In Duran v. La Boom Disco, Inc., a decision released on April 7, 2020, the Second Circuit joined the Ninth Circuit in adopting an expansive interpretation of what qualifies as an Automatic Telephone Dialing System (ATDS). In Duran, the Second Circuit concluded equipment that simply stores telephone numbers in any way (including human-generated lists) constitutes an ATDS even if a human must click “send” on a screen to initiate the call.
Duran is at odds with three other circuits weighing in on what constitutes an ATDS. In 2018, after ACA Int’l set aside FCC Orders broadly interpreting what qualified as an ATDS, the Third Circuit 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. Earlier this year, the Eleventh Circuit and the Seventh Circuit followed the Third Circuit’s reasoning and issued decisions holding that the statutory definition of an ATDS requires the equipment to generate random or sequential telephone numbers.
In Duran, the plaintiff sued a nightclub alleging he received hundreds of unsolicited text messages after he texted a code for free admission to a party in response to a Facebook advertisement. The defendant argued that the texts did not violate the TCPA because the online texting programs it used were not ATDSs. Specifically, it argued that although the systems were able to send hundreds of texts simultaneously, they did not have either of the two capacities required to qualify as an ATDS and required too much human intervention to be considered “automatic.” The district court agreed, and granted summary judgment for the defendant. The plaintiff appealed.
Noting that the appeal presented a question of statutory interpretation, the Second Circuit reviewed the issue de novo. The court began by noting that “a dialing system qualifies as an ATDS if it has two concurrent capacities. First, it must have the ‘capacity… to store or produce telephone numbers to be called, using a random or sequential number generator[.]’ Second, it must have the ‘capacity . . . to dial such numbers.’”
Regarding the first prong, the Second Circuit read the statutory language to mean that, in order for a program to qualify as an ATDS, the phone numbers it calls must be either stored in any way or produced using a random or sequential number generator. The court reasoned that this interpretation was correct because it did not render any word in the statute mere surplusage, effectuated Congress’s intent, and was consistent with the FCC’s long-standing interpretations of the TCPA. As to the second point, the court reasoned that the debt collection exception in the TCPA means 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. Remarkably, the Second Circuit completely ignored the fact that the Fourth Circuit recently held that the debt collection exception is unconstitutional, and SCOTUS decided in January of this year to weigh in on this issue. As to the third point, the Second Circuit curiously concluded that the D.C. Circuit’s decision in ACA Int’l v. FCC vacated the FCC’s 2015 Order on the ATDS definition, yet found that the FCC’s 2003, 2008, and 2012 Orders interpreting the definition of ATDS were still valid. If the 2003 and 2008 FCC Orders were still valid and binding, why did the Second Circuit feel the need to address the definition of an ATDS purely as a matter of statutory interpretation?
Ultimately, the court held that the online texting programs could qualify as ATDSs merely because they stored telephone numbers, even though the list of numbers was human-generated and manually uploaded to the programs.
As to the second prong, the court held that the act of hitting “send” to initiate a call, by itself, is not sufficient to constitute human intervention. The court reasoned that “[w]hen a person clicks ‘send’ in such a program, he may be instructing the system to dial the numbers, but he is not actually dialing the numbers himself. His activity is one step removed.” In a footnote, the court attempted to explain why such a narrow interpretation of what constitutes human intervention does not effectively make a smartphone an ATDS, “since clicking on a name in a digital phonebook to make a phone call or send a text message looks the same as clicking ‘send’ to initiate a text campaign.” The court concluded that when hitting “send” does not initiate a call to a specific contact, but rather initiates the process by which the dialing equipment begins calling numbers on a campaign list, the dialing equipment has the capacity to “dial numbers on their own — which is to say, automatically.”
