A seemingly innocuous recruitment text message from the United States Navy has led to the official unraveling of a tactic long-used and widely-favored by defendants to escape a class action lawsuit before class certification. In a 6-3 decision, the United States Supreme Court rejected the argument that an unaccepted settlement offer or offer of judgment moots a plaintiff’s claim and thus a class action as well.

Background and Procedural History

In Campbell-Ewald Company v. Gomez, Petitioner, Campbell-Ewald Company, was retained by the United States Navy to conduct a multimedia recruitment campaign aimed at young adults. One branch of this campaign included sending text messages to potential recruits encouraging them to consider the Navy. The Navy approved the text messages as long as they were only sent to those who “opted-in” to receive marketing materials.

Campbell then contracted with another company, Mindmatics LLC, to identify cell-phone users between 18 and 24 years old who had consented to receiving text messages from the Navy. In May of 2006, Mindmatics transmitted the Navy’s recruitment text to over 100,000 recipients.

One of those recipients was the Respondent, Jose Gomez. Gomez was, at the time, a 40-year-old man who had not consented to receiving text messages from the Navy. Gomez alleged that Campbell violated the Telephone Consumer Protection Act (TCPA), which “prohibits any person, absent the prior express consent of a telephone-call recipient, from “mak[ing] any call . . . using any automatic telephone dialing system . . . to any telephone number assigned to a paging service [or] cellular telephone service.” 47 U.S.C. §227(b)(1)(A)(iii).

Gomez filed a class action complaint in the District Court for the Central District of California seeking treble and statutory damages, costs, and attorney’s fees, as well as an injunction against Campbell’s involvement in unsolicited messaging.  Prior to the deadline for filing a motion for class certification, Campbell made a Rule 68 offer of judgment that included paying Gomez his costs excluding attorneys’ fees, $1,503 per message received and an injunction which barred Campbell from sending text messages in violation of the TCPA, but denied any liability. Gomez did not accept the offer. Before Gomez filed his motion for class certification, Campbell filed a motion to dismiss, arguing the district court lacked subject matter jurisdiction over the matter since no case or controversy remained now that Gomez had been provided with complete relief for his injury, and thus the putative class claims also became moot. The district court denied the motion.

Campbell subsequently filed a motion for summary judgment, arguing the U.S. Navy enjoys sovereign immunity from the TCPA and that as a contractor for the Navy, Campbell acquired that immunity. The district court agreed and dismissed the case. The Ninth Circuit Court of Appeals reversed the lower court, holding that Campbell was not entitled to sovereign immunity and that an unaccepted Rule 68 offer of judgment does not moot an individual claim or a class action. The Supreme Court granted certiorari to settle a disagreement amongst the courts of appeals as to whether a Rule 68 offer of judgment does or does not moot a plaintiff’s claim.

The Supreme Court Opinion

Adopting Justice Kagan’s reasoning from her dissenting opinion in Genesis HealthCare Corp. v. Symczyk (in which the Court reserved the issue of whether an offer of judgment moots a claim) the Court found that, “[w]hen 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.”

The Court further reasoned that once the offer expired, the parties remained adversaries, as both retained the same stake in the litigation they had at the outset. The Court noted that Rule 68 provides that an unaccepted offer is only admissible when determining costs, and for no other reason.

Since Gomez’s individual claim still stood, the Court ruled “a would-be class representative with a live claim of her own must be accorded a fair opportunity to show that certification is warranted.”

Of note, however, is the caveat offered by the Court at the end of its analysis, in which it reserves ruling on a hypothetical situation in which “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.”

The Court also rejected Campbell’s sovereign immunity argument, determining that it did not follow the Navy’s implicit instructions to confirm the messages complied with the TCPA.

Conclusion and Implications

The Supreme Court’s ruling settles once and for all the effect of an unaccepted Rule 68 offer of judgment or settlement offer on a plaintiff’s claim. However, the Court appears to have left the door cracked for defendants via its unanswered hypothetical on the possibility of depositing the full amount of plaintiff’s claim into a bank account payable to the plaintiff. While it is unclear how the Court would rule in such a case, it will not likely be long before a defendant tests the waters.

