S3 E45: Ask an Attorney – Analyzing Texas SB 140 Risks

Audio version

Analyzing Texas SB 140 Risks

Transcript

Matt Cagle  
Welcome everybody to the latest episode of Compliance Pointers. My name is Matt Cagle. I’m the General Manager at CompliancePoint.

Pleased to have joining me today Alex Krasovec. She’s a partner at Manatt. We have worked with Alex and the Manatt team for a long time. Really excited to have Alex here today. There’s a lot of noise, confusion around what is or isn’t happening for folks that want to market to consumers in the state of Texas and when I was trying to think who we could speak with to get answers to what’s going on, Alex, you came top of mind with your background in the TCPA space as well at the applicable state rules. So thank you for taking the time to join us for a few minutes today.

Alexandra Krasovec   
Of course. Great to speak with you again, especially about something that is really needling clients these days. So I’m glad we have a chance to touch base on this.

Matt Cagle  
Yeah, I I think you and I both are are probably reaching the point of fatigue when it comes to questions about Texas from the client base cause it’s it’s been difficult to pin some things down, but we are getting some clarity which we’ll talk about today. So for the audience that may be wondering what in the world we’re talking about, there’s Texas Senate Bill 140, which for the past few months has created quite the stir. So Alex, can you fill in the audience on what is in Texas Bill Senate Bill 140 and why it is so impactful?

Alexandra Krasovec   
Absolutely. Texas has for quite some time had state telemarketing laws on the books, and those have caused some stir already in litigation. But this year, the Texas State Legislature enacted amendments to those telemarketing regulations.
That altered the way in which they applied. So there were three main changes. The first was that the amendments made the private right of action in the various provisions of that statute more accessible to consumers by removing or enabling consumers have an access to those claims that did not require approval from a state government. Previously, the access to the claim came through.
Avenues that required a claim to be filed with the state attorney general or the Public Utility Commission or other state agency to access the claim. And if the state said, you know that the consumer couldn’t pursue the claim, then they couldn’t proceed. And if the state said go right ahead, then the consumer could. So that barrier has been removed in the provisions that were amended. Second, there was an expansion of the provisions to cover text messages, and I’m just going to list for you what those are because it’s actually really more than texts. So it expanded telephone calls to include text messages, images graphic messages or other electronic transit transitions initiated by a seller. So that is really much broader than just telephone calls, which is previously how it applied. And then third, the legislature for some reason felt the need to put language in the statutStatutory provisions that said repeat plaintiffs are OK in essence. Basically, it’s OK if someone already brought a claim under this statute before they could do it again.

Matt Cagle  
And I think you and I would agree based on what we’ve seen in the space over the years that they will. This network of plaintiffs tend to find companies to target and I would expect would continue to go after them. So all right to sum it up.
They made it initially more broadly applicable, and then they made it easier for the consumer to enforce, essentially, for lack of a better term, or to file that private right of action, like you said.

Alexandra Krasovec  
Absolutely correct.

Matt Cagle  
All right, so riskier for business and applicable to more businesses.

Alexandra Krasovec   
And maybe we could talk about the risks just for a minute. You know, one of one of them is of course enforcement actions as always and those have penalties associated with them. There could be injunctions with penalties associated with violating the injunctions and those penalties are pretty significant under the Texas statute. So just, you know, civil penalties in the range of $5000 for some provisions and there’s some provisions that allow enforcement penalties in the $30,00- $50,000 range when you’re violating an injunction. So that side has always been aggressive, but the consumer side, a lot of those provisions allow a consumer to seek damages or statutory damages. The provisions that we’re probably going to dig in on today don’t have a statutory damages provision, but there’s an avenue for the consumer to access a Texas Deceptive Trade Practices Act claim, which allows for economic damages, mental anguish, and other kinds of damages as well as attorney’s fees.

There’s a lot of nuance there, but there’s a fun discussion to have about the civil penalties provisions under the registration, so we can talk about that in a bit.

Matt Cagle  
OK. So I think to sum it up, not not anything a business wants to deal with in terms of having to defend their activities, even if they think they can do so successfully, it’s going to be painful, like you said, the time spent, the attorney’s fees and then perhaps at the end of the day some sort of settlement or penalty they got to pay out of pocket. Before we get to the more recent change associated with this, I wanted to talk about one component where we’ve been having a lot of prospects and clients reach out and this is the requirement to register with the state of Texas.
So for those that are not aware, many states, I believe it’s still north of 30, have these telemarketer registration requirements. So if you are calling, sometimes texting prospects, customers that live in those states, you may be required to register with the state as a telemarketer.

