The Telephone Consumer Protection Act remains a hotbed of class action litigation. With statutory damages of up to $1,500 for each call, text or fax, the potential exposure creates the threat of annihilating damages for some businesses. This article discusses an additional, often overlooked, tool for defendants in TCPA cases — moving to compel arbitration. It may be useful in cases that raise the threat of what former Second Circuit Judge Henry Friendly once referred to as “blackmail settlements”: cases where the potential damages are so overwhelming that even defendants with meritorious defenses may feel compelled to settle.[1]
Overview of TCPA Claims Involving Business Interactions with Customers
The TCPA places restrictions on certain outbound calls, texts and faxes. Few argue against preventing unwanted, random prerecorded telemarketing communications by businesses with whom the receiving party has never interacted. But these types of unsolicited robocalls are not the subject of most TCPA class action lawsuits.
Instead, TCPA class actions often attack legitimate businesses with pre-existing customer relationships with the named plaintiff and putative class members and are filed despite the existence of any real injury. In many cases, putative class members have indicated that they want the calls or texts and benefit from them. That is particularly illustrated by cases involving messages that convey prescription reminders or notices designed to prevent customer service interruptions. None of this, however, has deterred certain plaintiffs from trying to use the TCPA to threaten companies with significant damages for what even some plaintiffs’ counsel would agree are, at most, “technical” violations of the TCPA.
Businesses should strive to ensure that they have the proper consent under the TCPA, if necessary, for the calls, texts and faxes to their customers or patients. Businesses may also want to consider whether they can rely on the federal public policy favoring enforcement of arbitration agreements, set forth in the Federal Arbitration Act, 9 U.S.C. §§ 1-16.
For businesses communicating with existing customers or patients, they are likely to already have (or be able to obtain) written agreements to arbitrate through a customer contract, approved terms and conditions to a text messaging program, or through the terms of use on the company’s website. Each business and its customers or patients need to decide for themselves whether they want to agree to arbitrate. But when a plaintiff has contractually agreed to arbitrate disputes on an individual basis, enforcing these agreements can be an effective tool in limiting the overwhelming exposure that often accompanies the application of the TCPA’s statutory damages provision in class actions. Given that a contractual right to compel arbitration may be waived if not exercised at the outset of litigation, counsel should explore all potential arguments for arbitration as soon as a case is commenced.[2]
Arbitration Agreements: Drafting and Applying Them to TCPA Claims
While not an exhaustive list, below are some key points to consider when seeking to enforce arbitration agreements in a TCPA case, as well as some practical considerations for drafting and enforcing such agreements.
1. Broadening the Arbitration Agreement to Cover TCPA Claims
A plaintiff’s claim is only subject to arbitration if it falls within the scope of the parties’ agreement to arbitrate. A broadly worded arbitration agreement (e.g., one covering “all claims” that “relate to or arise from” a contract or relationship) should cast a wide enough net to cover a TCPA claim, even if the arbitration agreement does not expressly reference the TCPA. For example, in Tate v. Progressive Finance Holdings, the court compelled arbitration of a TCPA claim based on a “broad” arbitration agreement that covered “any claim, dispute or controversy” regarding a laptop lease and held that such provisions give rise to a “heightened presumption in favor of arbitration such that the party resisting arbitration must show ‘forceful evidence of a purpose to exclude the claim from arbitration.’”[3] Courts faced with arguments that TCPA claims should be arbitrated have regularly applied this presumption in favor of arbitration where the court classifies the arbitration agreement as “broad.”[4] A broad arbitration agreement can even delegate the authority to determine whether a TCPA claim is subject to arbitration to the arbitrator, rather than to the court.[5]
The corollary is that if an arbitration agreement is more narrowly tailored, even slightly, a court may find that the parties did not agree to subject a TCPA claim to arbitration.[6] For example, in Salsbery v. Verizon Wireless (VAW) LLC, the court classified an arbitration agreement covering any dispute that “results from” an agreement as “narrow” in scope — contrasting it with “broad” language about disputes “arising under or relating to” — and refused to send the plaintiff’s TCPA claim to arbitration on the grounds that they did not “result from” the parties’ underlying contract.[7]
An extremely broad arbitration agreement may raise enforceability concerns with respect to unconscionability.[8] If an arbitration clause is unconscionable under generally applicable state contract law, a court may refuse to enforce the agreement. For example, in In re Jiffy Lube Int’l Inc., the court held that an arbitration agreement purporting to cover “any and all disputes” between the parties — without further limitation — was overbroad and unconscionable. In the court’s view, a literal application of the language would lead to absurd results, and thus it refused to compel the plaintiff to arbitrate his TCPA claim.[9]
