Supreme Court Narrows Reach of Telephone Consumer Protection Act

Last week, the U.S. Supreme Court issued a decision that, at least in the short run, is likely to dramatically reduce litigation under the Telephone Consumer Protection Act (“TCPA”). In Facebook, Inc. v. Duguid, the Court held that only a narrow set of telephone equipment meets the definition of “an automatic telephone dialing system” (“ATDS”) for purposes of the statute’s ban on making certain types of calls with an ATDS.  The TCPA’s prohibition on using an ATDS to call a cell phone without prior express consent has spawned a considerable volume of consumer class action litigation, and led to large pay-days for some plaintiffs’ attorneys.  Significantly, the Court held that the statutory definition of an ATDS is limited to devices with the capacity to use a random or sequential number generator to either store or produce telephone numbers for dialing.  While automated dialers at one time may have relied upon the generation of random or sequential numbers, most modern telephone systems do not operate that way.  Instead, they tend to provide functionality for easy dialing of stored numbers.  However, based on the general dislike of unwanted telephone calls, the decision may spur Congress to amend the TCPA to broaden its reach.

Background

Passed in 1991, 47 U.S.C. § 227(b)(1)(A)(iii) of the TCPA generally prohibits a caller from using an ATDS or an artificial or prerecorded voice to place a nonemergency call to a cell phone or pager, emergency phone line, or hospital guest or patient room, unless the caller has obtained prior express consent.  The TCPA defines an ATDS as “equipment which has the capacity to store or produce telephone numbers to be called, using a random or sequential number generator; and to dial such numbers.”^[1]  This definition has been the subject of intense litigation, and its proper scope is a high-stakes question because this TCPA provision imposes strict liability with statutory damages of $500 per violation—trebled to $1,500 per violation if the violation is deemed willful or knowing.^[2]  A company found to have used a telephone system that qualifies as an ATDS to call cell phones without prior consent can find itself subject to millions (or even billions) of dollars in damages.

Until now, courts have disagreed on the critical issue of the functions a device must have the capacity to perform in order to qualify as an ATDS.  In its 2018 decision in Marks v. Crunch, the Ninth Circuit succinctly stated that “[t]he question is whether, in order to be an ATDS, a device must dial numbers generated by a random or sequential number generator or if a device can be an ATDS if it merely dials numbers from a stored list.” ^[3]  The Ninth Circuit answered that question with an expansive interpretation, holding that “the statutory definition of ATDS includes a device that stores telephone numbers to be called, whether or not those numbers have been generated by a random or sequential number generator.”^[4]  The Ninth Circuit’s interpretation potentially meant that any telephone system with the capacity to automatically dial a stored list of telephone numbers without human intervention qualifies as an ATDS.  This would include, for example, a high-tech cell phone with an app allowing for automated dialing.  The Second and Sixth Circuits recently adopted an interpretation similar to that of the Ninth Circuit in Marks.^[5]

The Third, Seventh and Eleventh Circuits adopted starkly different interpretations of the ATDS definition based on a plain reading of the statutory language.  In Gadelhak v. AT&T, for example, the Seventh Circuit held that “the capacity to generate random or sequential numbers is necessary to the statutory definition,” expressly rejecting the Ninth Circuit’s interpretation of the statute in Marks.^[6]  The Third and Eleventh Circuits adopted a similar approach in Dominguez v. Yahoo and Glasser v. Hilton, respectively.^[7]

The Duguid Decision

In Duguid, the Supreme Court once and for all resolved this circuit split in favor of a narrow interpretation of the ATDS statutory definition, holding that “a necessary feature of an” ATDS “is the capacity to use a random or sequential number generator to either store or produce phone numbers to be called.”  Specifically, the Court held that the clause “using a random or sequential number generator” in 47 U.S.C. 227(a)(1) modifies both verbs that precede it (“store” and “produce”), thereby specifying how the equipment must either “store” or “produce” telephone numbers in order to qualify as an ATDS. The Court found support for this interpretation in conventional rules of grammar, under which a modifying clause like “using a random or sequential number generator” would normally apply to the entire preceding list of verbs when the verbs are part of a cohesive preceding clause like “store or produce telephone numbers to be called.” The Court also found support in the statutory context of the TCPA, noting that Congress’s goal was to specifically target the unique problems caused by the use of random or sequential number generator technology such as tying up business and emergency phone lines. Because the system allegedly used by Facebook to send the text messages at issue in the case neither stored nor produced numbers “using a random or sequential number generator,” the Court held that it is not an ATDS.

The Supreme Court’s adoption of a narrow interpretation of ATDS will likely result, at least in the short term, in a dramatic decrease in TCPA litigation where fewer dialing systems will qualify as an ATDS—most modern telephone systems do not generate random or sequential telephone numbers for dialing.  However, the decision may also serve as a catalyst for legislative action to broaden the TCPA’s scope.