ATDS Status Turns on Capability of Dialing Equipment, Not Actual Use, Third Circuit Holds—But Liability Turns on Actual Use, Not Mere Capability

Last week, the U.S. Court of Appeals for the Third Circuit concluded that the TCPA’s definition of “automatic telephone dialing system” (or “ATDS”) includes all dialing equipment with the present ability to generate random or sequential phone numbers and dial those numbers, regardless of whether the equipment’s owner actually uses those “ATDS functionalities.” But, importantly, a caller must actually use such functionalities in order to violate the statute’s prohibition on making autodialed phone calls, the Court further held.

In other words, a dialing system’s status as an ATDS turns on the system’s present capabilities, not how it is used. But whether a defendant is liable for using an ATDS turns on how the system is used, not just what it can do. Thus, the Court read the ATDS definition broadly but the liability provision narrowly, in a ruling that will give some comfort to companies that use their dialing equipment to contact customers or prospects from set lists, rather than to randomly generate phone numbers to be called indiscriminately.

Statutory Prohibition and the Facebook Ruling

As readers of this blog are aware, Section 227(b)(1)(A)(iii) of the TCPA generally prohibits a caller from “mak[ing] any call” to a cell phone “using” an ATDS, unless the called party has provided prior express consent or the call is made for emergency purposes. 47 U.S.C. § 227(b)(1)(A). Under Section 227(a)(1), an ATDS is “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.”

One year ago, resolving a circuit split, the Supreme Court held in Facebook, Inc. v. Duguid, 141 S. Ct. 1163 (2021), that the phrase “using a random or sequential number generator” in the statutory definition modifies both “store” and “produce.” Specifically, the Court held that “[t]o qualify as an [ATDS], a device must have the capacity either to store a telephone number using a random or sequential number generator or to produce a telephone number using a random or sequential number generator.” Id. at 1167, 1169-70. But the Supreme Court’s opinion at times seemed to treat “capacity” as akin to actual use. Compare id. at 1173 (“We hold that a necessary feature of an ATDS under § 227(a)(1)(A) is the capacity to use a random or sequential number generator to either store or produce phone numbers to be called.”), with id. at 1170 (“In sum, Congress’ definition of an autodialer requires that in all cases, whether storing or producing numbers to be called, the equipment in question must use a random or sequential number generator.”) (emphasis added in both quotations).

The statute’s use of the vague term “capacity” in the ATDS definition, and the apparently inconsistent statements in the Supreme Court’s Facebook opinion regarding whether an ATDS is defined by “capacity” or “use,” have led courts and litigants to debate whether a caller can be liable under Section 227(b)(1)(A) for making calls with dialing equipment which could use a random or sequential number generator to produce or store telephone numbers, but which was not configured to do so when making the calls in question. The issue has enormous practical consequences, as many companies use dialing equipment which could randomly produce phone numbers but disable that feature in order to (hopefully) avoid TCPA liability. Many courts have focused on whether the defendant’s dialing equipment qualifies as an ATDS—seeming to assume that, if so, liability will follow—but the Third Circuit’s majority opinion discussed below concludes that the more important question is not whether the equipment constitutes an ATDS but instead whether the defendant violated the TCPA in how it “used” that equipment to make the call(s) in question.

Factual Background and District Court Proceedings

In Panzarella v. Navient Solutions, Inc., No. 20-2371, 2022 WL 2127220 (3d Cir. June 14, 2022), a mother and son filed a class action lawsuit after receiving phone calls with regard to a relative’s delinquency on his student loans. Plaintiffs had served as references on the relative’s student loan applications and, in doing so, provided their cell phone numbers to Defendant, who serviced the loans. When the relative became delinquent on his loans and failed to respond to attempts to reach him, Defendant called Plaintiffs several times trying to contact him. Plaintiffs asserted in their complaint that Defendant violated Section 227(b)(1)(A)(iii) of the TCPA because these calls were made to Plaintiffs’ cell phones using an ATDS without their prior express consent.