2. Whether the Arbitration Agreement Survives the Life of the Underlying Contract
In situations where the underlying contract between the parties has expired or been terminated, a question arises as to whether later-accrued TCPA claims are nonetheless subject to arbitration. This issue appears regularly in TCPA cases, as businesses often continue to communicate with consumers to seek contract renewals or to advertise other services. If a company intends its arbitration agreements to survive termination of the underlying contract, the agreement should state so explicitly.[10]
For example, in Stevens-Bratton v. Trugreen Inc., a lawn care service provider called the plaintiff repeatedly after she terminated her service contract, using an autodialer to make telemarketing calls to the plaintiff’s cell phone in an attempt to convince her to purchase additional lawn care services.[11] When the plaintiff brought a TCPA claim, the defendant moved to compel arbitration based on the mandatory arbitration provision in the already-terminated service contract, which the district court granted. The Sixth Circuit reversed, noting that the arbitration agreement lacked any specific provision regarding survival and that the “material occurrences” underlying the plaintiff’s claim occurred after termination.[12] However, federal courts are not unified on this issue, as other courts have held that a post-contract termination claim may be subject to an arbitration agreement as long as the claim has an “intimate relationship” to the expired or terminated contract.[13]
Counsel should keep in mind that particularly skeptical courts might view certain survival clauses as evidencing unconscionability in the arbitration agreement.[14]
3. Proving a Plaintiff’s Affirmative Agreement to Arbitrate
One practical issue often overlooked is the need to prove, with sufficient evidence, that the plaintiff actually agreed to arbitrate his or her claim. There is a well-developed body of law addressing this issue in the context of consumer contracts. Best practices require a company to keep detailed records of a consumer’s agreement to a written arbitration clause. Under the Federal Arbitration Act, the contract containing the arbitration provision does not need to be signed, but it must be written (either in paper or electronic format). Companies may keep records demonstrating that the plaintiff in fact signed, or otherwise assented in some other way to (e.g., by clicking a box on a website after being provided the terms), a contract containing an arbitration agreement. Simply posting an arbitration agreement on an ancillary page of a company’s website may be insufficient to demonstrate assent to the arbitration provision. Continued use of a serve after being mailed an agreement, also may be insufficient proof to compel arbitration.[15]
4. A Defendant May be Able to Compel Arbitration Based on the Plaintiff’s Agreement to Arbitrate With a Third Party
Finally, defense counsel should assess whether there is any potential argument that the plaintiff agreed to arbitrate the TCPA claim based on a contract with a co-defendant or a third party. This issue can arise when the defendant is an affiliate of, or vendor for, a third party that has a contract with the plaintiff. It also arises in the context of cellular service agreements.
Last year, the Western District of Washington addressed whether Subway Sandwich Shops Inc. could compel consumers to arbitrate TCPA claims regarding text message advertisements they received based on the arbitration clause in their cellular service agreements with T-Mobile, Subway’s co-defendant.[16] Applying the doctrine of equitable estoppel, the court held that the consumers could not avoid their arbitration agreements by suing nonsignatories for claims that “are inherently inseparable from arbitrable claims against signatory defendants.”[17] In the court’s view, because the text message had been sent by T-Mobile, the consumers’ TCPA claims against Subway could not be resolved without assessing the claims against T-Mobile, and therefore the entire case was “intimately connected” to the arbitration agreement in the T-Mobile cellular service contract.
Enforcement of arbitration agreements by a nonsignatory (based on equitable estoppel, agency or other grounds) is not limited exclusively to cellular service contracts and courts have required consumers to arbitrate TCPA claims against defendants based on other types of contracts with co-defendants or third parties.[18] Defense counsel should take a hard look at any arbitration agreements that may exist between the plaintiff and any other entity.
Conclusion
In light of the massive exposure created by class action TCPA claims, it is certainly worth the time to consider whether a defendant can, and should, move the claims from court to arbitration. Putting in place an enforceable arbitration agreement takes advance planning and proper record-keeping. Once a TCPA claim is filed, a defendant should decide at the outset whether it intends to seek to compel arbitration to avoid any argument about waiver of the right to compel arbitration.
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[1] Henry J. Friendly, Federal Jurisdiction: A General View 120 (1973).
[2] See, e.g., Schultz v. Verizon Wireless Servs. LLC, 833 F.3d 975, 978 (8th Cir. 2016).
