This week’s grant of certiorari in Gomez presents the possibility for major changes in the defense of class actions involving relatively small individual damages.
Gomez filed a class action after receiving an unsolicited text message from Campbell, a marketer for the US Navy. Gomez claims the text violates the Telephone Consumer Protection Act (TCPA). Before the District Court could rule on class certification, Campbell offered Gomez full statutory damages ($1,503) plus reasonable costs in an effort to moot the class action. Gomez refused the offer. Both the District Court and the Ninth Circuit held that an unaccepted settlement offer for the full amount of the plaintiff’s damages did not moot either his claim or the class claim.
The US Supreme Court has held that an unaccepted settlement offer made to the named plaintiff(s) after a ruling on class certification, whether favorable to the class or not, does not moot the claim. Sosna v. Iowa, 419 U.S. 393 (1975) (grant); United States Parole Com’n v. Geraghty, 445 U.S. 388 (1980) (denial). The rationale is that, once certified, the class acquires independent legal status and that, if certification were improperly denied, that independent status relates back to the date of wrongful denial.
The Supreme Court has also held that such an offer does moot a collective action under section 16(b) of the Fair Labor Standards Act (29 U.S.C. § 216(b)). Genesis Healthcare Corp. v Symczyk, 133 S.Ct. 1523 (2013). Unlike Rule 23(b)(3) class actions, in which class members must opt out of the action, an FLSA collective action requires potential plaintiffs to opt into the case. Conditional certification of a collective action does not confer independent legal status on the case; it merely means that potential class members receive a letter inviting them to opt into the case. Whether that distinction warrants different treatment for class actions that defendants attempt to moot before a ruling on class certification is the ultimate issue in Gomez.
The intriguing aspect of Gomez is that the Court granted cert. without waiting for a circuit split. According to the Ninth Circuit, at least ten federal courts had held that Genesis did not apply to Rule 23 class actions. The Supreme Court’s willingness to hear the case suggests that several members of the Court do not find the distinction persuasive.
If Campbell prevails before the Supreme Court, the implications for class actions would be dramatic. Any properly advised defendant could “pick off” a putative class action by offering the named plaintiff(s) full compensation for their alleged injury or damage. In most small-dollar cases, the cost of settling is far less than the cost of litigation. So Gomez could be the death knell of most consumer fraud class actions.
We anticipate a ruling sometime during the winter of 2015-16 and will monitor progress on the case in the meantime. For additional information, please contact Randy Mullendore or Mark Arnold.