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It’s Finally Here: Federal Appeals Court Decision Upholds ACA-Led Challenge to FCC’s July 2015 TCPA Ruling

March 20, 2018

Cohen Seglias Authors James McNally & Michael Metz-Topodas

Perhaps good things really do come to those who wait. Ending eighteen months of anticipation, the United States Court of Appeals for the D.C. Circuit issued its ruling on the challenge to the FCC’s July 2015 Declaratory Ruling and Order (the “2015 Order”). Regulated entities led by ACA International, the Association of Credit and Collection Professionals, asked the court to review the FCC’s interpretation of the Telephone Consumer Protection Act (“TCPA”). Not only did the court rule in the petitioners’ favor on key issues, but it also provided industry-favorable guidance for future TCPA rule-making. The decision will have significant, possibly far-reaching, effects on how collection professionals communicate with customers.

The court upheld both the determination that a caller may revoke consent to receive auto-dialed calls by any reasonable means and the exemption from TCPA liability for certain healthcare related calls. The court, however, affirmed petitioners’ challenge to the FCC’s reading of what constitutes an “automatic telephone dialing system” (“ATDS”) and found the FCC made an “unreasonably expansive interpretation.” The court also agreed with petitioners that the FCC made an “arbitrary and capricious” decision in creating a “one-call” safe harbor for calls placed to reassigned numbers.

The Scope of “ATDS”

The TCPA defines an ATDS as equipment that has “capacity . . . to store or produce telephone numbers to be called, using a random or sequential number generator.” As the court explained, the 2015 Order viewed “capacity” as not just a device’s present capacity, but also its “potential functionalities,” with little limit as to when or how such potential comes about. The FCC’s ruling meant that the TCPA would apply to a device that merely could acquire ATDS functions at some point by simply downloading an app or updating its software. The court pointed out that the FCC’s interpretation could subject every smartphone to TCPA regulation. As a result, the court found the 2015 Order gave the TCPA’s “restrictions on autodialer calls . . . an eye-popping sweep” and considered that interpretation unreasonably expansive.
 
Compounding the FCC’s impermissibly broad read of ATDS, the court found that the 2015 Order inadequately explained the features that qualify a device as an autodialer. In particular, the FCC failed to clarify: (a) whether an autodialer must have the capacity to generate random or sequential numbers; (b) whether autodialer means a device that can dial numbers without human intervention; and (c) what constitutes the “short period of time” in which a device can dial “thousands of numbers.” The lack of precision left those affected by the 2015 Order in “a significant fog of uncertainty.” Based on this uncertainty and the unreasonable ATDS interpretation, the court set aside the 2015 Order’s entire treatment of these issues.
 

The “One-Call” Safe Harbor for Re-assigned Numbers

The TCPA permits calls made from an ATDS only with the “prior express consent of the called party.” (emphasis added). The 2015 Order determined that when a number previously belonging to one who consented to receive autodialed calls is reassigned to one who has not, the “called party” refers to the person actually reached, not the person the caller intended to contact. The 2015 Order, however, exempted from liability the first time a caller made such a call—the “one-call” safe harbor. In reviewing this exception, the court affirmed the FCC’s definition of “called party” as in line with the TCPA’s language. The court, however, found that in looking at the FCC’s basis for the “one-call” safe harbor—reasonable reliance on the prior consent—it provided no more justification for excepting one call than multiple calls (or perhaps no call at all). With that in mind, the court deemed the “one-call” safe harbor arbitrary and capricious, as petitioners had argued. Eliminating the “one-call” safe harbor, however, would mean strict liability for all calls placed to reassigned numbers, and the court could not say undoubtedly that the FCC intended the rule to apply that way. It, therefore, set aside the entire treatment of reassigned numbers in the 2015 Order.

Revoking Consent

The court upheld the 2015 Order’s provision that a consumer may revoke consent to receive autodialed calls by “any reasonable means,” but reiterated several important considerations. Callers using an ATDS need not “adopt systems” for processing revocation requests “that would entail ‘undue burdens . . . to implement.’” Conversely, providing “clearly defined and easy-to-use” methods for called parties to opt-out of receiving autodialed calls may relieve callers from TCPA liability, especially in cases involving “idiosyncratic or imaginative revocation requests.”
 
In agreeing with petitioners’ challenges, the court provided signposts for future FCC rule-making and interpretations. The court noted the FCC could “fashion exemptions” to the ATDS’s scope so as to exclude from TCPA liability calls made using smartphones. Or, the FCC could avoid the conundrum about what constitutes “capacity” altogether. To that end, the court referenced the view expressed in Commissioner O’Rielly’s dissent to the 2015 Order. He explained that because the TCPA makes it unlawful “to make any call” using an ATDS, liability attaches only to calls that actually use an ATDS, not calls from devices that merely could have ATDS capacity. Regarding the one-call exception, the court noted that current rule-making initiatives propose requiring cell phone service providers to report number reassignments to create a repository of this information. Potential callers who consult such a database could obtain a safe harbor for inadvertent calls to reassigned numbers. Concerning revocation of consent, the court explained that nothing about the 2015 Order addressed whether parties may agree by contract to specified revocation procedures.
 
Although the extent to which the FCC will follow the court’s directions remains undetermined, the opinion bodes well for a more industry-friendly approach to the TCPA. As to portions of the 2015 Order the court vacated or set aside—the ATDS definition and reassigned numbers—the FCC will likely initiate further rule-making in those areas. In the interim, the effect and scope of the TCPA and its related regulations remain uncertain. In light of the court’s ruling and the shifting regulatory landscape, businesses affected by the TCPA should consult with their counsel regarding compliance issues.
 

For more information, please contact James McNally at jmcnally@cohenseglias.com or 412.434.5530, Michael Metz-Topodas at mmetz-topodas@cohenseglias.com or 215.564.1700, or any member of Cohen Seglias’ Financial Services Group.