Holster v. Gatco, Inc.

• Decision Date: 23 March 2007
• Docket Number: No. 05-CV-2534 (JFB)(WDW).,05-CV-2534 (JFB)(WDW).
• Citation: 485 F.Supp.2d 179
• Parties: Charles E. HOLSTER III, Individually and on Behalf of All Others Similarly Situated, Plaintiff, v. GATCO, INC., D/B/A Folio Associates, Defendant.
• Court: U.S. District Court — Eastern District of New York

485 F.Supp.2d 179

Charles E. HOLSTER III, Individually and on Behalf of All Others Similarly Situated, Plaintiff, v. GATCO, INC., D/B/A Folio Associates, Defendant.

No. 05-CV-2534 (JFB)(WDW).

United States District Court, E.D. New York.

March 23, 2007.

Todd C. Bank, Esq, Kew Gardens, NY, for Plaintiff.

Joel M. Shafferman, Esq., New York City, for Defendant.

MEMORANDUM AND ORDER.

BIANCO, District Judge.

Plaintiff commenced this action individually and on behalf of others similarly situated alleging violations of the Telephone Consumer Protection Act, 47 U.S.C. § 227(b)(1)(C), and regulation 47 C.F.R. § 64.1200(a)(3), promulgated thereunder (hereinafter referred to collectively as "TCPA"). Before this Court are defendant's motion to dismiss for lack of subject-matter jurisdiction and plaintiff's motion for class certification. The issue presented in this case is whether a New York law that prevents TCPA class actions from being maintained in state court divests federal courts of jurisdiction over a TCPA class action brought in federal court pursuant to diversity jurisdiction. As set forth below, the Court concludes that (1) the substantive law of the state applies in TCPA class actions brought in federal court, and (2) pursuant to substantive New York law, a class may not be maintained in the instant lawsuit for alleged violations of the TCPA. Therefore, since there can be no class action for TCPA claims under New York law, and the parties concede that there is no basis for jurisdiction in the absence of such a class action (because the amount in controversy cannot be met), this case must be dismissed.

I. BACKGROUND

A. Facts

The following facts are derived from the amended complaint and are taken as true for purposes of this motion.

On or about January 25, 2002, defendant Gatco, Inc., doing business as Folio Associates ("Gatco"), a citizen of Massachusetts, sent an unsolicited facsimile (hereinafter "fax") advertisement to plaintiff Charles E. Holster III. (Am.Compl. ¶¶ 7, 8.) Plaintiff is a citizen of New York and maintains and operates his fax machine at his office in Mineola, New York. (Id. ¶ 6.) Defendant transmitted unsolicited advertisements via fax to more than 10,000 recipients, including plaintiff. (Id. ¶ 10.) Defendant did not seek prior express invitation or permission from any of the recipients to transmit the fax, nor did plaintiff give defendant prior express permission to transmit the fax. (Id. ¶¶ 9, 11.) According to the complaint, these unsolicited faxes are prohibited by the TCPA and entitle plaintiff (and proposed class members) to, among other relief, $1,500 in treble damages per fax.

B. Procedural History

Plaintiff commenced this action individually and on behalf of others similarly situated on May 24, 2005 seeking statutory damages, injunctive relief, attorneys' fees and costs for violations of the TCPA. On July 11, 2005, plaintiff filed an amended complaint. Plaintiff alleges that jurisdiction is based on diversity pursuant to 28 U.S.C. § 1332.

On February 24, 2006, this case was reassigned to the undersigned from the Honorable Denis R. Hurley. On June 19, 2006, defendant moved to dismiss the case for lack of subject-matter jurisdiction pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(h)(3). The Court heard argument on the motion to dismiss on July 19, 2006, and granted plaintiff permission to brief class certification prior to deciding the motion to dismiss. On October 5, 2006, plaintiff moved for class certification. On November 2, 2006, the Court heard argument on the motion for class certification. Accordingly, presently before this Court are two motions: (1) defendant's motion to dismiss the case for lack of jurisdiction on the grounds that (a) a TCPA class action may not be maintained under Rule 23 of the Federal Rules of Civil Procedure and/or (b) a class action may not be maintained pursuant to N.Y.C.P.L.R. § 901(b); and (2) plaintiffs motion for class certification.

II. DISCUSSION

A. The TCPA

This case is among a recent string of lawsuits alleging the transmittal of unsolicited advertisements via fax in violation of the TCPA. The TCPA makes it unlawful "for any person within the United States, or any person outside the United States if the recipient is within the United States ... to use any telephone facsimile machine, computer, or other device to send, to a telephone facsimile machine, an unsolicited advertisement" unless certain conditions are met. 47 U.S.C. § 227(b)(1)(C). A private right of action exists under the statute pursuant to § 227(b)(3) which provides:

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 ... 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). Furthermore, a court may award treble damages in the amount of $1,500 per fax if it finds that the defendant "willfully or knowingly" violated the statute. Id.

