TCPA Connect

User Choice to Send Solicitations Refutes ATDS Allegations

Following a growing precedent in the California federal district courts, a judge recently concluded that a defendant in a Telephone Consumer Protection Act case did not impermissibly use an automated telephone dialing system (ATDS) because human intervention was involved.

In 2013, Paul McKenna received an unsolicited text from WhisperText to download the company’s Whisper mobile app. He sued the company for violating the TCPA, and the company moved to dismiss.

Users who sign up for Whisper are given the option to upload the numbers stored in their contact list with a “Whisper will text your friends for you” message. According to the company, a user must affirmatively choose to provide his or her contacts. Only then will the company send an invitation by text.

Section 227b(1)(A)(iii) of the TCPA defines an ATDS as any “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.” McKenna relied upon a 2003 Federal Communications Commission order (In re Rules & Regulations Implementing the Telephone Consumer Protection Act of 1991) which explained that an ATDS under Section 227 includes “any equipment” with the capacity to “generate numbers and dial them without human intervention regardless of whether the numbers called are randomly or sequentially generated or come from calling lists.”

But Whisper did not use an ATDS to send its invite to McKenna, the defendant argued, because human intervention in the form of a user’s decision to provide his contacts was necessary before the invitation by text was sent.

U.S. District Court Judge Paul S. Grewal agreed, citing two similar Ninth Circuit decisions—a Washington case involving a computerized taxi dispatch system and a Southern District of California case against a gym.

“McKenna’s affirmative allegations of the need for human intervention by a Whisper App user when sending an SMS invitation preclude the need for discovery to address whether McKenna has alleged the use of an ATDS,” the court wrote.

The judge also rejected the plaintiff’s contention that because an auto-reply message was received when a recipient of the original invite message responded to the company, an ATDS system was involved. “But McKenna fails to show how his generic ‘auto-reply’ allegation is relevant to whether McKenna himself can state a claim for relief,” the court said.

Lacking a viable claim for individual relief, the court dismissed the complaint for a second time. Judge Grewal did grant the plaintiff leave to amend once more, however.

To read the order in McKenna v. WhisperText, click here.

Why it matters: The court’s dismissal of the suit reiterates the importance of what constitutes an ATDS under the TCPA. Whether disputing “present capacity” versus “potential capacity” or whether human intervention was involved in the defendant’s actions, TCPA defendants should pay close attention to the continuing line of ATDS cases.

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With Final Approval, HSBC’s $40M Deal Is the Third-Largest TCPA Settlement

With final judicial approval, HSBC Bank set the record for the third-largest settlement in a Telephone Consumer Protection Act class action with a deal just shy of $40 million.

Multiple consumer class actions alleging TCPA violations were filed against the bank in 2014 and were consolidated into a federal court action in Illinois. The plaintiffs claimed that they received nonemergency calls from HSBC on their cell phones “at all hours of the day,” using an artificial or prerecorded voice or an automatic telephone dialing system.

After initial discovery and mediation sessions were held, the parties reached a deal.

HSBC agreed to establish a non-reversionary settlement fund of almost $40 million. After deducting notice and administration costs of $1.2 million and service awards for two class representatives of $5,000 each, as well as an award to class counsel for almost $12 million, the value of the settlement for the class was roughly $26.7 million.

In granting final approval of the deal, U.S. District Court Judge James F. Holderman recognized that if all 9,065,262 class members filed a claim, they would each receive just $2.95. However, only 286,433 class members actually filed a timely claim (just 3.16 percent of the class) resulting in payment of at least $93.22 each.

Settlement checks become void after 180 days. At that time, the settlement agreement provides for two possible payouts, depending on the dollar value of the uncashed checks. If the combined amount exceeds $50,000, a second pro rata distribution to timely claimants will occur. If less than $50,000, the total will be distributed as a cy pres payment to Equal Justice Works.

Concluding that the deal was “fair, reasonable, and adequate,” Judge Holderman evaluated its terms using five factors. Balancing the potential of class members’ recovery through continued litigation with the settlement amount offered, he recognized that $2.92 or $93.22 is significantly less than statutory damages of $500.

But “a settlement need not provide the plaintiffs a total victory, especially where the plaintiffs have suffered no actual damages and total victory would threaten the defendant’s ability to continue on as a viable entity,” the judge wrote, noting that a maximum statutory recovery against HSBC totaled $172 billion (or $516 billion for knowing and willful violations).

In addition, the recovery “is not a trifling sum” in light of the challenges facing the class. HSBC indicated that further litigation would have entailed a defense that the class members consented to be contacted on their cell phones, either by a condition in their cardholder agreements or by providing the number to the bank at some point after opening their credit cards. “’Prior express consent’ under the TCPA is a term of art, the unsettled meaning of which has led to significant—and in this court’s view—excessive—litigation,” Judge Holderman wrote.

HSBC had additional defenses in the case, including an argument that individual discovery would be necessary to determine whether prior express consent had been granted, posing a “serious obstacle” to class certification, that was complicated by the fact that the bank sold its credit card portfolio in 2012 to Capital One Financial Corporation.

Petitions pending before the Federal Communications Commission could also extinguish the class’s claims, the court added.

