Reed Smith Client Alerts

Authors: Casey D. Laffey

As reported by our colleagues in a recent client alert (see U.S. Supreme Court Rules Unaccepted Offer of Judgment Does Not Moot Class Claims, Reed Smith Client Alert No. 16-025 (Jan. 22, 2016)), the United States Supreme Court issued a 6-3 decision in Campbell-Ewald Co. v. Gomez, No. 14-857, 2016 WL 228345 (U.S. Jan. 20, 2016), in which the Court significantly limited a class action defendant’s ability to moot a putative class claim through a pre-certification offer of judgment to a plaintiff under Rule 68 of the Federal Rules of Civil Procedure. The majority’s holding in this case is certainly unwelcomed news for financial institutions, and other common targets of class action plaintiffs’ lawyers. However, a close and careful reading of the dissenting opinions reveals that Campbell is really a product of its unique facts, and that strategic planning by defense counsel may allow future defendants to avoid the fate that befell the defendant in this case.

The suit, brought on appeal from the Ninth Circuit under the Telephone Consumer Protection Act (“TCPA”), alleged that petitioner Campbell, an advertising agency, allowed a third-party vendor to send unsolicited text messages to consumers, including respondent Gomez, in violation of the statute. Prior to certification of the class, Campbell proposed to settle Gomez’s claim in full, and filed a Rule 68 offer of judgment – an offer that Gomez declined. Campbell argued unsuccessfully in the lower courts that the offer of judgment mooted the case pursuant to Federal Rule 12(b)(1), because the offer resolved any “case or controversy” by providing Gomez complete relief, and deprived the courts of Article III jurisdiction. Campbell appealed to the Supreme Court to resolve the disagreement among Courts of Appeals on this issue.

The majority decision, delivered by Justice Ginsburg, held that an unaccepted settlement offer or offer of judgment cannot moot a case, stating that such an offer “has no force.” Campbell, supra, at *3, at least in part because Rule 68 indicates that an offer of judgment is considered “withdrawn” if not timely accepted. Id. at *4. On this basis, the Court was able to distinguish this case from cases in which the settlement offer had actually been paid, and therefore extinguished the claim. Id.

The offer of judgment has long been a favored tactic used by defendants faced with potentially costly class actions to resolve these matters prior to certification and judgment. While the Supreme Court’s ruling in Campbell facially limits that ability, the concurring opinion by Justice Thomas, and dissenting opinions by Chief Justice Roberts and Justice Alito, may offer some hope for defendants attempting to willingly redress an injury without forcing continued litigation.

Justice Thomas, relying on common law principles of “tender,” argued that Campbell’s offer of judgment failed only because Campbell merely “offered” to pay the settlement claim, but did not actually take steps to proffer any funds. Campbell, supra, at *12. Similarly, Chief Justice Roberts, while arguing in favor of mootness upon a full offer of settlement, highlighted in his dissent that the majority decision “does not say that payment of complete relief leads to the same result.” Id. at *18 (emphasis in original). Therefore, the decision may not address the situation where payment is actually tendered to the plaintiff, or where judgment is entered in favor of the individual plaintiff and that amount had been escrowed alongside the offer of judgment. It may therefore be advisable for a defendant faced with a class action to continue to make Rule 68 offers of judgment, but follow that offer with deposit of the offered funds with the trial court. Moreover, the decision in Campbell does not address the question of whether an individual plaintiff who has received full and complete relief is an adequate representative of the remaining members of a putative class under Rule 23 of the Federal Rules of Civil Procedure. Finally, because this holding appears limited to the factual context of this case, and the TCPA does not include provisions for an attorneys’ fees award, an offer of judgment may still prove useful in limiting a plaintiff’s ability to recover his or her attorneys’ fees and costs when raised in the context of other statutes.

Members of Reed Smith’s Financial Industry Group are available to provide a thorough analysis of your particular situation. Please contact us to discuss other implications of this important decision.


Client Alert 2016-031