March 16, 2018
Class Action Alert
Class Action Alert
Author(s): Dan Deane
DC Circuit decision provides welcome clarification to businesses that call or text consumers and sends FCC back to the drawing board.
Earlier today the D.C. Circuit issued a highly anticipated decision in a challenge to the July 10, 2015, Federal Communication Commission (FCC) Declaratory Ruling and Order (FCC ruling) that expanded the scope of the Telephone Consumer Protection Act (TCPA). Most critically, today’s decision scales back the expansive FCC ruling in two significant areas: (1) the statute’s definition of an “automatic telephone dialing system” (commonly referred to as “ATDS” or “autodialer”) and (2) liability for calling “reassigned” telephone numbers. But the D.C. Circuit also upheld two aspects of the FCC ruling: (1) reaffirming the FCC’s ruling that consumers can revoke consent to telemarketing by any reasonable means and (2) sustaining the scope of the FCC’s exemption for time-sensitive health care calls.
The FCC issued an omnibus Declaratory Ruling and Order in July 2015, significantly expanding the TCPA and making it more consumer-friendly. Among other things, the FCC broadened the definition of “autodialer,” created a one-call safe harbor for calls made to “reassigned numbers,” and allowed for broad revocation of consent by consumers. We concluded at that time that “the ruling largely comes down in favor of consumer interests and gives short shrift to business concerns.” For more detail about the FCC ruling, you can read our alerts on the July 2015 FCC order: “FCC’s extensive declaratory ruling on TCPA heightens risks and obligations for businesses” and “FCC’s extensive declaratory ruling on TCPA heightens risks and obligations for businesses (Part 2).”
The consumer-friendly approach of the ruling led to a significant increase in TCPA litigation as the burden on plaintiffs seeking to prove TCPA claims was significantly reduced. On the other hand, far from reducing the number of autodialed- and robo- calls, the FCC ruling appears to have had little effect in curbing bad actors.
The D.C. Circuit struck down the FCC’s definition of “autodialer” and the FCC’s approach for liability when calling “reassigned numbers” while upholding the FCC’s holding for revocation of consent and the FCC’s approach to carving a time-sensitive health care call exemption.
For purposes of TCPA litigation, the FCC’s broad interpretation of the definition of an autodialer was the most significant issue before the D.C. Circuit. The TCPA defines “automated telephone dialing system” 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.” 47 U.S.C. § 227(a)(1). The FCC ruling held that the “capacity” of equipment includes not just its “present ability” but also “its potential functionalities” or “future possibility.” This expansive holding significantly increased the scope of the definition of an autodialer, seemingly sweeping in almost any modern telecommunications device. Under the FCC’s view, because a smartphone can be made to function as an autodialer with simple software modifications or by downloading an application, any ordinary smartphone is effectively an autodialer subject to the TCPA regulations because of that theoretical “capacity.” As a result, plaintiffs faced almost no hurdle in alleging a defendant utilized an autodialer.
The D.C. Circuit struck down the FCC’s broad definition of “autodialer” finding the commission’s interpretation of the term “capacity” to be “utterly unreasonable.” The court was extremely troubled by the fact, all but admitted by the FCC, that any smartphone could meet this definition and rejected the idea that Congress intended such an expansive interpretation. The D.C. Circuit was not persuaded by the FCC’s argument that in fact, the FCC ruling did not reach a definitive resolution on whether a smartphone qualifies as an autodialer, holding that, even if that were true, such lack of clarity (and logical inconsistency) would render the FCC’s ruling on this issue “arbitrary and capricious.” The court therefore set aside the FCC’s definition of “autodialer” and the FCC will now be tasked with issuing an updated ruling consistent with the decision.
The D.C. Circuit also took issue with the FCC ruling because the FCC seemed to suggest at different points in its ruling and in its briefing that equipment must itself have the functional ability to generate (that is, create) random or sequential numbers to be dialed, while at other points in its ruling suggesting that an autodialer need not generate its own numbers randomly or sequentially, but may simply dial numbers from a pre-existing list randomly or sequentially. The former scenario is most often viewed as what the TCPA was enacted to prevent—the completely random dialing of numbers (a carpet bombing approach to telemarketing). The latter scenario, however, is more typical of how telemarketers work today, calling targeted pre-identified numbers from a database. The D.C. Circuit suggested that either interpretation could be permissible, but it took issue with the FCC ruling to the extent that it failed to definitely pick one of these interpretations. While a decisive statement (from the court) that equipment simply calling from a previously identified list of numbers does not run afoul of the TCPA would have been welcome news for callers (as discussed in more detail below) with a newly re-configured FCC set to issue a consistent ruling, we believe a more business-friendly decision remains possible down the road.
The TCPA makes it unlawful “to make any call (other than a call made for emergency purposes or made with the prior express consent of the called party) using any automatic telephone dialing equipment or prerecorded voice.” 47 U.S.C. § 227(b)(1)(A).
