Irrevocable Consent Comes to the Eleventh Circuit: Two District Courts Apply Reyes to Boot TCPA CasesA critical question in Telephone Consumer Protection Act (TCPA) cases is whether the plaintiff gave consent to receive communications from the defendant, and whether that consent had been revoked by the time of the communication. Given the problems with the TCPA in general, you would probably not be surprised to learn that the TCPA does not specify how a person can revoke consent. The TCPA lawsuit industry wants a world where a person can give formal consent to receive communications and then revoke it on a whim. This “anything goes” revocation standard can expose companies to sudden and sizable liability.

Thankfully, the Second Circuit held in Reyes v. Lincoln Automotive Financial Services that a person who gives consent as part of a bargained-for exchange cannot unilaterally revoke it. Where a consumer consented as part of the consideration for the contract, the company can continue to rely on that consent.

Irrevocable consent under Reyes is anathema to TCPA cases because most companies are––or soon will be––including appropriate consent language in their agreements with their customers.

The big question facing companies now is whether Reyes will expand beyond the Second Circuit. While some early trends were bad, we are happy to report that two district courts in the Eleventh Circuit have relied on Reyes to grant summary judgment in TCPA cases.

The first of these two cases is Few v. Receivable Performance Management, in which the Northern District of Alabama granted summary judgment in a single-plaintiff case. In Ms. Few contract with her satellite TV provider, she agreed that the provider and any debt collector acting on the provider’s behalf could contact Ms. Few at a particular phone number. A debt collector then called Ms. Few to recover an alleged debt, and Ms. Few said that she did not wish to receive calls. The debt collector nevertheless called or texted more than 180 times.

No dice, ruled the district court. In the absence of controlling Eleventh Circuit precedent, the court found Reyes persuasive and applied the bargained-for exchange rule: “because she offered that consent as part of a bargained-for exchange and not merely gratuitously, she was unable to unilaterally revoke that consent.”

The Middle District of Florida––a notoriously dangerous TCPA jurisdiction for defendants––reached a similar result in Medley v. Dish Network, LLC. The plaintiff, Ms. Medley, complained that her lawyer had effectively revoked her consent to be contacted by Dish, which responded with a Reyes argument. The court agreed with Dish, and cited the Northern District of Alabama’s Few case with approval. It also helpfully distinguished several cases that had permitted unilateral consent revocation.

These cases are good news for companies facing TCPA liability in the Eleventh Circuit. While the appeals court has recognized federal common law governs issues of giving and revoking consent, it has not yet addressed Reyes and the effect of a bargained-for exchange. It is hoped that Few and Medley will lead a trend toward further adoption of Reyes.

The takeaway in litigation is to press the Reyes issue. Some courts have reached unfavorable conclusions when addressing consent and revocation in the abstract, but courts have been more receptive to defendants that can point to the particular inequity of a plaintiff getting the benefits of consent in a contract and then repudiating the contract to obtain a TCPA windfall.

Specific to the class-action context, the adoption of Reyes affords multiple chances to defeat class claims. Early summary judgment practice on consent and revocation can put putative class representatives on the defensive, and potentially complicate plaintiff’s efforts to show adequacy, commonality and typicality. Putative class representatives may also have to resort to individualized facts to show why they should be allowed to back out of the deal that included their consent, potentially putting plaintiffs on the horns of a dilemma: Save the class and risk losing the whole case, or save the case and risk losing the class-action payday.

We’ll close with a practical point: Companies should be studying their consumer-facing agreements to determine whether a consumer’s consent to receive telephone communications is––or can be reconfigured to be––part of a bargained-for exchange. Companies can help manage their TCPA liability by crafting their customer agreements appropriately as to arbitration (including a non-severable class action waiver), indemnity, and the bargained-for nature of consent. These preventive measures, deployed effectively, can both dissuade the prowling packs of TCPA lawyers from bringing a claim in the first place, and also strengthen the company’s defense if litigation is filed.

Defeating Class Certification in Consumer Data Breach Class Actions Begins with Understanding How They OccurConsumer data breach class actions, for all of their popularity on dockets and especially in headlines, can make difficult cases for plaintiffs. Issues like standing and damages often keep these cases from getting off the ground (as we have discussed previously), but we see far larger predominance problems looming for plaintiffs—chiefly in the area of causation. Companies in 2018 know how difficult a data breach can be to prevent, detect, and fix. These same difficulties can also flummox plaintiffs trying to sue companies in the wake of a data breach.

