The Kennedy Privacy Law Firm

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1 The Kennedy Privacy Law Firm th Street, NW Washington, DC Charles H. Kennedy Phone: (202) Mobile: (202) January 26, 2018 emarketing Newsletter While we continue to wait for the D.C. Circuit Court of Appeals to rule in ACA v. FCC, other courts continue to interpret the Telephone Consumer Protection Act (TCPA) and its requirements. Some of the recent decisions are enlightening and even helpful, especially on the question of prior express consent. Two courts have found that under some circumstances, consumers do not have the right to revoke their prior express consent to receive automated calls on their mobile devices. Recent decisions also find that consent revocations may be only partially effective, and that companies are not always required to honor revocations of consent that do not use a reasonable method of communication specified by the company. The recent cases also address other issues. Courts have looked at the status of so-called hybrid messages that are alleged to contain both informational and marketing content, and the circumstances under which a company may be liable for calls placed by another party. The following summarizes some of the more important decisions entered between last fall and the first few weeks of Some Consents may not be Revocable As we all know, a caller may not place a nonemergency, autodialed or prerecorded voice call to a mobile number unless the caller has obtained the called party s prior express consent to do so. 1 If the call contains telemarketing content, the caller must have the called party s express written consent. 2 The TCPA does not give consumers a right to revoke their prior express consents, but the SOME RECENT COURT DECISIONS ARE ENLIGHTENING AND EVEN HELPFUL courts and the FCC have declared that there is such a right. 3 The FCC, in fact, has said that 1 47 U.S.C. 227(b)(1)(A) C.F.R (f)(8). 3 See, e.g., Osorio v. State Farm Bank, F.S.B., 746 F.3d 1242 (11 th Cir. 2014). 1

2 a consumer may revoke consent by any reasonable means not necessarily by using a method specified by the caller. 4 However, recent decisions show that not all consents are necessarily revocable. The leading case is Reyes v. Lincoln Automotive Financial Services, in which Alberto Reyes complained about collection calls he received on his mobile phone from a Ford dealership. 5 Reyes had provided his cell phone number in his auto lease application. He also signed a lease agreement in which he expressly agreed to receive automated calls as a condition of the lease. Reyes complained that the dealer continued to call his mobile phone after he sent a letter asking that the calls be discontinued. He pointed to court decisions and an FCC order finding that consents given under the TCPA are revocable. The court found that although consents given under the TCPA ordinarily may be revoked, the right does not apply if the consent was part of the bargain between the caller and the called party. In Reyes s case, the consent to be called was part of the agreement he made as a condition of obtaining the lease. The consent was not based merely upon the gratuitous act of providing a mobile contact number, which the court agreed would have been revocable. 6 Under contract law principles, a bargained-for contractual condition may not be revoked by the unilateral action of one of the parties to the contract. Reyes argued, and the court did not deny, that the rule the court was adopting might permit businesses to undermine the effectiveness of 4 In the Matter of Rules and Regulations Implementing the Telephone Consumer Protection Act of 1991, 30 FCC Rcd 7961, 64 ( 2015 TCPA Order ). 5 Reyes v. Lincoln Automotive Financial Services, 861 F.3d 51 (2d Cir. 2017) ( Reyes ). the TCPA by inserting consent clauses of the type signed by Reyes into standard sales contracts, thereby making revocation impossible in many instances. 7 Nevertheless, the court maintained that if its application of common-law principles to the TCPA proved unacceptable as a matter of policy, the remedy was for Congress to amend the statute. The rule adopted in Reyes suggests that businesses should, whenever possible, include consent clauses in their contracts with their customers, rather than simply relying for consent on the customer s act of providing a mobile contact number. The lesson was reinforced by the decision of a district court judge in Rodriguez v. Student Assistance Corporation, in which the court found that the plaintiff, Rodriguez, had agreed to receive automated calls from a creditor as part of a settlement agreement that entitled her to payment of money. 8 Because Rodriguez had consented as part of a settlement agreement, and not merely by the gratuitous act of providing a mobile contact number, the court found that she was not entitled to revoke her consent. Businesses should be aware, however, that inserting a consent clause in a contract does not guarantee that the consent will be irrevocable. There are two reasons for this note of caution. First, the Reyes decision was entered by the Court of Appeals for the Second Circuit, and the Rodriguez decision was entered by a district court that is within the Second Circuit and therefore is required to follow that court s guidance. If a TCPA case is pending outside the Second Circuit, the court might 6 Reyes, supra, 861 F.3d at Id., 861 F.3d at Rodriguez v. Student Assistance Corporation et al., 17-CV (BMC) (E.D.N.Y. 2017) ( Rodriguez ). 2

