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.

Eleventh Circuit Rules Holds That Rule 68 Offers of Judgment to Named Plaintiffs Do Not Moot Their Ability to Represent a Putative Class. 

As many of our readers are aware, one strategy defense counsel use to dispose of a putative class action at an early stage in the litigation is to make an individual offer of judgment under Rule 68 to the named plaintiff giving them full relief on their individual claim (also known as a “pick off”).  Last week, the Eleventh Circuit ruled that such offers will not moot the plaintiff’s ability to represent a putative class.  Stein v. Buccaneers Limited P’ship, No. 13-15417 (11th Cir. Dec. 1, 2014). 

Although the decision aligns the Eleventh Circuit with other circuits on this issue, such as the Ninth and Fifth Circuits, the decision contradicts the current law of the Seventh Circuit as well as recent district court opinions within the Sixth Circuit, which hold that such offers may render putative class cases moot.  See Diaz v. First Am. Home Buyers Protection Corp., 732 F.3d 948 (9th Cir. 2013); Damasco v. Clearwire Corp., 662 F.3d 891 (7th Cir. 2011); Machesney v. Lar-Bev of Howell, Inc., No. 10–10085 (E.D. Mich.) Compressor Eng’g Corp. v. Mfr.s Fin. Corp., No. 09–14444 (E.D. Mich.).

Background and Procedural History

In Stein, six named Plaintiffs filed a putative class action in Florida state court against the defendant.  The complaint alleged that defendant sent unsolicited faxes advertising tickets to football games in violation of the Telephone Consumer Protection Act (“TCPA”).  Plaintiffs sought injunctive relief and statutory damages of $500 to $1,500 per violation.  The defendant removed the case to federal court and issued an offer of judgment to each of the named plaintiffs pursuant to Federal Rule of Civil Procedure 68.

The named plaintiffs did not accept the offers of judgment and the defendant moved to dismiss for lack of jurisdiction, asserting that the unaccepted Rule 68 offers rendered the case moot.  Shortly thereafter, plaintiffs moved to certify the class.  The district court denied the motion to certify the class and granted defendants’ motion to dismiss.  On appeal, the Eleventh Circuit reversed this decision.

The Eleventh Circuit Opinion

The Eleventh Circuit ruled that an unaccepted offer is effectively withdrawn, leaving the parties in the same position as they were prior to the offer.  Plaintiffs still had their claims, defendant its defenses, and money had not exchanged hands.  (Slip Op. at 7).  Thus, there was no basis to consider the plaintiffs’ individual claims moot.  Further, the Court found that “even if the individual claims were moot, the class claims remain live, and the named plaintiffs retain the ability to pursue them.”  (Slip Op. at 10).  In so doing, the Court referred to several cases (none of which involved the TCPA) in which the United States Supreme Court recognized that a named plaintiff whose individual claims were moot was still allowed to represent a class.  The Court also ruled that it was immaterial whether an offer of judgment was presented before or after a motion for class certification is filed, directly contradicting the Seventh Circuit’s decision in Damasco.  According to the Eleventh Circuit, there was no significance in filing a class certification motion as opposed to a complaint or class certification order and the rule in Damasco would only lead to premature motions and unnecessary gamesmanship.  (Slip Op. at 20).  What matters most, stated the Court, was not that the named plaintiffs had filed to file motion to certify but that they acted diligently after they received the offers of judgment.   Simply receiving the offer of judgment did not “without more, disqualify them from going forward.” (Slip Op. at 17).

Conclusion and Implications

The ruling in Stein puts the Eleventh Circuit squarely at odds with the Seventh Circuit’s ruling in Damasco, which allows unaccepted offers of judgment to moot putative class actions if made before the motion to certify the class has been filed.  Plaintiffs will certainly be aware of this decision and may make jurisdictional decisions accordingly.  And, given that Stein only furthers the circuit split on the pick off issue, it is ripe for presentment to the United States Supreme Court.

Introduction

Following the Seventh Circuit’s decision in Damasco v. Clearwire Corp., 662 F.3d 891 (7th Cir. 2011), Plaintiff’s counsel typically file motions for class certification along with their Complaints to prevent Defendants from using Rule 68 offers of judgment to “moot” the individual claims of their class representatives and derail the class action.

The strategy apparently backfired on May 28, 2014, when Judge Colin S. Bruce of the U.S. District Court for the Central District of Illinois addressed and denied two such motions in Sturdy v. A.F. Hauser Inc., No. 3:13-CV-03379 (C.D. Ill. May 28, 2014) and Sturdy v. Medtrak Educ. Servs. LLC, No. 3:13-CV-03350 (C.D. Ill. May 28, 2014).

Several months after docketing the motions, the Court issued written opinions refusing to certify two proposed classes of unsolicited fax recipients.  The Court found that Plaintiff failed to demonstrate that the classes were sufficiently large to warrant class treatment and failed to explain how he would ascertain the class members through discovery.  The denial now opens the door for the very thing Plaintiff’s counsel sought to avoid – offers of judgment directed at their client.  (Read more here and here.)

These cases demonstrate that the numerosity requirement for class certification in Rule 23(a)(1) still has some teeth.  Plaintiffs’ attorneys cannot meet the requirement with mere speculation, and Defendants should not overlook the requirement as a method by which to defeat certification of class claims.

Factual Background 

Plaintiff Dr. Mark W. Sturdy brought two putative class actions, one against A.F. Hauser Inc., and one against Medtrak Educational Services and other entities.  Plaintiff alleged that he received unsolicited fax messages from the Defendants that advertised their products and services.

He asserted claims for violation of the Telephone Consumer Protection Act (TCPA), violation of the Illinois Consumer Fraud and Deceptive Business Practices Act, and Illinois common law claims for conversion, private nuisance, and trespass to chattels.

