Statutory Damages Class Actions

Reality Wins: Sixth Circuit Affirms Companies Must Send Fax to Be “Sender” under TCPATo be liable for a junk fax Telephone Consumer Protection Act (TCPA) violation, does a company have to actually send a fax? The plain language of the TCPA says yes: “It shall be unlawful for any person… to use any telephone facsimile machine, computer, or other device to send…an unsolicited advertisement[.]” The verbs are “use” and “send,” so the plain language of the TCPA limits liability to the person or company actually sending the fax. Some courts, however, have added a gloss on the statute and expanded liability to persons who use agents to send unsolicited advertisements. The Sixth Circuit recently took up a case that would have expanded TCPA liability much further. Thankfully, the court refused to depart from the language of the TCPA by holding that a company cannot be liable for a junk fax that it neither sent nor caused to be sent.

In Health One Medical Center, Eastpointe P.L.L.C. v. Mohawk, Inc., the plaintiffs alleged that Mohawk Medical, a pharmaceutical wholesaler, sent unsolicited junk faxes advertising its prices for products manufactured by various pharmaceutical companies. After Mohawk failed to answer the complaint, the plaintiff amended to add the two pharmaceutical companies as defendants, arguing that these companies were “senders” of the junk faxes because somebody else sent a fax advertising the companies’ products. While the companies presumably could have indirectly benefitted from increased sales from the faxes, they neither asked for nor authorized the faxes. Relying on some broadly written FCC regulations, the plaintiff asked the court to deem the pharmaceutical companies the senders because their goods or services were being advertised.

The Sixth Circuit was having none of it: “[T]o send a fax in violation of [the TCPA],” it held, “one must ‘use’ a fax machine or other device to convey or dispatch an unsolicited advertisement to another fax machine.” Because the pharmaceutical companies “neither dispatched the faxes nor caused them to be sent,” they could not be liable. With satisfying punchiness, it labeled the plaintiff’s theory as “some legal alchemy” and declared the pharmaceutical companies “innocent.”

The court also signaled that it might, on different facts, be willing to roll back the FCC regulations on which the plaintiff relied: “the use of a fax machine or other device, and the sender’s own responsibility for the conveyance or dispatch… are [requirements] that the agency must enforce, not elide.” Whether other litigants will accept this invitation to attack the FCC regulations is an issue to watch.

Health One joins a line of recent cases that refuse to impose TCPA liability where the allegation is that companies ratified or benefitted from illegal calls, faxes, or texts made by an agent See, e.g., Hodgin v. UTC Fire & Security Americas Corp., 885 F.3d 243 (4th Cir. 2018); Kristensen v. Credit Payment Servs., Inc., 879 F.3d 1010 (9th Cir. 2018); Jones v. Royal Admin. Servs., Inc., 887 F.3d 443 (9th Cir. 2018). However, unlike Health One, these other three cases were decided after discovery and depended on specific facts showing the degree of control or benefit received by the putative principal. Companies would be prudent to review their marketing contracts to make sure that they are requiring TCPA compliance in their agreements (including indemnification provisions, if possible), and clearly delineating that third-party marketing companies are not acting as agents.

Notably, the Sixth Circuit opened its opinion with a telling quip: “Some questions seem to arise only in class-action lawsuits.”  The TCPA, in all of its ineffective obsolescence, is a favorite of the class-action plaintiffs’ bar, which has had success using it to certify classes of uninjured plaintiffs and reap large fee awards. TCPA class-action filings are up, but—if this author’s experience is any guide––so are spam calls and texts and faxes. The ground has shifted beneath the TCPA, which Congress passed in 1991, and  no apparent benefits outweigh its draconian punishments. Congress should fix it or replace it.

FACTA Cases Continue to Present Ideal Targets for <i>Spokeo</i> Challenges—Eleventh Circuit Defendants Take Particular NoticeWe’ve already written about Spokeo, Inc. v. Robins, 136 S. Ct. 1540 (2016), in which the Supreme Court reaffirmed that all federal plaintiffs, even those alleging a statutory violation, must have suffered a real, concrete injury in order to have Article III standing. As we’ve noted in a past blog post, despite Spokeo’s clear guidance that a mere technical statutory violation, divorced from any concrete harm, is not enough to confer Article III standing, lower courts have divided on how to apply Spokeo to federal statutory class actions. Notwithstanding Spokeo’s inconsistent application in other contexts, many have been willing to use Spokeo as a basis to dismiss claims under the Fair and Accurate Credit Transaction Act or FACTA. One recent example is Kirchein v. Pet Supermarket, Inc.

