SCOTUS Watch: Current Class Action Issues Before the Supreme Court Part II

As the recent decisions regarding the Affordable Care Act and gay marriage make obvious, the Supreme Court continues to wield tremendous influence and power over our nation’s laws and legal framework. When it comes to class actions, that power is essentially absolute.

In our last post we examined the case of Robins v. Spokeo, an important privacy lawsuit under the Fair Credit Reporting Act that could have meaningful consequences for class action practitioners and litigants. In this post we take a look at a second case,[1] Gomez v. Campbell-Ewald Co., 768 F.3d 871, 873 (9th Cir. 2014) cert. granted, No. 14-857, 2015 WL 246885 (U.S. May 18, 2015), which also raises important class action issues. Before jumping in, a little background is helpful with respect to two key legal issues—mootness and the role of the named plaintiff in class actions.

Mootness and the Role of the Named Plaintiff/Class Representative

First, for a case to proceed in federal court, the Constitution requires that there be a live “case or controversy.” Despite what you may hear about America’s “sue happy” legal culture, not just anyone gets to sue. Rather, plaintiffs must have “standing” to sue—they must have personally suffered the harm at issue in the case and the injury must be one that can be remedied. For example, if a bad driver hits your neighbor in a car accident and puts your neighbor in the hospital, you don’t have the right, simply as a friend of your neighbor, to sue the bad driver for your neighbor’s injuries, hospital bills, or pain and suffering. It is your neighbor, as the injured party, that has the right to sue for money, which will help your neighbor pay their bills etc.

Related to this requirement of standing is a requirement that the case or controversy be “live.” That is, you can’t sue if the issue that you could’ve sued about no longer exists. So, if your neighbor gets hit by a car but then reaches a settlement with the bad driver that requires the bad driver to pay the neighbors’ damages in exchange for a release (and agreement not to sue the bad driver for the accident) then no controversy exists anymore. Upon reaching the settlement, any question regarding the bad driver’s responsibility for the accident or the neighbor’s damages is said to become “moot,” and the case or controversy that once existed is no longer “live.”

The second legal principal requires an understanding of how class actions work. To file a case as a class action, the Plaintiff doesn’t need to name numerous individuals in the complaint (the document you file to kick off the lawsuit). Instead, you only need one person who was injured by a Defendant’s practice(s) and a good faith basis for believing that there are at least 40 other people who were injured in the same way. (For example, when people receive unlawful spam robo-calls calls from telemarketers, there is generally reason to believe that the company spammed more than 40 people). The one person (or sometimes two or three) that lends his or her name to the complaint is referred to as the “named plaintiff.” If a class is eventually certified by the court in accordance with Federal Rule 23, the named plaintiff typically becomes the “class representative.” If the class representative wins his or her case after the class is certified, all members of the class win as well.

Rather than defend against a costly class action lawsuit—which will necessarily entail substantial “discovery” (the legal name given to the process in a case where, for a period of time prior to trial or a ruling on class certification, the parties exchange information through written questions (interrogatories), requests for documents, and depositions (oral testimony, under oath, about the facts of the case)—companies that are sued in class actions have developed a strategy whereby they attempt to “pick off” the named plaintiff. That is, even though the case was brought as an alleged class action, a the beginning of the case the company tenders to the named plaintiff an amount sufficient to cover the named plaintiff’s complete claim, including any damages the named plaintiff claims s/he has personally suffered together with costs and reasonable attorneys fees. They do this in the hope that the offer will moot the named plaintiff’s claim, because a named plaintiff generally cannot continue to represent the class if his or her individual claims have become moot.

So, going back to our telemarketing example, under the Telephone Consumer Protection Act (“TCPA”) each spam telephone call entitles the recovering plaintiff $500, which can be trebled (tripled, to $1,500). Let’s say the named plaintiff received two unlawful robocalls. If a defendant tries to “pick off” the named plaintiff by offering him/her $7,500 ($3,000 for the two calls plus $4,500 for costs and attorney’s fees for filing the case)—even if the offer is not accepted—some courts have found that such an offer would moot the named plaintiff’s claims, thereby stripping the named plaintiff of his or her ability to serve as the class representative. Without a named plaintiff, most courts find the case cannot continue (though some are willing to provide limited discovery to locate a new representative). In any case, even if the offer is accepted, $7,500 is potentially hundreds of thousands of dollars (perhaps more) less expensive than class discovery could end up costing, and potentially millions of dollars cheaper than an adverse judgment would be if a class were ever certified (every 1,000 calls is $500,000 - $1,500,000 in liability, and often tens of thousands of calls are made). As such, a defendant looking to escape a large class action can make such an offer, argue to the court that the case is over because the named plaintiff no longer has standing, and then continue spamming consumers without fear of substantial litigation.

With these two principles explained, we examine how the federal courts of appeal (the courts that sit just below the United States Supreme Court) have analyzed the issue.

The Circuit Split

While a majority of courts that have reviewed the issue of pick offs have held that they are ineffective at mooting class actions—for example, Stein v. Buccaneers Ltd. P’ship, 772 F.3d 698, 707 (11th Cir. 2014) (“In all events, the Damasco approach would produce unnecessary and premature certification motions in some cases and unnecessary gamesmanship in others. We join the majority of circuits and decline to follow Damasco”), Lucero v. Bureau of Collection Recovery, Inc., 639 F.3d 1239 (10th Cir. 2011), Pitts v. Terrible Herbst, Inc., 653 F.3d 1081, 1091 (9th Cir. 2011), and Weiss v. Regal Collections, 385 F.3d 337 (3d Cir. 2004)—a handful have disagreed, finding that unaccepted offers that provide complete relief can moot the named plaintiff’s claims. See e.g. Damasco v. Clearwire Corp., 662 F.3d 891, 896 (7th Cir. 2011) (“To allow a case, not certified as a class action and with no motion for class certification even pending, to continue in federal court when the sole plaintiff no longer maintains a personal stake defies the limits on federal jurisdiction expressed in Article III”), Fontenot v. McCraw, 777 F.3d 741, 747 (5th Cir. 2015).

