FYI: Cal App Ct Holds Doctrine of "Substantial Compliance" Did Not Apply to Specific Disclosure Required Under State Law

The California Court of Appeal, Fourth District, recently reversed the dismissal of an alleged California Vehicle Licensing Act (“CVLA”) violation for supposed failure to give a statutory notice in the exact language prescribed by the Act, holding that the doctrine of substantial compliance does not apply to technical violations of the CVLA.

A copy of this opinion is available at: http://www.courts.ca.gov/opinions/documents/D063937.PDF.

As you may recall, California’s Vehicle Licensing Act (the “VLA”) requires that lessors of vehicles which have been repossessed give the lessees a notice that contains the following statement:

“The amount you owe for early termination will be no more than the difference between the Gross Early Termination Amount stated above and (1) the appraised value of the vehicle or (2) if there is no appraisal, either the price received for the vehicle upon disposition or a greater amount established by the lessor or the lease contract. 

You have the right to get a professional appraisal to establish the value of the vehicle for the purpose of figuring how much you owe on the lease.  If you want an appraisal, you will have to arrange for it to be completed at least three days before the scheduled sale date of the vehicle.  The appraiser has to be an independent person acceptable to the holder of the lease.  You will have to pay for the appraiser.  The appraised value will be considered final and binding on you and the holder of the lease.”  

California Civil Code § 2987(d)(2)(B).

In 2011, Lessor repossessed an automobile from Lessee.  Following the repossession, Lessor sent Lessee a notice that attempted to comply with the requirements of Civil Code section 2987, subdivision (d)(2)(B).  However, Lessor’s notice deleted the phrase “to establish the value of the vehicle for the purpose of figuring how much you owe on the lease.”

Lessee filed a putative class action complaint against Lessor, based on this omission.  Lessee alleged Lessor’s collection or attempts to collect the deficiencies violated the Rosenthal Act and the UCL and had damaged her and other class members.

Lessor demurred to the complaint and argued that its notice substantially complied with the requirements of section 2987, subdivision (d)(2), and, therefore, it was authorized to collect deficiencies from lessees to whom it had sent the notice.  The trial court applied the doctrine of substantial compliance and determined that Lessor was not liable for a violation of the CVLA.  Accordingly, the trial court sustained Lessor’s demurrer and entered an order of dismissal with prejudice.

As you may recall, substantial compliance “means actual compliance in respect to the substance essential to every reasonable objective of the statute.  Where there is compliance as to all matters of substance technical deviations are not to be given the stature of noncompliance.  Substance prevails over form.  When the plaintiff embarks [on a course of substantial compliance], every reasonable objective of [the statute at issue] has been satisfied.” (Cal- Air Conditioning, Inc. v. Auburn Union School Dist. (1993) 21 Cal.App.4th 655, 668.)

The dismissal was entered on January 10, 2013.  On February 26, 2013, at the request of Lessor, the trial court set aside the January 10, 2013 dismissal and entered a judgment of dismissal with costs on February 26, 2013.  On March 19, 2013, Lessor served Lessee with notice of entry of the order setting aside the January 10, 2013 dismissal and entering judgment of dismissal with costs.  On May 15, 2013, Lessee filed a notice of appeal from the February 26, 2013 judgment.

On appeal, Lessor initially argued that Lessee’s notice of appeal was untimely because it was filed more than 60 days after the trial court’s January 10, 2013 order of dismissal.

Generally, a notice of appeal from a judgment must be filed on or before the earliest of: (1) 60 days after the trial court's mailing of the notice of entry of judgment, (2) 60 days after a party's service of the notice of entry of judgment, or (3) 180 days after the entry of judgment.  (Cal. Rules of Court, rule 8.104(a)(1)-(3).)  When a judgment is vacated and then reinstated, the time to appeal the judgment begins to run after reinstatement.  (Lantz v. Vai (1926) 199 Cal. 190, 193; Matera v. McLeod (2006) 145 Cal.App.4th 44, 58.)

