December 6, 2022

Volume XII, Number 340

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December 06, 2022

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December 05, 2022

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NIHILISM: Third Circuit Court of Appeals Holds Everything is an ATDS–But that it Doesn’t Really Matter Anyway (Chaos Ensues)

Deep down, I’m a philosopher. Or, to use the more accurate term–a metaphysicist.

I love looking beyond the obvious to see what lies underneath. What is actually driving outcomes. And while that goes equally for human intentions–for instance why this or that judge made this or that ruling– I mean something much grander here. I always love looking for clues in the universe around us as to what the great End of History might be.

I suspect we’re all doomed, in the end. But that’s not what you came here for.

The TCPAWorld is an exceptional place to philosophize about the law. I once categorized it as an “atom smasher” where exceptionally rare and esoteric legal doctrines might be sparked and created and analyzed under nearly pristine laboratory conditions.

Plus, the place is obsessed–or at least, has been obsessed–with “capacity.” And there is nothing more profound than pondering the notion of potential. Even if its the potential to do something lame–like perform the functions of an autodialer, whatever those are.

But in the realm of actual philosophy there is a school of thought called Nihlism. The essence of Nihlism–there’s a huge irony to that sentence fragment and if you caught it, good for you–is that philosophy itself (i.e. the pursuit of truth) is dumb because not even Truth (i.e. metaphysical truth {i.e. why things are the way they are}) really matters anyway.

Nihlism is icky.

And so is the Third Circuit’s new ultra-nihlistic decision in Panzarella.

The ultimate holding is that it doesn’t really matter whether the equipment your using is an ATDS–and, as if to prove how serious it is and raise the stakes as high as possible, the decision adopts a massively broad definition of “equipment” seemingly designed to assure that everyone might be using an ATDS.

But to the Court what matters is not whether an ATDS was used but whether any particular call was made using the functionalities of an ATDS outlined in the TCPA’s ATDS definition–even though that’s not what the statute says.

Essentially–there’s that word again–it holds that capacity of a system doesn’t matter, and that all of our philosophizing on the subject has been for naught.

Sartre much?

Anyway let’s get down to business.

Panzarella is an exceptionally dangerous case. While the casual viewer will likely assume it is a big win for Defendants it actually GUARANTEES more chaos in TCPAWorld and–as I sum up at the end of this tome–the ruling favors the Plaintiffs bar far more than it does the Defense bar. Icky, indeed.

So there are three big pieces to the holding that roughly track the old Why is Gamora? gag meme (hence the feature image):

  1. That the term “equipment” in the TCPA’s ATDS definition is much broader than any other court has recognized it to be and includes integrated database components (uh oh);

  2. A system merely needs to have the “capacity” to perform the functions of an ATDS to be an ATDS; and

  3. The whether or not a dialing system is an ATDS is not dispositive of whether a call triggers the TCPA–the manner in which the calls is made is what matters.

Let’s analyze each of these holdings and discuss their likely impact on the TCPAWorld.

What is an ATDS? (What physical equipment is analyzed to determine if an ATDS is in use?)

As you can see from this graphic below, an ATDS is “equipment” with the “capacity” to do such and such:

While a tremendous amount of effort has been expended analyzing what “capacity” means–current capacity? configured capacity? future capacity? latent capacity?– precious little analysis has been attempted on the term “equipment.”

That is what is it exactly that has to have the capacity to do…whatever (we’ll get to that).

In Panzarella the Plaintiff had argued that the SQL database Navient was using to store numbers was part of the “equipment” to be analyzed. Navient countered that only the dialer itself is the pertinent “equipment.”

The district court sided with Navient holding–as virtually every other court to look at the issue has held–that stuff connected to the dialer is not part of the “equipment” used to place calls.

But the Panzarella court disagreed. In its view equipment “as ordinarily understood, equipment could constitute several discrete objects that, together, served a single purpose.” It goes on to cite recent FCC orders to the effect that, “a combination of equipment” could constitute an ATDS because the statute’s use of “system,” “contemplate[s]” that “various pieces of different equipment and software can be combined to form an [ATDS].”

In Panzarella the court found that Navient’s combination of its database with its dialer software was just such a “combination”:

Navient relied on the SQL Server alongside the ININ System’s other components to conduct dialing campaigns. This server not only stored the telephone numbers that Navient contacted during campaigns, but it also communicated with the ININ System’s other servers, so the system could call them. Indeed, the Interaction Dialer’s manual confirms that this dialer cannot conduct these campaigns without a database server, like the SQL Server. Navient points out that Microsoft rather than ININ developed the SQL Server, and this server resides on its own dedicated hardware. But this does not matter. As the TCPA requires us to consider whether all the devices employed together to conduct dialing campaigns constitute an ATDS, we conclude that Navient’s “equipment” includes the SQL Server.

