Protecting Consumers From Autodials: Can One Text Be a Nuisance?

BACKGROUND

To bring a suit in federal court a plaintiff must have suffered a “concrete and particularized,” as opposed to a speculative, injury. While Congress can enact laws that create statutory injuries that permit citizens to sue, federal courts may still decide that an aggrieved citizen, bringing such a suit, does not have standing as required by Article III of the Constitution.

However, how severe does an injury need to be for it to be “concrete and particular” enough to justify standing? What about a single text message? The Telephone Consumer Protection Act (TCPA) was passed in 1991 to regulate the emerging practice of telemarketing, in which an automatic dialing system or prerecorded voice makes automatic calls to consumers to market products or services. The TCPA also regulates other forms of electronic communication, such as through text messaging and faxing.

ISSUE

Does a defendant have Article III standing under the Telephone Consumer Protection Act even if the alleged injury is a single text message?

THE SPLIT

Circuit courts generally agree that telemarketing text messages are enough to allow a person to sue under the TCPA, but there has emerged a split in judgment on whether a single text message is enough to give rise to a right of action.

The Fifth Circuit

Lucas Cranor made a purchase at an Austin, Texas location of 5 Star Nutrition, and provided his cell phone number to the store while there. Unfortunately, 5 Star used his phone number to send him a string of unsolicited text messages. Cranor filed a lawsuit against 5 Star which was settled out of court. Nonetheless, after the settlement Cranor received a text message from 5 Star promoting a sale. Cranor took his case to court this time and filed a suit against the company in the Western District of Texas, alleging that 5 Star violated the TCPA by sending him a text message using an automatic dialing system without his consent.

The District Court dismissed Cranor’s claim for lack of standing. While the court conceded that text messages can give rise to a claim under the TCPA, it determined that “the single text message here does not constitute [an] injury in fact [because] … a single unwelcome text message will not always involve an intrusion into the privacy of the home in the same way that a voice call to a residential line does.” Cranor appealed to the Fifth Circuit.

 The Fifth Circuit found that Cranor does indeed have standing, and that Congress is “well positioned” to identify harms that meet standing requirements under Article III. The TCPA was passed after consumers, outraged over new barrages of unwanted calls, called on Congress to address the problem. The Circuit Court recognized that unwanted solicitations by phone can be a nuisance, which is a viable claim under the common law, and an invasion of privacy. Cranor indeed brought this action only for one unsolicited text message, but that text was the very harm that Congress was seeking to redress. The Circuit Court then remanded the case back to the district court for proceedings.

The Second, Third, Seventh, and Ninth Circuits

Other circuit courts have heard similar claims. The Ninth, Seventh, and Second Circuits have all heard cases where text messages were alleged to be in violation of the TCPA, and all agreed that spam texts are the very harm the statute tries to prevent. The Third Circuit decided that a single phone call was enough to create standing under the TCPA.

The Eleventh Circuit

 The Eleventh Circuit does not agree that a single text is enough to create standing. The court looked to the congressional record to determine Congress’s legislative intent in creating a right of action under the TCPA, conceding that the TCPA does indeed appear to create a private right of action for certain kinds of text messages. However, Congress has been silent on the issue of text messages as applied to the TCPA. Furthermore, the congressional record shows that one of the major concerns in passing the law was invasion of privacy “within the home.”

The Eleventh Circuit reasoned that in the absence of clear language from Congress indicating that text messages fall under the ambit of the TCPA, and because cell phones are typically used outside of the home, Congress’ objective of protecting the privacy of the home is not necessarily violated through text messages. The court does not go so far as to rule on whether text messages are categorically excluded from causing a right of action under the TCPA but chooses to be cautious in light of the lack of evidence of Congressional intent against such an exclusion.

Moreover, a single text message does not rise to the level of harm typically required of nuisance. “The chirp, buzz, or blink of a cell phone receiving a single text message is more akin to walking down a busy sidewalk and having a flyer briefly waved in one’s face. Annoying, perhaps, but not a basis for invoking the jurisdiction of the federal courts.”

Looking Forward

The outcome of this circuit split is uncertain. The case in Cranor was remanded to the state court, so it might be a while before any decision on the merits reaches back up to the appellate courts. On the other hand, 5 Star may attempt an interlocutory appeal on the issue of standing, since, if the Supreme Court were to find that Cranor didn’t have Article III standing, the need for a district court hearing would be obviated. Furthermore, there have been no proceedings under Salcedo since the decision by the Eleventh Circuit, so that decision does not appear to be heading toward appeal.

