Physicians Healthsource, Inc. v. A-S Medication Solutions, LLC

Citation: Not availableDocket: 19-1452

Court: Court of Appeals for the Seventh Circuit; February 23, 2020; Federal Appellate Court

Original Court Document: View Document

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In the case Physicians Healthsource, Inc. v. A-S Medication Solutions, LLC, the Seventh Circuit affirmed the district court's rulings regarding a class action lawsuit under the Telephone Consumer Protection Act (TCPA). In February 2010, A-S Medication Solutions (AMS) sent unsolicited fax advertisements to 11,422 recipients from a customer list obtained through the purchase of Allscripts, Inc.'s business. Physicians Healthsource (PHI) filed a class action claiming the faxes violated the TCPA, leading to the district court certifying the class, granting summary judgment on liability against AMS and its CEO, Walter Hoff, and imposing a nearly $6 million judgment.

AMS did not dispute the class certification but challenged the liability ruling. The court found that AMS did not obtain prior consent from recipients and that the fax lacked an opt-out disclaimer. PHI's initial summary judgment motion was denied, but after further discovery, a second motion on liability was successful, confirming AMS and Hoff’s joint liability for the faxes sent. AMS’s request for an evidentiary hearing on damages was denied, as PHI sought only statutory damages under the TCPA, which did not necessitate such a hearing.

PHI successfully filed for judgment, resulting in the district court awarding $5,709,000 to PHI and the plaintiff class based on 11,418 faxes sent, each incurring a statutory fine of $500. The court mandated further briefing on the distribution of this sum among class members. AMS then sought to amend the judgment or have it reconsidered, but the court denied this motion and established a distribution plan that remained subject to adjustments regarding attorney’s fees and incentive awards. AMS subsequently appealed, contesting several points: the district court’s liability ruling, denial of a motion to file a sur-reply, the judgment entry for PHI, denial of its amendment motion, and the adoption of the fund award process.

In reviewing the liability aspect, the court applied a de novo standard, affirming that summary judgment is appropriate when no material facts are in dispute and the movant is entitled to judgment as a matter of law. AMS admitted that the fax in question was an advertisement lacking an opt-out notice, thus disqualifying it from the TCPA's established business relationship safe harbor. To avoid liability, AMS needed to prove it had prior express permission from recipients to send the faxes. The court cited a precedent indicating that the burden of proof for this affirmative defense lies with the defendant, which in this case is AMS.

AMS must demonstrate how it meets its burden of proving 'prior express invitation or permission' to send faxes. There is limited Circuit precedent on this matter, with the Seventh Circuit's only substantial mention occurring in CE Design Ltd. v. King Architectural Metals, Inc., which suggests that a business publishing its fax number may grant permission to trade association members. Illinois courts have also addressed this, as seen in Travel 100 Grp. Inc. v. Mediterranean Shipping Co. USA, where a travel agency was deemed to have given prior express permission by allowing a trade group to share its fax number for marketing purposes.

In this case, the district court adhered to the FCC's definition of 'express permission,' which requires that a consumer understands that providing a fax number indicates consent to receive advertisements. The FCC allows for both written and oral permission but has ruled that 'negative options'—where consent is assumed unless explicitly revoked—do not satisfy the requirement for express permission. Consequently, evidence of Allscripts’ general practices or customer opt-out options does not substantiate claims of express permission, as there is no indication that any customer explicitly consented to receive fax advertisements.

AMS must rely on customer affidavits asserting consent to receive advertisements. These affidavits fall into three categories: 1) general permissions to receive faxes, which do not equate to permission for advertisements; 2) post hoc claims of consent, which are insufficient; and 3) statements indicating consent to receive 'Allscripts’ product information' at the start of their relationship, which may be the closest to establishing prior express permission but still lack specificity regarding fax advertisements.

AMS presented multiple identical affidavits from Allscripts customers, stating they do not specifically recall receiving promotional faxes but generally consented to such communications. The district court deemed these affidavits insufficient to demonstrate "prior express permission" as legally required. It noted that the statements did not indicate the recipients understood they were explicitly granting permission for faxed advertisements, nor did they detail the content of the faxes to which consent was purportedly given. 

The court addressed two main issues: first, whether a consumer's consent for fax advertisements is ongoing or must be renewed for each instance. It concluded that a one-time consent could imply ongoing permission, as supported by precedent and FCC regulations. Second, it determined that consent must be explicitly and affirmatively stated for it to be valid, going beyond mere past consent or authorization for a single fax. 