There are numerous exemptions. This is a very complex analysis on who it applies to, who it doesn’t, what information you have to provide. It is included in this requirement for Texas and based on that, especially leading up to the effective date in September, we saw a huge influx of companies wanting to get registered. What’s driving that? Where’s all this confusion coming from? Why weren’t they registered previously, Alex? Just any insights you can share and how have you seen your clients handle it?

Alexandra Krasovec   
Oh, really good question. So I’m going to start with some basic distinctions between the way that Texas applies and how some of the other registration requirements that you just mentioned apply. And that is Texas really focuses on sellers as opposed to telemarketers, which they term sales persons under their statute. So it’s Chapter 302 of the Business and Commerce Code in Texas requires sellers to register with the state. There are potential violations for salespersons who knowingly act on behalf of sellers who violate the registration requirements under that chapter. But for the most part, we’re focused on sellers, which not all states do.

So that’s number one and #2, this really has to do with the with the change that definition that I was describing that has been expanded to cover text messages and other types of image messaging.
That impacts the registration application. And so there were a lot of sellers who engage in text marketing to consented consumers or consumers that have provided, you know, prior express written consent, maybe even under the TCPA who were questioning, do I need to register with the state of Texas?

Matt Cagle  
OK, Chapter 302, one of my favorites. Kidding, of course. All right, so there was this big hubbub, all these people trying to get registered before September 1st.
And then recently we had the e-commerce Marketers Alliance file suit against the state of Texas. Can you walk us through what happened there and what it means for everyone we just talked about?

Alexandra Krasovec  
Sure thing. So that particular case that you’re mentioning was brought by three different parties. One was a trade association, another was just basically kind of a run-of-the-mill retailer and you could think of them like that and then a text marketer and those 3 entities, E-commerce Alliance, Flex Footwear and Postscript, brought an action for injunction and declaratory relief against the state of Texas, the Texas Attorney General and the Texas Secretary of State. And what those parties were seeking was an order from the court basically protecting them from the application of the registration requirement in the case of consented marketing text messages. And what’s interesting about that case is it was brought obviously really quickly after the September 1st registration deadline based on the effective date for these amendments.

Matt Cagle  
Correct.

Alexandra Krasovec   
And things happen really quickly. So, you know, right away there was briefing on the injunctive relief request, right? Because there could be a preliminary injunction, the parties stated their position on the record very early. So we learned really quickly where the Texas Attorney General and the other state entities were.
Going to be placing themselves in that litigation and I imagine that’s probably why you want to talk about it.

Matt Cagle  
OK.
Yeah. So I guess based on the outcome of that and what we saw, my understanding, but disclaimer, not an attorney, is it reduced the need for companies that solely rely on text messages to register as my understanding, correct?

Alexandra Krasovec   
It could have that impact. And I I say could cautiously because what happened is the defendants in that case, so the state entities, including the state AG, filed A brief that said, hey, we think that’s a misread of the law.

Matt Cagle  
OK.


Alexandra Krasovec   
We do not think that sellers who have consented marketing text programs need to register with the state of Texas. In essence, they use this, you know, statutory interpretation analysis to get there, but it really was effectively an admission and the Texas Attorney General flat said.
The Secretary of State is not enforcing these registration requirements. I am, and that’s not how I’m going to read it. So it was helpful in that regard because it really did show the lay of the land with regard to enforcement activity on that consented text issue. What it could also mean is that this is you know what happened I guess what I should I should call out first is as a result of that briefing then the parties ended up having a discussion and resolving the case via a stipulation and the stipulation basically detailed the state attorney general’s analysis
And the court signed that as a dismissal order. So that case is dismissed with an order that basically says, hey, this law doesn’t apply to sellers that way.

Matt Cagle  
OK, so for the non attorneys in the audience, if I’m not calling people in Texas, if I am relying upon text messages, consented text messages as you said, what should I do? Can I document this?
And explain, hey, we based on this commentary, we believe we are exempt from the registration requirements or from the the requirements of all of Senate Bill 140 and we’re going to operate accordingly. Is is are we in a Gray area? I’m just, I know we can’t go on the record as an attorney necessarily, Alex, and provide legal advice here.
But I’m still trying to understand if I am somebody in that bucket, which there are a lot of them, but what do I do?

