SPECIAL FOCUS: FTC Conducts Workshop on Consumer Protection Issues in Lead Generation
On Friday, October 30, 2015, the Federal Trade Commission hosted a full-day public workshop to explore consumer protection issues raised by online lead generation, with a special focus on the education and lending industries. The program brought together various stakeholders in the lead generation arena, including publishers, advertisers, consumer advocates, lead verification firms, and regulators. With some exceptions, the consensus was that third-party lead generators can provide an efficient and cost-effective method to develop qualified prospects, but that the growth and integrity of this medium has been stymied by unscrupulous companies that seek to deceive consumers in the process of developing (and using) leads.
The workshop participants were primarily concerned by the lack of transparency in the lead generation process, particularly where leads are generated through various layers of affiliates and subcontractors. Advertisers that use lead generators for their expansive publisher networks may initially know where their ads will be placed and how their ads will look. But upon entering the publisher ecosystem, an originally approved ad can change in form and content and appear on sites that may be inconsistent with the advertiser’s goals, or worse, could embarrass and tarnish the advertiser’s brand.
Several panelists expressed concern with the number of parties that have access to a lead, what they do with and how long they keep a lead, and the accuracy of the information in a consumer’s profile. These issues were primarily expressed by the FTC and consumer advocates because these actions are not transparent to consumers and could result in greater harm than a merely deceptive ad.
The workshop concluded with several stakeholders discussing current and proposed industry self-regulation programs and the technology-based compliance solutions that are available in the marketplace. While these efforts are laudable, commented one advocate, the fact remains that the third-party lead generation business is inherently flawed and subject to fraud, and until a perfect solution is developed to prevent deceptive ads and provide full and clear transparency into data collection, storage and use practices, consumers will continue to be harmed.
The lead generation business raises many important issues. Companies that buy leads need to know the origin of the lead, in what context the lead was generated, and what rights they have to contact the consumer. Failing to address and understand these issues can cause companies to contact a consumer who did not understand what he or she was signing up for, or worse, not obtaining the appropriate level of consent if the consumer provided a mobile number to be called. On this issue, several industry participants spoke of the Telephone Consumer Protection Act liability that buyers face when they call consumers on their mobile phones or place pre-recorded calls to landlines without the appropriate level of consent. These risks are significant since the unlimited statutory damages available under the law provide an attractive incentive for plaintiffs. Therefore, buyers must conduct extensive due diligence before buying and using a purported “opt-in” list to ensure that the list was developed in accordance with applicable TCPA regulations. Otherwise, buyers are well advised to eliminate the use of autodialers or to scrub the list against reliable mobile databases.
Lead sellers may also incur liability under various other laws, such as the Telemarketing Sales Rule, when they “knew or should have known” that their customers would use their lists in violation of law. The FTC provided examples of several cases it has brought against lead generators and list brokers who should have been tipped off to their client’s misuse of consumer information when they reviewed phone scripts or when they received consumer complaints.
The workshop may have “generated” more questions than answers, but the overall message was clear: everyone in the lead generation ecosystem must be aware of and take responsibility for their actions and at all times place the consumer’s interests above all else.
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Should the TCPA Apply to Government Entities and Their Agents?
Should the Telephone Consumer Protection Act apply to government entities and their agents?
The Federal Communications Commission has requested comment on whether federal, state, and local governments—and agents making calls on their behalf for official purposes—should be exempt from liability under the statute.
Broadnet Teleservices LLC, a telecommunications company, filed a petition with the FCC in September, seeking an order that the statute does not apply to government entities. The company offers a technology platform that enables federal, state, or local lawmakers to contact citizens by phone and ask them to participate in a real-time event. The TeleForum service has been used by members of Congress to help constituents prepare for hurricane season, for example, and has enabled state education commissioners to discuss school financing issues with parents.
Broadnet argued that such services are particularly important for millennials and individuals living in poverty who rely on wireless phones as their primary, or only, means of communication. “These individuals deserve the same access to democracy and the same engagement with policymakers that is currently only possible for individuals with access to landline phones,” the company said.
The statute’s plain language supports such an exemption, the company contended. The TCPA defines a “person” as an “individual, partnership, association, joint-stock company, trust or corporation,” leaving federal, state, and local government entities outside the definition. Multiple courts, including the First and Ninth Circuit Courts of Appeals, have reached a similar conclusion, and the U.S. Supreme Court has stated that “in common usage, the term ‘person’ does not include the sovereign, [and] statutes employing the [term] are ordinarily construed to exclude it.”
