The United States Supreme Court issued a long-awaited ruling today in Campbell-Ewald Co. v. Gomez, 577 U.S. __ (2016), a significant case for companies defending against consumer and other class actions, including those based on the Telephone Consumer Protection Act (TCPA), as well as for contractors working on behalf of the federal government.  In a 6-3 decision, the Court rendered two noteworthy holdings:

  • First, the Court held that an unaccepted settlement offer or offer of judgment for complete relief made to the named plaintiff in a putative class action does not moot the plaintiff’s case or the class action. This ruling comes as no great surprise; it is consistent with most other courts that have addressed the mootness issue in recent years.Significantly, however, the Court left the door open for defendants to try and render claims moot by instead depositing the full amount of a plaintiff’s claim in an account payable to the plaintiff and then obtaining a judgment for the plaintiff in that amount.
  • Second, the Court held that government contractors are not entitled to derivative sovereign immunity where they have failed to abide by the government’s instructions and violated federal law.

The controversy in Campbell-Ewald began when the United States Navy contracted with the petitioner, Campbell-Ewald Company, to develop a recruiting campaign that would involve sending text messages to young adults, if the recipients had “opted in” to receipt of marketing solicitations.  As part of the campaign, Campbell-Ewald’s subcontractor, Mindmatics LLC, transmitted a Navy recruitment message to over 100,000 recipients, including the respondent, Jose Gomez.  Gomez then filed a putative class action in California federal district court, alleging that Campbell-Ewald violated the TCPA because it sent him the text message without his prior consent. 
 
Before Gomez filed a class certification motion, Campbell-Ewald offered to settle his individual claim and filed an offer of judgment pursuant to Federal Rule of Civil Procedure 68.  Campbell-Ewald offered to pay Gomez’s costs and $1,503 for the text message (and any other text messages he could show he had received) to satisfy his claim.  Campbell-Ewald also proposed a stipulated injunction in which it agreed to be barred from sending text messages in violation of the TCPA, although the injunction denied liability and the allegations in the complaint.  Gomez did not accept the proposal and allowed the Rule 68 offer of judgment to lapse after 14 days, as provided for in the rule.
 
The Supreme Court took up two questions: (1) whether an unaccepted offer to satisfy the plaintiff’s individual claim is sufficient to render a case moot, and (2) whether sovereign immunity shields government contractors from suit.
 
Mootness
 
In a majority opinion authored by Justice Ginsburg, the Court held that the District Court retained jurisdiction over Gomez’s claims because “an unaccepted settlement offer or offer of judgment does not moot a plaintiff’s case” or the putative class action in which it is made.  According to the Court, “[u]nder basic principles of contract law, [Campbell-Ewald’s] settlement bid and Rule 68 offer of judgment, once rejected, had no continuing efficacy.”  Instead, the offer remained “only a proposal, binding neither on [Campbell-Ewald] or Gomez.”  With “no settlement offer still operative,” the Court stated, “the parties remained adverse; both retained the same stake in the litigation they had at the outset.” 
 
This decision puts to rest a hotly litigated issue, but it does not change the legal landscape as it existed before today.  As the Court noted, its decision is consistent with “every Court of Appeals ruling on the issue” since Genesis HealthCare Corp. v. Symczyk, 133 S. Ct. 1523 (2013), which left the mootness issue open.  Importantly, however, while it resolved the issue inGenesis HealthCare, the Campbell-Ewald Court expressly left undecided another 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.”  That issue remains for another day, and figures to be a topic of litigation and defense strategies in future class actions.
 
Derivative Sovereign Immunity
 
The Court also addressed a separate question:  whether Campbell-Ewald’s status as a federal contractor rendered it immune from suit based on sovereign immunity.  Campbell-Ewald asserted that it was entitled to “derivative sovereign immunity,” meaning that it had acquired the government’s sovereign immunity by performing government work.  The Court disagreed.  It held that “[w]hen a contractor violates both federal law and the Government’s explicit instructions, as here alleged, no ‘derivative immunity’ shields the contractor from suit by persons adversely affected by the violation.”  The Court contrasted the facts before it with the facts in Yearsley v. W.A. Ross Constr. Co., 309 U.S. 18 (1940).  Unlike Campbell-Ewald, the contractor in Yearsley was immune from suit because, according to the Court, it “simply performed as the Government directed.”  The Court went on to find that Campbell-Ewald could not take advantage of qualified immunity in this case because the record failed to establish that the TCPA’s requirements or the Navy’s instructions were not “clearly established.”
 
At the end of its opinion, the Court noted further that it had “no cause to question” the FCC’s opinion that vicarious liability exists under the TCPA, but that Campbell-Ewald’s vicarious liability for Mindmatic’s conduct “in no way advances [Campbell-Ewald’s] contention that it acquired the sovereign’s immunity from suit.” 
 
For government contractors, Campbell-Ewald makes clear that they are not shielded by sovereign immunity where they violate federal law and act contrary to express instructions from the government.  But the decision does leave open the possibility that contractors can utilize qualified immunity on an appropriate record.  For companies subject to TCPA litigation, Campbell-Ewald also confirms that there can be vicarious liability for TCPA violations.
 
Concurring and Dissenting Opinions
 
Justice Thomas issued an opinion concurring in the judgment, agreeing that Gomez’s claims were not moot, but for different reasons.  Rather than contract law, Justice Thomas would rest the decision on the history of “tenders,” which demonstrates that a mere offer of the sum owed is insufficient to eliminate a court’s jurisdiction.
 
Chief Justice Roberts filed a dissenting opinion joined by Justice Scalia and Justice Alito, and Justice Alito wrote a separate dissent as well.  According to Chief Justice Roberts, the question of whether the parties entered into a contract is not the same as whether a “case” or “controversy” exists for purposes of Article III jurisdiction.  For the dissenters, the offer alone deprived the court of subject matter jurisdiction because the plaintiff can no longer “demonstrate an injury in need of redress by the court,” making the court’s role of interpreting the law unnecessary.  Justice Alito wrote separately to make clear what he believed to be the “linchpin” of the case:  that there was no real dispute that Campbell-Ewald would have indeed paid what it was offering.  If that were not so, Justice Alito would have found that the case was not moot.