Along with the Complaints, Plaintiff filed concurrent motions for class certification.  Plaintiff alleged that Defendants sent the faxes as part of advertising campaigns, and therefore, it was “reasonable to infer” that Defendants sent them to more than 20 to 40 people.  Plaintiff moved to “enter and continue” the motions.

In A.F. Hauser, the Court allowed Plaintiff’s motion to “enter and continue” in that it entered Plaintiff’s motion for class certification in the record and struck the response date.  In Medtrak, the Court allowed the filing of Plaintiff’s motion for class certification and continued it until the initial status conference.

Several months later, without responses from the Defendants, the Court issued opinions denying class certification in both cases.

The Court’s Opinions

The Court denied both motions because, in both cases, Plaintiff failed to establish numerosity under Rule 23(a)(1).  Numerosity requires that the class be “so numerous that joinder of all members is impracticable.”

Plaintiff argued that the Court should infer that the faxes were sent to more than 40 people because “it would make no economic sense to prepare and send such a fax unless it is sent to more than 40 people.”

The Court refused to make such an inference.  Plaintiff offered no reason why he chose a class of at least 40 members or why it would not make economic sense to send the fax to fewer recipients.  The Court, accordingly, dismissed Plaintiff’s reasoning as “speculative” and “not properly supported.”

Plaintiff also failed to establish any way to ascertain the class members.  While class members need not be ascertained prior to certification, they must be ascertainable at some point in the case, and plaintiff must establish an objective way to determine who is a class member.

In his brief, Plaintiff claimed that he would obtain the exact number of class members through discovery.  However, Plaintiff did not show that Defendants used a specific list or database when sending faxes, and the record did not contain any reference to how the class members would or could be ascertained.

Implications

Plaintiff filed motions for class certification with his complaints and apparently without much investigation as to the numerosity requirements.  While the strategy, no doubt, prevented Defendants from “buying off” the named Plaintiff at the outset, Plaintiff failed to supplement his motions, and the Court ultimately found his showing insufficient.  It found Plaintiff’s allegations of numerosity speculative and not properly supported, and it found that Plaintiff failed to establish any objective, reasonable way to ascertain potential class members.  Defendants should take a lesson from the opinions and be on the lookout for similar opportunities to take advantage of deficiencies in Plaintiff’s initial showings.

The Circuits are split as to what effect an offer of judgment directed to a named plaintiff has on a putative class action.  The Seventh Circuit has taken a rigid view, holding that an unaccepted offer of judgment affording full relief to the named plaintiff renders a putative class action moot — unless there is already a motion for class certification on the docket.  The Second Circuit has yet to adopt or reject the rule, and, in an uncertain legal landscape, plaintiffs in putative class actions are strategizing to avoid the consequences of the Seventh Circuit holding.

Physicians Healthsource, Inc., v. Purdue Pharma L.P., et al, No. 3:12-cv-1208 (D. Conn. Sept. 6, 2013).

Background

Plaintiff Physicians Healthsource, Inc. filed a putative class action alleging violations of the Telephone Consumer Protection Act based on Purdue Pharma and its affiliates sending marketing materials by fax which did not contain the required opt-out notices.  Defendants moved to dismiss the litigation, but their motion was granted only in part, and the suit proceeded.

After failing to knock out the litigation through a motion to dismiss, any defendant would surely anticipate a motion seeking certification of the class in due course.  But Physicians Healthsource made a surprising move:  it filed a motion to certify the class before discovery had even begun.  (Slip Op. at 2.)

The District Court Opinion

In ruling on the motion for class certification, Judge Underhill began with a familiar recitation of black letter law.  To decide whether class certification is appropriate, the court must determine whether Rule 23(a)’s requirements of numerosity, commonality, typicality and adequacy are met, and plaintiff bears the burden of establishing the prerequisites by a preponderance of the evidence.  Slip Op. at 2-3.

The Court then explained that it could not fulfill its duty to rigorously analyze the requirements of Rule 23(a) because plaintiff filed its motion prior to discovery.  The Court noted that plaintiff conceded that more discovery was needed, but sought “leave to submit a memorandum of law … after it obtains discovery.”  Slip Op. 2 (emphasis in original).

Judge Underhill surmised that plaintiff was spooked into action by the recent Seventh Circuit decision holding that an unaccepted offer of judgment affording the named plaintiff full relief will render moot a putative class action unless there is a class certification motion on the docket.  See id. (citing Damasco v. Clearwire Corp., 662 F.3d 891, 896 (7th Cir. 2011)).  The Court noted that the Second Circuit has not adopted the rule, and other circuits have expressly rejected it.  Id.

The Court denied the motion, dismissing it as premature.  It noted, however, that even if a premature motion for certification will preserve plaintiff’s ability to pursue a putative class action in the face of an offer of judgment, there is no reason for the Court to allow an “under-developed motion” to “linger on the docket.”  Judge Underhill explained that orders granting or denying certification are “inherently tentative,” and the Court is free to modify such an order according to developments in the litigation.  The Court therefore denied Plaintiff’s motion for class certification without prejudice to renewal at a later date.

Implications

The Physicians Healthsource decision does not resolve whether the Second Circuit will follow the Seventh Circuit in adopting a rule that an unaccepted offer of judgment affording full relief to the named plaintiff will render a putative class action moot unless there is a motion for class certification on the docket.

Until the issue is expressly resolved by the Second Circuit, the Physicians Healthsource decision will encourage named plaintiffs to file for class certification at the earliest possible date, well before discovery allows development of a meaningful record.  If courts follow Judge Underhill’s example, there is no harm to plaintiff in filing a premature motion, and doing so will preserve their ability to ward off the consequences of the Seventh Circuit rule while also allowing them to later re-file for class certification on a full record.