KT Class Action Blog

Archive for July 2017

Posted on Monday, July 31 2017 at 12:59 pm by -

What the Third Circuit’s Decision in Susinno Means for Spokeo-Based Standing Arguments in TCPA Cases

by Joe Dowdy and Phillip Harris

Telephone Consumer Protection Act (“TCPA”) plaintiffs often file putative class actions seeking potentially crippling statutory damages. Not surprisingly, TCPA defendants often seek an early dismissal based on Spokeo, Inc. v. Robins, 136 S. Ct. 1540 (2016), particularly when the named plaintiff alleges minor, technical TCPA violations. The Spokeo argument typically contends that, despite a technical violation of the TCPA, the plaintiff has not suffered a “concrete injury” sufficient to confer Article III standing. Following the Ninth Circuit, the Third Circuit recently rejected this defense. See Susinno v. Work Out World Inc., No. 16-3277, 2017 WL 2925432 (3d Cir. July 10, 2017); Van Patten v. Vertical Fitness Group, LLC, 847 F.3d 1037, 1043 (9th Cir. 2017). Particularly after the Third Circuit’s decision in Susinno earlier this month, some observers are questioning the viability of Spokeo arguments in TCPA cases, but consideration of these cases in context reveals that this conclusion may be somewhat premature.

The Susinno complaint alleged what can only be described as a minor TCPA violation. The named plaintiff claimed that the defendant fitness company placed a single, unsolicited, and unanswered call to her cell phone and left a one-minute voicemail message. 2017 WL 2925432, at *1. The district court found this insufficient to establish standing, finding a single solicitation not “‘the type of case that Congress was trying to protect people against’” and that the plaintiff suffered no concrete injury. Id.

Following In re Horizon Healthcare Services Inc. Data Breach Litigation, 846 F.3d 625 (3d Cir. 2017), the Third Circuit broadly interpreted Spokeo to provide standing where a party brings a statutory claim “alleging ‘the very injury [the statute] is intended to prevent,’ and the injury ‘has a close relationship to a harm … traditionally … providing a basis for a lawsuit in English or American courts.’” 2017 WL 2925432, at *4 (citing Horizon, 846 F.3d at 638-40). In the Third Circuit’s view, the Susinno plaintiff met this standard because: (1) the TCPA “addresses itself directly to single prerecorded calls” for the purpose of protecting consumers’ interests in privacy and avoidance of nuisances, and (2) in enacting the TCPA, Congress sought to protect the same interests implicated in the traditional common law cause of action for invasion of privacy. Id. Thus, Plaintiff’s claim of nuisance and an invasion of privacy sufficed. Id. 

The Third Circuit also favorably cited Van Patten v. Vertical Fitness Group, LLC, 847 F.3d 1037, 1040-41 (9th Cir. 2017), where the Ninth Circuit found standing under Spokeo where the plaintiff received two unwanted text messages from a fitness company. In the Ninth Circuit’s view, the plaintiff possessed standing because “[t]he TCPA establishes the substantive right to be free from certain types of phone calls and texts absent consumer consent” and “[u]nsolicited telemarketing phone calls or text messages, by their nature, invade the privacy and disturb the solitude of their recipients.” Id. at 1043. As a technical matter, however, the Van Patten decision holds only that the plaintiff sufficiently alleged standing, and the court did not engage in a detailed factual analysis even though the case had proceeded to the summary judgment phase. Id. at 1040.

Key takeaways. The Susinno decision demonstrates that, when confronted with a complaint alleging that the plaintiff incurred the type of harm the TCPA seeks to address, at least some post-Spokeo courts will remain hesitant to find a lack of standing. In these jurisdictions, Rule 12 motions to dismiss will largely be unsuccessful. A defendant might be better served by deposing the plaintiff and developing direct evidence that the plaintiff’s alleged harms are inconsequential, and hoping that a fact-based attack on the standing issue will produce a dismissal on summary judgment.

