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The Supreme Court Resolves Circuit Court Split Related to Class Action Suits In Campbell-Ewald Co. v. Gomez

In Campbell-Ewald Co. v. Gomez, the Supreme Court recently decided a previous split between the Federal Circuit Courts.  Specifically, the Court considered the issue whether a case is moot and beyond the judicial power of Article III of the Constitution when the representative plaintiff in a class action receives an offer of complete relief via an Offer of Judgment.  In an opinion by Justice Ginsburg issued on January 20, 2016, the Supreme Court held 6–3 that an Offer of Judgment under Federal Rule of Civil Procedure 68 does notmoot a plaintiff's claim.

In order to fully appreciate the Supreme Court’s decision and the issue that divided the Federal Courts of Appeals, it is worth examining the prior case law addressing this question.

In Genesis, the Supreme Court Skirts Around the Issue

In 2013, the Supreme Court decided a similar legal issue based on different facts coming out of the Third Circuit in Genesis Healthcare Corp. v. Symczyk. Genesis involved a putative class action under the Fair Labor Standards Act of 1938 related to payment for work performed while on a scheduled break where the defendant/employer made an Offer of Judgment for the full relief sought by the sole participating plaintiff/employee.  The Offer of Judgment was made prior to naming any class claimants other than the initial plaintiff who filed the lawsuit.  The Supreme Court considered the question of whether the plaintiff/employee and other employees similarly situated maintained a justiciable interest when the individual plaintiff’s claim arguably became moot as the result of an Offer of Judgment.  The Supreme Court held that there was no longer a justiciable interest; thus, signaling a potentially significant defense available to defendants in class action lawsuits.

By reaching this conclusion the majority assumed, without deciding, that an unaccepted Rule 68 offer that fully satisfies a plaintiff's individual claim renders the claims of the putative class moot. The majority did so because the plaintiff/employee conceded the issue and did not properly raise it before the Court. Justice Kagan, joined by Justices Sotomayor, Ginsburg, and Breyer, wrote a scathing dissent criticizing the majority for "resolv[ing] an imaginary question based on a mistake the courts below made about this case and others like it."

The dissent considered an unaccepted settlement offer a legal nullity, and warned the Third Circuit and other Courts of Appeals: "Rethink your mootness-by-unaccepted-offer theory. And a note to all other courts of appeals: Don't try this at home." The decision in Genesis left the Circuit Courts to decide whether to consider the majority's decision as approving the Third Circuit's approach or to heed Justice Kagan's warning in the dissent.

After Genesis: Circuits Split

The Circuit Courts took three different approaches after the Genesis decision: (1) unaccepted offers do not moot claims; (2) unaccepted offers do moot claims; and (3) a hybrid approach that favors entering a judgment for the plaintiff if an offer is unaccepted.

The First, Fifth, Seventh, Ninth, and Eleventh Circuits all held that an unaccepted Rule 68 offer that purportedly covers all of a plaintiff's damages does not moot the plaintiff's claims. Adopting the Third Circuit's position, the Fourth and Federal Circuits held that unaccepted offers of judgment will moot a plaintiff's claim; however, none of these Circuits reconsidered this issue after the Genesis decision. The Second, Sixth, and Eighth Circuit Courts created a hybrid approach that entailed entering a judgment in favor of the plaintiff when an unaccepted offer of relief was made that covered the entire claim.

Campbell-Ewald Co. v. Gomez: The Majority Adopts Justice Kagan's Prior Dissent Position

In the majority opinion in Gomez, the Supreme Court adopted Justice Kagan's analysis from her dissent in Genesis. The Court explained that under basic contract law principles, once a Rule 68 Offer of Judgment is rejected, it has no continuing efficacy.  Indeed, Rule 68 expressly states that an offer is considered withdrawn if it is not accepted within fourteen days. The Court held that once an offer is rejected and is withdrawn, the parties have the same stake in the litigation that they had before the offer was made. Chief Justice Roberts wrote a dissent joined by Justices Scalia and Alito. The dissent argued that the majority's decision will allow a plaintiff to pursue litigation based on his/her desire for a federal court to declare him/her right, not based on an actual controversy.

The Supreme Court's decision is a huge victory for the plaintiff's bar and class-action lawsuits and a blow to defense lawyers looking for a relatively easy (although potentially costly) way to protect their clients from further expense and the burden of a class action lawsuit. Now, defendants will be unable to "pick-off" potential class action lawsuits by making a Rule 68 Offer of Judgment. This is especially relevant to employers, as wage and hour class actions continue to increase. Defense attorneys will be required to use more traditional defenses to attempt to defeat class action lawsuits.