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Date: 12-07-2018
Case Style:
Lawrence S. Brodsky v. Humana Dental Insurance Company, d/b/a Humana Specialty Benefits
Case Number: 17-3067
Judge: Wood
Court: United States Court of Appeals for the Seventh Circuit on appeal from the Northern District of Illinois (Cook County)
Plaintiff's Attorney: Phillip A. Bock, Ross Michael Good, Glenn L Hara, Ryan M. Kelly, Tod Allen Lewis, Louis Carey Ludwig, Julia Lynn Mohan, David Max Oppenheim, John P Orellana, James Michael Smith, Wallace Cyril Solberg, Brian J Wanca and John William Clark
Defendant's Attorney: William A. Chittenden, III, David Joseph Novotny, Vittorio Fiore Terrizzi and Joseph R. Jeffery
Description:
These appeals, which we have consolidated
for purposes of disposition, both concern the Federal
Communication Commission’s “Solicited Fax Rule.” Despite
the decline and fall of the fax machine, litigation continues between
fax advertisers and unwilling recipients of their messages.
Behind all this is the Telephone Consumer Protection
Act (“TCPA”), 47 U.S.C. § 227, as amended by the Junk Fax
Prevention Act of 2005, Pub. L. No. 109‐21, 119 Stat. 359, and
as implemented through FCC regulations. The lead plaintiffs
in our cases—Lawrence Brodsky and Alpha Tech Pet, Inc.—
received faxed advertisements that did not comply (so they
said) with the TCPA and the FCC’s Solicited Fax Rule. Each
plaintiff wanted to pursue litigation not just individually, but
as the head of a class. And in each case, the district court refused
to certify the proposed class, largely on the authority of
the D.C. Circuit’s decision in Bais Yaakov of Spring Valley v.
FCC, 852 F.3d 1078 (D.C. Cir. 2017) (Kavanaugh, J.). Our review
of decisions on class certification, pro or con, is deferential.
Puffer v. Allstate Ins. Co., 675 F.3d 709, 716 (7th Cir. 2012).
We see no abuse of discretion here, and so we affirm the
Nos. 17‐3067 & 17‐3506 3
orders of the district courts declining to certify the proposed
classes.
I
A. Brodsky
We can be brief with the underlying facts of both cases.
Plaintiff Brodsky is an insurance wholesaler. HumanaDental
Insurance Company is a Wisconsin corporation that insures a
number of dental plans; another Humana affiliate markets
specialty products such as dental, vision, life insurance, and
disability policies. We refer to those defendants collectively as
Humana unless the context requires otherwise. Brodsky has
agreements with many insurance companies, and he sells
their products through various agents. One such agreement
was with “Humana Insurance Company, Humana Health
Plan, Inc., and all of their affiliates.” In that contract, Brodsky
agreed that Humana and its affiliates “may choose to communicate
with [Brodsky] through the use of … facsimile to
[his] … facsimile numbers.” Brodsky accordingly provided
Humana with a fax number ending in 0152.
On May 14, 2008, Brodsky’s 0152 machine received two
identical one‐page faxes (“the subject faxes”). The pages indicated
that they were sent by “Humana Specialty Benefits.”
These faxes were created by Humana’s marketing department.
They did not identify the person or entity to which they
were directed. And, to complicate matters, the 0152 machine
was not used exclusively by Brodsky; seven other insurance
agents had permission to, and did, use it during the relevant
time. The parties agreed that faxes identical to the subject
faxes were successfully transmitted 19,931 times. Brodsky responded
with his lawsuit against Humana.
4 Nos. 17‐3067 & 17‐3506
B. Alpha Tech Pet
The facts in this case are similar. Defendant Essendant and
its affiliates are national distributors of office products, janitorial
and sanitation supplies, breakroom supplies, technology
products, industrial supplies, and automotive aftermarket
tools and equipment. Alpha Tech alleged that the defendants
transmitted unsolicited faxes, including eight advertisements
that were sent between January 16, 2012, and April 26, 2012,
to it and the other class members. The unwanted faxes advertised
commercial products available from LaGasse, LLC,
which at the time was a wholly owned subsidiary of United
Stationers. United Stationers changed its name to Essendant
Inc. in June 2015, and at the same time LaGasse LLC merged
with Essendant Co.; Essendant Management Services LLC
also allegedly played some role in the fax transmissions. We
refer in this opinion to Essendant, the current name, for simplicity.
The different roles each entity played are not material
for our purposes.