As of now, in the Ninth and Second Circuit, equipment that merely stores and dials telephone numbers constitutes an ATDS regardless of whether the list of telephone numbers it is dialing was not randomly or sequentially generated. Given the opposing view of what constitutes an ATDS in the Third, Seventh, and Eleventh Circuits, the circuit split on this issue has grown deeper. More than ever it seems likely that SCOTUS will weigh in on the debate by either (1) finding the ATDS provision of the TCPA is unconstitutional in Barr v. American Assoc’n of Political Consultants or (2) granting certiorari in Facebook, Inc. v. Duguid, et al., which asks the Supreme Court, in relevant part, to decide “[w]hether the definition of ATDS in the TCPA encompasses any device that can ‘store’ and ‘automatically dial’ telephone numbers, even if the device does not ‘us[e] a random or sequential number generator.’”
DISH on the Hook for 66 Million Telemarketing Violations by Sales Agents; $280 Million Verdict Not Enough, Says Seventh Circuit
Based on principles of agency law, DISH Network Corporation (DISH) is liable for 66 million unwanted and illegal telemarketing calls made by its four sales agents, a three-judge panel of the Seventh Circuit Court of Appeals held in a recent decision. The Court rejected DISH’s arguments that its sales agents acted alone and that it cannot be held liable for their conduct. The case was brought by the federal government and the states of North Carolina, California, Ohio, and Illinois for violating the Telephone Consumer Protection Act (TCPA), the Federal Trade Commission’s (FTC) Telephone Sales Rule, and various state telemarketing laws.
DISH employed four agents, called order-entry retailers, to call consumers across the country to market its satellite television programming. But many of the consumers who received unsolicited calls had previously signed up for the FTC’s Do Not Call List or had already opted out or unsubscribed from such communications by DISH. Additionally, the facts showed that the four retailers had not coordinated opt-outs amongst each other, meaning a consumer could have unsubscribed from the DISH telemarketing list in response to a call by one agent, but could still later receive a call from another. Given that all agents were making calls on behalf of DISH, in order to comply with the law, an unsubscribe request should have been honored across all agents. Because the order-retailers were DISH’s agents, if any retailer called any person on any other retailer’s Do Not Call list, DISH was responsible, the circuit court found. DISH knew what the retailers were doing, the circuit court said, and benefitted from the actions the retailers took under its authority.
In addition to a $280 million monetary penalty, the 2018 ruling by the U.S. District Court for the Central District of Illinois prohibited DISH and its affiliates and vendors from violating the TCPA and other similar laws in the future and required it to keep records of all telemarketing activities for 20 years after the ruling goes into effect. DISH appealed this decision but did not challenge the underlying findings of fact.
The Seventh Circuit affirmed the district court’s judgment in part, except for its holding that DISH is liable for “substantially assisting” one order-entry retailer and its damages calculation. The judgment was vacated on those issues and remanded back to the district court. Notably, the Seventh Circuit decision created a significant likelihood that the damages owed by DISH to the federal and state governments are likely to be even higher on remand. Although DISH made 66 million calls in violation of the laws, each with a potential penalty of up to $10,000 per violation, the district judge chose to award a penalty of $280 million — approximately $4 per violation. A damages calculation using $10,000 per violation would have led to a colossal $660 billion judgment. The district judge found that number “difficult to justify” and instead chose $280 million because it was close to 20% of DISH’s annual profits. But the Seventh Circuit determined that the district judge had incorrectly calculated damages based on the “depth of the wrongdoer’s pocket” rather than the harm done. Because some of the statutes DISH violated did not even include ability to pay as a permissible factor in damages calculations, the judge’s attempted reprieve was improper, the circuit court said.
The case presents a warning for any company using an agent — and especially, several agents — to make telemarketing calls on its behalf. It demonstrates that principals can be held liable for failing to ensure that all of their agents share a single internal do-not-call list. A contract clause requiring agents to follow the law does not mean the principal can turn a blind eye and still be protected from liability. Indeed, a principal can be on the hook for such behavior by its agents, and its ability to pay should not necessarily be taken into account when calculating damages owed for such a violation.