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D.C. Circuit Strikes down Key Provisions of 2015 Declaratory Ruling on the Telephone Consumer Protection Act: FCC Fails “Arbitrary and Capricious” Standard

March 19, 2018

On Friday, March 16, 2018, the United States Court of Appeals for the District of Columbia (D.C. Circuit) issued its long awaited ruling in the case of ACA International, et al (ACA) v. Federal Communications Commission (FCC) which challenged the FCC’s 2015 Declaratory Order (Declaratory Order) which sought to clarify various aspects of the Telephone Consumer Protection Act (TCPA).  The TCPA generally prohibits the use of an “automatic telephone dialing system” (ATDS) to call a cell phone without the consumer’s prior express consent.

The 2015 Declaratory Ruling made the following findings which were all challenged by the Petitioners:

  • ATDS or Auto Dialers: The TCPA defines an ATDS as "equipment which has the capacity … to store or produce telephone numbers to be called, using a random or sequential number generator [and] to dial such numbers."  (Emphasis added). The FCC concluded that equipment’s calling capacity includes “its potential functionalities” or “future possibilit[ies] and not just its present abilit[ies].” This rendered every type of calling equipment, even a smart phone, as a potential ATDS.
  • One-Call Safe Harbor for Reassigned Numbers: The FCC addressed the dilemma of contacting consumers whose number had subsequently been re-assigned and determined that a "safe harbor" for those callers who do not have actual or constructive knowledge of the reassignment is one call only.
  • Revocation of Consent: The FCC ruled that a consumer may revoke consent to be contacted on their cell phone at any time and through any reasonable means.
  • Exemptions for Financial and Health-Care Related Messages:  Financial services companies and healthcare companies were given specific exemptions to the prior express consent requirement due to the nature of the communication sought (i.e. identify theft and health related issues)

ACA, the largest trade association for third party debt collectors, and several other financial services trade associations, the U.S. Chamber of Commerce and specific companies that that rely heavily on dialing equipment all petitioned the D.C. Circuit for review of the Declaratory Order.  

The FCC’s Determination of Capacity in Defining an ATDS was Arbitrary and Capricious

The D.C. Circuit took great exception with the FCC’s analysis of capacity, finding that their assumption that any equipment having the capacity to function as an ATDS can violate the TCPA even if the features of the ATDS are not used to make the call. Furthermore, the expansive interpretation of capacity could have the effect of including all types of technology that were not even contemplated to be an ATDS, including smart phones. That an ordinary smart phone could come within the purview of the TCPA by simply downloading an app which could potentially store or produce numbers randomly was an untenable interpretation, and the Circuit Court found it “utterly unreasonable in the breadth of its regulatory inclusion.” The Court went on to say that the FCC’s order did not “constitute reasonable decision making and thus would not satisfy the [Administrative Procedures Act's] arbitrary-and-capricious review.”

The FCC Failed to Provide a Reasonable Explanation for the One-Call Safe Harbor Limit for Reassigned Numbers

The FCC chose to define a “called party” to be the person actually reached by the caller, which effectively extinguished any consent given by a cell phone number’s previous owner and exposed a caller to liability for reaching a party who has not given consent. To temper that holding, the FCC provided for a one-call safe harbor.  In prior non-reassignment rulings, the FCC had consistently adopted the “reasonable reliance approach” when interpreting the TCPA’s approval of ordinary calls based on “prior express consent.” However, the FCC provided no explanation in its Declaratory Order of why reasonable reliance supported the limitations of the safe harbor to one call on reassigned numbers. That failure to provide a reasonable explanation for the allowance of one call also resulted in the Circuit Court invalidating the FCC’s definition of called parties and its treatment of reassigned numbers as a whole. Therefore, the FCC’s interpretation of the one-call safe harbor was also arbitrary and capricious.

Provisions Upheld

The D.C. Circuit upheld the FCC’s ruling that a called party may revoke consent at any time and through any reasonable means. While industry feared that decision would result in an operational nightmare in order to capture consent, the court did provide some guidance, advising callers to make available “clearly-defined and easy-to-use opt out methods” so that efforts by recipients to side-step these methods “in favor of idiosyncratic or imaginative requests might well be seen as unreasonable.”

Rite-Aid Pharmacies, another petitioner, challenged the exemption for selected healthcare- related calls on the grounds that it conflicted with the Health Insurance Portability and Accountability Act (HIPAA). The Court disagreed. The exemption provided to certain health-care providers was narrowly tailored and in no way conflicted with the requirements of HIPAA. 

As noted in the first sentence of the D.C. Circuit’s opinion, “unwanted robocalls are an all-too-familiar” problem. However the 2015 Declaratory Ruling was an attempt by the FCC to “throw the baby out with the bath water” and if upheld would have rendered the technology of every conceivable industry useless. Ironically, it was industry that looked to the FCC for clarification of the TCPA, but instead of discussion and compromise ended up in a three year battle which has brought the industry back to square one.  While the Circuit Court’s decision is a win for industry and a clear determination that the FCC acted in an arbitrary and capricious manner in violation of the Administration Procedures Act, the TCPA, and robo-calling problem still remains unresolved. The decision did little to articulate bright lines in order to avoid liability and litigation regarding what is an ATDS and whether permissible consent exists will continue. The makeup of the FCC has certainly changed since the 2015 Declaratory Ruling, and opportunities exist for both industry and advocates to formulate a workable compliance framework. Regulatory influence is now paramount in order to correct this on-going problem.

Clark Hill's Financial Services Regulatory & Compliance Practice Group is a national leader in the field of financial services law. Our exceptional team of lawyers and government and regulatory advisors has extensive experience in — and an in-depth understanding of — the laws and regulations governing financial products and services. We can assist you in developing and implementing compliance programs, defending consumer litigation and regulatory enforcement actions, as well as developing advocacy strategies for regulatory influence.

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