As the TCPA does not apply to the government, it also necessarily cannot apply to government officials acting in their official capacities, the petition added, as “[a]ny such arbitrary line-drawing and distinctions cannot be what Congress intended.”
Broadnet then took its argument one step further to reach service providers working on behalf of government entities and officials.
“Government agencies do not have the specialists on staff and technology necessary to make telephone town hall calls without assistance,” the company wrote. “As a practical matter, any uncertainty with respect to the TCPA’s application to those that act on behalf of government entities and officials making telephone town hall and other constituent calls to wireless numbers would effectively prohibit the making of such calls. Thus, in addition to confirming that the TCPA does not apply to government-to-citizen calls, the Commission also should confirm that service providers acting on behalf of government entities and officials are not subject to the TCPA.”
In response, the FCC issued a public notice asking for comment on the issues raised in the petition, with the comment period ending on October 29.
To read Broadnet’s petition to the FCC, click here.
Why it matters: In a matter of first impression for the FCC, the agency must decide whether government entities are exempt from the TCPA when it weighs consumers’ privacy rights against the need for these entities and their agents to transmit important information to the public.
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TCPA Case Splits the Supreme Court
The oral argument before the U.S. Supreme Court in Campbell-Ewald Co. v. Gomez left practitioners guessing as to the possible outcome in the case.
Considering the question of whether a settlement offer that fully satisfies a plaintiff’s claims can moot a Telephone Consumer Protection Act lawsuit, the justices appeared divided on the answer.
In this case, advertising agency Campbell-Ewald was hired by the U.S. Navy to develop and execute a recruiting campaign. The company outsourced texting responsibility to a third party but was named as a defendant in a TCPA lawsuit filed by Jose Gomez in California federal court. Campbell-Ewald offered Gomez $1,503 as compensation for the allegedly illegal text, but the plaintiff allowed the offer to lapse. A district court judge said the unaccepted offer alone was insufficient to moot Gomez’s claim and the Ninth Circuit affirmed.
The issue has split courts across the country.
At oral argument, Justices Elena Kagan and Sonia Sotomayor pressed Campbell-Ewald’s attorney about whether the company made a complete offer to Gomez. The statute doesn’t entitle Gomez to attorneys’ fees, declaratory relief, or class damages, the attorney argued, but Justice Kagan said the award of attorneys’ fees “has to be adjudicated.”
Justice Sotomayor agreed, stating that plaintiffs are “entitled to have the court say it, not you,” and expressed concern that defendants “get to moot the case on your terms.” The timing of the offer also concerned Justice Kagan, who said at that stage of the litigation, what constitutes complete relief remains a contested issue. “And the measure of complete relief has to be, at this stage, about what his complaint asks for,” Justice Kagan said.
Jumping in, Justice Antonin Scalia asked: “I suppose he could ask for the key to Fort Knox, right?” to which Campbell-Ewald’s counsel responded, “He could ask for a unicorn, Your Honor.”
The focus on whether the plaintiff’s claims were moot left little time to discuss the impact on class claims.
Chief Justice John Roberts wondered if Gomez could act as a class representative if his individual claims were declared moot. Gomez’s attorney answered in the affirmative, arguing that he would still have a financial interest in attorneys’ fees in the case, while an attorney from the Solicitor General’s office—advocating in favor of Gomez—said Rule 23 of the Federal Rules of Civil Procedure might have a solution.
To read a transcript of the oral argument, click here.
Why it matters: The oral argument provided a few clues about which direction some of the justices are leaning on the issue presented. Justice Sotomayor appeared to be in the same camp as Justice Kagan, who authored the dissent in a 2013 Fair Labor Standards Act case, Genesis Healthcare Corp. v. Symczyk, where she wrote that an unaccepted offer of judgment cannot moot a plaintiff’s individual claims. Justice Scalia’s reference to Fort Knox suggests that he is taking a dim view of the plaintiff’s position. A decision from the Court is expected later this term.
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Third Circuit Expands TCPA’s “Called Party” to Include Roommate
Broadening standing for bringing Telephone Consumer Protection Act claims, the Third Circuit Court of Appeal ruled that a man who answered a prerecorded call intended for his roommate could sue the caller under the statute.
Mark Leyse answered a prerecorded call in 2005 from Bank of America marketing a new credit card intended for his roommate, Genevieve Dutriaux. Leyse filed a putative class action against the bank under the TCPA and Bank of America moved to dismiss the suit for lack of standing.
A federal district court judge agreed that Leyse was not a “called party” as required by Section 227(b)(1)(B) of the statute. But, emphasizing the intent behind the TCPA, the federal appellate panel reversed.
