Antitrust Law Daily Wrap Up, PRIVACY—EDMich: Class Certification Denied in Putative TCPA Facsimile Advertising Actions, (Apr 24, 2013)

By Tobias J. Gillett, J.D., LL.M.

The federal district court in Detroit has declined to grant class certification in three Telephone Consumer Protection Act (TCPA) cases over allegedly unsolicited facsimile advertising (Machesney v. Lar-Bev of Howell, Inc., et al., April 22, 2013, Cox, S.). The cases did not have ascertainable classes and would require individualized determinations as to the contact information of class members, the ownership of recipient fax machines, and whether the recipients had given permission to send the advertising or had preexisting business relationships with the senders.

Anderson + Wanca is a law firm specializing in TCPA class action lawsuits. In the course of investigating several putative class actions, the firm discovered a facsimile advertising company that had transmitted facsimile advertisements to many recipients without obtaining consent. Anderson + Wanca obtained lists of recipients of those advertisements, and proceeded to file "scores of putative class actions" under the TCPA.

Anderson + Wanca engaged in a variety of allegedly unethical conduct in the course of obtaining the lists and filing the class action lawsuits. Defendants in some of the lawsuits began challenging the class certifications, arguing that the misconduct should disqualify Anderson + Wanca as class counsel. In Reliable Money Order, Inc. v. McKnight Sales Co., 281 F.R.D. 327 (E.D. Wis. 2012), the district court concluded that ethical violations alone would not render the class counsel inadequate, and certified the class.

On appeal in Reliable Money Order, Inc. v. McKnight Sales Co., Inc., January 9, 2013, the Seventh Circuit held that "unethical conduct, not necessarily prejudicial to the class, nevertheless raises a serious doubt about the adequacy of class counsel when the misconduct jeopardizes the court’s ability to reach a just and proper outcome in the case," but that "actions such as occurred here—which do not prejudice an attorney’s client or undermine the integrity of judicial proceedings—do not mandate disqualification of counsel." However, the Seventh Circuit did "emphasize [its] concern over the challenged actions that Anderson + Wanca attorneys have taken while investigating this case and others."

In the present decision, the district court addressed motions for class certification in three class action lawsuits brought by the same counsel and asserting nearly identical claims: (1) Machesney v. Lar-Bev of Howell, Inc., et al.; (2) APB Associates, Inc. v. Bronco’s Saloon, Inc., et al.; and (3) Compressors Engineering Corp. v. Manufacturers Financial Corp., et al.

Unethical conduct. The court initially rejected the argument that the class counsel in the cases should be deemed inadequate due to Anderson + Wanca’s alleged ethical violations. The court observed that three different attorneys and law firms were seeking to be named as class counsel in the cases, and that Federal Rule of Civil Procedure 23 provided that "the court must appoint the applicant best able to represent the interests of the class." Here, the court could appoint an attorney that "played no role in the alleged unethical conduct."

Named plaintiffs. However, the court noted two potential problems with the named class representatives. First, the proposed class definitions were limited to "persons" when two of the named representatives were corporate entities, a flaw that could be remedied by changing the definition to include "entities." Second, the court questioned whether the representatives could fairly and adequately represent the class, given that they had signed retainer agreements agreeing not to oppose an attorney fee award of one-third of any recovery. The court found this "troubling," given the amount of work actually performed by the counsel in each case.

Ascertainable class. Whether or not the class representatives could adequately represent the classes, however, the court concluded that the cases lacked ascertainable classes. The plaintiffs in each action sought certification of classes of "[a]ll person who were sent" facsimile advertising in certain specified forms.

The court explained that case law has not clearly established who has standing to pursue a TCPA claim based on the receipt of an unsolicited facsimile advertisement. The court concluded, based on the language of the statute prohibiting sending an unsolicited facsimile advertisement "to a telephone facsimile machine" and the legislative history demonstrating that Congress intended to address "the cost of paper and ink incurred by the owner of the fax machine and the fax machine owner’s loss of the use of the machine," that "the person or entity that owned the fax machine that received the unsolicited fax advertisement at issue is the person or entity with standing to assert a TCPA claim."

In the present cases, the court concluded that it was unclear what "persons or entities" the proposed class definitions of "all persons who were sent" certain facsimile advertisements would include. The court noted that the vast majority of facsimile advertisements were sent to corporate or municipal entities, in which there was "the possibility of multiple plaintiffs stemming from one fax transmission—all individuals at a home or employed by a corporate entity, or any person who happens to intercept a fax advertisement by picking it up."

Although the court would have the authority to modify the proposed class definitions to make them ascertainable and to include only persons or entities with standing, the court observed that doing so would require making individualized determinations with respect to each transmission as to the person or entity that owned the fax machines that received the advertisements. Although the plaintiff’s counsel had created lists of entities attached to those numbers on the dates when the advertisements were sent, the court noted that the listings would be six or seven years old, and determining the current contact information for many of them would be problematic.

Moreover, the person or entity attached to the fax number would not necessarily be the person or entity who owned the fax machine. The court observed that the persons or entities would not "own" the facsimile numbers to which the advertisements were sent, but rather would merely have an assigned number through an account with a telephone company as long as the account remained open. The court noted that it was "not uncommon for one person or entity to be connected to a phone number used to send or receive fax transmission signals while another person or entity actually owns the fax machine that received a fax transmission via that telephone number on the date in question."

In addition, the claims would require individualized determinations to determine which recipients had received unsolicited advertisements. The court explained that the TCPA does not prohibit all facsimile advertising; "[r]ather, it only prohibits the sending of an ‘unsolicited advertisement’ unless certain conditions apply." Permission to send a facsimile advertisement can be given orally or in writing, and "[t]here is no liability if the unsolicited advertisement is from a sender with an established business relationship with the recipient."

Here, the defendants had asserted consent or the existence of an established business relationship as defenses to the TCPA claims. The court noted that the defendants were likely to have established business relationships "with at least a portion" of the persons and entities on the plaintiffs’ lists. The court cited the Supreme Court’s decision in Wal-Mart Stores v. Dukes, 131 S.Ct. 2451 (2011), in which the Supreme Court stated that a "class cannot be certified on the premise that [a defendant] will not be entitled to litigate its statutory defenses to individual claims." Although the class definitions in the present cases could be altered to include only persons or entities who received "unsolicited" advertisements, the court observed that the defendants could not "be foreclosed from pursuing [the] statutory defense as to those they believe they had an established business with." Therefore, the court concluded that it was "an individualized issue that precludes certification."

The case is No. 10-10085.

Attorneys: Brian J. Wanca (Anderson + Wanca) for Shari Machesney. Jason R. Mathers (Harvey Kruse) for Lar-Bev of Howell, Inc.

Companies: Lar-Bev of Howell, Inc.

Cases: Privacy MichiganNews