On July 9, 2014, the Sixth Circuit affirmed a district court ruling that a consumer TCPA class action could proceed against Lake City Industrial Products, rejecting Lake City’s argument that Michigan law prohibited TCPA class actions. American Copper & Brass, Inc. v. Lake City Industrial Products, Inc., Case No. 13-2605, (6th Cir. 2014).  In addition, Lake City’s potential bankruptcy and inability to pay a judgment was irrelevant at this stage of the case, so summary judgment also was affirmed.

In February 2006, Lake City, a pipe-thread sealing tape distributor, retained a fax-blasting company to transmit approximately 10,000 Lake City advertisements. American Copper, a Michigan equipment wholesaler, received Lake City’s fax later that month. American Copper had no preexisting business relationship with Lake City and had not consented to the receipt of faxes from Lake City. American Copper filed a class action law suit in federal district court in Michigan in 2009, alleging that Lake City violated the Telephone Consumer Protection Act (TCPA). The district court granted class certification and summary judgment in favor of American Copper, and Lake City appealed.

On appeal, Lake City argued that the district court erred by refusing to apply Michigan Court Rule 3.501(A)(5), which states that an “action for a penalty or minimum amount of recovery without regard to actual damages imposed or authorized by statute may not be maintained as a class action unless the statute specifically authorizes its recovery in a class action.” The Sixth Circuit acknowledged that because the TCPA provides for a minimum recovery of $500 per violation, regardless of actual damages, and does not specifically authorize class actions, TCPA suits cannot be maintained as class actions in Michigan state court.

Noting the “general rule” that the Federal Rules of Civil Procedure apply to all civil cases brought in federal courts, the court affirmed the district court’s rejection of Lake City’s argument. There are “rare exceptions,” however, where Congress may bypass the federal rules and require federal courts to apply state procedure. Seizing on the following language, Lake City argued that the TCPA evinces Congress’s intent that state procedural rules apply to all TCPA cases:

A person or entity may, if otherwise permitted by the laws or rules of court of a State, bring in an appropriate court of that State –

(A) an action based on a violation of this subsection or the regulations prescribed under this subsection to enjoin such violation,

(B) an action to recover for actual monetary loss from such a violation, or to receive $500 in damages for each such violation, whichever is greater, or

(C) both such actions.

47 U.S.C. 227(b)(3) (italics added).

The Sixth Circuit held that “[t]he better view of this state-oriented language relied on by Lake City... is that Congress simply intended to ‘enable states to decide whether and how to spend their resources on TCPA enforcement.’” Id. at 8, citing Giovanniello v. ALM Media, LLC, 726 F.3d 106, 114 (2d Cir. 2013). While admitting that its holding could lead to forum shopping, the Court noted a recent United States Supreme Court case — Shady Grove Orthopedic Assocs., P.A. v. Allstate Ins. Co,. 559 U.S. 393, 416 (2010) — which held that a “Federal Rule governing procedure is valid whether or not it alters the outcome of the case in a way that induces forum shopping.”

The Court also held that the district court correctly disregarded Lake City’s assertion that summary judgment would lead to its bankruptcy.  “Lake City’s ability (or inability) to pay a judgment was irrelevant at the summary judgment stage of the case.” Opinion at 4.

As this case demonstrates, the stakes in TCPA cases could not be higher for the unwary. Businesses are urged to seek appropriate counsel before undertaking activities that might implicate the statute.