May 15, 2017 Articles

The Implications of Campbell-Ewald Co. v. Gomez for Consumers and Class Action Lawsuits

By André M. Board

Consumer protection laws provide legal recourse for individuals who are harmed by abusive business practices or defective products. See Consumer Rights—Consumer Protection Law, HG.org. These laws hold sellers of goods and services accountable when they exploit a consumer's lack of knowledge or bargaining power. Manufacturers are also held responsible for defective products that injure consumers. A class of consumers seeking compensation for the harm suffered because of abusive business practices or defective products presents a serious litigation hazard to even the largest corporations due to the potential award of substantial monetary damages. However, a corporation can ensure the matter is not presented before a court by settling with the named plaintiff. Settlement offers are a defendant's countermeasure to litigation, sizable monetary judgments, or punitive damages.

Campbell-Ewald Co. v. Gomez, 136 S. Ct. 663 (2016), examined whether an unaccepted offer to satisfy the named plaintiff's individual claim is sufficient to moot a putative class action claim. Gomez considers a plaintiff's ability to reject a settlement offer or offer of judgment and maintain a case and controversy required by Article III. The Court was split on the application of Article III and Federal Rule 68 regarding the lower courts' ability to provide relief after a settlement offer has been made to the plaintiff. The Court held that the class representative's rejection of the settlement offer did not moot the plaintiff's individual or putative class action claims. The Court opined that a rejected settlement offer retained the initial interest of both parties in the litigation. The plaintiff did not choose to obtain any relief from the defendant's offer and is therefore still entitled to relief from the court. This case provides procedural protection for consumers seeking to pursue individual and putative class actions. However, it also provides powerful corporations alternative means to force individuals into settlements and avoid putative class actions. This will be detrimental to consumers seeking legal redress for harm caused by abusive business practices or poorly made goods.

This case note discusses how Gomez protects a plaintiff's ability to bring independent and putative class action claims. Second, it discusses the future implications Gomez will have on class action claims. Finally, this case note briefly discusses the implications Gomez will have on Fourth Circuit jurisprudence and consumers within those markets.

The Case
In this matter, the consumer, Jose Gomez, asserted personal and punitive class action claims against Campbell-Ewald Company for violations under the Telephone Consumer Protection Act (TCPA). The TCPA "prohibits any person, absent prior express consent of a telephone-call recipient, from 'mak[ing] any call . . . using any automatic dialing system . . . to any telephone number assigned to a paging service [or] cellular telephone service.'" A text message to a cellular telephone qualifies as a "call."

The U.S. Navy hired Campbell, a nationwide advertising and marketing communication agency, to facilitate a multimedia recruiting campaign that involved sending text messages to young adults, encouraging them to learn more about the Navy. The Navy informed Campbell that the messages should be sent only to individuals who "opted in" to receive marketing solicitations regarding Navy service. Gomez, who did not consent, received one of these messages, which thereby violated the TCPA.

Gomez filed a class action suit in the U.S. District Court for the Central District of California on behalf of a nationwide class of individuals who had also received messages without consent. He sought treble statutory damages, costs, and attorney fees, and to enjoin Campbell from sending unsolicited messages. Prior to the deadline for Gomez to file a motion for class certification, Campbell proposed to settle Gomez's individual claim and filed an offer of judgment pursuant to Federal Rule of Civil Procedure 68. Campbell offered to pay Gomez's costs, excluding attorney fees, and $1,503 per message Gomez could prove he received. This settlement offer satisfied his personal treble damages claim.

Campbell argued that no Article III case and controversy remained because its offer mooted Gomez's individual claim by providing him with complete relief. Furthermore, Campbell asserted Gomez had not moved for class certification before his claim became moot, which consequently mooted the putative class action claim. The district court denied Campbell's motion because Gomez's filing for certification would relate back to the date he filed the complaint. Campbell appealed.

The Court of Appeals for the Ninth Circuit agreed that Gomez's case remained live because an unaccepted offer, even if it would make a plaintiff whole, is insufficient to render that claim moot. The court also stated that an unaccepted offer of judgment made before a motion for class certification is filed did not moot a class action lawsuit.

