The U.S. Court of Appeals for the Sixth Circuit recently reversed a district court's denial of class certification and dismissal of consolidated complaints alleging that a mortgage lender violated the federal Telephone Consumer Protection Act ("TCPA") by sending "junk faxes" to businesses without their consent or a pre-existing business relationship.
In so ruling, the Court held:
(a) the mere mention of a defense is not enough to defeat the predominance requirement under Fed. R. Civ. P. 23(b)(3); and
(b) an unaccepted settlement offer or offer of judgment does not moot a plaintiff's case.
A copy of the opinion is available at: Link to Opinion
A residential mortgage lender contracted with a fax advertising company (the "fax blaster") to send hundreds of advertisements via facsimile to numbers on a "lead list" purchased from a third party vendor. The fax blaster faxed the ads to the plaintiff businesses.
The businesses sued the fax blaster under the TCPA, alleging that the fax it received was unsolicited and that it did not have an established business relationship with the mortgage lender.
As you may recall, the TCPA "prohibits the use of 'any telephone facsimile machine, computer, or other device to send, to a telephone facsimile machine, an unsolicited advertisement,' unless the sender and recipient have 'an established business relationship,' the recipient voluntarily made its fax number available, and the unsolicited fax contains a notice meeting certain statutory and regulatory requirements."
The TCPA "provides a private right of action permitting plaintiffs to enjoin a violation of the TCPA and/or to recover either actual money lost from the violation or $500 per violation, whichever is greater. … Damages may be trebled if a court finds that a violation was willful or knowing."
The district court granted the mortgage lender's motion to dismiss for lack of jurisdiction, but the plaintiff business appealed. The appellate panel reversed, holding that federal courts have federal-question jurisdiction over TCPA claims.
On remand, the district court entered an order permitting discovery on the issue of class certification and the parties engaged in discovery. The mortgage lender again moved to dismiss before discovery closed, but the district court denied the motion.
In the interim, another plaintiff business filed a separate class action complaint against the mortgage lender based on the same fax-blasting campaign. The fax blaster moved to consolidate the cases, which was not opposed, and the district court granted the motion and consolidated the two cases.
The plaintiffs filed a motion to certify a class of "[a]ll persons sent one or more faxes in March 2006 from [the mortgage company] offering '0 Down, 0 Closing Costs' for 'Mortgages' on 'Purchases/ReFinancing,' …."
The district court denied the motion for class certification. Focusing on the issue of predominance under Federal Rule of Civil Procedure 23(b)(3), the district court found that determining whether each class member gave consent would require individualized factual investigations and, because the issue of consent was not "subject to generalized proof," the plaintiff businesses failed to show that common questions or law or fact predominated over questions involving individual class members.
The plaintiffs sought permission to appeal immediately the district court's denial of class certification, but the appellate pane denied the petition.
On remand, the mortgage company made offers of judgment under Federal Rule of Civil Procedure 68(a), offering $1,550 plus costs, but excluding attorney's fees, plus an injunction prohibiting the mortgage lender from sending unsolicited fax advertisements. The offers were not accepted within 14 days as required by the rule, and they "lapsed and were automatically considered withdrawn."
The mortgage lender then filed a third motion to dismiss, arguing that "because the district court had denied class certification and plaintiffs had failed to accept offers of judgment that encompassed all of the individual relief sought in their complaints, both complaints were now moot and the district court should dismiss for lack of subject matter jurisdiction under Rule 12(b)(1)." The district court granted the motion and dismissed the complaints, from which the plaintiffs again appealed.
On appeal, the Sixth Circuit, first addressed the district court's denial of class certification, explaining that "[t]o merit certification, a proposed class must satisfy all four prerequisites of Rule 23(a) and fall within one of the three types of class actions described in Rule 23(b)."
As the district court limited its analysis to predominance under Rule 23(b)(3), the Court noted that the only question before it was "whether the district court abused its discretion in holding that [plaintiffs] failed to show that 'questions of law or fact common to class members predominate over any questions affecting only individual members[.]'"
Citing Supreme Court precedent, the Sixth Circuit stressed that "'Rule 23(b)(3) requires a showing that questions common to the class predominate, not that those questions will be answered, on the merits, in favor of the class.' … Common questions are those that 'that can be proved through evidence common to the class.'"
In addition, the Court held that "plaintiffs seeking class certification 'need not prove that each element of a claim can be established by classwide proof: 'What the rule does require is that common questions predominate over any questions affecting only individual [class] members.'"
The Sixth Circuit reasoned that it had previously held that just because a defense was raised and could affect class members differently does not require "a finding that individual issues predominate over common ones."
The Court noted that the plaintiffs "presented evidence suggesting a class-wife absence of consent—evidence that [the fax blaster] failed to contact anyone on the list it purchased … to verify consent prior to faxing them advertisements. In response, [the mortgage company] merely alleged that class members might have given consent in some other way."
The Sixth Circuit explained that it was "unwilling to allow such 'speculation and surmise to tip the decisional scales in a class certification ruling[,]' … particularly under the circumstances present here. Our precedent is clear that a possible defense, standing alone, does not automatically defeat predominance. … 'Rule 23(b)(3) requires merely that common issues predominate, not that all issued b common to the class.'"
The Court distinguished Fifth Circuit precedent holding that "issues of consent may preclude class certification on predominance grounds in some TCPA cases, explaining that the Fifth Circuit "recognized that in cases where, as here, a sending 'obtained all of the fax recipients' fax numbers from a single purveyor of such information[,]' there exists a 'class-wide means of establishing the lack of consent based on arguably applicable federal regulations. … The common question in such cases is 'whether the inclusion of the recipients' fax numbers in the purchased database indicated their consent to receive fax advertisements, and there [a]re therefore no questions of individual consent.'"
Accordingly, the Sixth Circuit held that "the mere mention of a defense is not enough to defeat the predominance requirement of Rule 23(b)(3)."
Given the class-wide evidence the plaintiff businesses presented showing lack of consent, the Court held that "speculation alone regarding individualized consent was insufficient to defeat plaintiffs' showing of predominance under Rule 23(b)(3)." To hold otherwise was an abuse of discretion on the part of the district court.
Turning to the dismissal of the plaintiffs' complaints, the Court, relying on the Supreme Court's ruling in Campbell-Ewald Co. v. Gomez, which held "unequivocally that 'an unaccepted settlement offer or offer of judgment does not moot a plaintiff's case[,]" reversed the district court's denial of class certification and dismissal for lack of jurisdiction, and remanded the case for further proceedings.
Ralph T. Wutscher
Maurice Wutscher LLP
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