telemarketing

First Circuit Vacates Massive TCPA Class Action Settlement Due to Conflict

The First Circuit Court of Appeals recently issued a stunning opinion, vacating a $14 million Telephone Consumer Protection Act (“TCPA”) class action settlement. In Murray v. Grocery Delivery E-Services USA Inc, the Court decided that a potential conflict existed in class counsel’s representation of different class members. Two well-established procedural requirements of class certification are that class counsel has adequately represented the class and that any settlement proposal was negotiated at arm’s length. In vacating the district court’s approval of the TCPA class action settlement, the First Circuit raised questions as to whether or not a single lawyer could adequately represent the interests of groups of plaintiffs with significantly different claims to a lump-sum settlement amount. The Murray ruling is significant because the majority of TCPA classes are represented by a single lead attorney. Of interesting note is that the class settlement was objected to and brought to the First Circuit by a member of the class. Nevertheless, the First Circuit’s reasoning for vacating the settlement provides a number of baseline considerations for TCPA class action defendants.

The Underlying Lawsuit

In 2015, Grocery Delivery E-Services USA Inc d/b/a HelloFresh (“HelloFresh”) initiated a marketing campaign in which it contacted former subscribers in an attempt to win back their business. Email notice was sent to approximately 4.4 million consumers, and post card notice to approximately 400,000. A class action was filed on behalf of the approximately 4.8 million purported class members, alleging that HelloFresh’s marketing campaign violated the TCPA. However, not all class plaintiffs were similarly situated; there existed three distinct categories of consumer claims. Among the class were plaintiffs that claimed that: (1) HelloFresh contacted them using an autodialer without consent; (2) they were contacted by HelloFresh despite being listed on the National Do-Not-Call (“NDNC”) registry; and (3) HelloFresh contacted them despite their prior request to be placed on the HelloFresh Internal Do-Not-Call (“IDNC”) list. After a period of litigation, HelloFresh entered mediated settlement with the named plaintiffs. During negotiations, plaintiffs’ counsel represented the interests of all prospective class members, despite the fact that the three distinct TCPA class claims were grouped together. The parties eventually agreed on a payment of $14 million to settle the class claims, pending court approval. For purposes of settlement, the class of approximately 4.8 million consumers was certified and defined as:

All persons in the United States from September 5, 2015 to December 31, 2019 to whom HelloFresh, either directly or by a vendor of HelloFresh, (a) placed one or more calls on their cellphones via a dialing platform; (b) placed at least two telemarketing calls during any 12-month period where their phone numbers appeared on the NDNCR for at least 31 days before the calls; and/or (c) placed one or more calls after registering the landline, wireless, cell, or mobile telephone number on HelloFresh’s Internal Do-Not-Call List.

Approximately 100,00 class members submitted valid claims. Three individuals filed objections. One contended that HelloFresh should not pay anything at all. Another, that HelloFresh should pay more. The third, Ms. Sarah McDonald, submitted, among other objections, the argument that no single class counsel could adequately “negotiate and recommend a settlement jointly on behalf of three subgroups having materially different claims.” Ms. McDonald’s claims were heard on appeal.

Takeaways from Murray’s Rejection of the TCPA Class Settlement

While the approval of the class action settlement was entrusted to the district court’s discretion, the First Circuit had authority to vacate the settlement for abuse of that discretion. Ms. McDonald’s principal argument was that class counsel “sold out” members of the class, such as herself, whose claims were materially stronger and more valuable than others because they had signed up for the NDNC. Ms. McDonald claimed that the NDNC members could not possibly be adequately represented by the same counsel for other class subsets because they were rightfully owed a larger share of the settlement fund. The First Circuit agreed with her claims of inequity, vacated the $14 million settlement, and, in the process, provided the defendant’s bar with a slew of useful considerations to take into account where TCPA class actions are brough by a single class counsel.

1) Under Rule 23(e) there are both procedural and substantive checks:

a) Procedural: class counsel must adequately represent the class and the proposed settlement must be negotiated at arm’s length;

b) class members must receive equitable treatment relative to each other;

2) Because a common fund established by class settlement is a zero-sum circumstance, it must be demonstrated that class counsel has not “sold out” a subset of class members and allocated some of its fair share to another group;

3) Counsel must ensure that each subset is easily identifiable by significant differences in its claims. In Murray the elements of a NDNC claim ((A) a residential telephone subscriber; (B) that received more than one telephonic solicitation; (C) by or on behalf of the same entity; (D) during a twelve-month period; (E) to a number that the subscriber registered on the NDNC registry) differed significantly from the elements of an automated dialer claim ((i) at least one call is made; (ii) using an automatic telephone dialing system; (iii) without the consent of the called party). 

4) Counsel must ensure that each class subset is also easily identifiable by significant differences in the defenses to its claims. In Murray, HelloFresh’s argument that its calls were not “telephone solicitations” because of an “established business relationship” with its former customers is a defense to NDNC claims. HelloFresh’s argument that the machine that made the calls was not an automatic telephone dialing system is a defense to autodialer claims.

5) Consider that even within the same subset of class members, there may be defenses that apply with disparate effect. Within the NDNC class group in Murray, HelloFresh’s arbitration and class-action waiver defense more strongly applied to members who signed up after said provisions were added to its website Terms and Conditions. HelloFresh’s assertion that cell phone users do not qualify as residential telephone subscribers did not apply to class members who received calls on landlines. Finally, HelloFresh’s established business relationship defense did not apply to NDNC class members who terminated their subscriptions at least eighteen months before receiving the subject telemarketing calls.

Hire Experienced Attorneys to Build the Best Available Defenses to a TCPA Class Action

Opinions like Murray provide promising considerations for defendants in TCPA class actions. However, it takes a skilled attorney to wield court decisions effectively and craft such case law into convincing arguments. For example, the district court in Murray gave HelloFresh a chance to walk away from the settlement after Facebook v. Duguid significantly weakened plaintiff’s allegations that an automated dialing system was employed in its marketing campaign. HelloFresh, nevertheless, decided to stick with the original agreement despite a logical assumption that the basket of claims at issue could now be settled for less than $14 million. Class counsel did not attempt to reapportion payments despite the fact that the NDNC and IDNC class subsets now had significantly stronger claims than the autodialer group. These were significant oversights, by both plaintiff and defense counsel.

The field of TCPA litigation is fast moving, and impactful opinions are rendered on a regular basis. As such, businesses should hire experienced TCPA attorneys who stay up to date with this field of law to ensure that all avenues to a successful litigation defense are explored and coherently argued.

If you require assistance with telemarketing compliance or related litigation defense, please email us at info@kleinmoynihan.com or call us at (212) 246-0900.

The material contained herein is provided for information 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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Photo by Austin Distel on Unsplash

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