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Posts Tagged ‘TCPA’

My article for the University of Denver Law Review’s Online Edition entitled Statutory Penalties and Class Actions: Social Justice or Legalized Extortion?  was posted today.  The article discusses potential reforms to address the problem of class actions for statutory penalties giving rise to potentially annihilating liability in cases involving little or no actual harm.  Please check it out.  While you’re there, check out some of the other excellent content on a wide variety of legal topics that the DU Law Review has to offer in its online supplement to its regular print publication.

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Don’t miss the upcoming Strafford webinar on recent developments in TCPA class actions, scheduled for March 20.  My colleague Justin Winquist and I will provide commentary from the defense perspective, while Keith J. Keogh and John G. Watts will offer the plaintiffs’ viewpoint.  For more information about the program and to register, click this link.  Here’s a brief synopsis of the program:

TCPA consumer and privacy class action litigation remains steady following the 2012 milestone U.S. Supreme Court case Mims v. Arrow Financial Services.

The Mims case opened the door for plaintiffs’ attorneys to file TCPA class actions in state or federal court, even where diversity jurisdiction does not exist. Since Mims, defendants have tested state law limitations on federal claims and whether state or federal statutes of limitations defenses apply.

TCPA claims challenging text messages to cellphones are also on the rise, forcing courts to consider how to interpret the Act in light of new technology.

Listen as our authoritative panel of class action attorneys explains the latest trends in telephone and fax advertising under the TCPA, highlighting key issues of federal jurisdiction, state law limitations, and how courts are adapting their decisions to new technology. The panel will provide plaintiff and defense counsel with best practices for litigating in this rapidly-changing area of law.

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My colleagues at BakerHostetler have put together some great content on several class action-related topics recently that readers should find interesting.

First, the Baker Hostetler Class Action Defense Team issued an executive alert today discussing the Supreme Court’s decision to grant certiorari in another case involving class arbitration waivers.  The alert, titled U.S. Supreme Court Considers Arbitration Clauses and Class Actions Next Year, summarizes the issues to be addressed in Oxford Health Plans LLC v. Sutter.  The alert was authored by newly elected Cleveland Partner Ruth E. Hartman and Class Action Defense Team Leader Ernie Vargo.

Another executive alert, titled Recent Trends in Class Actions for Telephone and Fax Solicitation and Advertising, was issued last week by the Privacy and Data Protection and Class Action Defense Teams.   The alert, authored by my colleague in Denver, Justin Winquist, summarizes the latest trends in class action litigation under the Telephone Consumer Protection Act (TCPA).

Finally, my partner Casie Collignon authored a blog post yesterday with an update on the latest in the ongoing saga of Dukes v. Wal-Mart on remand following the U.S. Supreme Court’s decision.  The post is entitled, California District Court Awaits Class Certification Motion in Wal-Mart.

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This is the fifth of what will be six posts summarizing my notes of the six presentations at the ABA’s 16th Annual Class Actions Institute held last month in Chicago.  For more on this excellent conference, see my October 31, November 5, November 6, and November 18 CAB posts.

Session 4 was one of the highlights of the conference for me, as it covered a hot area of class action litigation that has recently become a focus of my own practice and likely a focus for many readers of this blog: privacy class actions.  It was titled “My Kind of Case, Pri-va-cy Claims,” The Hottest New Trend in Class-Action Litigation.  Fred Burnside moderated another excellent panel, which consisted of his partner Stephen M. Rummage, who offered a defense view, Jay Edelson, who offered the plaintiff’s view, and the Honorable James F. Holderman, who offered insights from the bench.

Privacy cases can roughly be broken down into two categories: 1) cases involving alleged negligence, such was when consumer data is stolen or compromised through hacking or theft, and 2) intentional breaches of privacy, such as through the sale of private information for marketing purposes.  The panel covered both types of cases.

Data Breach Cases Arising Out of Alleged Negligence

Much of the early jurisprudence in this area has related to the question of whether a breach of privacy without any financial loss is a cognizable injury sufficient to confer standing on a plaintiff.  In general, many of the federal district courts that have dismissed data breach class actions due to a failure to allege or prove injury have done on Article III standing grounds.  However, there are signs that this tide could be turning.  A specific example is the Eleventh Circuit’s decision in Resnick v. AvMed, Inc., No. 11-13694 (11th Cir. Sept. 5, 2012), in which the court overturned the dismissal of a data breach complaint on the grounds that allegations of actual identity theft resulting from information on a stolen computer was sufficient injury to confer standing. 

