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Don’t Let Texting Destroy Your Company re: Marketing and the Telephone Consumer Protection Act (TCPA)
Monday, October 20, 2014

Very few companies even consider the risk of sending a marketing bulletin to a client or hiring an agency to spread the word about a new product over social media.  However, faxes and texts can create disastrous legal exposure under the federal Telephone Consumer Protection Act (TCPA).  And, class actions—lawsuits where one plaintiff represents all others people in a similar situation—filed under the TCPA are on the rise, especially in “hot jurisdictions” like Illinois and Florida.  Take, for example, a company named Group C Communications that recently lost a $16 million judgment for sending faxes that promoted “the TFM Show” to Chicago-area businesses.  Even settlement can be pricey.  Twentieth Century Fox recently paid $16 million to settle a Chicago federal case alleging that it promoted a DVD of its movie Robots through texts.  Similarly, Red Bull paid $6 million to settle allegations that it had texted announcements and promotions to people who provided their cellular phone numbers at Red Bull contests and events.

The TCPA creates civil liability for junk faxes and spam telephone calls.  It is a strict liability statute—meaning that an innocent motive is not a defense—and allows the plaintiffs to recover statutory damages of $500 per transmission.  This can add up quickly—for example, sending two texts to just one hundred customers results in damages to the class of $100,000.  Plus, the plaintiffs’ attorneys usually collect their attorneys’ fees from the defendant on top of the damages.  A court can also triple the $500 statutory damages to $1,500 per transmission if it decides that the violations were willful. 

The TCPA is a favorite law for consumer class action plaintiffs’ attorneys because, they contend, the facts concerning whether widespread violations occurred are almost entirely dependent on the defendant’s actions.  Thus, they argue that class treatment—meaning all recipients are represented by the one or a few “named plaintiffs” and their law firm—is appropriate.  And, the statutory damage provision largely eliminates questions about damages that may be specific to the individual recipients of the transmissions.

Class action plaintiffs’ attorneys have traditionally used the TCPA against alleged junk faxes.  With the rise of social media and mobile marketing, they have increasingly applied the TCPA to text messages and cell phone calls.  This effort has largely been successful; a number of courts have already said that text messages and cell phone marketing are covered by the TCPA.

In fact, current technology available on almost every computer or smart device permits a company’s marketing person to send literally hundreds of thousands of text messages or faxes at the push of a button, creating hundreds of millions of dollars of potential exposure to a class action.  Thus, a company may suddenly and inadvertently create potentially fatal exposure for itself.

The key to successfully avoiding disastrous TCPA exposure is avoidance.  Here are a few suggestions for minimizing the chances of a TCPA lawsuit:

  • Internal Policies.  Review your internal marketing policies.  Your company’s policies should clearly prohibit the sending of faxes or texts, or making robocalls, unless they meet specific criteria.  Somewhat different rules apply to fax machines and cell phones.

    • Faxes.  While faxes must be an advertisement to be caused by the TCPA, both class plaintiffs’ attorneys and the FCC have taken a broad view of what constitutes advertising and, thus, anything that arguably promotes a business or service, even indirectly, creates exposure.  Also, the plaintiff must claim that the fax is unsolicited, but this is often a disputed factual question to be resolved at trial.  While some defenses exist for alleged junk faxes, including the existence of an existing business relationship, faxes must meet very specific permission and notice requirements to qualify for the defenses.

    • Texts and cell phone calls.  Texts present an even tougher situation than faxes for several reasons.  First, liability is not limited to advertisements.  In fact, almost any text to cell phone without the recipient’s permission can be a violation.  Calls to a cell phone are also likely violations, although questions arise concerning how the call was made.  Second, new FCC rules require that the permission be express and in writing (although an e-signature can be sufficient).  In short, don’t send texts or make robo calls unless you maintain a record of each recipient’s agreement to receive them from your company.

  • Vendors.  Your company can be liable for the conduct of third parties that market on behalf of your company.  Require your company’s marketing vendors to refrain from sending faxes or texts, or marketing to cell phones, on your behalf unless they, too, meet all of the requirements of your marketing policies.  And, include a contractual requirement for vendors that they indemnify you for any third party claims relating to the marketing, including claims under the TCPA.

  • Customer contracts.  Recent decisions from the U.S. Supreme Court give businesses some powerful weapons against class actions where the businesses have had the opportunity get the customers to agree to terms of use or the like.  Consider including standard language in your contracts with customers that require arbitration of any claims arising from or relating to the relationship with you.  This can also include an agreement that the customer will not pursue relief on a class basis.

  • Insurance.  In 2006, the Illinois Supreme Court found that, under Illinois law, the standard State Farm comprehensive general liability policy provided coverage for TCPA claims as invasions of privacy. (In fact, Schopf & Weiss represented the insured in that case.)  Similar language exists in many other insurance companies’ policies.  Since then, however, most insurance companies have included specific exclusions for TCPA claims in their policy renewals.  However, insurance policies vary and arguments may exist for coverage under other types of policies, such as errors and omissions insurance.  Talk to your company’s coverage attorney or insurance broker to understand your coverages.

