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7th Cir. Upholds Denial of Class Certification in TCPA Cases Due to Individualized Issues of Consent

On a consolidated appeal for purposes of disposition, the U.S. Court of Appeals for the Seventh Circuit recently affirmed the trial courts’ rulings denying class certification to lead plaintiffs who received faxed advertisements that allegedly did not comply with the Telephone Consumer Protection Act and the Federal Communication Commission’s Solicited Fax Rule.

In so doing, the Seventh Circuit, relying upon the D.C. Circuit’s 2017 decision in Bais Yaakov of Spring Valley v. FCC regarding the validity of the FCC’s 2006 Solicited Fax Rule, concluded that class treatment was not a superior mechanism for cases involving unsolicited faxes, as the question of consent is likely to vary from recipient to recipient.

A copy of the opinion in Alpha Tech Pet, Inc. v. Lagasse, LLC. is available at:  Link to Opinion.

In the first of two underlying class action cases brought by two plaintiffs alleging violations of the TCPA, 47 U.S.C. 227, et seq., an insurance wholesaler (“Plaintiff 1”) received two identical one-page faxes from an insurance company’s affiliate or subsidiary, created by the insurance company’s marketing department.

Though Plaintiff 1 contracted with the insurance company and agreed that it “may choose to communicate with [him] through the use of … facsimile to [his] … facsimile numbers,” and provided the number at issue, the fax number was shared by seven other insurance agents, and the fax at issue was not directed to Plaintiff 1 or any specific person or entity.

Plaintiff 1 filed a putative class action suit in Illinois state court, raising claims against the insurer, arguing that the faxed advertisements violated the TCPA and the FCC’s Solicited Fax Rule.

As you may recall, as amended by the Junk Fax Act, the TCPA prohibits the use of “any telephone facsimile machine … to send, to a telephone facsimile machine, an unsolicited advertisement.”  47 U.S.C. § 227(b)(1)(C).  The TCPA defines an unsolicited advertisement as “any material advertising the commercial availability or quality of any property, goods, or services which is transmitted to any person without that person’s prior express invitation or permission, in writing or otherwise.” Id. § 227(a)(5).  Although exceptions to the prohibitions on sending unsolicited faxes exist, the faxes must contain a notice meeting certain requirements, including a statement that the recipient may opt out from future unsolicited ads.  Id. § 227(b)(2)(D).

The FCC’s 2006 amendment to the rules governing facsimile transmissions, known as the “Solicited Fax Rule,” took this requirement a step further, declaring that all faxes, not just those that are unsolicited, must include an opt-out notice that informs the recipient of the ability and means to avoid future unsolicited advertisements.  47 C.F.R. § 64.1200(a)(4)(iv).

The insurer removed the action to federal court and raised affirmative defenses of pre-existing business relationship and consent, pointing to the contractual language in Plaintiff 1’s contract with its parent or affiliated insurance company, and the opt-out language on the fax itself.

Nonetheless, the trial court certified a class under Fed. R. Civ. P. 23(b)(3) of recipients of faxes that advertised insurance products sold by the insurer, over the insurer’s plea that it should wait until the FCC had a chance to rule on the insurer’s request for a retroactive waiver of the “Solicited Fax Rule” and until the D.C. Circuit handed down its decision in the case of Bais Yaakov of Spring Valley v. FCC, then-pending before the D.C. Circuit.

On Nov. 2, 2016, the FCC’s Consumer & Governmental Affairs Bureau granted the insurer’s petition for a waiver, and on March 31, 2017, the D.C. Circuit issued its opinion in Bais Yaakov (Bais Yaakov of Spring Valley v. FCC, 852 F.3d 1078 (D.C. Cir. 2017)), which held that the FCC had exceeded its authority under the TCPA when it issued the Solicited Fax Rule. The insurer promptly moved to decertify the class, and the trial court did so on Aug. 28, 2017. Plaintiff 1’s petition under Rule 23(f) for immediate review of the decertification decision was granted by the Seventh Circuit.

In the second underlying case consolidated in this appeal, a distributor of office, technology and industrial products and supplies and its affiliates sent a fax to a kennel and veterinary sanitation company (“Plaintiff 2”), advertising commercial products from one of its subsidiaries.  Plaintiff 2 filed a class action suit against the distributor in the Northern District of Illinois, alleging that the faxes violated the TCPA and the Solicited Fax Rule because they did not include the required opt-out language.  Plaintiff 2’s case was consolidated in the trial court with a similar suit against the distributor, initially filed in Illinois state court and removed by the distributor to the federal trial court.

After the trial court denied the distributor’s motion to dismiss or strike, the D.C. Circuit issued its decision in Bais Yaakov, which compelled the distributor to file a motion to deny class certification.  Plaintiff 2 argued that the opt-out notice on the majority of the fax templates used by the distributor failed to comply with the requirements of the Solicited Fax Rule by failing to: (i) provide a fax number for opt-out requests; (2) state that it is unlawful for the sender not to respond within a reasonable time; and (3) state that the recipient must identify the fax number to which the request relates.

The trial court denied class certification as to Plaintiff 2, distinguishing the facts from the Seventh Circuit’s ruling in Holtzman v. Turza, 728 F.3d 682 (7th Cir. 2013) (holding the TCPA requires a compliant opt-out notice before a consent-based defense can prevail), and adopting the D.C. Circuit’s ruling in Bais Yaakov striking down the Solicited Fax Rule, calling the decision “binding” or at least “persuasive.”  Plaintiff 2 sought interlocutory review, which was granted by the Seventh Circuit in the instant consolidated appeal.

