After the Supreme Court issued its decision last week in Campbell-Ewald Co. v. Gomez (here), in at least some quarters the story about the decision spread under the heading that the Court had issued an important Telephone Consumer Protection Act ruling. The case in which the Court issued its decision does indeed involve a TCPA damages claim. However, the Court’s analysis did not address the plaintiff’s TCPA claim as such. The Court’s ruling – which addressed the issue of whether or not an unaccepted offer of judgment moots a class action plaintiff’s claim – is nevertheless important.
As discussed below, the Court’s ruling in the Campbell-Ewald case sets the stage for further litigation on the question of whether, by taking a different approach than the defendant did here, class action defendants might yet be able to moot a class action suit by “picking off” the named plaintiff’s claim. The Court’s decision in the Campbell-Ewald case may also prefigure the Court’s consideration of standing issues in the Spokeo case, another case that raises basic justiciability issues and that remains pending on the Court’s docket for this term.
As part of a recruiting campaign for the U.S. Navy, Campbell-Ewald transmitted text messages to a group of recipients. The campaign targeted individuals who had consented to receive messages relating to Navy service. However, one of the recipients (Gomez) had not consented to receive text messages. Gomez filed a nationwide TCPA class action on behalf of persons who had similarly received unauthorized messages.
Before Gomez had the opportunity to file a motion for class certification, Campbell-Ewald made an offer of judgment under Fed. R. Civ. Proc. 68 to settle Gomez’s individual claim. Gomez did not accept the offer. Campbell-Ewald then moved to dismiss Gomez’s claim, arguing that its offer of judgment mooted Gomez’s claim by providing him with complete relief. Campbell-Ewald also argued that the class claims were moot as well. The district court granted summary judgment on behalf of Campbell-Ewald, but the Ninth Circuit reversed, holding, among other things that Gomez’s case remained live.
Campbell-Ewald filed a petition for a writ of certiorari to the U.S. Supreme Court. The Supreme Court granted the writ to resolve the split between the circuit courts on the question of whether an unaccepted offer can moot a plaintiff’s claim. The First, Second, Fifth, Seventh, and Eleventh Circuits had held that an unaccepted offer does not render a plaintiff’s claim moot, while the Third, Fourth and Sixth Circuits had held that an unaccepted offer can moot a plaintiff’s claim.
The Supreme Court’s Opinion
In a 6-3 majority opinion written by Justice Ruth Bader Ginsberg (with Chief Justice Roberts and Justices Alito and Scalia dissenting), the Supreme Court affirmed the Ninth Circuit’s ruling, holding that an unaccepted settlement offer or offer of judgment does not moot a plaintiff’s case. An unaccepted settlement “has no force,” Justice Ginsburg wrote, noting that “like other unaccepted contract offers, it creates no lasting right or obligation,” adding that “with the offer off the table, and the defendant’s continuing denial of liability, adversity between the parties persists.”
Having held that an unaccepted settlement offer does not moot the plaintiff’s case, however, Justice Ginsberg’s opinion expressly did not address the question of what the result would have been if the defendant had paid the proposed settlement amount into escrow or the registry of the court. Justice Ginsberg wrote: “We 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 then enters judgment for the plaintiff in that case. That question is appropriately reserved for a case in which it is not hypothetical.”
As I said at the outset, the Court’s decision arose in the context of a TCPA claim. But the Court’s ruling did not address the TCPA. The significance of the Court’s decision has to do not with the fact that the underlying claim was asserted under the TCPA; rather, the significance has to do with what the Court said about the impact of an unaccepted offer of judgment and its implications under the doctrine of mootness.
So while the Court didn’t really say anything specifically about the TCPA, it did address what has been called the “pick off” defense – that is, the tactic whereby a consumer class action defendant can try to head off the class claims by offering the named plaintiff his or her full measure of claimed damages. Defendants utilizing this tactic have argued — and some courts had accepted –that an offer of judgment mooted the plaintiff’s claim and thereby deprived the court of Article III jurisdiction. (The jurisdictional argument is that because the plaintiff’s claim is moot, there is no “case or controversy” as required in order for the court to have jurisdiction.)
