Court Rejects FCC’s Treatment of All Smartphones as Robocallers
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Friday, March 16, 2018

Court Rejects FCC’s Treatment of All Smartphones as Robocallers

The U.S. Court of Appeals for the District of Columbia Circuit today rejected as “unreasonable” the FCC’s interpretation of the kinds of phone equipment covered by the Telephone Consumer Protection Act’s restrictions on using autodialers to call cellphones — an interpretation that the court said would have meant that anyone using a smartphone to call or text another wireless phone without consent is violating the TCPA.

The court also rejected the FCC’s decision to hold callers liable for using an automatic telephone dialing system (ATDS), or autodialer, to call a reassigned phone number for which they received consent to call from a previous subscriber, allowing only for one call after the reassignment, regardless of whether the caller knows about the reassignment.

The court upheld the FCC with regard to two other provisions of its 2015 order addressing its TCPA implementation: the agency’s decision that a called party may revoke previously granted consent “through any reasonable means clearly expressing a desire to receive no further messages from the caller” and its crafting of an exemption from the TCPA consent requirement for time-sensitive health care calls.

The case, “ACA International v. FCC” (case 15-1211), stems from the 2015 order and declaratory ruling, in which the FCC responded to 23 petitions for clarification from businesses and other entities that use or want to use robocalling technology by (1) giving wireline and wireless service providers a “green light” to deploy technology to block unwanted robocalls; (2) affirming that text messages, whether they originate from phones or the Internet, constitute “calls” for the purpose of robocall rules; and (3) eliminating what supporters of the action view as a “loophole” for calling numbers after they are reassigned from a customer who consented to automated calls to one who has not (TRDaily, June 18, 2016).

In an opinion for the unanimous three-judge panel of the D.C. Circuit released today, Circuit Judge Sri Srinivasan, who had presided over the 2016 oral argument (TR Daily, Oct. 19, 2016), said, “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.”

He added, “It is untenable to construe the term ‘capacity’ in the statutory definition of an ATDS in a manner that brings within the definition’s fold the most ubiquitous type of phone equipment known, used countless times each day for routine communications by the vast majority of people in the country. It cannot be the case that every uninvited communication from a smartphone infringes federal law, and that nearly every American is a TCPA-violator-in-waiting, if not a violator-in fact.”

The court noted that the legislative history of the Act indicated that Congress was concerned about a business practice involving 30,000 businesses and 300,000 phone solicitors, adding that “a several-fold gulf between congressional findings and a statute’s suggested reach can call into doubt the permissibility of the interpretation in consideration.”

The court also rejected the FCC’s defense that the order “did not reach a definitive resolution on whether smartphones qualify as autodialers.” The court said, “It is highly difficult to read the Commission’s ruling to leave uncertain whether the statutory definition applies to smartphones. And any uncertainty on that score would have left affected parties without concrete guidance even though several of them specifically raised the issue with the agency, and even though the issue carries significant implications — including the possibility of committing federal law violations and incurring substantial liability in damages — for smartphone owners.”

Leaving that issue unaddressed would render the order “arbitrary and capricious” for failing “to articulate a comprehensible standard,” the court said.

“In the end, then, the Commission’s order cannot reasonably be understood to support the conclusion that smartphones fall outside the TCPA’s autodialer definition: any such reading would compel concluding that the agency’s ruling fails arbitrary-and-capricious review. The more straightforward understanding of the Commission’s ruling is that all smartphones qualify as autodialers because they have the inherent ‘capacity’ to gain ATDS functionality by downloading an app. That interpretation of the statute, for all the reasons explained, is an unreasonably, and impermissibly, expansive one,” Judge Srinivasan wrote.

As for the one-call safe harbor for calling reassigned phone numbers, the court “set aside the Commission’s interpretation on the ground that the one-call safe harbor is arbitrary and capricious.”

Because the FCC “refused to ‘place any affirmative obligation’ on new subscribers to inform callers that a wireless number now belongs to someone else,” the order “expressly contemplates that a new subscriber could ‘purposefully and unreasonably’ refrain from informing a good-faith caller about a number’s reassignment ‘in order to accrue statutory penalties.’ … In that regard, the Commission described a reported case in which the new, post-reassignment subscriber waited to initiate a lawsuit until after having received almost 900 text alerts that were intended for the previous subscriber,” the court said.

