How to Stay off the Hook for TCPA Claims

Many companies use equipment that can dial hundreds, if not thousands, of telephone numbers instantly and automatically. This equipment can also leave pre-recorded messages or, if the call is answered, connect the call with a live operator. Commonly used in the telemarketing, banking and debt-collection industries, this equipment is the only efficient way for companies to communicate with potential and actual customers. Historically, these calls had been made to landlines but, due to the recession and other factors, people have been disconnecting their landlines in record numbers, using only cell phones and sharing their cellular numbers with companies that sell them goods and services. Consequently, more and more calls made by dialer are reaching cell phones.

In response, there has been an outbreak of putative class actions nationwide against companies in different industries alleging that they used this equipment to call cell phones in violation of Telephone Consumer Protection Act (TCPA). Given the sheer number of calls that can be made by these dialers and high penalties under the TCPA, the stakes are high in these cases. For example, Simon & Schuster recently agreed to pay up to $10 million to settle a putative class action by consumers who allegedly received text messages promoting a new Stephen King novel.

Thus, if your company uses hardware or software that dials telephone numbers automatically, provides pre-recorded or automated messages, or hires vendors who use this equipment, you should be aware of the provisions of the TCPA and strategies to prevent litigation.

Enactment and Interpretation Of the TCPA

The TCPA was enacted in 1991 by Congress to respond to a rising chorus of complaints about calls made by telemarketers using dialing equipment and pre-recorded voice technology. Congress concluded that these calls were an invasion of privacy and a nuisance because the calls tied up too many phone lines, making it difficult for the public (and emergency response personnel) to make and receive phone calls. So the TCPA outlawed calls to certain telephone numbers, including cell phone numbers, using an “automatic telephone dialing system,” or an artificial or pre-recorded voice “absent an emergency” or “prior written consent” of the called party. Although the terms “pre-recorded voice” and “artificial voice” are self-explanatory, “automatic telephone dialing system” is a term of art, referring equipment commonly used in the telemarketing industry in 1991. It is defined in the statute as “equipment which has the capacity ' to store or produce telephone numbers to be called, using a random or sequential number generator; and to dial such numbers.”

Although the statute's plain language makes clear that the TCPA was intended to apply only to dialers used by telemarketers that dial telephone numbers randomly or sequentially, the TCPA has since been interpreted to include other forms of dialing equipment. In 2003 and again in 2008, the FCC, which issues regulations interpreting the TCPA, held that the TCPA also applies to “predictive dialers.” These do not dial numbers arbitrarily, like dialers that call numbers randomly or sequentially, but rather call numbers contained in a database. They are used commonly by creditors and collectors to call customers regarding debts. The FCC concluded that, while predictive dialers generally call pre-determined telephone numbers, they have the capacity to dial numbers randomly or sequentially, and can call numbers without human intervention. The FCC also reasoned that the TCPA had to adjust to advancements in technology and that, from the perspective of cell phone users, the invasion of privacy was the same regardless of the type of dialer used to make the calls.

Courts have concluded that equipment that sends text messages can also fall within the TCPA. In the Simon & Schuster case, the federal appeals court in California, quoting a dictionary definition of the word “call,” reasoned that a text message is a call under the TCPA because it is an attempt to communicate by telephone. Like the FCC in the predictive dialer ruling, the court also cited the policy rationale for the implementation of the TCPA, finding that “a voice message or a text message are not distinguishable [from a telephone call] in terms of being an invasion of privacy.” Satterfield v. Simon & Schuster, Inc., (9th Circuit Court of Appeals 2009); see also Abbas v. Selling Source LLC, (2009) (finding text messages to possibly fall within the TCPA if the messages are sent “using equipment with some automated capacity”).

Potential Damages

Under the TCPA, a customer can sue for calls to a cell phone using an automatic telephone dialing system or artificial or pre-recorded voice, and seek $500 for each violation. A court recently held that this $500 per violation is mandatory and cannot be decreased by the court, even if the damages are excessive. Fillichio v. M.R.S. Associates, Inc. (2010). The Fillichio court also held that the $500 penalty applies to each call the defendant attempted even if the plaintiff did not answer the calls or know that the calls had been made. The FCC has indicated, however, that a company may not be liable if the plaintiff is not charged for a call. 7 FCC Rcd 8752 (1992). According to the FCC, a person is charged for a call if it is counted against the customer's “minutes” or the customer is charged for the call afterwards. See, e.g., 18 FCC Rcd 14014 (2003).

The TCPA also states that if a company “willfully or knowingly violated” the law, the court can increase damages to $1,500 a violation. So far, courts are divided on what constitutes a willful or knowing violation. One court held that this merely requires a finding that the calls are “conscious or deliberate ' irrespective of any intent to violate” the TCPA. Sengenberger v. Credit Control Services, Inc. (2010). The court there found treble damages appropriate even though the plaintiff did not establish that the defendant knew the call was made to a cell phone. But the court in Fillichio applied a higher standard of proof, requiring the plaintiff to show that the defendant knew the call was to a cell phone.