The upshot of the Supreme Court’s decision in the Campbell-Ewald case is that the defendants will not be able to try to “pick off” the named plaintiff’s claim by making a settlement offer or offer of judgment. But while the Court’s decision may have eliminated what might have seemed like a promising class action defense tactic, it did leave the door open for an alternative approach. That is, by expressly reserving the question whether the payment of the amount of the settlement into escrow or into the registry of the court would moot a plaintiff’s claim, the Court pretty much set the stage for a forthcoming skirmish involving a refined and upgraded version of the pick off defense. As one commentator noted with respect to the question that went unanswered in the Court’s opinion, the Court’s decision in the Campbell-Ewald case “is the prologue of a story that remains to be written.”
You can set a watch on it. Sometime in the next two or three years, there will be a class action case before the Supreme Court in which the defendant has not only made an offer of settlement to the named plaintiff, but the defendant also paid the settlement amount into escrow or the registry of the court. When that day comes and the issue the Court reserved in the Campbell-Ewald case is ripe for decision, the outcome could well be different; there are at least four votes that would favor a finding of mootness (that is, the three dissenters and Justice Thomas, who concurred in the judgment of the majority but not in the majority opinion). One more vote – say, perhaps Justice Kennedy – could potentially result in a vindication of the upgraded version of the pick-off defense. Ronald Mann has an interesting discussion of the likelihood and possibilities of this probable future case in a January 21, 2016 post on the SCOTUS blog (here).
This upgraded pick-off tactic is going to be most promising for defendants in cases involving claims – like, for example, a claim under the TCPA — where the damages are defined by statute. The tactic is less promising in connection with claims – such as claims under the federal securities laws – where it would be more difficult to substantiate that the defendants have offered the named plaintiff “complete relief.”
Even for those defendants that want to use this tactic to try to cut off class claims by picking off the named plaintiff, the approach is not without its challenges. I suspect that one of the battlegrounds in cases where defendants try to take this approach is going to be whether the amounts the defendant offered and deposited into escrow or into the registry of the court actually represents “complete relief.” For example, must the amount escrowed include payment of the named plaintiff’s attorneys’ fees? What about amounts that named plaintiff hoped to receive as an incentive award for acting as the class representative? I would not be surprised if these kinds of issues spill over into a major sideshow in consumer class action litigation.
There are also problems that might arise even if the defendant is successful in picking off the named plaintiff’s individual claims. If the named plaintiff’s case is resolved through an offer of judgment and the tender of settlement amounts into the registry of the court, the judgment that is entered will be entered in the name of the plaintiff. That in turn will raise the question of what the collateral estoppel effect will be of that judgment. Could subsequent plaintiffs use the judgment against the defendant?
All these questions and more undoubtedly will be raised in cases yet to come. In the meantime, it is worth noting something particular about the Court’s decision in this case.
That is, the Court’s decision represents the rare opinion these days in which the Court evinced support for the class action procedural mechanism. Indeed, in rejecting Campbell-Ewald’s argument that its offer of judgment not only mooted Gomez’s claim but the claims of the putative class as well (because the offer of judgment was presented before a class had been certified), the Court said that “While a class lacks independent status until certified, a would-be class representative with a live claim of her own must be accorded a fair opportunity to show that certification is warranted.”
Given the spate of recent Supreme Court decisions in which the Court has endorsed the use of arbitration clauses and class action waivers, a statement that a class claimant must be given a “fair opportunity” to establish his or her right to proceed on behalf of a class of similarly situated persons sounds like a ringing endorsement of class action litigation.
What Are the Implications For the Pending Spokeo Case?: Yet another case raising basic justiciability considerations in the context of class action litigation remains pending on the Supreme Court’s docket for this term. The Campbell-Ewald case involved the mootness doctrine; the pending Spokeo case concerns the related issue of “standing.” As discussed here, in the Spokeo case, the Court must consider whether Congress may confer Article III standing on a plaintiff who had suffered no specific or concrete harm but who alleges a violation of a federal statute.
Like the Cambell-Ewald case, the crux of the Spokeo case is the defendant’s absence-of-harm argument. In the Spokeo case, an individual sued the company under the Fair Credit Reporting Act, claiming that information Spokeo had gathered about the plaintiff and published on its website was incorrect. Spokeo argued that the plaintiff lacked standing to assert his claim because he did not allege any concrete harm. The district court agreed and granted Spokeo’s motion to dismiss, holding that the plaintiff had failed to allege an “injury-in-fact” and therefore lacked Article III standing. However, in a February 4, 2014 opinion (here), the Ninth Circuit reversed the district court, holding that the plaintiff’s allegations that his statutory rights had been violated alone were sufficient to satisfy Article III’s standing requirement.
