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John specializes in representing loan servicers, debt buyers/collection companies in class action and individual cases.

We are pleased to announce that Troutman Sanders attorney John Lynch will be presenting during the American Conference Institutes’ Residential Mortgage Regulatory Enforcement & Litigation Forum at the Omni Dallas hotel Park West. The forum will focus on expert strategies for navigating through mortgage obstacle and challenges, litigation and economic efficiencies in the consumer financial services arena.

The Residential Mortgage Regulatory Enforcement & Litigation forum will focus on providing a premier education and networking event on the residential side of mortgage regulatory and litigation, this conference features two full days of panels. John will be speaking on October 23 at 2:30 p.m., on, “Ethical Considerations in Residential Mortgage Litigation and Class Actions.”

Attendees will:

  • Gain valuable tips and advice on mortgage servicing litigation and settlement trends
  • Discuss and Learn issues involving reverse mortgages, risk management and internal audits
  • Connect with attorneys within the practice areas of Financial Services, Banking, and Mortgages

To register or obtain additional information, visit the ACI’s Website.

Employers and consumer reporting agencies beware: a change to a commonly used form required by the Fair Credit Reporting Act (“FCRA”) becomes effective on September 21, 2018, and the price of non-compliance could be class action lawsuits.

On September 21, 2018, the Economic Growth, Regulatory Relief and Consumer Protection Act’s changes to the FCRA Summary of Rights form will take effect. The Act requires new language to be added to the form explaining a consumer’s right to obtain a security freeze.

While the Act specifically amends Section 1681c-1(c) of the FCRA, which is directed at consumer reporting agencies, the Act also requires the new language to be included “[a]t any time a consumer is required to receive a summary of rights required under section 609.”

How can a requirement under 609, which applies to consumer reporting agencies, create an obligation for users of consumer reports? Users are generally required to provide the FCRA Summary of Rights prior to taking any employment adverse action based upon the use of a consumer report. 15 U.S.C. § 1681b(b)(3)(A) requires that:

in using a consumer report for employment purposes, before taking any adverse action based in whole or in part on the report, the person intending to take such adverse action shall provide to the consumer to whom the report relates—

….

(ii) a description in writing of the rights of the consumer under this subchapter, as prescribed by the Bureau under section 1681g(c)(3) of this title.

Users of consumer reports should identify each situation in their pre-adverse action process where they provide an FCRA Summary of Rights form, so the new form can be substituted in a seamless way.

Likewise, entities that qualify as consumer reporting agencies will need to ensure their FCRA Summary of Rights form is updated. Consumer reporting agencies are required to provide the form at various times, including, for example, to consumers when making a file disclosure pursuant to 15 U.S.C. § 1681g(c)(2).

The new FCRA Summary of Rights form must include the following language:

Consumers Have The Right To Obtain A Security Freeze

You have a right to place a “security freeze” on your credit report, which will prohibit a consumer reporting agency from releasing information in your credit report without your express authorization. The security freeze is designed to prevent credit, loans, and services from being approved in your name without your consent. However, you should be aware that using a security freeze to take control over who gets access to the personal and financial information in your credit report may delay, interfere with, or prohibit the timely approval of any subsequent request or application you make regarding a new loan, credit, mortgage, or any other account involving the extensio of credit.

As an alternative to a security freeze, you have the right to place an initial or extended fraud alert on your credit file at no cost. An initial fraud alert is a 1-year alert that is placed on a consumer’s credit file. Upon seeing a fraud alert display on a consumer’s credit file, a business is required to take steps to verify the consumer’s identity before extending new credit. If you are a victim of identity theft, you are entitled to an extended fraud alert, which is a fraud alert lasting 7 years.

A security freeze does not apply to a person or entity, or its affiliates, or collection agencies acting on behalf of the person or entity, with which you have an existing account that requests information in your credit report for the purposes of reviewing or collecting the account. Reviewing the account includes activities related to account maintenance, monitoring, credit line increases, and account upgrades and enhancements.

The Federal Trade Commission (“FTC”) initially published the model Summary of Rights under 16 CFR Part 698, App. F. Starting July 21, 2011, the Consumer Financial Protection Bureau (“CFPB”) assumed responsibility for the Summary of Rights form. The FCRA requires the CFPB to actively publicize the availability of the summary of rights and “conspicuously post on its Internet website the availability of such summary of rights.” See 15 U.S.C. § 1681g(c)(1)(C)(i)-(ii). An official form is published on the CFPB website as Appendix K to Regulation V. However, as of this writing, the CFPB has not published a revised version of the official form with the new security freeze disclosure.

