TCPA Connect - August 2016

by Manatt, Phelps & Phillips, LLP
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In This Issue:
  • FCC Issues Report and Order on Budget Act Exemptions
  • Seventh Circuit Rejects Common Fund for TCPA Attorney's Fees
  • Twitter Seeks Ninth Circuit Ruling That It Does Not "Make" Calls
  • Portability Gets a New Home With FCC's Telcordia LNPA Approval

FCC Issues Report and Order on Budget Act Exemptions

On August 11, 2016, the Federal Communications Commission issued a Report and Order implementing Section 301 of the Bipartisan Budget Act of 2015, which amended the Telephone Consumer Protection Act by excepting from the Act's consent requirement robocalls "made solely to collect a debt owed to or guaranteed by the United States." The Budget Act authorized the Commission to "prescribe regulations to implement the amendments made" by Section 301 within nine months of enactment and to adopt rules to "restrict or limit the number and duration" of any wireless calls falling within the exception. As the Order was made public just before this issue of TCPA Connect went to press, we provide here a brief summary of the Order's key provisions and will publish a more detailed analysis of its contents and meaning in our next issue.

In developing its regulations, the FCC recognized that consumers may benefit from calls that can prevent them from falling into "potentially devastating debt," but that restrictions on such calls are necessary to protect against abusive and invasive practices. Specifically, among other protections, the FCC capped the number of permitted calls to wireless numbers at no more than three within a 30-day period and required that consumers have the right to stop such calls at any time. The FCC noted that these rules "implement Congress's mandate to ensure the TCPA does not thwart important calls that can help consumers avoid debt troubles while preserving consumers' ultimate right to determine what calls they wish to receive."

Pursuant to its charge under Section 301, the Commission staff consulted with Department of Treasury staff and other interested agencies in developing a Notice of Proposed Rulemaking that was published on May 6, 2016. Following a public comment period during which tens of thousands of comments were received and considered, the Commission issued the following rules in the Order:

  • Calls may be made by debt collectors when a loan is in delinquency, and by debt servicers following a specific, time-sensitive event affecting the amount or timing of payment due, and in the 30 days before such an event.
  • Consumers have a right to stop the autodialed, artificial-voice, and prerecorded voice servicing and collection calls regarding a federal debt to wireless numbers at any point the consumer wishes.
  • Covered calls may be made by the owner of the debt or its contractor to (1) the wireless telephone number the debtor provided at the time the debt was incurred; (2) a phone number subsequently provided by the debtor to the owner of the debt or its contractor; and (3) a wireless telephone number the owner of the debt or its contractor has obtained from an independent source, provided that the number actually is the debtor's telephone number.

The new rules become effective 60 days following publication in the Federal Register.

Seventh Circuit Rejects Common Fund for TCPA Attorney's Fees

The Seventh Circuit Court of Appeals cracked down on attorney's fees in a Telephone Consumer Protection Act settlement, ruling that class counsel for the plaintiffs were not entitled to fees based on the $4.2 million fund paid for by the defendant, but on the actual number of class members who filed a claim in the action.

Illinois attorney Gregory Turza attempted to find some new clients by sending fax advertisements to accountants. A group of recipients responded with a TCPA suit and the case wound its way up and down the federal court system. In 2013, the Seventh Circuit affirmed a district court ruling that Turza violated the statute and an order that he pay $4.2 million, or $500 for each of his 8,430 faxes, and remanded the case to the lower court to work out the details.

The district court invoked the common fund doctrine, deciding that class counsel would get a third of the total, or about $1.4 million, as compensation for legal services. Cutting the statutory award of $500 per improper fax to $333 per class member, the district court awarded the remaining $167 to class counsel. If some class members failed to cash their checks or could not be tracked down, a second distribution would take place.

If money remained in the fund after counsel received $1.4 million and all members who accepted payments received $500, the remainder would then revert to Turza, the district court said. Both parties appealed and, weighing in on the case again, the Seventh Circuit reversed.

