United States: Fourth Circuit Affirms $61 Million Treble Damages Award In TCPA Class Action Against Marketing Agency's Customer

Seyfarth Synopsis: On May 30, 2019, the Fourth Circuit issued an opinion in Krakauer v. Dish Network, L.L.C., No. 18-1518 (4th Cir. May 30, 2019), that paved the way for TCPA plaintiffs to collect historic awards from unsuspecting defendants. The Fourth Circuit held that TCPA plaintiffs need not show any threshold level of injury to have standing, so long as they prove the statutory elements of a TCPA claim; the TCPA creates a simple cause of action that is "conducive to class-wide disposition" without reference to individualized inquiries; and Dish Network could be held responsible for the actions of its third-party marketer even if it repeatedly admonished the third party against violating the law and its contracts disclaimed any agency relationship. As a result, companies should be wary of using third parties to conduct telemarketing without appropriate oversight.

Case Background

Plaintiff Thomas Krakauer placed his number on the national Do-Not-Call registry. Nonetheless, he received multiple calls from a company called Satellite Systems Network ("SSN") trying to sell him the services of defendant Dish Network, L.L.C. Krakauer sued Dish under the Telephone Consumer Protection Act ("TCPA") on behalf of a class of persons whose numbers had been listed on the registry for at least 30 days and who had received two or more calls on behalf of Dish in the course of a year.

The district court certified the class in 2015. A year later, Dish moved to dismiss for lack of Article III standing, arguing that many or most class members did not experience an injury that would have risen to the level of a cause of action at common law. The district court denied the motion, and the case proceeded to trial.

The district court charged the jury with determining: (1) whether SSN was acting as Dish's agent when it called consumers; (2) whether SSN made multiple calls to the class members' numbers within the relevant period; and (3) the appropriate damages award for such calls. The jury returned a verdict for plaintiff on the first two points and assigned damages of $400 per call. The district court then determined, as a matter of law, that Dish acted willfully and knowingly, allowing an award of treble damages "to deter Dish from future violations and . . . give appropriate weight to the scope of the violations." Krakauer, No. 18-1518 at *29.

Dish appealed the judgment.

The Fourth Circuit's Opinion

In an opinion by Judge Wilkinson, the Fourth Circuit considered three issues: (1) whether the class as certified had Article III standing to bring claims; (2) whether the district court correctly applied the factors for class certification, especially commonality and predominance, and whether the class was overbroad; and (3) whether Dish was responsible for SSN's calls, including whether it had acted willfully and knowingly in not remedying SSN's alleged misconduct. Id. at *10.

Dish argued that many, if not most, class members lacked standing because their injury did not rise to "a level that would support a common law cause of action." Id. at *13. The Fourth Circuit rejected this argument, relying on the Supreme Court's guidance in Spokeo, Inc. v. Robins, 136 S.Ct. 1540 (2016). Spokeo held that traditional standing requirements, including a concrete and particular injury, applied to statutory causes of action, and that Congress could not create a cause of action without an underlying injury that would have been cognizable under the common law. The Fourth Circuit found that receipt of repeated, unwanted telephone marketing by someone who had taken steps to avoid such marketing was a type of injury cognizable at common law – an intrusion on privacy. Id. at *13-14 (citing Spokeo, 136 S.Ct. at 1549).

Next the Fourth Circuit addressed the district court's certification of a class under Rule 23(b)(3), finding that the simple scheme created by Congress avoided the kinds of individualized determinations that "so often plague class actions." Id. at *16-18. Dish argued that many class members did not have a claim because they were not "subscribers" to telephone service, and only a "subscriber" could place a number on the Do-Not-Call registry. But the Fourth Circuit rejected this argument, noting that the plain text of the statute allowed a private right of action by any "person" who received unwanted calls, not just subscribers, and a non-subscriber living in the house where the call was received could suffer the same privacy intrusion as the subscriber. Id. at *19.

