IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Civil Action No. 03 N 0184
MAINSTREAM MARKETING SERVICES,INC, a Coloradocorporation;
TMG MARKETING, INC., a Coloradocorporation;and
AMERICAN TELESERVICES ASSOCIATION,
FILED
UN"O""""._TOOO",
"NW',O~
GREGORY C. LANGHAM
CLERK
.~.,~
Plaintiffs,
v.
FEDERAL TRADE COMMISSION;
TIMOTHY J. MURIS, Chairmanof the FederalTradeCommission,in his official capacity;
SHEILA F. ANTHONY, Commissioner,FederalTradeCommission,in her official capacity;
MOZELLE W. THOMPSON, Commissioner,FederalTradeCommission,in his official
capacity;
ORSONSWINDLE, Commissioner,FederalTradeCommission,in his official capacity;
THOMAS B. LEARY, Commissioner,FederalTradeCommission,in his official capacity;andJ.
HOWARD BEALES ill, Director, Bureauof ConsumerProtection,in his official capacity,
Defendants.
MEMORANDUM OPINION AND ORDER
NOTTINGHAM, Judge
This caseconcernsthe validity and constitutionalityof the FederalTradeCommission's
amendedTelemarketingSalesRules (hereinafter"amendedRules"). The amendedRulescreate
a federalregistry consistingof namesandtelephonenumbersof consumerswho have indicated,
by placing their nameand numberon the registry,that they do not wish to receiveunsolicited
telephonecalls from thosemarketersto whom the amendedRulesapply. This is commonly
known as a do-not-call registrybecausethe amendedRulesprohibit certaintypesof
telemarketersfrom calling thosetelephonenumbers. The amendedRulesalso prohibit calls that,
to makemasscalling more efficient, are dialed by equipmentand subsequentlydroppedwhen
answeredby the consumerbecausethe salespersonis delayedon a previouscall. Thesecalls are
denominated in the telemarketing industry as abandoned calls.
Plaintiffs allegethat, when the FTC promulgatedthe amendedRules,it (1) violated the
First and Fifth Amendmentsto the United StatesConstitution;(2) exceededits statutory
authority underthe Telemarketingand ConsumerFraudand AbusePreventionAct, 15 U.S.C.A.
§§ 6101-6108 (West 1998& Supp.2003) (hereinafter "TelemarketingAct"); and (3) acted
arbitrarily and capriciouslyunderthe AdministrativeProcedureAct, 5 U.S.C.A. § 551 (West
1996and Supp.2003) ("APA"). This matter is beforethe court on (1) "Plaintiffs' Motion for
SummaryJudgment,"fIled May 2,2003, (2) "Defendants'Cross-Motion for Summary
Judgment,"filed May 30,2003, and (3) the parties' "ConsentMotion for LeaveTo Amend
Complaint," filed August 5, 2003. Becauseit is uncontestedandplainly properunderthe federal
rules, the motion to amendwill be grantedwithout discussion.Jurisdiction is basedon the
existenceof a federalquestion. See28 U.S.C.A. § 1331(West 1993& Supp.2003).
FACTS
1.
Factual and Statutory Background
Many different organizations,including businesses,charities,religious groups,and
political parties,generaterevenueby calling individuals in their homesand soliciting salesand
donations. This practice,known astelemarketing,hasgrown into an industrythat generates$275
billion dollars annuallyand employsroughly 5.4 million personsin the United States (Mem.
Supp.PIs.' Mot. for Summ.J. at 7 [filed May 2,2003] [hereinafter"PIs.' Br.":
-2-
Organizations
perfonn their telemarketingactivities in a variety of ways. Someutilize their own employeesor
volunteersto perfonn telemarketingactivities. Others hire independenttelemarketing
companiesthat operatecall-centersto makesolicitationson their behalf. Plaintiffs Mainstream
Marketing andTMG are independenttelemarketingcompaniesbasedin Colorado. (First Am
Compl. for Decl. and Inj. ReliefTll4,
17-18 [filed August 5, 2003] [hereinafter"Am.
Compl."].) Plaintiff AmericanTeleservicesAssociationis a nationalnon-profit associationof
telemarketingcompanieswhich representsits members'commercialinterestsand engagesin
self-regulationof the industry. (ld'l 19; PIs.' Br. at 8.)
In 1991,Congresspassedthe TelephoneConsumerProtectionAct of 1991("TCPA"),
whereinit grantedthe FederalCommunicationsCommissionthe authority to promulgaterules
creatinga procedureto protecttelephonesubscribersfrom receivingunwantedtelemarketing
calls. 47 U.S.C.A. §§ 227(c)(I)(A}-(E), (cX3) (West 2001 & Supp.2003). The TCPA suggests
the creationof a nationaldatabaseas a methodof preventingsubscribers'receptionof unwanted
calls, but it doesnot requirethe FCC to implementsucha do-not-calllist. Id. By its own tenus,
the TCPA prohibits telemarketersfrom (1) using automatictelephonedialing systemsto make
calls or sendprerecordedmessages
to emergencylines,hospital and elderly home lines, and
cellular telephonelines, and (2) making any calls with prerecordedmessagesto any line unless
the FCC choosesto exemptthe particulartype of telemarketermaking the call. ld. §
227(b)(1)(A). Finally, the TCPA grantsthe FCC the limited authorityto exempttelemarketers
making
calls that arenot madefor a commercialpurpose;and such. . . calls madefor a
commercialpurposethat the Commissiondetermineswill not adverselyaffect the
privacy rights that this sectionis intendedto protect,and do not include the
-3-
transmissionof any unsolicitedadvertisement.
fd. § 227(b)(2)(B). As of January2003, when this casewas filed, the FCC had utilized this grant
of authorityto passrules creatingcompany-specificdo-not-calliists and prohibiting useof
automatictelephonedialersandprerecordedmessages,
but it had not yet adoptedrules creatinga
nationaldatabasefor a do-not-call registry. 47 C.F.R. § 64.1200(2002).
