Has the Switch Been Flipped on the TCPA’s Definition of Autodialer?

Commercial Litigation

This article originally appeared in The American Bar Association’s Consumer Financial Services Committee Newsletter.

By any account, the 2015 FCC Declaratory Ruling and Order[1] took an expansive view of the statutory definition of ATDS in the Telephone Consumer Protection Act (“TCPA”).  The 2015 Ruling interpreted the term “capacity” in the TCPA’s definition of Automatic Telephone Dialing System (“ATDS”) to include a device’s “potential or latent functionalities” rather than being limited to what the equipment can do in its current configuration.[2]  By most, but not all accounts, the March 16, 2018 decision of the D.C. Circuit in ACA International v. FCC narrowed the definition of ATDS by vacating the 2015 FCC Ruling and focusing on the current, rather than potential, capabilities of a device in determining whether it qualifies as an ATDS.

This article examines some of the leading cases in the post-ACA International world, including what may be a looming issue for the United States Supreme Court, following the Ninth Circuit’s decision in Marks v. Crunch San Diego LLC.[3]

Switch-Flipping in the Circuit and District Courts Post-ACA International

The first circuit court to issue a decision which addressed the definition of autodialer in a post-ACA International world was the Third Circuit in Dominguez v. Yahoo, Inc.[4] In Dominguez, the Plaintiff purchased a cell phone with a reassigned number.  The prior owner of the phone number at issue had subscribed to Yahoo’s SMS service so that he would receive a text alert every time he received an email.  Because the prior owner of the phone number did not inform Yahoo that his number had changed, the Plaintiff received a text on the reassigned number each time the prior owner received an email.

In 2014, the district court granted summary judgment to Yahoo because the Plaintiff had failed to show that Yahoo’s SMS service had the present capacity to function as an autodialer.  The Plaintiff appealed, and the Third Circuit remanded the case after the FCC issued its 2015 ruling. The Plaintiff amended its complaint to allege that Yahoo’s system also had the potential capacity to function as an autodialer.  The district court granted summary judgment for Yahoo on both the present and potential capacity issues.  The ACA International decision was issued while the case was on appeal to the Third Circuit for the second time.

The Third Circuit held that ACA International meant that it must interpret the definition of an autodialer in the TCPA as it did before the 2015 FCC ruling. This meant that the argument that Yahoo’s system was an autodialer because it had the potential capacity to function as an autodialer was no longer relevant.  The Third Circuit then turned to the issue of whether Yahoo’s system had the present capacity to function as an ATDS.  The court held that only one of Plaintiff’s four expert reports focused on present capacity, but nevertheless discounted the report because it was missing “any explanation of how [Yahoo’s system] did or could generate random telephone numbers to dial.”[5]

In Dominguez, the Third Circuit did discuss that, under ACA International, “present capacity” for purposes of being an autodialer could mean that some limited modifications to the device were necessary.  The court cited the portion of ACA International that discussed how the capacity depends on the amount of effort required to enable the device to function as an autodialer: “[D]oes it require the flipping of a switch or does it essentially require a top to bottom reconstruction of the equipment?”[6]  Although one of the experts’ reports did propose a modification that was akin to “flipping a switch,” the court excluded the report because it had a “striking similarity” to the downloading of an app, which was the same modification at issue in ACA International that was deemed to not qualify as  an autodialer.[7]  The Third Circuit proceeded to affirm the district court’s grant of summary judgment in favor of Yahoo.

A mere three days later, the Second Circuit issued King v. Time Warner Cable[8], its first post-ACA International opinion addressing whether a device is an ATDS.  In King, the Plaintiff alleged that Time Warner made 163 calls to her cellular telephone using an ATDS after she had revoked consent to be called.  Relying on the 2015 FCC ruling, the district court had granted summary judgment for the Plaintiff.  The district court held that Time Warner’s system had capacity to act as an autodialer but did not discuss whether the system had present or potential capacity, as that distinction was unnecessary under the 2015 FCC ruling.

The ACA International opinion was issued by the D.C. Circuit while King was on appeal.  Similar to the Third Circuit, the Second Circuit held that it no longer needed to follow the 2015 FCC ruling on account of ACA International.  It then undertook its own independent analysis of whether the district court’s broad definition of ATDS was proper.  Finding little guidance in the plain meaning of “capacity” and the legislative history of the TCPA, the King court turned its attention to the reasoning in ACA International.  The Second Circuit was particularly persuaded by the D.C. Circuit’s distinction between a device that currently has the features that enable it to perform the function of an autodialer, and a device that can only perform those functions if additional features are added.  Like the Third Circuit only three days before it, the Second Circuit held that the TCPA’s definition of ATDS is restricted to a device’s current function, absent any modification to the device’s hardware or software.  The King opinion also stated that this definition includes devices whose autodialing features can be activated by the simple “flipping of a switch,” but does not include every smartphone or computer that could be reprogrammed and turned into an autodialer.[9]

The Second Circuit held that that the analysis of present versus potential capacity may need to be conducted on a case–by-case basis.  Indeed, the court vacated the district court’s grant of summary judgment for the Plaintiff and remanded the case to the district court to determine whether Time Warner’s autodialer had the ability to perform the functions of an ATDS.

