FYI: Analysis: DC Cir Vacates Key Parts of FCC's 2015 TCPA Order

As previously reported, in the action seeking review of the Federal Communications Commission's 2015 TCPA Order, the U.S. Court of Appeals for the District of Columbia ruled today that:

 

1.  The FCC's ruling as to the types of calling equipment that fall within the TCPA's restrictions would "subject ordinary calls from any conventional smartphone to the Act's coverage, an unreasonably expansive interpretation of the statute."  This portion of the FCC's 2015 TCPA Order was set aside and vacated.

 

2.  The FCC's "approach to calls made to a phone number previously assigned to a person who had given consent but since reassigned to another (nonconsenting) person" -- often referred to as the "one-call safe harbor" -- "is arbitrary and capricious."  This portion of the FCC's 2015 TCPA Order was also vacated.

 

3.  However, the DC Circuit upheld that FCC's 2015 TCPA Order as "to revocation of consent, under which a party may revoke her consent through any reasonable means clearly expressing a desire to receive no further messages from the caller."  This portion of the FCC's 2015 TCPA Order was not vacated.

 

4.  In addition, the DC Circuit also upheld "the scope of the agency's exemption for time-sensitive healthcare calls."  This portion of the FCC's 2015 TCPA Order was not vacated.

 

A copy of the opinion is available at:  Link to Opinion

 

 

Background

 

In July of 2015, the Federal Communications Commission handed down an order that unreasonably expanded the reach of the 1991 Telephone Consumer Protection Act, exposing any business using a telephone to the risk of TCPA liability.

 

The DC Circuit's ruling serves to undo some of the damage caused by the FCC's order.

 

Among the restrictions provided for by the TCPA, the limitations on the use of an "automatic telephone dialing system" were adversely impacted by the 2015 order. The law prohibits the use of such devices to make a call to a cellular telephone number absent "the prior express consent of the called party."

 

The requirements for consent differ depending on the purpose of the call, such as whether the call is made for telemarketing or debt collection. A caller violating the TCPA can be found liable for statutory damages of $500 per call or $1,500 per call if the caller is found to have "willfully or knowingly" violated the Act. When a TCPA claim is asserted as a class action, the potential statutory damages are extraordinary and there is no limitation provided to protect a business from excessive damages.

 

Given the dominance of cellphone usage since the 1991 enactment of the TCPA, businesses and trade associations had petitioned the FCC for rulemaking to define the type of equipment that qualified as an "automatic telephone dialing system" (an "ATDS") so they could tailor their operations accordingly. Instead of laying out rules clarifying what constituted an ATDS, the FCC's order expanded the scope of covered devices.

 

Court Rejects Broad Interpretation of ATDS

 

The DC Circuit's ruling sets aside the FCC's broad interpretation of an ATDS, finding that the 2015 order "would appear to subject ordinary calls from any conventional smartphone to the Act's coverage, an unreasonably expansive interpretation of the statute."

 

One of the most problematic interpretations rejected by the decision was the 2015 order's pronouncement that an ATDS included telephone systems that had the potential capacity to operate as an ATDS, even if the system was not presently used as an autodialer. Under this now rejected interpretation, a business became exposed to TCPA liability if it used a phone that never autodialed but could become an autodialer through the addition of hardware or software, regardless of whether it purchased the additions.

 

In tossing out that interpretation, the Court noted "[i]t is undisputed that essentially any smartphone, with the addition of software, can gain the statutorily enumerated features of an autodialer and thus function as an ATDS," under the FCC's interpretation.

 

Because the FCC's "potentiality" interpretation effectively rendered any smartphone an ATDS, "the statute's restrictions on autodialer calls assume an eyepopping sweep," a sweep the Court concluded was not intended when Congress enacted the TCPA. Specifically, since the FCC's interpretation would encompass so many devices, like a smartphone, the FCC exceeded its authority when it laid out its expansive definition of an ATDS.

 

"It cannot be the case that every uninvited communication from a smartphone infringes federal law, and that nearly every American is a TCPA-violator-in-waiting, if not a violator-in-fact," the Court wrote.

