Beware the Sprawl of Telephone Consumer Protection Act Litigation

November 3, 2017

The Legal Intelligencer

Thankfully, it seems all the ghosts and ghouls of Halloween have returned to their eternal resting places for at least another year. But don’t relax just yet. Because another, equally terrifying, specter continues to haunt legitimate businesses: the risk of a consumer class action under the federal Telephone Consumer Protection Act (TCPA).

Intended to curb illegal marketing practices involving “junk” fax advertisements, unwanted robo-calls, and spam text messages, TCPA litigation has increased exponentially—with thousands of new cases filed each year. Initially enacted in 1991 to regulate telemarketers, the TCPA generally prohibits businesses from making any call (which includes sending text messages) or transmitting fax advertisements without the customer’s “prior express permission” or an “established business relationship.”

Notably, the attractiveness of these suits stems largely from the combination of uncapped statutory damages and the available class mechanism. Indeed, each violation (if found to be willful) can result in trebled damages of $1,500. This leads to aggregate exposure that quickly explodes into millions of dollars. For example, at $1,500 each, every 666 calls, texts or faxes found to have violated the TCPA can equate to $1 million in potential statutory damages.

A recent report by the U.S. Chamber of Commerce documented this growing “sprawl” of TCPA litigation, with frightening results. According to the report, a “central theme with the unchecked expansion of the TCPA’s prohibitions is that it is not the unscrupulous scam telemarketers that are targeted by TCPA litigation, but rather legitimate domestic businesses.” Thus, it is more important than ever that companies strive to excise the type of risk that can result in a TCPA lawsuit.

Frightful Findings

On Aug. 31, the U.S. Chamber of Commerce issued a report titled, “TCPA Litigation Sprawl: A Study of the Sources and Targets of Recent TCPA Lawsuits.” The report indexed 3,121 filed cases in which a TCPA claim was identified during the electronic docketing process between Aug. 1, 2015, and Dec. 31, 2016.

The report paid special attention to the effects of a July 15, 2015, omnibus TCPA declaratory ruling by a divided FCC. Among other things, the FCC held that businesses can be liable for calling a wrong cellphone number because it was reassigned; that customers can revoke their consent to be called any time using any “reasonable” means; and reaffirmed that text messages are subject to the TCPA’s consent requirements. According to the report, this ruling also triggered a “significant uptick in TCPA cases.” Indeed, “the same search of electronic dockets from the 17-month period prior to the FCC’s ruling shows 2,127 cases, compared to the 3,121 cases in the 17-months after the ruling—a 46 percent increase.”

Businesses are also facing “confusing and conflicting” case law on the TCPA, according to the report. For instance, when a circuit court of appeals rules on a new question (like when the U.S. Court of Appeals for the Third Circuit held prior express consent may be revoked orally at any time), new suits based on that interpretation soon follow. But when pro-defense rulings come down (such as the Second Circuit’s opinion that when prior consent was provided by a customer as part of the contractual bargain with the company, that customer cannot “revoke” said consent), plaintiff’s lawyers will forum shop their case so as to file actions in district courts where it can be argued the prior ruling need not be followed.

Seemingly no business sector is safe from TCPA litigation. Lawsuits were filed against companies in 40 different industries—including collections, health, retail, education and marketing—with the financial industry hit the hardest (representing 36 percent of the 3,121 examined cases).  Equally disturbing was the fact that over 1,000 of the examined cases were nationwide class actions seeking tens of millions to billions of dollars.

Not surprisingly, more and more plaintiff’s lawyers are entering this cottage industry. And although hundreds of law firms are involved in TCPA cases, 60 percent of the lawsuits examined in the study’s 17-month period were brought by only 44 law firms/lawyers—with two firms filing over 200 TCPA actions apiece. The report also observed how firms will “bring multiple lawsuits anchored to one plaintiff, likely because when a plaintiff turns over all phone records to his or her counsel, multiple targets can be identified.”

Nor is TCPA litigation limited in geographic scope. Rather, “litigation activity that was once focused almost exclusively in California, Illinois, and Florida has spread throughout the country, with 40 percent of the TCPA litigation in the survey brought outside of those three states.” Between August 2015 and December 2016, a significant number of actions were filed in states like New York (111), Texas (109), New Jersey (144), Pennsylvania (87), Tennessee (72) and Georgia (234), according to the report.

Preventative Measures: Who You Gonna Call?

As the U.S. Supreme Court wrote in AT&T Mobility v. Concepcion, “when damages allegedly owed to tens of thousands of potential claimants are aggregated and decided at once, the risk of an error will often become unacceptable. Faced with even a small chance of a devastating loss, defendants will be pressured into settling questionable claims.”

And these in terrorem TCPA settlements have resulted in significant payouts. For instance, Capital One settled a TCPA suit for $75.5 million in 2014; HSBC Bank settled a TCPA suit for $40 million in 2015; and Caribbean Cruise Line, Inc. settled a TCPA suit for $76 million in 2016. But there are steps businesses can take to limit their exposure.

For example, having a robust TCPA compliance program in place can go a long way toward preventing such lawsuits in the first place. But just having a program is not enough; it is equally critical that employees be regularly trained on proper practices and procedures, and that any compliance program be periodically reviewed by counsel familiar with both industry trends and the most recent court/agency opinions. A separate review of any operative insurance policies—especially as they relate to potential exclusions concerning advertising activity, invasions of privacy, intentional conduct and/or personal injury—can also impact a company’s coverage and individual exposure.

The same level of diligence regarding internal operations should also apply equally to any third-party marketing partners or debt collectors. Because TCPA liability can vicariously extend to a company for the actions of its agents, it is important to require that third parties similarly comply with both the TCPA’s and FCC’s mandates.

Lastly, because the TCPA has a four-year statute of limitations, record-keeping regarding consumer consent also becomes important when defending TCPA claims.

Despite the “sprawl” of TCPA litigation, a legitimate business can endeavor to avoid becoming the next target. So when the question becomes “Who you gonna call?” to reduce the risk of TCPA liability, or at least to ensure essential defenses remain available if a suit were filed, the answer should always be experienced counsel.

“Beware the Sprawl of Telephone Consumer Protection Act Litigation,” by Jeffrey Rosenthal was published in The Legal Intelligencer on November 3, 2017. To view the article online, please click here.

Reprinted with permission from the November 3, 2017, edition of The Legal Intelligencer © 2017 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited. For information, contact 877-257-3382, reprints@alm.com or visit www.almreprints.com.