Results Mixed for Healthcare and Other Businesses and Industries
On March 16, 2018, the United States Court of Appeals, in a 3-0 decision, sided with ACC International in its challenge to the Federal Communications Commission’s (“FCC’s”) July 10, 2015, Omnibus Order (“Order”), through which FCC had sought to expand the reach of the Telephone Consumer Protection Act of 1991 (“TCPA”). On balance, that decision is a win for business and industry, as it will help curtail class actions brought against legitimate businesses trying to connect with customers. Significant questions remain, however, and the plaintiff’s bar’s effort to use the TCPA to pressure large settlements through the threat of strict liability claims remains.
Enacted at a time when cell phones were not commonly used, the TCPA prohibits the use of automatic telephone dialing systems (“ATDS”) to call or send text messages to a called party without the “prior express written consent” of that called party. The FCC’s Order was meant to expand safe harbor provisions and allow industry to better understand compliance obligations. Instead, the Order created more questions than answers for companies using telemarketing calls, and fueled the plaintiff’s bar’s continued attack on businesses. U.S. Chamber Institute for Legal Reform (“ILR”) reported a 940% increase in TCPA class actions filed between 2010 and 2014. ILR also noted that 3,710 TCPA class actions had been filed in federal court in 2015 alone.
The TCPA Generally: Automatic Penalties Regardless of Intent
The TCPA prohibits telemarketers from using ATDS-functional equipment to place a marketing call to a cell phone without the prior written consent of the called party. The TCPA provides in pertinent part:
It shall be unlawful for any person… to make any call (other than a call made for emergency purposes or made with the prior express consent of the called party) using any automatic telephone dialing system or an artificial or prerecorded voice… to any telephone number assigned to a paging service, cellular telephone service, specialized mobile radio service, or other radio common carrier service, or any service for which the called party is charged for the call.
The TCPA defines ATDS as “equipment which has the capacity (A) to store or produce telephone numbers to be called, using a random or sequential number generator; and (B) to dial such numbers.” FCC clarified that dialing equipment that has the capacity to store, produce and dial numbers at random or sequentially, even if not currently used for that purpose, qualifies as an auto-dialer.
Under the plain wording of the statute, a misdialed number is sufficient to trigger a violation. The TCPA is a strict liability statute that awards $500 per violation and up to $1,500 per willful violation per call. Given those automatic penalties, violations under the TCPA can lead to significant potential exposure.
ACA International’s Challenge to FCC’s 2015 Order
ACA and other business and industry stakeholders challenged FCC’s 2015 Order under the Administrative Procedure Act (“APA”). The court, applying Chevron USA, Inc., v. Nat’l Res. Def. Council, Inc., rejected FCC’s interpretation of several critical components of the TCPA.
FCC’s Overly Broad Interpretation of ATDS Is Arbitrary and Capricious
The Court of Appeals rejected FCC’s overly broad interpretation of ATDS. First, it rejected FCC’s interpretation of the word “capacity” under the TCPA. In its 2015 Order, FCC had interpreted the term “capacity” very broadly, meaning that equipment would be deemed to have the “capacity” to operate as an ATDS if it could be altered to operate as an ATDS in the future, even if the equipment did not have ATDS capabilities enabled at the time of the calls at issue. The Court of Appeals noted that such an overly broad definition would encompass all smartphones, which had not been ubiquitous at the time of the TCPA’s enactment, but now were owned by a “sizable majority” of Americans. The Court noted that under FCC’s definition, a smartphone owner sending out invitations to a party could inadvertently trigger the act, particularly when certain apps exist to allow smartphones to make ATDS-type calls. Indeed, the Court of Appeals posited that even a rotary phone could be upgraded to have the capacity to operate as an ATDS. Such a broad interpretation made it impossible for a calling party to assess compliance. Thus, the Court of Appeals concluded that FCC’s interpretation of “capacity” is arbitrary and capricious.
Second, the Court of Appeals rejected as arbitrary and capricious FCC’s confusing approach to what constitutes “automatic” for the purposes of determining whether equipment is an ATDS. The Court of Appeals concluded that FCC’s July 2015 Order lacked clarity about which functions qualified equipment as an autodialer, particularly when coupled with FCC’s overly broad definition of “capacity.” In turn, the Court of Appeals set aside FCC’s treatment of the term “automatic.”
