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On May 31, the Fourth Circuit Court of Appeals affirmed a $150,000 sanctions award against three consumer attorneys and their law firms for bad faith conduct and misrepresentations.

The opinion reads like a detective story and lays out, in the Court’s own words, “a mosaic of half-truths, inconsistencies, mischaracterizations, exaggerations, omissions, evasions, and failures to correct known misimpressions created by [consumer attorneys’] own conduct that, in their totality, evince lack of candor to the court and disrespect for the judicial process.”

The litigation arose from a payday loan that plaintiff James Dillon obtained from online lender Western Sky.  Later, Dillon engaged attorneys Stephen Six and Austin Moore of Stueve Siegel Hanson LLP and Darren Kaplan of Kaplan Law Firm, PC who filed a putative class action against several non-lender banks that processed loan-related transactions through the Automatic Clearing House network.  Defendant Generations Community Federal Credit Union promptly moved to dismiss Dillon’s lawsuit on the basis of the loan agreement’s arbitration clause.  In response, Dillon challenged authenticity of the loan agreement and a two-year-long dispute ensued during which the district court refused to send the case to arbitration based on Dillon’s authenticity challenge; Generations appealed the district court’s decision; and the Fourth Circuit vacated it and remanded the case for further proceedings on the arbitration issue.  Significantly, when questioned by both the district court and the Fourth Circuit, Six maintained authenticity challenge and represented that he had drafted the complaint without the loan agreement and that Dillon’s claims do not rely on the loan agreement.

Six’s representations regarding the contents of the complaint were problematic given the complaint specifically referenced the loan agreement and its terms.  Evidence uncovered during arbitration-related discovery showed that Dillon possessed the loan agreement all along and, crucially, that he supplied his counsel with a copy of the agreement a week before the complaint was filed.  The latter piece of evidence was discovered only as a result of forensic examination of Dillon’s computer.  Once this evidence came to light, Dillon responded to Generations’ requests for admissions that the loan agreement was authentic.

Generations moved for sanctions against Dillon’s attorneys.  Instead of admitting their wrongdoing, Kaplan argued that there was never any challenge to authenticity, and Six argued that he still doubted authenticity even though he signed Dillon’s admissions that the loan agreement was authentic.  Invoking its inherent authority to punish bad faith behavior, the district court sanctioned Six, Kaplan, and their law firms jointly, ordering them to pay the defendants $150,000 in attorneys’ fees.  Moore was held liable jointly for only $100,000 of the total amount due to his lesser role in the bad-faith conduct.  The lawyers appealed.

The Fourth Circuit summarily rejected their arguments that neither the rules of ethics nor the Federal Rules of Civil Procedure required them to disclose the copy of the loan agreement before discovery commenced.  “These arguments miss the point.  Counsel are not being sanctioned for their failure to disclose the Dillon copy of the Western Sky loan agreement.  Rather, counsel are being sanctioned for raising objections in bad faith—simultaneously questioning (and encouraging the district court to question) the authenticity of a loan agreement without disclosing that the Plaintiff provided them a copy of that loan agreement before the complaint was filed.”

Discovery in consumer litigation is often asymmetrical and focuses on defendants’ obligations.  This opinion is a good reminder that the rules apply to plaintiffs too and that the courts will not condone a “crusade to suppress the truth to gain a tactical advantage.”

On Monday, May 14, 2018, the Federal Communications Commission (“FCC”) issued a public notice seeking comment on interpretation of the Telephone Consumer Protection Act (“TCPA”) in light of the D.C. Circuit’s decision in ACA International v. FCC. The notice reflects an intent by the FCC to take up the proper interpretation of the TCPA promptly. Specifically, the FCC seeks comment on key areas of the TCPA, including:

  • How to interpret “capacity” in light of the D.C. Circuit’s decision in ACA, including the amount of user effort required to enable a device to function as an automatic telephone dialing system (“ATDS”);
  • The functions a device must be able to perform to qualify as an ATDS, including whether the word “automatic” envisions only non-manual dialing of telephone numbers;
  • How to treat reassigned wireless numbers and how to interpret the term “called party” for reassigned numbers, including whether the term refers to the person the caller expected to reach, the party the caller reasonably expected to reach, or the person actually reached;
  • Revocation of prior consent, including particular opt-out methods that would suffice to revoke consent;
  • The scope of the term “person” under the statute, and whether it includes federal government contractors; and
  • The appropriate limit for calls made to a reassigned number.