Alexandra Krasovec   
Yeah. So this is probably where everyone needs to do a little risk analysis and also speak to their counsel about what the best strategy is. What I will point out is 1, the state AG has basically said, hey, we’re not enforcing it this way. That probably also means that they’re not going to come after salespersons for knowingly acting on behalf of sellers who did not register in this circumstance. And 3rd, there is a court order out there with some reasoning in it that explains why the law doesn’t apply. Now that order is from a District Court. It’s not necessarily binding on any subsequent court, but the makings of an analysis that could be relied upon for other courts and you know, just the whole idea of persuasive authority is probably going to be very useful if this comes up again. Where I suspect it will come up is if a consumer tries to bring a case against a seller who did not register but who is engaging in a marketing text program texting into Texas and they did not register. That may be where we see someone try and test whether or not that will hold. So I think that’s really where the risk lies is could a consumer bring a claim and make the argument?

Even if the state Attorney General says they’re not going to do it, and there’s a lot to talk about with that, which we should dig into in a bit. But I just want to say like probably a final answer for the Attorney General right now. Once that office changes, you know, there may be an alteration in strategy this order would be then used against the Attorney General later in litigation if that ever were to happen. But you know, just something to keep in mind. Things change with the Attorney General. This was kind of a stipulated order, if you will. So it’s not quite as good as, you know, some binding circuit authority, but it is very useful in determining what your real risk is. And I think for purposes of salespersons, you’re certainly going to have a good argument for why you’re not knowingly assisting someone. Because right now, as kind of all the chips lay on the table, it looks like probably those people don’t need to register, although there’s this again asterisk next to that statement.

Matt Cagle  
OK, big asterisk too for everyone that may have tuned us out for the last few minutes. Uh, not completely out of it yet. Something to be aware of. I think we would both agree some consumer at some point will test this. We we’ve seen it.
With any of these state nuances for years now, maybe that’ll provide some additional clarity.

Alexandra Krasovec   
Can we talk about that for a minute, about the consumer private right of action? So on the registration provision, those consumers, the only express private right of action a consumer has is through the Texas Deceptive Trade Practices Act.
That one does not have statutory damages. It allows for attorney’s fees and costs, and it allows for various kinds of economic or, you know, mental anguish, injuries, restitution, which really wouldn’t apply here. So that is kind of a a narrow allowance and there’s plenty to work with there. If you want to challenge, you know, a class action that would might make it difficult because there’s causation based upon the action to the to the damage that’s being claimed. So we can, you know, that’s something that is maybe not as massive as, say, a TCPA class action with.
Statutory damages, right? But what we’ve seen in the past is plaintiffs have brought claims for failure to register under Chapter 302, and they do it trying to access the civil penalties. The civil penalties provision probably was written with the state enforcement background in mind, but so far courts haven’t really expressly held that consumers can or can’t pursue that claim for civil penalties of $5000 per violation. What we might see is some activity where that gets litigated because to me.
That is one place where there could be a challenge about a consumer really having an act a private right of action there. They may not be able to access those civil penalties. I will say some courts that have just allowed this through they it was never challenged. It just you know the the court just accepted the request and.
I don’t know that those cases even really move past the pleadings, so I do think this is an area where we could see some play.

Matt Cagle  
OK. So as much as we were hoping this would give clarity to businesses, it maybe to sum that up, if I’m a business, I feel like my risk profile is slightly reduced.
Especially if I’m solely reliant upon consent based text messages, I think there’s a a pretty material risk reduction there, but the risk is not completely gone yet. We need more clarity in the courts and we’ll probably get it at some point.

Alexandra Krasovec   
I think that’s right. And the other thing I want to point out is there are like dozens of exemptions to the registration requirement. And you know, I’m going to call out a couple of major ones that I think probably apply to listeners here. The 1st is if you’re a publicly traded company using the same name for two or more years you get an exemption from registration. If you’re a supervised financial institution or a parent or a subsidiary or affiliate of a supervised financial institution, there’s an exemption for you.

If you’re an educational institution or you’re or an organization or a non-profit organization that’s exempt from taxation under 501C3 now you have an exemption in Texas. And then there’s this other one which dovetails really nicely with the discussion that we’re having, which is a person who is soliciting business from a former or current customer and has operated under the same business name for two years. That one is actually where a lot of the attention during the registration analysis was happening before this e-commerce case, and e-commerce really focused on the definition of telephone call and whether or not it covered this kind of consented text message. But there’s this exemption, and the exemption has a very similar feel. Current former or current customer is not defined, so that’s where the argument would be happening there. But there are some things you can do to kind of bolster that argument, and that’s something you could talk to your attorney about.