The Court of Appeal found that the appeal was timely filed because notice of appeal was filed within sixty days of the February 26, 2013 judgment of dismissal.  The Court of Appeal concluded that the trial court had vacated the January 10, 2013 order of dismissal based upon the plain terms of its ruling:  “It is hereby ordered that: [¶] 1. The Order of Dismissal entered on or about January 9, 2013 be set aside; [¶] 2. A Judgment of Dismissal be entered in its place; [¶] 3. Defendant [Lessor] be awarded costs in the amount of $517.75.”

The Court of Appeal then reversed the trial court’s judgment of dismissal and found that the doctrine of substantial compliance does not apply to the CVLA. 

The Court of Appeal noted that the CVLA only excused noncompliance under certain circumstances.  Specifically, under Section 2987, subdivision (d)(3), a lessee has no liability to a lessor for any deficiency if the lessor has not complied with the notice requirements of section 2987, subdivision (d), except if noncompliance involves a bona fide error in the calculations required by subdivision (d)(2)(B).  A deficiency is enforceable, notwithstanding an erroneous calculation, if the lessee receives or gives notice of the erroneous calculations before the vehicle is sold.  (Civil Code § 2987(d)(3)(A)-(D).)

The Court of Appeal applied the longstanding statutory interpretation principle “expressio unius exclusius alterius est” (to express one thing is to exclude others).  With respect to the CVLA, the Court of Appeal determined that the express exception to strict enforcement of one part of the CVLA gives rise to the inference that the Legislature intended that the remaining requirements of the CVLA to be strictly enforced.

Thus, the Court of Appeal found that the doctrine of substantial compliance did not apply to the CVLA as a matter of statutory interpretation.

The Court of Appeal also held that practical considerations weighed against applying the doctrine of substantial compliance to the VLA.  The Court reasoned that as a consequence of employing prescribed language, the Legislature relieved all vehicle lessors of the burden and risk of determining what is an appropriate notice to lessees of their appraisal rights.  In this context, application of the doctrine of substantial compliance would shift that burden and the risk of interpretative error to California courts confronted with a similar abbreviated notice.  The Court saw no need to take on that burden or risk or to create precedent for imposing them on other courts throughout the state.

The Court of Appeal also held that the consequence to lessors of strict enforcement of the CVLA was not unfair and provided no undue benefit to lessees. The failure to provide notice simply prevents lessors who have repossessed and sold vehicles from also recovering a deficiency from lessees.  (See Civil Code § 2987(d)(3).)

The Court of Appeal did not address whether the violation of the CVLA could support liability under either the Rosenthal Act or the Unfair Competition Law. 

However, the Court of Appeal did note that the Rosenthal Act limits the remedies available to consumers.  In particular, section 1788.30 states in pertinent part: "(a) Any debt collector who violates this title with respect to any debtor shall be liable to that debtor only in an individual action, and his liability therein to that debtor shall be in an amount equal to the sum of any actual damages sustained by the debtor as a result of the violation.”

The Court of Appeal also noted that under the Unfair Competition Law a private plaintiff's remedies are “generally limited to injunctive relief and restitution.”  Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163, 179; see Bus. & Prof. Code, §§ 17203, 17206.

Eric Tsai
McGinnis Wutscher Beiramee LLP
Emerald Plaza
402 West Broadway, Suite 400
San Diego, CA 92101
Direct: (619) 955-6989

Fax: (866) 581-9302

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Email: etsai@mwbllp.com

Admitted to practice law in California, Nevada and Oregon

FYI: Cal App Ct Holds First Bank to Process Check Responsible for Verifying Endorsements, Even If Check Already Cashed at Check Cashing Company

The California Court of Appeals, Fourth Appellate District, recently determined that check cashing companies do not qualify as "banks" for purposes of liability for check forgery, and thus held that the first bank to process a check already cashed at a check cashing company is responsible for ensuring that any endorsement on that check is proper.

A copy of the opinion is available athttp://www.courts.ca.gov/opinions/documents/G049028.PDF. 

An employee stole checks from her employer, forged the signature of an officer of the employer, and cashed the checks at various check cashing companies.  When the employer discovered the scheme, it sued, among others, the three check cashing companies and the banks which received the checks from the check cashing companies.