"Turza contends that paying counsel based on the total value of the fund is inappropriate, and he's right," the unanimous three-judge panel wrote. The 2013 Seventh Circuit opinion held that the action was based on discrete injuries suffered by each recipient of the faxes and did not create a common fund.

"We thought then, and think now, that suits under the Telephone Consumer Protection Act seek recovery for discrete wrongs to the recipients," the court emphasized.

The American Rule for the allocation of attorney's fees requires that litigants cover their own legal costs, the panel explained, and the TCPA is not a fee-shifting statute. The members of the class must pay their lawyers and none of the class members objected to a third of the recovery as an excessive fee.

"This means that, of each $500 in damages for a given fax, counsel are entitled to about $167, and the fax recipient gets the rest," the panel wrote. "But if a given recipient cannot be located, or spurns the money, counsel is not entitled to be paid for that fax. The district judge held that Turza gets the money back, and awarding counsel $167 per fax when the class member gets nothing would be equivalent to treating the Act as a fee-shifting statute and requiring Turza to pay the class's attorneys just because he lost the suit."

The second round of distribution ordered by the district court would also be inconsistent with the American Rule on the allocation, the Seventh Circuit found. "The statute authorizes a maximum award of $500 per fax, out of which counsel must be paid," the panel said. "Given the district court's conclusion that Turza is entitled to the return of the excess in the fund … distributing more than $500 per fax ($333 to the recipient and $167 to counsel) would either exceed the statutory cap or effectively shift the class's legal fees to Turza."

To read the decision in Holtzman v. Turza, click here.

Why it matters: The Seventh Circuit's decision demonstrates increased judicial scrutiny of attorney's fee awards in consumer class actions, a welcome trend for defendants in TCPA litigation. The panel was clear that because class members suffered a discrete loss, to award attorney's fees based on anything other than the number of class members that actually recover from that loss would conflict with the American Rule for the allocation of attorney's fees.

Twitter Seeks Ninth Circuit Ruling That It Does Not "Make" Calls

After losing a round in a California district court, Twitter has appealed to the Ninth Circuit Court of Appeals from a ruling in a Telephone Consumer Protection Act case leaving the social network on the hook for unwanted text messages.

Beverly Nunes sued the social media microsite in 2014 after she purchased a new cell phone and began receiving texts from Twitter. The prior owner of the phone number had subscribed to receive specific notifications from various tweeters via text and Twitter continued to send them to Nunes after the number was reassigned.

Twitter mounted a two-pronged defense in its motion for summary judgment: first, that it was not the "maker" of the texts under the TCPA, and second, that it was immunized from liability under the Communications Decency Act (CDA). In declaring both of the arguments "wrong," U.S. District Court Judge Vince Chhabria granted summary judgment in favor of Nunes.

The defendant's contention that it does not "make" the tweets at issue is contrary to the language of the statute, the ordinary meaning of the word "make," and the purpose behind the TCPA, the court said. "The statute says it is unlawful 'to make any call' to a cell phone using an 'automatic telephone dialing system' without 'the prior express consent' of the recipient of the call," the court explained. "In the circumstances presented by this case, Twitter is the only conceivable 'maker' of any of these calls."

Twitter is the one alleged to have used an ATDS to send the text messages to the recipient and "is the actual sender of the text," Judge Chhabria wrote. The author of the tweet "cannot possibly" be the maker of the call, because under Twitter's default setting, the author does not control who may sign up to receive his or her tweets and is not involved in the mechanics of actually transmitting any text messages.

The defendant posited that the former owner of the phone number who signed up to receive tweets was the "maker" of the text messages to that number in the future. Twitter argued that by signing up to receive tweets via text message, the former owner "initiated" all text messages sent by the social networking site, relying upon a 1991 ruling from the Federal Communications Commission that used the word "initiate" in certain instances to refer to "making" a call.

