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Dominguez v. Yahoo, Inc.

United States District Court, E.D. Pennsylvania

January 27, 2017

BILL DOMINGUEZ, on behalf of himself and all others similarly situated, Plaintiff
v.
YAHOO!, INC., Defendant

          MEMORANDUM - YAHOO MOTION FOR SUMMARY JUDGMENT

          Baylson, J.

         I. Introduction

         On remand from the Third Circuit, this case relates to an alleged violation of the Telephone Consumer Protection Act ("TCPA"). In the initial phase of this case, this Court granted summary judgment in favor of Defendant Yahoo!, Inc. ("Yahoo" or "Defendant"), and Plaintiff appealed. In part due to a new ruling by the FCC regarding the TCPA that was issued as the appeal was pending, the Third Circuit remanded the case for further proceedings and factual development.

         Before the Court are two motions: Yahoo's Renewed Motion for Summary Judgment, and Yahoo's Motion to Exclude Plaintiffs experts. For the reasons outlined below, both of Yahoo's Motion will be GRANTED.

         II. Background of the Case

         A. Factual Background

         Plaintiff alleges that Yahoo violated the TCPA, enacted by Congress in 1991. Plaintiff purchased a used cellular telephone with an assigned phone number. The previous owner of the telephone number had subscribed to Yahoo's email service and also enrolled the number in the Defendant's E-mail SMS Service, through which the phone would receive text messages upon receiving an e-mail at the owner's Yahoo e-mail account. Plaintiff, on behalf of himself and other similarly situated consumers, initiated this class action lawsuit against Defendant Yahoo to challenge Yahoo's practice of sending unsolicited text messages to cellular telephone numbers owned by .individuals who never consented to receive such text messages.

         It is undisputed that Plaintiff received text messages solely because the previous owner of Plaintiffs mobile phone number was a Yahoo subscriber who affirmatively signed up to receive text messages each time he received an email in his Yahoo email inbox. Yahoo has consistently, without dispute, asserted it could not "disarm" the system. Yahoo denies liability and argues that the TCPA only prohibits unsolicited automated telemarketing and bulk communications sent via an Automatic Telephone Dialing System ("ATDS"), which means a system that has the capacity to store or produce telephone numbers to be called using a random or sequential number generator, and dial those numbers. See 47 U.S.C. § 227(b)(3).

         Yahoo contends that its system is not an ATDS because the system lacks the capacity to store or produce telephone numbers to be called, using a random or sequential number generator.

         B. Law

         The TCPA prohibits any person from making:

Any call (other than a call made for emergency purposes or made with the prior express consent of the called party) using any [ATDS] ...
(iii) to any telephone number assigned to a . . . cellular telephone service ... or any service for which the called party is charged for the call...

47 U.S.C. § 227(b)(1)(A).

         The statute defines an ATDS 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." Id. § 227(a)(1).

         C. Prior District Court Opinions

         In granting Yahoo's first motion for summary judgment (ECF 55), this Court held that Plaintiff has not offered any evidence to show that Yahoo's system had the capacity to randomly or sequentially generate telephone numbers (as opposed to simply storing telephone numbers), and call those numbers, as required by the statutory definition of ATDS. The Court thus found that Yahoo did not send text messages to Plaintiff via an ATDS and, therefore, granted judgment in favor of Yahoo. See Dominguez v. Yahoo!, Inc., 8 F.Supp.3d 637 (E.D. Pa. 2014).

         D. Third Circuit Opinion (629 F.App'x 369)

         The Third Circuit agreed with this Court's definition of "random or sequential" number generation (i.e., "the phrase refers to the numbers themselves rather than the manner in which they are dialed") and its holding that the statutory definition does in fact include such a requirement. However, the Third Circuit reversed the grant of summary judgment as follows:

We disagree that the record supports entry of summary judgment in Yahoo's favor. The only evidence Yahoo can point to that is probative of whether its equipment has the requisite capacity is the conclusory affidavit of its expert Ajay Gopalkrishna, who states that "[t]he servers and systems affiliated with the Email SMS Service did not have the capacity to store or produce numbers to be called, using a random or sequential number generator, and to call those numbers." Not only does this restating of the statutory definition amount to nothing more than a legal conclusion couched as a factual assertion, compare with 47 U.S.C. § 227(a)(10 ("The term 'automatic telephone dialing system' means 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."), it begs the question of what is meant by the word "capacity."

