TCPA Connect

Lyft Swerves to Avoid TCPA Claim, But Suit Continues

A Washington federal court issued a mixed decision for Telephone Consumer Protection Act defendant Lyft recently by allowing the suit to move forward on state law claims, but ruling that the ride-sharing company could not be liable under the federal statute for an advertising campaign that allowed users to send text invitations to their friends.

Kenneth Wright sued Lyft in 2014 alleging violations of both the TCPA and Washington state laws after purportedly receiving an unsolicited invitation to join the service. The message stated that “Jo Ann C.” had sent him a “free Lyft ride worth $25,” and included a link to claim the free ride by downloading the Lyft app.

Lyft moved to dismiss the suit. After analyzing the Federal Communications Commission’s 2015 Declaratory Ruling and Order, U.S. District Court Judge Marsha J. Pechman agreed to toss the TCPA count.

As to who “makes” the call or sends the text for purposes of the statute, the FCC’s order clarified that the maker of the call must be a party with “some ‘direct connection’ … [to] the making of [the] call, a definition which excludes ‘persons or entities, such as third-party retailers, that might have some role, however minor, in the causal chain that results in the making’ of a call,” the court explained. “The maker of the call is determined by looking at ‘the totality of the facts and circumstances surrounding the placing of a particular call’ to determine the party who either ‘[took] the steps to physically place a telephone call’ or was ‘so involved in the placing of a specific telephone call’ as to be deemed to have initiated it.”

“If this sounds like a description of the person who decided to ‘invite’ persons from their contact list to use an app, the FCC [ruling] makes it clear: ‘invitational’ messages sent at the behest of existing users of an app or system do not fall within the ambit of the TCPA,” Judge Pechman wrote. The “invite your friends” system considered by the FCC in its declaratory ruling “is virtually indistinguishable” from Lyft’s, she added.

Wright attempted to distinguish the FCC ruling because the party in that case told app users that an invitational text message would be sent, while Lyft did not specify whether the invite would be sent by U.S. mail, e-mail, a personal phone call, or some other method. “The Court finds this distinction of questionable materiality and the speculation/allegation definitely implausible; i.e., it is not plausible that ‘Jo Ann C.’ did not know, at the moment she pushed the ‘Send Invite’ button, that Plaintiff would receive an e-mail or text message,” the court said.

The FCC’s ruling “resolves whether this form of user-generated invitational text message falls within the restrictions of the TCPA,” Judge Pechman said. “The answer is ‘no.’ Defendant is entitled to a dismissal of the TCPA claim.”

However, the court said Wright’s claims under Washington’s Commercial Electronic Mail Act (CEMA) and Consumer Protection Act (CPA) could move forward. “Unlike the TCPA, it makes no difference if some other party ‘initiated’ the text message to Plaintiff by going through the invitational process,” the court said. “CEMA prohibits ‘initiat[ing] or assist[ing] in the transmission of an electronic commercial text message to a telephone number assigned to a Washington resident for cellular telephone.”

The court rejected Lyft’s argument that because the $25 ride credit and Lyft app are free, the text message was not “commercial” as defined by CEMA. “It is too narrow a reading of the statute and the intent behind the prohibition,” Judge Pechman found, as neither the statute nor the regulation requires an explicit mention of a good, product, or service where the implication is clear from the context.

As for the state CPA claim, Lyft failed to persuade the court that Wright’s alleged injuries—having to pay a cellular service provider to receive the message, having his privacy invaded, and losing energy stored in the battery of his cellphone, among others—were insufficient to state a claim under the state law to survive a motion to dismiss. “While Plaintiff might run into proof problems with injury claims such as these, that is an argument for another day,” the court said.

To read the order in Wright v. Lyft, Inc., click here.

Why it matters: The Wright decision reiterates the FCC’s declaratory ruling that “invitational” messages sent at the behest of existing users of an app or system do not fall within the ambit of the TCPA. The court’s order also demonstrates that advertisers may not be completely off the hook, as broadly written state statutes may provide a basis for liability for such text messages.

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Sixth Circuit: Sufficient Control Over Faxes Triggers TCPA Liability

Holding that approval of the marketing strategy used by a third party was sufficient to establish the possibility of liability under the Telephone Consumer Protection Act, the Sixth Circuit Court of Appeals reversed summary judgment in favor of a defendant in a putative class action.

The dispute centered around an allegedly unsolicited fax advertisement received by Siding and Insulation Company in November 2005 promoting the services of Alco Vending.

Alco hired Business 2 Business Solutions (B2B), a third-party marketing company, and engaged in a series of communications about an advertising campaign. The president of the company completed a form that provided three “selling points” about Alco that could be included in any advertisements and reviewed sample ads drafted by B2B. Multiple conversations about the ads were held between Alco and B2B, although the president testified he never saw or reviewed the list of recipients and was told that the businesses all had a preexisting relationship with B2B so that any advertising was “100 percent legal.”