In 1994,Congressenactedthe TelemarketingAct, whereinit grantedthe FTC the
authorityto promulgaterules prohibiting "deceptiveor abusivetelemarketingpractices." 15
U.S.C.A. § 6102. Congressspecificallyfound that consumerswerebeing increasingly
victimized by telemarketingfraud and other abuses,and it requiredthe FTC in promulgatingits
rules to (1) defme"deceptivetelemarketingactsor practices,"(2) prohibit abusivepatternsof
unsolicitedtelephonecalls, (3) restrict the hoursof the day when telemarketingcalls may be
placed,and(4) requiretelemarketersto promptly discloseto call recipientsthe natureof their
call. Id. § 6102(2}-(3). In responseto this mandate,the FTC adoptedthe TelemarketingSales
Rules(the "Rules") on August 16, 1995. 16 C.F.R.Part 310; 60 Fed.Reg.43842 (August 23,
1995). These Rules prohibit credit card laundering, mandate prompt disclosure of the nature of
the call, and prohibit, among other things, threatening or repetitive calls 16 C.F.R. §§ 310.3,
310.4(2003).
On two occasionsin 2002,the FTC proposedrevisionsto the Rules. In January2002,the
FfC issueda notice of proposedrule making, suggestinga revision of the Rulesand the creation
of a do-not-call registry. 67 Fed.Reg.4492 (January30, 2002). In May 2002,the FfC issued
anothernotice of proposedrule-making which would further amendthe Rulesto imposefeeson
telemarketersfor accessto the do-not-call registry. 67 Fed.Reg. 37362(May 29,2002)
-4-
In December2002,the FfC issuedthe amendedRules which arethe subjectof this case.
The amendedRulesprohibit "deceptiveor abusivetelemarketingactsor practices." 16 C.F.R. §
310.4(b). Included among the defmitions of an "abusive telemarketing act"is the following:
[I] initiating any outbound telephone call to a person when. . . that person's
telephone number is on the 'do--not-call' registry, maintained by the Commission,
of persons who do not wish to receive outbound telephone calls to induce the
purchase of goods or services. . . .
[d. § 310.4(b)(1)(iii)(B)(emphasisadded). Under the amendedRules,consumersmay addtheir
namesand telephonenumbersto a registryof numbers. [d. All telemarketersareprohibited
from making calls to numberson the registryto inducethe purchaseof goodsand services.[d.
An exceptionis madefor businessesthat haveobtainedprior written consentfrom the consumer,
or have"an establishedbusinessrelationship" with the consumer,defmedas a business
transactionoccurringin the previouseighteenmonths. 16 C.F.R. § 310.4(b)(I)(iii)(B)(i)-(ii).
Also exempted from the do-not call requirements are those businessesbeyond the jurisdictional
reach of the FTC, including banks, insurance companies, and common carriers. 15 U.S.C.A. §
6105. Finally, the amended Rules contain an exemption which is critical to this case. They
exempt from the do-not-call registry organizations soliciting charitable contributions. 16 C.F.R
§ 310.6(a).
The amendedRulesalsodefmeabusivetelemarketingpracticesas
abandoningany outboundtelephonecall. An outboundtelephonecall is
'abandoned'underthis sectionif a personanswersit and the telemarketerdoes
not connectthe call to a salesrepresentativewithin two (2) secondsof the
person'scompletedgreeting.
[d. § 310.4(b)(1)(iv). A telemarketeris allowed to abandonthe occasionalcall underthe
amendedRules if
-5-
the telemarketeremploystechnologythat ensuresabandonmentof no more than
three(3%) percentof all calls answeredby a person,measuredper day per calling
campaign,and whenevera salesrepresentativeis not availableto speakwith the
personansweringthe call within two (2) secondsafter the person'scompleted
greeting,the telemarketerpromptly plays a recordedmessagethat statesthe name
andtelephonenumberof the selleron whosebehalf the call was placed.
[d. § 310.4(b)(4)(i)-(ii). The amendedRulesgo into effect on October1,2003. (pIs.' Br.,
Statementof UndisputedMaterial Facts«I 13; admittedat Defs.' Mem. of Pointsand Authorities
in Supp.of its Cross-Mot. for Summ.J. and in Opp'n to PIs.' Mot. for Summ.J., Resp.to
Statement of Undisputed Material Facts '113 [filed May 30,2003] [hereinafter "Defs.' Br."].:
In promulgating the amended Rules, the FTC sought to protect the consumer's right to
privacy in his own home and the right to be free from unwanted telephone calls. 68 Fed. Reg.
4635. To that end, the FI'C established the do-not-call registry requirements for all commercial
telemarketingcalls. Id. at 4635. Specifically,the FTC found that the previouscompany-specific
do-not-call rules, which permitteda consumerto requestthat his namebe removedfrom a
company'scall list, were insufficient to protectconsumersfrom unwantedcalls for several
reasons.[d. at 4629. First, the FTC found that telemarketersinterferedwith consumers'
attempts to be placed on company-specific lists by hanging up on them or ignoring their request.
[d. Additionally, the FfC notedthat (1) the prior practiceplacedtoo much burdenon consumers
who had to repeattheir do-not-call requestwith everytelemarketerwho called; (2) the
company-specificlist continually exposedconsumersto unwantedinitial calls which had
significantly increasedin numberssinceadoptionof the original FfC Rules;and (3) consumers
had no methodto verify that their namehad beenremovedfrom the company'slist. [d.
As notedpreviously,the FfC exemptedcharitableorganizationsfrom the do-not-call
-6-
requirements.In doing so, it cited the heightenedFirst Amendmentprotectionafforded
charitablespeech.ld. at 4586, 4635 Additionally, the FTC found that abusivetelemarketing
practices,which the registry soughtto combat,were more likely to be undertakenby commercial
telemarketersthan thosesoliciting charitableandpolitical contributions. Id. at 4635,4637. The
FfC admitted.however.that the interestof protectingprivacy did not justify a distinction
betweencommercialand charitabletelemarketingcalls becauseprivacy was equally invaded
regardlessof the speechcontentof the telephonecall. [d. Estimatesindicatethat forty to sixty
percent of telemarketing calls will be affected by the do-not-<alllist.1
(pIs.' Br. at 10; Pis.
Reply at 27.)
On March II, 2003, after the FfC announced its amended Rules, Congress enacted the
Do-Not-Call Implementation Act ("Implementation Act"). Pub. L. No. 108-10,
7 Stat.557
The Implementation Act provides
The Federal Trade Commission may promulgate regulations establishing fees
sufficient to implement and enforce the provisions relating to the 'do-not-call'
registry of the Telemarketing Sales Rule (16 C.F.R. § 310.4(b)(IXiii»,
promulgated under the Telemarketing and Consumer Fraud and Abuse Prevention
Act (15 V.S.C. §§ 6101 et. seq). ... Not later than 180 days after the date of
enactment of this Act, the Federal Communications Commission shall issue a
[mal rule pursuant to the rulemaking proceeding that it began on September 18,
2002, under the Telephone Consumer Protection Act (47 V.S.C. §§ 227 et. seq.).
