Telephone Consumer Protection Act

Supreme Court imageArticle III of the Constitution limits the jurisdiction of the federal courts to “cases” and “controversies.” The Supreme Court has held that “‘an actual controversy … be extant at all stages of review, not merely at the time the complaint is filed.’” Arizonans for Official English v. Arizona, 520 U.S. 43, 67 (1997). Accordingly, “[i]f an intervening circumstance deprives the plaintiff of a ‘personal stake in the outcome of the lawsuit,’ at any point during litigation, the action can no longer proceed and must be dismissed as moot.” Genesis HealthCare Corp. v. Symczyk, 133 S. Ct. 1523, 1528 (2013). In Genesis, the Court recognized that one “intervening circumstance” may arise under Rule 68 of the Federal Rules of Civil Procedure, which permits a party to offer to allow judgment in favor of its adversary on specified terms. A party who rejects a Rule 68 offer, but obtains a judgment “not more favorable than the unaccepted offer,” must pay the costs accrued by the offering party between the offer and judgment. (We’ve previously blogged about Genesis.)

Today, the Court granted certiorari in Campbell-Ewald Company v. Gomez, No. 14-857, to determine whether a defendant’s unaccepted offer of judgment, made before a class is certified, that would fully satisfy the claim of a would-be class representative renders the plaintiff’s individual and class claims moot. The Court also granted certiorari to decide whether the derivative sovereign immunity doctrine recognized in Yearsley v. W.A. Ross Construction Co., 309 U.S. 18 (1940), applies only to claims for property damage caused by public works projects.

Continue Reading Supreme Court to decide whether an offer of judgment for full relief moots a named plaintiff’s class-action claims

One of the hottest areas in class actions is litigation under the Telephone Consumer Protection Act (TCPA).  And one of the most significant issues in TCPA litigation is the existence and scope of vicarious liability.  The key question is to what extent are businesses liable for the actions of third-party marketers who, without the consent of the recipient, send text messages or place calls using autodialers or prerecorded voices or transmit faxes?

Some plaintiffs had argued that businesses are strictly liable for TCPA violations committed in their name by third-party marketers.  Last year, the FCC rejected that approach in a declaratory ruling.  As we explained in our report, the FCC instead concluded that plaintiffs instead must prove liability under “federal common law principles of agency.”

But that declaratory ruling was decided in the context of telemarketing.  Should the same rule apply to alleged TCPA violations involving unsolicited marketing faxes?  Can plaintiffs revive their old arguments that businesses are strictly liable for faxes advertising their services sent by others?  Or are businesses not liable for TCPA violations that they themselves don’t commit?

The Eleventh Circuit recently considered this issue in Palm Beach Golf Center-Boca, Inc. v. John G. Sarris, D.D.S., P.A.  In that case, a marketer had allegedly sent several thousand unsolicited faxes advertising the services of a dental practice.  When a recipient of a fax sued the dental practice under the TCPA, the district court granted summary judgment in part because the plaintiff had failed to show that the dental practice was vicariously liable for the marketers actions.

The Eleventh Circuit reversed.  The court explained that the FCC’s prior declaratory ruling that the limited scope of vicarious liability for TCPA violations applied only to telemarketing calls.  But rather than decide what the vicarious-liability standard should be for faxes, the court held—based on a letter brief (pdf) submitted by the FCC—that the recipient of the fax didn’t need to prove vicarious liability at all.  Instead, the court held that  the dental practice could be viewed as the sender itself and therefore the recipient could attempt to show that the dental practice had directly violated the TCPA itself.

That result is hard to swallow.  The dental practice, after all, hadn’t actually sent any faxes itself.  And although it had hired the marketer, the evidence presented to the district court apparently showed that the dental practice had no direct role in the fax campaign—it didn’t decide to whom to send faxes or even approve the final language of the fax itself.  And it certainly didn’t press the button to send the faxes.

