Two Appellate Courts Limit the Definition of an Automatic Telephone Dialing System Under the TCPA

On June 26, 2018 and June 29, 2018, the U.S. Court of Appeals for the Third Circuit and the U.S. Court of Appeals for the Second Circuit, respectively, held that a device is not considered an automatic telephone dialing system (ATDS) under the Telephone Consumer Protection Act (TCPA) unless it currently has the capability to dial randomly generated or sequential phone numbers.

By way of background, it is unlawful under the TCPA to make calls or text messages using an ATDS to a cellular phone.  The term ATDS under the statute 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.”  In 2015, the Federal Communications Commission (FCC) issued a Declaratory Ruling and Order defining “capacity” to include “potential functionalities.”  Under the FCC’s interpretation, an ATDS that is not presently capable of producing telephone numbers using a random or sequential number generator but could be modified by software changes to perform the functions of an ATDS would be covered by the TCPA.

In both cases, Defendants had Plaintiffs’ phone numbers stored in their databases of customer information.  Plaintiffs allegedly received numerous text messages or phone calls from Defendants after Plaintiffs had withdrawn their consent to be contacted.  At the district court level, the courts reached different conclusions; one plaintiff was successful while the other plaintiff was not.  However, both defendants prevailed at the appellate level.

While the above-mentioned cases were pending, the U.S. Court of Appeals for the District of Columbia Circuit heard a challenge to the FCC’s 2015 Order.  The D.C. Circuit held that permitting the definition of “capacity” to include a device’s “potential functionalities” after modification would allow the statute to extend well past what Congress intended, and struck down the FCC’s Order.  While not bound by the D.C. Circuit’s discussion concerning an ATDS, the Second Circuit and Third Circuit both adopted the D.C. Circuit’s reasoning, holding that the definition of an ATDS under the TCPA only looks at the device’s present capabilities.

In the instant cases, Defendants argued that their systems automatically dialed or sent text messages to phone numbers in their databases. Defendants did not contact randomly generated or sequential phone numbers.  Moreover, the plaintiffs failed to show that the defendants’ systems were capable of dialing randomly generated or sequential phone numbers.  Based on this reasoning, the courts held that Defendants were not using ATDSs and therefore were not liable under the TCPA.

The cases are Dominguez v. Yahoo, Inc. and King v. Time Warner Cable Inc.