B. Jurisdiction Under the TCPA

In Foxhall Realty Law Offices, Inc. v. Telecommns. Premium Servs., Ltd., 156 F.3d 432, 436 (2d Cir.1998), the Second Circuit held that federal courts lack federal question jurisdiction over claims brought under the TCPA. More recently, the Second Circuit clarified in Gottlieb v. Carnival Corp., 436 F.3d 335, 340-41 (2d Cir.2006) that, although federal question jurisdiction does not exist under the TCPA, federal courts sitting in diversity may hear private causes of action under the TCPA. In order to meet the amount in controversy requirement of 28 U.S.C. § 1332(a), however, individuals attempting to pursue a private right of action in federal court are often forced to do so as a class pursuant to Federal Rule of Civil Procedure 23 because one individual is unable to satisfy the amount in controversy requirement.¹ See, e.g., Gottlieb, 436 F.3d at 343 n. 10 (explaining that "[i]n order to meet the amount-in-controversy requirement, a single plaintiff would have to receive either 150 faxes from a single defendant, assuming $500 in statutory damages per fax, or 50 faxes from that defendant, assuming treble damages").

There is a disagreement among federal courts as to whether a class of plaintiffs pursuing TCPA claims can satisfy the requirements of Rule 23. Compare Kenro, Inc. v. Fax Daily, 962 F.Supp. 1162, 1169 (D.Ind.1997) (denying class certification for TCPA claimants because proposed class definition would require court to examine whether each potential class member had invited or given permission for transmission of the fax at issue); and Forman v. Data Transfer, Inc., 164 F.R.D. 400, 403-04 (E.D.Pa.1995) (same) with Kavu, Inc. v. Omnipak Corp., ___ F.R.D. ___, 2007 WL 201093 (D.Wash.2007) (granting class certification to TCPA claimants); and Gene & Gene, LLC v. Biopay, LLC, 240 F.R.D. 239 (D.La.2006) (same). Neither the Supreme Court nor the Second Circuit has addressed whether a class action may be maintained for TCPA claims. This case, however, first raises a more discrete jurisdictional question also not yet addressed by the Second Circuit — that is, whether, pursuant to the Erie doctrine, N.Y. C.P.L.R. § 901(b) prevents class action plaintiffs in New York seeking damages under the TCPA from invoking federal diversity jurisdiction under the Class Action Fairness Act. N.Y. C.P.L.R. § 901(b) provides:

Unless a statute creating or imposing a penalty, or a minimum measure of recovery specifically authorizes the recovery thereof in a class action, an action to recover a penalty, or minimum measure of recovery created or imposed by statute may not be maintained as a class action.

Thus, instead of examining the broader question of whether a TCPA class action may satisfy the requirements of Rule 23, the Court will (1) determine whether substantive state law applies to TCPA cases proceeding in federal courts sitting in diversity jurisdiction, and, (2) if substantive state law does apply to this action, whether § 901(b) of New York law, which precludes TCPA class actions in state court, is substantive or procedural. Cf. McGaughey v. Treistman, No. 05-CV-7069 (HB), 2007 WL 24935, at *3 n. 5, 2007 U.S. Dist. LEXIS 126, at *11 n. 5 (S.D.N.Y. Jan. 4, 2007) (denying class certification and declining to address the jurisdictional issue).

1. The Erie Doctrine

In Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938), the Supreme Court instructed federal courts sitting in diversity jurisdiction as to the application of federal versus state laws. It is now well established that, "[u]nder the Erie doctrine, federal courts sitting in diversity apply state substantive law and federal procedural law." Gasperini v. Ctr. for Humanities, Inc., 518 U.S. 415, 427, 116 S.Ct. 2211, 135 L.Ed.2d 659 (1996); see also Allianz Ins. Co. v. Lerner, 416 F.3d 109, 118 (2d Cir.2005) (citing Gasperini and recognizing that "New York state procedural rules do not apply ... to a federal court sitting in diversity"). "The rationale of [Erie] was, first, that federal courts should obtain results substantially similar to those reached by state courts considering the same cause of action, and, second, that federal courts should avoid application of federal law if that application would significantly encourage forum shopping by prospective out-of-state litigants." Morse v. Elmira Country Club, 752 F.2d 35, 37 (2d Cir.1984) (citing Walker v. Armco Steel, 446 U.S. 740, 747, 100 S.Ct. 1978, 64 L.Ed.2d 659 (1980) and Hanna v. Plumer, 380 U.S. 460, 467, 85 S.Ct. 1136, 14 L.Ed.2d 8 (1965)). "`[T]he Erie doctrine applies, whatever the ground for federal jurisdiction, to any issue or claim which has its source in state law.'" In re Gaston & Snow, 243 F.3d 599, 607 (2d Cir.2001) (quoting Maternally Yours v. Your...