D.C. Circuit refutes FCC’s Authority to Require Opt-out Notices on Solicited Faxes . . . and Chairman Pai Agrees

In a post immediately following the November 8, 2016 oral argument in Bais Yaakov of Spring Valley v. FCC, No. 14-1234 (D.C. Cir.), we noted that, based on the lines of questioning from the bench, the three judge panel of Judges Brett M. Kavanaugh, Cornelia T.L. Pillard, and A. Raymond Randolph appeared to be leaning toward a 2-1 decision with Judges Kavanaugh and Randolph likely forming the majority that would find that the FCC was not empowered to require opt-out notices on solicited faxes. On March 31, the DC Circuit issued its opinion and confirmed our analysis, finding in a 2-1 opinion authored by Judge Kavanaugh (joined by Judge Randolph) that “the FCC’s 2006 Solicited Fax Rule is . . . .unlawful to the extent that it requires opt-out notices on solicited faxes.” Slip Op. at 4. The Court therefore vacated the 2006 Fax Order and remanded to the FCC for further proceedings. It declined to address the propriety of the waiver program, finding it moot in light of its holding. Slip. Op. at 11 n.2.

The majority opinion opens with a brief recitation of the long process by which the opt-out notice requirement for solicited faxes came to the D.C. Circuit for resolution: the passage of the Junk Fax Prevention Act in 2005; the Commission’s 2006 Order requiring opt-out notices on solicited faxes; the 2008 lawsuit against Anda, Inc. for allegedly failing to comply with the opt-out notice requirement for solicited faxes; Anda’s 2010 petition to the Commission; and the Commission’s 2014 Order affirming its regulation of solicited faxes but implementing a waiver program. Slip Op. at 5-7. The opinion then notes the stakes: “Let that soak in for a minute: Anda was potentially on the hook for $150 million for failing to include opt-out notices on faxes that the recipients had given Anda permission to send.” Slip Op. at 7.

The analysis that follows these precatory points is relatively straightforward and short, and is summed up in the following paragraph:

Although the Act requires an opt-out notice on unsolicited fax advertisements, the Act does not require a similar opt-out notice on solicited fax advertisements—that is, those fax advertisements sent with the recipient’s prior express invitation or permission. Nor does the Act grant the FCC authority to require opt-out notices on solicited fax advertisements.

Slip Op. at 8. The remainder of the majority opinion is devoted to refuting the Commission’s and the dissent’s argument—an argument the majority describes as “backwards as a matter of basic separation of powers and administrative law”—that the Commission was empowered to regulate solicited faxes because Congress did not prohibit it from doing so. Slip Op. at 9. The majority does not pull its punches, either, declaring, “[i]f you are finding the FCC’s reasoning on this point difficult to follow, you are not alone. We do not get it either.” Slip Op. at 10.

We expect this decision to have profound implications on TCPA fax suits. The plaintiffs’ bar has typically sought to certify classes based on violations of the opt-out notice requirement for solicited faxes, since a class defined in such a way eliminated the inherently individualized issue of whether the fax was solicited or not. With the opt-out notice requirement for solicited faxes eliminated, plaintiffs’ attorneys will now have a much tougher hill to climb, and their complaints will be ripe for motions to strike the class allegations.

Given the change in administration in November (and Chairman Pai’s and Commissioner O’Rielly’s vigorous dissents from the 2014 Anda Order for the very reasons the D.C. Circuit reversed the Commission), it appeared highly unlikely upon issuance of the decision that the Commission would fight the D.C. Circuit’s holding or attempt to impose more onerous consent requirements on faxes on remand (as was suggested at oral argument might be the solution). Indeed, shortly following the opinion’s release, Chairman Pai removed all doubt, issuing a statement entitled “On the Latest D.C. Circuit Rebuke of FCC Overreach.” In his statement, Chairman Pai criticizes the Anda Order for being “adopted in relevant part on a 3-2 party-line vote”; asserts that the D.C. Circuit’s opinion “highlights the importance of the FCC adhering to the rule of law”; reiterates his original statement in dissent that the Commission’s regulation of solicited faxes “reflected ‘convoluted gymnastics’”; and vows that “[g]oing forward, the Commission will strive to follow the law and exercise only the authority that has been granted to us by Congress.”

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