IN HOT WATER: Louisiana Crawfish Company Sued Over Early-Morning Text Messages
Hi TCPAWorld! The Dame here with an interesting lawsuit against a company from my home state of Louisiana. And I’ll start by admitting that, despite my family being in the seafood industry for five generations, I had no idea you could order live crawfish online and have them delivered straight to your door. This company named Louisiana Crawfish Company does just that. And a few discount offers via text—allegedly sent a little too early—have now landed this company in a federal class action lawsuit.
The lawsuit, filed in the Central District of California by plaintiff Mason Ibarra (“Plaintiff”), accuses Louisiana Crawfish Company of violating the TCPA by sending at least 10 unsolicited marketing texts before 8 AM. According to the complaint, texts were sent as early as 6:40 AM, 7:01 AM, and 7:30 AM—times the TCPA clearly prohibits for telemarketing communications. Plaintiff is seeking statutory damages of $500 per text, or $1,500 per text if the violations are deemed willful, along with an injunction to prevent further messages.
Under the TCPA, businesses can’t make telemarketing calls or texts before 8 AM or after 9 PM (local time for the recipient).
However, my reading of the TCPA is that call time restrictions only restricts “telephone solicitations” to these call time hours—which means calls made with consent or an established business relationship with the recipient are not subject to these restrictions. And Plaintiff does not allege that these texts were nonconsensual. Plaintiff only alleges that he “never signed any type of authorization permitting or allowing Defendant to send them telephone solicitations before 8 am or after 9 pm.”
Either way, an easy mistake to avoid. And honestly, even the biggest of companies get caught up in these time call restriction cases.
You can read the entire complaint here: Mason Ibarra v Louisiana Crawfish Company Complaint.
States Take Action Against DEI – Missouri v. Starbucks
On Tuesday, February 11, the State of Missouri sued Starbucks for violations of federal and state laws prohibiting race discrimination. In a statement regarding the lawsuit, Attorney General Andrew Bailey said, “[r]acism has no place in Missouri. [The State] fil[ed] suit to halt [a] blatant violation of the Missouri Human Rights Act in its tracks.” This lawsuit comes just weeks after President Trump issued several executive orders targeting Diversity, Equity, and Inclusion (“DEI”) programs. The lawsuit was filed in the United States District Court for the Eastern District of Missouri.
Missouri asserts that the Supreme Court’s holding in Students for Fair Admissions v. Harvard, where university affirmative action programs were deemed to violate anti-discrimination laws, should be applied to “not only to college admissions, but also…to employment decisions.” The complaint alleges that Starbucks’s DEI programs are mere pretexts for unlawful discrimination.
Specifically, it alleges that Starbucks makes hiring and promotion decisions based on its reported numerical targets, which include having Black, Indigenous, or people of color (“BIPOC”) in 40% of all retail jobs and 30% of all corporate positions. The complaint also alleges that Starbucks ties its executive compensation to its achievement of desired diversity goals. Finally, it alleges that Starbucks targeted preferred groups for additional training and job advancement opportunities.
Most of Missouri’s causes of actions arise under Title VII and Mo. Rev. Stat. § 213.055, both of which protect against employment discrimination. Missouri also asserted a cause of action under 42 U.S.C. § 1981, alleging that Starbucks’s discriminatory practices illegally interfere with the rights of white or non-BIPOC individuals from “making and enforc[ing]” employment contracts with Starbucks.
Missouri seeks many forms of relief, including a declaration that Starbucks’s employment practices are unlawful, an injunction preventing Starbucks from engaging in its alleged discriminatory practices, monetary damages, an order instructing Starbucks to change its written policies, and an order mandating that Starbucks issue a statement to all employees regarding the unlawfulness of its practices.
Federal contractors should pay close attention to this case as it starts to unfold. Missouri alleges that Starbucks is a federal contractor, so this case will provide an informative first look as to how courts will treat challenges to DEI programs following President Trump’s anti-DEI executive orders.
Love to Litigate: Serial Plaintiff Brings Another TCPA Complaint
Hey TCPAWorld!
Roses are red. Violets are blue. Here comes Salaiz bringing another TCPA suit.
This Valentine’s Day, we’re covering a complaint filed against PEOPLE’S LEGAL GROUP INC., a Wyoming-based law firm offering consumer legal services.
In SALAIZ v. PEOPLE’S LEGAL GROUP INC., No. 3:25-CV-00038-DB (W.D. Tex. Feb. 12, 2025), Salaiz (“Plaintiff”) alleges that even though Plaintiff has been listed on the National Do-Not-Call Registry (“DNCR”) for over 30 days, People’s Legal Group Inc., (“Defendant”) through the use of an ATDS, delivered at least two unsolicited calls to Plaintiff’s residential number on November 8, 2024. Plaintiff alleges to have heard the following when answering both calls:
“This is an important reminder from Daisy Young please listen to the following message from telephone number 888-803-7025 hi it’s Daisy Young I know we’ve uh reached out previously about getting some financial help but based on your previous profile we are offering you an amount of nineteen thousand dollars in your case possibly more if you could give me a call back today thank you please call telephone number 888-803-7025 that’s telephone number 888-803-7025.”
Id. at ¶ 26. After calling the Defendant’s alleged number to probe further into its identify, Plaintiff was sent a retainer agreement with Defendant’s name on it, along with a follow-up text that reads:
“Hi Erik this is Lee with Peoples Legal Group. Here is my contact info 949-777-9583 please save this is your contacts.”
