Gorss Motels, Inc. v. Fed. Commc'ns Comm'n

• Decision Date: 03 December 2021
• Docket Number: 20-1075
• Parties: Gorss Motels, Inc., Bais Yaakov of Spring Valley, Roger H. Kaye, and Roger H. Kaye, MD PC, Petitioners, v. Federal Communications Commission and United States of America, Respondents.
• Court: U.S. Court of Appeals — Second Circuit

Gorss Motels, Inc., Bais Yaakov of Spring Valley, Roger H. Kaye, and Roger H. Kaye, MD PC, Petitioners,
v.
Federal Communications Commission and United States of America, Respondents.

No. 20-1075

United States Court of Appeals, Second Circuit

December 3, 2021

Argued: February 2, 2021

On Petition for Review of an Order of the Federal Communications Commission

Aytan Y. Bellin, Bellin & Associates, LLC, White Plains, NY (Roger Furman, on the brief), for Petitioners.

Adam G. Crews, Washington D.C. (Thomas M. Johnson, Jr., General Counsel, Jacob M. Lewis, Associate General Counsel, on the brief), Counsel for Respondent Federal Communications Commission, and Robert Nicholson, Counsel for Respondent United States of America.

Before: JACOBS, SULLIVAN, MENASHI, Circuit Judges.

Petitioners challenge a Federal Communications Commission order that removed the Solicited Fax Rule from the Code of Federal Regulations. That order was issued in response to the D.C. Circuit's decision holding that the

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Solicited Fax Rule was unlawful, and vacating a 2014 order of the FCC that affirmed the validity of the Rule. The questions before us are whether the D.C. Circuit's decision binds this Court and whether the agency erred by repealing the Solicited Fax Rule following the D.C. Circuit's ruling. We conclude that we are bound by the D.C. Circuit's decision vacating the Rule and that the agency did not err. Accordingly, we DENY the petition for review.

DENNIS JACOBS, CIRCUIT JUDGE

Anyone who receives a facsimile advertisement that comes unsolicited can sue the sender for $500 under the Telephone Consumer Protection Act ("TCPA"), a federal statute implemented by the Federal Communications Commission

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("FCC" or "Commission"). See 47 U.S.C. §§ 227(b)(1)(C), (b)(2), (b)(3)(B). The FCC regulation at issue in this case is known as the Solicited Fax Rule because it required opt-out instructions to be included even on fax advertisements that had been invited, i.e., faxes that were not unsolicited.

The fax machine may be an anachronism, but litigation concerning its alleged misuse is evergreen. Before us now is a petition for review brought by Gorss Motels, Inc.; Bais Yaakov of Spring Valley; Roger H. Kaye; and Roger H. Kaye, MD PC (collectively, "Gorss"), which challenges the FCC's decision to remove the Solicited Fax Rule from the Code of Federal Regulations ("CFR"). Gorss, a serial TCPA Plaintiff whose many lawsuits are premised on Solicited Fax Rule violations, would prefer that the regulation remain on the books.

In 2006, the FCC promulgated the Solicited Fax Rule; and in 2014, the FCC issued an order affirming the validity of the Rule (the "2014 Order"). Multiple facial challenges were brought to the 2014 Order pursuant to the Hobbs Act, 28 U.S.C. § 2342(1), and were consolidated in the United States Court of Appeals for the District of Columbia Circuit pursuant to 28 U.S.C. § 2112(a)(3). In 2017, the D.C. Circuit held that the Solicited Fax Rule was unlawful and invalidated the

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2014 Order. See Bais Yaakov of Spring Valley v. Fed. Commc'ns Comm'n, 852 F.3d 1078, 1079 (D.C. Cir. 2017). Last year, the FCC responded to Bais Yaakov by removing the 2014 Order and the underlying Solicited Fax Rule from the CFR. See Matter of Rules and Regulations Implementing the Tel. Consumer Protec. Act of 1991, 35 FCC Rcd. 3079 (2020) (hereinafter, "Repeal Order").

Gorss urges us to vacate the Repeal Order on the ground that Bais Yaakov governs only within the D.C. Circuit and therefore did not compel the agency to repeal the rule altogether.

Generally speaking, a federal agency need not acquiesce to one or more adverse rulings. But the Hobbs Act establishes a "special statutory review proceeding," 5 U.S.C. § 703, that channels all pre-enforcement facial challenges to certain FCC orders to a single circuit court, 28 U.S.C. § 2342(1). Pursuant to the Hobbs Act's channeling mechanism, the D.C. Circuit became "the sole forum for addressing the validity of" the Solicited Fax Rule. King v. Time Warner Cable Inc., 894 F.3d 473, 476 n.3 (2d Cir. 2018) (alterations and internal quotation marks omitted). So once the D.C. Circuit invalidated the 2014 Order and the Solicited Fax Rule, that holding became binding in effect on every circuit in which the

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regulation's validity is challenged. The FCC therefore was bound to comply with the D.C. Circuit's mandate and could not pursue a policy of nonacquiescence. Accordingly, we DENY the petition for review.

