A recently proposed class action settlement agreement illustrates the potential litigation perils when any established business relies on outsourced, undercapitalized marketing agents who lack either the assets or insurance to adequately defend TCPA class action litigation. Indeed, the only proposed recovery for the class is an agreement to provide testimony and documentary evidence of the co-defendant’s actual knowledge of the conduct that violated the TCPA, and its alleged authorization of the subject unlawful text messaging.
A few weeks ago we wrote about Hunt v. 21st Mortgage Corp., 2013 WL 5230061 (N.D. Ala. Sept. 17, 2013), in which the United States District Court for the Northern District of Alabama took a narrow view of what qualifies as an automatic telephone dialing system (“ATDS”) under the TCPA. That definitional issue has been hotly contested because calls that do not use an ATDS do not need prior express consent. (Our prior summary of the issues and the Hunt decision is available here.)
The District of Massachusetts recently found that TCPA claims arising from debt collection calls fall within the scope of an arbitration agreement that covered disputes relating to “violations of statute” or “the impositions or collection of principle.” Cyganiewicz v. Sallie Mae, Inc., Nos. 13-40068, 13-40067, 2013 U.S. Dist. LEXIS 153554, 153556, at *7 (D. Mass. Oct. 24, 2013).
In Cyganiewicz, plaintiffs brought suit against Sallie Mae, claiming that its collections practices violated the TCPA. Plaintiffs were the borrower and the co-signor on three promissory notes, all of which contained arbitration agreements that could have been (but were not) rejected by sending a signed rejection notice to Sallie Mae within sixty days of the disbursement of the loan. Id. at *2. Plaintiffs alleged that Sallie Mae made calls from automated dialing machines to collect the outstanding balance of their loans, including approximately 147 calls after plaintiffs requested that the calls stop. Plaintiffs argued that their arbitration agreements were not enforceable and that, even if they were, their TCPA claims were not arbitrable. The court found otherwise and granted Sallie Mae’s motion to dismiss for lack of subject matter jurisdiction.
A federal district court judge in Maryland gave a clear endorsement of the FCC’s regulation limiting fax broadcasters’ liability under the TCPA. Asher & Simons, P.A. v. J2 Global Canada, Inc., No. JKB-13-0981, 2013 U.S. DIST. LEXIS 148972 (D. Md. Oct. 16, 2013). FCC regulations limit the liability of so-called fax broadcasters (those who transmit faxes for a fee on behalf of others) to those circumstances in which a broadcaster “demonstrates a high degree of involvement in, or actual notice of, the unlawful activity and fails to take steps to prevent such facsimile transmissions.” 47 C.F.R. § 64.1200 (a)(4)(vii). The Canadian affiliate of j2 Global asserted the FCC regulation as an affirmative defense, and the plaintiffs challenged this particular defense by a motion for partial summary judgment. The plaintiffs argued that FCC regulatory authority under the TCPA is limited, and could not be read to include the power to limit liability for any transmission of an unsolicited fax.
The Telephone Consumer Protection Act of 1991 (“TCPA”) places certain restrictions on telemarketing calls, text messages, and faxes. It has long been a favorite of the plaintiffs’ bar because it provides for statutory damages of $500 to $1500 per violation, which in the aggregate can lead to substantial windfalls for plaintiffs. TCPA violations (even innocent ones) can place companies at significant risk and TCPA litigation has skyrocketed as a result.
Last year, the Federal Communications Commission (“FCC”) added fuel to the fire by amending its TCPA rules and further restricting telemarketing calls. The most significant of those amendments – which narrow and eliminate key statutory exemptions – will take effect tomorrow, on October 16, 2013.
The TCPA prohibits the use of an automatic telephone dialing system (“ATDS”) to place calls to wireless phones without the called party’s prior express consent. Because calls placed without the use of an ATDS are not subject to the TCPA’s prior express consent requirements, what constitutes an ATDS has been a hotly contested issue. This issue can be expected to take on even greater importance under the new FCC rules that take effect on October 16, because the “prior express consent” requirement will now require written consent. Telemarketers, it can be expected, may explore ways to abandon the use of equipment that would fall within the definition of ATDS and to modify or replace that equipment with something that would not be an ATDS.
Fairly or unfairly, plaintiffs are disproportionately leveraged at the outset of a consumer class action case. The threat of aggregate damages and the power to inflict non-reciprocating discovery costs on a defendant is unsettling enough. Lately, some defendants have fought back by making offers of judgment under Federal Rule of Civil Procedure 68 at the inception of the case. In some courts, a prompt offer of judgment can moot the named plaintiff’s claims, leaving him or her without a “personal stake” in the litigation and thus no basis on which to pursue claims on behalf of a putative class. Cf. Genesis Healthcare Corp. v. Symczyk, 133 S. Ct. 1523, 1528-29 (2013) (noting but not resolving circuit split). For what may be a relatively small payment to the named plaintiff, a defendant in those courts can avoid engaging in protracted litigation and the risk of class-wide statutory damages awards.
In a case of first impression in the courts of appeal, the Third Circuit recently expanded the rights of consumers under the TCPA, holding that consumers may revoke their consent to be called on their wireless phones and that there is no time limitation on when they may do so. Gager v. Dell Financial Services, LLC, — F.3d –, 2013 WL 4463305 (3d Cir. Aug. 22, 2013).
If you are reading this post, chances are you already know a lot about the TCPA. You don’t need to be told that it stands for “Telephone Consumer Protection Act.” Or that it restricts certain telemarketing calls, texts and faxes by a labyrinthine mosaic of statutory provisions and FCC regulations. Or that its ambiguities and statutory damages have made it a hotbed of litigation, particularly class action litigation. Or that the courts are struggling to bring some sense and clarity to the entire regime, while defendants experience an almost hydraulic pressure to settle cases involving even the most innocent, hyper-technical violations. You already know all of that. And, you probably also know that there will be a major development in the law tomorrow, when the FCC’s new telemarketing rules requiring written consent finally take effect. For a summary of the new rules, see our post here.