Redial: 2017 TCPA Year-in-Review

Transcription

1 Redial: 2017 TCPA Year-in-Review Analysis of critical issues and trends in TCPA compliance and litigation

2 Notes Redial: 2017 TCPA Year-in-Review

3 Introduction Eversheds Sutherland is pleased to present REDIAL, our annual in-depth analysis of key Telephone Consumer Protection Act (TCPA) issues and trends. REDIAL reports on issues affecting the industries that face potential TCPA liability. Did you know? 51% 100,000 Percent of US households that are The number of cell phone numbers wireless/cell only and without a that are reassigned each day, landline. according to the FCC. 46% The percentage increase in TCPA cases since the FCC s July 2015 order. Eversheds Sutherland industry knowledge and focus Few industries are immune from TCPA liability. In 2017, the insurance, financial services, energy and health sectors were uniquely affected by TCPA litigation. REDIAL analyzes key legal issues affecting these and other industries. Eversheds Sutherland tracks daily all TCPA cases filed across the country. This allows us to spot trends and keep our clients focused and informed. We understand the law and our clients businesses, allowing us to design compliance and risk management programs uniquely suited to our clients' specific needs and to spot issues before they result in litigation. When litigation is filed, Eversheds Sutherland s TCPA team has the depth of experience necessary to efficiently and effectively defend its clients interests in court. Why Eversheds Sutherland? Strength in representing leading companies worldwide Strength in knowing our clients businesses Strength in advising and counseling our clients on TCPA compliance Strength as trial lawyers in efficiently and effectively representing our clients in class actions filed in state and federal courts across the country Analysis of critical issues and trends arising from the Telephone Consumer Protection Act

4 Redial: 2017 TCPA Year-in-Review

5 Contents TCPA regulatory developments Blink and you ll miss it: TCPA implications of appointment of new FCC chairman... 7 No harm, no foul? FCC seeks comment on direct-to-voic services and the TCPA... 8 All dressed up and nowhere to go: Ringless voic FCC petition withdrawn... 9 Getting the fax straight Opting out: TCPA fax opt-out requirement struck down DC Circuit says FCC can t require opt-out notices on solicited faxes Just the fax: DC circuit rejects FCC requirements of opt-out language on solicited faxes under the TCPA DC circuit denies rehearing of TCPA fax decision File not found: Lack of fax or call logs doom class ascertainability in TCPA cases Industry impact TCPA and telecommunications See no evil: Willful blindness costs dish network $341 million for TCPA violations TCPA and professional sports Got game? privacy exclusion results in denial of coverage in L.A. Lakers TCPA suit TCPA and nonprofits Calling toll-free: Special rules for nonprofits offer safe harbor from TCPA liability Litigation review Untangling the cord: seeking clarity on the TCPA s definition of autodialer Locked-in: TCPA consent not revocable if a term of contract Cutting the cord: Can courts trim TCPA statutory damages? Call waiting? Challengers continue to await ruling in appeal of 2015 TCPA order Hot issues of 2018 Dialing-in: TCPA hot issues for Analysis of critical issues and trends arising from the Telephone Consumer Protection Act

6 TCPA regulatory developments Redial: 2017 TCPA Year-in-Review

7 TCPA regulatory developments Blink and you ll miss it: TCPA implications of appointment of new FCC chairman Blink and you ll miss it: TCPA implications of appointment of new FCC chairman With all the pomp, circumstance and general political commotion surrounding the inauguration of President Donald J. Trump on January 20, 2017, it was easy to overlook one of his first acts in office: the appointment of Ajit Pai as the new Chairman of the Federal Communications Commission (FCC). Pai, whose appointment requires no Congressional confirmation because he already sits on the Commission, replaces former Chairman Tom Wheeler, who stepped down from the Commission, leaving a 2-1 majority in favor of Republicans. The shift in power at the FCC will likely have significant implications for the TCPA. Commissioner Ajit Pai s colorful and rather blistering dissent to the FCC s July 2015 Omnibus TCPA Order provides insight on the possible direction the newly configured FCC could take on certain TCPA hot-button issues. The shift in power at the FCC will likely have significant implications for the Telephone Consumer Protection Act (TCPA). Commissioner Pai s colorful and rather blistering dissent to the FCC s July 2015 Omnibus TCPA Order (the Order) provides insight on the possible direction the newly configured FCC could take on certain TCPA hot-button issues. In his dissent, now-chairman Pai did not mince words, echoing the feelings of many companies and defense counsel when he noted that the Order will make abuse of the TCPA much, much easier. And the primary beneficiaries will be trial lawyers, not the American public. Chairman Pai s overarching issue with the Order was its failure to target telemarketing, which he sees as the primary goal of the TCPA. Instead, the Order expanded the reach of the TCPA in ways Chairman Pai found to be anticonsumer and anti-business. He lodged three specific objections to the Order. First, Chairman Pai noted that the Order dramatically expands the TCPA s reach by interpreting automatic telephone dialing system (ATDS) in such a way as to capture all technology with the capacity to dial automatically. He characterized this interpretation as transform[ing] the TCPA from a statutory rifle-shot targeting specific companies into an unpredictable shotgun blast covering virtually all communications devices. Second, Chairman Pai criticized the Order s ruling on prior express consent. The Order effectively instituted a oneand-done approach to consent, allowing for TCPA liability if a caller made more than one call to a recipient who did not provide consent. Under this approach, if a number is reassigned after consent is given, consent no longer exists, and the new subscriber can file a suit after the second call. What is troubling for callers is that the recipient of the call has no obligation to inform the caller of the reassigned status of the number. Coupled without a good faith harbor for the caller, this allows for recipients to accept countless calls from an unwitting caller and then file a TCPA lawsuit. Chairman Pai referred to this approach as a veritable quagmire of self-contradiction and misplaced incentives. Third, he criticized the Order s carveout for the prison payphone industry [which] lets that industry repeatedly make prerecorded voice calls to consumers in order to set up a billing relationship for future services. While this is a narrow exception, Chairman Pai slammed it as provid[ing] a roadmap for those seeking a lawful way to avoid our telemarketing rules. A challenge to the FCC s 2015 Order is currently pending before the US Court of Appeals for the DC Circuit following oral argument in late Analysis of critical issues and trends in TCPA compliance and litigation 7

8 TCPA regulatory developments No harm, no foul? FCC seeks comment on direct-to-voic services and the TCPA No harm, no foul? FCC seeks comment on direct-to-voic services and the TCPA Does a prerecorded message delivered directly to the recipient s voic constitute a call subject to the restrictions of the Telephone Consumer Protection Act (TCPA)? The Federal Communications Commission (FCC) considered this issue for the first time and solicited comments on a petition for declaratory ruling filed by a company that provides delivery of voic s to cell phone accounts without calling those numbers. Regardless of what the service is called direct-to-voic (DTV), ringless voic or something else depending on the service provider the process is generally the same. The technology allows a company to drop a prerecorded message into the voic box of a consumer (or the voic boxes of potentially millions of consumers) by connecting to a telephone company s voic server via a landline. After the voic has been deposited by the DTV provider, the consumer receives a notification that a voic has been left for the consumer on the carrier-maintained voic box. The petition argued that by going through the telephone company s landline in this manner, the DTV provider avoids directly calling the consumer s phone line, and thus the messages do not constitute autodialed or prerecorded calls made directly to a cellular phone subscriber. Since the consumer s phone has never been called, and therefore there has been no charge to the consumer, the petition argued that these communications do not violate the TCPA. Depending on the consumer s cell phone service, there may be a charge for accessing the voic , whether it is accessed by calling the cell phone company s server or by receiving a transcript over text or . The petition argued that any charges relating to a consumer viewing or listening to the voic would not be covered under the TCPA because the consumer took the affirmative step to access the voic box. The TCPA prohibits autodialed or prerecorded non-marketing calls to cell phones without the express consent of Direct-to-Voic technology allows companies to place messages in a voic box without calling the recipient s phone number, raising a question of whether the message constitutes the call violates the TCPA s restrictions on autodialed and prerecorded calls. the recipient. For telemarketing purposes, If the FCC grants the declaration as consent must be in writing and meet requested, it will afford companies in a specific criteria. In responding to the host of industries the ability to contact DTV petition, the FCC was expected to their customers and potential customers consider whether placing voic s into without risking liability under the TCPA. customers voic boxes constitutes To date, the TCPA has been broadly a call under the TCPA and whether interpreted. With the appointment of voic services should remain an Ajit Pai as Commissioner and with a enhanced or information service Republican-controlled Commission, provided by telephone carriers, and this petition was being watched to see therefore not governed by the FCC s whether the FCC will take a narrower, rules regarding cell phone carriers. more business-friendly approach to the The FCC has considered voic an TCPA than it has over the last several enhanced service for nearly 40 years. years under a Democratic-controlled DTV services are increasingly used, for Commission. example, by debt servicing companies, although a favorable FCC declaration could potentially expand the scope of DTV use. 8 Redial: 2017 TCPA Year-in-Review

