Eastern District of Pennsylvania Reaffirms Entry of Summary Judgment in Favor of Yahoo!

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On remand from the Third Circuit, the Eastern District of Pennsylvania recently reaffirmed its entry of summary judgment in favor of Yahoo!, holding once again that the company’s email-to-text alert system did not qualify as an automatic telephone dialing system (“ATDS”). Specifically, the court found that “present capacity” was the appropriate standard and declined to apply the “potential capacity” test that a narrow majority of the FCC announced in its July 2015 Declaratory Ruling & Order (“2015 Ruling”). See Dominguez v. Yahoo!, Inc., No. 13-1887, 2017 U.S. Dist. LEXIS 11346, at *7 (E.D. Pa. Jan. 27, 2017); Rules & Regulations Implementing Tel. Consumer Protection Act of 1991, 30 FCC Rcd. 7961 (2015).

As we previously discussed here and here, plaintiff Bill Dominguez alleged that Yahoo! violated the TCPA by sending him text messages using an email-to-text alert system to which the previous holder of his phone number had subscribed. Throughout the proceedings, Yahoo! consistently argued that it had not violated the TCPA because it had not used an ATDS, as its system “lack[ed] the capacity to store or produce telephone numbers to be called, using a random or sequential number generator.” Dominguez, 2017 U.S. Dist. LEXIS 11346, at *3. The court granted Yahoo!’s first motion for summary judgment, agreeing with the company’s position and holding that the Plaintiff had failed to offer any evidence that Yahoo!’s text alert system “had the capacity to randomly or sequentially generate telephone numbers (as opposed to simply storing telephone numbers).” Id. at *4; Dominguez v. Yahoo!, Inc., 8 F. Supp. 3d 637 (E.D. Pa. 2014). The Plaintiff appealed to the Third Circuit, which, in a non-precedential decision, reversed and remanded with instructions that the trial court provide a fuller explanation of whether Yahoo!’s system met the statutory definition of an ATDS and consider the FCC’s 2015 Ruling addressing the definition of “capacity.” Dominguez v. Yahoo!, Inc., 629 F. App’x 369 (3d Cir. 2015). Critically though, and as Judge Baylson’s most recent decision notes, “[t]he Third Circuit agreed with [the EDPA’s] definition of ‘random or sequential’ number generation . . . and its holding that the statutory definition does in fact include such a requirement.” Dominguez, 2017 U.S. Dist. LEXIS 11346, at *4. On remand, Yahoo! renewed its motion for summary judgment and separately moved to exclude the Plaintiff’s four expert witnesses who sought to opine upon the system’s “potential” capabilities. The court granted both motions.

Following the Third Circuit’s direction, the court began by providing a lengthy discussion of the term “capacity” as it has been used and interpreted in relation to the TCPA. Specifically, the court dissected the FCC’s various rulings and found that the 2015 Ruling’s “potential capacity” standard had “advanced a definition of ‘capacity’ that is at once broader than the definitions previously elucidated by the FCC, and lacking in clearly delineated boundaries.” Id. at *17. Nevertheless, the court considered whether it would be appropriate to retroactively apply the FCC’s interpretation to conduct that occurred before its adoption. In doing so, it discussed whether the 2015 Ruling was most akin to a substantive, adjudicative, or interpretive rule or a statement of policy, all of which have different retroactivity implications.

Ultimately, the court concluded that, while “the 2015 Ruling does not have the procedural hallmarks of a ‘substantive’ rule, it certainly has the character of one,” and “[t]o refuse to classify the 2015 Ruling as a ‘substantive’ rule . . . may then be to put form over substance.” Id. at *31-32. As a result, the court found that “retroactive application of the 2015 Ruling would . . . be manifestly unjust to Yahoo,” and that “it should apply the concept of ‘present capacity’ because that was the FCC’s test when this case was filed and when Plaintiff was receiving the text messages which form the basis of this lawsuit.” Id. at *19. Consistent with its prior opinion applying this standard, the court found that “the Yahoo system did not qualify [as an ATDS] under the TCPA’s requirements.” Id. at *7. In doing so, the court noted that “[t]he Third Circuit affirmed this Court’s interpretation of [the] statutory language, which, in the absence of any other evidence, requires granting Yahoo’s motion for summary judgment.” Id.

Despite its finding that a “present capacity” test should be applied, the court went on to consider whether the “Plaintiff has provided evidence to create a factual dispute as to whether the Yahoo E-mail SMS Service had the ‘potential’ or ‘latent’ capacity to generate and dial random or sequential numbers.” Id. at *35-36. The court concluded that he had not. Specifically, the court considered the declaration of a Yahoo! employee who testified that “the system was not set up (nor did it have the unused functionality) to send text blasts to multiple numbers” and “was never connected to any server, system, or database that had any capacity to generate phone numbers.” Id. at *36-37. The court also considered the testimony of Plaintiff’s four experts, whom Yahoo! moved to exclude under Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993). The court granted Yahoo!’s motion as to all experts, holding that their opinions as to the system’s latent capacity were not reliable because they were presented “without testing the viability of [the experts’] hypotheses,” and therefore would not be helpful to a jury asked to assess the capacity of a computer program. Dominguez, 2017 U.S. Dist. LEXIS 11346, at *58. The court recognized that, because the system had been abandoned by the time the case was remanded, “it was not possible for anyone to test” it. Id. at *60. But it reasoned that, while “this fact may generate some sympathy for [the] Plaintiff, it does not generate a viable legal theory, which is what the law requires.” Id. at *60-61. As a result, because the Plaintiff’s experts’ opinions were not based on testable or falsifiable methodologies, the court found them to be inadmissible. And, as these opinions were the only evidence the Plaintiff presented as to the potential capacity of Yahoo!’s system, the court concluded “that [the] Plaintiff has not presented enough evidence to warrant a jury finding in its favor” even if the standard found in the 2015 Ruling applied. Id. at *61.

Yet the court still went a step further, addressing whether, even if they were admissible, the experts’ reports and testimony “could establish a factual issue that the Yahoo system was able to generate sequential or random numbers and call those numbers.” Id. It held that they could not, as they did not present evidence showing that Yahoo!’s system could both generate and call random or sequential numbers, as is required by the text of the statute. See 47 U.S.C. § 227(a)(1) (“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.”). As a result, “even if the expert reports were considered reliable and admissible, Yahoo would nevertheless be entitled to summary judgment.” Id. at *67. In short, the court found that, even under a “potential capacity” test, and even if Plaintiff’s expert testimony was admissible, Yahoo! was entitled to summary judgment because it had not been shown that it used an ATDS in sending text messages to the Plaintiff.

The court’s decision clearly and reasonably adjudicates a case involving an alleged TCPA violation that occurred well before the FCC’s 2015 Ruling, while also strongly calling into question the soundness of that Ruling, which is currently on appeal before the D.C. Circuit, and may well be revisited by the FCC itself. We will continue to monitor the status of that appeal and other courts’ treatment of these issues to see if they follow Judge Baylson’s lead.