Jan 22

Supreme Court Says Offers of Individual Settlement or Judgment Don’t Moot Class Actions

It turns out you can’t get rid of a putative class action by offering complete individual relief to a named plaintiff.

In Campbell-Ewald Co. v. Gomez, 2016 WL 228345 (U.S. Jan. 20, 2016), the Supreme Court took up the question whether “an unaccepted offer to satisfy the named plaintiff’s individual claim” is “sufficient to render a case moot when the complaint seeks relief on behalf of the plaintiff and a class of persons similarly situated.” It is not.

There, Jose Gomez claimed he received several text messages.  He said he did not consent to them and sued under the Telephone Consumer Protection Act, 47 U.S.C. § 227, which prohibits using an auto-dialer to make calls or send text messages to cell phones without the recipient’s prior express consent.  A person who receives such a call or text message is entitled to recover the greater of actual monetary losses (which often are negligible) or $500 for each violation, trebled if it the defendant “willfully or knowingly” violated the act.

After Gomez sued, Campbell-Ewald Company offered him $1,503 for each text message he received, plus court costs—that is, the maximum statutory damages he’d be entitled to if he prevailed ($500/per violation x 3, plus $3 for good measure).  Campbell repeated the offer as an offer of judgment under Federal Rule of Civil Procedure 68.  Finally, Campbell proposed a stipulated injunction in which it agreed not to send text messages in violation of the Act, although the proposal denied liability and disclaimed any grounds for an injunction.  Gomez did not accept either offer, and the offer of judgment lapsed, under Rule 68, after 14 days.

Campbell then moved to dismiss Gomez’s complaint for lack of subject-matter jurisdiction, arguing that it had mooted Gomez’s individual claim by offering him everything he could hope to recover if we won at a trial on the merits.  The district court denied Campbell’s motion.  The Ninth Circuit, in vacating a subsequent summary judgment on another issue, agreed that Gomez’s case remained live despite Campbell’s offer of judgment.  The Court of Appeals relied on its earlier decision in Diaz v. First American Home Buyers Protection Corp., 732 F. 3d 948 (9th Cir. 2013), which held that “an unaccepted Rule 68 offer that would fully satisfy a plaintiff’s [individual] claim is insufficient to render th[at] claim moot.” Id. at 950.  It made no difference, the Ninth Circuit held, that Gomez brought his claim on behalf of a class.

The Supreme Court granted certiorari because at least three Courts of Appeals had held that an unaccepted offer can moot a plaintiff’s claim.  See, e.g., Warren v. Sessoms & Rogers, P.A., 676 F.3d 365, 371 (4th Cir. 2012); O’Brien v. Ed Donnelly Enterprises, Inc., 575 F.3d 567, 574–575 (6th 2009); Weiss v. Regal Collections, 385 F.3d 337, 340 (3d Cir. 2004).

Justice Ginsburg, writing for the majority, rooted the Court’s analysis of whether there was still an Article III case or controversy in light of Campbell’s offer in basic principles of contract law.  Campbell’s unaccepted offer did not moot Gomez’s claim, Justice Ginsburg wrote, because its “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.”  Campbell-Ewald Co., 2016 WL 228345, at *7.

The Court, however, left open the question 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.”  Id. at *8.

In dissent, Chief Justice Roberts—joined by Justices Scalia and Alito—focused not on contract law but on Article III’s Constitutional mandate that federal courts hear only cases or controversies.  The case was moot, he argued, because Campbell’s offer gave Gomez everything he was entitled to:  “[w]hen 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” (emphasis in original). Id. at *15. Looking to Article III rather than contract law, it was irrelevant that Gomez refused to accept the offer.  “Federal courts may exercise their authority only in the last resort, and as a necessity,” the dissent emphasized, “in the determination of real, earnest and vital controversy between individuals.” (quotation omitted). Id. at *14. “Once Campbell offered to fully remedy Gomez’s injury, there was no longer any ‘necessity’ for the District Court to hear the merits of his case, rendering the lawsuit moot.” Id. at *15.

While the Supreme Court’s decision resolved whether a defendant can get rid of a proposed class action by offering complete relief to a named plaintiff (it can’t), the question remains whether a defendant can moot a plaintiff’s claim “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.” Id. at *8.  Indeed, the majority explicitly declined to answer that “hypothetical” question. Id.

Chief Justice Roberts, picking up on the majority’s reservation, made sure to point out that the case was limited its facts:  “The majority holds that an offer of complete relief is insufficient to moot a case.  The majority does not say that payment of complete relief leads to the same result.” Id. at *18.

What does this mean? It means that a defendant might be able to moot a case by not only offering to make a plaintiff whole, but by establishing an account for the plaintiff and depositing sufficient money into it. Once full payment is made into an account dedicated to the plaintiff, the defendant can argue that the case is moot—no case or controversy remains.  Whether the argument will succeed remains unanswered.  The three dissenting justices will need to convince two others that, yes, the claim is then moot.

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