Sixth Circuit Allows Class Action to Proceed Despite Contrary Michigan law

In December, we warned that New Jersey could see a boom in Telephone Consumer Protection Act (TCPA) class actions. Now it looks like Michigan will get hit with a similar increase in telemarketing-related suits.

In the case entitled In re Lake City Industrial Products, Inc., decided on January 9, 2013 by the Sixth Circuit Court of Appeals, a Michigan plaintiff obtained class certification from a federal district court in a TCPA case under Rule 23 of the Federal Rules of Civil Procedure even though the state law in Michigan, where the plaintiff lived, permits only individual suits, not class actions. The defendant filed an interlocutory appeal to the Sixth Circuit arguing that because the TCPA states private lawsuits can proceed only "if otherwise permitted by the laws or rules of court of a state," the Michigan state law should be applied to the case instead of the federal law allowing class treatment. Michigan law, like New York's, bans class actions that seek to collect statutory damages such as the TCPA's $500 per-call penalty.

The defendant is a small, family-owned business that argued it would fold under the cost of defending a class-action suit, but the Sixth Circuit was not swayed and deferred a ruling until after the class action lawsuit was complete. This deferral was a victory for the plaintiff because it allowed the class action to proceed. After taking into consideration (1) the likelihood of success on appeal; (2) whether the cost of continuing the litigation presents such a barrier that subsequent review is hampered; (3) whether the case presents novel or unsettled law; and (4) what stage the case was in at the district court level, the Sixth Circuit refused to consider an immediate appeal. The defendants are free to appeal again after the trial, but proceeding to trial will be very costly and risky, especially where the defendant is a small business. Among its reasons for denying this appeal, the Sixth Circuit pointed out that the Supreme Court in the Mims case had unanimously concluded that the "if otherwise phrase" means only that states have leeway they would otherwise lack to decide whether to entertain claims under the TCPA. Once a federal court gets a case, however, it applies its own rules of procedure, including allowance of class treatment where appropriate. The defendant had argued that the "if otherwise permitted" phrase meant that federal courts could not allow this case to go forward as a class action because Michigan law did not allow it. The Sixth Circuit rejected this argument and ruled that the defendant's interpretation of the "if otherwise" phrase had a low likelihood of succeeding on appeal.

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