Supreme Court: You Can’t Shut Down A Consumer Class Action By Offering Settlement

If you believe that a company has wronged you and other consumers in the same way, you can file a class-action lawsuit seeking to represent all the purported victims of the company’s misbehavior. But can that company preempt the entire lawsuit by offering you a full settlement in advance? Today, the U.S. Supreme Court (well, six of them) said no.

Here’s the quick-sketch background on this case. The U.S. Navy hired a company called Campbell-Ewald to come up with a recruiting campaign that included sending out marketing text messages to consumers who, as required by law, had actively opted in to receiving such texts.

A man named Jose Gomez sued Campbell-Ewald, claiming that he never opted in to these messages and alleging that the company had violated the Telephone Consumer Protection Act (TCPA). He intended for the lawsuit to be a class action, representing consumers who were similarly texted without permission, but before he could file the motion for class certification, Campbell offered Gomez a settlement and moved to dismiss the case, even though Gomez rejected the offer.

Campbell claimed that its offer of a settlement rendered Gomez’s individual lawsuit moot because the offer would have provided him with complete relief. In fact, Gomez would have received $1,500 from Campbell, three times the statutory penalty for the alleged violation.

Going a step further, Campbell contended that, because Gomez had not yet filed his motion for class certification, any related class action was similarly mooted.

Both a U.S. District Court and the Ninth Circuit appeals panel held that Campbell could not moot the class action by making an offer that was rejected by the plaintiff. The courts disagreed on whether Campbell enjoyed “derivative sovereign immunity” from TCPA-related lawsuits because of its position as a contractor for the Navy.

Today, in a 6-3 split ruling [PDF], the U.S. Supreme Court held that “An unaccepted settlement offer or offer of judgment does not moot a plaintiff’s case.”

Writing for five-sixth of the majority (Justice Clarence Thomas penned his own concurring opinion), Justice Ruth Bader Ginsburg notes that a rejected 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.”

Today’s ruling stands in contrast to a recent similar case that went before SCOTUS, 2012’s Genesis HealthCare Corp. v. Symczyk. That matter, which involved a nurse claiming that a nursing home was illegally docking employees’ pay, was not a formal class action, but a “collective action” under federal wage-and-hour law. Unlike a class action, this would require other wronged employees to actively join in the claim, as opposed to merely being a passive member of a plaintiff class.

After the nurse filed her suit, the nursing home offered her a settlement that included unpaid wages, attorney fees, and expenses. The nurse never responded to the offer, and the nursing home moved to dismiss the case because no other employees had yet signed on to the lawsuit.

In a narrow 5-4 ruling, SCOTUS did not actually decide on the question of whether the lawsuit was mooted by the settlement offer. Instead, it assumed that the matter had been rendered moot, even if the settlement was rejected. What the court did decide on in Genesis was that, absent a plaintiff with a live individual case, the suit could not be maintained.

And so today’s opinion takes up that issue left undecided in the Genesis opinion, with Ginsburg noting one important difference between the two cases — that Gomez, unlike the nurse in the 2012 case, actively disputed before the lower court whether or not the case had been mooted.

Ginsburg points out that, while Federal Rule of Civil Procedure #68 obligates parties in a lawsuit to consider a settlement offer, nothing in the rule says that the offer must be accepted or a case is mooted.

In fact, the rule states that an unaccepted offer is “considered withdrawn” and “does not preclude a later offer.”

Campbell pointed to three precedents to support its argument that an offer of a full settlement rendered the lawsuit moot. All three cases cited by Campbell involve 19th century railroad taxes, which Ginsburg says is crucial to understanding why they don’t apply.

In each of the three cases, the party offering the settlement had already paid the money in full back to the state, and state law required that the funds be accepted.

“In all three cases, the railroad’s payments had fully satisfied the asserted tax claims, and so extinguished them,” says Ginsburg, adding that “Gomez remained emptyhanded” after the Campbell settlement offer.

“Because Gomez’s individual claim was not made moot by the expired settlement offer, that claim would retain vitality during the time involved in determining whether the case could proceed on behalf of a class,” reads the opinion. And since Mr. Gomez’s case should still have been considered live, he should have been “accorded a fair opportunity” to show that class certification was warranted.

Additionally, though the Campbell settlement in this case may have provided Mr. Gomez with the full financial relief he sought, Ginsburg notes that the deal included the condition that Campbell would not admit to any violation of the law. While that is not a monetary consideration, an admission of liability from the defendant may be one of the goals in filing a lawsuit.

In his dissenting opinion, Chief Justice Roberts argued that it’s up to a court to “decide whether each party continues to have the requisite personal stake in the lawsuit” after a settlement offer has been made, and that the majority’s ruling “takes that important responsibility away from the federal courts and hands it to the plaintiff.”

But Ginsburg responds that if you allow defendants to escape a class action lawsuit by only settling with one plaintiff, you would “place the defendant in the driver’s seat.”

Today’s decision is a rare pro-consumer ruling from this court, which has repeatedly sought to scuttle consumers’ access to the legal system.

In 2011, in the landmark Concepcion case, SCOTUS held that it was perfectly legal for a company to insert clauses into their contracts and terms of service that strip customers of their right to sue the company in court, or to bind their complaints together into a single class action.

Two years later, in American Express v. Italian Colors Restaurant, the Supremes upheld these bans on class actions, even if it meant that companies could break the law because it would be too expensive for a single plaintiff to mount a proper claim.

Most recently, the court ruled that state courts in California could no longer follow local precedent that had long deemed these bans on class actions unconscionable.

Want more consumer news? Visit our parent organization, Consumer Reports, for the latest on scams, recalls, and other consumer issues.