Future Supreme Court Ruling in TCPA Action May Affect Case Strategies, Not Compliance

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By Katie W. Johnson

July 2 — The U.S. Supreme Court's ultimate ruling next term in a Telephone Consumer Protection Act putative class action might alter litigation and settlement strategies, but it won't change companies' obligations to comply with its provisions, attorneys interviewed by Bloomberg BNA said.

The Supreme Court recently decided to review findings by the U.S. Court of Appeals for the Ninth Circuit that an offer of judgment to a plaintiff in a TCPA putative class action against marketing company Campbell-Ewald Co. didn't moot either the individual claim or the putative class claims (Campbell-Ewald Co. v. Gomez, U.S., No. 14-857, review granted 5/18/15).

The justices' ruling in this case “will have a material effect on TCPA litigation because the ruling may determine whether a TCPA putative class action case can become moot prior to certification,” Alysa Zeltzer Hutnik, a partner at Kelley Drye & Warren LLP in Washington, said.

The decision may clarify “the proper use” of Fed. R. Civ. P. 68—which allows a defending party to make an offer of judgment—“to end a TCPA litigation before the certification stage and potentially deter plaintiffs’ counsel from bringing these types of cases,” Hutnik said.

“If the Court concludes that such an offer does moot the case, we expect more defendants will seriously consider that option in their strategy to defend such suits,” she added.

Marc J. Rachman, a partner at Davis & Gilbert LLP in New York, said that “whether a rejected Rule 68 offer of full recovery prior to class certification could moot a named plaintiff’s TCPA claim and their ability to certify a class could have a chilling effect on TCPA class actions.”

However, Rachman said the Supreme Court's decision “really won’t have an effect on how companies need to comply with the TCPA.” Instead, “the impact of the ruling will only be on defense strategies once a TCPA class action lawsuit is filed,” he said.

‘Besieged With TCPA Actions.'

Becca J. Wahlquist, a partner at Snell & Wilmer LLP in Los Angeles, said that the impact of the Supreme Court's ruling on businesses could be “enormous” because TCPA lawsuits have expanded into areas that Congress never intended, the cost of defense is high and the law surrounding the TCPA is always changing.

Business should have “another arrow in the quiver,” or the ability to make a Rule 68 offer of judgment, she said.

The TCPA, 47 U.S.C. § 227, makes it unlawful to call a consumer's landline using an artificial or prerecorded voice without his or her prior consent. It also makes it unlawful to use robocalling technology or an automatic telephone dialing system (ATDS) to call a mobile phone number without the called party's prior consent.

TCPA litigation has ballooned in recent years, Melissa Krasnow, a partner at Dorsey & Whitney LLP in Minneapolis, said during a recent Bloomberg BNA webinar.

Wahlquist said TCPA cases often don’t go to trial and typically result in settlements “because the aggregated statutory demands are so scary.” She pointed to Capital One, which agreed to pay $75 million to settle a TCPA class action, “where the number of calls alleged could have involved billions of dollars in statutory damages”.

Litigation under the statute has “hit the tipping point,” Wahlquist said. “Federal courts are being besieged with TCPA actions.” Therefore, she asked, “if a person is being offered everything they can get under Rule 68, why should they be entitled to continue to sue, taking up the resources of the court?”

“I'm not trying to say that people who are doing abusive telemarketing should be getting off scot-free,” she said. However, the “TCPA has become this breeding ground of abusive class action litigation” with “staggering aggregate damages and no damages cap,” she said.

The Federal Communications Commission recently approved a declaratory ruling tightening its rules under the statute. Although the FCC hasn't released the text of the amended rules, practitioners recently told Bloomberg BNA that the rules could result in higher litigation and compliance costs for companies.

Rachman said that “companies that engage in telemarketing efforts and/or that use autodialing or texting technology to communicate with consumers will need to continue to be vigilant in their efforts to comply with the TCPA, especially in light of the upcoming rulings by the FCC that will officially expand the definition of what is an autodialer.”

Rule 68 Offers in TCPA Cases 

Under Fed. R. Civ. P. 68, a defendant can serve the opposing party with an offer of judgment, which the opposing party must accept within 14 days after being served.

The rule “often is used in the context of TCPA litigation because the statutory damage provisions permit a defendant to offer complete monetary relief to the plaintiff and thus terminate the potential exposure resulting from a class action,” Hutnik said. “Making this type of offer early in litigation also enables a defendant to avoid some of the difficult statutory construction issues associated with the TCPA and its related rules.”