3 find the reasoning of Reyes persuasive but, if not, will be free to reject that reasoning. Second, the bargained-for consent rule may not apply when a customer s consent is used as the basis for an automated telemarketing call. The FCC s regulations expressly provide that a customer s prior express written consent to receive automated telemarketing calls may not be demanded as a condition of providing a good or service. 9 Accordingly, a business claiming that a consent clause that extends to telemarketing was bargained for as part of the deal with the consumer might be conceding, in effect, that it obtained the consent in violation of the Commission s rules. All of this said, obtaining consent clauses for non-telemarketing communications improves the likelihood that revocations of consent will not be effective, especially when lawsuits concerning those supposed revocations will be brought in the Second Circuit states of Connecticut, New York and Vermont. Consent Revocations May be Only Partially Effective May a consumer s revocation of consent to receive automated calls be partial, or must it be all-or-nothing? In the case of Schweitzer v. Comenity Bank, the Court of Appeals for the Eleventh Circuit opted for the first interpretation. 10 Schweitzer, the plaintiff, complained that Comenity Bank placed automated collection calls to her mobile phone after she asked not to be called in the morning and during the work day. She argued that although she had furnished a mobile contact number to Comenity on her application for a credit card, her subsequent request constituted a partial revocation of that consent. The lower court entered summary judgment for Comenity on the ground that Schweitzer s revocation of consent, which did not specify the times that were encompassed by the phrase during the morning and during the work day, was too imprecise. 11 On appeal, Schweitzer argued that she had effectively made a partial revocation of consent. The bank disagreed, arguing that the only effective revocations are unequivocal requests for no further communications whatsoever. 12 The Eleventh Circuit agreed with Schweitzer, finding that if the TCPA allows complete revocations of consent, then there is no logical reason why it should not allow partial revocations of consent. The court also downplayed the lower court s reasonable concern that partial revocation of consent might present logistical and technical challenges to callers and present evidentiary difficulties for those attempting to recover under the TCPA. 13 In the Eleventh Circuit s view, a creditor that is uncertain as to the scope of a debtor s revocation of consent can resolve the confusion by electing not to make any calls to the debtor. To the extent other courts follow Schweitzer s partial-revocation rationale, the decision is both good news and bad news for businesses. On the one hand, the decision means that if a consumer asks not to receive calls of a certain kind or within a certain time range, the business remains free to make calls that do not fall within the scope of that request. On the other hand, the decision also means that a business might be liable for failure to comply with a revocation that, like 9 47 C.F.R (f)(8). 10 Schweitzer v. Comenity Bank, No (11 th Cir. 2017) ( Schweitzer ). 11 Id., Slip Op. p Id., Slip. Op. p Id., Slip Op. p

4 Schweitzer s, is vague and capable of varying interpretations. Some Consent Revocations Might be Unreasonable In its TCPA Order of July, 2015 (now under review by the D.C. Circuit Court of Appeals), the FCC announced that consumers who have given prior express consent to receive autodialed calls on their mobile devices may revoke that consent by any reasonable means. 14 This ruling raised the prospect that businesses will have to monitor every possible channel of communication by which customers might try to communicate revocations, and will be liable for misunderstandings of communications that are vague and confusing. Some courts, however, have pointed out that the consumer s right to choose a revocation method is not unlimited, and have ruled accordingly. Notably, in Viggiano v. Kohl s Department Stores, Inc., Amy Viggiano signed up to get mobile sales alerts from Kohl s. 15 The terms and conditions provided that she could opt out of receiving further alerts by texting STOP, CANCEL, QUIT, UNSUBSCRIBE or END. Rather than use any of those commands, Viggiano sent several sentence-long messages to inform Defendant she was opting out. 16 In response, Kohl s sent texts stating that her message was not understood and reiterating that she could opt out by texting STOP. Viggiano claimed that she had effectively revoked consent to receive texts from Kohl s, relying on the FCC s declaration that [c]onsumers have a right to revoke consent, using any reasonable method including orally or in writing. 