In Their Opinion : Seventh Circuit Court of Appeals Commentary : Lawyer & Attorney Michael E. Rigney : Kelley Drye & Warren Law Firm

CE DESIGN v. PRISM BUSINESS MEDIA (May 27, 2010)

Prism Business Media publishes trade magazines and sponsors tradeshows. CE Design subscribes to several Prism publications. When Prism sent an unsolicited fax to CE Design in 2004, CE Design filed a putative class action under the Telephone Consumer Protection Act (TCPA). The TCPA prohibits the sending of unsolicited advertisements to fax machines. Prism moved for summary judgment, arguing that an FCC implementing order allowed the sending of unsolicited advertisements to the fax machines of companies with which the sender had an "established business relationship (EBR)." Judge Pallmeyer (N.D. Ill.) granted summary judgment to Prism. CE Design appeals.

In their opinion, Judges Flaum, Kanne, and Evans affirmed. The Court describes the issue before it as the classic “chicken-and-the-egg” dilemma. On the one hand, the Hobbs Act reserves to the courts of appeals the power to determine the validity of an FCC order -- and requires a petition for reconsideration with the FCC before a request for relief from a court of appeals. Here, the district court relied on the Hobbs Act and refused to consider the validity of the FCC order creating the EBR exemption. On the other hand is the familiar Chevron analysis used to review an agency's construction of a statute. In the first step of that analysis, a court determines whether the statute is silent or ambiguous on the issue which is the subject of the agency's order. Only if it is silent or ambiguous does the court examine the reasonableness of the agency action. CE Design asserts that the TCPA is unambiguous on the meaning of "unsolicited advertisement" so the court need not consider the FCC order. The Court rejected CE Design's position. An Article III court's first obligation is to ensure its jurisdiction -- before any consideration of the merits. Thus, if the Hobbs Act and the Chevron analysis were really analogous to the "chicken-and-the-egg," the Court would have to address the jurisdictional question in the Hobbs Act before engaging in the Chevron analysis. Alternatively, the Court concluded that the two approaches were not really in conflict. The result of CE Design's own Chevron argument would have been the invalidation of the FCC order by the district court -- exactly the result that the Hobbs Act prohibits. On the merits of the EBR exemption itself, the Court had no difficulty in agreeing with the district court that the exemption applied on the facts of the case.

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AUTO-OWNERS INSURANCE CO. v. WEBSOLV COMPUTING (September 1, 2009)

Websolv sent an unsolicited fax to the dental office of Guy Bibbs. The fax was an advertisement for a healthcare seminar. Bibbs sued Websolv in state court. Websolv tendered its defense to Auto-Owners Insurance Co. Auto-Owners filed an action in federal court seeking a declaratory judgment that it had no duty to defend. Although the parties stipulated to the application of Iowa law, the court applied Illinois law and granted Websolv’s motion for summary judgment. Auto-Owners appeals.

In their opinion, Chief Judge Easterbrook and Judges Cudahy and Sykes reversed and remanded. The Court first addressed the choice-of-law issue. The Court concluded that the district court should have honored the parties' stipulation that Iowa law controls. When the parties agree on which state's law should govern and that choice is reasonable, the court should apply that law. The lower court was incorrect in its belief that it was required to apply the law of the forum. The court is only required to apply the choice-of-law rules of the forum -- in order to determine which forum’s law is the correct substantive law. Here, under Illinois' choice-of-law rules, Iowa law would apply. The Court turned to the merits, applying Iowa law. The claim in the case is that Websolv violated the Telephone Consumer Protection Act (“TCPA”) by sending the unsolicited fax. Websolv claims the suit is covered either under the policy's advertising injury section or its property damage section. The Court rejected both theories. The advertising injury section requires the company to defend its insureds for suits alleging injury from the publication of material that "violates a person's right of privacy." Recognizing that a right of privacy could refer either to matters of secrecy or matters of seclusion, the Court concluded that an Iowa court would apply the policy’s coverage only in the secrecy context. The rights protected by the TCPA, on the other hand, are privacy rights arising in the seclusion context. The Court relied, in part, on the use of the word "publication" in the policy. Publication is more relevant in the secrecy context than the seclusion context. With respect to the property damage theories, the Court noted that the only alleged property damage was the use of ink and paper from the fax machine. The Court held that this damage fell within the exclusion in the policy for "expected or intended" consequences. Websolv certainly expected its fax transmission to result in the use of ink and paper on the recipient’s end.

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