Yesterday, the U.S. Supreme Court eliminated a strategy defendants have used to stem the rising tide of class action lawsuits—offering the named plaintiffs in a class action lawsuit full relief, mooting their individual claim (regardless if they accept it), and along with it, rendering the class action moot.  Campbell-Ewald Co. v. Gomez.

These offers sometimes are made pursuant to Rule 68 of the Federal Rules of Civil Procedure (the official rule relating to an “Offer of Judgment”) or as stand-alone settlement offers. If the offer provides the named plaintiff everything he could seek in the lawsuit (typically limited amounts in consumer class actions or in wage-hour cases), the defendant moves to dismiss the case as moot, even if the plaintiff rejects the offer.  Circuit courts have been split on whether the offer, if  it provided full relief, rendered the case moot regardless of whether the plaintiff accepted it, because there no longer existed a “case or controversy” under Article III of the Constitution.

Resolving a circuit court split, the Supreme Court held (6-3) that an “unaccepted settlement offer has no force,” and cannot result in rendering a case moot. The Court relied on “basic principles of contract law” which, according to the Court, provide that a mere offer, absent an acceptance, has “no continuing efficacy.” Absent an acceptance by the plaintiff, the offers remain only a “proposal” that was not binding, the Court held.  The Court further noted, as support for its holding, that under the express provisions of Rule 68, if an offer is not accepted within 14 days, it is “withdrawn.”

Background

As previously reported, the case arises under the Telephone Consumer Protection Act (TCPA), which prohibits any person from sending text messages using any automatic dialing system without the recipient’s consent, and subjects the offender to actual damages or a maximum penalty of $1,500.  The Defendant, a subcontractor for the Navy, was retained to assist with recruiting, and through its subcontractor, sent 100,000 text messages, some without the recipient’s consent.  The plaintiff, one of the recipients, brought a class action lawsuit seeking over $100M in damages. The defendant made both a stand-alone offer and a Rule 68 offer of judgment for $1,503, but the plaintiff rejected it.  The defendant then moved to dismiss the case as moot, but the district court denied the motion. It held an offer of judgment that has not been accepted does not result in rendering the case moot.  The case ultimately was dismissed  based on sovereign immunity, but the Ninth Circuit reversed that determination,  and agreed with the district court that the case had not been rendered moot based on the unaccepted offer of judgment.

Majority’s Decision

The Supreme Court granted certiorari to resolve the split in the circuit courts as to whether an unaccepted offer providing full relief renders the case moot, an issue left unresolved in Genesis Health Care Corp. v. Symczyk, decided in 2013.  Adopting the reasoning set forth in Justice Kagan’s dissent in Genesis, the majority held an unaccepted offer of judgment, even if it offers full relief, does not moot a case.

Justice Thomas concurred in the decision, but not its reasoning.  Justice Thomas believed the resolution of the issue was not dependent on modern contract principles, as relied upon by the majority, but instead on “common-law history of tenders,” which provides that a mere offer to pay, without an actual tender of the amount owed, is insufficient to render a case moot.  But Justice Thomas would appear willing to conclude that once a tender is made, the case does become moot, the question left open in Gomez.

The Dissents

Chief Justice Roberts filed a dissenting opinion, in which Justices Scalia and Alito joined.  Relying on the requirement under Article III that there must exist a “case or controversy” (not contract principles), the dissent argued the case was “straightforward” since the plaintiff alleged a violation of the TCPA, he was provided all the relief to which he was entitled under the law, and thus the case was moot because there was no “case or controversy.”  Justice Roberts, expressing frustration, explained that “federal courts exist to resolve real disputes, not to rule on a plaintiff’s entitlement to relief already there for the taking,” and that “although [the plaintiff] nonetheless wants to continue litigating, the issue is not what the plaintiff wants, but what the federal courts may do.”  While the dissent agreed that majority was correct that under contract principles the settlement was a nullity because it was not accepted, contract principles were not applicable in determining whether jurisdiction existed under Article III, according to Justice Roberts.  “If the defendant is willing to give the plaintiff everything he asks for, there is no case or controversy to adjudicate, and the lawsuit is moot,” Justice Roberts emphasized.

Justice Alito, who joined Justice Roberts’ dissent, filed a separate dissenting opinion.  Agreeing that an unaccepted offer providing complete relief moots a claim, Justice Alito noted “there is nothing talismanic about the plaintiff’s acceptance.”  He wrote separately to emphasize that where there was a dispute as to whether the defendant would make good on the promise (an issue not present in Gomez), the case might not be moot, despite the offer.  Justice Alito explained further that a defendant can make clear it will make good on the offer to pay (and thus moot the case) by simply paying the money or depositing it with the Court.

Open Questions

Significantly, the Court left open an important question—would the result have been different if the defendant had tendered the full amount to the plaintiff either by sending the check directly to the plaintiff or depositing it with the district court, instead of merely making an offer or offer judgment to the plaintiff for the full relief available ($1,500)?  The majority stated “that question is appropriately reserved for a case in which it is not hypothetical.”

It should come as no surprise that defendants seeking to moot a putative class action may now simply deposit the funds with the Court.  Indeed, Justice Alito, in his dissenting opinion, stated he was “heartened that the Court appears to endorse the proposition that a plaintiff’s claim is moot once he has received full redress” and stated that today’s decision “does not prevent a defendant who actually pays complete relief . . .  from seeking dismissal on mootness grounds.” And Chief Justice Roberts also noted that the “good news” is that the case is “limited to its facts,” because the Court merely holds that an offer of complete relief is insufficient to moot a case, but does not hold that the payment of complete relief would not be sufficient to moot the case—a position he clearly would support.

The Next Battleground

Thus, while the Supreme Court’s decision resolves one issue—the effect of an unaccepted offer of judgment—the next round in the battle between class action lawyers and the companies they are targeting will be whether a case becomes moot when a defendant, instead of merely offering full relief, actually pays it. Such a case may be just around the corner. For now, lower courts will now have to wrestle with these questions until the Supreme Court opines again.