Ask and You Shall Be Deemed to Have Consented to Receive: The Eleventh Circuit Affirms TCPA Fax Summary JudgmentConsent is the most powerful weapon companies have against TCPA liability, and a recent Eleventh Circuit opinion illustrates how. In Gorss Motels, Inc. v. Safemark Systems, L.P., the Eleventh Circuit affirmed summary judgment where the plaintiffs consented to receive solicitations in their franchise agreements.

The background: Gorss and another company, E&G, operate hotels as franchisees of the Wyndham Hotel Group. In the franchise agreement, they agreed that Wyndham and its affiliates could offer assistance to the franchisees in purchasing items for their franchised hotels. In that same agreement, the franchisees included their fax numbers. Safemark, a company that provides safes to Wyndham franchisees, sent two faxes to Gorss, E&G, and more than 7,000 other recipients.  Neither fax contained instructions about how to opt out of receiving future faxes. Gorss and E&G filed suit alleging TCPA violations and sought to certify two classes — one for each fax.

The district court first denied class certification, finding that individual issues of permission would predominate over common questions. That issue went up to the Eleventh Circuit on permissive appeal under Rule 23(f). But proceedings in the district court continued during that appeal, and the district court ultimately granted summary judgment for Safemark, finding that it had permission to send the faxes and that the solicited faxes did not need to include an opt-out notice.

The Eleventh Circuit panel unanimously affirmed. It concluded that the franchise agreement unambiguously gave Safemark permission to send faxes about items for purchase to be used in the plaintiffs’ hotels. In doing so, it disregarded the subjective understanding of one of the plaintiff’s agents, who testified that the faxes were not solicited. Instead of relying on a person’s subjective understanding, the Eleventh Circuit looked at the objective scope of the franchise agreement.

The court also addressed the effect of the repeal of the so-called “solicited fax rule.” The upshot is that the rule is a dead letter in the Eleventh Circuit. The rule formerly required that even solicited faxes include instructions for opting out (47 C.F.R. § 64.1200(a)(4)(iv)). But the Federal Communications Commission eliminated the rule by an order issued in November 2018, and that order was published in the Federal Register in March 2019. The Eleventh Circuit held that the elimination of the solicited-fax rule applies retroactively. It noted that the FCC had revoked the rule because courts of appeal had found it unlawful, and it found no reason why an unlawful rule should be enforced.

There are two TCPA takeaways:

  • Gorss is another example of how useful effective consent can be as a defense in TCPA cases. In particular, it illustrates the value of broad consent (i.e., communications from a party or any of its affiliates) contained in the relationship-defining contract (i.e., the franchise agreement). Prudent companies may consider auditing their agreements to ensure that consent to receive communications is broadly drawn.
  • This case also illustrates the value of consent at the class-certification stage, independent of the merits. While the Eleventh Circuit did not reach the certification issue, the district court denied class certification because of individualized issues relating to consent. A consent regime can force plaintiffs into taking individualized approaches to avoid the effect of written consent — such as relying on a class representative’s or putative class member’s subjective understanding of what the consent covered. These attempts at avoiding unambiguous consent can make class certification impossible.

Gorss also presents two interesting points of appellate practice:

  • In a quirk of appellate opinion writing, Judge William Pryor also authored a concurrence to his unanimous panel opinion, and both of the other judges on the panel joined it, too. The concurrence addresses an issue raised in the appeal but not necessary to the result —namely, the meaning of the Hobbs Act’s grant of “exclusive jurisdiction” to the circuit courts to adjudicate the validity of certain agency orders (28 U.S.C. § 2342). The concurrence takes the position that the Hobbs Act narrowly forbids parties from directly challenging the validity of agency orders, but does not require that district courts treat such orders as binding precedent. The concurrence also invites a challenge to existing Eleventh Circuit cases that take a broader view of the Hobbs Act and outlines problems with that broad view. The 14-page concurrence addresses issues too detailed for this post, but it is gratifying to see judges writing opinions that clearly state “this part is law” and “this part is dicta.”
  • For practitioners in the Eleventh Circuit: The panel opinion and concurrence cite “Reading Law: The Interpretation of Legal Texts” by the late Justice Scalia and Bryan Garner seven times. Any book so prominently cited belongs on your shelf.

Yes, But Were You Hurt? Another Data Breach Case Dismissed for Lack of DamagesWhile a war rages on the issue of standing in data breach cases, the need to prove damages is presenting an even greater hurdle for plaintiffs, as we have noted previously. One clear illustration of this trend is Attias v. CareFirst, Inc., a case that involves both standing and damages issues.

Attias arises from a data breach at a health insurer that allegedly compromised policyholder information. The defense began by moving to dismiss for lack of standing, and the district court granted the motion. But the D.C. Circuit reversed, finding that the plaintiffs had adequately alleged a “substantial risk” of injury. (We watched the certiorari petition to see if the Supreme Court would address the “substantial risk” standard, but the petition was denied.)

On remand, the defense strategy shifted. Instead of arguing that the federal court lacked jurisdiction over the dispute, the defense focused on the elements of the plaintiffs’ claims —specifically, the damages element. That element was required for all the alleged claims (breach of contract, negligence, fraud, and breach of duty of confidentiality), as well as the Maryland, Virginia, and D.C. statutory claims asserted by different plaintiffs.

