TCPA Connect - May 2014

by Manatt, Phelps & Phillips, LLP

In This Issue:

  • New TCPA Class Action Doesn’t Want to Make Friends

  • NFL Team To Pay $3M To Settle TCPA “Excessive Texts” Claims

  • New York Court: Policy Exclusion Eliminates Insurance Coverage for TCPA Suit

  • FCC Issues Positive Rulings on TCPA Express Consent

New TCPA Class Action Doesn’t Want to Make Friends

Ride-sharing company Lyft is facing a putative class action suit for allegedly violating the TCPA by encouraging users to invite their friends to join the service.

Washington resident Kenneth Wright claims in a new federal complaint that he received a text message from Lyft stating: “Jo Ann C. sent you a free Lyft ride worth $25. Claim it at [Web site].” The text – and others presumably sent by the company – forms the basis for Wright’s complaint seeking statutory damages under both the TCPA as well as Washington’s Commercial Electronic Mail Act.

Lyft’s mobile app – which users launch to request a ride – includes an “Invite Friends” feature. When a user selects the “Invite Friends” tab, the app displays a list of all the contact names stored in the user’s mobile device. Users can select specific friends to invite or “Select All” to invite the entire list of stored contacts.

According to the complaint, the invitations are sent by Lyft’s computer systems, not the user’s telephone and cellular service carrier, and effectively transform the app into an automated telephone dialing system. To encourage users to invite friends, Lyft offers them $25 for each individual who downloads the app by using the link included in the invitation and subsequently uses Lyft’s service.

Lyft “caused and otherwise substantially assisted an aggressive marketing campaign which has relied upon this ATDS functionality,” Wright alleged. “Defendant’s system generates commercial advertisements on behalf of the defendant and, in an automated manner, transmits these advertisements as unsolicited . . . text messages to lists of cellular telephone numbers.” Wright said he did not provide Lyft with his phone number or his consent to receive the message.

“The links in these messages were designed and intended by defendant to connect plaintiff and consumers like him to websites through which defendants offered financial incentives calculated to cause consumers to download and install Lyft onto their cellular telephones and to use defendant’s services,” Wright contends, which constituted “unlawful and otherwise wrongful marketing and advertising practices” on the part of Lyft.

Wright asked the court to issue a declaratory judgment which makes clear that Lyft’s conduct was unlawful, grant a permanent injunction enjoining Lyft from engaging in such conduct, certify a nationwide class of recipients of Lyft’s “Invite Friends” text messages, as well as a subclass of Washington residents, and order Lyft to stop using the feature and pay class members statutory damages of at least $500 per violation.

To read the complaint in Wright v. Lyft, Inc., click here.

Why it matters: As the Lyft complaint demonstrates, TCPA class action suits continue to roll in, with class action counsel hardly struggling to find new defendants. Other similar suits include the social networking program Path, which was on the receiving end of three different TCPA class actions last year over an invite-a-friend feature. In a motion to dismiss one of the suits, Path argued that it should not be held liable under the statute because it simply forwarded a message from one of its users, and the text was not an advertisement but “solely an information text.” As the text messages in the Lyft action arguably involve a commercial aspect, that defense may not be available to Lyft.

NFL Team To Pay $3M To Settle TCPA “Excessive Texts” Claims

Recipients of multiple text messages reached a settlement deal with the Buffalo Bills recently, with the professional football team agreeing to pay more than $3 million to end the TCPA suit.

Jerry Wojcik signed up for a text alert service for “up to the minute news and team alerts” about the Bills. The terms and conditions of the service stated that “you will be opted in to receive 3-5 messages per week for a period of 12 months,” with a confirmation message that he would receive “up to 5 msgs/week.”

In his TCPA class action, Wojcik alleged that he was “routinely” sent more than five messages per week and that these excessive texts violated the statute. After more than a year of litigating the case, the parties reached a deal.

The Bills agreed to pay a total of $2,487,745 to the class in the form of debit cards valid at either the Bills’ online retail store or at the official store located at the team’s stadium. Class members will receive an amount based upon the number of overage texts they received: those who received between 1 and 15 extra texts can receive $57.50; debit cards for $65 are available for recipients of 16 to 33 overages; and class members who received more than 33 extra texts can file a claim to get a $75 debit card.

