Why class action bar’s SCOTUS win in Campbell-Ewald could be tenuous

January 20, 2016

(Reuters) – A majority of the U.S. Supreme Court showed Wednesday that it knows exactly what defendants have been up to in class actions involving relatively small damages for individual class members. In the court’s opinion in Campbell-Ewald Company v. Gomez, five justices said defendants can’t squelch class actions by offering full judgment to named plaintiffs and asserting the case is therefore moot, even if the named plaintiff rejects the offer.

The majority agreed with the 9th U.S. Circuit Court of Appeals that a rejected offer of full judgment does not moot the case under Article III. “An unaccepted settlement offer has no force,” wrote Justice Ruth Bader Ginsburg in the court’s decision.

“Under basic principles of contract law, Campbell’s settlement bid and Rule 68 offer of judgment, once rejected, had no continuing efficacy. Absent Gomez’s acceptance, Campbell’s settlement offer remained only a proposal, binding neither Campbell nor Gomez,” the opinion said. “The parties remained adverse; both retained the same stake in the litigation they had at the outset.” (Justice Clarence Thomas concurred with the outcome but rooted his holding in the common law history of tenders, which he said “demonstrates that a mere offer of the sum owed is insufficient to eliminate a court’s jurisdiction to decide the case to which the offer related.”)

Justice Ginsberg and her allies – Justices Anthony Kennedy, Stephen Breyer, Sonia Sotomayor and Elena Kagan – agreed with Justice Kagan’s dissent in Genesis Healthcare v. Symczyk, a case that left unresolved the mootness question the Supreme Court took Campbell-Ewald to resolve.

Campbell-Ewald, which had been sued under the Telephone Consumer Protection Act for sending out unsolicited recruiting texts on behalf of the U.S. Navy, did not offer to pay Jose Gomez his full statutory damages because it accepted liability, the majority said. It made the offer “to avoid a potential adverse decision, one that could expose it to damages a thousand-fold larger than the bid Gomez declined to accept.” Permitting that tactic, the Supreme Court held, “would place the defendant in the driver’s seat.”

The decision is a great development for class action plaintiffs, their lawyers and Stanford law professor Jonathan Mitchell, who represented Gomez at the Supreme Court. Defendants simply won’t be able to kill uncertified class actions by offering full judgment to named plaintiffs.

But there’s a catch – and it could end up undermining the class action bar’s victory.

The Campbell-Ewald Company did not deposit the money it offered Jose Gomez, the named plaintiff in the TCPA class action, in a bank account for Gomez. There’s no question, as Chief Justice John Roberts wrote in his dissent, joined by Justices Samuel Alito and Antonin Scalia, that the multimillion-dollar advertising company had the money to pay Gomez $1,500 per errant text (especially because it turned out he had only received one). But when Gomez said no thanks to Campbell-Ewald’s full-judgment settlement offers, he wasn’t technically turning down precisely what he had asked for.

The majority said that technical difference distinguished this case from the Supreme Court’s 2013 opinion in Already v. Nike, in which the court ruled Already’s trademark counterclaim against Nike was moot because Nike had issued a covenant not to sue Already over future shoes. Already had “received full redress,” the majority said. “Here, by contrast, Campbell’s revocable offer, far from providing Gomez the relief sought in his complaint, gave him nary a penny.”

The majority explicitly said it wasn’t opining on what the outcome might have been if Campbell-Ewald had deposited the full amount of Gomez’s claim in a dedicated account and the court had entered judgment for Gomez in that amount. “That question is appropriately reserved for a case in which it is not hypothetical,” the majority said.

The Chief Justice’s dissent implicitly suggested that defendants turn the hypothetical into reality. “The good news is that this case is limited to its facts. The majority holds that an offer of complete relief is insufficient to moot a case,” he wrote. “The majority does not say that payment of complete relief leads to the same result. For aught that appears, the majority’s analysis may have come out differently if Campbell had deposited the offered funds with the district court. This court leaves that question for another day – assuming there are other plaintiffs out there who, like Gomez, won’t take ‘yes’ for an answer.”

It’s not much of a leap of inference to assume that sometime in the very near future, a defendant in a TCPA or FCRA or other putative class action involving small statutory damages will offer the named plaintiff full judgment – and will establish a dedicated account for the money. If the plaintiff rejects the offer, the defendant will move for judgment under Rule 68.

And before you know it, we’ll be back at the Supreme Court with another round of the cat-and-mouse game between class action lawyers and defendants.

For more of my posts, please go to WestlawNext Practitioner Insights

Follow me on Twitter

No comments so far

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/