Statutory Damages Class Actions

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cases is whether the plaintiff gave consent to receive communications from the defendant, and whether that consent had been revoked by the time of the communication.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.

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.