TCPA Class Action Ruling: Nonprofits Acting With Dual Purposes

The TCPA “nonprofit exemption” may not apply to a nonprofit entity acting: (1) on behalf of a for-profit entity and/or (2) with dual commercial and non-commercial purposes.

In this putative class action, Plaintiff challenges Defendant’s alleged practice of making unsolicited telemarketing calls to individuals who registered their phone numbers on the national Do Not Call registry (“DNC”).  Defendant operates a nonprofit company and “purports to offer credit counseling services and debt management plans on a nonprofit basis.”  Plaintiff asserts that another entity: (1) provides back-office and administration services to Defendant, (2) exerts control over Defendant’s telemarketers, and (3) generates income from Defendant’s telemarketing activities.  Pinn v. Consumer Credit Counseling Foundation, Inc., No. 22-cv-04048, 2023 WL 21278 (N.D. Cal. Jan. 3, 2023).

Plaintiff asserted class action claims under the Telephone Consumer Protection Act, 47 U.S.C. § 227(c)(5) (“TCPA”).  Defendant filed a motion to dismiss because the calls were to promote Defendant’s tax-exempt nonprofit “debt counseling services.”  The District Court denied the motion and permitted the case to proceed by analyzing the dual commercial and non-commercial purpose of a nonprofit entity’s communications:

    • TCPA’s regulation: The TCPA authorizes “[a] person who has received more than one telephone call within any 12-month period by or on behalf of the same entity in violation of the regulations prescribed under this subsection” to bring an action for injunctive relief and/or actual or statutory damages of up to $500 per violation.  47 U.S.C. § 227(c)(5).  The corresponding regulations provide in relevant part that “[n]o person or entity shall initiate any telephone solicitation to … [a] residential telephone subscriber who has registered his or her telephone number on the national do-not-call registry of persons who do not wish to receive telephone solicitations that is maintained by the Federal Government.” 47 C.F.R. § 64.1200(c)(2).  This prohibition also applies to wireless telephone numbers.  47 C.F.R. § 64.1200(e).  A telephone solicitation “does not include a call or message … [b]y or on behalf of a tax-exempt nonprofit organization.”  47 C.F.R. § 64.1200(f)(15)(iii) (emphasis added).
    • 2003 FCC Order: The Federal Communications Commission (“FCC”), in a 2003 order, states concerns about calls made jointly by nonprofit and for-profit organizations,” including that the exemption “frequently has been used to veil what is in reality a commercial venture.”  In Re Rules & Reguls. Implementing the Tel. Consumer Prot. Act of 1991, 18 F.C.C. Rcd. 14014, 14087-88 (2003) (emphasis added).
    • 2005 FCC Order: The FCC, in a 2005 order, states that “[i]n circumstances where telephone calls are initiated by a for-profit entity to offer its own, or another for-profit entity’s products for sale–even if a tax-exempt nonprofit will receive a portion of the sale’s proceeds–such calls are telephone solicitations as defined by the TCPA.”  In the Matter of Rules & Reguls. Implementing the Tel. Consumer Prot. Act of 1991, 20 F.C.C. Rcd. 3788, 3800 (2005).
    • Massaro/PETA ruling: In Massaro v. Beyond Meat, Inc., 3:20-cv-510, 2021 WL 948805, at *6 (S.D. Cal. March 12, 2021), the court ruled that the nonprofit exemption did not apply, at the pleadings stage, to a nonprofit – People for the Ethical Treatment of Animals (“PETA”) – which could be held liable under the TCPA for sending marketing text messages promoting alternative animal food products because the text messages were made with dual commercial and non-commercial purposes.  PETA denied that it received compensation from Beyond Meat for the marketing messages, but the court was obligated to accept the allegations as true for purposes of the motion to dismiss.  See also, Aranda v. Caribbean Cruise Line, Inc., 179 F. Supp. 3d 817, 828 (N.D. Ill. 2016) (analyzing a different TCPA exemption for calls made for a non-commercial purpose).

In sum, courts will not automatically dismiss a TCPA action against a nonprofit entity and, instead, the court will analyze the commercial and noncommercial purposes of the communications.

 

TCPA Class Action: Website Disclosure and Lead Marketers

The Ninth Circuit reviewed a website disclosure form – for a marketing website that generates leads – to determine when consumers assent to terms through interacting with a website.  The Ninth Circuit analyzed the factors of: (1) reasonably conspicuous notice, (2) manifestation of assent, and (3) use of the word – arbitration – in the notice itself.  Berman v. Freedom Financial LLC, 30 F.4th 849 (9th Cir. 2022).  Many similar federal court rulings concern websites in which the consumer is engaging in a transaction – such as buying a product – so Berman has a different factual basis because the marketing website was giving away free items as a means of obtaining leads for other companies.

In the facts underlying this case, Fluent is a digital marketing company that generates consumer leads for its clients by collecting information about consumers who visit Fluent’s websites.  Fluent offers free items via its websites such as gift cards and free product samples as an enticement to get consumers to provide their contact information and answer survey questions.  Fluent then uses the information it collects in targeted marking campaigns conducted on behalf of its clients.

Fluent asked the first plaintiff to: (1) “confirm her zip code” by clicking a button and then (2) click on a large button stating “this is correct, continue!”  Fluent asked the second plaintiff to: (1) confirm “gender” by clicking a large button and then (2) click the “continue” button.  Significantly, located in between these two buttons were two lines of text – in small gray font which was partially underlined – stating: “I understand and agree to the Terms and Conditions which includes mandatory arbitration and Privacy Policy.”

