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On November 27, the Third Circuit Court of Appeals affirmed a district court’s dismissal of a second putative Telephone Consumer Protection Act class action on the grounds that the American Pipe tolling principles did not apply, meaning the plaintiff’s claims on behalf of himself, his company, and the purported class were untimely.

In Weitzner v. Sanofi Pasteur, Inc., Ari Weitzner and Ari Weitzner M.D. P.C. argued that their TCPA claims—stemming from unsolicited faxes sent in April 2004 and May 2005—filed in federal court in November 2011 were timely under the tolling principles of American Pipe.

Ari Weitzner originally filed a purported class action for violation of the TCPA in Pennsylvania state court seeking to represent a class of individuals that received unsolicited faxes from the appellee.  The state court denied class certification in June 2008, after which Weitzner continued to pursue his claim individually in state court.  In November 2011, more than six years after receipt of the alleged unsolicited faxes, the plaintiffs filed a second putative TCPA class action, this time in the Western District of Pennsylvania.

Sanofi moved for summary judgment on statute of limitations grounds, arguing the four-year statute of limitations under the TCPA expired more than two years prior to their filing of the complaint.  The plaintiffs opposed summary judgment, arguing that the statute of limitations for their TCPA claims and the claims of the putative class members were tolled under American Pipe due to the class action complaint filed in state court.

The district court granted summary judgment, finding “that American Pipe tolling did not apply to [appellants’] class or individual claims and that [appellants’] claims were therefore untimely.”  The Third Circuit Court of Appeals reviewed the district court’s decision de novo and ultimately affirmed the decision.

The Court of Appeals looked at three issues: application of American Pipe to the class claim, to Ari Weitzner’s individual claims, and to Ari Weitzner M.D. P.C.’s claims.

First, the Court quickly disposed of the purported class claim by relying on recent Supreme Court precedent, China Agritech, Inc. v. Resh, 138 S. Ct. 1800, 1804 (2018), which clarified “that American Pipe tolling does not allow a putative class member to commence a new class action outside of the statute of limitations.”  The Third Circuit found that because China Agritech “precludes the application of American Pipe tolling to successive class claims,” the class claims were not subject to tolling and were therefore untimely.

Second, the Court of Appeals addressed the application of American Pipe to a named plaintiff in a putative class action.  Here, Weitzner was the named plaintiff in the purported class action filed in state court.  When assessing whether American Pipe applied to appellant Weitzner’s individual claim, the Court of Appeals looked to the two primary purposes underlying the Supreme Court’s decision in American Pipe: (1) efficiency and economy of litigation, and (2) “protecting the interest of putative unnamed class members who had not received notice and were unaware of the pending class action.”  Weighing the purposes of American Pipe tolling, the Court held there was no reason to extend the tolling to a named plaintiff.   Specifically, the Court found that because a named plaintiff may pursue their individual claim after class certification is denied in the originally filed class action, there was no purpose for allowing a named plaintiff to file a new individual claim outside of the statute of limitations period and “no injustice results from denying those parties tolling.”

Third, the Court of Appeals assessed whether American Pipe tolling saved appellant Ari Weitzner M.D. P.C.’s individual claim.  This corporation was not a named plaintiff in the state court action but rather a putative class member.  However, because the company was not an “unaware, absent class member American Pipe was designed to protect” the Third Circuit held its claim was also time-barred.  The Court noted that Weitzner was the sole shareholder in Ari Weitzner M.D. P.C., and as a result the company had actual notice of the pending state court action and the denial of class certification.  Accordingly, tolling the company’s claim would “result in an abuse of American Pipe.”

The Third Circuit’s application of American Pipe in Weitzner v. Sanofi Pasteur, Inc. makes clear that a named plaintiff from a putative class action may not later pursue a time-barred individual claim based upon the same conduct.  The holding also stands for the proposition that a company that is owned and controlled by a named plaintiff in a putative class action may not take advantage of tolling the statute of limitations for a claim based upon the same conduct at issue in its owner’s original suit.