The initial comment period closes on June 13, 2018 and the reply comment period closes on June 28, 2018, meaning that the issues would be ripe for decision by the FCC in short order.

The ACA decision was immediately hailed by current FCC Chairman Ajit Pai, who said in a statement that the “unanimous D.C. Circuit decision addresses yet another example of the prior FCC’s disregard for the law and regulatory overreach. As the court explains, the agency’s 2015 ruling placed every American consumer with a smartphone at substantial risk of violating federal law. That’s why I dissented from the FCC’s misguided decision and am pleased that the D.C. Circuit too has rejected it.” Commissioners O’Rielly and Carr similarly praised the decision, giving Chairman Pai the necessary majority to effect major change in the TCPA landscape.

The call for comments also follows on the heels of a petition filed with the FCC by the U.S. Chamber of Commerce and 17 trade groups. The petition focused solely on the definition of an ATDS. Like the FCC’s request for comment, the petition tracks the language of the D.C. Circuit’s decision in ACA, where it struck down major portions of the FCC’s previous expansive interpretations of the TCPA, including its definition of an ATDS. While the FCC has taken the position for 15 years that a predictive dialer is an ATDS, the D.C. Circuit found that the 2015 Order and its predecessors do not give a clear answer as to whether a device qualifies as an ATDS only if it can generate random or sequential numbers for dialing. The U.S. Chamber petition urges the FCC to confirm that equipment must use a random or sequential number generator to store or produce numbers and dial those numbers without human intervention to qualify as an ATDS and to find that only calls made using actual ATDS capabilities are subject to the TCPA. Calling the ACA decision “an opportunity to restore rationality to . . . the TCPA,” the groups ask the Commission to issue a declaratory ruling as soon as possible to clarify the ATDS definition.

In sum, the groundwork is being laid at the FCC for a major change in interpretation of the TCPA, and the changes under consideration would substantially reduce the legal risks for companies using telephony to contact consumers.

Troutman Sanders LLP has unique industry-leading expertise with the TCPA, with experience gained trying TCPA cases to verdict and advising Fortune 500 companies regarding their compliance strategy. We will continue to monitor legislative developments and regulatory implementation of the TCPA in order to identify and advise on potential risks.

On May 3, the U.S. Chamber of Commerce and 17 trade groups filed a petition with the Federal Communications Commission for a declaratory ruling seeking a narrow definition of an automatic telephone dialing system, or “ATDS” – one of the key components of liability under the Telephone Consumer Protection Act.

The decision follows the D.C. Circuit’s landmark decision in ACA International v. FCC, which was largely seen as a major win for defendants in TCPA lawsuits, as the D.C. Circuit struck down key portions of the FCC’s previous expansive interpretations of the TCPA, including its definition of an ATDS.  In an opinion by Judge Sri Srinivasan, the court found the FCC’s interpretation, as announced in the 2015 Order, “utterly unreasonable” and lacking clarity.  The ruling also struck down long-standing TCPA rulings going back to 2003 on the issue of predictive dialers.  While the FCC has taken the position for 15 years that a predictive dialer is an ATDS, the D.C. Circuit found that the 2015 Order and its predecessors do not give a clear answer as to whether a device qualifies as an ATDS only if it can generate random or sequential numbers for dialing.

