Supreme Court Decision May Open Door To More Class Litigation Over Fax Marketing In Federal Courts

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On Monday, April 19, 2010, the United States Supreme Court vacated the Second Circuit’s decision in Holster v. Gatco, Inc., which had dismissed the unsolicited fax class action, and remanded for further consideration in light of the Supreme Court’s recent holding in Shady Grove Orthopedic Associates, P.A. v. Allstate Insurance Co. If the Second Circuit concludes that Shady Grove requires reinstatement of Holster’s class action claim, we will likely see an increase in unsolicited fax class actions, which can be crippling to companies that utilize faxes as a means of marketing their products.

Background

Holster accused Gatco of violating the Telephone Consumer Protection Act (TCPA), which generally prohibits the sending of unsolicited facsimile advertisements and marketing materials. The statute provides for damages in a fixed amount of $500 per facsimile, and for treble damages where the defendant acted “willfully or knowingly.” Although a federal statute, Congress did not provide for federal jurisdiction over TCPA claims, so most must proceed in state court because the amount at issue is below the amount required to proceed in federal court. Holster was only able to bring his claim in federal court because he asserted his claims on behalf of a class of all persons who had received unsolicited faxes from Gatco, thereby increasing the amount in controversy to greater than $5 million. Holster could not have brought the same suit in New York state court on a class basis, because a New York statute — N.Y. Civ. Prac. Law Ann. § 901(b)—bars class actions that seek statutory damages.

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