17 The court, however, found that the FCC s guidance was not so simple. The relevant language from the 2015 TCPA Order reads as follows: [W]hen assessing whether any particular means of revocation used by a consumer was reasonable, we will look to the totality of the facts and circumstances surrounding that specific situation, including, for example, whether the customer had a reasonable expectation that he or she could effectively communicate his or her request for revocation to the caller in that circumstance, and whether the caller could have implemented mechanisms to effectuate a requested revocation without incurring undue burdens. We caution that callers may not deliberately design systems or operations in ways that make it difficult or impossible to effectuate revocations. 18 Applying this guidance to Viggiano s complaint, the court found that she could not have reasonably expected her sentence-long messages communicate a revocation to Kohl s, considering that the company s responses expressly advised her otherwise. The court also found that Kohl s had not designed its opt-out method in a way that made it difficult or impossible for Viggiano to communicate her revocation effectively. Accordingly, Viggiano s decision to ignore the revocation method offered by Kohl s deprived her of an effective revocation of her consent to receive text alerts TCPA Order, supra, Viggiano v. Kohl s Department Stores, Inc., Civ. Action No BRM-TJB (D.N.J. 2017) ( Viggiano ). 16 Viggiano, supra, Slip Op. p Id., Slip Op. pp TCPA Order, 64 n The court found support for its conclusion in the decision of a California federal court in Epps v. Earth Fare, Inc., No (C.D. Cal. 4

5 The Viggiano decision suggests that courts are prepared to interpret the FCC s guidance on consent revocations in a way that permits businesses to exercise reasonable control over the means by which revocations may be communicated. Courts Continue to Wrestle with Hybrid Communications One of the thorniest problems in TCPA litigation is the classification of so-called hybrid calls and texts. The courts and the FCC have declared that if an automated communication sent to a mobile number includes an advertisement or is intended to encourage a purchase, the inclusion in the communication of informational or transactional content will not save it from the prior express written consent requirement. 20 Applying this standard is hard, especially when the challenged communication contains no advertising but nonetheless is said to be motivated by a desire to induce the recipient to buy something. A court presented with such an argument must look beyond the message and try to divine the sender s motives. Some recent decisions give insight into the ways courts confront this task, and how they don t always do it well. Let s look first at the odd case of Carroll v. SGS North America, Inc., decided by a federal judge in Louisiana. 21 Taylor Carroll and his wife had leased a car from Acura of Baton Rouge, and had entered Taylor Carroll s cellphone number on the lease application. So far, so good: as we know, 2017), in which a consumer also had ignored the defendant s opt-out instructions in favor of verbose requests to terminate the messages. The Epps court, like the Viggiano court, found that the opt-out method offered by the sender did not make revocation difficult or impossible and should have been used by the plaintiff. providing a mobile number on an application constitutes the applicant s consent to receive automated, non-telemarketing calls from the business at that number. Acura of Baton Rouge sent the lease application to Acura Financial Services (AHFC), which approved it. When the lease was approaching its end, AHFC notified SGS, which performs end of lease inspections on cars leased through AHFC. According to the complaint, SGS then made nine prerecorded calls to Carroll s cellphone in an attempt to schedule a vehicle inspection. Carroll alleged that these calls were not intended simply to schedule the required inspection, but were dual purpose to perform end of lease maintenance and for the purpose of maintaining a positive relationship with customers to encourage them to lease another Acura vehicle. In Carroll s view, the desire to keep him happy with Acura s service made the messages telemarketing communications for which his prior express written consent was required. The court agreed with Carroll, based upon the following testimony by an SGS representative: They re trying to preserve the relationship with the client and keep them as a customer and keeping them in a new automobile. Our service is an outsource service that for our customers was previously done in house. So we re just working as an agent in extension of American 20 See, e.g., In the Matter of Rules and Regulations Implementing the Telephone Consumer Act of 1991, 18 FCC Rcd 14014, 142; Chesbro v. Best Buy Stores, L.P., 697 F.3d 1230 (9 th Cir. 2012). 21 Carroll v. SGS North America, Inc., Civ. Action No SDD-RLB (M.D. La. 2017) ( Carroll ). 5

