Supreme Court Limits Effect of Rule 68 for Class Actions in Campbell-Ewald

On January 20, 2016, the U.S. Supreme Court held 6-3 in Campbell-Ewald Company v. Gomez, No. 14-857 (2016), that the plaintiff's Telephone Consumer Protection Act (TCPA) claim is not mooted by an unaccepted settlement offer, including a Fed. R. Civ. P. 68 offer of judgment. The decision is considered a substantial victory for consumer class action claimants, but may not foreclose all potential use of Rule 68 offers as a defense in class actions.

Case Background

Plaintiff Gomez filed suit against defense contractor Campbell-Ewald Co. in 2010, claiming violations of the TCPA after he allegedly received a Navy recruiting text message in 2006. Campbell-Ewald had developed a messaging campaign for the Navy and contracted with Mindmatics LLC to transmit the message. The plaintiff sought treble statutory damages (up to $1,500 per call), costs, attorney's fees, and an injunction against Campbell-Ewald's involvement in unsolicited messaging. Before class certification, Campbell-Ewald made a Rule 68 offer of judgment for complete relief, including costs less attorney's fees, $1,503 per text message, and a stipulated injunction in which it agreed to be barred from sending future messages in violation of the TCPA. Campbell-Ewald also made an independent settlement offer. Rule 68 enables a defendant to recoup costs where a plaintiff previously rejected the defendant's offer of judgment that is more favorable to plaintiff than the final judgment. In Campbell-Ewald, the plaintiff failed to accept the offer and allowed the Rule 68 offer to lapse.

Thereafter, Campbell-Ewald moved to dismiss the claims, arguing that its offer to provide the plaintiff complete relief rendered his individual claim moot and removed the Article III case or controversy. The district court denied the motion but later granted summary judgment on the ground that Campbell-Ewald enjoyed derivative sovereign immunity from TCPA liability as a contractor acting on the Navy's behalf. On appeal, the Court of Appeals for the Ninth Circuit reversed on the sovereign immunity issue but agreed that the TCPA claim was not mooted by the unaccepted Rule 68 offer.

Supreme Court Decision

In Campbell-Ewald, the Supreme Court affirmed the Ninth Circuit by a 6-3 majority, with one concurring and two dissenting opinions.

Justice Ginsburg delivered the majority opinion, joined by Justices Kennedy, Breyer, Sotomayor, and Kagan, concluding that the answer to the Rule 68 puzzle lay in "basic principles of contract law." The majority reasoned that, without acceptance, a Rule 68 offer remained as a non-binding proposal. The parties remained adverse and with the same stake in the litigation as before the offer was made, and the district court retained jurisdiction to adjudicate the case. The Court adopted the analysis from Justice Kagan's dissent in Genesis HealthCare in holding that, when a plaintiff rejects a settlement offer, her interest remains unchanged, as does the court's ability to grant relief. The unaccepted offer becomes no more than a "legal nullity." (The Court also held that federal contractors do not share the Government's unqualified immunity for liability and litigation.) 

In a somewhat surprising break in the usual ranks, Justice Thomas concurred in the judgment. He refused to join the majority opinion because, in his view, a different source resolved the Rule 68 issues presented:  the common law history of "tenders" and how courts have traditionally viewed a defendant's offer to pay the plaintiff's damages. Justice Thomas suggested that this body of common law demonstrated that a mere offer of full relief did not divest a court of jurisdiction to decide the case. 

Chief Justice Roberts penned a dissent, joined by Justices Scalia and Alito, contending that this "straightforward" case is best resolved as an application of the Article III case or controversy requirement. The dissent would hold that if a plaintiff brings a claim for redress of an alleged injury, and the defendant agrees to fully redress the plaintiff's alleged injury, a case or controversy ceases to exist for purposes of Article III. The plaintiff can no longer demonstrate an injury and the parties' interests are no longer adverse. A court that decides the merits of such a case violates the prohibition on advisory opinions. 

Finally, Justice Alito wrote a separate dissent to emphasize his belief that the dispositive question was whether it is certain that the offering defendant "will pay." Mr. Gomez's case was mooted by the unaccepted Rule 68 offer because of the undisputed fact that Campbell-Ewald would pay the money it offered Mr. Gomez if the case had been dismissed.

What Now?

The question remains what, if any vitality, the Rule 68 offer of judgment has as a defense in the wake of Campbell-Ewald. If the Court had gone the other way and decided that an unaccepted Rule 68 offer can moot individual and class claims, it could have been a powerful defense tool to cut off class damages at the outset by offering to pay the maximum amount the named plaintiff could recover. This approach could work particularly well in TCPA cases, where an offer can be based on a simple calculation of maximum damages provided for by the statute. By removing this possible Rule 68 defense strategy, Campbell-Ewald may embolden class plaintiff's counsel, including an increasingly aggressive TCPA plaintiff's bar, in their approach to class actions and settlement offers.

But that does not mean that the Rule 68 offer has no bite in a class action.  Beyond the cost-shifting authorized by Rule 68, an unaccepted offer of judgment might undercut putative class representatives' adequacy if they turn down an offer of relief that contains something of value to the class, like injunctive relief. An unaccepted Rule 68 offer could also reflect tension between named plaintiffs and class counsel, which may be relevant in determining the adequacy of counsel.

Interestingly, Justice Ginsberg left on the table an important alternative:  whether a defendant who goes the next step by paying the full amount of the plaintiff's individual claim into an account payable to the plaintiff would moot the claim. (Note that the majority implies that a court may also need to enter judgment for it to moot the claim.) In his dissent, Justice Alito noted that Campbell-Ewald does not prevent a defendant who has actually paid complete relief, either directly to the plaintiff or to a trusted intermediary such as a bank account in the plaintiff's name or to the district court, from seeking dismissal on mootness grounds. While this is a step further than what is required by Rule 68, it may be an avenue that remains open to defendants to cut off standing to a class plaintiff following Campbell-Ewald.

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