A quick primer: FACTA prohibits the willful printing of more than the last five digits of a consumer’s credit card number on an electronically generated receipt provided at the point of sale. Even though there is basically no evidence suggesting that consumers’ identities are at any material risk if a FACTA violation occurs, FACTA is a severely punitive statute. Damages for each FACTA violation are between $100 and $1,000, either per customer or per receipt—courts are divided on that question—with no classwide statutory damage cap. The combination of high damages, relative ease of proving violations, and availability of class certification creates strong incentives for plaintiffs to bring FACTA claims as class actions. Plaintiffs asserting FACTA claims usually define the class to exclude consumers who have suffered any actual damages.  Those consumers can recover even more individually under the statute, but proving individual damages often precludes class certification. As a result, FACTA cases commonly feature a large number of unharmed class members.

Enter Spokeo. In that case, the Supreme Court held that Congress cannot declare non-injuries to be injuries for purposes of Article III:

Congress’ role in identifying and elevating intangible harms does not mean that a plaintiff automatically satisfies the injury-in-fact requirement whenever a statute grants a person a statutory right and purports to authorize that person to sue to vindicate that right. Article III standing requires a concrete injury even in the context of a statutory violation. For that reason, [the plaintiff] could not, for example, allege a bare procedural violation, divorced from any concrete harm, and satisfy the injury-in-fact requirement of Article III.

Spokeo’s requirement of harm beyond a mere statutory violation has been very difficult for FACTA plaintiffs to overcome. As Judge Moreno of the Southern District of Florida put it, “the Seventh and Second Circuits, as well as multiple district courts, have held that under Spokeo, a plaintiff who has not suffered any actual harm or material risk of harm lacks standing to sue for violations of the Act” (see Tarr v. Burger King Corp.).  A similar case, Gesten v. Burger King Corp., suffered the same fate at the hands of Judge Scola in the Southern District of Florida.

The latest case to join this line is Kirchein, a FACTA case before Judge Scola that the parties had previously preliminarily settled. The defendant discovered through the course of the settlement process that there were more class members than expected, so it moved to vacate preliminary approval of the settlement. While the court did not directly vacate approval of the settlement, it went much further and dismissed the entire case for lack of subject matter jurisdiction. It noted that, even if it was possible that a FACTA violation could give rise to standing, the injury alleged by the plaintiff did not give rise to standing because the plaintiff did not even allege that his personal information had been involuntarily exposed to anyone.

These cases demonstrate that many garden-variety FACTA complaints are exactly what Spokeo forbids. Federal jurisdiction requires more than a pure procedural issue.

We’ll conclude with four takeaways:

  • First, Spokeo’s injury-in-fact requirement is an issue the defendants should continue to press in every class action seeking only statutory damages, notwithstanding the existence of a few less-than-favorable decisions. The Southern District of Florida’s recent FACTA decisions should give defendants renewed hope in their ability to challenge standing because these cases reflect a growing reversal of a trend of finding standing in similar cases.Many of the early post-Spokeo FACTA cases that found jurisdiction did so by relying on pre-Spokeo cases, particularly Hammer Sam’s East, Inc. While the Eleventh Circuit, in an unpublished opinion about the FDCPA, seemed to give Spokeo a narrow reading in Church v. Accretive Health, Inc., the court later upheld dismissals on Spokeo grounds in other statutory damage cases shortly thereafter (see Meeks v. Ocwen Loan Servicing, LLC,  and Nicklaw v. CitiMortgage, Inc.). Courts with FACTA claims had initially found shelter under Church to keep their cases, but time has proven that shelter far from leak proof. For its part, the Southern District of Florida has now recognized that Spokeo has often dispositive implications for FACTA class actions, and that the pre-Spokeo Hammer case is obsolete.
  • Second, on a related point, defendants may benefit from pressing a Spokeo challenge even if outright dismissal is unlikely. Plaintiffs can be forced into making individualized allegations about how they were personally harmed. Those allegations can then be used as a lever to upend class certification on commonality, typicality, and predominance grounds.
  • Third, while FACTA is particularly egregious in penalizing what looks to be harmless conduct, claims seeking statutory damages under other federal and state statutes are also vulnerable to Spokeo Alleged technical violations of notice provisions under the FDCPA can, in some instances, be pure touch fouls with no harm. Other kinds of data breach claims, such as state-law negligence or privacy claims arising from payment card hacking, are another context in which Spokeo may apply when plaintiffs allege nothing more than an increased risk of identity theft.
  • Fourth, watch out for removal issues. While FACTA raises a federal question and an automatic chance to remove a case, a motion under Spokeo can easily result in a remand. Burger King found this out the hard way: After Judge Scola dismissed the Gesten case, the plaintiff re-filed in state court. Burger King removed, but the district court remanded, noting that Burger King had previously successfully argued that federal jurisdiction does not exist.

