relief," such that there remains no individual case or controversy sufficient to satisfy Article III. Five circuit courts that have considered such an argument recently have rejected  it. See Hooks v. Landmark Indus., Inc., No. 14-20496, 2015 WL 4760253, at *3-4 (5th Cir. Aug. 12, 2015); Chapman v. First Index,
Inc., Nos. 14-2773 & 14-2775, 2015 WL 4652878, at *2-3 (7th Cir. Aug. 6, 2015); Tanasi v. New Alliance Bank, 786 F.3d 195, 199-200 (2d Cir. 2015), Stein v. Buccaneers Ltd. P'ship, 772 F.3d 698, 704-05 (11th Cir. 2014), Diaz v. First Am. Home Buyers Prot. Corp., 732 F.3d 948, 954-55 (9th Cir. 2013).

The issue may be before the Supreme Court. See Campbell-Ewald Co. v. Gomez, 135 S. Ct. 2311, 2311 (2015) (No. 14-857) (granting petition for certiorari seeking review of the questions of whether a case becomes moot when a plaintiff receives an offer of complete relief on his claim, and whether the answer to that question differs in a putative class action); see also Petition for Writ of Certiorari,
Campbell-Ewald, ___ U.S. ___, (No. 14-859), 2015 WL 241891, at *i (filed Jan. 16, 2015).

In the interim, the court of appeals agreed with the Second,  Fifth, Seventh, Ninth, and Eleventh Circuits that an unaccepted Rule 68 offer cannot, by itself, moot a plaintiff's claim. The court took this position because, when employed as ACT hoped to employ it here, an unaccepted Rule 68 offer is "a red herring: it does not, in itself, provide any relief." And nothing in Rule 68--or any other rule--contemplates use of a rejected offer to secure dismissal of a case. To the contrary, Rule 68 expressly specifies what happens to a rejected offer: it is deemed to be "withdrawn," and it is "not admissible except in a proceeding to determine costs." Fed. R. Civ. P. 68(b).