The TCPA – Searching for a Vintage Rotary Phone

Red Rotary PhoneIn response to 21 petitions from a number of businesses and trade associations, on July 10, 2015, the U.S. Federal Communications Commission (“FCC”) released a Declaratory Ruling and Order (“DRO”)[i] regarding requirements established by the Telephone Consumer Protection Act of 1991 (“TCPA”).[ii] As described below, the DRO is already the subject of multiple consolidated lawsuits challenging the FCC.

Declaratory Ruling and Order

The FCC’s adoption of the DRO, by a 3-2 vote, has significantly changed the legal landscape of the TCPA, and has serious global consequences for numerous markets and businesses, including members of the credit and accounts receivable management industry. Three of the crucial rulings are as follows:

  1. Broadening the definition of Automatic Telephone Dialing System: The DRO applies the TCPA to equipment that cannot currently store or produce telephone numbers to be called using a random or sequential number generator and that cannot currently dial such numbers. The FCC found that (a) the TCPA does not exempt equipment that lacks the present ability to dial randomly or sequentially and that (b) Potential ability is consistent with the interpretation of capacity. Articulated in the DRO, the test is whether there is more than a theoretical potential that the equipment could be modified to satisfy the autodialer definition codified under the TCPA.
  2. Reassignment of Phone Numbers: In the case of a reassigned phone number, a caller without knowledge of reassignment with a reasonable basis to believe it has a valid prior consent can initiate a grand total of one phone call to gain knowledge of reassignment, and then must cease all further communication regardless of the substance (if any) of the single phone call.
  3. Revocation of Consent: The DRO states that prior consent for communications covered by the TCPA can be revoked at any time, by any reasonable means, including orally at a store or bill payment location.

Original Intent of the TCPA

Back in 1991, Congressional sponsors of the TCPA stated that the statute was focused on the use of the telephone when such use is to sell products or services.[iii] The initial sponsor of the Senate bill, Senator Fritz Hollings (D-SC), stated that, “This bill is purely targeted at …telemarketing calls placed to the home.”[iv] Another issue considered by Congress, was unsolicited advertisements to fax machines by telemarketers, which caused the recipient to incur the cost of printing the advertisement. Additionally Congress also made note of the same problem relating to cellular telephones, where the called party was forced to incur an actual charge by a call from a telemarketer.[v]

In regards to damages, Senator Hollings, explained that the TCPA intended to “make it easier for consumers to recover damages” from computerized telemarketing calls, and that the intent was for consumers to go into small claims courts in their home states so that the $500 in damages would be available without an attorney.[vi]

Lawsuits Challenging the Declaratory Ruling and Order

As demonstrated above, it is axiomatic that the original intent of the TCPA was not to someday create a Trial Lawyer Protection Statute. In fact, based strictly on the TCPA’s statutory damage design[vii] the TCPA has become the litigation vehicle of choice for self-proclaimed consumer class action attorneys. As it stands, anyone that contacts consumers (in the broadest sense of the term), using the expansive technologies falling under the TCPA, faces the real risk of a lawsuit leading to potentially significant liability. Therefore, it is not surprising that lawsuits have already been filed challenging the FCC’s DRO.

ACA International brought suit against the FCC in the United States Court of Appeals for the District of Columbia Circuit[viii] challenging the rulings as arbitrary, capricious and an abuse of discretion. Likewise, the Professional Association for Customer Engagement[ix] and Sirius XM Radio[x] brought suit challenging the FCC’s DRO, specifically requesting that the court vacate the DRO. All three cases have been consolidated into a single lawsuit before the United States Court of Appeals for the District of Columbia Circuit.[xi] In addition, the Council for American Survey Research Organizations and the Marketing Research Association have already jointly moved for leave to intervene as parties directly adversely affected by the DRO. As it stands, there is no hearing calendared.