Id. at ¶ ¶ 43-44. Due to these allegations, Plaintiff filed a Complaint in the Western District of Texas asserting Defendant violated the ATDS provisions 47 U.S.C. § 227(b)(1)(A)(iii) and 47 U.S.C. § 227(b)(1)(B) when Defendant called Plaintiff’s residential phone through the use of an artificial or prerecorded voice. Plaintiff further alleges violations of DNC provisions, 47 U.S.C. 227(c)(5) and 47 C.F.R. § 64.1200(c)(2), by delivering telemarketing calls to Plaintiff, while Plaintiff was listed on the DNCR. Lastly, Plaintiff claims multiple violations of the Texas Business and Commerce Code § 305.053 which grants a private right of action for individuals receiving unsolicited telemarketing calls in violation of state law, and § 302.101 for an alleged failure to obtain a Telephone Solicitation Registration Certificate prior to making the calls.
Plaintiff seeks to represent the following two classes:
TCPA Class. All persons in the United States who: (1) from the last 4 years to present (2) Defendant called and/or any entity making calls on behalf of Defendant (3) whose telephone numbers were registered on the Federal Do Not Call registry for more than 30 days at the time.
Texas Subclass. All persons in Texas who: (1) from the last 4 years to present (2) Defendant called any entity making calls on behalf of Defendant (3) whose telephone numbers were registered on the Federal Do Not Call registry for more than 30 days at the time.
Id. at ¶ 62. Repeat litigators are constantly on the hunt for TCPA violations. Tighten up your TCPA compliance so your company’s name isn’t on the next complaint we review.
Delaware Supreme Court Clarifies “Related” Claim D&O Analysis in Delaware
Analysis of “relatedness” in directors and officers liability insurance claims has shifted over time in Delaware. In last week’s decision in Alexion Pharmaceuticals, Inc. Insurance Appeals, Case Nos. 154, 2024 and 157, 2024 (Del. Feb. 4, 2025), the Delaware Supreme Court adopted a “meaningful linkage” standard for relatedness analysis in overturning the trial court’s holding on relatedness. Related claims is an inherently unpredictable and fact-specific issue, and the Alexion decision provides further guidance to Delaware policyholders on how to navigate those disputes in the future.
Background
In Alexion, a pharmaceutical company sought coverage under its D&O liability insurance policies. The company had a 2014-2015 D&O policy program, which consisted of a primary policy and a series of excess policies. The company also had a 2015-2017 D&O policy program, which consisted of a primary policy and a series of excess policies. The primary insurers were the same for both policy programs, and the line of excess insurers were nearly identical.
The 2014-2015 D&O policy program included a related claim provision which stated that “any Claim which arises out of such Wrongful Act shall be deemed to have been first made at the time such written notice was received by the Insurer.” The related claim provision in the 2015-2017 D&O policy program used similar language to the earlier policy program, such as “alleging,” “based upon,” “arising out of,” and “attributable.”
The company first contacted the primary insurer in June 2015 to report, via a notice of circumstances, an SEC subpoena served on the insured in 2015. At that time, the primary insurer did not consider the company’s communication to be a claim and stated it needed additional information. The company later provided notice in January 2017 of a securities class action filed against the company in 2016.
The primary insurer ultimately decided that the SEC subpoena and the securities class action were related, and thus took the position that “the Securities Action, among other actions, was a single ‘Claim’ first made in the 2014-2015 policy period.” But one of the excess insurers under the 2014-2015 D&O policy program took a contrary position that the securities class action was not covered under the program because the SEC subpoena and the securities class action did not sufficiently overlap. And the second level, third-level, and ninth-level excess insurers under the 2015-2017 D&O policy program denied coverage for the securities class action under the program based on their position that the SEC subpoena and the securities class action were related and were, therefore, deemed to have been first made during the early 2014-2015 policy period before the excess insurers’ policies incepted.
The company then filed suit and the issue before both the trial court and the appellate court in Alexion was whether the SEC subpoena and the securities class action were related claims.
The Appellate Decision
In the appeal of the earlier Alexion decision, the insurers argued that the trial court erred by treating the 2015 notice of the SEC subpoena from the company to the insurers as a claim rather than a disclosure of facts or circumstances that may give rise to a future claim. The trial court erred, the insurers asserted, by analyzing whether the SEC subpoena and securities class action were meaningfully linked, instead of analyzing whether the securities class action arose from any wrongful act, fact, or circumstance that was the subject of the notice. In contrast, the company argued that the trial court correctly held that the SEC subpoena and the securities class action were not related because they had different focuses.
The Delaware Supreme Court agreed with the insurers. It first considered the language of the related claims provisions in the policies. Because terms used in those provisions were undefined, and there was no other textual evidence of the parties’ intent about those terms, the court interpreted the “arises out of” language in the related claim provisions as requiring a “meaningful linkage” between two conditions for them to be related. The linkage must be meaningful and not merely tangential.
The court then clarified that the appropriate “objects of comparison” in assessing meaningful linkage is whether the securities class action is materially linked to any alleged wrongful acts that were disclosed in the notice of the SEC subpoena. Based on this analysis, the court held that the SEC subpoena and the securities class action were related claims because they involved the same underlying wrongful acts. The common underlying wrongful acts were the company’s alleged improper sales tactics worldwide, including its grantmaking activities.
If claims are related, an exclusion may be triggered that limits or bars coverage under a later policy. Because the appellate court held that an SEC subpoena and a later-filed securities class action at issue in Alexion were related, the insurance coverage for both was limited to the earlier of two D&O policy programs, and the company could recover only up to the one policy limit.
Takeaways
There are several aspects of the Alexion ruling that bear on future related-claim disputes in Delaware.
