Misconduct Results in Junk Fax Class Action Certification Denial

The Junk Fax Prevention Act of 2005 sets a $500-per-fax penalty on unsolicited fax advertisement senders. That amount triples for senders who willfully or knowingly deplete recipients’s ink and paper supplies with their unwanted ads.

Seventh Circuit Court of Appeals Judge Richard Posner thinks the Junk Fax Act penalties are “draconian,” but he accepts that the law “is what it is.” But that doesn’t mean that he has to agree with class action certification for every Junk Fax Act lawsuit.

Last week, a three-judge panel of the Seventh Circuit Court of Appeals reversed a district court’s class action certification decision in the claim.

The certified in the case consisted of 14,574 persons, who are alleged to have received a total of 22,222 unsolicited faxed advertisements from the defendant. The court noted that class certification could turn a $3,000 penalty for two unsolicited faxes to the lead plaintiff into an $11.11 million lawsuit - before treble damages - against a business with three employees and annual sales of half a million dollars.

So how did over 14,000 recipients realize that they received junk faxes from the same defendant?

The lawyers in the case learned about the faxes from a fax broadcaster - a company that faxes advertisements as an agent of the advertiser. The broadcaster gave the lawyers transmission reports of the faxes and information on how to communicate with the intended recipients.

The lawyers then contacted the fax recipients, including plaintiff Creative Montessori, to suggest that the recipients could be members of the class - even if they didn't remember receiving the fax - and could receive compensation up to $1500 for each junk fax received.

While the district court agreed with the defendant that the lawyers' activity qualified as misconduct, it certified the class on the grounds that "only the most egregious misconduct" should require denial of class action certification.

The Seventh Circuit Court of Appeals strongly disagreed with the district court's reasoning, finding that the "most egregious conduct" standard would condone misconduct. Since class action lawsuits are typically settled, rather than litigated in court, class counsel integrity is important.

Class counsel has an incentive to work with the defendant's counsel to sell out the class by agreeing with the defendant to recommend a settlement involving minimal damages for the class but a generous payday for the lawyers. Such deals serve the interest of both class counsel and the defendant.

According to the Seventh Circuit Court of Appeals, a court cannot be confident that the attorneys will "fairly and adequately" represent the entire class when class counsel demonstrates a lack of integrity. Here, the Seventh Circuit rejected class certification and remanded the matter to the district court to re-evaluate the gravity of class counsel's misconduct under the Culver standard.

The lesson in this case? Would-be class action counsel has a better shot at class action certification when it gathers plaintiffs instead of hunting them.

Related Resources:

• Creative Montessori Learning Center v. Ashford Gear (Seventh Circuit Court of Appeals)
• Company Can Sue for Fax, Just the (Unsolicited Advertising) Fax (FindLaw's Sixth Circuit blog)
• FCC Extends Sunset of "Established Business Relationship" Exemption For Unsolicited Facsimile Ads Under TCPA (FindLaw)