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Defense attorney: Better customer outreach by companies can help head off class actions

By Jessica Karmasek | Sep 19, 2016

WASHINGTON (Legal Newsline) - As the number of class action filings seem to grow by the day, particularly over product liability and marketing issues, one class action defense attorney argues companies would be wise to improve their customer outreach.

Michael Mallow, an attorney with Sidley Austin LLP and co-leader of the firm’s Consumer Class Action Defense practice, should know.

Mallow defended Campbell-Ewald Company in a putative class action alleging that a text message recruiting campaign that the company undertook for its client, the U.S. Navy, violated the Telephone Consumer Protection Act, or TCPA.

Plaintiff Jose Gomez appealed to the U.S. Court of Appeals for the Ninth Circuit, which reversed the decision. The case was then appealed to the U.S. Supreme Court with other counsel, and the justices confirmed the reversal in a precedent-setting decision in January.

Mallow contends companies first need to recognize there is a problem with their goods or services and then try to take care of it on their own, that way there is no need for or ability to bring a class action lawsuit.

“Instead of having to settle a case as a class action, companies have the ability and incentive to take care of it, in an effort to avoid the expense or threat of class action activity,” he explained in an interview with Legal Newsline.

It’s what he calls “self-initiated unilateral market action.”

Basically, a company reaches out to its customer base when there is a problem with a product or service before plaintiffs’ attorneys can file a lawsuit.

Mallow made a presentation at an American Bar Association conference earlier this year, extolling the benefits of better customer outreach.

“If a company recognizes that its product is causing a problem or the advertising or marketing of it is confusing to consumers, it’s better for them to say, let’s go take care of it,” he said. “That can possibly thwart the filing of litigation. And if it doesn’t prevent it, it certainly will help in their defense.”

Of course, there are those plaintiffs who still file class actions even if companies voluntarily reimburse customers, Mallow said.

“They may say the claims aren’t moot because of some type of damage you’re not addressing,” he explained. “But it can be a hard argument to address.”

Especially if the company offers a full refund or is willing to fix the product for free or provide a longer warranty at no charge, Mallow said.

“But all of those don’t address the ‘if we had known, we wouldn’t have bought it in the first place’ argument,” he pointed out.

Still, self-initiated market actions work. Mallow pointed to Maidenform, the women’s underwear company.

Maidenform and Wacoal were both sued in class actions as co-defendants over caffeine-infused undergarments. The undergarments supposedly slimmed hips and thighs and reduced the appearance of cellulite, but there was no scientific evidence to back up the claims.

In 2013, Maidenform was sold to Hanes. After buying the brand, Hanes decided it wasn’t comfortable with the product and told retailers to pull it, and stopped selling it on their website.

“They let people know that if they had the garment and are unhappy, send it back and you’ll get your money back,” Mallow explained.

As a result, Maidenform was voluntarily dismissed from the class actions after filing a motion to dismiss based on the market action and a relatively nominal settlement with the plaintiffs.

Wacoal, on the other hand, did not reach out to customers and got hit by the Federal Trade Commission.

“The market action can be before or after,” Mallow said. “The concept is, without a settlement in place, the company is addressing an issue that impacts a broad number of its customers, not just a specific person.”

And even if litigation is pending, companies should consider it, he contends.

“If a company does it on its own, it controls the message,” he explained. “When there’s a class action settlement, a notice goes out that says it’s been sued and alleges the following. In the minds of the public, if a company is accused in a class action, it must be guilty.”

Mallow said it’s about controlling the message.

“You don’t have to ask the plaintiffs or court what they think,” he said.

In Gomez, the plaintiff alleged Campbell-Ewald violated the TCPA by sending -- through a third-party vendor -- unsolicited text messages on behalf of the Navy.

The TCPA restricts telephone solicitations, i.e. telemarketing, and the use of automated telephone equipment.

Generally, the act makes it unlawful “to initiate any telephone call to any residential telephone line using an artificial or prerecorded voice to deliver a message without the prior express consent of the called party” except in emergencies or in circumstances exempted by the Federal Communications Commission.

The law permits any “person or entity” to bring an action to enjoin violations of the statute and/or recover actual damages or statutory damages ranging from $500 to $1,500 per violation.

Campbell-Ewald offered Gomez full relief on his claims -- $1,503 per violation, plus reasonable costs -- but the offer was rejected.

The Ninth Circuit held that the unaccepted offer did not moot the named plaintiffs’ individual claims or the putative class claims.

The Supreme Court ruled 6-3 that the Ninth Circuit’s 2014 decision was correct.

Mallow, who represented Campbell-Ewald in federal district court and was still counsel of record when the case was before the Ninth Circuit, said he has “a lot of opinions” on the Supreme Court’s decision.

The nation’s high court, while it may have answered the question of whether a class action can be rendered moot, failed to address variations on that theme, he argues.

“For example, instead of making a settlement offer, you have someone who has bought a product and they’re not happy with that product in some way, so the company offers to do something about it,” Mallow explained. “Well, I don’t know how Gomez will apply to that type of situation.”

Mallow said the decision “clearly” doesn’t apply to a self-initiated unilateral market action.

“I think the court really missed an opportunity to address a very specific type of litigation involving statutory damages,” he said.

And as a result, federal courts are being flooded with TCPA class actions, in particular, he noted.

“I don’t know that Gomez causes all of those filings,” Mallow said. “But it certainly took away a tool for addressing many of them in a very quick and efficient manner.”

Now, companies will have to get more creative in how they handle similar cases, he said.

“I think companies are going to continue to press and figure out ways around (the decision), while plaintiffs’ counsel will try to use Gomez to their benefit,” Mallow said.

“This is far from over.”

From Legal Newsline: Reach Jessica Karmasek by email at jessica@legalnewsline.com.

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Sidley Austin LLP U.S. Court of Appeals for the Ninth Circuit U.S. Supreme Court

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