According to Alpha Tech, the faxes that Essendant sent to
it violated the TCPA and the Solicited Fax Rule because they
did not include the required opt‐out language. It sought to
represent a class of all persons who received advertising faxes
sent by Essendant or any of its affiliates or predecessors from
May 1, 2011, to May 1, 2015. This was a huge proposed class:
defendants estimate that it swept in approximately 1.5 million
faxes, in 725 separate transmissions, to nearly 24,000 unique
fax numbers.
II
The Brodsky case began in Illinois state court as a putative
class action raising claims under the TCPA, but it was
Nos. 17‐3067 & 17‐3506 5
removed to the federal court. After removal, Humana answered
and raised the affirmative defenses of pre‐existing
business relationship and consent. It pointed to the contractual
language mentioned above in support of both defenses.
Its marketing department created the faxes that Brodsky and
other putative class members received. At the bottom of the
page of each fax, in fine print, it said “If you don’t want us to
contact you by fax, please call 1‐800‐U‐CAN‐ASK.”
The district court initially certified a class under Federal
Rule of Civil Procedure 23(b)(3) of recipients of faxes that advertised
insurance products sold by HumanaDental. In so doing,
it rejected Humana’s suggestion that it should wait until
the FCC had a chance to rule on Humana’s request for a retroactive
waiver of the Solicited Fax Rule and until the D.C.
Circuit handed down its decision in the then‐pending Bais
Yaakov litigation. But then the ground shifted. On November
2, 2016, the FCC’s Consumer & Governmental Affairs Bureau
granted Humana’s petition for a waiver, and on March 31,
2017, the D.C. Circuit handed down Bais Yaakov, in which the
court found that the Solicited Fax Rule could not be applied
to the transactions before it. In so ruling, the court stated that
the FCC had exceeded its authority under the TCPA when it
issued the Solicited Fax Rule, 47 C.F.R. § 64.1200(a)(4)(iv). Humana
promptly moved to decertify the class, and the district
court did so on August 28, 2017. As we have noted, we then
granted Brodsky’s petition under Rule 23(f) for immediate review
of the decertification decision.
The Alpha Tech case, which was handled by a different district
court judge, is actually two cases: one that was filed in
the Northern District of Illinois on January 14, 2016, and the
other (Craftwood II, Inc. v. Essendant, Inc.) that was initiated in
6 Nos. 17‐3067 & 17‐3506
the Circuit Court of Lake County, Illinois, on March 4, 2016,
and later removed to the Northern District of Illinois and consolidated
with Alpha Tech. Essendant tried to eliminate the
class allegations with a motion to dismiss or strike, filed on
March 28, 2016, but the district court denied that motion.
About a year later, before anything else of consequence had
occurred, the D. C. Circuit issued its decision in Bais Yaakov.
On July 27, 2017, largely relying on Bais Yaakov, Essendant
filed a preemptive motion to deny class certification. Alpha
Tech responded with a motion for certification of three classes,
covering 545 of the 725 fax templates Essendant had used.
Nearly all of those faxes contained the following opt‐out notice:
“If you have received this fax in error, please accept our
apologies and call toll free 877‐385‐4440 to be removed from
our list.” Alpha Tech criticized this notice on three grounds:
(1) failure to provide a fax number for opt‐out requests; (2)
failure to state that it is unlawful for the sender not to respond
within a reasonable time; and (3) failure to state that the recipient
must identify the fax number to which the request relates.
All these requirements appear in the Solicited Fax Rule.
47 C.F.R. § 64.1200(a)(4)(iii).
The district court issued an order denying class certification
on November 3, 2017. It ruled that this court’s decision in
Holtzman v. Turza, 728 F.3d 682 (7th Cir. 2013), holding that the
TCPA requires a compliant opt‐out notice before a consentbased
defense can prevail, did not apply to this situation. Instead,
it agreed with the D.C. Circuit’s ruling in Bais Yaakov
striking down the Solicited Fax Rule, alternately calling that
decision “binding” or at least “persuasive.” In a footnote, it
found additional support for its ruling in the waiver that the
FCC by then had granted to the defendants. Last, with the
regulation out of the picture, it found that individual
Nos. 17‐3067 & 17‐3506 7
questions predominated and thus that class treatment was inappropriate.
Alpha Tech sought interlocutory review of that
decision, and we agreed to take the case.