Get it?

Because the database was connected to the dialer and interacted with the dialer to perform the dialing function the system as a whole was the “equipment” that needed to be evaluated.

And how chilling is that “but this does not matter” line? The Court cares not an ounce for the fact that different hardware components (i.e. server resources) are in play here. The integration alone is what the Court looks at in assessing “equipment.”

This is a MASSIVE holding that should not be overshadowed by the other portions of this case. TCPAWorld denizens must make note of this holding and understand that the functionalities of integrated hardware and software components may be assessed to determine ATDS usage from now on.

Critically courts outside of the Third Circuit are free to–and in many case will–adopt the Third Circuit’s reasoning on equipment while ignoring its other conclusions.

Who is an ATDS? (The identity of an ATDS as defined by statutory functionalities)

The second pieces of Panzarella is more basic. What are the functionalities a dialer must perform to be an ATDS and must those functionalities actually be in use?

The Court reads Facebook rather narrowly and–like two other recent decisions we have seen–seems to imply that only random generation of telephone numbers triggers the TCPA. The Court does clarify, however, that any capacity to generate those telephone numbers makes a system an ATDS–and not the mere use of that functionality is required, although (as we shall see) whether the system is an ATDS is not dispositive of whether the TCPA applies in the Third Circuit panel’s mind.

In reaching this conclusion, however, the Third Circuit torches one of the most promising arguments available to Defendants after Facebook –that the Supreme Court held an ATDS must actually use an ROSNG to make the calls/texts an issue to be an ATDS. Nope, says the Panzarella court:

Both Navient and the concurrence seize on language in Duguid, claiming that it constitutes a holding that an ATDS must actually use a random or sequential number generator. But that is not the case….The opinion’s imprecise use of language ultimately provides no support for Navient’s assertion that the Court held that, to qualify as an ATDS, the equipment “must not only have a present capacity to generate random or sequential numbers and then dial them, it must [also] actually use that generator.”  Although the Court restated the full ATDS definition—including “capacity”— when it summarized its holding, in other places, it described the ATDS definition in terms of the “use” of a random or sequential number generator, equipment that does not ‘us[e] a random or sequential number generator.’” Yet, these inconsistent statements, in their context, say nothing about whether an ATDS must use a random or sequential number generator or have the capacity to use a random or sequential number generator. Indeed, this issue was not even before the Court. Rather, the Court employed this language to explain that “using a random or sequential number generator” modifies “store” and “produce.” That was the issue before it. Therefore, Duguid does not stand for the proposition that a dialing system will constitute an ATDS only if it actually generates random or sequential numbers.

Eesh.

So right about now Navient is getting beat up bad. The Court has determined that its entire system is to be evaluated for ATDS capabilities. And since there is “conflicting evidence” on whether the system has the capacity to operate as an ATDS it looked like Navient was going to lose its summary judgment motion.

But then…

Why is an ATDS? (Let’s ignore the language of the statute in favor of what Congress really meant to say…again.)

So before we get into the last piece of the analysis let me remind everyone what the TCPA actually says:

It shall be unlawful for any person within the United States, or any person outside the United States if the recipient is within the United States— (A)to make any call (other than a call made for emergency purposes or made with the prior express consent of the called party) using any automatic telephone dialing system or an artificial or prerecorded voice…

So making a call using an ATDS is what triggers the statute. The TCPA does not say, for instance, that it is illegal to make a call using the functionalities unique to an ATDS. And for that reason, courts have long held that any use of an ATDS (even if the system has multiple functionalities) triggers the TCPA. see Satterfield v. Simon & Schuster, Inc., 569 F. 3d 946 (9th Cir. 2009)(“When evaluating the issue of whether equipment is an ATDS, the statute’s clear language mandates that the focus must be on whether the equipment has the capacity “to store or produce telephone numbers to be called, using a random or sequential number generator.” Accordingly, a system need not actually store, produce, or call randomly or sequentially generated telephone numbers, it need only have the capacity to do it.”)

But the Third Circuit Court of Appeals takes issue with this extremely fundamental premise of the TCPAWorld. In its view what the statute really means–even if it isn’t what it says–is that the TCPA only applies where calls are made using the functionalities that make an ATDS an ATDS.

To get there the Court looks at why the TCPA exists to begin with. And here Panzarella is kind of like the Anti-Marks. 

In Marks the court found that the ATDS definition was vague and ambiguous–although I don’t see how– and went on to read the statute expansively.

