Last week, Papa John’s made headlines when CEO John Schnatter announced that to offset Obamacare’s rising health insurance costs the company would be reducing workers’ hours to part-time status and passing on costs to customers in the form of 11 to 14% higher pricing.
Yesterday, the pizza company made headlines again, after U.S. District Court judge John C. Coughenour certified a $250 million class action suit against them for excessive text-message spamming.
Working through third-party text blaster OnTime4U, Papa John’s sent some 500,000 text messages in early 2010 to consumers who hadn’t consented to receive them. Doing that violates the 1991 federal Telephone Consumer Protection Act [TCPA].
The lawsuit also names OnTime4U and five Papa John’s franchisee owners in different states: Rain City Pizza, Rose City Pizza, Seattle PJ Pizza, PJ Sound Pizza, and Papa Washington.
“16 calls in a row, in the middle of the night”
The texts themselves were innocuous enough, offering deals for pizza. The problem was the quantity and the timing. Some customers complained they got 15 or 16 texts in a row, sometimes in the middle of the night, plaintiffs’ attorney Donald Heyrich said.
According to a statement from Erin Chutich, one of the plaintiffs:
After I ordered from Papa John’s, my telephone started beeping with text messages advertising pizza specials. Papa John’s never asked permission to send me text message advertisements.
That lack of permission was a problem. A very big problem.
$500 penalty per call
The TCPA prohibits text messaging to consumers unless they’ve opted in, imposing damages of up to $500 per text.
Multiply that by 500,000 unwanted texts, and you’ve got a cool quarter of a billion in damages.
And that’s only the beginning.
If a jury determines the unwanted calls or text messages were willful or intentional, the TCPA triples the damages, to a $1,500 maximum per call.
That could raise the ante to $750 million, or three-quarters of a billion dollars. (Not a bad payday, incidentally, for a class-action lawyer working on contingency.)
Practicing law without a license?
It’s not that Papa John’s was knowingly violating the law; it’s just that they gullibly took bad legal advice from a non-legal source – one, moreover, that made more money with each additional phone call.
As Judge Coughenour’s decision explains:
OnTime4U apparently told Papa John’s franchisees that it was legal to send texts without express customer consent because there was an existing relationship between the customers and the Papa John’s restaurants…[T]here is no evidence on the record that any customer who received messages sent by OnTime4U gave consent.
Specifically, when customers entered their phone numbers into Papa John’s “point of sale entry system” (a fancy name for a proprietary CRM application), OnTime4U imported the data, filtered out the landline numbers and blasted texts to all the rest.
But giving a phone number for the driver to call in case he gets lost isn’t exactly the same as issuing an open invitation to middle-of-the-night text calls.
Too late smart
By April, 2010 – after “many customers complained to Papa John’s that they wanted the text messages to stop, and yet thousands of spam text messages were sent week after week,” according to Heyrich; after lawsuit papers were served (and also after the defendant says it ended its relationship with OnTime4U) – Papa John’s realized they had a problem on their hands – not just a customer service problem, but also a big-time legal one.
So they sent a memo to all their company stores and franchisees saying that the transactional business exception OnTime4U had advised them about really didn’t apply after all, and that “the practice and process of sending unsolicited messages to mobile devices is most likely illegal.”
The technical legalese term for this is, “now they tell me.”
An “aggressive” defense
Papa John’s senior vice president of legal affairs, Caroline Oyler, has promised to defend against the suit “aggressively,” starting with appealing the class-action certification. “We don’t agree with it and will continue to aggressively defend it,” she said. “We’ll continue to litigate the case and defend the lawsuit and move to have it dismissed.”
This defense will apparently be based on the claim that Papa John’s was an innocent bystander when all this midnight texting was going on. Specifically, it claims that all those text messages sent out in the company’s name were not part of any corporate program, but the result of some sort of rascally scheme between OnTime4U and a small number of independent franchisees.
Papa John’s “can advise, but we can’t dictate how they run their businesses,” Oyler said, and court documents Papa John’s filed maintain that franchisees make their own local marketing decisions.
The most expensive TCPA lawsuit, but not the only one
Back on August 1, Jiffy Lube’s largest franchisee, Heartland Automotive Services, agreed to settle a TCPA class-action suit, involving millions of robocalls and text-blasted messages sent to consumers without their consent, for $47 million.
And lawsuits have just been filed against Dell, Inc., and Huffington Post for similar alleged offenses.
But the Papa John’s suit could end up being the most expensive of them all – more expensive, even, than all those added Obamacare costs.
In fact, Papa John’s may already be paying a price for it. Since the class-action suit was certified, its stock dropped 2%. (Bear in mind, though, that during the same time the Dow Jones Average as a whole fell even more.)
In any event, according to the plaintiffs’ attorney, this lawsuit “should be a wakeup call to advertisers.”
But at least it won’t make the phone keep ringing in the middle of the night.