III
Because it sits at center stage in these controversies, we
begin by setting out the critical parts of the Solicited Fax Rule:
(a) No person or entity may:
…
(4) Use a telephone facsimile machine, computer,
or other device to send an unsolicited advertisement
to a telephone facsimile machine, unless—
(i) The unsolicited advertisement is from a
sender with an established business relationship
… with the recipient; and
(ii) The sender obtained the number of the telephone
facsimile machine through—
(A) The voluntary communication of
such number by the recipient directly to the
sender, within the context of such established
business relationship; …
(iii) The advertisement contains a notice that informs
the recipient of the ability and means to
avoid future unsolicited advertisements. A notice
contained in an advertisement complies
with the requirements under this paragraph
only if [certain criteria are met].
…
8 Nos. 17‐3067 & 17‐3506
(iv) A facsimile advertisement that is sent to a
recipient that has provided prior express invitation
or permission to the sender must include an
opt‐out notice that complies with the requirements
in paragraph (a)(4)(iii) of this section.
47 C.F.R. § 64.1200(a)(4); see also 47 U.S.C. § 227(b)(1)(C).
Most of this rule is relatively straightforward, but clause (iv)
is anything but that. It is there that the FCC extends the statutory
requirement for an opt‐out notice to all faxes, not just
those that are unsolicited. A firestorm broke out over the new
rule. In an order addressing several challenges, the FCC upheld
its validity but announced that it would grant retroactive
waivers in light of the confusion the rule had produced. In re
Rules and Regulations Implementing the Telephone Consumer Protection
Act of 1991, 29 FCC Rcd. 13998 (2014) (“Anda Order”).
Affected parties petitioned the D.C. Circuit for review of the
Anda order, and the result was the Bais Yaakov decision.
The parties have engaged in a lengthy debate over the
question whether Bais Yaakov is formally binding on this
court, or if our obligation is only to give it that respectful consideration
we would accord to any of our sister circuits’ decisions.
The problem arises from the Hobbs Act, which gives the
courts of appeals exclusive jurisdiction to review FCC orders,
28 U.S.C. § 2342(a), and lays venue in either the D.C. Circuit
or a regional court (with the Judicial Panel on Multidistrict
Litigation setting venue when multiple petitions are filed). 28
U.S.C. § 2112(a)(3). The D.C. Circuit was thus the Hobbs Act
court for something, but the question is what: to decide the
validity of the Anda Order, or to reach back to 2006 and rule
on the validity of the original Solicited Fax Order? The dispositional
paragraph of the D.C. court’s opinion is ambiguous:
Nos. 17‐3067 & 17‐3506 9
We hold that the FCC’s 2006 Solicited Fax Rule is unlawful
to the extent that it requires opt‐out notices on
solicited faxes. The FCC’s Order in this case interpreted
and applied that 2006 Rule. We vacate that Order and
remand for further proceedings.
852 F.3d at 1083 (emphasis added). A possible reading of this
paragraph, however, is as a statement that the court’s ruling
extended only to the 2014 Anda Order. The petition for review
of that order was filed long after the deadline for challenging
the 2006 Order, which imposed the Solicited Fax Rule. The
question is thus what to make of the court’s statement that the
2006 rule itself is unlawful. Is it dictum, or does it have binding
force as a ruling pursuant to Hobbs Act review? The Sixth
Circuit opted for the latter interpretation in Sandusky Wellness
Ctr., LLC v. ASD Specialty Healthcare, Inc., 863 F.3d 460, 467 (6th
Cir. 2017), even though the D.C. Circuit formally was reviewing
only the 2014 order. The Ninth Circuit took the same approach
in True Health Chiropractic, Inc. v. McKesson Corp., 896
F.3d 923 (9th Cir. 2018). But there are risks in using a later petition
for review to sweep in some or all antecedent administrative
decisions. Time limits matter—indeed, they are recognized
as jurisdictional for purposes of Hobbs Act review, see
Cal. Ass’n of the Physically Handicapped, Inc. v. FCC, 833 F.2d
1333, 1334 (9th Cir. 1987) (joining the Second, Fifth, Eighth,
and D.C. Circuits on that point). It is easy to see why: reliance
interests grow around administrative rulings that are not
challenged in a timely way before the proper court of appeals.
