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self-study / Class Actions

Months after TCPA ruling, footnote leaves long, troublesome tail

Eric J. Troutman

Partner, Squire Patton Boggs LLP

Email: eric.troutman@squirepb.com

UCLA SOL; Los Angeles CA

Eric is the czar of TCPAWorld.com and has served as lead counsel in nearly a hundred putative nationwide TCPA class actions, in addition to defending over a thousand individual TCPA suits in his role as national strategic litigation counsel for major banks and finance companies. He now leads one of the nation's most powerful TCPA defense teams in the firm's Los Angeles office.

The Telephone Consumer Protection Act is one of the most litigated statutes in America and the undisputed heavyweight champion of litigation cash cows. More multi-million dollar settlements have been reached under the TCPA than any other federal statute in history. That the TCPA simultaneously remains the single broadest restriction on constitutionally protected speech in American history should also be troublesome to all Americans.

In April, the U.S. Supreme Court handed down a unanimous landmark ruling that was supposed to put an end to the TCPA's (and the part of the plaintiff's bar driving the litigation) stranglehold on the American judiciary. Facebook, Inc. v. Duguid, 141 S. Ct. 1163 (2021).

The decision may have ended up doing precisely the opposite, mostly as the result of a single footnote: footnote 7. Footnote 7 undermines the "human intervention" standard that was the former bedrock of TCPA jurisprudence, and introduces a narrow rule that is difficult to apply. Unless the current trend of case law permitting so-called "footnote 7" cases to survive the pleadings stage quickly reverses, an entire new round of TCPA class action settlements now seems, regrettably, inevitable.

Background

Oddly, Congress has never directly made it illegal to make scam or spam calls to cellphones. Rather, in 1991 (and not meaningfully updated since), Congress forbid only the use of certain technology to make calls.

The TCPA only limited really bad dialing systems: those using a random or sequential number generator to generate phone numbers and dial them. The law used a very specific definition of "automated telephone dialing system" to assure that the $500 to $1,500 per call violation is only applied to actors that truly deserved to be put out of business for their misconduct.

The statutory language of the TCPA forged the infamous ATDS definition, which reads: "The term 'automatic telephone dialing system' means 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."

Despite the fact that this is one of the better definitions in a federal statute, courts expanded the definition to apply the TCPA to broader forms of technology.

The reason is simple: Americans hate robocalls, yet scammers and spammers aren't using random number generators to create phone numbers to dial.

Unable to find a way to distinguish between the good actors and the bad actors on the basis of technology, the courts largely opted for a broader definition of the TCPA. The courts reasoned that to get to the bad guys, some good guys must be allowed to be trapped in TCPA lawsuits -- and that's just what they did. By the barrelful.

As a result, class action after class action was filed against American companies for doing nothing more than use efficient dialer technology (technology not covered by the express language of the TCPA) to contact their legitimate customers.

Slowly, the courts interpreted the TCPA to cover more and more types of calls, followed by the inclusion of text messages.

The " Marks " Approach and the Rise of Click-to-Dial Systems

Before the Facebook decision, the 9th U.S. Circuit Court of Appeals provided a beacon to courts looking for a way to expand the statute far beyond mere random dialing.

In Marks, the 9th Circuit looked at the law's statutory purpose, rather than statutory language, to hold that the TCPA applied to all dialers that had the capacity to store numbers and dial them automatically, regardless of whether a random or sequential number generator was used in the process. Marks v. Crunch San Diego, LLC, 904 F.3d 1041, 1053 (9th Cir. 2018).

However, the word "automatically" is not in the TCPA's ATDS definition and the term "random or sequential number generator" is absent from the Marks formulation.

Marks expanded the reach of the TCPA beyond the statute's language. It also afforded callers a useful guidepost to judge the legality of their calling practices: If their system was not operating "automatically" (read: "without human intervention"), it was not an ATDS.

Not surprisingly, callers moved toward "click-to-dial" systems that were carefully calibrated to meet the strictures of the Marks definition. The courts responded by unanimously blessing the use of such technology as "not automatic" -- even where the systems operated with zero true human discretion and at speeds that rivaled fully automatic predictive dialing suites.

An uneasy truce had emerged: Businesses were safe to call consumers efficiently and swiftly, but they had to include the legally imposed fiction of a thoughtless "click" by a human finger before each call could be made.

Other courts -- including three separate circuit courts of appeals -- went on to disagree with Marks and insisted on a statutory approach to the application of the TCPA's ATDS definition. This set the stage for the U.S. Supreme Court to intervene.

Facebook and the Role of Grammar in Statutory Interpretation

When the U.S. Supreme Court took up the case, it seemed clear that the textualist court was likely to rule in favor of a narrow statutory definition. This likelihood increased when Judge Amy Coney Barrett (who was on the 7th U.S. Circuit Court of Appeals panel that had created the split with the 9th Circuit approach) was confirmed as a Supreme Court justice ahead of oral argument.

However, the plaintiffs' bar, aided by the one of the world's most noted legal grammarians -- Bryan Garner of "Reading Law" -- had an ace up its sleeve. Rather than focus on the intent of the drafter (as the Marks panel had done), Garner devised a rather brilliant linguistic argument: Noting that the statute triggers ATDS usage when a system either stores or produces numbers using a random or sequential number generator, Garner urged that it is simply impossible to "store" numbers using a number generator.