On appeal of the orders which denied class certification to Plaintiff 1 and Plaintiff 2, the Seventh Circuit initially noted that the FCC’s 2014 “Anda Order” (In re Rules and Regulations Implementing the Telephone Consumer Protection Act of 1991, 29 FCC Rcd. 13998 (2014)) upheld the validity of the Solicited Fax Rule, but announced that it would grant retroactive waivers in light of the confusion it had produced.  Affected parties, including the insurer and distributor (“defendants”) petitioned the D.C. Circuit for review of the Anda Order, and the result was the Bais Yaakov decision –“that the FCC’s 2006 Solicited Fax Rule is unlawful to the extent that it requires opt-out notices on solicited faxes,” and “[t]he FCC’s Order in this case interpreted and applied that 2006 Rule.”  852 F.3d at 1083.

The parties in the instant appeal debated whether the D.C. Circuit’s ruling was formally binding upon the appellate court under the Hobbs Act, and whether Bais Yaakov adjudicated the validity of the Anda Order, or reached all the way back to rule on the validity of the original 2006 Solicited Fax Order. As you may recall, the Hobbs Act, 28 U.S.C. 2112(a)(3), provides exclusive jurisdiction to the court of appeals to review FCC orders in either the D.C. Circuit or a regional court.

The Seventh Circuit concluded that the D.C. Circuit’s ruling undoubtedly vacated the 2014 Anda Order holding  that its application of the 2006 Order, which imposed the Solicited Fax Rule, was unlawful.  Though the 2006 Order remained in effect (albeit with less force), the Seventh Circuit held that the D.C. Circuit’s ruling must be construed consistently by all courts of appeals under the Hobbs Act.

Thus, the only issue left before the Seventh Circuit was whether, against the backdrop of these orders, the trial courts abused their discretion in denying class treatment.

For purposes of the class certification decision, the Seventh Circuit stated that the legality of the defendants’ actions may end up depending on whether the fax was sent with permission (legal) or not (illegal), and may also turn on the adequacy of the opt-out notices on the faxes in question.

In the case of Plaintiff 1 and the insurer, even if the insurer somehow failed to establish his consent, it is unclear what kind of pre-existing arrangements may have existed between the insurer and other recipients, and the question of what suffices as consent likely varied from recipient to recipient.

Here, Plaintiff 1 admitted he had a pre-existing relationship with the insurer, and expressly agreed it could communicate with him by fax.  The insurer did so, and provided an “opt-out” number on its faxes.

However, even if this failed to establish his consent, as Plaintiff 1 argued, the Seventh Circuit noted that it is unclear what kind of pre-existing arrangements may have existed between the insurer and other fax recipients of the proposed class, and an analysis of same requires individual scrutiny.  See Howland v. First Am. Title Ins. Co., 672 F.3d 525, 534 (7th Cir. 2012) (holding that a “transaction-specific inquiry prevents class treatment”).  Cf. Blow v. Bijora, Inc., 855 F.3d 793, 804–06 (7th Cir. 2017) (excluding from summary judgment potential class members “who provided no consent at all or whose consent was more limited”); see also Howland v. First Am. Title Ins. Co., 672 F.3d 525, 534 (7th Cir. 2012) (holding that a “transaction-specific inquiry prevents class treatment”).

The Seventh Circuit also considered that while the D.C. Circuit’s vacation of the Anda Order may have called into doubt the legal underpinnings of the orders retroactively waiving the defendants’ compliance with the Solicited Fax Rule on faxes sent before April 30, 2015, it did not disrupt these orders.

Although this might indicate that a common question on the effect of the waivers that affects all class members exists, the Seventh Circuit held that the trial courts were within their rights to conclude there are enough other problems with class treatment here that a class action is not a superior mechanism for adjudicating these cases. See Parko v. Shell Oil Co., 739 F.3d 1083, 1085 (7th Cir. 2014).

The final questions before the Seventh Circuit were whether the waivers affected the availability of a private right of action and whether it is better handled through individual litigation or a class.  Noting that the alleged violation of the Statutory Fax Rule is regulatory, and the TCPA itself does not require opt-out notice on solicited faxes, the Seventh Circuit concluded that the rule is subject to the general rule regarding “suspension, amendment, or waiver of rules,” which provides, in relevant part, that “[a]ny provision of the rules may be waived by the Commission on its own motion or on petition if good cause therefore is shown.” See 47 C.F.R. § 1.3.  Thus, even if the waivers were deemed invalid, issues concerning solicitation, permission, pre-existing relationships, and the like, would remain as obstacles to class treatment.

The Seventh Circuit noted that some potential class members may still have valid causes of action for TCPA violations, as they may not have had pre-existing contractual arrangements, provided consent to receive the faxes, or the senders of the faxes may not have received waivers of the Solicited Fax Rule from the FCC or the waivers might be flawed.

Although these individuals may still pursue claims going forward, and may still go forward, because the trial courts were within their rights to conclude that there are enough other problems with class treatment here — i.e., that a class action is not a superior mechanism for adjudicating these cases — and did not abuse their discretion, the orders denying class certification were affirmed.

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