United States: D.C. Circuit Issues Highly Anticipated Ruling In Telephone Consumer Protection Act Appeal

The D.C. Circuit answered months of speculation on Friday, March 16, 2018, when it finally issued its decision inACA International v. Federal Communications Commission (15-1211) . The decision is largely seen as a major win for defendants in Telephone Consumer Protection Act ("TCPA") lawsuits, as the D.C. Circuit struck down key portions of the Federal Communication Commission's ("FCC") previous expansive interpretations of the TCPA, including its definition of an "automatic telephone dialing system" ("ATDS") triggering application of the TCPA, and the FCC's illusory one-call safe harbor for reassigned numbers. The Court did, however, uphold the FCC's findings on reasonable revocation of consent and exemptions for healthcare-related messages.

Current FCC Chairman Ajit Pai hailed the Court's decision, saying in a statement, "Today's unanimous D.C. Circuit decision addresses yet another example of the prior FCC's disregard for the law and regulatory overreach. As the court explains, the agency's 2015 ruling placed every American consumer with a smartphone at substantial risk of violating federal law. That's why I dissented from the FCC's misguided decision and am pleased that the D.C. Circuit too has rejected it."

Commissioner Michael O'Rielly echoed Chairman Pai's sentiments, saying, "I am heartened by the court's unanimous decision, which seems to reaffirm the wording of the statute and rule of law. This will not lead to more illegal robocalls but instead remove unnecessary and inappropriate liability concerns for legitimate companies trying to reach their customers who want to be called. In effect, it rejects the former Commission's misguided interpretation of the law, inappropriate expansion of scope, and irrational view of reassigned numbers. While I disagree with the court's decision on the revocation issue, I believe there is an opportunity here for further review in order to square it with the Second Circuit's more appropriate approach."

Commissioner Jessica Rosenworcel, however, expressed disappointment and concern over the decision. "One thing is clear in the wake of today's court decision: robocalls will continue to increase unless the FCC does something about it. That means that the same agency that had the audacity to take away your net neutrality rights is now on the hook for protecting you from the invasion of annoying robocalls."

I. The FCC's Interpretation of the TCPA Basics

On July 10, 2015, after a contentious 3-2 party-line vote, the FCC issued a Declaratory Ruling and Order formally stating the FCC's interpretation of numerous provisions of the TCPA. In a 147-page ruling, the FCC expanded the scope of the TCPA in several key areas:

1. The present capacity of an ATDS.

The TCPA makes it unlawful for any person to initiate any call or text (other than a call or text made for emergency purposes or made with the prior express consent of the called party) using any ATDS or an artificial or prerecorded voice. An ATDS is defined in the statute as "equipment which has the capacity (A) to store or produce telephone numbers to be called, using a random or sequential number generator; and (B) to dial such numbers."

In its 2015 Order, the FCC considered whether, to constitute an ATDS, equipment must have the present capacity at the time of use to generate random or sequential telephone numbers (i.e. telemarketing equipment), or merely be capable of being modified to have those functionalities in the future. The FCC construed the definition of ATDS to include any equipment that potentially can be modified to generate random or sequential telephone numbers in the future. In other words, "capacity" was defined to include present or future capacity, including with unspecified hardware and software modifications. The only limitation on this expansive "capacity" definition is that "there must be more than a theoretical potential that the equipment could be modified" into an autodialer. The FCC's Order only provided one specific example, stating that a rotary telephone is not an ATDS.

2. The available means for revocation.

The 2015 FCC Order considered the available means by which consumers may revoke their prior consent and made the seemingly broad proclamation that "consumers may revoke consent through any reasonable means." More specifically, the FCC held that "consumers may revoke consent in any manner that clearly expresses a desire not to receive further messages, and that callers may not infringe on that ability by designating an exclusive means to revoke." The FCC took the position that businesses can mitigate the risk by creating adequate business records and processes to record and respect revocations.

3. A caller's liability for reassigned numbers.

The FCC clarified that "the TCPA requires the consent not of the intended recipient of a call, but of the current subscriber [or customary user of the phone.]" Accordingly, if a phone number legitimately provided by a prior user is reassigned, potential TCPA violations loom when attempting to reach that prior user at the outdated phone number. The FCC provided a one-call exception for reassigned numbers. "[C]allers who make calls without knowledge of reassignment and with a reasonable basis to believe that they have valid consent to make the call should be able to initiate one call after reassignment as an additional opportunity to gain actual or constructive knowledge of the reassignment and cease future calls to the new subscriber." After the first call, however, callers are liable for any calls thereafter even if that "one additional call does not yield actual knowledge of reassignment."