Defendants used the contact information provided by consumers like plaintiffs to conduct a telemarketing campaign on behalf of defendants.

Plaintiffs filed a TCPA class action on behalf of consumers who received unwanted calls or text messages from defendants during the telemarketing campaign.  Defendants filed a motion to compel arbitration which was denied.  The Ninth Circuit reviewed the denial of the motion.

The Ninth Circuit noted that the Federal Arbitration Act (“FAA”) limits the court’s role to determining whether a valid arbitration agreement exists and, if so, whether the agreement encompasses the dispute at issue.  Plaintiffs did not contest that the arbitration provision on the websites’ terms and conditions encompasses their TCPA claims.  Thus, the only legal issue was whether either plaintiff assented to the terms, including the arbitration agreement.

The Ninth Circuit first discussed whether New York or California law governs, and the result would be the same under either state’s law because both states require mutual consent.  Absent a showing of “actual knowledge” of the contract terms by the consumer-plaintiff, inquiry notice will result in a contract only if: (1) the website provides “reasonably conspicuous” notice and (2) the consumer makes an “unambiguous” manifestation of assent.  The Ninth Circuit ruled that neither condition is satisfied and analyzed:

  • Reasonably conspicuous notice:  Website users are entitled to assume that important provisions – such as those that disclose the existence of contractual terms – will be prominently displayed.  The Ninth Circuit looked at:
    • Font size: the size of the text in the disclosure was smaller than the font in the surrounding website elements
    • Color:  the gray color of the text containing the hyperlink to the full terms and conditions made the disclosure hard to read
    • Phrase:  the specific phrase used on the button that users click to agree to the terms and conditions was generically phrased as “continue”
    • Underlining: the underlining for the hyperlinks to the arbitration agreement did not sufficiently denote the hyperlink
  • Manifestation of assent:  The “continue” button did not indicate to the user what action would constitute assent to those terms and conditions.  Further, the text of the button itself gave no indication that it would bind plaintiffs to a set of terms and conditions.
  • Including “arbitration” in the notice:  Merely because the notice references the word “arbitration” is not enough because the key question is whether the plaintiffs can be deemed to have manifested their assent to the terms.

The Ninth Circuit affirmed the denial of the motion to compel arbitration.

In sum, websites should comply with the three bullet-point analysis – reasonably conspicuous, manifestation of assent, and use of “arbitration” in the notice – to create enforceable contracts via website disclosures.

TCPA Ruling: Text Asking Patient To Rate The Doctor

By Sheila Raftery Wiggins

A California federal court ruled that a text asking a patient to rate the doctor – sent minutes after the examination by a company that contracts with the health care provider to send Patient Satisfaction Surveys – does not alone satisfy an inference that the text was sent by an Automatic Telephone Dialing System (“ATDS”) within the definition of the Telephone Consumer Protection Act, 47 U.S.C. § 227 (“TCPA”).  Continue reading “TCPA Ruling: Text Asking Patient To Rate The Doctor”

TCPA Ruling: Health Insurance “Update” Fax Is Not A TCPA Advertisement

By Sheila Raftery Wiggins

A federal court ruled that a fax sent by a pharmacy benefit manager (“PBM”) to healthcare providers notifying recipients of changes to insured parties’ coverage for prescriptions – the fax mentioned the PBM’s business but did not promote any products or services – did not constitute an “advertisement” under the Telephone Consumer Protection Act, 47 U.S.C. § 227 (“TCPA”).  The court applied the “commercial nature” test for a TCPA advertisement. Continue reading “TCPA Ruling: Health Insurance “Update” Fax Is Not A TCPA Advertisement”

Facebook Wins Battle of the Canons in Supreme Court Autodialer Case

In a hotly anticipated decision that should have significant impact on litigation under the Telephone Consumer Protection Act of 1991 (TCPA), the Supreme Court held, 9-0, that the TCPA’s definition of an “autodialer” does not include equipment that merely stores telephone numbers to be dialed automatically, unless the equipment does so using a random or sequential number generator.  Facebook, Inc. v. Duguid, No. 19-511 (U.S., April 1, 2021).

Stopping unwanted or harmful telemarketing calls has long been a consumer-protection priority.  Toward that end, the TCPA prohibits certain communications made with an “automatic telephone dialing system,” or “autodialer.”  47 U.S.C. § 227(b)(1).  The TCPA defines “autodialers” as equipment with the capacity “to store and produce telephone numbers to be called, using a random or sequential number generator,” and to dial those numbers.  47 U.S.C. § 227(a)(1).  There was no dispute that the last clause (“using a random or sequential number generator”) qualifies the last verb in the preceding clause (“produce”).  The exam-worthy question before the Court, however, was whether that last clause also qualifies the first verb in the preceding clause, “store.”  Put another way, does the TCPA’s definition of autodialer apply to all equipment that “store[s] … telephone numbers to be called,” even if the equipment does not do so “using a random or sequential number generator?”  (The facts of the case play no real role here, but, for context, Facebook used equipment that stored numbers to be dialed automatically, but did not use a random or sequential number generator, so the question was whether Facebook’s equipment fell with the TCPA definition of autodialer).

Continue reading “Facebook Wins Battle of the Canons in Supreme Court Autodialer Case”

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