Changes to the Wrong-Number Landscape
Peggy Daley and Michael Whalen discuss the Telephone Consumer Protection Act, penalties for violating the act, and shifts that technologies have caused in TCPA cases. They look into recent cases brought before the Supreme Court to further understand the changes to the wrong-number landscape.
TRANSCRIPT
MW 00:09 [music] Welcome to BRG's ThinkSet podcast. I'm your host, Michael Whalen. BRG is a global consulting firm. We help organizations in disputes and investigations, corporate finance, and performance improvement and advisory. We're a multidisciplinary group of experts, industry leaders, academics, data scientists and professionals. Around the world, BRG delivers the inspired insights and practical strengths our clients need to stay ahead of what's next. For more information about BRG, please visit thinkbrg.com.
In this episode of the ThinkSet podcast, we're talking about changes to the landscape of US laws that seek to protect consumers from automated telephone calls or robocalls. Since the early '90s, Americans have had recourse against spam callers under a federal law known as the Telephone Consumer Protection Act, or TCPA. TCPA imposes high penalties for companies that violate the act. And since its enactment, the courts have been humming with a high volume of cases alleging unwanted spam calls. Many businesses trying to legitimately communicate with their customers have incurred expensive penalties or settlements with TCPA plaintiffs. Do you understand what's happening with TCPA claims?
We're speaking with BRG's Peggy Daley. Peggy is a managing director in BRG's Global Investigations practice based in Chicago. She's worn a number of hats in her career, including big-firm trial lawyer, in-house counsel, and private investigator. These days, Peggy spends much of her time testifying as an expert witness in class actions involving the collection and use of consumer data, including TCPA, as well as the Fair Debt Collection Practices Act. Peggy, welcome to BRG's ThinkSet podcast.
PD 01:59 Thanks for having me, Michael.
MW 02:00 So, Peggy, why am I still getting calls to my cell phone about auto warranties if the TCPA outlaws them? Make it stop.
PD 02:08 If only I could. I get them myself. The problem with having regulations is that not everybody cares about following them. Those calls for auto warranties that you get and those calls where people are speaking in Chinese, those are from the scam-likely folks. And no matter how much you regulate them, fraudsters are not going to follow the law. So it's very difficult to make the most irritating of those calls stop. But that's the problem with it. If those folks could throw a rock through your window to try and get you to buy an auto warranty, they probably would.
MW 02:47 So like most laws, they're only useful against those people who actually follow laws.
PD 02:51 Exactly.
MW 02:53 Peggy, I'm a bit confused, but is TCPA just about phone calls? Because I get all sorts of other types of communication, like text messages.
PD 03:00 Well, it's interesting, because the TCPA was originally enacted in the early 1990s before the advent of text messages. And so it's not directly addressed in the language of the statute that was passed by Congress. But later, the FCC, which is the governing body and has the ability to regulate and provide rules with regard to the TCPA, ruled that text messages were a part of the TCPA and were covered.
MW 03:30 That sounds like one of the changes that has occurred since the early '90s. But I guess there've been others as well, because wasn't TCPA basically started with the time of mechanical robocalling machines?
PD 03:44 That's exactly right. What happened in the late '80s/early '90s is you had these telephone messages that were being dialed by marketers and other types of businesses, where they didn't really care whom they were getting a hold of. And so they would just sequentially dial numbers. So you would get an extension. Say you were a business, you would get maybe 10,000 extensions. Well, those marketers would dial each and every one of those extensions back in the late '80s and 1990s.
There was a very famous episode where Emory University, I think they had something like 10,000 extensions. And because of the way the technology worked at the time, you couldn't hang up the calls. It was a robocall. It was pushing some kind of a sweepstakes. And it tied up everything. They have hospitals at the university. And it tied up the entire university for a couple of days. And people were rightfully outraged by that.
And as a result of it, the TCPA came into existence. And that's why you see that language identifying an ATDS, an automatic telephone dialing system, as one which has the capacity to dial numbers in a sequential fashion or a random fashion. It did not originally anticipate that, and making that law applicable to companies that were dialing their customers from lists, from their, say, CRM systems that had been consented to call. But subsequently, that is what happened.
