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Soundboard Association v. Federal Trade Commission

United States Court of Appeals, District of Columbia Circuit

April 27, 2018

Soundboard Association, Appellant
Federal Trade Commission, Appellee

          Argued November 6, 2017

          Appeal from the United States District Court for the District of Columbia (No. 1:17-cv-00150)

          Karen Donnelly argued the cause for appellant. With her on the briefs was Errol Copilevitz. Daniel W. Wolff entered an appearance.

          Matthew M. Hoffman, Attorney, Federal Trade Commission, argued the cause for appellee. With him on the brief were David C. Shonka, Acting General Counsel, and Joel Marcus, Deputy General Counsel. Michele Arington and Leslie R. Melman Assistants General Counsel, and Bradley Grossman, Attorney, entered appearances.

          Thomas C. Bennigson was on the brief for amicus curiae Public Good Law Center in support of appellee.

          Before: Rogers, Millett and Wilkins, Circuit Judges.


          Wilkins Circuit Judge.

         This appeal arises from Appellant Soundboard Association's ("SBA's") challenge to a November 10, 2016 informal opinion letter (the "2016 Letter") issued by Federal Trade Commission ("FTC" or "Commission") staff. The 2016 Letter stated it was the FTC staff's opinion that telemarketing technology used by SBA's members is subject to the FTC's regulation of so-called "robocalls, " and it announced the rescission of a 2009 FTC staff letter (the "2009 Letter") that had reached the opposite conclusion.

         SBA filed suit seeking to enjoin rescission of the 2009 Letter. It argued the 2016 Letter violated the Administrative Procedure Act ("APA") because it was a legislative rule issued without notice and comment and because the FTC's robocall regulation unconstitutionally restricted speech on the basis of content. The FTC opposed both these arguments and also disputed that the 2016 Letter was reviewable final agency action. The District Court concluded the 2016 letter qualified as reviewable final agency action, but the court granted summary judgment for the FTC on the grounds that the 2016 Letter was an interpretive rule not subject to notice and comment and that the interpretation stated in the letter survived First Amendment scrutiny.

         We conclude that because the 2016 staff opinion letter does not constitute the consummation of the Commission's decisionmaking process by its own terms and under the FTC's regulations, it is not final agency action. As SBA concedes, its speech claims are pleaded as APA claims under 5 U.S.C. § 706(2)(B) and cannot proceed without final agency action. We therefore vacate the decision below and dismiss the case for failure to state a cause of action under the APA.



         SBA is a trade association for companies that manufacture or use "soundboard" telemarketing technology ("soundboard"). Soundboard enables telemarketing agents to communicate with customers over the phone by playing prerecorded audio clips instead of using the agent's live voice. The agent can choose a pre-recorded clip to ask questions of or respond to a customer, while retaining the ability to break into the call and speak to the customer directly. Soundboard also enables agents to make and participate in multiple calls simultaneously. According to SBA, soundboard provides many advantages to telemarketers, including ensuring accurate communication of information and disclaimers, improving call-center performance and cost-effectiveness, and employing individuals who would otherwise have difficulty being understood over the phone due to accent or disability. J.A. 85-86.

         The FTC regulates telemarketing pursuant to the Telemarketing and Consumer Fraud and Abuse Prevention Act of 1994, which directs the Commission to "prescribe rules prohibiting deceptive . . . and other abusive telemarketing acts or practices." 15 U.S.C. § 6102(a)(1). In 1995, the Commission promulgated the Telemarketing Sales Rule ("TSR"), which restricts telemarketing to certain times of day, creates the "do-not-call" list, and imposes other requirements to prevent fraud, abuse, and intrusions on customer privacy. 60 Fed. Reg. 43842 (Aug. 23, 1995); 16 C.F.R. § 310.4(b)(ii), (c). In 2003, the Commission amended the TSR to more closely regulate "predictive dialing, " which places multiple simultaneous calls for a single call-center agent and, therefore, can result in "call abandonment" - i.e., abruptly hanging up - when too many customers answer the phone. The 2003 amendment prohibited telemarketers from failing to connect a customer to an agent within two seconds of the customer's completed greeting. 16 C.F.R. § 310.4(b)(1)(iv). The amendment thus effectively prohibited outbound telemarketing campaigns consisting "solely of prerecorded messages" - colloquially known as robocalls - because "consumers who receive a prerecorded message would never be connected to a sales representative." 73 Fed. Reg. 51, 164, 51, 165 (Aug. 29, 2008).

