State Courts Disagree About Whether Statutory Damages Make Class Actions an Inferior Method for Adjudicating TCPA Claims

The statutory damages that have caused so many plaintiffs to file TCPA class actions have also caused some courts to find that class actions are not the superior method for adjudicating them.   Federal Rule of Civil Procedure 23(b)(3) requires not only that common questions predominate over individual ones, but also that “a class action is superior to other available methods for fairly and efficiently adjudicating the controversy.” Fed. R. Civ. P. 23(b)(3). Whether a class action is the superior method for adjudication depends on a number of stated and unstated considerations, among them “the class members’ interests in individually controlling the prosecution or defense of separate actions.” Fed. R. Civ. P. 23(b)(3)(A). As we have noted before, some courts have held that TCPA claims are categorically unfit for class treatment because $500-$1,500 plus attorneys’ fees and costs is adequate to incent individuals to file claims, is disproportionate to any actual damages, and is potentially ruinous if aggregated in a class action. Two state courts recently addressed this issue and reached contrary conclusions.

In Local Baking Prods., Inc. v. Westfield Rental Mart, Inc., No. A-4852-12T4 (N.J. Super. Ct. App. Div. June 23, 2014), the plaintiff received unsolicited facsimile advertisements. The parties filed a consent judgment and the court certified a settlement class, after which the defendant’s insurer petitioned to intervene in order to seek a declaration that it had no duty to indemnify the defendant because no class could have been certified in the first place. In doing so, the insurer pointed to an earlier appellate decision involving the same plaintiff, Local Baking Prods. v. Kosher Bagel Munch, Inc., 23 A.3d 469 (N.J. App. Div. 2011), in which the court had held that “a class action is not a superior means of adjudicating a TCPA suit.” Id. at 476. The trial court granted the petition to intervene, decertified the settlement class, and ultimately dismissed the plaintiff’s claims in their entirety, after which the plaintiff appealed. The appellate court affirmed the decertification of the class, rejecting arguments that the insurer’s petition to intervene had been defective and finding that the prior appellate decision on superiority was not only controlling but correct. Westfield, slip op. at 22 (“the Kosher Bagel analysis conclusively determined a plaintiff’s use of a class action to advance TCPA claims was not permitted.”); id. at 23 (“the use of a class action to seek recovery of personal TCPA claims was rejected as a matter of law”); id. at 27 (“Finally, we reject Local Baking’s position that Kosher Bagel was incorrectly decided. The Supreme Court [of New Jersey]’s denial of certification suggests otherwise.”). The court reversed the dismissal of the named plaintiff’s claim but made clear that the claim could only proceed on an individual basis.

The Massachusetts Court of Appeals recently reached the opposite conclusion in Hazel’s Cup & Saucer, LLC v. Around The Globe Travel, Inc., No. 13-P-1371 (Mass. App. Ct. Aug. 22, 2014). The defendant in Hazel’s Cup hired a vendor to advertise a cruise. The vendor sent faxes to the plaintiff and others whose numbers appeared on a list that had been purchased from a third party. The trial court denied certification because it concluded that class actions are not the superior way to resolve TCPA claims. It found that an aggregated statutory damages award would be “unfair” and “disproportionate in relation to the actual harm suffered by the class” because the aggregate damages “would range from a minimum of over $1.1 million to over $3.4 million” even though the actual damages “amounts to pennies.” It reasoned that putative class members had an interest in controlling the prosecution of their claims because the statutory damages award “is not a nominal amount,” and held that small claims court was “a cost effective and straightforward forum” in which to do so. In short, it held that this was not a case in which, “without the class action device, an individual would be foreclosed from the courthouse.”

The Massachusetts Court of Appeals reversed and took the position that TCPA claims are “an archetypal example of a case in which the class action mechanism is superior.” It found as follows:

The cost of obtaining counsel to litigate each case—particularly given the need for discovery—would likely be greater than the expected value of each claim. It was an error of law to conclude that providing redress for plaintiffs entitled to it by the TCPA would be “unfair” because of the cumulative cost to the defendant…. Congress has made the judgment that statutory damages in this amount are necessary to compensate those injured by the receipt of unwanted fax advertisements, and to deter this unlawful conduct. A judge’s determination of superiority … may not properly include his or her judgment about the wisdom or propriety of the substantive law under which the plaintiff seeks redress. Nor may the possibility that the class action mechanism may work successfully as it was intended … be treated as a factor supporting a conclusion that the class action mechanism would be inferior to individual litigation of those claims.

But the court’s reasoning ignores the reality that some plaintiffs’ firms have made a cottage industry of filing individual actions under the TCPA and similar state statutes. Perhaps most importantly, it ignores that the TCPA’s legislative history speaks in terms of incenting individuals to pursue claims without attorneys, not in terms of imposing ruinous liability on businesses that commit arguable infractions that cause no real damage to anyone. The latter is not what “was intended” or would have been deemed “fair” by Congress:

The [TCPA] contains a private right-of-action provision that will make it easier for consumers to recover damages…. [I]t is my hope that States will make it as easy as possible for consumers to bring such actions, preferably in small claims court…. Small claims court or a similar court would allow the consumer to appear before the court without an attorney. The amount of damages in this legislation is set to be fair to both the consumer and the telemarketer. However, it would defeat the purposes of the bill if the attorneys’ costs to consumers of bringing an action were greater than the potential damages.

137 Cong. Rec. 30821-30822 (1991) (statement of Sen. Hollings) (emphasis added); see also, e.g., Forman v. Data Transfer, Inc., 164 F.R.D. 400, 405 (E.D. Pa. 1995) (denying certification because a TCPA “class action would be inconsistent with the specific and personal remedy provided by Congress to address the minor nuisance of unsolicited facsimile advertisements.”); Kim v. Sussman, 03 CH 07663, 2004 WL 3135348, at *3 (Ill. Cir. Ct. Oct. 19, 2004) (“Congress believed that allowing an individual to file an action in small claims court to redress the nuisance of unsolicited faxes and to recover a minimum of $500 in damages was an adequate incentive to address what is at most, a minor intrusion into an individual’s daily life.”); W. Concord 5-10-1.00 Store, Inc. v. Interstate Mat Corp., No. 10-0356, 2013 WL 988621, at *8 (Mass. Super. Ct. Mar. 5, 2013) (finding class actions inconsistent with the TCPA because “Congress … creat[ed] a specific personal remedy … easily … obtained in a local court and … [a sufficient] incentive for those aggrieved …, but … proportional to the harm caused.”). The TCPA’s language and legislative history confirm that Congress anticipated that monetary claims would be pursued individually in small claims court without attorneys, and that persistent or pernicious violations would be remedied by the FCC or State Attorneys General. See 47 U.S.C. §§ 227(f)(1), (f)(3).

Michael P. Daly

About the Author: Michael P. Daly

Mike Daly has spent two decades defending, counseling and championing clients that interact with consumers. His practice focuses on defending class actions, handling critical motions and appeals, and maximizing the defensibility of marketing and enforceability of contracts. Clients large and small have trusted him to protect their businesses, budgets and brands in complex cases across the country.

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