“The class relief is particularly appropriate, as the putative class consists of [Bills] fans,” according to the parties’ joint motion in support of the settlement agreement.

In addition, the team terminated the text service and agreed that if it were recommenced, the Bills would implement safeguards to ensure that it complies with any express limitations placed on the number of text messages transmitted. The Bills also agreed to separately pay for notice and administration fees and $562,500 in counsel fees.

To read the joint settlement motion in Wojcik v. Buffalo Bills, Inc., click here.

To read the order granting preliminary approval to the settlement, click here.

Why it matters: In their quest to obtain express consent from consumers, companies should remember that they can still face a TCPA class action by sending more messages than originally promised. As demonstrated by the Bills’ more than $3 million settlement, a seemingly minor mistake can prove costly.

New York Court: Policy Exclusion Eliminates Insurance Coverage for TCPA Suit

A Telephone Consumer Protection Act defendant was not entitled to coverage under its insurance policy because the policy excluded violations of consumer protection laws, a New York federal court recently held.

Convergys Corporation was named as a defendant in a TCPA lawsuit filed by Nicholas Martin in Illinois federal court. The class action charged that Convergys and a second defendant violated the statute by sending unsolicited autodialed calls to the class members’ cell phones.

A federal district court judge granted preliminary approval of a settlement in January.

Meanwhile, Convergys sought assistance from insurer Beazley, a syndicate of Lloyd’s, London. Although Beazley provided defense coverage, it also filed a declaratory action in New York federal court seeking an order that it was not required to defend the suit or indemnify Convergys for the settlement.

While the policy itself provided coverage for the TCPA, an exclusion took it away, Beazley argued. Exclusion K barred coverage for claims “arising out of or resulting from any actual or alleged . . . violation of consumer protection laws (except for consumer privacy protection laws under Insuring Clause I.C.).”

In response, Convergys pointed to the exclusion’s exception under Insuring Clause I.C.2.(c)(iii), characterizing the underlying suit as a violation of the class members’ privacy rights.

But U.S. District Court Judge Claire R. Kelly concluded that the exclusion – and not the exception to the exclusion – was in force.

“By its plain terms, Exclusion K bars coverage for the Martin action,” she wrote. The class action, “which sought recovery under the TCPA, was a claim ‘[f]or, arising out of or resulting from any actual or alleged . . . violation of consumer protection laws,’ ” as it alleged a violation of the TCPA and sought redress for violation of the statute. “[T]here can be no reasonable difference of opinion that the Martin action was a claim for a violation of a consumer protection law,” the court added.

Convergys’ attempt to rely upon the exception was unsuccessful. Although the court noted that a TCPA complaint could trigger coverage under the policy, the specific complaint filed against the insured in the case at bar did not.

“There is nothing in the Martin complaint that would lead to the conclusion that the class sought to recover for failure to comply with a privacy policy. Nor did the class seek to recover under a privacy policy that provides a person with the ability to opt-in or opt-out of the collection or use of his personally identifiable non-public information,” Judge Kelly wrote. “Both the Martin complaint and the settlement release make clear the Martin action was ‘for’ a violation of a consumer protection law, the TCPA, not for a failure of Convergys to comply with a privacy policy.”

Even assuming that one of Convergys’ privacy policies was violated by the same conduct challenged in the Martin litigation, “there is no genuine dispute that either the complaint, or the settlement was ‘for’ the ‘failure by the insured to comply’ with a privacy policy, let alone any of the specific enumerated parts of a privacy policy to which I.C.2(c) applies,” the court said.

To read the decision in Certain Underwriters at Lloyd’s v. Convergys Corp., click here.

Why it matters: Courts across the country are struggling with the issue of coverage when policyholders are faced with a TCPA suit, a developing area of insurance recovery law. A Missouri Supreme Court recently held that the purpose of the statute is remedial and not punitive, making damages for the suits insurable, while a federal court in Illinois concluded that a policyholder was entitled to indemnification for a $5.8 million settlement. Despite these favorable rulings, policyholders can’t always win, as the Convergys decision demonstrates.

FCC Issues Positive Rulings on TCPA Express Consent

In response to two petitions, the Federal Communications Commission issued rulings addressing the boundaries of express consent under the TCPA.

