The Supreme Court of the United States recently held that a class action defendant cannot "pick off" the named plaintiff and thereby render the case moot by simply offering full relief by way of settlement offer or offer of judgment under Federal Rule of Civil Procedure 68. 

However, as the majority acknowledges, the Court also left open the question of what happens when a defendant actually tenders full relief to the named plaintiff, thus potentially leaving class action defendants an alternative weapon to cost-effectively defeat class claims.

A copy of the opinion is available at: http://www.supremecourt.gov/opinions/15pdf/14-857_8njq.pdf

The defendant in this class action case was a nationwide advertising and marketing company.  Beginning in 2000, the defendant contracted with the United States Navy to develop and implement a national marketing campaign.  The defendant proposed sending text messages to "young adults" to encourage them to learn more about the Navy.  The Navy approved the proposal on the condition that the defendant would only send messages "to individuals who opted in to receipt of marketing solicitations on topics that included service in the Navy.

The text message read:

"Destined for something big?  Do it in the Navy.  Get a career.  An education.  And a chance to serve a greater cause.  For a FREE Navy video call…" and provided a phone number for recipients to call.

The defendant also contracted with a third party to generate a list of cell phone numbers geared toward the Navy's 18-24 "target audience" who had also supposedly "consented to receiving solicitations by text message."  The defendant then sent the message to more than 100,000 recipients in 2006.

The putative class plaintiff alleged that he never consented to receiving the message he received, and that by sending him the message, the defendant violated the federal Telephone Consumer Protection Act, 47 U.S.C. § 227(b)(1)(A) ("TCPA").  He filed a class action complaint on behalf of a purported nationwide class of consumers who had received the defendant's text message, but had not consented to receipt of the message.

As you may recall, the TCPA prohibits any person, absent prior express consent, from making any non-emergency call or text "using any automatic telephone dialing system…to any telephone number assigned to a paging service [or] cellular telephone service."  Id. at § 227(b)(1)(A)(iii).  The Court noted that it is well established that a "text message to a cellular telephone…qualifies as a 'call' within the compass of §227(b)(1)(A)(iii)."  

In addition, the TCPA authorizes a private right of action, and a plaintiff in such an action may recover his or her "actual monetary loss" or $500 for each violation, whichever is greater.  Id. at § 227(b)(3).  A plaintiff may also recover treble damages if "the defendant willfully or knowingly" violates the TCPA

Prior to an agreed upon deadline for the plaintiff to file a motion for class certification, the defendant proposed a settlement for $1,503 per message for "for the May 2006 text message and any other text message" that the plaintiff could show he received, thus exceeding the plaintiff's treble damages claim.  The settlement offer did not include attorney's fees because as you also may recall, the "TCPA does not provide for an attorney-fee award."  The plaintiff rejected the offer.

Pursuant to Federal Rule of Civil Procedure 68, the defendant then filed an offer of judgment reciting the offer terms.  Subsequently, the defendant moved to dismiss the case under Federal Rule of Civil Procedure (12)(b)(1) for lack of subject matter jurisdiction.  The defendant argued that its offer "mooted" the plaintiff's individual claim "by providing him with complete relief."  And, it argued that because he "had not moved for class certification before his claim became moot…the putative class claims also became moot."

The District Court for the Central District of California denied the defendant's motion.  However, the defendant later filed a motion for summary judgment essentially asserting that it was entitled to sovereign immunity because it was acting on behalf of the Navy.  The District Court granted that motion. 

However, the U.S. Court of Appeals for the Ninth Circuit reversed.  It held that the defendant was not entitled to sovereign immunity because, although it was acting on behalf of the Navy, it had exceeded its authority (as an independent contractor) by sending a text message to someone who had allegedly not consented to receipt and who was also well outside the Navy's "target audience."  The Ninth Circuit also "agreed that…[the plaintiff's] case remained live" despite the Rule 68 offer of judgment.

Beginning its analysis with Article III of the Constitution, the Supreme Court noted that it is well established that the "cases" and "controversies" requirement "demand[s] that an actual controversy…be extant at all stages of review, not merely at the time the complaint is filed."  Further, the Court explained that a "case becomes moot, however, only when it is impossible for a court to grant any effectual relief whatever to the prevailing party."  Thus, as "long as the parties have a concrete interest, however small, in the outcome of the litigation, the case is not moot." 

Applying this framework to the plaintiff's Rule 68 offer of judgment in this case, the Court held that under "basic principles of contract law" the "Rule 68 offer of judgment, once rejected had no continuing efficacy."  Accordingly, the Court held that "with no settlement offer still operative, the parties remained adverse; both retained the same stake in the litigation they had at the outset."

Moreover, the Court held that Rule 68 "hardly supports the argument that an unaccepted settlement offer can moot a complaint."  Turning to Rule 68 itself, the Court held that because the rule provides that an offer "is considered withdrawn if not accepted within 14 days of its service," once the offer expired, the plaintiff "remained emptyhanded" and therefore although the defendant had "offered" to provide him with full and complete relief, not such relief had actually been provided.  Thus, the Court held an actual case and controversy remained live following the rejection and expiration of the Rule 68 Offer.

The Supreme Court held that, "[i]n sum, an unaccepted settlement offer or offer of judgment does not moot a plaintiff's case, so the District Court retained jurisdiction to adjudicate…[the] complaint.  That ruling suffices to decide this case." 

The Court continued:

"We need not, and do not, now 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.  That question is appropriately reserved for a case in which it is not hypothetical." 

Accordingly, a majority of the Court affirmed the judgment of the Ninth Circuit.

As Chief Justice Roberts noted in a vigorous dissent criticizing the majority opinion:

"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.  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…[the defendant] 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 this one]…won't take 'yes' for an answer."