Consumer Finance Litigation

Those of us who have been litigating the Telephone Consumer Protection Act (“TCPA”) have spent the better part of the last decade trying to determine what constitutes an automated telephone dialing system (“ATDS”).  The answer seemed clear to many when the statute was enacted in 1991 because telemarketers were the focus, cell phones were expensive and uncommon and the plain language of the statute defined an ATDS as “equipment which has the capacity—(A) to store or produce telephone numbers to be called using a random or sequential number generator; and (B) to dial such numbers.”  47 U.S.C. § 227(a)(1).  Thereafter, predictive dialers came on the scene and were being used by telemarketers so the Federal Communications Commission (“FCC”), the entity tasked with rulemaking and enforcement of the TCPA, issued an order in 2003 that expanded the definition of an ATDS by “interpreting” it to include equipment that merely dialed numbers “from a database of numbers.”  See In re TCPA Rules & Regulations, 18 FCC Rcd. 14014, 14091 (2003) (2003 Order).  Despite predictive dialers appearing to fall outside of the plain language of the TCPA, the FCC doubled down on this “interpretation” again in 2008.  See In re TCPA Rules & Regulations, 23 FCC Rcd. 559 (2008) (2008 Order).

The first Federal Circuit Court of Appeals to comment on the ATDS issue was the D.C. Circuit in 2018, when it provided that the FCC’s interpretation of an ATDS would lead to the absurd result of every smartphone being an ATDS.  See ACA Int’l v. FCC, 885 F.3d 687 (D.C. Circ. 2018).  However, the D.C. Circuit failed to formally address the ATDS issue or to specifically strike down the prior FCC Orders “interpreting” predictive dialers to be an ATDS, although many courts have concluded that the practical impact of the ACA Int’l is that the prior FCC Orders on this issue are vacated.

The Third Circuit was the first circuit court to address the ATDS definition after ACA Int’l and it concluded that an Email SMS system did not function as an ATDS because it only sent text messages to numbers that were manually entered, not randomly or sequentially generated.  See Dominguez v. Yahoo, Inc., 894 F.3d 116 (3rd Cir. 2018).  Shortly thereafter, the Ninth Circuit weighed in on the issue by falling in line with the FCC’s expanded definition of an ATDS and taking the opposing view adopted by the Third Circuit in Dominguez.  The Ninth Circuit held that an ATDS also includes devices that have the capacity to call numbers from a stored list  See Marks v. Crunch San Diego, LLC, 904 F.3d 1041 (9th Cir. 2018).

For the past two years, this was the state of the TCPA that all of us were operating under, often trying to predict how courts, judges and arbitrators outside of the Third and Ninth Circuit would rule on ATDS arguments.  Then clarity started to come in early 2020 when the Eleventh Circuit decided to put common sense back into the TCPA by holding that predictive dialers do not fall within the definition of ATDS because they do not satisfy the plain language of an ATDS since they do not use random or sequential number generators.  See Glasser v. Hilton Grand Vacations Co., LLC, 948 F.3d 1301 (11th Cir. 2020).  The Eleventh Circuit also concluded that it was able to disregard the FCC’s prior orders on the issue because they were effectively vacated by the D.C. Circuit in ACA Int’l.  A month later, the Seventh Circuit reached the same conclusion as the Eleventh Circuit by concluding that the phrase “a random or sequential number generator” must either “store” or “produce” number to qualify as an ATDS.  See Ali Gadelhak v. AT&T Services, Inc., No. 19-1738, 2020 WL 808270 (7th Cir. Feb. 19, 2020).

With the Ninth Circuit standing alone and three other Circuits adopting opposing views, many were beginning to think that 2020 was going be the year the TCPA died.  However, the Second Circuit decided to throw the TCPA world a curveball.  On April 7, 2020, in Duran v. La Boom Disco, Inc., No. 19-600-CV, 2020 WL 1682773 (7th Cir. April 7, 2020), the Second Circuit decided to side with the Ninth Circuit in concluding that a predictive dialer is an ATDS. The key facts in Duran were not in dispute – that the numbers were generated by humans and uploaded to programs and the text campaign was initiated when a human selected a “send” button.

The Second Circuit agreed with the Third, Seventh and Eleventh Circuits that whether a device was an ATDS was a matter of statutory construction.  However, it noted that the “statutory language [of 47 U.S.C. § 227(a)(1)] leaves much to interpretation.”  Section 227(a)(1) of the TCPA defines an ATDS as “equipment which has the capacity—(A) to store or produce telephone numbers to be called, using a random or sequential number generator; and (B) to dial such numbers.”  The Second Circuit’s focus was on the placement of the comma before “using a random or sequential number generator” and whether that language modifies the word “produce” or both “store or produce.”

The Second Circuit concluded that there are two different ways to interpret the definition of an ATDS, which is less than the four interpretations the Seventh Circuit considered in Gadelhak.  The first interpretation is that adopted by the opposing Circuits, that a device must both generate or produce numbers and then dial such numbers.  However, the Court concluded that such an interpretation creates “surplusage” in the statute.

The Second Circuit then concluded that the correct interpretation of the ATDS definition is that the device must have “the capacity … to store or produce telephone numbers to be called, using a random or sequential number generator.”  The Court reasoned that such an interpretation is correct because:

the verbs ‘store’ and ‘produce’ take on different meanings since ‘produced’ is modified by the clause after the comma in the statute – ‘using a random or sequential number generator’—while ‘store’ is not.

Based on this reasoning and interpretation, the Second Circuit concluded that there are two different ways that a device can qualify as an ATDS.  First, a device is an ATDS if it can produce numbers using a random or sequential number generator.  Second, a device qualifies as an ATDS “if it can ‘store’ numbers, even if those numbers are generated elsewhere, including by a non-random or non-sequential number generator – such as a person.”

The Court then attempted to justify its interpretation by looking to the exception in the TCPA relating to the debts owed to or guaranteed by the United States.  Completely ignoring the fact that the Fourth Circuit recently held that this exception is unconstitutional and SCOTUS decided in January of this year to weigh in on this issue, see Barr v. American Assoc’n of Political Consultants, No. 19-631, the Second Circuit reasoned that this exception would not make sense if only applied when a collector was “haphazardly” calling people until it found someone with a debt owed to or guaranteed by the United States.  Therefore, the Second Circuit concluded that Congress contemplated that debt collection calls would be made and because it did not specifically authorize the use of stored lists to make calls on government debts, it must have contemplated the use of human created lists to fall within the definition of an ATDS.  It also noted that such an interpretation was consistent with the FCC’s prior orders.

Having concluded that a device qualifies as an ATDS even if it calls numbers from a human created list, the Second Circuit next considered what amount of human intervention removes a device from being an ATDS.  The argument advanced in Duran was that the clicking of the “send” button, which resulted in campaign of thousands of texts being sent, was sufficient human intervention to remove the device from being an ATDS.  The Court decided that this was akin to “flipping an ‘on’ switch” and is not the same thing as dialing numbers.  Therefore, the Court concluded that the texts in Duran were made without human intervention.

Therefore, as of April 7, 2020, the law in the Second Circuit is that the plain language of the TCPA requires a device to have the “capacity” to both: (i) “store lists of numbers;” and (ii) “dial those stored numbers without human intervention.”  With five Circuit Courts now having weighed in on the definition of an ATDS and the split now growing deeper, it seems that absent a Congressional fix, the only way for this debate to be resolved is for SCOTUS to weigh in.