Burger King Settles TCPA Suit for Whopping $8.5M
Letting the class have it their way, Burger King reached an $8.5 million deal to settle a Telephone Consumer Protection Act suit over fax advertisements.
The unopposed motion in support of preliminary approval of the settlement noted that the deal would be the largest TCPA class settlement ever approved by a Maryland state or federal court.
Real estate company Jay Clogg Realty Group alleged that it received multiple faxes between December 2012 and January 2013 advertising Burger King’s BK Delivers program without the required opt-out notice. Specifically, the plaintiff charged that the fast-food chain violated the statute by failing to include language that specifically informed fax recipients that the failure of the sender to comply with an opt-out request within 30 days was unlawful.
After more than a year of contested litigation in Maryland federal court, the parties reached a deal. Burger King agreed to pay $8.5 million for a settlement fund for a class of roughly 97,000 fax recipients over a five-year period. About one-third of the fund, or $2.8 million, is allotted for class counsel.
In addition to an incentive payment for the realty group and administrative costs, the settlement fund will provide a maximum cash payment of $500 per fax to each class member up to a maximum of eight faxes, or $4,000.
To read the proposed settlement agreement in Jay Clogg Realty Group, Inc. v. Burger King Corporation, click here.
Why it matters: Yet another TCPA class action settled for millions of dollars. Burger King's agreement – if approved – would reportedly set the record for the largest payout under the statute in the state of Maryland. The deal followed an April denial of Burger King’s motion to dismiss the suit after the court ruled that the plaintiff sufficiently stated a claim, even though the real estate company did not allege that it received the faxes on a traditional fax machine.
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All Fax Messages Must Contain Opt-Out Information, FCC Confirms
All fax messages must contain opt-out information – even those messages that recipients agreed to receive, according to an order from the Federal Communications Commission which confirms the agency’s interpretation of the Telephone Consumer Protection Act
In recognition of the confusion about the issue, however, the FCC granted retroactive waivers for companies that petitioned the Commission for guidance and provided a six-month window for them to comply with the opt-out requirement.
The controversy dates back to 2006, when the FCC adopted an order promulgating rules and regulations for the 2005 Junk Fax Prevention Act. As part of that Order, the Commission adopted a rule that required that a fax advertisement “sent to a recipient that has provided prior express invitation or permission to the sender must include an opt-out notice.”
But a footnote in the Order also stated that “the opt-out notice requirement only applies to communications that constitute unsolicited advertisements.”
Anda, Inc. filed a request for a declaratory ruling in 2010 arguing that the FCC lacked the authority to adopt the rule for fax ads sent with prior express consent because Section 227(b) of the Communications Act only authorized the Commission to adopt restrictions with respect to unsolicited fax ads.
The FCC dismissed the petition in 2012 and Anda appealed. The Commission joined Anda’s appeal with dozens of other similar petitions that had been filed.
Not only did the FCC find Anda’s petition challenging the Commission’s authority untimely, it failed to sway a majority. “The Commission clearly relied upon its section 227 authority in promulgating the opt-out notification requirement,” Secretary Marlene H. Dortch wrote. Because Congress did not define the phrase “prior express invitation or permission,” it fell to the FCC to interpret the scope of such prior express permission.
Necessary to that determination was a means to revoke prior express permission and the “record here confirms that, absent a requirement to include an opt-out notice on fax ads sent with prior express permission, recipients could be confronted with a practical inability to make senders aware that their consent is revoked,” the FCC said.
“At best, this could require such consumers to take, potentially, considerable time and effort to determine how to properly opt out, which would place the burden on the consumer to find an effective means to revoke such consent, assuming that such a means even exists,” according to the Order. “At worst, it would effectively lock in their consent at a point where they no longer wish to receive such faxes. The opt-out notice requirement ensures that the recipient has the necessary contact information to opt out of future fax ads and can do so in a timely, efficient and cost-free manner.”
