Blog LenderLaw Watch July 12, 2022

Third Circuit Rules that Caller Must Use An “Automatic Telephone Dialing System’s” Ability to Produce or Store Telephone Numbers Through Random or Sequential Number Generation to Trigger Potential Liability under the TCPA’s ATDS Provision

On June 14, 2022, the Third Circuit Court of Appeals (Third Circuit) issued a significant decision regarding the TCPA’s restrictions in Section 227(b)(1)(A)(iii) on using an automatic telephone dialing system (ATDS) definition to make calls or texts to cellphones without prior express consent.  In Panzarella v. Navient Solutions, Inc, No. 20-2371 (3d Cir. June 14, 2022) (Panzarella), a divided panel of the Third Circuit held that merely using a system with the capacity to be an ATDS to send the challenged text or message is not enough to establish a Section 227(b)(1)(A)(iii) violation.  Instead, the court ruled that a Section 227(b)(1)(A)(iii) plaintiff must prove, among other things, that the challenged call or text “employ[ed] either an ATDS’s capacity to use a random or sequential number generator to produce” the telephone number dialed “or its capacity to use a random or sequential number generator” to store the telephone number dialed.

The TCPA prohibits individuals from using an ATDS to make non-emergency calls without the prior express consent of the called party to “any telephone number assigned to a paging service, cellular telephone service, or any service for which the called party is charged for the call.”  TCPA § 227(b)(1)(A)(iii).  The statute defines an ATDS as “equipment which has the capacity (A) to store or produce telephone numbers to be called, suing a random or sequential number generator; and (B) to dial such numbers.”  TCPA § 227(a)(1).

In Panzarella, Plaintiffs brought a putative class action against student loan servicer, alleging the loan servicer violated the TCPA by using an ATDS to call theirs and others’ cellphones without prior express consent. The loan servicer moved for summary judgment, contending that it did not call Plaintiffs using an ATDS because their dialing system did not have the ability to generate and then call random or sequential telephone numbers.  The United States District Court for the Eastern District of Pennsylvania agreed.  And a divided panel of the Third Circuit affirmed on alternative grounds.  In so doing, the Court reach three main conclusions.

First, the Third Circuit concluded that the TCPA requires courts to consider whether all the devices employed together by the defendant to conduct dialing campaigns constitute an ATDS.  Disagreeing with the district court, the Third Circuit held that to determine whether “equipment” is an ATDS, one must look at all the devices, technology, hardware and software employed to make the call and determine whether they collectively or individually have the current capacity to (1) store or produce telephone numbers using a random or sequential number generator and to (2) dial those numbers.

Second, the Third Circuit concluded that Supreme Court’s recent ATDS decision in Facebook, Inc. v. Duguid, 141 S. Ct. 1163 (2021), does not stand for the proposition that a dialing system will constitute an ATDS only if it actually uses a random or sequential number generator.  Instead, the majority held that whether equipment “qualifies as an ATDS turns on that equipment’s ‘capacity’ to employ a random or sequential number generator to store or produce telephone numbers, not its actual use of such a generator.”

Third, construing 227(b)(1)(A)’s requirement that challenged calls or text be made “using” an ATDS, the Court concluded that the relevant inquiry  turns not on whether the dialing equipment is an ATDS, but on whether the call “employ[ed]” the defining features of any ATDS –  the “capacity to use a random or sequential number generator to produce” or “store” the telephone number dialed – when it made the challenged call or text.  To help illustrate its conclusion, the Court offered an example of a hypothetical debt collector whose ATDS can dial in two modes – (1) automatic: where random or sequential numbers are dialed, and (2) list: where numbers are dialed from debt collector’s customer list.  It then explained that, while collector’s equipment is an ATDS (because it has the capacity to produce and dial random or sequential telephone number), there is no Section 227(b)(1)(A)(iii) violation for calls or texts made in list mode because the defining ATDS features of random or sequential number generation are not used.  Applying this explanation, the Court concluded that the loan servicer’s calls to the plaintiffs did not violate Section 227(b)(1)(A)(iii)because the plaintiffs had failed establish that the loan servicer did in fact rely on random or sequential number generation to make them.

The Panzarella decision is significant as it requires plaintiffs to prove that a challenged call employed an ATDS’s capacity to generate random or sequential numbers to store or produce telephone numbers, and not just that the dialing technology has the capacity to be an ATDS.  This higher standard should alleviate the concerns of debt collectors in the Third Circuit who are considering using dialing systems that could generate random or sequential numbers for loan or jacket numbers, but who would not use the technology to do so.

The post Third Circuit Rules that Caller Must Use An “Automatic Telephone Dialing System’s” Ability to Produce or Store Telephone Numbers Through Random or Sequential Number Generation to Trigger Potential Liability under the TCPA’s ATDS Provision appeared first on LenderLaw Watch.