In the rapidly evolving landscape of Telephone Consumer Protection Act (TCPA) litigation, recent court decisions continue to provide defendant-friendly clarity as to what technology and platforms constitute automatic telephone dialing systems. In the last month, litigants in the Eleventh Circuit also received critical appellate guidance on class settlements touching on numerous issues, including the application of the Class Action Fairness Act to settlements incorporating vouchers.

The Third Circuit Court of Appeals kicked things off in Perrong v. Montgomery County Democratic Committee, providing further defendant-friendly clarification on the definition and application of the TCPA’s automatic telephone dialing system (ATDS) provisions.

Andrew Perrong filed suit against the Montgomery County Democratic Committee, and others, claiming that the use of a number generator to determine the order of calls from a precompiled list constituted the use of an ATDS. The US District Court for the Eastern District of Pennsylvania dismissed the case, holding that defendants did not use an ATDS, which the Court of Appeals for the Third Circuit affirmed.

Under 47 U.S.C. § 227(a)(1), an ATDS is defined as “equipment which has the capacity — (A) to store or produce telephone numbers to be called, using a random or sequential number generator; and (B) to dial such numbers.” The Third Circuit explained that “list-mode” calls – which do not generate actual telephone numbers from scratch – do not present the types of risks the TCPA aims to prevent and thus do not equate to the use of an ATDS:

In Panzarella [v. Navient Solutions, Inc., 37 F.4th 867 (3d Cir. 2022)], we held that a loan servicer did not violate the TCPA because there was no evidence that its device used a random or sequential number generator to produce or store phone numbers. . . . We posed a hypothetical of a device that could make phone calls in two modes: automatic-mode, where the device dials random or sequentially generated phone numbers, or list-mode, where the device dials telephone numbers from a customer list. . . . We explained that, unlike automatic-mode calls, list-mode calls would not “threaten the harm the TCPA targets,” namely, “telemarketing ‘that risks dialing emergency lines randomly or tying up all the sequentially numbered lines at a single entity.’”

. . .

The District Court’s analysis was correct. Here, the defendants’ calls were listmode calls, which, according to Panzarella, fall outside the scope of the TCPA’s prohibitions. Perrong fails to explain how the defendants’ method of calling risks dialing up emergency lines or tying up sequentially numbered business lines.[1]

Perrong cited the now infamous footnote 7 from the Supreme Court’s decision in Facebook, Inc. v. Duguid to support his argument that using a number generator to determine the order in which to call phone numbers from a precompiled list is the use of an ATDS. But the Third Circuit disagreed. The circuit court concluded that footnote 7 did not expand the definition of an ATDS to include devices that merely used a number generator to select numbers from a precompiled list, noting that the expansive definition of an ATDS proposed by Perrong was inconsistent with both the statutory text and the Supreme Court’s decision in Facebook.

Key Takeaway:

“List-mode” calls do not trigger ATDS provisions in the Third Circuit.

In another significant TCPA ruling, the Court of Appeals for the Second Circuit reviewed Soliman v. Subway Franchisee Advertising Fund Trust, Ltd., in which a plaintiff sued Subway for alleged TCPA violations after allegedly receiving text messages on her cell phone, offering her free chips with a Subway purchase. Soliman argued that Subway’s messages violated the TCPA because (1) they were allegedly sent using an ATDS and (2) the text messages constituted an artificial or prerecorded voice. The district court dismissed Soliman’s complaint, and Soliman unsuccessfully appealed.

An ATDS Was Not Used

The Court of Appeals for the Second Circuit agreed with the lower court’s decision, holding that Subway did not use an ATDS because it did not generate numbers randomly or sequentially, instead dialing from a pre-existing list. In support of its holding, the Second Circuit explained that the statute generally referenced “numbers” to mean telephone numbers (not just any kind of number), indicating that telephone numbers must be generated at random or in sequence for technology to qualify as an ATDS. And like the Third Circuit in Perrong, the Second Circuit noted that the TCPA was intended “to protect against automatic systems that, by generating telephone numbers automatically, could tie up the telephone lines of public emergency services,” concerns that “are not implicated by a system that uses a pre-existinglist of telephone numbers . . . .”[2]

Text Messages Are Not Prerecorded/Artificial Voices

The court also held that the TCPA’s prohibition on the use of an artificial or prerecorded voice does not apply to text messages because text messages are not audible voice communications:

Common sense tells us that “voice” – especially in the context of a statute regulating telephones – will ordinarily refer to a sound produced by a human being.

. . .

The language of the TCPA itself also makes clear Congress meant “voice” to mean something audible, not a text message. As the district court noted, the TCPA defines “caller identification information” as information “regarding the telephone number of, or other information regarding the origination of, a call made using a voice service or a text message sent using a text messaging service.” 47 U.S.C. § 227(e)(8)(A) . . . .

. . .

Accordingly, the district court did not err in holding that a text is not an “artificial voice.”[3]

Key Takeaways:

• Systems that dial from pre-existing lists without generating numbers randomly or sequentially do not meet the definition of an ATDS under the TCPA.
• The TCPA’s provisions regarding artificial or prerecorded voices do not extend to traditional text messages.