9 TCPA regulatory developments All dressed up and nowhere to go: Ringless voic FCC petition withdrawn All dressed up and nowhere to go: Ringless voic FCC petition withdrawn In the face of significant opposition from virtually all quarters, All About The Message, LLC (AATM), has withdrawn its petition asking the Federal Communications Commission (FCC) for a declaratory ruling that a prerecorded message delivered directly to a recipient s voic does not constitute a call subject to the restrictions of the Telephone Consumer Protection Act (TCPA). During the FCC s open comment period, opponents of the ringless voic technology (also known as direct-to-voic , or DTV) came out in full force against AATM s proposed ruling. AATM quietly withdrew the petition on June 20, 2017, leaving the issue unresolved. AATM s petition was the first of its kind to be taken up by the FCC on the issue of whether a ringless voic falls within the scope of the TCPA, which prohibits autodialed or prerecorded non-marketing calls to cell phones without the express consent of the recipient. The petition argued that by going through a telephone company s landline to place a message in a recipient s voic without actually calling the recipient the service could not be considered a call under the TCPA. Although there could be a subsequent charge to the customer for accessing the voic , the petition asserted, any such charges would not be covered by the TCPA because the consumer would need to take an affirmative step to access the voic . The issue quickly became political. The Republican National Committee and lobbyists with the US Chamber of Commerce chimed in to support the petition, arguing that the ringless technology is not intrusive, and that an adverse finding by the FCC would infringe on the First Amendment rights of companies like AATM. The issue is not expected to go away. The withdrawal of the petition in a single-sentence letter sent to the FCC leaves the issue open for a future ruling by the Commission or possibly the courts. Without explanation, the petition for the FCC to review Direct-to-Voic technology was withdrawn, leaving open the question of whether and how the use of DTV software can run afoul of the TCPA. During the FCC s comment period, which ended on May 18, 2017, consumer advocate groups, some state attorneys general, and even a handful of US Senators advocated against the AATM petition. These opponents of the petition argued that ringless voic s circumvent the spirit and purpose of the TCPA to prevent unwanted robocalls, and open the floodgates for companies to place unlimited unwanted calls to consumers. Opponents also stated that the technology improperly shifted the blame for the final delivery of unwanted messages to the recipient. Analysis of critical issues and trends in TCPA compliance and litigation 9

10 Getting the fax straight Redial: 2017 TCPA Year-in-Review

11 Getting the fax straight Opting out: TCPA fax opt-out requirement struck down DC Circuit says FCC can t require opt-out notices on solicited faxes Opting out: TCPA fax opt-out requirement struck down DC Circuit says FCC can t require opt-out notices on solicited faxes The US Court of Appeals for the DC Circuit invalidated a rule issued by the Federal Communications Commission (FCC) in 2006 requiring businesses to include opt-out notices when the recipient has consented to receive the fax. The court held that the FCC lacked the authority under the Telephone Consumer Protection Act to require such notices given that the Junk Fax Prevention Act of 2005 only requires that notices be placed on unsolicited faxes. The court concluded that the FCC s rule requiring opt-out notices on solicited faxes was improper. The FCC had argued under former Chairman Tom Wheeler (who has since been replaced by Chairman Ajit Pai) that it could take an action, including regulating notices on solicited faxes, so long as Congress has not prohibited the agency action in question. In rejecting that argument, the opinion reasoned that the theory has it backwards as a matter of basic separation of powers and administrative law and that the FCC may only take action that Congress has authorized. The D.C. Circuit held that the FCC lacked the authority under the TCPA to require opt-out notices because the Junk Fax Prevention Act of 2005 only requires that notices be placed on unsolicited faxes. The decision is an important step towards providing businesses with more common sense guidance in complying with laws applicable to customer communications. Analysis of critical issues and trends in TCPA compliance and litigation 11

12 Getting the fax straight Just the fax: DC circuit rejects FCC requirements of opt-out language on solicited faxes under the TCPA Just the fax: DC circuit rejects FCC requirements of opt-out language on solicited faxes under the TCPA In a March 31, 2017 ruling, the US Court of Appeals for the DC Circuit invalidated a 2006 Federal Communications Commission (FCC) rule requiring businesses to include opt-out notices on solicited fax advertisements sent with the express permission of the recipient. The court, in Bais Yaakov of Spring Valley et al. v. FCC, (D.C. Cir. Mar. 31, 2017), held that the FCC lacked the authority under the Telephone Consumer Protection Act (TCPA) to require opt-out notices on solicited faxes because the Junk Fax Prevention Act of 2005 (JFPA) 1 requires only that opt-out notices be included on unsolicited faxes. For the majority of the court, allowing the FCC to promulgate a rule requiring opt-out notices on solicited faxes was beyond the scope of the authority delegated by Congress. The ruling clarifies how businesses can communicate with customers via fax and provides relief for businesses defending against TCPA/JFPA claims based on a failure to include opt-out language in solicited faxes. Anda, Inc., a global distributor of pharmaceuticals and one of the petitioners in Bais Yaakov, was sued in a class action for sending fax advertisements to pharmacies without the opt-out notice required under the FCC rule, even though the pharmacies consented to receive the faxes sent by Anda. This subjected Anda to potential nine-figure liability. As the DC Circuit noted: Let that soak in for a minute: Anda was potentially on the hook for $150 million for failing to include opt-out notices on faxes that the recipients had given Anda permission to send. In 2010, Anda petitioned the FCC for a declaratory ruling clarifying that the JFPA does not require businesses to place opt-out notices on solicited faxes. In October 2014, the FCC issued an Order affirming that the JFPA allowed the FCC to require the inclusion of the notices on all fax advertisements, regardless of whether the recipient had given permission. 2 The FCC subsequently denied an Application for Review along with several other petitions regarding the same issue, confirming its position that all fax advertisements must include instructions that provide recipients a clear and unambiguous method to opt out of future communications, even if [recipients] previously agreed to receive fax ads from [the] senders. Anda appealed the FCC s Order to the DC Circuit. The DC Circuit overturned the FCC s rule requiring opt-out notices on solicited fax advertisements. The court reasoned that the plain language of the JFPA does not give the FCC the authority to require notices on solicited faxes. In its briefing and at oral argument, the FCC argued that it could regulate notices on solicited faxes, so long as Congress has not prohibited the agency action in question. Specifically, the FCC relied on the express invitation or permission language in the statute to argue that requiring opt-out notices on solicited faxes ensured that whatever consent was given by the customer remained valid. To this, the court stated: If you are finding the FCC s reasoning on this point difficult to follow, you are not alone. We do not get it either. The court rejected the FCC s argument, finding that the FCC has it backwards as a matter of basic separation of powers and administrative law and stating that the FCC may only take action that Congress has authorized. Congress has not authorized the FCC to 1 In 2005, the TCPA was amended by the JFPA, 47 U.S.C. 227(b), which generally prohibits unsolicited fax advertisements and requires opt-out notices for unsolicited faxes. In 2006, the FCC issued a rule requiring opt-out notices to be included on solicited faxes as well. 2 See Rules and Regulations Implementing the Telephone Consumer Protection Act of 1991; Junk Fax Prevention Act of 2005, Application for Review filed by Anda, Inc.; Petitions for Declaratory Ruling, Waiver, and/or Rulemaking Regarding the Commission s Opt-Out Requirement for Faxes Sent with the Recipient s Prior Express Permission, CG Docket Nos , , Order, FCC (Oct. 30, 2014). 12 Redial: 2017 TCPA Year-in-Review

13 Getting the fax straight Just the fax: DC circuit rejects FCC requirements of opt-out language on solicited faxes under the TCPA require opt-out notices on solicited fax advertisements. And that is all we need to know to resolve this case. The court further explained that, even if having opt-out language in the faxes would be good policy, the FCC s rule requiring such notices was outside of the authority given to the FCC under the statute, which is clear that the notices are only required for unsolicited fax advertisements. The court noted that the FCC s concern about providing a sufficient opt-out method was misplaced, given that the FCC already requires that a recipient may revoke permission by sending a request to the sender. DC Circuit Judge Nina Pillard dissented and lamented that the majority opinion shortchanges the FCC s statutory authority to implement Congress s ban on unsolicited fax ads. In her opinion, the authority given to the FCC to prescribe regulations to implement the JFPA, and the absence of Congressional guidance on how permission may be withdrawn, meant that the agency could promulgate rules requiring businesses to communicate clear methods of opting out. The reversal of the FCC s 2006 Anda Order in Bais Yaakov is good news for businesses engaged in active litigation involving faxes sent with consent but lacking opt-out language. The decision also forecloses a line of attack for potential plaintiffs and their counsel hoping to take advantage of the seemingly limitless damages By overturning the FCC s requirement that solicited faxes must include optouts, the D.C. Circuit clarified how businesses can communicate with customers via fax. available under the TCPA. Following the court s ruling, FCC Chairman Ajit Pai issued a statement praising the decision and reiterating his view that the agency s 2006 rule interpreting the JFPA reflected convoluted gymnastics. Given Chairman Pai s reaction to the decision, it is unlikely that the case will be appealed to the US Supreme Court. The ruling also shows the court s willingness to hold the FCC accountable when it takes actions outside of its authority, which portends well for parties challenging other FCC orders. Interestingly, Judge Pillard is also on the panel of judges that is considering whether the FCC overstepped its bounds in ACA International, where the petitioners have challenged the FCC s 2015 Omnibus TCPA Order that expansively interpreted certain provisions of the TCPA such as what constitutes adequate revocation of consent and what types of technology qualify as an automatic telephone dialing system. Going forward, even though the Bais Yaakov decision takes some wind out of the sails of would-be plaintiffs seeking to capitalize on the nuances of the TCPA and FCC rules, businesses and their counsel should remain mindful of the core requirements of the statute and the impact of this decision. Best practices include the following: Unsolicited fax advertisements are generally prohibited by the TCPA, even if an opt-out notice is included on the fax. A fax advertisement may be sent to a party with whom the sender has an established business relationship (EBR), subject to various requirements. An opt-out notice is required if the sender is relying on the EBR. For a solicited fax advertisement (sent with the express permission of the recipient), an opt-out notice is no longer strictly required by the TCPA, but inclusion of an opt-out notice on all faxes is a best practice. An opt-out notice should contain each of the elements required by the FCC rules, which are specific on the mechanisms and disclosures that must be included. For solicited faxes, businesses must maintain appropriate records so that t hey are aware of recipients who have provided express consent and those who have opted out of receiving further communications. Analysis of critical issues and trends in TCPA compliance and litigation 13

