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June 20, 2019

Stroock Special Bulletin

By: Brian C. Frontino, Stephen J. Newman, Arjun P. Rao, Julia B. Strickland, Quyen T. Truong

Today, the United States Supreme Court issued its long-awaited decision in PDR Network, LLC v. Carlton & Harris Chiropractic, Inc., No. 17-1705, potentially opening the door for private litigants to challenge interpretations of the Federal Communications Commission (the “FCC”) in cases filed under the Telephone Consumer Protection Act of 1991 (the “TCPA”) and other statutes, among other agency actions.  This decision has widespread implications for challenges to agency actions subject to the Hobbs Act, which courts previously had been reluctant to permit.

The TCPA restricts a broad range of unconsented-to telephonic communications and contains detailed provisions pertaining to telemarketing and to the use of fax machines, automated dialing technology and pre-recorded voice messages.  PDR Network involved the TCPA’s facsimile provisions.  PDR Network prints and distributes the Physicians’ Desk Reference, a reference manual that describes a wide range of medications, explains their proper use, and sets forth side effects, other contraindications and potentially harmful drug interactions.  The reference manual is provided to physicians free of charge, and its development, printing and distribution is funded by major pharmaceutical manufacturers whose products are described in the reference manual. PDR Network faxed information to a large number of health care providers on how they could receive their free copies.  PDR Network did not obtain advance consent from providers before sending the faxes, and one fax recipient, the plaintiff chiropractic firm, filed a TCPA class action lawsuit against PDR Network.

PDR Network successfully moved to dismiss the litigation on the grounds that its fax was not an “unsolicited advertisement” and thus was exempt from the TCPA because the fax itself offered something for free.  On appeal, plaintiff pointed to the FCC's May 3, 2006 Order (the “2006 Order”) stating:  “facsimile messages that promote goods or services even at no cost, such as free magazine subscriptions, catalogs, or free consultations or seminars, are unsolicited advertisements under the TCPA’s definition.”  See 71 Fed. Reg. 25,967, 25973.  In the 2006 Order, the FCC found that “free” items “are often part of an overall marketing campaign to sell property, goods or services.”  Id.  Plaintiff argued that the Physicians’ Desk Reference was a commercial product because it was funded by pharmaceutical companies to encourage health care providers to use or prescribe the companies’ medications.  Moreover, plaintiff argued that federal courts must apply the FCC’s interpretation of the “unsolicited advertisement,” rather than interpreting that statutory term themselves, because the Hobbs Act requires that any challenge to an FCC order be filed in the Court of Appeals within 60 days of the order’s entry.  In other words, plaintiff argued, the district court lacked jurisdiction even to consider PDR Network’s argument that faxes offering free goods are categorically exempt from the TCPA.  The Fourth Circuit Court of Appeals agreed with plaintiff and reversed the order dismissing the case.  PDR Network petitioned the Supreme Court for certiorari.

In an opinion written by Justice Breyer and signed by Chief Justice Roberts and Justices Ginsburg, Sotomayor and Kagan, the Court ruled that the Court of Appeals should not have completely foreclosed PDR from challenging the FCC’s interpretation before making other findings.

First, the Supreme Court ruled, it was possible that the FCC’s order was merely an “interpretive rule” rather than a “legislative rule.”  If so, then that interpretive rule “may not be binding” on the courts.  The Court was careful to state that it was not deciding what weight the district court should give the FCC’s interpretation of the statute in that situation under Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984).

Second, even if the FCC’s order was a “legislative rule,” PDR Network potentially still could challenge it pursuant to the Administrative Procedure Act if PDR Network could show that it lacked a “prior” and “adequate” opportunity to obtain judicial review of the order.

The Supreme Court vacated the Court of Appeals' ruling, and remanded the case so that these two issues could be addressed.

Four justices would have gone further and would have held that courts always have the authority to interpret the TCPA differently from the FCC.  In a concurring opinion, Justice Kavanaugh (joined by Justices Thomas, Alito and Gorsuch) wrote that, because the Hobbs Act does not expressly forbid courts hearing private TCPA litigation from construing the statute, they remain free to do so.  As long as they afford “appropriate respect” to the FCC’s interpretation, they remain free to disagree with the FCC.  For example, courts traditionally remain free to consider “as applied” challenges to agency interpretations; an agency may have issued a rule without full consideration of the facts of the particular case before the court, and in these circumstances courts have greater leeway to reach their own conclusions.  Moreover, denying judicial review of an agency’s statutory interpretation in private enforcement actions would require every potentially affected party to challenge every agency order that conceivably could affect them in the future — an untenable outcome.  Justice Thomas (in a concurring opinion joined by Justice Gorsuch) took an even stronger position, writing separately that reading the Hobbs Act to require courts to treat the FCC’s statutory interpretation as authoritative would render it unconstitutional, as it would trench on the courts’ judicial power and Congress’ legislative power.

In spite of its limited holding, the case is critically important for TCPA litigation, as well as other private litigation and challenges to agency actions covered by the Hobbs Act, including, for example, orders of the Secretary of Housing and Urban Development (“HUD”).  As to the TCPA, the FCC has issued orders interpreting key provisions, such as what constitutes an “automatic telephone dialing system” (under 47 U.S.C. § 227(a)(1)), “prior express consent of the called party” (under 47 U.S.C. § 227(b)(1)(A)) and an “established business relationship” (under 47 U.S.C. § 227(a)(2)).  The door now appears open for litigants in private TCPA cases to argue for different interpretations.  It remains to be seen whether further litigation in the lower courts or the Supreme Court will provide clarity, or whether Congress will step in to more precisely define these important statutory terms.

Please let us know if you have any questions or would like to discuss the PDR Network decision or any other matter.

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For More Information:

Brian C. Frontino

Stephen J. Newman

Arjun P. Rao

Julia B. Strickland

Quyen T. Truong

This article is for general information purposes only. It is not intended as legal advice, and you should not consider it as such.