Last Friday, a panel of the D.C. Circuit issued its decision in ACA International v. FCC (pdf). The decision, which arrived nearly 17 months after the oral argument, struck down key elements of the FCC’s controversial 2015 Declaratory Ruling and Order interpreting the Telephone Consumer Protection Act (TCPA).

Here are the key takeaways from the decision:

  • The court held that the FCC’s broad definition of an automatic telephone dialing system (ATDS), which threatened to include all smartphones, is arbitrary and capricious, and required the FCC to reconsider its definition.
  • The court overturned the FCC’s conclusion that a caller could be subjected to liability for calls placed or text messages sent to a phone number that had been reassigned after a “safe harbor” of a single errant call or text. Because the “safe harbor” ruling was arbitrary and capricious, the court concluded that the FCC was required to reexamine whether a caller should be liable for any calls or texts to reassigned numbers.
  • The panel sustained the FCC’s rule authorizing consumers to retract their consent to receive autodialed calls or text messages through “any reasonable means.” But the panel decision notes that the FCC’s rule doesn’t speak to situations where parties have contractually agreed to a specific method of revocation.

Unless the FCC seeks further appellate review (which seems unlikely), the agency will be reconsidering the autodialer and reassigned-number issues. Notably, the composition of the FCC has changed since the 2015 order; the chairman of the FCC is Commissioner Ajit Pai, who dissented from the 2015 ruling.

We summarize the decision in detail below. In the meantime, we expect businesses facing TCPA litigation to take at least three possible approaches.

First, the D.C. Circuit’s decision reopens a number of questions that plaintiffs have argued were resolved by the FCC’s 2015 ruling, and parties will seek to litigate those issues.

Second, the FCC will have something new to say on each of the issues remanded to it by the D.C. Circuit, and businesses and trade associations will doubtless want to participate in that regulatory discussion—especially given their extensive experience on the receiving end of TCPA lawsuits.

Third, and relatedly, a number of courts will surely find it more efficient to wait for the FCC’s pronouncements on these issues before allowing TCPA litigation to proceed.

Background

The FCC’s 2015 Declaratory Ruling and Order resolved 21 petitions challenging a number of ways in which the FCC regulations had implemented the TCPA. (Read our report (pdf) on the issuance of the 2015 Declaratory Ruling and Order.) Many of the petitions addressed the rules declaring that certain calling and texting practices violate the TCPA—rules that had spurred the filing of a huge wave of class actions seeking statutory damages for each call or text message (potentially subject to trebling for willful violations).

The legal challenge to the 2015 ruling—and last week’s D.C. Circuit decision— focused on four issues:

  • The FCC’s interpretation of an “automatic telephone dialing system”—the use of which triggers the TCPA’s restrictions—to include a broad range of devices, including devices that lack the present capacity to dial random or sequential numbers.
  • The FCC’s decision to impose strict liability for all but the first call or text message to a “reassigned” phone number.
  • The FCC’s conclusion that consumers can retract their consent to receive calls or text messages by any reasonable means rather limited to ways specified by the caller/sender.
  • Whether the FCC can require compliance with the TCPA’s consent requirements for health-care related calls and text messages that already are regulated by HIPAA.

In ACA International, the D.C. Circuit heard challenges to these FCC rulings. As discussed below, the D.C. Circuit concluded that the FCC’s autodialer and reassigned-number rulings were arbitrary and capricious, but upheld the FCC’s revocation-of-consent and health-care-message rulings.

Autodialers

Many of the TCPA’s restrictions apply only when callers use an “automatic telephone dialing system” (ATDS) which is defined 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.” 47 U.S.C. § 227(a)(1). Whether particular equipment counts as an ATDS has led to a great deal of confusion in the courts.

In its 2015 Ruling, the FCC determined that because the statutory definition of an ATDS refers to the “capacity” to dial random or sequential numbers, any equipment used to place calls or send texts qualifies as an autodialer if it has virtually any potential future capability to dial such numbers. The FCC ruled that equipment is an ATDS even if its potential ability to dial numbers randomly or from a list is not being used, has been wholly “deactivated,” or would require “software changes” or other modifications to implement. The FCC also reaffirmed its earlier rulings that “predictive dialers,” which call numbers from a given list rather than generating random or sequential numbers, constitute autodialers.

Capacity

In assessing the challenges to the FCC’s analysis of the “capacity” issue, the D.C. Circuit focused on the argument that the FCC’s ATDS definition would encompass all modern smartphones, which would subject millions of consumers to TCPA liability for certain calls or text messages. Although the FCC asserted in its brief that its ruling had left open whether smartphones were autodialers, it observed that smartphones could indeed be used to dial random or sequential numbers with the use of an app.

