CAFA Proposes and Congress Disposes

Landsman & Funk PC v. Skinder-Strauss Assocs., Nos. 09-3105, 09-3532, 09-3793, 2011 WL 1226371 (3d Cir. Apr. 4, 2011).

As a matter of first impression, the Third Circuit held that although the federal courts do not have federal question jurisdiction over private causes of action under the TCPA claims, Congress did not divest the federal courts of diversity jurisdiction over TCPA claims. (Editors’ Note: See the CAFA Law Blog analysis of the district court opinion in Landsman posted on August 12, 2009).

A law firm, Landsman & Funk PC, and a New Jersey Corporation, Goodrich Management Corp., brought three separate class actions under the Telephone Consumer Protection Act (“TCPA”) alleging that the defendants sent over 10,000 unsolicited fax advertisements to the plaintiffs and to thousands of others throughout the country. (Editors’ Note: The horror of receiving unsolicited faxes is on par with the outrage over the Casey Anthony verdict. We do not understand why there are not street protests akin to the Arab Spring over these dastardly unsolicited faxes. Honestly, who in the hell still owns a fax machine).

Essentially, the TCPA, which was passed in 1991 as part of an amendment to the Communications Act of 1934, declares that it is unlawful to use any telephone facsimile machine, computer, or other device to send, to a telephone facsimile machine, any unsolicited advertisement. The TCPA empowers private parties and state attorneys general to enforce this prohibition by litigation. TCPA §227(b)(3) provides a private right of action for damages or injunctive relief, and entitles a successful plaintiff to recover damages of at least $500 per unsolicited fax.

The plaintiffs in each case, i.e., in Goodrich Mgmt. Corp. v. Flierwire Inc., 2009 U.S. Dist. LEXIS 86813 (D.N.J. Sept. 21, 2009); Goodrich Mgmt. Corp. v. Afgo Mech. Servs., 2009 U.S. Dist. LEXIS 75756 (D.N.J. Aug. 24, 2009); and Landsman & Funk, P.C. v. Skinder-Strauss Assocs., 636 F. Supp. 2d 359 (D.N.J. 2009), requested over $5 million in damages for themselves and the class members. The District Court dismissed each one of those class actions on the grounds that the plaintiffs’ claim did not fulfill the requirements of diversity jurisdiction. Although, the grounds for dismissal varied among the three cases, one common aspect in the dismissal orders was whether, a federal court could exercise diversity jurisdiction over private suits under the TCPA, particularly when the Third Circuit in ErieNet, Inc. v. Velocity Net, Inc., 156 F.3d 513 (3d Cir. 1998) had ruled that private TCPA claims did not present a federal question.

In these consolidated actions, the Third Circuit was called upon to decide whether its reasoning in Erienet–that Congress intended to divest federal courts of federal question jurisdiction over individual TCPA claims–extended to diversity jurisdiction. In other words, the Third Circuit was required to decide whether Congress intended that these actions should be maintained exclusively in state courts such that federal courts could not exercise diversity jurisdiction.

The Third Circuit noted that in Gottlieb v. Carnival Corp., 436 F.3d 335 (2d Cir. 2006), the Second Circuit applying the ‘whole act rule,’ interpreted the TCPA and concluded that federal courts should have diversity jurisdiction over §227(b)(3) claims. In principle, ‘the whole act rule’ instructs that parts of a statute should be placed in the context of the entire statutory scheme and the principle that reliance on background principles of law inform a statute’s interpretation. Here, the Third Circuit did not adopt the Gottlieb reasoning, but appreciated the soundness of the Second Circuit’s approach and considerably inferred from it.

Generally, federal courts have diversity jurisdiction, and can exercise jurisdiction when a federal question exists. Diversity jurisdiction is presumed to exist for all causes of action so long as the statutory requirements are satisfied. The language of §1332 provides that district courts shall have jurisdiction on all civil actions where the matter in controversy exceeds $75,000 and where the parties are diverse.

On the other hand, district courts have original jurisdiction where a federal question clearly exists unless a specific statute places jurisdiction elsewhere. And, when a federal question is not as clearly presented, determining whether ‘arising under’ jurisdiction exists requires a multi-factorial analysis of how federal the claim really is; the process is more nuanced than the easily applied two-factor test for diversity jurisdiction, and the purposes served by allowing access to the federal courts under each statute are quite distinct.

The Third Circuit observed that Shoshone Mining Co. v. Rutter, 177 U.S. 505 (1900) presented an example of causes of action which, although created by federal law, did not fall under federal courts’ federal question jurisdiction. In Shoshone, the Supreme Court held that the federal cause of action created by the mining statute did not confer federal question jurisdiction over claims that turned entirely on state law. However, in noting the conceded fact that unless the amount in controversy is over $2,000, no jurisdiction attaches to the federal court, the Supreme Court suggested that federal courts could exercise diversity jurisdiction over claims brought under the mining statute.

Here, the Third Circuit observed that the Shoshone Court’s justification for removing certain federally created causes of action from federal courts’ §1331 jurisdiction where state law issues dominated or state rules governed did not apply to diversity jurisdiction, derived its basis not on the presence of a federal question, but rather on an independent anti-discrimination rationale.

The Third Circuit remarked that both the mining statute and the TCPA were examples of federal causes of action that essentially enabled state enforcement–as neither conferred federal question jurisdiction in the federal courts, but neither, without more, disrupted the baseline framework of federal diversity jurisdiction over large claims between diverse parties.

The Third Circuit observed that the TCPA’s language was not sufficiently clear or forceful enough to deprive federal courts of diversity jurisdiction over TCPA claims; in fact, nothing in §227(b)(3) or the overall statute indicates that Congress intended for individual claims brought under the TCPA to operate any differently than other suits between diverse parties where the amount in controversy meets §1332’s requirements. Indeed, Congress set the statutory damages for individual TCPA claims at $500, a figure substantially lower than the $75,000 diversity jurisdiction bar. The Third Circuit observed that Congress has given no indication that when litigants aggregated their claims to add up to $75,000, or file as a class to reach CAFA’s $5 million requirement, it intended that these claims be barred from federal court. The Third Circuit refused to speculate Congress’ intentions, but preferred to let Congress speak for itself.

Accordingly, the Third Circuit concluded as the TCPA stood presently, a federal forum is available for completely diverse parties where the amount in controversy is $75,000 or more and for minimally diverse parties where the amount is $5 million or more.

The dissenting judge stated that the majority was persuaded by the argument that CAFA was enacted 14 years after the TCPA was enacted in 1991, and since CAFA was a jurisdiction-conferring statute, it created federal jurisdiction over claims brought under the TCPA, even if the federal courts would have lacked jurisdiction to hear them before CAFA became effective. The dissent observed that CAFA was enacted to expand federal jurisdiction over class actions involving classes with certain characteristics (e.g., only minimal diversity) that would have precluded federal jurisdiction pre-CAFA. CAFA could not, and did not, confer jurisdiction over particular causes of action that Congress had previously withdrawn from the federal courts. It is for Congress and only Congress, not the courts, to decide whether TCPA should be amended to allow claims to be heard in the Federal courts. Accordingly, the dissent ruled that the federal courts lacked all jurisdiction under either §1331 or §1332 to adjudicate claims asserted under 47 U.S.C. §227(b)(3).