First, related claims analysis is inherently unpredictable because policy language concerning related claims is often broad and indefinite, and the related claims analysis used by courts is fact-specific. This case-by-case inquiry is compounded by the fact that insurers and policyholders can usually find support both for and against relatedness in any given dispute; and because the analysis is fact-specific, small changes in circumstances can materially impact the result in terms of whether claims are related.
Second, despite unpredictability in related claims analysis, the Delaware Supreme Court confirmed that “meaningful linkage” is the appropriate related-claim standard, at least where insurance policies include the same “arises out of” causation language. The court also provided guidance on what must be compared to determine whether there is a meaningful linkage.
Third, even though the Delaware Supreme Court previously ruled that Delaware law applies to D&O coverage disputes involving Delaware corporations, policyholders should not assume that Delaware law controls in all case. That is because some policies include choice-of-law provisions stating that another state’s laws governs interpretation of the policy. And those variations in applicable law can result in different outcomes based on how other states have interpreted related-claim provisions. In the recent related-claim dispute in Benefytt Tech., Inc. v. Capitol Specialty Ins. Corp., Case No. N21C-02-143 PRW CCLD (Del. Super. Ct. Jan. 2, 2025), for example, the Delaware Superior Court applied New York law to a Delaware dispute because that’s what the policy required. Choice of law provisions matter and can depart from what the venue court would otherwise do.
Finally, while the Alexion court reversed and ruled in favor of the insurers, the ruling does not uniformly inure to the benefit of D&O insurers because they may take contrary positions against relatedness depending on the circumstances. Stated differently, related claims analysis is not an issue where policyholders or insurers uniformly argue in favor or against relatedness. For example, a policyholder may argue in favor or relatedness to avoid multiple retentions across multiple policy years, while in another case the policyholder may argue against relatedness to recover under greater policy limits across multiple policy years. The specific facts of the case are important when determining whether to argue in favor or against relatedness, and the analysis on how to proceed can be complicated.
Privacy and Advertising Year in Review 2024: Will Kids and Teens Remain a Focus in 2025?
A new year. A new administration in Washington. While protecting kids and teens is likely to remain an issue that drives legislation, litigation, and policy discussions in 2025, issuance of 1,000 Executive Orders on day one of the Trump Administration may result in new or changed priorities and some delay in the effective date of the recently updated Children’s Online Privacy Protection Rule (COPPA Final Rule).
We start with a recap of significant actions affecting kids and teens from the beginning of 2024 to the end of the Biden Administration in January 2025 and some early action by the Trump Administration.
Key Actions Affecting Kids and Teens:
FTC Regulation and Reports
The Federal Trade Commission (FTC or Commission) kicked off 2024 with proposed rules updating the Children’s Online Privacy Protection Act (COPPA) and issued a COPPA Final Rule in the closing days of the Biden Administration. FTC Commissioner and now Chair Andrew Ferguson identified several areas requiring clarification, and publication of the COPPA Final Rule will likely be delayed due to President Trump’s Executive Order freezing agency action.
The FTC released a highly critical staff report, A Look Behind the Screens: Examining the Data Practices of Social Media and Video Streaming Services, in September of 2024. The report, based on responses to the FTC’s 2020 6(b) FTC Act orders issued to nine of the largest social media platforms and video streaming services, including TikTok, Amazon, Meta, Discord, and WhatsApp, highlighted privacy and data security practices of social media and video streaming services and their impacts on children and teens.
Policy debates centered on Artificial Intelligence (AI), and one of the Commission’s final acts was a January 17, 2025, FTC Staff Report on AI Partnerships & Investments 6(b) Study.
The Project 2025 report, Mandate for Leadership 2025: The Conservative Promise, recommends possible FTC reforms and highlights the need for added protections for kids and teens and action to safeguard the rights of parents. The report stresses in particular the inability of minors to enter into contracts.
Litigation and Enforcement: the FTC
On July 9, 2024, chat app maker NGL Labs settled with the FTC and Los Angeles District Attorney after they brought a joint enforcement action against the company and its owners for violations of the COPPA Rule and other federal and state laws.
On January 17, 2025, the FTC announced a $20 million settlement of an enforcement action alleging violations of COPPA and deceptive and unfair marketing practices against the developer of the popular game Genshin Impact. In addition to an allegation that the company collected personal information from children in violation of COPPA, the complaint alleged that the company deceived users about the costs of in-game transactions and odds of obtaining prizes. As a result, the company is required to block children under 16 from making in-game purchases without parental consent.
Federal and State Privacy Legislation
Federal privacy legislation, including the Kids Online Safety Act (KOSA 2.0) and its successor, the Kids Online Safety and Privacy Act (KOSPA), failed to make it through Congress, although 32 state attorney generals (AGs) sent a letter to Congress urging passage of KOSA 2.0 on November 18, 2024.
Last year, Kentucky, Maryland, Minnesota, Nebraska, New Hampshire, New Jersey, and Rhode Island enacted comprehensive privacy laws, and they include provisions affecting children and teens. Those states join California, Colorado, Connecticut, Delaware, Florida, Indiana, Iowa, Montana, Oregon, Tennessee, Texas, Utah, and Virginia.
Litigation and Enforcement: the Courts
Throughout 2024, state attorneys general and private plaintiffs brought litigation targeting social media platforms and streaming services, alleging that they are responsible for mental and physical harm to kids and teens.
