What’s Hot in Class Actions (Part 1/3): SCOTUS on Company's Power to Moot an Action & Congress' Power to Create One

Congress v SCtClass actions consume considerable company resources and can pose significant risk of exposure in the $ millions or $ billions. Therefore, it is critical for companies to prepare themselves – to know the trends in class action litigation and the tools available to minimize their exposure to class action liability. Over the last several weeks, the Supreme Court has heard arguments in three cases that have potential to further define the landscape of class action litigation: Campbell-Ewald Co. v. Gomez (No. 14-857), Spokeo, Inc. v. Robins (No. 13-1339), and Tyson Foods, Inc. v. Bouaphakeo (No. 14-1146). Recently, we have seen the advancement of federal legislation seeking to address particular aspects of class action fairness that would limit membership in certified classes. And the Rule 23 Subcommittee of the Advisory Committee on Civil Rules is considering whether to initiate proposed modifications to Federal Rule of Civil Procedure 23 to address several aspects of class litigation. We will hit the highlights of these developments in this three-part “What’s Hot in Class Actions” series.

Supreme Court Considers Whether Offer of Complete Relief to Named Plaintiff Moots Class Action

The High Court agreed to tackle an issue presented by Campbell-Ewald Co. v. Gomez (No. 14-857), which has the potential to arm companies with a method for shutting putative class actions down early. Defendant companies have taken the stance that offering complete relief to a named plaintiff pursuant to Federal Rule of Civil Procedure 68 before a class is certified renders the plaintiff’s class action claim moot. In this case, defendants proffered that complete relief was the maximum statutory damages available based on the individual claims. The federal Circuit Courts of Appeals are split on the mootness issue, and in Campbell-Ewald the Ninth Circuit rejected the majority view and held that an offer of complete relief does not moot the plaintiff’s individual claim nor the class action claim. You can read our previous post for additional background on the case. The Supreme Court heard oral arguments on October 14, 2015.

Several issues were raised by the Justices during arguments, including whether or not there is a merits issue with respect to determining what “complete relief” is for a plaintiff? For example, plaintiffs in this case were not offered attorneys’ fees even though they sought them. Plaintiffs also would not get a finding of liability or class certification with the offer of relief. Who determines whether the offer is complete? The parties and Justices also wrestled with the distinction between the effect of a Rule 68 offer and a free-standing settlement offer, as well as the distinction between mootness jurisdictional principles and a forced entry of judgment. Plaintiffs argued that the offer of relief could never render the case moot and at most the offer might justify a forced entry of judgment, but not a jurisdictional dismissal.

Despite Justice Kagan admonishing the parties to skip the class action policy arguments, policy did come up in questioning, with Justice Alito questioning whether this was the type of class action in which the class members would get very little monetary reward and the plaintiffs’ attorneys would be awarded high fees. Chief Justice Roberts probed whether an individual who has been offered complete relief would make an adequate representative for a class whose claims had not been resolved. What interest could an individual plaintiff still have in a class action if he’s been offered complete relief? Plaintiffs confirmed their position in response to Chief Justice Roberts’ question: “So the argument is that an individual plaintiff who has gotten everything that he has asked for…is entitled to proceed with the litigation because he might get a bonus from a class action that he would like to lead?” “That’s correct,” plaintiffs’ counsel responded.

Can Congress Grant Individuals the Right to Sue Based Solely on a Company’s Statutory Violations?

Questions regarding Congressional authority to confer standing to individuals who have suffered no injury in fact based solely on statutory violations is a “hot button” issue, especially given the rise of data breach, TCPA, and other class actions based on companies’ violations of statutory requirements that do not result in actual damages to the plaintiffs. In Spokeo, Inc. v. Robins (No. 13-1339), the plaintiff claimed that Spokeo, which gathers information from publicly available sources, disseminated inaccurate information about him on its website. Plaintiff sued under the Fair Credit Reporting Act because Spokeo failed to provide him with mandatory notices required under the statute before posting the allegedly inaccurate information, and alleged that it “caused actual harm” to his employment prospects. The FCRA provides for statutory damages for certain failures to follow required procedures. Spokeo sought dismissal, on several grounds, including that the plaintiff lacked standing to sue without proof of economic harm because Article III of the United States Constitution requires “concrete” injury – known as “injury-in-fact.” The District Court agreed with the defendant, dismissing the case because the plaintiff alleged no concrete injury, notwithstanding the permitted statutory damages. The Ninth Circuit reversed, holding that statutory damages are sufficient to meet Article III’s injury-in-fact requirement. The Sixth, Tenth and D.C. Circuits have held similarly, while the Second and Fourth Circuits have held that statutory damages are not sufficient.

The Supreme Court certified the following question for review: Whether Congress may confer Article III standing upon a plaintiff who suffers no concrete harm, and who therefore could not otherwise invoke the jurisdiction of a federal court, by authorizing a private right of action based on a bare violation of a federal statute. Oral arguments were heard on November 2nd, with a seemingly divided Court probing whether the dissemination of false information by a credit reporting agency is itself injury in fact sufficient to give rise to Article III standing and whether reading into the statute a requirement that false information be disseminated about an individual in order for them to sue would save it. Several of the Justices expressed diverging views, with Justice Kagan espousing that Congressional intent “seems pretty clear” and the statute “is entirely about preventing the dissemination of inaccurate information in credit reports which they seem to think is both something that harms the individual personally and also harms larger systemic issues. And then they gave the cause of action to the people it harmed personally.” To the contrary, Justice Scalia urged:

Congress did not identify, as the harm for which it allowed suit to be brought, misinformation. It did not. It identified as the harm…the failure to follow the procedures that it imposed upon credit reporting agencies. It said nothing about people…who have been hurt by misinformation being able to sue. It said anybody can sue who's been reported on if the agency failed to use the procedures. So in fact, Congress has not identified misinformation as a suable harm. That's not what this statute does.

And in Justice Sotomayor’s view, “the breach of any legal right you’re given…gives Article III jurisdiction.”

Spokeo is particularly noteworthy for the potential impact on data breach class actions, as well as FCRA, and Telephone Consumer Protection Act actions, all of which are gaining momentum. With data breaches predicted to be the “next wave” in class action litigation, a win for defendants would be significant. Justice Ginsburg raised class actions during arguments, probing the implications of a ruling in this case. Justice Kagan also touched on the impact on class certification if it is required that false information have been disseminated about an individual for them to have standing. Where the Court ultimately lands in this case remains to be seen.

Stay With Us for More

Part 2 of this series will provide insight into the U.S. Supreme Court’s review of Tyson Foods v. Bouaphakeo (No. 14-1146), which presents questions regarding the use of statistical evidence to certify classes and the inclusion of uninjured individuals in certified classes. Part 3 will highlight recent legislative and federal procedural class action developments.

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