By Matthew Murchison & Matthew Brill

By all accounts, the number of class action lawsuits brought under the Telephone Consumer Protection Act against companies communicating by telephone, text, and fax has exploded in recent years.  These lawsuits—which rely on the private right of action at 47 U.S.C. § 227(b)(3) for violations of the statutory prohibitions in Section 227(b) “or the regulations prescribed thereunder”—often seek tens or hundreds of millions of dollars in damages under the statute’s uncapped, $500-per-violation liability provision.  And yet, the U.S. Chamber of Commerce pointed out in a recent study that, even as these lawsuits continue to proliferate, “it is rare these days to see TCPA litigation brought against its original intended target—abusive telemarketers.”  Instead, the targets of these lawsuits increasingly are legitimate businesses from nearly every industry, some of which are facing liability simply for engaging in consensual communications with current or prospective customers.  These businesses have been searching for ways to protect themselves against such lawsuits, and these efforts have come to a head in a recent petition for certiorari filed at the U.S. Supreme Court in Walburg v. Nack, No. 13-486.

The Walburg case concerns an FCC rule requiring that all fax advertisements—even those sent with the recipient’s express consent—include a detailed notice explaining how to opt out of future fax communications.  This rule already is the source of significant controversy; an FCC petition filed in 2010 pointed out that the opt-out notice rule for solicited faxes was adopted without notice, arose from an internally contradictory order, goes beyond the TCPA’s limited regulation of “unsolicited” advertisements, and poses potentially grave First Amendment concerns.  The petition requested that the FCC clarify, at a minimum, that Section 227(b) was not the statutory basis for the rule, and that the rule therefore cannot give rise to class actions under Section 227(b)(3).  Three years later, the FCC still has not issued a final, appealable order at the full Commission level resolving this petition.  In the meantime, numerous other businesses from a wide range of industries—all facing class action lawsuits for alleged violations of this rule—have filed similar petitions at the FCC.

The defendant in Walburg, a small business owner who was sued for tens of millions of dollars under the rule in 2007, attempted to raise various challenges to the rule in the courts below.  Among other things, he argued that the rule is invalid in light of the TCPA’s narrow focus on “unsolicited” advertisements, and that, even if the rule were valid, it cannot trigger a private right of action under Section 227(b)(3) because it was not “prescribed under” Section 227(b).  While the Eighth Circuit noted that it was “questionable” whether Section 227(b) could have given rise to the rule, it ultimately held that such arguments are barred by the Hobbs Act, 28 U.S.C. § 2342(1), which vests exclusive jurisdiction in the courts of appeals over any “proceeding to enjoin, set aside, annul, or suspend” an order of the FCC.  According to the court, “[a] party challenging an FCC regulation as ultra vires must first petition the agency itself and, if denied, appeal the agency’s disposition directly to the Court of Appeals as provided by the statute.”  The court also held that arguments regarding the scope of the TCPA’s private right of action “involve[] the same need for deference to the agency and nationally uniform determinations as a direct, Hobbs Act challenge.”  The upshot of the Eighth Circuit’s decision is that a business facing massive liability in a TCPA class action cannot defend itself in court by challenging the statutory basis of the administrative rule at issue, even if the rule blatantly exceeds the agency’s statutory authority, and even if the rule is unconstitutional. 

Walburg’s petition for certiorari raises several issues with broad ramifications not only for TCPA litigation in particular but for administrative law and constitutional law more generally.  In addition to arguing that the Hobbs Act does not apply to defensive challenges to FCC regulations in private suits for damages, the petition identifies serious due process and Article III concerns with the broader interpretation adopted by the Eighth Circuit.  The court’s ruling suggests that the only way a defendant may challenge an FCC rule is by petitioning the agency itself, but when parties have filed such petitions, the agency has declined to take final action in response, and has even taken the position that it has no duty at all to resolve such petitions.  The Eighth Circuit’s ruling thus has the practical effect of sealing off FCC rules from any challenge—a result that seems to conflict with traditional conceptions of due process.  Moreover, by requiring courts to apply administrative rules unquestioningly, the ruling appears to upend the core judicial function to “say what the law is” under Article III and Marbury v. Madison.  Several amici curiae have filed briefs underscoring these constitutional concerns and also highlighting the national importance of these issues for TCPA lawsuits across the country.

While it is unclear whether the Supreme Court will grant certiorari, the Walburg proceeding should serve as a cautionary tale for businesses communicating with their customers (whether by fax or otherwise).  Lawsuits like this one—seeking enterprise-crippling damages for allegedly defective opt-out notices on faxes sent with express consent—are growing increasingly common.  And if the Eighth Circuit’s ruling stands, defendants may be hamstrung in their efforts to challenge the agency rules that often form the basis of such lawsuits.

Latham & Watkins represents Anda, Inc., a generic pharmaceutical distributor facing class actions under the FCC’s rule.  On Anda’s behalf, the authors of this post filed the FCC petition in 2010 that first raised these issues, as well as an amicus brief in support of certiorari in the Walburg case.