To minimize potential class-wide exposure, forms should be updated for use prior to September 21, 2018 to avoid any gaps in compliance with this new requirement. Improper use or non-use of the Summary of Rights form by users and consumer reporting agencies has been alleged as a basis for multiple class actions, so the risk of exposure from non-compliance is not hypothetical. Companies should seek advice from their legal counsel to ensure their form complies with the new requirement and is in use prior to September 21, 2018.

Increases Attorney Diversity by Broadening Candidate Pool

ATLANTA, August 22 – Troutman Sanders LLP is one of 41 law firms that have earned Mansfield Certification from Diversity Lab, the national incubator for innovative ideas and solutions to boost diversity and inclusion in law.

Law firms earning Mansfield Certification met or exceeded goals for law firm diversity and inclusion by adopting and complying with the Mansfield Rule, which was inspired by the NFL’s Rooney Rule and named after Arabella Mansfield, the first woman admitted to the practice of law in the United States.

“We are proud to achieve Mansfield Certification,” said Steve Lewis, managing partner of Troutman Sanders. “Increasing the diversity of our workforce is a strategic priority for the firm, and our commitment to an inclusive environment at work is a core value that helps define us.”

Mansfield-certified firms made significant progress in diversifying, following adoption of the Mansfield Rule, specifically:

  • 40 percent of the firms increased representation of women and diverse lawyers in leadership and governance roles;
  • 33 percent increased the number of women and diverse senior associates hired;
  • 35 percent increased the number of women and diverse partners hired;
  • 38 percent increased the number of women and diverse lawyers promoted to partner.

About Troutman Sanders

With a diverse practice mix, workforce and footprint, Troutman Sanders has cultivated its reputation for a higher commitment to client care for over 120 years. Ideally positioned to help clients across sectors realize their business goals, the firm’s 650 attorneys transact for growth, resolve mission-threatening disputes and navigate complex legal and regulatory challenges. See troutman.com for more information.

Two Troutman Sanders LLP attorneys discuss the Concepcion ruling, examining the historical landscape of arbitration, the law prior to the ruling, and what courts have done since.

When the Supreme Court (Court) handed down its opinions in AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011), the majority’s holding engendered breathless (at least in legal terms) headlines. Clearly, as arbitration’s opponents and proponents concurred, five jurists, led by Justice Antonin Scalia, had consigned bans on class-action arbitration waivers into oblivion in the hallowed name of the Federal Arbitration Act (FAA), 9 U.S.C. §§1–16.

Possibly due to the legal establishment’s quick recognition of its utility and peril, however, feverish debate over this holding’s validity and advisability beclouded the lead opinion’s subtle affirmation of older filaments of legal thought and endorsement of a new analytical approach to the FAA’s so-called “Savings Clause.”

Time’s passage has changed little, this initial ignorance ossifying instead. As a result, in opinion after opinion issued over the past eight years, these gravid assertions have rarely featured, and defects traceable to their inexplicable omission and damaging to their precedential value now plague much of arbitration law’s post-Concepcion jurisprudence. To discern these latent possibilities and buried flaws, one must return to, and pull back the curtain on, this most controversial matter.

View full article published on Bloomberg Law

Reverse Mortgage Solutions, Inc. (“RMS”), a leading servicer of home equity conversion mortgages, commonly known as reverse mortgages, recently received a complete defense verdict in the United States District Court for the Southern District of West Virginia, in a trial presided over by Judge Irene Berger. The case arose out of a reverse mortgage entered into by the borrower, Teresa Lavis, and RMS in November 2013. When the borrower was unable to pay her taxes and insurance for several years, RMS – with the approval of the U.S. Department of Housing and Urban Development – called the loan due and payable and began foreclosure proceedings. The borrower retained Gary Smith of Mountain State Justice, who prompted her to send a letter to RMS in May 2016 purporting to “rescind” her loan. In early November 2016, the borrower then filed an eight-count Complaint against RMS in the Circuit Court of Raleigh County, West Virginia. RMS removed the case to the U.S. District Court for the Southern District of West Virginia.

