The Federal Trade Commission’s (FTC) Telemarketing Sales Rule (TSR) bans robocalls (automated or prerecorded messages) made without the prior express written consent of the recipient. In reliance on a 2009 FTC staff opinion, the telemarketing industry believed it had found an ingenious way around the ban, while still using elements of a robocall. Its solution: “soundboard” technology, a computerized system that allows a live agent to communicate with a call recipient using prerecorded, conversational audio snippets instead of the agent’s own voice to interact in real-time with a customer.
Because a live agent is able to listen and choose the most appropriate snippet to use to move the call along, and can interject and speak in real-time, the FTC staff concluded that “soundboard” calls created enough of a true two-way conversation that they should not be subject to the TSR’s robocall ban and strict consent requirements that apply to fully automated prerecorded messages.
With this opinion in the industry’s hip pocket, and the efficiencies and more consumer-friendly experience it seemed to offer, soundboard calling took off and seemed to be a win-win-win for telemarketers, consumers, and the soundboard industry. And it was – for seven years. As I wrote in “Court Pulls Plug on ‘Electronic DJ’ Telemarketing” (May 2017), the FTC staff’s green light suddenly turned red in 2016. In response to consumer complaints and reports about unhelpful responses, spotty human intervention, and agents fielding several soundboard calls at once, the staff rescinded and revised its 2009 opinion, stating that, henceforth, soundboard calls would be subject to the robocall ban because they do, in fact, deliver prerecorded messages. Brushing aside the industry’s longtime reliance on its previous stance, the FTC staff did not ask for public comment. Its decision was “final,” with the standard caveat that it was speaking only for itself and not the Commission.
Feeling blindsided by the FTC’s U-turn and viewing it as an existential threat, the Soundboard Association (SBA) sought to enjoin enforcement of the TSR’s robocall provisions against its technology, arguing that the FTC staff’s abrupt about face amounted to a substantive change in the TSR and, under the Administrative Procedures Act (APA), could not be enacted without public comment. (The FTC conclusion that soundboard calls were now robocalls was not challenged.) The district court ruled for the FTC, finding the revised opinion was only an “interpretive” rule (not “legislative”) that did not require public comment. The SBA appealed to the D.C. Circuit Court of Appeals.
Late last month, in a split decision, the court denied the appeal – but on a different ground – concluding that the 2016 FTC staff opinion was a non-final agency action and thus unreviewable under the APA. An agency action is final if: (1) it “mark[s] the consummation of the agency’s decision-making process” and is not “of a merely tentative or interlocutory nature;” and (2) it is an action “by which rights or obligations have been determined, or from which legal consequences will flow.”
The court held the revised FTC staff opinion was non-final agency action because it was characterized as only “staff’s opinion,” merely expressing “its view of the law,” and nowhere was presented as the conclusive view of the FTC. These disclaimers were not “boilerplate,” because under the FTC’s rules, staff advice is given “without prejudice to the right of the Commission to later rescind the advice and, where appropriate, to commence an enforcement proceeding, and there is no notice requirement or safe harbor for reasonable reliance on the advice.”
Also, the SBA was not “trapped without recourse due to the indefinite postponement of agency action” because, as it conceded, it could seek an opinion from the Commission itself. In asking for judicial review, the Court said, the SBA was seeking a “shortcut” around two hypothetical future decisions – a staff recommendation for a TSR enforcement action against a soundboard user, and a Commission vote to decide whether the staff’s 2016 interpretation was correct and, if so, to issue a complaint – when it was not yet out of “regulatory review options.”
Opening its opinion with the sarcastic question – “Why let reality get in the way of a good bureaucratic construct?” – the dissent excoriates the majority for elevating form over substance in its finality analysis, in the process permitting the execution of an industry without judicial recourse. It interprets the FTC rules very differently, finding that the Commission delegates to its staff the authority to issue an opinion only upon a determination that a decision on the matter by the Commission itself is unwarranted.
Since delegation is predicated on a determination of non-involvement by the Commission, the majority’s assertion that the SBA could seek an opinion from the Commission rings hollow. Further, the FTC’s rules provide no right of administrative appeal. This, in the dissent’s view, rendered the 2016 staff opinion “for all practical purposes, a definitive agency position that concludes the administrative process for the foreseeable future.”
Barely feigning outrage, the dissent painted the impact of the FTC’s about face, and the denial of review, in the most dire terms:
“…the Administrative Procedure Act should not countenance an agency telling an individual or industry that its business must end, while fending off court review on the ground that its own internal administrative processes have not ended … The [FTC’s] message to industry is clear: Proceed at your own peril. Finality principles will not allow the Commission to brush off that ‘immediate and practical impact’ of the ‘[staff’s] announcement’ … The clear and explicit announcement in the 2016 Division Letter about the reach of the Telemarketing Sales Rule’s ‘plain language’ … ‘warns’ every member of the soundboard industry to either reshape ‘the manner in which an important segment of the * * * business will be done’ or run the ‘risk’ of civil penalties … When an agency’s ‘authoritative interpretation’ and demand for ‘compliance’ means business’s ‘only alternative to costly compliance’ is ‘to run the risk of serious civil * * * penalties,’ finality attaches and the time for judicial review has come.”
While the time for judicial review has come, the opportunity for it is running out. To keep its hopes alive – and the lights on – the soundboard industry can seek en banc review and, failing that, certiorari in the Supreme Court. Meanwhile, fair or not, any seller or telemarketer that makes soundboard calls to consumers without their prior express written consent will be in violation of the TSR and subject to sanctions, including civil penalties of up to $41,484 for each unlawful call.