Consumer data breach cases, particularly those resulting from large breaches, involve a complex chain of independent actors. Take a payment card attack such as the one that occurred at Target in 2013. Through a virus sent by email to a vendor that had access to Target’s store-level computer network, hackers installed a program on virtually all of Target’s point-of-sale consoles that customers use to swipe their payment cards. That program copied information from the card—things such as the card number, expiration date, and CCV codes––and stored it on Target’s network. Then, the program sent the copied data through a chain of servers in different jurisdictions to the hackers. The hackers (or others who had purchased information from the hackers) were then able to sell the payment card data on the so-called “dark web.” A prospective purchaser would buy card information and have it printed on a counterfeit card, which could then be used to make purchases. Thieves obtained stolen information on 40 million payment cards using this method without ever necessarily setting foot in a Target store.

But hackers can use several other methods as well. A local thief can install a “skimmer” device that copies data from payment cards. These devices are often installed on gas pumps or ATMs. A single rogue employee could copy information from a business’ customers’ cards, or the employee could steal information from the business records (paper or electronic). Hackers can also attack other parts of the payment card infrastructure, such as payment card processors or issuing banks. Online stores can be hacked directly, and hackers can also obtain payment card data by accessing a consumer’s computer and stealing information stored on it. The personal data stolen from Equifax would allow criminals to open fraudulent payment card accounts. If these weren’t enough, a deft pickpocket can still steal a physical card.

While these various kinds of attacks can be prevented or interrupted, most of these breaches and thefts remain secret until fraudulent cards appear on the market or a pattern of fraudulent charges begins. Once fraudulent cards or charges appear, banks, processors, or the card associations (such as Visa and MasterCard) can look for common characteristics in the fraudulent charges: Did the customers all shop at a particular merchant at a particular time? Was the customers’ data routed through a common processor that could have been hacked? Are the fraudulent cards being used in one geographical area, or are they dispersed throughout the country? Are the fraudulent cards being used exclusively online? The answers to these questions allow industry and government investigators to narrow the list of possible causes of the breach.

Further complicating matters, stolen information or cards can be sold and resold on the black market before appearing in commerce. While thieves usually try to move quickly before the cards are cancelled, some thieves are sophisticated enough to balance speed with avoiding detection—they know a spike in fraud might trigger an investigation.

At first blush, the investigation of a data breach sounds much like how the CDC might go about tracking a salmonella outbreak to a particular food item. This analogy is attractive, but ultimately unsatisfactory for a few reasons:

  • For one thing, there are too many overlapping breaches to draw neat causal lines. Because criminals prefer to remain anonymous, and companies suffering hacks are not anxious to publicize them, accurate records of data breaches are hard to obtain. But one estimate we reviewed suggested that there were nearly 180 million records at risk in known data breaches in 2017 alone. In other words, we know thieves stole more than one record for every two people in the United States in a single year. And that number does not include the three billion records stolen from Yahoo! across several years, or the nearly limitless number of records made vulnerable through the Heartbleed bug. This constant flow of breaches and thefts results in a constant flow of fraud. Large breaches cause fraud to spike, but accurately tying a particular instance of fraud to a particular breach is very difficult.
  • While a patient suffering a medical condition will seek help, a data breach victim might not even know he or she has been affected. A payment card breach can lie dormant for a long time. Not only do thieves strategically time their use of stolen payment card information, they also use other personal information (such as Social Security numbers or access to an email account) to perpetrate fraud months or years later.
  • Unlike disease-causing germs, criminal hackers actively avoid detection. Intrusions, data exports, and data transfers are all done with maximum secrecy. Moreover, a computerized attack can come from anywhere in the word through a lengthy chain of anonymized servers in different jurisdictions.

The complexity of tying a particular breach to a particular instance of fraud has led leading security journalist Brian Krebs to write, “All that said, it’s really not worth it to spend time worrying about where your card number may have been breached, since it’s almost always impossible to say for sure and because it’s common for the same card to be breached at multiple establishments during the same time period.” Finding the actual perpetrators of a breach will often be impossible, and in the present technological and legal environment, plaintiffs almost universally resort to circumstantial proof.