Nonetheless, the court held—based on the FCC’s letter brief—that the recipient of the fax could proceed to trial on the theory that the dental practice had committed a direct violation of the TCPA.  The TCPA makes it unlawful “to use any telephone facsimile machine, computer, or other device to send, to a telephone facsimile machine, an unsolicited advertisement.”  Under a natural reading of this language, one would think that the dental practice itself neither “use[d]” a fax machine nor “sen[t]” a fax.  But in the FCC’s view, a business is the “send[er]” of a fax transmitted by a third party so long as the fax was either sent on the business’s “behalf” or if the fax “advertise[s] or promote[s]” the business’s “goods or service.”

The FCC’s position conflates direct and vicarious liability for alleged TCPA violations involving faxes.  There are accordingly strong reasons to think that other courts should refuse to defer to the FCC’s interpretation.  That said, businesses whose marketing activities may include third-party fax campaigns should be aware of the potential that courts will, like the Eleventh Circuit in Palm Beach Golf Center, adopt the FCC’s position and authorize claims for direct liability under the TCPA.

Just in time for the holidays, the Second Circuit’s recent decision in Bank v. Independence Energy Group LLC has dropped a lump of coal in the business community’s stocking. In this case, the “lump of coal” is an open door to class actions under the Telephone Consumer Protection Act in federal courts in New York.

We frequently blog about the TCPA, which has emerged into one of the favorite toys of the plaintiffs’ bar. The TCPA authorizes the recipients of certain unsolicited telemarketing faxes, calls, and text messages to sue for statutory damages of between $500 to $1,500 per violation. If those statutory damages are aggregated in a class action, plaintiffs’ counsel can threaten the targeted defendant with such enormous liability—sometimes in hundreds of millions or billions of dollars—that the defendant will have a powerful incentive to agree to a blackmail settlement. (See some of our recent posts on challenging this kind of aggregation and on new developments regarding consent and vicarious liability under the TCPA.)

Until the Second Circuit’s recent decision in Bank, defendants facing TCPA class actions in New York had a strong defense. That’s because the TCPA permits suits only “if otherwise permitted by the laws or rules of court of a State” (47 U.S.C. § 227(b)(3)), and a New York statute specifies that a class action “may not be maintained” to recover a “penalty” or statutory “minimum” damages (N.Y. CPL § 901(b)). The New York ban on class actions seeking statutory damages forbids TCPA class actions in state court. And the Second Circuit previously had held that the New York law also bars TCPA class actions in federal court, because the TCPA itself forbids such suits when not “permitted by the laws * * * of a State.” See, e.g., Bonime v. Avaya, Inc., 547 F.3d 497 (2d Cir. 2008).

The plaintiffs’ bar has devoted years to attacking that approach. Plaintiffs based their first major argument on the Supreme Court’s holding in Shady Grove Orthopedic Associates, P.A. v. Allstate Insurance Co., 130 S. Ct. 1431 (2010), that the New York law did not apply to class actions brought in federal court under the Class Action Fairness Act of 2005. But the Second Circuit held firm, sensibly concluding that allowing plaintiffs a federal forum for TCPA class actions in New York was irreconcilable with the deliberately state-centric language of the statute, which “delegate[d] * * * to the states [] considerable power to determine which causes of action lie under the TCPA.” Holster III v. Gatco, Inc., 618 F.3d 214, 217 (2d Cir. 2010).

Plaintiffs tried again in the wake of the Supreme Court’s subsequent decision in Mims v. Arrow Financial Services, LLC., 132 S. Ct. 740 (2012). Mims resolved a circuit split on whether federal courts had jurisdiction over TCPA lawsuits; the Court concluded that they do, determining that there was “no convincing reason to read into the TCPA’s permissive grant of jurisdiction to state courts any barrier to the U.S. district courts’ exercise of the general federal-question jurisdiction they have possessed since 1875.”

