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

CREATIVE MONTESSORI LEARNING CENTERS v. ASHFORD GEAR LLC (November 22, 2011)

Lawyers from a firm that specializes in bringing class-action suits under the Telephone Consumer Protection Act obtained information about advertising faxes from a fax broadcaster, in return for a promise of confidentiality. The information they obtained revealed that Ashford Gear had sent almost 15,000 advertising faxes. The Creative Montessori Learning Center was (or may not have been) one of the recipients. The firm communicated with the Center, indicating that a class action already existed. The Center became the named plaintiff in a suit filed by the firm. Plaintiffs sought class certification. Defendants opposed certification on the grounds that the lawyers' misconduct (in breaching their confidentiality promise and in misrepresenting to the Center the status of the action) demonstrated that the lawyers would not adequately represent the class. Judge Gettleman (N.D. Ill.) agreed that there had been misconduct but concluded that the misconduct was a subject for bar authorities and certified the class. Ashford Gear sought permission for leave to appeal from the class certification.

In their opinion, Seventh Circuit Chief Judge Easterbrook and Judges Cudahy and Posner vacated and remanded. The Court, as it has on several occasions recently, commented on the dangers of class actions, particularly in situations with statutes like the Telephone Consumer Protection Act. The Act provides for $500 in statutory damages for the recipient of an unsolicited fax advertisement (trebled if willful or knowing). But, in bringing it as a class action, counsel has turned it into a case worth over $11 million. The Court also emphasized the need for trustworthy class lawyers, given the incentives for class lawyers and defendants' lawyers to recommend settlements that reward the class lawyers at the clients' expense. Here, lawyers for the class have already exhibited their lack of integrity. Although the district court recognized that fact, it concluded that "only the most egregious misconduct" by class counsel was grounds for denial of class certification. The Court noted that that was an erroneous standard. Instead, any misconduct that casts serious doubts on class counsels’ loyalty is grounds for denial of certification. The Court remanded for a reevaluation of whether class counsel will adequately represent the class, given the misconduct.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

DAMASCO v. CLEARWIRE CORPORATION (November 18, 2011)

Jerome Damasco brought a class action suit in state court against Clearwire Corporation. He alleged that Clearwire sent unsolicited text messages in violation of the Telephone Consumer Protection Act. He sought both injunctive relief and damages for the more than 1,000 people he estimated received the text messages. Clearwire offered to settle the case by paying Damasco (and up to 10 additional people) the maximum statutory penalty ($1,500) and agreed to stop sending the unsolicited messages. Damasco never responded. A few days later, Clearwire removed the case to federal court. Damasco moved for class certification almost immediately. Within a day, Clearwire moved to dismiss on the grounds that its settlement offer rendered the case moot. Judge Zagel (N.D. Ill.) agreed with Clearwire and dismissed, concluding that the Seventh Circuit's Holstein decision controlled. A complete settlement offer before a class certification filing moots the named plaintiff’s claim. Damasco appeals.

In their opinion, Seventh Circuit Judges Manion, Rovner, and Tinder affirmed. Article III of the Constitution requires federal courts to hear only live cases and controversies. As such, a party must maintain a personal stake in the litigation. Here, once Clearwire expressed its willingness to give Damasco everything to which he may have been entitled under the law, there is no more controversy. The Court has held in the past that a plaintiff cannot avoid mootness simply by moving to certify the class after the offer. Although the Court recognized that several other circuits have allowed plaintiffs to seek class certification after such a full offer, the Court reiterated its belief that such a rule violated Article III and declined to adopt it. A simple solution exists to any concern that defendants could frustrate class actions by simply offering each named plaintiff a full settlement. That solution is to move for class certification at the time the complaint is filed. The filing of the motion protects the plaintiffs and the class. The Court also noted that a plaintiff, to the extent he believes he is not ready to place the class certification issue to the court, can seek additional time for further investigation or discovery.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

SAWYER v. ATLAS HEATING AND SHEET-METAL WORKS (May 26, 2011)

On May 18, 2009, Park Bank filed a state-court class action against Atlas Heating and Sheet-Metal Works. It alleged that Atlas' December 9, 2005 unsolicited facsimile violated the Telephone Consumer Protection Act. In March of 2010, after the Act's four-year statute of limitations had run, Park Bank voluntarily dismissed its claim. Isaac Sawyer, another facsimile recipient, was unsuccessful in his attempts to intervene in the suit. Sawyer filed his own class action on March 19. Atlas removed the case to federal court and moved to dismiss on statute of limitations grounds or to at least limit the action to an individual one. Judge Adelman (E.D. Wis.) denied the motion on the ground that the limitations period was tolled while the Park Bank suit was pending. Atlas appeals.

In their opinion, Chief Judge Easterbrook and Judges Flaum and Sykes affirmed. The Court noted that the Supreme Court, in American Pipe, held that the filing of a class action tolls the statute of limitations as to all persons who would have been class members. Atlas contends that American Pipe does not control because: a) the first suit was voluntarily dismissed, b) the first suit was filed in state court, and c) the first class was never certified. The Court rejected each of these attempts to distinguish American Pipe. The statute of limitations was tolled and Sawyer's complaint is timely. The Court next addressed whether Sawyer was limited to an individual complaint instead of a class action. The district court had identified a conflict among the circuits on that question. The Court found no conflict. The cases Atlas identified presented not questions related to tolling, but questions related to the preclusive effect of a Rule 23 decision in the earlier case. If, for example, the court in the first case denies certification on numerosity grounds, that ruling would be binding on the later-filed action and preclude class certification. On the other hand, a denial because the class representative was inadequate would not bind other class members from pursuing certification. Here, Park Bank dismissed its complaint before the first court even ruled on certification. Sawyer is free to pursue class certification in his case.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

CE DESIGN LIMITED v. KING ARCHITECTURAL METALS (March 18, 2011)

CE Design is a small engineering firm near Chicago. It has a website where it posts its fax number and says "Contact Us." It also publishes its fax number in an online building industry directory. The directory requires a that its users allow all other directory users to communicate with it by fax or e-mail. King Architectural Metals is one of those other directory users. In 2009, King conducted a fax marketing campaign. It faxed over 50,000 advertisements, two of which went to CE Design. Design brought suit on behalf of a class pursuant to the Telephone Consumer Protection Act. Judge Bucklo (N.D. Ill.) certified a class of persons who received the fax without having given express permission. King petitions for permission to appeal from that certification.

In their opinion, Judges Posner, Manion, and Hamilton granted the petition, vacated the class certification, and remanded. The Act forbids unsolicited fax advertisements. An unsolicited advertisement is one sent without "express invitation or permission." Whether the "Contacts Us" language and the directory publication constitutes an unsolicited advertisement is a question that neither the statute, the case law, nor agency interpretations answer. Design's president testified at his deposition that he did not know that directory publication granted permission to others to communicate with Design by fax. Rule 23 requires that the class representative’s claim be typical of all claims and that the class representative will "fairly and adequately" represent the class. The Court stated that a plaintiff is not an appropriate class representative if it is subject to a defense that other class members are not subject to -- its claim is no longer typical. Likewise, a class representative should not have credibility problems. Here, the district court expressed doubts about the president's truthfulness but dismissed it as a immaterial. Questions about his credibility and the presence of a potential defense based on the expressed consent given through the directory detract from Design's ability to adequately represent the class. The Court remanded for reconsideration of the identity of the class representative. The Court emphasized that it was not questioning the viability of the class action itself.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

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.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

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.

• Email This
• Print
• Comments
• Trackbacks
• Share Link