The D.C. Circuit concluded that the FCC’s interpretation of an ATDS would give the TCPA “an eye-popping sweep.” For example, the court observed that calls or text messages to “recently met” acquaintances, such as a “group message inviting ten people to [a social] gathering,” could lead liability for a minimum of ten TCPA violations. These “anomalous outcomes,” the court declared, “are bottomed in an unreasonable, and impermissible, interpretation of the statute’s reach,” as the TCPA “cannot reasonably be read to render every smartphone an [ATDS],” subjecting “every smartphone user” to liability “whenever she makes a call or sends a text message without advance consent.” “It cannot be the case that every uninvited communication from a smartphone infringes federal law, and that nearly every American is a TCPA-violator-in-waiting, if not a violator-in-fact.”

The D.C. Circuit declined to draw a line between the “present ability” and “potential ability” of equipment “to function as an ATDS,” concluding that the statute’s reference to “capacity” “contemplates some future functioning state.” Instead, the court concluded that the FCC’s “expansive understanding of ‘capacity’” was “beyond the agency’s zone of delegated authority” because it caused the TCPA—a statute that Congress expressly intended to combat certain types of telemarketing activity—to impose liability for using “the most commonplace phone device used every day by the overwhelming majority of Americans.” The court also held that the FCC’s unwillingness to state whether smartphones constituted autodialers under its definition was itself “unreasonable and impermissible” because of the enormous stakes of that determination and the FCC’s refusal to explain how smartphones could fall outside the definition.

Predictive dialers

In addition, the D.C. Circuit held that the FCC’s ATDS definition was impermissible because it “appears to be of two minds” about whether the equipment “must itself have the ability to generate random or sequential numbers to be dialed” or if it is “enough if the device can call from” a list provided to the device.

The court noted that the FCC’s earlier orders addressing predictive dialers covered only equipment that could create and dial lists of numbers “without human intervention.” But the FCC’s 2015 ruling suggested in places that even equipment that doesn’t create a list—but simply dials from “an externally supplied set of numbers”—qualifies as an ATDS. And the FCC “declined a request to ‘clarify[] that a dialer is not an autodialer unless it has the capacity to dial numbers without human intervention.” This equivocation, the court held, deviated from the requirement of “reasoned decisionmaking” because the FCC’s ruling left affected parties “in a significant fog of uncertainty about how to determine if a device is an” ATDS.

The D.C. Circuit thus held that the FCC’s definition of an ATDS was arbitrary and capricious under the Administrative Procedures Act. Consequently, unless the FCC seeks en banc or Supreme Court review, it will have to take a new look at the question of what constitutes an ATDS.

Guidance on remand

The D.C. Circuit provided some additional guidance to the FCC on the ATDS issue. For example, the court explained that the FCC could determine that “automatic telephone dialing system” referred to the types of equipment used by telemarketers in 1991 when the TCPA was adopted, rather than “modern phone equipment” to which the autodialer definition is ill-fitting. Alternatively, the court noted, the FCC “retains a measure of authority . . . to fashion exemptions” in order to “prevent[] a result under which every uninvited call or message from a standard smartphone would violate the statute.” The court also directed the FCC to provide “clarity” about “which functions qualify a device as an autodialer.”

Another possibility, the court noted, would be to clarify that the TCPA does not apply merely when a caller uses equipment with the “capacity” to dial random or sequential numbers, but only when the caller actually “us[es] certain autodialer functions.” As we discussed in reporting on the oral argument, Judge Edwards focused on this possible interpretation of the TCPA.

Reassigned Numbers

The TCPA authorizes autodialed calls and text messages “made with the prior express consent of the called party.” 47 U.S.C. § 227(b)(1)(A) . In the context of reassigned numbers, there has been a lot of litigation over the meaning of the term “called party.” From the caller’s perspective, the caller intends to reach a particular person (usually someone who has given consent to the caller to receive communications on his or her phone number). But what if that intended recipient’s original number is reassigned to a new subscriber without the knowledge of the caller? If the statutory term “called party” means the intended recipient, then the call would not trigger liability under the TCPA.