In July 2018, the Northern District of Ohio in Lord v. Kisling, Netisco & Redick, LLC[10] dismissed a class action in which the Plaintiffs alleged that the Defendants had sent texts using a platform that had “the capability and/or functionality to launch bulk messages in seconds [and] . . . uses and requires a short code which is used for bulk and mass texting.”  The court noted that the Plaintiffs’ complaint completely depended on the validity of the expansive 2015 FCC order, which encompassed present and potential capacity of a device to function as an autodialer.  The Lord court elected to follow ACA International and rejected the “capability” or “potential functionality” test. In dismissing the Plaintiffs’ complaint pursuant to Rule 12, the court held that a plaintiff may not simply parrot the statutory language of the TCPA and must allege facts “about the calls or circumstances surrounding the calls that make it plausible that they were made using an [ATDS].”[11]

The Ninth Circuit Flips the Script

Until September 20, 2018, it would have been safe to say that there was a trend after ACA International to limit the scope of the definition of ATDS or, at minimum, to require a case-by-case investigation as to whether a device has the present capacity to be an autodialer.  However, the September 20 decision in Marks v. Crunch San Diego, LLC made it clear that there is no such trend in the Ninth Circuit.

In Marks, the Plaintiff filed suit alleging that the three text messages he received from the Defendant violated the TCPA because they were sent using an ATDS.  The district court granted summary judgement to the Defendant, holding that the technology used to send the text messages did not meet the definition of an ATDS because it lacked a random or sequential number generator.  The Ninth Circuit reversed but, instead of focusing on present or potential capacity, it vastly expanded the definition of ATDS to include, “a device that stores telephone numbers to be called, whether or not those numbers have been generated by a random or sequential number generator.”[12]

In its opinion, the Ninth Circuit first found that the ACA International opinion invalidated not only the 2015 FCC ruling but also the FCC’s 2003 and 2012 rulings with respect to predictive dialers. The court decided to “begin anew to consider the definition of ATDS under the TCPA.”[13]  The court held that the definition of ATDS in the TCPA was ambiguous and therefore looked to extrinsic sources in order to determine its meaning.  The Ninth Circuit went on to hold that because Congress’ intent in enacting the TCPA was “to regulate devices that made automatic calls,” the statute’s language captured equipment that made automatic calls from a list of recipients (as opposed to a random or sequential number generator)[14].

The Marks court also looked at the TCPA’s exception for calls made with prior express consent and reasoned that in order to take advantage of this exception, a caller would need to “dial from a list of phone numbers who had consented to such calls, rather than merely dialing a block of random or sequential numbers.”[15]  The court similarly concluded that the 2015 amendment to the TCPA, which exempted use of ATDS for calls related to federal debts, demonstrated that “equipment that dials from a list of individuals who owe debt to the United States government is still an ATDS.”[16] The Ninth Circuit remanded Marks to the district court in the Southern District of California to address the question of whether “capacity” in the definition of ATDS means present capacity or potential capacity to automatically call numbers from a list.

Conclusion

As many commentators have already observed, the divergent definitions of ATDS in the Ninth Circuit (Marks) and Third Circuit (Dominguez) may ultimately mean that the Supreme Court decides this issue.  In the interim, we can expect arguments from plaintiffs’ counsel that Marks has blown the doors open on the scope of what is an ATDS, while defense counsel will rely on those cases that followed the D.C. Circuit’s more narrow definition in ACA International.  If, on remand in Marks, the Southern District of California is persuaded by the cases which define capacity narrowly, it is still conceivable that the device in that case could be outside the definition of ATDS.

Michael DeFrank is a Partner at Wyrick Robbins Yates & Ponton LLP in Raleigh.  Mike regularly advises and defends clients in the financial services industry in matters involving consumer protection statutes, including the TCPA, FCRA, FCBA, FDCPA, and their state law counterparts.

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[1] Rules & Regulations Implementing the Tel. Consumer Prot. Act of 1991, 30 F.C.C.R. 7961 (2015).

[2] ACA Int’l v. FCC, 885 F.3d 687, 694 (2018).

[3] 2018 WL 4495553 (9th Cir. Sept. 20, 2018).

[4] 894 F.3d 116 (3d Cir. 2018).

[5] Id. at 120.

[6] Id. at note 23, citing ACA Int’l v. FCC at 696-698.

[7]  Id.

[8] 894 F.3d 473 (2d Cir. 2018).

[9] Id. at 481.

[10] 2018 WL 3391941 (N.D. Ohio July 12, 2018).

[11] Id. at *2.

[12] 2018 WL 4495553, at *1 (9th Cir. Sept. 20, 2018).

[13] Id. at *7.

[14] Id. at *8.

[15] Id.

[16] Id.

American Bar Association
DeFrank, M. (2019, January). ABA Consumer Financial Services Committee Newsletter | Has the switch been flipped on the TCPA’s definition of autodialer? Retrieved from: https://www.americanbar.org/content/dam/aba/administrative/business_law/newsletters/CL230000/201901/feature_2.pdf