Who has standing to bring a claim for receiving a junk fax under the Telephone Consumer Protection Act (TCPA)? According to the Seventh Circuit, anyone who receives the fax. The holding sounds simple enough, and even purports to be based on the language — or the absence of it — in 47 U.S.C. § 227(b)(1)(C) of the TCPA. Chapman v. Wagener Equities, Inc., 2014 U.S. LEXIS 5962 (7th Cir. March 31, 2014). The Seventh Circuit found the argument so simple, it refused to grant a Rule 23(f) motion to review the order granting class certification.
So if the answer is so obvious, why are the courts hopelessly divided? Here's what happened in Chapman.
In Chapman, the plaintiffs alleged that the defendant business hired a now-infamous company — Business To Business Solutions — to send out a series of fax advertisements, but the faxes went to businesses that had not consented to receive them. So the plaintiffs brought a class action seeking to impose the strict liability provisions of the TCPA against the defendant.
The defendant opposed class certification advancing the “principal argument” that the plaintiffs lacked standing to bring the claim because they were not owners of the fax machines and could not have suffered the losses that the TCPA was meant to address: use of the machine, paper and ink. Courts that have denied class certification on standing typically consider other factors as well, including the lack of ascertainability implied in Rule 23, administrative infeasibility and the ambiguity of the phrase “persons who were sent” unauthorized faxes. See Compressor Engineering Corp. v. Manufacturers Financial Corp., 292 R.R.D. 433, 446-450 (E.D. Mich. 2013).
But here, the Seventh Circuit made short work of the standing argument. Really short work. The court's standing analysis was set forth in three sentences:
The defendants' principal argument is that only owners of fax machines have standing to sue under the [TCPA]. ... But what the [TCPA] prohibits is faxing unsolicited fax advertisements “to a telephone facsimile machine.” § 227(b)(1)(C). There is no mention of ownership.
2014 LEXIS at *3.
The court then criticized a district court decision the defendant relied on,Compressor Engineering Corp. v. Manufacturers Financial Corp. According to the court, Compressor Engineering was:
. . . erroneous on its own terms, because the lessee [not just the owner] of a fax machine pays for the paper and often the ink. And if he doesn't, no matter. For contrary to Compressor Engineering . . . no monetary loss need be shown to entitle the junk-fax recipient to statutory damages.
2014 LEXIS at *4.
But that isn't all — or even exactly — what Compressor Engineering said. For example, the Compressor court first examined the ascertainability requirement of Rule 23:
“Before a court may certify a class pursuant to Rule 23,” the class definition must be “sufficiently definite so that it is administratively feasible for the court to determine whether a particular individual is a member of the proposed class.” That means that the class definition must be “precise” and “there can be no class action if the proposed class is ‘amorphous’ or ‘imprecise.’” Id.
Compressor Engineering, 292 F.R.D. at 447 (citation omitted).
Because the class definition included those “who were sent” faxes, the court found it to be too “imprecise and amorphous” to be ascertainable. Id. at 450. That’s because the vast majority of the faxes were sent to municipalities and corporate entities. Under the proposed definition, anyone who “happens to ‘intercept’ a fax advertisement by picking it up” would be a class member. Id.But an “interceptor” would have no standing under the TCPA since they are not the ones who pay for the fax machine or the toner.
The Compressor Engineering court also considered the possibility of modifying the class definition. But that would only make matters worse because the plaintiffs claimed there were 14,137 unique “fax numbers,” but no evidence — or any administratively feasible way — to figure out how many people were owners or lessees of a fax machine. Id. at 451.
The Compressor Engineering court also addressed the challenge posed by the individualized determinations necessitated by the requirement that a fax be “unsolicited.” Because the defendant alleged both consent and existing business relationships with at least some of the proposed class members — unlike the defendant in Chapman — the court concluded that the plaintiff was entitled to assert its statutory defenses, which, in turn, rendered class certification improper. Id. at 453 (a “class cannot be certified on the premise that [a defendant] will not be entitled to litigate its statutory defenses to individual claims.” citing Wal-Mart Stores, Inc. v. Dukes, 131 S.Ct. 2541, 2561, 180 L. Ed. 2d 374 (2011) (citations omitted).)
What Chapman Does Not Stand For
The Chapman case will encourage courts to reject standing as a basis for denying class certification. But it is important to consider what Chapman did not consider, and what it does not stand for.
Chapman did not consider defenses to the statute, such as consent and established business relationships, because the defendant didn’t raise those issues. In fact, the Seventh Circuit acknowledged that “there is no violation of the [TCPA] if the recipient of the fax advertisement had given the defendant ‘prior express invitation or permission, in writing or otherwise’ to receive such advertisements from the defendant.” Chapman, 2014 U.S. App. LEXIS at *6-7.
Chapman did not consider the ambiguity created by the phrase “all persons who were sent” unsolicited faxes contained in the class definition, and the certainty that all “receivers” and “interceptors” could be included within the class if that phrase is taken literally. True, the court did acknowledge that “[r]ecipients of faxes who don’t have rights under the [TCPA] just wouldn’t be entitled to share in the damages awarded to the class by a judgment or settlement.” Id. at * 5-6. But the court dismissed this concern, saying that whether the class contained those who were “mistakenly included in it” was not an argument with any merit, and it could be addressed by creating subclasses. Id.
But the subclasses the Chapman court referred to were limited to owners and lessees. Id. at *6. It never considered the more fundamental problem identified in Compressor Engineering: a class is overly broad if it must include those who have no claim and are not entitled to damages. You can’t have a subclass, consistent with Rule 23, of those who were not subject to a violation of the TCPA in the first place.
Nor can that defect be cured by redefining the class. Since the TCPA is a strict liability statute, a pre-certification fact finding that eliminates “receivers” and “interceptors” resolves the ultimate issue of liability just to determine who is in the class. This type of fail-safe class is impermissible.
First, those defending fax blast cases need to emphasize the ambiguity created by the word “send” in the TCPA. The threshold considerations of ascertainability and administrative feasibility cannot be met where individualized inquiries are required to determine class membership.
Second, raise the statutory defenses, and emphasize the Supreme Court’s teaching in Wal-Mart Stores, Inc. v. Dukes. Rule 23 may not supplant a defendant’s right to raise and litigate statutory defenses.
Third, class definitions that necessarily include those who have no claim under the TCPA cannot be redefined without performing the very inquiry that results in strict liability for the defendant. This only results in an improper fail-safe class definition, which forecloses class certification where pre-certification inquiries must decide the ultimate issues in the case.