Beware of CEMA Class Action Lawsuits

Over the past few years, multiple CEMA class action lawsuits have been filed in Washington state targeting companies that promote “refer-a-friend” programs using text messages.

A refer-a-friend program is a marketing strategy used by companies to incentivize existing customers to recommend the company’s products to family and friends. Customers who do so are rewarded with incentives, including free or discounted products and services, virtual products, and sometimes cash. While such incentivized recommendations are commonly seen in a social media context, some programs encourage the sharing of recommendations via text.

Ordinarily, a text sent by a friend or family member does not pose a significant risk of litigation, unless it is a commercial text sent to a Washington state resident, in which case it can potentially trigger liability under that state’s Consumer Electronic Mail Act (CEMA).

The Washington Consumer Electronic Mail Act

CEMA forbids assisting the transmission of a commercial text message to a phone number belonging to a Washington resident unless the recipient has explicitly and voluntarily agreed to receive such messages beforehand. The statute defines actions that “assist the transmission” of messages as those that provide substantial assistance or support enabling a person “to formulate, compose, send, originate, initiate, or transmit a… commercial electronic text message…”

Thus, CEMA not only applies to the party responsible for sending the messages but also to any other parties that assisted in their creation or transmission. In terms of direct liability, CEMA is much broader in scope than other statutes governing the transmission of commercial text messages, including the Telephone Consumer Protection Act (TCPA), which only holds those who “initiate” calls or texts directly liable. Except in limited cases, third parties can only be held vicariously liable for TCPA violations under common law agency principles.

Although its range of potential targets is broader than that of the TCPA, CEMA shares that statute’s hefty statutory damages provision of $500 per violation, which led class action attorneys to target companies promoting text-based refer-a-friend programs.

Refer-A-Friend Cases

Lawsuits stemming from alleged CEMA violations have been filed against several companies, including Robinhood Financial LLC, which was recently settled for $9 million. Similar cases have also been filed against Block Inc. and Capital One.

The defendants in these cases promoted refer-a-friend programs that rewarded their customers who sent text messages to friends and family encouraging them to sign up for the service, together with a signup link which, if used, would entitle the customer to some form of compensation.

While the programs varied in specifics, in each case the defendant assisted its customers in the transmission of messages to some degree, such as providing message contents. The cases against Robinhood and Block include allegations that their respective apps actually accessed a customer’s contact list, selected recipients, and queued up texts for the customer to send.

But CEMA liability is not limited to companies that operate refer-a-friend programs.

Think Twice Before Texting Washington Residents

Courts in Washington have not yet had the opportunity to interpret the statutory language of CEMA, so the ultimate disposition of these refer-a-friend cases is still up in the air. However, it is important to keep in mind that CEMA’s reach is not limited to this particular type of promotional campaign.

Any company that employs the services of affiliate marketers to conduct SMS campaigns on their behalf can also be accused of “assisting the transmission” of those messages under CEMA, and so should ensure that all affiliates stay clear of the Evergreen State.