MW 05:28 Well, I can certainly understand and recall the annoyance of receiving these calls. And it does seem like a perfect scenario where you shake your fist in the air and say, "Why? There ought to be a law." But what did TCPA purport to do? How did it set out to try and solve that problem?
PD 05:43 Well, it all had to do with consent. And the idea of you as a citizen should really only be called by people that you have consented to receive calls from. And you shouldn't be randomly called without your consent. And you shouldn't be listening to prerecorded calls that you can't opt out of. So that really is the annoyance, the harm that it was meant to address.
And subsequently, there came into play this idea of wrong-number calls. That has really driven a large number of the big, big-dollar cases in the area, typically against big banks, where let's say you have a cell phone number. I've had my cell phone number for twenty years, but that's not true for a lot of people. Folks that are in financial distress often will either lose their cell phone or get a new number, because all they're doing is getting calls, collection calls, and they're interested in not having to answer those. So you get a really large churn of cellular numbers.
And let's say you're JPMorgan. You have consent to call a particular cellular phone number because your customer gave you that number to be contacted a couple of years ago. Now they're in default on a credit card or on a mortgage payment. And you pick up the phone and call them with your autodialer. And it's perfectly fine if you have the consent. But now that number is owned by a completely different person who never gave you consent. So it's a wrong number. And the TCPA covers those wrong-number calls. But it's almost impossible for the companies to find out with any kind of reliability that a telephone number that they've been provided has changed ownership, and it would be, in fact, a wrong-number call at this point.
So large cases have been brought because you think about the volume. When you're a credit-card company and you're dialing literally billions and billions of calls over the course of four or five years, you've got the liability of 500 or 1,500 dollars in statutory damages for each and every call. You can see the twirling eyes of the plaintiff's bar. They're chomping at the bit to file those suits.
MW 08:15 What has the court action been against these alleged violations? Has this been mostly single-plaintiff claims, or has this been class action?
PD 08:21 Well, the ones that strike fear into the hearts of the credit-card companies and the big marketing companies are the class actions. Back in the day before the TCPA, there wasn't a great deal of effort put into compliance by many corporations, so that, let's say you were doing a debt-collection call maybe ten, fifteen years ago, and somebody says, "You've got the wrong person. That's not me." And then they would just continue to call you over and over and over again, because they didn't have systems in place. And by systems, I mean policies and technology in place to take a particular number out of the queue and make it uncallable. And they weren't taking the time and energy to train their customer-service agents to do that. So people were hassled.
My daughter now is in college. But when she got her first cellular phone, back when she was in middle school, for the first six months all she got were debt-collection calls. And she would hand the phone over to me and say, "Mommy, they're calling for that lady again." And I called every single number to get her number off the list. And many of them just kept calling.
So there is a place for those single-plaintiff cases, because I've seen situations where one person who very clearly tried to notify a company that they're not the customer might have received sixty or seventy calls. But you're not going to end up with a $100 million judgment on a single call. So it's the class actions where you can really take in, within the tent of that lawsuit, all the individuals that were called across the country that had a wrong-number call or where there wasn't adequate documented consent.
MW 10:15 Who's at risk in this situation? Is it the third party who's making the calls on behalf of a company, or is it the company that is trying to market or reach out to potential customers?
PD 10:26 Well, you get the concept of agency law, and it plays a big part in these cases. The very first case that I served as an expert witness, I was working on behalf of the cruise industry. And they never employed the travel agency who made hundreds of millions of phone calls. You probably got one yourself, which was, "Hi, you've just won a free cruise. Press one." Right? The cruise industry just simply provided cabins when they were purchased by the travel agency. And the travel agency was trying to sell its travel club. Pay some money, join the club, and you get discounts to go to Branson and Vegas and take cruises.
Under the agency theory, the Seventh Circuit has ruled, "Hey, if you have noticed that this third party is working on your behalf—." In that case, the language of some of the messages, the robo messages, that were left did leave somebody with the impression that they were working on—they were getting phone calls from the cruise lines. And if you're aware of it and you do nothing, and you receive a benefit, the courts oftentimes will say, "They were working as an agent on your behalf. You're liable for their activity." And that's doubly true if you literally employed them under a contract and said, "Hey, make these phone calls for me."
