The Court ruled that the FCC’s expansive definition of “automatic telephone dialing system” is unreasonable.
The Court ruled that the FCC’s treatment of reassigned numbers is untenable.
The Court agreed with the FCC on consumers’ right to revoke consent, but left open the issue of whether they can contractually limit that right.

The U.S. Court of Appeals for the District of Columbia Circuit has released its long-awaited ruling in ACA International, et al., v. FCC. This case involves a critical look at the validity of the FCC’s July 2015 Declaratory Ruling and Order interpreting the federal Telephone Consumer Protection Act (TCPA) and has significant implications for businesses that communicate with their customers and prospective customers by telephone or texts. The 2015 Declaratory Ruling, often referred to as the “omnibus declaratory ruling,” was the FCC’s response to numerous petitions for exemption from or clarification of the FCC’s rules implementing the TCPA, including its new rules that took effect on October 16, 2013.

The TCPA places numerous restrictions on “calls” made to residential and wireless telephones, and the term “calls” has been interpreted to include text messages. The TCPA provides for a private right of action permitting individuals to sue for violations of the TCPA and stiff civil penalties for violations of the law. These penalties are the actual damages suffered or up to $500 for each violation, whichever is greater, and this amount may be trebled if the violation is a willful or knowing violation of the law. As a result, the TCPA has spawned a rapidly growing cottage industry pursuing nationwide class action claims, often predicated on very technical violations of the law.

Among other things, the TCPA prohibits any call to a wireless telephone using an automatic telephone dialing system (ATDS) without the called party’s prior express consent. Under the FCC’s new rules, if the call “includes or introduces an advertisement or constitutes telemarketing,” the consumer’s prior express consent must be in writing. The law contains very limited exemptions for emergency calls and calls seeking to collect a debt owed to the U.S., but grants the FCC authority to create additional exemptions where the called party is not charged for the call.

Numerous parties have petitioned the FCC over time to create various exemptions as well as to issue rulings as to whether certain equipment constitutes an ATDS, whether certain actions or circumstances evidence a consumer’s consent to receive a call and whether certain conduct constitutes a violation of the TCPA.

In its ruling, the Court of Appeals focused on four major elements of the 2015 omnibus declaratory ruling that were challenged on appeal by a broad and diverse array of businesses and affected parties.

What Qualifies as an 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.” The FCC construed the “capacity” requirement very broadly to include the equipment’s “potential” capabilities, including if features could be added through software changes or updates.

Challengers argued that the FCC’s interpretation is too broad and effectively means that even a smartphone is an ATDS. The Court of Appeals agreed, confirming that the “TCPA cannot reasonably be read to render every smartphone an ATDS subject to the Act’s restrictions, such that every smartphone user violates federal law whenever she makes a call or sends a text message without advance consent.”

The Court of Appeals also found the FCC’s statements as to which functions (i.e., to store, generate, or dial telephone numbers) qualify a piece of equipment as an ATDS to be confusing and contradictory, compounding “the unreasonableness of the Commission’s expansive understanding of when a device has the ‘capacity’ to perform the necessary functions.”

How Should Reassigned Telephone Numbers Be Treated Under the TCPA?
Given the large number of telephone number reassignments occurring every year, businesses who have secured consent to call a number nevertheless have found themselves the subject of TCPA claims when the number has been reassigned to a new subscriber who has not given his/her consent to be called.

The FCC ruled that callers needed to secure the consent of the “actual” called party and that the consent given by the “intended” called party does not satisfy the TCPA. However, the FCC confirmed that callers could “reasonably rely” on the intended called party’s original consent to call the reassigned number one time. The FCC ruled that the caller must then discern from this single call that the number has been reassigned, regardless of whether the call is answered, or the answering party confirms the reassignment or opts out of receiving further calls. After the first call, the caller must obtain the requisite consent for future calls.

The Court of Appeals was critical of the logic of the one-call “safe harbor” and struck down both the FCC’s safe harbor and its treatment of reassigned numbers overall.

How Can Revocation of Consent to be Called Be Communicated and Effectuated?
The FCC ruled that an individual inherently has the right to withdraw his/her consent to be called and that the caller cannot establish an exclusive means of revocation. Under the FCC’s ruling, an individual may use any reasonable method that clearly communicates the desire to stop receiving calls.

Challengers contended the rule facilitated individuals “creatively opt[ing] out” and inducing the caller to unknowingly violate the TCPA, and that the FCC’s decision ignored agreements between the caller and an individual contemplating a particular method for revoking consent to be called.

The Court of Appeals sided with the FCC, finding that the called party’s right to revoke consent is “undisputed” and that the challengers’ concerns regarding “creative opt-outs” are overblown. The Court of Appeals stated that a called party using an “unconventional” method might not have the required “reasonable expectation” that it has effectively communicated its opt-out request to the caller. However, the Court of Appeals did not address whether parties can establish through a contract the exclusive means for opting out of receiving future calls.

Is the FCC’s Exemption of Healthcare-Related Calls Permissible?
In 2012, the FCC established an exemption from the consent requirement for prerecorded telephone calls to residential landlines where the call was covered by the Health Insurance Portability and Accountability Act of 1996, the federal healthcare privacy law (HIPAA). In its 2015 Ruling and Order, the FCC also allowed an exemption from the consent requirement for calls to wireless telephones. However, it only did so with respect to certain healthcare-related calls. It did not include calls dealing with billing or account issues, as certain parties had requested.

Challengers objected to the narrower scope of the exemption, arguing that it conflicts with HIPAA, and that the FCC should be required to treat all healthcare-related calls as “emergency” calls under the TCPA.

The Court of Appeals rejected both of these arguments, confirming that the FCC could reasonably find that calls to wireless telephones involve a greater invasion of privacy than calls to landlines and that billing and account-related calls are not sufficiently urgent to warrant such an invasion of privacy without consent.

What’s on the Horizon?
The two Republican Commissioners who were on the FCC at the time the 2015 omnibus declaratory ruling was issued, now-Chairman Ajit Pai and Commissioner Michael O’Rielly, had dissented from many of the aspects of the ruling that were overturned by the Court of Appeals. Each released a statement supporting the Court of Appeals’ decision to rein in the definition of ATDS and the one-call safe harbor for reassigned numbers.

Given the changes at the FCC since the 2015 omnibus declaratory ruling was issued, businesses should expect to see a different approach on the TCPA going forward. For example, last summer the new FCC Chairman proposed starting a proceeding to address the reassigned number problem. On March 22, the FCC followed through on that proposal, adopting a Second Further Notice of Proposed Rulemaking, which it released the next day. In that proceeding, the FCC seeks comment on, among other issues: (1) the specific information that callers need from a reassigned numbers database to be able to avoid calling reassigned phone numbers; and (2) whether it should adopt a safe harbor from liability for those callers who choose to use a reassigned numbers database. Comments are due 45 days after publication in the Federal Register, and Reply Comments will be due 30 days later.

Even so, robocalls and texts are expected to continue to be one of the FCC’s top sources of consumer complaints, continuing to garner attention from the FCC, and the plaintiffs’ bar, for the foreseeable future.

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