The Resnick decision also illustrates a developing theory of relief in data breach cases, which is the theory that a failure to protect customer data amounts to unjust enrichment or breach of an implied contract.  One of the theories in Resnick was that a portion of the health insurance premiums that the plaintiff had paid to the defendant was in exchange for the defendant’s promise to safeguard the plaintiff’s private information and that the defendant would be unjustly enriched by being allowed to keep the full value of the premiums due to its alleged failure to protect the data from theft.  The Eleventh Circuit held, without discussion, that these allegations were sufficient to withstand a motion to dismiss a claim for breach of implied contract or unjust enrichment under Florida law, although it upheld the dismissal of claims for negligence per se and for breach of the covenant of good faith and fair dealing.

In contrast to Resnick is a recent federal district court decision dismissing claims arising out of a Sony Gaming Networks breach (link courtesy of Law360).  The case was largely dismissed under FRCP 12(b)(6) due to the plaintiffs’ inability to allege an injury resulting from the breach.  One key difference between the two cases seems to be the inability of the plaintiffs in the Sony case to allege any identity theft resulting from the breach.  The probability of a dismissal for lack of injury or standing in a data breach class action does appear to be higher where there is no evidence of identity theft or other use of any compromised information.  Similarly, allegations of across-the-class-damages, such as those brought under a breach of contract theory, have fared better than allegations of individualized damages, such as identity theft.   

Intentional Privacy Breach and Statutory Damages Cases

An area creating a unique set of problems is privacy class actions seeking statutory damages, such as class actions seeking damages under the Video Protection Privacy Act, or VPPA.  Several high-profile cases have been filed against Netflix, Best Buy, and others under this statute, which provides for $2,500 per violation in statutory damages. 

The problem for all parties in these types of cases is that the statutory damages, when aggregated over hundreds, thousands, or even millions of consumers, can become crippling to the defendant, making a settlement at even close to the maximum aggregate value of the claims a practical impossibility. 

This creates a problem in settlement approval: how is a court supposed to judge what settlement  amount is reasonable in a case where the damages sought would be crippling if the plaintiff were to win at trial?

The case of Murray v. GMAC Mortgage Corporation, 434 F.3d 948 (7th Cir. 2006) provides a good illustration of this dilemma.  The case involved a potentially crushing recovery of statutory damages under the Fair Credit Reporting Act.  The trial court had declined to approve a settlement that would have resulted in a $3,000 award for the named plaintiff, or three times the maximum statutory damages award, and potentially leaving less than $1 for each of the remaining class members, or less than 1% of the minimum statutory award.  The Seventh Circuit reversed the trial court’s decision, but it punted on the question of what would be a reasonable settlement given the “ruinously high” statutory damages at stake in the case.  The Murray case does seem to stand for the proposition that you can’t just pluck a number out of the air in setting a settlement amount.

A more recent example was the proposed settlement in Fraley v. Facebook, No. No. C 11-1726 RS (N.D. Cal).  An initial settlement proposal that provided for a $10 million cy presaward and no cash payments to class members was rejected in August.  See this link to Order Denying Motion for Preliminary Approval courtesy of consumerwatchdog.org.  In that order, Judge Seeborg made the following observation about the quandary presented in the case:

The issue this presents appears to be a novel one: Can a cy pres-only settlement be justified on the basis that the class size is simply too large for direct monetary relief? Or, notwithstanding the strong policy favoring settlements, are some class actions simply too big to settle? 

Under a revised proposed settlement, each claimant would be entitled to receive up to $10, but if the total claims plus the attorneys’ fee award exceeds the entire $20 million amount available under the settlement, the claims will be reduced pro rata.  If there are so many claims that the per claim amount became less than $5, then the Judge will have discretion to decide to award the funds to a charity as a cy pres award.  Another unique facet of the revised settlement is that Facebook is allowed to challenge the attorneys’ fee amount requested by plaintiffs’ counsel.

The panelists discussed Edelson’s struggle in attempting to bring class actions under the California “Shine the Light” law, which requires companies to disclose to whom they are selling customers’ information.  Edelson said he has lost almost all of those cases, but he is hopeful of a turnaround in the appellate courts.  This let to a broader point about the development of privacy class actions.  New theories have traditionally been unsuccessful at the trial court level, but oftentimes patience and perseverance has paid off for the plaintiffs’ bar.

