Reality Wins: Sixth Circuit Affirms Companies Must Send Fax to Be “Sender” under TCPATo be liable for a junk fax Telephone Consumer Protection Act (TCPA) violation, does a company have to actually send a fax? The plain language of the TCPA says yes: “It shall be unlawful for any person… to use any telephone facsimile machine, computer, or other device to send…an unsolicited advertisement[.]” The verbs are “use” and “send,” so the plain language of the TCPA limits liability to the person or company actually sending the fax. Some courts, however, have added a gloss on the statute and expanded liability to persons who use agents to send unsolicited advertisements. The Sixth Circuit recently took up a case that would have expanded TCPA liability much further. Thankfully, the court refused to depart from the language of the TCPA by holding that a company cannot be liable for a junk fax that it neither sent nor caused to be sent.

In Health One Medical Center, Eastpointe P.L.L.C. v. Mohawk, Inc., the plaintiffs alleged that Mohawk Medical, a pharmaceutical wholesaler, sent unsolicited junk faxes advertising its prices for products manufactured by various pharmaceutical companies. After Mohawk failed to answer the complaint, the plaintiff amended to add the two pharmaceutical companies as defendants, arguing that these companies were “senders” of the junk faxes because somebody else sent a fax advertising the companies’ products. While the companies presumably could have indirectly benefitted from increased sales from the faxes, they neither asked for nor authorized the faxes. Relying on some broadly written FCC regulations, the plaintiff asked the court to deem the pharmaceutical companies the senders because their goods or services were being advertised.

The Sixth Circuit was having none of it: “[T]o send a fax in violation of [the TCPA],” it held, “one must ‘use’ a fax machine or other device to convey or dispatch an unsolicited advertisement to another fax machine.” Because the pharmaceutical companies “neither dispatched the faxes nor caused them to be sent,” they could not be liable. With satisfying punchiness, it labeled the plaintiff’s theory as “some legal alchemy” and declared the pharmaceutical companies “innocent.”

The court also signaled that it might, on different facts, be willing to roll back the FCC regulations on which the plaintiff relied: “the use of a fax machine or other device, and the sender’s own responsibility for the conveyance or dispatch… are [requirements] that the agency must enforce, not elide.” Whether other litigants will accept this invitation to attack the FCC regulations is an issue to watch.

Health One joins a line of recent cases that refuse to impose TCPA liability where the allegation is that companies ratified or benefitted from illegal calls, faxes, or texts made by an agent See, e.g., Hodgin v. UTC Fire & Security Americas Corp., 885 F.3d 243 (4th Cir. 2018); Kristensen v. Credit Payment Servs., Inc., 879 F.3d 1010 (9th Cir. 2018); Jones v. Royal Admin. Servs., Inc., 887 F.3d 443 (9th Cir. 2018). However, unlike Health One, these other three cases were decided after discovery and depended on specific facts showing the degree of control or benefit received by the putative principal. Companies would be prudent to review their marketing contracts to make sure that they are requiring TCPA compliance in their agreements (including indemnification provisions, if possible), and clearly delineating that third-party marketing companies are not acting as agents.

Notably, the Sixth Circuit opened its opinion with a telling quip: “Some questions seem to arise only in class-action lawsuits.”  The TCPA, in all of its ineffective obsolescence, is a favorite of the class-action plaintiffs’ bar, which has had success using it to certify classes of uninjured plaintiffs and reap large fee awards. TCPA class-action filings are up, but—if this author’s experience is any guide––so are spam calls and texts and faxes. The ground has shifted beneath the TCPA, which Congress passed in 1991, and  no apparent benefits outweigh its draconian punishments. Congress should fix it or replace it.