Posted on Friday, July 21 2017 at 7:53 pm by -

California’s Automatic Renewal Law Continues to Create Class Action Risk

by Nancy Stagg

A recent federal district court opinion highlights the class action risks companies selling consumer goods and services in California face from California’s Automatic Renewal Law, California Business & Professions Code §17600 (“ARL”). The ARL, which was enacted in 2010, requires companies selling goods and services in California through continuous service programs, or automatically-renewing consumer contracts, or when offering free trials, to clearly and conspicuously disclose the terms, obtain the consumer’s affirmative consent before imposing a charge, and provide an acknowledgment that contains the terms, the cancellation policy, and an easy-to-use method to cancel the service. Given the increasing popularity of subscription services for everything from streaming music to beauty products, numerous class action lawsuits have been filed against goods and service providers alleging violations of the ARL. In an order dated July 17, 2017 by U.S. District Judge William Alsup in the Northern District of California in Gregory Ingalls, et al., v. Spotify USA, Inc. (Case No. 3:16-CV-03533 WHA), the District Court granted in part and denied in part Spotify’s motion for summary judgment on a plaintiff’s claims brought under the ARL and California’s Unfair Competition Law, California Business & Professions Code §17200 (“UCL”). The District Court granted summary adjudication and dismissed plaintiff’s claim brought under the ARL but denied summary judgment on plaintiff’s UCL claim. (At the time of this publication, plaintiff’s motion for class certification was pending before the District Court.)

The District Court’s order dismissing plaintiff’s claim based on the ARL itself is in line with other recent orders from the Eastern and Central Districts of California that have found that the ARL does not provide a private right of action. See Johnson v. Pluralsight, LLC, — F. Supp. 3d —, 2017 WL 661953 (E.D. Cal. Feb. 17, 2017) (Judge Morrison England, Jr.); Roz v. Nestle Waters N. Am.,Inc., No. 2:16-cv-04418-SVM-JEM, 2017 WL 132853 (C.D. Cal. Jan. 11, 2017) (Judge Stephen Wilson). However, because a UCL claim can be based upon the violation of a statute, the District Court found that the alleged violation of the ARL could be the predicate unlawful act upon which a UCL claim (and class action) could be based.

The District Court also rejected Spotify’s claim that the plaintiff lacked Article III standing to bring the unfair competition claim. The District found that plaintiff’s expenditure of $9.99 a month for 3 months for an online music streaming service, considered in light of his testimony that he did not expect to be charged for the service, no longer wanted it, and did not use it after the first 2 weeks of his 3-day free trial, was sufficient to establish injury-in-fact.

In examining each of the three grounds upon which the plaintiff based his claim that Spotify violated the ARL, the District Court determined that the plaintiff raised a genuine issue of material fact as to “but for” causation, which precluded summary judgment for Spotify. First, the plaintiff’s testimony – to the effect that, if the terms had been properly presented to him, he would have read them and cancelled his subscription prior to the end of the free trial – was sufficient to support his claim that Spotify’s failure to disclose its automatic-renewal terms in a clear and conspicuous manner caused him harm. The District Court rejected Spotify’s argument that, because the plaintiff admitted he did not read Spotify’s automatic renewal disclosure, his injury was not traceable to Spotify’s conduct. Plaintiff’s allegations were not related to the actual content of the disclosure, according to the District Court, but were instead “predicated on a prophylactic law requiring businesses to present disclosures in a conspicuous manner.”

Second, the District Court found that the plaintiff sufficiently established causation as to his claim that Spotify failed to obtain his affirmative consent to the automatic renewal program:  “Had Spotify presented [plaintiff] with an opportunity to affirmatively consent, he may have read whatever he was consenting to.”

Finally, in assessing plaintiff’s third claim that Spotify failed to provide an appropriate acknowledgment of the automatic renewal disclosure, the District Court noted that the receipt plaintiff received after signing up contained only a link to the online terms and not a copy of the actual terms. Because Spotify failed to address the adequacy of this type of disclosure in its motion, the District Court also denied summary judgment as to this claim.

Practice Tip: While many other states have enacted similar laws, California’s Automatic Renewal Law is considered to be among the most stringent in the United States. California is currently a hot spot for the filing of automatic-renewal disclosure class action cases. To avoid being targeted, companies offering subscription service programs, automatic renewals, and free trials should carefully review their compliance with California law and make any necessary changes to their sign-up process to provide clear and conspicuous disclosure, obtain affirmative consent, and provide an appropriate acknowledgement to the consumer.