The Complaint asserted claims under the West Virginia Consumer Credit Protection Act, the Truth in Lending Act, and the Residential Mortgage Lender, Broker and Servicer Act (“RMLBSA”), including a class action claim alleging that RMS charged various purportedly illegal and excessive fees, charges, and costs at closing. The borrower made individual claims under the West Virginia Consumer Credit Protection Act for unconscionable inducement into the loan, unfair or unconscionable debt collection, and using fraudulent, deceptive or misleading representations to collect a debt, as well as claims for breach of contract, failure to honor payment, rescission under the Truth in Lending Act, and failure to honor rescission. The basic allegations made by the borrower were that the loan officer misrepresented to her that she would never have to make a payment under the loan, was denied meaningful counseling about the loan because RMS steered her to a loan counselor alleged to have a business relationship with RMS, and had no opportunity to read the closing documents because the closing was rushed. She also asserted that RMS improperly sought reimbursement for tax and insurance payments it advanced on her behalf, had no right to foreclose, and failed to honor her purported “rescission” of the loan.

Ruling on a motion to dismiss, Judge Berger agreed with RMS that the borrower’s putative class action claims – alleging improper and unlawful closing fees and charges – were time-barred under the two-year statute of limitations applied to claims under the RMLBSA because they accrued on the date of the closing. The case proceeded on the borrower’s individual claims. Ultimately, on summary judgment, the Court also dismissed the borrower’s claims for unconscionable inducement and unconscionable debt collection. Notably, Judge Berger found that all terms of the loan had been disclosed to the borrower up front, some months before the closing, and that she could not, therefore, base an unconscionable inducement claim on the alleged statements made by RMS’s loan officer. In addition, the Court found – on an issue of first impression in West Virginia – that closing costs and fees were not “debts” that RMS sought to collect. Instead, they were charges and fees for services rendered.

Having dropped her claims for breach of contract and failure to honor payment, the case proceeded to trial on the borrower’s claims that RMS used fraudulent, deceptive or misleading representations to collect a debt and failed to honor her purported rescission of the loan. After a three-day jury trial, during which the borrower was represented by Gary Smith and Bren Pomponio of Mountain State Justice, the jury returned a complete defense verdict for RMS on all counts, finding that RMS did not misrepresent the amount or status of the debt and did not fail to honor the borrower’s purported rescission.

President Donald Trump announced this morning that he plans to nominate Kathy Kraninger, associate director of the Office of Management and Budget (“OMB”), to become the new director of the Consumer Financial Protection Bureau (“CFPB”), replacing Mick Mulvaney.

The announcement came as a surprise to many because Kraninger’s name was not among those that had been circulated as possible candidates to head the CFPB and her previous experience did not center on consumer protection and financial regulatory issues. Kraninger, 43, is a Pittsburgh native and graduate of Marquette University and Georgetown Law School. Her primary experience includes serving as the Clerk for the Senate Appropriations subcommittee on Homeland Security, including overseeing the Department of Homeland Security (“DHS”) budget (and the budgets for four other agencies) while at OMB. Kraninger also served as deputy assistant for policy at DHS.

Based on the law that permitted Mulvaney to serve as interim Director, Mulvaney would have otherwise been required to leave his post at the CFPB on or before June 22, 2018, if a permanent director had not been nominated. Kraninger’s nomination, however, triggers a provision in the Federal Vacancies Reform Act that allows Mulvaney to serve until the Senate confirms or rejects the pick. That process is expected to be lengthy, taking months.

The CFPB post has been subject to significant drama since former democratic Director Richard Cordray departed, with Cordray appointing Deputy Director Leandra English to fill his seat. Within hours of Cordray’s resignation announcement, however, Trump appointed Mulvaney under the Federal Vacancies Act to succeed Cordray. English then sued, but the federal district court denied her request for a temporary restraining order and preliminary injunction. The matter remains tied up in litigation on appeal.

A White House spokesperson said Kraninger was selected because “[s]he will bring a fresh perspective and much-needed management experience” to the CFPB, “which has been plagued by excessive spending, dysfunctional operations, and politicized agendas.”

The selection of Kraninger is likely to trigger the latest rounds of fights over the leadership of the CFPB, with trade groups for financial services companies lining up in support while opponents are focusing on her lack of experience in consumer financial protection matters. Troutman Sanders LLP will continue to monitor these developments.