[3] 2017 U.S. Dist. LEXIS 176289, at *8 (C.D. Cal. Oct. 24, 2017);see also Mayton v. Tempoe LLC, 2017 U.S. Dist. LEXIS 87951 (W.D. Tex. June 7, 2017) (ruling that TCPA claims were subject to broad arbitration agreement);Coppock v. Citigroup Inc., 2013 U.S. Dist. LEXIS 40632, at *15 (W.D. Wash. March 22, 2013) (same).
[4] See also Lozada v. Progressive Leasing,2016 U.S. Dist. LEXIS 84097, at *6-7 (E.D.N.Y. June 28, 2016); Campbell v. Verizon Wireless LLC, 2015 U.S. Dist. LEXIS 10707, at *20 (S.D. Ala. Jan. 29, 2015).
[5] See, e.g., Hollingsworth v. Jackson Hewitt Inc.,2016 U.S. Dist. LEXIS 158657 (N.D. Ill. Nov. 16, 2016).
[6] See, e.g., Mediterranean Enters. v. Ssangyong Corp., 708 F.2d 1458, 1464 (9th Cir. 1983) (holding that the phrase “arising under” is narrow in scope, while the phrase “arising out of or relating to” is broad).
[7] 2014 U.S. Dist. LEXIS 108921, at *16-17 (S.D. W. Va. Aug. 7, 2014).
[8] See, e.g., Esparza v. SmartPay Leasing Inc.,2017 U.S. Dist. LEXIS 164014 (N.D. Cal. Oct. 3, 2017) (rejecting defendant’s broad interpretation of arbitration agreement because it “would render the clause impermissibly overbroad, and therefore inoperable”).
[9] 847 F. Supp. 2d 1253, 1262-63 (S.D. Cal. March 9, 2012)
[10] See, e.g., Shea v. BBVA Compass Bancshares Inc., 2013 U.S. Dist. LEXIS 31906, at *17 (S.D. Fla. March 7, 2013) (granting motion to compel arbitration based on, in part, the existence of an explicit survival clause in the arbitration agreement).
[11] 675 Fed. Appx. 563, 566 (6th Cir. 2017).
[12] Id.at 568-69.
[13] See Andermann v. Sprint Spectrum L.P., 785 F.3d 1157, 1159 (7th Cir. 2015).
[14] See, e.g., Wexler, 211 F. Supp. 3d at 503;Esparza v. SmartPay Leasing, Inc., 2017 U.S. Dist. LEXIS 164014, at *7 (N.D. Cal. Oct. 3, 2017); but see Prosper v. Am. Credit Acceptance LLC, 2015 U.S. Dist. LEXIS 187482 (D.S.C. Aug. 17, 2015) (holding that a broad arbitration clause may survive the underlying contract without rendering it unconscionable).
[15] Knutson v. Sirius XM Radio Inc., 771 F.3d 559, 569 (9th Cir. 2014);see also Campbell v. SI Wireless, LLC, 2017 U.S. Dist. LEXIS 143122, at *7-9 (S.D. Ill. Sept. 5, 2017) (applying the Seventh Circuit’s “reasonable communicativeness test” to whether electronic notice of arbitration was sufficient); Shaffer v. HSBC Bank Nev., 2012 U.S. Dist. LEXIS 69818, at *10-13 (S.D. W. Va. May 18, 2012) (refusing to compel TCPA claim to arbitration where the defendant was unable to counter the plaintiff’s testimony that he never received applicable credit card agreement).
[16] Rahmany, 2017 U.S. Dist. LEXIS 9638, at *5-6.
[17] Id.at *5.
[18] See, e.g., Hollingsworth,2016 U.S. Dist. LEXIS 158657, at *9-11 (ruling that the question whether the plaintiff’s claims against two defendants were subject to arbitration based on the plaintiff’s contract with a third defendant should be decided by the arbitrator); Mayton, 2017 U.S. Dist. LEXIS 87951, at *15-16 (holding that consumer’s TCPA claims against Sears must be arbitrated based on arbitration agreement with co-defendant consumer goods leasing company); but see Mims v. Global Credit & Collection Corp., 803 F. Supp. 2d 1349, 1358 (S.D. Fla. 2011) (holding that plaintiff’s TCPA claim against a debt collector was not sufficiently connected to his contract with the creditor to force arbitration based on plaintiff’s contract with the creditor).
[1] Henry J. Friendly, Federal Jurisdiction: A General View 120 (1973).
