Monday, November 16, 2009

Class Certification Denied in Prepaid Calling Card Consumer Fraud Case

This posting was written by William Zale, Editor of CCH Advertising Law Guide.

In a suit alleging that prepaid calling card service providers violated the consumer fraud acts of 11 states by marketing cards providing less than the advertised number of calling minutes, the federal district court in Brooklyn denied class certification.

A class action was not superior to other available methods for fairly and efficiently adjudicating the controversy, the court determined.

The prepaid calling card industry's deceptive practices had been the subject of extensive, repetitive private litigation as well as repeated enforcement actions by the Federal Trade Commission and several state attorneys general. Deceptive and abusive practices in the industry had been widely documented, according to the court.

In tests conducted by the FTC in connection with recent enforcement actions, the cards were found to provide half or less than half of the advertised minutes.

Class Litigation v. Regulatory Solution

In general, it would be inappropriate to deny those wronged civilly a fallback, court-supervised remedy when the administrative law segment of our justice system has neglected to provide an available superior form of protection, the court said. There are, however, instances where the litigation remedy is relatively so inferior as to warrant denying it altogether in hope that administrative justice would prevail.

The superior and sensible way to deal with this controversy, involving a multibillion-dollar national and international communications industry that served millions of people in every state, many of them poor and uneducated, was for the FTC or another federal agency with authority in the area to issue appropriate regulations, in the court’s view.

Lack of Federal Diversity Jurisdiction

The case was dismissed because the named plaintiff's individual claim arising from the purchase of a $2 calling card did not satisfy the $75,000 amount-in-controversy requirement for federal diversity jurisdiction, and there was no basis for federal question jurisdiction over the plaintiff's state law claims.

The November 10, 2009 opinion in Ramirez v. Dollar Phone Corp. will be reported at CCH Advertising Law Guide ¶63,639.

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