6th Cir. Upholds Denial of Class Certification in TCPA ‘Junk Fax’ Case

The U.S. Court of Appeals for the Sixth Circuit recently held that a class could not be certified because the defendant’s alleged liability under the federal Telephone Consumer Protection Act (TCPA) for sending a “junk fax” without an opt-out notice required determination of two individualized issues, which rendered class certification impracticable.

In so ruling, the Sixth Circuit concluded that with the absence of a fax log to identity each recipient, and without an alternative method of identifying class members who had provided consent to receive the fax, the plaintiff failed to prove that its proposed class satisfied Fed. R. Civ. Pro. Rule 23.

A copy of the opinion in Sandusky Wellness Center, LLC v. ASD Specialty Healthcare, Inc. is available at:  Link to Opinion.

As you may recall, the TCPA prohibits the sending of any “unsolicited advertisement” via fax in 47 U.S.C. § 227(b)(1)(C).  A fax is “unsolicited” if it is sent to persons who have not given their “prior express invitation or permission” to receive it.  47 U.S.C. § 227(a)(5).

The TCPA carves out a narrow exception to this general ban by permitting the sending of unsolicited faxes if a sender can show: (1) the sender and recipient have “an established business relationship”; (2) the recipient voluntarily made his fax number available either to the sender directly or via “a directory, advertisement, or site on the Internet”; and (3) the fax contained an opt-out notice meeting detailed statutory requirements.  47 U.S.C. § 227(b)(1)(C)(i)-(iii).

In 2006, the Federal Communications Commission promulgated a rule requiring opt-out notices on solicited faxes, i.e., those faxes sent to recipients who had given their “prior express invitation or permission” to receive it.  See Rules and Regulations Implementing the Telephone Consumer Protection Act 1991; 71 Fed. Reg. 25,967, 25,971-72 (May 3, 2006); 47 C.F.R. § 64.1200(a)(4)(iv) (the “Solicited Fax Rule”).

In 2014, several petitioners challenged the FCC’s authority to promulgate the Solicited Fax Rule because the text of the TCPA appeared to reach only unsolicited faxes.  The FCC denied the petition, but granted retroactive waivers of liability to the petitioners, excepting them from compliance with the Solicited Fax Rule during a certain timeframe due to confusion over its applicability.  Order, Petitions for Declaratory Ruling, Waiver, and/or Rulemaking Regarding the Commission’s Opt-Out Requirements for Faxes Sent with the Recipient’s Prior Express Permission, 29 F.C.C.R. 13,998, 13,998, 14,005 (2014) (“2014 Order”).  The FCC encouraged other fax senders to “seek waivers such as those granted in this [2014] Order.”  Id., at 13998.

In August 2015, the FCC granted the plaintiff, along with 100 others, a similar liability waiver.  Order, Petitions for Declaratory Ruling and Retroactive Wavier of 47 C.F.R. § 64.1200(a)(4)(iv) Regarding the Commission’s Opt-Out Requirements for Faxes Sent with the Recipient’s Prior Express Permission, 30 F.C.C.R. 8598 (20150 (“2015 Order”).

Back in 2010, the defendant, a pharmaceutical distributor, sent a one-page fax advertising a drug to 53,502 physicians, and only 40,343 (75 percent of these faxes) were successfully transmitted.  The plaintiff, a chiropractic clinic that employed one of these physicians, claims to have received this so-called “junk fax,” and three years later, filed a putative class action alleging that the defendant violated the TCPA by sending an unsolicited fax advertisement without providing a proper opt-out notice.

The plaintiff sought to certify a putative class of all 40,343 fax recipients.  While the total number of actual fax recipients was known, the identity of each was not known because the fax logs (which typically identified the fax number for each intended recipient and whether that recipient received a successful transmission of the fax) were no longer available.

The trial court denied the plaintiff’s motion for class certification for two reasons.

First, the trial court concluded that in the absence of the fax logs, no classwide means existed by which to identify the 75 percent of individuals who received the fax (members of the putative class), from the other 25 percent who lacked standing to sue.  To establish the class member’s standing, the trial court determined that each class member would have to submit an affidavit certifying receipt of the fax, which was a highly individualized process disfavored by Rule 23.

