Authorship Credit: Justin T. Winquist
Editor’s Note: This post is a joint submission to BakerHostetler’s Class Action Lawsuit Defense blog.
Class actions under the Telephone Consumer Protection Act (TCPA), 47 U.S.C. § 227, continue to be an active trend in consumer and privacy class action litigation. The TCPA, which was historically called the "fax blast" statute, prohibits unsolicited faxes and automated calls for the purpose of commercial solicitation. The TCPA has a statutory penalty provision that allows consumers to recover $500 for each violation and up to $1,500 for violations found to be willful and knowing. The ability to collect far more in statutory penalties than the actual damages caused by a given violation (often pennies for ink and paper) makes TCPA violations an appealing target for enterprising plaintiffs' class action lawyers. The aggregation of thousands of claims together can create huge monetary exposure for defendants and the potential for easy settlements and the large contingent fees that come with them.
FEDERAL JURISDICTION OVER TCPA CLAIMS
Arguably the most significant development in TCPA litigation this year was the United States Supreme Court's decision in Mims v. Arrow Financial Services, LLC, which held that TCPA claims arise under federal law and may be asserted in federal court even absent diversity of citizenship jurisdiction. Prior to Mims, the federal circuits disagreed over whether the TCPA provided for federal question jurisdiction or whether jurisdiction was limited to state courts and federal suits brought or removed on diversity jurisdiction. The Court resolved the issue in favor of federal jurisdiction, finding that "federal and state courts have concurrent jurisdiction over private suits arising under the TCPA." Because of Mims, plaintiffs now have the option of bringing TCPA suits in state court or federal court, even in the absence of diversity jurisdiction.
Mims also has important implications for companies defending TCPA claims. Prior to Mims, defendants had some success arguing that state laws limiting class actions -- such as § 901(b) of New York's Civil Practice Law and Rules, which prohibits class actions for claims seeking statutory penalties -- were applicable in federal TCPA actions. Where successful, those arguments meant that federal diversity jurisdiction over the class action was trumped by state laws prohibiting certain types of class actions. In the wake of Mims, however, some federal courts have rejected these arguments, finding that federal substantive and procedural law apply to TCPA claims in federal court. In one recent opinion with extensive analysis on the issue, the United States District Court for the District of New Jersey concluded in Bais Yaakov of Spring Valley v. Peterson's Nelnet, LLC that federal courts are not required to follow state laws in adjudicating TCPA claims.
The Mims decision is also impacting the statute of limitations defense to TCPA claims. Because of the peculiar nature of the TCPA, courts have historically split over whether a state or federal statute of limitations applies. In Giovanniello v. ALM Media LLC, the Second Circuit answered this question and held that a shorter state-law limitations period applied rather than the four-year federal catchall provision. However, the Supreme Court granted certiorari, and recently vacated that decision and remanded for further consideration in light of Mims. In one decision following Mims, the United States District Court for the Eastern District of Pennsylvania, in Hawk Valley, Inc. v. Taylor, reached the conclusion that the federal limitations period applies.
CLASS ACTIONS UNDER THE TCPA
Another major issue being litigated is whether TCPA claims are suitable for class action treatment at all. Several decisions have highlighted a split among both the state and federal courts on class action suitability. Of particular note is the decision of the New Jersey Superior Court, Appellate Division in Local Baking Products, Inc. v. Kosher Bagel Munch, Inc., which provides an excellent survey of the various state and federal court decisions on both sides of the issue. The court in Local Baking Products ultimately decided that class certification of TCPA claims was not appropriate. It reasoned that class actions are not a superior procedure for enforcing the TCPA because Congress had made statutory penalties available so that individuals would be incentivized to pursue vindication of their rights in individual actions in small claims or other state courts. In addition to lack of superiority, a common reason offered by other courts for rejecting TCPA class certification is that the question of whether faxes or calls were authorized is too individualized for common questions to predominate.
A Supreme Court of Kansas decision upholding a lower court's decision granting class certification in a TCPA case illustrates the other side of the split on certification issues. In Critchfield Physical Therapy v. The Taranto Group, Inc., the court rejected both the argument that individual actions in small claims court would be superior to a class action and the argument that the question of consent was too individualized. In addition, the court rejected the argument that class actions would not be superior in light of the threat that aggregating thousands of individual statutory penalties together could create an "annihilating" judgment against the defendant that would be disproportionate to any harm to the class.