“Limiting standing to the intended recipient would disserve the very purposes Congress articulated in the text of the act,” the court wrote. “If the caller intended to call one party without its consent but mistakenly called another, neither the actual recipient,- nor the (uninjured) intended recipient could sue, even if the calls continued indefinitely. We doubt Congress meant to leave the actual recipient with no recourse against even the most unrelenting caller.”
Instead, the court said that Leyse’s “status as a regular user of the phone line and occupant of his residence that was called brings him within the language of the Act and the zone of interests it protects.”
District courts across the country have split over the question of who is entitled to sue under the statute, the panel noted. One group of decisions—from courts in New Jersey and New York—has limited standing to the “intended recipient” of the call. Judges in California and Florida have taken a more generous view of the “called party” to include a “subscriber” or “regular user” of the phone. Other courts in California and Florida used a slightly different standard, allowing standing for the “subscriber” or “primary user” without reference to a “called party” under the statute.
A number of courts have adopted a more broader test for standing in recognition that the TCPA authorizes any “person or entity” to sue under Section 227(b)(3), not just the “called party.” Following these decisions—found in Florida, West Virginia, Missouri, Alabama, Michigan, Illinois, and Pennsylvania—the court used a “zone of interests” analysis to establish standing under the statute.
The court noted that the Congressional intent behind the statute was to protect consumers from “the proliferation” of prerecorded telemarketing calls to private residences. The court also found support in the legislature’s finding that seemed to equate the “called party” with the “receiving party,” a position suggested by decisions from the Seventh and Eleventh Circuits.
The Federal Communications Commission’s recent declaratory ruling and order added the weight of authority to a broader interpretation. In it, the FCC defined “called party” as “the subscriber, i.e., the consumer assigned the telephone number dialed and billed for the call, or the non-subscriber customary user of a telephone number included in a family or business calling plan,” and rejected proposals to interpret the term to be the “intended recipient” or “intended called party.”
“From this evidence, it is clear that the Act’s zone of interests encompasses more than just the intended recipients of prerecorded telemarketing calls,” the panel wrote. “It is the actual recipient, intended or not, who suffers the nuisance and invasion of privacy. This does not mean that all those within earshot of an unwanted robocall are entitled to make a federal case of it. Congress’s repeated references to privacy convince us that a mere houseguest or visitor who picks up the phone would likely fall outside the protected zone of interests. On the other hand, a regular user of the phone line who occupies the residence being called undoubtedly has the sort of interest in privacy, peace, and quiet that Congress intended to protect.”
The district court’s concerns about callers being uncertain whether a prerecorded call will violate the statute depending upon who answers the phone were misplaced, the court said. “The caller may invoke the consent of the ‘called party’ as a defense even if the plaintiff is someone other than the ‘called party,’” the Third Circuit said. “Thus, if Dutriaux were the ‘called party’ by virtue of being the intended recipient of the call, her consent to receive robocalls would shield Bank of America from any suit brought by Leyse.”
As for damages, the panel added in a footnote that “we see no reason why the statutory sum could not be divided among the injured parties.”
The TCPA is a remedial statute, the court reiterated, and should be construed to benefit consumers. “Given the variety of arrangements that exist for sharing living spaces and telephones, there may be close cases under the zone-of-interests test—at least until cell phones entirely displace landlines,” the panel wrote. “Leyse’s, however, is by no means a close call.”
To read the opinion in Leyse v. Bank of America, click here.
Why it matters: The Third Circuit “zone of interest” decision potentially opens the courthouse doors to additional plaintiffs alleging liability under the TCPA. Perhaps the best hope for callers would be a decision from the U.S. Supreme Court on the scope of a “called party.”
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What is an ATDS? Third Circuit, California Federal Court Consider the Question
The question of what constitutes an automatic telephone dialing system pursuant to the Telephone Consumer Protection Act continues to keep courts across the country busy. Recently both the Third Circuit Court of Appeals and a federal court in California considered the issue.
Section 227(a)(1) of the TCPA defines an ATDS as “equipment which has the capacity—(A) to store or produce telephone numbers to be called, using a random or sequential number generator; and (B) to dial such numbers.”
Reversing a federal court judge’s grant of summary judgment, the Third Circuit held that Yahoo’s text alert system might qualify as an ATDS. The case was filed by Bill Dominguez, who claimed he received more than 27,000 text alerts after purchasing a cell phone that came with a reassigned telephone number. The previous owner had subscribed to an e-mail notification service offered by Yahoo, where a text message was sent every time an e-mail was received by the owner’s linked Yahoo e-mail account.