Dissenting Statements

Impliedly connected to the abovementioned lawsuits challenging the DRO are the dissenting statements from FCC Commissioners Ajit Pai and Michael O’Rielly. These statements point to egregious errors and inconsistencies contained within the DRO and the FCC’s apparent abandonment of standard statutory construction practices.

Commissioner Ajit Pai

As a general underlying proposition behind Commissioner Pai’s dissent, the Commissioner pointed to a recent article in the Wall Street Journal, discussing how TCPA trial lawyers profit in the amount of about $2.4 million per suit simply by targeting legitimate domestic businesses.[xii] To quantifiably establish that the TCPA has become the poster child for lawsuit abuse, Commissioner Pai introduced statistics exhibiting that the number of TCPA cases filed each year skyrocketed from 14 in 2008 to 1,908 in the first nine months of 2014.

To further demonstrate the misuse and exploitation of the TCPA, Commissioner Pai highlighted two outrageous examples of these abuses:

  1. The Los Angeles Lakers offered its fans a fun opportunity: Send a text message to the team, and you might get to place a personalized message on the Jumbo Tron at the Staples Center. The Lakers acknowledged receipt of each text with a reply making it clear that not every message would appear on the Jumbo Tron. What followed was a class-action lawsuit claiming that every automated text response was a violation of the TCPA.[xiii]
  2. TaxiMagic sent confirmatory text messages to customers who called for a cab. Each message indicated the cab’s number and when the cab was dispatched to the customer’s location. Even though customers seemingly appreciated this service, a trial attorney instead saw an opportunity to profit, and a TCPA class-action lawsuit swiftly followed. Id.

On the statutory question regarding the ambiguity of the term “capacity,” Commissioner Pai stated: “[T]he Order’s expansive reading of the term ‘capacity’ transforms the TCPA from a statutory rifle-shot targeting specific companies that market their services through automated random or sequential dialing into an unpredictable shotgun blast covering virtually all communications devices.” Id., at 115.

The Commissioner also referred to the ruling on telephone number reassignment, stating that 37 million telephone numbers are reassigned each year and that the FCC’s interpretation of reassignment “is a veritable quagmire of self-contradiction and misplaced incentives.” Id., at 120. This ineffective approach to reassignment was highlighted by Commissioner Pai raising the example of Rubio’s (a West Coast restaurateur), which sent important text messages to what it thought was an employee’s phone number. The new subscriber never asked Rubio’s to stop texting him—at least not until the new subscriber sued Rubio’s under the TCPA for nearly half a million dollars. Id. at 120

Commissioner Michael O’Rielly

Commissioner O’Rielly did not mince his words, specifically referring to the DRO as a “farce,”[xiv] and describing the DRO as so expansive that the FCC had to use rotary phones as an example of a technology that would not be covered. By way of analogy Commissioner O’Rielly likened the DRO to “the FAA regulating vehicles because with enough modifications cars and truck could fly, and then using a skateboard as an example of a vehicle that does not meet the definition.” Id., at 128.

Conclusion

The rise in multi-million dollar TCPA settlements and awards has raised the profile of the TCPA. In effect, rather than eliminating or even limiting illegal telemarketing calls, the DRO further places a target on legitimate businesses attempting to have reasonable and useful communications with consumers. Consequently, the DRO has turned the TCPA into a Trial Lawyer Protection Statute, thus acting as yet another economic disadvantage for all American businesses and their consumers in this fiercely competitive global economy. To elaborate on this point, the TCPA is costing American businesses hundreds of millions of dollars across every type of industry, including, but not limited to (1) Television;[xv] (2) Banking and Finance;[xvi](3) Professional Sports;[xvii] (4) Retail Stores;[xviii] (5) Radio;[xix] (6) Automotive Services;[xx](7) Healthcare Insurance;[xxi](8) Home Services;[xxii] (9) Food Franchises;[xxiii] (10) Education;[xxiv] and (11) Fashion.[xxv]

The FCC has expanded the TCPA as a permissible litigation minefield and a virtual license to print money for class action plaintiffs and their attorneys. As succinctly put by Commissioner Pai, “Having opened the door wide, the [FCC] cannot then stipulate restraint among those who would have a financial incentive to walk through it.”[xxvi] It’s still not too late for the courts and legislators to listen to reason and overhaul or appropriately interpret the TCPA so that it can no longer be misused to intimidate and batter legitimate businesses and industries.

