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Ninth Circuit hears oral argument in TCPA class action
On December 6, 2016, the Ninth Circuit Court of Appeals heard oral argument in the case of Jordan Marks v. Crunch San Diego, LLC—a purported class action lawsuit filed under the Telephone Consumer Protection Act (“TCPA”). The case may clarify the definition of an “Automatic Telephone Dialing System” under the TCPA, and provide additional guidance to consumer-facing businesses seeking to avoid the threat of costly class action litigation under the TCPA.

The TCPA prohibits, among other things, calls to a consumer’s mobile phone using an “Automatic Telephone Dialing System” without the prior express written consent of the consumer. [1] Since its implementation in 1991, the statute has been interpreted broadly to extend to other methods of mobile communication, including text messaging.   Broad interpretations of the statute’s reach by courts and the Federal Communications Commission (“FCC”), coupled with uncapped statutory damages that range from $500 to $1,500 per violation, has led to a flurry of class action filings against consumer-facing businesses in recent years. [2]

The Marks case turns on the definition of an “Automatic Telephone Dialing System” (“ATDS”) under the TCPA. Under the statute, an ATDS is defined 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.” 47 U.S.C. § 227(a)(1). Plaintiff filed suit based upon his receipt of three unwanted promotional text messages from a Crunch Gym franchise. [3] According to the plaintiff, the messages were sent using an ATDS because the text messaging platform used by the defendant had the potential capacity to store, produce, or call randomly or sequentially generated telephone numbers. The plaintiff argued, both at the District Court level and on appeal, that this interpretation meshes with the FCC’s broad interpretation of the statute. In its July 2015 Omnibus Declaratory Ruling and Order (“Declaratory Ruling”), the FCC ruled that the term “capacity” in the statute includes both the present and future potential capability of the dialing equipment. Thus, software-controlled equipment with no present ability to function as an ATDS may still be considered an ATDS, under the FCC’s interpretation, if it is possible to reconfigure the software to allow the system to be used as an ATDS. [4]
    
The District Court rejected the plaintiff’s argument, holding that the FCC’s interpretation of the statute was not binding on the District Court, and that the FCC lacks authority to change the statute’s definition of an ATDS. [5] Under the Court’s reasoning, allowing the definition to envelope devices with only the potential capacity to call randomly or sequentially generated telephone numbers would lead to absurd results, such as subjecting all smartphone and computer users to potential liability under the TCPA. [6]

At oral argument, the Ninth Circuit panel seized upon the District Court’s reasoning, inquiring whether the plaintiff’s proposed definition of an ATDS would apply to smartphones. Plaintiff’s counsel conceded that it would, and argued that this is what the FCC intended in its broad interpretations of the statute. Plaintiff’s counsel noted that telemarketing companies no longer use the same autodialing technology (random and sequential number generators) that they had used when the TCPA was enacted in 1991. To require the use of a random or sequential number generator would effectively “eviscerate” the TCPA, Plaintiff’s counsel argued. This argument caused the Court to inquire that perhaps Congress designed the TCPA to remedy a specific problem and “now that problem has gone away.” But while the panel seemed hesitant to accept the FCC’s broad interpretation of the statute, it also appeared skeptical of Defendants’ claim that the FCC did not have the authority and intention to expand the definition of an ATDS in its statements on the matter. [7] The Ninth Circuit questioned whether this appeal was the appropriate method for challenging the FCC’s interpretation of the statute.  Indeed, the Ninth Circuit judges questioned whether they should wait for, and ultimately defer to, the D.C. Circuit Court of Appeals’ forthcoming ruling in ACA International v. FCC, Case No. 15-1211.

The D.C. Circuit Court of Appeals heard oral arguments in ACA International in October 2016. That case presents a direct challenge to several aspects of the FCC’s July 2015 Declaratory Ruling, as opposed to an appeal in a particular litigation. [8] The petitioners in ACA International are seeking to overturn several parts of the FCC’s Declaratory Ruling, including its broad interpretation of ATDS. At least one D.C. Circuit judge on the three-judge panel was clearly opposed to the FCC’s interpretation of the statute. Judge Edwards flatly rejected the notion that a defendant could be held liable for using a dialing system with the capacity of an ATDS if the defendant only placed calls manually. While the other two judges were somewhat less blunt, their questions also hinted that the D.C. Circuit may not fully accept the FCC’s extraordinarily broad interpretation. [9]
             
While it is impossible to predict how the Ninth Circuit will rule on this issue, its decision (which may very well be interlinked with the D.C. Circuit’s decision in ACA International) is likely to produce much-needed guidance on the scope of the TCPA moving forward. A ruling that the  TCPA applies only to devices with the present—as opposed to merely the potential—capacity to store, generate, and dial consumers’ telephone numbers could greatly limit businesses’ exposure under the statute. Regardless of the outcome, however, the case highlights the dynamic nature of the law governing the TCPA, and it further underscores the continuing need for consumer-facing businesses to ensure that they are TCPA-compliant when contacting consumers directly. While the FCC’s broad interpretation of the statute has been strongly criticized, it remains in the books for now.
 
[1] See 47 U.S.C. § 227(b)(1).
[2] See What is the TCPA?, TCPA Info, News & Insights, http://web20.nixonpeabody.com/tcpa/pages/tcpa-faqs.aspx.
[3] Marks v. Crunch San Diego, LLC, 55 F. Supp. 3d 1288, 1289 (S.D. Cal. 2014).
[4] See Troy Lieberman and Dan Deane, FCC’s extensive declaratory ruling on TCPA heightens risks and obligations for businesses, TCPA Info, News & Insights (July 20, 2015), http://web20.nixonpeabody.com/tcpa/Pages/TCPA_News.aspx?ID=24&Title=FCC’s+extensive+declaratory+ruling+on+TCPA+heightens+risks+and+obligations+for+businesses.
[5] Marks, 55 F. Supp. 3d at 1291-92.
[6] Id. at 1292.
[7] Video of the Ninth Circuit oral argument can be viewed at: http://www.ca9.uscourts.gov/media/view_video.php?pk_vid=0000010659.
[8] Under the Hobbs Act, the federal court of appeals has exclusive jurisdiction to determine the validity of all final orders of the FCC. The Hobbs Act directs that any party aggrieved by a final order of the FCC may file a petition to review the order in the court of appeals with appropriate venue within 60 days after its entry.
 

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