Privacy & Information Security Law Blog

In recent months we have seen a dismissal and two settlements in class action suits alleging violations of the Telephone Consumer Protection Act (“TCPA”) by companies that used text messaging as part of advertising campaigns. The TCPA is a federal privacy law that imposes restrictions on telephone solicitations, including telemarketing calls and text messages.

On June 25, 2012, a federal district court in California granted Taco Bell Corp.’s (“Taco Bell’s”) motion for summary judgment in a putative class action lawsuit, finding the plaintiff failed to show that Taco Bell was vicariously liable for a TCPA violation arising from a series of promotional text messages sent by a third-party advertising agency. In 2005, an association comprised of Taco Bell and store franchisees in the Chicago area sponsored a contest to promote a new menu item. The association voted its approval of the marketing campaign, which included sending text messages to local residents. The association’s advertising agency, ESW Partners, then contracted with ipsh!net, Inc. to coordinate distribution of the text messages. After receiving one such message, the plaintiff sued both the association and Taco Bell, alleging that Taco Bell was vicariously liable for the campaign and had violated the TCPA by using an automatic telephone dialing system to send text messages to cell phones without consent. After dismissing the suit against the association for lack of personal jurisdiction, the Court considered Taco Bell’s motion for summary judgment.

The Court first determined that the TCPA is silent with regard to assigning vicarious liability and disagreed with the plaintiff’s assertion that “a party can be held liable if a call or text message is made on its ‘behalf,’ that is, if a party receives benefit from the text message.” Instead, the Court found that a party is liable under the TCPA if it “makes” an unauthorized call, or if the entity making the call is an agent of the party. The Court concluded that (1) a marketing policy allowing Taco Bell to approve the association’s advertising funding “cannot be equated with control over the manner and means by which the campaign was designed and executed;” (2) Taco Bell’s actual approval of the campaign was only a minority vote within the association and did not evidence the requisite control over the promotion; and (3) email correspondence between the parties mentioning the text campaign was either insufficient to demonstrate agency or irrelevant to the class action because it did not occur between Taco Bell employees. Accordingly, because Taco Bell did not actually send the text messages and because the Court concluded that there was no evidence the company “directed or supervised the manner and means of the text message campaign conducted by the [a]ssociation and its two agents, ESW and Ipsh,” the Court granted the motion for summary judgment.

In contrast, on August 1, 2012, both Jiffy Lube International Inc. (“Jiffy Lube”) and Steve Madden Ltd. (“Steve Madden”) agreed to settle separate claims that each violated the TCPA through text message promotional campaigns.

The class action concerning Jiffy Lube alleged that in April 2011, Heartland Automotive Services, Inc. (“Heartland”), the largest Jiffy Lube franchisee in America, and co-defendant mobile marketer TextMarks, Inc. violated the TCPA when TextMarks sent a promotional text message to millions of consumers who had not consented to receive such messages. The proposed settlement requires Jiffy Lube to pay approximately $47 million in services ($35 million in cash value) to class members, $5,000 each to the class representatives, $4.75 million for the plaintiffs’ attorneys, and the costs of administering the settlement. Jiffy Lube also agreed to obtain and retain “informed written consent” through “affirmative action on the part of the consumer through a clear statement regarding the receipt of text message advertisements.”

Similarly, Steve Madden has agreed to settle class action allegations that it violated the TCPA by sending more than 200,000 promotional text messages without first obtaining express consent from the cell phone owners. According to the proposed settlement, Steve Madden will establish a $10 million fund to pay valid class members’ claims, pay an incentive award of $10,000 to the lead plaintiff, pay $2.5 million in plaintiffs’ attorneys’ fees, and will “refrain from sending such text message advertisements for four years, unless the cell phone owners have provided clear and conspicuous prior express consent.” Steve Madden also will document and retain the written consents for four years.