Locke Lord QuickStudy: Second Circuit Adds to the TCPA Chaos

Earlier this month, in Duran v. La Boom Disco, Inc. --- F.3d ----, 2020 WL 1682773 (2d Cir. Apr. 7, 2020), the Second Circuit Court of Appeals widened the circuit split over the definition of an “automatic telephone dialing system” (ATDS) under the Telephone Consumer Protection Act (TCPA), 47 U.S.C. § 227.  The panel joined the Ninth Circuit in adopting an expansive definition of an ATDS based on perceived Congressional intent rather than applying a plain-English construction to the statutory text like the Third, Eleventh and Seventh Circuits. Unless and until the FCC or the United States Supreme Court weighs in, we can expect the wave of TCPA suits to continue in courts within the Ninth and Second Circuits.

Background

In 1991, Congress passed the TCPA and prohibited “any call (other than a call made for emergency purposes or made with the prior express consent of the called party) using any automatic telephone dialing system or an artificial or prerecorded voice” to any telephone number assigned to a cellular telephone service. The TCPA defines an ATDS as “equipment which has the capacity – (A) to store or produce phone numbers to be called, using a random or sequential number generator, and (B) to dial such numbers.” 47 U.S.C. § 227(a)(1). After the TCPA passed, the old random and sequential dialers that the statute was designed to combat virtually disappeared.  Telemarketing companies began using new software to dial lists of numbers (rather than randomly or sequentially generated numbers) to maximize consumer contacts. In 2015, the FCC responded to this change in technology by declaring (over the objection of now FCC Chairman Ajit Pai) that an ATDS means “any equipment that has the specified capacity to generate numbers and dial them without human intervention regardless of whether the numbers called are randomly or sequentially generated or come from calling lists.” The FCC’s action put the new dialing software, including predictive dialers and texting systems, squarely within the definition of an ATDS.

The FCC’s decision was quickly challenged. In 2018, the D.C. Circuit struck down the FCC’s interpretation of what qualifies as an ATDS, concluding that the FCC overstepped its authority. ACA Int’l v. FCC, 885 F.3d 687 (D.C. Cir. 2018). The D.C. Circuit did not, however, provide much guidance as to how an ATDS should be defined going forward. 

The FCC’s Slow Effort to Respond 

On May 17, 2018, the FCC issued a notice seeking comments about how to interpret the statutory definition of an ATDS.  For almost two years now, the FCC has been considering whether to adopt (1) a narrow definition of an ATDS that would leave the vast majority of dialing systems in use today outside the reach of the TCPA or (2) a broad definition of an ATDS but limit TCPA violations to only those calls that actually use the automatic dialing feature. This would allow companies to use one dialing system that would allow the company to autodial consumers for whom the company has consent and then flip a switch to use the manual, click-to-dial feature for consumers who have not consented to receive autodialed calls. The comment period closed in October, 2018. The FCC has not indicated when it expects to issue a revised rule.

Circuit Split – Plain Meaning v. Congressional Intent

The Third Circuit was the first appellate court to apply the definition of an ATDS after ACA Int’l. In Dominguez v. Yahoo, Inc., 894 F.3d 116 (3d Cir. 2018), the Third Circuit affirmed summary judgment in favor of Yahoo on Dominguez’s claim that Yahoo sent him an eye-popping 27,800 text messages in violation of the TCPA. The court held that a dialing system must have the present capacity to generate random or sequential telephone numbers to qualify as an ATDS. In 2020, the Eleventh Circuit and the Seventh Circuit followed Dominguez. See Gadelhak v. AT&T Services, Inc., 950 F.3d 458 (7th Cir. 2020); Glasser v. Hilton Grand Vacations Company, LLC, 948 F.3d 1301 (11th Cir. 2020).

In Glasser, after noting that the TCPA is not a model of clarity, the Eleventh Circuit carefully examined the statutory ATDS definition. The court applied well-established rules of sentence structure, grammar, and punctuation to find that the phrase “using a random or sequential number generator” in the ATDS definition modified both to “store” and “produce” telephone numbers: “When two conjoined verbs (‘to store or produce’) share a direct object (‘telephone numbers to be called’), a modifier following that object (‘using a random or sequential number generator’) customarily modifies both verbs.” Therefore, only dialing systems that have the capacity to use a random or sequential number generator qualify as an ATDS. The Seventh Circuit reached the same conclusion three weeks later in Gadelhak. Both courts rejected the plaintiffs’ argument that requiring a system to “store” numbers “using a random or sequential number generator” made no sense. The courts noted that when the TCPA was passed in 1991, devices existed that randomly or sequential created numbers and either dialed them immediately or stored the numbers for later dialing. By including both “store” and “produce,” the TCPA “occupied the waterfront” by covering both types of devices. 

The Eleventh Circuit found additional support for its interpretation in the history of the TCPA. The court noted that for the first dozen years of the TCPA’s existence, it was broadly understood that only equipment that could generate random or sequential numbers met the definition of an ATDS. In a 1992 declaratory order, the FCC ruled that certain technology did not qualify as an ATDS because the numbers called by the devices “[were] not generated in a random or sequential fashion.” In re Rules & Regulations Implementing the Telephone Consumer Protection Act of 1991, 7 FCC Rcd. 8752, 8776 (1992). In 1995, the FCC reaffirmed its interpretation that the definition did not cover systems that dialed numbers from a list, finding that the TCPA did not cover calls “directed to … specifically programed contact numbers,” only to those “randomly or sequentially generated telephone numbers.” In re TCPA Rules & Regulations, 10 FCC Rcd. 12391, 12400 (1995).

