by Riley Brennan

When you can and cannot send a fax was recently considered by the U.S. Court of Appeals for the Third Circuit, which ultimately concluded that the Federal Communications Commission's "free-seminar pretext theory" is inapplicable to claims brought under the Telephone Consumer Protection Act of 1991.

The Jan. 19 precedential ruling followed a U.S. District Court for the Eastern District of Pennsylvania ruling that sided with defendant Millennium Health, a laboratory that provides drug testing and medication monitoring services to health care professionals. Millennium sent Robert W. Mauthe and other customers a fax regarding a free seminar the lab was hosting.

Mauthe argued to the circuit court that the fax was an unsolicited advertisement, asking the Third Circuit to adopt the FCC's pretext theory, which requires an analysis of whether a fax advertising a free seminar is part of a broader advertising scheme.

But the court rejected this argument, finding the FCC's pretext theory did not apply.

While the FCC added what has been dubbed the "2006 Publications" to the theory, which includes putting forth a similar pretext theory for free-seminar faxes, the court found that any consideration of this theory may be governed by the exclusive jurisdiction provisions in the Administrative Orders Review Act.

This act, commonly referred to as the "Hobbs Act," grants exclusive jurisdiction to federal appellate courts to "enjoin, set aside, suspend (in whole or in part), or to determine the validity of," among other things "all final orders of the Federal Communications Commission."

The court found, however, that this case did not fall within the exclusive jurisdiction set forth in the Hobbs Act, as it only applies to final orders and thus, if the pretext theory is classified as a rule of any kind, it is not subject to the Hobbs Act.

"Critically, with respect to the FCC, the Hobbs Act's exclusive jurisdiction provision applies only to final orders," said the court.

They also found the pretext theory to be classified as a rule, not an order. According to the court, "in framing the inquiries about the Hobbs Act's applicability to the FCC's 2006 Publications, the Supreme Court strongly foreshadowed that the pretext theory is a rule, not an order."

"By first asking whether the pretext theory is an interpretive rule or a legislative rule, the Supreme Court all but answered the rule-order question since in neither scenario would the pretext theory be an order. The Supreme Court also seemingly revealed the answer to the rule-order issue through its second inquiry, which concerned the applicability of special statutory review. Under the Administrative Procedure Act, a party may raise a challenge to agency action in an enforcement proceeding if that party did not have a 'prior, adequate, and exclusive opportunity for judicial review.'"

"But the availability of an opportunity for such pre-enforcement judicial review is relevant only to agency rules because there is no such thing as pre-enforcement review of an agency order—an order is a form of enforcement," said the court. "Thus, by designing an inquiry that examines the applicability of the special statutory review provision, which applies only to rules, the Supreme Court again strongly implied that the pretext theory announced in the FCC's 2006 Publications is a rule, outside of the exclusive jurisdiction of the Hobbs Act."

The court also cites a formal analysis that confirms that the FCC's announcement of the pretext theory for free-seminar faxes in the 2006 Publications is considered a rule. It also lacks the essential qualifications of an order.

"More acutely, the 2006 Publications do not mention Millennium Health of its May 2017 fax promoting a free seminar," said the court.

In summary the court decided that "the FCC's free-seminar pretext theory is a rule. As such, it falls outside of the Hobbs Act's exclusive jurisdiction provision, which applies only to 'final orders' of the FCC. 28 U.S.C. § 2342(1). Thus, the Hobbs Act does not prevent a district court (or this Court on direct appeal) from evaluating the validity of the pretext theory in private civil actions under the TCPA."

The court also cites Mauthe's reliance on the pretext theory to sustain his TCPA claim, noting that one of the problem's with the pretext theory is that it's ambiguous.

"Taking a step back, however, reveals that the FCC's pretext theory, under either formulation, involves consideration of facts extrinsic to the fax itself. Both versions rely on the FCC's assessment of prevalent marketing practices for commercial products and services," said the court.

"And the rebuttable presumption version also examines whether the free seminar was used to advertise products or services," added the court. "But the TCPA confines the meaning of the term 'unsolicited advertisement' to the material transmitted, defining it in relevant part as 'any material advertising the commercial availability or quality of any property, goods, or services, which is transmitted to any person.'"

"Consistent with that limiting principle, this circuit, even in recognizing other novel strands of junk-fax liability under the TCPA, such as liability for paid responses to market research surveys and third-party seller liability, has tethered the meaning of 'unsolicited advertisement' to the text of the fax itself," said the court, highlighting the further narrowing of the terms' meaning.

In addition, the court cited how the Supreme Court rejected an argument, focused on the text of the TCPA, that the term's "autodialer" meaning should account for broad concerns about "intrusive telemarketing practices."

According to the court, "even sound agency factfinding cannot justify a rule that contravenes statutory text."

Ultimately the court concluded, "because both variations of the FCC's pretext theory expand the meaning of the term 'unsolicited advertisement' so that it depends on facts beyond those contained in the fax, they cannot be reconciled with the TCPA, which defines that term in reference to only the material transmitted. As a rule in contravention of statutory text, the FCC's free-seminar pretext theory has no legal effect."

"We are pleased by the Third Circuit's ruling, which recognizes the TCPA is not an ATM for serial litigants to cash in on free speech sent by fax," said attorney for the appellee, Paul A. Werner of Sheppard Mullin, of Washington, D.C.

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