A company that is a victim of a data breach should be aware of these complex problems in defending against class claims. Consider a traditional negligence claim, which requires the plaintiff to prove that a breach of duty proximately caused the plaintiff’s injury. Plaintiffs often assert that any fraud happening after a breach happened because of the breach, but that conclusion is not only a logical fallacy, it should be legally insufficient. And chances are that a particular card has been the subject of more than one breach.

The Eleventh Circuit hinted at how important information about other causes can be in a data breach case. In Resnik v. AvMed, Inc., the court reversed dismissal of a complaint alleging that the plaintiffs suffered identity theft after a laptop with their personal information was stolen. The plaintiffs in that case had extensively alleged that they took a wide range of preventative measures to keep their identities safe. These allegations were taken as true for purposes of the appeal and “[h]ad Plaintiffs alleged fewer facts, we doubt whether the Complaint could have survived a motion to dismiss.” The Middle District of Alabama expanded on the Eleventh Circuit’s discussion in Smith v. Triad of Alabama, LLC, where (even though it certified a class), the court recognized that proving causation “may require a review of any prior thefts of each class member’s identity” and would involve member-by-member mini-trials.

As more data breach cases are filed—and especially as more of them get to the summary judgment and trial phases of litigation—plaintiffs’ theories will mature. In the meantime, however, companies should seek to understand the complex chain of events that occur before, during, and after a data breach. Not only will this information help companies secure their own systems against a breach, but it will also guide them in developing a strategy to oppose class certification. The plaintiff’s discovery efforts will be driven towards showing that the breach had a simple cause and had relatively uniform effects on a homogenous population of class members. To counter this narrative, companies must identify and discover variations within the plaintiff’s proposed class.  Instead of automatically adopting a passive, defensive posture, companies should consider being more aggressive in developing a counter-narrative. In appropriate circumstances, this could include investigation into preventive measures the named plaintiffs did or didn’t take with regard to their information or data, other data breaches occurring at roughly the same time as the subject breach, and whether plaintiffs’ or class members’ data might have been exposed to multiple unrelated breaches.

Such strategies may even prove helpful in those jurisdictions (such as the Seventh and Ninth Circuits) that have found standing in data breach cases where plaintiffs’ stolen information has not actually been used, but is alleged to create increased risk of identity theft alone (see our post on that subject). While pointing out factual complexities of the breach and other contemporaneous but unrelated breaches might not suffice to defeat Article III standing, such proof could well be beneficial in showing that common factual issues do not predominate and that individualized proof will be necessary. The proven prospect of thousands of mini-trials on causation and damage might give even a class-friendly judge pause.

Courts are still figuring out how consumer data breach cases fit into traditional tort categories. The theories asserted and damage items claimed in data breach cases are always changing, and that trend should continue. An effective defense strategy in this environment requires staying on top of the evolving ways in which criminals are stealing, selling, and using data.

The Impact of Disparate State Laws on Class Certification for Settlement Purposes: Ninth Circuit to Review Hyundai and Kia Fuel Economy Decision en BancThe Ninth Circuit has agreed to review a panel decision from the court which rejected a settlement in multidistrict litigation over the fuel efficiency of Hyundai Motor America Inc. and Kia Motors Corp. vehicles. The case and rehearing raise the issue of what weight, if any, is given to disparate state laws when reviewing proposed settlement agreements in a multidistrict case and to what extent courts and class counsel bear the burden of addressing that issue.

The Hyundai and Kia fuel economy litigation was assigned to the U.S. District Court for the Central District of California in 2013. The case involved 12 class actions pending in five federal districts, all involving the marketing, sale and advertising of the mileage estimates for certain Hyundai Motor America  and Kia Motors Corp. vehicles. In all, 56 actions were consolidated into the multidistrict litigation.

An earlier ruling had previously indicated the case was not appropriate for certification because of variances in state laws. Despite this earlier concern, a class was then certified for settlement purposes consisting of current and former owners of specified Hyundai and Kia vehicles registered in the United States. Subsequently, the district court granted final approval of a settlement and dismissed the case.

On appeal, objectors brought five consolidated appeals raising challenges to class certification, approval of the settlement as fair and adequate, and approval of attorneys’ fees as reasonable in proportion to the benefit conferred on the class. A panel of the Ninth Circuit vacated the district court’s order granting class certification in the nationwide class action settlement.