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The TCPA, a statute designed (in another day) to help unclog the nation's fax machines, prohibits the use of "any telephone facsimile machine . . . to send, to a telephone facsimile machine, an unsolicited advertisement." See 47 U.S.C. § 227(b)(1)(C). As amended by the Junk Fax Prevention Act of 2005, the TCPA excepts a narrow category of unsolicited faxes from this sweeping prohibition: an otherwise unsolicited fax is permitted if the sender (a) has an "established business relationship" with the recipient, (b) obtains the recipient's fax number through certain means, and (c) includes a detailed opt-out notice on the first page of the fax. Id. § 227(b)(1)(C)(i)-(iii).

The Solicited Fax Rule, promulgated in 2006, provided that a fax "sent to a recipient that has provided prior express invitation or permission to the sender must include an opt-out notice" identical to the one required for faxes that were

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unsolicited. 47 C.F.R. § 64.1200(a)(4) (2019) (repealed 2020) (emphasis added). In that way, all faxed advertisements were required to contain opt-out instructions, regardless of whether the recipient had previously consented to receipt. See Bais Yaakov, 852 F.3d at 1080 (explaining that the Rule "mandate[d] that senders of solicited faxes comply with a statutory requirement that applies only to senders of unsolicited faxes").

A "firestorm broke out over the new rule" as class-actions alleging noncompliance proliferated across the country. See Brodsky v. HumanaDental Ins. Co., 910 F.3d 285, 289 (7th Cir. 2018). The stakes were high. The TCPA authorizes statutory damages of $500 per unlawful fax (triple that amount for willful violations) - and faxed advertisements are frequently dispatched en masse. See, e.g., Sandusky Wellness Ctr., LLC v. ASD Specialty Healthcare, Inc., 863 F.3d 460, 463-64 (6th Cir. 2017) (noting that the defendant in a TCPA class action was facing $20 million in liability for sending one errant fax to roughly 40, 000 recipients); Bais Yaakov, 852 F.3d at 1081 (describing an instance where TCPA plaintiffs claimed $150 million in damages for Solicited Fax Rule violations); Nack v. Walburg, 715 F.3d 680, 682 (8th Cir. 2013) (explaining that

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the TCPA defendant "faces a class-action complaint seeking millions of dollars even though there is no allegation that he sent a fax to any recipient without the recipient's prior express consent").

As their exposure mounted, fax-senders turned to the FCC for relief. Many obtained retroactive waivers that excused violations of the Solicited Fax Rule.^[1] Others questioned whether the FCC had statutory authority to regulate faxes that were solicited. In response, the FCC posted notice and invited comment on whether the Solicited Fax Rule was lawful. Eventually, in the 2014 Order, the FCC concluded (over two dissents) that it did indeed have statutory authority to regulate solicited faxes (but reaffirmed that the retroactive waivers were properly granted). See Matter of Rules and Regulations Implementing the Tel. Consumer Protec. Act of 1991, 29 FCC Rcd. 13998, 14013 (2014).

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When the 2014 Order was subjected to facial Hobbs Act challenges in multiple circuits, 28 U.S.C. § 2342(1), the judicial panel on multidistrict litigation ("JPML") conducted a lottery - won by the D.C. Circuit - and consolidated the petitions there pursuant to 28 U.S.C. § 2112(a)(3). Ruling on the consolidated petitions, the D.C. Circuit vacated the 2014 Order on the ground that the "FCC's 2006 Solicited Fax Rule is unlawful to the extent that it requires opt-out notices on solicited faxes." Bais Yaakov, 852 F.3d at 1083. Then-Judge Kavanaugh reasoned that "Congress drew a line" in the TCPA between faxes that were solicited and those that were not, and authorized the FCC to regulate only the latter. Id. at 1082. Challenges to the retroactive waivers were dismissed as moot. Id. at 1083 n.2.

Once the Bais Yaakov decision became final (the petition for certiorari was denied in 2018), the FCC, by its Consumer and Governmental Affairs Bureau, removed the Solicited Fax Rule from the CFR "in light of the [Bais Yaakov] court's decision that the rule is unlawful." In the Matter of Rules and Regulations Implementing the Tel. Consumer Protect. Act of 1991, 33 FCC Rcd. 11179, 11183 (2018). Entities whose class-action claims depended on the Rule

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(including Gorss) then asked the full Commission to review that decision. According to the challengers, Bais Yaakov did not require the elimination of the Rule because: (a) Bais Yaakov addressed only the 2014 Order, not the underlying 2006 Rule, and (b) the D.C. Circuit's mandate was discretionary and did not compel acquiescence.

The Repeal Order, issued by the full Commission, rejected the challenge. That rejection is the subject of this petition for review. The FCC reasoned that keeping the Solicited Fax Rule in the CFR would "create unnecessary confusion and consternation" because interested parties "could not use the CFR to know what the law is without also being aware of and understanding the significance of the Bais Yaakov decision." Repeal Order at 3082.

The Commission then rejected both arguments posited by the challengers. It first explained that Bais Yaakov ruled on the validity of the Solicited Fax Rule itself notwithstanding that it was technically reviewing the 2014 Order, rather than the original rule. The Commission next rejected the argument that...