TCPA Connect - September 2014

by Manatt, Phelps & Phillips, LLP

In This Issue:

  • Complimentary TCPA Update Webinar: The Year in Review and What Lies Ahead
  • Illinois Court Refuses Coverage for TCPA Settlement
  • Court Allows Counterclaim by TCPA Defendant

Complimentary TCPA Update Webinar: The Year in Review and What Lies Ahead

One year has passed since the implementation of the Federal Communication Commission’s revised Telephone Consumer Protection Act (TCPA) rules. To mark this anniversary, Manatt, Phelps & Phillips, LLP and Bloomberg BNA invite you to join us for a complimentary webinar on October 16, 2014 that will address important legal and case law developments, highlight enforcement trends and discuss solutions that will help you remain ahead of the curve in meeting TCPA challenges.

Marc Roth and Donna Wilson, co-chairs of Manatt’s TCPA Compliance and Class Action Defense Group, and moderator Katie Johnson, legal editor on Bloomberg BNA’s Privacy & Security Law Report, will survey important and trending TCPA developments over the past year and provide practical guidance for the future. 

Topics to be covered include:

  • FCC Activity – There are currently dozens of petitions regarding the TCPA awaiting disposition at the FCC. How the agency decides will have a significant impact on future litigation and enforcement proceedings. Although the agency has responded to a handful of petitions, the backlog is staggering, causing one FCC commissioner to publicly express concern with companies asking the government to bless their business decisions in order to avoid litigation.
  • Explosion of TCPA Class Actions – More TCPA class actions were filed in 2013 than in any other year. But, surprisingly, most have not alleged violations of the 2013 FCC rules. Why is this, and what are the hot topics being addressed by the courts?
  • Vicarious Liability – Companies that hire vendors and others to communicate with prospects on their behalf cannot always hide their heads in the sand to avoid liability for the bad acts of their agents. The FCC has opined that companies may be vicariously liable under common law for the acts of others if they direct and control such acts. Yet some courts have allowed corporate parents to escape liability for franchisees’ bad acts.
  • “Capacity” – The TCPA “word of the year.” Circuit courts are split on whether the TCPA applies to a device that is not used to place autodialed calls but has the “capacity” or ability to do so. The FCC also has several petitions before it seeking clarification on this issue.
  • Liability Exposure and Settlements – Two national banks recently agreed to pay $34 million and $75 million, respectively, to settle TCPA cases, which calls into question whether reasonable settlement ceilings still exist.
  • Revoking Consent – Can consumers revoke their consent to receive calls and text messages? If so, can revocation be oral, or must it be in writing?

These and other important topics, such as whether a consumer’s voluntary provision of his or her mobile number satisfies the TCPA’s “express consent” requirement and whether service providers can be held liable under the TCPA, will be discussed.

Educational objectives:

Given the significant financial risks for violating the TCPA, as evidenced by recent record-breaking settlements in the tens of millions, companies in all industries that communicate with consumers and businesses via mobile phone, text message, facsimile or pre-recorded messages must stay on top of important trends. Participants will:

  • Understand recent developments in TCPA legislation;
  • Learn tips to remain compliant with the TCPA’s regulations; and
  • Avoid pitfalls that await the unwary.

Who would benefit most from attending this program?

This program is designed for counsel and risk management executives in all industries who are responsible for legal and regulatory compliance. No industry is exempt from the TCPA’s coverage – it applies to companies in all business categories, including banking, insurance, travel, healthcare, professional sports, entertainment, consumer products and even business-to-business communications. Counsel advising these companies as well as privacy and data security practitioners would all benefit from attending.

This no-cost, live webinar will be held on Thursday, October 16, 2014 at 3:00 – 4:30 p.m. ET. For more information or to register for the program, click here.

Illinois Court Refuses Coverage for TCPA Settlement

A policy exclusion prevented an insured from receiving coverage for an underlying Telephone Consumer Protection Act lawsuit in which it was obligated to pay damages, even after the plaintiff amended the complaint to exclude references to the statute, an Illinois appellate court recently determined.

G.M. Sign sued Michael Schane and his company, Academy Engraving Company, for sending unsolicited fax advertisements. The class action complaint sought statutory damages under the TCPA and contained three counts, including a violation of the statute.

G.M. Sign and Schane reached a settlement agreement, which noted that Schane faxed a total of 49,825 ads to class members during the defined class period and that a finding of statutory liability based on the number of faxes (roughly $25 million) would bankrupt him. The parties agreed to a judgment of $4.9 million that would presumably be satisfied from the State Farm insurance policy.