The requirement is also “good policy,” the FCC added, providing consumers with a means to change their minds.
However, the Commission also found good cause to grant a retroactive waiver to the petitioners because of the footnote language and its failure to provide adequate notice that it intended to adopt the requirement that opt-out notices be included in solicited ads. The FCC noted that parties could be subject to potentially substantial damages for failing to comply with the rule, and allowed a six-month period for the businesses to achieve compliance.
Other similarly situated parties may also seek waivers under the Order, the agency said, if they file a petition within six months.
Two Commissioners filed partial concurrences and dissents to the Order. Commissioner Ajit Pai agreed with the relief provided to the petitioners, but wrote that to “the extent that our rules require solicited fax advertisements to contain a detailed opt-out notice, our regulations are unlawful.”
The FCC’s Order was an attempt to “retroactively justify our rules as comporting with the TCPA,” Commissioner Pai said, and the statute itself unambiguously mandates opt-out notices only for unsolicited advertisements.
Commissioner Michael O’Reilly’s statement adopted a similar position but went even further, agreeing with the petitioners that the FCC lacked the authority to adopt the rule. “The order notes that an agency is entitled to fill gaps in a statute,” he wrote. “But it is not entitled to invent gaps in order to fill them with the agency’s own policy goals, no matter how well intentioned.”
To read the FCC’s order, click here.
Why it matters: While the FCC upheld its requirement that even fax advertisements sent with prior express consent must include the TCPA’s statutory opt-out notice – and reiterated its authority to do so – the Commission did grant a retroactive waiver for companies that petitioned the agency about the issue. In addition, businesses seeking a similar reprieve have until April 30, 2015 to file a waiver request. After that date, all senders must include a clear and conspicuous statement on the first page of the ad stating that the recipient may make a request not to send any future ads and that failure to comply within 30 days with an opt-out request is unlawful. Senders must also provide a domestic phone number and fax number to allow the recipient to transmit the opt-out request.
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Direct Liability Under TCPA Possible When Third Party Sends Fax, 11th Circuit Rules
A Telephone Consumer Protection Act defendant can be directly liable for an unsolicited fax sent on its behalf by a third party, the Eleventh U.S. Circuit Court of Appeals has ruled, reversing summary judgment in the defendant's favor.
Last year, a federal court judge dismissed a putative class action complaint against Dr. John Sarris, a Florida dentist. In 2003, Dr. Sarris hired a marketing manager he gave “free rein” to market his practice. The manager hired Business to Business Solutions to send out mass fax advertisements, for which the dentist paid $420.
Plaintiff Palm Beach Golf, a golf equipment store, sued Sarris as one of 7,085 recipients of his ads. Sarris successfully moved for summary judgment arguing that he could not be directly liable under the statute as he was not the actual sender of the ad and the plaintiff failed to allege vicarious liability.
The district court recognized that vicarious liability could provide a basis for the claims at issue but said the suit had to be dismissed because the golf store did not name B2B in the complaint and did not plead a theory of vicarious liability against the dental practice.
In addition, the court held that because the golf store could not provide a printed copy of the fax – or prove that anyone had seen it – it lacked Article III standing to bring the suit in the first place.
Unfortunately for the defendant, the Eleventh Circuit reversed on both counts.
First the three-judge panel found that the plaintiff had standing to sue. The specific injury targeted by the TCPA is the sending of the fax and resulting occupation of the recipient’s telephone line and fax machine – not that the fax was actually printed or read, the court said.
“While the record does not demonstrate that the fax advertising defendant’s dental practice was printed or seen by any of Palm Beach Golf’s employees, there is undisputed record evidence that the fax information was successfully transmitted by B2B’s fax machine and that the transmission occupied the phone line and fax machine of Palm Beach Golf during that time,” the court wrote, citing similar decisions from courts in Georgia, Illinois, and New Jersey.
Congress intentionally wrote the TCPA to be a “bounty” statute permitting recovery based on a statutory violation that did not require an actual financial loss, the court added.
