May 23, 2016 Articles

How Can a Defendant Kill a Class Action after Campbell?

The Supreme Court leaves the question open.

By Eric DiIulio and Shannon Petersen

The Supreme Court recently held that a defendant’s unaccepted settlement offer does not moot a plaintiff’s case. Campbell-Ewald Co. v. Gomez, 136 S. Ct. 663, 666 (2016). The Court, however, refused to “decide whether the result would be different if a defendant deposits the full amount of plaintiff’s individual claim in an account payable to the plaintiff and the court then enters judgment for the plaintiff in that amount.” Id. at 672.

This article examines how the Court might treat a situation where the defendant does just that, and analyzes the likely effects of employing such a strategy. It concludes that the court would likely moot the named plaintiff’s claims in the above scenario. Whether the entire class action could be stopped, however, is less clear.

Campbell arose from a putative nationwide class-action for alleged violation of the Telephone Consumer Protection Act (TCPA). Id. at 666–67. The defendant, the Campbell-Ewald Company, sent a text message to the plaintiff Gomez on behalf of the U.S. Navy. Id. at 667. Gomez claimed that he did not consent to receiving such text messages and sought statutory penalties under the TCPA of $1,500 per text message. Id. Gomez sued not only for himself but also for a putative class of over 100,000 individuals who received similar text messages. Id. In other words, the potential class-action liability could reach $150 million.

In an offer of judgment under Federal Rule of Civil Procedure 68, and in an open-ended settlement offer, Campbell offered to pay Gomez $1,503 per text message he received as well as his costs. Id. at 667–68. It also proposed a stipulated injunction barring Campbell from sending text messages without sufficient consent. Id. at 668. Campbell did not offer to pay any money to the putative class, nor did it admit liability or grounds for the injunction. Rather, it offered to completely satisfy Gomez’s individual claim. When Gomez rejected the offer, Campbell moved to dismiss for lack of subject matter jurisdiction, contending Gomez lacked standing under Article III of the U.S. Constitution. Campbell argued that because it offered Gomez everything he asked for there was no more adversity between the parties and no live “case or controversy” to support federal jurisdiction. The district court denied this motion, and the Ninth Circuit Court of Appeals affirmed.

The Opinions
Justice Ginsburg, joined by Justices Breyer, Kagan, Kennedy, and Sotomayor, wrote the majority. According to Justice Ginsburg, “an unaccepted settlement offer has no force. Like other unaccepted contract offers, it creates no lasting right or obligation. With the offer off the table, and the defendant’s continuing denial of liability, adversity between the parties persists.” Id. at 666.

Justice Thomas wrote a concurring opinion based on early common-law tender principles, agreeing with the majority that “a mere offer of relief [is] insufficient to deprive a court of jurisdiction.” Id. at 674. At common law, tender required “an offer to pay the entire claim … accompanied by actually producing the sum at the time of the tender in an unconditional manner.” Id. at 675 (internal quotations and citations removed). Further, a “defendant who tried to deny liability could not effectuate a tender” because tenders were deemed admissions of liability. Id. Like the majority, Justice Thomas declined to decide whether “compliance with every common-law formality would be necessary to end a case.” Id. at 677.

The dissenters had no qualms about dismissing Gomez’s claim. The dissent, written by Chief Justice Roberts and joined by Justices Alito and Scalia, accused Gomez of not taking “yes” for an answer. Id. at 683. (Justice Scalia passed away shortly before this article was published. As Justice Scalia’s successor’s views on class actions and Rule 68 offers are obviously unknown, this article assumes that Justice Scalia’s successor will either not be on the Court or will not support mooting the case. The defendant tendering its Rule 68 offer, therefore, will need to convince three of the Campbell majority/concurring Justices to moot the case.)

In the dissent’s view,

[w]hen 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. After all, if a defendant is willing to remedy the plaintiff’s injury without forcing him to litigate, the plaintiff cannot demonstrate an injury in need of redress by the court, and the defendant’s interests are not adverse to the plaintiff.

