TCPA Connect

District Court Finds Consent a Valid Defense to TCPA Claims, Even When Customer Had Provided Phone Number Ten Years Before Autodialed Call

The issue of prior consent, and when and if such consent was provided by a consumer before an autodialed call or text is placed, has been hotly contested in Telephone Consumer Protection Act (“TCPA”) cases throughout the country. A recent decision out of the Northern District of Illinois illustrates that companies calling their customers may have reason to hang onto proof of consent for a very long time.

In Kolinek v. Walgreen Co., the plaintiff had filled a prescription at a Walgreens pharmacy in 2002, when he provided his cellular phone number to a Walgreens pharmacist “who told him that his number was needed for potential identity verification purposes.” Then, in 2012, plaintiff began receiving automated calls at his cellular phone, reminding him to refill his prescription. Plaintiff brought suit under the TCPA for himself and a nationwide class, claiming that these calls were made to him without his prior express consent.

The district court (Judge Matthew F. Kennelly) noted that in 1992 the FCC explained the prior express consent defense as follows: “[P]ersons who knowingly release their phone numbers have in effect given their invitation or permission to be called at the number which they have given, absent instructions to the contrary.” The judge then held that under the Hobbs Act, he lacked authority to challenge this interpretation.

Because plaintiff had elected to provide his cellular telephone number as his point of contact ten years earlier, and never provided Walgreen Co. with “instructions to the contrary,” the trial court held that mere passage of time could not vitiate consent, opining that “consent under the TCPA does not expire on its own; it must be revoked.”

The trial court then granted Walgreens’ motion to dismiss and dismissed the plaintiff’s lawsuit with prejudice.

To read the Illinois district court’s opinion in Kolinek v. Walgreen Co., click here.

Why it matters: This case, finding that a telephone number provided ten years earlier still afforded a company consent to make autodialed informational calls (which require prior express consent), shows that companies should be collecting and maintaining proof that the telephone numbers they are calling are those provided by the customer. However, keep in mind that such consent (mere provision of a cell phone number) may not be sufficient under the revised TCPA rules that went into effect in October 2013. Given this court’s ruling, plaintiffs may be less likely to admit in their complaints that they provided a number at some point in the past, and so the company will need to be prepared to provide that evidence—perhaps from ten years ago.

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The TCPA and Vicarious Liability

While some courts are busy addressing the issue of whether mere provision of a cell phone number is sufficient consent under the TCPA to receive calls, other courts are struggling with the issue of vicarious liability under the statute. The D.C. Circuit recently refused to take up a challenge to the FCC’s ruling from May 2012 that established that there could be vicarious liability for violations of the TCPA, and that federal common law of agency would apply to a vicarious liability analysis. Now, trial court rulings are beginning to show how vicarious liability analyses are being conducted.

A federal court judge in Florida determined that summary judgment for the defendant in a TCPA suit was appropriate where the putative class action plaintiff failed to plead vicarious liability and to present evidence that the actual sender was an agent of the dental practice named in the faxed ad. (The decision is being appealed to the 11th Circuit.) In a case out of Illinois state court, an appellate panel reversed class certification where the actual sender of the faxed ad transmitted it beyond the group of recipients for which it had approval, exceeding its authority. (The decision is being appealed to the U.S. Supreme Court.)

Both cases involved a marketing company called Business to Business Solutions (B2B) that offered to send fax advertisements for other companies. In Florida, the marketing person for a dental practice agreed to pay $420 to have B2B send 10,000 ads via fax, with the caveat that the messages be sent only in specific zip codes near the dental practice.

Although the court recognized that vicarious liability could provide a basis for the claims at issue, the golf store plaintiff did not name B2B in the complaint and did not plead a theory of vicarious liability against the dental practice – a fatal defect to the case. U.S. District Court Judge Kathleen M. Williams then went one step further, engaging in sua sponte scrutiny of the plaintiff’s Article III standing and finding lack of standing to be yet another reason to grant summary judgment to the defendant. “Presumably, a plaintiff must see a fax to discern whether it is an advertisement or not,” Judge Williams wrote. “Furthermore, it is well-settled that, in enacting the TCPA, the aim of Congress was to protect consumers’ privacy rights. If a plaintiff does not see, know about, or otherwise become aware of an unsolicited fax advertisement, it is difficult to conceive how the plaintiff’s right to privacy could be invaded by the fax advertisement such that the plaintiff is injured in fact.”

