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CAFA Law Blog Information, cases and insights regarding the Class Action Fairness Act of 2005

Even If There is Only State Court Jurisdiction for Some TCPA claims, CAFA and Rule 23 May Still Provide Federal Court Jurisdiction.

Posted in Case Summaries

American Copper & Brass, Inc. v. Lake City Industrial Products, Inc., No. 1:09-CV-1162, 2010 WL 2998472 (W.D. Mich. Jul 28, 2010).

What idiot sends blast faxes today? It is so much cheaper to use email to send your lame advertisements. Well, if you are stupid enough to use a fax machine and then use a fax machine to send junk faxes, be aware there may be federal jurisdiction under CAFA.

Although the federal court lacked federal question jurisdiction over private Telephone Consumer Protection Act claims, the District Court in Michigan held that it can exercise CAFA’s diversity jurisdiction over these claims because a federal court’s diversity jurisdiction extends to “all civil actions” when Fed. R. Civ. P. 23’s requirements are satisfied. Thus, Rule 23 is valid regardless of its incidental effect upon state-created rights; and state procedural rules do not apply in federal court absent express language in the federal rules.

Pursuant to a blast fax advertisement that was allegedly sent to 11,000 individuals, American Copper & Brass, Inc., filed a class action under the Telephone Consumer Protection Act (“TCPA”), 47 U.S.C. § 227(b)(3), which provides a private right of action for the alleged conduct.  

American Copper alleged federal question jurisdiction under the TCPA and diversity jurisdiction under CAFA, 28 U.S.C. §1332(d). The defendant, Lake City Industrial Products, Inc., moved to dismiss the complaint for lack of subject matter jurisdiction, which the Court denied.  

First, the Court stated that because §227(b)(3)’s jurisdictional language provides that “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,” it lacked federal question jurisdiction over a private TCPA claim brought pursuant to §227(b)(3). 

The Court, however, opined that it had diversity jurisdiction under CAFA. Lake City claimed that the TCPA claim could not be maintained as a class action because federal courts sitting in diversity must apply state substantive law, and a Michigan court rule, M.C.R. 3.501(A)(5), prohibited this type of class action.  Lake City argued that American Copper had its own TCPA claim for $500 in statutory damages, which did not satisfy the amount in controversy requirement.  

Rejecting Lake City’s argument, the Court observed that federal courts can exercise diversity jurisdiction over private TCPA claims because a federal court’s diversity jurisdiction extends to “all civil actions” where the statutory requirements are satisfied.  While federal statutes normally give rise to federal question jurisdiction and concurrent jurisdiction in the state courts, nothing in §1332 limits its application solely to state-law claims; diversity jurisdiction is thus presumed to exist.  Moreover, Congress’s failure to explicitly abrogate §1332 and divest the federal courts of diversity jurisdiction over private TCPA claims means that subject matter jurisdiction for private actions under the TCPA can be premised on §1332.

The Court remarked that American Copper satisfied the amount in controversy requirement of §1332(d) by alleging more than $5 million in damages ($500 (in statutory damages) x 11,000 (number of claims) x 3 (potential for treble damages with proof that defendant willfully or knowingly violated §227(b))).  M.C.R. 3.501(A)(5) provides 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 Court noted that in Shady Grove Orthopedic Associates, P.A. v. Allstate Insurance Co.,130 S. Ct. 1431, 1444 (2010), the Supreme Court analyzed a New York statute with language similar to M.C.R. 3.501(A)(5) and rejected the analysis Lake City urged here.  The Supreme Court held that: (1) Rule 23 regulates procedure; (2) Rule 23 is authorized by the Rules Enabling Act; and (3) Rule 23 is valid in all jurisdictions, with respect to all claims, regardless of its incidental effect upon state-created rights.

The Court explained that state procedural rules do not apply in federal court absent express language in the federal rules.  Unlike Rule 4(e)(1) for serving a summons on an individual, Rule 45 for serving a subpoena, or Rule 69 for the execution of a judgment, Rule 23 does not reference any state procedure for determining class certification.  Therefore, the Court concluded that M.C.R. 3.501(A)(5) did not inhibit American Copper from satisfying 28 U.S.C. §1332(d)’s amount in controversy requirement.  

Accordingly, the Court found no reason to decline to exercise jurisdiction.

  • efolmer

    This opinion was certified for interlocutory appeal by the district court in late October. Defendants have petitioned the sixth circuit for permission to appeal.