United States: Supreme Court Takes Away A Class Action Defense Tool That We Couldn't Really Use Anyway

Yesterday, the Supreme Court held in Campbell-Ewald Co. v. Gomez, No. 14-857 (U.S. Jan. 20, 2016), that when a defendant makes an offer to resolve the named plaintiff's claim for full value, but the plaintiff turns it down, the case is not moot, and simply proceeds. Campbell-Ewald had argued that since it had offered to pay everything the plaintiff demanded, there was no longer any live controversy for the court to adjudicate, and the case should be dismissed. The Supreme Court disagreed, in a 6-3 decision authored by Justice Ginsburg.

In 2013, in a case called Genesis HealthCare Corp. v. Symczyk, 133 S. Ct. 1523, the Court had decided a related issue but left open the question decided today, and had raised the hopes of some class action defense practitioners that perhaps they could defeat class actions by mooting the case early in its lifespan by offering full relief to the named plaintiff. In Symczyk, the defendant made an offer of full relief to the named plaintiff, and she conceded that the offer mooted her personal claim, but sought to continue as a class representative. The Court said that, lacking any remaining claim of her own, she could not serve as a class representative.

Class action defenders took heart that perhaps they could knock out class actions in exchange for the usually trivial expense of satisfying the named plaintiff's claim. To use the Symczyk decision to full advantage, though, the defense bar needed the answer to the question that wasn't decided — whether the offer of full relief really did moot the named plaintiff's claim in the first place. Campbell-Ewald forecloses that possibility, by holding directly that the plaintiff effectively controls mootness: if the plaintiff accepts an offer of full relief, the case will indeed be moot and the defendant won't face a class action (at least until the plaintiff's lawyer finds some other individual plaintiff to be the representative). But if the plaintiff turns down the offer, the case continues.

Some in the defense bar are decrying Campbell-Ewald as depriving the defense bar of an important tool, but it was not a tool that we ever really had. Efforts to build a mootness argument on top of Symczyk were not really working anyway; most courts were reluctant to hold that an unaccepted offer moots the claim, and the Supreme Court confirmed yesterday that that skepticism was justified.

So what happens now? For the most part, Rule 68 — the rule of civil procedure that underlies these cases — goes back to being the moribund, frequently useless tool that it has always been. It is still true, as the Rule provides, that if the plaintiff turns down an offer, and eventually recovers less than the amount of the offer, the plaintiff must pay the costs incurred after the date of the offer. But "costs" in most cases excludes all of the significant costs, such as attorneys' fees, and so the risk that the plaintiff takes on by rejecting a Rule 68 offer is minimal.

The Court yesterday did leave one other odd trap door open, but its applicability seems quite limited. The majority opinion said the Court was declining to reach a situation in which the defendant went beyond making an offer, and actually deposited the amount in a bank account payable to the plaintiff, after which "the court then enters judgment for the plaintiff in that amount." How, exactly, that might come to pass, the Court did not say. The idea came from some old railroad tax cases cited by Campbell-Ewald, in which a California statute provided that certain tax obligations were automatically "extinguished" by a taxpayer's deposit of the amount due in a California account in the name of the state. There is no comparable mechanism in most class litigation, of course, and little reason to think that a court would dismiss a pending case merely because the defendant made a deposit to a bank account instead of a written offer. The Court's exception does technically leave some discretion in the district courts on this subject, at least for now, but defense efforts in most cases are probably better directed at defeating class certification rather than trying to devise a way to moot the case over the plaintiff's objection.

Supreme Court Takes Away a Class Action Defense Tool That We Couldn't Really Use Anyway

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