Therefore, the court held that the golf store, whose owner did not recall receiving the facsimile in question, had not suffered a “distinct and palpable injury” as required by Article III.

In another case addressing vicarious liability under the TCPA, an Illinois appellate court held that a defendant could not be liable for faxes sent by B2B outside the requested recipient list. Poolman of Wisconsin, a company that services, sells, and repairs swimming pools and hot tubs, paid $312 to B2B for sending 6,000 fax ads. Poolman’s owner specifically requested that “I would only like to market to ‘Small Electric Motor Repair + Service Companys [sic].’”

Although a trial court certified the case as a class action, the appellate court reversed. Just because the faxes were sent with the defendant’s name did not satisfy the TCPA’s requirement that the sender transmitted them “on behalf of” another party, the court said. “There is nothing in the plain language of the Act nor its legislative history suggesting Congress intended to impose liability on a party that did not send an unsolicited fax or authorize a third party to send an unsolicited fax on its behalf,” the court wrote.

To read the Florida district court’s opinion in Palm Beach Golf Center v. Sarris, click here.

To read the Illinois appellate court’s decision in Uesco Industries v. Poolman of Wisconsin, click here.

Why it matters: Although the FCC clarified last year that defendants can be held liable pursuant to the TCPA under a theory of vicarious liability where a plaintiff can establish an agency relationship between the defendant and the sender of the fax, as evidenced by the Uesco and Sarris cases, courts continue to struggle with the issue and could use some guidance from the high court. With trial courts trying to make sense of vicarious liability and the TCPA, and these orders being taken up on appeal by plaintiffs eager to tag businesses with vicarious liability under the TCPA (and the accompanying $500 per violation statutory damages), how will appellate courts respond?

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U.S. Chamber Supports TCPA Clarification

Advocating for clarification of the TCPA to help reign in the “skyrocketing” number of lawsuits, the U.S. Chamber of Commerce has submitted comments to the FCC.

The FCC requested public comment in November 2013 on a petition filed by the Professional Association for Customer Engagement (“PACE”) seeking an expedited declaratory ruling and/or expedited rulemaking.

PACE asked the agency for clarification on two issues: whether a system is considered an automatic telephone dialing system if it has no capacity to dial numbers without human intervention, and if a system’s “capacity” is limited to what it is capable of doing – without further modification – when the call is placed.

Siding with PACE, the Chamber took the position that an ATDS must have the capacity to dial without human intervention, and the analysis of capacity must occur when the call is placed – not what it might be able to do more generally. Clarification is desperately needed by businesses facing a “juggernaut” of lawsuits under the TCPA, the Chamber said.

“TCPA lawsuits against businesses are skyrocketing,” wrote William L. Kovacs, the Chamber’s senior vice president of environment, technology, and regulatory affairs, with an increase of 62 percent in the first nine months of 2013 as compared to all of 2011. The combination of the TCPA’s statutory damages in a class action setting can yield “annihilating damages” for companies, he added.

Two recent federal court decisions exemplify the need for clarification to address the Chamber’s concerns. With regard to the first issue, the Chamber cited Nelson v. Santander Consumer USA, Inc., where a Wisconsin federal court judge held that a dialer that made calls in “preview mode” was an ATDS because the dialer also had the capacity to dial in predictive mode.

Although the opinion was later withdrawn, “the case has generated enormous concern within the business community about whether ‘one-click’ preview dialing could constitute a per se violation of the TCPA and has caused speculation about whether even manually-dialed calls could eventually be deemed violations if made using a device as simple as a cell phone,” Kovacs wrote.

