Defendants cannot defeat a class action by relying on an unaccepted settlement offer made to the proposed representative plaintiff for the full amount of his or her individual claim.  That is the conclusion reached by the Supreme Court of the United States in Campbell-Ewald Co. v. Gomez, No. 14–857.  The majority found that an unaccepted settlement offer creates no lasting right or obligation and, therefore, does not automatically render moot the claims of the representative plaintiff or by extension, those of the putative class members.  That said, the decision does reveal a potential path forward for class action defendants in both the United States and Canada.

Background

In May 2006, the respondent, Jose Gomez received a recruitment text message sent on behalf of the United States Navy.  The Navy had contracted with the petitioner, Campbell-Ewald to develop and implement a multimedia recruitment campaign, which included the sending of text messages to young adults.  The Navy only authorized Campbell-Ewald to transmit those text messages to individuals who had expressly elected to receive marking solicitations on topics that included service in the Navy.  The list of recipients was generated by Campbell-Ewald’s subcontractor, Mindmatics LLC, which was also responsible for the transmission of the text messages.

The problem was that Gomez never consented to the receipt of the Navy’s text messages.  Gomez filed a national class action on the basis that Campbell-Ewald had violated the Telephone Consumer Protection Act(the “TCPA”), which prohibits the sending of text messages to a cellular telephone without the recipient’s prior express consent.

However, prior to filing his motion for certification, Campbell-Ewald made a formal settlement offer under Rule 68 of the Federal Rules of Civil Procedure to settle Gomez’s personal claim in full.  Gomez did not accept the settlement and, pursuant to Rule 68, the offer expired after 14 days. Campbell-Ewald then moved to dismiss the class action on the basis that Gomez’s personal claim was rendered moot by the settlement offer for full relief.  Further, because Gomez had not moved for class certification before his claim became moot, the claims of the putative class members were also moot.

The District Court for the Central District of California denied Campbell-Ewald’s motion but allowed summary judgment on the basis that the Navy’s immunity from suit under the TCPA extended to Campbell-Ewald as its contractor.  The Court of Appeals for the Ninth Circuit reversed the summary judgment and confirmed that Gomez’s claim remained live despite the unaccepted settlement offer.

The Decision

In a six to three decision, the Court found that Campbell-Ewald’s unaccepted settlement offer for complete relief did not moot Gomez’s claim.  The majority opinion held that an unaccepted settlement offer has no force and amounts to nothing more than a rejected proposal that does not bind either party.  As such, Campbell-Ewald and Gomez remained adverse and an actual “controversy” remained live between them as required by Article III of the U.S. Constitution.

The Court also found that given Campbell-Ewald had violated federal law and the Navy’s explicit instructions regarding the dissemination of the text messages, it did not enjoy derivative sovereign immunity.

Impact

Going forward, defendants likely will be less inclined to attempt to defeat class actions by extending a unilateral settlement offer to the representative plaintiff for full relief for his or her claim.  That said, the Court did leave open the possibility that different permutations of this strategy may result in a different outcome.

For example, the majority opinion declines to consider whether the outcome would have been different if a defendant deposits the full amount of the representative plaintiff’s individual claim in an account payable to the plaintiff, and the court then enters judgment for the plaintiff in that amount.  The minority opinions also raise the possibility that the payment or guarantee of future payment may have resulted in a different outcome.  It is likely that this permutation on the mooting strategy will be attempted both in the United States and in other jurisdictions such as Canadian in the near future.

Case Information

Campbell-Ewald Co. v. Gomez, No. 14–857

Date of Decision: January 20, 2016