"But the FCC's ruling contemplates merely that a person can be deemed to have 'made' or ('initiated') a call if he was heavily involved in the 'placing' of a 'specific' call," the court said. "There is no suggestion that a person can be the 'maker' of the call if he merely signed up to receive any unspecified number of calls in the future, and as previously noted, such an interpretation would be contrary to the plain meaning of the statute."

Judge Chhabria distinguished an FCC ruling on group messaging services, finding that in contrast to that app, where the user invites people to sign up for the service, "the new owner of a recycled number is receiving tweets via text message [but] the former owner of the number is not 'placing' any 'specific' calls to her. He can't be, because he likely doesn't know when (or even if) the person whose tweets he signed up to receive via text message will compose a tweet. Nor does he know, once he relinquishes his number, to whom (if anyone) new text messages will be sent."

Consideration of the goals and purposes of the TCPA only weakened Twitter's argument even more, the court added, particularly in the wake of the FCC's 2015 Declaratory Ruling finding that the caller—and not the wireless recipient of the call—bears the risk that the call was made without the prior express consent required under the statute.

"It may be true, as Twitter argues, that it's presently difficult or impossible for companies to detect when they are sending out texts to people with recycled numbers," the judge wrote. "But as the FCC noted, there are apparently many steps businesses can take to identify reassigned numbers. And if Twitter's proposed interpretation of 'make any call' were to prevail, the owners of recycled numbers who receive unwanted tweets via text message would have no protection under the TCPA. That conclusion, in addition to being contrary to the text of the statute, would be in sharp tension with the FCC's 2015 decision about how to implement the TCPA when recycled numbers are involved, and its discussion of how the statute's purposes should be effectuated."

The court also determined that the CDA does not shield Twitter from potential liability under the TCPA, as the site does not review or edit the content of the tweets or make decisions about whether to send out a tweet.

"Nunes' claim against Twitter under the TCPA does not depend on the content of any tweet, or on any assertion that Twitter is required to sift through content to make sure the content is not bad," Judge Chhabria said. "Just the opposite—if Twitter ends up being liable under the TCPA, it would be liable whether the content of the unwanted tweets is bad or good, harmful or harmless. Either way, the unwanted tweet is a nuisance."

Twitter quickly responded with a motion to certify Judge Chhabria's order for interlocutory appeal to the Ninth Circuit, arguing that the ruling involved a controlling question of law on the proper interpretation of the FCC's 2015 Ruling on a matter about which reasonable jurists could disagree and have disagreed.

"Several courts have already rejected claims against online services similarly situated to Twitter, on the grounds that a service that transmits user-directed messages does not initiate them within the meaning of the FCC order," the company wrote in its motion for certification, citing decisions from courts in California, Illinois, and Florida.

These other courts read the FCC Ruling as making the determination whether an intermediary service makes or initiates the text messages it transmits turning on factors identified by the agency, such as whether the service or its user determined whether, when, and to whom the messages would be sent, and who supplied the content, Twitter told the court. "These courts did not consider the identity of the recipient of a text message relevant to the question of who initiated the text message."

To read the order in Nunes v. Twitter, Inc., click here.

To read Twitter's motion for certification to appeal the order, click here.

Why it matters: The district court took particular issue with Twitter's stance that the ruling would leave the company no choice but to stop sending its text messages. "The implication seemed to be that this result would be unbearable," Judge Chhabria wrote. "[I]t's unclear why the desire to send alerts by text message (rather than email, or push notification through an app) should prevail over the TCPA's goal of protecting people with recycled numbers from receiving unwanted texts sent by companies using autodialers." In its motion for certification, Twitter noted that the issue is already pending before the Ninth Circuit, suggesting that the federal appellate court combine its case with the other "to ensure that the Ninth Circuit considers the meaning of the FCC Order comprehensively, with a broader appreciation of the scope of the precedent." The issue "is vital given the ever-growing number of modern communications technologies, and the explosion of TCPA litigation nationwide," Twitter added.