4. Exemption for healthcare-related messages.

In limited situations, calls to address exigent circumstances, where the calls are "free to the called party," are exempted from certain of the TCPA's consent requirements. The FCC exempted some types of health care-related calls, including time-sensitive information such as appointment confirmations, prescription notifications, and lab results.

II. A Review of the Issues on Appeal

Business groups filed several lawsuits challenging the FCC's July 10, 2015 Order seeking (1) reversal of the FCC's broad interpretation of ATDS; and (2) determination whether the FCC exercised its regulatory authority appropriately or whether the agency expanded the TCPA in a way that Congress never intended. The appeal presented the following questions:

1. Whether the FCC interprets an ATDS in a way that unlawfully turns on the equipment's potential rather than present abilities, nullifies the statutory random-or-sequential-number-generation requirement, and provides inadequate guidance to regulated parties.

More specifically, the Petitioners argued that the FCC's interpretation of an ATDS "leads to absurd and unconstitutional results because virtually every kind of modern phone, including every smartphone and office phone, could be modified to generate random or sequential numbers." The FCC left callers "in the dark about what modifications are too theoretical or attenuated to turn a modern-day phone into an ATDS," the Petitioners claimed. In response, the FCC argued that dictionary definitions, ordinary usage, and principles of statutory interpretation all dictate that "capacity" can include potential abilities.

2. Whether the Commission unlawfully prevented callers from reasonably relying on the "prior express consent of the called party" by imposing liability for good faith calls to reassigned numbers.

The Petitioners highlighted the fact that callers have no reliable means of tracking reassignments, and the Commission's purported solution of exempting the first call "does not fix the Order's defects." The FCC argued however that "its independent decision to allow a one-call safe harbor is a reasonable measure to balance the interests of callers and consumers."

3. Whether the Commission unlawfully imposed an unworkable regime for handling revocation of consent.

For revocation, the Petitioners argued that callers must be able to prescribe a uniform procedure for revocation, and a "case-by-case approach is arbitrary and capricious." The FCC argued that because the TCPA "is silent on the issue of how consumers may revoke consent, the Commission had broad authority to fill that statutory gap."

4. Whether it was reasonable for the Commission to exempt healthcare-related calls to wireless numbers only when those calls serve a healthcare-treatment purpose, and not when the calls instead serve non-treatment purposes such as telemarketing, advertising, billing, or debt collection.

The FCC argued that "[t]he Commission reasonably determined that calls regarding billing and accounts do not warrant the same treatment as calls for healthcare treatment purposes, because timely delivery of these types of messages is not critical to a called party's healthcare, and they therefore do not justify setting aside a consumer's privacy interest."

Oral argument was held on October 19, 2016.

III. D. C. Circuit's Decision

After almost 17 months of delay, the D.C. Circuit issued its ruling on March 16, 2018, and granted the petition in part and denied it in part. Judge Srinivasan authored the opinion, joined by Judges Pillard and Edwards.

1. The Court vacated the FCC's definition of ATDS.

Concerns over smartphones drove the Court's analysis on the definition of an ATDS. As to the issue of capacity, the D.C. Circuit saved some of its strongest language for its finding that the FCC's definition of an ATDS could not stand, calling it "utterly unreasonable." The Court was especially concerned that the definition would encompass smartphones that need additional equipment, either through add-ons or downloads, to function as an autodialer. "If a device's 'capacity' includes functions that could be added through app downloads and software additions, and if smartphone apps can introduce ATDS functionality into the device," the Court reasoned, "it follows that all smartphones, under the Commission's approach, meet the statutory definition of an autodialer."

The Court found that such an interpretation is both unreasonable and impermissible: "The TCPA cannot reasonably be read to render every smartphone an ATDS subject to the Act's restrictions, such that every smartphone user violates federal law whenever she makes a call or sends a text message without advance consent."

The Court further took issue with the 2015 Order's lack of clarity on the definition of an ATDS, specifically highlighting that the Order was ambiguous as to whether a device qualifies as an ATDS only if it can generate random or sequential numbers to be dialed, or whether it qualifies as an ATDS even if it lacks that capacity. Moreover, the Order did not explain the human intervention necessary for a device to meet the requirements for an ATDS. The Court noted that the FCC has taken competing positions that the basic function of an ATDS is the ability to function without human intervention, yet the Order indicated that a device might still qualify as an ATDS even if it required human intervention.