On May 21, the U.S. Supreme Court, in a 5-4 decision penned by Justice Neil Gorsuch, held that employers can include a clause in their employment contracts that requires employees to arbitrate their disputes individually and to waive the right to resolve those disputes through class actions and other joint proceedings. The Court ruled such requirements are enforceable under the Federal Arbitration Act (“FAA”).

The decision is a major victory for employers, as arbitration can be a tool to funnel employee disputes into out-of-court resolution and away from class actions. The ruling, moreover, takes its place in a lengthy and growing list of rulings by the Supreme Court enforcing arbitration agreements and the pro-arbitration policies of the FAA over the resistance of some lower federal courts and state courts.

The court addressed three cases in this decision:

  • A class action from the Fifth Circuit against Murphy Oil USA Inc. under the Fair Labor Standards Act (“FLSA”);
  • A wage and hour class from the Seventh Circuit against Epic Systems, a healthcare software company, alleging that it violated the FLSA; and
  • A class action from the Ninth Circuit claiming Ernst & Young violated the FLSA and California labor laws by misclassifying employees to deny them overtime wages.

According to the majority decision, the FAA mandates enforcing the terms of an agreement to arbitrate, given that the FAA was enacted “in response to a perception that courts were unduly hostile to arbitration.” The FAA thus instructed courts to “respect and enforce the parties’ chosen arbitration procedures” – such as the agreement to “use individualized rather than class or collective action procedures.”

The appellee-employees argued that the National Labor Relations Act (“NLRA”), passed in 1935, rendered class action and other joint-proceeding waivers unenforceable in arbitration agreements because the NLRA gives workers the right to organize “and engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection.” The Supreme Court rejected that position, stating, “The NLRA secures to employees rights to organize unions and bargain collectively, but it says nothing about how judges and arbitrators must try legal disputes that leave the workplace and enter the courtroom or arbitral forum.”

“The policy may be debatable but the law is clear: Congress has instructed that arbitration agreements like those before us must be enforced as written,” wrote Justice Gorsuch.

Further, the majority refused to defer to the conclusion of the National Labor Relations Board (“NLRB”) that the NLRA trumps the FAA. The Court found such Chevron deference was inappropriate since the NLRB was interpreting the NLRA “in a way that limits the work of” the FAA. The majority also declined to defer to the NLRB’s prior conclusion that the NLRA trumps the FAA.

Justice Ruth Bader Ginsburg penned a strongly-worded dissent, deeming the majority’s decision an attack on “statutes designed to advance the well-being of vulnerable workers.”

Going Forward

The Epic Systems decision is good news for employers nationwide as it enhances their ability to limit exposure to employee claims in class arbitration, class actions, and other joint proceedings.

Moving forward, we see several potential developments:

  1. Undoubtedly, more employers will include class and joint-proceeding waivers in their arbitration agreements, and will make those agreements mandatory for new hires. This will become the norm for employers.
  2. Defenders of the decision point to an overall reduction in costs for all parties, as arbitration of individual disputes may allow for more efficient and quicker resolution of claims.
  3. Democrats in Congress likely will push to pass legislation to reduce the overall impact on employees from the Epic Systems decision. The passage of any such legislation, however, will be difficult in the Republican-controlled Congress.
  4. The logical underpinnings and reasoning in the Epic Systems decision have ramifications beyond the employment context. Pro-employee advocates have long argued that employment law or the relationship between employer and employee somehow justified different treatment than other contractual relationships meaning that the FAA did not apply or these special circumstances trumped the FAA. Likewise, in the consumer context, many pro-consumer advocates have raised a host of similar arguments that the relationship between consumer and businesses (such as credit card companies, auto finance entities, and debt collectors) provides justification for courts to disregard plainly worded arbitration provisions embedded in applicable contracts under supposed public policy rationales. Epic Systems reiterates the Supreme Court’s view that the FAA will govern the interpretation of arbitration provisions, including in the class action context, by reviewing the plain language used by the parties and will reject arguments that amount to a rewriting or failure to enforce the clear language in arbitration provisions.

Employers who do not have an arbitration program, or a program that has not been recently refreshed, might now consider adding or updating arbitration clauses to their agreements. Indeed, consumer-facing companies of all types can take additional comfort in the efficacy of arbitration agreements in designing and implementing arbitration programs for consumer claims.

