As a result of recent U.S. Supreme Court and Second Circuit decisions, New York practitioners can expect increasing numbers of Telephone Consumer Protection Act (TCPA) class actions to be filed in New York, following the national trend. The article will address those recent decisions and describe issue-spotting for practitioners litigating TCPA cases.

Introduction

New York federal courts have long held that because New York CPLR §901(b) prohibits class actions for statutory damages, claims brought under the TCPA, 47 U.S.C. §227, could not be brought in New York federal courts as class actions. Because the TCPA included a statement that private parties can enforce it only “if otherwise permitted by the laws or rules of court of a State,” (47 U.S.C. §227(b)(3)), the Second Circuit had held that CPLR class action rules applied rather than FRCP 23. Thus, until recently, CPLR §901′s prohibition on class treatment of statutory damages claims applied to TCPA claims brought in New York federal courts.1

After the U.S. Supreme Court’s decision in Mims v. Arrow Financial Services, 132 S. Ct. 140 (2012), however, a pair of Second Circuit decisions in the second half of 2013 reversed course. As a result, from mid-2013 to present, at least 14 TCPA class actions have already been filed in New York federal courts.

The TCPA is a federal statute that was passed in the early 1990s aimed at prohibiting telemarketing calls, faxes, and text messages without prior consent. The TCPA specifically provides for a private right of action that, if successful, can result in awards between $500 and $1,500 per violation. Obviously, because statutory damages can become very large when aggregated, large scale electronic marketing campaigns, engaged in by both local and national marketers, have made TCPA cases a popular class action vehicle for the plaintiff’s bar. For example, in 2013 TCPA cases in California and Washington state against Bank of America and Papa John’s, respectively, settled for $32 and $16.5 million. But there was potentially billions in exposure in these cases.

Until now, such class actions could not be brought in New York. What changed and why?

‘Mims’ and The Second Circuit Response

In 2012, the Supreme Court got involved in a growing circuit split over whether federal subject matter jurisdiction existed for TCPA claims. While the Second Circuit had held that there was no federal subject matter jurisdiction, other circuit and district courts had found such jurisdiction existed.2 In Mims, the Supreme Court ruled that the “permissive grant of jurisdiction to state courts” in the TCPA did not preclude “federal courts’ exercise of the general federal question jurisdiction they have possessed since 1875.” 132 S. Ct. at 745. The court also found that federal law provides the rules of decision in TCPA cases.

Before Mims, the Second Circuit’s view was that state law provided the rules of decision in TCPA cases, and it thus had held that state statutes of limitations rather than the federal four-year catch-all statute of limitations applied to TCPA claims. At the time Mims was decided, a petition for certiorari was pending from a Second Circuit decision applying Connecticut’s two-year statute of limitations in a TCPA case. Giovanniello v. ALM Media, 660 F.3d 587 (2d. Cir. 2011), vacated and remanded, 133 S. Ct. 159 (2012), reversed in part, 726 F.3d 106 (2d Cir. 2013).3 In light of Mims, the Supreme Court vacated and remanded to the Second Circuit, which found its prior jurisprudence on this issue was incorrect holding that the federal four-year statute of limitations applied instead of the shorter state law limitations period.4

Since Giovanniello was a Connecticut case, the question of the permissibility of class actions in New York was not at issue. However, a few months later, the Second Circuit had the opportunity to review the New York class action question in light of Mims. In Bank v. Independence Energy Group, 736 F.3d 660 (2d Cir. 2013), the Second Circuit decided whether a plaintiff’s TCPA class action was properly dismissed by the E.D.N.Y. in reliance on the CPLR The Second Circuit noted that “[t]he Supreme Court’s decision in Mims … uprooted much of our TCPA jurisprudence,” and held that New York State’s procedural rule prohibiting class action claims for statutory damages no longer prohibits class actions for damages being brought under the TCPA in New York federal courts. Id. at 661. Open the floodgates.

Issues Frequently Arising in TCPA Cases

Now that the New York courts are open to TCPA class actions, New York practitioners litigating TCPA cases need to be aware of a host of issues that have come up in other jurisdictions. The following outlines some of the most important ones to watch for—and while not intended to be a comprehensive discussion of each issue (each of which could fill tomes on their own)—aims to provides an “issue spotting” checklist for litigating TCPA class actions.

