Insights

An old adage asks: "If a tree falls in the woods and nobody is around to hear it, does it make a sound?" That timeless head-scratcher grabbed the attention of the U.S. Supreme Court recently in the form of a standing issue: Can an unaccepted settlement offer of complete relief deprive a plaintiff of standing to sue? On January 20, 2016, the U.S. Supreme Court in Campbell-Ewald Co. v. Gomez, 136 S. Ct. 663 (2016), found that an unaccepted offer of settlement by a defendant did not render a plaintiff's individual or class claims moot even if the defendant offered complete relief to the plaintiff. However, the Court notably did not address the related hypothetical situation where, rather than simply offering to pay the plaintiff, the defendant had deposited the full amount of the plaintiff's individual claim in an account payable to the plaintiff and a court had entered judgment for the plaintiff in that amount.

In Campbell-Ewald Co. v. Gomez, the U.S. Navy contracted with the Campbell-Ewald Company to develop a marketing campaign for the recruitment of young adults. Consumers who opted in to the program would receive text message advertisements on subjects including the Navy. The list of recipients included Jose Gomez, who had not consented to receive the text messages. Gomez filed a putative class action complaint against Campbell-Ewald in the U.S. District Court for the Central District of California, claiming that Campbell-Ewald violated the Telephone Consumer Protection Act by using an autodialer to send text messages without prior consent. Campbell-Ewald offered to settle Gomez's individual claim for the full amount of his possible recovery. Campbell-Ewald also filed an offer of judgment under Federal Rule of Civil Procedure 68. Gomez refused the settlement offer and allowed the Rule 68 offer to lapse.

Campbell-Ewald then moved to dismiss the case for lack of subject-matter jurisdiction. Campbell-Ewald argued that its settlement offer mooted Gomez's individual claim. In addition, Campbell-Ewald argued that its unaccepted settlement offer, submitted before Gomez moved for class certification, also mooted his class claims. The trial court denied Campbell-Ewald's motion to dismiss. The U.S. Court of Appeals for the Ninth Circuit affirmed the trial court's decision, and the U.S. Supreme Court affirmed the appellate court's decision.

The question on appeal was whether a "case" or "controversy" remained after Campbell-Ewald's settlement offer. According to the Court, Campbell-Ewald's settlement offer had no legal effect because Gomez rejected the offer. Federal Rule 68 did not change that result. Therefore, the Court, drawing on case law wherein multiple railroad companies relied on statutory law which permitted them to deposit the full demand amount of back taxes into a bank account in the State's name to fully extinguish the claims, held that an unaccepted settlement offer from a defendant does not moot a case, even if the offer would provide complete relief to the plaintiff. However, the Court left the door open for a future case wherein the defendant deposited the full amount of the plaintiff's individual claim in an account payable to the plaintiff and sought judgment from the court.

Justice Thomas wrote a concurring opinion, agreeing with the majority's conclusion but stating that the common law rule for tender, the unconditional offer of money, should be the manner used to resolve the controversy and would render the issue moot. Chief Justice Roberts and Justices Alito and Scalia dissented. The Chief Justice took the position that Gomez no longer had a stake in the litigation once Campbell-Ewald offered to provide full relief to him. At that point, the "case" or "controversy" ceased to exist. In a separate dissent, Justice Alito agreed with Roberts, but clarified that he would have voted with the majority if he had any doubt that Campbell-Ewald would have fulfilled its promise to pay Gomez.

Therefore, despite Justice Alito's dissent and the practical issue raised by Justice Breyer in oral arguments that Gomez was receiving everything he sought, the Court chose not to address whether the hypothetical full satisfaction of the relief amount deposited with the court would render the claims moot. While Campbell-Ewald may return to the district court, deposit the money, and seek judgment as suggested by the Justices, that issue will remain for another day. For now, the Court's opinion seems to say that a tree falling makes no sound if no one hears it.

Crystal L. Gray is an associate in the Washington, DC office of Hudson Cook, LLP. Crystal can be reached at 202-327-9702 or by email at cgray@hudco.com.

Eric D. Mulligan is an associate in the Hanover, MD office of Hudson Cook, LLP. Eric can be reached at 410-865-5402 or by email at emulligan@hudco.com.