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Paul Zimmerman
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Federal Court Paves Way for TCPA Defendants to Attack Class Actions on Constitutional Grounds

A recent, seemingly innocuous decision out of the Western District of New York sheds new light on a compelling constitutional argument against high-dollar class action lawsuits brought under the Telephone Consumer Protection Act (TCPA). In Hannabury v. Hilton Grand Vacation Co., LLC, No. 14-cv-6126, 2016 WL 1181789 (W.D.N.Y. Mar. 25, 2016), the Court held that a named plaintiff’s TCPA claims did not survive his death.  While the decision appears, on its face, limited to a narrow issue, it may in fact have far-reaching significance. In its reasoning, the Court held that the TCPA’s damages provision is “disproportional” to actual damages suffered. This would suggest that (as detailed below), when the disproportionate remedy is aggregated exponentially in the context of a class action lawsuit, the TCPA’s statutory damages provision violates the U.S. Constitution – a finding that should have significant ramifications for ongoing and future TCPA litigation.

In the Hannabury case, Plaintiff filed a putative class action against Hilton for placing calls to his cell phone in an attempt to sell timeshare properties, even though he alleged that his phone number was listed on the national Do Not Call Registry. Prior to filing a motion for class certification, Hannabury died. His counsel then moved to substitute Plaintiff’s estate as the named plaintiff. The District Court ultimately denied the substitution, finding that Plaintiff’s claims under the TCPA did not survive his death.

“Disproportional to the Harm Suffered”

The Court held that because the case had been filed in federal court, survivorship was a question of federal common law and thus “the test for survivorship turns on whether the statutory claims at issue are primarily penal or remedial in nature” (penal claims extinguish at the party’s death). 2016 WL 1181789, at *3. To determine whether a claim is penal or remedial in nature, courts look to three factors: whether (i) the purpose of the claim is to redress individual or public wrongs; (ii) the recovery is an individual or public recovery; and (iii) the recovery is disproportionate to the harm suffered.

In general, courts are split as to whether the TCPA is penal or remedial. However, the Hannabury Court ultimately found that the law was penal (holding that 2 of the 3 prongs of the test weigh in favor of this determination). With regard to the first prong, the Court found that the purpose of the TCPA is to redress wrongs to the public as opposed to individual plaintiffs. As for the second prong of the test, the Court noted that the benefit of a damage award clearly flows to the individual plaintiff, rather than the public. Therefore, the second factor suggests that TCPA claims are remedial.

The third prong of the test proved decisive in this case. The Court found that “[t]he reality is that the TCPA's damages provision is specifically designed to be disproportional to the harm suffered; such disproportion both deters the violative conduct and ’encourage[s] victims to bring suit to redress violations.’” citing Universal Underwriters Ins. Co. v. Lou Fusz Auto. Network, Inc., 300 F. Supp. 2d 888, 893-94 (E.D. Mo. 2004) aff'd, 401 F.3d 876 (8th Cir. 2005). Accordingly, the third factor suggests that Plaintiff’s claims are penal.  The Court therefore concluded that “based on a weighing of these three factors, the Court finds that Plaintiff’s TCPA claims are penal in nature.” The important concession by the Court in finding “disproportionality,” in conjunction with similar federal court decisions, gives rise to an argument for defendant companies facing TCPA class action lawsuits – namely, that the aggregation of the minimum $500 to $1,500 fine on a class-wide basis is unconstitutional. 

California Federal Courts Open Door for TCPA “Excessive Fines” Defense

In an analogous situation, California Federal Courts have previously questioned the constitutionality of aggregating a minimum statutory fine on a class wide basis in connection with the $5,000/per violation penalty under Penal Code Section 632 (using similar reasoning). The court noted in Cohorst v. BRE Properties, Inc. (S.D. Cal., Nov. 14, 2011, 3:10-CV-2666-JM-BGS) 2011 WL 7061923 report and recommendation adopted as modified, (S.D. Cal., Jan. 18, 2012, 10CV2666 JM BGS) 2012 WL 153754) that it perceived class action treatment of Penal Code Section 632 to constitute an unconstitutionally excessive and disproportionate penalty under the U.S. and California Constitutions. The Cohorst Court, in examining the fairness of a proposed class action settlement, offered a very instructive explanation as to how the $5,000 penalty per call set forth in Penal Code Section 637.2, when applied in a class action scenario, constitutes an "excessive fine" and lacks the requisite proportionality to the harm caused to satisfy due process under the Constitution. 

The Cohorst Court’s comments provide a logical framework for a defense to TCPA claims based on these analogous issues:

“Statutory damages, such as those provided for by Section 637.2, can be unconstitutional in application under either the California or U.S. Constitution if they constitute "excessive fines" or are imposed without due process of law. See People ex rel. Lockyer v. R.J. Reynolds Tobacco Co., 37 Cal. 4th 707, 36 Cal. Rptr. 3d 814, 124 P.3d 408, 420-21 (Cal. 2005). As explained by one appellate court, combining a minimum statutory damages scheme with the class action mechanism "may expand the potential statutory damages so far beyond the actual damages suffered that the statutory damages come to resemble punitive damages -- yet ones that are awarded as a matter of strict liability, rather than for the egregious conduct typically necessary to support a punitive damages award." Parker v. Time Warner Entm't. Co., 331 F.3d 13, 22 (2d Cir. 2003)  [*41] (acknowledging the "legitimate concern that the potential for a devastatingly large damages award, out of all reasonable proportion to the actual harm suffered by members of the plaintiff class, may raise due process issues").

The emergence of the disproportionality argument as elucidated by the Hannabury Court, would seem to be consistent with Congress’ intent when it enacted the TCPA in the first place. The Legislature never intended such disproportionality to be aggregated into a long, drawn out complex class action scenario. The TCPA was always intended for small claims, not unconstitutionally excessive and disproportionate class action claims; in fact, the Legislature’s intent behind the TCPA  was to enable quick expeditious resolution of claims. See Murphey v. Lanier, 997 F.Supp. 1348 (S.D.Cal.1998). The legislative history of the TCPA supports the conclusion that Congress intended the TCPA to provide a cost-efficient remedy for unsolicited facsimiles: private actions under the TCPA should “be treated as small claims best resolved in state courts designed to handle them, so long as the states allow such actions.” Id. From Murphey: “In creating a private cause of action for the receipt of unsolicited facsimiles, Congress sought to create a speedy, effective, and inexpensive remedy. Implying federal jurisdiction over such suits would increase their cost and complexity, the very situation that [the legislative history] demonstrate[s] Congress intended to prevent.”  Murphey, 997 F.Supp. at 1352.

The Hannabury Court’s finding that the TCPA’s damages provision is “disproportional” to actual harm suffered, when read in context with federal courts’ legitimate concerns over blessing devastatingly large and unreasonable damage awards and Congress’ intent that TCPA claims be dealt with in the small claims context to create a speedy, effective, and inexpensive remedy, gives rise to a new constitutional due process argument that may be used by defendants facing class action TCPA claims. In a litigious world where plaintiffs and consumer class action attorneys often become enamored with the possibility of large monetary recoveries, companies defending TCPA claims should not overlook the most fundamental due process document of all, the U.S. Constitution. 

This article is not offered as, and should not be relied on as, legal advice. You should consult an attorney for advice in specific situations.