In issuing such rule, the Federal Communications Commission shall consult and
coordinate with the Federal Trade Commission to maximize consistency with the
1
Thereis no exactestimateof thenumberof callsthatwill bereducedin the
administrativerecordor elsewhere.Thereareestimates,however,of the percentagereductionof
telemarketingbusinessand employment. The FfC faults the telemarketingindustryfor refusing
to provide the FfC with the infonnation necessaryto estimatethe percentagereductionin calls.
Plaintiffs fault the FfC for failing to engagein properresearchof the issuebeforepromulgating
the regulations. For purposesof this ruling, the court will considerthe telemarketingindustry's
estimateof percentagereductionin businessasthe propermeasureof the do-not-call registry's
effect on telemarketingcalls.
-7-
rule promulgatedby the FederalTradeCommission(16 C.F.R. § 310.4(b».
[d. Pursuantto the ImplementationAct and the TelemarketingAct, the FfC, on April 3, 2003,
announcedits intention to chargea fee to companiessubjectto the FTC's do-not-call registryfor
accessto the numberson the registry. 68 Fed.Reg. 16238(April 3, 2003).
Similarly, pursuantto the ImplementationAct andthe TCPA, the FCC recently
announcedits intention to adoptrules similar to the FfC's, enforcingthe do-not-calllist. On
July 25,2003, the FCC promulgatedrules mirroring the FfC's amendedRulesand adding
entitiessubjectto the do-not-call restrictions,to include thosebeyondthe reachof the FI'C's
jurisdiction, suchasbanks,insurancecompanies,and commoncarriers. 68 Fed.Reg.44144
(July 25,2003); 47 C.F.R. 64.1200(2003). The FCC do-not-call rules, like the FrC's, do not
apply to entitiesmaking calls on behalf of nonprofit organizations.[d. § 64.1200(t)(9).
On July 31,2003, the FTC promulgatedits fmal rule concerningthe feesimposedon
entitiesaccessingthe national do-not-call registry,to be codified at 16 C.F.R. § 310.8(2003).
68 Fed.Reg.45134 (July 31,2003). Thesenew fee Rulesprovide that any seller wishing to
initiate, or causeany telemarketerto initiate, an outboundtelephonecall to any personin a
particularareacode,must flfSt pay a fee for accessto the do-not-call registrypertainingto that
areacode. 16 C.F.R. § 310.8(a). The rules further states:
The annual fee. . . is $25 per area code of data accessed,up to a maximum of
$7,375; provided, however, that there shall be no charge for the first five area
codes of data accessedby any person, and provided further, that there shall be no
charge to any person engaging in, or causing others to engage in, outbound
telephone calls to consumers and who is accessingthe National Do-Not-Call
Registry without being required under this Rule, 47 C.F.R. § 64.1200, or any other
federal law.
Id. § 310.8(a).
-8-
2.
Procedural Background
Plaintiff filed a complaint in this court for declaratoryand injunctive relief on January29,
2003, seekingan injunction prohibiting the FTC's applicationand enforcementof its amended
Rules. (Compl. for Decl. and Inj. Relief [filed January29, 2003] [hereinafter"Compl."].) On
February28, 2003,plaintiffs filed a motion for a preliminary injunction, arguingthat their
likelihood of successin their casemandatedissuanceof a preliminary injunction. (PIs.' Mot. for
Prelim.lnj. [filed February28, 2003] [hereinafter"Mot. for Prelim. Inj."]
Plaintiffs withdrew
this motion on May 23,2003, after filing their motion for summaryjudgment on May 2,2003.
(Notice by Pis. of Withdrawal of Pis.' Mot. for Prelim. Inj. [fIled May 23,2003]; Pis.' Br.)
On August 5, 2003,plaintiffs filed a consentmotion to amendtheir complaintto state
claims againstthe FTC based on the new fee Rulesand to withdraw all claims against individual
defendants,other thanthe FfC. (ConsentMot. for LeaveTo Am. Compl. [fIled August 5,2003]
[hereinafter"Mot. to Am. Compl."].) In their proposedfirst amendedcomplaint,plaintiffs allege
that the fee violatesthe First Amendmentandthe APA. (Am. Compl. cn 172-182.) At a status
conferenceon August 11,2003, the court allowed the partiesan opportunityto supplementtheir
cross-motionsfor summaryjudgment,basedon the new claims assertedin plaintiffs' proposed
amendedcomplaint. On August 21, 2003,plaintiffs and defendantsfiled supplemental
memorandasupportingtheir opposingpositionsregardingthe lawfulnessof the FfC's new fee
Rules. (SupplementalMem. Supp.PIs.' Mot. for Summ.J. [filed August 21,2003] [hereinafter
"PIs.' Supp.Br."]; Defs.' Mem. of Points & Authorities in Supp.of its Mot. for Summ.J. with
Respectto Counts9-11 of the First Am. Compl. [filed August 21,2003] [hereinafter"Defs.'
Supp.Br."].)
-q-
ANALYSIS
In their motion for summaryjudgment, plaintiffs dub the amendedRulesan act of
"regulatoryimperialism,' which borrowsfrom the reasoningof the pigs in GeorgeOrwell's
"Animal Farm." (pIs.' Br. at 2,31 ["Some animalsare more equalthan others"]
Specifically,
plaintiffs argue that the amendedRules concerning the do-not-call registry and fees violate the
First and Fifth Amendmentsby (1) imposinga prior restrainton speech,(2) discriminatingbased
on speechcontent,and (3) failing to forward a substantialinterest,materially advancethe state's
interest,or createnarrowly tailored remedies.(Pis.' Br. at 23-48; Pis.' Supp.Br. at 13-25.)
Secondly,plaintiffs claim that the FfC doesnot haveauthorityfrom Congressunderthe
TelemarketingAct to promulgatethe amendedRulesbecausethe creationof a do-not-call
registryand regulationof abandonedcalls were powersspecificallygrantedto the FCC underthe
that the FfC's promulgationof the amendedRulesand fee provisionswas arbitrary and
capriciousbecausethe rules areunsupportedby the recordand commentsthat werebeforethe
FfC at the time of promulgation. (ld. at 59-67; PIs.' Supp.Br. at 25-28.:
Defendantsfiled a responseto plaintiffs' motion for summaryjudgment andtheir own
motion for summaryjudgment on May 30, 2003. (Defs.' Br.) Defendantscounterthat the
amendedRulespassFirst Amendmentconstitutionalmusterunderthe test for commercialspeech
setforth in Centra/HudsonGas & E/ec. Corp. v. Pub. ServoComm'nof New York,447 U.S.