Now, the best thing that you can do under those circumstances is to have an ironclad contract in which it is stated that the third-party marketer swears on a stack of Bibles that they're going to follow the TCPA and that they'll have documented consent and that they are liable for any violations. And "Here's a copy of my insurance policy to show that I could pay for that."
But it's surprising to me how rare it is that we find that kind of robust contracting language that protects the corporate clients. We've had cases where very well-known companies, Fortune 100 companies, were using third-party marketers. And when the lawsuits come, a lot of times those third-party marketers disappear. It's tricky. I mean, it's a very interesting area of the law, because you do have some sketchy characters on the marketing side in some circumstances. But you have kind of equally sketchy plaintiffs in some circumstances who are trying to create cases so that they can file suit. There are professional plaintiffs that are very well known and have filed dozens and dozens and dozens of lawsuits and have been suspected of trying to salt their telephone number so that they get the calls.
MW 13:22 You mentioned previously that TCPA actually sets out statutory damages or penalties associated with the violations against it. What does that mean in the context of the types of consumer protection class actions that we hear about more often where class-action claimants receive some sort of compensation related to the actual damages or harms that they may have suffered?
PD 13:50 I think it helps to put into juxtaposition different types of class actions. And it will explain why Congress did what it did in terms of identifying statutory damages in this circumstance.
Let's say [there is a] big class action against a pharmaceutical company. "I took your drug, and the claim is that you knew that it would have some certain side effect, and you didn't tell me. And therefore, I've incurred this physical damage. I've got an injury."
What you have in these pharma cases is they will work on liability as a class, but then you have to prove up your individual physical damage claims on your own. Right? What Congress did in providing statutory damages, it's a way to short circuit that proving up of your own individual damages. What truly is going to be your damage for getting a telephone call that you didn't want? There you would end up with all these complaints that would be talking about the "I had mental anguish and distress. And I had to lie down in a dark room for four hours because it was so upsetting." You'd have really a multiplicity of claims. And then one person's phone call is going to give them $1,000 because they have $1,000 of pain and anguish, and yet another person gets less.
So Congress just wanted to short circuit all of that and say, "We know it's annoying. We're going to give you a statutory amount. This is what the damage is." And so that makes life a lot easier for kind of everybody except for the people that have to pay it out if they think that those numbers are pretty high, which I can guarantee you that the defendants believe that those numbers are very high for one phone call. But that high number was put in there as a chilling effect. It was Congress telling corporate America, "We care about this. We're going to put a very high dollar value on this because we need you to stop." Right? So as a class action, those numbers get exceedingly high very quickly, which is why those cases tend to settle and also why, in the last twenty years, you've seen millions and millions of dollars put into compliance by big banks and other sort of large entities who reach out on a regular basis calling and communicating with customers. They have spent a lot of money in compliance, which is exactly what those numbers, those statutory damage numbers, were put there to make them do.
MW 16:35 But is there something fundamentally chilling with a penalty being assessed with a question as to the actual degree of armor economic damages that might've been suffered by the claimant?
PD 16:50 Well, that's a great question, because Congress cannot create damage where it just simply doesn't exist. The Constitution actually requires, Article Three requires that there be a real damage to somebody in order to bring any kind of lawsuit. There has to be a harm. And so Congress could put together a statute with very large statutory penalties, but if it doesn't stand on a violation that literally causes harm, concrete injury, then that statute itself is unconstitutional.
And there have been a number of claims recently, most of them have been ones that have been successful, have dealt with texts where somebody gets one silent text on their phone. They have a phone plan that doesn't charge them for that individual text. So they have no cost associated to them. And some of the courts have said, "You know what? One text is not enough. That is not injury. Because of the receipt of one unconsented text, we're not going to make this defendant pay tens of millions of dollars for all the other texts." I mean, it isn't compensable, that one text.
