FCC invites input on proposal that would allow actions against carriers with results that would be binding even on customers unaware of the dispute.

[Blogmeister’s Note: Peter Tannenwald and Mitchell Lazarus collaborated in the authorship of this post.]

You’ve see the ads: “Did you use Acme brand dynamite in 2011? And miss the Roadrunner? You might be entitled to compensation!!” – followed by columns of mind-numbing fine print. This is the visible tip of a “class action.”  It works like this: A law firm sues some hapless (but rich) company on behalf of a category of persons alleged to have suffered the same harm at the hands of the defendant. The class of plaintiffs must be well defined – this is a legal requirement – but its members need not all be named. If the action succeeds, the class members who heard about it and came forward receive compensation – typically very small, sometimes worth just a few dollars. And the law firm that brought the action can recover very substantial legal fees. (Keep this last point in mind.)

A newly formed company called Solvable Frustrations, Inc. (SFI) has asked the FCC for a rule change that would allow lawyers to file class action complaints at the FCC on behalf of consumers. So far SFI is targeting only common carriers, not broadcasters or cable companies. How Internet Service Providers might fare under a class action regime remains to be seen, but we can image mega-cases over issues like net neutrality and privacy.

The proposal is win-win for everyone, at least according to SFI. Where it would not pay an individual consumer to sue a phone company or cell carrier over a few dollars’ worth of overcharge, a large group of consumers might get meaningful relief by joining together and exploiting the might of large numbers.

Even the carriers, says SFI, would benefit from the economies of scale. They would have to defend a complaint case only once; the issues would be presented by qualified professionals; and the outcome would be binding on all of the other potential complainants waiting in the wings, who would then not be permitted to sue separately. And the FCC would have to go through the decision process only once. Today the backlog of small complaints is humongous. Wouldn’t it be better to reduce a million complaints to half a dozen or so?

There remain just a few legal problems.

The FCC, like every other regulatory agency, has only the powers that Congress has bestowed on it – in the FCC’s case, via the Communications Act. Do those powers include the handling of class actions? Sure, says SFI, notwithstanding past cases where the FCC said otherwise. As SFI reads those decisions, the FCC rejected class actions only because there was no rule specifically allowing them. Any suggestions that class actions are not permitted under the statute were either passing commentary or simply wrong.   Just adopt a new rule, says SFI, and the problem is solved. Section 1.723(a) of the existing rules allows two or more parties to combine their complaints, so all the FCC needs for class actions is a bit of a tweak. SFI helpfully provides suggested language.

But SFI may have overlooked some difficulties. One premise of class actions is that all members of the class are bound by the outcome. No one has to join a class affirmatively to be bound; everyone in the defined class is stuck with the result, except for those who happened to receive notice and took steps to opt out. Will the FCC be willing to bind people who did not actively participate in a complaint? FCC resource limitations might also be an issue. SFI would have class actions tried before an Administrative Law Judge, but the FCC has only one ALJ on staff today.

And then there is the matter of lawyers whose class actions generate huge fees for themselves, but not much compensation for individual class members. SFI’s proposal specifically provides for the award of attorneys’ fees. Yet the FCC has said in the past it can’t do that. Without a provision for attorneys’ fees, it seems to us, the whole idea might collapse. With such a provision, on the other hand, it is easy to foresee abuse.

Tell the FCC your views – but individually, for now, not as a class. And do it by October 9, referencing RM-11675.