Panzarella reads the prohibition on ATDS usage as vague and ambiguous–although I don’t see how–and goes on to interpret the statute narrowly:

A narrower construction of use hews to this touchstone by focusing section 227(b)(1 (A)’s prohibition on calls that employ ATDSs as We know Congress was concerned with the use of ATDS as autodialers because the TCPA proscribes only a few specific uses of ATDSs.  It crafted these prohibitions with autodialing’s harms in mind. Congress enacted the TCPA in response to “[v]oluminous consumer complaints about abuses of telephone technology[.]”  Yet, it “found autodialer technology to be uniquely harmful” as these devices could tie up the phone lines of businesses and emergency services and impose costs on randomly dialed cellphone users.  Despite the text’s lack of clarity, Section 227(b)(1)(A)’s context and legislative history establish that Congress drafted this statute to prohibit making calls that use an ATDS’s autodialing functionalities.

So like Marks before it, the Panzarella court elects to re-write the TCPA to better coincide with its interpretation of the intentions of the statute, but draws the opposite conclusion Marks drew. To get there it deems seemingly clear and express language to be vague and goes on to fix the statute up for Congress.

Bottom line: under Panzarella it doesn’t matter that the TCPA forbids calls using an ATDS. What the statute should have said–and how it must be interpreted in the Third Circuit from now on–is that calls made using ATDS functionalities are banned. So whether Navient used an ATDS is irrelevant. It still wins because it did not randomly generate the telephone numbers it called in attempting to reach the Plaintiff.

Where do We Go From Here?

This is Pandora’s box folks.

It dawns on me belatedly that I could have done a Western theme here because this is a true Good, Bad and Ugly situation. But the good isn’t that good (because it isn’t likely to gain traction outside of the Third Circuit). And the ugly is really really super ugly.

First, it is important to keep in mind that–outside the Third Circuit–courts are free to accept or reject any or all of Panzarella’s conclusions. And In the Ninth Circuit courts MUST reject Panzarella’s conclusions on “capacity.”

That means we can expect a huge mishmash of rulings–and outcomes will now become even harder to predict– as TCPAWorld ATDS cases now have yet another axis to spin around.

The good news, of course, is that if you’re in the Third Circuit footprint ATDS cases have just been crippled–if not destroyed. So yay for folks who only call from and into Delaware, New Jersey and Pennsylvania.

For everyone else, however, Panzarella’s holding on “equipment” is likely to be the most impactful and lasting piece of the ruling. I do not expect many courts will disregard the plain language of the statute and ignore “capacity” moving forward. But I DO think many courts will give credence to the Third Circuit’s exceptionally broad reading of “equipment.” And that’s terrible.

After all, Panzarella is the first Circuit Court of Appeals decision to address that definition. And you can expect district courts will give it great weight.

So what does this all mean?

  1. Callers (especially in the Third Circuit footprint) now have another avenue to defeating ATDS claims– the Panzarella Approach (i.e. that capacity doesn’t matter.) But I do NOT expect this will catch on outside the Circuit since it largely ignores the words of the statute;

  2. Callers now have to be deeply concerned that the functionalities of hardware and software components integrated with their dialers will be assessed as part of the ATDS inquiry (which means even deeper and broader dives into source code and functionalities may be needed);

  3. Callers just lost–perhaps forever–the argument that Facebook requires actual “use” of ROSNG functionalities to trigger the TCPA. Panzarella torches that argument and holds the Supreme Court’s “loose language” is, at best, dicta and, at worst, just an oversight.

At bottom, Panzarella is net negative for TCPA defendants. It creates more ATDS uncertainty (just what we needed) and what it provides TCPA defendants (a weak argument that the statute doesn’t say what it actually says) is far less valuable than what it gives TCPA plaintiffs (an avenue to diver deeper than ever before into the “equipment” that makes an ATDS an ATDS).

For folks in the Third Circuit, however, this decision should do wonders to ward off ATDS cases. And we can end on that silver lining.

After all, I’m an optimist. Not a nihilist.

Chat soon TCPAWorld.

© 2022 Troutman FirmNational Law Review, Volume XII, Number 166
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About this Author

Eric Troutman TCPA Lawyer Troutman Law Firm Orange County, CA
Founder

Eric J Troutman is known as one of the country’s prominent class action defense lawyers and is nationally recognized in Telephone Consumer Protection Act (TCPA) litigation and compliance. He has served as lead defense counsel in more than 70 national TCPA class actions and has litigated nearly a thousand individual TCPA cases in his role as national strategic litigation counsel for major banks and finance companies. Eric also helps industry participants build TCPA-compliant processes, policies, and systems.

Eric's perspective allows him to...

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