Legal challenges to more state social media laws arguing they violate First Amendment rights, among other grounds, were filed or were heard by courts in 2024, and legal action has continued into this year. On February 3, 2025, the tech umbrella group NetChoice filed a complaint in Maryland district court against the Maryland Age-Appropriate Design Code Act (Maryland Kid’s Code or Code), which was enacted on May 9, 2024. The complaint, which is similar to NetChoice’s recent challenges to other state social media laws, alleges that the Code violates the First Amendment by requiring websites “to act as government speech police” and alter their protected editorial functions through a vague and subjective “best interests of children” standard that gives state officials “nearly boundless discretion to restrict speech.” In 2024, NetChoice and its partners successfully obtained injunctions or partial injunctions against social media laws on constitutional grounds in Utah on September 9, 2024, in Ohio on February 12, 2024, and, at the eleventh hour, on December 31, 2024, against California’s Protecting Our Kids from Social Media Addiction Act. NetChoice’s complaint against Mississippi HB 1126 was heard by the U.S. Court of Appeals for the Fifth Circuit on February 2, 2025, but a decision has not yet been published as of the time of this writing.
On August 16, 2024, a panel of the U.S. Court of Appeals for the Ninth Circuit partially affirmed the district court’s opinion that the data privacy impact assessment (DPIA) provisions of the California Age Appropriate Design Code Act (CAADCA) “clearly compel(s) speech by requiring covered businesses to opine on potential harms to children” and are therefore likely unconstitutional. However, the appeals court vacated the rest of the district court’s preliminary injunction “because it is unclear from the record whether the other challenged provisions of the CAADCA facially violate the First Amendment, and it is too early to determine whether the unconstitutional provisions of the CAADCA were likely severable” from the rest of the Act. The panel remanded the case to the district court for further proceedings.
On July 1, 2024, the Supreme Court held that the content moderation provisions of both Texas HB 20 and Florida SB 7072, which the court decided jointly, violated the First Amendment and sent the cases back to the lower courts for further “fact-intensive” analysis.
On January 17, 2025, the U.S. Supreme Court affirmed the judgment of the U.S. Court of Appeals for the D.C. Circuit that upheld a Congressional ban on TikTok due to national security concerns regarding TikTok’s data collection practices and its relationship with a foreign adversary. The Court concluded that the challenged provisions do not violate the petitioners’ First Amendment rights. President Trump has vowed to find a solution so that U.S. users can access the platform.
On January 15, 2025, the U.S. Supreme Court heard an appeal of a Texas law that requires age verification to access porn sites, and it seems likely the Court will uphold the law.
We Forecast:
Efforts to advance a general federal privacy law and added protections for kids and teens will redouble. Indeed, S. 278, Keep Kids Off Social Media Act (KOSMA), advanced out of the Senate Commerce Committee on February 5, 2025. However, tight margins and the thorny issues of preemption and a private right of action will complicate enactment of general privacy legislation.
States will continue to be actively engaged on privacy and security legislation, and legal challenges on constitutional and other grounds are expected to continue.
Legal challenges to data collection and advertising practices of platforms, streaming services, and social media companies will continue.
The FTC was planning to hold a virtual workshop on February 25, 2025 on design features that “keep kids engaged on digital platforms.” The FTC’s September 26, 2024 announcement outlines topics for discussion, including the positive and negative physical and psychological impacts of design features on youth well-being, but the workshop has been postponed.
Our crystal ball tells us that privacy protection of kids and teens and related questions of responsibility, liability, safety, parental rights, and free speech will continue to drive conversation, legislation, and litigation in 2025 at both the federal and the state level. While the deadline for complying with the new COPPA Rule is likely to slide, businesses will need to implement operational changes to comply with new obligations under the Rule, while remaining aware of the evolving policy landscape and heightened litigation risks.
Biden EPA Filed Notice of Appeal of Ruling that Typical Levels of Drinking Water Fluoridation Present an Unreasonable Risk to Health
As reported in our September 30, 2024, blog item, the U.S. District Court for the Northern District of California ruled in September 2024 that the plaintiffs established by a preponderance of the evidence that the levels of fluoride typical in drinking water in the United States pose an unreasonable risk of injury to the health of the public. Food & Water Watch v. EPA (No. 3:17-cv-02162-EMC). On January 17, 2025, the Biden U.S. Environmental Protection Agency (EPA) filed a notice of appeal in the U.S. Court of Appeals for the Ninth Circuit. Food & Water Watch v. EPA (No. 25-384). Now that President Trump’s nominee for EPA Administrator, Lee Zeldin, has been confirmed, it remains to be seen how the Trump EPA will proceed. A mediation conference is scheduled for February 26, 2025.
In its September 24, 2024, decision, the U.S. District Court for the Northern District of California found that “fluoridation of water at 0.7 milligrams per liter (‘mg/L’) — the level presently considered ‘optimal’ in the United States — poses an unreasonable risk of reduced IQ in children.” The court notes that its finding “does not conclude with certainty that fluoridated water is injurious to public health; rather, as required by the Amended TSCA, the Court finds there is an unreasonable risk of such injury, a risk sufficient to require the EPA to engage with a regulatory response.” The court order does not dictate how EPA must respond, but states that “[o]ne thing the EPA cannot do, however, in the face of this Court’s finding, is to ignore that risk.”
Homelessness Crisis Demands Action
We have seen a dramatic increase in housing insecurity among our pro bono clients in recent years. Unfortunately, it’s part of an alarming nationwide trend. According to a recent report issued by the U.S. Department of Housing and Urban Development (HUD), homelessness reached a record high in 2024. Indeed, the report found that the number of people experiencing homelessness in the United States – more than 770,000 – grew by 18% from the previous year, while the number of people in families with children experiencing homelessness increased by 39%. In a post-pandemic economy that is generally considered to be doing well, it seems counterintuitive that we would now be experiencing such growing hardship. The report points to several factors driving these numbers:
Our worsening national affordable housing crisis, rising inflation, stagnating wages among middle- and lower-income households, and the persisting effects of systemic racism have stretched homelessness services systems to their limits. Additional public health crises, natural disasters that displaced people from their homes, rising numbers of people immigrating to the U.S., and the end to homelessness prevention programs put in place during the COVID-19 pandemic, including the end of the expanded child tax credit, have exacerbated this already stressed system.