One common type of privacy-related statutory damages class action is class actions under the Telephone Consumer Protection Act (TCPA), which prohibits unsolicited faxes and automated telephone calls.  Edelson noted that cases under the TCPA are settling for between  $150-400 per unsolicited fax/call.  The statutory damages amount is $500 per unsolicited fax or call, and $1,500 for willful violations.  A trend in TCPA cases, especially in the Ninth Circuit, has been TCPA class actions based on unsolicited text messages.

In general, intentional privacy cases tend to be good certification cases, and the real battles tend to be on the merits.  However, even in statutory damages cases, there can still be defenses to class certification.  Ascertainability of the class can often be an issue.  For example, the question of whether a given class member consented to certain types of direct marketing or the release of private information to third parties can often be an individualized question that prevents class certification. 

A common question that arises in statutory damages cases is whether the named plaintiff must prove some sort of injury to herself and/or members of the putative class in order to recover statutory damages.  In some situations, courts have held that no proof of injury is required at all for the recovery of statutory damages.  There are generally two standing questions 1) is there constitutional standing to sue; and 2) is there statutory standing under the statute on which the claims are based.  One justification that plaintiffs offer for why statutory damages would be awarded without proof of injury is that is provides a means of disgorging ill-gotten gains from the defendant.

Parting Thoughts

The panel offered some good advice for practitioners, including the following kernels of wisdom: 1) Understand that privacy cases strike a particular nerve with both consumers and courts; people don’t like the idea that their private information is being used for an improper purpose(this is an area where plaintiffs’ lawyers often don’t have much difficulty convincing plaintiffs to participate in the legal process); 2) Counsel your clients upfront on privacy issues to avoid the situation where a class action becomes an issue.  2) Keep track of what Jay Edelson is doing to make sure you are up on the latest trends. 

In closing, the panel offered thoughts on the problem of statutory damages being aggregated into excessive damages amounts that a defendant is unlikely to pay in settlement and a court is unlikely to ever award.  If nobody thinks that a plaintiff should get $1 billion for a mere technical statutory violation, then why not change the law to reflect what the plaintiff really be able to recover?  One of the problems in this area is that the techology moves much faster than the legislative process.  Congress is always passing legislation to deal with an old problem.

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On May 1, we received the following comment in response to a post from last May entitled Will AT&T v. Concepcion Really Kill the Consumer Class Action?

Melissa 

It has been almost a year. Could someone tell me, in their opinion, what effect Concepcion has had on consumer class actions over the last 11 months?

According to a recent New York Times article by David Segal titled A Rising Tide Against Class Action Suits, the effect has been significant.  The article cites a report from the consummer advocacy group, Public Citizen, which found 76 opinions relying on Concepcion as a reason to prevent class actions from “moving ahead.”

I have no reason to doubt the accuracy of the number of opinions cited in the Public Citizen report, and there is no doubt that Concepcion has had an impact on class action litigation, both in consumer class actions and in other subject matter areas.  However, I would caution that simply looking at the number of class actions that have been unsuccessful due to class arbitration waivers does not tell the whole story.   Here are a few observations to consider in assessing the impact of Concepcion:

  • Concepcion has not been treated by the lower courts as foreclosing all arguments for declaring an arbitration clause invalid.  A case in point is the Second Circuit’s recent decision in In re Amex III., which relied on the federal common law of arbitrability in declaring a class arbitration waiver invalid.
  • Class action litigation has been on the decline in substantive areas that are not impacted by arbitration clauses, such as in securties class actions.
  • There are many areas of consumer class action litigation that remain unaffected by arbitration clauses because they either involve claims where there may be no contractual relationship between the plaintiff and the defendant, including statutory penalty class actions such as TCPA class actions class actions and certain data privacy class actions, or they involve areas of the law where arbitration clauses are prohibited, including many insurance class actions.  A careful review of the data may show that consumer class action litigation has simply shifted to these areas.
  • Recognizing that arbitration clauses do not necessarily provide a magic talisman against class action litigation and that implementing an overly consumer-friendly arbitration clause may actually encourage litigation, not all companies have rushed to adopt arbitration clauses into their consumer contracts.

In summary, I would say that while Concepcion‘s ban on state laws invalidating arbitration clauses has become an important consideration in litigating consumer class actions, it has not brought about their end.

I’d love to hear what readers have to say about their own perspectives on this issue.  Please feel to comment below.

