Class Action Settlement for Individual Claims Do Not Avoid Liability for Entire Class: Court

A U.S. Supreme Court decision released this week provides important protection for consumers, preventing corporations and other defendants named in class action lawsuits from avoiding liability for damages in claims involving large numbers of individuals by offering small settlements to the named plaintiffs who initiate the case.

In an opinion (PDF) issued on January 20, the U.S. Supreme Court Justices ruled that class action settlement offers made to a named plaintiff for an amount that exceeds what the individual could collect in the case can not allow the defendant to obtain dismissal of the class claims.

The decision came in a case known as Campbell-Ewald v. Gomez, involving a class action brought over violations of the Telephone Consumer Protection Act (TCPA), which prohibits automatic dialing systems from sending unwanted text messages to a cellular device.

The United States Navy contracted with Campbell-Ewald Company to develop a multimedia recruiting campaign that targeted young adults between the ages of 18 and 24. The lawsuit claimed that Campbell-Ewald then subcontracted Mindmatics LLC, to generate a list of cellular phone numbers for consenting aged users, which then sent Naval service solicitations to over 100,000 thousands recipients.

The lead plaintiff in the case, Jose Gomez, then 40 years old, alleged that Campbell-Ewald violated the TCPA because he never consented to the solicitations and is not in the target range of sought for young adults.

After filing the class action lawsuit, Campbell-Ewald offered Gomez $1,503 to settle his case, which according to court records is three dollars more than the maximum allowable amount of damages he would be able to recover under any judgment involving a violation of privacy rights under the TCPA.

Gomez rejected the offer with anticipation that other similarly situated individuals who were also wronged would likely join him through the class action recovery process.

In an attempt to avoid substantial liability from large numbers of claims through the class action, which may include hundreds or thousands of other class members,

After the lead plaintiff in the case, Jose Gomez, rejected a settlement offer, Campbell-Ewald filed a motion to dismiss the case after making the settlement offer, arguing that the grounds for the complaint were now moot.

In a 6-3 decision, the Supreme Court rejected the argument, indicating that “an unaccepted settlement offer or offer of judgment does not moot a plaintiff’s case” and that the plaintiff has the right to pursue the case on the behalf of him and the violated class as a whole.

The Court noted that if defendants were able to negate class action lawsuits by offering settlements to the front runners of the claims, it may deprive other affected individuals from ever receiving compensation where it is due.