In recent years many defendants facing putative class action lawsuits in federal court have sought to neutralize these lawsuits by offering total relief to all named plaintiffs before the district court issues a ruling on class certification. As the argument goes, this offer of total relief—whether accepted by the plaintiffs or not—moots any justiciable “case or controversy” between the parties and thereby destroys the plaintiffs’ standing to continue to litigate. On January 20, 2016, however, the U.S. Supreme Court ruled 6-3 that defendants do not moot the claims of named plaintiffs when those plaintiffs reject a formal offer of judgment consisting of full monetary damages. In this respect, the Supreme Court’s decision inCampbell-Ewald Co. v. Gomez restricts the ability of defendants facing class action lawsuits to ward off the high costs of discovery and avoid an adverse decision on class certification by unilaterally offering to make the named plaintiffs monetarily whole. Nevertheless, the Court left open several possibilities for defendants who attempt to moot claims in the future.
Overview of the Case
In Campbell-Ewald, the named plaintiff allegedly received unsolicited text messages from the defendant company as part of a marketing campaign for the U.S. Navy. The plaintiff filed a putative class action under the Telephone Consumer Protection Act, which provides statutory liquidated damages of $500 to individuals who receive certain unsolicited text messages, phone calls, and “junk faxes.” The statute also allows plaintiffs to recover treble damages of $1,500 in the event of a willful violation. The complaint in Campbell-Ewald requested $1,500 in damages for the plaintiff, an injunction prohibiting the company from transmitting further unsolicited text messages, and attorneys’ fees and costs. The plaintiff also asked to be named as the class representative for a putative nationwide class of similarly situated individuals.
Upon receipt of the complaint, the defendant company did two things. First, the company offered the plaintiff $1,503 per text message (i.e., $3 in excess of the statutory cap) plus reasonable costs and a stipulation to the requested injunction. Second, the company served the plaintiff with an offer of judgment under Federal Rule of Civil Procedure 68 offering the same relief. The company did not offer to admit liability and disclaimed the legal grounds for the injunction.
The plaintiff did not accept either offer and let them lapse. The company nevertheless filed its offer of judgment with the court and moved to dismiss the complaint, arguing that the case was moot because the company had already offered to make the plaintiff whole. The district court disagreed and denied the motion to dismiss on that ground. The district court did, however, grant summary judgment to the defendant on a separate ground: that it was protected by “derivative sovereign immunity” because it was acting at the direction of the U.S. Navy. On appeal to the Ninth Circuit, the court agreed that the settlement offer did not moot the case, but reversed the limited sovereign immunity holding, reasoning that it did not extend to conduct that violated the Navy’s instructions, and the law. In light of a circuit split on the mootness issue, and to follow up on a question previously reserved by the Court in Genesis Healthcare Corp. v. Symczyk, 133 S. Ct. 1523, 1529 n.4 (2013), the High Court granted cert.
The Supreme Court’s Decision
The U.S. Supreme Court affirmed the Ninth Circuit. Justice Ginsburg wrote for a five-justice majority that also included Justices Sotomayor, Kagan, Breyer, and Kennedy. The Court determined that the “adversity” necessary to confer Article III standing still exists when the plaintiff rejects a contractual offer of complete relief and the defendant continues to deny liability. The court embraced Justice Kagan’s prior dissent in Genesis Healthcare, where she argued in dissent that an unaccepted settlement offer “is a legal nullity, with no operative effect.” After the plaintiff’s rejection of the settlement offer, the district court remained positioned to award the relief requested in the plaintiff’s complaint.
The Court was also unpersuaded that an unaccepted offer of judgment under Rule 68 alters the standing analysis. The Court explained that the Rule explicitly provides that such an offer “is considered withdrawn” after 14 days, and the punishment for rejecting an offer of judgment is to render the plaintiff responsible for post-offer costs if the plaintiff receives a judgment less favorable than the offer. The structure of the Rule itself, the Court reasoned, indicates that it should not affect Article III standing.