Schane tendered the settlement to his business insurer, State Farm Fire and Casualty Co. The insurer refused to provide coverage, pointing to Endorsement FE-6655: “This insurance does not apply to: Bodily injury, property damage, personal injury, or advertising injury arising directly or indirectly out of any action or omission that violates or is alleged to violate The Telephone Consumer Protection Act.”

G.M. Sign responded by filing an amended complaint that contained the same allegations as the original but contained no references to the TCPA and tweaked the language used from “faxed advertisements” to “unsolicited facsimile.”

When the amended complaint was tendered to State Farm, the insurer again denied coverage and G.M. Sign filed a declaratory judgment.

Reversing the trial court that held State Farm responsible for coverage, an Illinois appellate panel held the policy exclusion applied to the underlying litigation and remanded the case to enter judgment for State Farm, freeing it from coverage.

“Although the alternative counts selectively incorporated only those factual allegations that contained no referenced to the TCPA, to the faxes being advertisements, or to the lack of any established business relationships between Schane and the class members, they nevertheless were based on the same facts as the TCPA count,” the court wrote.

The vagueness of the amended complaint did not bring the action under the scope of coverage, the panel added. “G.M. Sign argues nothing more than it should be allowed to avoid application of the policy exclusion by deliberately and strategically leaving its complaint so bereft of factual allegations that myriad unpleaded scenarios could fall within its scope,” the court said. “Here, because it did not contain any factual allegations of faxes other than those that violated the TCPA, G.M. Sign’s amended complaint did not trigger State Farm’s duty to defend.”

With the policy exclusion in force, State Farm had no duty to defend or indemnify Schane in the underlying suit, the court concluded.

To read the opinion in G.M. Sign v. State Farm, click here.

Why it matters: The Illinois appellate court also frowned upon G.M. Sign’s litigation tactics in its efforts to garner coverage under the policy. “Having obtained the benefit of its settlement agreement in the underlying litigation by taking the position that Schane sent unsolicited fax advertisements in violation of the TCPA, G.M. Sign should not now be permitted to argue that State Farm owed a duty to defend Schane because its amended complaint potentially included faxes that fell outside of the TCPA,” the court said. “We doubt whether, under these circumstances, any amended complaint could have triggered State Farm’s duty to defend. In essence, G.M. Sign was attempting to re-characterize, at the eleventh hour, the class action that it had already litigated and negotiated to settlement, for purposes of obtaining insurance coverage. This is not a strategy that courts should condone.”

Court Allows Counterclaim by TCPA Defendant

In a victory for a Telephone Consumer Protection Act defendant, a California federal court judge granted the party’s motion to assert a breach of contract counterclaim seeking $22,000 from the plaintiff.

The case involved Cory Horton, who incurred a debt when he purchased a used GMC truck using a credit account with Navy Federal Credit Union. Calvary Portfolio Services purchased the debt and, according to Horton’s TCPA suit, made calls in violation of the statute in an attempt to collect. He filed suit and Calvary sought leave from the court to file an amended answer and counterclaim based on Horton’s outstanding $22,000 debt.

U.S. District Court Judge John A. Houston applied the standard set by the Ninth U.S. Circuit Court of Appeals, and analyzed the potential for undue delay, bad faith, futility, and prejudice to Horton. None of the factors applied, he said.

Although Horton argued the counterclaim was untimely and therefore futile, the court agreed with the defendant that the timeliness issue was a factual inquiry, particularly as Horton did not claim that prejudice would result or undue delay would occur.

Judge Houston also rejected Horton’s contention that the court lacked jurisdiction over the counterclaim. Applying the “logical relationship test,” the court found that the essential facts of the various claims were so logically connected that considerations of judicial economy and fairness dictated the issues be resolved in a single lawsuit.

“This court finds defendant’s proposed counterclaim is compulsory, in that the facts concerning plaintiff’s alleged breach of contract for failure to pay his debt and defendant’s alleged wrongful acts occurring when defendant sought to recover plaintiff’s debt clearly overlap significantly,” Judge Houston wrote. “Thus, this court finds there is a clear logical relationship between the claims, requiring this court to exercise jurisdiction over defendant’s proposed counterclaim.”

To read the order in Horton v. Calvary Portfolio Services, click here.

Why it matters: The addition of the counterclaim opens potential options for Calvary as the litigation continues, provides leverage for a settlement, and potentially complicates any future class claims.

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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