In This Issue:
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SPECIAL FOCUS: FCC Adopts Significant Changes to TCPA Rules
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FCC Cites Three Companies for TCPA Violations
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TCPA Complaint Must Be Arbitrated, 7th Circuit Rules
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Supreme Court to Rule on Effect of Offer of Judgment in TCPA Suit
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Does a Complete Offer Moot a Case? 2nd Circuit Takes New Approach
SPECIAL FOCUS: FCC Adopts Significant Changes to TCPA Rules
FCC Chairman Tom Wheeler’s proposal to revise the Telephone Consumer Protection Act rules passed by a 3-2 vote during yesterday’s Open Commission Meeting. While the final order is not yet public, the press release issued following the meeting notes that it “addresses almost two dozen petitions and other requests that sought clarity on how the Commission interprets the [TCPA], closing loopholes and strengthening consumer protections already on the books.” Specifically, the ruling covers the following major issues: consumers’ right to opt out of receiving robocalls, revocation of consent, reassigned numbers, exemption for certain types of urgent calls/texts, and the definition of autodialer. While all indications point to the ruling being generally unfavorable to industry, a couple of areas appear to provide some relief for particular industry sectors and for service providers and texting platforms. We provide below a summary of the ruling based on the press release and commissioner statements during the meeting.
The voting generally fell along party lines, with Democrats Jessica Rosenworcel and Mignon Clyburn supporting fellow Democrat Tom Wheeler, and Republicans Ajit Pai and Michael O’Rielly dissenting. Several times during the meeting, the Republicans made known their displeasure with the Chairman’s proposal. Commissioner Pai noted that by adopting the ruling, the FCC has “strayed from the law’s original purpose,” and “made it much easier for abuses of the law,” which will primarily benefit trial lawyers and open the floodgates of liability for good faith actors. Commissioner O’Rielly offered a more impassioned observation, noting that the forthcoming ruling “is one of the most slanted documents I’ve ever seen and I will not be so naïve to trust again certain people in leadership positions at the Commission.”
With that as background, here are some of the major issues that were discussed at yesterday’s meeting and what they might mean for industry (subject, of course, to the ruling’s official release).
Green Light for ‘Do Not Disturb’ Technology
The Commission will grant permission to service providers and carriers to offer call blocking technology to their subscribers without fear of liability. These companies have, for years, been asked by subscribers for a solution to block robocalls but were hindered from doing so out of fear of being sued by companies trying to reach their consumers and prospects. Now the door has been opened. However, questions remain about how this will work and what choices consumers will actually have. For example, how will carriers and service providers know what numbers to block? How will companies react when trying to reach these consumers with legitimate information but are unable to do so due to consumer choice?
Right to Revoke Consent
The Commission will codify consumers’ rights to revoke previously given consent to receive calls and messages to their mobile phone and prerecorded calls to landlines. Prior to this ruling, only the courts recognized these rights, as the TCPA and FCC rules were silent on this issue. Now the FCC has made clear that consumers will have the right to revoke their consent “in any reasonable way at any time.” One commissioner expressed serious concern with this language, noting that the new ruling would allow a consumer to walk into any fast food restaurant and inform the server that she does not want to receive any future calls or texts from the restaurant. A company’s failure to develop effective policies and procedures for honoring these requests would subject it to liability under the law, an outcome that “would send shivers through any boardroom.”
Reassigned Numbers
Closing what the Chairman and the majority refer to as “loopholes,” the FCC’s ruling would place strict liability on companies that call a mobile phone number that was reassigned to a new subscriber, despite having received consent for such calls from the prior subscriber. The caller would get one free pass and not have liability for the first call made after reassignment. However, liability would attach for all subsequent calls, even if the recipient of the call never informs the caller that the number had been reassigned. It is still not clear how the FCC expects companies to comply when they believe in good faith that they have the requisite consent under the TCPA. Justifying their vote on this issue, the commissioners in the majority offered that callers could have access to and could rely on databases of reassigned numbers, but parties on all sides universally agree that no authoritative database in real-time exists. This ruling comes despite industry pleas for a good faith safe harbor, or clarifying that the statute’s use of “called party” means “intended recipient.”
