United States: U.S. Supreme Court Wounds Important Defense To TCPA Class Actions, Raising Already High TCPA Risks

Last Updated: January 26 2016
Article by Alan D. Wingfield, Chad R. Fuller and Virginia Bell Flynn

On January 20, 2016, the United States Supreme Court issued an opinion that addresses a narrow procedural point with major implications for legal risks for companies under the Telephone Consumer Protection Act (TCPA).

Campbell-Ewald Co. v. Gomez addresses whether a class action lawsuit under the TCPA can continue after the defendant makes the plaintiff an offer to pay the total amount which the plaintiff could recover individually in the lawsuit. On a 6-3 vote, the Court held that an unaccepted offer that would fully satisfy a plaintiff's individual claim is insufficient to render that claim moot in a class case.

While Campbell-Ewald Co. v. Gomez leaves open whether actual payment – as opposed to a mere offer – might moot a class action, plaintiffs' lawyers doubtless will cite this decision as foreclosing any effort by defendants to end a class action lawsuit by offering or even tendering full payment of the plaintiff's individual claim. In the end, a common defense strategy in TCPA class actions of trying to moot the entire case by offering full relief to the plaintiff has been shut down.

Background

The United States Navy contracted with petitioner Campbell-Ewald Company (Campbell) to develop a text message recruiting campaign for young adults who opted-in to receive marketing messages. Campbell's subcontractor, Mindmatics LLC, generated a list of cell phone numbers for 18-24 year olds who consented to receive marketing text messages. In 2006, over 100,000 individuals received a text with the following message:

Destined for something big? Do it in the Navy. Get a career. An education. And a chance to serve a greater cause. For a FREE Navy video call [phone number].

Procedural History

District Court

In 2010, Respondent Jose Gomez filed a nationwide class action in the District Court for the Central District of California alleging violations of the TCPA. Under the TCPA, individuals who receive calls or text messages sent without their consent are entitled generally to $500 per message or up to $1500 in trebled damages. Gomez alleged that he never consented to receiving the message, that he was nearly 40 years old, and that Campbell had violated the TCPA by sending the text.

Prior to the agreed-upon deadline for Gomez to file a motion for class certification, and pursuant to Federal Rule of Civil Procedure 68, Campbell offered to pay Gomez his costs, excluding attorney's fees, and $1,503 per message. Campbell also proposed a stipulated injunction. Gomez did not accept the offer.

Subsequently, Campbell moved to dismiss the case pursuant to Federal Rule of Civil Procedure 12(b)(1) for lack of subject-matter jurisdiction. Campbell argued that its offer of judgment rendered Gomez's individual claim moot. In short, there was no case or controversy as required by Article III. The District Court denied Campbell's motion.

After limited discovery, Campbell then moved for summary judgment arguing that because the United States Navy enjoyed sovereign immunity from suit under the TCPA and because Campbell was acting on the Navy's behalf, Campbell acquired the Navy's immunity. The District Court granted Campbell's motion and dismissed the case.

Ninth Circuit Court of Appeals

The Court of Appeals for the Ninth Circuit reversed and remanded on the sovereign immunity issue. The court agreed that the unaccepted offer of judgment did not render the case moot, and that Campbell was not entitled to derivative sovereign immunity.

Supreme Court of the United States

The Supreme Court granted certiorari to resolve the above issues. After oral argument, the Court issued an opinion affirming the Ninth Circuit's decision.

Analysis

The Supreme Court was presented with two issues:

  1. Is an unaccepted offer to satisfy the named plaintiff's individual claim sufficient to render a case moot when the complaint seeks relief on behalf of the plaintiff and a class of persons similarly situated?
  2. Does the Federal Government's sovereign immunity shield a private enterprise from liability as well?  The Court answered both questions in the negative.

Offer of Judgment

Adopting Justice Kagan's dissent in Genesis HealthCare Corp. v. Symczyk, 569 U.S. __ (2013), and following the language of Rule 68 and basic contract law, the Court held that when a plaintiff rejects an offer of judgment, her interest in that lawsuit remains as it was before. Just as an unaccepted contractual offer becomes a legal nullity with no operative effect, so too does the offer of judgment. But the plaintiff's claim remains alive. And neither the case nor the controversy is extinguished by this unaccepted offer to settle.

The court did not address whether an actual tender of payment, such as a defendant paying the money into an escrow account for the benefit of plaintiff, could moot the case over the objections of the plaintiff. The majority opinion said whether defendants stop a class action by actually paying out the full amount of an individual plaintiff's claim is a "hypothetical" that the justices "need not, and do not, now decide."

Derivative Sovereign Immunity

The Court's decision on the sovereign immunity piece was, to some degree, nothing new. While Government contractors can obtain certain immunity in connection with work they do on behalf of the United States, that immunity is not absolute. And that immunity is certainly not absolute when the contractors act outside the scope of the underlying contract. The allegation here is that Campbell sent text messages to individuals without their consent. The Supreme Court found that the Navy directed Campbell to send messages to those who had opted-in to receiving these texts, i.e., consented to receive them. Because Campbell did not perform as the Government directed, it acted outside the confines of the parties' agreement, and thus, Campbell would not be able to use the Navy's immunity as a shield.

What Does this Mean?

The Court's decision as to offers of judgment may be a blow to companies who are frequent defendants in consumer class actions. The opinion specifically deals with claims under the TCPA, but also may well have application to claims brought under other consumer protection statutes with statutory damages remedies, such as the Fair Debt Collections Practices Act and the Fair Credit Reporting Act.

In doing so, moreover, the Court may have also hurt defendants in a second way. Justice Ginsburg briefly mentioned the issue of vicarious liability under the TCPA. Namely, the Court noted that the Federal Communications Commission ("FCC") has ruled that under federal common-law principles of agency, there is vicarious liability for TCPA violations. This statement, while dicta, not only validates the concerns that companies have regarding subcontractor and vendor activities done on their behalf, but also strengthens the FCC's position as the master of the TCPA domain.

On the positive side for defendants, Justice Ginsberg raises the idea based upon the 19th century line of tax cases that tendering the judgment monies in an escrow account in the plaintiff's name could in fact provide options around this ruling. And Justice Thomas raises the idea that plaintiff's attorney's fees incurred after the rejected offer of judgment may not in fact be recoverable.

In sum, the Court's opinion in Campbell validates the need for stringent TCPA policies and procedures for companies and its vendors. TCPA class actions have been proliferating. Total TCPA class action settlements have exceeded $500 million in the last four years. Making full offers to named plaintiffs has been a common and often effective defense. Now, that strategy is wounded – and plaintiffs' lawyers will argue it is dead – adding yet more fuel to the TCPA class action fire.

The Troutman Sanders' Consumer Financial Services Law Monitor blog offers timely updates regarding the financial services industry to inform you of recent changes in the law, upcoming regulatory deadlines and significant judicial opinions that may impact your business. To view the blog, click here

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Authors
Alan D. Wingfield
Virginia Bell Flynn
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