ACA Wins Legal Challenge against FCC’s TCPA Declaratory Ruling and Order

Victory for ACA as appeals court decision overturns the FCC’s expansive interpretation of the TCPA.

3/19/2018 6:00 AM

ACA Wins Legal Challenge against FCC’s TCPA Declaratory Ruling and Order

ACA International, the Association of Credit and Collection Professionals, and businesses and organizations from a wide variety of industries secured a decisive victory last Friday from U.S. Court of Appeals for the D.C. Circuit in its landmark case: ACA International v. Federal Communications Commission, et al. 

In handing down its hotly-anticipated 51-page decision in the pivotal ACA Int’l case, ruling 3-0 in favor of business industries, the D.C. Circuit Court focused on the key issues ACA presented in its challenge to the 2015 Telephone Consumer Protection Act Declaratory Ruling and Order (2015 TCPA Order), including the definition of an automatic telephone dialing system (ATDS), the meaning of a “called party” in the reassigned number context along with the one-free-call exemption, and the any-reasonable-manner approach to revocation of consent. On its first two challenges to the broad reach and draconian penalties of the TCPA that hurts responsible businesses, the second-highest court in the land delivered ACA the win. It did so by completely setting aside the FCC’s unreasonably expansive interpretation of what equipment constitutes an ATDS and rejecting the FCC’s entire approach to reassigned numbers and the one-call safe harbor. On the topic of consent revocation, the federal appellate court sided with the FCC by upholding the portion of the 2015 TCPA Order that allows called parties to revoke consent at any time and through any reasonable means. Although the D.C. Circuit Court did not provide a definitive explanation of what an ATDS is and did not specify rules for calling reassigned numbers, the court’s decision did offer guidance on these issues, setting the stage for the FCC to write new rules to address those portions of the 2015 TCPA Order that the court set aside. 

“ACA International is extremely pleased by the court’s thoughtful and careful consideration of the arguments the credit and collection industry made in the case. We applaud the court for making the right decision today because it supports legitimate, law-abiding businesses and recognizes that technological advancements in the ways people communicate are good for society as a whole,” said Mark Neeb, ACA International’s CEO. “Clearly, the court’s opinion in ACA Int’l is one of the most significant impacting the TCPA and the TCPA rules going forward. We will continue to study the court’s opinion and we look forward to educating ACA International members about the impact the decision will have on their day-to-day operations”

ACA Prevails on the Interpretation of the ATDS Definition

In the 2015 TCPA Order, the FCC expanded its interpretation of the TCPA’s ATDS definition. The TCPA defines an ATDS as equipment that has the capacity to store or produce telephone numbers to be called, using a random or sequential number generator to dial the numbers. While the term “capacity” is not defined in the TCPA, the FCC interpreted capacity to include not only the current capacity of the dialer but also the future capacity, meaning that if the dialing equipment can be modified to dial in an automated way – even with the addition of software that is not currently owned by the calling party – the system counts as an ATDS for purposes of the TCPA.

However, the D.C. Circuit Court rejected and set aside the FCC’s broad definition of “ATDS” such “that a call made with a device having the capacity to function as an autodialer can violate the statute even if autodialer features are not used to make the call.” Writing for the court, Judge Sri Srinivasan observed that under the FCC’s ruling, “all smartphones qualify as autodialers because they have the inherent ‘capacity’ to gain ATDS functionality by downloading an app,” and “[i]f every smartphone qualifies as an ATDS, the statute’s restrictions on autodialer calls assume an eye-popping sweep.” Ruling that the FCC “unreasonably and impermissibly” interpreted the statute, the appellate court concluded that “[t]he TCPA cannot be reasonably 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 D.C. Circuit Court also rejected the FCC’s explanation of what precise functions an autodialer must have the capacity to perform. Finding that the 2015 TCPA Order lacked “clarity about which functions qualify a device as an autodialer,” the federal court of appeals criticized the FCC for “fall[ing] short of reasoned decisionmaking in ‘offer[ing] no meaningful guidance’ to affected parties in material respects on whether their equipment is subject to the statute’s autodialer restrictions.” 

The D.C. Circuit Court did not, itself, give an interpretation of the term “capacity” in the statutory definition of an ATDS or a specific explanation of which devices qualify as an ATDS. However, Ajit Pai, the current chairman of the FCC – where this issue will likely next land – has made his thoughts clear that “the TCPA has strayed far from its original purpose; [a]nd the FCC has the power to fix that.” More specifically, Chairman Pai believes that the statutory definition of an ATDS should be limited to the equipment’s “present capacity,” not to its potential capacity.

ACA Succeeds on Interpretation of “Called Party” and the “One-and-Done” Rule for Purposes of Calls to Reassigned Wireless Numbers

In the 2015 TCPA Order, the FCC ruled that the “called party” for purposes of determining consent under the TCPA is the “current subscriber” and not the “intended recipient.” Consistent with its interpretation of “called party,” the FCC further ruled that where a wireless phone number has been reassigned, the caller must obtain consent from the person actually reached. However, since callers may have properly obtained prior express consent from the previous wireless subscriber and may not know that the number has been reassigned, the FCC created a “one free call” safe harbor allowing callers to make one additional call to a reassigned wireless number without incurring TCPA liability. 

