In a decision issued on January 20, 2016, the U.S. Supreme Court pushed back against efforts by defendants to buy off the named plaintiff in order to avoid class action litigation. In Campbell-Ewald vs. Gomez, the Court ruled that a complete offer of relief by the defendant that is rejected by the representative plaintiff does not moot the class action case.

The case arose under the Telephone Consumer Protection Act (TCPA), which prohibits telephone solicitations using an automated dialing system if the recipient hasn’t consented to it. Telemarketing phone calls and text messages are banned under the TCPA. A person receiving an unsolicited call or text may sue directly for damages, equal to his monetary losses, or $500 per violation, whichever is greater. If the person or company violating the TCPA did so willfully or knowingly, plaintiff’s damages may be tripled.

Campbell-Ewald is an advertising and marketing company. The U.S. Navy hired Campbell-Ewald to run a targeted recruiting campaign aimed at young adults. The Navy approved Campbell-Ewald’s use of text messages, but only to individuals who had opted to receive marketing text messages about service in the Navy. Campbell-Ewald then hired another firm to generate the list of phone numbers of 18 to 24-year-olds who had agreed to receive telemarketing messages about the Navy.

Jose Gomez received one of the text messages promoting the Navy. But Gomez was 40 at the time and claims never to have consented to receiving telemarketing calls or texts about the Navy. Gomez filed a class action lawsuit in federal court in Los Angeles against Campbell-Ewald on behalf of all individuals who received a text message promoting the Navy but who had not consented to it.

A class action lawsuit is one in which one person sues a defendant on behalf of a larger group of people who have suffered the same or similar injury. In a class action, the issues in dispute are common among all class members and the number of people injured is too numerous for each to proceed on her own. On behalf of himself and the class, Gomez sought treble damages, attorneys’ fees, litigation costs and a permanent injunction on future text messages that violated the TCPA.

Prior to the deadline for filing a motion for class certification, Campbell-Ewald proposed to settle Gomez’s claim and filed an offer of judgment with the court pursuant to Federal Rule of Civil Procedure 68. (That rule provides that a defendant may make a settlement offer more than 14 days before trial and may recover his litigation costs if plaintiff rejects the offer and the final judgment for plaintiff is for less than the settlement offer.) The terms of Campbell-Ewald’s offer were: $1,503 per unsolicited text message Gomez received; litigation costs but not attorneys’ fees; and an injunction in which Campbell-Ewald agreed to cease sending unsolicited text messages. But the offer of judgment specifically denied the allegations in Gomez’s complaint and the grounds for any injunction under the TCPA.

Gomez did not accept the Rule 68 settlement offer and, by the terms of the rule, the offer expired 14 days after it was made. Campbell-Ewald then filed a motion to dismiss Gomez’s complaint as moot, claiming that its settlement offer would have provided complete relief to Gomez. Campbell-Ewald argued that there remained no “case or controversy” between the parties, as required by the U.S. Constitution for a case in federal court.

The Supreme Court rejected Campbell-Ewald’s argument and sent the case back to the district court. The Court ruled that a settlement offer or offer of judgment rejected by the plaintiff puts the defendant in no different position than it was before the offer was made. Gomez’s allegations that Campbell-Ewald violated the TCPA remained live; his demand for damages, attorneys’ fees, costs and an injunction had not been satisfied; and Campbell-Ewald’s denial of Gomez’s allegations gave rise to a continued “case or controversy.”

The Court added an important caveat in its decision, however, that corporations will likely exploit in their ongoing efforts to dismantle the class action device.  The Court noted it might rule differently in a situation where a defendant deposited the full amount of plaintiff’s individual claim into an account payable to the plaintiff and then the district court entered judgment for the plaintiff. But those facts weren’t presented in this case, so any ruling would be hypothetical.

Companies that face class action litigation will no doubt take this next step to try to moot the named plaintiff’s claim. In many situations, it would cost a company far less to pay the named plaintiff’s damages than defend a class action where, collectively, the damages could climb into the millions. Indeed, companies facing consumer and employee class action litigation have pursued similar tactics to buy off the named plaintiff in order to avoid the weight of a class action before.

We specialize in representing consumers and employees in class action litigation. We routinely follow the changes in this important area of the law and will continue to work diligently and creatively to pursue justice for consumers and employees faced with wrongful conduct by corporations that use arbitration agreements as a shield for avoiding accounting for liability.