Few industries have been spared from the recent wave of class actions filed under the Telephone Consumer Protection Act (TCPA), and the energy sector is no exception. TCPA cases against electricity and natural gas providers are on the rise, with more than half a dozen such cases filed in 2015 in federal courts in Texas, New York, Ohio, Florida, California, and other states, in addition to cases already pending. The cases against the energy sector focus principally on companies' use of automated communications to market their services to potential customers or to collect delinquent accounts.
Enacted in 1991 to protect consumers from receiving unsolicited telemarketing calls and faxes (and more recently text messages), the TCPA regulates and restricts the manner in which a business may advertise its products and services to consumers by phone (cell and landline), as well as by fax. Specifically, the TCPA prohibits the use of an "automated telephone dialing system" or an "artificial or prerecorded voice" to make calls to cell phones without obtaining the recipient's consent. This rule applies to both telemarketing and non-telemarketing calls, including debt collection or informational calls. Following a change in FCC regulations effective October 2013, the TCPA now requires written consent for most automated telemarketing communications.
Class action risk under the TCPA can be considerable. Because the TCPA provides for statutory damages of $500 per violation (and up to $1,500 per willful violation) with no maximum cap on recovery, potential exposure in a TCPA class action can quickly escalate. To put this in context, the top four TCPA settlements in 2014 totaled more than $175 million.
TCPA Cases and the Energy Sector
A series of putative class actions has been filed against electricity and natural gas service providers alleging violations of the TCPA based on the manner in which these companies have marketed their services to potential customers. The cases often involve providers in deregulated markets. In one case, the plaintiff alleged that he received unsolicited, prerecorded telemarketing calls advertising electricity services. The plaintiff claimed the calls violated the TCPA because he had not given prior express consent to the company to call him for marketing purposes. Bank v Independence Energy, 736 F. 3d 660 (2d Cir. 2013). In another case, the plaintiff alleged the defendant company violated the TCPA by sending unsolicited fax advertisements promoting the sale of natural gas and electricity and also promoting brokering services for other natural gas and electric providers. Saf-T-Gard v. Vanguard Energy Serv., 12-cv-3671 (ND Ill., filed 2012). The complaint alleged that the faxes were sent without the recipients' consent and without any prior existing business relationship. The complaint further alleged that the faxes did not contain the required opt-out language that would allow the recipient to avoid receiving further solicitations. The court certified a class in late 2013, and the parties entered into a class settlement shortly thereafter.
In other cases, plaintiffs have challenged automated communications used in efforts to collect on delinquent electric and gas accounts. Such communications may be initiated either by an energy company directly or by a third-party debt collector. In one recent case alleging violations of the TCPA following attempts to collect on a debt to an electric company, the defendant successfully obtained summary judgment by establishing that it did not use an autodialer to make the calls at issue. Gelakoski v. Colltech, 12-cv-498, 2013 WL 136241 (D. Minn. 2013).
In another case involving debt collection calls by a utility, the U.S. Court of Appeals for the Second Circuit reversed a ruling for the defendant and took a narrow view of the scope of consent for receiving automated debt collection calls. Nigro v. Mercantile Adjustment Bureau, LLC, 769 F.3d 804 (2014). In that case, the plaintiff contacted the power company to request termination of electric service on behalf of his recently deceased motherâ€‘inâ€‘law. In connection with that request, he provided his cell phone number. More than a year later, a collection agency made several calls to the plaintiff's cell phone using an autodialer in an effort to collect on the mother-in-law's delinquent account. The plaintiff claimed that he had not consented to the collection calls. The trial court disagreed and granted summary judgment in favor of the defendant, reasoning that the plaintiff "consented to calls regarding the subject of the transaction, namely the termination of [the] account," which included any effort to collect on any account delinquency. The Second Circuit, however, reversed and held that the plaintiff had not provided his number in connection with the debt and therefore had not consented to debt collection calls.
TCPA Hot Issues
The issues facing energy companies under the TCPA are similar to the issues facing companies in other industry segments: uncertainty in the rules, consent and the scope of that consent, vicarious liability issues arising from the acts of agents and third-party marketers and debt collectors, and large potential exposure due to TCPA statutory damages. Five key issues for all industry segments are discussed below.
1. Will the Federal Communications Commission Provide Clarity?
Although the FCC issued rulings on a number of petitions in 2014, a backlog of more than two dozen petitions remains pending. More than half a dozen petitions seek clarification on the definition of an autodialer (see below), an issue on which courts have been split and where clarity would assist companies in complying with the rules. A number of petitions address issues related to prior express consent, such as clarifications to the new standard for "prior express written consent" (effective October 2013), whether consents obtained before October 2013 are still valid, whether consumers can revoke consent, and whether the new written consent standard applies to certain types of calls, such as healthcare messages. Other issues include the rules for fax solicitations and calls to cell numbers that have been reassigned to new users.
FCC Commissioner Michael O'Rielly has expressed on multiple occasions that the large number of pending petitions reflects a "lack of clarity" in the rules and that "the FCC needs to address this inventory of petitions as soon as possible." The Commissioner has emphasized that the TCPA is impacting all sectors of the economy and concluded by expressing, "[w]e can't paint all legitimate companies with the brush that every call from a private company is a form of harassment. It is time for the FCC to act to provide clear rules of the road that will benefit everyone, and that means acting on TCPA petitions before us." Will the FCC provide clarity in the coming months?
