ESI Ergonomic Solutions v. United Artists Theatre Circuit, Inc.

• Decision Date: 16 July 2002
• Docket Number: No. 1 CA-CV 01-0396.,1 CA-CV 01-0396.
• Citation: 50 P.3d 844,203 Ariz. 94
• Parties: ESI ERGONOMIC SOLUTIONS, LLC, an Arizona limited liability company, individually and on behalf of all others similarly situated, Plaintiff-Appellant, v. UNITED ARTISTS THEATRE CIRCUIT, INC., a Maryland corporation; American Blast Fax, Inc., a Texas corporation, Defendants-Appellees.
• Court: Arizona Court of Appeals

50 P.3d 844

203 Ariz. 94

ESI ERGONOMIC SOLUTIONS, LLC, an Arizona limited liability company, individually and on behalf of all others similarly situated, Plaintiff-Appellant, v. UNITED ARTISTS THEATRE CIRCUIT, INC., a Maryland corporation; American Blast Fax, Inc., a Texas corporation, Defendants-Appellees.

No. -0396.

Court of Appeals of Arizona, Division 1, Department D.

July 16, 2002.

LaVoy & Chernoff, P.C. by Christopher A. LaVoy, Phoenix, and Chandler, Tullar, Udall & Redhair, LLP by Edward Moomjian, II, Tucson, Attorneys for ESI Ergonomic Solutions LLC.

Lewis & Roca LLP by Keith Beauchamp Robert G. Schaffer, Phoenix, Attorneys for United Artists Theatre Circuit, Inc.

OPINION

PATTERSON, Judge.

¶ 1 ESI Ergonomic Solutions, LLC ("ESI") filed suit as the representative of a class action against defendants United Artists Theatre Circuit, Inc. ("United Artists") and American Blast Fax, Inc. ("ABF"). ESI alleged that the defendants violated 47 U.S.C. § 227 (1994), which prohibits transmitting unsolicited advertisements to telephone facsimile machines and provides for a private right of action against violators. 47 U.S.C. § 227(b)(1)(C), (b)(3)(1994). ESI appeals the trial court's denial of its motion to certify the class. For the following reasons, we reverse and remand for further proceedings.

FACTS AND PROCEDURAL HISTORY

¶ 2 In August 1999, United Artists contracted with ABF, a company in the business of distributing advertisements by facsimile, to send a one-page advertisement for discount movie ticket packages. The following month, ABF transmitted the advertisement to about 90,000 facsimile machines in the Phoenix area. Approximately 179 recipients requested information about the discount packages, and 29 purchased gift certificates, for which United Artists received $12,080. None of the recipients, except ESI, complained to United Artists about receiving the advertisement. United Artists paid ABF $3,375 for its services.

¶ 3 After ESI received the faxed advertisement, it filed a complaint, alleging violation of the Telephone Consumer Protection Act ("TCPA"), codified at 47 U.S.C. § 227, which makes it unlawful for persons within the United States to, among other things, "use any telephone facsimile machine, computer, or other device to send an unsolicited advertisement to a telephone facsimile machine." 47 U.S.C. § 227(b)(1)(C)(1994). ESI requested statutory damages of $500 per violation with possible trebling of those damages. 47 U.S.C. § 227(b)(3)(1994). ESI also sought injunctive relief against the defendants on behalf of the asserted class. ESI sought to represent a class consisting of "all persons and entities who received on a telephone facsimile machine" the particular advertisement sent by ABF for United Artists.

¶ 4 The trial court denied several motions for summary judgment filed by United Artists and ABF, including an argument that the TCPA's damages provision violated due process because it provided damages grossly disproportionate to any harm caused.

¶ 5 In September 2000, United Artists filed for Chapter 11 bankruptcy, and all judicial proceedings against it were automatically stayed. While in bankruptcy, United Artists, via ABF, sent to the recipients of the fax advertisement a notice approved by the court advising the fax recipients that the notice was being sent to those with potential claims pursuant to 47 U.S.C. § 227, that any person having a potential claim should file a proof of claim in the bankruptcy, and that any claim for which a proof of claim was not filed would be barred. ESI filed a proof of claim purportedly on behalf of the putative class; no other proofs of claim were filed. The bankruptcy court lifted the automatic stay to permit the parties to pursue the litigation in Arizona. The order specifically provided that any judgment or settlement could be executed only against United Artists' insurance policies and not against the company itself.

¶ 6 In February 2001, ESI moved for class certification. The following month, ABF notified the court that it was dissolving, and its counsel moved to withdraw. ABF made no further appearances in the litigation.