With respect to choice of law issues, the panel held that the district court abused its discretion in concluding that common questions predominated, and in certifying the settlement class under Fed. R. Civ. P. 23(b)(3). The panel noted that Rule 23(b)(3)’s predominance inquiry was far more demanding than Rule 23(a)’s commonality requirement. The panel further noted that where plaintiffs bring a nationwide class action under CAFA and invoke Rule 23(b)(3), a court must consider the impact of potentially varying state laws. Finally, in determining whether predominance was defeated by variations in state law, the panel proceeded through a framework outlined by previous opinions of the Ninth Circuit.

The panel majority quoted from Castano v. Am. Tobacco Co. and stated that, “a court must consider the impact of potentially varying state laws, because ‘[i]n a multi-state class action, variations in state law may swamp any common issues and defeat predominance.’” The panel also relied on Mazza v. Am. Honda Motor Co, under which a judge reviewing a proposed settlement should determine whether predominance is defeated by variations in state law. According to the panel decision, under the predominance inquiry “the class action proponent must establish that the forum state’s substantive law may be constitutionally applied to the claims of a nationwide class.” Once demonstrated, the court applies the forum state’s choice of law rules to determine whether the forum state’s law or the law of multiple states apply to the claims. There is no issue if the result is the application of only one state’s laws to the entire class, but, if class claims require adjudication under the laws of multiple states, then the court must determine whether common questions will predominate over individual issues and whether litigation of a nationwide class may be managed fairly and efficiently.

Applying the predominance inquiry to the case at hand, the panel first determined that California choice of law provisions could permissibly be applied and that this required the district court to apply the California governmental interest test. The court stated that it was undisputed that the district court did not conduct a choice of law analysis, and did not apply California law or the law of any particular state in deciding to certify the class for settlement.  The panel further opined that “factors such as whether the named plaintiffs were in favor of the settlement or whether other class members had an opportunity to opt out are irrelevant to the determination whether a class can be certified.” The court also reasoned that the error in the certification arose because of “the mistaken assumption that the standard for certification was lessened in the settlement context.”

In dissent, Judge Nguyen wrote that, contrary to Ninth Circuit case law and that of other circuits, the majority shifted the burden of proving whether foreign law governed from the foreign law proponent – here, the objectors – to the district court or class counsel, thereby creating a circuit split and violating the doctrine of Erie R.R. v. Tompkins.  Judge Nguyen opined that “[f]ar from imposing geographic limitations, the predominance inquiry under Rule 23(b)(3) simply tests whether questions common to the class are more prevalent or important than individual ones.” She reasoned that the district court permissibly determined that issues regarding fuel economy statements predominated other matters and warranted certification. Judge Nguyen also reasoned it was wrong to require the district court or class counsel to extensively canvass every state’s laws and determine that none other than California’s apply when the issue was not adequately raised by objectors. Judge Nguyen concluded by stating that under the majority’s framework, “no one will recover anything.”

The opinion has already begun to affect other settlements. Given the panel’s admonishments, district court judges have become more cautious in granting approval for settlement agreements, faced with the task of surveying state laws nationwide prior to doing so.  For example, in the U.S. District Court for the Northern District of California, Tesla’s settlement over allegedly faulty Autopilot and safety features is conditioned upon a state law analysis to be completed prior to the court considering final approval (Sheikh et al. v. Tesla Inc.). In another California case, Uber’s settlement concerning “safe ride fees” and employee screening has been paused until the Ninth Circuit’s en banc decision is rendered  (Byron McKnight et al. v. Uber Technologies Inc. et al.). Likewise, a settlement involving ADT security devices has been paused pending the Ninth Circuit’s en banc review (Edenborough v. ADT LLC).

Although certification was still possible if the case were remanded, both plaintiffs and class action defense attorneys filed briefs requesting the full Ninth Circuit to review the ruling arguing that the panel’s January ruling clashed with precedent, would impede nationwide settlements and class action litigation, and would burden trial courts. Others believe that it is impossible for a court to determine the fairness of a settlement without considering potentially meaningful differences in the chances of success of a claim under the laws of one state as opposed to another. Under this view, assessing the fairness of a settlement to all class members in a nationwide class action based on the weaknesses of the claim under the forum state’s law, without considering whether all class members face similar hurdles, would run roughshod over the rights of absent class members. After granting rehearing en banc, the Ninth Circuit has set oral arguments for the week of September 24 in Pasadena, California.