The information and materials in this blog are provided for general informational purposes only and are not intended to be legal advice. The law changes frequently and varies from jurisdiction to jurisdiction. Being general in nature, the information and materials provided may not apply to any specific factual and/or legal set of circumstances. No attorney-client relationship is formed, nor should any such relationship be implied. Nothing in this blog is intended to substitute for the advice of an attorney, especially an attorney licensed in your jurisdiction. If you require legal advice, please consult with a competent attorney licensed to practice in your jurisdiction.

by Scott E. Wortman, Partner Warshaw Burstein, LLP

555 Fifth Avenue, New York, NY 10017

www.wbcsk.com,  attorney profile

E-Mail: SWORTMAN@wbcsk.com

Direct Telephone:  212-984-7723 , Cell phone: 646-709-6408, Facsimile: 212-972-9150

Notes:

[i] In re Matter of Rules and Regulations Implementing the Telephone Consumer Protection Act of 1991, Declaratory Ruling and Order, CG Docket No. 02-278, WC Docket No. 07-135, FCC 15-72 (released July 10, 2015)

[ii] 42 U.S.C.S. § 227

[iii] H.R. Rep. No. 102-317 (1991).

[iv] 137 Cong. Rec. S9874 (daily ed. July 11, 1991) (statement of Sen. Hollings).

[v] See Cong. Rec. – Senate Proceeding and Debates of the 102nd Congress, First Session, supra, 137 Cong. Rec. at S9874.

[vi] 137 Cong. Rec. 30821–30822 (1991).

[vii] Each call, text or fax deemed to be in violation translates to damages of $500 to $1,500.

[viii] ACA Int’l v. FCC, No. 15-1211 (D.C. Cir.) (filed July 10, 2015)

[ix] Professional Association for Customer Engagement v. FCC, No. 15-2489 (7th Cir.) (filed July 14, 2015)

[x] Sirius XM Radio Inc. v. FCC, No. 15-1218 (D.C. Cir.) (filed July 14, 2015)

[xi] Case No. 15-1218

[xii] Adonis Hoffman, “Sorry, Wrong Number, Now Pay Up,” The Wall Street Journal (June 16, 2015), available at http://on.wsj.com/1GuwfMJ; see also John Eggerton, “FCC’s Hoffman Looks Back, Moves Forward,” Broadcasting & Cable (Mar. 23, 2015), available at http://bit.ly/1GEQYNR (quoting Hoffman as saying “This consumer protection, anti-telemarketing statute has been leveraged by aggressive plaintiffs’ lawyers to line their pockets lavishly with millions, while consumers usually get peanuts… . I think the TCPA should be known by its real acronym—‘Total Cash for Plaintiffs’ Attorneys.’ This is just one example where the public interest is not being advanced responsibly.”).

[xiii] FCC DRO, Dissenting Statement of Commissioner Ajit Pai, at 113.

[xiv] FCC DRO, Dissenting Statement of Commissioner Michael O’Rielly, at 124.

[xv] Leyse v. Lifetime Entertainment Services, LLC 13-cv-05794-AKH (S.D.N.Y.)

[xvi] Amadeck v. Capital One Fin. Corp. (In re Capital One Tel. Consumer Prot. Act Litig.), 2015 U.S. Dist. LEXIS 17120 (N.D. Ill. Feb. 12, 2015); Franklin v. Wells Fargo Bank, N.A., 4-cv-02349-MMA-BGS (Southern Dist. CA); Rose v Bank of America, No. 11-cv-2390 (N.D. Cal.); Arthur et al. v. SallieMae et al., No. 10-cv-00198 (W.D. Wa.)