629F.App'x. At 373.

         The Third Circuit also remanded for consideration of an FCC ruling in 2015, Rules & Regulations Implementing Tel. Consumer Protection Act of 1991, 30 FCC Red. 7961, 8074; 2015 WL 4387780, at *81 (2015) [hereinafter 2015 Ruling], that impacted the definition of "capacity." The Circuit Court noted changes in telephone technology in the context of the TCP A, the evolution of the FCC regulations, and a dispute in the industry about the scope of its regulations:

In a series of declaratory rulings - the most recent being the one referred to above in July 2015, see 2015 FCC Ruling, 2015 WL 4387780, at *5-*6 - the FCC appeared to take a middle-of-the-road view. Although hardly a model of clarity, its orders (as we interpret them) hold that an autodialer must be able to store or produce numbers that themselves are randomly or sequentially generated "even if [the autodialer is] not presently used for that purpose." Id. at *5. But importantly, in the most recent ruling the FCC also clarified that neither "present ability" nor the use of a single piece of equipment is required. Thus, so long as the equipment is part of a "system" that has the latent "capacity" to place autodialed calls, the statutory definition is satisfied.

         III. Summary

         The Court will discuss the concept of "capacity" in the context of FCC regulations, determine whether there are any genuine issues of fact requiring that Yahoo's motion for summary judgment be denied, and consider other legal issues. Below is a summary of the Court's decisions.

         1. As the Third Circuit specifically noted that this Court's prior opinion did not have a detailed discussion of "capacity, " a descriptive definition of this term will precede the discussion of the other issues in the case. The definition will describe the meaning of "capacity" in the context of this case, relying on FCC rulings and any applicable case law. In this discussion, the Court will consider the 2015 Ruling, which in relevant part was adopted by a 3-2 vote, [1] and is currently on appeal before the Court of Appeals for the District of Columbia Circuit.

         2. The Court determines that the applicable standard to apply is the concept of "present capacity" because that was the governing principal of communications law at the time that Plaintiff bought his telephone and this case was filed.

         a. Under a standard of "present capacity, " the Yahoo system did not qualify under the TCPA's requirements. The Third Circuit affirmed this Court's interpretation of statutory language, which, in the absence of any other evidence, requires granting Yahoo's motion for summary judgment.

         3. The Court concludes that the 2015 Ruling should not be applicable to this case under any principle of retroactivity, Supreme Court decision or Third Circuit precedential opinion, and finds that it would not be fair to Yahoo to apply the 2015 Ruling to this case.

         4. Alternatively, if the Court were to consider the 2015 Ruling, then Plaintiff would have the burden of showing that the Yahoo system could meet the statutory definition, and that concepts of "latent capacity" or "potential capacity" must be considered.

         a. Plaintiff has proffered the opinions of four separate experts and argues that these expert reports show a genuine issue of fact requiring a jury trial that the Yahoo system meets the concepts of "latent capacity" or "potential capacity."

         i. After detailed consideration of the expert reports, and Yahoo's Daubert motion to exclude them, the Court concludes that the Daubert motion should be granted because the Plaintiffs experts have not shown that their opinions are reliable or "fit" the facts of this case and also, their opinions are not supported by any empirical testing, which is an important requirement under Daubert and subsequent Third Circuit cases.

         b. Without the expert testimony, Plaintiff has failed to show a genuine issue of fact so as to defeat summary judgment.

         5. Even if admissible, Plaintiffs experts' reports fail to show the Yahoo system was capable of generating random/sequential numbers and "calling" those numbers, and are therefore insufficient to defeat summary judgment.

         6. On the issue of waiver, the record shows the Plaintiff relied on a theory of "present capacity" when the case was originally filed. However, the Plaintiff, promptly after the FCC issued the 2015 Ruling, notified the Third Circuit about the Ruling. The 2015 Ruling was clearly one of the reasons for the remand back to this Court. Because Plaintiff promptly filed an Amended Complaint in this Court after the remand, without any objection by Yahoo, the Court will not find waiver.