  • Legal advice.  Every company’s situation is different.  You should consult with an attorney to review your company’s specific marketing practices and insurance coverage before allowing faxes, texts or cell phone marketing.

Even the most careful companies can find themselves in a lawsuit—after all, anyone with the $400 filing fee can bring a claim.  The key to minimizing the harm of a TCPA class action lawsuit once it has been filed is to quickly assess the case and develop an acceptable exit strategy.   Here are some immediate steps you should consider upon learning that your company has been named in a TCPA class action:

  • Get real.  The potential liability presented by a TCPA class action will come as a shock.  You may respond with anger or disbelief that the seemingly innocuous act of sending text messages or faxes could create such exposure.  Take the time to understand the situation and come to grips with it.  Only then can your company make wise decisions on how to defend the case.  You should also ensure that your company has either stopped the alleged conduct, or reviewed its program to ensure compliance with the TCPA.

  • Preserve the evidence.  The list of fax or cell phone numbers usually exists in electronic form.  Be sure it is preserved in manner that protects the integrity of the list, as well as any metadata such as hidden information about when the file was created and modified.  Any documents evidencing how your company obtained the numbers will also be important, especially any material that could suggest the recipient’s agreement to receive communications from your company.  The failure to preserve documents and electronic files (including emails) creates the risk of a litigation sideshow that only increases your company’s exposure.  Moreover, the existence of documents and electronic files usually helps the defense because the defendant, as a practical matter, bears the burden of showing that the faxes were solicited by the recipient or that the text or call recipients gave their permission.

  • Get copies of all insurance policies.  Depending upon the specific language of the insurance policies and the state law under which they are interpreted, your company may be able to claim coverage.  Multiple years of policies will likely be relevant.  Although more recent comprehensive general liability policies have a TCPA exclusion, such exclusions may not exist in earlier policies that cover the beginning of the period by the lawsuit.  Consider giving early notice of the lawsuit to the insurance companies to avoid an argument by them that they have been prejudiced by late notice.  If you expect insurance companies to pay some or all of a settlement, you will need to involve them in the case early enough for them to understand the facts and participate in any settlement discussions.

  • Consider insurance beyond CGL.  Be sure you or your company’s attorney look at all of your company’s insurance coverage.  While comprehensive general liability coverage is usually the place to start, some errors and omissions policies may also provide coverage, particularly where the class action complaint also names individual officers or “John Does.”

  • Consider others’ culpability.  Although claiming that your vendors told you to send a text is not a defense to a TCPA claim, facts like this may give your company the ability to recoup some or all of the damages and fees it faces.   Identify and gather any agreements your company may have with fax or text vendors, or any marketing firms, to help find funds to defend or settle the case.

  • Consider whether to remove a state court case to federal court.  Depending upon the complaint’s allegations, diversity jurisdiction may exist under the Class Action Fairness Act of 2005 (CAFA).  Some jurisdictions, such as the Seventh Circuit—which includes Illinois—also recognize a defendant’s right to have a TCPA claim heard by the federal court.  Federal court can make available interim appellate review of court’s decision whether to certify a class before the end of the case when an appeal is normally made.  The general rule of thumb is also that federal court reduces the risk of being “home-towned” by a local plaintiff or lawyer.  Your particular state court’s rules, however, may offer some countervailing reasons for choosing to stay put in state court.  Remember that you only have 30 days from service of the complaint in which to move the case to federal court.

  • Investigate the named plaintiff.  Not all named plaintiffs are good representatives.  Many have baggage, such as being a serial class representative, having inappropriate financial relationships with the attorneys, having failed to win representative status in other suits, or, as happened in one case I handled, having criminal convictions.  A court could find that this baggage is sufficient to refuse to permit a class action to proceed.  Moreover, baggage could provide useful leverage in settlement discussions.

  • Consider whether to pursue an early settlement.  Class action plaintiffs’ attorneys may be willing to discuss settlement very early in the case.  Plaintiffs’ attorneys may be motivated by a number of reasons, including avoiding a large investment in the case or the filing of copycat class actions.  However, you will have to be willing to voluntarily share information about the alleged TCPA violations and the size of the class to convince the plaintiffs’ attorneys that a proposed settlement is fair.

  • Get a lawyer.  If your company is sued, it needs a lawyer and it needs one quickly.  The right lawyer for a TCPA case depends on many factors, but should be someone with prior experience defending against TCPA class actions and with whom you feel comfortable.  The lawyer’s rates are important, but should not be the only, or even a top, consideration.  For example, a lawyer’s strategy and efficiency can result in a lawyer with higher rates ultimately costing your company less money, and vice versa.  In discussing the case with a lawyer you may hire, listen for what ideas she has for resolving the case and consider whether she seems to understand your company’s particular situation.  Whomever you choose, start your search as soon as you learn of the case.

Defense strategies for TCPA class actions vary widely based upon the particular allegations and each company’s state of affairs.  Understanding of these matters early and developing strategies to identify an exit strategy can make a large difference in how much harm the case does to a company.

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