B2B broadcast approximately 7,000 faxes on Alco’s behalf in November 2005 and July 2006 and was paid a total of $376.

Siding sued, asserting a violation of the TCPA. Alco responded that it was not the sender of the fax, which was transmitted by B2B. Although Alco acknowledged that it paid B2B to provide advertising services by broadcasting faxes to consenting businesses, the defendant argued that it could not be held liable for fax ads sent to non-consenting recipients.

Applying the federal common law theory of agency, a federal court judge agreed, ruling that Alco could not be vicariously liable under the TCPA, granting summary judgment for the defendant. Siding appealed to the Sixth Circuit, which found that the district court applied the wrong legal standard and reversed.

The panel first attempted to identify the proper legal standard for liability under the TCPA. Strict liability was not applicable to the time period when the fax was broadcast, the Sixth Circuit said, as the Federal Communications Commission promulgated regulations in 2006, codifying a new definition of the term “sender” that could not be applied retroactively to earlier Alco faxes.

Alco advocated for a theory of vicarious liability based on federal common law, as used by the district court. But the Sixth Circuit rejected this position. The lower court improperly relied upon a 2013 declaratory ruling from the FCC that discussed vicarious liability in the context of phone calls, defining terms for “telemarketer” and “seller”—not fax advertisements, the panel said.

Instead, the court applied the “on-whose-behalf” standard found in a 1995 FCC order that specifically addressed fax liability. There, the Commission stated that “the entity or entities on whose behalf facsimiles are transmitted are ultimately liable for compliance with the rule banning unsolicited facsimile advertisements.” That standard provided “the rule for assessing fax liability under the TCPA from the time of the 1995 Order until the strict liability standard became effective in August 2006,” the court said.

Alco’s faxes were broadcast in November 2005 and July 2006, the panel wrote, and “thus fell within the time period during which the FCC applied the ‘on-whose-behalf’ standard, so liability for sending the faxes must be judged by that standard,” a middle ground between strict liability and vicarious liability.

Relevant factors included the degree of control that Alco exercised over the preparation of the faxes, whether Alco approved the final content of the faxes as broadcast, the nature and terms of the contractual relationship between B2B and Alco, and Congress’s intent to stop fax advertisers from “coopting” recipients’ fax machines in a way that interfered with legitimate business uses.

Several of the factors indicated that B2B did not act on Alco’s behalf, the panel found: Alco employees were never provided with details about fax recipients and when Alco received complaints about the faxes, it passed them along to B2B. The marketing company also assured Alco’s president that the fax campaign would be “100 percent legal.”

However, multiple factors also supported the conclusion that B2B did in fact act on Alco’s behalf, the court said. The company’s president provided information for “selling points” about the company to use in the advertisements, which he also reviewed, evidencing that Alco had “at least some ‘degree of input and control,’ over … content” and was “substantively involved in the preparation of the advertisements.”

Also relevant when considering Alco’s potential liability: the company’s “desire to advertise its services” and the reasonableness of its reliance on B2B’s representations about the legality of the fax distribution, the panel wrote.

The court reversed summary judgment in Alco’s favor and remanded the case for the district court to apply the correct legal standard.

To read the opinion in Siding and Insulation Co. v. Alco Vending, Inc., click here.

Why it matters: Because the faxes at issue were sent prior to the FCC’s 2006 regulations, the Sixth Circuit adopted the “on-whose-behalf” standard to consider the defendant’s liability, rejecting the federal common law theory of vicarious liability used by the district court. While the multi-factor analysis includes considerations such as an advertiser’s desire to market its services and the reasonableness of its reliance on the marketing company, the application of the standard is limited only to faxed advertisements sent prior to the FCC’s 2006 regulations.

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On 25th Anniversary, Lawmakers Consider TCPA’s Future

The Senate Committee on Commerce, Science, and Transportation considered the Telephone Consumer Protection Act recently at a hearing titled, “The Telephone Consumer Protection Act at 25: Effects on Consumers and Business.”

With testimony from a state Attorney General, the National Consumer Law Center, the American Association of Healthcare Administrative Management and the U.S. Chamber Institute of Legal Reform, lawmakers heard a variety of perspectives on the statute.

In his opening remarks, Committee Chair Sen. John Thune (R-S.D.) suggested the statute could use a tune-up. “As a result of the TCPA, a number of abusive and disruptive telemarketing practices have been significantly reduced or eliminated,” he said. “But, TCPA is also showing its age, and there are opportunities to build on its consumer benefits while also ensuring consumers fully benefit from modern communications.”

