On March 31, 2017, the U.S. Court of Appeals for the D.C. Circuit did something unusual: it invalidated an FCC rule requiring advertisers to place opt-out notices on solicited faxes, subject to penalties for non-compliance. Bais Yaakov of Spring Valley, et al. v. FCC, 852 F.3d 1078 (D.C. Cir. 2017). The FCC then did something even more surprising: it did not join in the plaintiffs’ petition for rehearing en banc, which was subsequently denied. This D.C. Circuit opinion and the FCC’s apparent acquiescence in it may embolden further petitions to the D.C. Circuit in an effort to weaken the litigation juggernaut that is the Telephone Consumer Protection Act of 1991 (“TCPA”), which gave rise to the FCC rule.

Background

The TCPA was enacted in 1991 and limits the use of automatic dialing systems, prerecorded messages, text messages, and fax machines for commercial advertisements. See generally 47 U.S.C. § 227 et seq. The Solicited Fax Rule, 47 C.F.R. § 64.1200(a)(4)(iv) (2017), was promulgated under an amendment to the TCPA, the Junk Fax Prevention Act of 2015. The rule requires that companies place opt-out notices on both unsolicited and solicited fax advertisements. Under the rule, violations of the Junk Fax Act, which the FCC would deem to include sending solicited faxes without opt-out clauses, are subject to statutory damages of $500 per violation, subject to trebling for willful and knowing violations. Given that penalties are assessed per violation, total alleged damages in class action lawsuits frequently total in the millions of dollars, sometimes creating bet-the-company size lawsuits. As a result, TCPA litigation has become something of a cottage industry, with many plaintiffs’ firms specializing in multi-million-dollar lawsuits over technical violations of the TCPA.

In the recent Bais Yaakov decision, instead of upholding the FCC’s interpretation of the Junk Fax Act as reasonable, the approach advocated by the dissent, the panel majority held that the statute does not authorize the FCC to require opt-out notices on solicited faxes. Specifically, the majority found that the Junk Fax Act’s opt-out notice requirement—“the unsolicited advertisement contains a notice meeting the requirements under paragraph (2)(D),” 47 U.S.C. § 227(b)(1)(C)(iii)—does not apply to solicited advertisements. A contrary decision would have led to an odd outcome where the defendant “was potentially on the hook for $150 million for failing to include opt-out notices on faxes that the recipients had given [the defendant] permission to send.” Bais Yakkov of Spring Valley, 852 F.3d at 1081. While the D.C. Circuit did not address the opt-out notice requirement for unsolicited faxes, the opinion was a major setback for plaintiffs, given that it cuts off one of their often-used avenues to seek large damage awards and settlements.

Implications

Bais Yaakov represents a rare instance where a court has curbed the scope of the TCPA, an often-used plaintiffs’ tool. Indeed, several such rules have been challenged at the FCC, and the Bais Yaakov decision may embolden further petitions to the D.C. Circuit and influence future interpretive decisions. For example, a challenge to the FCC’s Autodialer Rule, which prohibits companies from telemarketing with autodialers, is currently pending before the D.C. Circuit. ACA International v. FCC, No. 15-1211 (D.C. Cir. filed July 10, 2015). Recently, plaintiffs have used the FCC Autodialer Rule to obtain millions of dollars from corporations—for example, just this January, a California district court approved Portfolio Recovery Associates’ settlement with class plaintiffs for $18 million. See Order and Judgment Granting Final Approval of Class Settlement, In re Portfolio Recovery Associates, LLC, Telephone Consumer Protection Act Litigation, No. 11-md-2295 (S.D. Cal. Jan. 25, 2017) (ECF No. 494). Bais Yaakov may impact the pending challenge to the FCC’s Autodialer Rule.

Moreover, the instant matter is not necessarily closed, as intervenors and plaintiffs—although not the FCC—petitioned for rehearing en banc on April 28, 2017. Despite ordering intervenors and class-action defendants to submit a joint Response, the D.C. Circuit denied the petition. Petitioners may now seek review in the U.S. Supreme Court. An FCC declination to defend the rule in that setting would be momentous.In the meantime, companies involved in electronic customer outreach would be well-advised to consult with counsel to stay abreast of best practices in this important and potentially changing realm of liability, and to consider additional challenges to FCC rules implementing the TCPA.