Joining the Chamber of Commerce petition are many members of the financial services industry, including ACA International, the American Bankers Association, the Mortgage Bankers Association, the Consumer Bankers Association, and the American Financial Services Association.  In the petition, the groups urge the FCC to confirm that equipment must use a random or sequential number generator to store or produce numbers and dial those numbers without human intervention to qualify as an ATDS and to find that only calls made using actual ATDS capabilities are subject to the TCPA.  Calling the ACA decision “an opportunity to restore rationality to . . . the TCPA,” the groups ask the Commission to issue a declaratory ruling as soon as possible to clarify the ATDS definition.

Troutman Sanders LLP has unique industry-leading expertise with the TCPA, with experience gained trying TCPA cases to verdict and advising Fortune 500 companies regarding their compliance strategy.  We will continue to monitor legislative developments and regulatory implementation of the TCPA in order to identify and advise on potential risks.

The District of Nevada recently applied the D.C. Circuit’s decision in ACA International v. FCC and granted summary judgment in favor of the defendant on plaintiff’s Telephone Consumer Protection Act claim.  Specifically, the Court held in Marshall v. The CBE Group, Inc. that CBE’s phone system does not qualify as an automatic telephone dialing system, commonly referred to as an “ATDS.”

Plaintiff Gretta Marshall filed suit against CBE, a third-party debt collector, alleging that it violated the TCPA and the Fair Debt Collection Practices Act through its collection efforts related to her outstanding bill.  Marshall alleged that CBE’s agents used an ATDS to contact her in violation of the TCPA.  CBE places calls using a Manual Clicker Application (“MCA”), requiring the call agent to click a bullseye on a computer screen to place a call.  When a CBE agent clicks the bullseye, a call is sent through a cloud-based connectivity pass-through, LiveVox, and then the CBE agent is connected with the person to whom the call is placed.

In analyzing CBE’s “communication infrastructure,” the Court stated that in light of the ACA v. FCC decision, it would apply the statutory language defining an ATDS, resulting in a focus on whether CBE’s phone equipment has the capacity to produce or store phone numbers to be called using a random or sequential number generator.  The Court noted that the overwhelming authority held that “point and click” dialing systems, used in unison with cloud-based pass-through services, did not qualify as ATDSs due to the human intervention required to place the call.  Applying this rationale, the Court found that CBE agents who were required to click the bullseye were “integral to initiating outbound calls.”  This finding weighed in favor of finding that the MCA, used with LiveVox, was not an ATDS.

Further, the Court dismissed Marshall’s allegations that LiveVox, the cloud-based pass-through, placed the calls and qualified as an ATDS.  Marshall argued that because LiveVox could perform call progress analysis (such as maintaining call logs), it actually initiated the call, not CBE.  Ultimately, the Court found that Marshall had not presented any evidence or legal authority sufficient to create a genuine dispute of material fact as to LiveVox’s alleged qualification as an ATDS.  Specifically, Marshall did not show that LiveVox’s ability to track calling information meant that LiveVox has the capacity to produce or store telephone numbers to be called, using a random or sequential number generator, and to dial the numbers.

Given the human intervention necessary to place calls using MCA and Marshall’s failure to create a genuine dispute of material fact regarding LiveVox’s role, the Court held that CBE did not use an ATDS to place calls to Marshall.

The District of Nevada is one of the first courts to apply the decision from ACA International v. FCC when interpreting the definition of an ATDS.  The decision in Marshall v. CBE indicates that courts will be able to simplify their analysis of whether a telephone system qualifies as an ATDS under the TCPA by eliminating the need to determine “potential functionalities” of a calling system and instead focusing on the calling systems’ “capacity to store or produce telephone numbers to be called, using a random or sequential number generator.”

Please join us on Tuesday, April 17th from 2:00 – 3:00 PM ET for a complimentary webinar with speakers Chad Fuller, David Gettings, Alan Wingfield and Virginia Bell Flynn.

So often the defense of consumer class actions focuses on the substance of the law. Was my consumer report accurate? Was my collection letter misleading or deceptive? Did I have consent to place a call using an ATDS?