For more information, please contact Kilpatrick Townsend Partner Nancy L. Stagg at nstagg@kilpatricktownsend.com.

 

Posted on Wednesday, July 19 2017 at 6:14 pm by -

D.C. District Court Expands Government Contractors’ Exposure to Consumer Data Breach Class Actions

by Michael Breslin, Jon Neiditz, Gunjan R. Talati and Christian F. Henel

The United States District Court for the District of Columbia recently endorsed private citizens bringing data breach claims directly against a government contractor where the contractor failed adequately to safeguard the citizens’ personal information. In McDowell v. CGI Federal Inc., No. 15-1157, 2017 WL 2392423 (D.D.C. June 1, 2017), the district court ruled a private party can survive a contractor’s motion to dismiss by claiming to be an “intended beneficiary” of terms commonly found in government contracts involving the storage or transmission of sensitive consumer information. This ruling potentially expands class action liability exposure for government contractors who receive consumers’ personal information during the course of performing government contracts.

The plaintiff in McDowell submitted a passport application containing her personal information to the United States Passport Agency, which is part of the U.S. State Department. CGI Federal, Inc. (“CGI”), a federal contractor, processes passport applications for the State Department. While CGI had entered into a contract to provide passport application processing to the State Department, it never entered into any express or implied contract with Ms. McDowell.

The McDowell complaint alleged employees of CGI stole the plaintiff’s personal information, along with the personal information of other passport applicants, and used the information to commit identity theft. The named plaintiff’s alleged injuries included paying for enhanced credit monitoring services and expending time to deal with several fraudulent charges and protect her accounts with banks, credit card companies, and credit reporting agencies. Based on these allegations, the plaintiff alleged contract, tort, and consumer protection act claims against CGI.

The district court dismissed all but the breach of contract claim. Despite finding no contract between Ms. McDowell and CGI, the district court nevertheless allowed the breach of contract claim to survive, finding the named plaintiff an intended third party beneficiary of CGI’s contract with the State Department. Normally, in the context of government contracts, “there is a presumption that members of the public are not intended beneficiaries, but merely incidental beneficiaries of the contract.” McDowell, 2017 WL 2392423, at *6. Under the common law of the District of Columbia (which the district court ruled was the governing law), this presumption may be overcome if the contracting parties “clearly intended that the contract would benefit the plaintiff, or an identifiable class to which the plaintiff belongs.” Id. at *7 (internal quotation omitted).

Neither party provided the court with a copy of the contract between CGI and the State Department. Rather, the McDowell party merely alleged, on information and belief, that the State Department’s contract with CGI required CGI to “‘act reasonably and employ reasonable safeguards at all times with respect to handling the Personal Information of Plaintiffs, including requiring a background security investigation for all CGI employees with authorized access to the Personal Information.’” Id. (quoting amended complaint) (emphasis added by court). Accepting this allegation as true for purposes of CGI’s motion to dismiss, the court held “it is at least plausible that [plaintiff] can establish that she is an intended beneficiary.” Id. The court warned, however, that whether plaintiff can do so will depend on a review of “the language of the alleged contract provision, as well as the contract as a whole.” Id. Because the actual contract was not yet before the court, an analysis of the contract’s language was a merits question the court declined to reach at the motion to dismiss stage.

Government contracts frequently require contractors to employ reasonable safeguards to protect consumer personal information. The McDowell ruling allows consumer victims of data breaches to assert breach-related claims directly against the government contractor as intended beneficiaries of such provisions. Given the roadblocks consumers face in asserting damages claims against government agencies, breach claims against private government contractors may become attractive options for victims of disclosure of information submitted to the government.

In the wake of McDowell, contractors handling sensitive consumer information should review their government contracts to determine the extent to which they have accepted responsibility for safeguarding consumer information. A contractor potentially facing an intended third-party beneficiary claim based on any such contractual provision should re-evaluate its data breach safeguards, including ensuring all security controls remain state-of-the-art and have been subject to regular testing. And contractors should remain current on developments in data breach law, given that they now could face direct liability on such claims rather than merely facing a risk of indemnification liability if and to the extent a governmental entity might be found liable.