Call Me, Maybe? The D.C. Circuit Says Your Smartphone Is Not an AutodialerThe nation breathed a little easier last Friday when the D.C. Circuit ruled that Americans can call or text from their smartphones without violating federal law. That’s because the D.C. Circuit has set aside the Federal Communications Commission’s definition of what constitutes an “autodialer,” a definition that, before last Friday, included the ubiquitous device half of you are using right now to read these words. And since we use these devices to keep in touch, the FCC’s definition – carried to its logical extreme – could have led to liability under the Telephone Consumer Protection Act (TCPA) for almost every unsolicited call or text using a smartphone.  The FCC’s overly expansive definition is no more, however, because the D.C. Circuit ruled in a long-awaited opinion that it was arbitrary and capricious.

The FCC had said that a device with the potential capacity to store and dial telephone numbers using a random number generator was an “automated telephone dialing system” covered by the TCPA. That definition caused the TCPA to “assume an eye-popping sweep,” wrote the D.C. Circuit, since just about every smartphone has the potential (either straight from the factory or when the right app is downloaded) to perform those functions. As a result, “nearly every American is a TCPA-violator-in-waiting, if not a violator-in-fact” because, under the FCC’s “autodialer” definition, “every uninvited communication from a smartphone infringes federal law.” The D.C. Circuit recognized that Congress never intended the TCPA to “constrain [the activities of] hundreds of millions of everyday callers,” so the FCC’s “autodialer” definition could not stand.

The FCC had also said that callers who violated the TCPA by autodialing a reassigned cell-phone number had one chance to learn that they were not actually reaching the person who consented to receiving such calls, whether or not that one call was answered or produced any information as to reassignment. The D.C. Circuit’s opinion also set aside this one-call “safe harbor” as arbitrary and capricious. Although the FCC permissibly interpreted the TCPA’s use of the term “called party” to mean the current subscriber, the court found no justification for why a caller’s “reasonable reliance” on prior consent should “necessarily cease to be reliable” after only one call (or text) regardless of the result of the call. A failure to respond to a text, the D.C. Circuit recognized, or a call that goes to a generic voicemail greeting (e.g., “you have reached XXX-XXX-XXXX, please leave a message”) gives “no indication whatsoever of a possible reassignment.”

The D.C. Circuit’s opinion also upheld the broad parameters permitting a consumer to revoke consent “through any reasonable means that clearly expresses a desire not to receive further messages.” Contracting parties are still free, however, to “agree upon particular revocation procedures.” That provides businesses with a clearer opportunity to achieve compliance with the TCPA revocation requirement than they had before. Without the opportunity to channel revocation contractually into specified methods, tracking revocation can be next to impossible.

The D.C. Circuit’s opinion contains several lessons for current TCPA class defendants and companies wishing to avoid TCPA issues. Among them:

  • If you are defending a case where the autodialer element (TCPA liability requires the use of an “automatic telephone dialing system”) depends on the equipment’s potential capacity, revisit whether the named plaintiff or any class member even suffered a TCPA violation. The FCC’s expansive definition having been set aside, the TCPA’s reference to the “capacity” of equipment arguably should be read to refer to its current capacity only.
  • If the equipment meets the statutory definition of an autodialer, but some of the calls at issue were made without using the autodialer functionality, consider raising a typicality defense. The TCPA prohibits “mak[ing] any call … using any [autodialer],” but class members who received a call because a machine randomly dialed their numbers suffer a different kind of harm than those who received a call because a human being typed their numbers into a device that could have dialed them randomly. Both calls are made using an autodialer – and thus both calls arguably violate the TCPA – but Congress was concerned about preventing only one of them.
  • Any putative (b)(3) class defined to include calls to reassigned numbers should be challenged on commonality and predominance grounds. Since there is no more one-call “safe harbor,” the reasonableness of a caller’s belief that it had consent to contact a particular class member at that number likely must be determined on an individual basis.
  • Contracts with consumers should now include particular revocation procedures; otherwise, the consumer can use “any reasonable means” to revoke consent and tracking revocation becomes a serious problem.

If the FCC again engages in rulemaking regarding the autodialer definition and any “safe harbor” under the TCPA, Chairman Ajit Pai, who as a Commissioner dissented from the 2015 order that was the subject of the D.C. Circuit’s opinion, will preside over the process.