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One of the hottest substantive areas in consumer class actions these days is litigation under the Telephone Consumer Protection Act (TCPA), 47 U.S .C. § 227, sometimes called the “fax blast” statute, which prohibits unsolicited faxes and automated calls for the purpose of commercial solicitation.  The TCPA has a statutory penalty provision that allows consumers to recover $500 for each violation.  The ability to collect far more in statutory penalties than the actual damages caused by a given violation makes TCPA violations an appealing target for enterprising plaintiffs’ class action lawyers.  The aggregation of thousands of claims together can create huge monetary exposure for defendants and the potential for easy settlements and the large contingent fees that comes with it.  In this way, the TCPA is similar to other laws with statutory penalties, such as the Fair and Accurate Credit Transactions Act of 2003 (FACTA), which provides for statutory penalties against a company that produces credit card receipts with too much information on them.

Although it is a federal statute, the TCPA does not provide for federal court jurisdiction in private actions to enforce it.  TCPA class actions may only be filed in or removed to the federal courts if there is diversity jurisdiction under CAFA

This has naturally given rise to the question of whether state laws limiting class actions, such as § 901(b) of New York’s Civil Practice Law and Rules, which prohibits class actions for claims seeking statutory penalties, are applicable in federal court exercising diversity jurisdiction over TCPA claims.   Before the Supreme Court’s decision in Shady Grove Orthopedic Associates, P.A. v. Allstate Insurance Co., the Second Circuit Court of Appeals said yes.  After the Supreme Court remanded for reconsideration in light of Shady Grove, the Second Circuit said yes again, reasoning that the TCPA’s language allowing private enforcement “if otherwise permitted by the laws or rules of court of a State” gave the states broad power to determine how TCPA actions may be prosecuted within their borders.  The Third Circuit has disagreed with this conclusion, holding that State limitations on class actions do not apply in TCPA class actions filed in the federal courts.  Given the Third Circuit’s view, defendants in at least some jurisdictions may have a strong incentive to oppose federal jurisdiction in TCPA cases.

Another question that arises from the peculiar federalist nature of the TCPA is whether a state or federal statute of limitations applies.  Earlier this week, in Giovanniello v. ALM Media LLC, the Second Circuit answered this question and held that a shorter state law limitations period applied rather than the 4-year federal catchall provision. 

Several recent decisions have highlighted a split among both the state and federal the courts about whether TCPA claims should be permitted to be brought as class actions at all.  Of particular note is the recent decision of the New Jersey Superior Court, Appellate Division in Local Baking Products, Inc. v. Kosher Bagel Munch, Inc., which provides an excellent survey of the various state and federal court decisions on both sides of the issue.  The court in Local Baking Products ultimately decided that class certification of TCPA claims was not appropriate. It reasoned that class actions are not a superior procedure for enforcing the TCPA because Congress had made statutory penalties available so that individuals would be incentivized to pursue vindication of their rights in individual actions in small claims or other state courts.  In addition to lack of superiority, a common reason offered by other courts for rejecting class certification is that the question of whether faxes or calls were authorized is too individualized for common questions to predominate.

Earlier this month, however, the Supreme Court of Kansas upheld a lower court’s decision granting class certification in a TCPA case.  In Critchfield Physical Therapy v. The Taranto Group, Inc., the court rejected both the argument that individual actions in small claims court would be superior to a class action and the argument that the question of consent was too individualized.  In addition, the court rejected the argument that class actions would not be superior in light of the threat that aggregating thousands of individual statutory penalties together could create an “annihilating” judgment against the defendant that would be disproportionate to any harm to the class.  A similar argument had been successful in a FACTA case in California federal court, but later reversed by the Ninth Circuit in Bateman v. American Multi Cinema, Inc.

Meanwhile, while a bill has been introduced in the U.S. house to “modernize” the TCPA by permitting certain informational robo-calls to be made to mobile phones, among other things, the bill would not modify the private enforcement provisions of the statute.

One quandary facing courts and counsel in TCPA class actions is how to give notice to consumers if a class is certified.  Last month, a Madison County, Illinois judge ordered that notice of a class action for unsolicited faxes under the TCPA should be disseminated by. . . 

. . . you guessed it . . .  

fax.

