Gene and Gene LLC v. Biopay LLC

• Decision Date: 14 August 2008
• Docket Number: No. 07-30195.,07-30195.
• Parties: GENE AND GENE LLC, Individually and as representatives of the Class, Plaintiff-Appellee, v. BIOPAY LLC; Essex Insurance Company; Evanston Insurance Company, Defendants-Appellants.
• Court: U.S. Court of Appeals — Fifth Circuit

541 F.3d 318

GENE AND GENE LLC, Individually and as representatives of the Class, Plaintiff-Appellee, v. BIOPAY LLC; Essex Insurance Company; Evanston Insurance Company, Defendants-Appellants.

No. 07-30195.

United States Court of Appeals, Fifth Circuit.

August 14, 2008.

John Powers Wolff, III (argued), Christopher Keith Jones, Keogh, Cox & Wilson, Ltd., Philip Bohrer, Bohrer Law Firm, Baton Rouge, LA, for Plaintiff-Appellee.

André Collins Gaudin, Meredith Margaret Miceli, Burglass & Tankersley, Metairie, LA, for Essex Ins. Co.

Russell J. Gaspar (argued), Cohen Mohr, Washington, DC, David Boies Sharpe, Lugenbuhl, Wheaton, Peck, Rankin & Hubbard, New Orleans, LA, for BioPlay LLC.

Travis Louis Bourgeois, Sidney W. Degan, III, Keith Alex Kornman, Pamela G. Michiels, Degan, Blanchard & Nash, New Orleans, LA, for Evanston Ins. Co.

Appeals from the United States District Court for the Middle District of Louisiana.

Before JONES, Chief Judge, and GARWOOD and JOLLY, Circuit Judges.

E. GRADY JOLLY, Circuit Judge:

This case comes to us as a Rule 23(f) interlocutory appeal from an order certifying a class of plaintiffs who allege violations of the Telephone Consumer Protection Act ("TCPA"), 47 U.S.C. § 227, specifically unsolicited advertisements sent from one fax machine to another. Two questions are before the court. The first question, raised for the first time on appeal, is whether the district court had subject-matter jurisdiction over this case. We hold that the district court had subject-matter jurisdiction under provisions of the Class Action Fairness Act of 2005 ("CAFA"), Pub.L. No. 109-2, 119 Stat. 4 (codified in scattered sections of 28 U.S.C.). The second question is whether the district court abused its discretion by certifying the class. We hold that the district court abused its discretion by certifying the class. We therefore reverse the district court's certification of the class and remand this case for such further proceedings as may be appropriate and not inconsistent with this opinion.

I.

A.

The TCPA prohibits, inter alia, the sending of an "unsolicited advertisement" via a fax machine to another fax machine. 47 U.S.C. § 227(b)(1)(C).¹ A fax is an "unsolicited advertisement" if it advertises "the commercial availability or quality of any property, goods, or services" and is transmitted without the recipient's "prior express invitation or permission." § 227(a)(4).² Moreover, in 1992, the Federal Communications Commission ("FCC"), in adopting rules to implement the TCPA, concluded that fax advertisements "from persons or entities who have an established business relationship with the recipient can be deemed to be invited or permitted by the recipient." In re Rules and Regulations Implementing the Telephone Consumer Protection Act of 1991, 7 F.C.C.R. 8752, 8779 n. 87 (1992).³

The recipient of an unsolicited fax advertisement may bring an action to enjoin future violations of the TCPA and/or to recover the greater of his actual damages or $500 for each such violation. § 227(b)(3). The monetary award may be trebled if the court finds that a violation was willful or knowing. Id.

B.

Between 2001 and 2005, Defendant-Appellant BioPay, through a third-party contractor, sent over 4,000 fax messages advertising its services to potential clients in Louisiana. One of BioPay's faxes was sent to Gene & Gene, LLC ("Gene"). Gene filed a class-action suit against BioPay in federal court, alleging that BioPay violated the TCPA by sending unsolicited fax advertisements to Gene and to an unidentified number of class members.⁴ After preliminary discovery, Gene moved for class certification, which BioPay opposed.⁵

The distinction between consenting and non-consenting recipients was the primary issue before the district court in the class-certification dispute.