[xvii] Story v. Chargers Football Company LLC, Case No. BC566896 (Superior Court of CA, County of LA)

[xviii] Zani v. Rite Aid Corporation, 14-cv-09701-AJN (S.D.N.Y); Luster v. Sterling Jewelers, Inc., 15-cv-02854-WSD (Northern District of Georgia (Atlanta)

[xix] Trenz v. Sirius XM Radio, Inc. et al, 5-cv-00044-AJB-DHB (S.D. Cal.)

[xx] See Id., and In re Jiffy Lube International Inc., No. 3:11-MD-02261 (S.D. Cal.)

[xxi] Sherman v. Kaiser Foundation Health Plan, Inc., 3:13-cv-00981, (S.D. Cal.)

[xxii] Benzoin v. Vivint Home Security, Inc., No. 12-cv-61826 (S.D. Fla.)

[xxiii] Toni Spillman v. Domino’s Pizza LLC and RPM Pizza, LLC, No. 10-cv-349 (M.D. La.)

[xxiv] Fitzhenry v. One on One Marketing LLC et al (includes Virginia College and Education Corporation of America), 14-cv-04782-DCN (District of South Carolina)

[xxv] Ellison v. Steve Madden Ltd, No. 2:11-cv-05935 (C.D. Cal.)

[xxvi] FCC DRO, Dissenting Statement of Commissioner Ajit Pai, at 116 [footnote 581].

Take Back Control through Rule 11 of the Federal Rules of Civil Procedure

Take Action on Direction Sign - Green Arrow on a Grey Background.

In an attempt to reorganize my personal library, I stumbled upon some sociology textbooks dating back to my college years. While reading through a chapter on learned helplessness[i], I couldn’t help but anecdotally ponder the question as to whether members of the Credit and Accounts Receivable Management Industry are experiencing some form of organizational learned helplessness. The industry is in a twilight zone of sorts, finding itself up against inflexible and powerful bureaucratic forces that are demanding monies and unrealistic obedience to cure-findings that haven’t actually been found, while also combatting metastasizing myths that are not rooted in empirical reality. With that being said, there is an established method for unlearning helplessness, which is to change perception by taking back control.

An on-point application of this technique is to maintain a firm stance against helplessness by fighting frivolous claims and attempted exploitation. Even though this idea or ideal might sound like superficial and clichéd motivational dogma, it is actually consistent with findings by courts around the country that are beginning to see the light. It should come as no surprise that these positive court findings are undoubtedly connected with individual members of the industry taking a principled stance against helplessness by fighting frivolous claims. Point being, while a basic cost-benefit analysis may consistently lead to the conclusion that it’s simply less expensive to pay nuisance value for an entirely manufactured action, this analysis might be shortsighted, because it does not take into account all potential variables, for example the effect on the industry at large and the possibility for a positive shift in perception by refusing to give credence to the surreal. To further this point, just recently, the federal court with quite possibly the highest number of consumer lawsuits in the country, noted the following:

“In this Court…and I suspect in many others, the use of the [FDCPA] has evolved into something quite different than its original purpose would suggest….Frequently, these cases are brought on behalf of the same debtor-plaintiffs, who seize on the most technical alleged defects in collection notices or telephone communications, often raising claims of ‘confusion’ or ‘deception’ regarding practices as to which no one, not even the least sophisticated consumer, could reasonably be confused or misled. These cases are often brought for the non-salutary purpose of squeezing a nuisance settlement and a pittance of attorneys’ fees out of a collection company, which it will often find cheaper to pay than to litigate….The collection company in this case did everything by the book, and yet has still found itself a defendant in an FDCPA action.”[ii]