Limited Exemptions for Certain Calls/Texts
The FCC appears to have been swayed by certain industry groups to allow urgent calls and messages to be sent to consumers under certain circumstances without consent, but closed the door to broader allowances. The commissioners’ statements suggest that the exemption would apply to certain healthcare and banking communications, such as important medical treatment, health notices, fraud alerts, or identity theft warnings. But the exemption would not be absolute—other calls by these firms involving marketing or debt collection would not be subject to an exemption. Interestingly, commissioners on both sides of the aisle expressed concern with the FCC assuming the role of arbiter in deciding what messages are—and are not—urgent, leading at least one to suggest that the FCC has improperly entered the business of governing speech and content.
Possible Relief for Service Providers/ Platform and App Providers
The one bright light for industry appears to be shining on service companies, texting platforms and app developers that provide the ability for others to send messages, make calls, or transmit messages, but that play no part in initiating such communications. This exemption appears to provide relief to companies that merely provide the means for others to make calls or to send text messages.
Autodialer
The most contested of all issues at the Commission and in the courts has been the definition of an “automatic telephone dialing system” (i.e., autodialer). According to all sources, the Commission will keep the TCPA’s broad and far-from-clear definition intact, leaving undisturbed the word “capacity,” without adding industry’s much sought after qualifier, “present.” This means that even systems that do not have the present capacity to autodial will likely still be deemed autodialers. The press release states that “[t]his definition ensures that robocallers cannot skirt consumer consent requirements through changes in calling technology design or by calling from a list of numbers.” The latter part of the sentence is likely intended to foreclose the argument that a device that only dials manually entered numbers should fall outside the statute’s purview. Noting his disappointment, Commissioner Pai stated that the ruling “dramatically expands” the definition of autodialer and that “today’s action makes every iPhone an autodialer, subjecting its user to liability under the law.” The Commissioner suggested that most all devices, except perhaps a “rotary phone,” will be considered an autodialer under the new ruling.
Reaffirmations
In its order, the FCC claims to “reaffirm” certain of its previously announced rulings. For example, the ruling declares that a text message is a call, and that a consumer has the right to revoke consent at any time. While the commissioners generally concurred on these points, Commissioner O’Rielly noted that neither of these points are set forth in the law or the FCC’s regulations and “if Congress wants to make those changes, it is up to them, not the FCC.”
The particulars regarding these and other issues covered in the FCC’s press release will soon become public and will be subject to a more detailed report on what they mean for consumers and industry. Last, we leave you with a quote from Chairman Wheeler, who, when responding to critics who claimed that the FCC was not being sensitive to industries’ unlimited financial exposure under the law and abuses by class action attorneys, said, “if industry is so concerned with class actions, the proper place to address this is with Congress, not the FCC.”
FCC Cites Three Companies for TCPA Violations
Three call service companies recently received citations from the Federal Communications Commission for alleged violations of the Telephone Consumer Protection Act, and the possibility of significant penalties.
Call-Em-All LLC, Ifonoclast, and M.J. Ross Group were each instructed by the agency to stop making robocalls using an automated telephone dialing service to call consumers’ cellphones with prerecorded messages without first obtaining their prior consent.
In the Call-Em-All case, the FCC noted that the company offers a robocalling service where clients can upload an audio file to be sent to a list of numbers, or use the company’s software to convert text into speech for a prerecorded message. For a fee, Call-Em-All will send the message to a telephone list provided by the client, that includes employees of employment staffing firms, youth sports leagues, and schools and churches.
The Telecommunications Consumers Division of the FCC’s Enforcement Bureau sent the company a letter of inquiry to request a list of the telephone numbers dialed by Call-Em-All for a two-week period in October 2012 with relevant dates and times, as well as the sound files of the delivered messages.