Economic insecurity makes any legal issue more difficult to handle and, as discussed in a recent post about a client whose child was temporarily removed from her care because she had trouble finding stable housing, it can also be the very cause of a legal issue. HUD’s eye-opening report reinforces the importance of taking on more pro bono matters in housing and family courts. As a profession, lawyers also need to expand the scope of assistance that nonlawyers can provide to unrepresented litigants and prioritize the development of AI and other technology to help bridge the justice gap. A great example of this type of advocacy is Housing Court Answers, a legal services organization in New York City embracing AI to help litigants in housing repair actions.
Taking a step back, HUD’s report underscores the urgent need to develop affordable housing and provide greater assistance to secure the safety and security of families and children. Not only is this sense of urgency lacking across the country, but the response to homelessness from local authorities is too often punitive in nature. Of note, last summer, the Supreme Court in Grants Pass v. Johnson upheld a local Oregon law prohibiting camping inside parks, sidewalks and other public property. The Court rejected the argument that punishing people for sleeping outside when they have no place to go constituted cruel and unusual punishment under the Eighth Amendment. Regardless of the Eighth Amendment’s reach, however, one thing is clear: relying on criminal law to solve the homelessness problem does not work. As Justice Sotomayor explained in her dissent, “[f]or people with nowhere else to go, fines and jail time do not deter behavior, reduce homelessness, or increase public safety.”
Extension Vs. Capability – Google Learns the Difference The Hard Way
Earlier this week, frequent CIPAWorld participant Google lost a motion to dismiss based on the use of their Google Cloud Contact Center AI (“GCCCAI”) product. And this case (Ambriz v. Google, LLC, Case No. 23-cv-05437-RFL (N.D. Cal Feb. 10, 2025) raises some fascinating questions regarding the use of AI in Contact Centers and more generally.
The GCCCAI product (which a prior motion to dismiss was discussed on TCPAWorld) “offers a virtual agent for callers to interact with, and it can also support a human agent, including by: (i) sending the human agent the transcript of the initial interaction and the GCCAI virtual agent, (ii) acting as a ‘session manager’ who provides the human agent with a real-time transcript, makes article suggestions, and provides step-by-step guidance and ‘smart replies’.” It does all of this without informing the consumers that the call is being transcribed and analyzed.
Plaintiffs sued Google under Section 631(a) of the California Penal Code. This provision has three main prohibition: (i) “intentional wiretapping”, (ii) “willfully attempting to learn the contents or meaning of a communication in transit”, and (iii) “attempting to use or communicate information obtained as a result of engaging in either of the two previous activities”. Plaintiffs in this case claim Google violated (i) and (ii) of the above provisions.
Google’s best argument in this case is that they are not a third party to the communications. Because only “unauthorized third-party listeners” can violate Section 631(a). Google argues that they aren’t a third party, they are merely a software provider, like a tape recorder.
The Court disagreed. Recognizing that there are essentially two distinct branches of these cases when it comes to how to look at software as a service providers, the court proceeds to discuss whether the GCCAI product is an “extension” of the parties or whether the GCCAI product has the “capability” to use the data for its own purposes.
If a software has “merely captured the user data and hosted it on its own servers where [one of the parties] could then use data by analyzing”, the software is generally considered to be an extension of the parties. Therefore, it’s not a third-party and wouldn’t violate CIPA. This is similar to the “tape recorder” example preferred by Google.
Alas, however, the court looked at GCCCAI as “a third-party based on its capability to use user data to its benefit, regardless of whether or not it actually did so.” The Court applied this capability test and found that the Plaintiffs had “adequately alleged that Google ‘has the capability to use the wiretapped data it collects…to improve its AI/ML models.’” Because Google’s own terms of use stated that they may do so if their Customer allows them to do, the Court inferred that Google had the capacity to do just that.
Google argued that it was contractually prohibited from do so, but the Court also found those prohibitions don’t change the fact that Google has the ability to do so. And that is the determining factor. Therefore, the motion to dismiss was denied.
A couple of interesting takeaways from this case:
In a world where every company is throwing AI in their products, it is vital to understand not only WHAT they are doing with your data, but also what they COULD do with it. The capability to improve their models may be enough under this line of cases to require additional consumer disclosures.
We are all so used to “AI notetakers” on calls, whether Zoom, Teams, or, heaven forbid, Google Meet. What are those notetakers doing with your data? Should you be getting affirmative consent? Potentially. I think it’s a matter of time before someone tests the waters on those notetakers under CIPA.
Spoiler alert: I have reviewed the Terms of Service of some major players in that space. Their Terms say they are going to use your data to train their models. Proceed with caution.
Where There’s Smoke, Is There Coverage? A Closer Look at Bottega, LLC v. National Surety and Gharibian v. Wawanesa
For policyholders, insurance is meant to provide peace of mind—a promise that when disaster strikes, they’ll have financial support to rebuild and recover. But as two recent cases show, the question of what qualifies as covered “direct physical loss or damage” can lead to drastically different outcomes in court.