Courts have held that, under the TCPA, plaintiffs have no duty to “mitigate their damages.” Thus, plaintiffs can continue to recover at least $500 per call even if they can, but choose not to, demand that the calls stop. In one recent and extreme case, however, a court barred a plaintiff's recovery based on the “assumption of risk” doctrine. In Kinder v. Allied Interstate, Inc., (Cal. 2010), the plaintiff maintained a pager that received an unusually large number of calls using autodialing equipment. The plaintiff disconnected the pager due to the constant calls, but later reconnected it so he could bring lawsuits against the companies that had called him. The court reasoned that the plaintiff had assumed the risk since he knew, when he reconnected his pager, that he would receive calls from an autodialer and had done so only to sue the companies that made the calls.

Make the Right Call and Avoid TCPA Liability

With a company's financial health on the line in these cases, there are specific steps that companies can take inside and outside the courtroom.

One approach is to purchase cell phone “scrubbing software” that identifies cell phone numbers so they are not used by your company's dialers. But use of this software can be overkill in some instances because it removes cell phone numbers that can be called because there is “prior express consent.” The FCC has also stated concerns regarding the accuracy of this software. 18 FCC Rcd 14014 fn. 439 (2003).

If your company is going to call cell phone numbers, ensure there is “prior express consent.” What is required to establish consent depends on the reason for the call. In a ruling favorable to companies and their collection agencies, the FCC ruled that, for calls regarding unpaid debts, a customer has given “prior express consent” simply by disclosing his or her cell phone number to the company owed the debt. So if a consumer provides a cellular phone number in an application or later gives it to a company employee as a contact number, the TCPA requires no further prior express consent. The company and its collection agency can call that customer regarding that debt using an automatic telephone dialing system or a pre-recorded or automated voice.

In other rulings, however, the FCC has held that a customer's call to the company from a cell phone is not consent under the TCPA. Thus, companies that capture incoming phone numbers do not have consent to call those numbers using an automatic telephone dialing system or an artificial or pre-recorded voice. And the ruling allowing calls by creditors and collection agencies does not apply to calls made for other purposes, such as marketing. For those calls, the company should obtain consent from the customer to call his or her cell phone number using automatic telephone dialing systems and pre-recorded or automated voices. Many companies are already doing this at the point of sale, having customers agree to these calls when they apply for a service or pay for a product.

Also be aware of any law particular to your industry that might impact consent. A plaintiff in one TCPA putative class action that involves debt collection calls for unpaid medical bills is arguing that HIPAA barred the release of cell phone numbers by the medical provider to the defendant collection agency. According to that plaintiff, the agency did not have consent under the TCPA to leave pre-recorded messages on his cell phone even though he had voluntarily disclosed his cell phone number to his health care provider.

If there is uncertainty concerning whether equipment a company or its vendor is using is an automatic telephone dialing system, seek a legal opinion. Although the law is developing, an attorney working with knowledgeable IT staff can provide guidance on whether your company is facing potential liability under the TCPA. And if your company uses vendors to provide dialing systems or to call potential or actual customers, request indemnification from the vendor for any consumer lawsuit alleging violations of the TCPA.

Depending on the facts and circumstances, your company may also be allowed by FCC regulations to file a petition with the FCC asking it to rule that the equipment your company uses or how it is used complies with the TCPA. A petition with the FCC is relatively simple to file and a favorable ruling can possibly shield your company from liability.

Finally, if your company is sued, there are defenses to the claim. Confirm that the plaintiff has standing to assert the claims. It may be that the plaintiff is not the account holder for the cell phone, does not pay for the cell phone, and does not use it on a regular basis. Subpoenaing the records of the cell phone company may answer these questions. Analyzing the cell phone records will allow your company to assess the possibility of another defense ' whether the plaintiff was charged for the calls. If not, your company may be able to argue that the plaintiff is not entitled to damages. Perhaps most importantly, ensure your company has all records necessary to establish prior express consent. Under the law and FCC regulations, the defendant, not the plaintiff, has the burden of establishing consent, and consent is a complete defense to liability under the TCPA.

Conclusion

The current wave of TCPA class action litigation is a clear signal that in-house counsel should investigate whether their companies are making calls or sending texts that could land them in court. Taking the above steps could help your company avoid making the wrong call on the TCPA.

David W. Simon is a partner with Foley & Lardner LLP, the Vice Chair of the firm's Litigation Department, and a member of the Government Enforcement, Compliance & White Collar Defense Practice. Associate Rohan Virginkar is a member of the same practice. Associate Matthew G. White is a member of the firm's Business Litigation & Dispute Resolution Practice.