Matt Cagle  
OK. And I think that that’s a great call out. I mean, with the clients we work with, that would be the vast majority. You’re not going to have many people texting someone that they haven’t had some sort of prior interaction with, whether they’ve raised their hand or they’ve previously purchased from them.
Then it comes down to when did they do that? Did you memorialize that interaction so that if you need to ever demonstrate you qualify for this exemption and they were a former customer, you can do so. And that is an area we see a lot of companies struggle with is they know you bought from us previously, but what’d you buy and when did you buy or when did you raise your hand?
Making sure again that they keep records of that’s going to be important. All right. And I do want to shout out real quick a friend of ours, David Carter, whoever sees. He’s the president of the e-commerce Marketers Alliance. I know they go by the E-commerce Innovation Alliance, just.
He really is, I think steadfastly trying to represent industry there and make sure that this is common sense stuff that applies to businesses so they know how to navigate these rules accordingly to comply, but also where they’re not too onerous. So great job by that group and by David there.
Alex, we’ve covered a lot and I do want to be thoughtful of your time. Are there any other key items from this or any other conversations you’ve had with clients that you would be think would be helpful for the audience to hear?

Alexandra Krasovec  
Well, I think it is to keep in mind that whatever position you’re taking with regard to registration, you’re going to want to still keep an eye on what’s happening with the litigation because I do think we’re going to get some courts weighing in on these issues. I think that plaintiffs before like Texas for litigation, so they will like Texas.

This even more after this change because it gives them some Gray area to play in. And then the Third Point is that registration is not the only piece of this statute. There are other requirements here and they have separate private rights of action that you know in separate various consent standards that are dependent upon the particular chapter. So this Texas statute has I think 6 chapters. It runs from 301 to 306. So there’s a lot that you really need to concern yourself with and it runs from seller identification requirements.
Time restrictions, ADAD disconnect requirements, prohibitions on making unsolicited calls to phone numbers on the Texas no call list, caller ID requirements. So there’s a ton out there and you know, basically don’t get lost just thinking registration is your only issue. You may find you don’t need to register but you still are subject to some of these other requirements.

Matt Cagle  
I think that’s a good point. We definitely talked a lot about the registration piece, but we don’t want to overlook the other components that are in there. We see time of day when it’s a more restrictive state rule like Texas is versus the federal rule. That’s where companies can sometimes struggle, especially in a state the size of.
Texas, with all the area codes you have in trying to manage cell phone portability, that’s going to be a challenge for companies. I know it’s even more restrictive on Sundays. I don’t think you can start contacting until after 12:00 PM.

Alexandra Krasovec   
And there are two time zones in Texas, so that makes it extra fun.

Matt Cagle  
Yeah, split time zone definitely adds to the complexity. And I guess the good news though, not to scare people, is a lot of this is stuff they should have been doing hopefully close closely in some form or fashion with the the federal requirements as well as other state requirements. This isn’t a big.
Departure from a lot of the other compliance obligations they’ve had for a while, but there is the nuance that state specific nuance that they need to be aware of and comply with.
Alex, any other thoughts before we wrap?

Alexandra Krasovec   
Last thought would be if you’re not sure if the Texas law applies to you, please consult an attorney or someone you know that can refer you to an attorney because this is a really complex law. I think a lot of the state laws get nitty gritty quickly and part of the reason is because there’s just not as much.
Interpretive authority out there. So it really does require someone who knows what they’re doing to help you wade through all of this. And you know, if you don’t have an attorney, you can reach out to me. But you know, please don’t skip that step.

Matt Cagle  

Yeah, and would strongly encourage those of you that are in need to reach out to Alex and her great team. Alex, where can people find some of your other thought leadership and and your contact information if they need you?

Alexandra Krasovec 

We have a great resource page on our Manatt TCPA website, so it’s just Manatt.com search keywords for TCPA. You’ll find resources, white papers, webinars, the whole bit there. You’ll find everything about the TCPA team, of which I am only.
One of many attorneys on that team and my contact information if you want to reach me is Akrasavik@Manatt.com.

Matt Cagle  
All right. And we’ll make sure we include that in the comments as well. Alex, thank you so much. I know how busy you are. This has been great for me to hear. I know great for our audience. We really appreciate you taking the time and thank you to everybody for listening.

Alexandra Krasovec 
Thanks for having me.