In the first case, the Cargo Airline Association (a business that works with delivery companies like FedEx) asked the agency to clarify whether the statute’s prior express consent requirement for autodialed or prerecorded calls or texts applies to automated shipment notification messages sent to the cellphones of package recipients.

In an exemption under TCPA Section 227(b)(2)(C) – not a declaratory ruling – the FCC declared that package delivery companies may notify consumers through their mobile device about their packages as long as certain conditions are met.

Specifically, consumers cannot be charged for the notifications and must be given the ability to easily opt out of future messages. Further, the notifications must be “concise,” with texts of 160 characters or less and voicemails one minute or less in length. The notifications must identify the name and contact information of the delivery company and may not include any telemarketing or advertising content. And only one notification per package may be sent with one additional notification for each of the two following attempts to obtain a signature if the first delivery attempt fails.

“[W]e find that these notifications are the types of normal, expected communications the TCPA was not designed to hinder, thus further persuading us that an exemption is warranted,” the FCC wrote. “Taken as a whole, we find that these conditions simultaneously fulfill our statutory obligation to protect consumers’ privacy interest in avoiding unwanted calls while allowing package delivery companies a reasonable time in which to implement opt-out elections.”

In the second petition filed by GroupMe, the FCC said an intermediary can provide express consent for others to take part in a text messaging group. “We clarify that text-based social networks may send administrative texts confirming consumers’ interest in joining such groups without violating the TCPA because, when consumers give express consent to participate in the group, they are the types of expected and desired communications the TCPA was not designed to prohibit, even when that consent is conveyed to the text-based social network by an intermediary.”

GroupMe’s free group text messaging service allows the creation of groups of up to 50 members. A user creates a group and then adds individuals to join. GroupMe sends up to four text messages to each group member with administrative information, such as the identity of the group’s creator, details on how to download the GroupMe app, and instructions on how to opt out of the group.

The FCC noted that commenters on the petition were divided on the issue of intermediary consent, but sided with GroupMe after finding that the TCPA is ambiguous as to how a consumer’s consent to receive an autodialed or prerecorded nonemergency call should be obtained. “While the TCPA plainly requires a caller to obtain such consent, both the text of the TCPA and its legislative history are silent on the method, including by whom, that must be done,” the FCC wrote.

Given that silence, the FCC exercised its discretion to allow intermediary consent. “Congress did not expect the TCPA to be a barrier to normal, expected, and desired business communications,” the agency said. In the context of GroupMe, group organizers already have an established association with the called parties, and the FCC has received very few complaints about the business, which is already in operation.

The agency did add that it will be “vigilant” about watching for complaints about the service and that GroupMe remains liable for TCPA violations if group organizers do not obtain prior express consent from group members. Speaking more generally, the agency noted that “social networks that rely on third-party representations regarding consent remain liable for TCPA violations when a consumer’s consent was not obtained.”

To read the order in In the Matter of Cargo Airline Association, click here.

To read the declaratory ruling in In the Matter of GroupMe, click here.

Why it matters: Companies should be pleased with the FCC’s new orders, both of which adopt a real-life, commonsense approach to the TCPA’s consent requirements for non-commercial messages. Or as Commissioner Michael O’Rielly wrote in a concurring statement, the orders “will provide much needed clarity in an area where uncertainty can inhibit legitimate businesses from offering consumer-friendly applications and services, and can breed litigation. They will also directly benefit consumers by enabling them to receive package delivery notifications they want and expect, and by ensuring that they can take advantage of a service that helps connect groups of friends, families, and colleagues.”

Also noteworthy in Commissioner O’Rielly’s concurring statement is a brief observation about the TCPA’s application to text messages, which should come as pleasant surprise to companies that struggle with the new FCC consent rules for sending commercial text messages. In his statement, Commissioner O’Rielly said “[m]y only hesitation is on the applicability of the TCPA to text messages. The TCPA was enacted in 1991 – before the first text message was ever sent. I was not at the Commission when it decided that the TCPA does apply to text messages, and I may have approached it differently. It would have been better if the Commission had gone back to Congress for clear guidance on the issue.” The statement continued, “I will look for opportunities, like the ones presented here, to ensure that our rules do not stand in the way of innovation and certainty that benefits consumers and businesses alike.”

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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