         IV. Capacity in the TCPA and FCC Rulings

         In its appellate decision, the Third Circuit noted that this Court's prior opinion did not contain a detailed discussion of the meaning of "capacity, " a key term at the heart of this matter. Thus, we will begin by addressing the definition of "capacity" in the context of the TCPA and the FCC rulings interpreting it.

         The TCPA, passed by Congress in 1991, prohibits certain types of calls made from an ATDS, which the statute defines 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." 47 U.S.C. § 227(a)(1). Although "capacity" is not defined in the TCPA, three FCC rulings published since the law's passage discuss the meaning of the term and, in light of the dearth of appellate decisions engaging in any such discussion, provide the most instructive authority on its definition. See 47 U.S.C. § 227(b)(2) (authorizing the FCC to implement rules and regulations enforcing the TCP A); Hartley-Culp v. Green Tree Servicing, LLC, 52 F.Supp.3d 700, 703 (M.D. Pa. 2014) (holding that FCC rulings are binding on district courts).

         A. 1992 Ruling

         Shortly following the promulgation of the TCP A, the FCC issued its first ruling addressing the definition of an ATDS. See Rules & Regulations Implementing Tel. Consumer Protection Act of 1991, 7 FCC Red. 8752, 1992 WL 690928 (FCC Oct. 16, 1992) [hereinafter 1992 Ruling]. In the 1992 Ruling, the FCC considered whether the prohibitions of the TCP A applied to functions such as "speed dialing" or "call forwarding" and determined that they did not, "because the numbers called are not generated in a random or sequential fashion." Id. at *17, ¶ 47. That finding bears on the instant inquiry even though "capacity" is not explicitly referenced because it reveals that the FCC's understanding at the time was that, to be an ATDS, a given piece of equipment must function as one at the time the challenged calls were made. See 2015 Ruling, 2015 WL 4387780, at *81 (dissent of Commissioner Pai) (interpreting the 1992 Ruling as the FCC's first expression of what became its long-held approach to solely consider the present capacity of a given piece o'f equipment when determining if it qualified as an ATDS).

         A second relevant statement in the 1992 Ruling reflects the FCC's then-current stance on definitional questions that regulated entities had raised in the wake of the TCPA's passage. In response to such questions, the FCC "decline[d] to adopt definitions offered by commenters where such definitions fit only a narrow set of circumstances, " and instead voiced support for "broad definitions which best reflect legislative intent by accommodating the full range of telephone services and telemarketing practices." 1992 Ruling, 1992 WL 690928, at *2, ¶ 6. We note this statement here because it is cited in the 2015 Ruling as support for the FCC's proposition that it has consistently interpreted terms in the TCPA broadly. See 2015 Ruling, 2015 WL 4387780, at *7, ¶ 16.

         B. 2003 Ruling

         A decade later, the FCC again confronted the definition of an ATDS, this time in response to dramatic changes in the telemarketing industry that had taken place in the intervening years. See Rules & Regulations Implementing Tel. Consumer Protection Act of 1991, 18 FCC Red. 14014, 2003 WL 21517853 (2003) [hereinafter 2003 Ruling]. In the 2003 Ruling, the FCC considered whether the definition of an ATDS was capacious enough to include "predictive dialers, " which are dialing systems that "store pre-programmed numbers or receive numbers from a computer database and then dial those numbers in a manner that maximizes efficiencies for call centers." Id. at *45, ¶ 130. It was undisputed that predictive dialers do not "store or produce telephone numbers to be called, using a random or sequential number generator;" but, nevertheless, the FCC ruled that predictive dialers fit within the definition of an ATDS. See 47 U.S.C. § 227 (a)(1); 2003 Ruling, 2003 WL 21517853, at *46, ¶ 133.

         The FCC rested its conclusion on the use of the word "capacity" in the definition of an ATDS, holding that because a predictive dialer has "the capacity to dial numbers without human intervention, " it was sufficiently automated to be an ATDS. 2003 Ruling, 2003 WL 21517853, at *46, ¶¶ 133-134 (emphasis in original). The FCC further relied on legislative intent to bolster its finding, stating that the TCPA was intended to alleviate the problem of unwanted automated calling and should not be sapped of its power to do so by virtue of a change in the methodology used by telemarketers. See Id. at *46, ¶¶ 132-133 ("In the past, telemarketers may have used dialing equipment to create and dial 10-digit telephone numbers arbitrarily. As one commenter points out, the evolution of the teleservices industry has progressed to the point where using lists of numbers is far more cost effective.").