557, 100S. Ct. 2343 (1980). (ld. at 18,23-37
Additionally, defendantsclaim the
TelemarketingAct doesgrantthe FfC the authorityto createa do-not-call registry andregulate
abandonedcalls. (Id at 14-17,44-49. Defendantsfinally claim that the FfC's promulgationof
-10-
the amendedRuleswas not arbitrary and capriciousbecausethe FTC consideredover 64,000
commentsand madeclear fmdingsjustifying the amendedRules in the rulemakingrecordat 68
Fed.Reg. at 4580-4679. (Id. at 38-43.)
1.
Standardfor SummaryJudgment & Reviewof AgencyAction
Pursuantto rule 56(c) of the FederalRulesof Civil Procedure,the court may grant
summaryjudgment where"the pleadings,depositions,answersto interrogatories,and admissions
on file, togetherwith the affidavits, if any, show that thereis no genuineissueasto any material
fact andthe
moving party is entitled to judgment as a matterof law." Fed.R. Civ. P. 56(c);
seeAndersonv. Liberty Lobby, Inc., 477 U.S. 242, 250,106 S. Ct. 2505, 2511 (1986); Concrete
Works,Inc. v. City & Countyof Denver,36 F.3d 1513, 1517(10th Cir. 1994). The moving party
bearsthe initial burdenof showingan absenceof evidenceto supportthe nonmovingparty's
case. CelotexCorp. v. Catrett,477 U.S. 317, 325,106 S. Ct. 2548,2554 (1986). "Once the
moving party meetsthis burden,the burdenshifts to the nonmovingparty to demonstratea
genuineissuefor trial on a materialmatter." ConcreteWorks,Inc., 36 F.3d at 1518(citing
CelotexCorp., 477 U.S. at 325, 106 S. Ct. at 2554). The nonmovingparty may not rest solely on
the allegationsin the pleadings,but must insteaddesignate"specific facts showingthat thereis a
genuineissuefor trial." CelotexCorp., 477 U.S. at 324, 106 S. Ct. at 2553; seeFed.R. Civ.
P.56(e).
A genuineissueof fact doesnot exist, and summaryjudgment is appropriate,if the
evidenceis suchthat a reasonablejury could not return a verdict for the nonmovingparty.
Anderson,477 U.S. at 248, 106 S. Ct. at 2510. If the nonmovingparty's evidenceis merely
colorable,or is not significantly probative,summaryjudgment may be granted. [d. at 249, 106S
_11-
Ct.at2511 In essence,the inquiry is whetherthe evidencepresentsa sufficient disagreementto
requiresubmissionto ajury or whetherit is so one-sidedthat one party must prevail asa matter
[d. at 252, 106 S. Ct. at 2512. The court may consider only admissible evidence when
ruling on a summary judgment motion. See World of Sleep, Inc. v. La-Z-Boy Chair Co.,
756 F.2d 1467, 1474(10th Cir. 1985). Additionally, the court, when ruling on a motion for
summaryjudgment, must construethe facts in the light most favorableto the nonmovingparty.
Id. Here,the partiesagreethat thereis no disputeasto any materialfact andthat summary
judgment is appropriateas a matterof law. Accordingly, this court's role is to apply the law to
the undisputed facts.
When a court reviews agency action, the reviewing court shall
hold unlawful and set aside agency action, fmdings, and conclusions found to be
(A) arbitrary, capricious, an abuse of discretion, or otherwise not in accordance
with law; (B) contrary to constitutional right, power, privilege or immunity; [or]
(C) in excess of statutory jurisdiction, authority, or limitations, or short of
statutory right. . . .
5 U.S.C.A. § 706(2)(A)-(C) (West 1993 & Supp. 2003). Here, the court is called upon to review
the FrC's actions under the Constitution, statute, and the APA. Accordingly, the court is
mindful of separateand distinct standardsof review in this case. Each standard is addressedin
turn.
2.
First Amendment
Plaintiffs claim that the rules creatingthe do-not-call registry and establishingfeesto
accessthe registry violate the First Amendmentto the United StatesConstitution. Under the
APA, the court must thereforedeterminewhetherthe FfC's rules are "contrary to constitutional
right." 5 U.S.C.A. § 706(2)(B); U.S. West,Inc. v. Fed. CommunicationsComm'n, 182F.3d
-12-
1224,1231(10th Cir. 1999),cert deniedsub nom. CompetitionPolicy Inst. v. U. S. West,Inc.,
530 U.S. 1213(2000). In contrastto the situationwherea rule is assertedto be improperwhen
measuredagainstthe enablingstatute,the court owesno deferenceto the agency'sposition that
the rule is a permissibleinterpretationof the Constitution. See,e.g.,Hill v. Nat'[ Transp.Safety
Bd., 886 F.2d 1275,1278(10th Cir. 1989);Porter v. Califano, 592 F.2d 770, 780 (5th Cir. 1979).
If the court determinesthat the amendedRulesviolate the First Amendment,they must be
invalidated.
The FfC's do-not-call registryprovidesconsumerswith a procedureby which to refuse
and prevent all commercial calls by telemarketers to their residential phone line. 16 C.F .R. §
310.4(b). By signing up for the do-not-calilist, a consumerindicateshe will not accept
commercialcalls by telemarketers.A consumercannotusethe list, however,to preventcalls
from charitableorganizationsor businesseswith which the consumerhashad a relationshipin
the pasteighteenmonths. Id. § 310.6(a). Instead,the consumermust independentlynotify these
entitiesthat the consumerdoesnot wish to receivecalls from them. In this regard,the FTC has
establisheda mechanismby which a consumermay refusecommercial,but not other typesof,
speech.