For instance, a company could include a clear statement on a fax request form, indicating that providing the fax number constitutes ongoing consent to receive advertisements, which would be valid if signed by the recipient. However, the affidavits did not demonstrate that recipients granted prior express permission for faxed advertisements, as agreeing to receive "product information" does not equate to consenting to advertisements. Furthermore, past consent does not imply ongoing permission. Consequently, AMS failed to prove that Allscripts had the required prior express permission to send faxes, and such permission is not transferable under the TCPA.

The TCPA does not specify the transferability of an individual's prior express permission to receive faxes, leading to the conclusion that such permissions should be interpreted in favor of consumer protection. This interpretation is supported by precedents indicating that remedial statutes like the TCPA should be construed liberally. The TCPA prohibits sending fax advertisements unless there is an established business relationship (EBR) with the recipient or prior express permission. It would undermine the TCPA's purpose if one company could transfer permission to another, allowing unsolicited advertisements until a consumer revokes consent. The court finds AMS's argument that prohibiting transfer creates barriers unconvincing, suggesting that acquiring companies can comply with EBR requirements. AMS failed to do so in this case, lacking necessary opt-out notices, which disqualifies its defense. The court aligns its interpretation with the FCC’s stance that prior express permission must be obtained by the sender, reinforcing the necessity of an EBR when applicable. AMS's references to prior cases do not support the idea that permission is transferable; rather, they confirm that consent was given specifically to a group of senders, not a blanket transfer of permission.

The plaintiff in CE Design had previously provided his fax number to a trade book, implying consent for subscribers to send him faxes, thereby potentially granting prior express permission to receive advertisements. In Travel 100, the court found that the plaintiff explicitly consented to receive marketing communications by providing his fax number. Despite Allscripts potentially obtaining such consent, AMS could not rely on it, as it admitted it had not procured prior express permission from any fax recipients. Consequently, the district court found AMS liable under the TCPA.

Regarding PHI's challenge to the district court's judgment and refusal to hold an evidentiary hearing on damages, it was asserted that the court erred by denying AMS the opportunity to file a sur-reply to new arguments raised by PHI. The precedent indicated that district courts should allow responses to new evidence or arguments in reply briefs; however, PHI did not present new evidence relevant to the judgment. The only pertinent facts were the number of faxes sent by AMS and their recipients, which were undisputed. Therefore, the court did not abuse its discretion in denying the sur-reply.

AMS also argued that the district court failed to resolve disputes regarding who could recover damages for the 11,418 faxes sent. However, the court found no error in this denial, referencing Ira Holtzman, C.P.A. v. Turza, which established that once liability is determined and the plaintiff class seeks only statutory damages, no further adjudication of individual damages is necessary. Each class member only needs to demonstrate receipt of the fax and a connection to the fax machine to claim damages.

Upon finding liability, a court can enter judgment once plaintiffs establish the quantity of faxes sent and the associated numbers, with a defendant's valid fax log serving as proof of these facts. In this case, AMS’ fax log was uncontested, and the number of faxes sent was undisputed. Consequently, the district court was justified in entering judgment against AMS for violations of the TCPA without additional fact-finding or delays.

AMS objected to the district court's acceptance of a modified distribution plan proposed by PHI, arguing it failed to ensure that award recipients were entitled to damages under the TCPA. The court's decision is subject to an abuse-of-discretion standard, which AMS did not meet. Each class member must demonstrate a connection to one of the 11,418 fax machines that received the unsolicited faxes to collect damages, as per their burden of proof.

While there is consensus that class members need not prove this connection until judgment distribution, there is contention over due process requirements. PHI argues that a defendant like AMS, already found liable, cannot demand evidence of standing from class members. However, given the potential for unclaimed funds to revert to the defendant, AMS has a legitimate due process interest in ensuring at least one individual has standing to claim damages for each specific fax. AMS does not, however, have a due process interest in preventing multiple claims for the same $500 fine associated with a fax, as the total amount is unaffected by the identity of the claimants.

The district court's distribution plan involves mailing and faxing a notice regarding the judgment to individuals on the class list, along with a contact information form. Class members are informed of their right to reject payment by returning a specified form; lack of response will be interpreted as consent to receive a check. Despite AMS's claim that at least one individual on the class list was deceased, they failed to challenge the overall eligibility of the remaining individuals to recover under the TCPA. AMS's argument about potentially more eligible individuals does not affect the distribution plan, as the court's requirement is that at least one person must have standing for each fax. The notice requires class members to verify their information and correct it if necessary, ensuring that those who respond are indeed affiliated with the fax number in question. The plan is deemed adequate to confirm standing for recovery, leading to the conclusion that the district court acted within its discretion. The decision is affirmed.