         In 2008, the Commission amended the TSR to prohibit telemarketers from "initiating any outbound telephone call that delivers a prerecorded message" without "an express agreement, in writing" from the consumer with language demonstrating the individual customer's consent to receiving such calls from that telemarketer. Id. at 51, 184; 16 C.F.R. § 310.4(b)(1)(v)(A). The express-written-consent requirement does not apply to calls made on behalf of charitable organizations intended to "induce a charitable contribution from a member of, or previous donor to, " the organization, as long as the donor can opt out of such calls. 16 C.F.R. § 310.4(b)(1)(v)(B). The Commission justified this exception on the grounds that members and prior donors have consented to receiving future charitable solicitation calls and, as a result, have a reduced privacy interest vis-à-vis a charitable organization's speech interest. See 73 Fed. Reg. at 51, 193-94.

         In promulgating the 2008 amendments, the Commission explained that the comments it received from customers and industry showed "the reasonable consumer would consider interactive prerecorded telemarketing messages to be coercive or abusive of such consumer's right to privacy. The mere ringing of the telephone to initiate such a call may be disruptive; the intrusion of such a call on a consumer's right to privacy may be exacerbated immeasurably when there is no human being on the other end of the line." Id. at 51, 180. The Commission also rejected the industry's argument that an interactive opt-out mechanism for robocalls would adequately protect consumer privacy, reasoning that the "volume of telemarketing calls from multiple sources is so great that consumers find even an initial call from a telemarketer or seller to be abusive and invasive of privacy." Id. (quotation marks omitted).


         Before the TSR went into effect in September 2009, a telemarketer and soundboard user, Call Assistant LLC ("Call Assistant"), submitted a "request for a FTC Staff Opinion Letter" regarding whether Call Assistant's use of soundboard was subject to the 2008 amendments. J.A. 230 (emphasis in original). In its request, Call Assistant represented that "[a]t all times" during a soundboard call, "even during the playing of any recorded segment, the agent retains the power to interrupt any recorded message." J.A. 37. It also represented that during soundboard calls, "live agents hear every word spoken by the call recipient, and determine what is said" in response. J.A. 38.

         On September 11, 2009, FTC staff responded with an "informal staff opinion" letter from Lois Greisman, the FTC's Associate Director of the Division of Marketing Practices (the "2009 Letter"). J.A. 37. The 2009 Letter stated that "[b]ased on the description of the technology included in [Call Assistant's] letter, " "the staff of the [FTC] has concluded that the 2008 TSR Amendments . . . do not prohibit telemarketing calls using" soundboard. J.A. 38. Greisman explained that the robocall regulation "prohibit[s] calls that deliver a prerecorded message and do not allow interaction with call recipients in a manner virtually indistinguishable from calls conducted by live operators. Unlike the technology that [Call Assistant] describe[s], the delivery of prerecorded messages in such calls does not involve a live agent who controls the content and continuity of what is said to respond to concerns, questions, comments - or demands - of the call recipient." Id. Greisman quoted the FTC's justification for the TSR's prohibition on robocalls, which "convert the telephone from an instrument for two-way conversations into a one-way device for transmitting advertisements." Id. Given Call Assistant's assertions that soundboard calls featured a "live human being continuously interact[ing] with the recipient of a call in a two-way conversation, " "in Staff's view, " soundboard use did not implicate the purposes of the TSR. Id.

         The 2009 Letter expressly conditioned this conclusion on the factual representations in Call Assistant's request for a staff opinion, and Griesman advised Call Assistant that the letter did not represent the views of the Commission:

Please be advised that this opinion is based on all the information furnished in your request. This opinion applies only to the extent that actual company practices conform to the material submitted for review. Please be advised further that the views expressed in this letter are those of the FTC staff. They have not been reviewed, approved, or adopted by the Commission, and they are not binding upon the Commission. However, they do reflect the opinions of the staff members charged with enforcement of the TSR.