Nonetheless, the issue of text message telemarketing has already wound its way up to several of the circuit courts. The problem is common and is likely to arise again. Whether the Supreme Court will ever grant certiorari should a circuit court decision be appealed is unclear, as the issue is not high profile and does not have a defined ideological stake. In the meantime, the circuit split will endure, leaving uncertainty on the scope of this issue in consumer protection.

For further reading on recent Supreme Court consumer protection decisions, see: TransUnion LLC v. Ramirez, 594 U.S. __ (2021).

Fed Up with Autodials: Litigation or Arbitration?

BACKGROUND

Congress passed the Telephone Consumer Protection Act (TCPA) in 1991 to restrict the emerging practice of telemarketing. Telemarketing is the often-unsolicited practice of autodialing individuals to market various products or services in the form of a pre-recorded, automated voice message, and is the subject of frequent consumer complaints. The TCPA imposes limits on telemarketing, including restrictions on times call may be made and maintaining an active do-not-call list; these limits may only be avoided by written consent from the consumer.

ISSUE

Under a wireless services contract that binds consumers to arbitrate any disputes with the providing company and its affiliates, may a satellite television company that became an affiliate of a wireless services provider several years after the signing of such contract compel arbitration when a consumer brings a suit under the Telephone Consumer Protection Act?

THE SPLIT

 In 2020, the Seventh and Fourth Circuit Courts of Appeals both heard cases on the arbitrability of “infinite arbitration clauses” of contracts, a term created by legal scholar David Horton to describe arbitration agreements that use “infinite” language to bind parties to arbitration. Such language attempts to widen the scope of arbitrable disputes as much as possible to those arising anytime and anywhere, regardless of whether such disputes arose from any relationship between the contracting parties. As a result, judges have had to decide how literally to interpret such provisions.

The Ninth Circuit

In 2018, Jeremy Revitch filed a lawsuit against DirecTV for alleged violations of the TCPA after the company repeatedly called him with automated messages advertising cable services. Revitch had never been in contact with DirecTV, had never given consent for such phone calls, and after enduring considerable frustration with the autodialing, attempted to bring a class-action lawsuit against the company on behalf of all similarly-situated consumers.

DirecTV filed a motion to compel arbitration. The company had discovered that in his 2011 contract with wireless services provider AT&T, Revitch had agreed to mandatory arbitration for any disputes arising out of his relationship with AT&T, and with any of AT&T’s “affiliates”. DirecTV had been acquired by AT&T, Inc. in 2015, becoming, along with AT&T Mobility, a subsidiary of that company, making DirecTV and AT&T Mobility, in DirecTV’s affiliates.

Revitch initiated his class-action claim against DirecTV in the United States District Court for the Northern District of California; the district court denied DirecTV’s motion to compel arbitration, holding that the contract between Revitch and AT&T “did not reflect an intent to arbitrate the claim that Revitch asserts against DIRECTV”. DirecTV appealed the ruling to the Ninth Circuit.

Under the Federal Arbitration Act, federal courts do not have the discretion to determine the arbitrability of claims. Federal judges are “limited to determining (1) whether a valid agreement to arbitrate exists, and if it does, (2) whether the agreement encompasses the dispute at issue”, writes Circuit Judge Diarmuid O’Scannlain in Revitch v. DIRECTV, LLC (2020), quoting an earlier case. A judge may only hold that an arbitration clause is not enforceable if the answer to either of these questions is no.

To answer the first question, Judge O’Scannlain turned to California state contract law, relying on a presumption against absurd results to answer in the negative. The California Civil Code stipulates, in §§1636 and 1638 respectively, that contracts are to be interpreted “so as to give effect to the mutual intentions of the parties as it existed at the time of contracting, so far as the same is ascertainable and lawful”, and that “the language of a contract is to govern its interpretation, if the language is clear and explicit, and does not involve an absurdity”. The court said that Revitch could not reasonably have expected that, when he was signing a cell phone services contract with AT&T, that he was entering into an agreement to arbitrate any disputes he may have with any company that affiliates with AT&T years into the future, and as a result, DirecTV is not a party to the contract between Revitch and AT&T.

The Court expressly acknowledged that their decision in Revitch creates a circuit split with the Fourth Circuit:

“[W]e are aware that with our decision today, we are opening a circuit split on this difficult issue: Can anything less than the most explicit “infinite language” in a consumer services agreement bind the consumer to arbitrate any and all disputes with (yet-unknown) corporate entities that might later become affiliated with the service provider—even when neither the entity nor the dispute bear any material relation to the services provided under the initial agreement?”

The dissent in Revitch argued that the canon against absurd results is not appropriate here, and that the plain language of the agreement between Revitch and AT&T dictates that Revitch must arbitrate his claim against DirecTV:

“Nothing in the arbitration clause or in the dictionary definition of the word ‘affiliate’ confers any type of temporal scope to the term so that ‘affiliates’ should be read to refer only to present affiliates. DirecTV is therefore an affiliate within the explicit language of the arbitration clause.”