Personal Jurisdiction over Non-resident Class Members? District Courts Diverge on Application of Bristol-Myers Squibb to Nationwide Class ActionsFollowing the Supreme Court’s landmark personal-jurisdiction decision in Bristol-Myers Squibb, federal district courts have continued to disagree about whether to apply the court’s holding to cases involving nationwide class actions. Although we believe the argument in favor of applying Bristol-Myers in the class context is overwhelming––after all, how could plaintiffs curtail defendants’ due process rights simply by invoking the procedural device of Rule 23?––the disagreement on this topic will very likely continue to deepen until it ripens into a circuit split that the court can resolve.

In Bristol-Myers Squibb, the Supreme Court held that a California state court was precluded from exercising personal jurisdiction over the defendant with respect to claims asserted by non-resident mass tort claimants. As Justice Sotomayor’s dissent noted, however, the holding of the majority did not explicitly address whether it applied to nationwide class actions.

Predictably, the majority’s silence on this issue has divided lower courts: “Whether Bristol-Myers extends to class actions is a question that has divided courts across the country.” See Chavez v. Church & Dwight Co., Inc., No. 17 C 1948, 2018 WL 2238191 at *10 (N.D. Ill. May 16, 2018), which dismissed claims of absent class members arising outside of the forum state.

While no circuit court has considered the issue, some federal district courts have applied Bristol-Myers Squibb to class actions:

  • Plumber’s Local Union No. 690 Health Plan v. Apotex Corp., Civ. A. No. 16-665, 2017 WL 3129147, at *9 (E.D. Pa. July 24, 2017) (dismissing non-Pennsylvania claims for certain defendants)
  • Spratley v. FCA US LLC, No. 3:17-CV-0062, 2017 WL 4023348, at *7–8 (N.D.N.Y. Sept. 12, 2017) (dismissing claims of out-of-state plaintiffs who had “shown no connection between their claims and Chrysler’s contacts with New York”)
  • In re Dental Supplies Antitrust Litig., No. 16 Civ. 696 (BMC)(GRB), 2017 WL 4217115, at *9 (E.D.N.Y. Sept. 2017) (“The constitutional requirements of due process does not wax and wane when the complaint is individual or on behalf of a class. Personal jurisdiction in class actions must comport with due process just the same as any other case.”)
  • Maclin v. Reliable Reports of Texas, Inc., No. 1:17-CV-2612, 2018 WL 1468821 (N.D. Ohio Mar. 26, 2018) (“[T]he Court cannot envisage that the Fifth Amendment Due Process Clause would have any more or less effect on the outcome respecting FLSA claims than the Fourteenth Amendment Due Process Clause, and this district court will not limit the holding in Bristol–Myers to mass tort claims or state courts.”)
  • Roy v. FedEx Ground Package Sys., Inc., No. 3:17-CV-30116-KAR, 2018 WL 2324092, at *9 (D. Mass. May 22, 2018) (rejecting argument that Bristol-Myers Squibb should be limited to cases originally filed in state court but finding the exercise of jurisdiction appropriate on the facts of the case)
  • In re Nexus 6P Prods. Litig., No. 17-cv-02185-BLF, 2018 WL 827958 at *5–6 (N.D. Cal. Feb. 12, 2018) (allowing plaintiffs to re-plead complaint to allege jurisdiction in a manner consistent with Bristol-Myers)
  • McDonnell v. Nature’s Way Prods., LLC, No. 16 C 5011, 2017 WL 4864910 at *4–5 (N.D. Ill. Oct. 26, 2017) (dismissing claims “brought on behalf of non-Illinois residents or for violations of Florida, Michigan, Minnesota, Missouri, New Jersey, New York, and Washington law without prejudice”)
  • Wenokur v. AXA Equitable Life Ins. Co., No. CV-17-00165-PHX-DLR, 2017 WL 4357916 at *4 n.4 (D. Ariz. Oct. 2, 2017) (“The Court also notes that it lacks personal jurisdiction over the claims of putative class members with no connection to Arizona and therefore would not be able to certify a nationwide class.”)