The Eleventh Circuit also issued critical guidance relating to class settlements in Drazen v. Pinto, which involved a settlement of claims premised on the use of an ATDS that was reached before the Supreme Court issued Facebook.

The Class Settlement

The decision was precipitated by plaintiffs in several class actions who alleged that GoDaddy.com used an ATDS to make calls or send texts without their consent. The parties in a consolidated case ultimately agreed to a claims-made settlement providing up to $35 million for class members’ claims and up to $10.5 million for attorney’s fees. Class members were given a choice between a $150 voucher or a $35 cash award.

District Court Approves Settlement

The US District Court for the Southern District of Alabama preliminarily approved the settlement before turning its attention to class counsel’s motion for fees, apparently “[t]reating the ‘up to $35 million’ GoDaddy was providing for the settlement as a ‘common fund.’”[4] Just “fifteen days before [c]lass [c]ounsel filed their motion for attorney’s fees,” however, the Supreme Court had granted the cert. petition in what became a landmark TCPA case, Facebook v. Duguid. The district court soon after ruled on the motion, granting it in part and approving fees of “25% of the $35 million or $8,750,000.”[5]

In August 2020, Juan Pinto objected to the settlement, arguing that the attorney’s fees were excessive and the notice to class members inadequate. The district court took several issues up in December, including Mr. Pinto’s objections and class counsel’s motion for final approval, while “express[ing] concern that only 2% of the Class Members had submitted claims.”[6]

Despite Pinto’s objections, the district court found the settlement fair, reasonable, and adequate, noting that it was not a coupon settlement subject to the Class Action Fairness Act (CAFA) because class members had a cash option. The district court also reduced class counsel’s fees to $7 million or 20% of the $35 million it treated as a common fund.[7]

Pinto’s Appeal to the Eleventh Circuit

Pinto appealed to the Eleventh Circuit, arguing the district court breached its fiduciary duty to absent class members and improperly applied legal standards, including Rule 23(e) and CAFA. The circuit court agreed that the settlement was problematic, finding multiple issues with the district court’s approval:

Rule 23(e) and the District Court’s Fiduciary Duties: The Eleventh Circuit found that the district court abused its discretion by failing to explicitly consider the standards in Rule 23(e)(2)(A)-(D). The Eleventh Circuit further concluded that the district court effectively re-wrote the settlement agreement “by invoking the ‘identical factual predicate’ doctrine,” which narrowed the terms of the broad release in the parties’ settlement agreement. Instead, the Court of Appeals explained, the district court should have denied approval of the proposed settlement if it found its terms problematic.[8]

The Eleventh Circuit further explained that the district court’s fiduciary role “heightened the moment” it was presented with the settlement, which gave the named plaintiffs (who would receive more than class members) preferential treatment and guaranteed that their attorneys’ fees would not be reduced.[9] The district court thus had to ensure that the settlement was not collusive by rigorously analyzing the showing of plaintiffs’ counsel made under Rule 23(e)(1). The Eleventh Circuit concluded the district court did not adequately conduct this analysis by failing to consider items such as the class size and notice the class would receive. The Eleventh Circuit added that “Class Counsel induced the non-compliance” because “[t]he information, or lack thereof, caused the district court to err.”[10]

Inadequate Notice Under Rule 23(c)(2): Next, the Court of Appeals explained that the notice provided to class members “was sparse” and “failed to reveal that the claims could allow Class Members to potentially recover $500 for each phone call or text message . . . or $1,500 if made willfully or knowingly; that the class consisted of over 1.26 million members; and that GoDaddy’s liability exposure was more than $600 million.”[11] The district court also erred in not ordering the parties to inform class members of Facebook: “[t]he Class Members were entitled to know that if the district court waited until the Supreme Court decided Facebook before considering whether to approve the Settlement Agreement, the deal would probably have collapsed.”[12]

Improper Calculation of Attorney’s Fees Under Rule 23(h) and CAFA: Rule 23(h) requires that class members have the opportunity to object to the fee motion itself, not just the preliminary notice indicating that the motion will be filed. The Court of Appeals found that the district court failed to provide class members advance notice that class counsel would be required to file their fees motion by July 24, 2020, and ultimately only provided them with seven days to object to the fees motion.

The Court also found that the District Court abused its discretion by treating the settlement as a common fund rather than a claims-made settlement and by misapplying CAFA. “The settlement . . . is a claims-made settlement, not a common fund settlement . . . . GoDaddy only paid out an amount equal to the claims actually made and settlement costs, after those amounts were known.”[13] Additionally, because the settlement contained a coupon component, the Eleventh Circuit concluded that it qualified as a coupon settlement under CAFA.[14] And under CAFA, “attorney’s fees for coupon settlements . . . may be based on the value of the coupons that are redeemed, the lodestar method, or a combination of both.”[15] However, “calculating attorney’s fees in this case as a percentage of the possible relief available to class members used the wrong legal standard and was thus an abuse of discretion.”[16]

The Court of Appeals vacated the judgment and remanded the case for further proceedings.

Key Takeaways:

Despite having a class settlement in principle after lots of heavy lifting, clear sailing is not necessarily ahead. Drazen is a reminder for counsel to carefully craft and scrutinize class notices and class schedules, to consider their and the court’s fiduciary obligations, and to evaluate how the structure of a settlement may affect fee requests.

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