Commercialspeechis defmedas speechthat proposesa fmancial transaction. Central
Hudson,447 U.S. at 562, 100S. Ct. at 2349. Thereis no doubt that the First Amendment
protectsthis type of speechfrom unwarrantedgovernmentregulation. [d. at 561, 100S. Ct. at
2350. The First Amendment'sconcernfor commercialspeechis basedon the informational
function of advertising. [d. at 563, 100 S. Ct. at 2350. "Commercialexpressionnot only serves
the economicinterestof the speaker,but also assistsconsumersand furthersthe societalinterest
-13-
in the fullest possibledisseminationof information." Id. at 561-562, 100S. Ct. at 2349. In
applying the First Amendment to commercial speech, the Supreme Court has rejected the highly
paternalistic view that the government should be involved in assessingthe value of, and
detennining, what consumers should and should not hear. ld,' Edenfield v. Fane, 507 U.S. 761,
767, 113S. Ct. 1792, 1798(1993). This view stemsfrom a belief that a "consumer'sinterestin
the free flow of commercialinformation. . . may be askeen,if not keenerby far, than his interest
in the day's most urgentpolitical debate." Rubin v. CoorsBrewing Co., 514 U.S. 476, 481-482,
115S. Ct. 1585,1589(1995) (quoting Virginia Bd. of Phann. v. Va. CitizensConsumerCouncil,
Inc., 425 U.S. 748,763,96 S. Ct. 1817,1826[1976)).
Despite the value of commercial speech,however, it is afforded lesser protection under
the First Amendment than other types of speech, such as speech soliciting donations for political
or charitablecauses.Central Hudson,447 U.S. at 562, 100 S. Ct. at 2349; Village of
Schaumburgv. Citizensfor a Better Env't, 444 U.S. 620, 632,100 S. Ct. 826, 834 (1980).
Charitablesolicitation of funds doesmore than inform private economicdecisionsbecauseit
involvesthe disseminationof views and the advocacyof political and social causes.Village of
Schaumburg,444 U.S. at 632, 100 S. Ct. at 834. It is, therefore,protectedmorehighly than
commercialspeech.Commercialspeechalso receiveslesserprotectionbecause,to requirea
parity of constitutionalprotectionfor commercialand noncommercialspeechalike could invite
dilution, simply by a leveling process,of the force of the First Amendment'sguaranteewith
respectto the latter kind of speech.Florida Bar v. WentFor It, Inc., 515 U.S. 618, 623,115S.
Ct. 2371, 2375 (1995).
The protectionaffordedcommercialspeechunderthe First Amendmentdependsupon the
14-
natureof the speechand the governmentinterestsservedby its regulation. Central Hudson,447
u.s.at 563, 100S. Ct. at 2350. The First Amendmentdoesnot protectcommercialspeechthat
is untruthful or concernsunlawful activity. [d.; Florida Bar, 515 U.S. at 623,115S. Ct. at 2375.
Commercialspeechthat falls into neitherof thosecategoriesmay be regulated,however,if: (1)
the governmentassertsa substantialinterestin supportof the regulation;(2) the government
demonstrates
that the restrictionon commercialspeechdirectly andmaterially advancesthat
interest;and (3) the regulationis narrowly tailored. Central Hudson,447 U.S. at 564-565, 100
S. Ct. at 2351; Florida Bar, 515 U.S. at 624,115S. Ct. at 2376. The court appliesintermediate
scrutiny- somewherebetweenthe "least-restrictivemeans"test usedin somecasesinvolving
freedomof the pressand the "rational basis"test usedin fourteenthamendmentequalprotection
analysis- in making the determinationwhethera regulationof commercialspeechoffendsthe
First Amendment. Central Hudson,447 U.S. at 564, 100S. Ct. at 2351,'Florida Bar, 515 U.S.
at 623,115S. Ct. at 2375.
A.
Do the AmendedRules Amount to GovernmentalRestriction on Lawful
CommercialSpeech
Before applyingthe threeprong test enumeratedin Central Hudson,the court must
determinewhetherthe FrC's do-not-call registry andfee Rulesqualify as a type of regulation
implicating the First Amendment. Specifically,the regulationsmust amountto a government
restrictionon lawful and truthful commercialspeech.Central Hudson,447 U.S. at 564, 100S.
Ct. at 2351. The amendedRulesamountto a governmentrestrictionon lawful andtruthful
commercialspeechfor severalreasons.
First, the do-not-call registry affectslawful and truthful commercialspeechthat is
-15-
protectedunder Central Hudson. The do-not-call registry and its feesapply to all "outbound
telephonecalls to inducethe purchaseof goodsand services." 16 C.P.R.§ 310.4(b)(I)(iii)(B).
"Solicitations to inducecharitablecontributions" arenot coveredby the registry,and "charitable
contributions"are defmedas "any donationor gift of moneyor any other thing of value." Id. §§
310.2(f), 310.6(a). Sincethe registry and its feesonly apply to speechintendedto inducethe
purchaseof goodsand services,the regulationsonly apply to speechproposinga fmancial
transaction,or commercialspeech,as it is defmedunderthe First Amendment. Central Hudson,
447 U.S. at 564, 100S. Ct. at 2351. Additionally, the regulationsrefer to all commercialspeech
without regardto truthfulnessor lawfulnessand,therefore,concernlawful commercialspeech
which is protectedby the First Amendment.Id.; Florida Bar, 515 u.s. at 623,115S. Ct. at 2375.
A more troubling questionis whetherthe regulationsarea "governmentrestriction" on
speechthat even implicatesthe First Amendment. The amendedRulesdo not restrict speechby
explicitly and directly limiting it. hlsteadof placing an outright ban on commercial
telemarketingcalls, the FfC hasmerelyprovideda mechanismby which the individual can
chooseto ban all commercialtelemarketingcalls to his residence.The SupremeCourt addressed
the constitutionalityof a similar regulationin Rowanv. UnitedStatesPost Office Dept., 397 U.S.
728,90 S. Ct. 1484(1970).2
In Rowan,the Court upheld a statutewhich allowed an addressee
to refusemail from any
2
In Rowan,the SupremeCourt did not addressthe applicability of the Central Hudson
testto the statutein question. Instead,the court held at the outsetthat the governmentwasnot
sufficiently involved in restricting speechto implicateFirst Amendmentconcerns.Rowan,397
U.S. at 738,90 S. Ct. at 1491. BecauseRowandid not apply the Central Hudsontest,the court
in this opinion will addressthe questionsraisedby Rowanprior to analysisunderCentral
Hudson.