Troutman Sanders advises clients in developing and administering consumer arbitration agreements, and has a nationwide defense practice representing employers in many types of class actions and individual claims. We will continue to monitor these developments.

We are pleased to announce that Troutman Sanders attorneys Keith Barnett, Chad Fuller and John Lynch will be presenting during the American Conference Institute’s 30th National Advance Forum on Consumer Finance. The Forum on Consumer Finance will take place at the Wit Hotel in Chicago, Illinois. The forum will focus on expert strategies for navigating class actions, litigation and government enforcement activity in the consumer financial services arena.

Keith will speak on a panel entitled, “A Survey of Federal Enforcement Actions Impacting the Consumer Financial Services Arena,” on July 16th at 10:15 a.m. Chad will speak on a panel entitled “The Telephone Consumer Protection Action (TCPA) Litigation Bubble: Evolving Technology, Record- Breaking Settlements and Uncertain Legal Precedent” At 3:15 p.m. on July 16. John will be involved in a panel on July 16 from 1:45 p.m. entitled, “The Tolling Effect : An Analysis of China Agritech, Inc. v. Resh.”

Attendees will:

  • Gain valuable tips and advice on Consumer Finance.
  • Discuss and Learn issues from In- House counsel from Banks, Mortgage Lenders and brokers, and Auto Lenders.
  • Connect with attorneys within the practice areas of Financial Services, Banking, Mortgages, Consumer Credit and Finance and Class Actions.

To register or obtain additional information, visit the ACI’s Website.

Download PDF: CLICK HERE

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The D.C. Circuit answered months of speculation on Friday, March 16, 2018, when it finally issued its decision in ACA International v. Federal Communications Commission (15-1211). The decision is largely seen as a major win for defendants in Telephone Consumer Protection Act (“TCPA”) lawsuits, as the D.C. Circuit struck down key portions of the Federal Communication Commission’s (“FCC”) previous expansive interpretations of the TCPA, including its definition of an “automatic telephone dialing system” (“ATDS”) triggering application of the TCPA, and the FCC’s illusory one-call safe harbor for reassigned numbers. The Court did, however, uphold the FCC’s findings on reasonable revocation of consent and exemptions for healthcare-related messages.

Current FCC Chairman Ajit Pai hailed the Court’s decision, saying in a statement, “Today’s unanimous D.C. Circuit decision addresses yet another example of the prior FCC’s disregard for the law and regulatory overreach. As the court explains, the agency’s 2015 ruling placed every American consumer with a smartphone at substantial risk of violating federal law. That’s why I dissented from the FCC’s misguided decision and am pleased that the D.C. Circuit too has rejected it.”

Commissioner Michael O’Rielly echoed Chairman Pai’s sentiments, saying, “I am heartened by the court’s unanimous decision, which seems to reaffirm the wording of the statute and rule of law. This will not lead to more illegal robocalls but instead remove unnecessary and inappropriate liability concerns for legitimate companies trying to reach their customers who want to be called. In effect, it rejects the former Commission’s misguided interpretation of the law, inappropriate expansion of scope, and irrational view of reassigned numbers. While I disagree with the court’s decision on the revocation issue, I believe there is an opportunity here for further review in order to square it with the Second Circuit’s more appropriate approach.”

Commissioner Jessica Rosenworcel, however, expressed disappointment and concern over the decision. “One thing is clear in the wake of today’s court decision: robocalls will continue to increase unless the FCC does something about it. That means that the same agency that had the audacity to take away your net neutrality rights is now on the hook for protecting you from the invasion of annoying robocalls.”

I. The FCC’s Interpretation of the TCPA Basics

On July 10, 2015, after a contentious 3-2 party-line vote, the FCC issued a Declaratory Ruling and Order formally stating the FCC’s interpretation of numerous provisions of the TCPA. In a 147-page ruling, the FCC expanded the scope of the TCPA in several key areas:

1. The present capacity of an ATDS.

The TCPA makes it unlawful for any person to initiate any call or text (other than a call or text made for emergency purposes or made with the prior express consent of the called party) using any ATDS or an artificial or prerecorded voice. An ATDS is defined in the statute as “equipment which has the capacity (A) to store or produce telephone numbers to be called, using a random or sequential number generator; and (B) to dial such numbers.”