The Fourth Circuit

The facts in the Fourth Circuit decision of Mey v. DIRECTV, LLC are similar to those in Revitch and, indeed, both cases share the same defendant. In Mey, Diana Mey sued DirecTV for violation of the TCPA when the company solicited Mey by repeatedly calling her cell phone, even though her phone number was listed on the National Do Not Call Registry. DirecTV moved to arbitrate the case because of an arbitration provision Mey signed when entering into a cellular services contract with AT&T.

The Fourth Circuit held that, since DirecTV is unambiguously an affiliate of AT&T, and that the arbitration clause gave no indication that the term “affiliate” had temporal limitations, Mey had signed a contract to arbitrate her disputes with DirecTV. The court pointed to the language of the contract to argue that there were no temporal limitations. For example, the contract used terms such as “successors” and “assigns” in addition to “affiliate”, and the arbitration clause provided for the arbitrability of “claims that may arise after the termination of this [cellular services] Agreement.” The arbitration clause also provided  that “all disputes and claims between us” were to be arbitrated, implying that the contract was intended to cast as wide a net as possible.

In so holding, the Fourth Circuit, similarly to the dissent in Revitch, rejected the idea that the arbitration with DirecTV was an “absurd result” of the contract interpretation. Circuit Judge Rushing, author of the opinion, stated:

“In light of the expansive text of the arbitration agreement, the categories of claims it specifically includes, and the parties’ instruction to interpret its provisions broadly, we must conclude that it is “‘susceptible of an interpretation'” that covers Mey’s TCPA claims… The text of the agreement arguably contemplates arbitration of Mey’s claims, and any ambiguity about whether those claims are included “must be resolved in favor of arbitration.” Indeed, “the presumption in favor of arbitrability is particularly applicable when the arbitration clause is broadly worded,” as it is here.”

LOOKING FORWARD

Revitch voluntarily dismissed his complaints against DirecTV without prejudice. In the case of Mey v. DIRECTV, LLC, the Fourth Circuit remanded the case to the District Court for the Northern District of West Virginia. Because Mey’s attorneys had not argued that the pertinent arbitration clause was “unconscionably overbroad” before her case was appealed to the Fourth Circuit, that issue was left to be litigated again when the case was remanded. The District Court once again denied DirecTV’s arbitration claim. As it currently stands, Mey is able to challenge DirecTV in court rather than through arbitration.

Nonetheless, the issue of infinite arbitration clauses and their interpretability is likely to persist. The dissent in Revitch and the internal disagreements in the Fourth Circuit illustrate that there is not judicial consensus on whether entities like DirecTV may enforce arbitration provisions in which their connection to the underlying agreement is tenuous. Further, corporations are likely to continue the use of infinite arbitration clauses because they perceive that arbitration decisions are less likely to be friendly to consumer suits. As long as contracts continue to contain infinite arbitration clauses, there is likely to be litigation over the enforceability of those clauses.

For further reading, see: https://scholarship.law.upenn.edu/cgi/viewcontent.cgi?article=9691&context=penn_law_review

More Harm Than Good? Considering Pleading Standards in ERISA Duty-of-Prudence Litigation

BACKGROUND

The Employment Retirement Income and Security Act (ERISA) was passed in 1974 to regulate private pension plans. Among other things, ERISA establishes standards of conduct for retirement plan fiduciaries (those who hold a legal relationship of trust with the plan participants), including a duty of prudence.

Wells Fargo’s fraudulent scheme to open fake customer accounts has been well documented and robustly litigated. In addition to consumers and regulators, Wells Fargo has faced legal pressure from many of its own employees. Specifically, Wells Fargo employees brought action against the company for alleged breach of the duty of prudence under ERISA in the management of the company’s 401k retirement plan. Plaintiffs argue that, in failing to disclose the ongoing fraud, Wells Fargo had artificially inflated the value of its own stock and thus the value of the employee retirement accounts which were invested in the company stock.

ISSUE

Could a reasonably prudent fiduciary, who is required under ERISA to manage their plans with “care, skill, prudence, and diligence” under 29 U.S.C. § 1104(a)(1)(B) have concluded that earlier disclosure of fraud would have been more beneficial than harmful to the employees’ stock plan?

THE SPLIT

            The relevant standard for duty of prudence in this case comes from the Supreme Court decision in Fifth Third Bancorp v. Dudenhoefer (2014). In that case, the Supreme Court created a high pleading standard for plaintiffs alleging a breach of duty of prudence under ERISA when such duty comes into conflict with securities law.

