Thursday, April 7, 2011

FYI: 3rd Cir Allows Diversity Jurisdiction for TCPA Claims Under CAFA

The U.S. Court of Appeals for the Third Circuit recently held that the Telephone Consumer Protection Act ("TCPA"), 47 U.S.C. § 227(b), does not require exclusive state court jurisdiction, and does not preclude putative TCPA class actions from being brought in federal court pursuant to diversity jurisdiction under CAFA.

A copy of the opinion is available at: http://www.ca3.uscourts.gov/opinarch/093105p.pdf

This matter came before the Court as a consolidated appeal involving three putative class actions brought under the TCPA.  The putative class plaintiffs in all cases contended that the various district courts had erred by dismissing the cases for lack of subject matter jurisdiction. 

As you may recall, the TCPA makes it illegal "to use any telephone facsimile machine, computer, or other device to send, to a telephone facsimile machine, an unsolicited advertisement" subject to certain statutory exceptions.  There are separate provisions for private parties and state attorneys general bringing claims under the statute.  The private right of action provides in pertinent part that an individual may bring an action "if otherwise permitted by the laws or rules of court of a State, [to] bring in an appropriate court of that State" to recover damages of "at least $500 per unsolicited fax."

In the Court's previous decision in ErieNet, Inc. v. Velocity Net, Inc., 156 F.3d 513 (3d Cir. 1998), the Third Circuit held that Congress "intended to divest federal courts of federal question jurisdiction over individual TCPA claims."  This is the majority rule, as only the Sixth and Seventh Circuits allow federal questions jurisdiction for TCPA cases.

In the instant matter the Court noted that diversity jurisdiction was conferred on the federal courts under 28 U.S.C. § 1332(d), an amendment to the Class Action Fairness Act.  The Court found that historically diversity jurisdiction had "an expansive nature and straightforward applicability,"  and that diversity jurisdiction is "presumed to exist for all causes of action so long as the statutory requirements are satisfied."  Thus, the Court held that federal courts have diversity jurisdiction over putative TCPA class actions that meet CAFA's requirements.  This is the majority rule also.

In addition, two of the lower courts applied the New York state law generally precluding class actions for statutory penalties to hold that the $5MM CAFA amount in controversy requirement had not been met.  The Third Circuit reversed, holding that the New York state law does not apply to federal statutes, and in any event Fed. R. Civ. P. 23 controls in federal courts (citing the U.S. Supreme Court's opinion in Shady Grove Orthopedic Ass'n, P.A. v. Allstate Insurance Co.).

Also, another of the lower courts held that diversity jurisdiction under CAFA did not apply, as the putative class plaintiff in that action could not achieve class certification under Rule 23.  In particular, the lower court held that there were too many "crucial factual determinations to be made with respect to claims and defenses that will vary from party to party, in particular, consent to receive faxes and the existence of a prior business relationship with defendant," and that the superiority requirement was not met because the  "individual recovery scheme contemplated by the TCPA – which allows individuals to recover $500 to $1500 per violation when their actual losses from receiving unwanted faxes are slight by comparison – already contains a punitive element that both deters potential violators and motivates individuals to file claims."  Noting that no motion for class certification had yet been filed, the Third Circuit held that this ruling was improperly premature.

 
 
Ralph T. Wutscher
Kahrl Wutscher LLP
The Loop Center Building
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Chicago, Illinois  60602
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Email:  RWutscher@kw-llp.com
http://www.kw-llp.com

 
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