In a major decision that will surely impact the healthcare industry, 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 in Bais Yaakov of Spring Valley et al. v. FCC, 14-1234 (D.C. Cir. Mar. 31, 2017).
The Solicited Fax Rule was created by the FCC in a 2006 order and requires 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 market confusion and abundant lawsuits by opportunistic plaintiffs (and their counsel), a group of class action defendants challenged the Solicited Fax Rule in the D.C. Circuit. Leading the charge was Anda Inc., a global pharmaceutical distributor. In what is now an all too common story, Anda was sued in a TCPA class action for sending fax advertisements to pharmacies that had consented to receive the faxes. The problem: Anda did not include the detailed opt-out notice outlined in the regulations. Consequently, Anda faced $150 million in liability–a steep price to pay for faxes sent with the permission of the recipient.
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."
Recognizing the potential for catastrophic liability stemming from faxes sent with permission but lacking the detailed opt-out notice required under the regulations, the majority cited Anda as a compelling example, asking one to "Let that soak in for a minute: Anda was potentially on the hook for $150 million for failing to include opt-out notices on faxes that the recipients had given Anda permission to send."
The majority was nonplussed with the FCC's argument 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. As the majority 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." While acknowledging that the FCC may reasonably define prior express permission and reasonably provide that a recipient can revoke prior consent, the opinion is 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." In a starkly contrary view, Judge Pillard's 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 disagrees 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. In her view, 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."
Interestingly, Judge Pillard is also on the panel of judges considering whether the FCC overstepped its bounds in ACA International, where the petitioners have challenged the FCC's 2015 Omnibus TCPA Order. Part of the appeal addresses exemptions for healthcare-related communications, so ACA International may also significantly impact the healthcare industry.
The impact of this decision on pending cases will likely be significant. 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. And, 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. In fact, 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, in the immortal words of Yogi Berra, "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 has already spoken vociferously in favor of the majority's decision, vowing that "going forward, the Commission will strive to follow the law and exercise only the authority that has been granted to us by Congress," it seems unlikely that the FCC under Chairman Pai's leadership will support a further appeal. For now, we can probably expect that class action plaintiffs will use an appeal as a means to keep their cottage industry alive.
As the majority recognized, "[b]elieve it or not, the fax machine is not yet extinct" and it remains a significant mode of communication throughout the healthcare industry. While the decision allows companies engaging in fax marketing to breathe a (tempered) sigh of relief, such businesses should remain aware of the TCPA's requirements and the impact of this decision in their operations. Some best practices that companies should strive to implement include:
• Ensuring that permission is obtained before sending fax advertisements;
• If sending a fax based on an established business relationship, ensure the fax has a proper opt-out as detailed in the regulations;
• Maintaining records of permission and/or an established business relationship for at least four years:
o The more detailed, the better. If receiving permission to send a fax, record date, time, who gave permission, their title, and what he or she said;
• If hiring a vendor to send fax marketing on your behalf, ensure the contract requires the vendor to comply with the above practices;
• Refraining from sending unsolicited fax advertisements, as they are still generally prohibited by the TCPA, regardless of an opt-out notice being included.
Christine M. Reilly and Marc S. Roth are co-chairs of the TCPA compliance and class action defense practice at law firm Manatt, Phelps & Phillips LLP. Diana L. Eisner is a litigation associate at Manatt in the Washington, D.C. office. They can be reached at creilly@manatt.com, mroth@manatt.com, and deisner@manatt.com, respectively.
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