-16-
senderby notifying the local postmaster,who then instructedthe senderto removethe
addressee's
nameand addressfrom its mailing list underpenaltyof law. Rowan,397 U.S. at
738,90 S. Ct. at 1491. The court found that the statutedid not violate the First Amendment
becausethe purposeof the statutewas to eliminategovernmentalinvolvementin any
detenninationconcerningthe contentof the materialsand to allow the addressee
completeand
unfettereddiscretionin electingwhat speechhe desiredto receive. [d. at 738, 90 S. Ct. at 1491
The First Amendment right to speak was only circumscribed by an afflrmative act -
the
addressee'sgiving notice that he no longer wished to receive mail from the sender. [d. at 737,90
S. Ct. at 1490. The court categoricallyrejectedthe argumentthat a vendorhasthe right to send
unwantedmaterialinto the homeof anotherand found that the statutedid not operateas a
governmentrestrictionon speech.[d. at 738,90 S. Ct. at 1491. Accordingly, the statutein
Rowan wa..o;
upheld as constitutional. [d.
Relying on Rowan,the FTC arguesthat any burdenimposedon commercialspeechby the
do-not-call registry is imposedby the actionsof individual consumersratherthan the
government.(Defs.' Br. at 18-19. Accordingto the FTC, the do-not-call registry,like the
statutein Rowan,doesnot implicate First Amendmentconcernsbecausethe governmentis not
sufficiently involved in detenniningwhat speechan individual doesand doesnot hear.
Plaintiffs arguethat the registry systemfavors one kind of speechover anotherandmanipulates
consumerchoice,unlike the statutein Rowan,making it a governmentrestriction implicating the
First Amendment. (PIs.' Br. at 27-29.)
The court rejectsthe FrC's position andholds that the do-not-call registry sufficiently
involves the governmentin the regulationof commercialspeechto implicate the First
-17-
Amendmentandrequirethe applicationof the Central Hudsontest. An importantdistinction
betweenRowanand this caseis that, in Rowan,the individual had completeautonomyto prevent
any chosenmaterialfrom enteringhis home. The government'sregulationhad no bearingon this
choice. Rowan,397 U.S. at 728,90 S. Ct. at 1484. In fact, the SupremeCourt specifically
stated:
Both the absoluteness
of the citizen's right under[the statute]and its fmality are
essential. . .. In operativeeffect the power of the householderunderthe statuteis
unlimited; he may prohibit the mailing of a dry goodscatalogbecausehe objects
to the contents. . .. Congressprovided this sweepingpower not only to protect
privacy but to avoid possibleconstitutionalquestions. . . .
Rowan,397 U.S. at 737,90 S. Ct. at 1491
Here,however,the FTC, by exemptingcharitablesolicitors from the amendedRules'
do--not-callregistry,hasimposeda content-basedlimitation on what the consumermay ban
from his home. Although the consumerdoesretain the choicewhetherto sign up for the registry,
the governmenthasremovedthe absoluteness
of that autonomyby itself exemptingcertaintypes
of speechfrom the restrictionsof the registry. Any consumerwho desiresto refuseall
telemarketingcalls, commercialand noncommercial,cannotenforcethat preference.Although
theseconsumersmay refusecalls for charitablecontributionsthroughthe company-specificlist,
telemarketingcalls soliciting charitablecontributionswill ring throughto the consumer,while
commercialcalls will not. The mechanismpurportedlycreatedby the FTC to effectuate
consumerchoiceinsteadinfluencesconsumerchoice,therebyentanglingthe governmentin
decidingwhat speechconsumersshouldhear. This entanglementcreatesa regulatoryburdenon
commercialspeech.
FurtherDlore,the fact that the do-not-call registry is not an outright governmentban on
-18-
commercialspeechdoesnot meanthat it is not a burdenimplicating the First Amendment.
UnitedStatesv. PlayboyEntm't Group, Inc., 529 U.S. 803, 812, 120S. Ct. 1878, 1886(2000).
"The distinction betweenlaws burdeningand laws banningspeechis but a matterof degree. The
government'scontent-basedburdensmust satisfythe samerigorousscrutiny as its content-based
bans." [d. Basedon the holdings in Rowanand PlayboyEntertainmentGroup, the court
detenninesthat the do-not-call registry is a significant enoughgovernmentalintrusion and
burdenon commercialspeechto amountto a governmentrestriction implicating the First
Amendment. The test enumeratedin Central Hudsonmust,therefore,be appliedin deternrining
the constitutionalityof the FrC's amendedRules.
B.
Are the AmendedRulesJustified by a Substantial GovernmentInterest?
Under the Central Hudsontest,the party seekingto uphold a restrictionon commercial
speechcarriesthe burdenof justifying it with a substantialinterest. Edenfield,507 U.S. at 770,
113S. Ct at 1800. The governmentbody seekingto sustaina restrictionon speechcannot
satisfythis burdenwith speculationor conjecturebut must demonstratethat the harm is real. Id.
at 770-771,113 S. Ct. at 1800. Unlike other standardsof constitutionalreview, intermediate
scrutinyrequiresthe court to examineonly the governmentinterestsetforth by the government;
the court cannotconsiderother possibleinterestsin determiningthe regulation's
constitutionality. [d. at 768, 113S. Ct. at 1798. Here,the FfC assertsthat it hasan interestin
protectingthe privacy of thosewho indicatethey do not wish to receivetelephonecalls from
telemarketersin their homes. (Defs.' Br. at 23.) Additionally, the FrC claims that it hasa
substantialinterestin curbing deceptiveand abusivetelemarketingpractices. (Defs.' Br. at 29.
The government'sinterestin protectingthe well-being, tranquility, andprivacy of the
-19-
homeis of the highestorder in a free and civilized society. Frisby v. Schultz,487 U.S. 474,484,
108S. Ct. 2495.2502 (1988) (citing Carey v. Brown, 447 U.S. 455.471. 100S. Ct. 2286. 2296
1980]). Accordingly, the SupremeCourt hasrecognizedthat "[p]reserving the sanctityof the
home,the one retreatwheremen and womencan repair to escapefrom the tribulations of their
daily pursuits,is an importantvalue." [d. Although in public locationsit is the responsibilityof
the individual to avoid speechthat he doesnot wish to hear,in the home a man is entitled to
closeoff the rest of the world. Id. The ancientconceptthat "a man's homeis his castle" into
which "not eventhe king may enter" haslost noneof its vitality; therefore,a citizen may erecta
wall aroundhis residencethat no personmay penetratewithout his acquiescence.Rowan,397
u.s.at 737-738,90
S. Ct. at 1491. It is this "right to be let alone" that Justice Brandeis
characterizedas "the most comprehensiveof rights and the right most valuedby civilized men."
