In an Oct. 23 ruling, the Third Circuit Court of Appeals offered a mixed opinion that has the effect of both limiting and expanding the interpretation of automatic telephone dialing systems (ATDS), which can trigger a claim under the federal Telephone Consumer Protection Act. While the ruling poses increased risk for businesses that use dialers to contact customers, it also offers guidance on what can be done to reduce that risk.

The opinion is not precedential, meaning courts within the Third Circuit (New Jersey, Delaware, Pennsylvania and U.S. Virgin Islands) are not obligated to follow it.

You’ve Got Mail!

When Bill Dominguez purchased a new cellular phone, he received a new telephone number. He also began to receive text messages each time an email was received in a Yahoo email account.  But those text messages were not intended for Dominguez. It happens that the telephone number Dominguez received was reassigned from a previous subscriber. The text messages were from the previous subscriber’s email account.

Dominguez contacted Yahoo and tried to put an end to the text messages, but it didn’t work.  He reached out to the Federal Communications Commission (which has rulemaking and enforcement authority under the TCPA) which contacted Yahoo, but the texts continued. Dominique filed complaints with both the FCC and the Federal Trade Commission, but the texts continued.

In all, Dominquez says he received 27,809 text messages over 17 months. He filed a lawsuit alleging the text messages violated the TCPA. Even as an individual claim if all 27,809 text messages were made in violation of the TCPA, Dominguez would stand to recover anywhere from $13,904,500 to as much as $41,713,500. It all depends on whether the texts were willful. It doesn’t help that the opinion notes that when Dominiguez spoke with Yahoo he was told “the company could not stop the messages and that, as far as Yahoo was concerned, the [telephone] number would always belong to the previous owner.”  It only gets worse. Dominquez is also seeking class certification.

The Good News – ATDS Definition Limited

The TCPA regulates the use of, among other things, what it defines as “automatic telephone dialing systems.” It prohibits the use of an ATDS to dial “any telephone number assigned to a . . . cellular telephone service . . .” unless the call is made for “emergency purposes” or “with the prior express consent of the called party.”

It defines an ATDS as “equipment that has the capacity . . . to store or produce telephone numbers to be called, using a random or sequential number generator; and . . . to dial such numbers.” Yahoo’s position (according to the decision) is that an ATDS must have a “random or sequential number generator,” and the equipment it used to send text messages did not generate telephone numbers. Instead, it sent the texts from a compiled list of numbers.

The opinion rejected a crafty interpretation Dominguez posited. He argued that “sequential” under the definition of ATDS can mean either that numbers are dialed “in numerical sequence,” or that the equipment “dials non-sequential numbers in a sequential manner (i.e., by placing them in a queue and dialing them one at a time).”  In rejecting this argument, the Third Circuit looked to the recent 2015 FCC TCPA Declaratory Rulings, finding they “hold that an autodialer must be able to store or produce numbers that themselves are randomly or sequentially generated ‘even if [the autodialer is] not presently used for that purpose.’ ” That means “the phrase [random or sequential number generator] refers to the numbers themselves rather than the manner in which they are dialed.” The FCC did not “read out” the requirement that an ATDS have capacity to be a “random or sequential number generator,” according to the opinion.

It’s good news. The 2015 FCC Declaratory Rulings, as the opinion notes, are “hardly a model of clarity,” and the concern among business was that the rulings’ ambiguities would allow courts to adopt interpretations expanding the scope of an ATDS. Not so here. In fact, it supports a core argument the defense bar and certain courts have adopted – an ATDS must have the capacity “to store or produce telephone numbers to be called, using a random or sequential number generator; and . . . to dial such numbers.”

The Bad News – ‘Potential Capacity’ Can Make an ATDS

Even if your equipment does not have the present capacity to store or produce numbers that are randomly or sequentially generated and dial them, if it has the “potential capacity” to do so, it can still be an ATDS.  And that is what went sideways here for Yahoo. The evidence the company offered, in the opinion of its expert, was that Yahoo’s text messaging system “did not have the capacity to store or produce numbers to be called, using a random or sequential number generator, and to call those numbers.” The court rejected the opinion as “conclusory,” and “begs the question of what is meant by the word ‘capacity.’ ”

The Third Circuit remanded the case to the trial court to explore the question of whether Yahoo’s equipment has the “potential” capacity to store or produce telephone numbers using a random or sequential number generator and dial them.