The court said that the FCC “consistently adopted a ‘reasonable reliance’ approach when interpreting the TCPA’s approval of calls based on ‘prior express consent,’ including as the justification for allowing a one-call safe harbor when a consenting party’s number is reassigned. The Commission, though, gave no explanation of why reasonable-reliance considerations would support limiting the safe harbor to just one call or message. That is, why does a caller’s reasonable reliance on a previous subscriber’s consent necessarily cease to be reasonable once there has been a single, post-reassignment call? The first call or text message, after all, might give the caller no indication whatsoever of a possible reassignment (if, for instance, there is no response to a text message, as would often be the case with or without a reassignment).”

The court noted that the FCC “is already on its way to designing a regime to avoid the problems of the 2015 ruling’s one-call safe harbor. The Commission recently sought comment on potential methods for ‘requir[ing] service providers to report information about number reassignments for the purposes of reducing unwanted robocalls.’ … The Commission is also considering whether to provide a safe harbor for callers that inadvertently reach reassigned numbers after consulting the most recently updated information. … Those proposals would naturally bear on the reasonableness of calling numbers that have in fact been reassigned, and have greater potential to give full effect to the Commission’s principle of reasonable reliance.”

Judge Srinivasan was joined in the opinion by Circuit Judge Cornelia T.L. Pillard and Senior Circuit Judge Harry T. Edwards.

Sen. Edward J. Markey (D., Mass.) responded to the court’s decision by saying, “In an era when the onslaught of unwanted and abusive harassing robocalls is on the rise, I am disappointed that the D.C. Circuit Court invalidated core protections that help give consumers reasonable control over their mobile devices. It is now the FCC’s obligation to use its existing authority to reestablish robust, enforceable protections to enhance the precious zone of privacy created by the law. Should the FCC fail to address this matter and preserve the intent of the law, I will work with my Congressional colleagues legislatively to restore these commonsense protections.”

In a statement, FCC Chairman Ajit Pai, who had dissented from the 2015 order adopted under his predecessor, welcomed the court’s decision. “Today’s unanimous D.C. Circuit decision addresses yet another example of the prior FCC’s disregard for the law and regulatory overreach. As the court explains, the agency’s 2015 ruling placed every American consumer with a smartphone at substantial risk of violating federal law. That’s why I dissented from the FCC’s misguided decision and am pleased that the D.C. Circuit too has rejected it,” he said.

“Instead of sweeping into a regulatory dragnet the hundreds of millions of American consumers who place calls or send text messages from smartphones, the FCC should be targeting bad actors who bombard Americans with unlawful robocalls. That’s why I’m pleased today’s ruling does not impact (and, in fact, acknowledges) the current FCC’s efforts to combat illegal robocalls and spoofing. We will continue to pursue consumer-friendly policies on this issue, from reducing robocalls to reassigned numbers to call authentication to blocking illegal robocalls. And we’ll maintain our strong approach to enforcement against spoofers and scammers, including the over $200 million in fines that we proposed last year,” Chairman Pai added.

Commissioner Mike O’Rielly, who also dissented from the 2015 order, said, “I am heartened by the court’s unanimous decision, which seems to reaffirm the wording of the statute and rule of law. This will not lead to more illegal robocalls but instead remove unnecessary and inappropriate liability concerns for legitimate companies trying to reach their customers who want to be called. In effect, it rejects the former Commission’s misguided interpretation of the law, inappropriate expansion of scope, and irrational view of reassigned numbers. While I disagree with the court’s decision on the revocation issue, I believe there is an opportunity here for further review in order to square it with the Second Circuit’s more appropriate approach.”

The third Republican Commissioner, Brendan Carr, who was nominated and confirmed last year, said, “In the Telephone Consumer Protection Act (TCPA), Congress enacted provisions to help combat the unwanted robocalls that have become a far too common nuisance for far too many Americans. Unfortunately, the prior FCC exceeded the scope of the TCPA and reached a decision of ‘eye-popping sweep,’ as today’s D.C. Circuit decision states. Rather than focusing our efforts on combatting illegal robocalls, the 2015 FCC decision opted to subject consumers and legitimate businesses to liability. Thankfully, the D.C. Circuit, in a unanimous decision, has now corrected that error. In the meantime, this FCC has elevated robocalls to our top enforcement priority, and we have already taken a number of important steps to combat those unlawful calls.”