The decision nevertheless leaves several open questions. First, the Court appeared to draw a distinction between cases seeking monetary damages and cases seeking declaratory or injunctive relief. The Court distinguished the result from its recent decision in Alvarez v. Smith, 558 U.S. 87 (2009), where the plaintiffs had sought the return of physical property but not monetary damages, and the Court held that these claims became moot upon the return of that property. The Court also distinguished Already, LLC v. Nike, Inc., 568 U.S. ___ (2013), where the Court found a unilateral covenant not to sue for trademark infringement to be sufficient to moot a declaratory judgment action.
Second, and similarly, the Court reserved for another day to “decide 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.” This proposal had been raised by Justice Kennedy at oral argument, and this caveat suggests that Justice Kennedy may have joined the four liberal justices subject to limiting the holding in this regard.
Justice Thomas concurred in the judgment. He argued that the majority erred by resting its decision on “modern” contract law principles and Rule 68. Harking to his originalist philosophy, he argued that the Article III question required the Court to examine the common law of tenders at the time of the Framers. He concluded that an Article III controversy would still exist under these principles. Like the majority, Justice Thomas observed that “with neither of these offers did the company make payment; it only declared its intent to pay.”
Chief Justice Roberts wrote the primary dissent. Repeating a quip that he had raised at oral argument, he wrote that the plaintiff would not “take ‘yes’ for an answer.” That is, the dissent argued that “if the defendant is willing to remedy the plaintiff’s injury without forcing him to litigate, the plaintiff cannot demonstrate an injury in need of redress by the court, and the defendant’s interests are not adverse to the plaintiff.” To the dissenters, whether an enforceable contract was formed does not mirror the Article III analysis about the existence of a “case or controversy.” Although the dissenters disagreed with the majority holding, they announced as “good news … that this case is limited to its facts.” The Court emphasized that “[t]he 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.”
Finally, Justice Alito drafted a brief dissent where he explained that he joined the primary dissent because there was no legitimate concern that the defendant could not follow through with payment on its offer of full relief because of the company’s strong financial resources.
Future Defense Strategies
The decision in Campbell-Ewald certainly makes it more difficult for defendants facing class action lawsuits to neutralize those lawsuits at the outset by simply extending an offer. The possibility remains, however, that defendants might be able to “pick off” named plaintiffs by affirmatively affording the relief that plaintiffs seek.
As mentioned above, the majority appeared to leave intact decisions that dealt with injunctive and declaratory relief instead of monetary damages. At least when injunctive relief does not concern future performance or non-performance, but rather the return of property to the plaintiff, defendants may still be able to moot the claims of named plaintiffs by returning that property. In addition, a unilateral covenant not to sue may be sufficient to obviate the need for litigation over the subject matter of that covenant.
With respect to monetary relief, it appears that there is a reasonable possibility that the Court would have realigned to reach a different conclusion if the defendant had simply tendered the requested monetary damages to the plaintiff directly or deposited funds with the district court to hold on behalf of the plaintiff. In such a circumstance, it would be wise to issue those funds by certified check to avoid any argument that the plaintiff still might not receive the funds. The four justices who declined to join the majority opinion suggested that this should change the Article III analysis, and the five-justice majority (which included Justice Kennedy) reserved this question, which had been raised by Justice Kennedy at oral argument. The strategy of offering complete monetary relief is most effective in putative class action lawsuits seeking damages under statutes that offer statutory liquidated damages, such as the Telephone Consumer Protection Act. In other cases, however, the measure of complete relief is difficult to ascertain at such an early stage. In such instances, it may be impossible to assign a “number” to the damage claims of a named plaintiff, so that the defendant has no choice but to place the offer in writing.
In addition, Campbell-Ewald does not address whether an offer of complete relief affects the class certification analysis under Rule 23. For example, a named plaintiff who has received an open offer of complete relief may no longer be an “adequate” class representative or may no longer have claims that are “typical” of the rest of the putative class because his interests have changed. To this point most of the case law has focused on the standing issue and not these Rule 23 issues, so the law will continue to develop concerning the impact of settlement offers on class certification. Just like the standing analysis, however, it is likely that furnishing actual payment will strengthen the defendant’s argument that a named plaintiff should not be able to represent a putative class.
As a result of these remaining questions, there appears to be plenty of room for class action defendants to maneuver until the next time this issue reaches the Court.