Every business would like to avoid class actions. Even if an individual class plaintiff’s damages are small, aggregated damages across a sizable class can be staggering.  Of late, businesses have utilized a defense strategy to offer the individually named class plaintiff(s) all of the relief requested (via an “offer of judgment”), prior to the class being certified by the court.  Several courts within the Third, Fourth, and Sixth Circuit Courts of Appeals have held offers of judgment for the full relief sought by the individual class plaintiff, even if not accepted, moots the entire class action, and deprives the court of further jurisdiction to hear the case.  By offering all the relief requested by the class plaintiff, the business could avoid the class action entirely.  The First, Second, Fifth, Seventh, and Eleventh Circuit Courts of Appeals have not bought this defense, and so the United States Supreme Court took up the case of Campbell-Ewald Co. v. Gomez, 577 U.S. ___ (2016), this term to resolve the conflict between the circuits.

On January 20, 2016, the Supreme Court rendered its decision in Campbell-Ewald, holding that an unaccepted offer of judgment has no force and effect, and does not moot the individual plaintiff’s claims nor the entire putative class’s claims. The decision also involved an interesting sovereign immunity issue, which will not be addressed in this post.

Rule 68 of the Federal Rules of Civil Procedure sets out the “offer of judgment” procedure. However, Rule 68 provides that if a plaintiff does not accept such an offer within ten (10) days, the offer of judgment is deemed “withdrawn.”

In Campbell-Ewald, the plaintiff sued for violations of the Telephone Consumer Protection Act (“TCPA” or “Act”), asserting not only an individual claim but also class claims.  The plaintiff sought statutory damages of $500 for himself, plus treble damages under the TCPA, and an injunction barring the defendant from further violations of the Act.  The defendant offered the plaintiff judgment in the amount of $1,503 ($3 over the $1,500 sought) plus an injunction prohibiting further violations of the TCPA.  The plaintiff did not accept the offer of judgment.

Thereafter, the defendant moved to dismiss the plaintiff’s individual claims and the class claims arguing the offer provided the plaintiff with all of the relief sought in the lawsuit (given that the class had not yet been certified).  Justice Ginsburg’s majority rationale in Campbell-Ewald is straight forward: while federal courts hear only cases with “actual controversies,” basic contract law teaches that an unaccepted offer changes nothing.  Citing an earlier opinion by Justice Kagan, Ginsburg noted, “An unaccepted settlement offer – like any unaccepted contract offer – is a legal nullity, with no operative effect.  As first-year law students learn, the rejection of an offer ‘leaves the matter as if no offer had ever been made.’”  This rationale is supported by Rule 68 itself, which provides that an unaccepted offer is considered “withdrawn.”  Thus, an individual plaintiff’s claims cannot be mooted by an unaccepted offer of judgment, and an actual controversy is still alive if the defendant’s offer remains unaccepted.  Furthermore, since the individual plaintiff’s claim is still alive, the class claims remain viable as well.  “While a class lacks independent status until certified, a would-be class representative with a live claim . . . must be accorded a fair opportunity to show that [class] certification is warranted.”

The Supreme Court has spoken.  An unaccepted offer of judgment can no longer moot a class action.  Interestingly, however, the Campbell-Ewald majority specifically framed its decision so as to leave open the scenario where a defendant goes even further than offering the plaintiff full relief and judgment, but actually deposits the full amount of damages requested into court or a separate account for the plaintiff.  The majority stated in this respect, “That question is appropriately reserved for a case in which [that scenario] is not a hypothetical.”

Chief Justice Roberts dissented, with Justices Scalia and Alito joining him, stating that an offer of judgment for all relief sought by the individual class plaintiff must moot the action, because no “case or controversy” remained alive between the parties (prior to class certification).  However, Chief Justice Roberts was delighted the majority left open whether a defendant could moot a class action by actually depositing the full amount of damages sought by the individual class plaintiff.  Justice Thomas concurred with the majority but on common law “tender” grounds, which would permit a defendant to tender payment of all monetary relief demanded, but, in effect, “admit” to the allegations of the complaint with such a “tender.”  If such a “tender” were made, however, the entire action might still be mooted.

The Campbell-Ewald Co. v. Gomez decision is important for all business owners and applies in every employment law context (e.g., wage-and-hour class or collective actions, discrimination class actions, etc.). This decision also applies to class actions outside the labor and employment law context.  So, businesses and employers should beware that class actions may not be easily avoided by the early buyout of an individual class plaintiff’s claims.