6 Honda. 22 In a way it s an extension of sales. Not as an extension of our service, but an extension to keep that customer happy and engaged with American Honda. 23 Based on this testimony, the court found that the purpose for the phone calls was dual customer service and to solicit future sales and revenues. Accordingly, defendant s failure to obtain prior express written consent to make telemarketing calls to Carroll violated the TCPA. 24 We can hope that the decision in Carroll will be an outlier. The SGS testimony notwithstanding, the court cited no evidence that the end of lease inspection was other than a legitimate customer service activity. There was no evidence that the prerecorded messages encouraged the recipient to enter into another lease, or even that SGS was authorized to offer a new lease when the customer appeared for the inspection. The only, supposed evidence of a marketing purpose was the SGS representative s testimony that the service might keep the customer happy and engaged with American Honda. By this reasoning, any desire to perform customer service in a way that pleases the customer is suspect as a covert marketing campaign. (Apparently, the only way to rescue a customer service activity from the marketing category under Carroll is to do it badly, on purpose.) Our next hybrid-message case is San Pedro- Salcedo v. Haagen-Dazs Shoppe Company, Inc., decided by a federal judge in California The Acura is a luxury marque of Honda. 23 Carrol, supra, Slip Op. pp Id. p San Pedro-Salcedo v. Haagen-Dazs Shoppe Company, Inc., Case No. 5:17-cv EJD (N.D. Cal. 2017) ( San Pedro-Salcedo ). Melanie G. San Pedro-Salcedo, the plaintiff, visited a Haagen-Dasz store and accepted the cashier s offer to enroll in a rewards program. She gave the clerk her mobile telephone number, and later received a text message stating: Thank you for joining Haagen-Dasz Rewards! Download our app here... The plaintiff claimed that this text was an advertising message for which her prior express written consent was required. In denying the defendant s motion to dismiss the complaint, the court found that because the plaintiff s registration for the rewards program was complete at the time she received the text, the message was not needed to complete the transaction to which she had agreed. Instead, in the court s view, the purpose of the text was arguably an advertisement for the commercial availability of Defendant s app. Accordingly, the plaintiff s allegations were sufficient to survive a motion to dismiss. 26 For a different result, we have the decision of a California federal court in MacKinnon v. Hof s Hut Restaurants, Inc. 27 The complaint alleged that Steve MacKinnon made a dinner reservation and provided his cellphone number to the restaurant for the purpose of alerting him when the reservation was ready. The restaurant then sent MacKinnon a text, confirming the time of his reservation and giving him a link at which he could view the restaurant s specials. MacKinnon alleged that the reference to the restaurant s specials constituted telemarketing. The plaintiff cited the result in the San Pedro-Salcedo case, discussed above, in support of his claim. The judge, however, declined to apply San Pedro-Salcedo to the facts of MacKinnon s 26 San Pedro-Salcedo, supra, Slip Op. p MacKinnon v. Hof s Hut Restaurants, Inc., No. 2:17-cv JAM-DB (E.D. Cal. 2017) ( MacKinnon ). 6

7 claim. In the court s opinion, the View Specials link in the restaurant s text conveyed information about MacKinnon s reservation and did not encourage a new purchase, but merely facilitated the transaction that MacKinnon had initiated. The court distinguished these facts from the message in San Pedro-Salcedo, which was sent after the plaintiff s reservation in the rewards program was complete and proposed the additional act of downloading the defendant s app. 28 Taken together, the San Pedro-Salcedo and MacKinnon cases show that businesses should be careful about sending follow-up messages relating to a customer transaction when the customer s prior express written consent to receive telemarketing calls has not been obtained. If the transaction already is essentially complete, then the better approach is to avoid additional messages or to ensure that they cannot be construed as containing additional offers. Liability for Calls Placed by