D.C. Circuit v. FCC – More Pushback to Come?

By: Michelle Cohen

Over the past several years, the Federal Communications Commission (“FCC”) took an expansive view of its rules under the Telephone Consumer Protection Act of 1991 (“TCPA”). The TCPA bars certain calls, texts and faxes without prior express consent and requires disclosures and opt-out procedures.  While the FCC and state attorney generals may enforce the TCPA, the law’s truth “teeth” come in the form of private lawsuits where statutory damages allow up to $1500 per call/text/fax advertisement.  Organizations in every industry, including hospitality, financial services, retail, and healthcare, have settled TCPA lawsuits for millions of dollars.

Businesses viewed recent FCC rulings for the most part as pro-plaintiff, encouraging additional class action lawsuits.  In July 2015, for instance, the FCC issued an “omnibus” declaratory ruling in which it expanded certain definitions and interpreted the TCPA in ways seen as empowering the plaintiffs’ bar.  However, the FCC’s TCPA rules do not go unchecked, as they are subject to challenge in the courts.  The D.C. Circuit recently sent a message to the FCC, ruling in Bais Yaakov of Spring Valley v. Federal Communications Commission that the agency’s 2006 rule requiring an opt-out notice on “solicited” facsimile advertisements ignored clear statutory language. The D.C Circuit’s ruling demonstrates that the court will invalidate FCC rules and interpretations when the agency exceeds statutory authority, even if the FCC may think it is making good policy.  It also suggests that the D.C. Circuit may be ready to give a defiant “thumbs down” to significant parts of the FCC’s July 2015 order. A decision is expected on that appeal at any time and we anticipate that the D.C. Circuit will invalidate several aspects of that ruling. This action would have a tremendous impact on pending TCPA litigation and may curb the TCPA gravy train on which several class action firms have already ridden.

Background

The TCPA, as amended by Congress through the Junk Fax Prevention Act, prohibits (among other things) sending an unsolicited advertisement to a fax machine.  An “unsolicited advertisement,” as defined in the TCPA is “any material advertising the commercial availability or quality of any property, goods, or services which is transmitted to any person without that person’s prior express invitation or permission, in writing or otherwise.”  Thus, the law allows fax advertisements transmitted with permission (“solicited faxes”). The law also contains another exception to the unsolicited fax advertisement ban where there is an established business relationship with the recipient (“EBR faxes”), provided the recipient voluntarily communicated the fax number or made it available, and a conspicuous opt-out notice meeting certain statutory requirements appears on the fax.

In 2006, the FCC ruled that “solicited” faxes – i.e. those fax advertisements for which the sender received prior consent – require the opt-out notice and associated opt-out procedures.  The TCPA, in contrast, only mandates the opt-out notice for the EBR faxes. The 2006 ruling resulted in litigation against companies like Anda (a generic drug seller) that had permission to fax advertisements.  Anda had valid permission from pharmacies to fax advertisements regarding time-sensitive topics such as pricing information and weekly specials. Plaintiffs nevertheless sued Anda in a $150 million class action lawsuit because Anda allegedly had not included the opt-out notice.  Anda subsequently sought a ruling from the FCC clarifying that solicited faxes did not require the opt-out.

In the category of “sometimes when you ask, you get the answer you don’t want,” the FCC ruled that the opt-out notice applied to solicited and EBR faxes.  However, the FCC stated it would waive application for faxes sent before April 30, 2015. The two Republican commissioners (including now Chairman Pai) vigorously dissented.  Anda then appealed to the D.C. Circuit.

Late last month, the D.C. Circuit vacated the 2006 solicited fax rule and remanded it to the agency. The court focused on the TCPA’s statutory language, noting that the opt-out notice requirement only appears in the EBR fax provision.  “Although the Act requires an opt-out notice on unsolicited fax advertisements, the Act does not require a similar opt-out notice on solicited fax advertisements…Nor does the Act grant the FCC authority to require opt-out notices on solicited fax advertisements.”  The appeals court concluded that the case was quite simple – the FCC can only take action that Congress authorized.  Congress did not authorize an opt-out notice requirement for solicited fax advertisements.  Under an existing rule, senders must still allow recipients to opt-out if they no longer want to receive solicited faxes. But the FCC cannot require the opt-out notice on those solicited fax advertisements. Consequently, companies should not be liable under the TCPA for not including the opt-out notice on solicited fax advertisements.

While the FCC understandably wants to protect consumers and businesses from unsolicited calls, texts, and faxed advertisements – the agency must respect its authority and the limits to that authority.  In other words, the FCC cannot choose how the TCPA “should” read.  Congress made that choice.

With TCPA litigation continuing to explode, this ruling provides some comfort that the FCC will not go unchecked in its recent, broad TCPA interpretations.  And, with the high stakes appeal of the 2015 Omnibus Ruling pending before the same court, there are strong signs that the D. C. Circuit will push the FCC back on its expansive interpretations of autodialer and liability for calls to reassigned numbers, among other challenged rules.  Companies involved in ongoing TCPA litigation involving the challenged interpretations may want to seek stays from their courts or arbitrators pending the outcome of the next appeal.