14 Getting the fax straight DC circuit denies rehearing of TCPA fax decision DC circuit denies rehearing of TCPA fax decision On June 6, 2017, the US Court of Appeals for the DC Circuit denied the government s request for an en banc rehearing of a March 31, 2017, decision that invalidated a decade-old Federal Communications Commission (FCC) rule requiring that parties sending solicited faxes (sent with the recipient s consent) must include an opt-out notice on the fax to avoid liability under the Telephone Consumer Protection Act (TCPA). The court found that the FCC did not have the authority to require an opt-out notice on faxes that were requested by or consented to by the recipient. A successful appeal to the US Supreme Court is unlikely, so the DC Circuit s denial effectively settles an issue that has been at the heart of countless class action lawsuits for the last decade. Most importantly, businesses now have clarity on how they can communicate with customers via fax, and defendants in pending junk fax suits may have another defense in their arsenal. The TCPA, as amended by the Junk Fax Prevention Act (JFPA), generally prohibits unsolicited fax advertisements and requires opt-out notices for unsolicited faxes. The TCPA/JFPA is silent on the question of whether solicited faxes those sent with the permission of the recipient also require opt-out language. In 2006, the FCC issued a rule requiring that opt-out notices must be included on all faxes, even those sent with the permission of the recipient. By adding this requirement to the TCPA, the FCC created an entirely new requirement for companies and an opportunity for plaintiffs attorneys. On March 31, 2017, the DC Circuit struck elaborate on its earlier ruling in the down the FCC s rule by a 2-1 vote. In June 6 decision, but the denial should decision, the court scolded the FCC for end the appeal process, subject to an exceeding its authority in creating the appeal to the US Supreme Court. This additional requirement, noting that the will give companies more certainty when FCC may only take action that Congress evaluating whether their customer-facing has authorized. The court did not practices comply with the TCPA. The D.C. Circuit scolded the FCC for taking action unauthorized by Congress for requiring solicited faxes to contain opt-out language U.S.C. 227(a)(1). 14 Redial: 2017 TCPA Year-in-Review

15 Getting the fax straight File not found: Lack of fax or call logs doom class ascertainability in TCPA cases File not found: Lack of fax or call logs doom class ascertainability in TCPA cases What is seemingly a growing divide between circuits has developed on the appropriate standard for assessing ascertainability in federal class actions, including Telephone Consumer Protection Act (TCPA) class actions. Ascertainability, the implied requirement in Rule 23 of the Federal Rules of Civil Procedure, requires that there be a means of determining class membership in a proposed class action. Courts have disagreed on the appropriate standard for assessing ascertainability. The US Court of Appeals for the Third Circuit has articulated a heightened ascertainability standard requiring not only that a class be defined with reference to objective criteria, but also that plaintiffs put forward a reliable and administratively feasible mechanism for determining whether putative class members fall within the class definition. The Second, Sixth, Seventh, Eighth and Ninth Circuits, however, have all expressly declined to apply a heightened ascertainability standard, and instead require only that a class be defined with reference to objective criteria. While this trend towards a lower ascertainability standard may seem to provide an easier path to class certification for TCPA plaintiffs, several recent decisions have signaled that even under a lower standard, courts are unwilling to accept unreliable proof of class membership in TCPA class actions. On July 11, 2017, the US Court of Appeals for the Sixth Circuit affirmed the denial of class certification in a TCPA case involving junk faxes, upholding a district court ruling that the lack of logs or other records reflecting successful facsimile transmissions rendered plaintiffs proposed class of fax recipients unascertainable. In the case, Sandusky Wellness Center, LLC v. ASD Specialty Healthcare Inc., No (6th Cir. July 11, 2017), plaintiffs had moved to certify a class of fax recipients, proposing that individual affidavits, attesting to receipt of the fax, could be used to determine class membership. In affirming the district court denial of certification, the Sixth Circuit found that in the absence of fax logs demonstrating who actually received a facsimile, objective criteria for determining class membership did not exist. The court specifically noted that fax recipients could not realistically be expected to remember receiving a one-page fax sent years prior, and therefore relying on self-serving affidavits was not an objective means to ascertain class membership. The Sixth Circuit also found that reliance on individual affidavits raised commonality and predominance questions, because assessing the veracity of the affidavits would necessarily require individualized mini-trials. On July 5, 2017, just a week prior to the Sixth Circuit s decision in Sandusky, the US District Court for the Western District of Missouri reached a similar holding in St. Louis Heart Center Inc. v. Vein Centers for Excellence Inc., 4:12-cv (July 5, 2017), decertifying a class of fax recipients on ascertainability grounds. St. Louis Heart Center concerned the alleged transmittal of unsolicited faxes sent on behalf of Vein Centers, a physician marketing firm. Although fax logs reflecting successful transmissions were unavailable, a class of all individuals who were sent a fax by Vein Centers was certified by the court in Courts require objective means of determining class membership in order to certify a proposed class. In the TCPA context, this may mean requiring logs that illustrate who received a call or fax. Following clarification from the Eighth Circuit in McKeage v. TMBC, LLC, 847 F.3d 992 (8th Cir. 2017), that the makeup of a class must be determined by objective criteria, the district court reversed course, denying plaintiffs motion for summary judgment and granting defendant s motion for decertification. The court found that in the absence of fax logs, plaintiffs had failed to Analysis of critical issues and trends in TCPA compliance and litigation 15

16 Getting the fax straight File not found: Lack of fax or call logs doom class ascertainability in TCPA cases identify objective criteria through which the class could be identified. The court also rejected plaintiffs argument that potential class members could sign affidavits or claim forms in response to a notice that would go out after the case was resolved, finding, similar to the Sixth Circuit, that it would be difficult to determine whether recollections of having received a fax years ago were valid. On February 15, 2017, the US Court of Appeals for the Second Circuit also weighed in on the issue, affirming a district court s denial of class certification on ascertainability grounds in a TCPA case where call logs did not exist. In Leyse v. Lifetime Entm t Servs., Inc., No cv, 2017 WL (2d Cir. Feb. 15, 2017), plaintiffs brought a putative class action against Lifetime for allegedly violating the TCPA by making a series of unlawful, prerecorded telephone calls. Plaintiffs proposed identifying class members through affidavits from individuals who would testify to receipt of the calls, because logs of the call recipients did not exist. The district court concluded and the Second Circuit affirmed that this was not an ascertainable way to identify class members given (1) no list of the called numbers existed; (2) no such list was likely to emerge; and (3) [ ] proposed class members could not realistically be expected to recall a brief phone call received six years ago or to retain any concrete documentation of such receipt. These decisions illustrate that even under a lower ascertainability standard courts still require some objective means of determining class membership. In the TCPA context, this may mean requiring logs that illustrate who received a call or fax. At a minimum, these cases provide a new tool for companies defending TCPA cases in which logs or other records are lacking. With the ongoing wave of TCPA litigation, the standard for ascertainability will continue to be a key issue in many new and ongoing cases. 16 Redial: 2017 TCPA Year-in-Review