Hill v. Colo., 530 U.S. 703,717, 120 S. Ct. 2480,2489-2490 (2000) (citing Olmsteadv. United
States,277 U.S. 438, 48 S. Ct. 564 [1928] [Brandeis,J., dissenting]).
One aspectof residentialprivacy is the right to avoid unwantedcommunications.Id.;
Hill, 530 U.S. at 716, 120S. Ct. at 2489.Thus,the SupremeCourt hasrepeatedlyheld that
individuals arenot requiredto welcomeunwantedspeechinto their homesand that the
governmentmay protectthis freedom. Frisby, 487 U.S. 485, 108S. Ct. at 2502. The FTC's
assertedinterestin protectingprivacy in the homeis sufficiently substantialto justify a restriction
in speechif the restrictionfulfills the otherrequirementsof Central Hudson. The SupremeCourt
hasrecognizedthe validity of this interest. Rowan,397 U.S. at 728,90 S. Ct. at 1484.
The FrC's assertedinterestin protectingconsumersfrom deceptiveand abusive
telemarketingpracticesis also a substantialgovernmentinterestunderCentral Hudson. Thereis
-20-
a substantialstateinterestin preventingdeceptionand mistreatmentof consumers.Friedman v.
Rogers,440 U.S. 1, 16,99 S. Ct. 887, 897 (1979). Accordingly, the interestin preventing
abusivetelemarketingpracticesis sufficiently substantialto justify a restriction on commercial
speechif the restriction fulfills the other requirementsof Central Hudson.
c.
Do the AmendedRules Materially Advancethe Substantial Interest Articulated
by the FTC?
The FfC must demonstratethat the restrictionon speechwill advance,to a material
degree,the government'sinterestin protectingprivacy. Edenfield,507 U.S. at 770-771, 113 S.
Ct. at 1792. The regulationmay not be sustainedif it providesonly remotesupportfor the
government'spurpose. Central Hudson,447 U.S. at 564, 100S. Ct. at 2343. This requirement
is critical; otherwise,a statecould restrict commercialspeechin the serviceof other objectives
that could not themselvesjustify a burdenon commercialexpression.Rubin, 514 U.S. at 487,
115S. Ct. at 1590(citing Edenfield,507 u.s. at 771,113 S. Ct. at 1792).
At the outset,it is importantto note the parties' agreementthat all telemarketingcalls are
invasiveof privacy, whethermadefor commercialor charitablesolicitations. (Defs.' Br. at 25.)
The FfC arguesthat the regulationscreatingthe do-not-call registry materially advancethe
government'sinterestin protectingindividuals from telemarketingcalls they do not wish to
receive,despiteits limited applicationto only sometypesof commercialsolicitations. (Defs.'
Br. at 25-31
According to the FfC, becausethereis an interestin reducingthe numberof
unwantedtelemarketingcalls, everycall preventedby the do-not-<:allregistry furthersthe
government'sinterestin protectingprivacy, regardlessof the fact that other unwantedcalls are
not prevented.(Id. at 25.) If plaintiffs' estimatesare credited,one may assumethat the FTC's
-21-
do-not-call registry might eliminate anywherefrom forty to sixty percentof all telemarketing
calls for thosewho subscribe,a substantialamountof unwantedcalls. {Pis.' Br. at 10; Pis.'
Reply at 27.) Plaintiffs counterthat the registry is fatally under-inclusivebecauseit only affects
unwantedcommercialcalls, eventhoughtelemarketingcalls seekingcharitablecontributionsare
equallyunwantedand invasiveof privacy. (pIs.' Br. at 38-41.) The SupremeCourt dealt with
similar argumentsin Cincinnati v. DiscoveryNetwork,Inc., 507 U.S. 410, 113 S. Ct. 1505
(1993).
In DiscoveryNetwork,Cincinnati prohibited newsrackscontainingcommercialhandbills
in orderto further an assertedinterestin city beautification. The city did not, however,prohibit
newsrackscontainingnewspapers,which includedboth commercialspeechand political speech.
DiscoveryNetwork, 507 U.S. at 417,113 S. Ct. at 1510. Noting that newsrackscontaining
commercialhandbills only comprised62 out of 2000 newsracksin the city, approximatelythree
percent(3%), the Court found that the regulationdid not materially advancethe city's interestin
beautification. [d. Additionally, the court rejectedthe argumentmadeby the FfC here: that any
reductionin the numberof newsracks,no matterhow small, furtheredthe city's purpose. [d.
The FTC hasgonemuch farther in advancingits interestthanthe city did in Discovery
Network. The assumedforty to sixty percentreductionin unwantedtelemarketingcalls
:ignificantly limits invasionsof individual privacy, when that percentageis comparedto the
paltry threepercentreductionin newsracksachievedby the city in DiscoveryNetwork. Were the
under-inclusivescopeof the registry the only issuerelevantto whetherthe registry "materially
advances"the FfC's interest,this court would hold that the amendedRulespassthis part of the
Central Hudsontest. Unfortunatelyfor the FfC, however,DiscoveryNetwork, and other fIrst
-22-
amendmentcases,indicatethat numericalunder-inclusivenessper se is not the fatal defectthat
rendersa governmentrestriction on speechunconstitutionalunderthe secondprong of the
Central Hudsonanalysis. Rather,the First Amendmentimposes,not an "under-inclusiveness'
limitation, but a "content discrimination" limitation. R.A.V; v. City of St. Paul, 505 U.S. 377,
387, 112 S. Ct. 2538, 2545 (1992).3
The SupremeCourt hasheld that. to materially advancethe government'sinterest,the
governmentis not requiredto makeprogresson everyfront beforeit can makeprogresson any
front. UnitedStatesv. EdgeBroad. Co., 509 U.S. 418, 434,113 S. Ct. 2696,2707 (1993). If
the governmentavoidsregulatingcertainfronts in attemptingto materially advanceits interest,
however,it cannotjustify its abstentionon thesefronts basedon the contentof the speech.