One court has decided to hold the question open until class certification: Chernus v. Logitech, Inc., No.: 17-673(FLW), 2018 WL 1981481 (D.N.J. April 27, 2018), which recognized division in district court opinions regarding Bristol-Myers, found the balance weighing against applying it in the class context, then stated “no class has been certified, and therefore, to determine whether this Court has specific jurisdiction over Defendant with respect to the claims of the unnamed class members prior to class certification would put the proverbial cart before the horse.”

Some other courts have reached the opposite result. Several California district courts, for example, have opined that the Supreme Court’s holding in Bristol-Myers Squibb should be limited to mass tort cases based on the rationale that in such cases each plaintiff is named as an individual party and is a real party in interest:

  • Fitzhenry-Russell v. Dr. Pepper Snapple Group, Inc., No. 17-CV-00564 NC, 2017 WL 4224723 (N.D. Cal. Sept. 22, 2017)
  • Sloan v. General Motors LLC, 287 F. Supp.3d 840 (N.D. Cal. Feb. 7, 2018).
  • In re Morning Song Bird Foot Litig., No. 12-CV-01592 JAH-AGS, 2018 WL 1382746 (S.D. Cal. Mar. 19, 2018)

A few district courts outside of California have ruled similarly:

  • Molock v. Whole Foods Market, Inc., 297 F. Supp. 3d 114 (D.D.C. 2018)
  • Sanchez v. Launch Technical Workforce Solutions, LLC, 297 F. Supp. 3d 1360 (N.D. Ga. 2018)
  • Casso’s Wellness Store & Gym, L.L.C. v. Spectrum Lab. Prods., Inc., No. 17-2161 2018 WL 1377608 (E.D. La. March 19, 2018)
  • In re Chinese-Manufactured Drywall Prods. Liab. Litig., 2017 WL 5971622 (E.D. La. Nov. 30, 2017)

Given the importance of this issue and the divergent approaches taken by the federal district courts, it is clear that the appellate courts—and ultimately the U.S. Supreme Court—will eventually have to resolve the split. In fact, we may soon have the first federal circuit decision on this issue. The District of Columbia in the Molock case has recently certified the question of “whether the jurisdictional limits proscribed in Bristol-Myers Squibb extend to unnamed, nonresident members of a putative nationwide class in federal court” to the D.C. Circuit. See Molock v. Whole Foods Market Group, Inc., No. 16–cv–02483 (APM), 2018 WL 2926162 (June 11, 2018). It remains to be seen whether that interlocutory appeal will be accepted by the D.C. Circuit, but this is a case to watch.

In the meantime, defendants facing nationwide class action lawsuits should consider at the outset of the case whether to argue that the court lacks personal jurisdiction over the defendant with respect to claims asserted by non-resident putative class members (at least in venues that are not the defendant’s “home” jurisdiction). In some courts, this argument may be successful; it may serve to limit the aggregate value of the class claims, and potentially reduce the amount of discovery pain that class counsel can inflict. Even where not successful, there is value in preserving the argument by raising it in the answer and perhaps in an early motion to strike class allegations, before raising it again in opposition to class certification. No matter the precise procedures used, defendants will likely want to be in a position to benefit if the appellate courts ultimately determine that Bristol-Myers does apply equally to nationwide class actions. After all, personal jurisdiction is a waivable defense. While there may well be strategic reasons to waive the defense in a given case, that waiver should be a carefully considered, conscious choice. Inadvertent waiver by failure to preserve the argument is another thing entirely.

Supreme Court puts Kibosh on Piggybacked Class ActionsThe Supreme Court’s decision in China Agritech Inc. v. Resh means that class action plaintiffs can no longer rely on serial class actions to toll their statute of limitations indefinitely. Instead, the Supreme Court held that the judicially created rule which tolls the statute of limitations for putative class members—called American Pipe tolling—applies to individual claims only, and it only lasts until class certification is denied. This ruling is great news for class action defendants.

