Antitrust Law Daily Language in hotel franchise agreement constituted prior express permission to receive fax ads
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Tuesday, July 30, 2019

Language in hotel franchise agreement constituted prior express permission to receive fax ads

By Robert B. Barnett, Jr., J.D.

The FCC’s decision to eliminate the opt-out requirement for solicited faxes, which came during the appeal, undercut the franchisees’ argument.

A federal district court’s ruling that faxes sent by Safemark, a hotel safe seller, to Wyndham Hotel franchisees did not violate the Telephone Consumer Protection Act was affirmed by the U.S. Court of Appeals in Atlanta because the franchisees had, in their franchise agreements, granted their prior express permission to receive faxes from Safemark. Furthermore, the absence of any opt-out notices in the faxes did not violate the law because, while this case was on appeal, the FCC eliminated the rule requiring opt-out notices in solicited faxes (Gorss Motels, Inc. v. Safemark Systems, LP, July 26, 2019, Pryor, W.).

Background. Gorss Motels and E&G operate hotels as franchisees of Wyndham Hotel Group. After Gorss received in 2013 an unsolicited fax from Safemark, a hotel safe maker, and after both received an unsolicited fax from Safemark in 2015, they joined forces to file a putative class action in Florida federal court, alleging that Safemark’s faxes violated the Telephone Consumer Protection Act by (1) being sent unsolicited and (2) failing to have opt-out notices.

The district court refused to grant class certification on the ground that a separate determination would need to be undertaken for each plaintiff to determine if permission for the faxes had been granted. While an interlocutory appeal of the denial of certification was pending (the court refused to stay the proceedings during the appeal), both parties filed motions for summary judgment. While all these matters were pending, the FCC issued an order eliminating the solicited-fax rule, which meant that opt-out notices were no longer required where the sender had permission to send the fax. The next day, the district court granted Safemark’s motion for summary judgment, ruling that the faxes were solicited because the hotels had given their prior express permission to receive faxes from Safemark in the franchise agreement. The court had also previously ruled on its own initiative that a solicited fax did not require an opt-out notice. Gorss and E&G appealed to the Eleventh Circuit, which consolidated both the class certification appeal and the summary judgment appeal.

Solicited faxes. The Telephone Consumer Protection Act prohibits unsolicited fax advertisements but it does not prohibit solicited ads. An unsolicited ad is one that was transmitted without the person’s prior express permission (47 U.S.C. §227(a)(5)). In their franchise agreements, the hotels agreed that Wyndham could offer them assistance with purchasing items used at the hotel. It also specifically said that Wyndham affiliates could offer this service on Wyndham’s behalf. As part of executing the franchise agreement, the franchisees supplied Wyndham with their fax numbers. As a result, the court concluded, the hotels gave their express permission to receive fax advertisements from affiliates, including Safemark, which paid a fee to be a Wyndham affiliate.

The court also rejected the franchisees’ argument that the permission granted in the franchise agreements was implied rather than express. The permission need not use the words "faxed advertisements" to be express. It was enough that the franchisees expressly agreed to receive information about products from affiliates. By supplying their fax numbers, they understood that this information could come via fax. Also, Safemark obtained the fax numbers from Wyndham’s franchisee database as an approved Wyndham affiliate, which is different from an entity that merely obtained the numbers publicly.

In addition, the court rejected the franchisees’ argument that Safemark had to obtain permission directly from the franchisees. The Act contains no such requirement, and the court was powerless to create a new limitation that Congress did not authorize. As a result, the Eleventh Circuit concluded that the lower court was correct in determining that Safemark did not violate the Act when it sent the faxes to the franchisees.

Opt-out notices. Even if the faxes were solicited, the franchisees argued, Safemark violated the Act by failing to include opt-out notices. They also argued that the lower court violated the Hobbs Act, which vests the appellate courts with the exclusive jurisdiction to set aside agency orders (the lower court had, on its own, determined that the solicited-fax rule was invalid, before the FCC had done so. In November 2018, the FCC issued the order eliminating the rule requiring opt-out notices on faxes sent with the recipients’ prior consent. The action was taken in response to a D.C. Circuit Court decision finding the rule unlawful. The order was published in the Federal Register on March 20, 2019.

The franchisees argued that the rule was prospective only and that it did not apply to Safemark’s actions. The Eleventh Circuit, however, interpreted the FCC’s elimination of the rule to mean that it did not intend to enforce the rule against any defendants, including those for past violations. The rule was not changed because it was bad policy; it was changed because it was invalid, which meant that it was never legally in force at all. As a result, the lower court’s determination that the opt-out notice was not required was affirmed.

Class certification. The appeal of the class certification question was rendered moot by the court’s ruling on the merits.

Concurrence. The same judge who wrote the opinion wrote a separate concurrence, joined by the other two judges, in which he opined on what he believed were prior misconstructions of the Hobbs Act, including by the Eleventh Circuit. The Act, he said, does not require district courts adjudicating cases within their ordinary jurisdiction to treat agency orders that interpret federal statutes as binding precedent.

The Hobbs Act provides for direct review of final orders of administrative agencies by petitions filed in the courts of appeals. In that context, the courts of appeals have exclusive jurisdiction to rule on the validity of agency orders. That grant of exclusive jurisdiction, however, does not preclude a district court from considering arguments that an agency order misinterpreted the law. The district court cannot entertain a petition for review of an agency order, and it cannot suspend the effect of an agency order upon a party that the order directly binds. But the Hobbs Act does not require that a district court follow an agency’s interpretation of a statute every time a case within its jurisdiction presents a question of federal law that the agency addressed in an order.

In prior Eleventh Circuit opinions, the assumption was that a district court that declined to follow an agency order encroached on the court of appeals’ exclusive jurisdiction. But this is an erroneous assumption. When a court merely disagrees with the agency’s interpretation, that ruling does not impinge on the court of appeals’ jurisdiction. A district court may determine that the defendant is not liable under the correct interpretation of the statute. Because the district court is not determining the validity of the agency order, it is not violating the Hobbs Act. As soon as the appropriate case comes before the Eleventh Circuit, the court said, it will overrule earlier Eleventh Circuit decisions that created the confusion about the Hobbs Act.

This case is No. 18-12511 and 18-15232.

Attorneys: Ross M. Good (Anderson + Wanca) for Gorss Motels, Inc. and E&G, Inc. Joseph L. Francoeur (Wilson Elser Moskowitz Edelman & Dicker, LLP) for Safemark Systems, LP.

Companies: Gorss Motels, Inc.; E&G, Inc.; Safemark Systems, LP

MainStory: TopStory FranchisingDistribution AlabamaNews FloridaNews GeorgiaNews

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