In 2003, the FCC reinterpreted the definition of an ATDS to cover equipment that dialed numbers “from a database of numbers.” In re TCPA Rules & Regulations, 18 FCC Rcd. 14014, 14091 (2003). The new interpretation launched a wave of TCPA litigation. The Eleventh Circuit noted that while the language of the TCPA had not changed in 2003, the technology and marketing strategies of telemarketers had changed. As noted above, companies adopted new technology that called lists of pre-determined potential customers. Telemarketing calls increased from 18 million in 1991 to 104 million in 2002. In ruling that a device that dialed from a database was an ATDS, the FCC broadly read the legislative history and Congressional intent, asserting that Congress intended to restrict automatically-dialed calls no matter what technology was used. The Eleventh Circuit rejected the FCC’s application of the ATDS definition to the new technology, finding that it would encompass every smartphone in America and turn every call from a cell phone to a cell phone into a $500 TCPA violation unless the caller could prove consent.

The Ninth Circuit reached the opposite conclusion about the  interpretation of the ATDS definition in Marks v. Crunch San Diego, LLC, 904 F.3d 1041 (9th Cir. 2018).. Rather than conduct a careful analysis of the statutory text of the ATDS definition, the Ninth Circuit declared the definition ambiguous and re-wrote it to fit the court’s interpretation of Congress’ real intent. After acknowledging that “Congress focused on regulating the use of equipment that dialed blocks of sequential or randomly generated numbers,” the court nonetheless concluded that Congress actually meant to include “equipment that made automatic calls from lists of recipients.” Interestingly, while the court noted that the D.C. Circuit had found that such an expansive definition of an ATDS would apply to every smartphone, the Ninth Circuit never joined issue with that conclusion or explained why its ruling in Marks would not on its face apply to smartphones. 

The Second Circuit Joins the Fray

In Duran, a panel of the Second Circuit largely followed the Ninth Circuit in holding that a texting system was an ATDS. The court cited three reasons for its conclusion that a system that dials numbers from a list is an ATDS, none of which holds up under scrutiny.  

First, the court found that interpreting the definition to require equipment “to store” numbers “using a random or sequential number generator” would render the word “store” surplusage. Equipment that produces random or sequential numbers already stores them, rendering “to store” redundant. However, avoiding redundancy in a statute is an interpretive tool, it is not an absolute rule. As the Eleventh Circuit explained, Congress regularly includes repetitive language in statutes. See also Antonin Scalia & Bryan A. Garner, Reading Law: The Interpretation of Legal Texts 150, 176-77 (2012) (“Sometimes drafters do repeat themselves and do include words that add nothing of substance, either out of a flawed sense of style or to engage in the ill-conceived but lamentably common belt-and-suspenders approach.”). A court should not ignore or re-write the text of a statute simply because the statute as written includes some redundance.

Second, the Second Circuit reasoned that because the TCPA exempts certain types of calls (calls with consent, government debt collection), Congress must have intended the definition to include human-generated lists of numbers. Debt collectors would not randomly dial numbers hoping to reach a debtor. But this explanation ignores the second type of equipment prohibited by the TCPA when calling cell phones – artificial or prerecorded messages. While debt collectors are unlikely to call random numbers, they are likely to use prerecorded messages. The exemptions for calls with consent and to collect debts owed to the US allows callers to use artificial and prerecorded voice messages.

Finally, the Second Circuit found that the broader definition of an ATDS is consistent with the FCC’s 2003, 2008, and 2012 rules interpreting an ATDS to include calling from stored lists of numbers. In holding that these prior FCC rules are still valid, the Second Circuit became an outlier. Even the Ninth Circuit in Marks agreed that ACA Int’l vacated all of the prior FCC rules interpreting the definition of ATDS. The D.C. Circuit vacated the FCC’s interpretation of ATDS because of the inconsistent positions the FCC had taken over the years on whether a system had to generate random or sequential numbers to qualify as an ATDS. The Second Circuit simply ignore the FCC rulings that interpreted ATDS to require the capacity to generate random or sequential numbers.
Unlike the Ninth Circuit, the Second Circuit at least tried to explain why its expansive definition would not apply to smartphones. Without citing to any authority, the court distinguished between speed-dialing by clicking on a single contact in the phone and a system that dials one number after another. This explanation ignores another feature of smartphones – group texting. That is a remarkable omission in a case about sending group texts. Because the TCPA defines an ATDS as equipment that has the capacity to do certain things and smartphones have the capacity to send group texts, under the Ninth and Second Circuit’s interpretation, the TCPA makes is unlawful to make any call using a smartphone to another cell phone without prior consent. This cannot be a sensible reading of the statute, but it does show the length that some courts will go to reach a result that they prefer for policy reasons.  Telemarketing calls are not popular. This panel of the Second Circuit essentially paid no mind to the words and grammar of the statutory ATDS definition in finding that it covered devices that dial from a database of numbers,

Conclusion

The Second Circuit’s decision widens the circuit split and increases the likelihood that the Supreme Court will grant Facebook’s petition in Facebook v. Duguid, No. 19-511, to provide a definitive ruling on what qualifies as an ATDS. Until then, businesses making telemarketing calls must either obtain prior express written consent or scrub their lists for cell phone numbers. Companies engaged in texting-campaigns must obtain the necessary consents. And to be safe, individuals on the East and West coasts trying to sell their old couch had better call their friends’ landlines, assuming they still have one.