If the Supreme Court reverses the Ninth Circuit and holds that a plaintiff must allege an a concrete injury in order to establish Article III standing, and that a mere alleged statutory violation alone is insufficient to establish standing, it could, as discussed in an April 28, 2015 memo from the Troutman Sanders law firm (here), “mean the death-knell of ‘no harm’ class action lawsuits that have proliferated under statutes that allow for statutory damages without proof of actual harm.”
In any event, the Spokeo case provides the Court with yet another opportunity to address the extent of the runway that class actions will be allowed; the mix of votes in the Campbell-Ewald decision may play into the outcome of the Spokeo case. Both cases involve issues of justiciability; in both cases, the defendants are alleging that the lack of harm to the claimant raises the issue whether an actual adversarial issue exists. The majority opinion in the Campbell-Ewald is expressly framed in terms of these justiciability principles; Justice Ginsburg wrote that because Gomez had rejected the company’s offer of judgment, “the parties remained adverse; both retained the same stake in the litigation they had at the outset.”
As it turns out, however, if the respondent company in the Spokeo case prevails on its standing theory, Gomez’s claims may turn out to lack justiciability just the same. Although the Spokeo case involves claims under the Fair Credit Reporting Act, claims under the TCPA of the kind that Gomez asserts in the Campbell-Ewald case also rely on the statutorily defined damages as the basis for the assertion of standing. In other words, even though Gomez has established his right to proceed against Campbell-Ewald despite his rejection of the company’s offer of judgment, if Spokeo were to prevail before the Supreme Court, Gomez still might face further justiciability defenses, on the grounds that his statutorily defined damages are insufficient to establish the requisite standing.
Because of the pending Spokeo case, the Supreme Court still has the potential to significantly affect the class action environment. Among other things, the Spokeo case could also affect the significant consumer privacy class action litigation that often follows in the wake of data breach disclosures. Whether or not the privacy claimants can claim sufficient standing to establish the justiciability of their claims could be significantly affected by the outcome of the Spokeo case.
Supreme Court Grants Cert in Insider Trading Case: In addition to issuing its ruling in the Campbell-Ewald case, the Supreme Court also last week set the stage for a potentially important ruling in an insider trading case by granting the writ of certiorari in the case of United States v. Salman. As a result of taking up this case, the Court will address questions surrounding the “personal benefit” requirement in insider trading prosecutions. Specifically, the Court will consider whether and to what extent the person providing an insider trading tip (usually known as the “tipper”) received a personal benefit for providing the inside information.
The Ninth Circuit held (in a decision written by Southern District of New York Judge Jed Rakoff, sitting by designation) that the personal benefit requirement had been satisfied in the Salman case despite the absence of tangible financial benefit, because the tipper received the personal satisfaction of providing inside information to his brother. In his cert petition, Salman asked the Court to consider whether the benefit required to support a conviction must be tangible and pecuniary, or whether the personal relationship alone is sufficient.
The “personal benefit” issue has received particular attention since the Second Circuit issued its 2014 decision in United States v. Newman, in which the court ruled against the government and seemingly raised the bar concerning what the government must prove to show a benefit to the tipper. The Supreme Court declined to grant cert in the Newman case, so its willingness to take up the Salman case arguable is something of a surprise. But in any event, the Court’s consideration of the Salman case could resolve the apparent split between the Second and Ninth Circuits and likely will provide clarification of the personal benefit requirement.
In Case You Missed It: The Top Ten D&O Stories of 2015 Webinar: Last Thursday I participated in a webinar sponsored by the Professional Liability Underwriting Society (PLUS) in which I discussed the “Top Ten D&O Stories of 2015.” In case you missed it, the webinar has now been posted in its entirety on the PLUS Blog, here, so you an listen to a replay of the webinar any time that suits you. My thank again to PLUS for inviting me to participate in this webinar. My original post on this blog of the Top Ten D&O Stories of 2015 can be found here.