Arbitrating TCPA Claims: Perhaps the Next Big Thing

by Reed Smith
Contact

A recent decision in California should put a smile on the faces of those who routinely include mandatory arbitration clauses in their commercial contracts with customers, and should put an idea into the minds of those who don’t. Just last week, a federal judge upheld Citibank’s effort to enforce a mandatory arbitration clause contained in a student loan agreement when Craig Smith, the borrower, sued the bank for alleged violations of the Telephone Consumer Protection Act (“TCPA”). Smith v. Citibank, N.A., Case No. SACV 13-00748-CJC (C.D. Calif., June 18, 2013). The case was stayed, pending results of the arbitration.

Earlier, Smith had borrowed money for his education from the bank but, in 2012, had fallen behind in his repayments. Citibank began collection efforts by placing autodialed calls to, and leaving prerecorded messages on, Smith’s cell phone. Smith did not answer the first call he received, but he did answer the next one and, at that time, revoked his consent to receive future calls on his cell phone. He also asked whether calls were being placed by an autodialer and were recorded. He was told “yes,” in response to both questions. Citibank then purportedly called Smith at least 20 more times.

Subsequently, Smith filed a class action in California state court, alleging violations of the TCPA and the state law regulating debt collection practices, claiming that he had suffered emotional distress from the calls. The matter was removed to federal court, where Citibank filed its motion to compel arbitration.

When Smith originally obtained his student loan, he had e-signed an application that directed him to read the entire document, which included a broad agreement to submit to arbitration disputes related to “all aspects of [Smith’s] Account including without limitation the origination, establishment, terms, treatment, operation, handling, billing, servicing, limitations on or termination or acceleration of [Smith’s] Account.” The agreement also forbade any arbitration of class claims and stated it was to be governed by Nevada and federal law.

The court, after explaining the Federal Arbitration Act (“FAA”) and the validity of agreements that contain promises to arbitrate disputes under the FAA, set forth the test for determining whether a dispute must be arbitrated. “In order to determine whether the parties are required to arbitrate their dispute, the court must decide (1) whether a valid agreement to arbitrate exists and, if it does, (2) whether the agreement encompasses the dispute at issue.” Next, the court examined Nevada law, which contains a strong policy favoring arbitration, and concluded that Smith had failed to demonstrate why the arbitration agreement was invalid or unenforceable.

After also noting a strong federal policy in favor of arbitration, the judge then turned to the facts alleged in the complaint and determined that they fell within the scope of the agreement to arbitrate. The court stated as follows:

Mr. Smith’s claims arise out of his failure to make required payments on his loan and Citibank’s efforts to collect the amount owed under the terms of the Note. These claims relate to the terms, treatment, operation, handling, billing, servicing, termination, and acceleration of his account. Given the broad language of the Arbitration Agreement, Mr. Smith’s claims clearly fall within its scope.

This is an important case as it goes against a recent trend that has greatly expanded the range and scope of TCPA litigation. It seems reasonable that Congress initially expected victims of unwanted residential telemarketing or expensive incoming calls to their cell phones to take their claims to small claims court and recover statutory damages not exceeding $1,500 per violation. But, as technology and markets changed, so too did TCPA litigation. Federal courts began to hear TCPA claims that often turned into multimillion-dollar class action suits. And, despite somewhat favorable construction of its TCPA rules by the FCC to accommodate modern dialing and communications technology with business transactions and consumer cell phones, including debt collection efforts, businesses often fail to obtain the necessary consent before autodialing cell phones or sending them text or prerecorded voice messages. As a result, debt collectors often find themselves spending substantial sums of money to defend or settle class action lawsuits.

Any damages that Citibank might have to pay are likely to be small, relatively speaking, even assuming that Smith can prove that 20 calls were made to his cell, using an autodialer/ prerecorded message, after he revoked permission. In that instance, the arbitrator would likely impose, at most, $30,000 in statutory damages ($1,500 for each willful violation times 20 calls made after Smith made the request not to be called anymore). This is obviously far from what could have been awarded in a class action verdict or contained in the settlement of a class action suit. Indeed, enforceable arbitration clauses depriving plaintiffs’ lawyers of the opportunity to bring claims as class actions could undoubtedly change the economic incentives for those lawyers to continue their current love affair with the TCPA. This might be the very “thing” that nervous companies have been looking for.

And, in fact, that “thing” just got a lot bigger, not only because of the Citibank case, but also because of a decision rendered by no less an authority than the U.S. Supreme Court, just two days after Smith v. Citibank was decided. In American Express Co. v. Italian Colors Restaurant, No. 12–133 (June 20, 2013), the Supreme Court upheld the enforceability of mandatory class action and class arbitration waivers in contracts, even in cases involving alleged federal statutory violations where the cost of proceeding in individual arbitration would be prohibitive. Significantly, the American Express case all but forecloses any argument that a class action waiver is unenforceable on the grounds that the high cost of proving a statutory claim on an individual basis effectively deprives plaintiffs of the ability to vindicate their rights under federal statutes, including, presumably, the TCPA.

According to the majority ruling in American Express, courts must “rigorously enforce” arbitration agreements consistent with their terms, even for claims alleging a violation of a federal statute, unless the pro-arbitration mandate of the Federal Arbitration Act has been “overridden by a contrary congressional command.” It is likely that, as with the antitrust statute at issue in American Express, the Court would conclude that the TCPA does “not guarantee an affordable procedural path to the vindication of every claim,” or “evince an intention to preclude a waiver” of class-action procedure. Accordingly, companies wishing to limit TCPA exposure should not only consider including broad mandatory arbitration provisions in their contracts, but should also review those arbitration provisions to make sure that they contain explicit language waiving class action litigation in arbitration proceedings, without going so far as to constitute a prospective waiver of a party’s right to pursue statutory remedies.

Rob Jackson also contributed to this article.

 

Written by:

Reed Smith
Contact
more
less

Reed Smith on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.