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How Will California Ruling Affect Telemarketing?

The U.S. District Court for the Eastern District of California issued its decision Feb. 27 in the case of U.S. Chamber of Commerce v. Bill Lockyer, attorney general of California. The immediate question was whether federal laws governing interstate facsimile transmission preempt California’s more restrictive rules.

The teleservices industry has monitored this case since it was first filed. The ruling has profound implications for the industry’s future and involves issues hearkening back to the Telephone Consumer Protection Act of 1991 and even the Federal Communications Act of 1934.

The TCPA gave the Federal Communications Commission the authority to enact rules governing telephonic solicitations and faxes. In it, Congress included the following language (known as a “savings clause” since it reserves certain authority to the states): “State law not preempted. … [N]othing in this section … shall preempt any state law that imposes more restrictive intrastate requirements or regulations on, or which prohibits … the use of telephone facsimile machines … or the making of telephone solicitations.”

The FCC has since determined that this language, taking into account general rules governing federal preemption of state law, means that the FCC regulations constitute a “floor” for all such regulations nationwide. In other words, states may not have rules that are less restrictive than the FCC’s, regardless of whether such rules are applied to interstate or intrastate calling. As for state rules that are more restrictive, insofar as they are applied to interstate calling, the FCC determined that such rules are “almost certainly” preempted. Accordingly, the FCC invited interested parties to seek declaratory rulings from the FCC on a “case-by-case” basis regarding such conflicting state rules.

The FCC issued this preemption analysis in 2003, but the issues surrounding preemption were almost certainly left unresolved. However, a number of parties have filed petitions seeking to overturn specific provisions of state telemarketing laws. These petitions are still pending. Another petition, filed in April 2005 by a coalition of 33 organizations engaged in interstate telemarketing, takes another approach. This petition seeks a ruling by the FCC that, based upon the Federal Communications Act of 1934, it has exclusive regulatory jurisdiction over interstate telemarketing calls. This would bar state regulation of all such calls, achieving in one action what otherwise would require hundreds of case-by-case petitions.

It is against this backdrop of fluidity that the district court made its decision. The law at issue is California SB 833, enacted in 2005, which created rules governing fax transmission that are more restrictive than those in place under the TCPA. Specifically, under the TCPA, parties may transmit unsolicited fax ads to recipients with whom they have an established business relationship provided such ads give recipients the ability to opt out of receiving future faxes. SB 833, however, does not provide an established business relationship exception and requires the fax sender to obtain express prior consent before sending any fax ad.

The court issued a declaratory ruling that SB 833 is “unconstitutional to the extent it attempts to govern interstate transmission of unsolicited facsimile advertisements.” Federal rules remain in place for all faxes transmitted between states; however, as the court concluded, “the protections afforded California consumers for intrastate facsimile transmissions remain inviolate.”

Setting aside legal niceties, the court basically ruled that for California’s fax law, “intrastate, good; interstate, bad.” (The court declined to issue an injunction permanently barring enforcement of CA SB 833 “until the propriety of such [an injunction] can be more fully assessed.”)

Though the defendants presented arguments under the TCPA and FCA, the court decided solely on its reading of the “savings clause” of the TCPA. The defendants argued that the savings clause, despite some clumsy drafting, preserves state authority to continue to regulate both intrastate and interstate faxes. The court found that construing the clause in this manner produced an “ungainly” result, and instead determined that the clause serves to salvage only states’ authority to impose more restrictive intrastate requirements on fax transmissions.

An appeal is likely. This much is certain: A district court took the vagueness of the FCC’s “almost certainly” language and made it definite, at least in the context of fax rules. Other entities could use this ruling in petitions to the FCC and in court filings to preempt other provisions of state telemarketing laws – “piecemeal” preemption on steroids.

The case for exclusive jurisdiction under the FCA, on the other hand, did not emerge unscathed. However, the petition seeking exclusive jurisdiction before the FCC addresses many, if not all, of the counterarguments raised by the judge in the California fax case, so the exclusive-jurisdiction jury is still out.

Anyone in telemarketing who has witnessed the legislative and legal upheavals of the past five years won’t bet the farm on total preemption of state telemarketing law, as tantalizing as that may be. Perhaps the only final word here is that experience would indicate that the industry will continue to see complexity and confusion in the area of telemarketing law for some time to come.

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