The "strangest statute" Chief Justice Roberts has seen: uncertainties of litigating TCPA "junk fax" class actions.

• Author: Stabile, Daniel T.
• Position: Telephone Consumer Protection Act of 1991

At oral argument in 2011, Chief Justice Roberts described the Telephone Consumer Protection Act of 1991 (TCPA), 47 U.S.C. [section]227, as "the strangest statute I've ever seen." (1) To illustrate the implications of this "strangest" of statutes, consider the following scenario: Fax Blaster, Inc., a fly-by-night entity that specializes in sending fax advertisements on a mass scale, approaches a sales associate for Large, Co. The associate hires Fax Blaster, Inc. to send advertisements to a list of 30,000 numbers in the blaster's database. A recipient of the transmission--who does not even recall receiving this particular fax--is contacted by a law firm and asked to serve as the representative in a putative class action TCPA lawsuit against Large, Co. The court holds that Large, Co. is directly liable under the act because its "goods or services" were being "advertised or promoted," and judgment is entered for the minimum statutory damages--$15,000,000.

If any company with a sales or marketing force is not yet concerned with TCPA compliance and liability issues, it probably should be.

Prompted by "an increasing number of consumer complaints" to the Federal Communications Commission (FCC) about the use of automated telemarketing equipment, Congress passed the TCPA to place restrictions on the use of automatic dialing systems and the transmission of unsolicited facsimiles. (2) In the "junk fax" context, the TCPA generally prohibits the sending of unsolicited advertisements to a fax machine, (3) and contains a private right of action under which a recipient may obtain $500 per fax in statutory damages (or up to $1,500 per fax, in the court's discretion, if the violation was willful or knowing). (4) The act's sponsor, Senator Ernest Hollings, contemplated that individuals would bring TCPA claims pro se in small claims court, (5) but in the years following the passage of the act, large-scale TCPA class action litigation has become a booming "cottage industry." (6) According to some estimates, more than 2,300 TCPA lawsuits were filed in 2014 (compared to 1,100 in 2012, 350 in 2010, and 16 in 2008), and the number is expected to continue escalating for the foreseeable future. (7)

The rise of large-scale "junk fax" litigation has been fueled, in part, by the proliferation of technologies that allow for millions of faxes to be sent each day through computerized fax servers. (8) These technological innovations, coupled with the absence of a statutory damages cap, have created a landscape in which a fax blaster (an entity that combines computerized fax technologies with databases of fax numbers) can expose a defendant to millions of dollars of liability in a matter of hours. In such circumstances, the threat of crippling liability creates significant pressure on defendants to settle. Consequently, 2014 was the high-water mark for TCPA settlements. In August 2014, a financial institution and three collection agencies agreed to the largest settlement in the history of the statute--a $75.5 million fund to end litigation concerning calls made from an automatic dialing system (9)--shattering the previous record of $32 million. (10) In the "junk fax" space, a distributor of maintenance products agreed in November to settle class action litigation for $40 million. (11)

The issue of defendants' unwillingness to bear the risk, even if it is only a small possibility, of an adverse judgment in the face of enormous damage exposure is not unique to the TCPA context. (12) But TCPA lawsuits give rise to additional uncertainty because the law surrounding many fundamental aspects of the statute is unsettled. This lack of clarity makes it difficult to accurately evaluate the strength of a defendant's litigation position, which in turn creates added pressure on the defendant to settle the action.

This article discusses three areas of uncertainty in the TCPA junk fax context. The first pertains to the fundamental issue of who may be held directly liable for sending a violative fax. While some courts conclude that direct liability attaches only to the entity or individual that actually sent the transmission, these decisions are being overshadowed by opinions concluding that an entity is directly liable under the act whenever its "goods or services are advertised or promoted" in the transmission, which raises a set of additional questions regarding how that concept might be interpreted in particular factual situations. The second area is the issue of whether named plaintiffs have Article III or statutory standing to bring a TCPA action in the common situation in which the plaintiff does not even recall receiving the fax (and lacks any knowledge of its contents). In such a scenario, how can the plaintiff demonstrate that it has sustained an injury sufficient to establish standing? To the extent standing is lacking under those circumstances, class certification may be inappropriate because determining which putative class members are within the class (i.e., which have knowledge of receiving the transmission or own the fax machine) could create extraordinary administrative problems. Finally, this article explores cases that address whether the act's tacit allowance for unlimited damages can withstand Constitutional scrutiny.

The Uncertain Standard for Direct Liability Under the TCPA

The TCPA provides that it is unlawful "to use any telephone facsimile machine, computer, or other device to send, to a telephone facsimile machine, an unsolicited advertisement." (13) Given that establishing liability under the act is a relatively straightforward matter--some courts have called the TCPA "essentially a strict liability statute" (14)--a critical issue for purposes of establishing direct liability is determining the sender of the transmission. The issue is particularly significant because in many large junk fax cases, the transmissions were sent not by the named defendant, but by outside fax blasters that specialize in sending out unsolicited faxes on a mass scale.

The FCC, which is the agency charged with administering the TCPA, has promulgated a regulation defining the "sender" of a junk fax as "the person or entity on whose behalf a facsimile unsolicited advertisement is sent or whose goods or services are advertised or promoted in the unsolicited advertisement." (15) A concept underlying the FCC regulation is that entities should not be able to escape liability for TCPA violations merely because they did not physically "hit send." (16) But the FCC's broad interpretation could be read to lead to what courts have described as absurd liability scenarios. For example, under this FCC definition of "sender," a company is arguably directly liable under the TCPA for violative faxes--even if the faxes were not sent on the company's behalf--simply because the faxes advertised or promoted its goods or services. If an aggrieved customer wanted to expose a company to $1,000,000 in TCPA liability, it could hire a fax blaster to send out 2,000 faxes in an afternoon. In Cin-Q Auto., Inc. v. Buccaneers Ltd. P'ship, No. 13-CV-01592, 2014 WL 7224943 (M.D. Fla. Dec. 17, 2014), the Middle District of Florida highlights this "sabotage liability" problem by imagining a "rabid Tampa Bay Buccaneers fan" rendering the organization per se liable by sending season ticket sales promotions by fax. (17) In light of this issue, some courts have been willing to treat the two elements of the FCC's "sender" definition as conjunctive rather than disjunctive, requiring that the transmission was also sent "on behalf" of the defendant. (18)

Another bizarre aspect of the FCC's expansive definition is that the third-party fax blasters, some of whom send faxes by the millions, are rarely sued. Courts have described one infamous blaster as "a modern-day 'typhoid mary,'" (19) escaping personal liability but leaving a trail of massive exposure to her customers in her wake. One reason why the fax blasters themselves are rarely sued is because the standard to hold liable the individual who actually transmitted the fax, paradoxically, is arguably more difficult to satisfy than the standard to hold liable the entity whose "goods or services" are being "advertised or promoted." Under the FCC regulation, a...