A United States district court in Illinois recently granted a non-resident defendant’s motion to strike the class definition in a putative nationwide TCPA class action, pursuant to Bristol-Meyers Squibb, broadly holding that due process “bars nationwide class actions in fora where the defendant is not subject to general jurisdiction.”  The case is Mussat v. IQVIA Inc., Case No. 17-cv-8841 (N.D. Illinois), and a copy of the order can be accessed here.     

This case joins the growing list of district courts that continue to wrestle with the question of whether they can exercise personal jurisdiction over a non-resident defendant with respect to the claims of out-of-state putative class members.  In Bristol-Meyers – a mass tort action, not a class action – the Supreme Court determined that exercise of personal jurisdiction over claims asserted by non-residents violated the due process clause of the Fourteenth Amendment.  

Following the trend in the Northern District of Illinois, the Mussat court extended the Bristol-Meyers reasoning to the consumer class action context.  Specifically, the case involved an Illinois-resident plaintiff, Florence Mussat, M.D., S.C., who allegedly received two unsolicited advertisements via fax in Illinois from the out–of–state defendant.  Mussat sought to represent the claims of nonresident and unnamed putative class members to whom IQVIA Inc. allegedly sent faxes outside of Illinois.  IQVIA moved to strike the class definition, arguing that the Court lacked personal jurisdiction over it with respect to the unnamed putative class members who had no connection with Illinois.  IQVIA argued that because those individuals did not receive the alleged faxes in Illinois, their claims did not relate to IQVIA’s contacts with Illinois, and the Court lacked specific jurisdiction over it. 

The Court agreed with IQVIA, explaining that there was no reason to distinguish between class actions and mass torts under the Bristol-Meyers due process analysis.  The Court stated that it was following the Supreme Court’s lead in Bristol-Meyers and that due process, as an instrument of interstate federalism, requires a connection between the forum and the specific claims at issue.  Filing a class action under Rule 23 does not change the scope of personal jurisdiction.  According to the Court, the exercise of specific jurisdiction over nonresidents’ claims, with respect to faxes received outside of Illinois, would violate IQVIA’s due process rights because the absent class members’ claims do not relate to the corporation’s contacts with the forum.  Therefore, the Court struck the class definition to the extent it purported to assert claims on behalf of nonresidents.   

After the decision was issued, Mussat filed a motion for certification of interlocutory appeal, which will be fully briefed in mid-December.  Troutman Sanders will continue to monitor this case, as well as how district courts, more broadly, continue to apply Bristol-Meyers in the class action context.

 

Last month, Troutman Sanders reported on the proposed TRACED Act which would instruct the Federal Communications Commission to engage in rulemaking to protect consumers from receiving unwanted calls and text messages from unauthenticated phone numbers.  FCC Chairman Ajit Pai tweeted his approval for the bill, but the FCC is not waiting on Congress to fight robocalls.  On November 21, it released its final report and order on creating a reassigned numbers database.

According to the FCC’s press release, the final draft of the report and order would create a comprehensive database to enable callers to verify whether a telephone number has been permanently disconnected, and is therefore eligible for reassignment, before calling that number, thereby helping to protect consumers with reassigned numbers from receiving unwanted robocalls.

More specifically, this proposal changes the existing federal regulatory scheme by:

  • Establishing a single, comprehensive reassigned numbers database that will enable callers to verify whether a telephone number has been permanently disconnected, and is therefore eligible for reassignment, before calling that number;
  • Establishing a minimum aging period of 45 days before permanently disconnected telephone numbers can be reassigned;
  • Requiring that voice providers that receive North American Numbering Plan numbers and the Toll Free Numbering Administrator report on a monthly basis information regarding permanently disconnected numbers; and
  • Selecting an independent third-party administrator, using a competitive bidding process, to manage the reassigned numbers database.

Pai announced the items tentatively included on the agenda for the December Open Commission Meeting scheduled for Wednesday, December 12. Considering that robocalls are the number one basis of complaints filed with the FCC and the speed in which the issue has been addressed, it will come as no surprise if the proposal is passed at the meeting.

Troutman Sanders will continue to monitor this and related FCC’s rulemaking decisions.

