Defendants in class action litigation in New York federal courts have historically enjoyed a favorable state law procedural rule in certain suits. That rule, New York Civil Practice Law and Rules § 901(b) (“Section 901(b)”), prohibits class actions suits for statutory damages. While plaintiffs may proceed on a class basis by waiving their entitlement to statutory damages in favor of actual damages, Section 901(b) has served as an important device for entities facing purported class action suits, and has allowed many defendants to obtain dismissal at the motion to dismiss phase.

Recent Supreme Court jurisprudence and associated case law has changed the landscape considerably, and this week the Second Circuit confirmed in Bank, et al. v. Independence Energy Group LLC, No. 13-1746 (2d Cir. Dec. 3, 2013), that Federal Rule of Civil Procedure 23 (“Rule 23”), and not Section 901(b), governs complaints brought pursuant to the federal Telephone Consumer Protection Act (“TCPA”).

This is important for employers in two respects. First, class action litigation under the TCPA is ubiquitous. As a result, Rule 23 case law – applicable to workplace class actions – is being shaped by TCPA rulings in no small part. Second, the creation of certain procedural road blocks – or avenues of opportunity – to successful pursuit of class action litigation lends to the ever growing arsenal of defense positions that employers can put to good use in workplace class action litigation (or challenges that they need to account for in shaping their defense strategies).

Background

In March 2012, Todd Bank, a lawyer proceeding pro se, brought a purported class action suit against Independence Energy Group LLC and Independence Energy Alliance LLC, alleging more than 10,000 calls in violation of the TCPA and seeking up to $1,500 in statutory damages for each member of the class. Bank’s complaint was dismissed sua sponte by the District Court. Judge William Kuntz of the U.S. District Court for the Eastern District of New York, relying on previously well-settled law, found that he lacked subject matter jurisdiction due to the Second Circuit’s previous cases holding that Section 901(b) bars TCPA class actions in federal court. See Holster III v. Gatco, Inc., 618 F.3d 214 (2d Cir. 2010); see also Bonime v. Avaya, Inc., 547 F.3d 497 (2d Cir. 2010).

The Second Circuit’s rationale was based on the language of Section 227(b)(3) of the TCPA, which states that private parties “may, if otherwise permitted by the law or rules of court of a State, bring [action] in an appropriate court of that State.” The Second Circuit interpreted this state-centric language – in concert with Section 901(b)’s prohibition on statutory damages – to bar TCPA class actions in federal court. 

In dismissing the Bank complaint, the District Court acknowledged the Supreme Court finding in Mims v. Arrow Financial Services., LLC, 132 S.Ct. 740 (2012), that federal and state courts have concurrent jurisdiction over TCPA suits. Nevertheless, the District Court held that “the Mims decision did not interpret or consider the effect on federal courts of the limiting statutory language on which the Second Circuit relied,” and its interaction with Section 901(b), in barring TCPA class action suits in federal court.  Judge Kuntz determined that Holster III remained good law “until further notice.”

The Court’s Decision

This week, the Second Circuit provided that notice. In a per curiam opinion, the Second Circuit held that Mims “uprooted” its prior TCPA jurisprudence, and that Rule 23 trumps Section 901(b). The Second Circuit explained that Mims stands for the proposition that the TCPA’s state-centric language was merely “a permissive grant of jurisdiction to state courts” and did not alter the federal courts’ “exercise of the general federal-question jurisdiction they have possessed since 1875.” Applying Mims in a decision earlier this year, the Second Circuit  found that the governing limitations period for TCPA claims is the federal catch-all limitations period and not the applicable state limitations period.  See Giovanello v. ALM Media, LLC, 726 F.3d 107 (2d Cir. 2013). Consistent with these holdings, the Second Circuit pronounced that Rule 23, and not New York’s Section 901(b), controls whether a TCPA suit may proceed as a class action.

Implications for Employers

While not an employment law decision, the Bank decision has important implications for employers. Along with Shady Grove Orthopedic Associates, P.A. v. Allstate Insurance Co., 559 U.S. 393 (2010), the decision reflects the rejection of a long-held theory that the Erie doctrine requires application of state law class action procedures to certain claims even in federal court. In New York, this has historically meant the availability of Section 901(b)’s prohibition against class actions seeking statutory damages, even when plaintiffs filed in federal court. Employers should expect plaintiffs to work around this procedural rule by avoiding New York state courts, and choosing to file their claims in a federal forum.