Turning to the merits of the dispute, the panel rejected the district court’s reliance on the Federal Communication Commission’s 2012 declaratory ruling in In re DISH Network Inc. That ruling was limited to voice calls and text messages, the court said, and therefore the FCC’s interpretation of a “sender” in that ruling was inapplicable to the instant dispute, which involved fax ads.
The statute itself is ambiguous because it “fails to identify whether, for purposes of section 227(B)(1)(C), the sender is the advertiser, a fax broadcasting service hired by the advertiser, the common carrier whose network is used to send the fax, or whether multiple individuals or entities are ‘senders,’” the panel explained.
Recognizing the ambiguity, the FCC issued an opinion in 1995 to clarify “that the entity or entities on whose behalf facsimiles are transmitted are ultimately liable for compliance with the rule banning unsolicited facsimile advertisements, and that fax broadcasters are not liable for compliance with this rule.”
Finding that opinion to be consistent with Congressional intent, the court deferred to the FCC’s interpretation and found that an entity can be directly liable under the statute where a third party actually transmits the fax on its behalf.
“[A] person whose services are advertised in an unsolicited fax transmission, and on whose behalf the fax is transmitted, may be held liable directly under the TCPA’s ban on the sending of junk faxes,” the court concluded.
The panel also found sufficient evidence that a jury could find the fax at issue was sent on behalf of Sarris, who gave his marketing manager “free rein” to market his dental practice and paid B2B to transmit the ads. “While there is contrary equivocal evidence that the final draft of the advertisement used may not have been approved by the defendant, under the summary judgment standard, the question of on whose behalf the fax advertisement was sent is a question to be decided by a jury,” the court wrote.
Sarris might also be liable for conversion under Florida law, the court held. Despite the de minimis cost of printing a one-page fax, the panel said state law does not require that the property have monetary value in order to be converted and a minimal value does not warrant dismissal.
The court reversed summary judgment for the dental practice and remanded the case to the federal district court.
To read the opinion in Palm Beach Golf Center v. Sarris, click here.
Why it matters: The Eleventh Circuit adopted a broad interpretation of the phrase "to send" under the TCPA, holding that a defendant can be directly liable for unsolicited fax advertisements transmitted by a third party on its behalf.
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$40M TCPA Settlement Over Fax Ads
In another multimillion-dollar Telephone Consumer Protection Act settlement, Interline Brands agreed to pay $40 million to a class of faxed-ad recipients.
Craftwood Lumber Company filed suit in 2011, alleging that Interline violated the statute by sending unsolicited fax advertisements as well as ads that failed to comply with the TCPA’s opt-out notice requirements.
After multiple mediation attempts, the parties managed to reach a deal following a settlement conference. Interline agreed to provide $40 million for an all-inclusive settlement fund that will cover payment to class members, class counsel fees and costs, administrative costs, and an incentive award for the named plaintiff.
The defendant promised not to object to an award for class counsel that does not exceed $12 million as well as an incentive award for Craftwood that does not exceed $25,000.
Members of the class – a nationwide group of fax recipients over a four-year period – will receive shares based on the number of faxes sent by defendants. One fax equals one share, according to the motion in support of the proposed deal, with the value per share to be determined by dividing the total number of shares awarded to all settlement class members by the remainder of the settlement fund.
To determine the number of fax transmissions, the settlement administrator will rely on the Master Facsimile Transmission Database or upon submission of proof by a class member, including a copy of a fax or a fax log.
To read the proposed settlement agreement in Craftwood Lumber Co. v. Interline Brands, Inc., click here.
Why it matters: The deal adds Interline to the growing list of defendants that have paid tens of millions of dollars to settle TCPA class actions, joining the ranks of companies such as Capital One ($75 million) and Papa John’s ($16.5 million). The settlement still faces the hurdle of judicial approval, which could prove challenging, particularly after the presiding judge rejected an earlier attempt at a deal.
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