In its 2015 Order, the FCC considered whether, to constitute an ATDS, equipment must have the present capacity at the time of use to generate random or sequential telephone numbers (i.e. telemarketing equipment), or merely be capable of being modified to have those functionalities in the future. The FCC construed the definition of ATDS to include any equipment that potentially can be modified to generate random or sequential telephone numbers in the future. In other words, “capacity” was defined to include present or future capacity, including with unspecified hardware and software modifications. The only limitation on this expansive “capacity” definition is that “there must be more than a theoretical potential that the equipment could be modified” into an autodialer. The FCC’s Order only provided one specific example, stating that a rotary telephone is not an ATDS.

2. The available means for revocation.

The 2015 FCC Order considered the available means by which consumers may revoke their prior consent and made the seemingly broad proclamation that “consumers may revoke consent through any reasonable means.” More specifically, the FCC held that “consumers may revoke consent in any manner that clearly expresses a desire not to receive further messages, and that callers may not infringe on that ability by designating an exclusive means to revoke.” The FCC took the position that businesses can mitigate the risk by creating adequate business records and processes to record and respect revocations.

3. A caller’s liability for reassigned numbers.

The FCC clarified that “the TCPA requires the consent not of the intended recipient of a call, but of the current subscriber [or customary user of the phone.]” Accordingly, if a phone number legitimately provided by a prior user is reassigned, potential TCPA violations loom when attempting to reach that prior user at the outdated phone number. The FCC provided a one-call exception for reassigned numbers. “[C]allers who make calls without knowledge of reassignment and with a reasonable basis to believe that they have valid consent to make the call should be able to initiate one call after reassignment as an additional opportunity to gain actual or constructive knowledge of the reassignment and cease future calls to the new subscriber.” After the first call, however, callers are liable for any calls thereafter even if that “one additional call does not yield actual knowledge of reassignment.”

4. Exemption for healthcare-related messages.

In limited situations, calls to address exigent circumstances, where the calls are “free to the called party,” are exempted from certain of the TCPA’s consent requirements. The FCC exempted some types of health care-related calls, including time-sensitive information such as appointment confirmations, prescription notifications, and lab results.

II. A Review of the Issues on Appeal

Business groups filed several lawsuits challenging the FCC’s July 10, 2015 Order seeking (1) reversal of the FCC’s broad interpretation of ATDS; and (2) determination whether the FCC exercised its regulatory authority appropriately or whether the agency expanded the TCPA in a way that Congress never intended. The appeal presented the following questions:

1. Whether the FCC interprets an ATDS in a way that unlawfully turns on the equipment’s potential rather than present abilities, nullifies the statutory random-or-sequential-number-generation requirement, and provides inadequate guidance to regulated parties.

More specifically, the Petitioners argued that the FCC’s interpretation of an ATDS “leads to absurd and unconstitutional results because virtually every kind of modern phone, including every smartphone and office phone, could be modified to generate random or sequential numbers.” The FCC left callers “in the dark about what modifications are too theoretical or attenuated to turn a modern-day phone into an ATDS,” the Petitioners claimed. In response, the FCC argued that dictionary definitions, ordinary usage, and principles of statutory interpretation all dictate that “capacity” can include potential abilities.

2. Whether the Commission unlawfully prevented callers from reasonably relying on the “prior express consent of the called party” by imposing liability for good faith calls to reassigned numbers.

The Petitioners highlighted the fact that callers have no reliable means of tracking reassignments, and the Commission’s purported solution of exempting the first call “does not fix the Order’s defects.” The FCC argued however that “its independent decision to allow a one-call safe harbor is a reasonable measure to balance the interests of callers and consumers.”

3. Whether the Commission unlawfully imposed an unworkable regime for handling revocation of consent.

For revocation, the Petitioners argued that callers must be able to prescribe a uniform procedure for revocation, and a “case-by-case approach is arbitrary and capricious.” The FCC argued that because the TCPA “is silent on the issue of how consumers may revoke consent, the Commission had broad authority to fill that statutory gap.”

4. Whether it was reasonable for the Commission to exempt healthcare-related calls to wireless numbers only when those calls serve a healthcare-treatment purpose, and not when the calls instead serve non-treatment purposes such as telemarketing, advertising, billing, or debt collection.