On November 1, the Northern District of California announced new Procedural Guidance for Class Action Settlements, aimed at increasing transparency in class settlements and the disbursement of class settlement funds. The Guidance is consistent with, but broader than, the latest amendments to Rule 23 of the Federal Rules of Civil Procedure, effective December 1, 2018.

Key provisions of the Guidance include:

  • Motions for preliminary approval of class settlements must provide:
    • An explanation of any changes to the class definition;
    • An explanation of any differences between the released claims and the claims alleged in the complaint;
    • A detailed description of potential class recovery, including the anticipated claims rate supported by specific examples from similar settlements; and
    • Requested attorneys’ fees, including lodestar calculation.
  • After final approval, parties must file a post-distribution accounting that contains details of how the settlement funds were disbursed, including:
    • Amount of total settlement fund;
    • Resulting claims rate (number and percentage of claim forms submitted);
    • Average, median, largest, and smallest recovery per claimant; and
    • Number and value of checks not cashed.

While the Guidance will unquestionably result in more transparency with class action settlements, it is less clear what practical effect it will have on the actual terms of class settlements.  The Court warns that failure to adhere to the Guidance will result in unnecessary delay or denial of class action settlement approval but does not explain how judges will use the newly required information.  For example, the Guidance does not explain what impact previous claims rates and class participation will have on future settlements or whether parties will continue to be allowed to expand the original class definition and/or disputed claims for purposes of settlement.  Similarly, the Guidance allows judges to hold a hearing after receiving the parties’ post-distribution accounting but does not explain how such proceedings would affect the previously approved class settlement.

When settling a class action in the Northern District of California, parties should ensure compliance with these new requirements and expect to see increased scrutiny of class settlements.

On November 13, Spirit Airlines Inc. filed a petition for writ of certiorari asking the United States Supreme Court to resolve a federal circuit split regarding arbitration of Spirit’s dispute with members of its $9 Fare Club.   

In May 2017, members of Spirit’s $9 Fare Club filed a class arbitration claim against Spirit, contending the airline never made a $9 fare available to Club members and that Spirit’s promise of risk-free cancellation from the program, which cost Club members $60 a year, was false. Spirit then filed a lawsuit against the consumers in the Southern District of Florida, seeking a declaratory judgment that the agreement’s arbitration clause did not allow class arbitration claims, which the district court denied.  The Eleventh Circuit affirmed the denial this past August and later denied Spirit’s petition for a panel rehearing or rehearing en banc. 

Spirit seeks resolution of two issues from the Supreme Court.  First, Spirit seeks the Court’s ruling on the threshold a party must meet to establish that an arbitration agreement grants the arbitrator, not the court, the ability to determine the availability of class arbitration.  As Spirit points out, “the decision to allow class arbitration is momentous.”  Who makes the decision is important because an arbitrator is subject to almost no review, while a court is subject to extensive appellate review.  While three federal appellate courts – the Third, Sixth, and Eighth circuits – hold that a party must satisfy a higher burden to establish that an agreement delegates questions of class arbitrability than to establish that it delegates questions of bilateral arbitrability, the Second, Tenth, and Eleventh circuits use the same standard for both. 

Spirit contends that the Eleventh Circuit was wrong in holding that an arbitration clause in Spirit’s agreement with the $9 Fare Club members indicated that any dispute must be resolved by arbitration.  Spirit points out that class arbitration is slower, costlier, and presents more procedural hurdles, arguing that “the price of a wrong decision to allow class arbitration is steep.” 

Additionally, Spirit wants the Court to consider a second issue – whether an arbitration agreement’s reference to the standard arbitration rules of the American Arbitration Association is enough to delegate questions of class arbitrability to the arbitrator.  Four circuits (the Third, Fourth, Sixth, and Eighth) hold that an arbitration contract delegates class arbitrability questions to the arbitrator only if the contract says so on its face, and mere reference to the AAA’s rules is not enough.  In contrast, the Second, Fifth, Tenth, and Eleventh circuits hold that such a reference is enough. 

Spirit argues that the Eleventh Circuit erred in ruling that the choice of having the AAA rules in the agreement was “clear and unmistakable evidence” that the parties intended to have an arbitrator decide whether disputes should be arbitrated.  

