Class Action Alleging Violation of Telephone Consumer Protection Act (TCPA) Improperly Certified as Class Action because Issue of Consent to Receipt of Fax Advertisements not Susceptible to Class-Wide Proof Fifth Circuit Holds
Plaintiff filed a class action against BioPay alleging violations of the federal Telephone Consumer Protection Act (TCPA), 47 U.S.C. § 227; The class action complaint alleged that BioPay, through a third-party contractor, sent more than 4000 fax advertisements over a four-year period to potential clients in Louisiana. Gene & Gene LLC v. BioPay LLC, 541 F.3d 318, 322 (5th Cir. 2008). The allegations underlying the class action were that the Bank decided to “implement a plan to consolidate the trust management activities of other banks it had acquired” and led class members to believe that “their assets were being managed on an individualized basis, when in fact the assets were being invested in shares of the Nations Funds mutual fund, managed by an investment company substantially owned by the Bank.” Id. The class action alleged further that “higher-yielding and better-managed mutual funds were available in the marketplace,” but the Bank directed customers to Nations Funds for the Bank’s economic benefit and that the Bank accomplished this by sending “misleading letters” to trustees and beneficiaries that, in part, threatened “adverse tax consequences” if they went elsewhere. Id. Defense attorneys moved to dismiss the federal claims on the merits, and moved to dismiss the state-law claims as preempted by SLUSA (Securities Litigation Uniform Standards Act of 1998). Id. In part, the defense argued that the class action should be dismissed on the grounds of judge shopping because plaintiffs’ counsel “had already filed at least five class actions in various jurisdictions seeking redress for the same alleged injuries.” Id., at 1125. The district court granted the defense motion in its entirety, and denied plaintiffs’ request for leave to file an amended class action complaint. Id., at 1125. Defense attorneys filed an interlocutory appeal under Rule 23(f) arguing (1) the district court lacked subject matter jurisdiction over the class action, and (2) the district court erred in certifying the litigation as a class action. Id., at 321-22. The Fifth Circuit held that the district court had subject matter jurisdiction by virtue of the Class Action Fairness Act of 2005 (CAFA), but reversed the class action certification order.
By way of background, the TCPA prohibits sending “unsolicited advertisements” from one fax machines to another; a fax is deemed to be an “unsolicited advertisement” if it advertises “the commercial availability or quality of any property, goods, or services” and is sent without “prior express invitation or permission.” BioPay , at 322 (citation omitted). In this regard, Federal Communications Commission rules adopted to implement the TCPA provide that advertisements “from persons or entities who have an established business relationship with the recipient can be deemed to be invited or permitted by the recipient.” In re Rules and Regulations Implementing the Telephone Consumer Protection Act of 1991, 7 F.C.C.R. 8752, 8779 n.87 (1992). (The TCPA was amended by the Junk Fax Prevention Act of 2005, but this case involves acts that predate those amendments.) The TCPA authorizes private rights of action by recipients of unsolicited fax advertisements “to enjoin future violations of the TCPA and/or to recover the greater of his actual damages or $500 for each such violation,” and “[t]he monetary award may be trebled if the court finds that a violation was willful or knowing.” BioPay, at 322 (citation omitted).
BioPay sent a fax to plaintiff, and plaintiff responded by filing a putative class action alleging that BioPay had sent unsolicited fax advertisements in violation of the TCPA. BioPay, at 322-23. Plaintiff conducted preliminary discovery and then moved for class action certification; defense attorneys opposed the motion. Id., at 323. The Fifth Circuit observed that “[t]he distinction between consenting and non-consenting recipients was the primary issue before the district court in the class-certification dispute.” Id. Defense attorneys insisted that “determining whether the recipient of each fax had consented to its transmission would require a series of individual factual determinations,” id. BioPay admitted that it purchased databases, but submitted evidence that “a significant number” of the faxes went to recipients who had consented to receiving advertisements from BioPay or with whom BioPay “had an established business relationship.” Id. Plaintiff’s lawyer argued class action treatment was warranted “because BioPay sent its fax advertisements as part of a common course of conduct” and that BioPay failed to retain the documentation necessary to meet its burden of proving consent. Id. The district court agreed with plaintiff and certified the lawsuit as a class action. Id.
The Fifth Circuit began by analyzing whether the federal court had subject-matter jurisdiction over the class action; even though defense attorneys had not raised the issue in the district court, the Circuit Court noted that jurisdiction may be raised at any time, including on appeal. BioPay, at 323-24 (citing Giles v. NYLCare Health Plans, Inc., 172 F.3d 332, 336 (5th Cir. 1999)). The Fifth Circuit expressly rejected plaintiff’s claim that the court “may not consider subject-matter jurisdiction during a Rule 23(f) class-certification appeal,” citing well-settled case authority that at any time “we may review the power of the federal courts to entertain an action.” Id., at 324 (citations omitted). On the merits, the Court held that subject matter jurisdiction over the class action existed under the Class Action Fairness Act (CAFA), because minimal diversity existed and the amount in controversy exceeded $5 million when one considered “the possibility of treble damages under the TCPA.” Id. Accordingly, the Circuit Court rejected defense arguments that the district court lacked subject matter jurisdiction. Id., at 324-25.
Turning to the propriety of class certification, the Fifth Circuit stated that it was limiting its discussion solely to whether plaintiff had satisfied the class action requirements of Rule 23(b)(3), which requires that plaintiff demonstrate “‘that the questions of law or fact common to class members predominate over any questions affecting only individual members, and that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy.’”. BioPay, at 325-26 (quoting Rule 23(b)(3))..Further, because the Circuit Court found that predominance did not exist, it did not address the superiority prong of Rule 23(b)(3). Id., at 326. “The predominance inquiry requires a court to consider ‘how a trial on the merits would be conducted if a class were certified.’” Id. (quoting Bell Atl. Corp. v. AT&T Corp., 339 F.3d 294, 302 (5th Cir. 2003)). In this regard, the Fifth Circuit observed that the “one substantive issue” that will “undoubtedly…determine how a trial on the merits will be conducted” is “whether BioPay’s fax advertisements were transmitted without the prior express invitation or permission of each recipient.” Id., at 327.
Plaintiff’s lawyer argued that “individual determinations are unnecessary” because the “testimony establishes that BioPay never obtained prior express permission or invitation from any of the class members and that all of the faxes were sent in accordance with the same procedure.” Biopay, at 328. Defense attorneys countered that “the evidence shows that some of the fax advertisements it sent were solicited by the recipients, but which ones can only be decided on a case-by-case basis.” Id. BioPay argued that because “the recipients’ fax numbers were collected over time and from a variety of sources, individual inquiries of the recipients are necessary to sort out which transmission was consented to and which was not.” Id. Accordingly, “there is no class-wide proof available to decide consent and only mini-trials can determine this issue.” Id., at 328-29. The Circuit Court agreed with BioPay, finding plaintiff’s argument “unsupported” by the evidence. Id., at 329. The Court also concluded that class-wide proof was not available as to the issue of consent, and that plaintiff failed to present “any…sensible method of establishing consent or the lack thereof via class-wide proof.” Id. On the facts of this case, then, the Fifth Circuit held that “the determinative question of whether consent can be established via class-wide proof” and that plaintiff “failed to advance a viable theory of generalized proof to identify those persons, if any, to whom BioPay may be liable under the TCPA.” Accordingly, the predominance requirement of Rule 23(b)(3) had not been met, and the district court erred in certifying the litigation as a class action. Id.
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