But then we have these cases that say, "Okay, three texts. That's okay. Three texts is an injury. So that counts." There've been efforts to make one phone call that goes to your voicemail not compensable, but typically that's not really moving it with the judges. The judges are saying, "Look, we all know how annoying these phone calls are. They count. They're annoying. It's a real injury. Congress has given us the stated amount in damages with respect to that. And we're going to call it constitutional."
MW 18:52 Has the Supreme Court agreed with that? And how has it gotten involved in the jurisprudence of these TCPA cases?
PD 18:57 Well, it's very interesting, because there are so many appellate court cases. And the Supreme Court just did not address things until 2020. And in that circumstance, there was a case called Barr vs. American Association of Political Consultants. In that case, the plaintiff challenged the constitutionality of the automated call debt-collection exemption. At one point, Congress said, "You know what? If you're calling and collecting debt on a student loan on behalf of the government, that's exempted from the TCPA." But in the US Supreme Court, in that case, affirmed a Fourth Circuit judgment in a six-to-three vote and held that the 2015 government-debt exception to the 1991 ban on robocalls—TCPA—was an unconstitutional exception to the law. And it severed that exemption. And otherwise found the TCPA to be constitutional.
So everyone thought that's going to be the big Supreme Court story of 2020 under the TCPA. But what had been building up in the circuit courts was another issue entirely, which had to do with the nature of the automatic dialing systems that are used to make these millions and millions of calls. The statute itself requires that the dialing system randomly or sequentially call or have the capacity to randomly or sequentially call. And that has to do with that whole Emory hospital case. That's language from the early 1990s and had never been updated. But the technology has changed drastically since that time.
Most big companies use predictive dialers, and they're not randomly calling numbers. They're pulling a list of their customers from a completely different part of their systems, maybe from their CRM systems or other servers. But they're pulling an already created list of telephone numbers that's not random.
And so what has burbled up is a split in the circuits. Whereas you had some of the circuits saying that it had to be randomly or sequentially dialed—Seventh Circuit, Eleventh Circuit—but then you have the Ninth Circuit saying, "No. Predictive dialing is fine. That counts."
So the Supreme Court, this summer, picked up a case called Facebook vs. Duguid. And in that case, they're going to determine what the future of that is. Because the vast majority of cases that are being filed now are not against these random and sequential dialed auto-warranty calls. Most of the TCPA cases that are being filed are against entities who are using predictive dialers, and they are drawing on lists of their customers or pre-vetted marketing lists. So it'll be interesting to see what happens.
And it's drastically changed the docket of these cases. TCPA cases were, for a very, very long time, one of the most filed cases in federal court. And most of those cases are now stayed, the ones that were pending, waiting to hear from the Supreme Court, what they're going to do. And we're seeing instead a lot of state-court cases. There's state versions of the TCPA. Virginia has a $5,000 per call penalty. So that has appealed to the plaintiffs. If it gets pulled back, they'll be filing under these state laws. But if you're only going to be filing on behalf of a class of Virginia residents, you pretty much cut down the scope of that case when it could've been a federal case and you would've filed it on behalf of everybody in the United States.
MW 23:01 What were the specific claims in the Facebook case?
PD 23:04 This is really a statutory construction case, which is why it really applies to every case that's out there and why everything has been stayed. The question was whether or not the statute should be interpreted to limit the TCPA to dialing systems that store or produce telephone numbers using a random or sequential number generator or that has the capacity, so that if you're using a predictive dialer and you're not using one that has that capacity, that preset capacity to randomly call, then those calls are not under the TCPA.
Facebook would say that the TCPA was implemented in response to concerns about those ‘90s era's equipment. And under the plaintiffs interpretation of an autodialer, you would be responsible for every wrong number call that's made, because your cell phone is an automatic dialer. You can put an app on a cell phone to randomly dial a million calls. It's a really beefy computer, your phone. And the way the plaintiff's experts had been defining an ATDS, it included your cell phone. So every one of those wrong-number calls that you've had, somebody could make you—and then if you call it the second time—you know how you make a wrong-number call, and they say, "No. This is Sharon. This isn't Bruce. You've got the wrong number," and then you had to call it back the next time, because you figured that you had a fat-finger call? Well, the first call is $500. And the second call is $1,500. You now owe that person $2,000. And that is really the crux of it. That's the issue. How expansively are we going to read this 1990 statute?