         The 2003 Ruling's effect on the definition of an ATDS is cabined to its holding that the specific type of dialing equipment known as a "predictive dialer" qualifies as an ATDS. See Id. at *46, ¶ 133 (summing up its discussion of "capacity" by holding that "a predictive dialer falls within the meaning and statutory definition of 'automatic telephone dialing equipment' and the intent of Congress"). Although the reasoning underlying that finding reflects the FCC's movement towards a broader definition of "capacity" than had been previously embraced, the sole upshot of the 2003 Ruling, on this issue, is to include predictive dialers within the definition of ATDS and is not to "implicitly reject[] any 'present use' or 'current capacity' test." See 2015 Ruling, 2015 WL 4387780, at *7, ¶ 16. This is made clear in Commissioner Pai's dissent to the 2015 Ruling, discussed below, in which he refuted the majority's attempt to "seek[] refuge in Commission precedent, " stating that the 2003 Ruling was exclusively relevant to predictive dialers and that, furthermore, it did not reject a "present use" test because the equipment at issue "had the capacity to dial random or sequential numbers at the time of the call, even if that capacity was not in fact used." Id., at *83; see also Blow v. Bijora, Inc., No. 11-3468, 2016 WL 7013507, at *5 (N.D. Ill., Feb. 4, 2016) (noting that the 2003 Ruling "limited this expanded definition [of capacity] to predictive-dialer systems" and that the 2015 Ruling "removed the predictive-dialer circumscription, yet").

         C. 2015 Ruling

         Finally, the 2015 Ruling is central to this discussion, insofar as it addresses in the most comprehensive manner to date how "capacity" fits into the definition of an ATDS. The 2015 Ruling, currently on appeal before the D.C. Circuit, clarifies that the pertinent inquiry in determining whether equipment qualifies as an ATDS is the equipment's potential capacity to perform the functions described in the statute. See 2015 Ruling, 2015 WL 4387780 at *7, ¶ 16. By interpreting "capacity" in this way, the 2015 Ruling repudiated a "present use" or "current capacity" standard and instead created a space within the definition for equipment that, while not an ATDS as currently configured, could become one with some level of modification. Courts have struggled to apply the FCC's newly promulgated interpretation of "capacity" because the 2015 Ruling provides scant guidance as to how to differentiate between "potential" capacity, which is covered by the statutory definition, and "theoretical" capacity, which is not. See Id. at *7, ¶ 18 (explaining that equipment may possess the requisite capacity to be an ATDS if "it requires the addition of software to actually perform the functions described in the definition, " but cautioning that "there must be more than a theoretical potential that the equipment could be modified to satisfy the [ATDS] definition") (emphasis added); Errington v. Time Warner Cable Inc., No. 15-2196, 2016 WL 2930696, at *3 (CD. Cal. May 18, 2016) (noting that "[t]he July 2015 Ruling does not clarify the difference between 'potential' and 'theoretical' capacity"). Indeed, the only example in the 2015 Ruling of a piece of equipment that would exceed the outer limit of "capacity" is a rotary-dial phone which, although "theoretically possible to modify ... to such an extreme that it would satisfy the definition of [an ATDS], " is too far afield from an ATDS to support a finding that it has the requisite capacity. 2015 Ruling, 2015 WL 4387780 at *7, ¶18.

         Two Commissioners penned dissents on this topic, and they merit brief discussion here. The main thrust of Commissioner Pai's dissent was that if a dialing device cannot do the two things the statute states that an ATDS must be able to do, then it cannot meet the statutory definition of an ATDS. Id. at *81. Commissioner Pai characterized the majority's approach as contrary to prior FCC rulings rather than simply a "reaffirmation" of them, and argued that the "present capacity" approach is consistent with the use of the present tense and indicative mood in the statute. Id. He further concluded that the 2015 Ruling subverts legislative intent by transforming "pretty much any calling device or software-enable feature that's not a 'rotary-dial phone"' into an ATDS, and therefore subjecting "almost all our citizens to liability for everyday communications." Id. at *82. In sum, the Commissioner strongly opposed what he characterized as the dramatic expansion of the TCPA's reach wrought by the 2015 Ruling.