Many companies use equipment that can dial hundreds, if not thousands, of telephone numbers instantly and automatically. This equipment can also leave pre-recorded messages or, if the call is answered, connect the call with a live operator. Commonly used in the telemarketing, banking and debt-collection industries, this equipment is the only efficient way for companies to communicate with potential and actual customers. Historically, these calls had been made to landlines but, due to the recession and other factors, people have been disconnecting their landlines in record numbers, using only cell phones and sharing their cellular numbers with companies that sell them goods and services. Consequently, more and more calls made by dialer are reaching cell phones.

In response, there has been an outbreak of putative class actions nationwide against companies in different industries alleging that they used this equipment to call cell phones in violation of Telephone Consumer Protection Act (TCPA). Given the sheer number of calls that can be made by these dialers and high penalties under the TCPA, the stakes are high in these cases. For example, Simon & Schuster recently agreed to pay up to $10 million to settle a putative class action by consumers who allegedly received text messages promoting a new Stephen King novel.

Thus, if your company uses hardware or software that dials telephone numbers automatically, provides pre-recorded or automated messages, or hires vendors who use this equipment, you should be aware of the provisions of the TCPA and strategies to prevent litigation.

Enactment and Interpretation Of the TCPA

The TCPA was enacted in 1991 by Congress to respond to a rising chorus of complaints about calls made by telemarketers using dialing equipment and pre-recorded voice technology. Congress concluded that these calls were an invasion of privacy and a nuisance because the calls tied up too many phone lines, making it difficult for the public (and emergency response personnel) to make and receive phone calls. So the TCPA outlawed calls to certain telephone numbers, including cell phone numbers, using an “automatic telephone dialing system,” or an artificial or pre-recorded voice “absent an emergency” or “prior written consent” of the called party. Although the terms “pre-recorded voice” and “artificial voice” are self-explanatory, “automatic telephone dialing system” is a term of art, referring equipment commonly used in the telemarketing industry in 1991. It is defined in the statute as “equipment which has the capacity ' to store or produce telephone numbers to be called, using a random or sequential number generator; and to dial such numbers.”

Although the statute's plain language makes clear that the TCPA was intended to apply only to dialers used by telemarketers that dial telephone numbers randomly or sequentially, the TCPA has since been interpreted to include other forms of dialing equipment. In 2003 and again in 2008, the FCC, which issues regulations interpreting the TCPA, held that the TCPA also applies to “predictive dialers.” These do not dial numbers arbitrarily, like dialers that call numbers randomly or sequentially, but rather call numbers contained in a database. They are used commonly by creditors and collectors to call customers regarding debts. The FCC concluded that, while predictive dialers generally call pre-determined telephone numbers, they have the capacity to dial numbers randomly or sequentially, and can call numbers without human intervention. The FCC also reasoned that the TCPA had to adjust to advancements in technology and that, from the perspective of cell phone users, the invasion of privacy was the same regardless of the type of dialer used to make the calls.

Courts have concluded that equipment that sends text messages can also fall within the TCPA. In the Simon & Schuster case, the federal appeals court in California, quoting a dictionary definition of the word “call,” reasoned that a text message is a call under the TCPA because it is an attempt to communicate by telephone. Like the FCC in the predictive dialer ruling, the court also cited the policy rationale for the implementation of the TCPA, finding that “a voice message or a text message are not distinguishable [from a telephone call] in terms of being an invasion of privacy.” Satterfield v. Simon & Schuster, Inc., (9th Circuit Court of Appeals 2009); see also Abbas v. Selling Source LLC, (2009) (finding text messages to possibly fall within the TCPA if the messages are sent “using equipment with some automated capacity”).

Potential Damages

Under the TCPA, a customer can sue for calls to a cell phone using an automatic telephone dialing system or artificial or pre-recorded voice, and seek $500 for each violation. A court recently held that this $500 per violation is mandatory and cannot be decreased by the court, even if the damages are excessive. Fillichio v. M.R.S. Associates, Inc. (2010). The Fillichio court also held that the $500 penalty applies to each call the defendant attempted even if the plaintiff did not answer the calls or know that the calls had been made. The FCC has indicated, however, that a company may not be liable if the plaintiff is not charged for a call. 7 FCC Rcd 8752 (1992). According to the FCC, a person is charged for a call if it is counted against the customer's “minutes” or the customer is charged for the call afterwards. See, e.g., 18 FCC Rcd 14014 (2003).

The TCPA also states that if a company “willfully or knowingly violated” the law, the court can increase damages to $1,500 a violation. So far, courts are divided on what constitutes a willful or knowing violation. One court held that this merely requires a finding that the calls are “conscious or deliberate ' irrespective of any intent to violate” the TCPA. Sengenberger v. Credit Control Services, Inc. (2010). The court there found treble damages appropriate even though the plaintiff did not establish that the defendant knew the call was made to a cell phone. But the court in Fillichio applied a higher standard of proof, requiring the plaintiff to show that the defendant knew the call was to a cell phone.