17 Industry impact TCPA and telecommunications See no evil: Willful blindness costs Dish Network $341 million for TCPA violations See no evil: Willful blindness costs Dish Network $341 million for TCPA violations Willful blindness when it comes to the Telephone Consumer Protection Act (TCPA) could cost companies millions in statutory damages and penalties. Dish Network has been ordered in two cases to pay a total of $341 million based on its failure to prevent TCPA violations committed by its marketing agents. The cases illustrate the factors that courts may consider in determining what level of culpability is appropriate for ignoring TCPA violations, even in the absence of direct knowledge. In Krakauer v. Dish Network LLC, (M.D.N.C. May 22, 2017), the court rejected Dish Network s claims that it sufficiently supervised its marketing agent, Satellite Systems Network (SSN), to prevent SSN from making unsolicited calls to consumers. According to the court, treble damages were appropriate because (1) SSN knowingly violated the statute, and (2) Dish Network turned a blind eye to SSN s TCPA violations. The ruling contributes to the uncertainty regarding when courts will find a TCPA violation to be willful and thus subject to treble damages. In US v. Dish Network, LLC, No (C.D. Ill. June 5, 2017), the court found that a mathematical calculation of statutory damages would be disproportionate and unreasonable, and therefore did not award treble damages. The court did find, however, that a large civil penalty was appropriate after considering the degree of Dish Network s culpability, its history of prior conduct, its ability to pay and other circumstances. The TCPA provides for $500 in statutory damages per violation. Courts have discretion to award treble damages for willing or knowing violations. In recent cases, courts have applied varying standards to determine whether conduct is willful and thus subject to treble damages. Some courts have required that the defendant have direct knowledge of calls made and knowledge that the calls violate the TCPA. For example, in Lary v. Trinity Phys. Fin. & Ins. Servs., 780 F.3d 1101 (11th Cir. 2015), the court found that it was not enough to require only that the alleged violator know that it was engaging in the conduct; instead the violator must also know that the conduct violates the TCPA, [otherwise] the statute would have almost no room for violations that are not willful or knowing. The Lary court also noted that the defendants in that case could not be responsible for treble damages under the TCPA s willful and knowing requirement since the defendants had used a third party to send out advertisements, which suggests that [the defendants] might have had no knowledge that [the plaintiff] received a particular fax. See also Harris v. World Fin. Network Nat l Bank, 867 F. Supp. 2d 888, 895 (E.D. Mich. 2012) (observing that an overbroad application of willfulness would significantly diminish the statute s distinction between violations that do not require an intent, and those willful and knowing violations that Congress intended to punish more severely. ); Brown v. Enter. Recovery Sys., Inc., 2013 WL , at *9 (Tex. App. Aug. 22, 2013) ( But to recover treble damages, the Browns had to show that ERS knew of the TCPA s requirements and that it knew or should have known that its actions violated the Act. ). In some cases, however, courts have stated that treble damages could be awarded where there was only intent to perform the conduct at issue, regardless of whether the defendant knew that the conduct violated the TCPA. In Clark v. Red Rose, Mentor M.C. No. 04CVF-150, 2004 WL (May 3, 2004), a consumer brought an action against Red Rose claiming that the company sent her unsolicited fax advertisements. The court awarded treble damages and noted that, as defined in the Federal Communications Act, the term willfully merely means that the defendant acted voluntarily, and under its own free will, and regardless whether the defendant knew that it was acting in violation of the statute. Regarding the knowing standard, the court explained that [k] nowingly may not be held to mean that the defendant must know that its acts were a violation of the law, since this would conflict with the long-established legal principle that ignorance of the law is no excuse. See also American Home Servs., Inc. v. A Fast Sign Co., Inc., 747 S.E.2d 205, (Ga. App. 2013) ( AHS admitted that it hired Sunbelt to send advertising faxes on its behalf. This is sufficient to make the violation willful within the meaning of the statute. ). Analysis of critical issues and trends in TCPA compliance and litigation 17

18 Industry impact TCPA and telecommunications See no evil: Willful blindness costs Dish Network $341 million for TCPA violations Dish Network, a telecommunications service provider, was sued in 2014 in a class action after its marketing agent, SSN, was accused of making more than 50,000 telemarketing calls on Dish s behalf to numbers on the National Do-Not-Call Registry. The lead plaintiff, Dr. Thomas Krakauer, sought injunctive and monetary relief on behalf of himself and others who had allegedly received the calls. Following trial, the jury found Dish Network liable and awarded $20.5 million in damages. The parties then submitted closing arguments to the court on whether the TCPA violations were willful for purposes of treble damages, which was the subject of the court s May 22, 2017 opinion. The court held that Dish Network willfully and knowingly violated the TCPA and trebled the damages award to $61 million. Although SSN made the calls, the court reasoned that Dish, as the principal, was vicariously liable. The court also explained that certain aggravating factors justified the award of treble damages. First, Dish Network failed to monitor SSN s calling practices, ignored SSN s many TCPA violations over the years, and repeatedly looked the other way. Second, and even more damaging, the court was convinced that Dish Network did not care whether SSN complied with the law or not and that Dish Network s TCPA compliance policy was decidedly two-faced, allowing Dish Network to monitor TCPA compliance while Dish Network failed to do so. Dish Network faces combined statutory damages and penalties of more than $340 million for willfully and knowingly violating the TCPA, and for allowing its vendors to similarly violate the law. Dish Network was expected to appeal the district court s ruling to the US Court of Appeals for the Fourth Circuit, especially considering the inconsistent standards for awarding treble damages and Dish Network s position that the company did all it could to ensure SSN was in compliance with the TCPA. In the meantime, the ruling adds more concern for defendants on the possibility of treble damages and creates another big-dollar TCPA headline. ability to pay and other circumstances. The court found that culpability was significant because the programs were run in a reckless manner. According to the court, Dish [Network] had on-going problems complying with Do-Not-Call Laws and understood the potential penalties for Do-Not-Call Law violations could be substantial, and yet the problems persisted over many years. Similar to Krakauer, the court was troubled that Dish Network seemed to make little effort to comply with the TCPA, noting, for example, that Dish Network hired Order Entry Retailers based on one factor, the ability to generate activations and that Dish [Network] cared about very little else, including complying with Do-Not-Call laws. Companies concerned about avoiding potential TCPA exposure should be aware of the factors that some courts have considered in deciding what level of damages and/or penalties are appropriate: Whether the violations were isolated or a pattern and practice over time The extent to which the defendant participated in the alleged violations, or was aware of the conduct and allowed it to continue Whether there are sufficient business processes to respond to consumer complaints regarding unsolicited calls Efforts to maintain current call records and lists that are up-to-date and in compliance with both in-house and national Do-Not-Call lists The degree to which the defendant performed due diligence in hiring contractors and other agents to ensure TCPA compliance Whether the defendant knew the conduct was unlawful The TCPA continues to create significant litigation risk for any company that communicates with customers or potential customers by phone, text or fax. Although the potential for treble damages and heavy civil penalties heightens the risk, efforts to put strong compliance procedures in place can not only reduce the risk of lawsuits, but also reduce the risk of treble damages in the event of litigation. Unlike the court in Krakauer, the district court judge in US v. Dish Network, LLC, No (C.D. Ill. June 5, 2017) decided against statutory damages, which the court found unreasonable and disproportionately high given that such damages totaled in the billions of dollars. The court, therefore, did not consider treble damages. Instead, the court awarded a $280 million civil penalty, citing Dish s culpability, its history of prior conduct, its 18 Redial: 2017 TCPA Year-in-Review

19 Industry impact TCPA and professional sports Got game? Privacy exclusion results in denial of coverage in L.A. Lakers TCPA suit Got game? Privacy exclusion results in denial of coverage in L.A. Lakers TCPA suit An insurance policy exclusion for invasion of privacy claims precludes coverage for the L.A. Lakers in a Telephone Consumer Protection Act (TCPA) suit, according to a divided panel ruling by the US Court of Appeals for the Ninth Circuit in L.A. Lakers v. Federal Ins. Co., (9th Cir. Aug. 23, 2017). The three-judge panel was deeply split. One judge concluded that TCPA claims are inherently privacy claims, another judge strongly disagreed and a third judge cast the deciding vote on much narrower grounds. The split decision leaves open questions regarding the relationship between TCPA claims and invasion of privacy claims in the context of coverage exclusions, and implicates larger questions about the underlying purpose of the TCPA. The underlying TCPA action alleged that the Los Angeles Lakers encouraged fans to send a text to a specific number, which generated an automated response text that allegedly violated the TCPA. The underlying TCPA case was settled, but an insurance coverage dispute lingered on after the team s insurance carrier denied coverage under a directors and officers insurance policy based on an exclusion for invasion of privacy claims. The team sued the carrier for breach of contract. A federal district court ruled in favor of the insurance carrier and dismissed the suit, holding that TCPA claims are implicit invasion-of-privacy claims and squarely within the policy s broad exclusionary clause for invasion of privacy. Although this is a coverage dispute, the underlying question of whether TCPA claims are inherently invasion of privacy claims has broader implications. On appeal, two of the three judges on the Ninth Circuit panel confronted the issue directly. Judge N.R. Smith, who authored the decision, concluded broadly that a TCPA claim is a privacy claim, regardless of the type of relief sought and that a plaintiff asserts an invasion of privacy claim when he or she asserts a TCPA claim. In an analysis of the purpose of the statute, Judge Smith observed that the TCPA twice explicitly states that it is intended to protect privacy rights and stated that the statute protects privacy rights alone. Accordingly, a coverage exclusion for invasion of privacy precluded coverage for TCPA suits. In dissent, Judge Richard Tallman strongly disagreed, stating the he would have ruled that a TCPA claim is not automatically a privacy claim. According to Judge Tallman, judges should look to the elements of a statutory cause of action, and not what motivated enactment of the statute. And because the statutory elements of the TCPA say nothing about privacy, a statutory TCPA claim should not be recast as a privacy claim. The judge noted that this interpretation is bolstered by the fact that, in his view, the TCPA was enacted to do more than simply protect call recipients privacy. The deciding vote fell to Judge Stephen Murphy who viewed the issue in the case more narrowly. Because the complaint in the underlying case mentioned invasion of privacy in several places, Judge Murphy opined that the case stemmed from an alleged invasion of privacy and fell within the scope of the exclusion. But Judge Murphy stated that the court need not hold more broadly that a TCPA claim is inherently an invasion of privacy claim. The decision is a loss for the insured in this case, but the split panel decision leaves open the broader question of the relationship between TCPA claims and privacy claims. This relationship is likely to continue to be a disputed issue, particularly in the context of insurance coverage disputes. Although an increasing number of policies include specific TCPA exclusions, TCPA claims have been a frequent source of insurance coverage disputes in recent years. Whether TCPA defendants may seek coverage from liability insurers to defend and indemnify them for TCPArelated exposure depends on the specific language of the policy at issue and the stated coverage exclusions. As the trend of high-dollar class action settlements continues to spur a wave of TCPA case filings, defendants in these cases should review their various insurance policies and understand how certain exclusions may affect coverage. Analysis of critical issues and trends in TCPA compliance and litigation 19