The banks argued that they were only processing checks that had already been negotiated by the check cashing companies, and therefore were entitled to reply on the check cashing companies’ acceptance of the forged endorsements on the checks.  The lower court agreed, and sustained the demurrers of the banks.  The employer appealed. 

As you may recall, a depository - or "first bank" - in a chain of collection of a check is responsible for verifying the endorsements on a given check to make sure they are proper - whereas subsequent banks in a chain of collection may rely on the forwarded checks.  Feldman Const. Co. v. Union Bank (1972) 28 Cal. App. 3d 731, 736.  A "first bank" may be sued under California Commercial Code Sec. 3405 for an alleged failure to exercise due care in processing a check and accepting the endorsements.  See Lee Newman, M.D., Inc. v. Wells Fargo Bank (2001) 87 Cal. App. 4th 73, 79. 

On appeal, the dispute turned on whether the check cashing companies were in fact the "first banks" in the chain of collection. 

The Court determined that the check cashing companies did not quality as banks, and thus held that the banks in question were subject to the "first bank" requirements discussed above.  

In reaching this conclusion, the Court began by analyzing the statutory definition of various types of banks in the California Uniform Commercial Code (the "UCC") - noting that "the code's focus on the collection process is strongly suggestive that check cashing companies are not 'banks,' because by definition no check cashing service will ever be a payor bank..." 

Further, the Court observed the check cashing companies never take deposits - a practice that the Court termed "fundamental" to the business of banking. 

Accordingly, the Court held that "the check cashing companies in this case are not depositary first banks.  Ergo, the three conventional banks who took checks from those check cashing companies are first banks and therefore...subject to the duty of care provided for in Section 3405."   

Eric Tsai
McGinnis Wutscher Beiramee LLP 
Emerald Plaza
402 West Broadway, Suite 400
San Diego, CA 92101
Direct: (619) 955-6989

Fax: (866) 581-9302

Mobile: (714) 600-6000

Email: etsai@mwbllp.com

Admitted to practice law in California, Nevada and Oregon

          McGinnis Wutscher Beiramee LLP

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FYI: Cal App Holds Creditor Waived Right to Deficiency by Violating "Security First" Rule

The California Court of Appeal, Fifth District, recently held that a creditor waived its right to a deficiency judgment, because it violated the security first principle in Cal. Code Civ. P. § 726(a) by releasing its interest in a part of its collateral without the consent of all debtors and before foreclosing on the remaining parcel.

A copy of the opinion is available at: http://www.courts.ca.gov/opinions/documents/F067812.PDF

A bank (“Bank”) filed a judicial foreclosure action to collect a loan secured by two parcels of real estate.  The loan was made to a husband and wife and, after the husband died, the loan went into default.  Bank and wife agreed to a short sale of one of the parcels that was her separate property.  Afterward, Bank foreclosed on the remaining parcel and obtained a deficiency judgment against the representatives of the husband’s estate (“Appellants”) only, as a deficiency judgment was not allowed against the wife because of her bankruptcy.

As you may recall, California generally does not allow deficiency judgments after most residential foreclosures.  See Cal. Code Civ. P. § 580b.  Creditors seeking deficiency judgments must first exhaust all real property security to qualify for a deficiency judgment, and such exhaustion of the real property collateral must be through a single judicial foreclosure lawsuit.  See Cal. Code Civ. P. § 726.  These requirements in section 726 are referred to as the “one form of action” rule.

The consequence of not following the “one form of action” rule is a waiver of the creditor’s rights to a deficiency judgment.  Additionally, if any of the real property collateral is exhausted through any other means, such as a private sale without the consent of the debtors, a deficiency judgment is barred.  See, e.g., Pacific Valley Bank v. Schwenke (1987) 189 Cal.App.3d 134, 145.

