Federal Judge Rejects TCPA Class Action Settlement

blogpostpic5-21On February 26, 2014, a federal judge for the United States District Court for the Western District of Washington rejected an attempt to settle a class-action Telephone Consumer Protection Act (“TCPA”) lawsuit against Best Buy.  The lawsuit was commenced in April, 2010.  The parties began negotiating a settlement in April of 2013 and by December moved the Court for preliminary approval.  However, after careful consideration of all of the agreed upon terms, the Court did not feel that other consumers adversely affected by Best Buy’s alleged TCPA violations were adequately protected.  As such, the Court denied the motion to approve the settlement and sent the parties back to engage in further negotiations.

The TCPA Allegations

The complaint alleged that Best Buy would automatically enroll any customers who financed purchases through an installment plan at its stores in its “Reward Zone Program.”  The program provided customers with certificates to be used on purchases in Best Buy stores.  When Best Buy changed its program to award digital rather than physical certificates, through its calling vendor, Best Buy began placing automated telephone calls to its customers to inform them of the change.

The plaintiff alleged that these calls (as well as other automated calls) violated the TCPA and, in particular the federal Do-Not Call regulations, as well as various Washington State consumer protection statutes.

The Court’s Decision

The Court rejected the $4.55 million settlement for a number of reasons.  The Court’s chief concern was with the payout amounts to individual class members.  According to the settlement agreement, class members were only eligible to recover $50-$100 per TCPA violation.  The Court reasoned that if consumers brought a similar TCPA action against Best Buy on their own for the same violation, they may be eligible to receive an award of $1,500 per violation.  However, the settlement at issue before the Court only gave those consumers a maximum award of $50- $100 per TCPA violation.  The Court further speculated that in practice, consumers may receive a “much smaller” award than the $50-$100 that the settlement agreement allegedly claims they are entitled to.  Therefore, the Court reasoned that this result would be unfair to consumers covered by the class-action settlement.

The Court speculated that “even if each class member only submitted one claim, by the court’s calculations, it would take between $24 million and $49 million to fully pay each class member in accordance with the settlement agreement.”  Given these calculations, the Court explained that the failure to account for administrative costs made the potential recovery for consumers on a per TCPA violation basis significantly smaller than the $1,500 per violation recovery those same consumers would be entitled to in an individual action.  As a result, the Court instructed the parties to file a renewed motion for class-action settlement approval once its concerns had been addressed.

Protect Yourself

Based on the foregoing decision, it is clear that courts may reject the terms of a class action settlement in order to protect potential class members.  Accordingly, resolving a TCPA class action is no small task.  Indeed, the potential costs associated with defending and resolving a TCPA class action may be far greater than anticipated.  Given these costs and the very real possibility that a court may demand higher settlement sums to protect consumers, businesses are better served by retaining knowledgeable counsel and avoiding TCPA class action litigation in the first place.

If you are interested in learning more about this topic, or if you have been served with legal process relating to the TCPA, please e-mail us at info@kleinmoynihan.com or call us at (212) 246-0900.

The material contained herein is provided for informational purposes only and is not legal advice, nor is it a substitute for obtaining legal advice from an attorney.  Each situation is unique, and you should not act or rely on any information contained herein without seeking the advice of an experienced attorney.

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David Klein

David Klein is one of the most recognized attorneys in the technology, Internet marketing, sweepstakes, and telecommunications fields. Skilled at counseling clients on a broad range of technology-related matters, David Klein has substantial experience in negotiating and drafting complex licensing, marketing and Internet agreements.

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