Supreme Court Decision Weakens Class Defendants' Tactical Arsenal
One of the strategies employed by class-action defendants has been to submit an offer of settlement pursuant to Rule 68 of the Federal Rules of Civil Procedure in the full amount of the putative class representative's claim. By doing so, a class defendant could then argue that there is no longer a case or controversy and the individual plaintiff's claim would be mooted, thereby depriving federal courts of Article III jurisdiction. This argument was based upon the Rule 68 offer and was not conditioned on the individual plaintiff's acceptance of the offer. In essence, it created a "forced settlement" of the individual claim.
The U.S. Supreme Court's recent decision in Campbell–Ewald Co. v. Gomez, No. 14-587 (2016) eliminated the ability of a class defendant to moot an individual plaintiff's claim by submitting a Rule 68 offer of settlement. The Court ruled that once a Rule 68 offer of settlement is rejected, it has "no continuing efficacy." "With the offer off the table, and the defendant's continuing denial of liability, adversity between the parties persists." Therefore, a class defendant cannot preclude a class action from proceeding by simply tendering a Rule 68 offer of settlement, even if that offer is for the full value of the individual plaintiff's claim.
This, however, is not the end of the analysis. The final two sentences of the majority opinion provide a potential pathway to the use of the forced-settlement strategy in the future. The Court concluded by recognizing:
|"We need not, and do not, now decide whether the result would be different if a defendant deposits the full amount of the plaintiff's individual claim in an account payable to the plaintiff, and the court then enters judgment for the plaintiff in that amount. That question is appropriately reserved for a case in which it is not hypothetical."|
This expressly leaves open the question of whether an actual tender of payment—as opposed to an offer to pay—would serve to moot an individual plaintiff's claim and, thereby, end a class action. In most cases, this is not a substantial impediment, as the individual claims are often very small. In Campbell–Ewald Co. for example, the offer was to pay $1,503 plus costs, excluding attorneys' fees. The ability to pay this amount was not disputed.
The importance of this distinction may be found in the division of the justices on this decision. Justice Ginsburg delivered the opinion of the Court and was joined by Justices Kennedy, Breyer, Sotomayor and Kagan. Justices Roberts, Scalia and Alito dissented. Justice Thomas concurred with the majority in a separate opinion that strongly indicated he would consider the actual tender of payment to moot the claim of an individual plaintiff. This subtle factual distinction could lead to Justice Thomas and perhaps Justice Kennedy aligning with the Campbell–Ewald Co. dissent. This analysis is further affected by the recent passing of Justice Scalia and the unsettled future for the selection of a successor. For now, however, the strategic arsenal of a class defendant has been depleted.
Perry Glantz is member of the firm's Financial Services and Class Action practice group. His practice focuses on banking, environmental, employment and general commercial litigation. Mr. Glantz works from the Denver office. For more information please contact Perry or your usual Stinson Leonard Street contact.