DNJ Enters Default Judgment on Breach of Contract Counterclaim in Manufactured TCPA Lawsuit

The United States District Court of New Jersey recently granted default judgment to Defendant Slack Technologies (“Defendant”) for its breach of contract counterclaim against Plaintiff Gino D’Ottavio (“Plaintiff”), who deliberately sent himself over 1,500 text messages but represented that the texts were unsolicited and sent improperly by Defendant.

In D’Ottavio v. Slack Technologies, No. 1:18-cv-09082-NLH-AMD, 2022 WL 15442211 (D. N.J. Oct. 26, 2022), Plaintiff filed a lawsuit against Defendant for allegedly knowingly and/or willfully and negligently violating the Telephone Consumer Protection Act (“TCPA”), 47 U.S.C. § 227. Plaintiff asserted he received numerous unsolicited text messages after signing up for Defendant’s service. Defendant denied Plaintiff’s claims and asserted that Plaintiff abused a feature on Defendant’s website. Defendant specifically asserted, “Plaintiff is a serial filer of TCPA claims who personally solicited 1,590 text messages from Defendant by entering his own phone number and clicking a ‘SEND LINK’ button in an effort to manufacture a lawsuit.” Defendant brought four counterclaims against Plaintiff: (1) willful and wanton misconduct; (2) common-law fraud; (3) breach of express contract; and (4) breach of the implied covenant of good faith and fair dealing.

Plaintiff moved to dismiss his Complaint against Defendant with prejudice, which was granted by the Court. Defendant’s counterclaims, however, remained pending for separate adjudication. Defendant moved for sanctions pursuant to Federal Rule of Civil Procedure 11 because forensic evidence contradicted the denials in Plaintiff’s Answer to Counterclaims. Defendant also moved for summary judgment asserting Plaintiff failed to participate in discovery, which included Plaintiff’s failure to appear for his deposition or respond to Defendant’s requests for admission. The Court denied the motion for summary judgment without prejudice and entered a show cause order requiring Plaintiff to explain why his Answer to Counterclaims should not be struck and default judgment entered against him.

In light of Plaintiff’s continued failures to participate in discovery or comply with discovery orders, the Court held that the remedies allowed by Federal Rule of Civil Procedure 37 and entry of default judgment were warranted. In a prior opinion, the Court assessed the six default judgment factors articulated by the Third Circuit and deemed five of the six to be favorable to Defendant. D’Ottavio v. Slack Technologies, No. 1:18-cv-09082-NLH-AMD (D. N.J. Apr. 8, 2021). The six factors include: (1) the sanctioned party’s personal responsibility; (2) the prejudice to the opposing party caused by the failure to meet scheduling orders and provide discovery; (3) the history of dilatoriness; (4) whether the party or counsel’s conduct was willful or in bad faith; (5) the effectiveness of sanctions other than dismissal; and (6) the merits of the claim or defense. However, the sixth and last factor was left open, as “the Court could not assess the merit of defenses without Plaintiff’s participation.”

In the instant decision, the Court resumed its analysis, following Defendant’s submission of a supplemental response and affidavit as to the merits, and assessed whether Defendant’s four counterclaims constituted a legitimate cause of action and whether the factual allegations supported each counterclaim, if admitted—given the fact that Plaintiff failed to respond to Defendant’s requests for admissions.

In assessing the counterclaim for breach of contract, the Court determined that the Defendant’s User Terms of Service created an express contract and Defendant’s Acceptable Use Policy, in turn, prohibited users from “impersonat[ing] any person or entity, including, but not limited to, an employee of ours.” The Court held that Plaintiff violated this policy when he sent himself download links and represented that such messages were sent by Defendant. The Court further found that Defendant was injured by Plaintiff’s breach because it had to engage in litigation and incur related expenses. Thus, the Court entered default judgment as to the breach of contract claim.

The Court declined to enter default judgment on Defendant’s counterclaim for willful and wanton misconduct. Defendant had argued that Plaintiff was “‘a serial filer’ of TCPA claims and was thus aware of ‘the big-ticket threat he posed by manufacturing a claim of TCPA liability’ by sending himself 1,590 text links – ‘an intentionally wrongful act.’” The Court found that the allegations failed to consider the underlying elements for a negligence cause of action, which requires a showing of damages. In fact, Defendant’s only claim for damages was a claim for attorney’s fees, which is typically not a valid basis of damages for negligence.

With respect to the common-law fraud counterclaim, the Court found that Defendant failed to establish damages outside of contract-based attorney’s fees. Because the counterclaim lacked an essential element (as with the willful and wanton misconduct counterclaim), the Court found that entry of default judgment for fraud was not warranted.

Lastly, the Court determined default judgment was not warranted on Defendant’s good faith and fair dealing counterclaim because it arose out of the same conduct underlying the breach of contract action.

Accordingly, the Court entered default judgment on Defendant’s breach of contract counterclaim, but denied the willful and wanton misconduct, fraud, and the implied covenant of good faith and fair dealing counterclaims.

The D’Ottavio decision demonstrates that a defendant may successfully defend a TCPA action by asserting relevant counterclaims. The decision further highlights the importance of scrutinizing a plaintiff’s allegations of harm. If early motion practice is not successful, defense counsel should explore plaintiff’s conduct in connection with alleged offending conduct via targeted discovery requests.  Lastly, potential TCPA defendants should review and revise their terms of use to ensure their terms prevent professional plaintiffs from trying to manufacture TCPA claims.

Marsha J. Indych

About the Author: Marsha J. Indych

Marsha Indych handles complex commercial litigation and arbitration matters in jurisdictions throughout the United States, focusing on consumer class actions and domestic and international business disputes. She represents clients from a broad array of industries, including the health care, financial services, media, technology and energy industries. Marsha defends leading businesses against consumer protection-based claims. She has successfully defended dozens of Telephone Consumer Protection Act (TCPA) actions, including class actions, individual actions, arbitrations and prelitigation disputes in jurisdictions across the country. Her practice includes helping clients navigate evolving — and sometimes conflicting — standards for TCPA compliance. She regularly contributes to the TCPA Blog, providing analysis about recent developments regarding the statute.

Stacie L. Linguist

About the Author: Stacie L. Linguist

Stacie Linguist represents clients in commercial litigation and government contracts matters. Stacie helps clients resolve business disputes, obtain government contracts and respond to government investigations. She has worked with clients in a number of industries, including financial services, insurance, health care, defense and technology.

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