The U.S. Supreme Court granted certiorari to resolve the incongruity concerning whether an unaccepted offer moots a plaintiff's claim, thus depriving federal courts of jurisdiction. The Court explained that under principles of contract law, Campbell's settlement offer and Rule 68 offer of judgment, once rejected, had no continued efficacy. The parties retained the same stake in the litigation they had at the outset and remained adverse because Gomez rejected the settlement offer and Campbell denied. The Court held that an unaccepted settlement offer or offer of judgment does not moot a plaintiff's case and that the district court retained jurisdiction to adjudicate the complaint.

Background
Article III of the U.S. Constitution and Federal Rule of Civil Procedure 68 provide the legal basis for the Gomez decision. Article III limits federal courts' jurisdiction to "cases" and "controversies." The Court has interpreted this requirement to demand that an actual controversy be present throughout all stages of review, not merely when the complaint is filed. A case becomes moot when it is impossible for a court to grant relief to the petitioner. To avoid mootness, the parties must have a concrete interest, however small, in the litigation's outcome. Gomez held that Rule 68 did not render a case moot when an offer of judgment is rejected.

Rule 68 states a defendant "may serve on an opposing party an offer to allow judgment on specified terms." An unaccepted offer is considered withdrawn but does not preclude a later offer. The rule contains a built-in sanction: "If the [ultimate] judgment . . . is not more favorable than the unaccepted offer, the offeree must pay the costs incurred after the offer was made." Gomez used prior Court decisions regarding whether an unaccepted offer of judgment affects a court's ability to provide relief under Article III.

Genesis HealthCare Corp. v. Symczyk, 133 S. Ct. 1523 (2013), limits the possibility of bringing a class action lawsuit. Symczyk held that an unacceptedsettlement offer that satisfies the claimmoots the individual and the coinciding collective action. In dissent, Justice Kagan opined that the operative issue was whether the individual's claim become moot before the court could consider the merits of the collective action. She stated, "An unaccepted settlement offer—like any unaccepted contract offer—is a legal nullity, with no operative effect." She continued, "Symczyk's individual stake in the lawsuit thus remained what it had always been, [as well as] the court's capacity to grant her relief" in deciding if a rejected settlement offer is moot. However, the Court has also decided that mootness is predicated on the ability of the defendant to provide the proposed relief. In California v. San Pablo & Tulare R.R. Co., 149 U.S. 308 (1893), the Court held:

Any obligation of the defendant to pay . . . the sums sued for in this case, together with interest, penalties, and costs, has been extinguished by the offer to pay all these sums, and the deposit of the money in a bank . . . which have the same effect as actual payment and receipt of the money.

The Court reasoned that if the money was deposited in an account in the plaintiff's name, the Court had no duty to decide the plaintiff's rights because they were no longer at issue. Although San Pablo and Symczyk address when a settlement offer or payment of the claim moots an individual's claim, these holdings will also affect a class action claim within the same complaint.

A plaintiff's ability to maintain a class action, after his or her individual claims is mooted, is predicated on whether the class has been certified or erroneously denied certification. The Court in Sosna v. Iowa, 419 U.S. 393 (1975), explained that "[w]hen the District Court certifie[s] the propriety of the class action, the class . . . acquire[s] a legal status separate from the interest asserted by [the named plaintiff]. . . . [T]his factor significantly affects the mootness determination." U.S. Parole Commission v. Geraghty, 445 U.S. 388 (1980), expanded the Sosna limitations by allowing a named plaintiff to appeal the denial of certification while maintaining the class action. Prior to Gomez, the Fourth Circuit held that a claim was moot when a plaintiff received the relief sought. Accordingly, an unaccepted settlement offer of complete relief would moot the claim. Complete relief is defined as a settlement offer that includes no conditions, imposes no confidentiality requirement, and includes an offer for entry of judgment.

Gomez provides clarity on an issue that has been incorrectly applied by many courts. However, it did not discuss whether a plaintiff's claims would be moot if a defendant deposited the full amount of the plaintiff's claim into an account payable in the plaintiff's name. In addition, it is undecided if a deposited settlement offer could also moot a class action claim. These omissions provide an opportunity for larger corporations to skillfully avoid class action lawsuits. Although Gomez provides protection to a plaintiff seeking judicial relief, it fails to consider the future implications of providing consumer protection from corporate abuse and neglect.