In its 2015 ruling, however, the FCC concluded that “called party” instead refers to “the current subscriber” with the telephone number in question—meaning that callers would be liable for every call to a reassigned number, regardless of whether the caller would have any reason to know that the number had been reassigned. Many businesses argued that this approach was unfair to them. Offering a sliver of recognition on that score, the FCC then adopted a one-call safe harbor: callers who “lack knowledge of [the] reassignment” would not be liable for the first call to reassigned numbers, but would be liable for all subsequent calls, even if they still had no reason to be aware of the reassignment.

The D.C. Circuit first concluded that it was not unreasonable for the FCC to interpret the term “called party” to “refer[] to the expected recipient of a call or message” to a reassigned number. Pointing to an earlier Seventh Circuit decision, the D.C. Circuit noted that the phrase “called party” was used repeatedly in the TCPA, with many of those instances “unmistakably denot[ing] the current subscriber” rather than the intended recipient.

Nonetheless, the D.C. Circuit concluded, the FCC’s ruling was arbitrary. Criticizing the FCC’s “one-call safe harbor” rule, the court explained that the FCC had long ruled that callers could reasonably rely on prior express consent to make calls—and that the safe-harbor rule clearly stemmed from callers’ entitlement to reasonable reliance on prior consent—but that the agency had failed to explain why limiting the safe harbor to a single call or text message was consistent with reasonable-reliance principles. The court observed that the “first call or text message, after all, might give the caller no indication whatsoever of a possible reassignment.”

After concluding that the one-call safe harbor was arbitrary or capricious, the D.C. Circuit vacated not only the safe harbor ruling, but also the FCC’s ruling that the term “called party” in the TCPA refers to the “current subscriber” rather than the intended recipient. The court explained that the absence of the safe harbor would lead to strict liability for all calls to reassigned numbers, an unyielding rule that the court “cannot be certain that the agency would have adopted . . . in the first place.”

The court noted that the FCC appears “already on its way to designing a regime to avoid” the reassigned number problem. Specifically, the FCC has requested comment on possible ways of creating a master list of number reassignments, which callers could consult in order to avoid making unintended calls to reassigned numbers.

Revocation of Consent

As noted above, the TCPA authorizes calls and text messages made to consenting recipients. In its 2015 ruling, the FCC decided that recipients are free to “revoke consent at any time and through any reasonable means,” whether verbally or in writing or writing, and that callers may not restrict or prohibit revocation.

The D.C. Circuit affirmed the FCC’s ruling. Challengers had contended that allowing consumers to revoke consent through “any reasonable means” would create enormous compliance problems, because “callers would have . . . to train every retail employee on the finer points of revocation.” Indeed, a spate of TCPA class actions have been filed by plaintiffs who have purported to revoke consent to be called in ways designed to avoid callers’ methods for tracking revocations.

The D.C. Circuit concluded that concerns were “overstated,” because if companies adopt “clearly-defined and easy-to-use opt-out methods,” any attempt “to sidestep the available methods in favor of idiosyncratic of imaginative revocation requests might well be seen as unreasonable.”

The court also noted that the FCC’s revocation rule prohibits only unilaterally-imposed limits on revocation. By contrast, if “callers and consumers. . . contractually agree[] to revocation mechanisms, . . . [n]othing in the [FCC]’s order . . . should be understood to speak to” the validity of those agreements. That discussion may cause companies that have contractual relationship with potential recipients of calls or texts to review their agreements both to secure contractual consent where possible and (if appropriate) to provide for a particular method of revocation.

Health-Care Calls and Messages

The TCPA has a number of exceptions to its consent requirements for autodialed calls and text messages to cell phone numbers. In its 2015 Declaratory Ruling and Order, the FCC determined that calls “for which there is exigency and that have a healthcare treatment purpose” fall within an exception, but declined to extend that exception to all HIPAA-regulated health-care related calls and text messages. The FCC asserted, for example, that there was no need to exempt healthcare calls “regarding account communications and payment notifications” from TCPA liability. Thus, the FCC declared that the exception would not cover calls or messages that “include telemarketing, solicitation, or advertising content, or which include accounting, billing, debt-collection, or other financial content.”

One petitioner had challenged the narrow scope of this exception as contrary to HIPAA, which already regulates and permits healthcare-related messages. The D.C. Circuit rejected this challenge, holding that the TCPA and HIPAA provide “separate protections,” and that nothing in HIPAA demonstrates congressional intent to foreclose application of the TCPA. And the court held that the limitations on the exception from TCPA liability that the FCC adopted were not arbitrary and capricious because although the FCC had previously adopted a broader exception for healthcare to landlines, the greater intrusiveness of calls to cell phones justified a narrower exception.