Additionally, California protects debtors liable for deficiency judgments from low bids at the judicial foreclosure auction, by limiting the amount of the deficiency judgment to the difference between the fair value of the property and the amount of the indebtedness.  See Cal. Code Civ. P. § 726(b).  A second protection is the right to redeem the property based on the foreclosure sale price, not the amount of the secured debt.  See Cal Code Civ. P. § 726(e). 

On appeal, Appellants argued that the trial court erred by holding them liable for a deficiency judgment because Bank waived its right to a deficiency when it violated the “security first” rule.  By agreeing to a short sale of the second parcel without their consent, the Appellants argued that Bank deprived them of the protections they would have had if the second parcel had been included in the judicial foreclosure action.  The Appellate Court agreed.

Relying on Schwenke, the Appellate Court held that the security first principle in section 726(a) barred any liability for deficiency because Bank, without consent of the Appellants, released part of the security for the note when it allowed the wife to sell the second parcel in a private sale. 

In so ruling, the Appellate Court rejected Bank’s argument that Schwenke was bad law or that the Court should recognize an exception to the consent requirement.  Relying on numerous Court of Appeal decisions that cited Schwenke and referred to its consent requirement, the Appellate Court concluded that Schwenke “is consistent with the statutory language and the concepts underlying the security first principle.”

The Appellate Court also rejected Bank’s attempt to distinguish Schwenke, by arguing that Schwenke is unreliable in the absence of cases involving loans with multiple debtors secured by more than one parcel of real property.  The lack of further appellate decisions since Schwenke, according to the Appellate Court, showed that “bankers and their lawyers have had little trouble applying the rule of law that consent of all debtors must be obtained by the creditor before releasing any parcels securing the loan.”

In short, the Appellate Court concluded that a creditor and one of the debtors should not be able to modify the contractual obligations of the co-debtors without the co-debtor’s consent to that modification. 

Bank presented an alternate argument that did not involve the co-debtor’s consent, contending that “security” for purposes of the “security first” principle is determined at the time of the filing of the action, not when the loan was executed.  Bank supported its argument by citing Bank of America v. Graves (1996) 51 Cal.App.4th 607, which held that where the value of the security has been lost through no fault of the creditor, the creditor may bring a personal action on the debt on the theory that if the security become valueless at the time the action is commenced, the debt is no longer secured. 

The argument was rejected by the Appellate Court for two reasons.  First, the security for the loan, which included two parcels, had not been lost or became valueless at the time Bank commenced its foreclosure.  A judicial foreclosure action on the remaining parcel rather than a personal action on the debt was appropriate.  Second, the parcel sold in the short sale was not exhausted or lost through no fault of Bank.  Instead, Bank released its deed of trust pursuant to its agreement with the wife, without the consent of the Appellants.  For these reasons, the Appellate Court held that the principles in Grave regarding valueless or lost security did not apply.

Accordingly, the Appellate Court reversed the trial court’s order granting the motion for summary adjudication and the related decree for judicial foreclosure and writ of sale, and remanded the matter to the superior court with instructions to enter an order denying the motion for summary adjudication.

Eric Tsai
McGinnis Wutscher Beiramee LLP 
Emerald Plaza
402 West Broadway, Suite 400
San Diego, CA 92101
Direct: (619) 955-6989

Fax: (866) 581-9302

Mobile: (714) 600-6000

Email: etsai@mwbllp.com

Admitted to practice law in California, Nevada and Oregon

          McGinnis Wutscher Beiramee LLP

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FYI: Cal App Ct Affirms Decertification of Class in Alleged Unlawful Eavesdropping Action

The California Court of Appeal, Fourth District, recently affirmed the decertification of a class action lawsuit where a lender allegedly monitored telecommunications with its borrowers, finding individual issues regarding putative class members’ objectively reasonable expectations of privacy predominated.

A copy of this opinion is available at: 

http://www.courts.ca.gov/opinions/documents/D063363.PDF.

In 2006, several borrowers sued their lender (Lender) alleging that Lender monitored their telephone conversations without their knowledge or consent, in supposed violation of California law.  The borrowers alleged they each borrowed money from Lender and, in making the loans and collecting delinquent payments on those loans, Lender “secretly” monitored and eavesdropped on telephone conversations between Lender’s employees and borrowers, including conversations pertaining to “sensitive financial information.”

