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Class Action Defense Cases-Catalyst v. Kaiser: California Court Upholds Dismissal Of Class Action Because Established Business Relationship Exception Precluded Class Action Complaint Claims Alleging Violations Of The Telephone Consumer Protection Act

While the Telephone Consumer Protection Act Prohibits Sending Unsolicited Advertisements via Facsimile, Trial Court Properly Dismissed Class Action Complaint because “Established Business Relationship” Exception Applied California Appellate Court Holds

Plaintiff Catalyst Strategic Design filed a putative class action in California state court against its insurer, Kaiser Foundation Health, alleging violations of the Telephone Consumer Protection Act of 1991 (TCPA) and California’s Unfair Competition Law (UCL) arising out of the insurer faxing an unsolicited advertisement to the company. Catalyst Strategic Design, Inc. v. Kaiser Found. Health Plan, Inc., 153 Cal.App.4th 1328, 1330-31 (Cal.App. 2007). Defense attorneys moved for summary judgment on the ground that it had an “established business relationship” with Catalyst based on their numerous discussions about insurance coverage and, thus, Catalyst is deemed under federal regulations to have consented to receiving the faxed advertisement, id., at 1331. The district court agreed and dismissed the class action. The California Court of Appeal affirmed.

In August 2001, Catalyst Strategic Design contacted Kaiser regarding health insurance for its employees, and provided Kaiser with its fax number so that it could receive written information on Kaiser’s health plans; however, Catalyst did not sign up for insurance coverage with Kaiser at that time. Catalyst, at 1330. “Over the next year and a half, Kaiser contacted Catalyst about a dozen times by phone and in writing, including faxes, to discuss Kaiser’s on-going individual coverage of Catalyst’s president and in the hope of selling coverage to the company’s employees”; in January 2003, Catalyst told Kaiser it no longer intended to buy insurance coverage for its employees, but it did not tell Kaiser to stop contacting it about insurance. Id., at 1331. In May 2004, Kaiser faxed a one-page ad to Catalyst about various health plans: in response, Catalyst filed a class action lawsuit alleging violations of the TCPA, which generally prohibits faxing unsolicited advertisements. Id. The class action complaint also alleged violations of California’s UCL, id.. Based on these facts, defense attorneys argued that Kaiser was entitled to send the fax to Catalyst because they had an “established business relationship” within the meaning of the federal regulations governing the TCPA, id. The district court agreed and dismissed the class action complaint. Id.

The appellate court explained that the TCPA generally prohibits four acts: (1) sending unsolicited advertisements via facsimile, (2) using automatic dialing systems under certain circumstances, (3) calling residences with a prerecorded message except under certain circumstances, and (4) using an automatic dialing system to tie up multiple phone lines of a business. Catalyst, at 1331. For purposes of the present dispute, the statute defines an “unsolicited advertisement” as “any material advertising the commercial availability … of any property, goods, or services which is transmitted to any person without that person’s prior express invitation or permission.” Id. (quoting § 227(a)(5)) .

Congress charged the Federal Communications Commission (FCC) with the task of drafting the regulations necessary to implement the TCPA, and among these regulations the FCC crafted an existing business relationship exception to the prohibition on faxing unsolicited advertisements. Catalyst, at 1331-32. The FCC defined an “existing business relationship” as “a prior or existing relationship formed by a voluntary two-way communication between a person or entity and a residential subscriber with or without an exchange of consideration, on the basis of an inquiry, application, purchase or transaction by the residential subscriber regarding products or services offered by such person or entity, which relationship has not been previously terminated by either party.” Id., at 1332 (citing Kaufman v. ACS Systems, Inc., 110 Cal.App.4th 886, 909-10 (Cal.App. 2003)). It is now clear that this exception applies irrespective of whether the fax is sent to a home or a business, id., 1332-33 (citations omitted). The appellate court had not difficulty in finding that the exception applied in this case; accordingly, the class action complaint was properly dismissed. Id., at 1333.

The Court rejected plaintiff’s argument that the “established business relationship” exception only applied to subscribers that post-dated Congressional enactment of the Junk Fax Prevention Act, explaining that the exception had existed for more than a decade before Congress passed the Junk Fax Prevention Act. Catalyst, at 1333. The appellate court observed that FCC expressly rejected a requirement that businesses obtain written consent, even from established customers, before sending a fax solicitation, because of the “significant costs on businesses” that would be associated with such a rule. Catalyst, at 1333-34. The court concluded at page 1335, “Thus, the Junk Fax Prevention Act’s language covering an established business relationship exception for business recipients of faxes made express that which had always been assumed, but did not add anything new. The fax in question here, from business to business in the context of an established business relationship, was not, therefore, prohibited by the Act.” Accordingly, the appellate court affirmed judgment in favor of Kaiser and dismissal of the class action complaint. Id. at 1336.

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