The FCC argued that “[t]he Commission reasonably determined that calls regarding billing and accounts do not warrant the same treatment as calls for healthcare treatment purposes, because timely delivery of these types of messages is not critical to a called party’s healthcare, and they therefore do not justify setting aside a consumer’s privacy interest.”

Oral argument was held on October 19, 2016.

III. D. C. Circuit’s Decision

After almost 17 months of delay, the D.C. Circuit issued its ruling on March 16, 2018, and granted the petition in part and denied it in part. Judge Srinivasan authored the opinion, joined by Judges Pillard and Edwards.

1. The Court vacated the FCC’s definition of ATDS.

Concerns over smartphones drove the Court’s analysis on the definition of an ATDS. As to the issue of capacity, the D.C. Circuit saved some of its strongest language for its finding that the FCC’s definition of an ATDS could not stand, calling it “utterly unreasonable.” The Court was especially concerned that the definition would encompass smartphones that need additional equipment, either through add-ons or downloads, to function as an autodialer. “If a device’s ‘capacity’ includes functions that could be added through app downloads and software additions, and if smartphone apps can introduce ATDS functionality into the device,” the Court reasoned, “it follows that all smartphones, under the Commission’s approach, meet the statutory definition of an autodialer.”

The Court found that such an interpretation is both unreasonable and impermissible: “The TCPA cannot reasonably be read to render every smartphone an ATDS subject to the Act’s restrictions, such that every smartphone user violates federal law whenever she makes a call or sends a text message without advance consent.”

The Court further took issue with the 2015 Order’s lack of clarity on the definition of an ATDS, specifically highlighting that the Order was ambiguous as to whether a device qualifies as an ATDS only if it can generate random or sequential numbers to be dialed, or whether it qualifies as an ATDS even if it lacks that capacity. Moreover, the Order did not explain the human intervention necessary for a device to meet the requirements for an ATDS. The Court noted that the FCC has taken competing positions that the basic function of an ATDS is the ability to function without human intervention, yet the Order indicated that a device might still qualify as an ATDS even if it required human intervention.

The ruling also struck down long-standing TCPA rulings going back to 2003 on the issue of predictive dialers. While the FCC has taken the position for 15 years that a predictive dialer is an ATDS, the D.C. Circuit found that the 2015 Order and its predecessors do not give a clear answer as to whether a device qualifies as an ATDS only if it can generate random or sequential numbers for dialing.

The panel raised the issue that the current interpretations of an ATDS are ambiguous as to whether a call made by a system that has the capacity to function as an ATDS, but not made in automatic mode, still violates the TCPA. While the Court did not rule on this issue, finding that it was not properly before the Court, it did note “the issue in light of its potential interplay with the distinct challenges petitioners do raise.”

In the end, the D.C. Circuit largely tossed the FCC’s body of interpretations as to the definition of the ATDS out the window, taking with it case decisions based on those interpretations. Defendants look to have a new day, and a complete do-over, on the proper interpretation of the definition of an ATDS by the legal system.

2. The Court also vacated the FCC’s stance on reassigned numbers.

The Court began its analysis by noting that millions of wireless numbers are reassigned each year, but ultimately disagreed with the Petitioners’ view that the FCC’s interpretation of “called party” to refer to a post-reassignment subscriber was inconsistent with the statute. Instead, the Court found that “called party” can mean “intended recipient” as well as the current subscriber, citing favorably to the concept of “reasonable reliance.” The Court did, however, agree with the Petitioners’ argument that the one-call safe harbor is arbitrary: “[W]hy does a caller’s reasonable reliance on a previous subscriber’s consent necessarily cease to be reasonable once there has been a single, post-reassignment call?” The one-call safe harbor remained too close to strict liability to pass muster and, as a result, the D.C. Circuit overruled the FCC on this point.

Again, the D.C. Circuit’s ruling seems to open the door to defendants for a re-do on the legal system’s interpretation of the TCPA as imposing presumptive liability for calls to reassigned numbers.

3. The D.C. Circuit affirmed the FCC’s interpretation of consumers’ ability to revoke consent.

The Court found that the Commission’s approach to revocation of consent, where a called party can revoke his or her consent by any reasonable means was reasonable. The 2015 Order did not reach the issue of whether the Order forecloses callers and consumers from contractually agreeing upon revocation procedures. In addition, the Court also observed that if a calling party provides a revocation mechanism, a called party’s failure to use the mechanism could mean that the revocation was not in a reasonable manner and hence ineffective.