Over Lender’s objections, the trial court certified a class on one of the borrower’s claims, an alleged violation of California Penal Code section 632, which imposes liability on a “person” who intentionally “eavesdrops upon or records [a] confidential communication” and engages in this conduct “without the consent of all parties.”

After class certification, Lender successfully moved for summary adjudication on the section 632 claim.  The trial court found as a matter of law a company does not violate the statute when one of its supervisory employees secretly monitors a conversation between a customer and another company employee, reasoning that two employees are a single “person” within the meaning of the statute.

In a prior appeal, the Fourth District reversed the trial court’s order granting summary judgment, and held that the statute applies even if the unannounced listener is employed by the same company as the known recipient of the conversation, concluding the trial court's statutory interpretation was inconsistent with section 632's language and purpose.

In the prior appellate decision, the Fourth District found that the confidential-communication statutory element requires borrowers to show they had an “objectively reasonable expectation” that their conversations would not be secretly monitored.  The Fourth District explained, “The issue whether there exists a reasonable expectation that no one is secretly listening to a phone conversation is generally a question of fact that may depend on numerous specific factors, such as whether the call was initiated by the consumer or whether a corporate employee telephoned a customer, the length of the customer-business relationship, the customer's prior experiences with business communications, and the nature and timing of any recorded disclosures.”

Based upon the Fourth District’s prior appellate decision, Lender moved to decertify the class, arguing that the issue of whether any particular class member can satisfy this reasonable-expectation test requires an assessment of numerous individual factors, and these individual issues predominate over any remaining common issues, making a continued class action unmanageable.

Lender’s decertification motion focused on the circumstances surrounding each of the named borrower’s telephone conversations with Lender’s employees.  This evidence showed that each borrower had different experiences regarding the timing, extent, and nature of the monitored calls and of the Call Monitoring Disclosure, and had different prior experiences with business communications.

The trial court granted the decertification motion.  The trial court found that the appellate decision reversing summary adjudication constituted changed circumstances and “individual issues regarding the individual putative class members’ ‘objectively reasonable expectation of privacy’ predominate over [Lender’s] alleged uniform policies.”

On appeal, the Fourth District noted that class certification requires a “well-defined community of interest,” including that common questions of law or fact will predominate in the litigation.  Citing Duran v. U.S. Bank National Assn. (2014) 59 Cal.4th 1, 28.  On the predominance issue, “the ‘ultimate question’ . . . is whether ‘the issues which may be jointly tried, when compared with those requiring separate adjudication, are so numerous or substantial that the maintenance of a class action would be advantageous to the judicial process and to the litigants.’”

The Fourth District explained that after certification, a trial court retains flexibility to manage the class action, including to decertify a class if “the court subsequently discovers that a class action is not appropriate.”  Citing Weinstat v. Dentsply Internat., Inc. (2010) 180 Cal.App.4th 1213, 1226.  To prevail on a decertification motion, a party must generally show “new law or newly discovered evidence showing changed circumstances.”

The Fourth District affirmed the trial court’s decertification order, and held that whether its prior ruling constituted “new” law or a clarification of existing law as applied to the facts of this case, it constituted a reasonable and sufficient ground for the trial court to conclude that reevaluation of class certification was necessary.

In opposition to decertification, the borrowers argued that as a matter of law the trial court could not consider the decertification motion because of the problem of “one-way intervention.” 

As you may recall, the “one-way intervention” issue arises when a trial court rules on the substantive merits before reaching a final conclusion on class certification.  Fireside Bank v. Superior Court (2007) 40 Cal.4th 1069, 1078-1084. 

Generally, in a merits-first procedure, a defendant may be prejudiced because “not-yet-bound absent plaintiffs may elect to stay in a class after favorable merits rulings but opt out after unfavorable ones.”  And, plaintiffs may also be prejudiced: “[A] defendant should not be allowed to sandbag a plaintiff, withholding its best case against certification and then seeking decertification if it suffered an unfavorable merits ruling.”  A rule requiring a court to decide on class certification before the merits promotes fairness by “ensuring that parties bear equally the benefits and burdens of favorable and unfavorable merits rulings.”