20 Industry impact TCPA and nonprofits Calling toll-free: Special rules for nonprofits offer safe harbor from TCPA liability Calling toll-free: Special rules for nonprofits offer safe harbor from TCPA liability A company making calls to residential telephone numbers was not liable for alleged violations of the Telephone Consumer Protection Act (TCPA) where the calls were made on behalf of a nonprofit, according to a decision by an Illinois federal court in Spiegel v. Reynolds, 2017 WL (N.D. Ill. Oct. 11, 2017). In ruling for the defense, the court applied an exemption under the TCPA for calls made by a nonprofit to a landline and held that even if a call is placed by a for-profit entity, the rules applicable to nonprofits will apply provided the call is made by or on behalf of a nonprofit organization. Although the TCPA still applies to some calls made by nonprofits (such as calls to cell phones), the decision clarifies how the TCPA is applied to calls made by or on behalf of a nonprofit organization and those that are not. The ruling also reinforces the policy reasons underlying the TCPA, namely, to stem the tide of excessive telemarketing calls made to consumers for a commercial purpose. In Spiegel, Plaintiff Marshall Spiegel filed a class action lawsuit against the defendant, Associated Community Services (ACS), claiming that it violated the TCPA by calling him and others on their residential telephone numbers using a prerecorded voice message despite being listed on the do-not-call registry. The defendant, a for-profit entity, was a registered professional fundraiser that had a longstanding contractual relationship with the Breast Cancer Society. The defendant made calls The court found that the defendant met the standard for the nonprofit rules to apply under the TCPA because the call(s) were placed for the benefit of or in the interest of the nonprofit. Specifically, the defendant argued successfully that it was an agent for the nonprofit because (1) its contracts required that calls be made on behalf of the nonprofit, (2) the nonprofit exercised control over the content of the calls, and (3) the nonprofit controlled the flow of money collected TCPA rules still apply to non-profit organizations in some respects, although the requirements are less stringent in many ways. to consumers residential numbers asking them to donate money to the nonprofit. Spiegel argued that because the defendant retained the majority of gross revenues from donors contributions, it was not truly acting on behalf of the nonprofit. After limited discovery on the issue, the defendant moved for summary judgment, arguing in part that its calls to numbers on the do-not-call registry did not violate the TCPA because they were made on behalf of a tax-exempt nonprofit organization, and the calls were not telephone solicitations under the TCPA. from the calls. The court rejected Spiegel s contention that the defendant was the de facto caller since it kept 85% of the money collected. The court reasoned that the TCPA does not require the terms of fundraising contracts to be favorable to the nonprofit and that it is not the court s place to inquire whether they are. Such a task would come close to litigating the nonprofit s tax-exempt status, a task that was outside the court s jurisdiction. 20 Redial: 2017 TCPA Year-in-Review

21 Industry impact TCPA and nonprofits Calling toll-free: Special rules for nonprofits offer safe harbor from TCPA liability The court also explained that the calls were not telephone solicitations defined in the TCPA regulations as the initiation of a telephone call or message for the purpose of encouraging the purchase or rental of, or investment in, property, goods, or services. This definition does not encompass a request for monetary donations to a nonprofit organization. Finally, the court noted that the prohibition in the TCPA against prerecorded voice calls to residential numbers does not apply to calls made on behalf of a tax-exempt nonprofit organization. The decision in Spiegel is consistent with cases from other jurisdictions considering the TCPA s nonprofit exemptions for certain types of calls. See Fitzhenry v. The Independent Order of Foresters, No. 2:14-cv-3690 (D.S.C. June 15, 2015) (granting TCPA defendant s motion for judgment on the pleadings where the call was made by a for-profit entity to solicit the purchase of goods or services on behalf of a tax-exempt nonprofit organization); Wengle v. DialAmerica Marketing, Inc., 132 F. Supp. 3d 910, 919 (E.D. Mich. 2015) (a call is placed on behalf of a tax-exempt nonprofit when it is placed for the benefit of or in the interest of the nonprofit, concepts that encompass common law agency principles. ). But see Zean v. Fairview Health Servs., 858 F.3d 520, 523 (8th Cir. 2017) (nonprofit organization may not [i]nitiate any telephone call that constitutes telemarketing to any [cellular telephone number] other than a call made with the prior express consent of the called party. ) (quoting 47 C.F.R (a)(2)). Spiegel is welcome news for nonprofits because it demonstrates that courts are willing to apply the TCPA s nonprofit standards even where a for-profit entity initiates the call. Although the TCPA still applies to nonprofits in many situations, the rules are less stringent in some areas. Nonprofits do not need prior express consent to place calls to landlines. Nonprofits are not precluded from calling consumers on the do-not-call list, because nonprofits do not engage in telephone solicitations under the TCPA. Other provisions of the TCPA are still applicable to nonprofits, however, and should be reviewed for compliance. The for-profit TCPA rules may apply if the message has a commercial component, even if it has a charitable purpose. Prior express consent is required to make autodialed or prerecorded calls to cell phones, although that consent need not be in writing. Similar rules apply to texting. Nonprofits must include, at the beginning of the message, the name, address and telephone number of the organization, as well as a means for opting out of future communications. Although nonprofits are subject to fewer requirements under the TCPA than for-profit businesses, the potential litigation exposure for any violation is the same for all types of entities. Nonprofits and businesses that work with them must still place a high level of focus on the TCPA and telemarketing compliance. While Spiegel suggests that courts are willing to apply TCPA nonprofit exemptions even where a for-profit interest is involved, the exemptions are not absolute. Nonprofit organizations should pay careful attention to how they manage their communications to ensure compliance with the TCPA. Analysis of critical issues and trends in TCPA compliance and litigation 21

22 Industry impact Redial: 2017 TCPA Year-in-Review

23 Litigation review Untangling the cord: Seeking clarity on the TCPA s definition of autodialer Untangling the cord: Seeking clarity on the TCPA s definition of autodialer Businesses and other stakeholders continue to grapple with what constitutes an automatic telephone dialing system (ATDS or autodialer) as it is defined in the Telephone Consumer Protection Act (TCPA). The Federal Communications Commission s (FCC) July 2015 Order did little to elucidate the murky and ambiguous boundaries of what qualifies as an ATDS. All eyes are now on the US Court of Appeals for the DC Circuit as the judges of that court decide a challenge to the FCC s July 2015 Order, alleging, in part, that the definition of autodialer is unwieldy and impractical. While businesses and the legal community await the court s guidance, a number of lower courts have tried to apply common sense principles to determine what types of technology fall within the ambit of the TCPA, focusing on, for example, whether and to what degree human intervention is required to make a call. Nonetheless, lingering uncertainty over the definition of an ATDS continues to plague businesses making good faith efforts to comply with the TCPA. Court challenge to the FCC s definition of autodialer The TCPA restricts the use of autodialers (or ATDSs), which are defined by the statute 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. 1 In July 2015, the FCC issued an Omnibus Order interpreting certain provisions of the TCPA, including the term autodialer. Taken literally, the description of autodialer in the Order could include technology with the mere capacity or capability alone to store or produce, and dial random or sequential numbers, without any showing that such functionality had been utilized or even could have been utilized at the time the calls were made. The FCC s guidance included the less than helpful statement that while it might be theoretically possible to modify a rotary-dial phone to such an extreme that it would satisfy the definition of autodialer, such a possibility is too attenuated for us to find that a rotary-dial phone has the requisite capacity and therefore is an autodialer. Such comparisons with rotary phones are not meaningful and provide no practical guidance. More than a dozen petitions challenging the Order were filed in the days and weeks following the FCC s Order. In October 2016, the DC Circuit heard oral argument in ACA International v. FCC, Case No (D.C. Cir. Oct. 19, 2016), on the petitions challenging the FCC s July 2015 TCPA Order. During argument, the court placed special emphasis on the autodialer definition promulgated by the FCC, specifically the agency s view that an ATDS includes equipment that has the potential capacity to dial random or sequential numbers even if the capacity at issue has been deactivated. Petitioners argued that such an expanded definition of an ATDS would lead to absurd results and encompass almost any technology involving a computer. The FCC argued in response that a standard narrower than the one adopted in the July 2015 Order would set an impractically difficult pleading standard for potential plaintiffs since they would have to plead not only that a call was placed using equipment with autodialing functionality but also that the functionality was specifically used for the call. At the argument, the court seemed skeptical of the FCC s position, however, noting that requiring the plaintiffs to allege use of autodialer functionality was not unreasonable since that is what the statute prohibits. A decision in favor of the petitioners could significantly narrow the types of technology that fall under the autodialer definition. Analysis of critical issues and trends in TCPA compliance and litigation 23