Analysis

Gomez and the benefits to consumers. Gomez represents a small victory for consumers that are seeking legal redress for harm caused by abusive business practices or poorly made goods. The policy behind Rule 68 is to encourage settlements and avoid litigation, but it can be used by defendants to avoid collective actions. The rule, in some instances, has allowed defendants to "pick off" the named plaintiffs to "frustrate the goals" of punitive class action lawsuits. Gomez limits the possibility of a defendant abusing its power by permitting a plaintiff to reject a settlement that fully satisfies the plaintiff's individual claim. Individual and class action claims can be filed without being mooted after a settlement offer is rejected. The case remains a case and controversy during the class-certification process and the class representative will be afforded a fair opportunity to demonstrate that certification is warranted. Gomez was the cure to Symczyk and the forced settlements it encouraged. Although plaintiffs can reject undesired settlement offers and maintain Article III requirements, Gomez allows for alternatives that could produce a similar mooting effect the holding sought to disallow.

The effects of Gomez on class actions. In Gomez, Justice Ginsburg expressly stated that the Court would not consider whether the holding would have been different if a defendant deposited the full amount of the claim in an account payable to the plaintiff. Gomez, in combination with San Pablo, establishes the possibility of mootness by the defendant's ability to pay. This will have tremendous implications for pending class actions. Corporations that have substantial financial resources will benefit most from this alternative to force settlement. Gomez has now invited a negligent, abusive corporation to eliminate a possible class action suit by paying off the named plaintiff. The Court has established that an offer to settle is not sufficient, but if you allocate and provide the relief, the entire claim may be dismissed.

This will essentially eliminate the strength or effectiveness of class action suits. A defendant can evade accountability by allocating funds in an account for an individual's claim, thereby rendering a putative class action moot. A powerful defendant can evade a judicial determination of whether the plaintiff or those similarly situated are entitled to compensatory relief or punitive damages. The Trump administration and Republican majority in the House of Representatives and Senate have demonstrated their commitment to protecting and promoting the interests of big businesses. Accordingly, with the likelihood that a conservative justice would be appointed, Justice Roberts's dissent in Gomez foreshadows how a conservative Supreme Court will rule on this issue. Although Gomez enables courts to ensure that protections are provided to individual and putative class action claims, defendants are provided a viable alternative avoid the case.

The effects of Gomez on the Fourth Circuit. Since the Gomez decision, the Fourth Circuit has embraced the new protections afforded to plaintiffs who do not accept a defendant's settlement offer. However, as the U.S. District Court for the District of South Carolina properly stated in Career Counseling, Inc. v. Amsterdam Printing & Litho, Inc., No. 3:15-cv-05061 (2016),

[s]ince Campbell-Ewald, the Court of Appeals for the Fourth Circuit has not addressed the related, but separate, issue of whether a defendant can moot a putative Rule 23 class action by picking off a named plaintiff's individual claim with a judgment offer for which funds have been tendered, or with a judgment offer that a named plaintiff accepts.

Gomez provides a financially powerful defendant an opportunity to dictate whether a plaintiff and his or her claims will be heard before a court. The Fourth Circuit would have benefited from the guidance of the Court on these issues. However, these matters will be contested in this circuit by consumers who have suffered similar harm by a defendant and are seeking legal redress. Corporations should not be burdened by meritless claims; however, they should not be permitted to dictate whether a plaintiff will be allowed to bring individual claims or the claims of a class of individuals before a court. The question should not be whether a large corporation allocated funds to satisfy an individual claim. A court should consider the gravity of the harm and the implications for those who were similarly affected by the harm caused.

Conclusion
Gomez correctly overruled Symczyk by determining that a rejected offer to satisfy an individual claim does not moot the action. However, Gomez creates alternatives that promote forced settlements in favor of a company seeking to avoid the scales of justice. A powerful defendant should not be allowed to avoid litigation when the harm is so egregious that punitive damages should be considered. This issue will lead to abuse by large corporations and will deprive consumers of their legal right to be heard by a court.


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