We blogged about the importance of this case last year, but here is a refresher on the background. American Pipe tolling allows individuals who fall within the definition of a proposed class action to wait until a court decides whether to certify the class before filing individual claims. This judge-made doctrine serves judicial economy: Class actions exist to litigate a multitude of claims in one action. If absent class members’ limitations periods were not tolled, those absent class members would face a dilemma: Either get in the game and file a lawsuit, or sit on the sidelines and bet that the class will be certified. The first choice encourages needless, duplicative lawsuits, which is wasteful and burdensome for defendants. (Defending a class action is a heavy load.  Defending a class action and a slew of individual cases is worse.) The second choice could cause potentially meritorious claims to expire while the class member waits on the result of a class certification decision the class member does not control, which is unfair. American Pipe tolling avoids the dilemma by tolling the class members’ limitations period until class certification is denied. It is a clumsy judge-made solution with no basis in the text of the rule, but it addresses a practical problem.

As often happens with clumsy solutions, however, fixing one problem created more problems. If, as some circuits held, American Pipe tolling applied to class claims in addition to individual claims, the balance struck by the rule collapses: As soon as class certification is denied, another class representative could file suit elsewhere proposing to certify a new class (or the same class), which would keep the tolling rolling. This process potentially could continue forever, until the plaintiffs found a receptive judge to certify the class.

Most circuits—including the Second, Fifth, and Eleventh—limited American Pipe tolling to individual claims. But other circuits—such as the Ninth, where China Agritech arose—allowed continuous, indefinite tolling from piggybacked class actions. The Supreme Court took the case to resolve the split, and did so decisively with a welcome, bright-line rule.

China Agritech holds that  American Pipe tolling applies to individual claims only, full stop.  Justice Ginsburg’s opinion focuses on efficiency: Plaintiffs who intend to file a class action must file within the original limitations period, and courts should rule on class certification quickly.  This rule encourages early filings, and Justice Ginsburg seemed to contemplate an almost Darwinian process where the better class representatives with better counsel and better-pleaded complaints (or perhaps the more strategic choice of forum) would be the ones whose claims would have the best chance to be certified. The majority rejected Justice Sotomayor’s suggestion in her concurrence that American Pipe tolling should apply to class claims if class certification were denied because of some problem with the class representative (such as poorly trained class counsel or an indifferent, lazy or otherwise inadequate class representative). No matter the reason for the denial of class certification, there is no statute of limitations tolling for subsequent class claims.

What does this mean?  Four things stand out to us:

Many companies’ exposure just went down. Defendants in California or those facing stale claims or claims with relatively short statutes of limitations will face fewer claims going forward.  The retroactive effect of this decision could perhaps still be litigated, but China Agritech immediately helps extinguish stale claims.

Get ready for competing class actions. We expect plaintiffs will heed the Supreme Court’s admonition and file their class claims sooner. While the ultimate number of class filings may not increase, those filings will become more front-loaded, and companies may face more of them at the same time. Again, the Supreme Court was aware of this incentive, and it expressed faith in lower courts’ abilities to use available procedures to consolidate, stay, or otherwise manage these cases. If we had to pick out two likely trends to watch here, look for a yet-further uptick in the use of multidistrict litigation and for more robust application of the first-to-file rule. For a more in-depth look, we dedicated a three-part series to handling competing class actions last year; you can find them here: part one, part two, and part three.

Where there are no competing class actions, the value of individual settlements just went up. When faced with a lone class action on a given claim, the expiration of the statute of limitations becomes a very important date. As it approaches (and especially after it passes), defendants have an incentive to pay a premium for an individual settlement with the named plaintiff because doing so extinguishes class risk on the claim.

Disaster avoided. Lastly, China Agritech is not a landmark case because most circuits already applied American Pipe tolling to individual claims only. But had the case come out the other way, making piggybacked class actions the law of the land, then a multitude of expired class claims could have been revived and companies would be scrambling today. Even though this case came out the right way, we recognize again that the Supreme Court probably plays an outsized role in making class action doctrine, and that role creates uncertainty. Creating and defining a tolling doctrine should be legislative work.