The ruling also struck down long-standing TCPA rulings going back to 2003 on the issue of predictive dialers. While the FCC has taken the position for 15 years that a predictive dialer is an ATDS, the D.C. Circuit found that the 2015 Order and its predecessors do not give a clear answer as to whether a device qualifies as an ATDS only if it can generate random or sequential numbers for dialing.

The panel raised the issue that the current interpretations of an ATDS are ambiguous as to whether a call made by a system that has the capacity to function as an ATDS, but not made in automatic mode, still violates the TCPA. While the Court did not rule on this issue, finding that it was not properly before the Court, it did note "the issue in light of its potential interplay with the distinct challenges petitioners do raise."

In the end, the D.C. Circuit largely tossed the FCC's body of interpretations as to the definition of the ATDS out the window, taking with it case decisions based on those interpretations. Defendants look to have a new day, and a complete do-over, on the proper interpretation of the definition of an ATDS by the legal system.

2. The Court also vacated the FCC's stance on reassigned numbers.

The Court began its analysis by noting that millions of wireless numbers are reassigned each year, but ultimately disagreed with the Petitioners' view that the FCC's interpretation of "called party" to refer to a post-reassignment subscriber was inconsistent with the statute. Instead, the Court found that "called party" can mean "intended recipient" as well as the current subscriber, citing favorably to the concept of "reasonable reliance." The Court did, however, agree with the Petitioners' argument that the one-call safe harbor is arbitrary: "[W]hy does a caller's reasonable reliance on a previous subscriber's consent necessarily cease to be reasonable once there has been a single, post-reassignment call?" The one-call safe harbor remained too close to strict liability to pass muster and, as a result, the D.C. Circuit overruled the FCC on this point.

Again, the D.C. Circuit's ruling seems to open the door to defendants for a re-do on the legal system's interpretation of the TCPA as imposing presumptive liability for calls to reassigned numbers.

3. The D.C. Circuit affirmed the FCC's interpretation of consumers' ability to revoke consent.

The Court found that the Commission's approach to revocation of consent, where a called party can revoke his or her consent by any reasonable means was reasonable. The 2015 Order did not reach the issue of whether the Order forecloses callers and consumers from contractually agreeing upon revocation procedures. In addition, the Court also observed that if a calling party provides a revocation mechanism, a called party's failure to use the mechanism could mean that the revocation was not in a reasonable manner and hence ineffective.

While the D.C. Circuit's ruling affirmed the FCC's basic position that consumers can revoke consent by reasonable means, the ruling left open the door to calling parties obtaining and attempting to enforce contractual consent, and building defenses to attempted revocations based on the consumer's failure to follow an established revocation mechanism.

4. The Court also upheld the FCC's stated scope for healthcare-related messages.

The Petitioners, namely Rite Aid, challenged the FCC's exemption for select healthcare-related calls that included, for example, appointment and exam reminders, pre-operative instructions, and lab results, but did not cover telemarketing or billing and debt collection. The Court sided with the FCC and concluded that the narrow exemption did not restrict communications required to flow freely by HIPAA. "There is no obstacle to complying with both the TCPA and HIPAA," the Court found, reasoning that the HIPAA statute does not include any requirements that would "frustrate the TCPA" by permitting healthcare providers to use ATDS equipment "to bombard nonconsenting wireless users with calls and texts concerning outstanding charges...."

IV. Moving Forward

Litigation under the TCPA has grown at an aggressive rate over the past six years. Understanding the evolving interpretations of the critical TCPA issues is essential to successfully defending such claims.

Companies using telephone equipment that might have qualified as an ATDS under the 2015 Order now have numerous arguments that their equipment does not run afoul of the statute. Consumer-facing companies must still honor a consumer's revocation. TCPA defendants can chalk the decision up as a win.

Troutman Sanders LLP has unique industry-leading expertise with the TCPA, with experience gained trying TCPA cases to verdict and advising Fortune 50 companies regarding their compliance strategy. We will continue to monitor legislative developments and regulatory implementation of the TCPA in order to identify and advise on potential risks.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Authors
David N. Anthony
Alan D. Wingfield
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