Robo-Calls, Call Centers and Collection Agencies: Supreme Court Approves Federal Court Lawsuits under Telephone Consumer Protection Act of 1991

Posted February 6, 2012 by   · Print This Post Print This Post

On January 18, 2012, the U.S. Supreme Court ruled on a case of an outbound telephone call center that contacted one individual using robo-dialers and voice recordings.  The decision reminds companies using call centers for outbound contacts that a Do-Not-Call list should be respected or federal litigation could result, and that federal procedural rules could result in high litigation costs and settlement value.

In Mims v. Arrow Financial Services LLC, ___ U.S. ____ (2012), the Court reviewed actions by a debt collection service that repeatedly used an automatic telephone dialing service using a pre-recorded voice message to call a debtor’s cell phone without the debtor’s consent.  The Court ruled that the Telephone Consumer Protection Act of 1991, 47 U.S.C. 227 (the “TCPA”), establishes a “federal question” justiciable by federal courts even though the statutory minimum damages per violation are only $500 and the cost of filing a federal complaint is $350.   For knowing and willful violations, the damages are tripled.

The federal statute makes it unlawful to use an automatic telephone dialing system or an artificial or prerecorded voice message, without the prior express consent of the called party, to call (i) any emergency telephone line, hospital patient, pager, cellular telephone or other service for which the receiver is charged with the call or (ii) any  residential telephone lines.  The TCPA also prohibits sending unsolicited advertisements to fax machines.  Finally, it bans the use of automatic telephone dialing systems to engage two or more business telephone lines simultaneously.

This law delegates authority to the Federal Communications Commission to ban artificial and prerecorded voice calls to businesses and directs the FCC to adopt regulations protecting the privacy of residential subscribers, possibly through a national “do-not-call” list.

The collection agency argued that the law did create a private right of action to sue in federal courts, and that state courts were the exclusive forum for collecting the statutory damages from a business that breaches the TCPA or the FCC regulations.   The Court rules that the Congress granted a cause of action and did not exclude filings in federal courts to enjoin breaches and obtain damages.  Several arguments failed to persuade the Court that state courts are the exclusive venue: (i) state courts give a sufficient venue by entertaining class actions against robo-calls; (ii) the Senator who sponsored the law did not mention the federal courts as a venue for enforcement; and (iii) the federal courts would be flooded with small $500 and $1500 claims, so that Congress could not have possibly wanted to impose such a burden on the federal courts.  Rather, the Court ruled that when Congress grants a private right of action and defines the rules governing liability, a federal question arises, and federal courts have jurisdiction under 28 USC 1331.

Some key differences make the federal courts a desirable venue for plaintiffs seeking relief for small claims:

  • Rule 23 of the Federal Rules of Civil Procedure (FRCivP) promotes the use of class actions to remedy cases involving a large number of claimants seeking damages for the same pattern of action by a defendant or group of defendants.
  • Rule 11 of such rules impose sanctions on lawyers who do not properly gather information to support their legal arguments, and thus limit the types of defenses that a wrongdoer can use to delay, drag or “wait.”
  • Federal Rules on E-discovery have led to “best practices” that can cost money for the defendant, from adopting and implementing detailed “records retention” policies involving “litigation holds” to training of personnel in records retention, the practice of taking a snapshot of the hard-drive of a departing employee to avoid a later claim of “spoliation of evidence.”  See FRCivP Rules 16(B) and 26(F) [Meet & Confer], Rule 26(B)(2) [Duty of Disclosure], Rule 26(B)(5) [Privilege Claims], Rule 34 [Forms of Production] and Rule 37 [Safe Harbor].

This ruling will result in increased use of class actions in federal court to extract settlements from companies violating the “Do-Not-Call” rule, the general prohibitions under the TCPA and other new regulations that the FCC may choose to adopt.  What does this next sentence mean?  The decision does not prevent businesses from using automatic dialers from making calls, but it does prohibit the use of robo-callers with prerecorded voice messages.  The clarification about robo-callers also affects other elements of the TCPA.

For call centers that provide collection services and other outbound calling services, the Mims decision serves as a “wake-up call” that federal court class actions can be anticipated for violations.  Businesses that hire such call center outsourcers will normally expect the service provider to indemnify them from liability under such federal litigation.  The rules are very clear…at least that any unclear aspect can now be resolved as a “federal question” in a federal court.

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