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3rd Cir. Holds ATDS Must Have ‘Present Capacity’ to Autodial, Follows ACA Int’l

Following the D.C. Circuit’s ruling in ACA Int’l v. FCC, the U.S. Court of Appeals for the Third Circuit recently held that an “automatic telephone dialing system” under the federal Telephone Consumer Protection Act must have the present or current capacity to store or produce telephone numbers using a random or sequential number generator, and to dial those numbers.

A copy of the opinion in Bill Dominguez v. Yahoo, Inc. is available at:  Link to Opinion. 

The plaintiff purchased a cellphone with a reassigned telephone number.  The prior owner of the number subscribed to an email service provider’s “Email SMS Service,” which automatically sends a text message each time an email was sent to the user’s email account.  The plaintiff received text messages from the service provider every time the prior owner received an email, and the plaintiff’s supposed attempts to turn off the notifications were allegedly unsuccessful.

The plaintiff filed a putative class action alleging that the service provider violated the TCPA by sending thousands of unsolicited text messages.

As you may recall, under the TCPA, 47 U.S.C. § 227, et seq., it is unlawful to make or send a non-emergency call, text, or pre-recorded message “using any automatic telephone dialing system” to any telephone number assigned among other things to a cellular telephone service.  47 U.S.C. § 227(b)(1)(A)(iii).

The TCPA defines an automatic telephone dialing system (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).

In 2014, the trial court granted summary judgment in favor of the service provider after concluding that the Email SMS Service did not have the capacity to store or produce telephone numbers using a random or sequential number generator.

As you may recall, the Federal Communications Commission altered the landscape of TCPA litigation when it issued a declaratory ruling and order in 2015.  In the 2015 Order, the FCC stated among other things that “the capacity of an autodialer is not limited to its current configuration but also includes its potential functionalities.”

Based on the FCC’s 2015 Order, the Third Circuit vacated the trial court judgment and remanded the case for further consideration.  On remand, the service provider again moved for summary judgment, and both parties submitted expert reports addressing the Email SMS Service’s latent or potential capacity.  The trial court excluded the plaintiff’s expert reports and concluded that the Email SMS Service did not qualify as an ATDS.

This appeal followed.

During this appeal, the U.S. Court of Appeals for the District of Columbia issued its opinion in ACA Int’l v. FCC, 885 F.3d 687 (D.C. Cir. 2018).  The D.C. Circuit held among other things that the FCC exceeded its authority by expanding the term “capacity” to include any latent or potential capacity of a device.  The D.C. Circuit set aside this portion of the FCC’s 2015 Order.

In light of ACA Int’l, the Third Circuit determined that the appellant “can no longer rely on his argument that the Email SMS Service had the latent or potential capacity to function as an autodialer.”  Thus, the only issue before the Third Circuit was whether the plaintiff presented sufficient evidence to demonstrate that the Email SMS Service had “the present capacity to function as an autodialer.”

The plaintiff’s first three expert reports focused on latent or potential capacity, and proposed various ways in which the Email SMS Service could be modified to generate random or sequential numbers.  The plaintiff argued that certain limited modification may nevertheless fall within the scope of present capacity under ACA Int’l.

However, the Third Circuit found the proposed modification too speculative, which would require several months of work to implement.  As the Third Circuit explained, “[t]he reports [were] founded upon the exact type of hypothesizing that [was] foreclosed by ACA International.”

The plaintiff’s fourth expert opined that the Email SMS Service system was an ATDS, because  “[t]he ability to generate random numbers is a fundamental function inherent in information technology computer systems employing the most common operating systems, security protocols and encryption.”

Notably absent, as the Third Circuit explained, was “any explanation of how the Email SMS System actually did or could generate random telephone numbers to dial.”

Because the plaintiff failed to present any evidence to demonstrate that the Email SMS Service had the present or current capacity to perform ATDS functions, the Third Circuit concluded that the plaintiff’s expert reports lacked “fit or relevance” and were properly excluded.

Accordingly, the Third Circuit affirmed the trial court’s orders excluding the plaintiff’s expert reports and granting summary judgment in favor of the service provider.

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Eric Tsai practices in Maurice Wutscher’s Commercial Litigation and Consumer Credit Litigation groups, and in its Regulatory Compliance group. He concentrates his practice primarily on the defense of consumer and commercial financial services companies, including mortgage lenders and servicers, mortgage loan investors, third party debt collectors, and other financial services providers. He also counsels clients on regulatory compliance, licensing, and other consumer protection matters. Eric earned his undergraduate degree from the University of California, Irvine. Prior to attending law school, he worked as a loan officer for national direct lenders. He earned his Juris Doctor from California Western School of Law and thereafter obtained a Master of Laws (LLM) in Taxation from the University of San Diego School of Law. Eric publishes extensively on various issues affecting consumer lending and litigation, including both federal and California-specific developments. He is licensed to practice law in California, Nevada, and Oregon, and is admitted in all United States District Courts in the State of California, the United States District Court for the District of Oregon, the United States District Court for the District of Nevada, the U.S. Tax Court, and the Ninth Circuit Court of Appeals. He is also a licensed real estate broker in the State of California.

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