Uncapped Damages Encourage TCPA Litigation with Little or No Consumer Benefit

Summary

Congress passed the TCPA to provide a way for consumers to recover damages in small claims court without an attorney.  Recently, plaintiffs’ attorneys have brought TCPA claims as class actions requesting $500 or more per call.  Uncapped statutory damages encourage unscrupulous plaintiffs to sue any business that makes telephone calls or faxes with the incentive of making a quick dollar.

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When companies communicate with consumers via telephone, text or fax, they increasingly risk lawsuits under the Telephone Consumer Protection Act (“TCPA”), 47 U.S.C. § 227.

The TCPA prohibits prerecorded advertisement or telemarketing calls to cell phones without prior express written consent, unless made by or on behalf of a non-profit organization or by or on behalf of a covered entity to deliver a health care message.  47 C.F.R. § 64.1200(a)(2).  Non-telemarketing calls can be made to cell phones with express oral consent.  Id. at (a)(1)(iii).  The TCPA also allows prerecorded calls to residential numbers with express written consent. Id. at (a)(3).

The statute provides that private parties can seek injunctive relief, actual damages or $500 per violation (whichever is greater), or both injunctive relief and damages.  Courts can award treble damages of up to $1,500 for each “willful and knowing” violation.  Id. at (b)(3). 

While Congress passed the TCPA to stop abusive telemarketing practices, Congress intended for consumers to use the law as a way to recover damages in small claims court without an attorney.  Senator Fritz Hollings, a sponsor of the TCPA stated:

Small claims court or a similar court would allow the consumer to appear before the court without an attorney. The amount of damages in this legislation is set to be fair to both the consumer and the telemarketer. However, it would defeat the purposes of the bill if the attorneys’ costs to consumers of bringing an action were greater than the potential damages.

137 Cong. Rec. 30821–30822 (1991).

Recently, however, plaintiffs’ attorneys have brought TCPA claims as class actions requesting $500 or more per call. Congress never intended the TCPA to be used in class actions, and thus did not cap damages available to plaintiffs.  Uncapped statutory damages encourage unscrupulous plaintiffs to sue any business that makes telephone calls or faxes with the incentive of making a quick dollar.  According to insideARM.com, TCPA lawsuits are up 70 percent in 2013 and class actions are often the preferred method.

Other similar federal statutes, such as the Fair Debt Collection Practices Act (“FDCPA”), contemplated the use of class actions and placed caps on damages.  Courts have consistently held that a plaintiff may recover actual damages, but additional damages are limited to $1,000 per proceeding and not $1,000 per violation.  See, e.g.,Wright v. Finance Servs. of Norwalk, Inc., 22 F.3d 647, 651 (6th Cir. 1994).  The FDCPA also limits additional damages in class actions to the lesser of $500,000 or one percent of the net worth of the collector.  15 U.S.C. § 1692k(a)(2)(B).

To capitalize on the TCPA’s uncapped statutory damages, numerous web sites encourage consumers to sue companies and provide “how-to” guides to maximize recovery under the TCPA.  The web sites urge consumers to target companies because damages can be lucrative.  Penalties can quickly amount to millions of dollars and devastate companies.

For example, Bank of America recently settled six pending TCPA class action litigation matters for a record $32 million.  See Rose et al. v. Bank of Am. Corp. et al, N.D. Cal. Case No. 5:11-cv-02390-EJD (filed Sept. 27, 2013).  Similarly, in 2013, Domino’s Pizza settled for $10 million while Papa John’s settled for more the $16 million for violations of the TCPA.  See Spillman v. RPM Pizza, LLC et al., M.D. La. Case No. 3:10-cv-00349-BAJ-SCR (filed May 24, 2013); Agne, et al. v. Papa John’s Int’l, Inc., W.D. Wash. Case No. 2:10-cv-01139-JCC (filed Oct. 22, 2013).

When plaintiffs file questionable lawsuits, companies must decide whether to spend significant money defending these allegations, or whether they should settle with plaintiffs regardless of wrongdoing to quickly end the matter.  However, settling may encourage plaintiffs to continue filing frivolous lawsuits if they know they can get paid to go away. 

Until Congress caps statutory damages or clarifies that class actions cannot be brought under the TCPA, the number of lawsuits will continue to rise because the potential for a monetary windfall is worth the risk for both plaintiffs and their attorneys.