While the D.C. Circuit’s ruling affirmed the FCC’s basic position that consumers can revoke consent by reasonable means, the ruling left open the door to calling parties obtaining and attempting to enforce contractual consent, and building defenses to attempted revocations based on the consumer’s failure to follow an established revocation mechanism.

4. The Court also upheld the FCC’s stated scope for healthcare-related messages.

The Petitioners, namely Rite Aid, challenged the FCC’s exemption for select healthcare-related calls that included, for example, appointment and exam reminders, pre-operative instructions, and lab results, but did not cover telemarketing or billing and debt collection. The Court sided with the FCC and concluded that the narrow exemption did not restrict communications required to flow freely by HIPAA. “There is no obstacle to complying with both the TCPA and HIPAA,” the Court found, reasoning that the HIPAA statute does not include any requirements that would “frustrate the TCPA” by permitting healthcare providers to use ATDS equipment “to bombard nonconsenting wireless users with calls and texts concerning outstanding charges….”

IV. Moving Forward

Litigation under the TCPA has grown at an aggressive rate over the past six years. Understanding the evolving interpretations of the critical TCPA issues is essential to successfully defending such claims.

Companies using telephone equipment that might have qualified as an ATDS under the 2015 Order now have numerous arguments that their equipment does not run afoul of the statute. Consumer-facing companies must still honor a consumer’s revocation. TCPA defendants can chalk the decision up as a win.

Troutman Sanders LLP has unique industry-leading expertise with the TCPA, with experience gained trying TCPA cases to verdict and advising Fortune 50 companies regarding their compliance strategy. We will continue to monitor legislative developments and regulatory implementation of the TCPA in order to identify and advise on potential risks.

On December 22, a federal court applied the plain language of the “whistleblower-protection provisions” of the False Claims Act, including 31 U.S.C. § 3730(h), to hold that a plaintiff may bring a retaliation claim against a former employer even if that employer was not the subject of any FCA allegations.  In O’Hara v. NIKA Technologies, Inc., the Fourth Circuit reversed the district court’s conclusion that § 3730(h) only applies to retaliation by an employer that is also the alleged FCA violator while upholding the lower court’s grant of summary judgment in favor of the employer on different grounds.

Plaintiff William O’Hara was a senior cost estimator for a project contract awarded by the National Institute of Standards and Technology to O’Hara’s employer, NIKA Technologies, Inc.  O’Hara filed suit under § 3730(h) alleging that a separate company, Northern Taiga Ventures, Inc. (“NTVI”), had defrauded the government by submitting change orders with unnecessary improvements and inaccurate costs and that he was fired because he brought these allegations to the attention of the government.

The district court granted NIKA’s summary judgment motion, finding that the FCA’s retaliation statute applies only to claims alleged against the whistleblower’s employer.  The lower court also found that O’Hara’s second claim under the American Recovery and Reinvestment Act (the “ARRA”) failed to establish that NIKA would not have fired him absent his disclosures.  In so holding, the district court cited O’Hara’s failure to meet his employment responsibilities such as timely submission of cost estimates for various project designs.

Section 3730(h)(1) protects a whistleblower from retaliation for “lawful acts done . . . in furtherance of an action under this section.”  The Court of Appeals emphasized that the provision’s plain language provides protection from retaliation based on the type of conduct disclosed by the whistleblower and not “the whistleblower’s relationship to the subject of his disclosures.”  As a result, the Court held that a whistleblower can bring a retaliation claim even when the FCA disclosures were not directed at the employer.

Nonetheless, the Court ruled that based on the undisputed facts, the retaliation clam failed because O’Hara failed to show that the conduct he disclosed “reasonably could have led to a viable FCA action.”  Specifically, O’Hara’s complaints centered on a bid for a change order that he contended was unnecessary.  However, the government had expressly requested the bid for the change order, and the Court reasoned that a contractor cannot be liable for defrauding the government when it was following the government’s explicit instructions.

Employers receiving whistleblower allegations from their employees or agents should be mindful that § 3730(h)’s protections apply whether the allegations are directed at the employer or a third party such as another contractor.

Troutman Sanders will continue to monitor related circuit court opinions concerning the interpretation of the “whistleblower-protection provisions” of the FCA.