So if a class action gets filed in the Seventh Circuit or the Fifth Circuit, what is a named plaintiff to do? The leading voice for the minority view, the Seventh Circuit’s decision in Damasco, provides one solution:

A simple solution to the buy-off problem that Damasco identifies is available, and it does not require us to forge a new rule that runs afoul of Article III: Class-action plaintiffs can move to certify the class at the same time that they file their complaint. The pendency of that motion protects a putative class from attempts to buy off the named plaintiffs.

Damasco, 662 F.3d at 896.

Truthfully, this is not a very good solution. First, Rule 23 makes no mention of a motion for class certification at all. Instead, it simply states that, “At an early practicable time after a person sues or is sued as a class representative, the court must determine by order whether to certify the action as a class action.” Given that the rules don’t even discuss such a motion, holding that filing one carries some form of constitutional heft defies logic and reasoning. As explained aptly by the Eleventh Circuit in Stein:

[A] motion to certify, without more, does nothing that is significant on this issue. The motion indicates that the named plaintiff intends to represent a class if allowed to do so, but the complaint itself announces that same intent; the motion is not needed for that purpose. A certification order confirms that the case will so proceed; a motion does not. The assertion that a motion fundamentally changes the legal landscape—indeed, that it impacts the constitutional prerequisites to jurisdiction under Article III—makes no sense.

Stein, 772 F.3d 698, 707 (11th Cir. 2014).

Second, courts don’t like placeholder motions. Courts cannot issue advisory opinions, and are accustomed to only ruling on matters when they are ripe for determination. As such, providing the court with a skeleton motion that says discovery is needed to provide sufficient facts adds nothing to the case that wasn’t already set forth in the Complaint. Predictably, courts have reacted in different ways to placeholder motions, striking them, entering and continuing them, and, in some circumstances, admonishing the plaintiff’s attorneys not to file them.

As such, while in the Seventh and Fifth circuits class action practitioners are advised to file placeholder motions for certification at or near the time the case is filed to ward against pick offs, in circuits like the Eleventh and Ninth such filings are generally unnecessary.

The Decision to Review Gomez v. Campbell-Ewald Co.

Against this backdrop, the Supreme Court has decided to grant certiorari in the case of Gomez v. Campbell-Ewald Co., where the Ninth Circuit, reviewing its prior precedent, affirmed that:

We have already explained that ‘an unaccepted Rule 68 offer of judgment—for the full amount of the named plaintiff's individual claim and made before the named plaintiff files a motion for class certification—does not moot a class action.’

Gomez v. Campbell-Ewald Co., 768 F.3d 871, 875 (9th Cir. 2014) (citing Pitts v. Terrible Herbst, Inc., 653 F.3d 1081, 1091–92 (9th Cir.2011)).

But Campbell-Ewald filed a write of certiorari (a petition for review by the Supreme Court) that was granted in May 2015. The petition presents three issues, the first two of which ask:

1. Whether a case becomes moot, and thus beyond the judicial power of Article III, when the plaintiff receives an offer of complete relief on his claim, [AND]

2. Whether the answer to the first question is any different when the plaintiff has asserted a class claim under Federal Rule of Civil Procedure 23, but receives an offer of complete relief before any class is certified.

If the Supreme Court adopts Damasco—which it shouldn’t—it will only lead to class action plaintiffs filing more placeholder motions for class certification together with the initial complaints. This only adds to the expense of filing the case. Furthermore, and as the Eleventh Circuit recognized in Stein, such a decision wouldn’t make sense: Federal Rule 23 doesn’t even mention a motion for class certification—why would filing one be a matter of constitutional significance? Likewise, adopting Damasco only leads to more gamesmanship from companies as they rush to pick off plaintiffs where their lawyers chose not to file these “placeholder” motions. And, if successful, such defendants get to continue their unlawful conduct unchecked, ready to pick off the next potential plaintiff.

Instead of endorsing such frivolity, the Supreme Court should seize Gomez as an opportunity to overrule Damasco and its progeny so that these initial procedural hurdles can be avoided. By filing a lawsuit and styling the complaint as a class action, the plaintiff has advised the court that the rights of absent individuals may be implicated. As such, an offer that merely seeks to provide relief to satisfy the named plaintiff’s individual claim does not offer complete relief—the plaintiff has specifically sought, as part of the relief claimed in the lawsuit, treatment of the case as a class action. Any offer of complete relief would necessarily need to encompass relief to the class members as well. Additionally, by pleading the case as a class action, an offer mooting the named plaintiff’s claim shouldn’t affect the class members’ claims at all: as they have yet to receive relief, there is still a “live case or controversy” for the court to adjudicate.

In any case, arguments are to be scheduled for next term, and like Spokeo, class action practitioners on both the plaintiff and defense side are paying close attention.

[1] While our look at SCOTUS was originally scheduled to be a two-part entry, the Court recently granted certiorari (legal review) to a third case that will be explored in our next installment: Tyson Foods, Inc. v. Bouaphakeo, No. 14-1146, 2015 WL 1278593, at *1 (U.S. June 8, 2015), a class action that focuses on whether a class can include individuals who supposedly haven’t been injured and whether statistical analysis can be used to determine class membership and damages.

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