If our decision turned on the ultimate binding impact of
the D.C. Circuit’s decision with respect to the 2006 Order, we
would pursue this matter further. But it does not, and thus we
do not need to decide whether we would read Bais Yaakov as
10 Nos. 17‐3067 & 17‐3506
broadly as our sister circuits have done. There is no doubt that
the D.C. Circuit vacated the order before it (i.e. the 2014 Anda
Order) and held that the 2014 application of the 2006 Order
was unlawful. In the end, therefore, this was an “as applied”
decision, not an untimely attack on the 2006 Order. We can
therefore assume that the 2006 Order is still in effect (though
drained of a great deal of force, it seems), but that it must be
construed consistently with the D.C. Circuit’s decision on the
2014 Order, because that decision is binding on all courts of
appeals through the Hobbs Act. And the question in our case
is even narrower, because we are not reviewing the merits of
either order. Instead, we must determine only whether,
against the backdrop of these orders, the district courts here
abused their discretion in finding class treatment inappropriate.
In answering that question, we start with the language of
the TCPA. As amended by the Junk Fax Act, the TCPA prohibits
the use of “any telephone facsimile machine … to send,
to a telephone facsimile machine, an unsolicited advertisement.”
47 U.S.C. § 227(b)(1)(C). The Act then defines the term
“unsolicited advertisement” to mean “any material advertising
the commercial availability or quality of any property,
goods, or services which is transmitted to any person without
that person’s prior express invitation or permission, in writing or
otherwise.” Id. § 227(a)(5) (emphasis added). There are exceptions
to the prohibitions on sending unsolicited faxes, including
situations where the sender has an established business
relationship with the recipient, the sender obtains the recipient’s
fax number through some sort of voluntary communication,
and where the unsolicited message has “a notice meeting
the requirements under paragraph (2)(D).” Id.
§ 227(b)(1)(C)(i)–(iii). Such a notice must (1) be clear and
Nos. 17‐3067 & 17‐3506 11
conspicuous, (2) be located on the first page of the ad, (3) must
state that the recipient may opt out from future unsolicited
ads, and (4) must include a “cost‐free mechanism” to send an
opt‐out request to the sender. Id. § 227(b)(2)(D).
As we noted earlier, in 2006 the FCC decided to issue a
new rule related to the third of those requirements—the optout
notice. See Rules and Regulations Implementing the Telephone
Consumer Protection Act of 1991; Junk Fax Prevention Act of 2005,
71 Fed. Reg. 25,967, 25,971–72 (May 3, 2006) (now codified
at 47 C.F.R. § 64.1200(a)(4)(iv)). The result was the so‐called
Solicited Fax Rule we have been discussing. The rule earned
that name because it requires the sender of a faxed advertisement
to include an opt‐out notice even when the ad is sent to
a person from whom the sender did obtain permission (or,
roughly put, a sender who solicited the fax). As the D.C. Circuit
put it, “[i]n other words, the FCC’s new rule mandates
that senders of solicited faxes comply with a statutory requirement
that applies only to senders of unsolicited faxes.” 852
F.3d at 1080.
For purposes of the class certification decision, this history
tells us that the legality of the defendants’ actions may end up
depending on whether the fax was sent with permission (legal)
or not (illegal), and it may also turn on the adequacy of
the opt‐out notices on the faxes in question. The consequences
for a firm that violates the TCPA can be dire when it is facing
not just a single aggrieved person, but a class. The statute provides
a private right of action to collect either actual damages
or $500 per violation in statutory damages. See 47 U.S.C. §
227(b)(3)(B). Whether that means $500 per fax, or $500 per
transmission, the dollars roll up quickly. The stakes for the
defendants in our cases are substantial.
12 Nos. 17‐3067 & 17‐3506
We agree with the D.C. Circuit (and the Sixth and Ninth)
that, at a minimum, it is necessary to distinguish between
faxes sent with permission of the recipient and those that are
truly unsolicited. The question of what suffices for consent is
central, and it is likely to vary from recipient to recipient (or
so the district court reasonably could have concluded). Cf.
Blow v. Bijora, Inc., 855 F.3d 793, 804–06 (7th Cir. 2017) (excluding
from summary judgment potential class members “who
provided no consent at all or whose consent was more limited”).
Brodsky admits that he had a market agreement, and
thus a pre‐existing business relationship, with Humana, and
that he expressly agreed in his market agreement that Humana
could communicate with him by fax. Humana did so,
and it even added a telephone number Brodsky could use if
he wanted to stop receiving those faxes. But even if, as Brodsky
has argued, this agreement somehow fails to establish his
consent, we do not know what kind of pre‐existing arrangement
may have existed between Humana and the other fax
recipients that Brodsky wants to represent. These are the hallmarks
of an issue that requires individual scrutiny. See Howland
v. First Am. Title Ins. Co., 672 F.3d 525, 534 (7th Cir. 2012)
(holding that a “transaction‐specific inquiry prevents class
treatment”).
