ATTORNEY: LOUIS C. LUDWIG
POMERANTZ MONITOR MARCH/APRIL 2016
As we noted briefly in the last issue of the Monitor, in Campbell-Ewald Company v. Gomez, the Supreme Court ruled that a plaintiff’s claim cannot be mooted solely by an unaccepted settlement offer, including an offer of judgment pursuant to Federal Rule of Civil Procedure 68. Defendants had hoped that by offering the class representative – but not the class members – all the relief he or she had requested in the complaint, they could get rid of that representative and the class action as well.
The court’s ruling was widely seen on both sides of the bar as a victory for plaintiffs and their counsel. That reaction, however, was likely premature. Gomez leaves open the possibility that defendants could still “pick off” plaintiffs by actually paying or tendering them the amounts allegedly owed. Simply put, the “pick off” risk that bedeviled class action plaintiffs before Gomez remains at least theoretically intact in its wake.
Generally, Rule 68 allows a defendant to make an offer of judgment for a specified amount, including costs accrued to date. If the plaintiff rejects the offer and the result obtained in the action is less than the amount of the rejected offer, the plaintiff must reimburse all of defendants’ costs incurred after the offer was made.
Turning down such an offer of judgment necessarily engenders risk, particularly for plaintiffs who choose to lead class actions, which, for various reasons, tend to incur higher costs on the path to trial. Even worse, defense lawyers have sharpened Rule 68 into a unique weapon known as the “pick-off” strategy,” which aims to quickly end potential class actions without ever getting to the merits of the claims.
The pick-off strategy typically plays out as follows: the named plaintiff in a class action is served with an offer of judgment for all the relief he or she personally seeks, separate from the class. Not wanting to sell out the class he or she represents, the named plaintiff rejects the Rule 68 offer in order to continue litigating for a favorable classwide outcome. Next, the defendant seeks the dismissal of the case on the basis that the offer provided the plaintiff with everything asked for in the complaint, leaving no “case or controversy” remaining to litigate. If that happens, the case cannot proceed on a class basis unless a new named plaintiff is willing to step forward. Even assuming that a new named plaintiff can readily be found, the successor is just as susceptible to the pick-off strategy as his or her predecessor.
Prior to Gomez, several federal appellate courts limited the pick-off strategy by making the effectiveness of a Rule 68 offer contingent on, variously, whether plaintiffs had been provided an opportunity to first file a motion for class certification or whether the offer actually preceded the filing of and/or ruling on a motion for class certification.
Gomez involved allegations of an unsolicited text message that violated the Telephone Consumer Protection Act (the “TCPA”). As a general matter, the TCPA places a $1,500 ceiling on statutory damages for a single violation. While Gomez was styled as a class action, the plaintiff, Gomez, had not filed a motion for class certification at the time defendant Campbell-Ewald (the advertising agency that sent the text message) served him with an offer of judgment for just over $1,500, plus reasonable costs. Gomez declined the offer by failing to accept it within the time provided. Subsequently, Campbell-Ewald prevailed on a motion for summary judgment on the ground that the offer of judgment mooted plaintiff’s individual claim.
The Court of Appeals for the Ninth Circuit reversed, holding, in part, that an unaccepted Rule 68 offer does not moot a plaintiff’s individual or class claims. As circuit precedent differed widely on these issues, certiorari was granted. The Supreme Court affirmed the Ninth Circuit, with the majority adopting Justice Elena Kagan’s dissent in Genesis HealthCare Corp. v. Symczyk, which reasoned that an “unaccepted settlement offer — like any unaccepted contract offer — is a legal nullity, with no operative effect.” The court concluded that the rejection could only mean that the settlement offer was no longer operative, and the parties “retained the same stake in the litigation they had at the outset.”
Nonetheless, the Gomez court’s focus on the offer-and acceptance dance of Contracts 101 led it to reserve, “for a case in which it is not hypothetical[,]” the question of whether defendants can continue to moot claims by making an actual payment of full relief. Justice Ruth Bader Ginsberg, writing for the majority, explained that a claim might be mooted under Rule 68 when 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.” Perhaps even more ominously, Chief Justice John Roberts described the majority’s “offers only”- circumscribed decision as “good news.”
With the recent passing of Justice Antonin Scalia and resultant 4-4 split on the Court, the possibility remains that defendants will try the tactic of full tenders of relief to named plaintiffs in class actions, and that the issue will likely find its way back to the High Court.
The securities plaintiff’s bar has not borne many such pickoff attempts, probably as an unintended consequence of the Private Securities Litigation Act of 1995 (“PSLRA”).
The PSLRA expressly creates an open competition for “lead plaintiff.” Although the investor with the largest losses usually wins that competition, it is only after a profusion of qualified plaintiffs has come forward following a nationwide notification process. Indeed, an entire informational infrastructure has arisen to provide investors with PSLRA-mandated notice of securities class actions. Moreover, unlike consumer class actions, where damages to individual class members may be relatively small, lead plaintiffs chosen in securities class actions typically hold hundreds of thousands or even millions of shares of company common stock, and have millions of dollars in individual damages. Thus, the act of picking off such plaintiffs would not only be extremely costly but would actually be futile owing to no shortage of potential replacements, and if it did work, it would result in thousands of individual shareholder claims being filed, swamping the courts. This would essentially amount to litigating thousands of shareholder claims on an individual basis. At least in the securities context, Gomez, a case about short-circuiting class actions, ironically ends up highlighting their economy, particularly from the vantage of the defendants’ bar.