Plaintiffs responded with four theories of actual damage: (1) actual misuse, (2) “benefit of the bargain” damages, (3) mitigation damages, and (4) emotional distress. The court found that only actual misuse could satisfy the damages requirement. Plaintiffs’ allegations relating to the benefit of the bargain were too conclusory to support a claim, and the alleged mitigation efforts undertaken by plaintiffs were purely preventative rather than responsive to any actual harm suffered. The claim for emotional distress was likewise too speculative, in the district court’s eyes, to be actionable. Because of these rulings, the claims of all but two plaintiffs were dismissed. The two remaining plaintiffs both alleged actual identity theft.

Attias also addresses several other hot-button issues in data breach class actions. It analyzes D.C.’s form of the economic loss doctrine and concludes that the parties’ contractual relationship (as insurer/insured) barred tort claims that did not arise from duties independent of the parties’ contract. The court then concluded that the insurer did not owe a freestanding duty to protect insured information independent of the insurer’s contractual promises. It also found that no common-law duty to protect information applied and rejected the plaintiffs’ request to find a special or fiduciary relationship between insurer and insured.

Plaintiffs thus went away largely empty-handed. While two plaintiffs had claims survive, most claims were dismissed. Moreover, and more importantly, the door to class certification is all but closed. A class would have to include members who suffered actual damages, and such a showing is almost certain to require individualized proof of both causation and damages. Assuming a class could be certified over these problems, it would be far smaller than the class of all insureds whose data was affected by the breach.

The district court’s second dismissal is up on appeal again, but Attias remains instructive. Defendants should realize the power of damages issues in data breach class actions. Focusing on damages may be a shorter path to victory than arguing standing — with a lesser risk of getting stuck in a state-court forum to boot. A strategy that challenges plaintiffs to articulate how a particular breach affected them and the class can also serve the defense’s aims even if an early dismissal is not the result: Focusing on the elements of claims often narrows the case and highlights the kind of evidentiary issues that can make class certification impossible. Focusing on damages, both at the pleading stage, through discovery and in motion practice, can pay decided dividends, particularly in cases where damages are frequently evanescent for many in the putative class (e.g., consumer data breach and statutory violation claims), and in cases where damages are likely to be highly variable.

Silence Isn’t Always Golden: Class Arbitration in Recent Supreme Court of Alabama CaseAs this blog has previously discussed, the availability of class arbitration has been significantly restricted after a series of U.S. Supreme Court decisions. However, we have also noted that express preclusion of class arbitration remains advisable for companies because they eliminate the ability of state courts and arbitrators to read permission for class arbitration into an arbitration clause that was never intended to allow class arbitration.

A recent decision in the Supreme Court of Alabama highlights the continuing wisdom of including a class waiver even following the U.S. Supreme Court’s rulings. In Alabama Psychiatric Services, P.C. v. Lazenby, et al., several laid-off employees filed a class action complaint against their employer, APS. APS successfully moved for a circuit court order that compelled arbitration under the employment agreements.

The arbitration clauses in the employment agreements were silent on the topic of whether class arbitration was available. At the same time that the parties argued the motion to compel arbitration, APS asked the circuit court to decide whether class arbitration was available. The circuit court concluded that that question was itself reserved for the arbitrator.

Arbitration began. Early on, the arbitrator issued a “clause-construction award”—which is allowed under the rules of the American Arbitration Association—ruling that class arbitration was available under the parties’ agreements. APS appealed this clause-construction award to the circuit court, which denied the appeal. The appeal then went to the Supreme Court of Alabama.

APS sought to challenge the circuit court’s earlier decision to send the question of class arbitrability to the arbitrator, arguing that the circuit court should have decided that question itself. The Alabama Supreme Court disagreed, noting that this decision was a part of the order compelling arbitration, and APS failed to appeal that order within the 42-day deadline to appeal under Ala. R. App. P. 4(d).

As an aside, this is a reminder for arbitration defendants that in a state court, the state’s rules of civil procedure govern when and how an order compelling arbitration must be appealed. In Alabama, such an order is immediately appealable, and so APS had to appeal within 42 days; the deadline was not tolled by the arbitration.

At this point, APS’s chances of success became very low. Having blown its deadline to appeal the circuit court’s order, APS now had to overturn the arbitrator’s clause-construction award under the very limited standards of review in the Federal Arbitration Act (FAA). Winning an appeal on one of these grounds is notoriously difficult. As you might have guessed by now, APS was unable to persuade the court that any available ground to have the award overturned under the FAA had been satisfied. The Alabama Supreme Court found the parties’ agreement distinguishable from those in recent U.S. Supreme Court cases that had restricted the availability of class arbitration. APS was therefore required to proceed with a class arbitration.

Class arbitration raises the specter of a “heads you win, tails I lose” situation for companies. A class arbitration victory for plaintiffs will be extremely difficult for the company to challenge in court, as it will rarely present grounds for overturning an arbitration award. Meanwhile, a victory for the company can more easily be set aside if class members who were not participants in the arbitration raise a due process challenge to the decision.

This decision should serve as a reminder to companies to review their arbitration agreements and ensure that class arbitration is expressly disallowed. Best practice is likely to specify that, while all claims of the contracting parties’ must be submitted to binding arbitration, the arbitrator “shall not have jurisdiction to determine any claims on a class, collective, or representative basis or to join the claims of more than one claimant for adjudication in a single arbitration proceeding,” or words to that effect. Why? Because one of the very few grounds for vacating an arbitration award under the FAA is that the arbitrator exceeded his or her jurisdiction under the written arbitration agreement  (9. U.S.C. § 10(a)(4)).

The bottom line: Despite the U.S. Supreme Court cases minimizing the possibility of unintended agreement to class arbitration, your own failure to expressly preclude class arbitration can still cause your next arbitrable dispute to take a detour down the dangerous road of class arbitration.