Business Law and Business Litigation: Class Action Decisions Provide Mixed Results for Big Business
By: Robert M. Fojo
Two decisions from the United States Supreme Court in 2016 dramatically impacted the class action landscape for businesses, particularly large businesses that sell to thousands or millions of consumers. These decisions – Campbell-Ewald Company v. Gomez (2016), and Spokeo Inc. v. Robins (2016) – addressed threshold justiciability defenses that a defendant may bring at the outset of a putative class action. They clarified how key issues in the pre-certification stage should be handled and may significantly decrease the litigation costs borne by businesses.
The Campbell-Ewald Decision
In Campbell-Ewald, decided Jan. 20, 2016, the Supreme Court held an unaccepted settlement offer does not moot a plaintiff’s case. The Court reviewed a decision from the Ninth Circuit Court of Appeals that allowed a class action, asserting a claim under the Telephone Consumer Protection Act (TCPA), to proceed against a company hired by the government to perform a multimedia recruiting campaign. The issue was whether a settlement offer for complete relief made by a defendant business to a plaintiff moots that individual’s claim. In the past, a defendant would attempt to “pick off” a plaintiff in a class action by tendering the full amount of the plaintiff’s claim.
In Campbell-Ewald, the plaintiff received an unsolicited text message from the defendant and alleged a single violation of the TCPA that prohibits the use of an “automatic dialing system” to send a text message to a cell phone. Under the TCPA, a plaintiff may sue in court and receive the greater of $500 or actual damages. The defendant made an offer of judgment (under Federal Rule of Civil Procedure 68) to the plaintiff of $1,503, or three times the $500 penalty available under the statute. The plaintiff, however, declined it.
Normally, in a traditional lawsuit, an offer that matches the damages claimed should moot the plaintiff’s claim, because it would be illogical to proceed in court and assume the risk of obtaining the very same relief. Indeed, it would lead to an enormous waste of resources. However, here, the plaintiff and his lawyers were seeking certification of a class action of thousands of similarly-situated cell phone users. The plaintiff was the putative (or proposed) representative of that class. If successful in certifying the class and obtaining a recovery, he and his lawyers stood to earn much more than $1,503. Thus, when viewed from that perspective, the decision to decline the defendant’s offer made sense – if the Court agreed such an offer did not moot the plaintiff’s case.
As noted above, the Court did, in fact, side with the plaintiff. It held an offer like the one the plaintiff received here did not moot his claim, and the district court retained jurisdiction to adjudicate the plaintiff’s claim.
The Spokeo Decision
In Spokeo, decided May 16, 2016, the Supreme Court held that a plaintiff must allege a concrete harm, and not just a technical violation of a federal statute, to have standing and proceed as a class representative in a class action. In that case, the defendant – a consumer reporting agency that operated a “people search engine” that compiles information about individuals from various sources on the Internet – allegedly listed inaccurate information about the plaintiff. The plaintiff filed a complaint and, for himself and on behalf of a class of similarly-situated individuals, claimed this was a violation of the Fair Credit Reporting Act, which requires consumer reporting agencies to follow certain procedures to ensure the accuracy of consumer reports. The plaintiff claimed the defendant violated a provision in the Act (15 USC Section 1681n (a)) that imposed liability on “[a]ny person who willfully fails to comply with any requirement [of the Act] with respect to any” individual.
The district court dismissed the complaint stating that the plaintiff had not properly pled an injury. A plaintiff must have “standing” under Article III of the US Constitution, which means the plaintiff must show, among other requirements, that he or she suffered an “injury in fact” that is “concrete and particularized.” The plaintiff must have suffered some actual harm, such as an injury to his or her person or an economic or other protected interest.
In Spokeo, the plaintiff alleged a procedural violation of a federal statute but did not allege that the violation actually harmed or risked harming him in any way. On appeal, the Ninth Circuit reversed and held the plaintiff’s allegation of a statutory right was sufficient to meet the injury-in-fact requirement.
The Supreme Court vacated the Ninth Circuit’s decision and remanded the case to the district court. It held the Ninth Circuit failed to address the requirement that the plaintiff’s injury must be “concrete” (and not just “particularized”). The Court reasoned that it was difficult to imagine how minor inaccurate information – such as an incorrect zip code – could work any concrete harm on someone.
Impact on Business Litigation
These decisions present potential dramatic benefits for businesses with large consumer bases because they provide opportunities for the implementation of early strategies to dispose of class action lawsuits before they become prohibitively expensive to litigate.
First, Spokeo will likely impede what would have been a major growth in class actions and will lead to an increase in motions to dismiss for lack of standing. A plaintiff and his or her lawyers can no longer rely on a mere technical violation of a statute to push a class action through to certification; they must allege an actual “concrete” injury. If they fail to do so, defendant businesses should invest in motions to dismiss to challenge that deficiency, and potentially halt a case at an early stage before it proceeds to class certification and discovery, when costs inevitably increase.
Second, Campbell-Ewald would appear to permit plaintiffs to proceed with a class action despite defendant businesses’ efforts to “pick off” the plaintiff with a full settlement offer. However, the Court noted, at the end of its analysis, the following: “We need not, and do not, now decide whether the result would be different if a defendant deposits the full amount of the plaintiff’s individual claim in an account payable to the plaintiff, and the court then enters judgment for the plaintiff in that amount.” In other words, instead of tendering or offering the plaintiff the full amount of his or her claim, a defendant could moot the claim by unconditionally depositing the funds with the Court. The Court will likely decide this question in the future. Thus, while Campbell-Ewald eliminated one business strategy for a forced class action settlement, it left open the possibility of reviving that strategy if a defendant business fully commits to its willingness to pay.
Businesses should take note of these decisions and incorporate them in their future litigation strategies.
Robert M. Fojo is the principal of Fojo Law. He practices law in Manchester, NH, in the areas of commercial litigation, construction disputes, and appeals. He is admitted to practice in New Hampshire, Massachusetts, and Florida. Contact him by email or at (603) 473-4694.