In two recent California cases, both policyholders sought coverage after wildfire smoke and debris affected their properties. One court ruled in favor of coverage. Bottega, LLC v. National Surety Corporation, No. 21-cv-03614-JSC (N.D. Cal. Jan. 10, 2025). The other sided with the insurer. Gharibian v. Wawanesa General Insurance Co., No. B325859, 2025 WL 426092 (Cal. Ct. App. Feb. 7, 2025). These contrasting decisions highlight issues policyholders may encounter in securing coverage for smoke-related damage and the ongoing debate over what constitutes “direct physical loss or damage,” a key phrase in most property insurance policies.[1]
This article explores these cases, the influence of COVID-19 coverage litigation on the interpretation of “direct physical loss or damage,” and what policyholders can learn to better protect their rights.[2]
The Importance of “Direct Physical Loss or Damage” in Insurance Disputes
At the heart of both cases is a fundamental question: What does it mean for a property to suffer “direct physical loss or damage” under an insurance policy?
Insurance companies often take a narrow view, arguing that physical loss requires structural damage, like a collapsed roof. Policyholders, on the other hand, argue that contamination—such as smoke infiltration or toxic debris—permeates property and cannot simply be dusted off or ventilated, rendering property unusable for its intended use and qualifying as a covered physical loss.
Courts struggled with this question in the wake of the COVID-19 pandemic which sparked thousands of lawsuits over business closures and contamination claims. Some courts have ruled that lasting, tangible physical alteration of property is required, while others have found that loss of use due to presence of the virus in air or on surfaces was enough.
This debate played out in Bottega and Gharibian, with strikingly different results.
Bottega, LLC v. National Surety Corporation: A Win for the Policyholder
In Bottega, a Napa Valley restaurant faced significant disruptions after the 2017 North Bay Fires. Although the fires did not burn the restaurant itself, thick smoke, soot, and ash inundated the premises, forcing it to close for one day after the fire and for a week shortly thereafter. When it did reopen, for the next few months, it was limited to less than one-third of the seating temporarily because of the smell of the smoke, soot, and ash. Throughout this period, employees routinely cleaned the walls and upholstery to remove the smell and ultimately replaced the upholstery. The smell of fire remained for two years. The restaurant sought coverage under its commercial property insurance policy, which covered losses due to “direct physical loss or damage.”
The insurer, National Surety, initially made some payments under the policy’s civil authority provision but later denied broader coverage. The insurer argued that because the restaurant was still physically intact, it had not suffered a “physical loss” as required by the policy.
The court rejected National Surety’s narrow interpretation, ruling in favor of Bottega. The key findings were:
Smoke and soot contamination rendered the property unfit for normal use, meeting the standard for “direct physical loss.”
The restaurant had to suspend operations, triggering business income coverage under the policy.
The insurer’s own admissions confirmed that the premises had suffered smoke damage, undermining its argument against coverage.
Unlike many COVID-19 which relied on the issuance of stay-at-home orders to conclude that the virus did not cause loss or damage, the Bottega court found that the insured reopened during the state of emergency declared for the fire. It also described, in some depth, the nature and extent of the damage caused by the smoke. This decision aligns with prior rulings recognizing that contamination impairing the usability of a property—whether from smoke, chemicals, or other pollutants—can meet the threshold for physical loss. Courts have previously found that asbestos contamination, toxic fumes, and harmful mold all permeated property and constituted physical damage, even if the structure itself remains intact.
In Bottega, the policyholder’s success was largely due to strong evidence showing that smoke infiltration impacted business operations and required extensive remediation, causing the policyholder’s loss.
Gharibian v. Wawanesa General Insurance Co.: A Win for the Insurer
While Bottega marked a win for policyholders, Gharibian v. Wawanesa shows how courts can take a different approach, often to the detriment of policyholders.
Homeowners in Granada Hills sought coverage after the 2019 Saddle Ridge Fire deposited wildfire debris around their home. Although the flames did not reach their property, their property was covered in soot and ash, and plaintiffs asserted that smoke odors lingered within the home.
Their insurer, Wawanesa, paid $23,000 for professional cleaning services that plaintiffs never used, but later denied additional coverage, arguing that there was no “direct physical loss to property” because the home was structurally intact and that removable debris did not qualify.
The court sided with the insurer, emphasizing that:
The smoke and soot did not cause structural damage or permanently alter the property.
The debris did not “alter the property itself in a lasting and persistent manner” and was “easily cleaned or removed from the property.”
The plaintiffs’ own expert concluded that “soot by itself does not physically damage a structure” and that ash only creates physical damage when left on the structure and exposed to water, which didn’t appear to have happened. He also acknowledged that “the home could be fully cleaned by wiping the services, HEPA vacuuming and power washing the outside.” It followed that he could not establish that the property suffered lasting harm from the smoke.
The Long Shadow of COVID-19 Litigation: Raising the Bar for “Physical Loss or Damage”
Given the large volume of COVID-19 coverage cases, the courts’ experience doubtless has shaped how they interpret “physical loss or damage” in insurance policies, particularly concerning business interruption claims. Many businesses sought coverage for losses incurred due to (1) government-mandated shutdowns, arguing that the inability to use their properties constituted a direct physical loss, or (2) the presence of COVID-19 in air or on surfaces made properties unsafe for normal use. In the COVID-19 context, courts have largely rejected both arguments.
These decisions effectively raised the threshold for what constitutes “physical loss or damage,” making it more challenging for policyholders to claim coverage for intangible or non-structural impairments. This heightened standard has significant implications for claims involving smoke contamination from wildfires. The differing rulings in Bottega and Gharibian show the inconsistencies the standard yields.
