United States: Want To Settle Before Class Certification? The Supreme Court Raises The Stakes

Recently, the U.S. Supreme Court held in Campbell-Ewald Co. v. Gomez, a putative class action case, that an unaccepted pre-certification settlement offer to the named plaintiff does not moot either the plaintiff's claim or that of the supposed class. The case involved a claim under the Telephone Consumer Protection Act ("TCPA") and was decided on basic principles of contract law, but it raises important implications for class action plaintiffs and defendants in all manner of cases, including in particular class actions alleging false labeling and other advertising. In short, Campbell-Ewald begins to, but does not fully, answer the question of whether, short of a settlement agreement with the named plaintiff, a defendant can moot a purported class action suit prior to class certification, therefore forcing plaintiff's counsel to find a new lead plaintiff (a task sometimes more difficult than one might suppose).

In the underlying dispute, the plaintiff, Jose Gomez, filed a complaint on behalf of a supposed nationwide class alleging that defendant Campbell-Ewald sent him and others unwanted text messages in violation of the TCPA, which prohibits using an auto-dialer to send a text message absent the recipient's express consent. Campbell-Ewald, under a contract with the U.S. Navy, sent recruitment messages to over 100,000 recipients, including Gomez, but Gomez alleged that he did not consent to receive the messages (and indeed was too old to be in the Navy's targeted age group).

Before Gomez moved for class certification, Campbell proposed to settle Gomez's individual claim in full and filed an offer of judgment pursuant to Federal Rule of Civil Procedure 68. The Supreme Court majority did not dispute the lower court's finding that the relief offered, if accepted, would have fully compensated Gomez for the largest individual amount to which he could have been entitled under the TCPA assuming the jury found in his favor on liability.

Gomez, however, did not accept Campbell's offer and allowed the Rule 68 submission to lapse. Campbell-Ewald then moved to dismiss the case for lack of subject matter jurisdiction, arguing that its offer of complete relief mooted Gomez's individual claim and that Gomez's failure to move for class certification before his individual claim became moot caused the putative class claims to become moot as well. The District Court for the Central District of California denied the motion, determining that Gomez was not dilatory in filing his certification request and thus the class claims would "relate back" to the date Gomez filed the complaint. The Court of Appeals for the Ninth Circuit agreed that Gomez's case remained live but on a different ground, holding that an unaccepted Rule 68 offer for full relief of the named plaintiff's individual claim made before class certification does not moot either the individual claim or the class action. Campbell-Ewald petitioned for certiorari, which the Supreme Court granted in order to resolve an inter-circuit split over whether an unaccepted offer can moot a plaintiff's claim, thereby depriving federal courts of Article III jurisdiction.

On the merits, the Justices were split as to whether an unaccepted settlement offer moots the plaintiff's case under Article III's "cases" and "controversies" requirement. The majority, in an opinion by Justice Ginsburg, held that under basic principles of contract law, Campbell-Ewald's settlement offer, once rejected, became a nullity, and the parties thereafter retained the same stakes they had at the outset. Chief Justice Roberts' dissent argued that "Article III does not require the parties to affirmatively agree on a settlement before the case becomes moot," and "when a defendant unilaterally remedies the injuries of the plaintiff, the case is moot—even if the plaintiff disagrees and refuses to settle the dispute, and even if the defendant continues to deny liability."

The majority and dissent agreed, however, that the case is limited to its facts. The majority expressly refrained from deciding whether its holding would be different if Campbell-Ewald had actually deposited the full amount of the plaintiff's individual claim in an account payable to the plaintiff, and the lower court then entered judgment for the plaintiff in that amount, a point the dissent also emphasized.

The implications are significant for class action strategy going forward. While Chief Justice Roberts' dissent laments that the decision transfers power over standing from the federal courts to the plaintiff, Justice Ginsberg counters that "the dissent's approach would place the defendant in the driver's seat." Justice Ginsburg saw Campbell-Ewald's attempt at settlement prior to class certification as a "gambit" to avoid any holding of classwide liability later, but Chief Justice Roberts argued in a footnote that "Gomez does not have standing to seek relief based solely on the alleged injuries of others, and Gomez's interest in sharing attorney's fees among class members or in obtaining a class incentive award does not create Article III standing."

Clearly, the Justices are aware of the complicated issues at play when a defendant tries to moot a class action suit prior to class certification without a settlement offer affirmatively accepted by the named plaintiff, and Campbell-Ewald's holding, rooted in principles of contract law, does not fully resolve this issue. Watch this space for further developments.

Want To Settle Before Class Certification? The Supreme Court Raises The Stakes

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