Id. at 11.

How Can a Defendant Moot a Putative Class Action After Campbell?
A class-action defendant would need to do more than Campbell’s bare offer to convince at least three additional justices to moot the case. Based on statements made by Justices Breyer and Kennedy at oral argument, it appears a defendant might gain their votes by formally tendering an amount sufficient to satisfy plaintiff’s individual claim. (While oral argument does not always provide a clear window into a justice’s thoughts, it often provides clues. For instance, in Campbell, Justices Ginsburg, Kagan, and Sotomayor repeatedly attacked Gregory Garre, counsel for Campbell, but had almost no questions for Jonathan Mitchell and Anthony Yang, appearing for Gomez and the United States, respectively. The reverse was true for Justices Alito, Scalia, and Roberts.)

Justice Breyer repeatedly supported the approach suggested in the amicus brief of the American Federation of Labor and Congress of Industrial Organizations (“AFL-CIO”). In the AFL-CIO’s view, Campbell could have mooted Gomez’s claim

by unconditionally tendering Gomez a check for $1,503 or by depositing a check for that amount with the district court. Whether or not Gomez accepted the tender, Campbell-Ewald could move under Federal Rule of Civil Procedure 12(b)(1) to dismiss Gomez’s claim on the basis that Gomez no longer had any concrete interest … in the outcome of the litigation, such that his claim was moot. The court would then have had to determine, as a factual matter, whether [a]ny obligation of the defendant to pay to [the plaintiff] the sums sued for …, together with interest, penalties, and costs, has been extinguished such that the cause of action has ceased to exist.

AFL-CIO Amicus Br. at 7 (internal quotations and citations removed). Justice Breyer summarized this approach at oral argument as follows:

the defendant is supposed to tender the money. And when he tenders the money, if the plaintiff won’t accept it, he goes to the court and he deposits the money in the court. And the court then issues a judgment saying, this case is over.

Campbell-Ewald Co. v. Gomez, Oral Arg. Tr. Oct. 14, 2015, 47:20-25. Justice Breyer then elaborated:

What the judge does is say they want $10,000. What the defendant does is he says they won’t take my check, which should be certified. So he deposits it in court…. The judge at that point should say, the defendant has all he wants. The case is over. Good-bye. And, of course, if that person now has all he wants, he can’t certify this is a class because he isn’t harmed.

Campbell Oral Arg. Tr., 48:7-20. Justice Breyer later highlighted the practicality of the AFL-CIO’s approach:

“And the practical thing is that the defendant wants to pay off the plaintiff by giving him everything he wants. Is there a way to do it? What [the AFL-CIO] say[s] is, yes, the way you do it is you tender the money in a certified check, and if he won’t take it, pay the money into court. And the judge then enters a judgment in favor of the plaintiff who has gotten everything he asked for.”

Campbell Oral Arg. Tr., 50:1-8.

Justice Kennedy twice endorsed a similar approach suggested by Chief Justice Roberts:

“You’re saying the … plaintiff has an interest in the judgment quite separate from obtaining all the relief that he requests[?]… [L]et’s assume the case in which they asked for $10,000 and $10,000 is deposited in a bank with irrevocable instructions to pay it. What is the concrete injury, as the Chief Justice said, that results in adversity?”

Campbell Oral Arg. Tr., 32:16–33:5.

“But there has to be adversity, as the Chief Justice mentioned in his first question. And if the $10,000 is in the bank and he’s been injured in the sum of $10,000, there’s no adversity. Other than the stigma of judgment.”

Campbell Oral Arg. Tr., 34:7–11.

Under this approach, in addition to the sums sued for, the defendant would also have to provide any other relief sought by the plaintiff, such as injunctions and costs. Provided the offer addresses these concerns, it seems that Justices Breyer and Kennedy might support mooting the case, regardless of whether the offer was accepted by the plaintiff.