In Gharibian, the court, in a case in which there was no evidence that the insured undertook any remediation yet the insurer still paid considerable monies, cited California Supreme Court precedent, which held that COVID-19 did not cause physical loss because (1) the virus did not physically alter property, and (2) it was a temporary condition that can be remedied by cleaning. Another Planet Entertainment, LLC v. Vigilant Insurance Co., 15 Cal. 5th 1106 (2024). Applying this logic, the Gharibian court determined that in that particular case, the evidence was (1) soot and char debris did not alter the property in a lasting and persistent manner, and (2) the debris was easily cleaned or removed from the property. Therefore, fire debris does not constitute “direct physical loss to property.”
Meanwhile, the Bottega court, with the benefit of a robust showing of how smoke permeated the property of a sympathetic plaintiff, cited another COVID-19 business interruption case, Inns-by-the-Sea v. California Mutual Ins. Co., 71 Cal. App. 5th 688 (2021), to reach the opposite conclusion. The court found that, whereas a virus like COVID-19 can be removed through cleaning and disinfecting, smoke is more like noxious substances and fumes that physically alter property.
To reconcile these results in their favor, policyholders must now provide compelling evidence that such contamination has caused tangible, physical alterations to their property to meet this elevated threshold. This development underscores the importance of thorough documentation and expert testimony in substantiating claims for non-visible damage.
Key Takeaways
These cases illustrate the fine line courts draw when assessing whether contamination rises to the level of a physical loss:
The nature of the damage matters – In Bottega, the insured proved that smoke infiltration rendered the property temporarily unfit for use. In Gharibian, the court saw the debris as a removable nuisance rather than a physical loss.
Burden of proof is critical – The Bottega plaintiffs provided stronger evidence linking their loss to physical damage, while Gharibian plaintiffs could not show a lasting impact on their property (much less one the insured felt required remediation).
Challenge denials with expert testimony – Some insurers may argue that smoke and soot are “removable” and do not qualify as damage. Policyholders should counter this with expert evidence demonstrating how smoke contamination affects long-term usability and air quality.
Consider the forum for litigation – As seen in Bottega and Gharibian, which court hears the case can significantly affect the outcome. When possible, policyholders should seek a jurisdiction with favorable precedents or challenge insurers’ attempts to move cases to less policyholder-friendly forums.
Final Thoughts
Wildfires raise critical questions about insurance coverage for smoke and debris damage. The rulings in Bottega and Gharibian show the ongoing battle over what counts as “direct physical loss,” with courts reaching different conclusions.
While Bottega is a win for policyholders, Gharibian suggests that insurers will continue to push for restrictive interpretations and to analogize losses to COVID-19. Policyholders must be proactive—documenting their losses, seeking expert opinions, and being prepared to challenge denials.
Ultimately, courts and policymakers must recognize that insurance should protect against real-world risks, not just total destruction. Until then, policyholders must be prepared to fight for the coverage they deserve.
[1] While these policies did not expressly cover smoke damage, many property policies do and questions concerning whether the policies cover smoke-related damage would not be available to insurers. This underscores the importance of reviewing the policy wording and speaking with your insurance agents and policyholder side insurance counsel.
[2] Even when the insurance company acknowledges that their policy covers smoke-related damage, there may be disputes concerning the amounts they are obligated to pay. To assess the scope of the insurer remediation proposal, policyholders are encouraged to retain their own remediation consultants to provide their own proposals, which can then serve as the basis for ensuring an apples-to-apples comparison and negotiation.
Supreme People’s Court: 82 Million RMB Verdict Against ByteDance for Copyright Infringement and Trade Secret Misappropriation
On February 12, 2025, Beijing Meishe Network Technology Co., Ltd. (北京美摄网络科技有限公司) announced that China’s Supreme People’s Court ruled against ByteDance for copyright infringement and trade secret misappropriation awarding Meishe 82.668 million RMB. Meishe alleged that ByteDance’s Douyin (Chinese version of TikTok) infringed the copyright of Meishe’s SDK software. Several other ByteDance products also allegedly infringed.
At the end of June 2023 and the end of May 2024, the Beijing Intellectual Property Court and the Beijing High People’s Court respectively made first-instance judgments, finding that ByteDance and its affiliated companies infringed the copyright of Meishe SDK software, and ordered them to apologize to Meishe and compensate for economic losses and reasonable expenses totaling approximately RMB 26.704 million. Both parties appealed to the Supreme People’s Court.
On appeal, the Supreme People’s Court made a final judgment, upholding the infringement determination of the first-instance judgment, and increased the first-instance damages. The second-instance judgment ordered ByteDance and its affiliated companies to immediately stop infringing on the copyright of Meishe SDK software, apologize to Meishe, and ordered ByteDance and an unnamed employee (believed to be Jing Xie) to immediately stop infringing on Meishe’s trade secrets. Compensation for the nine related cases totaled approximately 82.668 million RMB.
Per Meishe, ByteDance and its affiliates refused to submit the software source code. The court determined that the software code was plagiarized based on decompilation and comparison of the target code and the similarity of the software-specific content. Further, ByteDance and its affiliated companies accessed Meishe’s software code through a Meishe employee, and both ByteDance and the employee infringed Meishe’s trade secrets.
As of the time of writing, I was unable to locate a copy of the decision. A parallel litigation in the U.S. is still pending. The full text of the announcement is available here (Chinese only).
Chapter 93A Notice Requirements in Multi-State Class Actions
In Sowa v. Mercedes-Benz Grp. AG and Mercedes-Benz USA, LLC, purchasers of certain Mercedes Benz vehicles from 17 states brought a putative class action against the automaker alleging that certain vehicles contained a dangerous defect. Separate actions were consolidated in the Northern District of Georgia. In addition to nationwide class claims against defendants under Georgia law, plaintiffs also sought to maintain various sub-classes under various state consumer protection statutes, including Massachusetts’ Chapter 93A.
