June 15, 2015

When Can You Send an Unsolicited Business Fax without Violating a Federal Privacy Law?

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by Douglas Brent, Attorney at Stoll Keenon Ogden PLLC
Angelica Sanchez Vega, Summer Associate

The fax machine was invented more than a century ago, and to a modern business, fax numbers may seem like artifacts of a bygone era.  Yet, this method of one-way communication persists, much to the consternation of lower federal courts.  Why?  In the 1990’s unwanted faxes were reviled for the paper and ink they consumed, so much so that Congress stepped in, creating a right to sue over unwanted faxes.  While legacy fax machines and thermal paper may be long gone, “junk fax” lawsuits are still around.  However, not every junk fax is actionable, as the Sixth Circuit Court of Appeals explained June 3 in Sandusky Wellness Center v. Medco Health Solutions

In Sandusky, the Sixth Circuit addressed whether two unsolicited faxes sent by a pharmacy benefit manager to a chiropractic company were “advertisements” and could fall under the category of “unsolicited advertisements” prohibited by the Telephone Consumer Protection Act (“TCPA”).  The TCPA, a 1991 federal statute later amended, and fleshed out by FCC regulations, provides steep statutory damages intended to enhance in home privacy by protecting consumers from unwanted telemarketing.  But the law also regulates commercial faxing, even when it is business to business.  Misunderstanding of the complicated legal framework governing commercial faxing has created many business opportunities for plaintiffs’ firms around the country, including in Ohio, home to Sandusky Wellness Center, the putative plaintiff seeking to represent a class suing Medco.

Medco is a pharmacy benefit manager.  It faxed lists of medications available through the health plans of the clinic’s patients.  Neither fax contained pricing, ordering, or other sales information.  As the lower court explained, each fax merely informed Sandusky which drugs its patients might prefer.  Sandusky was not grateful for the faxes.  It sued Medco (individually and on behalf of a proposed class), alleging the faxes were unsolicited advertisements, the receipt of which was worth $1,000 in statutory damages to Sandusky alone. 

Medco defended itself, arguing the faxes were merely informational, not promotional, and therefore not illegal.  The district court agreed and granted summary judgment to Medco, warning Sandusky (and its lawyers) that the suit was fruitless, if not frivolous. Sandusky appealed, asking the appeals court to find that the faxes were advertisements. The Sixth Circuit responded with a resounding “no.”  Why?  Weren’t the faxes commercial, promoting Medco’s business?  If not, why send them at all?

The Sixth Circuit wrestled with the definition of “advertisement” in the TCPA. In circular language the statute defines advertisement as “any material advertising the commercial availability or quality of any property, goods, or services.”  The definition seems broad, but the Court said not broad enough to cover the faxes Medco sent.

The court focused on the word “commercial” and defined it as “having profit as the primary aim.” The Court stated that to be an advertisement a fax must 1) promote goods or services to be bought or sold, and 2) have profit as its aim.  Medco’s faxes fell outside the court’s definition because there was no record evidence showing that the medications identified in the faxes or Medco’s services were for sale. Furthermore, the record lacked evidence showing that the faxes were sent in the hope of directly or indirectly making a profit.  

Additionally, while the Court acknowledged that advertising can be indirect, as in the case of a manufacturer inviting potential buyers to a free seminar, it rejected the argument that it should look outside of the four corners of the fax and consider evidence of a potential financial benefit “several locks down the stream of commerce.”

In the wake of Sandusky, in order for a fax to be an advertisement it has to do more than call items and services to the other parties’ attention. Instead some of the questions that have to be asked are the following:

Are the items or services included in the fax for sale to the addressee?

Does the fax include pricing, ordering or other sales information?

Are the faxes sent with hopes of making a profit (directly or indirectly) or are they purely informational?

Interestingly, by reaching the conclusion that the “[a]ct unambiguously defines advertisements as having commercial components” which the faxes in question lacked,  the Sixth Circuit avoided weighing in on a related matter that has divided circuit courts across the nation: whether courts must defer to the Federal Communications Commission’s (“FCC”) explanation of its “advertisement” definition adopted as a federal regulation.  Sandusky argued the FCC’s interpretation of “advertisement” should have been considered.  The Sixth Circuit declined.

It’s worth noting that Sandusky’s complaint did not plead a violation of the FCC’s implementing regulation.  If it had, both the district court and the appeals court might have taken a deeper dive into the FCC’s 2006 order implementing its junk fax rules.

About a year after those rules were amended the Sixth Circuit, in Beattie v. CenturyTel, Inc., confirmed that allegations of an FCC rule violation were actionable under the Communications Act.  Beattie wasn’t a junk fax case (it involved deceptive billing by a phone company), but is significant because the plaintiff pleaded a rules violation related to its statutory claim, and the appeals court was willing to wade deeply into the FCC report issued during the rulemaking process to develop its understanding of the accompanying regulation and reach its legal conclusion. Which brings us to the question, would Sandusky have fared differently had it pleaded a violation of the FCC regulation in addition to or instead of a violation of the federal statute—an option available under the statute itself (47 U.S.C § 227(b)(3)).

Assume pleading a violation of the regulation convinced the Sixth Circuit to squarely address the FCC’s interpretation. At first glance, it doesn’t appear to make a difference. Indeed, even the Sixth Circuit opined that “[i]n any event, reliance on the Commission’s interpretation would only bolster our conclusion.”

But a closer look at the lengthy FCC order accompanying the FCC junk fax rules reveals a definition that is much more nuanced. The FCC order seems to leave room to find an unsolicited business fax could be unlawful even without an obvious “profit” angle, concluding that “facsimile messages that promote goods or services even at no cost, such as free magazine subscriptions, catalogs, or free consultations or seminars, are unsolicited advertisements.” That definition is broader than the one used by the Sixth Circuit which requires aim of profit to establish a commercial aspect.  Arguably, the Medco faxes were akin to a free consultation concerning a 3rd party benefit. 

The Court may have overlooked another distinction drawn in the FCC order that describes employee-benefit information as (permissible) transactional information, the regulatory agency noting that “[i]n order for such messages to fall outside the definition of ‘unsolicited advertisement,’ they must relate specifically to existing accounts and ongoing transactions.”  It’s not obvious how Medco’s faxes would have met that requirement.  Maybe there was already an existing account and ongoing transactions between Medco and the clinic’s patients whose health plans were being “highlighted” in the faxes.  However, crediting that would require an analysis that on the one hand refuses to consider evidence of a financial benefit “several locks down the stream of commerce,” but on the other hand allows business relationships to be viewed in precisely that “down the stream of commerce” manner.

The result in Sandusky, however, cannot be exclusively understood in a legal vacuum. Courts have become wary of serial TCPA plaintiffs and the plaintiff in Sandusky appears to be one. Nonetheless, there is still room to wonder what would have happened had the plaintiff pleaded a violation of the regulation? Maybe, just like the fax has endured, the suit might have endured at least long enough to survive summary judgment.