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Can a defendant moot a class action by making an offer of judgment to the class representative for the full amount of damages available?

Class action lawsuits can be very expensive to defend against. Defendants therefore seek every opportunity to end such lawsuits as quickly as possible. One strategy recently employed is to offer the class representative all damages to which she would be entitled and argue that the lawsuit is therefore moot. The Supreme Court recently heard oral argument on this issue and will decide whether the strategy can be successful going forward in early 2016.

One of the mechanisms available to a defendant in federal court is Federal Rule of Civil Procedure 68 (“Rule 68”). Under Rule 68, a party defending against a claim can make an “offer of judgment” to the other side offering to allow judgment to be entered against the defendant on specified terms. If the plaintiff accepts the offer within 14 days, the court enters judgment against the defendant and the case is over.

Why would a defendant make such an offer as opposed to forcing the plaintiff to convince a jury or judge to award a judgment? The reason is that an unaccepted offer creates risk for the plaintiff. If the plaintiff does not accept the defendant’s offer within 14 days and the judgment the plaintiff eventually obtains from the court is not more favorable than the judgment offered, the plaintiff must pay the defendant’s costs incurred after the offer was made. Rule 68 can therefore be a powerful weapon against a plaintiff who continues to litigate a case after being offered a reasonable settlement/judgment.

Over the past few years, defendants have begun utilizing Rule 68 to not only combat claims brought by individual plaintiffs, but also class actions. In a typical class action, one or more individuals file a lawsuit against a defendant and propose that they represent an entire class of people who have allegedly been harmed by the defendant. If the class is certified by the court, these individuals represent the entire class and are known as the class representatives. Certification of a class action is not automatic however. After filing the lawsuit, the proposed class representatives must ask the court to certify the class. In order to do so, the court must make various findings, including (1) that there are questions of law or fact common to the class, and (2) that the proposed class representatives will fairly and adequately protect the interests of the class.

Class actions are typically utilized when the alleged damages are not high enough that a single class member would file a lawsuit, but when all of the class members’ damages are aggregated, the potential damages can become quite large (think a video rental store overcharging each customer by 25 cents on each video rented). Class actions tend to be complex and can be very costly to defend against. Class action defendants therefore seek ways to minimize costs and dispose of a potential class action lawsuit early in the process. Hence the recent use of Rule 68 in an effort to defeat potential class actions before they get started.

In recent cases, class action defendants made offers of judgment to the potential class representatives before the plaintiffs moved for class certification. Because the costs of defending against a class action are generally much higher than the damages available to the class representatives, defendants have offered the full amount damages (and in some cases a little more) that the proposed class representatives would be entitled to if they succeeded on all of their claims. After making such an offer, the defendants then move the court to dismiss the lawsuits as moot as there is no controversy between the parties because the plaintiffs have been offered all of the damages to which they are entitled. Assuming the court agrees, this strategy can be a very powerful and cost-effective way to dispose of potential class action lawsuits.

Unfortunately for defendants utilizing this strategy, not all courts agree that an offer of judgment for the full amount of damages and relief sought by a plaintiff moots the lawsuit. For instance, the federal circuit courts covering New York, California, and Florida have held that such an offer does not moot the plaintiffs’ claims. In contrast, the federal circuits covering Texas, Illinois, and Delaware have held that they do. Fortunately for those who desire clarity regarding this strategy, the Supreme Court has agreed to address the circuit split and will issue an opinion by June 2016.

Specifically, in the case of Campbell-Ewald Co. v. Gomez, the Supreme Court is presented with the two questions of (1) whether a case becomes moot, and thus beyond the judicial power of Article III, when the plaintiff receives an offer of complete relief on his claim; and (2) whether the answer to the first question is any different when the plaintiff has asserted a class claim under Federal Rule of Civil Procedure 23, but receives an offer of complete relief before any class is certified.

In Campbell-Ewald Co., Jose Gomez filed a proposed class action lawsuit alleging that the Campbell-Ewald Company sent unsolicited text messages to Gomez and various other individuals without their consent in violation of the Telephone Consumer Protection Act (“TCPA”). Before a class was certified by the court, Campbell-Ewald made a Rule 68 offer to Gomez, offering to pay him $1503 per violation (slightly more than the full statutory damages available under the TCPA) in addition to certain costs and also agreed to stop sending text messages. When Gomez rejected the offer, Campbell-Ewald moved to dismiss his individual claims and the class claims as moot. The district court denied the motion and on appeal, the Ninth Circuit agreed with the district court’s decision.

The Supreme Court granted certiorari and held oral argument in Campbell-Ewald Co. on October 14, 2015. Between now and when the Supreme Court issues its opinion, class action defendants will likely continue utilizing Rule 68 in an effort to reduce the expense and potential exposure of class action litigation.