To settle the issue, the FCC should clarify that human intervention “is the key factor” as to whether a system is an ATDS under the statute, the Chamber wrote. An alternative interpretation could include cell phones as an ATDS because they have the capacity to store numbers and dial them at a user’s request. This “nonsensical” result would “force compliance onto small business owners seeking to follow up with their customers, business colleagues seeking to communicate with each other, and many other callers not intended to be regulated by the TCPA,” according to Kovacs.

A second case demonstrated the Chamber’s concern with regard to the interpretation of the term “capacity.” An Alabama federal court judge in Hunt v. 21st Mortg. Corp. noted that “it is virtually certain that software could be written, without much trouble, that would allow iPhones ‘to store or produce telephone numbers to be called, using a random or sequential number generator, and to call them.’ Are the roughly 20 million American iPhone users subject to the mandates of…the TCPA?” the judge asked.

The FCC should avoid this reading and clarify that “capacity” is limited to what a system is capable of doing, without further modification, at the time the call is placed, the Chamber wrote. “[O]therwise, the TCPA would be applicable to a much broader array of equipment, including cell phones, than Congress intended.”

If the agency determines that the clarification goes beyond a declaratory ruling, then the Chamber said it supported an expedited rulemaking that would modify the statutory definition of ATDS to add “without human intervention” and would define the term “capacity” as “the current ability to operate or perform an action, when placing a call, without first being modified or technologically altered.”

To read the U.S. Chamber of Commerce’s comments, click here.

Why it matters: The PACE petition could clarify two important issues under the TCPA: whether human intervention is required to categorize a system as an automatic dialing system, and at what point should the scope of a system’s capacity be considered – at the time a call is placed or its more general capabilities. As noted by the Chamber’s comments, the clarification would greatly benefit businesses facing a continuing onslaught of TCPA litigation.

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Discover, TCPA Plaintiffs Reach $8.7 Million Agreement

In the latest multimillion-dollar settlement in a TCPA class action, Discover Bank and class members have asked a federal court judge to grant final approval to an $8.7 million deal.

The plaintiffs filed suit under the TCPA and alleged that the bank used an autodialer to make illegal robocalls without consent over a six-year period. After multiple mediation sessions and continued negotiations, the parties reached an agreement. In addition to the $8.7 million fund – from which the plaintiffs will receive their pro rata share either in cash or as a credit to their Discovery account – class members can fill out a revocation request form to halt future autodialed and/or prerecorded calls from Discover.

Class counsel estimated that the roughly 9 million class members will receive payments in the range of $20 to $40 after deductions are made for plaintiff incentive awards, the costs of notice and administration, and an estimated $2.175 million in attorney’s fees.

In reaching the deal, both parties acknowledged challenges in continuing the litigation. The plaintiffs admitted that moving forward with the suit was “especially risky” based upon a clause in Discover’s customer agreement mandating individual arbitration and prohibiting class actions. Given the U.S. Supreme Court’s recent decisions embracing similar arbitration agreements, the plaintiffs opted for settling rather than being forced to individually arbitrate their claims.

In addition, both sides were prepared to battle over the issue of “prior express consent.” The class argued that a customer doesn’t provide such consent unless a cell phone number is given at the point of loan origination, while Discover took the position that the number could be provided at any time during the life of the loan.

California federal court judge Jeffrey S. White gave preliminary approval to the settlement in September. Response from the class has been “very positive.” Of the more than 61,000 claims filed, just 133 requested an exclusion and none expressed any valid objections, according to plaintiffs’ unopposed motion for final approval.

To read the motion for final settlement approval in Steinfeld v. Discover Financial Services, click here.

Why it matters: In the motion for settlement, the parties were quite candid in their recognition that both sides had legitimate arguments that could result in a lengthy legal process, increased costs, or in a possible defeat for either side. Most significantly, Discover had fully briefed its motion to compel arbitration. Had the court granted the motion, the class members would have been forced to arbitrate their claims on an individual basis – a scenario that would most likely have ended the case. The bank elected to settle the case, however, to avoid continued litigation. By so doing, it joined a growing number of defendants that paid seven or eight figures in TCPA suits – such as Domino’s $9.75 million settlement, Papa John’s $16.5 million deal, and Sallie Mae’s agreement to pay $24 million.

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