Elliot D. Ostrove and Clara Y. Son
Elliot D. Ostrove and Clara Y. Son ()

In 1991, Congress enacted the Telephone Consumer Protection Act, 47 U.S.C. §227 (TCPA) to address consumer complaints over the proliferation of unwanted marketing solicitations through the use of telephone dialing systems and facsimile machines. Congress found that such unregulated telemarketing practices were highly intrusive, implicated privacy concerns, and imposed public safety risks. Although state laws restricting such telemarketing existed, the state laws were ineffective when it came to interstate calls. Congress, therefore, enacted the TCPA as supplemental legislation to existing state laws and “to provide interstitial law preventing evasion of state law by calling across state lines.”

The TCPA prohibits commercial advertisements through artificial, prerecorded or automated telephone calls, faxes, and text messages to residential lines and cellular phones, except for when the consumer has expressly provided consent and except in certain other statutory exempt cases.

The statute 47 U.S.C. §227(b)(3) governs a private right of action and states, “[a] person or entity may, if otherwise permitted by the laws or rules of a court of a State, bring in an appropriate court of that State” an action to enjoin a prohibited act, or to recover the greater of either actual monetary loss from a violation or statutory penalties.

Class actions are the preferred means of bringing an action under the TCPA by plaintiffs’ counsel given the potential for a significant money judgment through an aggregate of claims at $500 minimum in damages to $1,500 in treble damages for each violation. However, the language: “may, if otherwise permitted by the laws…of a State” has resulted in differing opinions as to the reach and impact of state laws on TCPA claims.

Statute and Rule

Pursuant to New York Civil Practice Law and Rule (CPLR) 901(b), “[u]nless 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.”

Reading Section 227(b)(3) of the TCPA in tandem with CPLR 901, the U.S. Court of Appeals for the Second Circuit in Bonime v. Avaya, 547 F.3d 497 (2d Cir. 2008) affirmed the district court’s dismissal of plaintiff’s putative TCPA class action. In Bonime, the Second Circuit held that the TCPA explicitly relies on state law to determine whether TCPA actions may proceed as a class action in federal court. Since the TCPA is silent as to whether the recovery of statutory damages is permissible by way of a class action, and CPLR 901(b) permits class action recovery of statutory damages only where the penalty-imposing statute expressly allows class actions, the Second Circuit held that CPLR 901(b) precluded TCPA class actions for damages.

Two years later in Holster v. Gatco, 618 F.3d 214, 217 (2d Cir. 2010), the Second Circuit confirmed its prior interpretation of the TCPA’s private action provision and held that the “if otherwise permitted by the laws or rules of court of a State,” is “a delegation by Congress to the states of considerable power to determine which causes of action lie under the TCPA.” The Second Circuit noted that a look at the legislative history reveals the primary purpose of the statute was to resolve the states’ inability to address interstate telemarketing abuses. That, coupled with the absence of a preemption clause in the statute, is an indication “that Congress intended to give states a fair measure of control over the problems” the TCPA was aimed to resolve, including the power of each state to determine “when a class cause of action lies and when it does not.”

‘Mims’ Court’s Interpretation

Then came Mims v. Arrow Fin. Servs., 132 S.Ct. 740, 744-745 (2012). In Mims, the U.S. Supreme Court resolved a circuit split concerning a jurisdictional question—whether the private action provision of the TCPA confers states with concurrent or exclusive jurisdiction over TCPA claims. The Supreme Court held that the TCPA’s “if otherwise permitted by the laws or rules of…a State” language did not divest federal courts’ adjudicative authority over federal law claims and explained that, “the TCPA is a federal law that both creates the claim [plaintiff] has brought and supplies the substantive rules that will govern the case.” The Supreme Court further held that there was “no convincing reason to read into the TCPA’s permissive grant of jurisdiction to state courts any barrier to the U.S. district court’s exercise of the general federal-question jurisdiction they have possessed since 1875.”

Based on the Mims court’s interpretation of the TCPA’s private action provision, the Second Circuit began changing its position regarding the applicability of state laws to TCPA claims in federal courts. In Giovanniello v. ALM Media, 726 F.3d 106 (2d Cir. 2013)—the first TCPA case the Second Circuit confronted after Mims—the Second Circuit stated that the Supreme Court’s holding in “Mims fundamentally shifts the way that [it] view(s) section 227(b)(3)’s ‘if otherwise permitted’ language’” and “casts doubt on controlling precedent” involving the interpretation of that provision. In Giovanniello, the issue presented was whether the two-year statute of limitations under Connecticut state law or four-year catch-all statute of limitations under federal law applies.

Before Mims, the Second Circuit in Giovanniello v. ALM Media, 660 F.3d 587 (2d Cir. 2011) held that the TCPA’s private action provision mandated the application of “state law, including any applicable statute of limitations.” The Second Circuit reiterated its reasoning from Holster, that Congress intended through section 227(b)(3)’s “if otherwise permitted language” to provide states control over TCPA claims including “not only the general authority to recognize particular causes of action, but also the specific authority to determine the time period in which such actions will be recognized.”

Therefore, the Second Circuit initially concluded that Connecticut’s statute of limitations, and not the federal statute of limitations, applied. However, on remand by the U.S. Supreme Court for further consideration in light of Mims, the Second Circuit reversed its position, and held that the Supreme Court was clear that despite the TCPA’s state oriented language, both federal substantive and procedural rules apply to TCPA class actions in federal court, and that any limitation imposed by the “if otherwise permitted by” state law language “applies only to TCPA claims in state court, not the universe of TCPA claims.” The Second Circuit then expressly vacated all prior decisions in which it held that “the TCPA was an express limitation on district courts requiring them to apply state laws when adjudicating TCPA claims.”

Giovanniello foreshadowed the Second Circuit’s holding in Bank v. Independence Energy Group, 13-1746, 2013 U.S. App. LEXIS 24014 (2d Cir. 2013). In Bank, the Second Circuit considered on appeal, for the first time since Mims, the district court’s dismissal of plaintiff’s TCPA class action based on Second Circuit precedent which held that CPLR 901(b) unequivocally “bars TCPA class actions in federal court.” Plaintiff argued that Mims required the Second Circuit to apply federal rule (i.e., Rule 23 of the Federal Rules of Civil Procedure), and not state law (i.e., CPLR §901(b)).

On appeal, the Second Circuit acknowledged that “its prior interpretation of section 227(b)(3) ‘as having substantive content and as a delegation of authority to state courts to set the terms of TCPA claims, no longer holds true.’” The court further stated that Mims “uprooted most of our TCPA jurisprudence” and expressly acknowledged that Mims abrogated all of its prior interpretations of the applicability of CPLR 901(b) to TCPA class actions in federal court.

Impact of Decision

Businesses beware! Think twice before making those telemarketing calls or before faxing or texting those advertisements to New York residents. CPLR 901, once a defense-friendly statute which kept TCPA class actions out of federal court, is no longer an impediment to such actions. With the change in Second Circuit jurisprudence now solidified, a significant increase in TCPA class action filings in New York district courts is anticipated this year and in the coming years.

Elliot D. Ostrove is a partner, and Clara Y. Son is an associate, with Day Pitney. They practice in the New York City and Parsippany, N.J., offices.