U.S. Supreme Court Holds Offers Of Full Relief To Named Plaintiffs Do Not Moot Putative Class Actions

The U.S. Supreme Court holds that settlement offers and other offers of full relief to named plaintiffs do not moot class action claims. The ruling restricts (but may not completely limit) defendants’ ability to use settlement offers or Rule 68 offers of judgment to resolve named plaintiffs’ claims in putative class and collective actions.

OVERVIEW
On January 20, 2016,the United States Supreme Court issued a decision in the closely-watched case of Campbell-Ewald Co. v. Gomez.[1]  The Court held that an unaccepted offer for complete relief in the form of a settlement offer or under Rule 68 of the Federal Rules of Civil Procedure does not moot named plaintiffs’ claims in a putative class action.  The case split along ideological and party lines.  Justice Ginsburg authored the majority opinion, which was joined by Justices Sotomayor, Kagan, Kennedy and Breyer.  Justice Thomas wrote a concurring opinion, while Chief Justice Roberts wrote a dissenting opinion, joined by Justices Scalia and Alito.  Justice Alito authored an additional dissenting opinion.

 

BACKGROUND
Plaintiff Jose Gomez filed a putative nationwide class action against Campbell-Ewald Company, accusing the company of violating the Telephone Consumer Protection ACT (TCPA) by sending unsolicited marketing solicitations via text message.  Gomez was was one of over 100,000 recipients of such texts and sought to represent a putative class.  Gomez sought treble damages for alleged willful violations of the TCPA, as well as costs, attorney fees, and injunctive relief prohibiting Campbell from sending unsolicited text messages.

Campbell made both a settlement offer and an offer of judgment under Rule 68 of the Federal Rules of Civil Procedure that would have given Gomez full relief on his TCPA claim before the deadline to file a motion for class certification. Gomez did not accept either offer and and allowed a 14-day wait period under Rule 68 to expire.  Campbell subsequently moved to dismiss the case for lack of subject-matter jurisdiction.  The district court denied the motion but ultimately granted Campbell summary judgment on an unrelated issue following limited discovery.  The U.S. Court of Appeals for the Ninth Circuit reversed the grant of summary judgment.  The Supreme Court granted certiorari to determine whether a case becomes moot under Article III of the Constitution if the plaintiff receives an offer of complete relief.

THE SUPREMES SUBSTANTIALLY NARROW GROUNDS ON WHICH A DEFENDANT CAN OBTAIN EARLY DISMISSAL OF A CLASS OR COLLECTIVE ACTION
In deciding Campbell-Ewald, the Supreme Court made it clear that an unaccepted offer of full relief under Rule 68 or pursuant to settlement does not moot a case and does not end  putative class or collective action.  The ruling significantly narrows the grounds on which a defendant can obtain early dismissal of a class or collective action.

Applying basic contract principles, the majority opinion held that an unaccepted settlement offer or offer of judgment for full relief cannot alone moot a plaintiff’s claims under Article III of the Constitution. It reasoned that once a settlement offer or offer of judgment is rejected, it has “no continuing efficacy.”[2]  Moreover, the majority held that because Rule 68 provides that an unaccepted offer of judgment is deemed “withdrawn” if not accepted within 14 days of service, that is the “sole built-in sanction.”[3]  Accordingly, if a settlement offer or offer of judgment is not accepted, the parties remain adverse, retaining “the same stake in the litigation they had at the outset.”[4]  The majority opinion did not address whether a request for class relief impacts the mootness analysis because Gomez’s claims were held not to be moot simply by virtue of not accepting the offers of complete relief.

The decision should be read as being limited to situations where the offer of relief fails to satisfy a plaintiff’s claim.  The majority opinion made it clear that it was not deciding whether a claim can be mooted “if a defendant deposits the full amount of the plaintiff’s individual claim in an account to the plaintiff, and the court then enters judgment for the plaintiff in that amount.”[5]  Chief Justice Roberts’ dissent opined that “[t]he agreement of the plaintiff is not required to moot a case.”[6]  Accordingly, he held that an unaccepted offer of judgment is a legal nullity as a matter of contract law but still moots a case because once “the defendant is willing to give plaintiff everything he asks for, there is no case or controversy to adjudicate.”[7]  Roberts held that it was irrelevant whether plaintiff spurned the offer because there would be no injury for the court to redress so long as full relief was made available to plaintiff.

IMPLICATIONS 
The Supreme Court’s ruling substantially limits the ability of defendants to use settlement offers or Rule 68 offers of judgment to resolve named plaintiffs’ claims in putative class or collective actions, a strategy that has often been employed in both consumer and employment maters.  Although the decision does not expressly address the class or collective action context, following the majority’s opinion in Ewald-Campbell, a named plaintiff that lets a settlement offer or Rule 68 offer of judgment lapse avoids the avoid mooting of his or her claims.  Notwithstanding Roberts’ dissent, this makes sense.  A case and controversy remains even where a defendant is willing to satisfy the individual claims of a putative class representative because the representative does not bring claims in an individual capacity and the defendant is not willing to offer full relief to the putative class.  If the putative representative was only seeking relief on individual claims, a class or collective action would never have been filed in the first place.