We will continue to monitor FCC’s development of new guidelines for determining when equipment constitutes an ATDS under the TCPA. In light of the decision of the Court of Appeals, though, we anticipate that FCC will adopt a more tailored and practical approach that will set clear compliance boundaries for businesses that seek to interface with their clients.
FCC’s Safe-Harbor Approach to Reassigned Numbers Is Arbitrary and Capricious
In its July 2015 Order, FCC required the calling party to obtain consent from the cell phone’s “current subscriber” or “the non-subscriber customary user of the phone.” Cell phone numbers for many “pay as you go” devices, however, regularly are recycled to other customers. As a result, many businesses were obtaining valid prior express written consent, only to make calls to numbers that had been recycled to a new user without any notice to those businesses. Plaintiffs’ attorneys would target those recycled numbers, seeking to extract sizable penalties from companies that had taken every step possible to comply with the TCPA.
Leading up to the July 2015 Order, business and industry stakeholders petitioned FCC to carve out a safe-harbor exception for inadvertent or other wrong numbers, to stop such opportunistic suits against otherwise compliant businesses. FCC rejected those efforts, offering a much more limited safe harbor. FCC concluded that it would not impose the automatic statutory penalty for a single call if the calling party could show that the number was reassigned from a prior user who had provided express written consent. That approach was impractical, given that often several calls would be made before the new owner of a number confirmed that the number had been reassigned.
The Court of Appeals concluded that FCC was within its rights to interpret “called party” to mean the current subscriber, not the prior subscriber who had given prior express written consent. But in analysis that will be of great help to business and industry, the Court of Appeals also found that the “one call” safe-harbor provision was arbitrary and capricious because it ran counter to the “reasonable reliance” standard under which FCC purported to operate. Noting that FCC is currently seeking stakeholder input through the rulemaking process, the court rejected FCC’s treatment of reassigned numbers in its entirety.
Contractual Provisions That Specify Means of Revoking Consent Are More Important Than Ever
In its Order, FCC reiterated that consumers have the right to “opt out” or revoke their earlier consent through any “reasonable method.” FCC failed to provide any bright-line rule to determine reasonableness. Instead, FCC advised that no “undue burdens” should be placed on the called party in revoking prior consent. “Reasonableness” under FCC’s approach would be decided on a case-by-case basis, based on the “totality of the circumstances.” Examples of “reasonable methods” include revocation by a called party “by way of a consumer-initiated call, directly in response to a call initiated or made by a caller, or at an in-store bill payment location, among other possibilities.” Thus, arguably, any customer walking into one location of a national department store chain could revoke consent while paying his or her credit card bill with the cashier.
Although the Court of Appeals upheld FCC’s decision to allow consent revocation through any “reasonable means,” it underscored FCC’s concession on appeal that the ruling would not address the impact of contractual provisions governing revocation of prior express written consent. The general trend among district courts has been to afford deference to such contractual provisions. Thus, it is more important than ever to establish clear contractual provisions for revocation of consent whenever possible.
No Exemption for Critical Healthcare-Related Marketing Calls
Though FCC exempted from TCPA’s consent requirement any and all calls made to wireless numbers “for which there is exigency and that have a healthcare treatment purpose,” FCC failed to exempt those callers who sought to make healthcare-related marketing calls, even when such calls sought to convey information about critical healthcare-related products. Unfortunately, the Court of Appeals affirmed FCC’s narrow exemption, meaning that healthcare-related marketing calls will not be exempted from the TCPA. Those businesses will have to ensure that their TCPA regulatory and compliance matters are updated as needed and robust.
The plaintiff’s bar continues to view TCPA litigation as low-risk, high-reward work, given the explosive nature of TCPA’s strict liability penalties for even inadvertent compliance issues. The Court of Appeals’ decision will afford business and industry additional tools to push back against unwarranted but costly TCPA claims. Pitfalls for business and industry remain, however, particularly for those in the healthcare space. As always, it remains critically important for business and industry to consult with attorneys familiar with both regulatory and compliance issues and litigation before launching any marketing plan.