United States: No Capacity And No Liability: Court Rules Dialing System Is Not Subject To TCPA And Verizon Is Not Vicariously Liable

In its July 2015 declaratory ruling, the FCC significantly broadened the TCPA's definition of an automatic telephone dialing system (ATDS) to encompass not only equipment with the "present ability to dial randomly or sequentially," but also equipment with the "potential ability" to do so. Since that time, few courts have issued decisions that meaningfully analyze and apply this new ATDS standard. A recent case out of the Southern District of Florida, however, does just that, and also provides insight into vicarious liability under the TCPA. The decision is good news for defendants fighting TCPA claims.

Background. In Strauss v. CBE Group, Inc., U.S. District Judge James I. Cohn granted summary judgment to The CBE Group, Inc. (CBE) and Verizon of New England, Inc. ("Verizon") after determining that the dialing system used to make calls to the plaintiff did not meet the FCC's new "potential capacity" standard and that the plaintiff had insufficient evidence to show Verizon was vicariously liable for CBE's conduct. [1]

The fact pattern is a common one for TCPA cases. CBE placed 26 debt collection calls to the plaintiff's cell phone, but all of the calls were meant for someone else. The plaintiff never informed CBE that it had reached a wrong number, despite answering six of the calls and CBE asking for the third-party debtor by name each time. The plaintiff filed TCPA claims (among others) against CBE and Verizon, the latter based on the theory that, as CBE's principal, Verizon was vicariously liable for CBE's TCPA violations. Both defendants sought summary judgment. CBE argued that the dialing system it used to make 24 of the calls to the plaintiff did not qualify as an ATDS. Verizon argued that there was no agency relationship with CBE that would cause Verizon to be held vicariously liable for CBE's actions. The court ruled in favor of the defendants on both issues.

"Overwhelming" Evidence That Dialer Was Not an ATDS. All parties agreed that the predictive dialer that CBE used to place the first two calls to plaintiff qualified as an ATDS, based on prior FCC guidance. But CBE disputed that the dialer it used for the remaining 24 calls—the Manual Clicker Application (MCA)—constituted an ATDS. To analyze the issue, the court noted that "the primary consideration . . . is whether human intervention is required at the point in time at which the number is dialed." The parties did not dispute that the MCA, by itself, was not an ATDS; the issue was whether it became an ATDS once it was paired with separate equipment that actually connected the calls. The court concluded that it did not, based on the "overwhelming weight of the evidence."

The court relied on testimony from CBE's corporate representative that described how the technology worked. According to that testimony, once a CBE agent "clicked to initiate a call," the MCA connected the call using a pair of "connecting devices" called Corphost1 and Corpost2, which were exclusively paired with the MCA, "completely independent and separate" from the predictive dialer CBE used for landline calls, and incapable of doing any type of automatic or predictive outbound dialing. Because this was "substantial evidence" that human intervention was "essential at the point and time that the number [was] dialed" and the connecting devices could not function as predictive dialers, the court held that the dialing system did not qualify as an ATDS. This was so despite the report of plaintiff's expert, who made unsupported assumptions about the equipment used to place the calls and failed to address the capabilities of the Corphost1 and Corpost2 devices used to connect the calls.

Verizon Not Vicariously Liable. The court also held that Verizon was not vicariously liable for CBE's calls because there was insufficient evidence of a "clear and unequivocal" agency relationship between the parties. Relying on the FCC's May 2013 declaratory ruling, the court noted that it could find an agency relationship where the principal exercised "substantial control" over the agent's actions, ratified the agent's conduct, or made representations that the agent acted with the principal's authority. There was evidence that (1) Verizon gave CBE limited information about debts and corresponding debtors; (2) CBE gave Verizon limited access to its systems in order to conduct quality control; and (3) Verizon helped draft the transcript read by CBE agents. However, the court held that this evidence fell short of establishing that Verizon had "substantial control" over CBE's actions or that it cloaked CBE with apparent authority. This was particularly true because there was no evidence that Verizon gave CBE access to its systems, authorized CBE to use its name or trademarks, or knew that CBE was violating the TCPA but failed to stop it.

Conclusion. This case is a boon to defendants that seek to resolve ATDS issues at the summary judgment stage. It demonstrates that there are limits to the FCC's expansive definition of an ATDS and that, at least in some cases, those limits can be determined without the need for a trial. In addition, given the court's favorable agency analysis, this case should help defendants fight vicarious liability claims based on the actions of their telemarketing or collections vendors.

Footnote

1 Strauss v. CBE Group, Inc., — F. Supp. 3d —, Case No. 15-62026-CIV-COHN/SELTZER, 2016 WL 1273913 (S.D. Fla. Mar. 28, 2016).

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morrison & Foerster LLP. All rights reserved

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