Fourth Circuit Strikes Blow to Government Debt Collectors With TCPA Constitutionality Ruling

TCPA Connect

In striking down a portion of the Telephone Consumer Protection Act (TCPA) as unconstitutional, the Fourth Circuit opened the door for more litigation against debt collectors.

The case is American Association of Political Consultants v. FCC, on appeal from the Eastern District of North Carolina. There, the plaintiffs argued that one of the statutory exemptions to the TCPA, created by a 2015 amendment authorizing automated calls relating to the collection of debts owed to or guaranteed by the federal government (the so-called debt-collection exemption), was facially unconstitutional under the Free Speech Clause of the First Amendment. In a unanimous decision, the Fourth Circuit agreed to a certain extent, but stopped short of declaring the entire TCPA unconstitutional, as many in the telemarketing industry had hoped.

The Federal Communications Commission (FCC) won summary judgment at the trial level in March 2018, around the time the D.C. Circuit was deciding the pivotal ACA International case, when the district judge ruled that the debt-collection exemption did not violate the Free Speech Clause. On appeal, the plaintiffs argued that not only did the district judge get it wrong, but also the debt-collection exemption was not severable and therefore the entire TCPA was unconstitutional. The Fourth Circuit ruled that it was “satisfied to sever the flawed [debt-collection] exemption from the automated call ban” rather than strike down the entire statute, and remanded.

More specifically, in the underlying complaint, the plaintiffs, a group of political entities including Democratic Party organizations of Oregon and Washington State, alleged that the debt-collection exemption “create[d] a regime that permits—and thereby unconstitutionally favors—a select group of otherwise prohibited automated calls to cell phones” and that, because “whether an automated phone call satisfies the debt-collection exemption, and thus escapes the prohibitions of the automated call ban, depends on the call’s content,” the exemption contravenes the Free Speech Clause. The district court at first agreed that the debt-collection exemption “makes content distinctions on its face” and was “predicated on the subject matter of the phone call rather than on the caller’s relationship to the recipient thereof.” At the same time, however, the district court ruled that the debt-collection “exemption does not subvert the privacy interests furthered by the [automated call] ban” and does not hinder the automated call ban from furthering the compelling governmental interest of protecting “the well-being, tranquility, and privacy” of American consumers in a narrowly tailored fashion and, therefore, does not contravene the Free Speech Clause.

On appeal, the plaintiffs agreed with the district court ruling that the debt-collection exemption to the automated call ban constitutes a content-based restriction on speech, but challenged the district court’s ruling that the exemption furthered any compelling governmental interest. The FCC again argued that whether an automated phone call is authorized by the debt-collection exemption, and thus not prohibited by the automated call ban, depends on the relationship of the parties thereto, and not on the content thereof. The Fourth Circuit agreed with the district court to an extent, holding that “the statutory text of the debt-collection exemption undercuts the Government’s relationship-based contention” because it “makes no reference to the relationship between the caller and the recipient of the automated phone call” and, instead, “applies to a phone call made to the debtor, because the call is about the debt, not because of any relationship between the federal government and the debtor.” Therefore, the Fourth Circuit held, in agreement with the district court, that “the debt-collection exemption to the automated call ban constitutes a content-based speech restriction.”

However, the Fourth Circuit disagreed with the district court’s ruling that the debt-collection exemption satisfied “strict scrutiny” review—that is, that the content-based restriction “advance[d] a sufficiently important governmental objective” and was “narrowly tailored to further a compelling governmental interest”—as required by the U.S. Supreme Court’s ruling in Reed v. Town of Gilbert, 135 S. Ct. 2218 (2015). In that regard, the unanimous panel held that the “debt-collection exemption does not further the purpose of the automated call ban”—which the FCC argued was designed to “protect[] and shelter[] the privacy interests of American consumers”—in a narrowly tailored fashion because, particularly in the student loan debt context, “millions of debtors owe debts about which third parties can make otherwise prohibited calls” under the exemption. The panel also held that “[u]nlike the consent and emergency exemptions, the debt-collection exemption impedes the privacy interests of the automated call ban” and “is thus an outlier among the [other] statutory exemptions” in the TCPA.

Yet the Fourth Circuit disagreed with the plaintiffs’ assertion that the “constitutionally flawed debt-collection exemption invalidates the entirety of the automated call ban, rendering severance of the debt-collection exemption improper,” and sided with the FCC. In this regard, the panel ruled that (i) “the explicit directives of the Supreme Court and Congress strongly support a severance of the debt-collection exemption from the automated call ban” and (ii) “the ban can operate effectively in the absence of the debt-collection exemption, which is clearly an outlier among the statutory exemptions.” Consequently, the Fourth Circuit “direct[ed] the severance of the debt-collection exemption from the balance of the automated call ban.”

To read the entire opinion in American Association of Political Consultants v. FCC, click here.

Why it matters: There have been a few successful challenges to the constitutionality of the TCPA at the federal district court level, but this is the first case in which a federal appellate court reached the same conclusion. Now, in the Fourth Circuit at least, defendants can no longer use the debt-collection exemption as an excuse to make automated calls to collect government-backed debt, which some commentators have said could place a significant burden on the economy by hampering the collection of billions of dollars’ worth of outstanding student loan debt. And since this case involves the FCC and not private parties, there is a strong chance it could actually be heard by the U.S. Supreme Court—unlike the Ninth Circuit’s decision in Marks v. Crunch San Diego, which was settled before the Supreme Court could weigh in. If that happens, the current arguably “pro-Trump” (and thus pro-business) Supreme Court could, in theory, strike down the entire TCPA, which would undoubtedly turn the TCPA world on its ear. In short, next to or perhaps even on par with ACA International and its progeny, this decision is one of the most significant appellate decisions on the TCPA in the last decade.

Manatt’s TCPA team will continue to monitor developments as American Association of Political Consultants plays out in the courts, both on further appeal and at the district court level.