This approach could also gain Justice Thomas’ vote. It would satisfy the defendant’s obligation to redeem plaintiff’s entire claim in an unconditional manner. However, the defendant may still be contesting liability, which would have precluded tender at common-law. But because Justice Thomas indicated that all common-law requirements need not be met to moot a case, this short-coming may not prevent him from changing his vote.

Justice Thomas notes that Rule 68 was modeled after a provision of the New York Field Code that modified common-law tender principles to allow an unaccepted offer to be withdrawn “without any admission of liability by the defendant.” Campbell, 136 S. Ct. at 676. He also notes that “withdrawn offers (unlike common-law tenders) cannot be used in court as an admission against defendants.” Id (citing Rule 68(b)). This means a tender under Rule 68, in and of itself, need not be considered an admission of liability. Accordingly, it is reasonably likely that Justice Thomas would support mooting the named plaintiff’s claim in this scenario as well.

Beyond suggesting that Campbell may have turned out differently with a formal tender, none of the other justices hinted they might switch sides. However, there is a fair chance Justices Breyer, Kennedy, and Thomas would join the dissent if the defendant tendered its offer. Even without Justice Scalia, that would provide a class-action defendant the five votes needed to moot the named plaintiff’s claim, and perhaps the entire suit.

Effects of Tendered Rule 68 Offer
Rule 68 provides defendants an opportunity “to serve on an opposing party an offer to allow judgment on specified terms.” If the offer is accepted, judgment is entered according to the terms of the offer. If the plaintiff rejects the offer, the defendant should tender to plaintiff enough money to satisfy the entire claim. Under the AFL-CIO approach endorsed by Justice Breyer, the defendant could then move to dismiss as moot under Fed. Rule Civ. Proc. 12(b)(1). The court would then have to determine whether “[a]ny obligation of the defendant to pay to [the plaintiff] the sums sued for …, together with interest, penalties, and costs, has been extinguished” such that “the cause of action has ceased to exist.” AFL-CIO Br. at 7, citing California v. San Pablo & Tulare R. Co., 149 U.S. 308, 313 (1893).

Plaintiffs’ lawyers will not take a determination that such cases are moot lying down, particularly if the Court moots the claims of the putative class. For instance, in the Seventh Circuit, plaintiffs “cannot persist in suing after [they have] won” (Greisz v. Household Bank (Ill.), N.A., 176 F.3d 1012, 1015 (7th Cir. 1999)) because an offer of complete relief “made prior to the filing for class certification” moots the claims of both the named plaintiff and the putative class. Damasco v. Clearwire Corp., 662 F.3d 891, 894 (7th Cir. 2012). Plaintiffs seeking class-action relief in the Seventh Circuit, therefore, now file motions for class certification with class-action complaints. Falls v. Silver Cross Hosp. & Med. Ctrs., 2013 WL 2338154, at *1 (N.D. Ill. May 24, 2013) (noting “[c]ounsel for the named plaintiff in this putative class-action has followed the practice, consistent with Seventh Circuit caselaw . . . of moving at the outset to certify the proposed class.”)

How these boilerplate class certification motions would affect the Supreme Court’s analysis is unclear, so there is still no clear path to dispose of class action suits entirely. The Supreme Court may take the Seventh Circuit’s approach and permit class actions to move forward on the basis of placeholder motions for class certification. It may also rule that such motions do not survive the mooting of the named plaintiff’s claim. Justice Breyer, for one, seemed opposed to class certification in such cases, noting that “if [the named plaintiff] now has all he wants, he can’t certify this is a class because he isn’t harmed” and “[t]he only thing that’s left is you’d like, [as the named plaintiff], class certification, or at least the lawyer would.” Campbell Oral Arg. Tr., 48:14-16; 50:18-20. At minimum, a Rule 68 offer of complete relief will likely moot at least the named plaintiff’s claim. It is clear that the Campbell dissent supports disposing of the class claim, but whether the tender approach would attract the three additional votes required to garner the majority is uncertain.

Eric DiIulio and Shannon Petersen – May 23, 2016