Portability Gets a New Home With FCC's Telcordia LNPA Approval

The Federal Communications Commission has signed off on Telcordia Technologies (doing business as iconectiv) to serve as the Local Number Portability Administrator (LNPA), acting on the recommendation of the North American Numbering Council (NANC).

The company is now officially tasked with oversight of the system that permits both consumers and businesses to keep their phone numbers when they switch providers.

To achieve the position, Telcordia had to satisfy the agency that the company can ensure "reliability, security, and competitive neutrality" of the numbering system. The FCC found that the applicable contract terms supported effective public safety services, law enforcement, and national security operations, were backed by an audit program and enforcement tools, and had Telcordia's promise that it will be an impartial LNPA.

The full NANC membership unanimously (with two abstentions) recommended the selection of Telcordia as the sole LNPA for a period of five years, with the option for two one-year extensions, after Telcordia and previous LNPA Neustar submitted bids. Finding Telcordia to be "qualified, technically acceptable, and with the requisite operation experience" to serve as the LNPA, the Commission granted preliminary approval of the assignment last May, subject to certain conditions.

Having met those conditions—negotiating a contract with the North American Portability Management (NAPM) and developing a transition plan, among others—the FCC granted its final approval.

"[T]he parties incorporated our key expectations of actions and processes into the security provisions of the LNPA contract and Telcordia developed security-related plans tracking these actions and processes in documents that are appended to the LNPA contract," the Commission wrote. "As Telcordia progresses from code development, to testing, to initial operations, and then sustainment, its security actions and processes will evolve—with a baseline set by the LNPA contract. Throughout the course of the contract, the Commission will continue its oversight rule and consult when appropriate with our federal partners to ensure that public safety, law enforcement, and national security issues are addressed to our satisfaction."

Particular attention will be paid to issues such as supply chain risk management, insider threats, cybersecurity, business continuity and disaster recovery plans, and foreign control, the FCC said. While Telcordia is a wholly owned subsidiary of Swedish corporation Ericsson, "adequate restrictions are in place to avoid the possibility of foreign control of U.S. critical infrastructure and systems," the FCC wrote.

For example, the contract's neutrality provisions require Telcordia to operate independently from intrusions by its corporate parent, and the contract provides that any member of the Board of Directors who is not a U.S. citizen shall not participate in security-related discussions or communications.

As for neutrality, the Commission required that Ericsson transfer all of its voting stock in Telcordia to a voting trust administered by two unaffiliated trustees appointed by Ericsson prior to executing the LNPA contract. Further, no Telcordia employee who is directly involved in core LNPA activities may own any Ericsson stock, the FCC said.

The Commission also addressed a motion filed by Neustar to order Telcordia to show cause why it should not be disqualified from selection as the LNPA, arguing that Telcordia made a material misrepresentation during the selection process by working on source code using non-U.S. citizens.

Neustar failed to demonstrate an intent to deceive on the part of Telcordia, the FCC wrote, because the work was performed before the deal was reached. Once the contract terms were in place, requiring that only U.S. citizens have knowledge of the code, Telcordia "re-commenced writing the code from scratch," the agency said. "Against this backdrop, we are not persuaded that Telcordia intentionally misled the Commission."

To read the FCC's order in In the Matter of Telcordia Technologies, click here.

Why it matters: While the FCC granted the final order approving Telcordia as the next LNPA, the decision was not unanimous. Commissioner Michael O'Rielly dissented in part, expressing his frustration with the process and proceedings, including what he perceived as a lack of transparency and that the agency was asked to sign off on a contract without giving the FCC the chance to provide input on its terms and conditions. Commissioner Ajit Pai filed a statement concurring with the order, but also expressing his unhappiness with the delays in the process and the cost to consumers. With regard to the latter, Telcordia's promised discount over Neustar was the deciding factor for Pai to vote in favor of preliminary approval of the deal—a savings that will not be realized due to time and cost overruns. "And yet, we cannot recapture the savings we were promised last year, and so I reluctantly agree that we must move forward and accordingly vote to concur," he wrote.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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