Adina Rosenbaum, Public Citizen Litigation Group
Adina Rosenbaum, Public Citizen Litigation Group ()

A loophole left open for defendants in a critical class action ruling by the U.S. Supreme Court last year is making little headway in the courts, with the U.S. Court of Appeals for the Seventh Circuit striking down the procedural maneuver this week.

In a Tuesday opinion, the Seventh Circuit found that a defendant’s deposit of $3,600 into a court account that compensated the lead plaintiff in full did not moot the entire class action. Bisco Inc., the defendant in the case, deposited the funds after the U.S. Supreme Court’s ruling in Campbell-Ewald v. Gomez barred a similar tactic designed to “pick off” lead plaintiffs in class actions but reserved any opinion on whether the situation would be different had the defendant actually paid the funds.

Seventh Circuit Chief Justice Diane Wood, writing for the unanimous panel, wrote that Bisco made a “risky assumption” in interpreting Campbell-Ewald.

“From a broader perspective, we see no principle distinction,” she wrote. “In either case, all that exists is an unaccepted contract offer, and as the Supreme Court recognized, an unaccepted offer is not binding on the offeree.”

The ruling is the latest loss for defendants hoping to use the wording of Campbell-Ewald to bring a second wave of “pick-off” challenges in a class action. In its 6-3 decision, the Supreme Court found that “an unaccepted settlement offer or offer of judgment does not moot a plaintiff’s case.”

But Chief Justice John Roberts, in a dissent joined by Justices Antonin Scalia and Samuel Alito, wrote that the “majority’s analysis may have come out differently if Campbell had deposited the offered funds with the district court.” Alito, in a separate opinion, noted that a defendant could ensure it makes good on its offer by handing the plaintiff a certified check or depositing the funds “in a bank account in the plaintiff’s name.”

Since Campbell-Ewald, defendants have tried to make such payments to lead plaintiffs — with little success. The Ninth Circuit found last year that Allstate Insurance Co.’s deposit of $20,000 into an escrow fund for the lead plaintiff didn’t moot a class action. In an unpublished decision, the Sixth Circuit sided with the plaintiff in a case involving a $4,500 cashier’s check.

Laura McNally, a partner in the Chicago office of Loeb & Loeb, said similar challenges are percolating in the district courts. She said she expected more circuits to weigh in, possibly sending the issue back to the Supreme Court.

“This is going to continue to come up,” she said. “Because if it works, it could be such a powerful weapon for defendants.”

Adina Rosenbaum, an attorney at Public Citizen Litigation Group in Washington, who represented the plaintiff in the case before the Seventh Circuit, praised the panel’s “really compelling decision.” “This is a decision that other courts are likely to look at and find persuasive,” she said.

Jeffrey Halldin, a partner at Chicago’s Harrison & Held, who represented Bisco, did not respond to a request for comment.

Fulton Dental filed the suit in 2015 after receiving an unsolicited fax from Bisco in violation of the U.S. Telephone Consumer Protection Act. The TCPA allows statutory damages of $500 to $1,500 per violation.

Unlike Campbell-Ewald, which was based on an offer of judgment made under Federal Rule of Civil Procedure 68, Bisco made its payment under Federal Rule of Civil Procedure 67, which allows parties to deposit funds with the court. U.S. District Judge Edmond Chang of the Northern District of Illinois granted Bisco’s mootness motion, then entered judgment in the case.

But that procedure was premature, Wood wrote.

“The logic of Bisco’s position is that all it had to do was deposit the estimated damages with the court in order to moot the case. It overlooks the fact that once the case is moot, the court lacks the power to enter any judgment on the merits,” she wrote.

McNally said the opinion isn’t all bad for defendants. She noted that Bisco’s arguments could be raised as affirmative defenses — in particular, that the lead plaintiff wasn’t an adequate representative once she got paid.

“It’s not as much as a grand slam as the defendants want with a mootness ruling, but it gives them some value to trying to do an early settlement with the named representative or the named plaintiff,” she said.

Copyright the National Law Journal. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.