24 Litigation review Untangling the cord: Seeking clarity on the TCPA s definition of autodialer Recent Court Decisions In the wake of the FCC s July 2015 Order, courts interpreting the TCPA (and parties looking to comply with it) have been working to apply the FCC s rules to the reality of modern technology. Many courts, viewing the issue practically, have focused on human intervention as the touchstone for whether a piece of technology qualifies as an ATDS. Other courts have applied the FCC s interpretation of what is considered an autodialer but have done so largely based on the facts of particular cases. The need for human intervention was a primary factor for the court in Pozo v. Stellar Recovery Collection Agency, Inc., Case No. 15-cv-929, 2016 WL (M.D. Fla. Sept. 2, 2016), in determining that certain technology did not constitute an ATDS. The defendant, a collection agency, called the plaintiff intending to collect a debt. The defendant used a manual call system called Human Call Initiator (HCI) from LiveVox, a third-party vendor. To initiate a call, an employee needed to where the defendant, CBE Group, employed a Manual Clicker Application (MCA) to initiate calls. The system alone could not initiate the call until the agent pointed to and clicked a dialogue box, which triggered the call. The MCA also allowed the employee to view ongoing call activity and decide, based on that information, when to place the call to ensure that operators would be available to handle the call. The court granted judgment in favor of the defendant because the need for human intervention took the system outside the definition of autodialer. Other courts have analyzed the element of human intervention on a more granular basis. See, e.g., Espejo v. Santander, Case No. 11 C 8987 (N.D. Ill. Oct. 14, 2016) (denying motion to dismiss a TCPA claim where the only human intervention required was an agent logging on to a calling system to signal his or her availability and the system made the calls otherwise unaided); Sherman v. Yahoo!, 150 F. Supp. 3d 1213 (S.D. Cal. 2015) (denying a summary judgment motion in favor of defendant where an automatic welcome message was triggered by a Many courts, viewing the issue practically, have focused on human intervention as the touchstone for whether a piece of technology qualifies as an ATDS. click a dialogue box confirming that a call should be made to a phone number. HCI was one of the human-initiated systems offered by LiveVox, which also made available systems with autodialing functionality. HCI was stored on a separate server from the other LiveVox systems and used its own unique software and hardware. The plaintiff filed the lawsuit claiming that the call made with HCI violated the TCPA. The magistrate judge, who the parties agreed would hear the case, ordered summary judgment in favor of the defendant on the TCPA claim, noting that a key feature of an ATDS is the capacity to dial numbers without human intervention, and dialing systems which require an agent to manually initiate calls do not qualify as autodialers under the TCPA. The court also explained that because HCI was housed on a server separate from LiveVox s autodialing offerings, the plaintiff could not argue that HCI had the potential capability (through modification) to become an autodialer based on LiveVox s other available technologies. The Pozo court referenced Strauss v. CBE Group, Inc., Case No CIV, 2016 WL (S.D. Fla. Mar. 28, 2016), Yahoo! user sending an instant message by computer to a mobile phone number not in Yahoo! s database); Keim v. ADF Midatlantic, LLC., Case No CIV, 2015 WL (S.D. Fla. Nov. 9, 2015) (denying motion to dismiss where human intervention was limited to people texting friends numbers to defendant, who then sent automated text message advertisements to those numbers months later). Conclusion The lingering uncertainty, among both the courts and businesses striving to comply with the TCPA, over the meaning of ATDS, and with it the broader issue of the scope of the TCPA, creates compliance burdens on companies looking to communicate with their customers without exposing themselves to liability under the TCPA. The expected decision by the DC Circuit in the appellate challenge to the FCC s July 2015 Order has the potential to clarify this fundamental question affecting the scope of the TCPA U.S.C. 227(a)(1). 24 Redial: 2017 TCPA Year-in-Review

25 Litigation review Locked-in: TCPA consent not revocable if a term of contract Locked-in: TCPA consent not revocable if a term of contract Consent to be contacted under the Telephone Consumer Protection Act (TCPA) is not revocable if included as a term of a written contract, according to a decision by the US Court of Appeals for the Second Circuit in Reyes v. Lincoln Automotive, No (2nd Cir. June 22, 2017). Revocation of consent to be contacted, and the litigation that has arisen over opt-outs, has been a significant issue under the TCPA in recent years. The Federal Communications Commission (FCC) and a number of courts have issued rulings stating that consumers have a right to opt out of receiving calls by revoking consent. The Reyes decision, however, distinguishes unilateral consent given outside the context of a bargained-for exchange, which is revocable by a consumer under the FCC rules, from consent given as a term of a contract. Where consent is a term of a contract, the Second Circuit held that consent is irrevocable because one party cannot alter a bilateral contract by unilaterally changing or revoking terms. The Reyes TCPA litigation arose out of an automobile lease between the plaintiff and the defendant. In the lease agreement, the plaintiff consented to receive manual and automated telephone calls from the company. After the plaintiff defaulted on the lease, the company made repeated calls to the plaintiff, including after he allegedly sent a letter revoking his consent to be contacted. The plaintiff sued for damages under the TCPA, alleging that the company did not have his consent for the calls. The district court granted summary judgment for the company, and the Second Circuit affirmed. The Second Circuit held that the TCPA does not permit revocation when consent has been provided as part of a binding bilateral contract. In reaching this conclusion, the court distinguished prior authority holding that consumers have a right to revoke consent under the TCPA. According to the court, those authorities, including a 2015 FCC Order and opinions of two other federal circuit courts of appeal, address a different question: whether the TCPA allows a consumer who has freely and unilaterally given consent to later revoke that consent. 1 The Reyes case, however, presented a question which had not been addressed by either the FCC or other appellate courts: whether the TCPA also permits a consumer to unilaterally revoke his or her consent to be contacted by telephone when that consent is given, not gratuitously, but as bargained-for consideration in a bilateral contract. The Second Circuit reasoned that consent is revocable when unilaterally given by the customer, but not where it is incorporated into a binding legal agreement. The court relied on basic contract law for the proposition that one party cannot unilaterally revoke terms of a contract, even non-essential terms in a standard form contract. The According to the Second Circuit, where consent to be called with an autodialer is part of a bargained-for exchange, consent cannot be revoked by the call recipient. court acknowledged a hypothetical concern that its holding could be used by businesses to restrict opt-out rights by inserting consent provisions into form contracts, but found that this policy consideration was not a basis for creating a right to revoke contractual consent under the TCPA. The decision is a significant victory for businesses facing TCPA litigation over opt-out issues or seeking to avoid litigation by strengthening consent. Even for companies that have procedures allowing 1 Gager v. Dell Fin. Servs., LLC, 727 F.3d 265, (3d Cir. 2013); Osorio v. State Farm Bank F.S.B., 746 F.3d , 1253 (11th Cir. 2014); Matter of Rules & Regulations Implementing the Tel. Consumer Prot. Act of 1991, 30 F.C.C. Rcd. 7961, (2015) (hereinafter 2015 FCC Order). Analysis of critical issues and trends in TCPA compliance and litigation 25

26 Litigation review Locked-in: TCPA consent not revocable if a term of contract customers to opt out of automated calls, the ruling provides a potential additional defense in the event litigation arises over opt-outs, which is not uncommon. The decision will likely have the most direct impact on non-marketing calls, such as collection calls, because many businesses include consent language in their standard form contracts. For marketing calls, however, the FCC rules preclude making consent a condition of purchase. Disputes over revocation issues continue to play out in several forums. In its 2015 Omnibus TCPA Order, the FCC ruled that consent to be contacted is revocable and that businesses may not restrict the manner for opting out of receiving telephone communications. Instead, the FCC stated that companies must permit consumers to opt out by any reasonable means. The 2015 FCC Order is currently on appeal to the DC Circuit on a number of issues. Also, earlier this year, the DC Circuit struck down the FCC s requirement that opt-out language be required on solicited fax advertisements sent with the express permission of the recipient. With the ongoing wave of TCPA litigation, the standards for consent and revocation of consent will continue to be key issues in many new and ongoing cases. 26 Redial: 2017 TCPA Year-in-Review

