As we noted earlier this year, in light of the decision reached by the U.S. Court of Appeals for the District of Columbia Circuit in ACA International v. FCC striking down the FCC’s 2015 expansive interpretation of “automatic telephone dialing system,” or “ATDS,” we were likely to see opinions issued by lower courts in which the ATDS term would be interpreted in a narrower fashion. How broadly the term ATDS is defined is a critical issue because calls made using an ATDS are subject to the TCPA, but if the device originating the call is not deemed an ATDS, the call may not be subject to the TCPA at all (unless the call fits into another regulated category, such as using a prerecorded voice).
While we have seen a few decisions in the past few months that were consistent with our prediction that courts would narrow the application of the ATDS definition in light of the D.C. Circuit’s decision, we had not yet seen a court interpret the ATDS term as we believe Congress intended when it created the TCPA all the way back in 1991. That is until this week, when the Third Circuit (which encompasses the federal courts in Delaware, New Jersey, Pennsylvania, and the Virgin Islands) issued a precedential ruling in Dominguez v. Yahoo, Inc., in which it defined an ATDS as extending only to a device that “randomly or sequentially generat[es] telephone numbers, and dial[s] those numbers.” Period. This means that if a device is calling numbers from a database of telephone numbers provided by consumers, rather than just dialing any telephone number in random or sequential fashion, then the device is not an ATDS and not regulated by the TCPA.
Background of the Dominguez Decision
The Dominguez case itself has an interesting history that highlights the confusion caused by the FCC’s interpretation of the ATDS term in its 2015 Declaratory Ruling and the issues this interpretation has caused for both courts and litigants. The saga began in 2014, when Bill Dominguez filed suit against Yahoo!, claiming he had received several thousand email notification text messages that his cell phone number’s prior owner had subscribed to via Yahoo!’s Email SMS Service—a system that Mr. Dominguez alleged met the TCPA’s autodialer definition. The district court ultimately ruled in favor of Yahoo! after finding that its system did not meet the ATDS definition. However, while the case was pending on appeal, the FCC released its 2015 Declaratory Ruling, which greatly expanded the TCPA’s ATDS term. This ruling forced the appellate court, the Third Circuit, to remand the case back to the district court so that it could apply the FCC’s new definition. Again, the district court ruled in favor of Yahoo!, and again Mr. Dominguez appealed his case to the Third Circuit. While this second appeal was pending, the decision in ACA International was released, striking down the expansive ATDS term created by the FCC’s 2015 Declaratory Ruling and effectively putting back in place the definition that applied four years earlier. Talk about a waste of time and money.
Regardless of how long it took, though, Mr. Dominguez’s case ultimately made its way back to the Third Circuit, which was tasked with deciding once and for all whether Yahoo!’s Email SMS Service was or was not an ATDS under the TCPA—that is, whether the Email SMS Service had the necessary “capacity” to “function” as an ATDS. And while other courts that have interpreted the post-ACA International definition of ATDS have tiptoed around the devices that are actually included in the applicable term, the Third Circuit came right out and said it:
Ultimately, Dominguez cannot point to any evidence that creates a genuine dispute of fact as to whether the Email SMS Service had the present capacity to function as an autodialer by generating random or sequential telephone numbers and dialing those numbers.
As a result, the Third Circuit affirmed the trial court’s decision in favor of Yahoo!, finding that “the record indicates that the Email SMS Service sent messages only to numbers that had been individually and manually inputted into its system by a user … [rather than] by generating random or sequential telephone numbers and dialing those numbers.” Of course, this is a phenomenal outcome for Yahoo!, but how did the Third Circuit arrive at its decision?
To begin, the Third Circuit framed the applicable law it would use in deciding whether Yahoo!’s system met the TCPA’s ATDS definition, noting the D.C. Circuit’s decision in ACA International and its conclusion that plaintiffs could no longer take refuge in arguments relating to the FCC’s 2015 interpretation of ATDS as including a device’s “potential capacity” to generate random or sequential numbers. Thus, the Third Circuit narrowed the issue on appeal to the Email SMS Service’s “present capacity” to “operate as an ATDS.” And here the court was tasked with analyzing the various expert reports that had been presented by Mr. Dominguez in the district court proceeding to determine whether they presented evidence supporting Mr. Dominguez’s argument that the Yahoo! system was indeed an ATDS.
But evidence about the system’s present capacity was scarce, as each of the expert reports overwhelmingly were written so as to address the Yahoo! system’s “latent” capacity and only made conclusory allegations regarding the system’s ability to generate random or sequential numbers as it was presently designed and used. Accordingly, the Third Circuit ruled in favor of Yahoo! and, in doing so, has fundamentally narrowed the scope of the TCPA in the Third Circuit.
This ruling may have profound benefits for companies that are the target of TCPA litigation in the Third Circuit, as it firmly cements a narrow ATDS definition that allows companies calling or texting their own consumers, who have voluntarily supplied their number, to argue that the TCPA does not apply to those calls or text messages. But its practical implications deserve greater attention:
- Drastically Reduce Number of TCPA Cases Filed: As we have mentioned in comments filed before the FCC on behalf of our clients, the FCC’s expansive interpretation of the ATDS term is one of the main reasons we have seen a year-over-year rise in the number of TCPA cases filed in United States federal courts. With a narrower ATDS definition now on the books, this may be the first step in turning the tide against professional TCPA plaintiffs and plaintiffs’ attorneys. However, until there is nationwide uniformity on this issue (which would most likely occur via further FCC guidance), companies have to be careful in relying too heavily on this Third Circuit decision, as Plaintiffs’ attorneys will no doubt try desperately to avoid having their cases litigated in the Third Circuit in hopes of finding a more sympathetic forum.
- Dismiss TCPA Cases at Earlier Stages of Litigation: Even if the Third Circuit’s narrow interpretation of the ATDS term does not prevent professional TCPA plaintiffs and plaintiffs’ attorneys from filing new cases, it presents the opportunity for defendants to argue that TCPA cases should be dismissed at earlier stages in the proceedings, thereby saving good-faith businesses and marketers litigation costs. Many TCPA lawsuits hinge on whether the consumer was contacted using an ATDS, rather than on other requirements established under the TCPA. Thus, if the defendant can establish early on in the litigation that the device it used to contact the plaintiff did not presently dial random or sequential numbers, it may be able to get the whole case thrown out before the defendant is forced to think about settlement or a jury trial.
- Establish Useful Guidance for Confused Courts: Perhaps the biggest implication of the Dominguez ruling is the effect it could have on courts outside of the Third Circuit. As we mentioned above, since the ACA International decision was released in March, many courts have been confused as to what ATDS definition should now be applied and how the ATDS term should be interpreted. In fact, on Monday, June 25, the United States District Court for the Northern District of Georgia made specific reference to this problem in its decision in Sessions v. Barclays Bank Delaware, where it noted that “courts are divided on the definition of an ATDS in the wake of ACA International.” Certainly, many of these courts are confused because they have nowhere to presently look for guidance. But as more courts interpret the ATDS term, the remaining courts have support to which they can look for assistance. The precedential ruling issued by the Third Circuit in Dominguez is the highest level of guidance we have seen on this issue, and it will likely be important to other circuits as they also take a fresh look at the ATDS term.
As we can see, the Dominguez court’s definition of ATDS not only gets back to the definition of ATDS that Congress intended when it enacted the TCPA in 1991, but also signals that the FCC’s expansive interpretation of ATDS is gone. Businesses like Yahoo! are better off because of it.
If you would like to discuss strategies for how your company may benefit from this decision, set up a call.
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