Dominguez was unable to cancel the service and eventually sued Yahoo for violating the TCPA, seeking $13.9 million in damages. Yahoo moved for summary judgment and a federal court judge granted the motion, ruling that the system at issue lacked the current capability to randomly or sequentially generate telephone numbers as opposed to simply storing the numbers.
The federal appellate panel reversed, relying on the Federal Communications Commission order issued this summer to find that a system needed only the capacity to store or produce numbers that are randomly or sequentially generated, not the present ability.
“Although hardly a model of clarity, its orders (as we interpret them) hold that an autodialer must be able to store or produce numbers that themselves are randomly or sequentially generated ‘even if [the autodialer is] not presently used for that purpose,’” the Third Circuit wrote. “But importantly, in the most recent ruling the FCC also clarified that neither ‘present ability’ nor the use of a single piece of equipment is required. Thus, so long as the equipment is part of a ‘system’ that has the latent ‘capacity’ to place autodialed calls, the statutory definition is satisfied.”
Because the district court did not have the benefit of the FCC’s ruling, the federal appellate panel remanded the case to allow it “to address more fully” whether Yahoo’s equipment met the statutory definition of an ATDS.
A California federal court reached a different conclusion in granting WhisperText’s motion to dismiss a TCPA suit. In that case, U.S. District Court Judge Paul S. Grewal found that human intervention “foreclose[s] any plausibility that WhisperText sends messages using an ATDS” because users of the WhisperText app must take affirmative action to have a text sent to a recipient inviting them to join.
Tony McKenna alleged that he received an unsolicited text message from WhisperText in December 2013 reading: “Someone you know has anonymously invited you to join Whisper, a mobile social network for sharing secrets. Check out the app here [with a link].” Instead of joining the network, McKenna filed a putative class action under the TCPA.
The court dismissed McKenna’s first amended complaint for failure to allege plausible facts suggesting the Whisper app used an ATDS. His subsequent complaint was dismissed because WhisperText’s equipment required human intervention and therefore did not meet the statutory definition of an ATDS.
For the third—and final—time, Judge Grewal dismissed McKenna’s complaint.
The plaintiff removed all mention of the WhisperText customer’s role in deciding to send invitations to contacts and in selecting the invitation’s recipients, and focused on the processes by which the defendant harvests the selected contacts’ phone numbers, uploads the numbers to a third-party platform, and sends out its invitations. The “entire process” of harvesting, uploading, and sending is automated and performed without any human intervention, McKenna told the court.
Despite this characterization of the process, the court said the fact that human intervention was required to send invitations remained unchanged. “As the court held in its previous order, McKenna’s statements that the Whisper App sends text invitations only at the user’s affirmative direction foreclose any plausibility that WhisperText sends messages using an ATDS, without human intervention.”
The most recent complaint “strives mightily to direct attention to WhisperText’s automated processes, and discusses them as if they were completely detached from any user direction,” the court said. “Nonetheless, it neither denies nor contradicts McKenna’s earlier allegations regarding the user’s role. Therefore, while this court accepts as plausible the allegations that WhisperText uses automated processes to harvest phone numbers from a Whisper App user’s phone and upload them to a third-party platform, and that the platform uses automated processes to send invitational messages to those numbers, it is undeniable from McKenna’s previous allegations that the human intervention of a Whisper App user is necessary to set those processes in motion. In light of the need for human intervention, McKenna’s allegations that WhisperText and assorted non-party companies use a third-party platform are irrelevant.”
The court cited a similar decision from a California federal court for support as well as the FCC’s July order, which found that an application that required human intervention to send invitational messages was not the “maker or initiator” of the calls for TCPA purposes.
“Accordingly, even though WhisperText uses automated processes to harvest and upload a user’s selected phone numbers and then send invitational messages, that is insufficient to make WhisperText the maker or initiator of a call using an ATDS under the TCPA,” the court said, dismissing McKenna’s complaint with prejudice.
To read the opinion in Dominguez v. Yahoo, Inc., click here.
To read the order in McKenna v. WhisperText, click here.
Why it matters: Along with the recent FCC order, the California federal court’s decision in McKenna adds to a growing line of cases holding that when human intervention is required to send invitational text messages, a sender cannot have used an ATDS. But the Third Circuit’s opinion provides a troubling interpretation of the term to include any system with the capacity to place autodialed calls, a sweeping read of the statute that could make life more difficult for TCPA defendants.
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