Therefore, the statute's language must mean that only "produced" numbers must make use of such a number generator. Stored numbers, on the other hand, do not need to be treated using a number generator at all. Those numbers just have to be dialed by the system automatically, just as Marks had urged.

Although the argument did not ultimately carry the day, the Supreme Court had to grapple with the simple question Garner had posed: How does one "store" numbers using a random or sequential number generator?

The answer the Supreme Court landed on, is found at footnote 7 of the opinion. There, the court recognized that the storage of numbers that are later dialed using a random number generator to determine the sequence of dialing qualified as the use of a number generator in the "storage" of phone numbers. While this assertion seems dubious linguistically, the Supreme Court appears to have settled on it just the same.

With the pesky issue of "storing" numbers using a random number generator out of the way, the Supreme Court went on to interpret the statute narrowly to require the use of a random or sequential number generator to either "store" -- as set forth in footnote 7 -- or "produce" numbers in order to trigger the TCPA.

And so the plaintiff's bar's string of TCPA ATDS cases was brought to an end. Or so it seemed.

The Death of Click-to-Dial Systems

While Facebook initially looked like a crushing victory for callers, the plaintiff's bar immediately began advancing arguments that the use of a random number generator to determine the sequence of dialing triggered the TCPA's ATDS definition. The defense bar countered with a rather unexpected position -- footnote 7 is limited to those circumstances where the list of numbers dialed is, itself, randomly generated.

Courts seem to be splitting on these arguments, but -- in a troubling development for callers -- plaintiffs have repeatedly proffered expert reports demonstrating that many dialers do, in fact, make use of random number generators to determine dialing sequence.

As it turns out, many off-the-shelf and proprietary dialers contain number generation commands in their source code for the purpose of choosing between phone numbers to be dialed. Hence, a large number of dialers apparently have the "capacity" to perform the seemingly obscure functions described in footnote 7 -- transforming Facebook into a caller's potential worst nightmare.

Cataclysmically, the plaintiff's bar argues that the very click-to-dial systems that were repeatedly deemed "safe" following Marks are illegal. These are the dialers that callers turn to when they knew they did not have consent -- such as when they were trying to contact a debtor who had asked for calls to stop previously.

Now, however, Facebook seems to have converted these calls into potentially actionable because they potentially include the use of a random number generator. And, while the designers of these systems were ever vigilant to prevent the random generation of phone numbers, the Supreme Court's apparent proscription on the use of a system generating any number to determine dialing sequence, appears to have caught industry off guard.

With the TCPA's long four-year statute of limitations working in their favor, the plaintiff's bar has plenty of time to bring -- and has already shown a clear proclivity toward bringing -- suits challenging that click-to-dial systems actually triggered the TCPA all along. The fallout from the application to footnote 7 to click-to-dial systems has only just begun and will likely be the predominant driver of ATDS litigation for the next two to three years.

In the meantime, callers have turned for protection toward more advanced "human selection" systems: Those that not only have a human being intervening at time of dial, but also require human selection of numbers to determine sequence. While it is unclear whether footnote 7 was "intelligently designed" to drive greater human involvement in dialing decisions, that has certainly been the net impact -- and the recent passage of Florida's own "mini-TCPA" seems to echo the new dialer focus on human selection as the touchstone of manual dialing.

How Courts Deal with Footnote 7

From what I've seen to date, there is little doubt as a factual matter that many (but not all) dialing systems do, in fact, make use of random number generators to determine the sequence of calling. Undoubtedly vendors offering these platforms are already moving to eradicate that functionality -- even while many click-to-dial users are shifting to human selection systems.

Still, four years is a long time, and just as we saw in 2010 (following Satterfield v. Simon & Schuster, Inc., 569 F.3d 946, 952 (9th Cir. 2009)) and in 2015 (following the FCC's TCPA Omnibus ruling), I predict a highly regrettable wave of high-dollar TCPA settlements on the horizon as defendants look to cure the impossible-to-see coming risk posed by the click-to-dial systems they believed they were safely using prior to Facebook.

The courts, to date, have done defendants few favors on this score. While a handful of cases have adopted the defendants "only random phone numbers matter" approach to footnote 7, the vast majority of courts have allowed these cases to survive the pleadings stage. That means that the plaintiffs are able to keep defendants tied up in potential high-dollar TCPA ATDS cases at least through the summary judgment stage -- using crushing discovery demands as a bludgeon to force high-dollar settlements.

But the real -- and ultimate battle -- will be one of the experts. As dialing source code is reluctantly compelled from defendants and dialing platforms -- and hungrily reviewed by plaintiff's experts -- will it turn out that random number generators are really being used to determine dialing sequence? It seems certain that the answer will be "yes" in at least some cases -- and where it is, the courts will be left to determine -- once and for all -- whether that triggers the TCPA's ATDS definition under footnote 7, or not.

Given the volume of click-to-dial calls made prior to Facebook, this is likely a multi-trillion dollar question. And one that -- for better or worse -- may end up, once again, at the high court's doorstep.

For now, the ever-present threat of TCPA litigation remains dire. And even as callers move to safer human selection systems, they still need to hold their breath on whether their old click-to-dial efforts were lawful after all.

One thing is for certain -- Facebook has certainly not brought the lasting calm that we were all hoping for.

#1042

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