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D.C. Circuit Strikes FCC’s Rule Requiring Opt-Out Notice on Solicited Faxes

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On March 31, the U.S. Court of Appeals for the D.C. Circuit struck down a Federal Communications Commission (FCC) rule requiring that solicited fax advertisements contain a notice on how to opt out of future faxes. Following the ruling, such opt-out notices will be required only in unsolicited fax advertisements. The decision in Bais Yaakov of Spring Valley, et al. v. Federal Communications Commission, et al. will significantly impact litigation — particularly class action litigation — involving the failure to include an opt-out notice on fax advertisements.

Under the Junk Fax Prevention Act of 2005, an amendment to the Telephone Consumer Protection Act applicable to fax communications, businesses are prohibited from faxing unsolicited advertisements. “Unsolicited advertisements” are defined as advertising material “transmitted to any person without that person’s prior express invitation or permission.” The law contains an exception when three requirements are met: (1) the sender and recipient have an established business relationship; (2) the sender obtained the fax number from the recipient, through their communications or by virtue of the recipient publishing it to a directory or website; and (3) as relevant here, the advertisement contains an opt-out notice. The law goes on to require the opt-out notice to be “clear and conspicuous” and provide a free mechanism to opt out from future faxes.

In 2006, the FCC, purporting to exercise its authority to issue regulations and implement the law, issued a rule requiring that solicited fax advertisements contain opt-out notices. The law already required unsolicited fax advertisements to include an opt-out notice. Accordingly, under the FCC’s revised rules, businesses had to include opt-out notices on all fax advertisements — even if the recipient expressly consented to receive them.

This rule was challenged by a petitioner facing a $150 million class action lawsuit for failing to include opt-out notices on fax advertisements, many of which it had permission to send. The FCC argued that because the law required businesses to include opt-out notices on unsolicited fax advertisements, the FCC also had the authority to require businesses to include opt-out notices on solicited faxes.

The majority of the D.C. Circuit panel disagreed, finding nothing in the text of the law to convey such authority. Instead, the court noted that Congress had drawn a line between unsolicited and solicited fax advertisements, but the law did not require (or give the FCC authority to require) opt-out notices on solicited faxes. That was all the court needed to know to resolve the case.

The D.C. Circuit also rejected the FCC’s argument that it could require opt-out notices on solicited faxes because Congress did not define the phrase “prior express invitation or permission” in the law. The court found the argument “difficult to follow,” noting that the phrase “prior express invitation or permission” went to whether a fax was solicited or unsolicited (and requiring an opt-out notice) — not the other way around. The court also found the FCC’s argument that its rule was good policy to be irrelevant because a “good policy does not change the statute’s text.”

Notably, Judge Pillard, who also serves on the panel deciding ACA International’s appeal of the FCC’s 2015 TCPA Omnibus Order, dissented. Judge Pillard determined that the FCC had the implicit authority to require opt-out notices for solicited fax advertisements stemming from Congress’ direction to the FCC to prescribe regulations to implement the law. In addition, Judge Pillard adopted the FCC’s difficult-to-follow argument that “the inclusion of an opt-out notice is part of what makes subsequent faxes ‘solicited’ at all.”

Judge Pillard’s opinion appears to be motivated by a desire to provide a uniform mechanism for opting out. She reasoned that if a fax contains an opt-out mechanism and a recipient does not opt out, then the recipient has agreed to receive future advertisements (i.e., solicited advertisements). As the panel recognized, such reasoning removes any distinction Congress drew between solicited and unsolicited advertisements in the law. Judge Pillard’s ruling in this case may suggest that she will also rule in favor of the FCC in the much-anticipated decision in the ACA International appeal.

The D.C. Circuit’s decision will impact litigation relating to the absence of an opt-out notice on fax advertisements. First, there is no longer any liability for the failure to include an opt-out notice where the recipient consented to receive the fax. Second, the decision will undoubtedly impact class certification in actions arising from the failure to include an opt-out notice because the question of whether the opt-out notice is required is now an individualized question that turns on whether the recipient consented to receive the fax.