The Fourth Circuit also determined that the class was properly ascertainable because the data on potential class members was found in the call data of the defendant companies and the Do-Not-Call registries. Id. at 22-23.

Left unspoken in the Fourth Circuit's analysis, however, was how to determine who received the phone call at a given number and thus who experienced the injury. Although the SSN/Dish call data revealed numbers called, it did not necessarily reveal the identity of the persons who received unwanted calls. The Fourth Circuit gave the example of a subscriber wife whose husband received a call and noted that the husband could experience an injury to his right to privacy. Id. at 21. But the Fourth Circuit did not explain how it possibly could identify the husband from the company records and, as a result, how it could provide compensation to the real injured party (the recipient) without an individualized investigation.

This slippage between subscribers and call recipients also muddies the standing inquiry. The Fourth Circuit justifies reading a phone call as an intrusion on privacy because the recipient "took steps to avoid" such calls by placing his number on the Do-Not-Call registry. Id. at 12. But if the recipient is not the subscriber, did he actually take such steps?

Finally, the Fourth Circuit addressed whether Dish could be held liable for SSN's unwanted calls, a question that turned on whether SSN was acting as Dish's agent when it made the calls. Dish argued that it was not, pointing to contracts that characterized the relationship as independent and not an agency relationship. Id. at * 27-28. But the Fourth Circuit held that a party's contractual characterization of the relationship is irrelevant; it is the nature of the relationship that matters. The Fourth Circuit held that it was it was reasonable for the jury to conclude that SSN was Dish's agent because their contract "afford[ed] Dish broad authority over SSN's business, including what technology it used and what records it retained" and because Dish claimed to have the right to monitor SSN to ensure compliance with the TCPA. Id. at *27. The Fourth Circuit also held that Dish had knowledge of SSN's violations of the TCPA, and its failure to act to stop such violations was evidence that SSN was acting within the scope of its authority. Id.

Although Dish argued that it had repeatedly instructed SSN to follow the law in acting on Dish's behalf, the Fourth Circuit held that these verbal instructions were outweighed by Dish's "failure to respond to" statutory violations "in any serious way" while it was "profiting handsomely from SSN's sales tactics. Id. at *28-29.

The Fourth Circuit also approved the district court's finding that Dish had acted willfully and knowingly. The Fourth Circuit relied heavily on the fact that Dish had notice of alleged violations via "lawsuits and enforcement actions" as well as "consumer complaints" but "did nothing to monitor, much less enforce, SSN's compliance with the telemarketing laws." Id. at *31.

Implications

The Fourth Circuit provided ample reason for companies to be cautious in drafting contracts with third-party marketers and overseeing their activities. The Fourth Circuit confirmed that a company can be held liable for the behavior of a contractor making calls on its behalf, even if it "includes certain language in a contract or issues the occasional perfunctory warning." Id. at *32. A court will "look past the formalities and examine the actual control exercised." Id. Indeed, contractual language requiring one party to comply with the law and giving the other party the right to monitor compliance may even be viewed as a sign of "control" and agency. Id. at 27. And, if a company has the right to control and to monitor compliance, the failure to do so may be viewed as a willful decision to ignore potential violations of the law. Thus, companies should carefully consider the structure of their contractual relationships.

The Fourth Circuit also relaxed the standard for certification of such claims by suggesting that Congress has a great deal of latitude to intentionally structure consumer protection statutes to be class-friendly and to avoid individualized inquiries. Id. at *18. In the Fourth Circuit's view, so long as the statutory violation causes some concrete and particular injury, even if it would be viewed as minor or de minimis under the common law, Congress may impose statutory damages for it, and those damages need not be tightly targeted to the magnitude of the injury. As the Fourth Circuit's seeming conflation of subscribers and call recipients shows, in the case of privacy interests, a strong nexus between the claim and a class member's own efforts to protect his privacy also may not be necessary. Thus, companies subject to consumer protection statutes like the TCPA should take less comfort in arguments regarding standing or the need for individualized consideration of class members' injuries.

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