A Massachusetts resident asserted Chapter 93A claims against Mercedes on behalf of one sub-class. Defendants moved to dismiss this claim for failure to provide a pre-suit demand letter 30 days before initiating the lawsuit. Plaintiffs did not dispute that they failed to provide such notice; they instead sent a demand letter on the Massachusetts resident’s behalf on April 28, 2023, after filing the lawsuit on February 10, 2023. The Northern District of Georgia determined that this ultimately did not bar plaintiffs’ Chapter 93A claims. Specifically, the court concluded that since the notice letter was delivered before defendants responded to the lawsuit and defendants were already on notice of nearly identical claims due to letters delivered to them pursuant to the Georgia Fair Business Practices Act, the sub-class had pled adequate notice.
Massachusetts state and federal courts likely would not have made the same decision because, except in limited circumstances, a pre-suit demand letter is a statutory prerequisite to filing a Chapter 93A claim. It is not a procedural nicety and failing to send a demand letter warrants dismissal of a Chapter 93A claim.1 That is because the pre-suit demand letter is part of a dispute resolution system included within Chapter 93A, Section 9 itself, which expressly requires a recipient of a demand letter to review the facts and the law to determine whether a settlement should be offered to the claimant. Failure to do so may expose the recipient of a demand letter to additional liability under Chapter 93A. The purpose, of course, is to encourage the parties to engage in meaningful settlement discussions to avoid the need to file a lawsuit seeking relief. Receiving a demand letter after the lawsuit has been filed defeats the purpose of this settlement consideration process.
1 See Rodi v. S. New Eng. Sch. of Law, 389 F.3d 5, 19 (1st Cir. 2004); City of Boston v. Aetna Life Ins., 399 Mass. 569, 574 (1987).
Judicial Bias and Erroneous Admission of Expert Testimony Prompt Case Reassignment
The US Court of Appeals for the Federal Circuit reversed a district court’s decision to admit expert testimony and remanded the case to a different judge, noting that “from the moment this case fell in his lap, the trial judge’s statements indicate that he did not intend to manage a fair trial with respect to the issues in this case.” Trudell Medical Intl., Inc. v. D R Burton Healthcare, LLC, Case Nos. 23-1777; -1779 (Fed. Cir. Feb. 7, 2025) (Moore, C.J.; Chen, Stoll, JJ.)
Trudell Medical sued D R Burton Healthcare for infringement of a patent directed to respiratory treatment devices. Leading up to trial, Trudell filed a motion in limine seeking to exclude testimony from Dr. John Collins on invalidity and noninfringement. At the pre-trial conference, the court denied the motion in limine. A few days later, however, on the first day of trial, the district court reversed itself and granted the motion in limine after Trudell filed a motion for reconsideration. Moments later, the district court indicated that it would reserve a ruling on the motion until the end of Trudell’s case.
On the third and final day of trial, the district court ruled that Collins was allowed to testify. After trial, the jury returned a verdict that the asserted claims were valid but not infringed. Trudell appealed.
Trudell argued that the district court erred in allowing Collins to testify. The Federal Circuit indicated that it reviews a district court’s decision to admit or exclude evidence under the law of the regional circuit – here, the Fourth Circuit, which applies an abuse of discretion standard. Trudell argued that because Collins did not timely serve an expert report on noninfringement and the failure to do so was neither substantially justified nor harmless, the district court abused its discretion in allowing the testimony. Although D R Burton had filed a seven-page declaration from Collins in support of its opposition to summary judgment of infringement, Trudell argued that it was afforded no opportunity to depose Collins regarding the declaration and was therefore prejudiced by the allowance of the testimony. Trudell argued that the admitted testimony also exceeded the scope of the declaration and was “untethered from the district court’s claim constructions.”
The Federal Circuit agreed, finding that the district court abused its discretion in allowing Collins’s noninfringement testimony because D R Burton did not disclose Collins’ noninfringement opinion in a timely expert report as required by Rule 26. Regarding the declaration, the Court found that it was submitted a month after the close of discovery and therefore was not timely served. The Court concluded that the proper remedy was exclusion of Collins’ noninfringement testimony absent a showing that the failure to disclose was either substantially justified or harmless.
The Federal Circuit affirmed the denial of Trudell’s post-trial motion seeking a finding of infringement. While the Court agreed that without Collins’ testimony there was minimal evidence to support noninfringement, the jury would still have been free to discredit the testimony of Trudell’s own expert and find that Trudell had not met its affirmative burden.
The Federal Circuit reversed the district court’s decision to deny a new trial, finding that the district court abused its discretion in admitting Collins’ testimony, and that the admission was harmful and prejudicial. The Court also noted that, on remand, it would be improper to reopen discovery and allow D R Burton to cure its failure to comply with disclosure requirement.
Trudell also sought reassignment of the case on remand. In support, Trudell pointed to statements by the judge, such as “I’m going to settle this case or resolve it or dismiss it by []” and “[h]ow about if I try the first case in early [] and forget about your mediation.” Further statements by the district court included, “The jury’s just being tolerant of this, and it’s painful. My gosh. I should have put time limits . . . I don’t think they understand they have to get through this case.”
The Federal Circuit agreed that these statements gave “sufficient reason to believe that the trial judge’s conviction to quickly terminate the case will be no different on remand” and therefore ordered that the trial be held before a different judge. The Federal Circuit cited a 2019 Fourth Circuit decision, Beach Mart. v. L&L Wings, which reassigned a case in front of the same judge after he made comments such as “I will find some way to terminate the case. I don’t know how, but I will find a way.” The Court noted similarities to the present case and concluded that the statements in both cases were so similar that they undermined the appearance of justice and fairness.