The U.S. Supreme Court today wrestled with a seemingly simple question that could determine the future of class-action litigation: Can companies dismantle these cases before they start by paying individual plaintiffs everything they could possibly win in court?
Plaintiff lawyers hope not. But the oral arguments in Campbell-Ewald v. Gomez suggested the justices may disagree, with even liberal Justice Stephen Breyer questioning how a lawsuit can proceed if the person who filed it has been offered everything he's entitled to receive.
"The judge at that point should say, the defendant has all he wants. The case is over. Good-bye,” Breyer told Jonathan F. Mitchell, attorney for plaintiff Jose Gomez.
That's not what this case is really about, of course. Gomez is just one of some 100,000 people who allegedly received text messages from a company under contract with the U.S. Navy. He serves as the vehicle for class-action lawyers who want to negotiate a settlement on behalf of everybody, a settlement, as Justice Samuel Alito noted, that would probably pay their ostensible clients little to nothing but provide lots for Gomez's lawyers.
Before they can talk fees, however, class-action lawyers have to convince a judge to certify a class. And for that they need a living, breathing plaintiff with a viable claim. So Campbell-Ewald tried to nip the case in the bud by offering Gomez triple the $500 in statutory damages for each violation of the Telephone Consumer Protection Act plus agreeing to an injunction against future violations. Gomez refused and the Ninth Circuit agreed he still had a case, even though he arguably had no chance of winning anything more than Campbell-Ewald offered.
In oral arguments, the justices first wrestled with the core question of whether federal courts, whose jurisdiction is limited to live "cases or controversies" under Article III of the Constitution, could order the end to a case that was already moot because of a settlement offer. Logic suggests if a case is moot, there is no case for the court to issue judgment upon. This is the argument of the Obama administration, which derives a lot of political and financial support from the class-action bar.
Justice Anthony Kennedy put his finger on the essential problem: “You want us to write an opinion saying that a settlement offer is equivalent to a judgment,” he said. Justice Ruth Bader Ginsburg jumped in to note that Rule 68 of the Federal Rules of Civil Procedure, which covers pretrial settlement offers, specifies that a rejected settlement offer has no legal meaning other than in proceedings to determine who pays costs if the plaintiff ultimately wins less.
The court's liberal justices also protested that Gomez had not, in fact, gotten everything he asked for. He wasn't offered legal costs, which aren't provided for under the TCPA, and he might want to use the class-action procedure to spread his costs over the other class members.
“A court can’t say ‘Oh, you’ve offered complete relief,’ because in his view you haven’t offered complete relief, and that’s what the litigation is all about,” Justice Elena Kagan said.
"I suppose he could ask for the key to Fort Knox, right?" Justice Antonin Scalia quipped. "And then no settlement offer would suffice, right?"
"He could ask for a unicorn, Your Honor," responded Campbell-Ewald's attorney, Gregory G. Garre.
When Mitchell began his arguments Chief Justice John Roberts immediately asked why plaintiffs should be allowed to force courts to handle cases where there is nothing significant left to decide. "You won't take `yes' for an answer," Roberts said.
Mitchell then got in an argument with Scalia over whether an Article III judge can issue a judgment in a case that is already moot. But the real issue is whether class action lawyers can remain in the game after their client has gotten everything he asked for, except their fee. When Roberts asked Mitchell what would truly settle the case, he listed the requirements, including class certification.
"Oh well, that’s the whole thing, right?" Roberts said. "This is all about class certification.”
Breyer then raised the scenario that could dramatically change the fortunes of the nation's class-action lawyers, at least the ones who specialize in lawsuits over statutes like TCPA, where a company faces thousands or millions of claims each theoretically worth $500 or $1,000 apiece. Why can't companies tender cash with the court settling all potential claims with individual plaintiffs and have the judge declare the lawsuit over, he asked.
Because the plaintiff still wouldn't have a judgment, Mitchell answered.
"Give him judgment on the merits," Breyer snapped. "Who cares?”
The last time the court considered a similar question it decided a full offer of settlement mooted the case. But that decision, Genesis Healthcare v. Symczyck, involved labor law, which is fundamentally different from class actions under Rule 23 of the FRCP, most importantly because class members must opt in to a case. The 5-4 decision featured a strong dissent by Justice Kagan, but in arguments today the case seemed to fade in importance.
The Supreme Court in the 1970s skirted close to the idea of establishing a plaintiff's fundamental right to pursue a class action separate from whatever he's suing over but since then more conservative courts have recognized the inherent conflicts in lawsuits where the lawyers have a strong economic incentive to settle everybody else's claim in exchange for a fee.
It would be a big step for this court to decide that defendants can unilaterally end a case by making a Rule 68 offer of settlement.
“That would be a very big win for the defense bar," said Eric Hochstadt, a partner with Weil, Gotshal & Manges in New York.
With Breyer asking probing questions about what is really going on when a plaintiff refuses to accept everything he can get in court, however, that might just happen. Then class-action lawyers would have to do what lawyers are paid to do: Sign up individual clients and represent them in their litigation, instead of representing a faceless class of people who probably don't even know their lawyer exists.