On Monday, the U.S. Supreme Court issued its highly-anticipated opinion in  DirecTV, Inc. v. Imburgia et al., 577 U.S. ___ (2015), which reaffirmed its ruling in AT&T Mobility LLC v. Concepcion, 56 U.S. 333 (2011), dealing yet another blow to California Courts’ attempts to invalidate class action waivers.

Background

The plaintiffs in Imburgia filed their lawsuit in 2008, arguing that class action arbitration waivers were per se unenforceable in California under Discover Bank v. Super. Ct., 36 Cal. 4th 148, 162-163 (2005).  Under the Discover Bank rule, California courts were free to find such provisions, when contained consumer contracts of adhesion, unconscionable and to rule that they should not be enforced. Id.

The DirecTV service agreement at issue in Imburgia provided for arbitration of customer disputes and included a class action waiver but also stated that “[i]f . . . the law of your state would find this agreement to dispense with class arbitration procedures unenforceable, then this entire [arbitration waiver] is unenforceable.”  While the Imburgia case was pending, the Supreme Court issued its decision in Concepcion, which ruled that the Discover Bank rule was preempted by the Federal Arbitration Act (“FAA”).  Despite Concepcion, the California Court of Appeals still found the class action waiver provision in the DirecTV service agreement unenforceable under the theory that the parties had chosen the law of California to govern at the time of drafting and, absent federal preemption, California law would not enforce such provisions.

Opinion

Justice Breyer delivered the opinion of the Court, which began with this “elementary” lesson:  “The Federal Arbitration Act is the law of the United States, and Concepcion is an authoritative interpretation of that Act.  Consequently, the judges of every State must follow it.”  (Slip Op. at 5). Unsurprisingly, the Supreme Court went on to rule that the California Court’s failure to do so indicated that it was not placing arbitration contracts “on equal footing with other contracts” and had therefore run afoul of the FAA.  (Id. at 10-11).

Justice Ginsburg and Justice Sotomayor dissented, opining that, given the specific language of the service agreement and the fact that it was drafted before Concepcion, the state court was free to interpret the contract as it had, and to find the class action arbitration waiver unenforceable.  (See Ginsburg Dissent at 3).  They also lamented that the Court’s recent decisions in Concepcion and Italian Colors had effectively deprived “consumers’ rights to seek redress for losses” and “insulated powerful economic interests.”  (Id. at 10-11).

Implications

Imburgia eliminates any doubt as to the enforceability of class action arbitration waivers.  Retailers and service providers wishing to avoid class action claims are encouraged to include them in their contracts and to be aggressive in enforcing them in litigation, even in the face of arguably ambiguous language.

By Scott M. Pearson, Jeffrey A. Berman, Eric M. Lloyd and Kiran Aftab Seldon

On May 29, 2014, the California Supreme Court issued its much-anticipated opinion in Duran v. U.S. Bank, vacating a $15 million judgment in a wage-hour class action where the court found liability based on a flawed statistical sampling.  Although the Court did not completely reject the use of statistical sampling to establish class-wide liability, it significantly limited the circumstances in which sampling is available.  Most importantly, the Court held that sampling may not be used when it deprives a defendant of its due process right to present affirmative defenses as to all class members.  It also reaffirmed plaintiffs’ burden of establishing manageability in order to certify a class, as well as the obligation of courts to decertify classes that prove to be unmanageable.

The plaintiffs in Duran alleged that U.S. Bank had misclassified certain employees as “outside salespersons” who are exempt from overtime and other requirements because they spend more than 50% of their working time making sales outside the office.  Although declarations from putative class members showed that some class members met the 50% requirement and others did not, the trial court certified a class.  It then adopted a trial plan in which a purportedly random sample of 20 class members plus two of the named plaintiffs would testify at trial, and both liability and damages would be extrapolated to the entire class from findings based on the sample group.  At trial, the court excluded all evidence that class members outside the sample group were in fact exempt, and concluded based only on the sample evidence that all class members had been misclassified.  It also set damages by extrapolating from the sample despite a 43% margin of error, awarding approximately $15 million to the class.