Yet the D.C. Circuit Court found the FCC’s “one free call” safe harbor arbitrary. The appellate court reasoned that the FCC failed to give any reasonable explanation “why its safe harbor stopped at the seemingly arbitrary point of a single call,” particularly when the first call might not provide the caller with knowledge that the number has been reassigned. And setting aside the FCC’s allowance of a one-call safe harbor also compelled the appellate court to set aside the FCC’s entire treatment of reassigned numbers as a whole. The court explained that “[i]f we were to excise the Commission’s one-call safe harbor alone, that would leave in place the Commission’s interpretation that 'called party' refers to the new subscriber (which interpretation of 'called party' the D.C. Circuit Court found permissible). And that in turn would mean that a caller is strictly liable for all calls made to the reassigned number, even if she has no knowledge of the reassignment.” Since the FCC expressly stated that it refused to adopt an approach that would result in strict liability, the D.C. Circuit Court decided it must completely invalidate the FCC’s rule with respect to reassigned numbers.

The D.C. Circuit Court did not offer a solution to the “reassigned number” and “one-call” safe harbor problem. However, the court noted that the FCC “is already on its way to designing a regime to avoid” it by creating a database to identify reassigned numbers. And assuming a likely scenario in which the issue of number reassignment comes before the FCC, again, FCC Chairman Pai has previously endorsed the interpretation that the “called party” in the statute refers to the caller’s expected recipient of the call. 

The D.C. Circuit Court Let Stand the FCC’s Rule on Consent Revocation

The federal appellate court upheld the portion of the 2015 TCPA Order in which the FCC ruled that “'a called party may revoke consent at any time and through any reasonable means’ – whether orally or in writing – ‘that clearly expresses a desire not to receive further messages.’” In affirming the FCC’s approach, the D.C. Circuit Court explained that callers are not required to “adopt (opt-out) systems that would entail ‘undue burdens’ or would be ‘overly burdensome to implement.’” In addition, the court provided additional guidance by advising callers to make “available clearly-defined and easy-to-use opt-out methods” to avoid TCPA liability. The court explained that if called parties “are afforded such options, any effort to sidestep the available methods in favor of idiosyncratic or imaginative revocation requests might well be seen as unreasonable.” Finally, the D.C. Circuit Court also made clear that although the 2015 TCPA Order precludes callers from imposing unilateral revocation rules, it does not limit contracting parties from mutually agreeing on revocation procedures.  

What the court’s opinion means in practical terms is that the FCC’s consent revocation rules, which have been “on the books” since 2015, will remain on the books. The only thing that changed is that these particular rules have been affirmed by the D.C. Circuit Court. 

“ACA is gratified by the court’s unanimous decision granting, in part, ACA’s petition for review and setting aside, in part, the FCC’s 2015 TCPA Order that had significantly expanded the scope of the TCPA and made it more challenging for companies to comply with the TCPA’s provisions,” said ACA International’s Corporate Counsel, Karen Scheibe Eliason. “This decision affirms that consumer interests are best served when legitimate businesses are able to contact consumers to communicate information that they want, need or expect to receive rather than by outdated rules and regulations built for a world that no longer exists.  And ACA is pleased to see that attempts to maintain unnecessary, unwarranted and unduly burdensome regulatory handcuffs on businesses have been thwarted.” 

Although the D.C. Circuit Court ruled in favor of ACA and against the FCC on two of the three core areas of dispute, Chairman Pai, who dissented from the 2015 TCPA Order, released the following statement in support of the 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.”

FCC Commissioner Michael O’Rielly, the other dissenting vote on the 2015 TCPA Order, echoed Chairman Pai’s sentiment, stating:

”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.”   

Given the current leadership at the FCC and Chairman Pai’s and Commissioner O’Rielly’s recent statements, it is unlikely the FCC will request the full slate of judges on the federal appeals court for the District of Columbia or the U.S. Supreme Court to review the ACA Int’l decision. Instead, based on Chairman Pai’s sharp criticism of the 2015 TCPA Order, arguing that the FCC should “shut[] down the abusive lawsuits by closing the legal loopholes that trial lawyers have exploited to target legitimate business communications between businesses and consumers,” it is more likely the FCC will engage in future rulemaking that provides relief from onerous TCPA requirements and protects normal, expected and desired legitimate business communications with consumers. 

ACA filed the first petition for review within hours after the FCC issued the TCPA Order in July 2015. ACA argued in its petition that the FCC's exercise of regulatory authority expanded the scope and reach of the TCPA in a way that Congress never intended – leaving a law in place that hurts legitimate, law-abiding business. ACA's appeal, as well as the subsequent appeals filed by nine other businesses and organizations, was later centralized in the D.C. Circuit by the Judicial Panel on Multidistrict Litigation. 

Join ACA International today at 1pm central to hear first-hand from the lawyers directly involved in the case, including ACA’s appellate counsel, Brian Melendez of Barnes & Thornburg, LLP and ACA’s corporate counsel, Karen Scheibe Eliason.  This free online comprehensive Hot Topic seminar is designed exclusively for ACA members to receive an in-depth analysis of the ACA Int’l decision, and to discuss the implications that the decision may have for the credit and collection industry. 

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