Ninth Circuit expands reach of the Telephone Consumer Privacy Act through broad definition of “automatic telephone dialing system”



October 01, 2018

Class Action Alert

Author(s): Karl D. Belgum, Dan Deane

In Marks v. Crunch Fitness, Docket No. 14-56834, the Ninth Circuit parts from the Third Circuit in adopting a broad interpretation of the meaning of the term “automatic telephone dialing system” for purposes of the TCPA. Under the Ninth Circuit’s approach, most modern telephone dialing equipment is governed by the TCPA’s restrictions.

On September 20, 2018, the U.S. Court of Appeals for the Ninth Circuit handed down a decision broadly construing the term “automatic telephone dialing system” in the Telephone Consumer Privacy Act (“TCPA”). Marks v. Crunch Fitness, Docket No. 14-56834. The court’s decision expands the coverage of the TCPA to modern direct marketing systems that contact customers through tailored—as opposed to random—telephone and text messages. The opinion is the latest in a series of court opinions and administrative rulemakings that have wrestled with the question of how to apply the TCPA to technological advances.

Confusion has reigned as to the scope of the TCPA both because the definition of automatic telephone dialing system (“ATDS”) is poorly worded, and because marketing communication technology has continued to evolve since the Act was passed in 1991. The Act provides that

  1. The term “automatic telephone dialing system” means equipment which has the capacity –
    1. to store or produce telephone numbers to be called, using a random or sequential number generator; and
    2. to dial such numbers.

Businesses are generally forbidden from making calls using an ATDS, particularly telemarketing calls and calls to mobile phones, unless they previously obtained the appropriate level of consent from the recipient of the call.

Marks sued Crunch Fitness (“Crunch”) when it sent him three text messages after he joined the gym in 2012. The district court granted Crunch’s motion for summary judgment on the basis that its “Textmunication” web-based marketing and communication system did not constitute an ATDS. First, the system did not use “random” or “sequentially-generated” numbers. The numbers that the system used to send texts were either hand-entered by Crunch employees, submitted by the customers themselves through registration on the Crunch website or gleaned from text messages sent to Crunch by potential customers. Second, the system did not send messages “automatically.” A Crunch employee had to operate the system by selecting a number or subset of numbers and drafting a message to those members, then directing the system to send the message. Some messages, like those offering special promotions, presumably went to a broad audience while others, such as appointment reminders or birthday greetings, were more tailored.

In reviewing the lower court’s summary judgment ruling, the Ninth Circuit confronted an extensive history of regulatory rulemaking and declaratory orders. Marketing technology has evolved from fax or phone call blasts sent to massive lists of truly random numbers to more targeted systems, and the FCC has tried to keep up by refining the definition of what counts as an ATDS. In 2003, it adopted a rule that equipment with the “capacity” to dial “random and sequential” numbers would constitute an ATDS even if it was not being used that way at the time. In its 2015 Declaratory Ruling and Order, the FCC clarified that the term “capacity” meant that it is sufficient that the equipment have the “potential to be configured” to dial numbers randomly or sequentially even when the equipment is not presently configured to do so. Under that definition, a system that dials from a stored list of numbers, like the Textmunication system, can still constitute an ATDS. Finally, the court noted that, at the time of the 2015 rulemaking, the FCC was asked to clarify what exactly the statute meant by “automatic” dialing. Did it mean a system that operated entirely without human intervention? The court noted that the FCC did not clarify that point in its 2015 Declaratory Ruling.

However, as the Ninth Circuit observed, none of the FCC’s prior rulings was controlling in the Marks case because, in June 2018, the D.C. Circuit struck down both the 2003 and 2015 FCC rules as overbroad, internally inconsistent and unclear. ACA Int’l v. FCC, 885 F.3d 687 (D.C. Cir. 2018). That litigation arose from direct challenges from businesses and industry associations to the FCC’s rulings on various issues, including the FCC’s broad interpretation of the term ATDS. Thus the task before the Ninth Circuit was to decide whether the Textmunication system was an ATDS based on the bare language of the TCPA itself, ignoring the prior fifteen years of FCC rulemaking. While the D.C. Circuit in ACA Int’l suggested that the FCC’s rulings amounted to overreach in many instances, the Ninth Circuit, ruling on a blank slate, adopted an interpretation of ATDS as broad as anything proposed by the FCC.

The court first held that the statute was ambiguous on its face as to whether targeted dialing of stored numbers, as opposed to numbers generated randomly or sequentially, was covered. It found the definition of ATDS ambiguous and turned to other provisions of the TCPA to glean Congress’s intent. It found that other provisions of the statute refer to the use of an “autodialer” in contexts that clearly refer to the dialing of specific identified numbers. For example, the Act allows use of an autodialer for calls made with “prior express consent of the called party.” 47 U.S.C. § 227(b)(1)(A) (1991). Thus, the Act itself seems to acknowledge that an autodialer can be used in a way other than dialing numbers in a purely random or sequential manner. As a result, the Ninth Circuit held that a system can constitute an ATDS, and fall within the scope of the TCPA, if it has the capacity “(1) to store numbers to be called or (2) to produce numbers to be called, using a random or sequential number generator—and to dial such numbers automatically.” (Emphasis added).

Second, the court held that the word “automatic” in the TCPA does not mean the system has to work without any human interaction. A system that is turned on, programmed and directed by a human to dial numbers pursuant to a specific set of criteria still constitutes an “automatic telephone dialing” system within the meaning of the Act. Thus, because the “Textmunication system stores numbers and dials them automatically to send text messages to a stored list of phone numbers,” the court found that summary judgment was not appropriate. The district court’s ruling was vacated and the case remanded for further proceedings.

The Marks decision is contrary to a recent decision by the Third Circuit in Dominguez v. Yahoo, Inc., No. 17-1243 (June 26, 2018). In that case the plaintiff received numerous unwanted text messages from Yahoo after he was assigned a new cell phone number that had previously been assigned to a Yahoo customer who agreed to receive such texts. In that case, unlike Marks, the court held that plaintiff had to establish that the Yahoo text system had the capacity to generate numbers randomly or sequentially in order to constitute an ATDS. But the Yahoo system was anything but random. It was sending plaintiff the texts for a specific reason related to the account of the Yahoo subscriber who previously was assigned that number. As a result, summary judgment was affirmed. However, the Third Circuit’s opinion is far less thorough in its discussion of the definitional issues in the TPCA than the Ninth Circuit’s decision in Marks.

Conclusion

The Ninth Circuit’s construction of the term “automatic telephone dialing system” based on the bare language of the TCPA essentially achieved the same objective the FCC has been trying to achieve for years through rulemaking, i.e., to bring modern computer-driven targeted marketing and communications systems like Textmunication within the scope of the TCPA. For the time being, lower courts will likely choose between the Ninth Circuit’s broad interpretation and Third Circuit’s more narrow approach in deciding future cases. But, at some point in the coming year, the FCC is expected to issue a new rulemaking that will provide new guidance on the ATDS definition. While the Obama-era FCC may have been expected to adopt an interpretation similar to that adopted by the Ninth Circuit in Marks, such is not likely to be the case today. The FCC under the Trump administration is controlled by a more business-friendly Republican majority, and its Chairman, Ajit Pai, was a vociferous dissenter from the FCC’s 2015 Declaratory Ruling and Order. Accordingly, many predict that the FCC will adopt a far more circumscribed view of its authority and regulatory reach under the TCPA.

We will continue to follow and report on developments in this area.

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