MW 25:01 So is this one of these situations where the Supreme Court, with some justification, could turn to the legislature and say, "You guys have to fix this?"
PD 25:10 Most people ballparking this, trying to figure out what they'll do, are expecting a narrow review that they're going to knock out a lot of these cases, that they'll follow the Seventh and the Eleventh Circuits, and at which point most of those cases will no longer be actionable that have been filed. But the one thing that is true is that everybody hates these calls. Everybody hates wrong-number calls. The last Congress didn't do much, but it sure as heck was able to pass some additional laws relating to these robocalls.
MW 25:50 So what type of role has BRG played, particularly in these certification of class actions?
PD 25:57 We're very fortunate at BRG, because we have a really deep, deep well of data-analytic experts. And these cases deal with the analysis of huge data sets. And it is not just the dialing databases. We oftentimes will get an SQL database with literally billions of telephone calls made over the course of many years. And then there's also a necessary review of the underlying business records. It may be customer records. It may be marketing lead lists. It may be a real variety of different kinds of communications where consent might have been documented.
One of the things that the plaintiffs have to do is to demonstrate that they can find the plaintiffs, they can identify the class. It's oftentimes referred to as ascertainability in these cases. But the plaintiff bears the burden of saying, "Yeah, I can find this class. And I can get notice to them that this lawsuit exists." And that is an exceptionally tricky thing to do, particularly in the wrong-number cases, where you have no business records of the person that received the wrong-number call.
When you're a company calling your customer, you have business records of that customer. "Peggy Daley lives at this place. This is her telephone number." You dial the number that was given to you, and some other person picks up the phone. Then he says, "It's not me. It's wrong number. Take me off the list." You don't get that person's name. You don't write it down typically. There is no record indicating who received the call, and it's only that person who is the class member.
And plaintiffs oftentimes will file a very sparse report saying, "Yeah, not a problem. We'll be able to find them. I'm going to use reverse telephone directories. And I'll find everybody." But it's a lot more complicated than that. And those reverse telephone directories are really unreliable. We've done lots and lots of testing, almost all of the big ones. And they are probably only accurate about 40 percent of the time. So what we do, I typically act as an expert, and we challenge—usually this is pretty cursory statements by the plaintiff's experts that we've seen so far—and say, "You know what? You're not going to be able to identify the class. I did what you said you would do, if it was certified, and I'm not finding these class members. All that this is doing is leading me back to either the customers that we identified anyway or you can't find them. It's not the right person. I've got consent."
So we've been really successful with challenging the plaintiff's proposed methodology by using the actual data in the case, by tracing the telephone numbers and trying to determine whether or not there was consent. We had a big win in the Ninth Circuit a couple of years ago for a big financial institution, wrong-number case, billions of calls at issue. And we were able to show that not a single one of the samples that were provided by the plaintiff's expert as a class member—they identified a certain number of telephone calls based on their methodology. Those numbers, they said, were wrong-number dialed. And we were able to show in that case, not a single one was. We were able to dig up consent from the records and from third-party data to show that those particular numbers could not have been the recipient of a wrong-number call. And cert. was denied in that case. But it's frustrating for our poor clients, because the plaintiffs bear the burden of showing that they have a methodology that can reliably identify the class members, but they don't oftentimes do it.
MW 30:09 Well, it sounds like there's going to be lots of work out there making sure that companies are both using consumer data appropriately and, when it's alleged that they haven't, to make sure that those allegations are proved. And I'm just glad all of our podcast listeners have consented to download this podcast. So thank you very much, Peggy. I appreciate your joining us here on the ThinkSet podcast.
PD 30:30 Thank you.
MW 30:32 [music] This ThinkSet podcast is brought to you by BRG. You can subscribe to the podcast and access other content from ThinkSet magazine by going to thinksetmag.com. Don't forget to rate and review this show on iTunes as well. I'm Michael Whalen. Thanks for listening.
The views and opinions expressed in this podcast are those of the participants and do not necessarily reflect the opinions, position or policy of Berkeley Research Group or its other employees and affiliates.
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