Third Parties Businesses sometimes are held responsible for TCPA violations committed by third parties that try to sell those businesses products. Whether a business is liable for such calls depends upon a number of factors, including the extent to which the business has the authority to supervise the third party s calling practices. In legalese, the question is whether the third parties were the business s agents or independent contractors. Four recent cases give us a good sample of the courts approaches to this so-called vicarious liability problem. We begin with a decision entered by the Ninth Circuit Court of Appeals in August of last year. In Jones v. Royal Administration Services, Inc., Royal Administration Services 28 MacKinnon, supra, Slip Op. p Jones v. Royal Administration Services, Inc., No (9 th Cir. 2017) ( Jones ). sold vehicle service contracts and All American Auto Protection marketed those contracts, through direct mail and telemarketing, for Royal and other companies. 29 The plaintiffs claimed that All American s agents violated the TCPA by placing telemarketing calls to residential telephone numbers on the do-not-call registry, and that Royal was vicariously liable for those violations. The court assessed this claim under the law of agency, which makes a person responsible for the actions of others when those others have the authority to act on behalf of the principal and the principal has the right to control the actions of the agent. 30 As the court pointed out, not all parties that act on behalf of others are agents: if, for example, Business B sells Business A s products but decides for itself how to conduct that sales activity, Business B could be classified as an independent contractor to Business A rather than an agent. A business generally is not liable for the unlawful actions of an independent contractor. Deciding whether a marketing operation like All American Auto Protection is an agent rather than an independent contractor is not simple, however; the Jones court identified ten factors that must be considered: (1) the control exerted by the employer; (2) whether the one employed is engaged in a distinct occupation; (3) whether the work is normally done under the supervision of an employer; (4) the skill required; 30 Jones, supra, Slip Op. p. 8. 7

8 (5) whether the employer supplies tools and instrumentalities [and the place of work]; (6) the length of time employed; (7) whether payment is by time or by the job; (8) whether the work is in the regular business of the employer; (9) the subjective intent of the parties; and (10) whether the employer is or is not in business. 31 In applying these factors to the relationship between Royal and All American, the court focused chiefly on the extent of control exercised by Royal over All American s calling practices. The court found that although Royal set general guidelines and scripts for All American s use in pitching Royal s contracts, Royal s script came into play only after All America s agent decided to steer the customer to Royal s product. That decision followed a dialing program and scripts aimed at promoting vehicle service contracts in general, over which Royal had no control. Also, All American, rather than Royal, controlled the hours and other terms of employment of the agents who placed the calls. Because of these and other factors, the court concluded that All American was an independent contractor whose alleged TCPA violations could not be attributed to Royal. Three district court decisions entered earlier this month also apply the agent/independent 31 Id., Slip Op. p Abante Rooter & Plumbing v. Farmers Group, Inc., Case No. 17-cv PJH (N.D. Cal. 2018) ( Abante ). 33 When we speak of a principal s control over an agent, such as a business s control over a telemarketing agent s calling campaign, we re looking for evidence of what in legal parlance is called actual authority. A principal also can be contractor distinction to claims of vicarious liability under the TCPA. In Abante Rooter & Plumbing v. Farmers Group, Inc., the plaintiff complained of calls from representatives who stated that they were calling on behalf of Farmers Insurance. 32 Taking up the Farmers Group s motion to dismiss the claim, the court considered whether the complaint alleged Farmers Group s control over the caller for purposes of showing that the caller acted as Farmers Group s agent. The court noted that the complaint contains no factual allegations about the defendant s relationship with the purported callers, much less factual allegations about what control defendant exercised over the callers. The court also found no allegations sufficient to establish the caller s apparent agency to act for Farmers Group, or to show that Farmers Group had ratified the caller s actions. 