SPECIAL ALERT: D.C. Circuit Invalidates FCC's Solicited Fax Rule

In a significant victory for TCPA junk fax defendants, a split panel of the U.S. Court of Appeals for the District of Columbia Circuit invalidated the Federal Communication Commission's Solicited Fax Rule. The Solicited Fax Rule, created by the FCC in a 2006 Order, required that fax advertisements sent with a recipient's prior express invitation or permission contain an opt-out notice requiring specific information.

Dozens of companies petitioned the FCC seeking a waiver from the Solicited Fax Rule. The FCC granted these petitions, acknowledging the confusion that may have been caused in the marketplace. After years of confusion and abounding lawsuits by opportunist plaintiffs (and their counsel), a group of class action defendants, led by Anda, a seller of generic drugs facing $150 million in liability for sending solicited faxes lacking a detailed opt-out notice, challenged the Solicited Fax Rule in the D.C. Circuit.

In a concise and pithy opinion, Circuit Court Judge Kavanaugh, joined by Judge Randolph, disagreed with the FCC's position that the TCPA's requirement that businesses include opt-out notices on unsolicited faxes provides the FCC authority to require that businesses include the same opt-out on solicited advertisements. The panel reasoned that "Congress drew a line in the text of the statute between unsolicited fax advertisements and solicited fax advertisements."

The FCC argued that prior express permission to receive fax solicitations lasts only until it is revoked, so all fax advertisements must include a means to revoke that permission. But, as the panel blithely observed: "If you are finding the FCC's reasoning on this point difficult to follow, you are not alone. We do not get it either." The panel acknowledged that the FCC may reasonably define prior express permission and may reasonably provide that a recipient can revoke prior consent. But the majority panel was unequivocal that "what the FCC may not do under the statute is require opt-out notices on solicited faxes that are sent with prior express invitation or permission."

The panel was also unpersuaded by the FCC's resort to public policy, reasoning that "the fact that the agency believes its Solicited Fax Rule is good policy does not change the statute's text." Moreover, the majority recognized the potential for catastrophic damages for faxes sent with permission based on a company's failure to comply with the detailed opt-out notice requirements under the regulations, citing Anda as a prime example.

Judge Pillard, in a lengthy dissent, embraced the policy rationale provided by the FCC, opining that the "likely result of the court's decision is to make it harder for recipients to control what comes out of their fax machines." She did not believe that the FCC was without authority to require opt-out notices on solicited faxes. Having found that the FCC had authority to issue the Solicited Fax Rule, she also opined on an issue not reached by the majority: whether the FCC had authority to issue retroactive waivers of the opt-out notice requirement for solicited faxes. According to Judge Pillard, the FCC failed to establish "good cause" for issuing the waivers by overstating the confusion regulated parties experienced from the Solicited Fax Rule and "threw open the door to opportunistic waiver-seeks." She further opined that the FCC failed to show that the waivers were in the public interest and even went so far as to say that the FCC "eviscerated its own rule via waiver, rather than employing the limited safety valve authorized by this Court's precedents."

The impact on pending cases may be significant. It is generally accepted that the D.C. Circuit's rulings on agency actions are binding on courts across the country given that the Hobbs Act grants the D.C. Circuit primary jurisdiction on administrative law and agency issues. The decision could be the death knell for pending TCPA class actions involving solicited faxes sent without the detailed opt-out notice required by the regulations. The decision might very well pull the rug out from the cottage industry of plaintiff law firms that have been capitalizing on the Solicited Fax Rule. Indeed, up to this point, plaintiffs have been successful in making junk fax claims under the TCPA based merely on an improper opt-out notice, which alone was a $500-per-fax minimum penalty. Now plaintiffs will have to focus on whether the fax was solicited.

But, as they say in baseball, "it ain't over till it's over." The class action plaintiffs may, and likely will, appeal the decision to an en banc panel of the D.C. Circuit or the United States Supreme Court, especially given Judge Pillard's pointed dissent. As for the FCC, given that FCC Chairman Pai dissented from the FCC's 2014 Order confirming the scope of the Solicited Fax Rule, stating that the FCC's statutory construction amounted to "convoluted gymnastics," the new FCC under a Trump Administration may not support a further appeal. For now, we can likely expect class action plaintiffs to use an appeal as a way to keep their cottage industry alive.

Our TCPA compliance and class action defense group will continue to monitor and report on this issue.