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Eighth Circuit Rules Against Telemarketing Company on TCPA Claim, Yet Declares $1.6 Billion in Statutory Damages Unconstitutional

The U.S. Court of Appeals for the Eighth Circuit found that unwanted, prerecorded phone messages to consumers, even without any other alleged harm, met the injury-in-fact requirement for Article III standing to bring a Telephone Consumer Protection Act (TCPA) claim. However, the Eighth Circuit also concluded that the TCPA-mandated statutory damages of $1.8 billion would violate the Due Process Clause of the U.S. ConstitutionThe case is Golan v. FreeEats.com–the decision was issued on July 16.

The TCPA prohibits “initiat[ing] any telephone call to any residential telephone line using a prerecorded voice to deliver a message without the prior consent of the called party,” subject to certain exceptions. Among such exceptions is one for calls made for a commercial purpose that don’t include or introduce an advertisement or constitute telemarketing. The TCPA provides for recovery of the greater of “actual monetary loss” or $500 in damages per violation.

In the case, the plaintiffs filed a putative class action complaint alleging that the defendants had initiated the phone calls to them as part of a telemarketing campaign to promote a movie in violation of the TCPA. The defendants included the telemarketing company and an individual investor in the movie. The district court dismissed the plaintiffs’ complaint, concluding that the plaintiffs lacked standing to bring a TCPA claim because the messages they received did not qualify as advertising or telemarketing. The Eighth Circuit reversed, ruling that messages constituted “telemarketing” because they were initiated for the purpose of promoting the movie, and the plaintiffs had Article III standing to bring a TCPA claim.

The case subsequently proceeded to a jury trial. At the close of evidence, the district court entered judgment against the telemarketing company and the jury returned a verdict in favor of the investor and other defendants.

The telemarketing company filed a post-trial motion for reduction of damages, arguing that the TCPA-mandated statutory damages of $1.6 billion ($500 per call for more than 3.2 million calls) were so excessive that they violated the Due Process Clause. The district court agreed and reduced the damages to $10 per call for a total of approximately $32.4 million.

In ruling on the plaintiffs’ appeal from the judgment awarding the reduced damages, the Eighth Circuit initially revisited its prior Article III standing ruling, which was issued before the U.S. Supreme Court’s Spokeo decision. The Eighth Circuit concluded that the intangible injury claimed by the plaintiffs (the receipt of two answering machine messages without prior consent) was a concrete injury that conferred standing because it bore “a close relationship to the types of harms traditionally remedied by tort law, particularly the law of nuisance” and that, in the TCPA, Congress had elevated such injuries to the status of legally cognizable injuries.

The Eighth Circuit rejected the plaintiffs’ argument that the district court had abused its discretion by refusing to give the jury instructions regarding the individual investor’s direct liability. Referencing the TCPA text that makes it “unlawful for any person…to initiate any telephone call” that violates the TCPA’s prohibitions, the Eighth Circuit stated that the instructions sought by the plaintiffs did not accurately state the law because it would have allowed direct liability against a defendant who did not “initiate” the calls, meaning someone who did not take the steps necessary to physically place the calls.

The Eighth Circuit agreed with the plaintiffs that, because nothing in the TCPA itself allowed for the reduction of statutory damages, such damages could only be reduced if the award would be unconstitutional. The Eighth Circuit called $1.6 billion “a shockingly large amount” when compared to the telemarketer’s conduct. It noted that the telemarketer “plausibly believed” it was not violating the TCPA because it had prior consent to call the recipients about the topic that was the movie’s predominant theme, only recipients who opted in after hearing two polling questions heard a message about the movie, only about 7 percent of the calls went beyond the two polling questions, and the call campaign was conducted for only about a week. Quoting a 1919 U.S. Supreme Court decision dealing with the constitutionality of statutory penalties, the Eighth Circuit concluded that “under these facts, $1.6 billion is ‘so severe and oppressive as to be wholly disproportioned to the offense and obviously unreasonable.’”

Copyright © by Ballard Spahr LLP

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Kaplinksy, partner, New York, finance
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Alan S. Kaplinsky is Co-Practice Leader of the firm's Consumer Financial Services Group, which has more than 115 lawyers. Mr. Kaplinsky devotes his practice exclusively to counseling financial institutions on bank regulatory and transactional matters, particularly consumer financial services law, and defending financial institutions that have been sued by consumers in individual and class action lawsuits and by government enforcement agencies. Visit Mr. Kaplinsky's profile in Wikipedia.

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Daniel McKenna, Ballard Spahr Law Firm, Philadelphia, Litigation Attorney
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Daniel JT McKenna devotes his practice to privacy and data security, consumer financial services, and mortgage banking litigation.

Mr. McKenna's privacy practice focuses on new product and process design, privacy impact assessments and audits, privacy management and policy, incident planning, incident response and notification, third-party and vendor management, privacy counseling, regulatory comments, and litigation. His clients include banks, loan service providers, health care providers, manufacturers, colleges and universities, and member organizations.

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John L. Culhane, Jr., is known for his work advising on interstate direct and indirect consumer and residential mortgage loan and leasing programs, through both traditional brick-and-mortar facilities and e-commerce. Before joining Ballard Spahr, Mr. Culhane was associate counsel with Mellon Bank, N.A.; associate counsel with Bank of America NT&SA; and senior attorney (section chief) with the National Credit Union Administration, the federal agency regulating federal credit unions.

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Joel Tasca financial institutions lawyer,  consumer class action attorney Ballard Spahr
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Joel E. Tasca has defended banks and other financial institutions in consumer class and individual actions for over twenty years. These cases have arisen out of residential mortgage loans, credit card accounts, and an array of other consumer financial services.  Many of these suits have been brought under federal consumer protection laws such as the Fair Credit Reporting Act, the Telephone Consumer Protection Act, the Truth in Lending Act, and the Real Estate Settlement Procedures Act, as well as under state unfair, deceptive, or abusive acts and practices statutes....

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