In June of 2011, a class action lawsuit was filed against Interline Brands Inc. (“Interline”) alleging that the company failed to comply with the mandates of the Telephone Consumer Protection Act (“TCPA”).  Specifically, the complaint claimed that Interline sent fax advertisements to consumers without: 1) obtaining their proper express written consent; or 2) including the requisite disclosures and opt-out language.  After several years of litigation, Interline announced this week that it had reached a settlement with the class action plaintiffs and that it would be seeking preliminary court approval of the settlement terms as early as December 2014.

 Junk Fax TCPA Case Specifics

Interline is a Florida-based office supply and cleaning company that regularly sent fax advertisements to market its services to consumers. However, according to the complaint, Interline’s fax advertisements violated the TCPA by failing to include the statutorily-mandated disclosures and opt-out language.  As some of our readers mayremember, on May 21, 2013, the United States Court of Appeals for the Eighth Circuit issued a decision that found that even permissive, or “consented to” fax advertisements (that is, where the sender has the express permission of the recipient to send a fax advertisement), must contain certain TCPA opt-out language prescribed by the Federal Communications Commission (“FCC”).  The failure to include the FCC mandated opt-out language carries a penalty of $500 – $1,500 per fax.

In addition to the omitted opt-out language, the complaint also alleged that Interline did not receive proper express written consent to send the fax advertisements in the first place.  Based upon recent court decisions and the strict regulatory environment pertaining to fax advertisements, Interline decided to cut its losses and settle the case for $40 million.  However, in order to end the lawsuit, the settlement must be approved by the District Court for the Northern District of Illinois.

Preliminary Approval of the TCPA Class Action Settlement: Denied

This is not the first time that Interline has attempted to settle this case.  Earlier this year, Interline entered into a settlement agreement with the putative class action plaintiff.  However, the Court found that “[t]he [settlement] term sheet fails to include several terms that are material to a class action settlement . . .   The most glaring omission is the amount per claim — what Interline would pay each fax recipient or for each fax transmission.”  Based on the foregoing, the Court denied preliminary approval of the settlement.

The Court’s ruling was not terribly surprising, as there was no guarantee that there ultimately would be any funds recovered for the settlement class members.  Thus, under principles of class action law, the parties’ original settlement was not deemed to be fair, adequate or reasonable vis-à-vis the members of the settlement class.  Based on the Court’s previous ruling, the terms of Interline’s new settlement proposal were revised and are now far more definitive in terms of the monetary recovery that each class member will receive.

Takeaway

It is critical that any advertisements sent via telecopier, even if a consumer calls the business on his/her own and requests receipt of such fax, contain the FCC prescribed opt-out language. Moreover, business entities must obtain consumers’ prior express written consent before delivering any fax advertisements. Class action lawsuits are time consuming and expensive, often because plaintiffs’ attorneys only get paid at the end of the action (i.e., after a judgment is entered against the defendant).  As such, class action suits generally place significant pressure on defendants to settle.  This case also illustrates that parties must carefully draft their settlement agreement to survive strict judicial scrutiny and to ensure that the settlement is fair and adequate for the entire settlement class.  While settlement agreements often survive the first challenge (preliminary approval), as we have previously reported, there is no guarantee of final court approval, unless the likelihood that class members will receive a reasonable monetary payment is high.