The FCC's 2006 Solicited Fax Rule is unlawful to the extent that it requires opt-out notices on solicited fax advertisements, the U.S. Court of Appeals for the District of Columbia Circuit has held in a 2-1 ruling.

Judge Brett Kavanaugh, writing for the majority, found that the FCC's rule contravened the plain text of the Junk Fax Prevention Act (JFPA), a 2005 amendment to the Telephone Consumer Protection Act (TCPA). The Solicited Fax Rule requires a sender of a fax advertisement to include an opt-out notice on both "solicited" and "unsolicited" ads, even though the TCPA only requires such a notice to appear on unsolicited ads.

The case before the D.C. Circuit, Bais Yaakov of Spring Valley et al. v. Federal Communications Commission et al., was brought by petitioners appealing an October 2014 FCC order upholding the FCC’s opt-out notice requirement. The petitioners were defendants in various class actions alleging violations of the FCC's opt-out requirement, and had unsuccessfully sought a declaratory ruling from the FCC clarifying that the JFPA does not require an opt-out notice on solicited fax advertisements. Recognizing the magnitude of liability exposure faced by class action defendants, the court noted that one petitioner, Anda Inc., faced up to $150 million in damages for failing to include the opt-out notice required by the Solicited Fax Rule.

The TCPA prohibits the use of "any telephone facsimile machine, computer, or other device to send, to a telephone facsimile machine, an unsolicited advertisement." An "unsolicited" advertisement is "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, in writing or otherwise."

The court found that the text of the TCPA draws a distinction between solicited and unsolicited fax advertisements, and rejected the FCC's view that ambiguity in the meaning of the term "prior express invitation or permission" granted it authority under the TCPA to require out-out notices on solicited fax ads. The FCC had argued that requiring the opt-out notice on solicited ads was an appropriate exercise of the Commission's power to implement the TCPA's provisions pertaining to unsolicited ads, allowing recipients to revoke "prior express invitation or permission." Writing for the majority, Judge Kavanaugh stated, "Congress has not authorized the FCC to require opt-out notices on solicited fax advertisements. And that is all we need to know to resolve this case."

Bais Yaakov will likely have significant implications for junk fax suits—a significant driver of litigation under the TCPA. The decision potentially opens the door to challenging judgments under the Solicited Fax Rule and should provide new challenges to class certification in fax cases. Likewise, the ruling will have immediate effects on many JFPA/TCPA actions currently pending in courts across the country.

More broadly, the outcome of Bais Yaakov may offer a preview of a less aggressive regulatory posture from the FCC on TCPA issues. Notably, in the October 2014 order clarifying the FCC's view that the opt-out notice was required on both solicited and unsolicited ads, then-Commissioner (now Chairman) Pai dissented from the FCC's position. Shortly after the release of the Bais Yaakov decision, Chairman Pai issued the following statement: "Today’s decision by the D.C. Circuit highlights the importance of the FCC adhering to the rule of law. I dissented from the FCC decision that the court has now overturned because, as I stated at the time, the agency's approach to interpreting the law reflected 'convoluted gymnastics.' The court has now agreed that the FCC acted unlawfully. Going forward, the Commission will strive to follow the law and exercise only the authority that has been granted to us by Congress."

Ballard Spahr's Consumer Financial Services Group is nationally recognized for its guidance in structuring and documenting new consumer financial services products, its experience with the full range of federal and state consumer credit laws, and its skill in litigation defense and avoidance (including pioneering work in pre-dispute arbitration programs).

Copyright © 2017 by Ballard Spahr LLP.
(No claim to original U.S. government material.)

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, including electronic, mechanical, photocopying, recording, or otherwise, without prior written permission of the author and publisher.

This alert is a periodic publication of Ballard Spahr LLP and is intended to notify recipients of new developments in the law. It should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own attorney concerning your situation and specific legal questions you have.