The consumers’ response to Spirit’s petition for a writ of certiorari is due December 13.

 

Finally, at last, the end may be near,
For the multiple class actions that Yahoo did bear.
Arising from three data breaches that occurred in the past,
A proposed settlement has been reached, let’s start with the class.  

The proposed settlement class under Rule 23,
Includes residents and small businesses, both U.S. and Israeli.
Who from 2012 to 2016 had Yahoo accounts,
Of course, this will not include those who validly opt out. 

This proposed settlement class covers about a billion accounts,
Upwards of 200 million individuals, almost too many to count!
Drafted deliberately broad to cover users from 2012 to ’16,
This is notable since the first breach occurred in 2013.  

Despite this being the case, there was an expert report that had shown
Multiple intrusions occurring in 2012, with damages unknown.
To provide robust protection and cover all who may have suffered,
The class period was drafted to provide a small buffer.  

Critical to the proposed settlement is enhanced data security,
In response to what the plaintiffs identified as Yahoo’s deficiencies.
The proposed business practice commitments lay out new security rules,
Like increasing the security team headcount and enhanced intrusion detection tools. 

The settlement also requires $50 million to be paid
After the court enters the Final Approval of Order and Judgment, within 20 days.
The fund will compensate settlement class members for out-of-pocket costs,
And will reimburse those who paid for email services 25 percent of what they have lost.  

In addition to the $50 million, Yahoo has agreed to cover the fees
For two years of credit monitoring services from AllClear ID.
For settlement class members who do not need identity theft protection,
The settlement fund will be used to provide alternative compensation. 

And last, but not least, let’s discuss attorneys’ fees,
Thirty-five million dollars it is promised to not exceed.
And $2.5 million dollars in litigation costs and expenses,
Are you keeping track of Yahoo’s costs? They truly are tremendous.  

In exchange for all this, the settlement class members have agreed
To release all claims against Yahoo, for which they have grieved.
And while the parties reached a settlement, it is really for the court to decide,
Whether these terms are fair and reasonable, or if they are denied.  

Thus, while it seems like the end, there is still a ways to go –
On November 29, the parties will hear from Honorable Judge Koh.
For now, let this proposed settlement be a lesson to us all:
While Yahoo can withstand it, a data breach could be a company’s downfall. 

Sadia Mirza is an Orange County-based attorney at Troutman Sanders LLP, a national law firm with offices across the country, including three in California. Mirza focuses on cybersecurity and privacy issues and compliance across the consumer financial services industry.

 

 

Effective December 1, important changes are coming to the Federal Rules of Civil Procedure, including:

  • Eliminating the certificate of service for ECF-filed materials;
  • Mandating electronic service and filing, including of complaints, for persons represented by counsel;
  • Establishing a national signature standard for electronic filing systems; and
  • Updating the class action rule, with a focus on proposed class settlements.

Changes to the appellate, criminal, and bankruptcy rules are also going into effect. In large part these changes conform the respective rules to the updated FRCP. The following focuses primarily on the changes to the FRCP.

Summary

On December 1, multiple amendments to the Federal Rules of Appellate, Bankruptcy, Civil, and Criminal Procedure (FRAP, FRBP, FRCP, and FRCrP respectively) go into effect. Due to the changes to the federal rules, local rules may be revised as well. For example, the Eastern District of Virginia, Eastern District of North Carolina, and Northern District of New York, among others, have pending amendments to their local rules.

Electronic Filing, Service, and Signature Requirements 

Say goodbye to certificates of service. In perhaps the most impactful amendment to FRCP, the amended 5(d)(1) provides that no certificate of service is required when a paper is served though the court’s e-filing system. For documents filed but not served via the e-file system, a certificate of service must be provided within a reasonable time after service. These amendments also eliminate the requirement to obtain consent for electronic service when papers are served, using the court’s e-filing system, on registered users of that system.

The amendment of FRCP 5(d)(1) mandates electronic filing of materials, including complaints, by represented persons. The new rule permits exceptions for good cause or for local rules that allow or require nonelectronic filing. The new rule also permits a court to allow pro se litigants to use electronic filing by order or local rule. (Pro Tip: Avoid the humiliation of having a paper complaint filing bounced by the clerk. Be sure to check your local rules for any deviation from the new e-filing requirement.)