Courts have held that, under the TCPA, plaintiffs have no duty to “mitigate their damages.” Thus, plaintiffs can continue to recover at least $500 per call even if they can, but choose not to, demand that the calls stop. In one recent and extreme case, however, a court barred a plaintiff's recovery based on the “assumption of risk” doctrine. In Kinder v. Allied Interstate, Inc., (Cal. 2010), the plaintiff maintained a pager that received an unusually large number of calls using autodialing equipment. The plaintiff disconnected the pager due to the constant calls, but later reconnected it so he could bring lawsuits against the companies that had called him. The court reasoned that the plaintiff had assumed the risk since he knew, when he reconnected his pager, that he would receive calls from an autodialer and had done so only to sue the companies that made the calls.

Make the Right Call and Avoid TCPA Liability

With a company's financial health on the line in these cases, there are specific steps that companies can take inside and outside the courtroom.

One approach is to purchase cell phone “scrubbing software” that identifies cell phone numbers so they are not used by your company's dialers. But use of this software can be overkill in some instances because it removes cell phone numbers that can be called because there is “prior express consent.” The FCC has also stated concerns regarding the accuracy of this software. 18 FCC Rcd 14014 fn. 439 (2003).

If your company is going to call cell phone numbers, ensure there is “prior express consent.” What is required to establish consent depends on the reason for the call. In a ruling favorable to companies and their collection agencies, the FCC ruled that, for calls regarding unpaid debts, a customer has given “prior express consent” simply by disclosing his or her cell phone number to the company owed the debt. So if a consumer provides a cellular phone number in an application or later gives it to a company employee as a contact number, the TCPA requires no further prior express consent. The company and its collection agency can call that customer regarding that debt using an automatic telephone dialing system or a pre-recorded or automated voice.

In other rulings, however, the FCC has held that a customer's call to the company from a cell phone is not consent under the TCPA. Thus, companies that capture incoming phone numbers do not have consent to call those numbers using an automatic telephone dialing system or an artificial or pre-recorded voice. And the ruling allowing calls by creditors and collection agencies does not apply to calls made for other purposes, such as marketing. For those calls, the company should obtain consent from the customer to call his or her cell phone number using automatic telephone dialing systems and pre-recorded or automated voices. Many companies are already doing this at the point of sale, having customers agree to these calls when they apply for a service or pay for a product.

Also be aware of any law particular to your industry that might impact consent. A plaintiff in one TCPA putative class action that involves debt collection calls for unpaid medical bills is arguing that HIPAA barred the release of cell phone numbers by the medical provider to the defendant collection agency. According to that plaintiff, the agency did not have consent under the TCPA to leave pre-recorded messages on his cell phone even though he had voluntarily disclosed his cell phone number to his health care provider.

If there is uncertainty concerning whether equipment a company or its vendor is using is an automatic telephone dialing system, seek a legal opinion. Although the law is developing, an attorney working with knowledgeable IT staff can provide guidance on whether your company is facing potential liability under the TCPA. And if your company uses vendors to provide dialing systems or to call potential or actual customers, request indemnification from the vendor for any consumer lawsuit alleging violations of the TCPA.

Depending on the facts and circumstances, your company may also be allowed by FCC regulations to file a petition with the FCC asking it to rule that the equipment your company uses or how it is used complies with the TCPA. A petition with the FCC is relatively simple to file and a favorable ruling can possibly shield your company from liability.

Finally, if your company is sued, there are defenses to the claim. Confirm that the plaintiff has standing to assert the claims. It may be that the plaintiff is not the account holder for the cell phone, does not pay for the cell phone, and does not use it on a regular basis. Subpoenaing the records of the cell phone company may answer these questions. Analyzing the cell phone records will allow your company to assess the possibility of another defense ' whether the plaintiff was charged for the calls. If not, your company may be able to argue that the plaintiff is not entitled to damages. Perhaps most importantly, ensure your company has all records necessary to establish prior express consent. Under the law and FCC regulations, the defendant, not the plaintiff, has the burden of establishing consent, and consent is a complete defense to liability under the TCPA.

Conclusion

The current wave of TCPA class action litigation is a clear signal that in-house counsel should investigate whether their companies are making calls or sending texts that could land them in court. Taking the above steps could help your company avoid making the wrong call on the TCPA.

David W. Simon is a partner with Foley & Lardner LLP, the Vice Chair of the firm's Litigation Department, and a member of the Government Enforcement, Compliance & White Collar Defense Practice. Associate Rohan Virginkar is a member of the same practice. Associate Matthew G. White is a member of the firm's Business Litigation & Dispute Resolution Practice.