Appeals Court Decertifies Junk Fax Class Action

When BioPay faxed Marcello's Wine Market a one-page ad extolling the merits of its biometric check-verification system, BioPay didn't expect the Baton Rouge, La., retailer to hit back with a $6 million class action.

But in February 2005 the Virginia-based software distributor became one of a growing number of companies being sued for millions of dollars for "fax blasting" reams of unsolicited advertisements that monopolize recipients' phone lines and devour fax paper and toner.
Businesses and consumers have been fighting the torrent of spam clogging their fax machines by using the Telephone Consumer Protection Act of 1991 (TCPA) and its state counterparts.

The federal law bans the faxing of commercial ads without a recipient's prior express permission or invitation, unless the recipient has a prior established business relationship with the ad's sender.

Junk fax recipients can claim $500 for each unsolicited fax, or win treble damages of $1,500 per incident if the fax was knowingly sent without permission.

In 2001, the first TCPA class action to go to trial raised the damages bar, producing a stunning $11.9 million award against Hooters of Augusta. The franchise ended up in bankruptcy for having faxed discount coupons to 1,321 potential customers in Georgia on six occasions without prior authorization.

Since then, fax blasting has attained mass tort status, and no wonder: Megabuck class actions are routine.The class action bandwagon recently hit a bump in the road, however, when the 5th Circuit reversed a federal judge's order of class certification against BioPay. The unanimous Aug. 14 judgment is a bright spot for defendants in a sea of pro-plaintiff jurisprudence and could help other TCPA defendants resist class certification.

"It is the first federal Circuit decision that I am aware of denying class certification," says Brook M. Carey, an attorney at Cassiday Schade, which represents TCPA defendants.


Pro-Defense Ruling
The 5th Circuit ruled that BioPay's case doesn't deserve class treatment because the critical factual issue--whether class members consented to receive more than 4,000 of BioPay's faxes--has to be determined on an individualized basis.

This is because the defendant admitted its records don't clearly distinguish between those who consented and those who didn't.

Judge E. Grady Jolly stressed it was up to the representative plaintiff to establish that class certification would be superior to individual trials. Yet the plaintiff liquor store "failed to advance a viable theory of generalized proof to identify those persons, if any, to whom BioPay may be liable under the TCPA."

The plaintiff argued that BioPay's "common course of conduct" in fax blasting the same ads in the same way to all the class members predominated over any individual issues of consent in the case.

Class certification is one of the most heavily litigated issues under the TCPA. The ancillary costs impose a heavy burden, especially on small business defendants who choose telemarketing because it is affordable, Carey says.

"The discovery on these cases is technical, tedious and expensive, [and if the faxes] were sent by a computer program you are talking about getting forensic computer specialists involved, imaging hard drives, pulling data--it can be very costly," he says.

BioPay's attorney, Russell J. Gaspar, a partner at Cohen Mohr, cautions that the 5th Circuit stipulated it wasn't saying TCPA cases can never be certified.

"In a situation like the one we had, where the data regarding which recipients gave permission, express or implied, and which recipients did not-- where that data is incomplete, confused, uncertain--that's a situation where class certification might not be appropriate," he adds.


Sloppy Recordkeeping
Peter Lubin, a partner at DiTommaso Lubin, has represented several Chicago-area plaintiffs in junk fax class actions. He suggests the denial of certification rewards the defendant for inadequate record-keeping.

"It's not a good thing for the public policy of the TCPA to have people get out of being sued by keeping lousy records, but a court cannot be expected to have that many complicated evidentiary trials on a class action," he observes.

The case differs from the typical fax blasting class action, which involves a mass fax broadcaster hired by an advertiser to send ads to a list of fax numbers compiled by the fax blaster. BioPay supplied its own fax list to a third-party broadcaster, which then allegedly faxed more than 4,000 messages to potential BioPay customers, including Marcello's Wine Market. The fax list contained numbers culled from commercial databases, but also from BioPay's Web site, trade shows and companies with which BioPay or affiliates had established business relationships. BioPay therefore maintains that a significant number of the proposed class members agreed to the faxes, but because its records are incomplete, there is no way to distinguish those who consented from those who did not.

The 5th Circuit concluded that the case did not meet the federal class action certification prerequisite, which demands a classwide basis for deciding a case's predominant class issues.
"The District Court's assertion that this case would not degenerate into a series of individual trials is largely unsupported and is, in our opinion, mistaken," the panel held.

Contributing Author

Cristin Schmitz

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