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CABWR is finally back after a three week holiday hiatus!  Here are some blog posts from the week that was that might be of interest to class action practitioners:

Class Action Decisions

CAFA Law Blog discusses a Fifth Circuit Court of Appeals decision addressing jurisdiction under the Class Action Fairness Act (CAFA) before reversing class certification in a case alleging violations of the federal Telephone Consumer Protection Act (TCPA):

Class Action Defense Blog summarizes a California appellate court decision reversing a trial court’s decision to deny certification after concluding that it would be necessary to make a determination on the merits to ascertain class members and evaluate numerosity:

http://classactiondefense.jmbm.com/2009/01/class_action_defense_cases_gha.html

Classified comments on a Florida decision upholding a class certification order where the lack of a hearing transcript left the appellate court with no way to analyze the evidence considered by the trial court in reaching its decision:

http://www.carltonfields.com/classactionblog/blog.aspx?entry=246

Folo comments on an opinion by Seventh Circuit Court of Appeals Judge Richard Posner, who has some harsh words for attorneys for objectors to a class action settlement who sought an attorney fee award for what the Judge did not consider a significant contribution to the outcome of the case:

http://www.folo.us/2008/12/30/this-case-is-finito/

The UCL Practitioner summarizes a Seventh Circuit Court of Appeals decision discussing the removability under CAFA of securities class actions filed under section 22(a) of the Securities Act of 1933:

http://www.uclpractitioner.com/2009/01/7th-circuit-makes-it-harder-for-plaintiffs-to-keep-securities-class-actions-in-state-court.html

Class Action Trends

Drug and Device Law Blog discusses the phenomena of “global coordinating counsel” and its rise from marketing ploy to reality as class action and related procedures become more developed around the world:

http://druganddevicelaw.blogspot.com/2009/01/new-meaning-of-global-coordinating.html

Mass Tort Litigation Blog discusses the “multi-faceted” nature of mass tort litigation in an article that includes a discussion of federal judge Jack Weinstein treating MDL litigation and settlement of pharmaceutical products liability claims as a “quasi-class action”:

http://lawprofessors.typepad.com/mass_tort_litigation/2009/01/todays-14-billi.html

Securities Docket summarizes a Manhattan Institute report on a trend in Louisiana public pension funds serving as lead plaintiffs in securities class actions:

http://www.securitiesdocket.com/2008/12/28/manhattan-institute-finds-la-pension-funds-most-active-lead-plaintiffs-in-securities-cases/

The D&O Diary summarizes the year in securities litigation from 2008…

http://www.dandodiary.com/2009/01/articles/securities-litigation/a-closer-look-at-the-2008-securities-lawsuits/

… and The Race to the Bottom offers observations about the modest nature of the increase in securities class actions in light of the financial crisis:

http://www.theracetothebottom.org/home/the-trend-in-securities-class-action-lawsuits.html

The Daily Insurer discusses a recent report by Seyfert Shaw LLP summarizing trends in employment class action litigation:

http://dailyinsurer.blogspot.com/2009/01/class-action-litigation-analyzed-in-new.html

Class Action Commentary

Point of Law provides an abstract of a student note by James McDonald in Duke Law Journal entitled “Milberg’s Monopoly: Restoring Honesty and Competition to the Plaintiffs’ Bar”:

http://www.pointoflaw.com/archives/2009/01/milbergs-monopo.php

Wage Law discusses claims-made settlements and reversions in wage and hour class actions and whether unclaimed funds escheat to the state:

http://www.californiawagelaw.com/wage_law/2009/01/more-on-reversions-and-claims-made-settlements.html

Pro Football Talk comments on the facts of a class action filed on behalf of retired players against the NFL Players’ Association for for breach of fiduciary duty, which was recently tried to a jury verdict in the retirees’ favor:

http://www.profootballtalk.com/2009/01/13/ruling-in-nflpa-class-action-sheds-light-on-what-the-union-did-allegedly-to-retired-players/

Class Action News

The Complex Litigator reports on the California Supreme Court’s decision to grant review in the wage and hour class action Brinkley v. Public Storage, Inc., Sup. Ct. Case No. S168806:

http://www.thecomplexlitigator.com/2009/01/breaking-news-review-granted-in-brinkley-v-public-storage-inc.html

Class Action Previews. Predictions, and Hopes for 2009

North Carolina Business Litigation Report previews the year ahead for the North Carolina Business Court, including a discussion of class actions:

http://www.ncbusinesslitigationreport.com/2009/01/articles/watching-the-court/the-year-ahead-in-the-north-carolina-business-court/

New look Overlawyered has a post proposing a good idea for a consumer class action that it’s author predicts will be filed by some plaintiffs’ firm in 2009:

http://overlawyered.com/2008/12/a-prediction-for-2009/

Law and More has hopes for “juicy corporate class action litigation” in 2009:

http://lawandmore.typepad.com/law_and_more/2009/01/needed-juicy-corporate-classaction-litigation.html

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