The U.S. Court of Appeals for the Sixth Circuit recently issued a decision in Charvat v. NMP, LLC that addressed significant issues pertaining to federal court jurisdiction and statutory damages for telemarketing litigation arising under the Telephone Protection Act (TCPA).  The decision is significant because it widens the split in the federal appeals courts on whether claims under the TCPA, which provides consumers private rights of action, can be brought under “federal question” jurisdiction in federal courts rather than only in state courts.  It also is significant because, insofar as the TCPA provides for statutory damages of $500 per violation, trebled for “willful” violations, the Court allows that amount to be multiplied in some circumstances if several violations occur on a single call.

The TCPA is the statute administered by the Federal Communications Commission (FCC) that regulates telemarketing and other commercial calling practices.  It prohibits automated and/or prerecorded calls to cell phones in the absence of prior express consent by the called party, and significantly restricts such calls to residential lines.  It is also a basis for various “do not call” rules, including the creation, administration, and the requirement to honor National Do Not Call Registry listings, as well as the obligation for companies that telemarket to maintain an internal do-not-call list.  (The TCPA also regulates “junk fax” advertisements.)

The TCPA gives the FCC rulemaking authority to regulate in these areas, as well as the ability to impose fines for violations.  At the same time, it provides a private right of action for violations of its do-not-call provisions for consumers who receive from a given caller more than one call in any twelve-month period in violation of the rules.  A separate provision provides a similar private right of action for violations of the autodialed/prerecorded-call restrictions and/or of other technical prohibitions and obligations.  The statue provides that both types of claims may be brought in the courts of the various states and the complainant can seek actual damages or $500 in statutory damages, which may be trebled for any willful violation(s).

Courts have split on whether TCPA claims may be brought in the federal courts.  Generally speaking, the courts have agreed that TCPA claims may proceed in federal court under their “diversity” jurisdiction, i.e., the parties are from different states and the complaint seeks $75,000 or more in damages, as well as, after its adoption, under the federal Class Action Fairness Act where plaintiffs seek to proceed as a class (and certain other procedural requirements are met).  However, if neither of these apply, the only other basis for federal court jurisdiction relevant to the TCPA would be “federal question” jurisdiction where at least one of the issues to be litigated involves rights, obligations or restrictions arising under federal law.

Initially, though there was some divergence very early on, most federal courts came to agree that the TCPA’s express provision for claims in state court precluded federal question jurisdiction.  This became the rule in the federal courts in the Second, Third, Fourth, Fifth, Ninth, and Eleventh Circuits.  More recently, however, the U.S. Court of Appeals for the Seventh Circuit held that the TCPA does provide federal question jurisdiction.  And, last year, the Sixth Circuit joined the Seventh Circuit in also holding that federal question jurisdiction exists.

The Sixth Circuit’s recent holding in Charvat v. NMP, by another panel of judges on the court, reinforces its determination that such federal question jurisdiction exists, and the split between it and the Seventh Circuit on the one hand, and most other federal circuits on the other.  This is significant because such a split among the circuits on a question of federal law or statute can be a key factor in the Supreme Court agreeing to hear a further appeal to resolve the split. 

Charvat v. NMP also is significant for its treatment of TCPA statutory damages.  The case involved both alleged violations of Charvat’s do-not-call rights, as well as delivery of automated/prerecorded calls.  As noted, the Act provides for statutory damages of $500-$1500 for each “violation” of the statute and/or of the FCC rules implementing it.  Those rules regulate do-not-call and automated/prerecorded-call issues as well as disclosure requirements, “abandoned call” limits, time-of-day restrictions, and other related matters.  Consequently, any given “call” could violate multiple provisions of these rules.

Some courts have applied the $500 statutory damage provision (and trebling allowance) on a “per-call” basis – that is, regardless how many different rule violations may have been committed on a single call, only $500 in statutory damages is available ($1500 if willfulness is proven).  Other courts allow the damages to pile up on a per-violation basis, such that all rules that get broken, even if they all occur on a single call, account for separate $500/$1500 damage awards.  This can be significant not only for jurisdictional reasons (it is easier, for example, to get to the above-mentioned $75,000 diversity jurisdiction requirement on a per-violation basis, as was at issue in Charvat v. NMP), but also, of course, in the calculation of a defendants’ potential exposure or cumulated exposure in a class action.  This can be critical in considering whether to defend and/or seek to settle a TCPA suit, and similarly can factor into plaintiffs’ strategy vis-à-vis demand letters and ultimate filing of a suit.

In Charvat v. NMP, the Sixth Circuit split the baby.  Noting the differing language in the TCPA’s provision providing for private causes of action for automated/prerecorded-call and other technical violations, as compared to that providing the private cause of action for do-not-call violations, it held that statutory damages for do-not-call violations are limited to $500 per call ($1500 where willful), but for other types of violations, each separate failure to comply – even if on the same call – are separately compensable.  As quickly as statutory TCPA damages can add up, especially where companies may place multiple calls to a given number, this ruling makes them add up that much faster if the calls involve violations of anything other than the do-not-call restrictions.