The new FRCP 5(d)(3)(C) sets forth a national signature provision for papers filed using the e-filing system. The key takeaway is that an electronic signature requires an authorized filing through a person’s e-filing account, together with the same person’s name on a signature block. The amended rule does not provide detail on what information is required to be in the signature block. (Pro Tip: The electronic signature must match the account being used for the filing.)

Class Action Changes

Another significant change comes to FRCP 23, governing class action cases. The proposed rule amends the methods of notice to (b)(3) class members to include “electronic means, or other appropriate means.” (Pro Tip: This update will allow notice to be given by email, or possibly even text message, which could be especially important in class action cases when limited contact information is known about potential class members.) The proposed rule also amends subsection (e) to require additional information to determine whether to give notice of the proposed settlement to the class. If the court determines that it’s able to both “approve the proposal under Rule 23(e)(2)” and “certify the class for purposes of judgment,” the court will direct notice to all class members who would be bound by the settlement.

Amendments to subsection (e) expand on the “fair, reasonable, and adequate” evaluation currently applied to class settlements by providing factors for courts to consider when evaluating proposed settlement agreements.

A final amendment to subsection (e) requires additional specificity when objecting to a proposed settlement agreement. Further, it requires court approval for payment in connection with foregoing or withdrawing a challenge to a proposed settlement. The amendments also clarify that a decision to send notice of a proposed settlement to the class under FRCP 23(e)(1) is not appealable under FRCP 23(f).

Modernized Language – Replacement of “Supersedeas Bond” 

FRCP 62 and FRCP 65.1 are being updated to replace the term “Supersedeas Bond” with “bond or other security.” The change also extends the automatic stay to enforce a judgment to 30 days. 

Changes to the Bankruptcy, Appellate, and Criminal Rules 

Most of the changes to the bankruptcy, appellate, and criminal rules conform the rules to the updated FRCP. For example, FRAP 25 and 26 and FRBP 5005 and 8011 were amended to conform to the changes in FRCP 5 discussed above. Further, FRCrP 45 was amended to remove reference to FRCP 5 and FRCrP 49 was written anew, outlining service requirements for criminal cases. The appellate and bankruptcy rules were also amended to replace “Supersedeas Bond.”  In addition to conforming and related changes, there are several unique amendments, which are discussed below.

Home Mortgage Changes in Chapter 13 Bankruptcy

FRBP 3002.1, which applies to Chapter 13 home mortgage claims and underwent significant changes in 2016, is being amended again. First, the change provides flexibility for payment change notices (“PCNs”) on home equity lines of credit (“HELOCs”) by allowing the notice requirements to be amended by court order. This is an important change for loan servicers with HELOCs in their portfolio as the default rule requires a PCN at least twenty-one (21) days before the new payment amount is due.  This can become an especially onerous requirement for HELOC servicers, as HELOCs often have minor monthly payment changes. Filing motions for a modified notice requirement in all (or most) Chapter 13 cases with HELOCs will also be burdensome, but provides some relief for HELOC servicers.

Second, the new rule creates a procedure for objecting to PCNs. The new objection process allows a payment change, noticed by a timely-filed PCN, to go into effect if no objection is filed by the day the new amount is due, unless ordered otherwise by the court. This change provides certainty to mortgage servicers by allowing them to rely on a PCN when an objection is not filed prior to the new payment amount becoming effective.

Third, a final change to FRBP 3002.1 amends subsection (e) to expand the parties who may file a motion for determination of fees, expenses, or charges. The new rule allows a motion by party in interest, rather than only the debtor or trustee as permitted by the previous version of the rule.

Other Bankruptcy Rule Amendments 

FRBP 8002, 8011, 8013, 8015, 8016, 8017, and 8022 were amended, and a new appendix (Part VIII Appendix) was added, to conform to changes to the FRAP, which went into effect December 1, 2016. These changes include inmate filing provisions, changes to time limit references (from page limits to word count limits), and updates to timing and length requirements for amicus briefs. The new Part VIII Appendix collects all the page-to-word limit changes in a single table. The changes also incorporate a new limitation to amicus briefs, which is discussed in the appellate section below.