A review of the data revealed more than 55,000 autodialed or prerecorded message calls were made to cellphones in violation of the statute, the agency said. The FCC also listened to over 300 sound files from the same time period and found “most were recorded by the Company’s clients for either political or advertising purposes and none indicated that the Company made the calls for an emergency purpose.”
The FCC then randomly chose 10 of the cellphone numbers that received a prerecorded message from Call-Em-All and spoke with each call recipient. “Without exception, each recipient denied giving anyone permission to robocall their respective cellphones at any time,” the FCC said. “This further shows that Call-Em-All did not have the prior express consent of these called parties to make an autodialed, prerecorded call to their mobile phone.”
Similar violations were found when the Commission reviewed data from Ifonoclast and M.J. Ross. For example, Ifonoclast made 3,542 non-consenting prerecorded calls between September 1, 2012, and February 8, 2013, with messages seeking a vote for a political candidate or endorsing a candidate for office, while M.J. Ross made 293 autodialed calls in violation of the statute between September 1, 2012, and March 6, 2013, the agency said.
To read the citation and order in In the Matter of Call-Em-All, click here.
To read the citation and order in In the Matter of Ifonoclast, click here.
To read the citation and order in In the Matter of M.J. Ross Group, click here.
Why it matters: The three companies were given 30 calendar days to respond to the citations. Future violations of the TCPA could result in sanctions including monetary penalties up to $16,000 per call, the FCC cautioned.
TCPA Complaint Must Be Arbitrated, 7th Circuit Rules
Consumers must arbitrate their Telephone Consumer Protection Act claims against Sprint, the Seventh Circuit Court of Appeals ruled, after concluding that a user contract with an arbitration clause was valid.
In 2000, Ronald and Anna Andermann obtained mobile phone service from U.S. Cellular pursuant to a contract. The contract, which was renewed multiple times until 2012, included an arbitration clause providing that “any controversy or claim arising out of or relating to this agreement [i.e., the contract for mobile phone service] shall be resolved by binding arbitration” and that “this arbitration agreement survives the termination of this service agreement.” U.S. Cellular also had the right pursuant to the contract to assign the agreement.
In 2013, the company assigned the agreement to Sprint. A few months later, Sprint sent the Andermanns a letter explaining that some of U.S. Cellular’s cellphones (including theirs) were not compatible with Sprint’s network. As a result, the Andermanns either needed to purchase new phones or obtain mobile phone service from another company.
When the Andermanns did not respond, Sprint made a total of six calls (three to each of their phones) to remind them that the service was set to expire, adding that the company had “a great set of offers and devices available to fit [their] needs.” The Andermanns did not answer any of the calls and signed on with another mobile service provider.
They also filed a TCPA lawsuit against Sprint. The company filed a motion seeking to compel arbitration based on the clause in the Andermanns’ service agreement. By virtue of the assignment to Sprint, the company had stepped into U.S. Cellular’s shoes, the company told the court.
The Andermanns countered that the actual assignee in the deal was Sprint Solutions, a different arm of the company, and that the dispute over the legality of the calls did not arise from or relate to the service agreement.
The Seventh Circuit disagreed, finding an “intimate relation” between the calls and the contract.
“The contract authorized an assignment, and because of the incompatibility of the assignee’s (U.S. Cellular’s) cellphones and the assignee’s (Sprint’s) mobile phone network, Sprint had to terminate the U.S. Cellular customers, such as the Andermanns, whom it had acquired by virtue of the assignment; for they could not use their cellphones without switching to a different network,” the court wrote. “It was to prevent the loss of all these customers because of the incompatibility that Sprint had told them in the calls that it could offer them a substitute service. The calls gave rise to the dispute; and so the Andermanns were required to arbitrate the dispute.”
Sprint had a “very strong” substantive defense to the suit, the panel added, but speculated that the company was pushing for arbitration because the clause disallowed class arbitration. Given the modest statutory damages, it was unlikely that the Andermanns would pursue the case through arbitration by themselves.