Posted on Friday, July 7 2017 at 11:57 am by -

U.S. Supreme Court rejects application of American Pipe tolling to statutes of repose

by Joe Reynolds

Takeaway: In California Public Employees’ Retirement System v. ANZ Securities, Inc., No. 16-373, 2017 WL 2722415 (U.S. June 26, 2017), the Supreme Court issued its closely-watched decision regarding whether the filing of a putative class action tolls the statute of repose for actions brought under Section 11 of the Securities Act of 1933. The Supreme Court held that the equitable tolling principles announced in American Pipe & Construction Co. v. Utah, 414 U.S. 538 (1974), cannot supersede the purpose of a statute of repose, which is “to grant complete peace to defendants.” CalPERS, 2017 WL 2722415, at *11. For the defense bar, this is a welcome restriction on American Pipe tolling, at least where a statue of repose is involved. As we discussed last month, the Ninth Circuit recently expanded American Pipe tolling to successive class actions, rejecting the argument that serial relitigation of class certification would force defendants “to settle to buy peace.” Resh v. China Agritech, Inc., No. 15-55432, 2017 WL 2261024 (9th Cir. May 24, 2017) (quoting Phipps v. Wal-Mart Stores, Inc., 792 F.3d 637, 653 (6th Cir. 2015)).     

The CalPERS case arises out of certain securities offerings by Lehman Brothers in 2007 and 2008. In 2008, a putative class action was filed in the Southern District of New York on behalf of all persons who purchased these securities, alleging claims under Section 11 of the Securities Act of 1933. More than three years after the securities offerings at issue, CalPERS – a member of the putative class – filed a separate complaint alleging identical claims under § 11. Shortly thereafter, the putative class reached a proposed settlement, CalPERS opted out of the class, and the defendants moved to dismiss CalPERS’ complaint as time barred.

The statutory time bar at issue – Section 13 of the Act – provides that “[i]n no event shall any such action be brought to enforce a liability created under [§11] more than three years after the security was bona fide offered to the public … .” 15 U.S.C. § 77m. CalPERS argued its complaint was timely under American Pipe tolling principles, where the Supreme Court held “the commencement of a class action suspends the applicable statute of limitations as to all asserted members of the class.” American Pipe, 414 U.S. at 554. The District Court and the Second Circuit rejected CalPERS’ argument, however, holding that American Pipe tolling does not apply to § 13’s three-year bar—which the appellate court denominated a statute of repose. Writing for the majority, Justice Kennedy agreed, relying primarily on the “nature and purpose” of the statutory time bar at issue and of American Pipe tolling more generally. CalPERS, 2017 WL 2722415, at *6.

Justice Kennedy recognized that statutory time bars fall into two categories with two “distinct” purposes: statutes of limitations and statutes of repose. While statutes of limitations encourage “diligent prosecution of known claims,” statutes of repose provide “more explicit and certain protection to defendants.” Id. at *6-*7. Put another way, statutes of repose grant “complete peace to defendants,” give defendants “full protection after a certain time,” and offer defendants “full and final security.” Id. at *8, *11. American Pipe tolling, on the other hand, is grounded in the “the judicial power to promote equity” or the “traditional equitable powers of the judiciary.” Id. at *10. Ultimately, CalPERS holds that these principles of equity cannot modify a statutory time bar designed to grant peace to defendants. Id. at *11.

In her dissent, Justice Ginsburg notes the potential for opportunistic behavior by class action defendants: “Defendants will have an incentive to slow walk discovery and other precertification proceedings so the clock will run on potential opt outs.” Id. at *16. But this concern likely will be limited to Securities Act cases, given that most statutes of repose are much longer than three years. Nevertheless, and particularly given the Ninth Circuit’s recent decision allowing American Pipe tolling across successive class actions, CalPERS reiterates the importance of carefully evaluating any applicable statutes of repose, in addition to the preclusion and “comity” defenses potentially applicable in any repetitive class action.

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