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From Banking and Finance Law Daily, January 20, 2016

Offer to settle class action won’t ‘pick off’ named plaintiff

By Lisa Milam-Perez, J.D. and Richard A. Roth, J.D.

Defendants cannot head off class actions by using Rule 68 settlement offers before class certification requests to “pick off” the named plaintiffs, the U.S. Supreme Court has decided. In a 5-3 decision, with an additional Justice concurring in the result but not the reasoning, the Court said that a plaintiff’s individual and class claims are not rendered moot by a rejected offer of judgment (Campbell-Ewald Co. v. Gomez, January 20, 2016, Ginsburg, R.).

The putative class-action was brought under the Telephone Consumer Protection Act against Campbell-Ewald Co., a national marketing firm, and it arose out of a text message the company sent on behalf of the U.S. Navy to recruit new sailors. The government contractor cast too wide a net in its solicitation, reaching consumers outside the Navy’s intended scope of 18- to 24-year olds. The message went to more than 100,000 recipients, including the 40-year-old plaintiff, who had never consented to receive such communications.

Offer of judgment. Before the agreed-upon deadline for the plaintiff to file a motion for class certification, Campbell-Ewald made him a settlement offer that would have provided complete monetary and filed a Rule 68 offer of judgment. The offer included treble damages, as provided under the TCPA, but not attorneys’ fees, which the statute does not permit. The plaintiff rejected the offer. Campbell-Ewald then asked the district court judge to dismiss the suit, arguing that the offer mooted the named plaintiff’s individual claim.

The Supreme Court five-justice majority rejected the company’s argument. Citing basic principles of contract, the majority reasoned that once the defendant’s offer was rejected, the offer had no continuing efficacy. The controversy remained live, and the court retained Article III jurisdiction.

Contract theory controls. In an earlier case, Genesis Healthcare Corp. v Symczyk, the Supreme Court passed on the question of whether an offer of judgment mooted a Fair Labor Standards Act; it simply assumed so without deciding because the plaintiff did not challenge that notion. Justice Kagan, however, argued in dissent that the Court should address this threshold issue. “An unaccepted settlement offer—like any unaccepted contract offer—is a legal nullity, with no operative effect,” Kagan urged.

The majority adopted Kagan’s reasoning, “as has every Court of Appeals ruling on the issue post Genesis HealthCare,” it noted. The settlement bid was merely a proposal, the majority held, and it had no legal effect once rejected. As a result, “the parties remained adverse; both retained the same stake in the litigation they had at the outset.” The text of Rule 68 offered no support for the contrary argument.

Impact on class claims. Moreover—and, of course, the larger point: Because the named plaintiff’s individual claim retained “vitality” during the relevant timeframe for determining whether the case could proceed on a class basis, the class claims remained fertile as well. “While a class lacks independent status until certified, a would-be class representative with a live claim of her own must be accorded a fair opportunity to show that certification is warranted,” Justice Ginsburg wrote.

Dissent. “When a plaintiff files suit seeking redress for an alleged injury, and the defendant agrees to fully redress that injury, there is no longer a case or controversy for purposes of Article III,” Justice Roberts argued in dissent. “That is exactly what happened here.” It is up to a court, not a plaintiff, to determine whether a live case or controversy exists, yet the majority endowed the plaintiff with that authority instead. But “a plaintiff is not the judge of whether federal litigation is necessary, and a mere desire that there be federal litigation—for whatever reason—does not make it necessary.”

No case or controversy. Unconvinced by the majority’s “Article-III-by-contract theory,” Roberts conceded that a rejected settlement offer is a legal nullity as a matter of contract. But that was irrelevant; the issue at hand was whether there was a case or controversy for purposes of Article III jurisdiction. And, since the defendant offered “to give the plaintiff everything he asks for,” there was no case or controversy here. The plaintiff may well want to continue litigating his case. However, “the issue is not what the plaintiff wants, but what the federal courts may do.”

Justice Alito joined Roberts’ dissent but wrote a separately as well to point out what he saw as the real issue here: Whether the defendant, if the case were to be dismissed, would have made good on its promise to pay the money offered in its proposed settlement. Here, there was no real dispute that the relatively well-heeled defendant would pay up, but if there were doubt, the case would not be moot, in Alito’s view.

What about payment outright? “The good news is that this case is limited to its facts,” Justice Roberts noted in his dissent, because the majority did not rule on whether the actual payment of complete relief would be enough to moot a case. That issue was left for another day. In the meantime, according to Justice Alito’s dissent, the decision here would not prevent a defendant from seeking dismissal on mootness grounds by actually paying the full relief—if not directly to the plaintiff, then to “a trusted intermediary.”

Financial services. The decision will affect class actions under the Fair Debt Collection Practices Act and Fair Credit Reporting Act as well. Credit reporting agencies and debt collectors both have attempted to bring class actions to early ends by making settlement offers to named plaintiffs, and the decision will greatly limit the use of the tactic.

Two methods that have been tried in the past will be eliminated by the decision:

  • A settlement offer without an offer of judgment will not moot a class action.
  • A settlement offer with an offer of judgment under Rule 68 also will fail to moot a class action.

On the other hand, the opinion leaves two possibilities open. The majority opinion made much of the fact that Campbell-Ewald continued to dispute its liability for the claimed TCPA violation even as it made the settlement offer. This distinction could permit a company to moot a class action by offering to allow the entry of a judgment providing the named plaintiff full relief, including costs and fees as determined by the court, accompanied by an admission of liability—what has been termed an “unconditional surrender.”

Also, the majority opinion explicitly disclaimed any intent to decide whether a company could moot a class action by actually paying the offered settlement to the named plaintiff, using an account in the consumer’s name or by delivering a certified check to the court. Justice Thomas’s concurring opinion discussed this common law tender at length. There is a difference between offering a payment and making a payment, according to Justice Thomas.

The case is No. 14–857.

Attorneys: Gregory G. Garre (Latham & Watkins), Michael Lawrence Mallow (Sidley Austin), and Meredith J. Siller (Loeb & Loeb) for Campbell Ewald Co. Jonathan F. Mitchell (Stanford University Law School) and Suzanne Lucille Havens Beckman (Parisi & Havens) for Jose Gomez.

Companies: Campbell-Ewald Co.

MainStory: TopStory DebtCollection FairCreditReporting SupremeCtNews

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