The federal courts of appeals are split on whether on an offer that completely satisfies the named plaintiff's claims can moot the class claims, she said.

Navy Recruiting Messages 

In Campbell-Ewald, the U.S. Navy contracted with an outside advertising agency, defendant and petitioner Campbell-Ewald, to develop a mobile marketing campaign to recruit new sailors.

Plaintiff Jose Gomez was the target of one of these messages. On behalf of a proposed class, Gomez sued Campbell-Ewald under the TCPA for sending the recruiting text messages to approximately 100,000 people.

Before a class was certified, Campbell-Ewald attempted to settle the case by offering Gomez $1,503 per unsolicited text message, plus reasonable costs. The company made an offer of judgment pursuant to Rule 68, as well as a separate settlement offer. Gomez didn't accept either offer.

In September 2014, the Ninth Circuit vacated and remanded a district court's grant of summary judgment to Campbell-Ewald. The appellate court found that the offer of judgment didn't moot either the individual claim or the putative class claims.

The court said an “unaccepted offer alone is ‘insufficient' to moot Gomez's claim.” It also said Gomez's rejection of the offer didn't affect his class claims because he did so before he moved for class certification. In addition, the court said the sovereign immunity doctrine was inapplicable to the dispute.

Campbell-Ewald's Petition 

In its petition for a writ of certiorari, Campbell-Ewald said the Ninth Circuit's decision “not only contravenes bedrock Article III principles, but devalues the benefits of settlement and deprives defendants of a critical, and sensible, mechanism for avoiding costly litigation while making plaintiffs whole.”

The company said the TCPA “has become an extortionist weapon in the hands of class action attorneys seeking to extract lucrative attorneys' fees for class-wide settlements.” As a result, it said, many defendants in TCPA cases “have offered plaintiffs complete relief on their individual claims at the outset—before any class is certified—agreeing to make plaintiffs whole for any TCPA violations, while sparing all the costs of protracted litigation.”

In addition to a question on sovereign immunity, Campbell-Ewald asked the Supreme Court to address whether a case becomes moot (1) when the plaintiff receives an offer of complete relief and (2) when the plaintiff has asserted a class claim but receives an offer of complete relief before class certification.

The Chamber of Commerce and the Business Roundtable filed a friend-of-the-court brief in support of the company's petition.

Gomez's Response 

In his brief in opposition to Campbell-Ewald's petition, Gomez said “there is nothing extortionate about seeking to hold a company alleged to be responsible for tens of thousands of violations liable for the damages authorized by Congress.”

“If the liabilities imposed by the TCPA were excessive, Congress could change them, which it has declined to do,” he argued.

“Absent such action, this Court should not allow serial violators to escape suits claiming damages authorized by law for thousands of violations by merely offering to pay a nominal sum for a handful of violations, or to avoid liability altogether by invoking an ‘immunity' unintended by Congress.”

Possible Effects of Ruling 

A Supreme Court ruling in favor of Campbell-Ewald “would give TCPA’s defendants the option of offering full recovery of the named plaintiffs, who often are few in number, for a nominal amount prior to class certification to moot the ability of the named plaintiffs to certify an entire class that typically numbers in the tens of thousands, with potential damages that typically are in the tens of millions, if not more, for the class as a whole,” Rachman said.

Such a ruling would also “place pressure on plaintiff’s counsel to first identify and enlist a large number of named plaintiffs before bringing a TCPA class action in order to ensure that its case was worth pursuing as a class rather than as individual actions,” he said. As a result, it could deter plaintiffs from filing TCPA class actions, he said.

Wahlquist said the primary effect of a ruling in favor of Campbell-Ewald would be on TCPA cases where a company has made minimal contacts with the plaintiff, such as the one text message in this case.

Hutnik said many courts have stayed TCPA class actions after the Supreme Court granted certiorari in Campbell-Ewald. “We expect a similar trend while parties in TCPA suits await this ruling,” she said.

To contact the reporter on this story: Katie W. Johnson in Washington at kjohnson@bna.com

To contact the editor responsible for this story: Donald G. Aplin at daplin@bna.com

The Supreme Court filings in Campbell-Ewald are available at http://www.scotusblog.com/case-files/cases/campbell-ewald-company-v-gomez/.