CHICAGO — A federal appeals panel has revived a class action lawsuit against a medical supply company over junk faxes sent to doctors and others, saying a lower court judge improperly tossed the lawsuit against the company at the same time it allowed the supply company's CEO to escape the action.
Arwa Chiropractic had sued Med-Care Diabetic & Medical Supplies, alleging the company violated the Telephone Consumer Protection Act by sending faxes to thousands of providers soliciting prescriptions to sell equipment to their patients.
Med-Care CEO Dr. Steven Silverman contended he had no personal involvement in his company’s faxing approach, which he also said “involved reaching out to physicians to request prescriptions after first being contacted by patients needing medical products.” Med-Care hired WestFax to conduct its bulk fax operation, but Silverman wasn’t involved in that contract.
U.S. Seventh Circuit Court of Appeals Judge Michael Brennan
After U.S. District Judge John Lee certified the class, Med-Care’s attorneys withdrew from representing the company, but stayed with Silverman, and announced Med-Care had started assigning assets to creditors in Florida, similar to bankruptcy.
Because the company failed to appear at subsequent proceedings, Lee entered default judgment against Med-Care for liability. He then granted summary judgment to Silverman, finding the faxes weren’t advertisements, then vacated the default judgment and ruled in favor of both Silverman and Med-Care to avoid inconsistent judgments.
Arwa appealed to the U.S. Seventh Circuit Court of Appeals, which then sided with the chiropractors.
Judge Michael Brennan wrote the June 5 opinion for the three-judge panel hearing Arwa’s appeal. Judges Ilana Rovner and Amy St. Eve concurred.
Although the panel agrees Silverman couldn’t be held liable as a sender of the faxes as the TCPA defines, Brennan noted some courts — though not the Seventh Circuit — have assigned personal liability for corporate officers based on their level of involvement.
“Even assuming personal‐participation liability is the standard, direct participation or authorization would be required, and that is absent here,” Brennan wrote. “So we conclude that the district court did not err in granting summary judgment in Silverman’s favor.”
The panel also reviewed Lee’s initial decision to grant default judgment of liability, but not damages, which it found appropriate. But Brennan noted Lee didn’t enter a final judgment for more than a year, “So the ‘default judgment’ against Med‐Care is better characterized as an entry of default.” He further said the panel could only determine if Lee abused judicial discretion and not reconsider the merits of the underlying judgment.
Lee needed to consider only whether Med-Care had a reason to stop participating in the litigation, the panel said, and Brennan wrote the record contains “no evidence of excusable neglect or good cause for Med‐Care’s default. Med‐Care failed to appear after November 2017, has not appeared on appeal, and offers no explanation for its default.”
As such, the panel said, Lee applied the wrong legal standard when vacating the default judgment and further “by not reaching Arwa’s motion for default judgment as to damages. When Arwa presented this motion, it sought a final judgment as to Med‐Care, including a damages amount. Because the district court did not apply the appropriate standard, Arwa’s motion for default judgment as to damages did not receive proper consideration and is subject to the district court’s resolution on remand.”
Brennan also wrote the panel didn’t need to decide the dispute over whether the faxes were advertisements, only if it was inconsistent to grant summary judgment to Silverman but find Med-Care liable by default. The panel said Arwa’s allegations didn’t require uniform judgments as it sued both entities individually and was not seeking to hold Silverman vicariously liable.
“We do not fault the district court for this slip, as this case is procedurally complex,” Brennan wrote. “Nevertheless, we cannot uphold a judgment in Med‐Care’s favor” because the company didn’t defend itself.
The panel agreed Silverman is not personally liable for TCPA violations, but sent the complaint against Med-Care back to Lee to reconsider its liability and Arwa’s renewed motion for default judgment.
Arwa is represented in the action by attorneys with the firm of Bock, Hatch, Lewis & Oppenheim LLC, and Doherty Smith, both of Chicago.
Silverman has been represented by the firm of Sessions Fishman Nathan & Israel LLP, of Chicago.