33 In the absence of such allegations, the complaint was dismissed with leave to amend. The day after Abante was decided, a federal court in California decided Moser v. Health Insurance Innovations, Inc. 34 The plaintiff in Moser alleged, among other claims, that Health Insurance Innovations (HII) hired boiler rooms to make unlawful telemarketing calls promoting the sale of medical insurance plans and other insurancerelated services furnished by HII s customers. HII moved to dismiss the complaint on the ground that it did not sufficiently allege that the boiler room callers bound by a purported agent s apparent authority, which arises from the purported agent s representations to others about his authority to act; or from the alleged principal s subsequent ratification of the purported agent s activity. Abante, supra, Slip Op. pp Moser v. Health Insurance Innovations, Inc. et al., Case No. 3:17-cv-1127-WQH-KSC (S.D. Cal. 2018) ( Moser ). 8

9 acted as HII s agents. The court refused to dismiss the claim, noting the plaintiff s allegations that HII representatives were involved in each of the calls and that the boiler room callers transferred consumers to HII during the calls. The court found that if the plaintiff could prove these claims, they would make it plausible that [the boiler room callers] were acting as HII s agents when they made the Calls. 35 The court found that similar allegations against another user of the boiler room s services, Unified Life Insurance Company, also survived the motion to dismiss because Unified allegedly retained the boiler rooms with full knowledge and assistance and condon[ed] their actions afterwards. Finally, on January 19 th of this year, a federal judge in Missouri ruled in the case of Gould v. Farmers Insurance Exchange. 36 Catherine Gould alleged that she had received ten text messages on her cellphone from persons purporting to be insurance agents in the business of selling Farmers Group insurance policies. Among other claims, Gould argued that Farmers could be vicariously liable for the texts because the senders had Farmers Group s actual authority to send them. In support of this argument, Gould claimed that Farmers directed the content of its agents advertising, retained the absolute and unilateral right-of-control over the advertising, required approval of advertising identifying Farmers, and approved the text messages sent to Gould. 37 The court found that these allegations, if proved, could establish Farmers Group s vicarious liability for the texts. place consumer calls. One approach is to enter into agency or employer-employee arrangements that permit close supervision of the persons conducting calling campaigns. If this approach is taken, liability for TCPA violations is likely to attach to the supervising entity, and a close watch over the agents compliance will be required. The other approach is to hire independent contractors and permit those contractors to design and implement the nuts and bolts of the calling campaigns. An in-between approach, in which a business has authority to micromanage the third party but fails to do so, poses the greatest risk of TCPA exposure. This is where I add the usual disclaimers: Nothing in this Newsletter is legal advice, and you should let me know if you want off my mailing list by ing me at ckennedy@kennedyonprivacy.com. The four recent vicarious-liability decisions underscore the importance of taking one of two approaches to the use of third parties to 35 Moser, supra, Slip Op. p Gould v. Farmers Insurance Exchange, et al., No. 4:17CV 2305 RWS (E.D. Mo. 2018). 37 Gould, supra, Slip Op. pp

10 Recently updated: the Guide to Federal and State Telemarketing Law, 447 pages, as of January 1, 2018 The Guide to Federal and State Telemarketing Law is the only comprehensive, detailed and current source for all of the statutes and regulations that affect calling and texting to consumers in the United States. The Guide gives each jurisdiction, including federal authorities, the 50 states, the District of Columbia and Puerto Rico its own section consisting of a narrative, practice tips and a matrix that sets out the jurisdiction s rules for registration, do-not-call compliance, automated calling, date and time-of-day restrictions, required scripts and disclosures, Caller ID transmission, facsimile advertising and recordkeeping. The Guide also describes the penalties for violations of each jurisdiction s rules, and the availability of private rights of action, statutory damages awards and awards of attorneys fees. The explanations of state requirements are supplemented and refined by our ongoing review of judicial decisions and enforcement proceedings that show how the rules are interpreted in the real world, and by insights gained through correspondence and conversations with state regulators. For information on ordering the Guide or obtaining a sample of its contents for your review, contact Charlie Kennedy at ckennedy@kennedyonprivacy.com, or Mary Vitek at mvitek@kennedyonprivacy.com. You also may order the Guide at our website, 10