He added, “Going forward, I welcome the chance to continue working with my colleagues and all stakeholders to ensure that our rules protect consumers and legitimate businesses while targeting unlawful scammers and robocallers.”

FCC Commissioner Jessica Rosenworcel, who had voted for the provisions of the 2015 order that the court overturned today, said, “Robocalls are already out of control. One thing is clear in the wake of today’s court decision: robocalls calls will continue to increase unless the FCC does something about it. That means that the same agency that had the audacity to take away your net neutrality rights is now on the hook for protecting you from the invasion of annoying robocalls. It’s past time for the American public to get a serious response from the FCC — and a reprieve from the unrelenting nuisance these calls have become for so many of us.” Attorneys who practice in the TCPA space viewed the court’s decision as an important precedent and a victory for telemarketers.

“Today’s unanimous decision is a major victory for good-faith callers that have long-supported reasonable interpretations of the statute and clear rules of the road to protect consumers,” said Mark Brennan, a partner at Hogan & Lovells US LLP.

“Importantly, the court also recognized that the TCPA is not the blunt policy-shaping tool that the prior FCC majority took it for and that Congress’ decades-old autodialer restrictions may be ‘increasingly inapplicable’ to ‘modern phone equipment,’” Mr. Brennan said.

He added, “Importantly, the court also recognized that the TCPA is not the blunt policy-shaping tool that the prior FCC majority took it for and that Congress’ decades-old autodialer restrictions may be ‘increasingly inapplicable’ to ‘modern phone equipment.’”

Eric Troutman, a partner at Dorsey & Whitney LLP, said, “Notably the FCC looks very different than it did in 2015 when the Omnibus was decided. Trump’s appointed Chairman — Ajit Pai— has expressed his support for industry-friendly reforms to the TCPA. The ACA ruling should, therefore, result in real change here. This is exciting stuff and very promising for TCPA defendants.”

Megan Brown, a partner at Wiley Rein LLP, said, “Well-meaning companies have labored for too long trying to comply with a patchwork of confusing agency rules, orders and declaratory rulings. The Court rebuffed the FCC’s justifications. The issues now go back to the FCC, which has a chance to bring much needed clarity to an area of the law that has become little more than a trap, sprung by lawyers who make millions and do not benefit consumers. The FCC should seize the moment, and address TCPA reform.”

Scott Delacourt, also a partner at Wiley Rein, said, “Today’s long-awaited decision is welcome news for businesses seeking clarity on how to lawfully communicate with their customers without exposing themselves to ruinous class action damages. The decision is a win, too, in removing a judicial cloud that will enable the FCC to act on a number of important TCPA issues now before they agency.”

David Schultz, a partner at Hinshaw & Culbertson, said, “This is a significant ruling. The scope of the FCC Order was so broad as to cover almost any phone device, including smartphones. The impact of this ruling on litigation is that it will make it much harder for people to sue under the TCPA because the scope of what is an ATDS has been significantly narrowed.”

Consumer groups today called on the FCC to act to protect consumers.

“What the DC Court of Appeals decision really means is that consumers, already inundated by robocalls, will be hit with even more unwanted calls,” said Maureen Mahoney, policy analyst for Consumers Union. “We believe that the FCC acted within its authority when it passed the rules in 2015 to provide necessary consumer protections for a growing problem. Consumers should have the right to control the calls that they receive and they deserve the strongest possible protections. Chairman Pai has said that he's committed to fighting robocalls, so the FCC needs to follow through on those promises and ensure that consumers aren't the losers in this decision.

“We call upon the FCC to recognize that the TCPA is an essential shield for consumers to protect themselves from the scourge of unwanted automated calls,” said Margot Saunders, senior counsel at the National Consumer Law Center. “Chairman Pai understands that robocalls are a big problem and he has proposed several initiatives, such as a reassigned number database, to help stop them. But now all eyes will be on him to see if he will maintain the viability of the only law that allows consumers to protect themselves against uninvited and illegal calls.”—Lynn Stanton, lynn.stanton@wolterskluwer.com

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