Discovery revealed that Defendant had called Plaintiffs using a telephone dialing software known as the “Interaction Dialer,” which allows users to conduct call campaigns based on pre-made contact lists. Since the Interaction Dialer relies on external data sources for contact lists, Defendant used a Microsoft SQL Server to store lists of numbers associated with student loan accounts and relay them to the Interaction Dialer. The SQL Server was also capable of generating lists of random and sequential phone numbers for dialing, but the record showed that Defendant entered contacts into the SQL Server solely from Defendant’s account information database. Indeed, Defendant was making targeted calls to phone numbers associated with delinquent student loans and had no reason to call random phone numbers unrelated to borrowers’ accounts.

On its motion for summary judgment, Defendant argued that it could not have violated the TCPA as alleged because its dialing system (consisting of the Interaction Dialer and the Microsoft SQL Server) did not meet the definition of an ATDS as set forth in Section 227(a)(1), as the system was not configured to generate and dial random or sequential phone numbers.

The Eastern District of Pennsylvania granted summary judgment for Defendant, holding that Defendant’s dialing system did not constitute an ATDS because neither of its components was, “on its own,” capable of generating and dialing random or sequential phone numbers. Id. at *2 (quoting district court).

Combined Capabilities of All Devices Comprise ATDS “Equipment”

On appeal, the Third Circuit held that the district court was wrong to consider only the separate capabilities of the dialing system’s components in determining whether the system qualified as an ATDS. Section 227(a)(1), the Court began, defines ATDS as any “equipment” with the capacity to generate and dial random or sequential phone numbers. “Equipment” is not defined in the TCPA, but “as ordinarily understood, equipment could constitute several discrete objects that, together, served a single purpose.” Id. at *3 (emphasis added). Furthermore, Congress clearly intended to regulate systems of dialing equipment and not individual devices alone because, when drafting the statute, Congress rejected language that would have limited the ATDS definition to certain types of equipment. See id. (citing H.R. 628 (1989), which defined ATDS in terms of “telephone terminal equipment”). Additionally, the FCC has determined that a “voluntary combination” of devices constitutes an ATDS when capable of generating and dialing random or sequential phone numbers. See id. at *4 (Rules & Regs. Implementing the TCPA, 30 FCC Rcd. 7961, 7978 (2015), overruled on other grounds, ACA Int’l v. FCC, 885 F.3d 687 (D.C. Cir. 2018)).

All of these things (i.e., the statute’s plain meaning, congressional intent, and administrative interpretation) make clear, said the Court, that “an ATDS may include several devices that when combined have the capacity to store or produce telephone numbers using a random or sequential number generator and to dial those numbers.” Id. Thus, the district court erred in holding that Defendant’s dialing system was not an ATDS based on the system’s individual components and instead should have considered whether the Interaction Dialer and the SQL Server “employed together” meet the definition of an ATDS. Id.

ATDS Status Turns on Present Capacity and Not Actual Use of Equipment

Defendant insisted that its dialing system did not constitute an ATDS because in Facebook, the Supreme Court said that a dialing system must “presently and actually use” a random or sequential number generator to qualify as an ATDS, whereas Defendant’s system dialed exclusively from pre-made lists of contacts.

But at the same time, the Third Circuit pointed out, the Supreme Court in Duguid described the defining feature of an ATDS as the “capacity” to generate and dial random or sequential phone numbers. In any event, the Third Circuit continued, Duguid’s inconsistent statements about whether capacity or actual use defines an ATDS have no bearing on that issue because Duguid addressed only whether a dialing system must have the ability to generate and dial random or sequential phone numbers in order to qualify as an ATDS. “Therefore, Duguid does not stand for the proposition that a dialing system will constitute an ATDS only if it actually generates random or sequential numbers.” Id. at *5. Nor does Duguid disturb the Third Circuit’s previous holding that, for a dialing system to qualify as an ATDS, it need only have the “present capacity to function as an autodialer by generating random or sequential telephone numbers and dialing those numbers.” Id. at *6 (quoting Dominguez v. Yahoo, Inc., 894 F.3d 116, 119 (3d Cir. 2018)) (emphasis added). The Third Circuit also did not question its previous holding that ATDS status turns on a dialing system’s “present capacity” to function as an autodialer and not the system’s “latent or potential capacity.” See Dominguez, 894 F.3d at 118-19 (citing ACA Int’l v. FCC, 885 F.3d 687 (D.C. Cir. 2018)) (emphasis added).

Since there was conflicting evidence regarding whether Defendant’s dialing system had the “present capacity” to employ random- or sequential-number generation, the Court declined to resolve whether the dialing system qualified as an ATDS.

Liability Under Section 227(b)(1)(A) Requires the Defendant to “Use” ATDS Functionalities to Call the Plaintiff

While the district court erred in granting summary judgment to Defendant on the grounds that its dialing system was not an ATDS, the Third Circuit nevertheless affirmed the judgment for Defendant on the alternate grounds that, even if the dialing system qualified as an ATDS, Defendant clearly did not “use” autodialing functionalities to contact Plaintiffs.

A violation of Section 227(b)(1)(A), the Court began, requires the defendant to have made an unconsented call “using” an ATDS. Although “use” is not defined in the statute, the context makes clear that Congress employed the word in a “narrow sense” (“namely, to use an ATDS for its autodialing functionalities”) because all of Section 227(b)(1)’s prohibitions regulate contact between automated calls and unwilling recipients thereof. Id. at *7. To adopt a construction of “use” that disregards whether the caller employed autodialing functionalities would cast aside the “appropriate touchstone” for interpretation—i.e., “the actual receipt of an unwanted automated telephone communication.” Id. (quoting Ashland Hospital v. SEIU, 708 F.3d 737, 743 (6th Cir. 2013)). Furthermore, the legislative record makes clear that, in the TCPA, Congress “meant to use a scalpel” and prohibit only autodialed phone calls, whereas a flat prohibition on equipment with ATDS capabilities “would take a chainsaw to the[] nuanced problems” that Congress intended to remedy. Id. at *8-9 (quoting Duguid, 141 S. Ct. at 1171).

“Thus,” the Court held, “for a call to violate section 227(b)(1)(A), that call must employ either an ATDS’s capacity to use a random or sequential number generator to produce telephone numbers to be dialed or its capacity to use a random or sequential number generator to store telephone numbers to be dialed.” Id. at *10.

Plaintiffs’ claims failed, the Court concluded, because it was undisputed that Defendant did not use autodialing functionalities when it called them. Even if Defendant’s dialing system had ATDS capabilities “and was thus an ATDS,” it was clear that Defendant did not utilize those capabilities but instead selected the targets of dialing campaigns from “specific, curated” lists. Id. Since no genuine issue of fact existed as to whether Defendant called Plaintiffs “using” an ATDS as prohibited by Section 227(b)(1)(A), the Court affirmed the district court’s grant of summary judgment to Defendant.

Conclusion

No one has ever contended that the TCPA’s ATDS definition is a model of clarity. The convoluted definition and the high-stakes lure of uncapped statutory damages in class actions have led to thousands of lawsuits which often last for years. Panzarella demonstrates how a complex statute can force a defendant who makes a large number of targeted calls into protracted litigation over what, to anyone but TCPA lawyers, must seem like nothing more than legal minutiae. In Panzarella, Defendant clearly did not engage in any illegal use of autodialing technology with respect to Plaintiffs, yet the proceedings dragged on for years while the courts debated whether Defendant should prevail because it did not have an ATDS or because it did not “use” one. The Third Circuit’s commonsense focus on whether the defendant used a dialing system “to cause the harm the TCPA sought to eliminate” (id. at *9) should be welcome news to companies seeking to use modern dialing technology not for scattershot calling campaigns but simply to reach their own customers and contacts.