 

The Court's ruling also points to the findings Congress enumerated when it enacted the TCPA, which identified 30,000 businesses actively telemarketing goods and services and "[m]ore than 300,000 solicitors [who] call more than 18,000,000 Americans every day." These findings, the Court reasoned, are informative of the intended breadth of the statute.

 

The FCC's expansive interpretation of what constitutes an ATDS would extend its reach to hundreds of millions of callers and is therefore "incompatible with a statute grounded in concerns about hundreds of thousands of 'solicitors' making 'telemarketing' calls on behalf of tens of thousands of 'businesses.'"

 

Aside from the ridiculously broad scope of what constitutes an ATDS, the Court found fault with other aspects of the 2015 order that failed to provide a "'comprehensible standard' for articulating the applicability of a statutory category." Among the offensive interpretations was the FCC's ambiguous guidance concerning a device's ability to generate random or sequential numbers and then dial those numbers, a component of the TCPA's statutory definition of an ATDS.

 

Noting that the FCC has over time indicated that an ATDS must be able to generate and dial random or sequential numbers, the commission also stated that a device can still be an ATDS even if it lacks such capacity. "So which is it: does a device qualify as an ATDS only if it can generate random or sequential numbers to be dialed, or can it so qualify even if it lacks that capacity?" The FCC, the Court finds, cannot adopt both interpretations.

 

The FCC's 2015 TCPA Order as well as prior FCC orders noted that a "basic function" of an ATDS is the device's capacity to dial without human intervention. But the FCC equivocated here as well, declining to rule that a device is not an ATDS if it lacked the capacity to dial without human intervention. "Those side-by-side propositions are difficult to square," the Court wrote.

 

Another item of ambiguity concerned the FCC's statement that an ATDS' "basic function[]" is the ability to "dial thousands of numbers in a short period of time." The Court criticized the ruling because it too provided "no additional guidance  . . . whether that is a necessary condition, a sufficient condition, a relevant condition even if neither necessary nor sufficient, or something else." The 2015 order also failed to specify what qualified as a "short period of time."

 

Reassigned Numbers – Called Party Remains as Present Subscriber

 

Once a business obtains consent to communicate using an ATDS, the person who provided the consent may cease using that telephone number which is then reassigned to a third party. Businesses that mistakenly call these "reassigned" telephone numbers have found themselves facing TCPA claims. The Court rejected the argument that the caller need only have consent from the party it intended to call. Instead, the decision leaves in place the FCC's interpretation — that consent is needed from the current subscriber to the reassigned number.

 

Reassigned Numbers – One-Call Safe Harbor Vacated

 

The 2015 Order provided that callers dialing a reassigned cellular telephone number for which they had previously received consent could make one call post-reassignment free from liability. The Court rejected this "safe harbor" provision finding the FCC's rationale behind it flawed.

 

The genesis of the one-call safe harbor came from the FCC's "reasonable reliance" approach in construing the requisite "prior express consent" needed to make TCPA compliant calls. In determining whether the caller has received the requisite prior express consent, the FCC considers "the caller's reasonableness in relying on consent." The safe-harbor provision failed, the Court wrote, because the FCC gave no explanation why that reasonable reliance ends after the first call. After all, the called party may not answer the call or even if they do, may not explain that the caller reached a reassigned telephone number.

 

Revocation of Consent – 2015 Order Remains, with Welcome Guidance

 

One troublesome area from the 2015 order remains in place — consumers can continue to revoke consent to receive ATDS calls "at any time and through any reasonable means."

 

But the DC Circuit's ruling notes that the 2015 order does not foreclose the ability of callers to deploy "clearly defined and easy-to-use opt-out methods" for consumers who no longer wish to receive ATDS calls. If the called party is offered these methods, "any effort to sidestep the available methods in favor of idiosyncratic or imaginative revocation requests might well be seen as unreasonable."

 

The Court's guidance can assist businesses in developing procedures to resolve the problems associated with revocation being communicated through nondescript channels.

 

The decision also clarifies that while the 2015 order precludes callers from unilaterally imposing revocation requirements, the FCC conceded that its 2015 order "did not address whether contracting parties can select a particular revocation procedure by mutual agreement."