The FCC ruling held that the “called party” refers to the current subscriber of the phone number, not the intended recipient. With thousands of mobile phone numbers being reassigned every day, the FCC ruling created a compliance nightmares for businesses—a caller intending to call a consumer that had provided consent for the call may unwittingly call a different person if the previous consumer’s phone number was reassigned to a new person. Despite a business’s good faith efforts to obtain consent and only call persons who had given consent, reassignment of numbers creates a risk of TCPA liability that is difficult to avoid. The FCC ruling attempted to account for this issue by providing a one-call safe harbor, where the caller would be immune from liability for the first call after a number is reassigned. However, the FCC ruling held that after the first call, the caller would be charged with constructive notice of the reassignment and face liability for any subsequent calls—even if the caller did not have actual notice (for example, if the caller received no answer or was intentionally misled by the new subscriber to induce future calls in violation of the TCPA).
The DC Circuit, as an initial matter, agreed with the FCC that its interpretation of “called party” refers to the actual recipient of the call (the current subscriber to the phone number), not the intended recipient. However, the court found that the FCC provided no reasoning for limiting the “safe harbor” to one call and, therefore, the FCC ruling was deemed “arbitrary and capricious.” The D.C. Circuit noted the inherent inconsistency in the FCC’s reasoning where the FCC credited a caller’s “reasonable reliance” on the consent it had received for the first call after reassignment, but rejected the notion that a caller could continue to reasonably rely on the same consent for subsequent calls absent actual notice of the reassignment. The D.C. Circuit set aside the FCC’s treatment of reassigned numbers as a whole and indicated that the FCC should issue a ruling with more robust reasoning. As an aside, the court pointed out that the FCC is already on its way to designing a new system to avoid the problems of the FCC ruling’s one-call safe harbor by creating a comprehensive repository of reassigned numbers. In conjunction with that repository, the FCC is considering implementation of a new rule that would provide a safe harbor for businesses that consult that repository on a regular basis before making calls. It therefore seems likely that the FCC will craft a new rule that will give businesses a more realistic system for avoiding calls to reassigned numbers and that will be more effective at actually reducing the frequency of such unwanted calls while at the same time reducing potential TCPA liability for businesses.
While the TCPA is silent on revocation of consent, the FCC ruling held that consumers may revoke previously provided consent by “any reasonable means” including orally or in writing. The challenge to the FCC ruling argued that callers should be able to dictate the methods of revocation of consent.
The D.C. Circuit disagreed with petitioners and upheld the FCC ruling with respect to revocation of consent, holding that callers cannot unilaterally prescribe exclusive means for consumers to revoke consent. The court found that concerns about unique methods of revoking consent were overstated because the FCC ruling specifically absolved companies of adopting systems that would entail “undue burden” and revocation was still limited to “reasonable means.” Importantly, the court noted that neither the FCC ruling nor its decision affected bilateral contractual language that dictates specific methods for revoking consent.
Finally, the D.C. Circuit reviewed the FCC’s narrow health care exemption. Pursuant to authority in the statute, the FCC had been petitioned to exempt from the consent requirement “certain non-telemarketing, health care calls” that provide “vital, time-sensitive information patients welcome, expect and often rely on to make informed decisions. In the FCC ruling, the FCC granted the petition but restricted it to “calls for which there is exigency and that have a health care treatment purpose,” including calls or texts regarding appointment confirmations, reminders, wellness checkups, hospital pre-registration instructions, pre- and post-operative instructions and lab results. The FCC did not extend the exemption to include telemarketing, solicitation or advertisement calls, or calls that include accounting, billing, debt collection, or other financial content.
The D.C. Circuit upheld the scope of this exemption against Rite Aid’s challenge. Rite Aid argued that the TCPA regulations conflicted with the regulations of the Health Insurance Portability and Accountability Act of 1996 (HIPPA). The D.C. Circuit rejected this argument, finding that there is no obstacle to complying with both the TCPA and HIPPA as the two statutes “provide separate protections.” The D.C. Circuit also rejected Rite Aid’s assertion that the FCC’s line drawing on this exemption was arbitrary and capricious.
This decision on the whole is welcome relief to businesses that call or text consumers. While not explicitly outlining any new rules, the D.C. Circuit provided instructions for the FCC to issue new rulings that will be narrower in scope than the 2015 ruling. The FCC will now revisit the questions of (1) the definition of “autodialer” and (2) reassigned numbers, and issue a ruling consistent with the D.C. Circuit’s decision. Since the ruling in 2015, we have had a change in administration. Republicans are now in control of the FCC with a three-to-two majority and Ajit Pai heading the agency as its chair. Those three Republican commissioners include two that dissented to the FCC ruling and those dissents will likely provide a roadmap for how the reconfigured FCC will rule. Notably, we anticipate a narrower definition of “autodialer” that is limited to “present ability” and perhaps even carve out equipment that simply dials telephone numbers from a previously created list of numbers. We also expect the FCC to continue to explore and implement a reassigned number registry that it has already begun to investigate and appears to have been explicitly endorsed by the D.C. Circuit. In the meantime, as we wait months or even years for new FCC guidance, we can expect courts across the country that are presently confronting TCPA litigation to look to the logic and reasoning in the D.C. Circuit decision. At a minimum, the FCC’s previous guidance on these issues is no longer persuasive authority in the courts, much less binding.
The foregoing has been prepared for the general information of clients and friends of the firm. It is not meant to provide legal advice with respect to any specific matter and should not be acted upon without professional counsel. If you have any questions or require any further information regarding these or other related matters, please contact your regular Nixon Peabody LLP representative. This material may be considered advertising under certain rules of professional conduct.
Class Action Alert | 09.23.20
Originally recorded on June 12, 2018. | 06.14.18
06.12.18 | Webinar