Craftwood II, Inc. v. Generac Power Systems, Inc.

In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 18-2883
CRAFTWOOD II, INC., and CRAFTWOOD III, INC.,
Plaintiffs-Appellants,
v.
GENERAC POWER SYSTEMS, INC., and COMPREHENSIVE
MARKETING, INC.,
Defendants-Appellees.
____________________
Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 17 C 4105 — Robert W. Gettleman, Judge.
____________________
ARGUED MARCH 27, 2019 — DECIDED APRIL 1, 2019
____________________
Before EASTERBROOK, KANNE, and HAMILTON, Circuit
Judges.
EASTERBROOK, Circuit Judge. Two corporations, Craftwood
II and Craftwood III, operate hardware businesses in Cali-
fornia. They contend in this suit under the Telephone Con-
sumer Protection Act, 47 U.S.C. §227, that defendants sent
them unsolicited fax advertisements. Defendants moved to
dismiss the complaint under Fed. R. Civ. P. 12(b)(1), con-
2 No. 18-2883
tending that plaintiffs lack standing to sue. The district judge
granted that motion—not so much because he found the lack
of an injury as because he thought that defendants had sub-
stantially (though not technically) met the requirements of a
defense in §227(b)(1)(C). On appeal defendants contend ex-
pressly what is only implicit in the district court’s decision:
that unless plaintiffs prove injury from a violation of law, the
suit must be dismissed for lack of a case or controversy. That
proposition contradicts the holding of Bell v. Hood, 327 U.S.
678 (1946), among many other decisions showing that a
plaintiff’s failure on the merits does not divest a federal
court of jurisdiction.
The difference between a jurisdictional and a substantive
characterization of a defense magers not just because federal
courts must raise jurisdiction on their own, even if the liti-
gants are content to have a federal judge resolve the dispute,
but because different procedures apply to jurisdictional and
substantive issues. When subject-mager jurisdiction—which
is to say, the power to hear and decide the case at all—is at
stake, a district judge may resolve factual disputes and make
any findings necessary to determine the court’s adjudicatory
competence. Fed. R. Civ. P. 12(b)(1); Venezuela v. Helmerich &
Payne International Drilling Co., 137 S. Ct. 1312, 1316 (2017);
McNuE v. General Motors Acceptance Corp., 298 U.S. 178, 184
(1936). If the court has jurisdiction, however, then 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). Bell Atlantic
Corp. v. Twombly, 550 U.S. 544, 555 (2007). And if the com-
plaint states a claim for relief, then a material factual dispute
will defeat a motion for summary judgment under Rule 56
and entitle the plaintiff to a trial. See, e.g., Celotex Corp. v.
No. 18-2883 3
CatreE, 477 U.S. 317 (1986). By treating a defense as if it were
an element of subject-mager jurisdiction, the district court
transgressed these allocations of authority.
Standing to sue is established by allegations (and, if nec-
essary, proof) of injury, caused by the defendant, and re-
dressable by a favorable judicial decision. See, e.g., Lujan v.
Defenders of Wildlife, 504 U.S. 555, 560–61 (1992); Spokeo, Inc.
v. Robins, 136 S. Ct. 1540 (2016). Plaintiffs allege that they re-
ceived unsolicited fax ads, causing at least two kinds of inju-
ry: printing the faxes used paper and toner, which are costly,
and the need to read the incoming faxes diverted the time of
one or more employees from the businesses’ profitable en-
deavors. These are concrete rather than abstract losses. The
injuries may have been slight, but an “identifiable trifle”
suffices. United States v. SCRAP, 412 U.S. 669, 689 & n.14
(1973). Plaintiffs’ injuries were caused by the defendants’
faxed ads and may be redressed by an award of damages.
We have resolved dozens of fax-ad suits on the merits with-
out suspecting that we were violating Article III of the Con-
stitution. This suit is no more constitutionally suspect than
they. Whether it is good public policy to use the cumber-
some and costly process of adjudication to resolve disputes
about annoying fax ads is for Congress to decide.
We have thought about the possibility of revising the dis-
trict court’s decision to be a dismissal on the merits, rather
than for lack of standing, but conclude that such a step
would be inappropriate, for several reasons.
First, it is presumptively unlawful to send any unsolicit-
ed fax advertisement. Copies of some faxes are in the record,
and there’s no doubt that they are advertisements. Plaintiffs
allege that they were unsolicited. That makes out a plausible
4 No. 18-2883
claim for relief. Defendants invoke an affirmative defense,
but complaints need not anticipate or agempt to plead
around potential defenses. See, e.g., Gomez v. Toledo, 446 U.S.
