ATLANTA—Does your hotel use an automatic dialing system to make phone calls? Then you could be opening yourself up to a class-action lawsuit without even realizing it.
According to Joe Sullivan, partner in Taylor English Duma LLP based here, the number of claims under the Telephone Consumer Protection Act of 1991 (TCPA) has skyrocketed, increasing three- to fourfold over the past five years.
Essentially, the TCPA restricts telephone solicitations (more commonly referred to as telemarketing) and the use of automatic dialing systems, artificial or prerecorded voice messages, SMS text messages and fax machines. Sullivan noted that the original intent of the TCPA was to protect individual consumers from unwanted calls—if a consumer brings a claim against a company, the consumer is entitled to $500 per call (though the courts could increase that to up to $1,500 per call).
“Essentially, an autodialer is defined under the law as any piece of equipment that has the capacity to store and generate random numbers,” said Sullivan, adding that this technically makes a consumer smartphone an autodialer. “The bar has been significantly lowered—a lot of courts are holding that any dialing system where the caller is not using their fingers to press numbers is covered under TCPA.”
To make matters more complicated, the FCC has strengthened the prohibition against those types of calls. “If you don’t give express written consent to receive the phone call, and it’s made to you using an autodialer, you technically have a claim under the TCPA,” said Sullivan. “What most courts are requiring at this point is that the company making the call has either a physical record of a document that says you acknowledge that by giving us your phone number, we are entitled to make an autodialer phone call to you, or you can comply with the ESIGN Act, [which facilitates the use of electronic records and signatures].”
However, he said, lately there’s been an explosion of class-action suits—a consumer receives one call that falls under the TCPA and files a suit on behalf of others, which can result in millions of dollars of damage for the company. For instance, in the first half of 2015, roughly 13% of the 1,419 TCPA cases initiated were filed as class actions.
“What was intended was if an individual consumer was getting these phone calls, they could initiate a suit in a small claims court to try to get it resolved. Complainants’ attorneys, however, have seen this as a way to make a significant amount of money. If one person who was called once and did not consent to it—and it can be proven an autodialer was used—you can basically get class-wide discovery, engage in class-wide litigation and your bargaining power in terms of getting a settlement for yourself or damages is increased exponentially. I don’t think this is how the statute was intended,” he said. “It was intended to give each individual consumer $500 or $1,500 per phone call as opposed to allowing a plaintiff who received one phone call to engage in that kind of corporate extortion.”
Sullivan noted that when you research the issue, it also becomes clear that, many times, it’s the same plaintiff and attorney team filing these claims. “That’s not to say there are not legitimate claims and injuries that need to be made whole,” he said. “But there are also a lot of professional plaintiffs who know what industries to target, whether that’s filling out forms that you see at a restaurant or the dry cleaners that ask if you’re interested in staying a couple days at a hotel or about the establishment’s goods and services. If they know the language that needs to be included in that release, and it’s not included in the consent form, they sign up, wait to get the call, and ask a lot of questions to get an understanding of who is making the call to file a suit. You see a lot of repeat litigants.”
As with most legal issues, the extent of the issue varies in different parts of the country. “The statute itself is poorly defined in terms of what an autodialer is,” said Sullivan. “You have states and federal circuits that define it differently, so you might see more class-action litigations in California than you would in a more conservative state like Alabama. The plaintiffs’ attorneys see where the statute is being interpreted broadly, and that’s why you see so many cases in states like Illinois or California where they know the bar is set low.”
Sullivan noted that the risk of having to pay potentially millions if a company loses a class-action settlement isn’t the only threat. For example, even if a company has been above-board with the majority of its phone calls, “if the claim can surpass the motion to dismiss and there’s at least a good-faith basis to assert the claim, they’re going to get discovery,” he said. “That, in and of itself, is a bargaining chip for settlement because the discovery process on a class-wide national basis is so expensive, a lot of companies would rather try to settle.”
One way companies had been dealing with this issue was to give the plaintiff an offer of judgment—that is, acknowledge it made the call to that individual and pay the full amount of damages the individual is entitled to—$1,500 per call. However, earlier this year, in Campbell-Ewald Company vs. Gomez, the Supreme Court found that an offer of judgment does not moot a plaintiff’s case.
So who is being affected in hospitality? “Usually it’s in connection with either timeshare businesses or prizes and offerings—things of that nature,” said Sullivan, noting that it’s much easier for companies to address these issues on the front end.
“It’s much easier to put policies and procedures in place that will prevent a company from dealing with this type of litigation as opposed to when the call already happened and you’re facing the specter of millions of dollars in damages and years in court,” he explained. First, companies must be aware that the TCPA exists and familiarize themselves with all of the rules and regulations; next, consult an attorney for preventative measures and put procedures in place that states before any call is made using a computer system, the company must have written consent from the consumer using the right language in its consent forms.
And if a hotel company does find itself on the wrong end of a lawsuit, consult an attorney. “The law and the policies are changing on such a frequent basis that if you were familiar with the law 30 days ago, there’s a chance it has changed by the time you get hit with a lawsuit,” said Sullivan. “Also, make sure that any and all document-retention policies are being kept in place. You want to suspend any document-destruction policies because any of those could be relevant and discoverable in the case. After that, work with an attorney and get advice as to whether or not the conduct you engaged in was improper. If it was, it’s important to make sure that practice immediately stops. You don’t want to continue because every call you make from that point on can be included in the suit.
“And, of course, if you have an insurance policy, get in contact with the provider to be sure they have notice of the claim and work with them to ensure the coverage is in place,” he said, noting that a lot of insurance companies have begun to say that unless there is a specific rider that covers this type of claim, they won’t cover it. “If you’re a hotel that engages in a lot of these calls, you probably want to make sure there’s a specific reference to TCPA coverage.”