Second, the trial court concluded that the fax recipients who had solicited the fax did not have a valid claim against the defendant because the FCC had granted the defendant a retroactive waiver from complying with the Solicited Fax Rule.  Thus, weeding out the solicited from the unsolicited fax recipients to discern proper class membership would require manually cross-checking 450,000 potential consent forms.  This individualized inquiry, according to the trial court, rendered class action impracticable.

This appeal followed.

Initially, during the litigation the D.C Circuit struck down the Solicited Fax Rule in Bais Yaakov of Spring Valley v. FCC, 852 F.3d 1078, 1083 (D.C. Cir. 2017).  As result of this intervening decision, the Sixth Circuit concluded that the trial court no longer had to rely on the waiver.  Instead, the invalidation of the Solicited Fax Rule confirmed the trial court’s conclusion that the defendant could not be liable to any individuals who solicited the fax.

Moreover, the Sixth Circuit noted, if the 40,343-member class were certified, the trial court would be tasked to filtering out those members who solicited the fax.  In the Sixth Circuit’s view, regardless of other questions that may be common to the class, identifying which individuals consented would undoubtedly be the driver of the litigation.  The task of manually reviewing 450,000 consent forms and cross-checking each individual customer name required an individualized inquiry.

The plaintiff argued that the trial court should have certified the class and then created subclasses based on the different types of consent forms produced.  However, the Sixth Circuit rejected this argument because to even create subclasses would have required the trial court to categorize and analyze each form, and the plaintiff would then litigate the validity of consent as to each subclass.  This would result in a myriad of mini-trials prohibited by Rule 23(b)(3).

Therefore, the Court concluded that the question of consent presented individualized issues, which weighed against class certification.

Next, the plaintiff argued that the difficulties in identifying the class members were not relevant to either ascertainability or Rule 23(b)(3) predominance. In the plaintiff’s view, the burden of scrutinizing individual affidavits may be burdensome, but these burdens were outweighed by the benefits of TCPA claim class action treatment and to ensure that the defendant did not walk away from its alleged wrongdoing “scot-free.”

The Sixth Circuit again disagreed.  Even if the plaintiff were correct that there may be several benefits to affording class treat treatment for TCPA cases, the Sixth Circuit held, it was not an abuse of discretion for the trial court to conclude that class treatment was not the superior method for resolving the plaintiff’s claims in this case.

The Appellate Court noted that the plaintiff did not propose any method for weeding out individuals who solicited the fax.  In fact, it was the trial court that proposed the idea of having all 53,502 intended recipients submit affidavits claiming receipt of the fax and their entitlement to damages.  But finding out which quarter of these individuals were being untruthful, according to the Sixth Circuit, may not even be possible.  These practical concerns underscored the inappropriateness of class certification in this case.

Accordingly, the Sixth Circuit affirmed the trial court’s denial of class certification.

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Eric Tsai practices in Maurice Wutscher’s Commercial Litigation and Consumer Credit Litigation groups, and in its Regulatory Compliance group. He concentrates his practice primarily on the defense of consumer and commercial financial services companies, including mortgage lenders and servicers, mortgage loan investors, third party debt collectors, and other financial services providers. He also counsels clients on regulatory compliance, licensing, and other consumer protection matters. Eric earned his undergraduate degree from the University of California, Irvine. Prior to attending law school, he worked as a loan officer for national direct lenders. He earned his Juris Doctor from California Western School of Law and thereafter obtained a Master of Laws (LLM) in Taxation from the University of San Diego School of Law. Eric publishes extensively on various issues affecting consumer lending and litigation, including both federal and California-specific developments. He is licensed to practice law in California, Nevada, and Oregon, and is admitted in all United States District Courts in the State of California, the United States District Court for the District of Oregon, the United States District Court for the District of Nevada, the U.S. Tax Court, and the Ninth Circuit Court of Appeals. He is also a licensed real estate broker in the State of California.