As stated above, it is worth noting that the decision is limited to unaccepted offers and that majority expressly declined to decide whether a claim can be mooted  if a plaintiff actually receives full relief.  The dissenting opinions suggest that full relief could be deposited with the district court on the condition that it be released to the plaintiff when the case is dismissed as moot.  However, a class action settlement must be approved by a district court as fair to absent members even prior to class certification.  Although courts do not consider whether a class action would be manageable when approving a “settlement class”, settlement classes must otherwise satisfy all the requirements or Rule 23(c) and (b) of the Federal Rules of Civil Procedure.[8]  Similarly, a collective action settlement – such as one involving allegations of wage and hour violations of the Fair Labor Standards Act (FLSA) – must be approved by a Court as fair to putative members in most if not all circumstances.  Having purported to bring an action on behalf of a class of individuals, a putative representative and his or her attorneys have a responsibility to pursue the best interests of these putative class or collective action members.  It is difficult to envision a situation in which a settlement resulting in the deposit of the full amount of the plaintiff’s individual claim would be approved by court if it clearly abandons viable class claims and wholly disenfranchises absent class or collective action members.  Such a determination should, and presumably will, entail a judicial determination that the action was not properly brought on behalf of absent class members.

Some courts have also held that a named plaintiff may still pursue relief on behalf of a class even if a named plaintiff’s claims are moot.  Because the majority opinion does not address this issue, district courts will be obligated to apply any controlling circuit-court precedent that authorizes plaintiffs to serve as class representatives where individual claims are moot.

On a final note, plaintiffs’ counsel also has an obligation to act in the best interest of their clients, and in some circumstances, it may be in the best interest of a client to accept an offer of full relief where a client has sought to act as a class or collective action representative.  Rather than using unanswered questions from the Ewald-Campbell decision to argue that the substantive claims of the class have been mooted, companies could be well served by arguing that acceptance of an offer of full relief renders the plaintiff an inadequate representative under Rule 23 of the Federal Rules of Civil Procedure.

CONTACTS

If you have any questions or would like more information on the issues discussed in this LawFlash, please contact Justin Brooks at jbrooks@gbblegal.com.

GBB’s experienced team of attorneys can assist individuals who wish to vindicate their rights and provide counseling to companies seeking to comply with employment laws or who need defense against litigation.

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[1] No. 14-857 (U.S. Jan. 20, 2016), available at http://www.supremecourt.gov/opinions/15pdf/14-857_8njq.pdf

[2] Id. at 8.

[3] Id. at 9.

[4] Id.

[5] Id. at 11.

[6] Id. at 9 (C.J. Roberts, dissenting).

[7] Id.

[8] Amchem Products, Inc. v. Windsor, 521 U.S. 591, 621 (1997)

Second Circuit Crafts New Test For Unpaid Intern Claims

The Second Circuit provides employers greater freedom to implement unpaid internship programs and a stronger defense for class-action lawsuits brought by interns. But stronger protections for interns may remain in other jurisdictions and under state employment laws.

OVERVIEW
On July 2, 2014, the U.S. Court of Appeals for the Second Circuit handed down a long-anticipated decision that establishes a new standard for assessing whether interns should be classified as “employees” eligible for minimum and overtime wage. Assessing two related cases, Glatt, et al. v. Fox Searchlight Pictures, Inc., et al. and Wang, et al., v. The Hearst Corp., the Second Circuit adopted a “primary beneficiary” test and identified seven nonexclusive factors relevant to the classification of unpaid interns. In doing so, the court declined to adopt an exclusive six-factor test urged by the US Department of Labor’s (DOL) and held that “courts may consider relevant evidence beyond [their own] specified factors[.]” The Second Circuit also held that the question of an intern’s employment status is a “highly individualized inquiry,” making it more difficult for future interns who may seek to bring class-action claims against companies. Nevertheless, the decision should not be read to authorize employers carte blanche to structure their internship programs however they wish. Nor should it be read as a death knell to unpaid intern claims or intern class actions under state law or in other jurisdictions.

BACKGROUND
The Second Circuit’s decision marks the culmination of a rash of intern litigation in the U.S. District Court for the Southern District of New York and beyond. In the Glatt case, the district court had granted summary judgment in favor of the plaintiff interns and approval of class certification on June 11, 2013. By contrast, the Wang court denied the interns’ motions for summary judgment and class certification. In the two years since those decisions, a large number of intern class-action lawsuits have been filed, with mixed results. The rulings in favor of the interns and uncertainty regarding the legality of unpaid interns caused companies reevaluate their internship programs. Some companies, such as Conde Nast, even suspended their internship programs. The Second Circuit provides employers operating within its boundaries a clearer framework for the implementation of unpaid internship programs and strong precedent to defend potential or current class-action clams. But it arguably does so at the expense of interns.

