February 29, 2016 Articles

Keeping Plaintiffs in the Driver's Seat: The Supreme Court Rejects "Pick-Off" Settlement Offers

The Court has held unequivocally that defendants cannot force piecemeal adjudications through such individualized offers

By Jonathan Uslaner and Brandon Marsh

Can a defendant corporation stall, and potentially terminate, a class action simply by offering to provide relief to the individual named plaintiff and giving nothing to the class? Until recently, that question was a hotly disputed issue across the country. While most federal courts of appeals had held that such unaccepted offers of only partial relief to the class had little or no legal force—and certainly not enough to terminate a plaintiff’s claim—the defense bar continued the practice, hoping to pick off individual plaintiffs and thus frustrate the associated class claims. On January 20, 2016, in Campbell-Ewald Co. v. Gomez, the Supreme Court put the issue to rest. The Court’s 6–3 ruling wholly rejected such tactics, affirming that named plaintiffs deserve a fair opportunity to seek class-wide relief and that an unaccepted individualized offer of relief cannot forestall class actions.

In the wake of Campbell-Ewald, certain commentators have speculated that the situation might be different in a potential future case where the defendant tries to force the plaintiff to accept an offer by, for instance, handing the plaintiff monetary damages or depositing the funds with the court. But, as discussed below, a careful reading of the Court’s opinion and its prior decisions should dissuade defendants from implementing that even-more-aggressive litigation avoidance gambit. Justice Ginsburg’s majority opinion and Justice Thomas’s concurring opinion combine to explain that throughout the rich tradition of American law, it is the plaintiff who is the master of his claim, and a class action cannot be defeated by trying to impose an individual settlement on a plaintiff seeking to represent a class.

The Campbell-Ewald Appeal

The wrongdoing alleged in Campbell-Ewald was straightforward. Over a period of several months, Campbell-Ewald sent numerous unsolicited text message advertisements to thousands of people, including Jose Gomez. Mr. Gomez initiated a class action under the Telephone Consumer Protection Act (TCPA) on behalf of recipients of unauthorized text messages, seeking $500 in statutory damages for each TCPA violation, as well as treble damages, injunctive relief, and an award of reasonable attorney fees and costs.

In a calculated attempt to avoid class certification, Campbell-Ewald filed in the district court a “notice of offer of judgment,” which asked that the court enter judgment against it on Mr. Gomez’s individual claims. As part of its offer, Campbell-Ewald stated that it was willing to pay Mr. Gomez $1,503 (the full statutory damages for his personal claim, as well as treble damages) and reasonable costs, and to agree to the entry of an injunction against it. After Mr. Gomez rejected the settlement offer, Campbell-Ewald moved to dismiss the complaint based on its proposed settlement, arguing that the case was now “moot” because the unaccepted offer would have fully satisfied Gomez’s individual claims. The district court denied Campbell-Ewald’s motion, explaining that the company could not “make an end-run around a class action simply by virtue of a facile procedural ‘gotcha,’ i.e., the conveyance of a Rule 68 offer of judgment to ‘pick off’ the named plaintiff prior to the filing of a class certification motion.” Gomez v. Campbell-Ewald Co., 805 F. Supp. 2d 923, 930 (C.D. Cal. 2011).

In September 2014, the Ninth Circuit affirmed the district court’s decision, citing its precedent that “an unaccepted Rule 68 offer that would fully satisfy a plaintiff’s claim is insufficient to render the claim moot.” Gomez v. Campbell-Ewald Co., 768 F.3d 871, 875 (9th Cir. 2014). In its affirmance, the Ninth Circuit relied heavily on the much-quoted dissent of Justice Kagan in Genesis Healthcare Corp. v. Symczyk, 133 S. Ct. 1523 (2013). In Genesis Healthcare, Justice Kagan, on behalf of four justices, rejected the Third Circuit’s view that unaccepted offers could moot cases, and she issued stern guidance: “So a friendly suggestion to the Third Circuit: Rethink your mootness-by-unaccepted-offer theory. And a note to all other courts of appeals: Don’t try this at home.” Id. at 1534 (Kagan, J., dissenting).