The plaintiffs’ bar has had much more success invoking Mims; they have persuaded the Second Circuit that Mims means that the “if otherwise permitted” clause of the TCPA no longer may be interpreted as imposing state procedural requirements on TCPA lawsuits brought in federal court. In its first post-Mims decision, Giovanniello v. ALM Media LLC, the Second Circuit concluded that a TCPA action in Connecticut federal court was governed by the federal four-year catch-all statute of limitations, not the shorter state limitations period. At this point, defense attorneys began bracing themselves for similar treatment of the New York bar on class actions seeking statutory damages.

Now, the other shoe has dropped. In Bank, the Second Circuit held that Mims also deprives federal defendants of the protection of the New York state statute. Instead, the Second Circuit explained, Federal Rule of Civil Procedure 23 alone controls whether a TCPA suit may proceed as a class action. The quixotic result is that in New York, the federal courts may be required to entertain TCPA lawsuits that state courts cannot hear.

We’ll continue to watch this issue. In the meantime, we noticed a common thread running throughout the Second Circuit decisions cited here: the plaintiff’s attorney, Todd C. Bank, who represented the named plaintiffs in Holster and Giovanniello—and now himself in Bank. Mr. Bank’s recent victories before the Second Circuit in TCPA cases stand in contrast to his unsuccessful effort to persuade the Second Circuit of his constitutional right to wear an “Operation Desert Storm” baseball cap in Queens Civil Court. Baseball cap or not, it will be interesting to see whether Bank will be able to proceed with his proposed class action given the long-standing rule that a putative class counsel cannot also serve as class representative.

We’ve previously written about the petition for interlocutory appeal in Chen v. Allstate Insurance Co., a TCPA class action that involves an important issue for class action practitioners:  can a named plaintiff refuse an offer of judgment for full relief and continue pursuing a class action?  The Ninth Circuit recently granted (pdf) the petition and can be expected to issue a briefing schedule soon.  We’ll continue monitoring this important case and report any developments

From a practitioner’s standpoint, one of my five least-favorite recent developments in federal class-action practice is the explosion in the number of premature motions for class certification that would-be class representatives file.

I understand the motivation behind these motions—often filed along with the initial complaint. Of course, they are not seriously intended to induce a ruling on class certification; to the contrary, they expressly request that the issue be tabled until the completion of discovery. The real reason that plaintiffs’ counsel file these motions is that they want to preclude the defendant from mooting the putative class action by making an offer of judgment under Rule 68 to the named plaintiff for the full amount of his or her claims. The idea is that by having moved for class certification—even if only nominally—the plaintiff has done enough to start the ball rolling towards certification to allow the class action to continue even if the named plaintiff’s claims are extinguished. And while many creative ideas are dreamed up in the offices of plaintiffs’ lawyers, this is not one of them: This particular tactic stems from Damasco v. Clearwire Corp., 662 F.3d 891 (7th Cir. 2011), in which the Seventh Circuit held that a putative class action was moot after a Rule 68 offer, but suggested the possibility that mootness could be avoided by an early motion for class certification.

There can be no debate that these motions are annoying. They represent pure busywork for everyone involved: the plaintiff has to draft them, even if that amounts simply to parroting the requirements of Rule 23; the defendant often has to file a response or enter a stipulation to postpone further briefing; and the court has to juggle its calendar to account for these Potemkin motions. The paperwork alone results in a lot of dead trees (or their virtual equivalent). And these motions don’t save any time or effort in the fraction of these cases that actually reach the class-certification stage; the briefing inevitably must be redone following discovery. Moreover, these motions risk cluttering up judges’ pending-motions reports.

Unsurprisingly, there has been some judicial backlash against these motions. The latest example—which is nicely understated—is from Judge Stefan R. Underhill of the District of Connecticut, who described one such motion in a TCPA class action, Physicians Healthsource Inc. v. Purdue Pharma LP, No. 3:12-cv-1208 (D. Conn. Sept. 8, 2013), as “hasty” and “under-developed.”

