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Ruling maps out class action defense plan

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The U.S. Supreme Court's ruling on an unsolicited text message technically sided with plaintiffs, but also suggested a way companies can cut back on the amount of class action litigation filed.

The high court’s 6-3 ruling last month in Campbell-Ewald Co. v. Jose Gomez, which focused on a marketing company’s potential liability under the Telephone Consumer Protection Act for sending an unsolicited text message on behalf of the U.S. Navy, suggests there would have been a different ruling had proffered payment been submitted in an account payable to the plaintiff, with the court then entering judgment for the plaintiff in that amount.

Defense attorneys say the ruling applies to any law where class action plaintiffs would receive a small payout as a settlement while their lawyers could collect relatively large attorney’s fees.

For example, in Jonathan Gehrich et al. v. Chase Bank USA, a 2012 case in U.S. District Court in Chicago involving unsolicited phone calls, led to a proposed $34 million settlement that includes $11 million in plaintiffs attorneys fees and expenses. A status conference is scheduled for Feb. 26.

“It’s a very significant ruling, especially for claims brought under the TCPA and under the (Fair Labor Standards Act), where the potential damages to the named plaintiffs may be small,” and the defendant may try to resolve the case before the class action is certified, said Jason C. Gavejian, a principal at Jackson Lewis P.C. in Morristown, New Jersey.

In many such cases, the plaintiffs attorney “is aggregating many small claims on behalf of a large group” of class members, “nearly all of whom show no interest in pursuing” the litigation, said Ryan E. Mick, a partner at Dorsey & Whitney L.L.P. in Minneapolis.

Defense attorneys say Justice Ruth Bader Ginsburg’s opinion written for the high court’s 6-3 majority suggests that had a payment been made, the court would have ruled differently.

“The ruling, both the majority and the dissent, leaves open the prospect that a defendant can moot a class action by making an offer of judgment and actually tendering payment of the judgment to the court,” said Gerald E. Arth, a partner at Fox Rothschild L.L.P. in Philadelphia.

“This might be an effective tactic for defendant companies to control their own destiny in a way that (defendants in) class actions generally can’t,” Mr. Mick said.

In many Telephone Consumer Protection Act cases, plaintiffs attorneys have only one plaintiff when seeking class certification. “Picking off” that plaintiff by offering a settlement could result in the case being dismissed or at least increase plaintiffs attorneys’ expenses as they seek more clients.

“If actual payment makes a difference, that could significantly impact plaintiffs counsel because they’re going to have to worry, ‘Who’s my second, third, fourth, plaintiff,’” and how the class action can proceed, said Lewis S. Wiener, a partner at Sutherland, Asbill & Brennan L.L.P. in Washington, who co-chairs the law firm’s practice on the TCPA.

“It’s going to shift the balance between the defense and the plaintiffs, and require the plaintiffs counsel to do more work upfront,” said Mr. Wiener, who estimated a case involving the payment of funds suggested by Justice Ginsburg could reach the court by 2018.

“Companies should certainly carefully read the decision and, if they’re in a position to, either send a check to the plaintiff or deposit money in the court,” said Matthew J. Fedor, a partner at Drinker Biddle & Reath L.L.P. in Florham Park, New Jersey.

“The law is going to develop from this point forward, as defendants try to figure out what they can do … and plaintiffs lawyers will try and figure out how they can minimize the defendants’ ability to do those things,” said Joshua D. Rogaczewski, a partner at McDermott Will & Emery L.L.P. in Washington.

However, Lori Armstrong Halber, a partner at Fisher & Phillips L.L.P. in Philadelphia, said there are other considerations.

“There has to be an agreement on some level that the offer actually covers the potential damages,” she said, “I’m not entirely convinced” that submitting the money “changes the complexion, if you will, of the offer.”