Blog LenderLaw Watch November 01, 2022

Ninth Circuit Issues Two Significant TCPA Decisions Concerning Mixed-Use Cellphones and Statutory Damages Awards

In the past few weeks, the United States Court of Appeals for the Ninth Circuit (Ninth Circuit) has issued significant decisions concerning the Telephone Consumer Protection Act (TCPA) and its application to unwanted text messages sent to cell phones used for both personal and business use, and the constitutionality of excessive aggregate statutory damages awards.

In one of the more highly watched TCPA cases in recent years, on October 20, 2022, the Ninth Circuit vacated a jury’s $925,225,000 verdict against a Defendant for violations of the TCPA as excessive and sent it back to the lower court for reconsideration. Wakefield v. ViSalus, Inc., Case No. 21-35201 (9th Cir. Oct. 20, 2022) (Wakefield).

In Wakefield, Plaintiff brought suit against Defendant, a multi-level marketing company that sells weight loss products, alleging Defendant violated the TCPA by sending her and the class unsolicited, automated telemarketing calls featuring an artificial or prerecorded voice message without their prior express consent.

In April 2019, a jury returned a verdict against Defendant, finding it had made over 1,850,440 calls in violation of the TCPA and, as the TCPA sets minimum statutory damages at $500 per call, the jury set the total damage award at $925,220,000.

Defendant filed a post-trial motion arguing, among other things, that the nearly 1 billion dollar statutory damage award was unconstitutionally excessive.  The United States District Court for the District of Oregon refused to reduce the statutory damage award finding that no Ninth Circuit precedent existed to guide lower courts in reducing statutory damage awards that are found to be unconstitutionally excessive. Defendant appealed, arguing that, in the aggregate, the statutory award was so “severe and oppressive” that it violated its due process rights.

Citing the Supreme Court decision St. Louis, I. M. & S. Ry. Co. v. Williams, 251 U.S. 63, 67 (1919), the Ninth Circuit held that even where the per violation penalty is constitutional, the aggregated statutory damages are subject to constitutional limitation in extreme situations, for example, “when they are ‘wholly disproportioned’ and ‘obviously unreasonable’ in relation to the goals of the statute and the conduct the statute permits.”  The Ninth Circuit then pointed to Six Mexican Workers v. Arizona Citrus Growers, 904 F.2d 1301, 1309 (9th Cir. 1990) which sets out factors to consider when assessing the proportionality and reasonableness of a particular statutory damages award in the aggregate:

  • the amount of award to each plaintiff
  • the total award,
  • the nature and persistence of the violations,
  • the extent of the defendant’s culpability,
  • damage awards in similar cases,
  • the substantive or technical nature of the violations, and
  • the circumstance of each case.

The Ninth Circuit vacated the decision and remanded so that the district court can determine the constitutionality of the $925,220,000 aggregate award, taking into consideration both Williams and Six Mexican Workers in assessing whether the award is “so severe and oppressive that it violates [Defendant’s] due process rights.”

The previous week, on October 12, 2022, in Chennette, et al. v. Porch.com, Inc., et. al, No. 20-35962 (9th Cir. Oct. 12, 2022) (Channette), a divided panel of the Ninth Circuit reversed and remanded a decision from the United States District Court for the District of Idaho, holding that Plaintiffs had both Article III and statutory standing to sue under TCPA §§ 227(b) and (c) where Defendants sent text messages to their mixed-use cellphones.

In Chanette, over 50 home improvement contractors brought suit against Defendants alleging that the Defendants used automatic dialing systems to send unconsented to and unsolicited text messages to cellphones that were registered on the national do-not-call registry in violation of TCPA §§ 227(b) and (c).  Defendants mined various websites––such as Yelp.com and YellowPages.com––for the contact information of these home improvement contractors and sent over seven thousand automated text messages to their cellphones offering them client leads for home improvement services.

The United States District Court for the District of Idaho dismissed Plaintiffs’ complaint for lack of statutory standing, finding plaintiffs, as home improvement contractors, fell outside of the statute’s “zone of interest.”  Plaintiffs appealed.

Defendants first contend that Plaintiffs lacked Article III standing because Plaintiffs have solicited business inquiries from potential customers by placing their contact information on these websites; therefore, they contend the receipt of solicitations from Defendants is not a concrete and particularized injury.  The Ninth Circuit disagreed, finding that although Plaintiffs posted their cellphone numbers on these websites to solicit business from clients who needed home improvement services, they did not “expressly consent” to receive text messages from Defendants which sought to sell information about potential clients.

Defendants next contend that Plaintiffs lacked statutory standing to sue under Section 227(b). Section 227(b) prohibits any person from making calls to a cellphone using an automatic telephone dialing system.  Defendants argued that the TCPA only protects individuals––and not businesses––from unwanted calls and that as home improvement contractors, plaintiffs fell outside of the TCPA’s “zone of interest.”  In finding that Plaintiffs had standing to sue under Section 227(b), the Ninth Circuit noted that the statutory text permits recovery for any “person or entity” and concluded that “under the most natural reading of the term, ‘entity’ includes business.”

Lastly, and perhaps of most significance, Defendants contend that Plaintiffs lacked statutory standing to sue under Section 227(c).  The FCC regulation implementing Section 227(c) provides, in relevant part, that:

“No person or entity shall initiate any telephone solicitation to . . .

(2) A residential telephone subscriber who has registered his or her telephone number on the national do-not-call registry of persons who do not wish to receive telephone solicitations that is maintained by the Federal Government.”

47 C.F.R. § 64.1200(c)(2).  Defendants contend that the contractors do not qualify as “residential telephone subscribers” under the meaning of Section 227(c) because they use their cellphones for both personal and business use. The Ninth Circuit noted that the FCC had deliberately not provided any guidance on when a mixed-use phone “ceases to become a residential phone;” therefore, in the absence of any such guidance, the Ninth Circuit held that, at the motion to dismiss stage, plaintiffs’ registered mixed-use cellphones are presumptively residential for the purposes of Section 227(c).  However, the Ninth Circuit held that Defendants may later rebut this presumption by providing evidence that Plaintiffs use of their cellphone is to such an extent that it should be considered a business line.  Among the factors the Ninth Circuit identified that a Defendant could show to rebut the presumption include:  the registrant of the phone; whether the line was registered with the carrier as residential or business; the payor of the cellular line; among other factors.

The Ninth Circuit then stated that if the FCC does choose to interpret Section 227(c) differently in a future regulation or order that it would defer to their interpretation, provided it was consistent with a reasonable understanding of the statute.

These two TCPA decisions are significant for TCPA defendants as the Channette decision shows that business related inquiries to mixed-use cellphones can be in violation of the TCPA, and the Wakefield decision shows that it – in “extreme situations” – an excessive aggregate award for violations of the TCPA may be unconstitutional.

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