The Supreme Court’s 2021 decision in Facebook v. Duguid changed the landscape of Telephone Consumer Protection Act (TCPA) litigation. For years prior, aggressive plaintiffs had stretched the TCPA’s antiquated language defining automatic telephone dialing systems (ATDS) well beyond its breaking point. The ATDS definition is critical, as use of an ATDS triggers consent requirements under Section 227(b) of the TCPA and failure to comply can result in catastrophic liability.
Duguid emphasized that Congress meant what it said in defining an ATDS, and its definition must be applied as written. An ATDS is defined 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.” The Supreme Court held that the phrase “using a random or sequential number generator” was meant to qualify the entire preceding phrase, such that an automatic dialing system must use random or sequential number generators to either store or produce telephone numbers in order to qualify as an ATDS.
The Duguid holding is an important defense to expansive and atextual TCPA claims, and it has substantially reduced the number of ATDS claims filed each week. But it has not eliminated such claims, and the risk of liability under the ATDS provision, as well as other sections of the TCPA, remains a critical compliance challenge. Sophisticated entities that rely on outgoing calls and texts to communicate with clients, customers, patients, and employees continue to build multiple layers of defense to TCPA claims. Three recent developments emphasize why layered defense remains a prudent strategy:
1. Panzarella v. Navient Solutions, Inc. (3rd Cir. 2022)
In one of the first appellate cases interpreting the TCPA post-Duguid, the United States Court of Appeals for the Third Circuit’s decision in Panzarella v. Navient Solutions, Inc. demonstrates that callers can still expect to be subject to litigation under the ATDS provision (if not necessarily liability).
Panzarella focuses on the term “equipment” in the definition of an ATDS. The Third Circuit reasoned that “equipment” does not only refer to the dialing system itself, but also encompasses any components that are used together to place a telephone call. Using this reasoning, the Court ruled that (for example) a SQL server that stores phone numbers and communicates with a dialing system to place telephone calls falls under the scope of “equipment” that is subject to the TCPA, based on its open-ended capacity.
The Third Circuit drew a relatively novel distinction for what equipment constitutes an ATDS, and which equipment triggers TCPA liability when used. In other words, the Court narrowly construed the Duguid decision, stating that it only served to resolve a circuit split by concluding that dialing systems that have the capacity to produce a telephone number using a random or sequential generator and dialing systems that have the capacity to store a telephone number using a random or sequential generator would qualify as an ATDS. But importantly for defendants, there is no liability unless the defendants actually used the capacity in question.
While the reasoning in Panzarella may be relatively novel, its implications are clear: Companies should be prepared to continue to defend against TCPA claims even in the wake of Duguid. Panzarella was resolved on an appeal of a successful summary judgment ruling—a good outcome for the defendant, but no doubt an expensive one. To the extent the Third Circuit’s distinction between capacity and use requires further clarification later, litigation risk (and expense) remains a consideration.
2. Potential Federal Legislation Expanding the Scope of the TCPA
HR 8334, which was referred to the House Committee on Energy and Commerce on July 12, 2022, was conceived as a potential legislative response to Duguid. It introduces an important change by amending the definition of an ATDS by striking the phrase “using a random or sequential number generator” altogether. This would mean that any dialing system that has the capacity to merely store or produce telephone numbers would fall under the scope of the statute, thereby reinstating the most plaintiff-friendly pre-Duguid interpretations of what constitutes an ATDS. It is unclear how this bill will progress, but HR 8334 is a signal that there are members of Congress who intend to expand the TCPA in ways that will lead to continued class-action litigation.
3. State “Mini-TCPA” Laws Expanding the Landscape of TCPA-Type Claims
The Florida Telephone Solicitation Act (FTSA) took effect July 1, 2021. Much like the proposed language in HR 8334, it prohibits sales calls and texts placed using an “automated system for the selection or dialing of telephone numbers or the playing of a recorded message when a connection is completed to the number called” without first obtaining prior express written consent. This is an express response to Duguid and it substantially expands the types of dialing systems subject to TCPA-like restrictions and penalties. The FTSA has resulted in a wave of litigation in Florida. While we have successfully resolved a number of claims under this statute, larger constitutional and preemption issues loom. Although defendants will have strong arguments in this regard, the cost and risk of litigation in Florida remains a critical concern—and plaintiffs’ lawyers are ready to capitalize on it. We also observe that other states, including Michigan and Oklahoma, are considering similar legislation.
* * *
McDermott works with clients every day to defend TCPA and FTSA claims, as well as to help develop defense-in-depth strategies to prevent claims in the first place. While Duguid is a helpful development in the law, sound compliance approaches remain vital—and are far less expensive than litigation.