The increase in automated dialing technology and cellular telephone prevalence is also giving rise to new substantive and class certification issues in TCPA cases. With respect to cell phones, one new issue is whether consent to receive calls on a particular cell phone number applies to subsequent holders of that cell phone number. For example, if person A consents to receive calls from company X on a certain cell number, can company X continue to call that number with TCPA impunity even though the number is later assigned to different people? In May, the Seventh Circuit answered no, holding that simply providing a company with a cell number does not authorize perpetual calls to that number after it has been reassigned to someone else. Soppet v. Enhanced Recovery Co., LLC.Consent to receive calls on a cell phone has also been an issue in the class certification context. For example, the Ninth Circuit recently found that individualized issues of consent to receive calls did not preclude a finding of typicality and commonality for purposes of certifying a class. Meyer v. Portfolio Recovery Associates, LLC.
TCPA CLAIMS BASED ON TEXT MESSAGING
TCPA claims based on text messages sent to cell phones are also a major trend today. Although the TCPA does not expressly reference text messages, the Federal Communications Commission and courts have consistently interpreted the term "call" in the TCPA to include SMS and MMS text messages. E.g., Satterfield v. Simon & Schuster, Inc. Defendants have argued that claims based on text messages are not suitable for class action treatment because each plaintiff would have to show individually that she was charged for the text sent to her cell phone. Some courts have rejected this argument, finding that the TCPA does not require plaintiffs to show that they incurred charges for text messages sent to their phones. E.g., Agne v. Papa John's Intern., Inc.
THIRD PARTY LIABILITY AND PENDING FCC INTERPRETATION
Finally, a major issue applicable to virtually any company that uses telephone, text or fax marketing is whether and to what extent a company can be liable under the TCPA for calls made (or faxes or texts sent) by third parties. This issue typically arises where a company is sued for TCPA violations but the actual caller or faxer was a marketing company, franchisee or independent agent. In some cases, the relationship can be even more removed, for example, where a company's independent contractors hire marketing firms that then hire separate telemarketing firms, which actually make the calls.
In most decisions to date, courts have held that vicarious liability of this sort is possible under the TCPA, and that there is no bright-line limit on how far is too far removed to impose liability. Most courts have tackled the issue under a traditional agency analysis. A recent decision from the United States District Court for the Northern District of West Virginia, Mey v. Pinnacle Sec., LLC, is a good example of the prevailing analysis. The Mey court stated that the defendant could be liable for calls made by its lead-generating company if the lead company "acted as an agent" and the defendant "controlled or had the right to control them and, more specifically, the manner and means of the [solicitation] campaign they conducted."
Significantly, however, the Mey court also recognized that a more strict form of liability might be possible under the TCPA. Certain sections of the TCPA allow consumers to sue for calls made by or "on behalf of" an entity. The meaning of this "on behalf of" language is currently the subject of a Joint Petition for Declaratory Ruling before the Federal Communications Commission, on which the FCC has solicited public comments. One interpretation advocated in the public comments is an agency analysis similar to what the courts have done to date. Another, however, is a strict liability approach that would impose liability on any party that "benefits from" the offending communication, even absent knowledge or direction. If adopted, this strict liability approach could significantly increase exposure for companies because liability could be imposed even without the companies' knowledge that calls were made, or faxes or texts were sent, in the company's name. The FCC has not yet issued a ruling on the issue.
WHAT YOU CAN DO
The BakerHostetler Privacy and Data Protection and Class Action Defense Teams have extensive experience defending claims under the TCPA and other statutory damage statutes, as well as advising clients of their obligations under the TCPA and similar statutes. If you have questions, please contact Gerald J. Ferguson ( gferguson@bakerlaw.com or 212.589.4238); Paul G. Karlsgodt (pkarlsgodt@bakerlaw.com or 303.764.4013); Justin T. Winquist ( jwinquist@bakerlaw.com or 303.764.4059); or any member of our Privacy and Data Protection or Class Action Defense Teams , or your regular BakerHostetler contact.
Craig Hoffman regularly counsels clients on notice obligations, remediation strategies, and risk avoidance in connection with data breach incidents involving personally identifiable information and cardholder data. He is experienced in managing all aspects of incident response—from working with internal resources and external forensic experts to contain and remediate the intrusion, to minimizing reputational harm, to mitigating potential liability. Craig has represented companies in class action litigation arising from data breaches and alleged violations of federal privacy laws and regulations. He also helps companies identify, evaluate, and manage risks associated with privacy and information security practices. Craig regularly conducts legal privacy assessments to determine the scope of a company's legal obligations regarding personally identifiable information under its control and the company's compliance with those obligations. He also helps companies develop appropriate written information security programs.
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