Affirming the Court of Appeal, which had reversed the trial court, the California Supreme Court agreed that the class should have been decertified and ordered a new trial.  The Court confirmed that a defendant has a due process right to “litigate its statutory defenses to individual claims.”  Thus, “any trial must allow for the litigation of affirmative defenses, even in a class action case where the defense touches upon individual issues.”  If statistical sampling is to be used at all for proving liability in a class action, the Court held, it must comport with due process and use sound methodologies.  In particular, among other things: (a) the sample size must be “sufficiently large to provide reliable information about the larger group,” (b) the sample must be random and free of selection bias, and (c) the approach must yield results within a reasonable margin of error.  Furthermore, trial courts should evaluate any proposals for statistical sampling before certifying a class, and they must decertify classes that prove unmanageable.

Although Duran unfortunately did not completely reject the use of statistical sampling to establish classwide liability, it does make it significantly more difficult for plaintiffs to use that approach.  It also will help defendants opposing class certification, as it reaffirms the requirement that class litigation be manageable, which too often is ignored in lower courts.

By Scott M. Pearson and Daniel Joshua Salinas

California’s Consumers Legal Remedies Act and Unfair Competition Law (Business and Professions Code Section 17200) both are notorious for allowing plaintiffs’ class action lawyers to bring extortionate lawsuits based on technical statutory violations or conduct that arguably is “unfair.”  On May 1, 2014, the California Supreme Court weakened those statutes, holding that neither may be used by consumers to challenge sales tax reimbursement charges.  Loeffler v. Target Corp.,No. S173972, 2014 WL 1714947 (Cal. May 1, 2014).

In Loeffler, plaintiffs brought a class action against the defendant retailer seeking to recover sales tax reimbursements they paid for “to go” hot coffee, which they contend is not taxable.  Affirming the lower courts’ dismissal of the action without leave to amend, the Supreme Court held that consumers have no standing to challenge sales tax reimbursement charges, as it is the retailer, not the consumer, who is the taxpayer; and the Board of Equalization has primary jurisdiction over tax matters.  An action by consumers under the CLRA and UCL, the court held, would undermine both the Board’s primary jurisdiction and the tax code’s safe harbor for reimbursements for sales tax that has been remitted to the state.  Consumers may, however, seek injunctive relief ordering retailers to seek reimbursement from the Board of Equalization under Javor v. State Board of Equalization, 12 Cal. 3d 790 (1974).

In addition to undermining the increasingly frequent lawsuits premised on erroneous sales tax charges, Loeffler may have broader impact because it applied two existing defenses to UCL claims — primary jurisdiction and abstention in matters of complex economic policy — to the CLRA.  See, e.g., Farmers Ins. Exch. v. Superior Court, 2 Cal. 4th 377, 394 (1992) (primary jurisdiction); Beasley v. Wells Fargo Bank, 235 Cal. App. 3d 1383, 1391 (1991) (abstention).  In the wake of Proposition 64, the CLRA has effectively replaced the UCL as the California class action plaintiff’s weapon of choice.  The application of these defenses to CLRA claims therefore is a welcome development for defendants in consumer class actions.

 

On Thursday, May 29, 2014 at 12:00 p.m. Central, Robert Milligan, Joseph Marra and Joshua Salinas will present the first installment of Seyfarth’s 2014 Class Action Webinar series, our class action attorneys will discuss how plaintiffs’ attorneys are increasingly filing class actions in California seeking to apply the state’s privacy laws to routine telephone communications between businesses and their customers.

Companies located outside of California are not immune: These privacy laws arguably encompass any call made to or received by someone located in California. If your company records or monitors inbound or outbound telephone calls with customers or employees, you need to attend this webinar.

California privacy laws seemingly couple stringent compliance requirements with staggering liability damages. Aggregating damages in a class action context can quickly place exposure figures in the millions of dollars for even innocent but alleged technical violations of the statutes. Recent case law has influenced the attractiveness of these claims, and companies should take proactive measures to protect themselves against these suits now. The Seyfarth panel will specifically address the following topics:

  • Understanding the California Invasion of Privacy Act (“CIPA”) and why these claims are so enticing for plaintiffs’ attorneys, including Penal Code Section 632 and 632.7 claims; • Recent case law that has strengthened plaintiff’s abilities to bring CIPA claims as well as a discussion of typical defenses to such claims;
  • Recent case law that has strengthened companies’ abilities to defend against CIPA class actions;
  • Specific steps a company should take to protect itself against such suits; and
  • Additional mechanisms for limiting exposure and avoid liability under CIPA.

