SCOTUS Holds that Unaccepted Offers of Judgment Cannot Be Used to Moot Class Actions
Litigation & Dispute Resolution Alert 01/27/16 S. Douglas Knox, Zachary S. Foster
The U.S. Supreme Court recently held that a defendant's bare offer of judgment under Rule 68, Federal Rules of Civil Procedure, is not enough to moot a prospective class in a class action case. Rule 68 allows a defendant to serve the plaintiff with an offer to enter a judgment settling the case. If the plaintiff accepts the offer, then the court must enter the proposed judgment and end the case. If the plaintiff does not accept the offer within 14 days, then the offer is considered withdrawn.
In this case, Jose Gomez sued Campbell-Ewald Company in the District Court for the Central District of California under the Telephone Consumer Protection Act (TCPA), claiming Campbell-Ewald sent him a text message without his express consent. Gomez also sought to certify a class of individuals who had received the offending text message. Before Gomez moved to certify the class, Campbell-Ewald served him with a Rule 68 offer of judgment for $1,503, the maximum amount of damages he could recover under the TCPA for the alleged violation, and an injunction barring Campbell-Ewald from sending additional text messages in violation of the TCPA. Gomez did not respond to the offer. Campbell-Ewald then moved to dismiss the case. Campbell-Ewald argued that the case was moot in light of the offer of judgment it had made to Gomez for all the relief he could possibly recover under the TCPA.
The District Court denied Campbell-Ewald's motion to dismiss but granted its motion for summary judgment on other grounds. On appeal, the Ninth Circuit overturned the summary judgment ruling but joined a slight majority of the federal circuits by agreeing that Campbell-Edward's offer of judgment did not moot the case (while offers of judgment could moot claims brought in the First, Second, Fifth, Seventh, and Eleventh Circuits, the Third, Fourth, and Sixth Circuits had held that such offers could moot a plaintiff's case). The Supreme Court accepted review to resolve the split among the circuits.
The Supreme Court agreed with the Ninth Circuit and held that Gomez's claim was not mooted by Campbell-Ewald's unaccepted offer of judgment. The court found that basic principles of contract law dictated that Campbell-Ewald's unaccepted offer of judgment had no continuing legal effect. Because Gomez did not accept the offer, Rule 68 treats it as withdrawn. Thus, Gomez still had an active interest in seeking relief from the district court. The majority distinguished Campbell-Ewald's offer of judgment from cases where the defendant actually tendered the damages sought, thereby mooting the plaintiff's claims. Indeed, Justice Thomas's concurrence noted that Campbell-Ewald's offer was insufficient to moot Gomez's claims because Campbell-Ewald did not actually tender the payment to Gomez.
The court's ruling now precludes defendants in federal court from using a Rule 68 offer of judgment to pre-empt class certification. The decision does leave open a possible avenue for mooting class actions before certification, as the court noted in dicta that it was not deciding what would have been the result if Campbell-Ewald had actually deposited the proposed settlement money in an account payable to Gomez rather than simply making an offer of judgment under Rule 68. Therefore, the court might find that a claim is moot where a defendant actually tenders full payment of a plaintiff's damages simultaneous with a making a Rule 68 offer of judgment. While defendants in federal courts may now attempt to moot prospective classes in this manner, it will likely be several years before the Supreme Court rules on that issue. We also note that the court's ruling is ultimately a determination of mootness under federal law. It does not affect state courts' decisions as to when a tender of relief would moot a class action under state law.