We must also take into account the fact that the FCC
granted retroactive waivers of compliance with the Solicited
Fax Rule for both sets of defendants.1 The waivers cover faxes
1 On November 14, 2018, FCC Consumer and Governmental Affairs
Bureau Chief Patrick Webre issued an order eliminating the 2006 Solicited
Fax Rule and dismissing as moot pending applications for retroactive
waivers like those received by defendants. Webre Order, DA 18‐1159
Nos. 17‐3067 & 17‐3506 13
sent before April 30, 2015. See In re Rules and Regulations Implementing
the Telephone Consumer Protection Act of 1991, 31
FCC Rcd. 11943 (2016) (Humana Order); In re Rules and Regulations
Implementing the Telephone Consumer Protection Act of
1991, 30 FCC Rcd. 8598, 8613 (2015) (United Stationers Order).
While the legal underpinnings of these orders were called into
doubt by the D.C. Circuit’s vacation of the Anda Order, neither
the Humana Order nor the United Stationers/Essendant
Order was appealed as part of Bais Yaakov, and so neither one
was vacated by the D.C. Circuit. Furthermore, nothing in the
reasoning of Bais Yaakov undermines the soundness of relieving
these two companies from the strictures of the Solicited
Fax Rule. While this might indicate that there is a common
question on the effect of the waivers that affects all class members,
the district courts in our two cases were within their
rights to conclude that there are enough other problems with
class treatment here that a class action is not a superior mechanism
for adjudicating these cases. See Parko v. Shell Oil Co.,
739 F.3d 1083, 1085 (7th Cir. 2014).
The final questions are whether the waivers have any effect
on the availability of a private right of action and whether
that issue is better handled through individual litigation or a
class. The TCPA allows a “person or entity” to bring “an action
based on a violation of this subsection or the regulations
(2018), available at https://docs.fcc.gov/public/attachments/DA‐18‐
1159A1.pdf. Two days later, defendants’ counsel alerted us to this order
as additional relevant authority pursuant to Federal Rule of Appellate
Procedure 28(j). While we appreciate counsel calling this development to
our attention, Bureau Chief Webre’s order has no effect on our analysis or
decision. If anything, the rescission of the rule reinforces our conclusion
that these cases are not proper candidates for class treatment.
14 Nos. 17‐3067 & 17‐3506
prescribed under this subsection” for injunctive relief, actual
damages, or statutory damages. 47 U.S.C. § 227(b)(3). The alleged
violation in our case is regulatory. We reject the plaintiffs’
argument that the statute itself requires opt‐out notice
on solicited faxes; it does not, and nothing in Holtzman supports
engrafting such language on the statute. As the opening
sentence of that opinion signals, the issue there had to do with
unsolicited faxes that had no opt‐out language, not faxes sent
with advance permission that did include some opt‐out language.
728 F.3d at 683. In addition, Holtzman arose at a time
before the Solicited Fax Rule was challenged. It thus has no
bearing on the issues now before us.
As a regulatory matter, the Solicited Fax Rule is subject to
the general rule regarding “suspension, amendment, or
waiver of rules.” See 47 C.F.R. § 1.3. That provides, in relevant
part, that “[a]ny provision of the rules may be waived by the
Commission on its own motion or on petition if good cause
therefor is shown.” Id. Concerned about the confusion that the
Rule had caused, the FCC invoked this authority when it issued
the Humana and United Stationers waivers. See, e.g.,
Humana Order, 31 FCC Rcd. at 11951. But once again, even if
the district court were eventually to conclude that the waivers
are invalid, that is just one question: issues concerning solicitation,
permission, pre‐existing relationships, and the like,
would remain as obstacles to class treatment.
IV
We do not rule out the possibility that some of the recipients
of Humana’s or Essendant’s faxes were the victims of the
practices prohibited by the TCPA as amended. Some may not
have had pre‐existing contractual arrangements, some may
not have signaled their consent to receiving faxes, and some
Nos. 17‐3067 & 17‐3506 15
senders of faxes may not have received waivers of the Solicited
Fax Rule from the FCC or the waivers might be flawed.
We thus express no opinion on the ability of individual plaintiffs
to go forward with these suits. We hold only that neither
of the district courts in these cases abused its discretion when
it concluded that the criteria for a class action under Rule
23(b)(3) are not met.
Outcome: We therefore AFFIRM the orders of the district courts in
both Case No. 17‐3067 and in Case No. 17‐3506, denying class
certification.
Plaintiff's Experts:
Defendant's Experts:
Comments: