Federal Court Takes Narrow View of What Constitutes an ATDS

The TCPA prohibits the use of an automatic telephone dialing system (“ATDS”) to place calls to wireless phones without the called party’s prior express consent.  Because calls placed without the use of an ATDS are not subject to the TCPA’s prior express consent requirements, what constitutes an ATDS has been a hotly contested issue.  This issue can be expected to take on even greater importance under the new FCC rules that take effect on October 16, because the “prior express consent” requirement will now require written consent.  Telemarketers, it can be expected, may explore ways to abandon the use of equipment that would fall within the definition of ATDS and to modify or replace that equipment with something that would not be an ATDS.

The TCPA defines ATDS as “equipment that 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 its prior interpretations of the statute, the FCC has focused on whether a particular device has the capacity to store, produce or dial random or sequential numbers without human intervention.  See In the Matter of Rules and Regulations Implementing the Telephone Consumer Protection Act of 1991, Report and Order, 18 FCC Rcd. 14014, 14091-92 ¶¶ 132-33 (July 3, 2003).  For instance, the FCC has previously concluded that a predictive dialer using calls lists is an ATDS because it has this capacity “when paired with certain software.”  See In the Matter of Rules and Regulations Implementing the Telephone Consumer Protection Act of 1991, Declaratory Ruling, 23 FCC Rcd. 559, 563 n.23 (Jan. 4, 2009).  Courts addressing this issue have likewise concluded that equipment need only have the capacity to randomly or sequentially generate numbers and to dial them to constitute an ATDS, regardless of how the equipment is actually used at the time of the call.  See, e.g., Satterfield v. Simon & Schuster, Inc., 569 F.3d 946, 951 (9th Cir. 2009) (“[T]he focus must be on whether the equipment has the capacity to store or produce telephone numbers to be called, using random or sequential number generator . . . [A] system need not actually store, produce, or call randomly or sequentially generated numbers, it need only have the capacity to do it.”); Lozano v. Twentieth Century Fox Film Corp., 702 F. Supp. 2d 999, 1010-11 (N.D. Ill. 2010).  Since these rulings, there has been concern in the telemarketing industry that courts might interpret “capacity” so broadly as to sweep within the definition of ATDS equipment that could be modified or altered to allow it to autodial numbers, even if it did not have the functionality to do so at the time of the call.  See, e.g., Nelson v. Santander Consumer USA, Inc., No. 11-cv-307-bbc, 2013 U.S. Dist. LEXIS 40799 (W.D. Wis. Mar. 8, 2013) (applying broad definition of an ATDS in entering judgment against the defendants in a TCPA case).

Recently, the Northern District of Alabama weighed in on the issue.  In Hunt v. 21st Mortgage Corp., 2013 WL 5230061 (N.D. Ala. Sept. 17, 2013), the plaintiff moved to compel inspection of the defendant’s telephone system to determine whether it qualified as an ATDS.  In response, the defendant argued that the plaintiff’s motion should be denied because its telephone system was a Nortel manual dialing-type system that did not have the “present” capacity to autodial at the time the calls were made.  The plaintiff countered that, based on the “capacity” language under the TCPA, the defendant’s telephone system could still be viewed as an ATDS if, for example, software could have been installed onto the system which would have made autodialing possible at some later date.  The plaintiff insisted that he was entitled to inspect the subject phone system, despite the defendant’s representations on the “capacity” question, to “verify” the defendant’s assurances.

The Hunt court was surprisingly willing to grant the plaintiff access to 21st Mortgage Corporation’s premises and equipment to satisfy their curiosity despite (1) defendant’s assurances to the court that the equipment at issue lacked the necessary “capacity” to store or produce telephone numbers to be randomly or sequentially dialed, and (2) the apparent lack of any evidence to the contrary.  Indeed, the court made the rather disturbing observation that the defendant’s sale or other disposition of the Nortel equipment pre-litigation (but after an identical case had been filed by plaintiff’s wife in state court) might have exposed defendant to “severe sanctions available for spoliation.”

Whatever might be said of the Hunt decision as a discovery matter, the court squarely rejected the plaintiff’s argument that ATDS “capacity” could be found in the mere possibility that equipment could be altered into an ATDS state.  It distinguished the previous rulings by the Ninth Circuit (Satterfield v. Simon & Shuster) and other district courts (e.g., Lozano v. Twentieth Century Fox Film Corp.) by noting that, in those cases, the telephone systems at issue were already fully equipped and ready to autodial at the time of the calls.  Thus, they had the required “capacity,” regardless of how they were actually used.  The court noted that the “problem” with the plaintiff’s argument was that “in today’s world, the possibilities of modification and alteration are virtually limitless.”  The court incisively and correctly posited that, by plaintiff’s reasoning, an iPhone could be modified by the simple download of a hypothetical app that could be easily developed to become an “autodialer,” and then questioned whether the “roughly 20 million American iPhone users” would thus be “subject to the mandates of . . . the TCPA.”

In language we hope will be much quoted, the court held that “to meet the TCPA definition of an ‘automatic telephone dialing system,’ a system must have a present capacity, at the time the calls were being made, to store or produce and call numbers from a number generator.”  The court went on to observe that, “[w]hile a defendant can be liable under section 227(b)(1)(A) whenever it has such a system, even if it does not make use of the automatic dialing capability, it cannot be held liable if substantial modification or alteration of the system would be required to achieve that capability.”  The court granted the plaintiff’s motion to inspect the defendant’s equipment, but only after adopting this narrow definition of ATDS and capacity under the TCPA.

This is an important decision for those looking to “work around” the FCC’s new written consent rules by dialing wireless phones using non-ATDS equipment.  Such companies should stay apprised of the latest developments in this area, as other courts (and ultimately the FCC) weigh in on what constitutes an ATDS.  We hope those courts will follow the Hunt court’s lead on the important “capacity” question.

A copy of the Hunt decision is available here.

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