[2] See, e.g., Schultz v. Verizon Wireless Servs. LLC, 833 F.3d 975, 978 (8th Cir. 2016).
[3] 2017 U.S. Dist. LEXIS 176289, at *8 (C.D. Cal. Oct. 24, 2017);see also Mayton v. Tempoe LLC, 2017 U.S. Dist. LEXIS 87951 (W.D. Tex. June 7, 2017) (ruling that TCPA claims were subject to broad arbitration agreement);Coppock v. Citigroup Inc., 2013 U.S. Dist. LEXIS 40632, at *15 (W.D. Wash. March 22, 2013) (same).
[4] See also Lozada v. Progressive Leasing,2016 U.S. Dist. LEXIS 84097, at *6-7 (E.D.N.Y. June 28, 2016); Campbell v. Verizon Wireless LLC, 2015 U.S. Dist. LEXIS 10707, at *20 (S.D. Ala. Jan. 29, 2015).
[5] See, e.g., Hollingsworth v. Jackson Hewitt Inc.,2016 U.S. Dist. LEXIS 158657 (N.D. Ill. Nov. 16, 2016).
[6] See, e.g., Mediterranean Enters. v. Ssangyong Corp., 708 F.2d 1458, 1464 (9th Cir. 1983) (holding that the phrase “arising under” is narrow in scope, while the phrase “arising out of or relating to” is broad).
[7] 2014 U.S. Dist. LEXIS 108921, at *16-17 (S.D. W. Va. Aug. 7, 2014).
[8] See, e.g., Esparza v. SmartPay Leasing Inc.,2017 U.S. Dist. LEXIS 164014 (N.D. Cal. Oct. 3, 2017) (rejecting defendant’s broad interpretation of arbitration agreement because it “would render the clause impermissibly overbroad, and therefore inoperable”).
[9] 847 F. Supp. 2d 1253, 1262-63 (S.D. Cal. March 9, 2012)
[10] See, e.g., Shea v. BBVA Compass Bancshares Inc., 2013 U.S. Dist. LEXIS 31906, at *17 (S.D. Fla. March 7, 2013) (granting motion to compel arbitration based on, in part, the existence of an explicit survival clause in the arbitration agreement).
[11] 675 Fed. Appx. 563, 566 (6th Cir. 2017).
[12] Id.at 568-69.
[13] See Andermann v. Sprint Spectrum L.P., 785 F.3d 1157, 1159 (7th Cir. 2015).
[14] See, e.g., Wexler, 211 F. Supp. 3d at 503;Esparza v. SmartPay Leasing, Inc., 2017 U.S. Dist. LEXIS 164014, at *7 (N.D. Cal. Oct. 3, 2017); but see Prosper v. Am. Credit Acceptance LLC, 2015 U.S. Dist. LEXIS 187482 (D.S.C. Aug. 17, 2015) (holding that a broad arbitration clause may survive the underlying contract without rendering it unconscionable).
[15] Knutson v. Sirius XM Radio Inc., 771 F.3d 559, 569 (9th Cir. 2014);see also Campbell v. SI Wireless, LLC, 2017 U.S. Dist. LEXIS 143122, at *7-9 (S.D. Ill. Sept. 5, 2017) (applying the Seventh Circuit’s “reasonable communicativeness test” to whether electronic notice of arbitration was sufficient); Shaffer v. HSBC Bank Nev., 2012 U.S. Dist. LEXIS 69818, at *10-13 (S.D. W. Va. May 18, 2012) (refusing to compel TCPA claim to arbitration where the defendant was unable to counter the plaintiff’s testimony that he never received applicable credit card agreement).
[16] Rahmany, 2017 U.S. Dist. LEXIS 9638, at *5-6.
[17] Id.at *5.
[18] See, e.g., Hollingsworth,2016 U.S. Dist. LEXIS 158657, at *9-11 (ruling that the question whether the plaintiff’s claims against two defendants were subject to arbitration based on the plaintiff’s contract with a third defendant should be decided by the arbitrator); Mayton, 2017 U.S. Dist. LEXIS 87951, at *15-16 (holding that consumer’s TCPA claims against Sears must be arbitrated based on arbitration agreement with co-defendant consumer goods leasing company); but see Mims v. Global Credit & Collection Corp., 803 F. Supp. 2d 1349, 1358 (S.D. Fla. 2011) (holding that plaintiff’s TCPA claim against a debt collector was not sufficiently connected to his contract with the creditor to force arbitration based on plaintiff’s contract with the creditor).