¶ 7 United Artists objected to the class certification arguing, among other things, that a class action was not the superior method of adjudicating the controversy under Arizona Rule of Civil Procedure 23(b)(3). United Artists argued that a class action suit could lead to liability against United Artists disproportionate to the harm caused, that the bankruptcy court had already offered a means of adjudicating the claims, and that the lack of any other claims indicated a lack of interest in pursuing any claim. ESI offered to waive the statutory minimum recovery of $500 per violation and to reduce damages to $90 or alternatively to modify and reduce the number of the class.

¶ 8 The trial court denied ESI's motion for certification of the class, concluding that a class action was not superior to other available methods of adjudication. The court expressed concern that a single plaintiff on behalf of approximately 90,000 other fax recipients was seeking mandatory statutory damages of $45,000,000, and potentially $135,000,000, for the transmission of a one-page advertisement, and that the court would be unable to fashion a reasonable sanction, but would be required to impose what it considered to be a "horrendous, possibly annihilating punishment." The court noted that the actual damage inflicted was minuscule. The court also noted the absence of any other claims, despite notification through United Artists' bankruptcy case, concluding that the case involved only a single plaintiff trying to inflict horrendous damage on the defendants. The court acknowledged that its decision ignored ESI's argument that United Artists would not be "annihilated" because ESI could collect only against United Artists' insurance. The court, however, found that ESI had failed to explain how "a grossly unfair adjudication which would crush these two Defendants for sending one fax advertisement is rendered fair and equitable because a portion of the damage is absorbed by insurance companies." The court had additional concerns about whether the action complied with other requirements for class certification under Rule 23, but did not reach those issues, concluding that its decision that a class action was not superior was dispositive of ESI's motion to certify the class. The court did not address ESI's offer to waive statutory damages.

¶ 9 ESI moved for reconsideration, offering to accept $40 per violation and to waive any entitlement to trebling of damages resulting in total potential damages of $3.6 million. The court denied the motion for reconsideration without comment on ESI's newest offer to waive statutory damages.

¶ 10 ESI appealed the trial court's ruling. We have jurisdiction pursuant to Arizona Revised Statutes ("A.R.S.") section 12-2101(D)(1994).

DISCUSSION

¶ 11 Certification of a class action is governed by Arizona Rule of Civil Procedure 23, and ESI requested certification pursuant to Rule 23(b)(3). Under Rule 23(b)(3), the court must find that the action meets the requirements of Rule 23(a).¹ If those requirements are met, the court may certify the class if it finds that:

the questions of law or fact common to the members of the class predominate over any questions affecting only individual members, and that a class action is superior to other available methods for the fair and efficient adjudication of the controversy.

Ariz. R. Civ. P. 23(b)(3). The rule provides the following four factors for a court to consider in making its findings.

(A) the interest of members of the class in individually controlling the prosecution or defense of separate actions; (B) the extent and nature of any litigation concerning the controversy already commenced by or against members of the class; (C) the desirability or undesirability of concentrating the litigation of the claims in the particular forum; (D) the difficulties likely to be encountered in the management of a class action.

Id. The four factors are not exclusive, and the court, in its discretion, may consider other relevant factors. Amchem Products, Inc. v. Windsor, 521 U.S. 591, 615, 117 S.Ct. 2231, 138 L.Ed.2d 689 (1997); Lozada v. Dale Baker Oldsmobile, Inc., 197 F.R.D. 321, 332 (W.D.Mich.2000).² The rule is intended to allow a class action when it would "achieve economies of time, effort, and expense, and promote uniformity of decision as to persons similarly situated, without sacrificing procedural fairness or bringing about other undesirable results." Fed.R.Civ.P. 23, Advisory Committee Notes, 1966 Amendment; Amchem, 521 U.S. at 615, 117 S.Ct. 2231. The rule provides a mechanism by which those with claims involving small potential recoveries, which reduce incentive to bring an individual action, could aggregate those claims into an action worth someone's labor. Amchem, 521 U.S. at 617, 117 S.Ct. 2231. Generally, the rule should be construed liberally, and doubts concerning whether to certify a class action should be resolved in favor of certification. Godbey v. Roosevelt Sch. Dist. No. 66, 131 Ariz. 13, 18, 638 P.2d 235, 240 (App.1981). We review for an abuse of discretion a trial court's decision whether to certify a class action. Id. at 16, 638 P.2d at 238.

Lack of Other Law Suits

¶ 12 The trial court, in considering the extent and nature of existing litigation under Rule 23(b)(3), viewed the lack of other lawsuits—particularly in light of the bankruptcy notification—as indicating a lack of interest by other members of the purported class. ESI, citing numerous cases, argues that this interpretation of the factor is improper and that the absence of other lawsuits supports the superiority of a class action. United Artists concedes that the lack of other lawsuits ordinarily weighs in favor of certifying a class but contends that the rule is not without exception and that,...