FCC regulations and guidance: Binding or not? While the TCPA is statutory, the Federal Communications Commission (FCC) has a statutory mandate to enact regulations and to provide guidance on interpreting those regulations and the statute. See 47 C.F.R. 64.1200. Some have been the subject of the formal federal rulemaking process and therefore have the force of law, but some are merely persuasive authority, although some courts have held FCC enforcement guidelines should not be taken into account.5 The practice point here is not to take for granted that a given regulation or policy statement deserves deference by the court—each piece of guidance from the FCC should be carefully vetted before relying on it, whether for the plaintiff or defense.

Unsolicited advertising, existing business relationships, scope of consent, the recent changes to Federal regulations, and the impact on class certification. Without attempting to parse all of the statutory text and regulations that may apply in a given case here, the bulk of TCPA cases turn on several key issues.

First, often the defendant will allege that a given communication is not an advertisement, but is merely an “informational communication,” which is not subject to the TCPA at all. Courts take a broad view of what constitutes an advertisement, however, including any information that promotes a company’s goods and services, even if they are offered for free or the communication is simply meant to induce the recipient to take some action like coming into the defendant’s business.6

Next, cases involving communications made before October 2013 often turned on whether the “existing business relationship” exception applied. That exception permitted certain types of communications to be sent, even without express permission of the recipient, if the parties had a pre-existing business relationship. This exception is not in the statute itself, but was contained within one of the binding FCC regulations. The FCC, however, removed this exception in a regulation change that became effective on Oct. 16, 2013.

The focus of the new regulations is on what constitutes “consent.” This is probably the most litigated issue in TCPA cases. While it would seem that whether someone consented to receiving a communication ought to be a simple issue, all kinds of circumstances can give rise to arguments about whether a particular act is sufficient to provide consent. The new FCC regulations have tried to clarify, and make stricter, what constitutes “consent” for post-October 2013 communications. Under the new rules, consent means “prior express written consent” that has not been withdrawn, which means that inferential consent wrought from the voluntary provision of contact information can no longer be argued.7 The disclosure must be clear and conspicuous, and consent cannot be a condition for making a purchase. The recipient’s signature is required (although it can be an electronic signature).

For example, if a customer signs up for a store credit card or loyalty program, and the program guidelines inform the customer they may receive solicitations as a result of signing up for the program, that has been held to be sufficient consent by some courts. In a given case, however, a customer may claim that she did not intend to sign up for the program at issue. Other issues that can arise include whether the communications sent exceed the scope of the consent. For instance, in a recently settled case against the Buffalo Bills in Florida, the plaintiff argued that when class members signed up for the messaging service at issue, the terms and conditions of the service at sign up said the messages would be limited to three to five per week. Plaintiff alleged he received more than five messages per week “routinely.” A motion to dismiss was pending when the case settled. Similarly, in a case brought against the Los Angeles Lakers, the issue was whether, after a consumer opted out, a confirmatory message that acknowledged the request for the opt out violated the TCPA.8 A motion to dismiss was granted but appealed to the Ninth Circuit, where the case was settled prior to an appellate decision.

The question of consent can often dictate whether a class action is certified. Whether individualized inquiries are necessary into whether each class member consented can often predominate over other common issues, so this has become a frequently litigated issue.

What technology counts as an “automatic telephone dialing system” (ATDS)? The reach of the TCPA under 47 U.S.C. §227(b)(1)(A) is meant to cover communications that intrude on the privacy of people’s lives and harm them with unanticipated bills. When passed in 1991, we lived in a very different communications era, when home or cell phone bills contained charges for each call made or received. Smartphones, which many people now use exclusively, did not exist. Many TCPA cases thus involve the question of what constitutes an ATDS under the statute.

There is no dispute that calling systems that generate random numbers of people in the general citizenry who are not already customers of a business for marketing purposes falls within the statutory definition. But in the Lakers case, for example, one issue was whether the text messages at issue constituted use of an ATDS because the numbers were not randomly generated and were only sent to people who gave the Lakers their number. In another recent decision, Yahoo! was dismissed from TCPA liability by a district court where it sent individualized messages via its opt-in texting service, even though the recipient had unsuccessfully tried to opt out of the program. Courts are thus increasingly reviewing TCPA claims to determine whether the context of the communications at issue fall within what the statute truly intended to cover, requiring more than bare pleading.