 

The result, the Court added, is that "[n]othing in the [FCC's] order thus should be understood to speak to parties' ability to agree upon revocation procedures, leaving open the option for the caller and the called party to mutually agree (such as through contract provisions) to a revocation procedure.

 

Healthcare-Related Exemption – No Change

 

The decision keeps in place the exemption for healthcare-related "calls for which there is exigency and that have a healthcare treatment purpose." That exemption does not extend to calls "that include telemarketing, solicitation, or advertising content, or which include accounting, billing, debt-collection, or other financial content."

 

Webinars to Break Down DC Circuit Ruling

 

Next week, Don Maurice of our firm will participate in two webinars discussing the ruling.

 

On March 19 at 2 p.m. ET, AccountsRecovery.net will present a webinar featuring a panel of legal experts to parse the ruling, what it means for the accounts receivable management industry and what its participants should consider as part of their operations.  Please register for the webinar here.

 

On March 22 at 2 p.m. ET, the American Bar Association's Consumer Financial Services Committee will be broadcasting a similar webinar for its members. For information, click here.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320

Fax: (312) 284-4751

Mobile:  (312) 493-0874

Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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From: Ralph T. Wutscher [mailto:rwutscher@mauricewutscher.com]
Sent: Friday, March 16, 2018 11:30 AM
To: Ralph T. Wutscher <rwutscher@mauricewutscher.com>
Subject: FYI: BREAKING NEWS: DC Cir Vacates Key Parts of FCC's 2015 TCPA Order

 

In the action seeking review of the Federal Communications Commission's 2015 TCPA Order, the U.S. Court of Appeals for the District of Columbia ruled today that:

 

1.  The FCC's ruling as to the types of calling equipment that fall within the TCPA's restrictions would "subject ordinary calls from any conventional smartphone to the Act's coverage, an unreasonably expansive interpretation of the statute."  This portion of the FCC's 2015 TCPA Order was set aside and vacated.

 

2.  The FCC's "approach to calls made to a phone number previously assigned to a person who had given consent but since reassigned to another (nonconsenting) person" -- often referred to as the "one-call safe harbor" -- "is arbitrary and capricious."  This portion of the FCC's 2015 TCPA Order was also vacated.

 

3.  However, the DC Circuit upheld that FCC's 2015 TCPA Order as "to revocation of consent, under which a party may revoke her consent through any reasonable means clearly expressing a desire to receive no further messages from the caller."  This portion of the FCC's 2015 TCPA Order was not vacated.

 

4.  In addition, the DC Circuit also upheld "the scope of the agency's exemption for time-sensitive healthcare calls."  This portion of the FCC's 2015 TCPA Order was not vacated.

 

A copy of the opinion is available at:  Link to Opinion

 

We will provide more thorough discussion shortly.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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FYI: BREAKING NEWS: DC Cir Vacates Key Parts of FCC's 2015 TCPA Order

In the action seeking review of the Federal Communications Commission's 2015 TCPA Order, the U.S. Court of Appeals for the District of Columbia ruled today that:

 

1.  The FCC's ruling as to the types of calling equipment that fall within the TCPA's restrictions would "subject ordinary calls from any conventional smartphone to the Act's coverage, an unreasonably expansive interpretation of the statute."  This portion of the FCC's 2015 TCPA Order was set aside and vacated.

 

2.  The FCC's "approach to calls made to a phone number previously assigned to a person who had given consent but since reassigned to another (nonconsenting) person" -- often referred to as the "one-call safe harbor" -- "is arbitrary and capricious."  This portion of the FCC's 2015 TCPA Order was also vacated.

 

3.  However, the DC Circuit upheld that FCC's 2015 TCPA Order as "to revocation of consent, under which a party may revoke her consent through any reasonable means clearly expressing a desire to receive no further messages from the caller."  This portion of the FCC's 2015 TCPA Order was not vacated.

 

4.  In addition, the DC Circuit also upheld "the scope of the agency's exemption for time-sensitive healthcare calls."  This portion of the FCC's 2015 TCPA Order was not vacated.