“But in whatever form contested, the claims are unlikely to prevail,” the court said. Sprint had a relationship with the Andermanns that preexisted the calls, and the incompatibility of U.S. Cellular phones with Sprint’s network “required” the company to inform the plaintiffs that their service would soon be terminated. “[I]t was natural for Sprint to assume that they wanted to continue to have a mobile communications service and would therefore appreciate knowing that Sprint offered a substitute service—the knowledge would enlarge the Andermanns’ options,” the panel said.
Practically speaking, “what would Sprint have done if forbidden to call the customers whom it had inherited from U.S. Cellular and must now terminate because of technical incompatibility?” the court asked. “Post on highway billboards or subway advertisements the text of its calls to the customers it had acquired from U.S. Cellular? Post the messages in the ad sections of newspapers? In television commercials?”
The panel noted that the case likely falls within a TCPA exception for telephone solicitations made “to any person with whom the caller has an established business relationship,” pursuant to Section 227(a)(4)(B).
“By stepping into U.S. Cellular’s shoes Sprint established a business relationship that Sprint would have disrupted had it told the Andermanns only that their services were going to be cut off, without adding its offer to substitute an equivalent service,” the court concluded.
To read the opinion in Andermann v. Sprint Spectrum, click here.
Why it matters: The decision not only provides support for the enforcement of arbitration provisions in TCPA disputes, but also sets out a road map for a substantive defense to the suit. Although the panel noted that “[w]e don’t want to step on the arbitrator’s toes,” the court said it appeared Sprint’s calls fell under Section 227(a)(4)(B), an exception to TCPA liability where the caller has an established business relationship with the recipient. The panel emphasized that Sprint stepped “into the shoes” of U.S. Cellular when the contract was assigned and that “it was natural for Sprint to assume” the Andermanns would want to continue their mobile communications service.
Supreme Court to Rule on Effect of Offer of Judgment in TCPA Suit
The U.S. Supreme Court has agreed to decide one of the many contentious issues in Telephone Consumer Protection Act litigation: whether an offer of complete relief in a putative class action made before a class is certified moots the individual and/or the class claims.
The question has occupied courts across the country handling the influx of TCPA litigation, and they have split on the answer. A panel of the Eleventh Circuit Court of Appeals held in January that an offer did not moot a lawsuit while the Second Circuit Court of Appeals and a Minnesota federal court judge reached the opposite conclusion.
Recognizing the split, the Justices granted certiorari in a case from the Ninth Circuit Court of Appeals. The suit involves Campbell-Ewald, an advertising agency hired by the U.S. Navy to develop and execute a recruiting campaign targeted to young males. Campbell-Ewald outsourced the texting responsibility to a third party and was named as a defendant in a lawsuit filed by Jose Gomez, who alleged he received a single text message in May 2006.
Campbell-Ewald offered Gomez $1,503 per violation, plus reasonable costs, but the plaintiff allowed the offer to lapse. The company moved to dismiss the case as moot. A trial court judge said the unaccepted offer alone was insufficient to moot Gomez’s claim. The Ninth Circuit affirmed that the case remained a live controversy, and Campbell-Ewald filed a writ of certiorari.
In its petition, the company told the Court that the TCPA has “become an extortionist weapon in the hands of class action attorneys seeking to extract lucrative attorneys’ fees for class-wide settlements” and that “[i]n response, many defendants, including Campbell-Ewald here, have offered plaintiffs complete relief on their individual claims at the outset—before any class is certified—agreeing to make plaintiffs whole for any TCPA violations, while sparing all the costs of protracted litigation.”
Also before the Justices: the issue of whether Campbell-Ewald is entitled to derivative sovereign immunity as a government contractor.
To read the petition for writ of certiorari in Campbell-Ewald v. Gomez, click here.
