For years, employers have been wielding Rule 68 offers of judgment to moot individual plaintiff’s FLSA claims and undercut standing for class action certification. A recent Supreme Court decision, however, has drastically curtailed this strategy, while at the same time offering employers another means to the same end.
Rule 68 of the Federal Rules of Civil Procedure allows a defendant, at least 14 days before trial, to serve upon the “opposing party an offer to allow judgment on specified terms, with the costs then accrued.” In other words, a defendant can serve an offer of judgment that would “make the plaintiff whole,” which the plaintiff may then accept, decline, or ignore. If the plaintiff accepts within 14 days, either party may file the offer and acceptance with the court, and the clerk will enter judgment. There are many complicating aspects of Rule 68 if the offer is not accepted, though these were not discussed by this particular decision.
Here, the relevant discussion is an issue left open by the Supreme Court several years ago in Genesis HealthCare Corp. v. Symczyk, and then recently decided in Campbell-Ewald Co. v. Gomez. In this latter case, which does not arise in the employment context but is nonetheless relevant, plaintiff-Gomez sued Campbell-Ewald Co. (the “Company”) pursuant to the Telephone Consumer Protection Act (TCPA). The TCPA prohibits “using any automatic dialing system” to send a text message to a cell phone without the recipient’s prior express consent. Mr. Gomez alleged that he received unauthorized text messages in violation of the TCPA and sued for treble (triple) statutory damages, and sought to pursue a class action on behalf of others who similarly received text messages from the Company.
Prior to Mr. Gomez filing his motion for class certification, the Company served a Rule 68 offer of judgment in the amount of $1,503 for each text message (which was more than three times the TCPA’s statutory fine of $500 for each violation), costs, and a stipulated injunction. This offer expired after the statutory 14-day period, after which – based on lower court precedent – the Company moved to dismiss the case for lack of subject matter jurisdiction. The Company argued that its Rule 68 offer mooted Mr. Gomez’s claim because it provided him with complete relief, and that this also mooted any right that Mr. Gomez had to pursue a class action. This case made its way to the Supreme Court to resolve a split between the various Circuit Courts of Appeal as to whether an unaccepted Rule 68 offer of judgment does not moot or renders moot a plaintiff’s case. This was important to employers, because this is a strategy that employer-defendants in approving jurisdictions have been utilizing for years with respect to claims where an individual plaintiff’s damages are easily calculated and he/she is threatening to move for class certification, such as wage and hour claims pursuant to the Fair Labor Standards Act (FLSA).
In a 6-3 decision, with a majority opinion from Justice Ginsburg, the Supreme Court held that an unaccepted settlement offer or offer of judgment does not moot a plaintiff’s case. The majority based its decision on basis principles of contract law, finding that a rejected offer of judgment “had no continuing efficacy.” Thus, Mr. Gomez would be permitted to maintain his cause of action, both as an individual and to move for class certification, and the district court retained jurisdiction.
While this might be read as a disappointing result for employer-defendants, the Supreme Court noted an important distinction. In Mr. Gomez’s case, the Company had only made an offer without actually tendering payment. The Supreme Court reserved judgment on “whether the result would be different if a defendant deposits the full amount of the plaintiff’s individual claim in an account payable to plaintiff, and the court then enters judgment for the plaintiff in that amount.” Therefore, if an employer is facing an FLSA lawsuit that has not yet reached the class certification stage, it can still choose to utilize a Rule 68 offer of judgment – along with an actual “payment” to plaintiff and, if the offer is rejected, a direct request to the court to enter judgment” – in a good faith effort at mooting plaintiff’s individual claims and his/her standing to pursue class certification.