 

A copy of the opinion is available at:  Link to Opinion

 

We will provide more thorough discussion shortly.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

Alabama   |   California   |   Florida   |   Georgia  |   Illinois   |   Indiana   |   Massachusetts   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Texas   |   Washington, DC   |   Wisconsin

 

 

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FYI: INVITATION: CCFL Chicago 2018 Annual Consumer Financial Services Conference

Please join us at the Annual Consumer Financial Services Conference organized by The Conference on Consumer Finance Law, and hosted at the Loyola University Chicago School of Law.

 

 

REGISTRATION:  http://www.ccflonline.org/conference

(or you can use the attached to register by mail)

 

WHEN:  May 31-June 1, 2018

WHERE:  Chicago, Illinois

CLE:  12.0 CLE Credits to Be Provided, including 1.0 hr of Ethics

PRICE:  $495 before April 14, 2018

 

Please circulate this Invitation to any other people -- inside or outside your firm or company -- whom you think might be interested in attending.

 

 

The Conference will include presentations by 35+ of the best and brightest speakers and practitioners in the country on various topics.

 

We look forward to seeing you!

 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

Alabama   |   California   |   Florida   |   Georgia  |   Illinois   |   Indiana   |   Massachusetts   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Texas   |   Washington, DC   |   Wisconsin

 

 

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FYI: 9th Cir Affirms Dismissal of FCRA Putative Class Action for Lack of Standing

The U.S. Court of Appeals for the Ninth Circuit recently affirmed the dismissal of a consumer's putative class action alleging willful violations of the federal Fair Credit Reporting Act (FCRA) for lack of standing under Spokeo, Inc. v. Robins, 136 S. Ct. 1540 (2016).

 

In so ruling, the Court held that merely printing a credit card receipt without redacting the card's full expiration date did not allege the concrete injury required, where no second receipt existed, the consumer did not lose the receipt, nobody stole the receipt, and nobody stole the consumer's identity. 

 

A copy of the opinion is available at:  Link to Opinion

 

A consumer used his credit card at a parking garage and received a receipt displaying the credit card's full expiration date.  The consumer filed a putative class action lawsuit against the garage alleging willful violation of the FCRA.  Specifically, the consumer alleged that failing to redact the card's full expiration date violated 15 U.S.C. § 1681c(g).

 

The consumer only alleged a statutory violation and the potential for actual injury.  The consumer alleged that his injury was "exposure . . . to identity theft and credit/debit fraud," because he was at "imminent risk" that his "property would be stolen and/or misused by identity thieves."  However, he did not allege that a second receipt existed, that someone stole his receipt, that he lost his receipt, or that anyone stole his identity.  Instead, he claimed that "the risk of harm created in printing the expiration date on the receipt" was a "sufficiently concrete" injury.

 

The garage moved to dismiss the complaint arguing that the consumer lacked Article III standing. The trial court concluded that the consumer only alleged "possible risk of [identity] theft." Following Spokeo, the trial court noted that "[s]omething more is necessary" to allege a concrete injury as not every procedural violation gives rise to standing.  Thus, the trial court granted the motion and dismissed the case with prejudice finding that the consumer did not allege a sufficiently concrete injury to establish standing.

 

This appeal followed.

 

The Ninth Circuit first examined the history of the relevant statutory framework because "the doctrine of standing derives from the case-or-controversy requirement, and because that requirement in turn is grounded in historical practice." Spokeo, 136 S. Ct. at 1549.

 

As you may recall, the Fair and Accurate Credit Transactions Act of 2003 (FACTA) amended the FCRA by limiting printed information on receipts:

 

[N]o person that accepts credit cards or debit cards for the transaction of business shall print more than the last 5 digits of the card number or the expiration date upon any receipt provided to the cardholder at the point of the sale or transaction.

 

115 U.S.C. § 1681c(g). The Ninth Circuit observed that the FCRA provides that "[a]ny person who willfully fails to comply with [that requirement] with respect to any consumer is liable to that consumer" for statutory damages of between $100 and $1,000 per violation or "any actual damages sustained by the consumer," costs and attorney's fees, and potential punitive damages.  See 15 U.S.C. § 1681n.

