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Supreme Court could set boundaries on scope of FCC guidance

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A Telephone Consumer Protection Act case accepted for review by the U.S. Supreme Court over the issue of whether courts are bound by the Federal Communications Commission’s statutory interpretations could potentially lead to significantly higher legal expenses for businesses, say many experts.

PDR Network LLC v. Carlton & Harris Chiropractic Inc. hinges on a single fax sent to a chiropractic practice in December 2013, according to the February 2018 ruling by the 4th U.S. Circuit Court of Appeals in Richmond, Virginia.

Montvale, New Jersey-based PDR faxed Carlton & Harris, which is in Huntington, West Virginia, the offer of a free 2014 e-book copy of the Physicians’ Desk Reference.

The practice filed suit against PDR in U.S. District Court in Huntington, charging violation of the TCPA, which generally prohibits the use of a fax machine to send unsolicited advertisements, according to the ruling.

Under the TCPA, recipients of unsolicited fax advertisements can seek damages from the sender and recover $500 for each violation.

PDR moved to dismiss the complaint on the basis it had not offered anything for sale. In response, Carlton & Harris pointed to a 2006 FCC rule stating that even goods or services offered at no cost are unsolicited advertisements under the TCPA’s definition.

The District Court held the Hobbs Act, which says U.S. District Courts cannot consider the validity of rules by agencies including the FCC, does not apply to the case.

The 4th Circuit overturned this decision in a 2-1 ruling, with the majority opinion stating the district court had “acted beyond the scope of its congressionally granted authority.”

“The Hobbs Act requires a district court to follow FCC interpretations of the TCPA, and under the 2006 FCC rule, PDR Network’s fax offering a free good was indeed an advertisement,” said the opinion in remanding the case for further proceedings.

In accepting the case for review on Nov. 13, the Supreme Court said it would address the issue of whether the Hobbs Act required the District Court in this case to accept the FCC’s legal interpretation of the TCPA.

Matthew J. Fedor, a partner with Drinker Biddle & Reath LLP in Florham Park, New York, said the court’s ruling “is going to have a pretty profound impact, certainly, on TCPA litigation going forward because it will determine whether or not courts can give an independent interpretation of the statutes or if they have to defer to what the FCC has done.”

Lewis S. Wiener, a partner with Eversheds Sutherland (US) LLP in Washington, said, “Arguably, under the existing legal standard courts have no discretion but to follow the FCC’s guidance,” which leads to predictability.

A ruling that states this is no longer the case “throws open” the issue to different district courts’ interpretations and creates unpredictability, with each one coming up with its own interpretation of the statute, he said.

These are “high-dollar, high-exposure cases,” and there is a “parade of horribles” that could result if this occurs, Mr. Wiener said. “When you have tens if not hundreds of thousands of transmissions in a matter of hours, the liability becomes astronomical, and that gives plaintiffs a lot of leverage” in settling cases, he said.

Jason C. Gavejian, a principal with Jackson Lewis P.C. in Morristown, New Jersey, said, “Right now, a lot of courts look to the FCC to make determinations of claims that are brought before them.” Not having that guidance could “create significant litigation costs for business.”

Scott Goldsmith, a partner with Dorsey & Whitney LLP in Costa Mesa, California, said, “There could be a wave of new and disparate court decisions that try to interpret what certain statutes mean.”

It “would mean litigation costs could go up significantly in the near term,” because courts must conduct a more in-depth analysis.

Mr. Fedor said, “It certainly opens up the door to potential forum shopping, where if lawyers get favorable interpretations in some jurisdictions, they’re maybe more likely to file in those jurisdictions,” although “we have to wait and see what the ruling ultimately holds.”

The timing is potentially significant because the FCC is now in the process of new TCPA-related rule-making, and uncertainty “tends to increase the legal costs for businesses,” Mr. Goldsmith said.

However, Matthew L. Knowles, a partner with McDermott, Will & Emery LLP in Boston, disagreed. Legal costs will arise in any case, he said. “If the courts have the expanded ability to overrule the agency, I think in large measure that will help the defense in TPCA cases because the rules on the books have been fairly recipient-friendly.

“I don’t see a potential for increased legal costs. It will be a victory for companies that rely on dialing technology to communicate with their customers if the Supreme Court says the lower courts can use their judgment to figure out what the law says” rather than following broader FCC rules, Mr. Knowles said.

This case deals with a square peg — an outdated statute — fitting into a round hole, with the technology associated with robocalls moving “so much faster than the law,” he said.

“The people who often end up getting caught up is companies trying to operate in good faith and running into technical provisions in the law,” while the bad actors, who often operate outside U.S. jurisdiction, are not affected, Mr. Knowles said.