In what I imagine will be an oft-copied move, rather than acceding to the plaintiff’s request to defer consideration of the motion until after discovery, Judge Underhill denied the motion without prejudice. He explained that even if a “place-holder” motion for class certification could prevent an offer of judgment from mooting a putative class action, “it does not follow that an initial, under-developed motion—like the one at bar—must linger on the docket while the court awaits the filing of a later, fully-developed motion following discovery.” That is because an order denying certification is “inherently tentative” and can be “modif[ied] in light of subsequent developments in the litigation.”

In my view, plaintiffs are mistaken in believing that the filing of an underbaked motion for class certification can ever stave off a finding of mootness. In Genesis Healthcare Corp. v. Symczyk, 133 S. Ct. 1523 (2013), the Supreme Court made clear that a class action survives the mooting of the named plaintiff’s claims only if the putative class already has “acquire[d] an independent legal status.” And in my view, that happens only if the class is actually certified (Sosna v. Iowa, 419 U. S. 393 (1975)), or would have been certified but for an erroneous denial of class certification (United States Parole Comm’n v. Geraghty, 445 U. S. 388 (1980)). Yet these premature motions (understandably) do not even seek a ruling on class certification; they ask that any such ruling be postponed until after discovery and re-briefing. These motions add nothing to the allegations in the complaint asserting the existence of a putative class and therefore can offer no greater protection against mootness.

One final note: In Physicians Healthsource, Judge Underhill made clear that one reason he thought that the plaintiff’s motion for class certification was pointless was because “the Second Circuit * * * has never adopted” the Seventh Circuit’s mootness rule from Damasco. It’s true that, unlike the Seventh Circuit, the Second Circuit has held that an unaccepted offer of judgment for full relief doesn’t automatically moot the named plaintiff’s claims. But Judge Underhill’s implication—that would-be class counsel has nothing to fear from an offer of judgment—is mistaken. In McCauley v. Trans Union LLC, 402 F.3d 340 (2d Cir. 2005), the Second Circuit merely explained that the “better resolution” of a case in which an offer of judgment for full relief has been extended is “entry of a default judgment against” the defendant along the terms of the offer. So the named plaintiff’s individual claims would be just as dead as they would be under the Seventh Circuit’s mootness rule.

The bigger issue—which we’ll leave for another day—is whether, after the Supreme Court’s decision in Genesis, a Rule 68 offer of full relief to a named plaintiff has the effect of mooting a putative class action. Stay tuned!

The spate of class actions under the Telephone Consumer Protection Act (TCPA) isn’t ending anytime soon. And the risks to businesses have just increased in the Third Circuit, thanks to that court’s recent ruling that the TCPA permits consumers to retract consent to receiving calls on their cell phones placed by automatic telephone dialing systems.

The TCPA prohibits making any call to a cell phone “using any automatic telephone dialing system or an artificial or prerecorded voice” unless (among various exceptions) the call is made with the “prior express consent of the called party.” 47 U.S.C. § 227(b)(1)(A)(iii). Courts have upheld various ways of demonstrating “express consent,” including:

  • verbally, such as when the consumer orally provides a cell phone number as a contact number (Greene v. DirecTV, Inc., 2010 WL 4628734 (N.D. Ill. Nov. 8, 2010)); 
  • in writing, such as when a contract authorizes cell phone calls (Moore v. Firstsource Advantage, LLC, 2011 WL 4345703 (W.D.N.Y. Sept. 15, 2011)); and 
  • through a third party, such as when a spouse authorizes cell phone calls (Gutierrez v. Barclays Bank Group, 2011 WL 579238 (S.D. Cal. Feb. 9, 2011)).

But once consumers have consented to receiving these calls, can they rescind their consent? The TCPA’s text is silent on the subject. And although the FCC’s 1992 TCPA Order indicates that consumers who provide their cell phone number can give “instructions” that they don’t agree to receive autodialer calls, the order doesn’t address whether the consumer can give those instructions long after initially providing the cell phone contact number.