J.A. 39.

         After issuing the 2009 Letter, the Commission began to receive consumer complaints and to observe media reports about the use of soundboard that conflicted with factual representations made by Call Assistant. This included complaints that consumers "are not receiving appropriate recorded responses to their questions or comments, " that "no live telemarketer intervenes to provide a human response when requested to do so, " and that "the call is terminated in response to consumers['] questions." J.A. 30-31. FTC staff also collected evidence from consumers and industry stakeholders that "some companies are routinely using soundboard technology" to "conduct separate conversations with multiple consumers at the same time, " and observed that companies engaging in these practices were using the 2009 Letter as a defense against consumer lawsuits. J.A. 31; 225.

         The FTC staff began to reconsider the 2009 Letter. In early 2016, FTC staff contacted telemarketing industry groups for input and held meetings at which industry representatives made presentations about soundboard. In a February 2016 meeting, "representatives of [a telemarketing trade group] acknowledged that soundboard technology is frequently utilized in a matter to allow one live agent to handle multiple calls simultaneously." J.A. 226. A trade group representative also told FTC staff "that if the FTC enforced a requirement that one agent could only manage one call at a time, no call center would use soundboard technology because it would not be cost effective - i.e., the capital expenditure in implementing soundboard . . . only made business sense if a call center could increase the volume of calls its agents could handle." Id. During this time SBA argued to FTC staff that the practices described in consumer complaints were contrary to the trade groups' code of conduct, and that bad actors should be punished instead of the entire soundboard industry. J.A. 147-48.

         On November 10, 2016, FTC staff issued a letter (the "2016 Letter") concluding that the TSR did apply to soundboard calls and rescinding the 2009 Letter effective May 12, 2017. The 2016 Letter was from Greisman, as well. It noted the 2009 Letter was premised on factual representations made by Call Assistant. But based on consumer complaints, media reports, meetings with industry representatives, and other data points, by 2016 the FTC staff believed the factual bases of the 2009 Letter were faulty. Specifically,

A fundamental premise of [the] September 2009 letter was that soundboard technology was a surrogate for the live agent's actual voice. A human being cannot conduct separate conversations with multiple consumers at the same time using his or her own voice. Nonetheless, some companies are routinely using soundboard technology in precisely this manner [of enabling an agent to handle multiple simultaneous calls] . . . Indeed, Call Assistant noted publicly that one of the advantages of its technology is that an agent can conduct multiple calls simultaneously.

J.A. 31-32 (internal quotation marks omitted).

         The 2016 Letter also stated that because soundboard users play prerecorded audio files to communicate with customers, soundboard calls fall within the plain language of the TSR's prohibition on "any outbound telephone call that delivers a prerecorded message." J.A. 30. Accordingly, the letter reasoned,

Given the actual language used in the TSR, the increasing volume of consumer complaints, and all the abuses we have seen since we issued the September 2009 letter, we have decided to revoke the September 2009 letter. It is now staff's opinion that outbound telemarketing calls that utilize soundboard technology are subject to the TSR's prerecorded call provisions because such calls do, in fact, "deliver a prerecorded message" as set forth in the plain language of the rule. Accordingly, outbound telemarketing calls made using soundboard technology are subject to the provisions of 16 C.F.R. § 310.4(b)(1)(v), and can only be made legally if they comply with the requirements [applicable to robocalls].

J.A. 32 (footnote omitted).

         The 2016 Letter provided that "[i]n order to give industry sufficient time to make any necessary changes to bring themselves into compliance, the revocation of the September 2009 Letter will be effective six months from today, on May 12, 2017. As of that date, the September 11, 2009 letter will no longer represent the opinions of FTC staff." J.A. 33. The 2016 Letter concluded by stating that "the views expressed in this letter are those of the FTC staff, subject to the limitations of 16 C.F.R. § 1.3. They have not been approved or adopted by the Commission, and they are not binding upon the Commission. However, they do reflect the views of staff members charged with enforcement of the TSR."[1] Id.