Because consumer behavior is far different today than in 1991, “today’s consumer expectations about communications connectivity and the benefits of better contact with their doctors, schools, favorite charities, and—yes—even their lenders would be unrecognizable to Congress 25 years ago,” he said. “The balance forged decades ago may now be missing the mark, and consumers may be missing the benefits of otherwise reasonable and legitimate business practices.”

Sen. Thune also expressed concern that the Federal Communications Commission “actually seems to be creating more imbalances and more uncertainty,” leaving businesses unclear about the definition of an autodialer and what to do if a customer’s number has been reassigned. “TCPA litigation has also become a booming business,” he told attendees of the hearing. “TCPA cases are the second most filed type of case in federal courts, with 3,710 filed last year alone. That represents a 45 percent increase over 2014.”

Ranking Member Sen. Bill Nelson (D-Fla.) took a different approach, by characterizing the TCPA as “one of the preeminent and most loved consumer protection statutes we have.” He suggested that if the law were changed so that consumers received more robocalls, legislators would “get a mobile phone thrown at you.”

“The number of consumer complaints about robocalls continues to increase,” Sen. Nelson said, with hundreds of thousands of complaints per month to the Federal Trade Commission. While he recognized that fraudulent callers are a big part of the problem (and the reason behind legislation he sponsored to combat spoofing), he also took a pro-consumer stance. “[O]utside this hearing room, outside the corporate boardrooms, outside the offices of defense counsel or debt collectors, the idea of allowing greater access for robocalls to consumers’ cell phones without their consent is an idea that is dead on arrival with the American people.”

Other witnesses at the hearing presented a similar divergence of views. Indiana Attorney General Greg Zoeller spoke about the “long, tireless battle” to protect consumers from unwanted calls, which are the most common complaint received by his office. He also decried the new TCPA amendment permitting debt collection robocalls to cell phones if the debt is owned or guaranteed by the United States.

“By carving out this exception, Congress is legitimizing robocalls and allowing them a free pass to harass people,” AG Zoeller said. “Unwanted calls are a huge annoyance to our citizens. It’s frustrating when the federal government weakens state efforts aimed at protecting and servicing our citizens.”

Alternatively, a representative on behalf of the U.S. Chamber Institute for Legal Reform and the U.S. Chamber of Commerce discussed the impact of the TCPA on businesses both big and small, “in a manner never intended by the drafters” of the statute, portions of which are “horribly outdated.”

“Unfortunately, it is American businesses, and not harassing spam telemarketers, who are the targets for these suits,” she testified. “[T]rial lawyers have found legitimate, domestic businesses a much more profitable target. Indeed, businesses reaching out in good faith to customer-provided telephone numbers are now the most common target of TCPA litigation.”

To watch a video of the hearing and read the prepared testimony of participants, click here.

Why it matters: The disparity of views reflected at the hearing may prove challenging to any update of the 25-year-old statute. Committee Chair Sen. Thune recognized that the TCPA should reflect the interests of both businesses and consumers, but expressed concern that the statute no longer does so. When Congress enacted the TCPA, it “expressly sought a balanced approach,” he said. “Ultimately, finding the right balance is essential to protecting the privacy of consumers while making sure they have reasonable access to the information they want and need, and making sure good faith business actors can reasonably assess the cost of doing business.”

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Florida Court Finds Plaintiff Failed to Allege ATDS

Applying the Federal Communications Commission’s 2015 Declaratory Ruling and Order, a Florida federal court agreed with a defendant in a Telephone Consumer Protection Act dispute that the plaintiff failed to allege the use of an automatic telephone dialing system (ATDS).

Verizon referred an account to The CBE Group Inc. for collection that included the phone number of S. Ryan Strauss. CBE then placed 26 telephone calls to Strauss over a six-month period seeking to collect on the debt.

Strauss responded with a putative class action suit against both CBE and Verizon. CBE conceded that the first two calls made to Strauss utilized a predictive dialer under the mistaken belief that the phone number was a landline. But the remaining calls were made using the company’s patent-pending Manual Clicker Application (MCA) which CBE argued did not constitute an ATDS because it requires an agent to manually initiate the call by clicking a computer mouse or pressing a keyboard “enter” key. Verizon argued that it could not be vicariously liable under the statute.

All parties filed motions for summary judgment. U.S. District Court Judge James I. Cohn generally sided with the defendants, dismissing the claims against Verizon and granting summary judgment in favor of CBE on the 24 calls made with the MCA system.