         The second dissent that addresses the 2015 Ruling's enlarged definition of "capacity" is that of Commissioner O'Rielly, who similarly described the majority's approach as over-inclusive and a fundamental "misread[ing] of] the statute." Id. at *92. Commissioner O'Rielly agreed with Commissioner Pai that the statutory language is clear: to be an ATDS the equipment must have the capacity to function as an ATDS at the time that the challenged call is made. Id. at *91. He further stated that the 2015 Ruling runs contrary to the plain language of the TCPA "by including equipment [in the definition of an ATDS] that merely has the capacity to dial from a list of numbers." Id. at *92. At least one court has cited these dissents as support for a finding that the 2015 Ruling is likely to be overturned. See Gensel v. Performant Techs., Inc, No. 13-1196, 2015 WL 6158072, at *2 (E.D. Wis. Oct. 20, 2015) (granting stay based on conclusion that the 2015 Ruling's definition of "capacity" contradicted the plain language of the TCPA and would therefore not be entitled to deference on appeal).

         As the above makes clear, the 2015 Ruling advanced a definition of "capacity" that is at once broader than the definitions previously elucidated by the FCC, and lacking in clearly delineated boundaries. The dissents of Commissioners Pai and O'Rielly capture the sentiment of uncertainty that is currently prevailing among regulated entities and courts faced with interpreting and applying the 2015 Ruling. In this litigation, neither Party argued that the relevant standard was "potential" or "latent" capacity prior to the issuance of the 2015 Ruling. See Yahoo's Initial Mot. for Summary Judgment (ECF 14) at 6-7 (focusing on "capacity" in general, with no reference to potential or latent capacity); Pl. Response to Yahoo's Initial Mot. for Summary Judgment (ECF 19) at 4-5 (same).

         D. Present capacity is a viable legal standard

         The Third Circuit opinion in this case is non-precedential, which means that it is a decision affecting only the parties of this case and is not binding on future panels of the Third Circuit hearing similar cases. The Third Circuit's opinion noted that the parties had agreed that "present capacity" was the governing concept. Plaintiff asserts that, on remand, this Court is not bound to consider "present capacity" and a better interpretation of the Third Circuit's ruling is that, by remanding in part because of the FCC's 2015 Ruling, the Third Circuit was requiring this Court to abandon "present capacity" and substitute the concepts of "latent" or "potential" capacity. The Court rejects this argument as erroneously interpreting the Third Circuit's opinion as mandating that this Court abandon the concept of "present capacity." For reasons stated elsewhere in this memorandum, this Court has decided not to apply the 2015 Ruling.

         This Court also believes that because the Third Circuit's opinion is not precedential, this Court may, on remand, review the entire record and may determine once again that the appropriate concept of "capacity" is "present capacity." This Court's view is that it should apply the concept of "present capacity" because that was the FCC's test when this case was filed and when Plaintiff was receiving the text messages which form the basis of this lawsuit.

         However, alternatively, this Court will then consider whether the 2015 Ruling should be applied retroactively, and then, whether Plaintiff has satisfied their burden of showing, in responding to Yahoo's motion for summary judgment, that there is evidence from which the Court can determine there is a genuine issue of fact as to the "capacity" of the Yahoo E-mail SMS Service, to require a jury trial.

         V. Whether the FCC's 2015 Ruling Applies to this Case

         Whether the 2015 Ruling is applicable may depend upon how the administrative agency's decision is classified; namely, how it fits into one of several well-known categories of agency rulings [and] whether it is a "substantive" rule, an "adjudicative" rule, an "interpretive" rule, or a "statement of policy" under the Administrative Procedure Act ("APA"). As surprising as this may sound, the FCC itself did not characterize the 2015 Ruling as belonging to any of the above categories.[2] Indeed, the parties to the pending appeal to the District of Columbia Circuit Court of Appeals "suffer" through this uncertainty, by themselves failing to characterize the FCC ruling as belonging to any one of the above categories. At least a cursory review of the pending briefs did not disclose any discussion, or even debate, on how to categorize the 2015 Ruling.

         The best characterization of the 2015 Ruling is that it resembles a "mongrel" - with no offense to dogs. The Court expresses its dismay that the majority of FCC Commissioners would have issued it without any characterization- thus, infecting ...


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