Ahead of the Class

Like the Fair and Accurate Credit Transaction Act before it, the Telephone Consumer Protection Act (“TCPA”) has become the latest federal statute on which entrepreneurial plaintiffs’ lawyers have staked their fortunes. The number of lawsuits under the TCPA is skyrocketing. According to the United States Chamber of Commerce, the first nine months of 2013 saw over 1,332 TCPA lawsuits, 62% more than all of 2011.

The TCPA prohibits businesses from using an “automatic telephone dialing system,” or “ATDS,” to call or text people without their prior express consent. The statute 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.” If a business violates the TCPA, a plaintiff can seek to recover statutory damages of $500 per call or text, which can be trebled if the violation is willful. In addition, a plaintiff bringing a TCPA class action under Rule 23 of the Federal Rules of Civil Procedure can seek to recover $500 for every call or text sent in violation of the statute. Depending on the number of calls or texts at issue, the potential damages may be staggering.

Fortunately, two federal courts have recently brought some sanity to TCPA litigation and, specifically, what constitutes an ATDS. In Gragg v. Orange Cab Co., Inc., 2014 WL 494862 (W.D. Wash. Feb. 7, 2014), the Western District of Washington rejected plaintiff’s position that “any technology with the potential capacity to store or produce and call telephone numbers using a random number generator constitutes an ATDS” (emphasis in original). Rather, the district court held that the device must have the present capacity to store, produce, or call randomly or sequentially generated telephone numbers. The court recognized that plaintiff’s position would lead to an “absurd result” under which “many of contemporary society’s most common technological devices” fit “within the statutory definition.” Under plaintiff’s interpretation, an individual who placed a call or text from a smart phone without the recipient’s prior express consent could be found liable because their phone has the “potential” capacity to store, produce, or call randomly or sequentially generated telephone numbers—regardless of whether the phone has a presently installed application that permits it do so.

Last week, the Eastern District of Pennsylvania reached a similar result in Dominguez v. Yahoo!, Inc., 2014 WL 1096051 (E.D. Pa. Mar. 20, 2014). In Dominguez, plaintiff purchased a cellular telephone and was assigned a phone number. The previous owner of the telephone number had enrolled the number in a text message system of Yahoo! After plaintiff received a text message from Yahoo!, he brought a class action lawsuit under the TCPA on grounds he did not consent to receive such messages.

Yahoo! moved for summary judgment on grounds that its text-messaging system does not have the capacity to use a random or sequential number generator to store or produce telephone numbers and then send a text message to those numbers. Because neither plaintiff nor his expert was able to raise a genuine issue of material fact on this question, the court granted Yahoo!’s motion for summary judgment.

Gragg and Dominguez are important because they support the position that in order to constitute an ATDS, a system must have the present capacity to store, produce, and dial random or sequential numbers. The Federal Communications Commission may weigh in on this issue in the near future. In November 2013, it issued a Public Notice seeking comment on a petition asking (1) whether a dialing system must have the capacity to dial numbers without human intervention and (2) whether a dialing system’s “capacity” is limited to what the system is capable of doing, without further modification, at the time the call or text is placed. Until the FCC issues its decision, businesses may cite Gragg and Dominguez for support.