For Cannabis Dispensaries, Ounce of Prevention Worth More than Pound of Cure
Imagine facing the prospect of a crippling class action lawsuit and having to engage in costly discovery to disprove the claims, even where clear evidence of innocence is presented at the pleading stage. For one cannabis dispensary, this wasn’t merely a thought exercise, it was reality. In Montanez v. Future Vision Brain Bank, LLC, 2021 WL 1697928 (D.Colo. 2021) plaintiff filed a putative class action against Future Vision Brain Bank (“Future Vision”) alleging that the company had violated the Telephone Consumer Protection Act (TCPA) by sending numerous telemarketing text messages to plaintiff’s cellphone using an Automatic Telephone Dialing System (ATDS).
Future Vision moved to dismiss, contending that plaintiff lacked standing to bring the suit and that the complaint failed to state a claim, in any event. As to its first defense, Future Vision asserted that plaintiff failed to allege an injury-in-fact because she had provided prior consent to receive text messages and she had not adequately plead the existence of an ATDS. Second, defendant argued that even if plaintiff had standing, the failure to plausibly allege the use of an ATDS warranted dismissal of the claims.
To establish its first defense, Future Vision submitted an affidavit from its digital systems engineer, which included screenshots showing that plaintiff had enrolled in defendant’s customer loyalty program and that when she did so, she provided her phone number and authorized communication through text message. The parties marshaled competing authorities from the Third, Eighth, and Ninth circuits on the question whether consent is properly an issue of the merits or jurisdiction. Citing Tenth Circuit precedent, however, the court reasoned that because resolution of the jurisdictional question (standing) requires resolution of an aspect of the substantive claim (consent), the issue should be resolved under Rule 12(b)(6). And because defendant moved only to dismiss the issue under Rule 12(b)(1), the court denied the motion to dismiss on the issue of standing as to consent.
The court reached a similar conclusion with respect to defendant’s ATDS defense, even though it was asserted under both Rule 12(b)(1) and Rule 12(b)(6). An ATDS is defined by the TCPA as “equipment which has the capacity (a) to store or produce telephone numbers to be called, using a random or sequential number generator; and (b) to dial such numbers.” 47 U.S.C. § 227(a)(1). As we have previously discussed, the Supreme Court’s recent decision in Facebook v. Duguid clarified that unless the dialing equipment uses a random or sequential number generator, businesses will not be required to obtain prior written consent from the consumer before contacting them. 141 S.Ct. 1163 (2021). Under the Supreme Court’s recent interpretation, equipment that merely dials from a list, and does not incorporate the use of a random or sequential telephone number generator is not bound by the TCPA’s requirements to obtain prior express consent before making calls or sending text messages using an ATDS.
Under the Supreme Court’s recent interpretation, equipment that merely dials from a list, and does not incorporate the use of a random or sequential telephone number generator is not bound by the TCPA’s requirements to obtain prior express consent before making calls or sending text messages using an ATDS.
Despite the clarity of this precedent, the court determined that it was not dispositive at the pleading stage. “While the Supreme Court’s decision elucidates the definition of an ATDS,” the court stated, “that holding will prove far more relevant on a future motion for summary judgment than it does now. At this stage, the Court must take all well-pleaded facts as true and cannot consider outside evidence without converting the Motion into a motion for summary judgment.” The court then went on to find that plaintiff had plausibly alleged the use of an ATDS. Specifically, plaintiff alleged that defendant utilized a messaging platform that allowed the transmission of thousands of text messages without human involvement. And defendant relied on the platform’s ability to store telephone numbers, generate sequential numbers, dial numbers in a sequential order, and dial numbers without human intervention.
This case demonstrates that although many may have viewed Facebook as a decisive victory for cannabis companies that use automated equipment to make calls or send text messages, the district court’s decision here indicates that Facebook may not always be sufficient to protect defendants at the pleading stage. This is because where a TCPA class action is filed is as important as what is alleged. Had this case been brought within the Third or Eighth Circuits, where courts have found consent relevant to the standing inquiry, the outcome likely would have been different. Unless and until the Supreme Court resolves the growing circuit split on this issue, cannabis companies that use any type of automated dialing system should consult with competent legal counsel to design and implement mitigation strategies, including (i) help identifying known litigators and serial plaintiffs, (ii) scrubbing numbers against the Do Not Call registry, (iii) checking for reassigned numbers, (iv) drafting arbitration provisions and class action waivers; (v) crafting strategic forum selection and choice of law clauses; and (vi) developing compliance programs to minimize risk to the company.