Please join Troutman lawyers for a discussion of some recent developments in procedure that could be game-changers. These are legal developments that do not turn on the substance of the claim, but could raise effective defenses if used appropriately. We will discuss the impact the Bristol-Myers Squibb decision has had on personal jurisdiction in nationwide class actions, the tolling effect of pending class actions on future lawsuits, and the impact of Spokeo arguments in practice. For good measure, we will also discuss the impact that the D.C. Circuit’s landmark ruling in ACA v. FCC has had on Telephone Consumer Protection Act individual lawsuits and class actions in the first month since the decision.

Click here to register.

On March 12, Judge Eldon E. Fallon of the U.S. District Court for the Eastern District of Louisiana tossed a plaintiff’s putative class action lawsuit against the American Heart Association (“AHA”), Anthem Foundation, Inc., and Anthem, Inc. under the Telephone Consumer Protection Act relating to text messages sent to a consumer following her attendance at a CPR training course. This decision provides some additional clarity for health care companies in distinguishing between informational and telemarketing outreach under the TCPA.

The underlying facts are straightforward. The plaintiff attended a CPR training event and provided her cellular telephone number to the AHA to receive content including “monthly CPR reminders” and “healthy messaging information.” She subsequently received “more than 20 text messages” from AHA, such as “AHA/Anthem Foundation: Memorize your work address. You may need to recite it to a dispatcher should you have to call 9-1-1 from the office.” Each of the roughly two dozen text message included “AHA/Anthem Foundation” at the beginning of the message. Although the text messages generally provided health-related informational content, one text message provided a link to the AHA’s website to find available CPR courses in a specific geographic area—some of which were free, and others available for a fee.

The plaintiff’s theories of liability were that (1) the messages were telemarketing, and thus the prior express consent she provided to AHA was not sufficient for the at-issue text messages; (2) nonprofit Anthem Foundation was vicariously liable for text messages sent by AHA because “Anthem Foundation” was included in the body of the message; and (3) Anthem, Inc. was vicariously liable because the inclusion of Anthem Foundation in the text messages was a “purely commercial plug” of its corporate parent. The defendants jointly moved to dismiss the complaint, claiming that the consent provided to AHA was sufficient for the whole of the communications with the plaintiff, and submitted the entire text-message log between the plaintiff and AHA.

The lawsuit attempted to broaden the TCPA in two key ways: (1) expanding vicarious liability to brands allegedly affiliated with the communications, and (2) applying the TCPA’s prior express written consent standard for telemarketing to text messages providing information about local CPR classes—neither of which Judge Fallon was willing to indulge. On the vicarious liability point, the Court found that “although the text messages reference Anthem Foundation, this is irrelevant because the sender was, in fact, AHA.” The Court further noted the lack of any authority suggesting that “a nonprofit’s association with a donor or another charitable entity—i.e., Anthem Foundation—gives rise to a TCPA claim when she voluntarily sought to receive certain communications and information.”

As to the content of the messages, Judge Fallon examined the text message relating to CPR courses, which contained a link to a search function allowing users to find nearby classes. The Court visited the link and provided screenshots of the website in its ruling. It observed that “[t]o sign up for a CPR class—whether for-pay or free—a visitor must click on one of the providers, in which the [visitor] is taken to the provider’s Website.” The Court wrote, “[I]n this case, common sense tells the Court that the information in which Plaintiff labels as ‘commercial’ is undoubtedly informational. Defendants AHA and Anthem Foundation provide individuals with a public resource to seek CPR training. This resource is the type of communications Plaintiff wanted and signed up to receive: information about CPR and healthy living. Her complaint is thus unwarranted.”

With this dismissal and others like it, health care companies can be heartened that multiple courts have taken a “common sense” approach interpreting the TCPA to permit beneficial, health-related outreach to their members and consumers. However, this area of law remains murky, and thus companies are reminded of the importance of maintaining accurate records to minimize litigation risks.

The defendants were jointly represented by Covert J. Geary of Jones Walker LLP in New Orleans, Louisiana. Anthem Foundation, Inc. and Anthem, Inc. were also represented by Chad R. Fuller, Virginia Bell Flynn, and Justin M. Brandt of Troutman Sanders LLP.

