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INSIGHT: Cannabis Businesses Should Get Smart About TCPA Litigation Risks

July 6, 2020, 8:01 AM

Cannabis companies are facing a slew of class action lawsuits under the Telephone Consumer Protection Act (TCPA), which prohibits unwanted automated calls and text messages.

These businesses should act now to take compliance steps to reduce their TCPA class action litigation risks.

Potential Damages Under the TCPA

The TCPA governs the use of automatic telephone dialing systems to send unwanted phone, text, and fax messages. Signed into law in 1991, it has been interpreted in recent years to cover a broad array of automated dialing systems, including many systems that help businesses reach out to their customers by phone and text. For example, some courts have held that the TCPA covers calls and texts automatically dialed from a stored list of phone numbers and requires prior express consent for those calls and texts.

TCPA statutory damages can be high. Companies can be liable for $500 per unwanted text or call, and the statute further provides courts with discretion to award treble damages of up to $1,500 for willing and knowing violations.

Moreover, there is no cap under the TCPA for potential strict liability recovery. Even relatively small numbers of calls, texts, or potential claimants can result in sizeable damage awards. For example, one unsolicited message to 1,000 recipients could result in TCPA damages of $500,000 to $1.5 million. Sending three unsolicited text messages to that population could triple that exposure.

Because of the potential for high recoveries, litigants widely invoke the TCPA for class action lawsuits. Any business reaching out to customers by phone, text, or fax should know the rules to avoid the risk of a costly TCPA lawsuit brought by a would-be class of TCPA plaintiffs.

Lawsuits Targeting the Cannabis Industry

The cannabis industry is increasingly a target for private party litigation arising under the TCPA. With the rapid growth of the cannabis industry in recent years, emerging cannabis companies may not appreciate their risks under the TCPA, which are increasing because of the higher profile of the industry overall.

Over a dozen putative class action lawsuits have appeared in federal courts across the country alleging that cannabis businesses sent unwanted texts or phone calls. These include cases in Arizona, California, Nevada, Michigan, and Florida.

In general, the cases allege that cannabis company defendants texted or called customers using automated means without obtaining prior express written consent in violation of the TCPA. The cases seek to certify a putative class of similarly situated individuals and to recover statutory damages of $500 to $1,500 per text message on behalf of the plaintiff and the putative class.

While most of these TCPA cases remain in early stages of litigation, in Derval v. Xaler, one marijuana delivery service recently defeated class certification, meaning that the plaintiff could only proceed on their individual claims, significantly reducing potential litigation damages.

Because of the sizable potential damages under the TCPA, these cases, like other cases under the statute, can result in sizeable settlement offers.

How Can Cannabis Companies Mitigate TCPA Risks?

The cannabis industry seems poised to weather further TCPA suits. Companies should also take proactive steps to mitigate the risks posed by the TCPA, such as:

  • Assessing current marketing practices to reduce risk that consumers will receive unwanted text or phone messages;
  • Incorporating TCPA compliance into training for advertising and marketing employees;
  • Creating mechanisms to capture, retain, and recall individual consumers’ prior express written consent for telephonic, fax, and/or SMS marketing communications;
  • Developing systems to recognize and honor opt out requests; and
  • Considering the incorporation of TCPA compliance into warranty and indemnity clauses in contracts when using third-party advertising and marketing services and other vendors.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Author Information

David T. Biderman, a partner in Perkins Coie LLP’s San Francisco and Los Angeles offices, focuses his practice on mass tort litigation and consumer class actions. He heads the firm’s Mass Tort and Consumer Litigation group.

Barak Cohen is a partner in Perkins’s Coie LLP’s White Collar & Investigations practice, lead for commercial litigation in the firm’s Washington, D.C., office, and chair of Perkins Coie’s Cannabis industry group, which he helped establish. He represents companies in high-stakes investigations and litigation, with a special focus on the cannabis industry.

Nicola Menaldo is a partner in Perkins Coie LLP’s Seattle office and defends and provides counsel to retail and technology clients on a wide range of issues central to their business needs, including privacy and data security, marketing and customer outreach, biometrics, scraping and web crawling, artificial intelligence (AI) and machine learning. She both defends clients in class action litigation and provides product counseling and compliance advice to help avoid litigation outcomes.

Tommy Tobin is an associate in Perkins Coie’ LLP’s Seattle office, where he focuses on complex commercial litigation and class action matters involving statutory, constitutional and regulatory issues in a range of industries, including food and beverage, healthcare, and pharmaceuticals. He regularly writes articles on food law and policy issues and is co-chair of the American Bar Association’s Food, Cosmetics, and Nutraceuticals Committee.

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