Ninth Circuit Rejects Defendant’s Effort to Pick Off Named Class Representative
By Paul Bland
A powerful blow has just been struck by the Ninth Circuit today, as it’s rejected a corporation’s effort to escape from legal liability by paying off a few individuals to wipe away the claims of thousands.
For a number of years now, many corporate defendants have tried to wipe away class actions – even in cases where they’ve broken the law in the exact same way respect to thousands of people – by trying to “pick off” the named class representative with an individual offer of cash. This issue has been to the U.S. Supreme Court twice in the last two years, but both times the Court issued very narrow decisions and did not address the broader underlying constitutional issues.
In the most recent case, Campbell-Ewald v. Gomez (Gomez), decided in February (before Justice Scalia’s death), the Supreme Court held in a 5-4 decision that if a defendant made an offer of judgment and the plaintiff didn’t accept it, that a case was not rendered moot. But the Supreme Court left open an “unanswered hypothetical” – it said that it was not saying whether the pick off maneuver would have worked if the defendant had actually placed the money in an escrow account and the district court had entered judgment in favor of the plaintiff.
So within a week or so of the Supreme Court’s decision, in Chen v. Allstate Insurance Co., a case involving privacy violations under the Telephone Communications Protection Act, the defendant ran into the district court (even though the case was already pending on appeal) and deposited its pick off offer in an escrow account pending entry of a final district court order directing the escrow agent to pay the tendered funds to the plaintiff, and requiring the defendant not to make unauthorized phone calls or send text messages to the named class representative. In other words, Allstate tried to pose the question that the Supreme Court didn’t answer in the Gomez case, and tee the issue up before the Ninth Circuit.
Today we have the Ninth Circuit’s answer! It’s a resounding “no.” The upshot of the opinion is that a defendant can’t pick off the named class plaintiff; it can’t try to pay off the person attempting to represent a group and wipe away a potential class action.
The Court held that even if Allstate’s pick off offer fully satisfied the named class representative’s individual claims, that did NOT moot the entire case. The Court explained that a case is not moot if the plaintiff’s claims are “transitory in nature and may otherwise evade review.” Because the defendant could just keep picking off each named class plaintiff, the claims of the full group of people who’ve been harmed by the impact of the defendant’s illegal conduct would just keep disappearing and would never be heard. (That is, of course, the entire point of the defendant’s actions here – it’s not trying to say it didn’t break the law, it just wants to bribe anyone who comes forward until the case disappears forever for the 99.9% of people who don’t know to bring a lawsuit.)
The Court also held that the plaintiff’s claims could not be considered moot until he had a fair opportunity to seek class certification. The Court traced U.S. Supreme Court decisions saying that a lawsuit only becomes moot when the plaintiff “actually receives all of the relief he or she could receive on the claim through future litigation.” Put another way, a case is only moot “when it is impossible for a court to grant any effectual relief whatever to the prevailing party.” But in this case, there is just an offer – the named class plaintiff had NOT yet received any relief for his claims. As the Court explained, “His claims are wholly unsatisfied, and it remains entirely possible for a court to grant him effectual relief.”
The Court explained that the named class plaintiff was not just being “obstinant” or acting out of “madness” – the class action device is often the only effective means of pursuing relief on behalf of injured persons, and the plaintiff acts sensibly in pursuing all of the relief sought in the complaint.
The upshot of the decision is that “a district court should decline to enter a judgment affording complete relief on a named plaintiff’s individual claims, over the plaintiff’s objection, before the plaintiff has had a fair opportunity to move for class certification.”
This is a gigantic victory for consumers and workers. This well-reasoned, thoughtful and scholarly decision carefully puts to rest all of the legal arguments that corporations make in favor of the pick off maneuver.
If a corporation has broken the law with respect to a large number of people, cheated people and owes them all money and should be required to stop breaking the law with respect to all of them, it is a crazy and even repulsive idea that the corporation should be able to wipe away a lawsuit, and get away with breaking the law, if it just pays off the one (or several) people who step forward on behalf of the class. It’s a morally bankrupt position, an ugly effort to abuse the court system to escape the law. The Ninth Circuit has carefully set out why this strategy is legally bankrupt as well.