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Supreme Court Punts On Whether FCC’s Interpretation of the TCPA Binds Federal Courts

At the end of the Supreme Court’s most recent term, the Court released its long-awaited ruling in PDR Network, LLC v. Carlton & Harris Chiropractic, Inc., 139 S. Ct. 2051 (June 20, 2019)—a case that could have carried far-reaching ramifications for Telephone Consumer Protection Act (“TCPA”) litigation nationwide. The Supreme Court granted review to consider whether the Administrative Orders Review Act (also known as the Hobbs Act), 28 U.S.C. § 2342(1), requires district courts to accept the FCC’s legal interpretation of the statutory term “unsolicited advertisement” under the TCPA.

A unanimous Supreme Court vacated the decision of the Fourth Circuit that district courts must defer to agency interpretation of statutes they administer, but dodged the merits by remanding the case to consider two “preliminary issues.” However, concurring in the judgment only, four Justices opined that district courts are not strictly bound by the FCC’s interpretations of the TCPA.

PDR Network involved a single fax sent by defendant PDR Network to a West Virginia chiropractic clinic that invited the recipient to go to its website to reserve a “FREE 2014 Physicians’ Desk Reference eBook” (“PDR”). PDR Network made money by charging pharmaceutical companies that wish to include drugs in the PDR, and it distributed the PDR to health care providers, including the chiropractic clinic, for free. After receiving the fax, the clinic sued PDR Network in a putative class action alleging the fax constituted an “unsolicited advertisement” in violation of the TCPA and seeking statutory damages ranging from $500 to $1,500 per fax.

The TCPA defines “unsolicited advertisement” as “any material advertising the commercial availability or quality of any property, goods, or services which is transmitted to any person without that person’s prior express invitation or permission.” 47 U.S.C. § 227(a)(5). The TCPA is silent, however, on whether the term “unsolicited advertisement” includes goods and services offered for free. In a 2006 Declaratory Ruling interpreting “unsolicited advertisement” under the TCPA, the FCC concluded that certain faxes that “promote goods or services even at no cost,” including “free magazine subscriptions” and “catalogs” qualified as an advertisement under the TCPA. See In re Rules & Regs. Implementing the Tel. Consumer Protection Act of 1991, 21 FCC Rcd. 3787, 3814 (2006). This portion of the FCC’s 2006 ruling was at issue in PDR Network.

PDR Network moved to dismiss the action for failure to state a claim, arguing that the fax was not an advertisement because it only discussed free items and thus, did not promote any products “for sale” to the recipient. In granting PDR Network’s motion to dismiss, the district court held that it was not required to defer to the FCC’s 2006 interpretation of “unsolicited advertisement” under Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), because the TCPA’s definition of advertisement was unambiguous. Accordingly, the district court interpreted the TCPA on its own, found the fax was not an advertisement under the plain text of the statute, and granted PDR Network’s motion to dismiss.

The chiropractic clinic appealed to the Fourth Circuit, which vacated the district court’s judgment. The Fourth Circuit disagreed with the district court’s rationale and instead held that the Hobbs Act imposes a “jurisdictional command” mandating district courts to defer to FCC interpretations of statutes the agency administers (e.g., the TCPA). See 883 F.3d 459, 466 (4th Cir. 2018). As a result, the Fourth Circuit reasoned the district court was without discretion to decide whether the FCC Rule was entitled to deference or not under a traditional Chevron analysis, and should have adopted the FCC’s interpretation of “unsolicited advertisement.”

In an opinion written by Justice Breyer, the Supreme Court held that the extent to which the FCC’s Order binds the lower courts may depend on the resolution of the following two preliminary issues that the Fourth Circuit failed to consider: (1) whether the Order is equivalent to a “legislative rule,” which has the “force and effect of law,” or an “interpretive rule,” which lacks “the force and effect of law”; and (2) whether PDR Networks had a “prior” and “adequate” opportunity to seek judicial review of the Order. The Court thus vacated the Fourth Circuit’s opinion and remanded the case so the Fourth Circuit can consider these two issues. In doing so, the Court emphasized “we are a court of ‘review,’ not of ‘first review.’” 139 S. Ct. at 2056 (majority opinion).

While the Supreme Court’s decision to vacate the Fourth Circuit’s decision was unanimous, four Justices went on record to say that the Fourth Circuit was wrong and lamented the Court’s punt on the Question Presented. Concurring only in the judgment, Justice Kavanaugh—joined by Justices Thomas, Alito, and Gorsuch—concluded that the Hobbs Act does not expressly preclude a district court’s judicial review of an agency’s statutory interpretation in a TCPA action: “The District Court is not bound by the FCC’s interpretation of the TCPA. Rather, the District Court should interpret the TCPA under usual principles of statutory interpretation, affording appropriate respect to the agency’s interpretation.” 139 S. Ct. at 2058 (Kavanaugh, J., concurring in the judgment). In short, Justice Kavanaugh believed the Fourth Circuit was wrong and would have overruled the appellate court.

The full impact of PDR Network will take time to play out in the Fourth Circuit and elsewhere. For the foreseeable future, the unresolved issue will provide TCPA litigants an opportunity to argue that the FCC’s interpretations are not binding on the district courts. Justice Kavanaugh’s interpretation of the Hobbs Act has already been endorsed by a three-judge panel of the Eleventh Circuit. See Gorss Motels, Inc. v. Safemark Sys., LP, — F.3d —-, 2019 WL 3384191, at *9-10 (11th Cir. July 26, 2019) (William Pryor, J., concurring) (criticizing Eleventh Circuit precedent on this issue and stating “[t]he Hobbs Act does not require a district court to follow an agency’s interpretation of a statute every time a case within its jurisdiction presents a question of federal law that the agency has addressed in an order.”).

Copyright © 2020, Sheppard Mullin Richter & Hampton LLP.National Law Review, Volume IX, Number 246
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Sieun Lee, Sheppard Mullin Law Firm, San Diego, Corporate Law Attorney
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Sieun J. Lee is an associate in the Business Trial Practice Group in the firm's San Diego (Del Mar) office.

Prior to joining Sheppard Mullin, Ms. Lee served as a judicial law clerk for the Honorable Dana M. Sabraw of the United States District Court for the Southern District of California.

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Mr. Werner is a partner in the Business Trial Practice Group in the firm's Washington D.C. office.

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Shannon Z. Petersen is a partner in the Business Trial Practice Group in the firm’s Del Mar office and is co-chair of the firm’s consumer class action defense team and the firm’s TCPA class action defense team.

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Dr. Petersen has substantial trial experience as a business litigator, including consumer class action defense. He has successfully represented clients in claims involving the federal Telephone Consumer Protection Act (TCPA), the Fair Debt Collection Practices Act (FDCPA), the Fair Credit Reporting Acting (FCRA), the Truth in Lending...

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