 Just in the last year, there have been some interesting case developments with companies affirmatively and successfully using Rule 11 of the Federal Rules of Civil Procedure,[iii] which stands as the ne plus ultra of deterrent sanctions. To better understand this possible shift in perception, I reviewed a random sample of 15 FDCPA cases containing Rule 11 filings by respective defendants within the last year.[iv] This does not account for effectively using a Rule 11 letter to compel a voluntary dismissal of an objectively frivolous lawsuit, nor does it account for other sanctions powers, such as vexatious litigation,[v] discovery sanctions,[vi] pretrial conference sanctions[vii] and the Inherent Power of the Court to issue applicable sanctions.

However, this article would not be complete without mentioning the recent victory out of the Northern District of Texas, in which the defendant went all the way to trial and beyond to expose what amounted to a shakedown by a massive multi-state “consumer attorney” operation.[viii] While the defendant strictly requested discovery sanctions[ix] and sanctions for vexatious conduct,[x] the court found that “[plaintiff’s attorneys] effected a fraud on the Court through evasion, prevarication and outright lies, in an attempt to avoid negative legal consequences against them and their firm…,” and used the Inherent Power of the Court to deliver three-year suspensions to the plaintiff’s attorneys. Once again, it goes without saying that this result would not be possible without the defendant’s decision to decisively defend against frivolous allegations and attempted exploitation.

In reviewing the random sample of cases, I was surprised to see that Rule 11 sanctions were actually granted in 6 out of the 15 cases, and I was even more surprised as to the considerate and at times sympathetic tone of the courts throughout the country in cases where sanctions were denied for mostly technical reasons.

In cases where sanctions were granted, courts found various abuses by plaintiffs and their attorneys in reaching a determination that Rule 11 was a proper deterrent to prevent against future misconduct. See:

  • Shetiwy v. Midland Credit Mgmt., a finding that plaintiffs’ attorney has brought numerous meritless claims;[xi]
  • Duncan v. CitiMortgage, Inc., the11th circuit upholding a finding of Rule 11 sanctions, due to a lack of factual basis in the complaint and the plaintiff’s failure to address why individual defendants were included, despite having multiple opportunities to do so;[xii]
  • Farley v. Bank of Am., N.A., a holding that courts have the authority to protect defendants from the harassment of frivolous and vexatious lawsuits, and to protect themselves from having to process frivolous and repetitive papers;[xiii]
  • Tacoronte v. Cohen, entering an order for Rule 11 sanctions, as the plaintiff’s claims were frivolous, presented for the improper purpose of harassment, and asserted without evidentiary support);[xiv] and
  • Diaz v. First Marblehead Corp, finding bad faith where the plaintiff’s attorney knew his client’s claim was frivolous and still chose to pursue it.[xv]

In conclusion, in arrogating to themselves the power to determine guilt without perceived consequence, some attorneys and regulators claiming to represent consumers have done everything possible to usurp the role of the court as the fundamental arbiter of justice. To this point, I’m not advocating for expending gratuitous monies on every case or for a letter threatening litigation, but if a matter is unequivocally objectively frivolous, I do advocate that we Take Back Control.

by Scott E. Wortman, Partner Warshaw Burstein, LLP

555 Fifth Avenue, New York, NY 10017

www.wbcsk.com,  attorney profile

E-Mail: SWORTMAN@wbcsk.com

Direct Telephone:  212-984-7723 , Cell phone: 646-709-6408, Facsimile: 212-972-9150

Notes:

[i] By way of example, see http://www.britannica.com/topic/learned-helplessness

[ii] Huebner v. Midland Credit Mgmt., 2015 U.S. Dist. LEXIS 16677 (E.D.N.Y. Feb. 11, 2015)

