Yahoo!: 3rd Circ. Holds Random or Sequential Number Generation Is Needed–Rejects Expert Reports, Rules Yahoo’s IM Platform Not an ATDS

I won’t bury the lead here–in the Third Circuit a dialer that calls from a list of numbers “individually and manually inputted into its system by a user” is not an ATDS unless it has the present ability to randomly or sequentially generate numbers and dial them. Yahoo!

Today’s ruling in Dominguez v. Yahoo, Inc, No. 17-1243, 2018 U.S.App.Lexis 17350 (3rd. Cir June 26, 2018)(“Dominguez II”) is a huge– and undoubtedly satisfying– victory for Yahoo!, but it also represents a massive shift in case law in favor of a limited reading of ATDS, just when courts seemed to be content to continue reading the ATDS definition broadly. What an amazing development.

At issue in Dominguez is the least likely of all autodialers–Yahoo’s instant messenger platform. In the first place, does that thing still exist? In the second place, does it even make phone calls?

For purposes of Dominguez II–and this article–let’s just assume the answer to both questions is “yes.” That sets up the meat of the issue–does it have the needed “capacity” to “function” as an ATDS.

For the vast majority of the Dominguez II decision the Third Circuit comes tantalizingly close to identifying the needed “functionalities” of an ATDS but–seemingly almost intentionally–did not specify and confirm what those functionalities were. Then, with all hope seemingly lost, the big reveal came at the very end of the decision–the “key factual question” the Court states is “whether the Email SMS System functioned as an autodialer by randomly or sequentially generating telephone numbers, and dialing those numbers.”  And there it is. A perfect encapsulation of the functional requirements of an ATDS as distilled by a U.S. Circuit Court of Appeal. Que bella!

But let’s dig in a bit here.

Framing the issues on appeal, the district court had determined that it was not bound to apply the FCC’s disastrous (and now overruled) TCPA Omnibus ruling respecting the “capacity” of an ATDS because–the district court found–that ruling only applied prospectively and not retroactively. The district court determined that Plaintiff’s expert reports were insufficient to establish the needed “present” capacity and were, indeed, inadmissibly awful on that topic.  So it granted judgment to Yahoo! on that basis. The Circuit Court of Appeal, thus, had to determine whether a device’s “present” or “potential” capacity to operate as an ATDS was at issue and whether Plaintiff had introduced sufficient (admissible) evidence of the needed capacity–whatever it is– to survive the summary judgment stage.

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In addressing the first issue the Third Circuit Court of Appeal took quick notice of ACA Int’l and held that Plaintiff could take no refuge in the “potential capacity” language afforded by the FCC’s Omnibus ruling, stating rather bluntly: “Dominguez can no longer rely on his argument that the Email SMS Service had the latent or potential capacity to function as autodialer.” Dominguez II at *6.

That left the issue of whether or not Yahoo’s platform had the requisite present “capacity” to operate as an ATDS. Here the Circuit Court of Appeal was left sifting through the wreckage of expert reports that had been largely designed to address the “latent” capacity of Yahoo’s system. Two of the Plaintiff’s four expert reports were grounded entirely on that basis. But two reports held elements of promise on a “present” capacity standard–one by Jeff Hansen and a second–a supplemental report supplied post ACA Int’l–by Randall Snyder.

The Court made short work of Hansen’s opinion, which argued, in essence, that “all computers can generate random or sequential numbers.” The Third Circuit panel heard echoes of ACA Int’l in those words, noting the “striking similarity” between Hansen’s conclusion that “any computer” has the capacity to be an ATDS and the ACA Int’l court’s rejection of the FCC’s capacity formulation which had made “any smartphone” an ATDS.  Hence, the Dominguez II court concludes, Hansen’s “capacity” argument was correctly excluded as “irrelevant to the present capacity inquiry.”

That left only Randall Snyder’s report to contend with. Mr. Snyder was brave enough to opine that “Yahoo’s Email SMS Service system had the ability to generate random numbers and, in fact, did generate ranom numbers.” Wow! What an opinion. But, as the Court finds–“[t]his opinion is supported by little more than the same type of overbroad, generalized assertions found in the Hansen Report.” Dominguez at *10.  The Court was unimpressed with Snyder’s rationale–that numerous operating systems can generate random numbers– and delivers a stinging blow on functionality: “[n]otably absent, however, is any explanation of how the Email SMS System actually did or could generate random telephone numbers to dial.” Id. at *10-11.

So, finally, we get to the meat. The entire discussion around “capacity” is rather aggravating when the punchline stays hidden. What capacity are we talking about? The capacity to do what?

Luckily the Court lets the cat out of the bag, just before it is too late. On page 12 of 12 the point is concretely made–

Ultimately Dominguez cannot point to any evidence that creates a genuine dispute of fact as to whether the Email SMS Service had the present capacity to function as an autodialer by generating random or sequential telephone numbers and dialing those numbers. On the contrary, the record indicates that the Email SMS Service sent messages only to numbers that had been individually and manually inputted into its system by a user.

Game. Set. Match. Euerka and Yahoo!

It remains to be seen, of course, whether courts outside the Third Circuit will follow Dominguez II, and even within the Third Circuit it is unclear whether district courts will–correctly–apply Dominguez II to thwart TCPA suits challenging predictively dialed calls. And so the saga continues. But the momentum has certainly swung and TCPAland will be all the better for it.

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Editor's note: You may have noticed that Eric Troutman and other Womble Bond Dickinson attorneys have authored quite a few articles on insideARM lately. They have. We have just recently established a partnership for the firm to power our TCPA case law chart, and to provide a steady stream of their timely, insightful and entertaining take on this ever-evolving, never-a-dull-moment topic. Welcome to the WBD team!