By contrast, other privacy statutes—such as the CAN-SPAM Act, the Junk Fax Protection Act, and the Fair Debt Collection Practices Act—have express provisions allowing consumers to opt out of receiving communications at any time. A number of district courts have concluded that the lack of a corresponding express provision in the TCPA means that consumers don’t have the statutory right to retract consent once it has been given. See, e.g., Osorio v. State Farm Bank, F.S.B., 2012 WL 1671780 (S.D. Fla. May 10, 2012); Cunningham v. Credit Mgmt., L.P. (pdf), 2010 WL 3791104 (N.D. Tex. Aug. 30, 2010); Starkey v. Firstsource Advantage, L.L.C. (pdf), 2010 WL 2541756 (W.D.N.Y. Mar. 11, 2010).

But in Gager v. Dell Financial Services, Inc. (pdf), the Third Circuit sided with courts that have taken the opposite view. See Adamcik v. Credit Control Servs., Inc., 832 F. Supp. 2d 744 (W.D. Tex. 2011); Gutierrez, supra.

The Third Circuit gave three reasons for its holding. In my view, each one is questionable.

Continue Reading Third Circuit Rules that TCPA Authorizes Consumers To Retract Consent to Cell Phone Calls

Before the Supreme Court’s decision last Term in Genesis Healthcare Corp. v. Symczyk, 133 S. Ct. 1523 (2013), the Ninth Circuit had held that a named plaintiff can continue to pursue a putative class action even after the defendant has extended that plaintiff an offer of judgment for the full individual relief sought in the complaint, including reasonable attorneys’ fees and costs. See Pitts v. Terrible Herbst, Inc., 653 F.3d 1081 (9th Cir. 2011). In a case that bears watching, a federal district judge in California recently certified for interlocutory review the question whether Pitts’s mootness holding remains good law. See Chen v. Allstate Ins. Co., No. 4:13-cv-00685-PJH (N.D. Cal. July 31, 2013).

Continue Reading Will the Ninth Circuit Revisit the Issue of Whether an Offer of Judgment to the Named Plaintiff Can Moot a Class Action?

The Telephone Consumer Protection Act (TCPA) is a favorite of the plaintiffs’ class-action bar because it provides for statutory damages of up to $1,500 for knowing or willful violations. With some exceptions, the TCPA prohibits, among other things, unsolicited marketing faxes as well as calls and text messages using autodialers or prerecorded voices. See, e.g., 47 U.S.C. §227. Because the TCPA and its regulations impose many complex and technical requirements, the inevitability of innocent slip-ups combined with an active plaintiffs’ bar seeking out clever ways to argue that lawful practices are actionable can entail massive potential liability for businesses.

In just over two months, on October 16, 2013, FCC regulations that narrow two key safeguards for businesses under the TCPA will go into effect.

The first change involves the exception from liability for telemarketing calls or text messages placed with the “prior express consent” of the recipient. 47 U.S.C. §227(b)(1). Previously, FCC regulations recognized that “persons who knowingly release their phone numbers have in effect given their invitation or permission to be called at the number which they have given, absent instructions to the contrary.” In re Rules & Reg’s Implementing the Tel. Consumer Prot. Act of 1991, 7 F.C.C.R. 8752 (1992).

But under the FCC’s new interpretation (pdf), with some exceptions, a business qualifies for the “prior express consent” exception from liability only if the consumer has physically or electronically signed a written agreement that “clearly authorizes” the business to send “advertisements or telemarketing messages using an automatic telephone dialing system or an artificial or prerecorded voice” to a specific “telephone number.” 47 C.F.R. § 64.1200(f)(8). The agreement must have a “clear and conspicuous disclosure” that signing the agreement is optional—it can’t be a condition of “purchasing any property, goods, or services”—and that a consumer doing so consents to receiving these types of calls. Id. § 64.1200(f)(8)(i).

The second big change going into effect on October 16, 2013, is the elimination of the “established business relationship” exception. Currently, a business can avoid TCPA liability for otherwise prohibited telemarketing calls to residential lines if the business has an “established business relationship” with the plaintiff by virtue, for example, of a purchase from the business within the last 18 months or an inquiry about a product or service within the last three months. Id. § 64.1200(a)(2)(iv) & (f)(5). Under the new regulations, this exemption would be eliminated, requiring most callers to obtain signed written consent from the recipients of these telemarketing calls, even ones who are established customers.