 

Please join us on Tuesday, March 20th from 3:30 – 5:00 ET, as Troutman lawyers who have been on the front lines offer their take on the implications for litigation and compliance arising from the new appeals decision regarding the scope of the Telephone Consumer Protection Act (TCPA).

On March 16, 2018, the U.S. Court of Appeals for the District of Columbia Circuit struck down key portions of the Federal Communications Commission’s (FCC) expansive readings of the Telephone Consumer Protection Act (TCPA). These expansive rulings have fueled many class actions and individual lawsuits against companies that use modern telephony systems to keep in contact with consumers.

While in broad brush this complex, 51-page decision is clearly good news for calling parties, the ruling raises many practical questions for litigation and compliance. This webinar will focus on practical takeaways, in addition to providing a precise description of key parts of the ruling. One hour of CLE credit is pending. 

To register, click here.

A federal judge recently ruled that online auto retailer CarGurus, Inc. did not violate the Telephone Consumer Protection Act after a class action suit was filed against the company, alleging CarGurus sent unsolicited text messages to individuals via their website.

CarGurus operates a website that allows users to search for vehicles based on make, model, and other criteria. If a user of the website comes across a car that piques their interest, the user can click on a link to enter their phone number into the website. The vehicle listing is then sent as a link to the user’s phone via text message.

The suit alleged that in 2016, a woman received a vehicle listing text message from CarGurus, even though she had never been on the site or otherwise done business with the company. The plaintiff claimed this violated a provision of the TCPA that prohibits the use of an automatic telephone dialing system, or “ATDS,”  to call or send text messages to an individual without the individual’s prior consent.

CarGurus moved for summary judgment, arguing that they did not violate the TCPA because the company did not make or initiate the “unsolicited” messages. Instead, the company argued, it is the user of the website who initiates the message when they request to have a link to the listing sent to their phone via text message.

Judge Sara Ellis of the U.S. District Court for the Northern District of Illinois agreed with CarGurus and granted the motion for summary judgment. The Court ruled that the extent of the consumer’s involvement in the sending of the text dictated that the consumer, not CarGurus, must be deemed the initiator of the text. Even though CarGurus controls the content of any text messages sent from the site, the consumer must request the text message and must manually enter their phone number for the text to be sent. CarGurus’ only action is executing the request of the consumer.

In the plaintiff’s case, an unsolicited text message was sent when another user of the CarGurus website with a similar phone number entered the class representative’s number by mistake.

A copy of the opinion can be found here.

State in the House: Bill Passed Committee, but Vote Not Scheduled

Introduced by Rep. Virginia Foxx (R-N.C.), the Promoting Real Opportunity, Success, and Prosperity through Education Reform (PROSPER) Act cleared the Committee on Education and the Workforce of the United States House of Representatives on December 13, 2017. It did so despite claims by Democrats—and the Association of Public and Land-grant Universities—that they had been shut out of the process.

Among other pertinent provisions, the PROSPER Act:

  • adopts a single definition of “institution of higher education,” eliminating for most purposes the distinctions between public and private nonprofit institutions and proprietary institutions;
  • effectively requires the Department of Education to treat programs that are not correspondence courses and that satisfy the current definition of “distance education” programs the same as traditional brick-and-mortar programs;
  • prohibits the DOE from defining any term in the Higher Education Act of 1965 (“HEA”), through regulation or otherwise;
  • repeals the borrower defense regulations promulgated by the DOE on November 1, 2016;
  • bars the DOE from developing, administering, or creating a ratings system for institutions of higher education;
  • expands the ways by which institutions may show that they are financially responsible for purposes of Title IV program participation;
  • forbids the DOE from prescribing the specific standards that an accreditor is required to implement and defers such standards to the discretion of each accrediting agency;
  • simplifies the Free Application for Federal Student Aid (“FAFSA”);
  • eliminates loan origination fees for all student borrowers;
  • eliminates the Public Service Loan Forgiveness Program for new borrowers; and
  • caps annual loan limits for various categories of students.

