Class actions at the high court

Does a case become moot, and beyond the judicial power of Article III of the Constitution, when a plaintiff receives an offer of complete relief on his claim? Last week, the U.S. Supreme Court answered "no" to this question, but hinted at a road map for defendants to end class actions in a cost-effective manner. The court will soon decide two more cases that may create efficient options to end no-injury lawsuits before they begin.

Shutting the Door on Offers of Judgment

In Campbell-Ewald Co. v. Gomez, 14-857, Campbell-Ewald sent recruiting text messages on behalf of the U.S. Navy. Gomez sued Campbell-Ewald under the Telephone Consumer Protection Act (TCPA) and sought to represent a nationwide class of "unconsenting recipients of the Navy's recruiting messages." Prior to the deadline for Gomez to file a motion for class certification, Campbell-Ewald proposed to settle Gomez's individual claim and filed an offer of judgment pursuant to Federal Rule of Civil Procedure 68. Campbell-Ewald offered to pay Gomez his costs and $1,503, an amount representing more than the maximum that he could achieve under the TCPA. Gomez did not accept the offer. The case was subsequently dismissed at summary judgment, and Gomez appealed.

During the appeal, Campbell-Ewald moved to dismiss the appeal for lack of jurisdiction. Article III of the Constitution requires the existence of a "case or controversy" before a federal court can exercise jurisdiction. Campbell-Ewald argued that its offer to Gomez of everything he could possibly expect to collect under the TCPA rendered the case moot because there was no longer a real dispute between the two sides. The 9th U.S. Circuit Court of Appeals denied the motion. Campbell-Ewald subsequently filed a petition for writ of certiorari to the Supreme Court, which the court granted.

Upon review, a bare majority of the court held that an unaccepted offer of relief was not enough to moot Gomez's claim. The court ruled that "[l]ike other unaccepted contract offers, it creates no lasting right or obligation." "With the offer off the table, and the defendant's continuing denial of liability, adversity between the parties persists," Justice Ruth Bader Ginsburg said writing for the majority. "[A]n unaccepted offer is a legal nullity," she said.

Opening the Gates to Common Law Tenders

The Supreme Court left open whether a class representative loses standing to represent the class if the defendants actually pay (as opposed to simply offering to pay) the money a plaintiff seeks. Indeed, the last two sentences of the court's analysis state: "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 amount. That question is appropriately reserved for a case in which it is not hypothetical."

Notably, the dissent, led by Chief Justice John Roberts, indicated that they would find that a full payment to the plaintiff would moot a class action. Justice Clarence Thomas, who concurred in the opinion, seemed to agree that complete relief would divest a federal court of jurisdiction, but disagreed that Campbell-Ewald had properly made a common law tender. Even Justice Stephen Breyer, who joined the majority, lauded the common law tender theory during oral arguments, providing a potential fifth and deciding vote.

In light of these opinions, it is reasonable to expect that defendants will take money which they had previously only offered and hand it over to the courts. The courts will then decide whether a tender of full relief moots a claim. Perhaps inevitably, the Supreme Court could soon decide whether this strategy moots claims once and for all.

The practical lesson for defendants from the Campbell-Ewald opinion is straightforward. Defendants seeking to moot consumer lawsuits may consider taking funds previously reserved for offers of judgment and depositing them with the court when making the offer. If a plaintiff rejects the offer, the defendant may move for entry of judgment. Defendants should note, however, that such a strategy is not without its drawbacks. The court's entry of judgment in favor of a plaintiff's individual claims in a class action could function as an admission of wrongdoing and create a collateral estoppel effect, meaning that another similarly situated consumer that decides to sue may not have to prove liability. Accordingly, before making a Rule 68 offer of judgment, defendants should evaluate the risk that other plaintiffs might come along to try to collect similar judgments.

Upcoming Cases May Transform Consumer Class Actions

Defendants, meanwhile, retain at least two arrows in their quivers. The Supreme Court's upcoming decisions in Spokeo Inc. v. Robins, 13-1339, and Tyson Foods Inc. v. Bouaphakeo, 14-1146, may prove to be critical turning points in class actions.

In Spokeo, the 9th Circuit held that a plaintiff need not plead actual harm to pursue a claim for statutory damages under the Fair Credit Reporting Act and, in turn, certified an FCRA statutory damages class. The Supreme Court granted certiorari to address whether Congress may confer Article III standing upon a plaintiff who suffers no concrete harm by authorizing a private right of action based on a bare violation of a federal statute. It also granted certiorari in Tyson, in which it will address, among other issues, whether a class action may be certified or maintained under Rule 23(b)(3) when the class contains hundreds of members who were not injured and have no legal right to any damages.

If the Supreme Court determines a statutory violation is insufficient to confer Article III standing, then plaintiffs in FCRA classes will lack of standing. The damages provision in the FCRA says nothing about no-injury suits. Its reference to statutory damages as an alternative to actual damages can and should be construed as just that - an alternative damages remedy that in no way seeks to supplant the baseline constitutional requirement that a plaintiff actually have suffered injury-in-fact to bring suit. To hold otherwise would be to endorse transparent, no-damage results.

The decisions in Spokeo and Tyson could send ripples far beyond the FCRA litigation context. After all, the FCRA is hardly the only law that provides for statutory damages irrespective of whether a plaintiff suffered actual harm. One need look no further than the TCPA, under which each text message, phone call or fax a company sends can lead to statutory damages of between $500 and $1,500.

The plaintiffs' bar has relentlessly pursued a strategy of aggregating statutory damages in these sorts of cases into huge recoveries through class actions. Exposure can quickly reach such staggering levels that companies doing their best to comply with the law nevertheless face enormous pressure to settle meritless cases lest they risk bankruptcy. The upcoming decisions in Spokeo and Tyson, and the common law tender strategy outlined in Campbell-Ewald, may level the playing field.

Crystal Lopez is an attorney in Blank Rome's Los Angeles office. She focuses her practice on class action defense, with an emphasis on consumer fraud and privacy claims. She can be reached at ECLopez@BlankRome.com.

Harrison Brown is an attorney in Blank Rome's Los Angeles office. His practice encompasses a wide range of business litigation and class action defense, with an emphasis on consumer fraud and privacy claims. He can be reached at HBrown@BlankRome.com.

Joshua Briones is a partner in Blank Rome's Los Angeles office. He focuses his national practice on bet-the-company class actions and has participated in the defense of dozens of class actions in state and federal courts across the country. He can be reached at JBriones@BlankRome.com.