“CRAFTY”: Court Finds Robinhood’s Lawyers “Deliberate Misconstruction” of CEMA Not Enough to Extract It From Case Involving One of the Most Dangerous State Laws Out There

As I’ve reported in the past Washington’s CEMA statute is one of the most dangerous laws on the books.

Unlike the TCPA, the CEMA does NOT just apply to the “maker” or “initiator” of a call–it applies to any company that provides “assistance” to those making illegal texts or calls. That makes the statute exceptionally broad in its coverage–and there is very limited case law interpreting what “assistance” means in this context.

As I reported a while back, Robinhood–the favorite stock trading platform of meme investors– was sued in a case under CEMA for a scheme by which they encouraged users to send texts to their friends and family to invite them to join the app. If the user did so they would receive some sort of credit for referrals.

Now Robinhood’s model would be perfectly legal under the TCPA. The FCC has specifically held texts of this sort are NOT attributable to the app provider–the touchstone is whether the user or the app is selecting the recipients and the time of transmission of the texts. Here the users were plainly choosing when and who to send the texts to. So Robinhood would be off the hook under the TCPA.

But different result under CEMA’s broader “assistance” test. In Moore v. Robinhood, 2022 WL 3082969 (W.D. Wash. Aug. 3, 2022) the Court rejected Robinhood’s attempt to dismiss the CEMA claims against it. While Robinhood predictably cited to the FCC’s TCPA ruling–and other applicable “initiator” case under the TCPA–the Court brushed those all aside as inapplicable.

Rather than look at whether Robinhood was “so involved” with the sending of the texts so as to be deemed their initiator–which is required under the TCPA–the Court looked merely at whether Robinhood’s conduct “established a chain of events” that lead to the texts at issue. Given that Robinhood’s compensated and encouraged the transmission of the texts, there was little doubt that the it “assisted” their transmission in the Court’s view.

While the Court seemingly forgave Robinhood for citing inapplicable law in the context of “assistance” it was somewhat sharp with its counsel respecting its second argument: that the senders of texts must be engaged in business in Washington in order to trigger the CEMA.

Now this is an odd argument because, well, that’s not what the statute says. And the Court was not having it:

Defendant’s argument, while crafty, is based on a deliberate misconstruction of RCW § 19.190.010(1) and RCW § 19.190.060(1). As an initial matter, Defendant’s proposed construction would significantly narrow the scope of CEMA’s prohibition. Not only would it impose an additional “conducting business” requirement – i.e., for the initiator, in addition to the assister – it would require a plaintiff to establish the initiator’s independent CEMA violation even when his or her claim is brought only against the assister. That is inconsistent with the legislature’s intent…

Very rarely does a federal court use language like “deliberate misconstruction.” That’s code for “you’re on thin ice bub.” So, yeah.

One last note–the Court found that the text at issue were “commercial electronic text messages” even though the Robinhood service the texts promoted is free to obtain:

While, as Defendant points out, downloading the Robinhood App is free of charge and users are not required to make use of Robinhood’s offered services (see Mot. at 12), Plaintiffs clearly plead that the invitational messages were not designed to encourage new users simply to download the Robinhood App, collect their free stock, and then sit idly by. See Gragg, 2013 WL 195466, at *4 (text message promoting a taxi phone application was commercial, even though “offered at no cost,” because “the only purpose of the offer was to promote or encourage the use of defendants’ taxi services”). Rather, the Amended Complaint adequately alleges that the text messages received by Plaintiffs served the purpose of promoting for-profit services offered by Robinhood: Robinhood Gold and Robinhood’s brokerage service

Plus, the opinion explains why Robinhood’s trading services are not actually free:

First, Robinhood directly charges its users certain miscellaneous fees in connection with the service: $75 fees for transferring accounts to other broker-dealers, $20 fees for delivering checks, and $5 fees for providing paper account statements. See AC ¶ 26. Second, Plaintiffs have plausibly alleged that the service’s trading model – whereby Robinhood receives incentive fees from the principal trading firms to which orders are sent – results in inflated trade execution prices for Robinhood users relative to the prices they would have received from Robinhood’s competitors. See id. ¶ 25. Thus, Plaintiffs claim that users pay indirectly to use Robinhood’s brokerage service. Plaintiffs’ allegations demonstrate that Robinhood charges its users both directly and indirectly in connection with Robinhood Gold and its brokerage service, such that they constitute services “for sale.”

Interesting, no?

One last thing about CEMA–unlike the federal TCPA, a commercial electronic text message likely does NOT need to be sent using an ATDS to be actionable. 

Bottom line is the CEMA is an exceptionally dangerous statute. And at $500.00 per call in statutory damages potentially available–sound familiar?–


Leave a Reply