Finally, a new bankruptcy rule, 8018.1, authorizes a district court to treat a judgment of a bankruptcy court as proposed findings of fact and conclusions of law when the court finds the bankruptcy court lacked constitutional authority to enter a final judgment.

Appellate Changes

As mentioned above, a new limit is being placed on briefs of amicus curiae. FRAP 29 was amended to limit briefs of amicus curiae that would result in a judge’s disqualification and gives federal courts of appeals authority to strike or prohibit such amicus briefs. While several courts of appeals previously had local rules in place containing this restriction, the amendment makes this rule applicable to all federal courts of appeals.

FRAP 28.1 and 31 were amended to extend the time to file an appellate reply brief to 21 days. Further, FRAP 41 was amended to require an order to stay a mandate and provides that a mandate stayed pending a petition for certiorari must issue immediately upon certiorari denial.

In an ominous sign, Americans’ total debt hit another record high, rising to $13.5 trillion in the last quarter, as student loan delinquencies jumped, according to Reuters. Specifically, flows of student debt into serious delinquency – of 90 or more days – rose to 9.1 percent in the third quarter from 8.6 percent in the previous quarter, reported the Federal Reserve Bank of New York, propelling the biggest jump in the overall U.S. delinquency rate in seven years.  

Total household debt, driven by $9.1 trillion in mortgages, now stands $837 billion higher than its previous peak in 2008, just as the Great Recession took hold and induced massive deleveraging across the United States. In fact, indebtedness has risen steadily for more than four years and sits more than 21% above its 2013 low point, and the $219 billion rise in total debt in the quarter that ended on September 30 amounts to the biggest jump since 2016. 

“The new charts in our report help to better understand how the debt and repayment landscape have shifted in the years following the Great Recession,” Donghoon Lee, research officer at the New York Fed, announced in a press release published on November 16. “Older borrowers now hold a larger share of total outstanding debt balances, while the shares held by younger borrowers have contracted and shifted toward auto loans and student loans.”

As Congress’ emboldened majority has sought to lessen the federal government’s regulatory footprint, the states have not always been quiet, as one summertime example amply shows.

In 2017, two congressmen introduced two bills which, if enacted, would expand the scope of federal preemption to include non-bank entities. Introduced by Rep. Patrick McHenry (R-N.C.), the first of these two bills – the Protecting Consumers’ Access to Credit Act of 2017 (HR 3299) – states that bank loans with a valid rate when made will remain valid with respect to that rate, regardless of whether a bank has subsequently sold or assigned the loan to a third party. A second bill known as the Modernizing Credit Opportunities Act of 2017 (HR 4439), championed by Rep. Trey Hollingsworth (R-Ind.), strives “to clarify that the role of the insured depository institution as lender and the location of an insured depository institution under applicable law are not affected by any contract between the institution and a third-party service provider.” Perhaps most significantly, it would establish federal preemption of state usury laws as to any loan to which an insured depository institution is the party, regardless of any subsequent assignments. In so doing, both bills amend provisions of the Home Owners’ Loan Act, Federal Credit Union Act, and/or Federal Deposit Insurance Act. Such an amendment would invalidate a long-line of judicial precedent barring a non-bank buyer’s ability to purchase a national bank’s right to preempt state usury law, which culminated in the Second Circuit’s 2015 decision in Madden v. Midland Funding, LLC, and thereby provide non-originating creditors with a potent – and until now nonexistent – shield against liability under certain state consumer laws.