 

Additionally, since FACTA, Congress enacted the Credit and Debit Card Receipt Clarification Act (Clarification Act), which reiterated that the FCRA prohibits printing "receipts bearing a card's expiration date." Id. However, the Ninth Circuit noted that Congressional findings found "hundreds of lawsuits were filed alleging that the failure to remove the expiration date was a willful violation of the [FCRA] even where the account number was properly truncated," and "[n]one of these lawsuits contained an allegation of harm to any consumer's identity."  Congress also found that "[e]xperts in the field agree that proper truncation of the card number, by itself as required by the [FCRA], regardless of the inclusion of the expiration date, prevents a potential fraudster from perpetrating identity theft or credit card fraud."

 

Thus, the Court noted, the Clarification Act ensures "that consumers suffering from any actual harm to their credit or identity are protected while simultaneously limiting abusive lawsuit." The Clarification Act also provided merchants with a temporary reprieve:  "[A]ny person who printed an expiration date on any receipt . . . between December 4, 2004, and [June 3, 2008]," but otherwise complied with the statute, did not willfully violate the FCRA.

 

The Ninth Circuit next turned to whether the consumer had standing in this case.  As you may recall, standing is "an essential and unchanging part of the case-or-controversy requirement of Article III."  Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1992).  The Ninth Circuit recognized that the appeal turned on whether the consumer alleged a concrete injury in fact.

 

To establish standing, the consumer must allege he (1) suffered an injury in fact, (2) that is fairly traceable to the challenged conduct of the defendant, and (3) that is likely to be redressed by a favorable judicial decision.  Spokeo. 136 S. Ct. at 1547. Further a consumer suffers an injury where there is "an invasion of a legally protected interest" that is "concrete and particularized" and "actual or imminent, not conjectural or hypothetical."  Id. at 1548 (quoting Lujan, 504 U.S. at 560).

 

The Ninth Circuit observed that both Spokeo and this case involved a putative consumer class action alleging willful violations of the FCRA.  In Spokeo, the Supreme Court made clear that "Article III standing requires a concrete injury even in the context of a statutory violation." Id. at 1549. The plaintiff must establish that a concrete injury "actually exist[s]", and that it is "real, and not abstract." Id. at 1548. Intangible harms and a "risk of real harm" can demonstrate a concrete injury. Id. at 1549-50. However, "a bare procedural violation, divorced from any concrete harm," does not "satisfy the injury-in-fact requirement of Article III." Id. at 1549.

 

Thus, "[a] violation of one of the FCRA's procedural requirements may result in no harm" -- for example, "[i]t is difficult to imagine how the dissemination of an incorrect zip code, without more, could work any concrete harm." Id. at 1550. The Supreme Court therefore remanded to resolve "whether the particular procedural violations alleged . . . entail a degree of risk sufficient to meet the concreteness requirement." Id.

 

The Ninth Circuit noted that after Spokeo, two of its sister circuits dismissed identical consumer class actions that alleged violations of the FCRA's credit card expiration date redaction requirement for lack of standing.  See Meyers v. Nicolet Restaurant of De Pere, 843 F.3d 724 (7th Cir. 2016) (consumer's allegations did satisfy the injury-in-fact requirement for Article III standing because printing the receipt did not harm the consumer and the violation did not create any appreciable risk of harm); Crupar-Weinmann v. Paris Baguette America, Inc., 861 F.3d 76 (2d Cir. 2017) (the alleged bare procedural violation did not create a material risk of harm to the underlying concrete interest Congress sought to protect in passing FACTA -- i.e., preventing identity theft and credit card fraud).

 

The Ninth Circuit agreed with its sister courts and found that the consumer failed to allege a concrete injury here. Specifically, the historical practice does not support the consumer's theory of injury because his alleged exposure to identity theft does not have "a close relationship to a harm that has traditionally been regarded as providing a basis for a lawsuit in English or American courts."

 

The Consumer argued that a close historical relationship exists between his claimed injury and privacy torts involving a wrongful disclosure of information.  The Ninth Circuit rejected this argument because the Garage did not disclose the consumer's information to anyone besides the consumer.  Thus, it doesn't matter that "[a]ctions to remedy . . . invasions of privacy . . . have long been heard by American courts, and the right of privacy is recognized by most state" because this case does not involve any such privacy-based injury.  Van Patten, 847 F.3d at 1043.