27 Litigation review Cutting the cord: Can courts trim TCPA statutory damages? Cutting the cord: Can courts trim TCPA statutory damages? Whether courts can reduce statutory damages awards under the Telephone Consumer Protection Act (TCPA) is an ongoing issue because potential liability can be strikingly disproportionate given the lack of actual harm to class members. The TCPA provides for statutory damages of $500 per violation, and courts have discretion to award treble damages ($1,500) for willing or knowing violations, with no maximum cap on recovery. Modern telecommunications equipment (an automated dialer, a text platform or a fax server) can be used to send thousands of messages, or even tens of thousands or more, with the push of a button. As a result, potential liability in these cases can easily run into the millions, and multi-million-dollar settlements are not uncommon in class actions. The trend of high-dollar class action settlements has spurred a large increase in TCPA filings over the past few years. In two cases, however, courts have In another case, a federal court in eschewed the formulaic calculation Missouri reduced an award on due of $500 per violation, instead awarding process grounds, finding that the less than the statutory amount. In these damages prescribed by the statute Courts are beginning to scrutinize awards in TCPA class actions given the large potential exposure and the lack of actual injury to the named plaintiffs and class members. cases, a full award of potential statutory are so severe and oppressive as to be damages would have been in excess wholly disproportionate to the offense of $1 billion. These courts found such and obviously unreasonable. 1 The case damages to be unreasonable and involved a six-day telemarketing campaign disproportionate. Although these cases which placed 3.2 million calls to promote were on the high end of the spectrum a movie on behalf of former presidential in terms of potential exposure, TCPA candidate Mike Huckabee. The court damages in class actions are nearly awarded judgment to the plaintiffs, and always disproportionate to the actual at $500 per call the statutory damages harm to class members. Indeed, would have been $1.6 billion. In considering recovery of as much as $1,500 for damages, the court reviewed prior case receiving an unwanted text message, law supporting the constitutionality of TCPA call or fax has been recognized by damages in the abstract, but found that some courts as punitive. a specific award may be unconstitutional if it is disproportionate and unreasonable to the harm suffered by the plaintiffs. On that basis, the court awarded damages of $10 per call, for a total award of $32 million. The court noted that the revised damage award reflected the nature of the offense, the need for a deterrent, and unquantifiable losses such as invasion of privacy. In another case, a federal court in Illinois also declined to award statutory damages based on a mathematical formula that would have resulted in billions of dollars of damages. 2 In a case brought against Dish Network by the federal government and several states, the court found that a mathematical calculation of statutory damages would be disproportionate and unreasonable, and therefore did not award $500 per violation or consider treble damages. The court did find, however, that a large civil penalty was appropriate and awarded $280 million (approximately $17 per violation), citing Dish s culpability, its history of prior conduct, its ability to pay and other 1 Golan v. Veritas Entertainment, LLC, No. 4:14-cv-69 (E.D. Mo. Sept. 7, 2017). 2 United States v. Dish Network, LLC, No. 09-cv-3073 (C.D. Ill. June 5, 2017). Analysis of critical issues and trends in TCPA compliance and litigation 27

28 Litigation review Cutting the cord: Can courts trim TCPA statutory damages? circumstances. The court found that culpability was significant because the programs were run in a reckless manner. According to the court, Dish [Network] had on-going problems complying with Do-Not-Call Laws and understood the potential penalties for Do-Not-Call Law violations could be substantial, and yet the problems persisted over many years. Although the awards in both of these cases were still very high, TCPA cases involving large numbers of calls, texts or faxes are not uncommon. And although a number of courts have upheld statutory damages of $500 per violation, these two cases signal that there should be some due process or reasonableness limitation on the strict adherence to a mathematical application of statutory damages in a class action, especially when the statutory damages would be disproportionate and unreasonable. Future decisions are likely to develop this standard further. In addition to reductions in damages awards to class members, courts are also scrutinizing incentive awards to the named plaintiffs in TCPA class action settlements. In a recent New York case, for example, the court reduced the incentive awards to the four named plaintiffs from $10,000 to $2,500 after finding that $10,000 would be excessive in the absence of documentation of their time expended or indication of any personal risks or burdens. 3 In another recent case, a California federal court reduced the incentive award from $15,000 to $1,000, stating that a larger award would be a windfall to the class representative. 4 All of these cases show that courts are beginning to scrutinize awards in TCPA class actions given the large potential exposure and the lack of actual injury to the named plaintiffs and class members. 28 Redial: 2017 TCPA Year-in-Review

29 Litigation review Call waiting? Challengers continue to await ruling in appeal of 2015 Call waiting? Challengers continue to await ruling in appeal of 2015 We continue to await a ruling from the US Court of Appeals for the DC Circuit in the appeal of the Federal Communications Commission s (FCC) July 2015 Omnibus Telephone Consumer Protection Act (TCPA) Declaratory Ruling and Order (TCPA Order), which is expected to affect the scope of the TCPA. In July 2015 more than a dozen parties filed appeals to the TCPA Order, claiming that it did nothing to clarify the TCPA and only served to further complicate compliance. The appeals were consolidated under the name ACA International v. FCC, No , and were argued in October months ago at the time of this writing but the court has not yet issued its ruling. The appeal addresses many disputed aspects of the TCPA rules including: The FCC s overbroad and inconsistent definition of autodialer; The FCC s lack of meaningful guidance on dealing with the growing problem of reassigned cell phone numbers; The agency s vague and overly broad standards for consent, including revocation; and Issues unique to financial institutions and healthcare providers. If the challengers prevail, the issues are likely to be reconsidered by a significantly reconstituted FCC. The two FCC commissioners who dissented vigorously to the TCPA Order in 2015, Ajit Pai and Michael O Rielly, are now in the majority, with Pai serving as Chair. Key issues in the appeal Autodialers. One of the principal issues on appeal is the FCC s expansive definition of autodialer, which includes: (1) equipment that has the capacity to store or produce, and dial random or sequential numbers without any showing that the particular functionality was used for the call at issue; and (2) equipment that lacks the present capacity but theoretically could be modified to become an autodialer under the TCPA s definition. To bolster its position, the TCPA Order noted, rather unhelpfully, that while it might be theoretically possible to modify a rotary-dial phone to such an extreme that it would satisfy the definition of autodialer, such a possibility is too attenuated for us to find that a rotary-dial phone has the requisite capacity and therefore is an autodialer. The appeal challenges the expanded definition as impermissibly vague and imposing liability beyond the original intent of Congress when it enacted the TCPA in At oral argument, some members of the court expressed concern that the definition was so broad it could potentially yield absurd results, especially since any smartphone equipped with the correctly configured mobile application could be transformed into an autodialer under the FCC s interpretation. Reassigned cell phone numbers. The TCPA Order reported that as many as 100,000 cell numbers are reassigned every day. Despite the difficulty of tracking reassigned wireless numbers, the TCPA Order places the onus on businesses to avoid calling reassigned wireless numbers lest they face liability under the TCPA, even if such calls were made in good faith without knowing the cell number had been reassigned. The FCC s answer to the problem was to create a one-call exemption, which allows a company to call a reassigned number only once without liability whether or not the recipient of the call answers the phone. The appeal decries the one-call exemption as arbitrary and capricious because it ascribes constructive knowledge to the caller when a second call is made, regardless of whether the first call results in actual knowledge of the reassignment. The appeal also takes issue with the TCPA Order defining the called party as the current subscriber rather than the intended or expected recipient, which the challengers argue violates the First Amendment by deterring 3 Melito v. American Eagle, No. 14-cv-2440 (S.D.N.Y. Sept. 8, 2017). 4 Eric B. Fromer Chiropractic, Inc. v. New York Life Ins. and Annuity Co., No. 2:15-cv-4767 (C.D. Cal. Sept. 22, 2017). Analysis of critical issues and trends in TCPA compliance and litigation 29