[iii] Rule 11(b): By presenting to the court a pleading, written motion, or other paper—whether by signing, filing, submitting, or later advocating it—an attorney or unrepresented party certifies that to the best of the person’s knowledge, information, and belief, formed after an inquiry reasonable under the circumstances: (1) it is not being presented for any improper purpose, such as to harass, cause unnecessary delay, or needlessly increase the cost of litigation; (2) the claims, defenses, and other legal contentions are warranted by existing law or by a nonfrivolous argument for extending, modifying, or reversing existing law or for establishing new law; (3) the factual contentions have evidentiary support or, if specifically so identified, will likely have evidentiary support after a reasonable opportunity for further investigation or discovery; and (4) the denials of factual contentions are warranted on the evidence or, if specifically so identified, are reasonably based on belief or a lack of information.

[iv] Hopkins v. Capital One Bank, USA, N.A., 2015 U.S. Dist. LEXIS 8346 (W.D. Wis. Jan. 26, 2015); Bernard v. MGC Mortg., Inc., 2015 U.S. Dist. LEXIS 47818 (W.D. Tex. Apr. 10, 2015); Justice v. Gemini Capital Group, LLC, 2015 U.S. Dist. LEXIS 60623 (D. Colo. May 8, 2015); Kniley v. Citibank, N.A., 2015 U.S. Dist. LEXIS 53021 (N.D. Cal. Apr. 22, 2015); Wood v. Citibank, N.A., 2015 U.S. Dist. LEXIS 73067 (M.D. Fla. June 4, 2015); Mulato v. Wells Fargo Bank, N.A., 2014 U.S. Dist. LEXIS 176404 (N.D. Cal. Dec. 19, 2014); Dicion v. Mann Mortg., LLC, 2014 U.S. Dist. LEXIS 159675 (D. Haw. Nov. 10, 2014); Schwantes v. Monco Law Offices, 2014 U.S. Dist. LEXIS 116532 (D. Minn. Aug. 21, 2014); Rojas v. Forster & Garbus LLP, 2014 U.S. Dist. LEXIS 105780, 2014 WL 3810124 (E.D.N.Y. July 31, 2014); Shetiwy v. Midland Credit Mgmt., 2014 U.S. Dist. LEXIS 104244, 2014 WL 3739512 (S.D.N.Y. July 28, 2014); Huebner v. Midland Credit Mgmt., 2015 U.S. Dist. LEXIS 16677 (E.D.N.Y. Feb. 11, 2015); Duncan v. CitiMortgage, Inc., 2015 U.S. App. LEXIS 10111 (11th Cir. Ga. June 16, 2015); Farley v. Bank of Am., N.A., 2015 U.S. Dist. LEXIS 75972 (E.D. Va. June 11, 2015); Tacoronte v. Cohen, 594 Fed. Appx. 605, 2015 U.S. App. LEXIS 2622 (11th Cir. Fla. 2015); Diaz v. First Marblehead Corp., 2014 U.S. Dist. LEXIS 174853 (M.D. Fla. Nov. 3, 2014)

[v] 28 U.S.C. § 1927

[vi] Federal Rules of Civil Procedure §§ 26(g), 30(d), 37(c) and (d)

[vii] Federal Rules of Civil Procedure § 16(f)(1)

[viii] White v. Regional Adjustment Bureau, Inc. 11-cv-01817-B, Northern District of Texas (Dallas)

[ix] Fed. R. Civ. P. 37

[x] 28 U.S.C. § 1927

[xi] 2014 U.S. Dist. LEXIS 104244, 2014 WL 3739512 (S.D.N.Y. July 28, 2014)

[xii] 2015 U.S. App. LEXIS 10111 (11th Cir. Ga. June 16, 2015)

[xiii] 2015 U.S. Dist. LEXIS 75972 (E.D. Va. June 11, 2015)

[xiv] 594 Fed. Appx. 605, 2015 U.S. App. LEXIS 2622 (11th Cir. Fla. 2015)

[xv] 2014 U.S. Dist. LEXIS 174853 (M.D. Fla. Nov. 3, 2014)