BioPay argued that determining whether the recipient of each fax had consented to its transmission would require a series of individual factual determinations, or mini-trials, which made class certification improper. This argument was of course premised on the facts as they were developed in the case. BioPay has admitted that it purchased databases that included the contact information of potential customers, and BioPay also has admitted that it culled fax numbers from these databases. BioPay, however, has produced evidence that it also periodically culled fax numbers from other sources—from information submitted by merchants through BioPay's website, from information submitted at trade shows BioPay attended, and also from lists of companies with which BioPay or its affiliates had an established business relationship. BioPay thus contends that a significant number of the faxes it sent were consented to by the recipients. Further, BioPay has produced records of all the faxes that were successfully sent. BioPay also has produced testimony, however, that its database entries do not consistently or accurately reflect whether a given recipient had consented to receive fax advertisements, and this is because BioPay did not begin to record this information until May of 2004, and then only with sporadic and therefore unreliable consistency. BioPay thus contends that there is no class-wide basis by which to distinguish those fax recipients who had consented to receiving faxes from those who had not consented, which suggests that the determination of consent, or the lack thereof, would require hundreds of mini-trials.

Gene argued that class certification was proper because BioPay sent its fax advertisements as part of a common course of conduct. Gene argued that it is irrelevant that BioPay culled fax numbers from a variety of sources, as Biopay, according to Gene, bears the burden of proving consent and has not retained the necessary documents or records to meet this burden.

The district court agreed with Gene, at least in part, and certified the class, determining that the proposed class meets the requirements of Rule 23(a) and 23(b)(3) of the Federal Rules of Civil Procedure. Gene & Gene, LLC v. Biopay, LLC, 240 F.R.D. 239 (M.D.La.2006). BioPay now appeals the district court's certification of the class and, for the first time on appeal, questions whether the district court had subject-matter jurisdiction over this case.

II.

We may consider subject-matter jurisdiction at any point, including for the first time on appeal. Giles v. NYLCare Health Plans, Inc., 172 F.3d 332, 336 (5th Cir.1999). Gene argues that we may not consider subject-matter jurisdiction during a Rule 23(f) class-certification appeal, but this is incorrect. At all times, even during a Rule 23(f) appeal, we may review the power of the federal courts to entertain an action. See Bertulli v. Indep. Ass'n of Cont'l Pilots, 242 F.3d 290, 294 & n. 9 (5th Cir.2001) (reaching issue of standing on a Rule 23(f) appeal and noting that subject-matter jurisdiction is a similar question); see also FED. R. CIV. P. 12(h)(3) (noting that a court is to dismiss an action "whenever it appears" subject-matter jurisdiction is lacking). We now turn to consider whether the district court had subject-matter jurisdiction over this case.

The district court had subject-matter jurisdiction over this case pursuant to provisions of CAFA.⁶ CAFA amended 28 U.S.C. § 1332 to provide the federal courts with original jurisdiction over class actions when there is minimal diversity, § 1332(d)(2), and the aggregate amount in controversy exceeds $5 million, exclusive of interest and costs, § 1332(d)(2), (6). Minimal diversity is present here: Gene is domiciled in Louisiana and BioPay in Virginia. As for the amount in controversy, Gene's complaint held open the possibility of treble damages, depending on the state of the proof. (The complaint reads: "Further, if the court finds that the defendant willfully or knowingly violated the TCPA, the court may, in its discretion, increase the amount of the award to an amount equal to not more than 3 times the amount available under 47 U.S.C. § 227(b)(3).") Given the possibility of treble damages under the TCPA, and given that BioPay allegedly sent over 4,000 unsolicited faxes, the aggregate amount in controversy exceeds $5 million (4,000 multiplied by $1,500 is $6 million). The district court therefore had subject-matter jurisdiction over this case.

III.

A.

We review class-certification decisions for abuse of discretion. See Allison v. Citgo Petroleum Corp., 151 F.3d 402, 408 (5th Cir.1998). "Implicit in this deferential standard is a recognition of the essentially factual basis of the certification inquiry and of the district court's inherent power to manage and control pending litigation." Id. We review de novo, however, whether the district court applied the correct legal standards in determining whether to certify the class. Id.

To obtain class certification, a party must satisfy Rule 23(a)'s four threshold requirements (numerosity, commonality, typicality, and adequacy of representation), as well as the requirements of Rule 23(b)(1), (2), or (3). See Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 613-14, 117 S.Ct. 2231, 138 L.Ed.2d 689 (1997). We emphasize that it is the party seeking certification that bears the burden of establishing that the requirements of Rule 23 have been met. O'Sullivan v. Countrywide Home Loans, Inc., 319 F.3d 732, 737-38 (5th Cir.2003). And we also emphasize that district courts must "conduct a rigorous analysis of the Rule 23 prerequisites before certifying a class." Id. at 738 (internal quotation marks omitted).

As noted above, the district court determined that Gene's proposed class satisfies the requirements of Rule 23(a) and (b)(3).⁷ BioPay argues that Gene fails to establish commonality and typicality under Rule 23(a) and fails to establish either of the requirements of Rule 23(b)(3). BioPay's argument is that the class members' claims are too dissimilar for class treatment, particularly with respect to the issue of whether each of the class...