SCOTUS rejects practice of "picking off" class representatives with Offers of Judgment

Resolving a split among the Circuits, the Supreme Court ruled Wednesday that an unaccepted offer of judgment under Rule 68 of the Federal Rules of Civil Procedure neither moots a plaintiff’s individual claim nor moots putative class claims. The Court held that even when the offer is made prior to class certification and affords the plaintiff “complete relief,” its mere existence cannot extinguish the plaintiff’s claims if the plaintiff does not accept the offer. This ruling comes as an unwelcome development for litigants trying to minimize the looming prospect of defending a costly class action lawsuit by forcing an early settlement with the representative plaintiff.

On January 20, 2016, the Supreme Court issued its deciding opinion in Campbell-Ewald Co. v. Gomez (No. 14-857), a class action alleging violations of the Telephone Consumer Protection Act, 47 U.S.C. § 227 (“TCPA”). The plaintiff, Jose Gomez, alleged receipt of a single unsolicited text message generated by defendant Campbell-Ewald Company, a marketing consultant hired by the United States Navy to improve recruitment of individuals in the 18-24 age bracket. Gomez, who received an unsolicited text message despite being outside the target demographic, responded with a putative class action against Campbell-Ewald alleging a single violation of the TCPA.

The TCPA allows for the recovery of $500 in statutory damages for each call or text made in violation of the statute. Alleging that the text was sent willfully, Gomez sought to treble his damages, as permitted by the statute. Campbell-Ewald offered to resolve Gomez’s claim for $1503.00, plus reasonable costs—an amount just slightly above the trebled statutory maximum recoverable under the TCPA. Campbell-Ewald’s offer was made pursuant to Fed. R. Civ. P. 68, allowing Gomez 14 days to accept the offer. After the 14-day period lapsed with no response from Gomez, Campbell-Ewald moved to dismiss his claim. Campbell-Ewald argued that its offer of judgment, although unaccepted, defeated Gomez’s claim because it afforded him full and complete relief and therefore rendered the claim moot. The U.S. District Court for the Central District of California rejected this argument, but granted summary judgment on sovereign immunity grounds. The District Court ruled that Campbell-Ewald, as a contractor acting on the Navy’s behalf, acquired the Navy’s immunity. The U.S. Court of Appeals for the Ninth Circuit reversed that result, ruling that sovereign immunity did not extend to the contractor, but affirming the District Court’s ruling that an unaccepted Rule 68 offer does not moot a claim.

Supreme Court Justice Ruth Bader Ginsburg wrote a majority opinion[1] upholding the Ninth Circuit decision on both grounds. The majority relied on Justice Kagan’s recent dissent in Genesis Healthcare Corp. v. Symczyk, 569 U.S. ___, 133 S. Ct. 1523 (2013), which had invoked fundamental principles of contract law in ruling on a similar case.[2] Absent affirmative acceptance by Gomez, the Rule 68 offer could have no legal effect; the offer alone could not bind either party. Once the 14-day period for acceptance lapsed the offer expired and Gomez did not retain any entitlement to the relief that was offered. Thus, the parties remained adverse, retaining “the same stake in the litigation they had at the outset,” and thereby satisfying the case and controversy requirement for the Court to retain jurisdiction under Article III of the Constitution.

Justice Ginsburg noted that the language of Rule 68 provided no help in furthering Campbell-Ewald’s position. Examining the language of Rule 68, the majority found that it “hardly supports the argument that an unaccepted settlement offer can moot a complaint.” First, the offer is “considered withdrawn” if not accepted within 14 days. Moreover, the only built in sanction in the rule merely mandates that if the ultimate judgment is less than that previously offered, the offeree is entitled to costs accumulated after the offer was made. It does not mandate a forfeiture of a right to sue.

The Court also noted that because “Gomez’s individual claim was not made moot by the expired settlement offer,” the claim would still remain valid until the viability of class certification could be determined. Evidently, even though not expressly addressed in the opinion, as long as a would-be class representative holds a live claim, the Court will accord that person a fair opportunity to show that certification is warranted. Thus, because Gomez as an individual retained a live claim, he must be given the opportunity to certify the class he proposes to represent. The Supreme Court also affirmed the Ninth Circuit’s conclusion that the Navy’s sovereign immunity did not extend to its contractor.

Importantly, the Court left undecided whether the outcome would be different if the defendant deposits the full amount of the offer in an account payable to the plaintiff and court proceeds to enter judgment in that amount. It is clear that an unaccepted offer of judgment is a legal nullity; but payment and a judgment may still survive with five justices of the Court.

The ruling in Campbell-Ewald has clear implications not only for TCPA claims, but for defense strategy in all class action lawsuits and possibly even collective actions under the Fair Labor Standards Act (“FLSA”). FLSA actions are often distinguished from Rule 23 class action claims because they require class members to “opt-in” rather than the more typical “opt-out” format. Conceivably, the rule of law for mootness might not apply in the same way to an opt-in collective action where each class member must consent to participation. However, it is unlikely that this distinction would gain traction since, as noted above, Justice Ginsburg’s majority opinion in Campbell-Ewald relied on the reasoning of Justice Kagan’s dissent in Genesis Healthcare, which arose in the context of an FLSA collective action. Justice Kagan opined that “[a]n unaccepted settlement offer—like any unaccepted contract offer—is a legal nullity, with no operative effect,” and therefore a rejected Rule 68 offer does not remove the court’s Article III jurisdiction to hear the case.

In what is shaping up to be a pivotal year for class action litigation, Campbell-Ewald is a significant victory for class representatives and their putative class members. The Supreme Court’s decision removes a common defense tactic of attempting to “pick off” class representatives by offering them settlements that provide complete relief to the individual representative. This tactic will no longer work if the plaintiff and his counsel reject the offer because of a determination to vindicate the claims of the class.