In light of these changes, businesses should revisit their TCPA compliance policies.

Congress and state legislatures have enacted many statutes that provide for minimum statutory damages recoveries that are far in excess of the actual damages most individuals will suffer. A prominent example is the Telephone Consumer Protection Act (TCPA), which offers $500 per violation of the statute, trebled to $1500 for willful violations. The idea is that offering such damages will create incentives for individual plaintiffs to pursue such claims in court when actual damages are minimal or difficult to measure. But the numbers can quickly add up when such statutory damages claims are aggregated as part of a putative class action. By the simple expedient of cutting and pasting standard class allegations into their complaints, plaintiffs’ lawyers can transform a $500 claim into one for $500 million. (For fans of the Austin Powers movies: Insert Dr. Evil impression here (or take a look at this clip).)

For good reasons, defendants find this phenomenon troubling, to say the least. My colleagues and I have argued in a pair of articles (here and here) that courts should refuse to certify class actions when the claims involve statutory damages. It is hard to believe that when Congress enacted laws providing for statutory damages, it intended to hand private plaintiffs (and their counsel) the ability to threaten massive liability—perhaps even bankruptcy—for often relatively minor or technical violations of a statute, especially when, as is common, the actual harm is minor or speculative.

That said, these arguments have met with mixed success in the courts. But a recent Supreme Court opinion issued earlier this week, Maracich v. Spears, No. 12-25, could provide defendants with new hope.

In Maracich, the Court held that attempts by lawyers to solicit clients did not qualify for the “litigation exception” to the Driver’s Privacy Protection Act of 1994 (DPPA). In an ironic twist, a group of plaintiffs’ lawyers had themselves become defendants in a class action. In order to solicit new plaintiffs for lawsuits against certain auto dealers, these lawyers had obtained personal information about customers of those auto dealers from the state DMV. Some of the customers didn’t like it, including one who happened to work for a defendant auto dealer. These customers sued the plaintiffs’ lawyers in a class action, alleging violations of the DPPA.

By a 5-4 vote, the Court held that soliciting clients doesn’t count under the DPPA’s litigation exception. We summarize that holding elsewhere. But to me the most interesting takeaway from Maracich is what the decision has to say about statutory damages.

Justice Ginsburg’s dissent expressed a concern with “astronomical liquidated damages”; the customers “sought $2,500 in statutory damages for every letter mailed—a total of some $200 million—and punitive damages to boot.” As she put it, “such damages cannot possibly represent a legislative judgment regarding average actual damage.”

In response, Justice Kennedy’s majority opinion recognized that the Court was leaving open two questions about the appropriateness of such massive awards. First, “[w]hether the civil damages provision in [the DPPA], after a careful and proper interpretation, would permit an award in this amount”—in other words, as a matter of statutory interpretation, did Congress intend to allow such enormous liability? Given the DPPA’s express language allowing individual claims for $2500, that question boils down to whether courts should assume that Congress intended to allow class actions that transform a $2500 claim into lawsuits for $200 million. Second, if that is what Congress intended, “whether principles of due process and other doctrines that protect against excessive awards would come into play.”

To be sure, the Court did not answer those questions; as Justice Kennedy pointed out, they were not “argued or presented in” Maracich. But it now seems clear that at least some Justices are open to the possibility that when class actions exponentially increase potential liability in statutory damages cases, such “astronomical” damages may violate constitutional limits.

Accordingly, businesses (and the lawyers who represent them) should read Maracich as extending an invitation to challenge class actions for statutory damages. Specifically, when businesses face class actions for massive damages under federal or state statutes—including the TCPA, Fair Credit Reporting Act, or some state consumer-protection statutes—they should consider arguing that class actions are not a superior method for adjudicating the statutory claims because the potential for extraordinarily massive liability imposes excruciating (and improper) pressure on defendants to settle, raising serious due process concerns.