2. Third-Party Liability Issues
Under the TCPA, defendants face potential liability based on two theories: direct liability and vicarious liability. The plain language of the TCPA assigns civil liability to the party actually making or initiating the unsolicited call or text message. During the fall of 2014, the U.S. Court of Appeals for the Ninth Circuit decided two cases recognizing vicarious liability under Sections 227(b) and 227(c) of the TCPA. See Gomez v. Campbell-Ewald, 768 F3d 871 (9th Cir. 2014) (holding that companies are not necessarily protected from TCPA liability by using third-party marketers); Thomas v. Taco Bell Corp., 582 Fed. Appx. 678 (9th Cir. 2014) (applying agency principles in finding that company was not vicariously liable for text messages sent on its behalf by a third party). The Ninth Circuit decisions demonstrate that certain involvement and interaction between a company and its contractors may establish agency relationships that can ultimately lead to vicarious liability under the TCPA. Because it is common for companies to use third-party vendors to assist with communications, the application of vicarious liability principles will continue to be a key issue in many TCPA cases.
3. The Definition of "Autodialer"
The TCPA defines autodialer as "equipment which has the capacity to store or produce telephone numbers to be called, using a random or sequential number generator, and to dial such numbers." 47 U.S.C. § 277(a)(1). Recent court opinions have split on the meaning of the term "automatic telephone dialing system" (ATDS) under the TCPA, and the FCC has yet to rule on several pending petitions seeking clarification of this issue. In 2014 alone, there were as many as half a dozen divergent decisions on the definition of autodialer. For example, in Davis v. Diversified Consultants, Inc., CV13-10875, 2014 WL 2944864 (D. Mass. June 27, 2014), the court broadly interpreted the definition and found that a predictive dialer was an ATDS because it had the capacity to store numbers and dial sequentially. The court stated that it was irrelevant whether the dialer had the capacity to generate random or sequential numbers as long as the system had the capacity to store numbers and dial them from a list. Other courts have defined autodialer more narrowly, focusing on present rather than potential capacity. See Gragg v. Orange Cab Co. Inc., No. C12-0576RSL, 2014 WL 494862, at *1 (W.D. Wash. Feb. 7, 2014). In Gragg, the court held that to fall within the TCPA, a system had to have the "present, not potential, capacity to store, produce, or call randomly or sequentially generated telephone numbers." (emphasis added.) As courts have struggled to clearly define autodialer, various parties have petitioned the FCC to set a clear standard. Several petitions are currently pending before the FCC on this issue, which creates uncertainty over the scope of the TCPA.
4. Consent and Revocation
One of the key issues in pending litigation under the TCPA is whether a consumer can revoke consent to receive calls on a cell phone. Generally, the TCPA requires prior express consent before a consumer can be contacted on a cell phone using an automatic dialer or prerecorded message, but the statute is silent on the right to revoke. Various questions remain, including whether prior express consent can be revoked and, if so, what constitutes valid revocation.
There is a split in authority on whether consent can be revoked under the TCPA, but a number of courts are trending toward the conclusion that consent is revocable. The U.S. Court of Appeals for the Third Circuit was the first federal appellate court to address this issue. In Gager v. Dell Fin. Servs., LLC, 727 F.3d 265, 270-72 (3d Cir. 2013), the court held that a consumer has a right to revoke consent notwithstanding the absence of a statutory provision specifically authorizing revocation. Applying the common law concept of consent, the court reasoned that a right to revoke is not inconsistent with prior FCC decisions. Some courts have followed the Third Circuit's lead, including the Eleventh Circuit in Osorio v. State Farm Bank, F.S.B., 746 F.3d 1242 (11th Cir. 2014).
5. Insurance Coverage Issues
Another frequently litigated question is whether TCPA defendants may seek coverage from commercial liability insurers to defend and indemnify them for TCPA exposure. In 2014, some insurance coverage litigation arose from commercial liability insurers filing declaratory judgment actions against their insureds seeking a declaration that there was no coverage for the underlying TCPA claims. In other situations, plaintiffs pursued claims against commercial and professional liability insurers after agreeing to settlements that were to be satisfied exclusively from the proceeds of a defendant's insurance policies. These coverage issues often turn on the specific language of the policy in question, including the policy's stated coverage exclusions. Increasingly, commercial liability policies may contain a specific exclusion for TCPA claims. See James River Ins. Co. v. Med Waste Mgmt., No. 1:13-cv-23608, 2014 WL 4749551 (S.D. Fla., Sept. 22, 2014) (denying coverage based on a TCPA exclusion). Other commercial liability policies may have more general exclusions that can preclude coverage for TCPA claims. See Nat'l Union Fire Ins. Co. of Pittsburgh, Pa. v. Papa John's Int'l, No. 3:12-cv-00677, 2014 WL 2993825 (W.D. Ky., July 3, 2014) (finding no coverage where the policy contained an exclusion for any loss resulting from a violation of a "statute, ordinance or regulation of any federal, state, or local government"). With TCPA class actions continuing to be filed at a record pace, there will be ongoing issues over the scope of commercial liability coverage for these claims.
There was a sharp increase in TCPA filings and high-dollar class action settlements in 2014, and this trend will likely continue given the five aforementioned TCPA issues. Many different industries are being targeted by class action plaintiffs' lawyers, and the energy industry is no exception. A strong TCPA compliance program is essential to help avoid TCPA lawsuits and potential liability.
About the Authors:
Lewis S. Wiener is a Partner and Wilson G. Barmeyer is an Associate in the Litigation Group in the Washington, DC Office of Sutherland Asbill & Brennan LLP. Their practices include representing clients in TCPA litigation and advising on TCPA compliance. The opinions expressed within do not necessarily reflect the views of Sutherland Asbill & Brennan LLP or its clients.