Insurance coverage. It is important for practitioners to work with their clients to determine if there is any insurance coverage available to cover defense and liability costs for TCPA claims. Complex coverage issues are beyond the scope of this note, but coverage can turn on whether the damages at issue are deemed to be punitive (usually not insurable) or remedial (usually insurable). Some recent Illinois state court decisions have found TCPA damage claims to be insurable remedial remedies, but one federal court in New York recently denied coverage in a TCPA case for a variety of reasons pertaining to the specific policy clauses at issue in that case.9

Conclusion

New York practitioners can expect the New York dockets to grow as a result of the recent appellate rulings permitting TCPA class action claims in our courts. The above provides some issues to consider as the body of law grows in our circuit.

David Leichtman is a partner at Robins, Kaplan, Miller & Ciresi in New York, where he practices in the intellectual property litigation and business litigation groups. Shane St. Hill is an associate at the firm.

Endnotes:

1. See, e.g., Bonime v. Avaya, 547 F.3d 497 (2d Cir. 2008); Foxhall Realty Law Offices v. Telecomm. Premium Servs., 156 F.3d 432, 434 (2d Cir. 1998) (reaching “the somewhat unusual conclusion that state courts have exclusive jurisdiction over a cause of action created by a federal statute, the Telephone Consumer Protection Act of 1991 … .” (internal quotations omitted)). While Foxhall held only that there was no federal question jurisdiction in federal courts over TCPA claims, that still left open the question of diversity jurisdiction. However, plaintiffs could not overcome the $75,000 jurisdictional threshold for diversity jurisdiction unless they could aggregate their claims as class actions. Bonime then held that substantive state law governed TCPA claims under the Erie doctrine, and thus New York’s prohibition on class actions for statutory damages precluded diversity jurisdiction as well.

2. The Second, Third, Fourth, Fifth, Ninth and Eleventh Circuits had held there was no federal subject matter jurisdiction while the Sixth and Seventh Circuits had held there was. The exercise of diversity jurisdiction over class actions was then left to state law with mixed results depending on whether state law permitted class actions for statutory damages. For example, a substantial number of TCPA cases and body of jurisprudence has developed in federal courts in California and Washington state.

3. Because the case originated in Connecticut, a class action was permitted since Connecticut state courts did not have the same prohibition as New York on class actions for statutory damages.

4. The Second Circuit still found the case time barred even under the longer statute of limitations because of a prior denial of class certification that ended a tolling period pursuant to American Pipe & Construction Co. v. Utah, 414 U.S. 538 (1974). In an issue of first impression in the Second Circuit, but following other circuit courts, the court held that tolling ends as soon as the district court denies class certification. Giovanniello, 726 F.3d at 107.

5. See, e.g., Holtzman v. Turza, 728 F.3d 682 (7th Cir. 2013) (rejecting FCC guidance on “junk fax” regulations as “untethered” to the statute, but affirming district court’s conclusion that facsimiles at issue constituted advertisements rather than informational communications).

6. See, e.g., Bais Yaakov of Spring Valley v. Alloy, 936 F. Supp. 2d 272 (S.D.N.Y. 2013).

7. Prior to the new regulations, most courts followed the general rule that providing your number voluntarily in most instances gave implied consent for communications concerning the transaction pursuant to which the number was provided (so long as the number was provided to the caller by the recipient and not by a third party). That rule, however, was not universal. See, e.g., Mais v. Gulf Coast Collections Bureau, 944 F. Supp. 2d 1226, 1235 (S.D. Fla. 2013).

8. FCC Regulations require that even where consent is given, the marketer provide information on how to opt out from future communications with the sending of each consented-to communication. E.g., 47 CFR 64.1200(a)(3)(iv). There has been litigation over whether this requirement is ultra vires, but it has not been resolved on the merits.

9. Certain Underwriters at Lloyd’s of London v. Convergys, No. 12-CV-8968-CRK, slip. op. at 4-6 (S.D.N.Y. March 25, 2014); Std. Mut. Ins. v. Lay, 989 N.E.2d 591 (Ill. 2013); id., 2 N.E.2d 1253 (Ill. App. Ct.), app. denied, 2014 Ill. LEXIS 433 (2014).