On June 27, 2018, the attorneys general of twenty states[1] and the District of Columbia stated their opposition to both bills in a letter to Congressional leadership. Beginning with an historically accurate observation – “[t]he states have long held primary responsibility for protecting American consumers from abuse in the marketplace” – the A.G.s attacked these legislative efforts as likely to “allow non-bank lenders to sidestep state usury laws and charge excessive interest that would otherwise be illegal under state law.” The cudgel of preemption, they warned, would “undermine” their ability to enforce their own consumer protection laws. The A.G.s went on to argue many non-bank lenders “contract with banks to use the banks’ names on loan documents in an attempt to cloak themselves with the banks’ right to preempt state usury limits”; indeed, “[t]he loans provided pursuant to these agreements are typically funded and immediately purchased by the non-bank lenders, which conduct all marketing, underwriting, and servicing of the loans.” For their small role, the banks “receive only a small fee,” with the “lion’s share of profits belong[ing] to the non-bank entities.” In support of this position, the A.G.s cite to a 2002 press release by the Office of the Comptroller of the Currency (“OCC”) and the more recent OCC Bulletin 2018-14 on small dollar lending, the latter announcing the OCC’s “unfavorabl[e]” view of “an[y] entity that partners with a bank with the sole goal of evading a lower interest rate established under the law of the entity’s licensing state(s).

The A.G.s concluded by arguing that the proposed legislation would erode an “important sphere of state regulation,” state usury laws having “long served an important consumer protection function in America.”

We will continue to monitor this legislation and other developments in the preemption arena, and will report on any further developments.

[1] The signatories come from California, Colorado, Hawaii, Illinois, Iowa, Maryland, Massachusetts, Minnesota, Mississippi, New Mexico, New York, North Carolina, Oregon, Pennsylvania, Rhode Island, Tennessee, Vermont, Virginia, and Washington.

On November 16, Sen. John Thune (R-S.D.), the current chairman of the Senate Commerce Committee, and Ed Markey (D-Mass.), a member of the committee and the author of the Telephone Consumer Protection Act, unveiled the Telephone Robocall Abuse Criminal Enforcement and Deterrence Act (“TRACED Act”). Among other things, this bill would require carriers to eventually implement “an appropriate and effective call authentication framework” and instructs the Federal Communications Commission to engage in rulemaking to protect consumers from receiving unwanted calls and text messages from unauthenticated phone numbers.

According to its proponents, an “ever increasing number … of robocall scams” prompted this bill. Indeed, one report touted by Markey estimated the number of spam calls will grow from 29% of all phone calls this year to 45% of all calls next year.

In its current form, the TRACED Act gives regulators more time to find scammers, increases civil forfeiture penalties for those caught, promotes call authentication and blocking adoption, and brings relevant federal agencies and state attorneys general together to address impediments to criminal prosecution of robocallers who intentionally flout laws.

More specifically, this act makes the following changes to the existing federal regulatory scheme:

  • Broadens the authority of the FCC to levy civil penalties of up to $10,000 per call for those who intentionally violate telemarketing restrictions.
  • Extends the window for the FCC to catch and take civil enforcement action against intentional violations to three years after a robocall is placed. Under current law, the FCC has only one year to do so. The FCC has told the committee that “even a one-year longer statute of limitations for enforcement” would improve enforcement against willful violators.
  • Brings together the Department of Justice, FCC, Federal Trade Commission, Department of Commerce, Department of State, Department of Homeland Security, the Consumer Financial Protection Bureau, and other relevant federal agencies, as well as state attorneys general and other non-federal entities, to identify and report to Congress on improving deterrence and criminal prosecution at the federal and state level of robocall scams.
  • Requires providers of voice services to adopt call authentication technologies, enabling a telephone carrier to authenticate consumers’ phone numbers prior to initiating any call.
  • Directs the FCC to initiate a rulemaking to help protect subscribers from receiving unwanted calls or texts from callers using unauthenticated numbers.

Announcing the TRACED Act, neither senator minced their words. “The TRACED Act targets robocall scams and other intentional violations of telemarketing laws so that when authorities do catch violators, they can be held accountable,” Thune said in a statement. He continued: “Existing civil penalty rules were designed to impose penalties on lawful telemarketers who make mistakes. This enforcement regime is totally inadequate for scam artists and we need do more to separate enforcement of carelessness and other mistakes from more sinister actors.” Markey added: “As the scourge of spoofed calls and robocalls reaches epidemic levels, the bipartisan TRACED Act will provide every person with a phone much needed relief. It’s a simple formula: call authentication, blocking, and enforcement, and this bill achieves all three.”

Troutman Sanders will continue to monitor this and related legislative proposals.