On January 20, 2016, the Supreme Court ruled that companies cannot defeat class action suits by making settlement offers to named plaintiffs. In a 6-3 decision, the Justices held in Campbell-Ewald Co. v. Gomez that an offer of compensation, equal to or greater than the maximum potential individual damages to a defendant, does not erase a defendant’s interest in a case. The ruling could significantly hinder companies’ ability to overcome pending class action suits.

The case arose from a 2006 text message campaign undertaken by defendant Campbell-Ewald in an effort to recruit for the U.S. Navy. The Ninth Circuit ruled that the campaign violated the Telephone Consumer Protection Act (TCPA), which provides statutory damages of up to $500 per violation of the Act. Campbell-Ewald offered named plaintiff Jose Gomez three times that amount to settle, but Gomez refused.

The opinion focused on the point at which a plaintiff has been offered enough compensation that a successful lawsuit can offer nothing more to him, rendering the case pointless, or “moot.” Campbell-Ewald argued that, because its settlement offer was for three times more than the maximum amount of money Gomez could win at trial, he could gain nothing by continuing with the case. If the Court were to moot Gomez’s interest in the case, he would be removed as a plaintiff, which means the putative class would have to find a new named representative to go forward. Using this logic, Campbell-Ewald could have simply continued to make settlement offers over $500 to each new named class representative that appeared, mooting each one out of the case until there was no named plaintiff left. 

But the Court held instead that a declined settlement offer “has no force.” If the plaintiff wishes, as Gomez did in this case, to turn down the settlement offer, his interest in the case is preserved, and the case can go forward as if the offer had never been made. As Justice Sotomayor stated during oral argument, whether a plaintiff is entitled to compensation is for the Court to determine, not the defendant. It is worth noting, however, that the Court limited its opinion to declined settlement offers. It did not expound on how individual settlements affect the larger class actions of which those individuals are part.

This decision precedes the impending release of the Court’s ruling in Spokeo v. Robins, another case regarding class actions. In Spokeo, the Court has been asked to rule on whether technical violations of the Fair Credit Reporting Act (FCRA) create enough common ground among potential defendants to certify a class for suit, and whether such classes would all but demand settlement by sheer virtue of class size. A ruling permitting class certification for technical violations in Spokeo, coupled with yesterday's Campbell-Ewald ruling that rejected settlement offers have no force, could dramatically reshape companies’ liability under consumer protection acts and the strategies available to manage that liability.