Executive Summary

The old adage “good things come to those to wait” showed itself to be true when on Friday, the U.S. Court of Appeals for the D.C. Circuit released its hotly anticipated decision in ACA Int’l v. FCC, just shy of 17 months after oral argument. The decision, impacting a wide range of industries, including financial services, retail and healthcare, set aside the Federal Communications Commission’s (FCC) overly expansive definition of “automatic telephone dialing system” (ATDS or autodialer) and its ruling on reassigned telephone numbers from 2015, but declined to set aside its rulings on revocation of consent and the scope of the exigent healthcare exemption applicable to wireless calls.

The opinion was immediately hailed as a positive outcome by Commissioners Michael O’Rielly and Brendan Carr and Trump-appointed Chairman Ajit Pai. While the decision is a win for business in many respects, it fell short of clarifying or establishing new standards, leaving room for further FCC guidance and/or judicial interpretation of the Telephone Consumer Protection Act (TCPA). In this special edition of TCPA Connect, we summarize the decision and analyze its likely impact.

Definition of ATDS

The TCPA defines an ATDS as equipment with the capacity to store or produce telephone numbers to be called, using a random or sequential number generator, and to dial such numbers. In 2015, the FCC clarified that “capacity” includes the potential capacity to autodial, even if can the system is not presently being used in such a capacity. If a software upgrade could enable equipment to autodial, it is an autodialer, said the FCC.

The panel determined that the FCC’s interpretation of capacity was “utterly unreasonable” and that the definition offered “no meaningful guidance” to companies, leaving companies in a “significant fog of uncertainty” as to whether their equipment qualified as an autodialer under the TCPA. The panel fundamentally disagreed with the idea that “a device having the capacity to function as an autodialer can violate the statute even if autodialer features are not used to make the call.” Such a broad interpretation would encompass virtually all smartphones, which can have autodialing capabilities through the simple installation of an app. “If every smartphone qualifies as an ATDS, the statute’s restrictions on autodialer calls assume an eye-popping sweep,” the court noted. “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.” Such an interpretation expands the law originally intended to target hundreds of thousands of telemarketers into a law targeting hundreds of millions of everyday callers. That is “incompatible” with the extent of the harm Congress sought to remedy, and exceeded the agency’s zone of delegated authority, the court held.

The court also criticized the FCC’s “competing interpretations” of random or sequential number generation. The court noted that the 2015 ruling gave no clear answer as to whether the equipment itself must have the ability to generate random or sequential telephone numbers to be dialed, or if it suffices for the equipment to be able to call numbers generated in a separate database. The panel asked, “So which is it: does a device qualify as an ATDS only if it can generate random or sequential numbers to be dialed, or can it qualify even if it lacks that capacity?”

The court noted in dicta that the “make any call” portion of the statute could be interpreted to proscribe only those calls that are being made using autodialer capabilities, such that calls not presently being used with such capabilities may be outside the scope of the TCPA. This reading of the TCPA, according to the panel, would “substantially diminish practical significance of the [FCC’s] expansive understanding of ‘capacity’ in the autodialer definition.”

Key Takeaways:

While the court made clear that the FCC’s expansive interpretation of autodialer cannot stand, it did little to clarify the standard, other than to suggest what it believed to be relevant considerations, including (1) how much is required to enable the device to function as an autodialer, (2) whether it requires simple flipping of a switch or a top-to-bottom reconstruction, and (3) what kinds of and how broad an area of telephone equipment might be deemed to qualify. The panel found it “far from clear” that the distinction between present and potential capacity “should carry dispositive weight.”

Given the strong dissents filed by Chairman Pai and Commissioner O’Rielly to the 2015 Order, the full commission will likely take up the issue in a declaratory ruling or rulemaking. Until the FCC provides further guidance, courts will continue to grapple with the question of what constitutes an autodialer. Defendants involved in pending litigation should consider reviewing pre-July 2015 ATDS rulings in their jurisdiction. Defendants might also argue present capacity, which had success in some courts prior to the ruling. A continued stay of litigation may also be an option, especially if the FCC signals intent to provide further guidance. Hopefully, courts will continue taking a commonsense approach, focusing on human intervention and the actual functionality of the system, that we have seen emerge in the past year.

Reassigned Telephone Numbers

In its 2015 Order, the FCC defined “called party” to mean the current subscriber of the phone number, posing challenges for companies calling telephone numbers that had been reassigned. To address this issue, the FCC created a one-call safe harbor, which allowed companies to call a reassigned number once after reassignment before liability could attach, regardless of whether the caller learned of the reassignment during the one call.

While the panel noted that it was within the FCC’s authority to define “called party” to mean the phone number’s current subscriber rather than the intended recipient, the panel held that the FCC’s one-call safe harbor was arbitrary and capricious. In creating the safe harbor, the FCC was primarily concerned with a company’s reasonable reliance upon the consent given to it by the phone number’s prior owner. But the FCC “gave no explanation of why reasonable-reliance considerations would support limiting the safe harbor to just one call or message. … The first call or text message, after all, might give the caller no indication whatsoever of a possible reassignment[.]”

Importantly, the panel set aside not only the one-call safe harbor but also the FCC’s treatment of reassigned telephone numbers more generally, because otherwise a caller would be strictly liable for all calls made to a reassigned number, and the FCC had specifically declined to “require a result that severe.” The panel acknowledged that the FCC is “already on its way to designing a regime to avoid the problems of the 2015 ruling’s one-call safe harbor,” given its proposed rulemaking on reassigned telephone numbers, which will be further addressed at the FCC’s Open Meeting on March 22. The FCC appears poised to create a reassigned telephone number database, along with a safe harbor for using the database.