INTERN CLASSICIATION IN THE SECOND CIRCUIT IN A POST-GLATT WORLD
In Glatt, the Second Circuit rejected the DOL’s test found that the DOL test, claiming that it was unpersuasive and overly rigid. The Second Circuit determined that an analysis of intern status should focus on the question of whether an intern or an employer is the “primary beneficiary” of the relationship. The court explained that this primary beneficiary test is inherently flexible because it focuses on the economic reality of the employer-intern relationship and the benefits the intern receives in exchange for his or her participation in the internship program. The court identified the following seven, non-exclusive factors to aid courts in determining whether an intern is an employee under the New York Labor Law (NYLL) and federal Fair Labor Standards Act (FLSA):

  1. The extent to which the intern and employer clearly agree that there is no expectation of compensation. Promises of compensation, express or implied, suggest the intern is an employee and entitled to such compensation.
  2. The extent to which the internship provides training similar to the training provided in an educational environment, including clinical and practical training provided by educational institutions.
  3. The extent to which the internship is tied to the intern’s formal education program via receipt of academic credit for the internship or because the training receive integrates into the intern’s formal coursework.
  4. The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic year. This factor arguably counsels against summer jobs qualifying as unpaid internships.
  5. The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.
  6. The extent to which the intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern.
  7. The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship. Thus, an understanding that the internship is to be ‘trial period’ counsels against the viability of it being unpaid.

The Second Circuit’s decision is most notable for its insistence that the company may benefit from the intern’s work without needing to pay the intern. Many interpretations of the DOL test concluded that there can be no immediate benefit to the company from the intern relationship. The decision suggests an internship in the Second Circuit may be unpaid if an intern receives an educational benefit and doesn’t serve as a direct replacement for paid employees even if the employer is also receiving a benefit from the relationship. The decision has received a great deal of criticism. For example, Suffolk University law professor David Yamada, who wrote the first law review article on unpaid internships back in 2002 opined: “All the factors they drew up were really without legal authority…They apparently decided to invent something new here, which is surprising at the appellate level.” says Yamada.

CLASS CERTIFICATION IN A POST-GLATT WORLD
The Second Circuit also dealt a blow to intern rights by refusing to certify the Fox interns as a class. The Second Circuit declared that “an intern’s employment status is a highly individualized inquiry” not conducive to class-action treatment. The court noted that even if a plaintiff could establish that its employer had a policy of replacing paid employees with unpaid interns, that fact alone would not mean that each intern in the putative class would prevail under the primary beneficiary test. The decision makes little sense as it stands to reason the job experience is the same or similar for all interns performing the same tasks. The Second Circuit’s directive that a trial court must conduct an individualized fact-specific inquiry could make it more difficult for future cases brought by interns to proceed on a class basis, but the court did make it clear that it is possible for a class to be certified under the appropriate circumstances. In doing so, the Second Court left the door open for interns to bring wage and hour representative on a representative basis.

IMPLICATIONS FOR WORKERS AND EMPLOYERS
Employers may consider expanding the scope of existing internship programs or implementing a new unpaid internship program. Any such expansion should be approached cautiously and employers should carefully assess all relevant law. Despite the Second Circuit’s guidance, engaging unpaid interns remains risky. This is particularly true for employers operating outside the Second Circuit where the Second Circuit’s test does not have the force of law. Additionally, at least one state has written the U.S. Department of Labor’s test that the Second Circuit rejected into law. In passing anti-discrimination protections for interns, the Connecticut legislature defined an intern as an “individual who performs work for an employer for the purposes of training,” if and only if:

  • the employer is not committed to hire the individual performing the work at the conclusion of the
    training period;
  • the employer and the individual performing the work agree that the individual performing the work
    is not entitled to wages for the work performed;
  • the work performed: (a) supplements training given in an educational environment that may
    enhance the future employability of the individual; (b) provides experience for the
    benefit of the individual; (c) individual does not displace any current employee of the employer; (d)
    is performed under the supervision of the employer or an employee of the employer; and (e)
    provides no immediate advantage to the employer providing the training and may
    occasionally impede the operations of the employer.

Thus, in Connecticut, wage and hour protections afforded under state statute may apply to interns when no such rights attach under the FLSA. The same may be true in other states. Workers should consult competent counsel if they think their employer has treated them improperly.

CONTACTS
If you have any questions or would like more information on the issues discussed in this LawFlash, please contact Justin Brooks at jbrooks@gbblegal.com.

GBB’s experienced team of attorneys can assist employees who wish to vindicate their rights and provide counseling to companies seeking to comply with employment laws.