635 (1980); United States Gypsum Co. v. Indiana Gas Co., 350
F.3d 623, 626 (7th Cir. 2003).
Second, precisely because a complaint need not antici-
pate defenses, it is difficult to see how the suit could be dis-
missed on the pleadings. Instead the defense has factual
components: the existence of a business relation between
plaintiff and defendant, the recipient’s provision of a fax
number as part of that business relation, and the inclusion in
the unsolicited fax of “a notice meeting the requirements
under paragraph (2)(D)” of §227(b). Defendants assert that
the first two elements have been met but do not contend that
the third is satisfied. So they have not so much as argued
that the defense obtains as a mager of law.
Third, allegations must be supported by evidence. De-
fendants say, and the district judge found, that “plaintiffs”
have an established business relation with them, and that
“plaintiffs” furnished their fax numbers. For their part, how-
ever, plaintiffs contend that only one of them (Craftwood II)
was doing business with only one of the defendants (Com-
prehensive Marketing). That Craftwood II and Craftwood III
are under common control does not make them the same
thing—not, at least, unless the requirements for lateral veil
piercing have been satisfied. Defendants and the district
judge did not address that subject. Nor did defendant Gen-
erac show that it has an established business relation with
either plaintiff. Perhaps plaintiffs are wrong about who was
doing business with whom, but it looks like we have the
No. 18-2883 5
makings of a material factual dispute, which a district judge
could not resolve at the pleading stage.
Fourth, there is the problem of the “notice meeting the
requirements under paragraph (2)(D)” of §227(b). Defend-
ants’ notice, which is in the record, reads (all errors in the
original):
The information in this facsimile message is privileged and con-
fidential information, intended for the addressee If you have re-
ceived this message in error, or if the recipient of this communi-
cation does not desire to receive future communications from the
sender. The recipientmustnotifythe sender of the same with a re-
turn fax to 830-916-0736 or call Toll Free 1-877-325-2526
Beyond the oddity of telling the recipient of an unwanted fax
that it “must” do something is the omission of two bits of
information that the statute insists be included: that the re-
cipient has a legal right to avoid future fax ads and that the
sender must comply with an opt-out request “within the
shortest reasonable time” as determined by federal rules (30
days). The district court said, essentially, “no harm no foul”:
plaintiffs used the number in the notice, and the ads stopped
coming. That’s yet more factfinding outside the scope of the
complaint, and it amounts to a conclusion that the “identifi-
able trifle” of the cost and annoyance of the fax ads already
received, plus the opportunity cost of the time needed to
stop more faxes from arriving, just can’t support a claim.
Perhaps a judge or jury could decide that any award exceed-
ing nominal damages would be inappropriate, but that’s
some distance from saying that there has been neither injury
nor a violation of law.
To the extent that the district judge believed it possible to
resolve the suit on the merits in part (the first two compo-
6 No. 18-2883
nents of the affirmative defense) and then dismiss the rest
for want of jurisdiction (because the third component of the
defense creates a bare procedural right, of the sort discussed
in Spokeo), it was making a fundamental error. Jurisdiction
almost always depends on the state of magers when a suit
begins. See, e.g., Freeport-McMoRan, Inc. v. K N Energy, Inc.,
498 U.S. 426 (1991); Louisville, New Albany & Chicago Ry. v.
Louisville Trust Co., 174 U.S. 552, 566 (1899); Mollan v. Tor-
rance, 22 U.S. 537, 539–40 (1824). (We put the possibility of
mootness to one side. Whatever it is, this case is not moot.) A
court cannot resolve part of a plaintiff’s claim on the merits
and then say that the residue is outside federal jurisdiction.
Johnson v. WaEenbarger, 361 F.3d 991 (7th Cir. 1994). Whether
or not there would be standing to complain about the precise
wording of the opt-out language when that was the only as-
serted source of injury—St. Louis Heart Center, Inc. v. Nomax,
Inc., 899 F.3d 500 (8th Cir. 2018), gives a negative answer—
this suit began as more than that.
The district court erred in dismissing the complaint for
lack of jurisdiction, and it would not be appropriate to dis-
miss it under Rule 12(b)(6) or 12(c) either. Perhaps, after dis-
covery (which has yet to occur), the record will show the ab-
sence of a material factual dispute. But as things stand plain-
tiffs have a plausible grievance.
The judgment is vacated, and the case is remanded for
proceedings consistent with this opinion.