         SBA sought to enjoin the revocation of the 2009 Letter and what it characterized as a compliance deadline of May 12, 2017. It argued before the District Court that the 2016 Letter is a legislative rule requiring notice and comment under 5 U.S.C. § 553 because it expanded the scope of the TSR to reach soundboard. It also argued that to the extent the 2016 Letter amends the TSR to apply to soundboard, it is a content-based speech restriction that "treat[s] speech tailored for first-time donors differently than speech tailored for previous donors." J.A. 191. The Commission moved for summary judgment. It argued the 2016 Letter was not a reviewable final agency action, and in any event was an interpretive rule not subject to notice and comment. The Commission also argued that the SBA's affirmative First Amendment challenge was barred by the APA's six-year statute of limitations, but that on the merits the TSR was a reasonable time, place, and manner restriction that survived intermediate scrutiny.

         The District Court consolidated the motions as cross-motions under Rule 56 and granted summary judgment for the Commission. The court concluded the 2016 Letter was a final agency action but held it was an interpretive rule not subject to notice and comment, and that the TSR's application to SBA survived the intermediate scrutiny applicable to regulations of commercial speech. SBA timely appealed.


         This court "review[s] de novo a district court's decision to grant summary judgment, viewing the evidence in the light most favorable to the non-moving party. A party is entitled to summary judgment only if there is no genuine issue of material fact and judgment in the movant's favor is proper as a matter of law." Ctr. for Auto Safety v. Nat'l Highway Traffic Safety Admin., 452 F.3d 798, 805 (D.C. Cir. 2006) (quotation marks omitted).

         The APA limits judicial review to "final agency action for which there is no other adequate remedy in a court." 5 U.S.C. § 704. While the requirement of finality is not jurisdictional, without final agency action, "there is no doubt that appellant would lack a cause of action under the APA." Reliable Automatic Sprinkler Co. v. Consumer Prod. Safety Comm'n, 324 F.3d 726, 731 (D.C. Cir. 2003); Flytenow, Inc. v. FAA, 808 F.3d 882, 888 (D.C. Cir. 2015). Agency actions are final if two independent conditions are met: (1) the action "mark[s] the consummation of the agency's decisionmaking 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." Bennett v. Spear, 520 U.S. 154, 177-78 (1997) (internal quotation marks omitted); see also Scenic Am. v. U.S. Dep't of Transp., 836 F.3d 42, 55-56 (D.C. Cir. 2016). "An order must satisfy both prongs of the Bennett test to be considered final." Sw. Airlines Co. v. U.S. Dep't of Transp., 832 F.3d 270, 275 (D.C. Cir. 2016).

         In evaluating the first Bennett prong, this Court considers whether the action is "informal, or only the ruling of a subordinate official, or tentative." Abbott Labs. v. Gardner, 387 U.S. 136, 151 (1967) (internal citations omitted). The decisionmaking processes set out in an agency's governing statutes and regulations are key to determining whether an action is properly attributable to the agency itself and represents the culmination of that agency's consideration of an issue. See Holistic Candlers & Consumers Ass'n v. FDA, 664 F.3d 940, 944 (D.C. Cir. 2012) (relying upon the FDA Manual's description of warning letters as preceding enforcement action to conclude they "do not mark the consummation of FDA's decisionmaking"); Reliable Automatic Sprinkler, 324 F.3d at 732, 733 (holding a letter interpreting a safety regulation was not a final agency action because "the Commission itself ha[d] never considered the issue, " and "[t]he Act and the agency's regulations clearly prescribe a scheme whereby the agency must hold a formal, on-the-record adjudication before it can make any determination that is legally binding."); see also Sw. Airlines, 832 F.3d at 275 (In evaluating finality, this Court also looks to "the way in which the agency subsequently treats the challenged action.").

         Because each prong of Bennett must be satisfied independently for agency action to be final, deficiency in either is sufficient to deprive SBA of a cause of ...

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