The agency is currently considering whether to exclude predictive dialers used for non-telemarketing purposes (such as debt collection) from the TCPA’s prohibition. In addition, multiple petitions are pending seeking clarification on how and when consent may be expressed by consumers. “If the FCC were to issue an order clarifying that a customer provides ‘prior express consent’ by providing his or her cell phone number to the caller at any point in time, many or all of the class members would be left without a TCPA claim,” the court said.

“Accordingly, considering HSBC’s potentially meritorious defenses and the legal uncertainty concerning the application of the TCPA, the court concludes that Plaintiffs would probably face an uphill battle proceeding to trial and, once there, obtaining relief,” the judge wrote. “The settlement provides value that is fair considering the very real possibility that Plaintiffs may recover nothing if they were to proceed further with the litigation.” The court considered such factors as “scant opposition” to the settlement, the “likely complexity, length, and expense of continued litigation,” the experience and views of counsel, and the stage of the proceedings and amount of discovery completed.

While Judge Holderman granted his final approval of the deal, he did reduce the requested class counsel fees from $12 million to $9.495 million, based on his calculations for the market rate for TCPA class actions. He relied extensively on another recently approved TCPA settlement in his courtroom, the record-setting $75 million agreement in a case against Capital One Bank.

The reduction in counsel fees was the class’ gain, as the court ordered that the additional money available should go to class members, which increased their share to at least $101.94 each.

To read the opinion and order in Wilkins v. HSBC Bank, click here.

Why it matters: As the number of TCPA suits continues to increase, so do the record-setting settlements. With final approval of both the HSBC action and the Capital One deal, the top three TCPA settlements currently stand at payments of $75.5 million (Capital One), $45 million in a case against a wireless communications provider filed in Montana federal court and approved in early February, and the almost $40 million payment by HSBC.

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A TCPA Lesson in Making an Offer of Judgment

Courts have struggled with the issue of whether an offer of judgment by a defendant for the maximum statutory award in a Telephone Consumer Protection Act suit renders the case moot.

A new decision from a federal court in Michigan offers one tip for defendants considering the strategy: include injunctive relief.

Compressor Engineering Corporation sued Chicken Shack and owner Charles J. Thomas after allegedly receiving an unsolicited fax advertisement. He requested injunctive relief as well as damages for a putative class. Thomas made an offer of judgment to Compressor pursuant to Federal Rule of Civil Procedure 68 for $1,500, as well as attorneys’ fees and costs.

When Compressor did not respond within 14 days of being served with the offer, the defendant then moved to dismiss the suit pursuant to Federal Rule of Civil Procedure 12(b)(1), on grounds that the suit was now moot.

Noting a split in courts that considered the question, U.S. District Court Judge Paul D. Borman concluded that the defendant failed to satisfy the plaintiff’s entire demand. Accordingly, he denied the motion.

An offer limited to the relief the defendant believes is appropriate does not suffice to moot a case, Judge Borman explained. Instead, a defendant must meet the plaintiff on the plaintiff’s terms, as “mootness occurs only when the offer is accepted or the defendant indeed offers to provide every form of individual relief the claimant seeks in the complaint.”

“Plaintiff has requested certain relief that is not reflected in Defendant Thomas’s offer of judgment—here, injunctive relief,” the court said.

Thomas countered that injunctive relief was not a necessary part of the offer because the plaintiff received only one fax and the defendant no longer employs the “fax blaster” service previously used.

But as long as the parties have a concrete interest, however small, in the outcome of the litigation, the case is not moot, Judge Borman said. “Therefore, the correct inquiry is whether Plaintiff’s injunctive claim is ‘so insubstantial’ that it fails to present a federal controversy. [I]t appears that an ‘insubstantial claim’ is one that was created solely to manufacture subject matter jurisdiction or one that is so frivolous that it is beyond the scope of reason. Neither of these descriptions fit Plaintiff’s injunctive relief claims.”

The defendant also appeared to ask for the court to determine the merits of Compressor’s injunctive claim, which was improper, the court said.

Applicable Sixth Circuit Court of Appeals precedent “is clear that where a party’s argument hinges on the merits of the claim or even the legal availability of a claim, that argument should be made in a motion to dismiss for failure to state a claim, not a motion to dismiss for lack of subject matter jurisdiction,” in a Rule 12(b)(1) motion, Judge Borman wrote.

He also noted that in all three of the TCPA cases in the district that were dismissed after unaccepted offers of judgment pursuant to Rule 68, the defendant included injunctive relief.

“In summary, the Court will deny Defendant Thomas’s motion to dismiss based on lack of subject matter jurisdiction for the reason that Defendant Thomas’s offer of judgment failed to satisfy Plaintiff’s ‘entire’ demand,” the court said.

To read the opinion and order in Compressor Engineering Corp. v. Thomas, click here.

Why it matters: The question of mooting a suit with an offer of judgment has challenged courts generally and resulted in mixed decisions in TCPA disputes. For example, a Minnesota federal court judge tossed a suit after the defendant made a two-part settlement offer of a $3,500 check and a promise not to send another fax in the future. That decision stands in contrast to a ruling from the Eleventh Circuit Court of Appeals that unaccepted offers of judgment to the six named plaintiffs, but not to class members, did not render the case moot.

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