The  Fifth, Sixth, and Ninth Circuits

            In Martone v. Robb (5th Cir. 2018), a former employee of Whole Foods sued the company over a breach of duty of prudence when the company plan fiduciaries continued to invest in the company stock, which was alleged to be “artificially inflated due to a widespread overpricing scheme.” In dismissing the plaintiff’s claim, the Fifth Circuit held that the plaintiff could not successfully argue that disclosing the overpricing scheme would not have resulted in more harm than good to the company’s retirement plan.

            The Sixth and Ninth Circuits came to similar conclusions in, respectively, Graham v. Fearon (6th Cir. 2018) and Laffen v. Hewlett-Packard Company (9th Cir. 2018). In Graham, participants in the Eaton Corporation’s retirement plan alleged a breach of duty of prudence when the plan fiduciary bought and held Eaton stock while the company was engaging in fraud. The Sixth Circuit applied Dudenhoefer and affirmed the district court’s grant of defendant’s motion to dismiss. The court wrote

            Applying [Dudenhoefer’s] pleading standard to the facts alleged in Plaintiff’s Complaint, we conclude that the district court properly determined the Complaint does not propose an alternative course of action so clearly beneficial that a prudent fiduciary could not conclude that it would be more likely to harm the fund than to help it.

            The Ninth Circuit Court also applied Dudenhoefer’s pleading standard in Laffen, stating that “[A] prudent fiduciary in the same circumstances as Defendants-Appellees could view Laffen’s proposed alternative course of action as likely to cause more harm than good without first conducting a proper investigation.”

The Second Circuit

            The Second Circuit Court of Appeals has held otherwise. In Jander v. Retirement Plans Committee of IBM (2nd Cir. 2018), plaintiffs sued plan fiduciaries at IBM for breach of duty of prudence when the fiduciaries bought and held IBM stock when a particular division of the company was overvalued. The U.S. District Court for the Southern District of New York dismissed the plaintiff’s claim, but the Second Circuit reversed. The plaintiff in Jander argued that the defendant plan fiduciary could have disclosed the overvaluation earlier along with regular SEC reporting, and the Second Circuit accepted that argument. Applying Dudenhoefer, the Second Circuit determined that a fiduciary could plausibly find that early disclosure of the division overvaluation would be more beneficial than harmful to the plan:

[K]eeping in mind that the standard is plausibility – not likelihood or certainty – we conclude that Jander has sufficiently pleaded that no prudent fiduciary in the Plan defendants’ position could have concluded that earlier disclosure would do more harm than good. We therefore hold that Jander has stated a claim for violation for ERISA’s duty of prudence.

The Eighth Circuit

            The Eighth Circuit’s holding in Allen v. Wells Fargo & Co. is consistent with past holdings of the Fifth, Sixth, and Ninth Circuits. In Allen, and in Dudenhoefer, the plaintiff’s complaint states that the plan fiduciary did not act prudently in light of critical inside information. At the court noted in Dudenhoefer,

To state a claim for breach of the duty of prudence on the basis of inside information, a plaintiff must plausibly allege an alternative action that the defendant could have taken that would have been consistent with the securities laws and that a prudent fiduciary in the same circumstances would not have viewed as more likely to harm the fund than to help it.

            In Allen, Francesca Allen, among other plaintiffs, brought a suit against Wells Fargo that was ultimately dismissed by the United States District Court for the District of Minnesota for failure to state a claim. Allen appealed, and the Eighth Circuit Court of Appeals affirmed that Allen did not meet the pleading standards set forth in Dudenhoefer. In other words, the Eighth Circuit determined that Allen could not plausibly argue that disclosing the fraudulent activity would be more beneficial than harmful to the company retirement plan (or at least not more likely to harm than help). If Wells Fargo had disclosed such information, the company stock would almost certainly have plummeted and wiped out the wealth of plan participants.

Looking Forward

            Allen has not yet filed a petition for writ of certiorari, and it is not clear that she will. The Supreme Court did issue a per curiam opinion in Jander in January 2020, but the case was vacated and remanded on other grounds than those argued in the Second Circuit. When remanded, the Second Circuit decided the case the same as they had before. On November 9, 2020, the Supreme Court denied certiorari on the question of whether allegations that the harm of an inevitable disclosure of alleged fraud increases over time satisfies the “more harm than good” standard in Dudenhoefer. Thus, the Court declined the opportunity to lower the bar slightly for plaintiffs to bring imprudence claims.

 

Further Reading

For further reading, see: https://columbialawreview.org/content/the-duty-to-inform-in-the-post-dudenhoeffer-world-of-erisa/.