In rejecting the borrowers’ argument, the Fourth District noted that the certification-before-merits rule is not an “iron-clad standard.”  The Fourth District found that “[i]t would be both unduly rigid and unjust to force the maintenance of [a class] action [after a ruling on the merits] even when there is a proper reason for decertification . . . .”  citing Fireside Bank, 40 Cal.4th at p. 1081.  The Fourth District explained that decertification generally requires changed circumstances, but courts retain inherent authority (and in fact have the affirmative duty) to decertify a class if a merits ruling makes clear that individual issues will engulf the litigation such that the class litigation becomes unmanageable and/or will substantially interfere with one or both of the parties' due process rights.

Based upon these principles, the Fourth District held that the trial court’s decertification order was not precluded by the certification-before-merits rule. 

The borrowers also argued that decertification was improper because the trial court erred in concluding that the existence of individual issues regarding the existence of “confidential communication[s]” precluded the case from going forward as a class action.

The Fourth District rejected borrowers’ arguments, and relied upon the recent decision in Hataishi v. First American Home Buyers Protection Corp. (2014) 223 Cal.App.4th 1454.  The Hataishi court held a trial court properly refused to certify a class of “outbound” callers who alleged a violation of section 632.  The Hataishi court held:  “[T]he determination whether an individual plaintiff had an objectively reasonable belief that his or her conversation with [the defendant] would not be recorded will require individualized proof of, among other things, 'the length of the customer-business relationship [and] the [plaintiff's] prior experiences with business communications …”

The Hataishi court concluded that “due process requires that [the defendant] be permitted to cross-examine an individual plaintiff regarding those experiences that may impact the reasonableness of his or her alleged confidentiality expectation.”

The Fourth District agreed with the Hataishi court, and affirmed the trial court’s decertification order because “the trier of fact would have to determine whether a person under the particular circumstances and given the background and experience of each plaintiff would have understood that the particular call was not being monitored.”

Finally, the borrowers argued that decertifying the class because of the existence of individual issues on the “confidential communication” issue is inconsistent with the strong public policy underlying section 632 that seeks to protect individual privacy rights.  The borrowers maintained that without a class action, it will not be economically feasible for borrowers to enforce their right to telephone privacy under section 632.

The Fourth District rejected the borrowers’ public policy argument:  “To the extent [borrowers] believe the "confidential communication" statutory element makes the enforcement of the statute too cumbersome or too expensive for an individual to recover on the claim, their remedy lies with the Legislature and not with the courts.”

Eric Tsai
McGinnis Wutscher Beiramee LLP 
Emerald Plaza
402 West Broadway, Suite 400
San Diego, CA 92101
Direct: (619) 955-6989

Fax: (866) 581-9302

Mobile: (714) 600-6000

Email: etsai@mwbllp.com

Admitted to practice law in California, Nevada and Oregon

          McGinnis Wutscher Beiramee LLP

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FYI: SD Cal Rejects FCC's Interpretation of ATDS Under TCPA, Enters Summary Judgment in Favor of Defendant in TCPA Putative Class Action

The U.S. District Court for the Southern District of California recently ruled that a company’s promotional text message platform did not constitute an automated telephone dialing system (“ATDS”) as defined by the federal Telephone Consumer Protection Act, 47 U.S.C. § 227(a)  (“TCPA”).  The Court also held that the FCC has no authority to modify or definitively interpret § 227(a) of the TCPA, in which the term ATDS is defined.

A copy of the opinion is available at:  Link to Opinion

The defendant company (Vendor) operated a gym which used a third-party web-based platform to send promotional text messages to its members and prospective customers’ cell phones. 

The phone numbers were inputted into the platform by one of three methods: (1) when vendor or another authorized person manually uploaded a phone number onto the platform; (2) when an individual responded to vendor’s marketing campaigns via text message (a “call to action”); and (3) when an individual manually inputted the phone number on a consent form through vendor’s website which interfaced with the platform. 