 

The Ninth Circuit declared that in adopting the FCRA's credit card expiration date requirement, Congress did not "elevat[e] to the status of legally cognizable injuries concrete, de facto injuries that were previously inadequate in law."  Lujan, 504 U.S. at 578. Congress's creating a prohibition "does not mean that a plaintiff automatically satisfies the injury-in-fact requirement" just because "a statute grants [him] a statutory right and purports to authorize [him] to sue to vindicate that right." Id. Thus, the consumer cannot merely allege a FCRA violation "divorced from any concrete harm, and satisfy the injury-in-fact requirement of Article III." Id. 

 

The Ninth Circuit also discerned that Spokeo made it clear that simply because the FCRA authorizes citizen suits and statutory damages, does not mean that allegations of a statutory violation meet the standing requirement. Although, "Congress did not eliminate the FCRA's card expiration date requirement in the Clarification Act," that does not confer standing here because "the Clarification Act's finding that a disclosed expiration date by itself poses minimal risk and the law's temporary elimination of liability for such violations counsel that [the consumer] did not allege a concrete injury."  The Ninth Circuit therefore concluded that "[o]n balance, congressional judgment weighs against" finding standing here.

 

The Ninth Circuit next examined the consumer's claims that his statutory violation by itself establishes concrete harm.  First, the consumer argued that the FCRA creates a "substantive right," and invading this right "is an injury that confers standing." See Eichenberger v. ESPN, Inc., 876 F.3d 979, 982-84 (9th Cir. 2017). Second, the consumer argued that the law at least "establishes a procedural right, the violation of which creates a material risk of harm sufficient to confer standing." The Ninth Circuit rejected both claims.

 

The Court held that the consumer's argument that Congress "created a substantive right that is invaded by a statutory violation" fails because even assuming the substantive right exists, it depends on disclosing a consumer's private financial information to third-parties.  Here, the garage only disclosed the consumer's private information to the consumer, not to any third-party. Thus, the Ninth Circuit held, printing the receipt did not invade any substantive right.

 

The consumer's FCRA procedural violations claim also fails to confer standing, the Court continued, because it does not "entail a degree of risk sufficient to meet the concreteness requirement."  Spokeo, 136 S. Ct. at 1550. Here, Ninth Circuit noted, the consumer did not adequately allege actual harm or a material risk of harm because no other copy of the receipt existed, he did not lose the receipt, nobody stole the receipt, and no thief stole his identity.  The consumer also failed to allege any real risk of harm that was "not conjectural or hypothetical," because he could shred the receipt and eliminate any remaining risk of disclosure. Lujan, 504 U.S. at 560.

 

The Ninth Circuit also held that providing a credit card receipt to the card owner with the expiration date, without more, did not create "any concrete harm." Spokeo, 136 S. Ct. at 1550. Congress found that receipts like the consumers with the expiration date and a truncated credit card number "prevent a potential fraudster from perpetrating identity theft or credit card fraud." 122 Stat. at 1565. The consumer's potential identity theft exposure theory is therefore "too speculative for Article III purposes." See Missouri ex rel. Koster v. Harris, 847 F.3d 646, 654 (9th Cir. 2017) (quoting Lujan, 504 U.S. at 564 n.2).

 

The Ninth Circuit therefore affirmed the trial court's dismissal of the consumer's putative class action for lack of Article III standing.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

Alabama   |   California   |   Florida   |   Georgia  |   Illinois   |   Indiana   |   Massachusetts   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Texas   |   Washington, DC   |   Wisconsin

 

 

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FYI: 10th Cir Rules TCPA Action Not Covered by Insurance Under Colorado Law

The U.S. Court of Appeals for the Tenth Circuit recently affirmed summary judgment in favor of an insurance company, holding that the insurer had no duty to defend and indemnify its insured in a lawsuit alleging that the provider's telemarketing phone calls violated several federal and state laws, because statutory damages and injunctive under the Telephone Consumer Protection Act ("TCPA") are uninsurable penalties --  not damages -- under Colorado law and the insurance policies at issue.

 

A copy of the opinion is available at:  Link to Opinion

 

The federal government and five states sued a national provider and of satellite television, alleging violations of the federal Telemarketing Sales Rule ("TSR") and the TCPA.

