Antitrust Law Daily Wrap Up, PRIVACY—DNJ: Federal Rule 23, Not State Law, Determines Class Action Eligibility for Private Actions Under Telephone Consumer Protection Act, (Oct 18, 2012)

By Thomas Long, J.D.

A New York-based religious corporation (“Bais Yaakov of Spring Valley”) can go forward with a purported class action under the Telephone Consumer Protection Act (TPCA) against a New Jersey-based provider of test preparation and college and career planning services (“Peterson’s Nelnet, LLC”) for sending advertising faxes without proper opt-out notices, the federal district court in Trenton has determined (Bais Yaakov of Spring Valley v. Peterson’s Nelnet, LLC, October 17, 2012, Thompson, A).

Bais Yaakov alleged that, on at least six specific instances and other unspecified instances thereafter, Peterson’s Nelnet sent unsolicited fax ads. The faxes also allegedly did not contain proper opt-out notices, as required by 47 U.S.C. Sec. 227(b)(2)(D).

Bais Yaakov sought to represent two classes: (1) persons to whom Peterson’s Nelnet sent unsolicited faxes without proper opt-out notices and (2) persons to whom Peterson’s Nelnet sent solicited faxes without proper opt-out notices.

Peterson’s Nelnet moved to dismiss the complaint or, in the alternative, to dismiss the class action portion of the complaint, on the ground that the unique language of Sec. 227(b)(3) of the TCPA requires, in this instance, compliance with a New York state law (Civil Practice Law Sec. 901(b)) that prohibits class actions for violations of statutes that create or impose a penalty and do not explicitly provide for the availability of class actions.

Bais Yaakov contended—and the court agreed—that Federal Rule of Civil Procedure 23 governed whether or not the suit can proceed as a class action, not state procedural laws or rules.

The private-action provision of the TCPA, Sec. 227(b)(3), states, in part, that “A person or entity may, if otherwise permitted by the laws or rules of court of a State, bring in an appropriate court of that State” an action for an injunction or damages.

Peterson’s Nelnet argued that, given this provision’s apparent reliance on state law, the court should apply New York’s Sec. 901(b) under a choice of law analysis. Applying Sec. 901(b) to Sec. 227(b)(3) would result both in a failure to state a claim and a failure to plead diversity jurisdiction, because disaggregating the class claims would reduce the amount in controversy below the minimum requirement for diversity.

However, Sec. 227(b)(3) did not require the application of state law, the court said. This view was reinforced by two recent U.S. Supreme Court decisions. First, in the case of Shady Grove Orthopedic Associates, P.A. v. Allstate Ins. Co., 130 S.Ct. 1431 (2010), the Court held that, as long as its prerequisites were met, Rule 23 applied in federal court, with regard to determining whether or not a case could proceed as a class action, even when a federal court was sitting in diversity on a state-law claim.

Second, in the case of Mims v. Arrow Fin. Servs., LLC, 132 S.Ct. 740 (2012), the Court held that states were not the exclusive arbiters of TCPA claims, and that federal and state courts exercised concurrent jurisdiction. “Beyond doubt, the TCPA is a federal law that both creates the claim Mims has brought and supplies the substantive rules that will govern the case,” the Court said.

Although the issue in Mims was not identical to the one in the current case, the district court said, it shed light on the question of whether Sec. 277(b)(3) acted to explicitly or impliedly repeal Rule 23 in private TCPA actions. The holding in Mims also undermined a decision issued by the Second Circuit prior to Mims, the case of Holster v. Gatco, Inc., 618 F.3d 214 (2nd Cir. 2010), in which the Second Circuit held that Sec. 227(b)(3) delegated to the states the power to determine which causes of action lie under the TCPA, and that federal courts were required to respect this express limitation.

In Mims, the U.S. Supreme Court unanimously rejected the argument that Congress intended Sec. 227(b)(3) to create a private right of action enforced exclusively in state courts. The Court also discussed and rejected the argument that Congress intended the TCPA only to fill a gap in the states’ interstate enforcement capabilities, which was an assumption on which the Holster decision relied.

Rather, according to the Supreme Court, Congress “enacted detailed, uniform, federal substantive prescriptions and provided for a regulatory regime administered by a federal agency.” In the Court’s view, Congress’s design would be less well-served if consumers had to rely on the laws or rules of court of a state, or “the accident of diversity jurisdiction,” to obtain recovery for TCPA violations. The Court in Mims concluded that “federal law gives rise to the claim for relief ... and specifies the substantive rules of decision.”

Based on this interpretation, the district court said, there was little in the text of Sec. 227(b)(3) that outweighed the primacy of federal courts enforcing federal law, or the desire for uniform enforcement.

With regard to the question of whether Congress created an exception to Rule 23 by using the language “may, if otherwise” in Sec. 227(b)(3), the Court in Mims opined that Congress likely meant Sec. 227(b)(3) to serve as a permissive grant to states to enforce the statute. Therefore, there was no conflict between Rule 23 and state law such as to imply a congressional limitation on Rule 23, because the provision at issue applied to a suit brought in a state court, not a federal court.

Accordingly, it was not appropriate to interpret Sec. 227(b)(3) as requiring a federal court to follow state law, the district court reasoned. Peterson’s Nelnet’s motion to dismiss was denied.

The case is Civ. No. 11-00011.

Aytan Yehoshua Bellin (Bellin & Associates LLC) for Bais Yaakov of Spring Valley. Damian V. Santomauro (Gibbons, PC) for Peterson’s Nelnet, LLC.

Cases: Privacy NewJerseyNews