Key Takeaways:

Since the FCC’s ruling on reassigned telephone numbers was thrown out in its entirety, the FCC’s 2015 interpretation of “called party” no longer stands. This means that defendants may continue to argue that “called party” under the TCPA means intended recipient and that there should be no liability for calling reassigned telephone numbers, especially where a company did not have actual or constructive knowledge that the number had been reassigned. Given the uncertainty, however, companies should continue to avoid making automated calls to reassigned telephone numbers for which they may not have consent.

Revocation of Consent

In its 2015 Order, the FCC declared that consent under the TCPA could be revoked at any time by “any reasonable means,” where a consumer had clearly expressed a desire not to be called. The FCC expressly rejected arguments that companies could unilaterally determine the method of revocation.

The panel upheld this determination, noting that the standard already provides that revocation methods must not constitute an “undue burden” on companies and that the consumer must have a “reasonable expectation” that she can effectuate revocation in a given circumstance. In addressing recent abusive tactics under the TCPA, the panel noted that if consumers are provided with “clearly-defined and easy-to-use opt-out methods ... any effort to sidestep the available methods in favor of idiosyncratic or imaginative revocation requests might well be seen as unreasonable” or not within the “reasonable expectation” of the consumer. Further, the court noted that there is “no need to train every retail employee on the finer points of revocation.” The panel’s emphasis on “reasonable” is consistent with the approach adopted in recent district court decisions finding that failure to follow clear opt-out instructions was “unreasonable.”

Moreover, the panel stated that “[n]othing in the Commission’s order [] should be understood to speak to parties’ ability to agree upon revocation procedures.” The FCC ruling merely addressed whether callers could unilaterallychoose the method of revocation. Notably, Commissioner O’Rielly disagreed with the court’s decision on revocation, stating that the Second Circuit’s decision in Reyes v. Lincoln Automotive Financial Services is a “more appropriate approach.” There, the court held that where consent to be contacted is an express provision of a bilateral contract, consent cannot be revoked.

Key Takeaways:

Revocation of consent will continue to be a fact-based inquiry examining the totality of the circumstances and focusing on three main issues: (1) whether the consumer clearly expressed an intent to revoke consent, (2) whether that request was reasonable and (3) whether the request placed undue burden on the company. Revocation methods specified in loan, credit card, terms of use and other agreements continue to be viable strategies. Companies would be well-advised to provide clear methods of revocation in their agreements with consumers.

Exigent Healthcare Exemption

In 2015, the FCC created a healthcare exemption for wireless calls that extended to certain urgent calls with a healthcare purpose—specifically, appointment and exam confirmations and reminders, wellness checkups, hospital preregistration instructions, preoperative instructions, lab results, post-discharge follow-up intended to prevent readmission, prescription notifications, and home healthcare instructions. The exemption contains strict requirements, including that the messages are free to the end user. The exemption does not cover calls “that include telemarketing, solicitation, or advertising content, or which include accounting, billing, debt-collection, or other financial content.” In 2012, the FCC completely exempted prerecorded calls to residential phones that deliver a healthcare message under the Health Insurance Portability and Accountability Act (HIPAA). This exemption did not apply to wireless calls.

The D.C. Circuit rejected arguments that the exemption for “select healthcare-related calls” was arbitrary and capricious or that the FCC’s ruling conflicts with HIPAA. According to the panel, “[t]here is no obstacle to complying with both the TCPA and HIPAA” because “the two statutes provide separate protections.” The panel also rejected the argument that a narrower exemption for healthcare calls made to wireless numbers was “inherently contradictory” because the TCPA treats wireless numbers differently than residential numbers. The panel noted that “[t]he statute itself contemplates that calls to wireless numbers tread [more] heavily upon ... consumer privacy interests.” Lastly, the court rejected the notion that all healthcare-related calls fall within the “emergency call” exemption under the TCPA. Calls concerning marketing, accounting, billing and debt collection “do not arise from the sorts of emergencies that would justify suspending the TCPA’s consent regime,” the court held.

Key Takeaways:

The 2015 exigent healthcare exemption for wireless calls remains intact, but the court declined to expand its scope. The court’s opinion suggests that the exemption is limited to “select” healthcare calls (i.e., those specifically enumerated in the FCC’s Order), even though other types of healthcare calls (besides billing) arguably should be covered under the exemption. Despite the establishment of the exemption in 2015, many healthcare companies continued to rely on the less stringent “prior express consent” rules for informational calls and healthcare calls that may be marketing in nature. Companies making healthcare-related calls should continue to remain mindful of both HIPAA and the TCPA when making automated calls to mobile phone numbers.

What’s Next

The parties have 45 days to seek rehearing by the panel or a rehearing by the full D.C. Circuit and 90 days to seek Supreme Court review. Given that FCC Chairman Pai dissented from the FCC’s 2015 Order, and issued a statement applauding the decision as scaling back “the prior FCC’s disregard for the law and regulatory overreach,” a challenge from the FCC is not anticipated. Petitions on issues that remain unaddressed by the ruling, among others, are likely to be filed with the FCC in short order. We can expect further guidance from the FCC on the autodialer and reassigned telephone number issues, although it is not clear when such guidance will come, the form, or the scope of such guidance. Guidance on the reassigned number issue may come in the form of proposed rulemaking already in progress on a reassigned telephone number database and related safe harbor. In the meantime, TCPA defendants should continue pushing defense-friendly interpretations of the TCPA in the courts, particularly with respect to the definition of autodialer and what it means to make an autodialed call.