Rejecting Settlement Does Not Moot Plaintiff’s Case

Rejecting A Settlement Does Not Moot Plaintiff's Case

Employers faced with statutory penalties for technical wage statement or other labor-related violations sometimes want to cut to the chase.  Logically, an offer to pay 100% of the penalties, interest, and legal costs to date, one would think, should effectively “moot” the plaintiff’s case, meaning that a plaintiff or a class of plaintiffs should not be able to reject the offer and waste everyone’s time and money taking a case to trial with no hope of a better result.  In federal court, under Article III of the Constitution, if there is no “case or controversy,” the court loses jurisdiction and must dismiss the case as moot.

On January 20, 2016, the U.S. Supreme Court took up the case of Campbell-Ewald Co. v. Gomez, 577 U.S. ___ (2016) to resolve a circuit split on this issue, in the context of a similar sort of technical violation (the Telephone Consumer Protection Act).  The U.S. Supreme Court ruled that a plaintiff, who rejects a settlement offer or an offer of judgment that would have provided complete relief of all of his or her claims, may continue litigating the case.  Basing its decision on principles of contract law, the Court reasoned that after a plaintiff rejects a defendant’s offer, the offer is legally null – no longer viable.  The plaintiff remains “empty-handed” so he is free to continue to pursue all available remedies in court, on both an individual basis and on behalf of a class.

Plaintiff Jose Gomez filed a nationwide class action against marketing firm Campbell-Ewald Co. for sending text messages without permission. Campbell-Ewald had been retained by the U.S. Navy to undertake a marketing campaign via text message, to consumers who had “opted in” to receiving such solicitations.  Gomez sought the maximum penalties allowable under the Telephone Consumer Protection Act (“TCPA”), which, similar to many labor code statutes, permits recovery of actual damages up to $500 on a per-violation basis, with treble damages for “willful” violations, plus court costs.  He also sought attorney’s fees and an injunction against Campbell-Ewald barring further unsolicited messaging.

Before Gomez filed a motion to certify his class, Campbell-Ewald offered to settle Gomez’s individual claim and filed an offer of judgment under Rule 68 of the Federal Rules of Civil Procedure.  Campbell-Ewald’s offer included payment to Gomez of $1,503 per unsolicited message (he had only received one) plus costs, which would make him whole on the statutory claims including for treble damages.  Campbell-Ewald’s offer did not include attorney’s fees, which it argued are not statutorily available under the TCPA. Campbell-Ewald also offered to stipulate to an injunction barring it from sending text messages in violation of the TCPA.  Gomez rejected the settlement offer and allowed the Rule 68 offer to expire. Campbell-Ewald then moved to dismiss Gomez’s case, arguing that its offer of complete relief rendered his claim moot.  The district court denied the motion.  Both the Ninth Circuit and the U.S. Supreme Court affirmed the district court’s decision that a rejected offer does not moot the case.

Prior to this decision, the Circuit Courts of Appeals were divided.  The First, Second, Fifth, Seventh, and Eleventh Circuit Courts of Appeals had all agreed with the Ninth Circuit that an unaccepted offer does not render a plaintiff’s claim moot, while the Third, Fourth, and Sixth Circuits had ruled that it did.

Justice Ginsburg wrote the majority opinion in the 6-3 decision.  The Court stated that “moot” means a situation where “an intervening circumstance deprives the plaintiff of a ‘personal stake in the outcome of the lawsuit’” and it becomes “impossible” for the court to grant any relief. But when a plaintiff rejects a settlement offer it is deemed “withdrawn,” and the plaintiff’s interest in the lawsuit remains. Therefore, so does the court’s ability to grant relief.

The Court found that since Gomez sought treble statutory damages and an injunction on behalf of a nationwide class, but Campbell’s settlement offer proposed relief for Gomez alone, and did not admit liability, meant that Campbell-Ewald’s offer did not totally eliminate all claimed relief.

Court Adopts Kagan’s Reasoning from the Dissent from Genesis HealthCare

In Genesis HealthCare, 569 U.S. ___ (2013) the Supreme Court considered a collective action brought by Laura Symczyk, a former employee of Genesis HealthCare Corp.  Symczyk sued Genesis HealthCare on behalf of herself and similarly situated individuals for alleged violations of the Fair Labor Standards Act of 1938, 29 U. S. C. §201 et seq. Like Campbell-Ewald case, Genesis HealthCare had served Symczyk with a Rule 68 offer of judgment before class certification that would have satisfied the plaintiff’s individual damages claim and Symczyk allowed the offer to lapse.  On appeal, Symczyk had not disputed that Genesis HealthCare’s offer mooted her individual claim, so the Supreme Court declined to address the issue.  Instead, the majority simply assumed, without deciding, that an offer of complete relief pursuant to Rule 68, even if unaccepted, moots a plaintiff’s claim.  The Court here expressly adopted Justice Kagan’s reasoning from her dissent in Genesis HealthCare: Nothing in Rule 68 alters the basic principle of contracts that a rejected offer “leaves the matter as if no offer had ever been made.” To the contrary, Rule 68 specifies that “[a]n unaccepted offer is considered withdrawn.”

Chief Justice Roberts’ Dissent: a Pragmatic Approach

Chief Justice Roberts, joined by Justices Scalia and Alito, dissented.  Justice Roberts, wrote that the “federal courts exist to resolve real disputes, not to rule on a plaintiff’s entitlement to relief already there for the taking.”  In essence, once a defendant offers to remedy all of the claims in the case, there is no longer a case or controversy for purposes of Article III. “After all,” wrote Justice Roberts, “if the defendant is willing to remedy the plaintiff’s injury without forcing him to litigate, the plaintiff cannot demonstrate an injury in need of redress by the court, and the defendant’s interests are not adverse to the plaintiff.” Fortunately, as Chief Justice Roberts noted, this case is limited to its facts.

The Silver Lining: Defendants Can Still “Pick Off” Named Plaintiffs

Defendants faced with class claims sometimes try to “pick off” a named plaintiff’s individual claim before class certification, hoping to avoid the greater liability and cost of a class action.   The Supreme Court’s decision may have taken the mootness argument out of a “make whole” Rule 68 offer of judgment or settlement offer to a putative class plaintiff.  But, a make-whole offer still strongly encourages settlement because it cuts off damages and costs that accrue after an offer is made and rejected, if the jury returned a verdict for either the amount offered or less. See Fed. Rule Civ. Proc. 68(d).

Also, the Court did not decide whether actually depositing a payment for complete relief into an account in the named plaintiff’s name, would render the case moot.  Fully satisfying claims by actual payment (with or without an admission of liability), as opposed to merely offering to satisfy them and a denial of liability, may have a different legal effect on the mootness analysis, the Court said.  But, as the majority noted, that issue is reserved for a future case in which it is not hypothetical.

Takeaway:  Defendants faced with class claims can no longer use a rejected “make whole” settlement offer of payment of the named plaintiff’s damages and costs to support mandatory early dismissal on the grounds of “mootness” in federal courts. Nonetheless, “make whole” settlement offers are still strong negotiation tools because a rejected settlement offer cuts off recovery of post-offer damages and costs, if the plaintiff does not recover the same amount or more at trial. In addition, this case did not address whether a similar strategy, actually tendering a make-whole payment to the plaintiff, would render the case moot.

Contributor:  Shauna N. Correia, Of Counsel | Weintraub Tobin