According to its supporters, the PROSPECT Act would improve higher education in at least two major ways. First, it focuses resources on helping Americans with the greatest financial need. Second, it expands the choices for students who need financial aid rather than steering them overwhelmingly towards community colleges.

While opponents have praised certain aspects of the bill, from its simplification of the FAFSA and linking of accreditation with outcomes for students, they have also criticized its limitations on student financial aid, removal of protections for students, and failure to incorporate rigorous data collecting requirements. Opponents also cite a February 7 report by the Congressional Budget Office that claimed that college students would lose $15 billion in federal student aid over the next decade if the PROSPER Act becomes law.

As of March 8, the full House has not voted on the PROSPER Act.

The text, as well as other legislative resources, including speeches from both sides, can be found here.

State in the Senate: Hearings and Debates

In contrast to the House, the process in the Senate has involved somewhat more give-and-take in considering the companion bill to the PROSPER Act. The Senate version was proposed by Health, Education, Labor and Pensions Committee Chairman Sen. Lamar Alexander (R-Tenn.), a former Secretary of Education. By February 6, his Committee had held four hearings on the problems posed by the rising cost of higher education and the nation’s increasingly troubled borrowers.

As in the House, partisan fault lines quickly emerged. However, unlike the House committee, a more robust debate has occurred. Like his House colleagues, Alexander has endorsed the “Bennett hypothesis” (named after former Secretary of Education William Bennett), which faults growing federal student aid for mounting college costs. For Alexander, the bottom line is simply, “How can we get the Federal Government out of the way so that we can meet our students’ needs?”

Alexander has urged his colleagues to focus on revisions to simplify the student aid process and redirect money to Pell Grants for low-income students.

In response, Committee Democrats expressed approval of streamlining grants and loans, but with the caveats that the total amount of aid must be preserved and that quality protections must be put in place for students and taxpayers.

Alexander, who has long worked with the Committee’s Democratic leader, Sen. Patty Murray (D-Wash.), saw a consensus emerging over the need for “simpler, more effective regulations to make it easier for students to pay for college and to pay back their loans; reducing red tape so administrators can spend more time and money on students; making sure a degree is worth the time and money students spend to earn it; and helping colleges keep students safe on campus.”

While Alexander is aiming for an April markup of the bill, which would allow Senate Majority Leader Mitch McConnell (R-Ky.) to bring legislation to the Senate floor in the first part of the year, observers are less optimistic. “The likelihood of it passing before 2020, I would put at very minimal,” said Barmak Nassirian, director of federal relations and policy analysis at the American Association of State Colleges and Universities. “I’d put it as close to zero as I would any likelihood.”

Nassirian’s viewpoint is representative of that of many observers: Although everyone seems to agree that the current state of student lending is a problem, no one can agree on a solution. Meanwhile, disagreements about gatekeeping, costs, and quality continue to fester.

The Federal Communications Commission announced on March 6 that it would vote at a March 22 meeting on a proposal to create a database of phone numbers that have been reassigned. Reassigned phone numbers are those numbers initially belonging to an individual that are given up or relinquished (usually through account inactivation) and are then assigned by the carrier to another individual.

Currently, a company placing outbound calls and/or text messages is in violation of the Telephone Consumer Protection Act if it calls a number at which an individual had previously provided prior express consent to receive the call but which has since been reassigned to another consumer. The company placing the call is liable even if it is unaware of this reassignment.

While the FCC has created a one-call exception – that is, a calling party is not liable for the first call that reaches a reassigned number – the potential risk to calling parties has proven to be difficult to manage given the challenges of identifying numbers that have been reassigned. A database of reassigned numbers would allow calling parties to filter or “scrub” numbers to detect those that have been reassigned.

The FCC seeks comment on how such a database should be created and used. In its proposal, the FCC expressed some support for the creation of a single source of record for reassigned numbers, noting that a single database would be “more efficient and cost-effective.”