How Not to Moot a Case: Supreme Court Rules Case Remains Live After Unaccepted Offer of Settlement

by Ogletree, Deakins, Nash, Smoak & Stewart, P.C.
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On January 20, 2016, the Supreme Court of the United States decided another case in a line of cases addressing the issue of class action mootness. Specifically, the justices ruled that an unaccepted settlement offer or offer of judgment does not moot a plaintiff’s case. “Like other unaccepted contract offers,” the Court wrote, an unaccepted settlement offer “creates no lasting right or obligation. With the offer off the table, and the defendant’s continuing denial of liability, adversity between the parties persists.” The Court also found that not all government contractors are entitled to “derivative sovereign immunity.” Campbell-Ewald Co. v. Gomez, No. 14-857, Supreme Court of the United States (January 20, 2016).

Background

The case involved a potential violation of the Telephone Consumer Protection Act (TCPA). Campbell-Ewald Company, which is a nationwide advertising and marketing communications agency and also a federal contractor, had contracted with a company to transmit text messages, as part of a recruiting campaign, to individuals who had consented to receive solicitations by text. Jose Gomez, a recipient of one of these messages, filed a class action complaint on behalf of a nationwide class of individuals, who had received, but not consented to the receipt of, the text message.

Before the deadline for Gomez to file a motion for class certification had passed, Campbell proposed a settlement of Gomez’s individual claim and filed an offer of judgment pursuant to Federal Rule of Civil Procedure 68. In the proposal, Campbell offered to pay Gomez’s costs and a sum of money for each text message he had received, which would have satisfied his personal treble-damages claim. Gomez did not accept the offer and allowed Campbell’s Rule 68 submission to lapse.

Campbell then moved to dismiss the case pursuant to Federal Rule of Civil Procedure 12(b)(1) for lack of subject-matter jurisdiction. Campbell argued that (1) an Article III case or controversy did not remain because its offer mooted Gomez’s individual claim by providing him with complete relief; and (2) because Gomez had not moved for class certification before his claim had become moot, the putative class claims had also become moot. The district court denied Campbell’s motion but after limited discovery granted Campbell’s motion for summary judgment on the basis of sovereign immunity. The Ninth Circuit Court of Appeals, disagreeing with the district court on the immunity issue, reversed the grant of summary judgment for Campbell but agreed that Gomez’s case remained live.

The Supreme Court agreed to review the case to decide whether a case becomes moot when a plaintiff receives an offer of complete relief on his or her claim, and 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. The Court also agreed to clarify the doctrine of derivative sovereign immunity.

The Supreme Court’s Decision

Based on Justice Kagan’s dissent in the 2013 case, Genesis Healthcare Corp. et al. v. Symczyk, and principles of contract law, the Court ruled that Gomez’s cause of action was not effaced by Campbell’s unaccepted offer to satisfy his individual claim. According to the Court, an unaccepted settlement offer or offer of judgment is a legal nullity that does not moot a plaintiff ’s case. Adopting Justice Kagan’s analysis, Justice Ginsburg wrote,

When a plaintiff rejects such an offer—however good the terms—her interest in the lawsuit remains just what it was before. And so too does the court’s ability to grant her relief. An unaccepted settlement offer—like any unaccepted contract offer—is a legal nullity, with no operative effect.

Thus, an unaccepted offer cannot eliminate the pending “case or controversy” required for federal jurisdiction. Accordingly, the district court still retained jurisdiction to adjudicate Gomez’s complaint.

The Court, turning to the issue of immunity, noted that the United States and its agencies are not subject to the TCPA. The Court held that federal contractors (like Campbell), however, are not similarly immune and rejected Campbell’s derivate immunity defense.

Practical Impact

According to David L. Schenberg, a shareholder in the St. Louis office of Ogletree Deakins, “By misstating the issue as if it is one of contract, the majority opinion obfuscates the crucial fact that the defendant’s offer left nothing for the plaintiff to litigate and no need for litigation. The decision epitomizes an unfortunate willingness of some courts to allow themselves to be used for the seeming purpose of forcing defendants to settle on a class-wide basis. We often see class actions certified on the flimsiest of grounds, leaving defendants no economically viable option but to settle. Here, the Court’s decision allows a putative class-action to proceed despite the fact that the defendant already offered the only existing plaintiff everything he could recover in the litigation. The only ones who benefit are plaintiffs’ lawyers.”

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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