By Christopher M. Cascino and Jennifer A. Riley

In In Re Capital One Telephone Consumer Protection Act Litigation, Case No. 12-CV-10064, 2015 WL 605203 (N.D. Ill. Feb. 12, 2015), Judge James Holderman of the U.S. District Court for the Northern District of Illinois recently approved an unprecedented $75,455,099 settlement for 1,378,534 class members in a Telephone Consumer Protection Act (“TCPA”) class action and awarded plaintiffs’ counsel a whopping $15,668,265 in fees. As employers and business are increasingly aware, TCPA class actions are becoming ubiquitous because of the severe penalties imposed by the statute and the ability of plaintiffs’ attorneys to leverage those penalties to acquire large settlements and windfall fee awards.

Though not a traditional workplace class action, In Re Capital One Telephone Consumer Protection Act Litigation teaches many valuable lessons for companies and employers alike. Enterprising plaintiffs’ attorneys continue to take advantage of the onerous requirements, stiff penalties, and unclear language of the TCPA to bring suits and receive large fee awards. Until the FCC provides some clarity, companies should ensure that their practices fit comfortably within the confines of the limited circumstances where the use of autodialing and prerecording is unquestionably allowed under the TCPA and FCC regulations.

Case Background

In 1991, Congress enacted the TCPA. “The TCPA prohibits callers from using ‘any automatic telephone dialing system or an artificial or prerecorded voice’ to make any non-emergency call to a cell phone, unless they have the ‘prior express consent of the called party.’” Capital One Telephone Consumer Protection Act Litig. at *3 (quoting 47 U.S.C. § 227(b)(1)(A)(iii)).  It imposes stiff penalties for violations, providing for statutory damages of $500 per call or $1,500 per call for willful or knowing violations. Id. at *3-4.

During 2011 and 2012, plaintiffs filed a number of class and individual actions against Capital One alleging that it violated the TCPA by calling class members’ cell phones using an automated dialing system and/or by using prerecorded messages in its calls to class members to collect on credit card debit. Id. at *1-2. On December 10, 2012, those cases were consolidated before Judge Holderman in the Northern District of Illinois. Id. at *2.

Capital One argued that it obtained consent to call each class member because in every version of its standard cardholder agreement, Capital One provided that customers consented to receive calls through autodialing technology. Id. at *12.  Capital One argued that the TCPA itself allows autodialing and prerecording with “express consent,” and FCC regulations provide that “autodialed collection calls to ‘wireless numbers provided by the called party in connection with an existing debt are made with the ‘prior express consent’ of the called party,’ and are therefore permissible.” Id. (quoting 23 F.C.C.R. 559 ¶ 9).

Plaintiffs pointed to another part of the FCC regulation stating that “prior express consent is deemed to be granted only if the wireless number was provided by the consumer to the creditor, and that such number was provided during the transaction that resulted in the debt owed.” Id. at *12-13 (quoting 23 F.C.C.R. 559 ¶ 9). Plaintiffs argued that, under this part of the regulation, Capital One could only autodial or make prerecorded calls to class members if the class members actually provided their cell phone numbers to Capital One on their respective cardholder agreements. Id.

Case Settlement

Despite the fact that it had a strong argument that the class consented to receiving autodialed and prerecorded calls, Capital One agreed to settle the case for $75,455,099 because of the lack of clarity in the FCC regulation and the enormous potential liability if it lost on the merits. Id. at *6, *11. Of the $75,455,099 settlement, $22,636,530  – 30% of the settlement amount – was designated for class counsel’s fee award, with $5,093,000 designated for notice and administration costs and $47,700,569 – or $2.72 per class member/$34.60 per class member who filed a claim form – designated for the class. Id. at *6-7.

The Court approved the class action settlement amount, though it “cut” class counsel’s fee award from $22,636,530 to $15,668,265. Id. at *39. The Court calculated this award by finding that class counsel should receive 36% of the first $10 million recovered, $25% of the next $10 million recovered, $20% of the next $25 million recovered, and 15% of any amounts recovered thereafter. Id. The Court decided that this graduated recovery scheme was appropriate because class counsel should receive a premium on the first $10 million recovered due to the risks in pursuing this litigation while giving class counsel a gradually reduced incentive to seek additional damages to “account for cases where the marginal costs of increasing the class’s damages recovery are low.” Id. at *38. After the reduction in fees, class members who filed claims should receive $39.66 rather than the originally proposed $34.60. This reduced award still provided class counsel with an enormous windfall of 20.77% of a $75.5 million settlement.

Implications

Because of the size of the fee award given to plaintiffs’ counsel in this case and the ability to leverage the stiff penalties of the TCPA to force settlement, we expect plaintiffs’ lawyers to continue to search for every opportunity to file TCPA suits.  We also expect that plaintiffs’ lawyers will use every ambiguity in the law and FCC regulations and the aforementioned stiff penalties to compel other well-meaning companies to settle dubious TCPA claims and, as a result, receive large fee awards.  Because of this, employers who contact their customers via cell phone should be vigilant regarding their compliance with the TCPA. Companies seeking to collect debts should refrain from using automatic dialing and prerecorded messages without first obtaining an express written consent from each customer that identifies the cell phone number to which the company can place automatic-dialed calls.