30 Litigation review Call waiting? Challengers continue to await ruling in appeal of 2015 lawful communications. At oral argument, the court questioned whether making one unanswered call (or text) creates sufficient constructive knowledge of reassignment, and also asked what solutions would help businesses while also protecting consumers. Consent and revocation. The appeal contends that the standard set by the TCPA Order allowing consent to be revoked at any time and by any means is arbitrary and capricious because it allows revocation to be delivered in ways that do not reasonably inform companies of the called party s preferences. The revocation standard is also inconsistent with prior FCC statements and puts an undue and excessive burden on callers to review responses to Developments since the 2015 TCPA Order Since the FCC issued its July 2015 TCPA Order, courts have grappled with application of the Order in pending cases. For example, the TCPA restricts the use of autodialers, 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. Prior to July 2015, a number of courts had recognized that a piece of equipment s capacity alone, without some showing that the functionality in question had been used, would not be sufficient to establish liability under the TCPA. Some courts have continued to apply this common sense approach. See McKenna v. WhisperText The FCC s 2015 Order, which was roundly criticized by the business community, is still being reviewed on appeal by the D.C. Circuit, and a decision will hopefully be issued in determine which ones are revocations. At oral argument, the court asked a number of questions about whether a company should be permitted to mandate a specific method of revocation by contract, a solution which the TCPA Order disallows. Special rules for certain financial and healthcare-related calls. Members of the financial services and healthcare industries have challenged industry-specific provisions in the TCPA Order. For the financial services industry, the appeal objects to the TCPA Order s interpretation of the free-to-enduser call exemption, which exempts from TCPA liability calls regarding fraudulent account activity, risks to consumer personal data (including steps the consumer can take to protect that data), and money transfer notifications. The appellants claim that financial institutions have no way of knowing what kind of wireless plan a given customer has and thus cannot know whether that customer will be charged for the communication. On healthcare issues, the appeal challenges: (1) the distinction between Health Insurance Portability and Accountability Act (HIPAA) calls made to landlines (no TCPA liability) and wireless numbers (TCPA liability); and (2) the exclusion of some calls permitted under HIPAA from the TPCA Order s exemption from TCPA calls for which there is exigency and that have a healthcare treatment purpose. The court gave less attention to these issues at the oral argument, but they are important concerns for these particular industries. et al., 2015 WL (N.D. Cal. Sept. 9, 2015) (applying the classic interpretation of autodialer to dismiss a TCPA claim, finding that the system used to send an unsolicited text required human intervention and thus did not qualify as an autodialer). Other courts, however, have struggled to apply the arguably broader standard from the TCPA Order. See, e.g., Dominguez v. Yahoo, Inc., 629 Fed. Appx. 369 (3d Cir. 2015) (remanding for further proceedings in light of the TCPA Order). And courts in some jurisdictions have opted to stay cases in anticipation of a final appeal ruling. Another significant development is the shift of power at the FCC. With the shift to Republican control of the administration, former minority commissioner Pai is now Chairman of the FCC and leads a 3-2 Republican majority on the commission. In 2015, Pai, along with Commissioner O Rielly, was strongly critical of the approach taken by the FCC in the TCPA Order, and he issued a harsh dissenting statement at the time the TCPA Order was issued. Should the DC Circuit rule in favor of the challengers (and perhaps even if not), the issues from the TCPA Order are likely to be reconsidered by a significantly different FCC. Any reconsideration of the issues could have a significant impact on the scope of the TCPA going forward. 30 Redial: 2017 TCPA Year-in-Review

31 Litigation review Analysis of critical issues and trends arising from the Telephone Consumer Protection Act

32 Hot issues of 2018 Redial: 2017 TCPA Year-in-Review

33 Hot issues of 2018 Dialing-in: TCPA hot issues for 2018 Dialing-in: TCPA hot issues for 2018 Companies across a spectrum of consumer-facing industries face a continued wave of class action filings under the Telephone Consumer Protection Act (TCPA). In 2017, TCPA lawsuits remained one of the most frequently filed types of class actions in courts across the country, and unsettled law continues to place a compliance burden on companies that communicate with consumers by phone, fax or text. Looking ahead in 2018, the issue looming largest in the TCPA area is the pending and long-awaited ruling from the US Court of Appeals for the DC Circuit in the appeal of the Federal Communications Commission s (FCC) July 2015 TCPA Omnibus Declaratory Order. Absent clarification of foundational issues, including the definition of autodialer, standards for consent and revocation, and third-party liability, courts and affected companies will continue to grapple with uncertainty surrounding the scope (and even the applicability of) the TCPA. Here are five issues to watch in Will the FCC s 2015 omnibus order survive legal challenge? In October 2016, more than 15 months ago, the DC Circuit heard oral argument in several challenges to the FCC s 2015 TCPA Order. Aspects under review include the definition of autodialer (see below), the standards for consent and revocation, reassigned cell phone numbers, and issues unique to financial institutions and healthcare providers. The court has yet to issue its ruling. 2. The definition of autodialer Courts continue to struggle to apply this term to the facts of particular cases. The FCC has failed to offer meaningful guidance on what equipment would and would not constitute an autodialer, other than to offer the unhelpful truism that a rotary dial phone probably cannot be converted into an autodialer. The uncertainty over the definition of autodialer affects the scope of the TCPA and creates challenges for businesses using automated communications to ensure compliance and manage litigation risk, especially class action litigation risk. 3. Revocation of consent In 2017, several courts held that a recipient of an autodialed call may not revoke consent where consent was included as a term in the underlying contract between the recipient and the company placing the calls. The courts reasoned that consumers received consideration in exchange for that consent. This defense could be effective in the right factual circumstances, presuming that more courts adopt its reasoning. It is unclear whether the anticipated ruling by the DC Circuit will impact questions of revocation of consent. 4. Third-party liability issues Many companies use third-party vendors to assist with communications, or to market their products and services through semi-independent agents, brokers or contractors. As a result, companies may face vicarious liability risk based on the actions of these third parties. Courts continue to apply inconsistent vicarious liability principles in various types of TCPA cases. 5. Will the FCC revisit the TCPA rules? The change in administration in early 2017 brought a shift in power at the FCC. Republicans now hold a 3-2 majority on the Commission under a new Chairman, Ajit Pai, a former member of the Republican minority under the Obama administration. The FCC s revocation of net neutrality in late 2017 drew significant public attention, but it is unclear what steps the FCC may take to address ongoing issues under the lesser-known TCPA. Pai and fellow commissioner Michael O Reilly wrote scathing dissents to the 2015 TCPA Order, and they may reconsider the FCC s positions in favor of a more business-friendly posture. Conclusion The wave of TCPA litigation will continue in 2018, and the developments in these key areas will shape the TCPA landscape. With class action plaintiffs attorneys targeting many different industries, a strong TCPA compliance program is essential to help businesses of all kinds avoid TCPA lawsuits and potential liability. Analysis of critical issues and trends in TCPA compliance and litigation 33

34 Eversheds Sutherland attorneys speaking on TCPA March 7 Law360 FCC s Robocall Plan to Benefit From Rare Bipartisanship In discussing the FCC s planned proposal to expand the tools for combating illegal robocalls, Eversheds Sutherland Partner Wilson Barmeyer commented: I think that reasonable people in both parties generally agree that illegal and fraudulently spoofed calls are a problem that we d all like to put an end to, so this is an area where there can be cooperation from folks with different interests to try to fix a problem. March 31 Law360 FCC s Loss on Fax Rule Could Curb Explosion of TCPA Suits Eversheds Sutherland Partner Lewis Wiener, in commenting on the DC Circuit s decision to shut down the FCC s rule that opt-out notices be placed on faxes, stated: We ve seen a number of cases where people have given their fax number and a business has sent a fax that they requested, only for the recipient to turn around and sue the sender saying, Ah, but you didn t include the fax opt-out notice. It s a gotcha. It s trapping unsuspecting people and forcing them to defend against lawsuits with potentially business-crippling implications because they did what a consumer asked them to do. Hopefully, this decision takes an arrow out of the quiver of plaintiffs counsel and starts to add some rationality into how the TCPA is going to be applied by the courts. April 14 Law360 TCPA Pick Off Strategy on Thin Ice After High Court Ruling Providing insight on the offer of judgment rule in TCPA class claims, Eversheds Sutherland Partner Lewis Wiener said: Offers of judgment are an important tool in the defense arsenal to be able to either cut short litigation or make the plaintiff declare that he believes strongly enough in his case to risk rejecting an offer of judgment that may end up being more than he could get in a class action settlement context. June 8 Law360 $280 Million Dish TCPA Penalty May Make Settling More Attractive Eversheds Sutherland Partner Lewis Wiener, in commenting on Dish Network LLC s $280 million TCPA penalty, said: The ruling sends a message to the telemarketing community that you re your brother s keeper and are responsible for what people do on your behalf, and that you can t turn a blind eye to that. June 23 Law360 Second Circuit Ruling Offers Way Out of TCPA Litigation Jungle Commenting on the Second Circuit s ruling that the TCPA doesn t allow consumers who consent to receiving calls as part of a contract agreement to revoke that permission, Eversheds Sutherland Partner Lewis Wiener said: I think the Second Circuit s opinion is significant in and of itself but also in the context of the challenge pending in the DC Circuit to the FCC s 2015 omnibus TCPA order and specifically that part of the order that says there can be no restriction on a consumer s ability to opt out. Redial: 2017 TCPA Year-in-Review

35 For further information If you would like to learn more about Eversheds Sutherland s TCPA compliance and litigation team, please contact us. Lewis Wiener Chair, Partner Washington DC T: lewiswiener@eversheds-sutherland.com Wilson Barmeyer Partner Washington DC T: wilsonbarmeyer@eversheds-sutherland.com Frank Nolan Counsel New York T: franknolan@eversheds-sutherland.com Analysis of critical issues and trends arising from the Telephone Consumer Protection Act