Asserting a Valid Defense Does Not Deprive a Plaintiff of Standing

TCPA Connect

Reversing dismissal of a purported class action under the Telephone Consumer Protection Act, the U.S. Court of Appeals for the Seventh Circuit held that an affirmative defense alleged by the defendant must be heard on the merits and that the trial court had erred by ruling the defense deprived the plaintiff of Article III standing.

The TCPA prohibits sending “unsolicited advertisements” via facsimile under certain circumstances. Craftwood II and Craftwood III, two hardware stores under common ownership, sued Generac Power Systems, accusing it of sending unsolicited advertisements by fax.

Generac Power Systems moved to dismiss the complaint by introducing evidence that it had a “prior business relationship” with Craftwood II, which would establish an affirmative defense under 47 U.S.C. §227(b)(1)(C). The district court agreed, ruling that the prior business relationship demonstrated that the plaintiff was not harmed and, therefore, did not have standing to sue.

The plaintiffs appealed to the Seventh Circuit, arguing that the possible affirmative defense put forward by the defendant did not deprive the court of jurisdiction. Writing for a unanimous panel, Judge Frank Easterbrook noted that the plaintiff had properly alleged it was harmed by the unwanted faxes—because paper and toner were used up receiving them—and that the claim of a prior business relationship was a substantive, rather than jurisdictional, defense.

Judge Easterbrook explained that jurisdiction is established by the pleadings and that once a court has jurisdiction, “it must take all plausible allegations in favor of the complainant when handling a motion to dismiss under Rule 12(b)(6) or for judgment on the pleadings under Rule 12(c).”

“Plaintiffs’ injuries were caused by the defendants’ faxed ads and may be redressed by an award of damages,” the Seventh Circuit wrote. “We have resolved dozens of fax ad suits on the merits without suspecting that we were violating Article III of the Constitution. This suit is no more constitutionally suspect than they. Whether it is good public policy to use the cumbersome and costly process of adjudication to resolve disputes about annoying fax ads is for Congress to decide.”

The panel also declined to interpret the trial court’s order of a merits decision because to do so would require future plaintiffs to “plead around potential defenses.”

The panel expressed concern that the district court had engaged in fact finding outside the complaint, and noted that the proper moment to address the affirmative defense was after discovery. “Perhaps, after discovery (which has yet to occur), the record will show the absence of a material factual dispute. But as things stand plaintiffs have a plausible grievance.”

To read the opinion in Craftwood II, Inc. v. Generac Power Systems, Inc., click here.

Why it matters: Even when a defendant has a meritorious defense, it can be costly and time-consuming to raise it at the wrong stage of litigation. Here, a defendant that may not have been liable under the TCPA had to engage in motion practice and an appeal, only to be left where it started, because it tried to frame its merits defense as a jurisdictional dispute.