The plaintiff consumer (Consumer) joined Vendor’s gym sometime before November 20, 2012.  He alleged that he received three unwanted text messages from Vendor between November 20, 2012 and October 18, 2013.  He filed a putative class action alleging violation of the TCPA.

As you may recall, an ATDS is equipment that “has the capacity (A) to store or produce numbers to be called, using a random or sequential number generator; and (B) to dial such numbers.”  See 47 U.S.C. § 227(a)(1).

The Court granted Vendor’s motion for summary judgment.

First, the Court rejected Consumer’s efforts to rely on FCC commentary in support of his position.  Section 227(a)(1) defines an ATDS.  In contrast to § 227(b) and (c), section 227(a) does not include a provision giving the FCC rulemaking authority.  Further, § 227(b) and (c) expressly limited rulemaking authority to those subsections.  Thus, the Court held that any attempt by the FCC to modify the statutory language of § 227(a) was impermissible.

The Court acknowledged that FCC commentary broadly interpreted the definition of ATDS as “any equipment that has the specified capacity to generate numbers and dial them without human intervention regardless of whether the numbers called are randomly or sequentially generated or come from calling lists.” See In the Matter of Rules and Regulations Implementing the Tel. Consumer Prot. Act of 1991, 27 F.C.C.R. 15391, 15392, n. 5 (2012). 

However, the Court noted that because the definition of ATDS was clear and unambiguous, the FCC’s statutory interpretation of an ATDS was not binding on the court.  See Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984).

Next, the Court noted that other courts have defined “capacity” in the context of the definition of an ATDS as “the system’s present, not potential, capacity to store, produce or call randomly or sequentially generated telephone numbers.”  See Gragg v. Orange Cab Co., 995 F.Supp.2d 1189, 1193 (W.D. Wash. 2014). 

The Court also noted that the words “random or sequential number generator” in the definition of ATDS could not be construed to refer to a list of numbers dialed in random or sequential order.  According to the Court, this interpretation would effectively render the TCPA’s “random or sequential number generator” requirement superfluous.  Rather, the Court held, the term referred to the genesis of the list of numbers, not to an interpretation that rendered “number generator” synonymous with “order to be called.”

Applying these principles, the Court held that the platform at issue did not have the present capacity to store or produce numbers using a random or sequential number generator.  In the platform at issue, numbers only entered the system through three methods, all of which required human curation and intervention.  None could be termed a “random or sequential number generator.” 

Next, the Court concluded that even if potential or future capacity to randomly or sequentially autodial numbers were fairly included in the definition of ATDS, Vendor’s contractual obligations precluded such a finding in this case.  The Vendor used a third-party platform that audited users’ accounts pursuant to an “Anti-Spam Policy,” and it was contractually banned from inputting numbers into the system without either a response to a call for action or written consent.

Finally, the Court distinguished the case from a prior ruling from the Ninth Circuit in which a predictive dialer at issue in that case was treated as an ATDS because it had the “capacity to dial numbers without human intervention.” See Meyer v. Portfolio Recovery Assocs. LLC, 696 F.3d 943, 950 (9th Cir. 2012) (quoting 18 F.C.C.R. 14014, 14092 (2003)).  The Court noted that the Meyer opinion was inapplicable because challenges to the FCC’s authority regarding the definition of an ATDS had been waived at the district court level, and therefore were not at issue in the appeal.

Accordingly, the Court granted Vendor’s motion for summary judgment.

Eric Tsai
McGinnis Wutscher Beiramee LLP 
Emerald Plaza
402 West Broadway, Suite 400
San Diego, CA 92101
Direct: (619) 955-6989

Fax: (866) 581-9302

Mobile: (714) 600-6000

Email: etsai@mwbllp.com

Admitted to practice law in California, Nevada and Oregon

          McGinnis Wutscher Beiramee LLP

CALIFORNIA   |   FLORIDA   |   ILLINOIS   |   INDIANA   |   OHIO   |   WASHINGTON, D. C.

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