In 2014 and 2015, at least five more circuit courts followed Justice Kagan’s guidance and agreed that an unaccepted settlement offer cannot moot an individual’s claim. See Bais Yaakov of Spring Valley v. ACT, Inc., 798 F.3d 46, 51 (1st Cir. 2015); Tanasi v. New All. Bank, 786 F.3d 195, 199–200 (2d Cir. 2015); Hooks v. Landmark Indus., Inc., 797 F.3d 309, 315 (5th Cir. 2015); Chapman v. First Index, Inc., 796 F.3d 783, 785–86 (7th Cir. 2015); Stein v. Buccaneers Ltd. P’ship, 772 F.3d 698, 702–4 (11th Cir. 2014); see also Lucero v. Bureau of Collection Recovery, Inc., 639 F.3d 1239, 1249 (10th Cir. 2011) (“[A] rejected offer of judgment for statutory damages and costs made to a named plaintiff does not render the case moot under Article III.”). Even the Seventh Circuit, which Campbell-Ewald and several commentators had thought shared their view that unaccepted settlement offers have the power to moot cases, made clear that it rejects that view. Chapman, 796 F.3d at 787 (“[N]o one thinks (or should think) that a defendant’s offer to have the court enter a consent decree renders the litigation moot. . . .”). While most courts thus rejected Campbell-Ewald’s tactic, some courts had still suggested that defendants may, under certain circumstances, force named plaintiffs of a putative class to accept settlement offers that resolve their claims in isolation.

The Campbell-Ewald Decision

The majority opinion in Campbell-Ewald rejected the defendant’s mootness-by-unaccepted-offer theory, exposing it as nothing more than an attempt “to avoid a potential adverse decision, one that could expose it to damages a thousand-fold larger than the bid Gomez declined to accept.” Campbell-Ewald Co. v. Gomez, 2016 WL 228345, at *8 (U.S. Jan. 20, 2016). Justice Ginsburg, writing on behalf of Justices Kennedy, Breyer, Kagan, and Sotomayor, applied “basic principles of contract law” to hold that rejected offers—whether styled as Rule 68 offers or settlement bids—“ha[ve] no continuing efficacy” and thus cannot moot a plaintiff’s case. Id. at *7. The Court held that a ruling for the corporate defendant would have impermissibly “place[d] the defendant in the driver’s seat” of the litigation, and reviewed the Court’s history of “reject[ing] this gambit.” Id. at *8. Joining the majority opinion as to only the case’s outcome, Justice Thomas filed a robust concurring opinion. After reviewing hundreds of years of American jurisprudence, Justice Thomas concluded that at common law, not only unaccepted offers but also actual tenders of complete relief cannot moot live cases. Under the “common-law history of tenders,” a plaintiff provided with a tender of purportedly complete relief “was entitled to ‘deny that [the tender was] sufficient to satisfy his demand’ and accordingly ‘go on to trial.’” Id. at *10, 11 (Thomas, J., concurring). Justice Thomas further affirmed plaintiffs’ rights to seek the relief they believe they are due, relegating defendants to the back seat while plaintiffs remain firmly in “the driver’s seat.”

Justice Thomas did not stop there. He proceeded to explain that it is well established at common law that any tender by a defendant of the relief sought is “deemed ‘an admission of a liability’ on the cause of action to which the tender related, so any would-be defendant who tried to deny liability could not effectuate a tender.” Id. at *10 (Thomas, J., concurring). Under this reasoning, individualized tenders by class action defendants would thus amount to admissions of liability as to the entire class, to the extent there are common questions of liability. In further defense of class-wide relief, the majority opinion similarly reasoned that “pick-off” tactics prior to class certification are improper because “[w]hile 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.” Id. at *7.

A dissent was also filed. Writing for himself and the remaining two justices, Chief Justice Roberts opined that an offer of complete relief to a plaintiff “makes the case moot, and [the plaintiff] is not entitled to a ruling on the merits.” Id. at *14 (Roberts, C.J., dissenting). Chief Justice Roberts opined that this is a matter of standing because a mere offer means there is no more injury to the plaintiff and no more adversity between the plaintiff and the defendant. The dissent concluded that “[t]he good news is that this case is limited to its facts” and speculated that “the majority’s analysis may have come out differently if [the defendant] had deposited the offered funds with the District Court.” Id. at *18 (Roberts, C.J., dissenting). Justice Alito also filed a separate dissent, opining that when offers are made, there are various ways in which courts could determine the probability that the defendant will actually pay.

