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April 7, 2016Download PDF

Show Me The Money! "Pick-Off" Attempts In The Wake Of Campbell-Ewald

While civil lawsuits can involve all sorts of different topics (employment discrimination, personal injury, a lease between landlord and tenant, copyright infringement, or a defective product, to name only a few), at heart they are all about the same thing: the plaintiff believes she has been wronged in some way by the defendant and is seeking redress from the court. Most often, this redress takes the form of money damages. Let’s say a plaintiff is injured in a car accident by the negligent defendant and files a suit asking for $100,000 in damages. If the next day that defendant offers to write the plaintiff a check for the $100,000, that should bring the dispute to an end, right?

The logic makes sense: what’s the point of continuing the suit – taking up the time of the parties and the court, spending money on attorney fees and expert witnesses, and clogging up an already overcrowded court system – when the defendant has already agreed to give the plaintiff everything she wants?

Not so fast. The Supreme Court recently took on this exact question – whether an offer of full relief ends the case – and said “no.” In Campbell-Ewald v. Gomez, 136 S. Ct. 663 (2016), the Court held that an unaccepted offer of judgment does not moot an individual claim, relying on the basic principle of contract law that an unaccepted offer is a “legal nullity” to find that both parties retain the same stake in the litigation each had at the outset when such an offer is rejected.

The ruling could certainly be considered inefficient in the above example, causing needless expense if the plaintiff refused to accept the defendant’s reasonable offer of complete relief. Chief Justice Roberts, along with Justices Scalia and Alito, certainly thought this way, stating in dissent that the case was “straightforward” in that “[w]hen a plaintiff files suit seeking redress for an alleged injury, and the defendant agrees to fully redress that injury, there is no longer a case or controversy” (emphasis in original).

The majority opinion also left open the possibility that the result could be different if a defendant deposited the full amount of the plaintiff’s individual claim in an account payable to the plaintiff, and the court then entered judgment for the plaintiff in that amount. The dissenting opinions seized upon this possibility, suggesting that a defendant could still end a case by actually forking over the dough rather than simply offering to do so. Let’s call this the “Jerry Maguire” exception.

Though the Supreme Court’s ruling and potential Jerry Maguire exception govern proceedings in all civil lawsuits – including the straightforward car crash described above – they merit unique consideration in the class action context. A plaintiff in a class action suit is not only looking for redress for herself but for all of the other members of the class who have been affected by the defendant’s conduct. Can paying the plaintiff’s individual damages end the suit – and should it?

Take another example: a plaintiff who purchased a product that says “100% organic apple juice” brings a class action against the defendant manufacturer after an independent study reveals that the product is not organic and is made with only 8% apple juice. The plaintiff is asking for a few things: (1) money damages in the amount of the purchase price of the product, which is negligible; and (2) an injunction preventing the defendant from making such false statements about its product.

It seems obvious in this case that the defendant’s offer to refund the $1.89 the plaintiff spent on the product would not be fully redressing the wrong, and is certainly not giving the plaintiff everything she asked for. What about the injunction? So, whether the Jerry Maguire exception applies or not, Campbell-Ewald suggests that this defendant’s offer will not end the case. But what if we go a step further: if the only thing the plaintiff was asking for was money damages for herself and the class, can the defendant end the suit by writing her a check for $1.89?

This is not an academic question: defendants in class actions employ this strategy all the time, attempting to “pick off” plaintiffs/class representatives by offering to pay (or actually paying) their individual damages without giving them a reasonable opportunity to show that class certification is warranted. This is a good strategy for defendants, as it allows them to end a class action suit on the cheap – in the example above for less than $2 in damages – while eliminating the possibility of the case continuing to class certification, where it could potentially cost them millions of dollars in class-wide damages.

Several courts ruling in the wake of Campbell-Ewald have recognized this issue, pointing to the Supreme Court’s statement that “a would-be class representative with a live claim of her own must be accorded a fair opportunity to show that certification is warranted.” See, e.g., Weitzner v. Sanofi Pasteur, 2016 U.S. App. LEXIS 6272 (3rd Cir. April 6, 2016); Bais Yaakov of Spring Valley v. Graduation Source, LLC, 2016 U.S. Dist. LEXIS 28805 (S.D.N.Y. Mar. 7, 2016); Brady v. Basic Research, L.L.C., 312 F.R.D. 304 (E.D.N.Y. 2016); Severns v. E. Account Sys. of Conn., 2016 U.S. Dist. LEXIS 23164, at *1-3 (E.D. Wis. Feb. 24, 2016). Not all courts have seen it that way though. See Heard v. United States SSA, 2016 U.S. Dist. LEXIS 32748, *24-25 (D.D.C. Mar. 15, 2016) (going the other way in finding that an offer of full relief made before a class certification motion was filed rendered the case moot).

The proper track is the former, as allowing proposed class representatives to have their day in court as class representatives is the only fair approach to these sorts of cases. Class actions are an effective, and many times the only, means for patrolling corporate misconduct and fraud. After all, if the juice manufacturer in the example above could avoid liability for its false claims by paying anyone who files a lawsuit a couple bucks, what incentive would it have to stop increasing sales by defrauding its customers? The incentive only arises if the defendant is facing significant liability on behalf of a class of consumers, not just one purchaser.

Though the Campbell-Ewald decision went a long way towards preventing this circumvention of the judicial process, the Jerry Maguire exception leaves open the possibility that defendants can continue to cut even the most meritorious and necessary class actions off at the knees. While courts do not appear to be relying upon it – in Bais, for example, the defendant had actually deposited the payment into a court-owned account – the exception needs to be eliminated entirely in the class action context, where its potential to eliminate the rights of millions of injured consumers is most palpable.