Make a Class Action Moot, An Empty Hand Does Not

by | Jun 21, 2016 | Litigation & Local Counsel

“We hold today, in accord with Rule 68 of the Federal Rules of Civil Procedure, that 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.”

A defendant is sued.  Fearing significant litigation expenses—and the potential for a class action—the defendant wants to find a strategic way to avoid such expensive litigation and get out of the lawsuit quickly.  So, the defendant decides to make an offer to the lead, individual plaintiff which would fully compensate (or even exceed) the individual damages, hoping to moot the individual plaintiff’s claims (and the lawsuit).  Does this strategy work? This week, in Campbell-Ewald Co. v. Gomez, No. 14-857 (2016) (slip op.), the Supreme Court, in a 6-3 decision, said “no.”  In Campbell-Ewald, Gomez, the plaintiff, received unsolicited text messages from Campbell-Ewald allegedly in violation of the Telephone Consumer Protection Act (“TCPA”).  Gomez sued on behalf of himself and a putative “class of individuals who had received, but had not consented to receipt of, the text message.”  Gomez sought trebled, statutory damages, costs, attorneys’ fees, and an injunction.  Campbell-Ewald proposed a settlement to Gomez under Fed. R. Civ. P. 68, for costs (excluding attorneys’ fees), the trebled statutory damages, and an injunction which would prohibit future text messages in violation of the TCPA, but would deny liability.  Gomez effectively rejected the settlement offer by permitting it to lapse after 14 days.  Fed. R. Civ. P. 68.  Arguing that this offer, making Gomez whole, mooted his claim and there no longer existed a case or controversy under Article III, Campbell-Ewald moved to dismiss Gomez’s individual and class claims.  The district court denied Campbell-Ewald’s motion, and the Court of Appeals agreed, determining that the unaccepted settlement offer did not moot the individual or class claims.  The United States Supreme Court granted certiorari “to resolve a disagreement among the Courts of Appeals over whether an unaccepted offer can moot a plaintiff’s claim, thereby depriving federal courts of Article III jurisdiction.” To answer this question, the Court analyzed the Article III standing requirements.  To maintain a lawsuit, there must be an actual controversy between parties. U.S. Const., Art. III, § 2. Moreover, standing is a continuing requirement; an actual controversy must exist throughout the entirety of the suit.  Thus, Campbell-Ewald asserted that this post-lawsuit, rejected settlement offer was a later action that mooted the case. The Court held that “[u]nder basic principles of contract law, Campbell’s settlement bid and Rule 68 offer of judgment, once rejected, had no continuing efficacy.”  Unless Gomez accepted that offer, the proposal for settlement was not binding.  Significantly, the court noted that when the 14-day offer period expired under Fed. R. Civ. P. 68, Gomez remained “emptyhanded,” and, accordingly, the rejected settlement offer did not make him whole or moot the case. This ruling is significant.  Under Campbell-Ewald, defendants cannot utilize offers of settlement to essentially buy out a lead plaintiff in the hopes of avoiding a class action.  But what if Gomez hadn’t been “emptyhanded”?  That is, what if Campbell-Ewald had actually paid the offered amounts to Gomez, rather than simply making an offer? As the Court stated, “[w]e need not, and do not, now decide whether the result would be different if a defendant deposits the full amount of the plaintiff’s individual claim in an account payable to the plaintiff, and the court enters judgment for the plaintiff in that amount.  That question is appropriately reserved for a case in which it is not hypothetical.”  Thus, while one strategy may have been expressly rejected by the Court, a defendant may arguably still pay the individual plaintiff in full in an attempt to moot the case.  The efficacy of that strategy remains an open question.

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