The TCPA defines an ATDS as “equipment which has the capacity (A) to store or produce telephone numbers to be called, using a random or sequential number generator, and (B) to dial such numbers.” In last year’s Declaratory Ruling, the FCC expanded this definition and explained that the term “capacity” refers not only to a device’s “present capacity” or “current configuration,” but also includes its “potential functionalities.”

For the court to determine whether a dialer is a predictive dialing system and an ATDS, its “primary consideration” is “whether human intervention is required at the point in time at which the number is dialed,” Judge Cohn said.

Strauss failed to create a genuine dispute with regard to CBE’s last 24 calls. By itself, the MCA lacked the capability to dial predictively, the court said, and the “overwhelming weight of the evidence” indicated the equipment it utilized to connect calls did not change that calculus.

In an affidavit from a CBE executive, the defendant explained that after a company representative clicked to initiate a call, the MCA used connecting devices that only allowed for “pass-throughs” and were incapable of doing any type of automatic outbound dialing. It therefore lacked the capacity to store, produce, or dial numbers using a random or sequential number generator.

“Because CBE has presented substantial evidence that human intervention is essential at the point in time that the number is dialed using the MCA and that the [equipment] used does not have the functionalities required to classify it as a predictive dialer, Defendants have made a prima facie showing that they are not liable as a matter of law for the calls made after April 15, 2014,” the court said.

The plaintiff’s expert was unable to overcome this showing, the judge added, as he did not address the capabilities of the equipment CBE used with the MCA, but “merely assume[d]” that CBE used a predictive dialer for all of its calls, as it admittedly used them for landline calls. The plaintiff’s expert report was therefore “insufficient to create a genuine issue of material fact regarding the dialing service that CBE used,” the court concluded.

Turning to the question of Verizon’s vicarious liability, Judge Cohn again found that the plaintiff failed to create a genuine dispute. None of the evidence demonstrated an agency relationship between Verizon and CBE where Verizon exercised “substantial control” over the agent’s actions, ratified CBE’s conduct, or made representations that CBE acted with authority.

While CBE provided Verizon with limited access to its information and systems so that Verizon could conduct quality control measures such as performing random audits of CBE’s collection calls, conducting on-site visits every six to nine months, and reviewing collection reports made available by CBE through its client portal, this “quality control falls short of establishing ‘substantial control’ or apparent authority by the FCC’s standards,” the court wrote.

Nothing in the evidence suggested that Verizon gave CBE access to its systems, authorized CBE to use its name or marks, or knew that CBE was violating the TCPA and failed to stop it, the judge wrote. “Even if Verizon participated in the preparation of the transcript read by CBE agents, on balance, this evidence is insufficient to create an issue of disputed material fact for trial regarding an agency relationship between CBE and Verizon.”

The court found, however, that Strauss was entitled to summary judgment on the first two calls from CBE, as the defendant conceded that it used a predictive dialer to make the calls to the plaintiff’s cell phone. Judge Cohn ordered CBE to pay statutory damages of $500 per call for a total of $1,000.

To read the order in Strauss v. The CBE Group, Inc., click here.

Why it matters: The order discusses two hot topics in TCPA law: what constitutes an ATDS and the standard for vicarious liability. In both instances, the defendants emerged victorious in Florida federal court, with the judge determining that Verizon’s quality control access to CBE’s operations did not rise to the level of “sufficient control” to demonstrate an agency relationship for purposes of vicarious liability. And even the FCC’s 2015 Declaratory Ruling that expanded the scope of an ATDS to include “potential functionalities” could not save the plaintiff’s argument that the system used by CBE violated the TCPA where the company was able to show that “human intervention [was] essential at the point in time that the number is dialed.”

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Reilly and Roth to Lead TCPA Webinar for Retailers, June 28

With uncapped statutory damages of up to $1,500 per violation, the Telephone Consumer Protection Act strikes fear into any company that contacts consumers by cell phone, text or prerecorded message. The retail industry is no exception. On Tuesday, June 28, Christine Reilly and Marc Roth, co-chairs of Manatt’s TCPA Compliance and Class Action Defense practice, will deliver a complimentary webinar, “Avoiding TCPA Pitfalls: Essential Guidance for Retailers,” in which they will highlight practices and procedures to help mitigate the threat of litigation to retailers. To register or learn more, click here.

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News and Views

Stephen Raptis, partner in Manatt’s Insurance Recovery practice, offered his outlook in Corporate Counsel on how companies exposed to TCPA liability can fully take advantage of their insurance policies. In recent years, many general liability insurance carriers have added exclusions to their policies that specifically apply to coverage for TCPA-related claims. Raptis explains that as a result, companies today need to be more proactive in finding coverage for TCPA claims, but absolutely should not give up just because their general liability policy excludes TCPA claims. To read “Just Got Hit With a TCPA Suit? You May Have Insurance Coverage” click here.

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