The opinions of the 6–3 Campbell-Ewald majority thus reaffirm the force of class action claims as a means to obtain widespread relief. Despite the dissent’s arguments that a named plaintiff’s standing is somehow affected by an unaccepted settlement offer, the Court has held unequivocally that class action defendants cannot force piecemeal adjudications through such individualized offers.

What’s Next after Campbell-Ewald?

Following Campbell-Ewald, some members of the defense bar have speculated that actual tenders of individualized and purportedly “complete” relief could moot the claims of named plaintiffs in class actions. Such a result, however, would run afoul of the reasoning behind Campbell-Ewald’smajority and concurring opinions. As the Campbell-Ewald majority explained, a class action plaintiff “must be accorded a fair opportunity to show that certification is warranted” (id. at *7), indicating that Justices Ginsburg, Kennedy, Breyer, Kagan, and Sotomayor would find tenders of relief incapable of mooting class claims. Justice Thomas further explained that tenders can be rejected by the plaintiff and amount to admissions of liability. Moreover, the issue of whether a tender is “complete” must be assessed with a view toward relief for the entire putative class. Deposit Guar. Nat’l Bank v. Roper, 445 U.S. 326, 341 (1980) (Rehnquist, J., concurring) (“[T]he defendant has not offered all that has been requested in the complaint (i.e., relief for the class). . . .”).

Attempts to “pick off” named plaintiffs through tenders in the class action context also contravene precedent recognizing the purpose and functioning of class action practice under Rule 23. The Supreme Court has long acknowledged the necessity of class actions to provide, among other things, a “response to the existence of injuries unremedied by the regulatory action of government.” Roper, 445 U.S. at 339. “Where it is not economically feasible to obtain relief within the traditional framework of a multiplicity of small individual suits for damages, aggrieved persons may be without any effective redress unless they may employ the class-action device.” Id. As the Supreme Court held, class claims provide a strong bulwark against widespread misconduct, and if the persons asserting those claims “could be ‘picked off’ by a defendant’s tender of judgment before an affirmative ruling on class certification could be obtained,” that “obviously would frustrate the objectives of class actions; moreover it would invite waste of judicial resources by stimulating successive suits brought by others claiming aggrievement.” Id.

There would be further practical complications to permitting individualized tenders in class action cases. The class action system today allows for efficient resolutions of widespread harms, permitting only one or a few class members to step forward, educate themselves about their claims, and bear the day-to-day burden of litigating their claims in order to bring relief to a broader group. Allowing defendants to pick off such plaintiffs one-by-one could force not just one but multiple litigants to step forward and devote time, energy, and money to formally dispute their individual claims. Picking off plaintiffs may also, in some cases, amount to picking off plaintiffs’ counsel, creating informational inefficiencies as different lawyers gather evidence independently and litigate anew. All of this could pose a significant delay to any eventual relief the class may obtain, particularly in cases in which the individual harm is uniformly small but the affected class is very large. On the other hand, pick-off attempts could have a more limited impact on cases in which the named plaintiff has relatively large damages and no impact on cases brought under statutory regimes that contain specific mechanisms for the selection of lead plaintiffs.

There are still further practical problems with the prospect of potential “pick-off” attempts through tenders of purported “complete” relief. If an offer of relief is made before significant discovery, it may, in certain cases, not be clear to anyone other than the defendant just what illegal conduct is at stake and how robust the relief should be. Determining what is “complete” relief could involve hotly disputed factual questions about damages incapable of resolution at an early stage. In assessing defendants’ offers of purported “complete” relief, courts may need to assess whether they even have the power to make such determinations in place of the jury and be particularly cognizant of the risk of deciding intensely factual questions prematurely.

In sum, the Court’s recent Campbell-Ewald decision has succeeded in both closing the door on an ill-advised defense tactic in class cases and providing a road map for future courts to reject gambits such as tenders of purportedly “complete” relief. As courts will surely recognize, the class action device is far too important to allow perpetrators of widespread injuries to avoid actual liability through forced individual settlements that fail to address thousands or millions of other injured class members.

Keywords: litigation, class actions, class certification, pick off settlements, Campbell-Ewald Co. v. Gomez


Copyright © 2016, American Bar Association. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or downloaded or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. The views expressed in this article are those of the author(s) and do not necessarily reflect the positions or policies of the American Bar Association, the Section of Litigation, this committee, or the employer(s) of the author(s).