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TCPA Judgment of $925 Million Reversed over Fairness Considerations

This is the second ruling of this type in two months

A concept that we explored in a recent article – the reduction of massive class-action awards based on fairness concerns – appears to be picking up judicial steam. In August 2022, a Northern District of California court reduced statutory damages in a consumer class action from the $91.4 million to just $8.3 million plus pre-judgment interest. That case is Montera v. Premier Nutrition Corp. The basis for lowering damages in the face of the requirements of the New York statute at issue was a 1919 Supreme Court ruling which authorized courts to set aside judgments based on statutory penalties that are “wholly disproportionate to the offense and obviously unreasonable.”

On October 20, 2022, the Ninth Circuit Court of Appeals applied the Montera approach to a Telephone Consumer Protection Act (TCPA) case in Wakefield v. ViSalus, Inc.  A jury determined that ViSalus had made 1,850,440 illegal robocalls. In light of the TCPA’s $500-per-illegal call damages provision, the trial court issued a judgment against ViSalus exceeding $925 million!

Some statutes have built-in safeguards to protect against existence-threatening civil damages awards. For example, the Fair Debt Collection Practices Act contains a ceiling for damages of $1,000 per individual and “$500,000 or 1 per centum of the net worth of the debt collector” in cases of a class action. The TCPA has no such cap on aggregated damages, only a provision of $500 per specified violation.

On appeal to the Ninth Circuit, ViSalus argued that even if the TCPA’s statutory penalty of $500 per violation is constitutional on an individual level, the aggregate award of $925 million in this class action was so “severe and oppressive” that it violated ViSalus’ due process rights. 

The Ninth Circuit agreed, finding that the TCPA’s compensation and deterrence aims could be overshadowed when damages are aggregated to the level where an award is largely punitive and untethered to the statute’s purpose. Although aggregated class action damages and per-violation statutory penalties were separately intended, in part, to create incentives for litigation, the Ninth Circuit found that when coupled, they have the capacity to “expand the potential statutory damages so far beyond the actual damages suffered that the statutory damages come to resemble punitive damages.”

In light of the punitive effect of the $925 million judgment, the Ninth Circuit reversed the award and remanded the case to the district court for reconsideration of the proper amount. “Where a statute’s compensation and deterrence goals are so greatly overshadowed by punitive elements, constitutional due process limitations are more likely to apply,” said the Ninth Circuit. “[We] vacate and remand the district court’s denial of ViSalus’ post-trial motion challenging the constitutionality of the statutory damages award to permit reassessment of that question.”

TAKEAWAY: Two court decisions in the past two months have thrown out multi-million dollar class-action judgments on the basis of fairness to the defendant. Olshan will continue to follow this topic to determine whether this is an emerging trend or two outlier decisions.

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