Anyone that has participated in the prosecution or defense of a class action knows that the attorneys’ fees, costs, and expenses involved can be substantial. Prior to the United States Supreme Court’s decision in Campbell-Ewald Co. v. Gomez, No. 14-857 (Dec. Jan. 20, 2016), class action defendants in cases pending in federal court had a rarely-used, but potentially powerful weapon at their disposal to terminate class actions in their early stages through the use of Federal Civil Rule 68 offers of judgment. The main issue addressed in Campbell-Ewald was under what circumstances, if any, a defendant’s settlement offer and/or Rule 68 offer of judgment to the named plaintiff that provides complete relief to the named plaintiff could involuntarily terminate the named plaintiff’s case and in turn terminate the putative class action. Id. at slip op. at 1. The Campbell-EwaldCourt found that such an offer, without acceptance, does nothing to bind the named plaintiff. Id. at 2. It therefore has no effect on the named plaintiff’s claim or, in turn, the putative class claims. Id. The decision may leave the door slightly ajar for class action defendants, as it reserves for another day the issue of whether a defendant’s placement of the full amount of the plaintiff’s claim in an account payable to the plaintiff, or a similar irrevocable tender of complete relief to the plaintiff, would render the plaintiff’s claim moot. Id. at 11.
Courts Historically Divided On The Use of Rule 68 Offers to Moot Claims
Federal Civil Rule 68 permits a defendant to serve the plaintiff with an “offer of judgment” that the plaintiff is free to either accept or reject. If the plaintiff accepts the offer, the judgment is filed with the court and the clerk must enter judgment in the plaintiff’s favor. If the offer is not accepted within fourteen days of service, it is considered withdrawn. Fed. R. Civ. P. 68(a). Before Campbell-Ewald, federal courts were divided as to whether an unaccepted offer under Rule 68 for the full amount of the plaintiff’s claim “mooted” the claim because, in essence, there was no longer any dispute between the parties – an essential element of federal court jurisdiction. Several courts, including the Sixth Circuit Court of Appeals, held that a Rule 68 offer for the full amount, even if unaccepted by the plaintiff, could moot the plaintiff’s case and terminate the action. See, e.g., O’Brien v. Ed Donnelly Enters, Inc., 575 F.3d 567 (6th Cir. 2009).
Prior to its decision in Campbell-Ewald, the Court confronted a related mootness issue created by an unaccepted Rule 68 offer in Genesis HealthCare Corp. v. Symczyk, ___U.S.___, 133 S.Ct. 1523 (2013). In Genesis Healthcare, the Court addressed whether a collective action under the Fair Labor Standards Act of 1938 (“FLSA”) became moot when the plaintiff’s individual claim became moot after a Rule 68 offer for the full amount of her claim was not accepted. Id. at 1526. The issue of whether an unaccepted Rule 68 offer could moot the claim was not addressed by the majority opinion, however, because the plaintiff had conceded that her claim was mooted by the unaccepted Rule 68 offer in the proceedings below. Id. at 1529. Genesis Healthcare did however provide instruction on the effect of the mooting of a named plaintiff’s claim as to the rest of the potential claimants by holding that in the collective action context, the entire case terminated with the extinguishment of the representative plaintiff’s claim.
The Campbell-Ewald Court Seemingly Ends the Controversy Regarding Unaccepted Rule 68 Offers and Mootness Issues
Campbell-Ewald involved a class action brought pursuant to the Telephone Consumer Protection Act (TCPA). Prior to the deadline for class certification,Campbell-Ewald served both an ordinary settlement offer and a Rule 68 offer of judgment, both of which it claimed fully satisfied the named plaintiff’s claim. Id.at 3-4. The named plaintiff allowed both offers to lapse, and Campbell-Ewaldsubsequently moved to dismiss the action as moot. Campbell-Ewald first argued that the named plaintiff’s individual claim was mooted by virtue of the unaccepted Rule 68 offer for the full amount of his claim. Campbell-Ewald then argued the class action claims were derivatively mooted because the named plaintiff’s claims were terminated. Id. at 4.
The Supreme Court’s decision sided with the plaintiff, dealing a blow to class action defendants hoping for an avenue to terminate class actions early, and with limited costs, through the use of Rule 68 offers. Id. at 1. The Court found that basic principles of contract law dictate that an unaccepted Rule 68 offer of judgment, just like any other unaccepted offer, has no legal effect and leaves the claim as alive as it was before the offer. Id. at 7-8. In doing so, the Court distinguished the situation in Campbell-Ewald from other cases where actual payment of the amount at issue had been made, or where the defendant had voluntarily ceased the activity being complained about in the lawsuit. Id. at 9-10.
In reaching this conclusion, the Court’s decision leaves open the possibility of another avenue for mooting a plaintiff’s case, and as a result, potentially the class action in its entirety. The Court recognized this possibility near the end of its analysis, reserving the issue of “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 11. However, as the majority opinion recognized, this irrevocable tender of payment had not occurred in the Campbell-Ewald case, and the Court was not inclined to rule on a hypothetical set of facts when deciding the case. Id.
The Court’s eventual third decision in this line of cases has only grown more uncertain with the recent passing of Justice Scalia. In practical terms, the Court will have three members who have already stood in favor of full payment through the Court as a means of mooting the Plaintiff’s claim, with five justices who have reserved the issue for another day and a sixth whose opinion and ideology is unknown for the time being. While it could be argued that the explicit reservation of this issue in the majority opinion of Campbell-Ewald signals that at least one of the members of the majority would be willing to agree with the dissenters in the event of full payment, Justice Scalia’s unknown successor will be an instrumental ally if class action defendants are to succeed in reopening the debate.