By Lisa Milam-Perez, J.D. In a consumer case of great interest to employers facing an ever-rising tide of class action lawsuits, a divided U.S. Supreme Court hampered the ability of defendants to head off individual and class claims by way of a settlement or offer of judgment prior to a request for Rule 23 class certification. In a 6-3 decision, the High Court held a plaintiff’s individual and class claims are not rendered moot by a rejected settlement offer extended before the plaintiff moves to certify the class. The dissenting justices characterized the holding as a narrow one, however, and suggested that a defendant eager to end a dispute (and thwart a potential class litigation) simply need tender the relief arguably due, rather than merely offer to do so (Campbell-Ewald Co. v Gomez, January 20, 2016, Ginsburg, R.). While the decision applies to class actions of all stripes, it particularly impacts consumer class actions, “where damages for any individual plaintiff can be small and ascertainable, but also wage/hour class actions, where the named plaintiff’s individual claim may also be modest, but when aggregated in a class, substantial,” notes Jeffrey W. Brecher, who heads Jackson Lewis’ Wage & Hour Practice Group. TCPA class action. The putative class-action suit was brought under the Telephone Consumer Protection Act (TCPA) against Campbell-Ewald Co., a national marketing firm, and it arose out of a text message sent on behalf of the U.S. Navy to recruit new sailors. The government contractor cast too wide a net in its solicitation, reaching consumers outside the Navy’s intended scope of 18- to 24-year olds. The message went to more than 100,000 recipients, including the 40-year-old plaintiff, who had never consented to receive such communications. Offer of judgment. Before the agreed-upon deadline for the plaintiff to file a motion for class certification, Campbell-Ewald made him a settlement offer that would have provided complete monetary relief (including treble damages, as provided under the TCPA, but not attorneys’ fees, which the statute does not permit), and filed a Rule 68 offer of judgment. But the plaintiff rejected the offer. Arguing that this rejection mooted his individual claim, the defendant filed a motion to dismiss, asserting that the district court lacked standing because there was no longer a live case or controversy. And, because the plaintiff failed to move for class certification before his own claim became moot, the putative class claims were moot as well, the defendant contended. The Supreme Court majority rejected these arguments, affirming the Ninth Circuit below on an issue that divided the circuits, and which the High Court had left unanswered in its 2013 holding in Genesis Healthcare Corp. v Symczyk, an FLSA collective action. Citing basic principles of contract law (a rationale that Justice Thomas, concurring, would eschew in favor of a “common-law history of tenders” approach) the majority reasoned that once the defendant’s offer was rejected, the offer had "no continuing efficacy." The controversy remained live, and the court retained Article III jurisdiction. Contract theory controls. In Genesis Healthcare, the Supreme Court did not take up the question whether an offer of judgment mooted the FLSA claim; it simply assumed so without deciding because the plaintiff did not challenge that notion below. Justice Kagan, however, had argued in dissent that the Court should address this threshold issue. “An unaccepted settlement offer—like any unaccepted contract offer—is a legal nullity, with no operative effect,” Kagan urged. Here, the majority adopted Kagan’s reasoning, “as has every Court of Appeals ruling on the issue post Genesis HealthCare,” it noted. The settlement bid was merely a proposal, the majority held, and it had no legal effect once rejected. As a result, “the parties remained adverse; both retained the same stake in the litigation they had at the outset.” The text of Rule 68 offered no basis to the contrary. Impact on class claims. Moreover—and, of course, the larger point: Because the named plaintiff’s individual claim retained “vitality” during the relevant timeframe for determining whether the case could proceed on a class basis, the class claims remained fertile as well. “While a class lacks independent status until certified, a would-be class representative with a live claim of her own must be accorded a fair opportunity to show that certification is warranted,” Justice Ginsburg wrote. Dissent: no case or controversy. “When a plaintiff files suit seeking redress for an alleged injury, and the defendant agrees to fully redress that injury, there is no longer a case or controversy for purposes of Article III,” Chief Justice Roberts argued in dissent. “That is exactly what happened here.” Unconvinced by the majority’s “Article-III-by-contract theory,” Roberts conceded that a rejected settlement offer is a legal nullity as a matter of contract. But that was irrelevant; the issue at hand was whether there was a case or controversy for purposes of Article III jurisdiction. And, since the defendant offered “to give the plaintiff everything he asks for,” there was no case or controversy here. The plaintiff may well want to continue litigating his case. However, “the issue is not what the plaintiff wants, but what the federal courts may do.” Justice Alito joined Roberts’ dissent but wrote separately as well to point out what he saw as the real issue here: Whether the defendant, if the case were to be dismissed, would have made good on its promise to pay the money offered in its proposed settlement. Here, there was no real dispute that the relatively well-heeled defendant would pay up, but if there were doubt, the case would not be moot, in Alito’s view. What about payment outright? “The good news is that this case is limited to its facts,” Justice Roberts noted in his dissent, because the majority did not rule on whether the actual payment of complete relief would be enough to moot a case. That issue was left for another day. In the meantime, according to Justice Alito’s dissent, the decision here would not prevent a defendant from seeking dismissal on mootness grounds by actually paying the full relief—if not directly to the plaintiff, then to “a trusted intermediary.” With this, the High Court left open “a significant question,” notes Jackson Lewis’ Brecher. “It should be no surprise then that defendants seeking to moot a putative class action will now simply deposit the funds with the Court. Thus, the next round of this saga (which began with a sharply divided Court in Genesis Healthcare), is just around the corner: Does a case become moot when a defendant, instead of merely offering full relief, actually pays it?” More questions left open. Additional unanswered questions, according to Brecher:
- Whether, in addition to actually providing the plaintiff full relief in the form of a payment, the court must also enter judgment in order for the case to become moot;
- If entry of judgment is necessary, whether a class representative must be provided an opportunity to show that certification is warranted before a court enters judgment.
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