 

As you may recall, the TCPA makes it "'unlawful for any person [subject to a limited list of exceptions] … to initiate any telephone call to any residential telephone line using an artificial or prerecorded voice to deliver a message without the prior express consent of the called party.' The TCPA also permits states to 'bring a civil action on behalf of its residents to enjoin such calls, an action to recover for actual monetary loss or receive $500 in damages for each violation, or both such actions.' … For each violation that is committed 'willfully or knowingly,' the statute allows for treble damages up to $1,500."

 

The defendant submitted a claim with its insurer, and the insurer responded that there might be coverage under one of the liability policies it issued, but reserving its right to deny coverage after investigating the claim.

 

The insurer later decided that the defendant "was entitled to coverage and issued a check for $913,650." However, the insurer "later reversed its decision and filed a Complaint for Declaratory Judgment, seeking a declaration that [it] did not have a duty to defend or indemnify [defendant] in the Underlying Lawsuit."

 

The parties filed cross-motions for summary judgment.  The trial court found that the insurer had no duty to defend or indemnify because "the … policies do not provide coverage for any of the claims asserted in the underlying suit."

 

Relying on a 2008 Colorado Supreme Court decision, the trial court held that "the TCPA statutory damages were a penalty and therefore uninsurable under Colorado public policy[,] … that the associated injunctive relief did not qualify as 'damages' under the policies' definition … [and] that [defendant] was in the business of broadcasting and thus precluded from coverage under [one of the policy's] broadcaster exception."  Because there was no duty to defend, there was also no duty to indemnify.

 

On appeal, the Tenth Circuit explained that because the case was based on diversity jurisdiction, "it must apply the substantive law of the forum state[,]" Colorado.

 

The Court reviewed Colorado law governing the interpretation of insurance policies, explaining that "[w]hen resolving an insurer's obligations in an anticipatory declaratory action brought before the conclusion of the underlying dispute, an insurer's duty to defend is determined from the face of the complaint."

     

The Tenth Circuit then analyzed the issue of statutory damages under the TCPA, concluding that "the TCPA's statutory damages are penal under Colorado law and, even if they were otherwise covered under the policies, Colorado's public policy prohibits the insurability of such penalties and bars coverage."

 

The Court reasoned that "[t]he Colorado Supreme Court has held that Colorado public policy prohibits 'insuring intentional or willful wrongful acts … [in order] 'to prevent extending to the insured a license to commit harmful, wanton or malicious acts.' … Specifically, '[t]he public policy of Colorado prohibits an insurance carrier from providing insurance coverage for punitive damages[,] … [which] are intended to punish the defendant for his wrongful acts and to deter similar conduct in the future' rather than compensate the plaintiff."

 

Relying on the Colorado Supreme Court's ruling that statutory damages under the TCPA are not assignable because they are penalties as opposed to assignable compensatory damages, as well as the fact that the plaintiffs in the underlying lawsuit did not ask for actual damages in the complaint's prayer for relief, the Tenth Circuit held that "the provision awarding statutory damages for violating the TCPA is a penalty under Colorado law and uninsurable as a matter of Colorado public policy. Therefore, [the insurer] had no duty to defend [the insured defendant] on these claims."

     

The Tenth Circuit rejected the insured's argument that the trial court's "interpretation of insurable damages as 'actual damages' was improperly narrow because the Colorado Supreme Court has held 'that the ordinary meaning of 'damages' is broad and covers' equitable relief. … Therefore, … the costs of complying with an injunction are insurable damages under the [subject] policies."

 

The Court reasoned that because "[u]nder the plain language of the policies, [the insurer] is obligated to indemnify damages arising from past injuries, not the cost of preventing future violations[,] … the injunctive relief requested by the State Plaintiffs does not constitute 'damages' as defined by the … policies."

 

The Tenth Circuit concluded that, because the statutory damages and injunctive relief requested in the complaint "do not create any possibility that [the insurer] would be obligated to indemnify [defendant], it has no duty to defend."  Accordingly, the trial court's summary judgment in the insurer's favor was affirmed.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
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Email: rwutscher@MauriceWutscher.com

 

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