There is no cost to attend this webinar, however, registration is required.

 

First off, Happy New Year to our Blog Readers. Thank you for your patronage last year and we look forward to another year rolling over the legal class action landscape together.

As you may have recognized, either in reading our blog or simply reading the paper, a vast majority of the consumer class docket last year across the country was stuffed with cases brought under the Telephone Consumer Protection Act (“TCPA”).  The decisions ran the gamut, from insurance coverage disputes to class certification issues to cy pres conflicts.  The past year also found increased traffic on the administrative side, with nearly a dozen petitions filed with the Federal Communications Commission seeking clarification and assistance in restraining the proliferation of class action litigation under the TCPA.  These petitions seek guidance on the hottest topics being litigated, including: (1) what constitutes an autodialer; (2) whether informational cell phone calls require prior written consent; (3) whether the Act applies to documents transmitted via the Internet; and (4) whether opt-out notices are required on faxes sent with prior express consent.

While this statute created a boom for creative plaintiff’s lawyers, its uncontrolled expansion across the country (watch out New York) has become a drain upon not only the defendants to those suits, but small businesses and even the government.  We have unfortunately witnessed at our firm lawsuits targeting “mom and pop” businesses, apparently brought by plaintiffs with hopes of striking gold through an insurance policy without exclusions.  Further, the Wall Street Journal reported last November that the TCPA has hindered the federal government from efficiently recovering approximately $120 million in unpaid taxes.

Fresh off the New Year, two separate cases are postured to allow the United Supreme Court to address several of pressing issues under the TCPA, as well as to perhaps add some common sense to the interpretation of the statute, as Judge Benitez of the Southern District did late last year.   See Chyba v. First Financial Asset Management, 12-cv-1721 (S.D.N.Y. Nov. 20, 2013).

First, in Turza v. Holtzman, the defendant has petitioned the United States Supreme Court on several bubbling issues, one of which, the availability of cy pres, may be enough to pique the interest of the sitting justices.  Turza is an attorney who sent facsimiles to a purchased list of contacts.  The faxes took the form of a newsletter called the “Daily Plan-It”, which provided industry news and generic legal advice to the recipients.  The bottom portion of the fax provided contact information for Turza.  The lower court found that the faxes were unsolicited advertisements and entered judgement against Turza for $4.2 million, ordering that 1/3 of that amount, or $1.4 million, be paid to the plaintiff’s counsel, with the remaining money constituting a common fund.  Any moneys not claimed, the court held, would be then paid to a cy pres legal aid clinic.  On appeal, the Seventh Circuit upheld the judgment, but remanded to the lower court, taking issue with the designation of the judgment as a common fund, as well as the cy pres designation, but, nonetheless, ordering the solo practitioner to turn over the $4.2 million in a court-maintained account until resolution of the issue on remand.  Turza has now appealed the decision to the United States Supreme Court, challenging not only the issues of the common fund and cy pres, but also the underlying decision related to the designation of the facsimile as an advertisement.  The petition is pending on the United States Supreme Court docket as Case No. 13-760.

Second, in Uesco Industries Inc. et al. v. Poolman of Wisconsin Inc, the plaintiff is seeking a direct appeal to the United States Supreme Court on denial of its motion for class certification.  In Uesco, the defendant was solicited by a marketing agency to utilize the services of that company to send facsimiles.  Ultimately, the defendant acquiesced, but provided explicit instruction on the types of industries it wanted to target.  According to the defendant, against those wishes, the marketing agency sent facsimiles to a larger group of companies, including the plaintiff.  Before the lower court, the defendant argued that no vicarious liability could attach to it, as the marketing company exceeded the scope of its authority.  On appeal, the First District reversed, holding that the express language of the statute, and controlling precedent, required the agent to act within its scope before the defendant could be liable under the TCPA.  The petition is on the United States Supreme Court’s docket as Case No. 13-771.

The new year brings new hope that somewhere, someone will add a pound of sense to the Cerberus-like statute.  In the meantime, we will continue to assist our clients in avoiding the many pitfalls the statute presents, as well as identifying creative solutions to resolving pending litigation.