Why it matters: At the very least, a decision from the U.S. Supreme Court will provide much-needed clarity to courts across the country in TCPA class action lawsuits. A reversal of the Ninth Circuit’s opinion and a ruling that a complete offer can moot either individual and/or class claims would benefit TCPA defendants facing class action lawsuits, and could prove beneficial to defendants in other types of class action litigation.
Does a Complete Offer Moot a Case? 2nd Circuit Takes New Approach
Although the U.S. Supreme Court has agreed to decide whether a complete offer of judgment moots a Telephone Consumer Protection Act plaintiff’s individual and class claims, the Second Circuit Court of Appeal recently weighed in on the issue.
The federal appellate panel held that an unaccepted Rule 68 offer does not render claims moot unless the district court first enters judgment against the defendants.
Patrick Tanasi filed a putative class action against First Niagara Financial Group and New Alliance Bank, alleging that the defendants improperly assessed overdraft fees on his account.
Pursuant to Rule 68 of the Federal Rules of Civil Procedure, the defendants offered to settle Tanasi’s claims for $10,000 plus interest—an amount greater than the statutory damages to which he would have been entitled if successful. When Tanasi refused to accept the offer, the defendants moved to dismiss the case.
They argued that the unaccepted offer rendered Tanasi’s claims moot. A federal district court judge disagreed, ruling that although Tanasi’s individual claims were mooted, his putative Rule 23 class action claims remained viable.
On appeal to the Second Circuit, the federal appellate panel affirmed the ruling, albeit on an alternative ground.
“[W]e hold that the district court maintained Article III subject matter jurisdiction over the case because, under the law of our Circuit, an unaccepted Rule 68 offer alone does not render a plaintiff’s individual claims moot before the entry of judgment against the defendants,” the court wrote. “The district court therefore maintained Article III subject matter jurisdiction over the case regardless of Tanasi’s putative class action claims.”
The panel walked through the process under Rule 68, explaining that the purpose of the Rule is “to encourage settlement and avoid litigation,” and noted that if a plaintiff accepts the defendant’s offer of judgment, “the clerk must … enter judgment.”
“What Rule 68 does not make clear, however, is the effect, if any, of an unaccepted offer on the justiciability of a plaintiff’s claim under the Constitution’s Article III Case or Controversy Clause,” the court said.
Federal courts of appeals are split on the issue. The Third, Fourth, Fifth, Seventh, Tenth, and Federal Circuits have all determined that a Rule 68 offer of complete relief to an individual renders his or her case moot for purposes of Article III, while the Ninth and Eleventh Circuits have reached the opposite conclusion.
Noting that the prior case law in the Second Circuit “has not always been entirely clear on this subject,” the panel attempted to provide some clarity and “reiterate that it remains the established law of this Circuit that a ‘rejected settlement offer [under Rule 68], by itself, [cannot render] moot[] [a] case.’”
The Second Circuit explained that “[i]f the parties agree that a judgment should be entered against the defendant, then the district court should enter such a judgment. Then, after judgment is entered, the plaintiff’s individual claims will become moot for purposes of Article III.” The court also explained that “[a]bsent such agreement, however, the district court should not enter judgment against the defendant if it does not provide complete relief.”
According to the panel, neither Tanasi’s individual nor class claims were rendered moot “in the Constitution sense” by the unaccepted Rule 68 offer. “Instead, because the district court had not yet entered judgment against the defendants when it reached its decision on the motion to dismiss, the court maintained Article III subject matter jurisdiction over the case regardless of Tanasi’s putative class action claims,” the court said.
The panel declined to address the question of whether putative class action claims brought under Rule 23 of the Federal Rules provided an independent basis for Article III justiciability.
To read the opinion in Tanasi v. New Alliance Bank, click here.
Why it matters: The Second Circuit opinion adds yet another level of confusion and technicality to the issue of whether an unaccepted, complete offer of judgment renders a lawsuit moot. Thankfully for both courts and parties across the country struggling with the split in the jurisdictions, the U.S. Supreme Court has granted certiorari and will hopefully settle the issue once and for all in Campbell-Ewald v. Gomez next term.