R.A.V., 505 U.S. at 387,112 S. Ct. at 2545. "Regulations which permit the government to
discriminate on the basis of the content of the messagecannot be tolerated under the First
Amendment." Reganv. Time,Inc., 468 U.S. 641, 648-649, 104 S. Ct. 3262,3267 (1984). In
DiscoveryNetwork, the SupremeCourt recognizedcontentdiscriminationasthe primary flaw in
the city's regulationof newsracks. DiscoveryNetwork, 507 U.S. at 417, 113 S. Ct. at 1510. The
city's regulation failed under the First Amendment becausethe regulation distinguished between
commercial and noncommercial speech, despite the fact that there was no evidence that the
commercial use of news racks was more harmful to city beautification than other uses of news
racks. DiscoveryNetwork, 507 U.S. at 418-419, 113 S. Ct. at 1511. When a regulatoryregime
is piercedby content-basedexemptionsand inconsistenciesin the government'sexplanationas
3
Although R.A.V. did not involve commercialspeechor Central Hudsonanalysis,its
explanation of the true goal of the "under-inclusiveness" limitation in first amendment
jurisprudenceis equally applicableto the Central Hudsontest.
-23-
to how the regimeadvancesa substantialinterest,it must fail underthe First Amendment.
GreaterNew OrleansBroad. Ass'n, Inc. v. UnitedStates,527 U.S. 173, 190, 119S. Ct. 1923,
1933(1999). Simply stated,the government'spracticecannotbe at oddswith the asserted
governmentinterest. [d. at 191,119 S. Ct. at 1933. The regulationcannotdistinguishamongthe
indistinct, permitting a variety of speechthat entailsthe sameharm asthe speechwhich the
governmenthasattemptedto limit. Id. at 195, 119 S. Ct. at 1935
Here,plaintiffs arguethat the registry doesnot materially advancethe FfC's interest
becausethe FTC hasmadea content-baseddistinction betweencommercialand charitable
solicitationsfor reasonsunrelatedto its interestin privacy. Thereis no doubt that unwantedcalls
seekingcharitablecontributionsare as invasiveto the privacy of someonesitting down to dinner
at homeasunwantedcalls from commercialtelemarketers.The FTC recognizedthis when
promulgatingthe amendedRules. 68 Fed.Reg.at 4637. Realizingthat its interestin privacy
doesnot justify the distinction betweencommercialand noncommercialspeech,the FI'C
attempt~to justify the distinction by advancingseveralother arguments.
First, the FTC arguesthat nonprofit corporationsandpolitical fund-raisersarelesslikely
than for-profit entitiesto engagein abusivepracticesbecausethe consumeris both a potential
donor and a potentialvoter or volunteerfor the charity or political party. (Defs.' Br. at 29.)
Distinguishingbetweencommercialand noncommercialspeechmay be proper when it bearsa
relationshipto preventingcommercialhanns,suchasfraud. SeeDiscoveryNetwork, 507 U.S. at
426, 113S. Ct. at 1515.
This argumentfails becausethereis no evidencein the administrativerecordor before
this court that abusiveand fraudulenttelemarketingpracticesaremore often instigatedby
.24-
commercialtelemarketersthan by charitabletelemarketers.The importanceof repeatbusiness
providesa commercialtelemarketerwith an incentiveto act in a responsibleand decorous
mannerwhich is as strongas the incentivepossessed
by a charitabletelemarketer.SeeEdenfield,
507 U.S. at 776, 113 S. Ct. at 1803. Conversely,just becausea corporationhasmadethe
necessaryfilings to achievenonprofit or charitablestatusdoesnot meanthat its fund raising
methodsarebeyondreproach. Many a mountebankhasutilized the corporateform, including
nonprofit incorporation,to perpetratefraud on unsuspectingconsumers.In any type of
transactionwheremoneychangeshands,whethercharitableor commercial,fraudulentdeedswill
find a foothold andposea risk to the public. The FrC's attemptto justify its distinction between
commercialand charitablesolicitationson this basis,therefore,fails. Distinguishingbetween
commercialand charitablesolicitationsin the telemarketingcontextdoesnot materially advance
the FfC's interestin curbing abusiveor fraudulenttelemarketingpractices.
In the administrativerecord,the FrC indicatesthat it exemptedcharitableorganizations
from the do-not-calilist becauseof the heightenedFirst Amendmentprotectiondue charitable
speech.68 Fed.Reg. at 4586. This reasonsfail underthe First Amendmentasa matterof law.
Any attemptto distinguishbetweencommercialandnoncommercialspeechsolely becauseof
commercialspeech'slesserprotectedstatusunderthe Constitution"attach[es] more importance
to the distinction betweencommercialand noncommercialspeechthan caseswarrantand
seriouslyunderestimates
the value of commercialspeech."DiscoveryNetwork, 507 U.S. at 419,
113 S. Ct. at 1511 A content-baseddistinction cannotbe madeon constitutionalgrounds
unrelatedto the assertedgovernmentinterest.
Finally, the FfC arguesthat the amendedRulesdo not createa distinction between
-25-
commercialand charitablespeechbasedon content,but basedon secondaryeffects,which is
permissible. (Defs.' Br. at 20-21.) According to the FfC, the secondaryeffectsof the calls are
the constantringing of unwantedtelemarketingcalls. (Id.) A regulationis not considered
content-basedif thejustification for distinguishingbetweencontentis not relatedto the content
itself, but to the secondaryeffectsof the content. Rentonv. Playtime Theatres,Inc., 475 U.S. 41,
47-49, 106 S. Ct. 925, 929 (1986). Even if invasionof privacy is regardedas a secondaryeffect.
it doesnot justify treatingcommercialspeechdifferently from noncommercialspeech,sincethe
secondaryeffect is the samefor both typesof speech.4
Basedon the forgoing, the court fmds that the FrC's do-not-call registry doesnot
materially advanceits interestin protectingprivacy or curbing abusivetelemarketingpractices.
The registrycreatesa burdenon one type of speechbasedsolely on its content,without a logical,
coherent privacy-basedor prevention-of-abuse-basedreasonsupportingthe disparatetreatment
of different categoriesof speech.SeePearsonv. Edgar, 153F.3d 397.404 (7th Cir. 1998).
Were the do-not-call registryto apply without regardto the contentof the speech,or to leave
autonomyin the handsof the individual, as in Rowan,it might be a different matter. As the
amendedRulesarecurrentlyfonnulated,however,the FTC haschosento entangleitself too
much in the consumer'sdecisionby manipulatingconsumerchoiceand favoring speechby
4
In theadministrative
record,theFfC states,''asa practicalmatter,theCommission
believesthat this approachwill enablecharitiesto continuesoliciting supportandpursuingtheir
missions." 68 Fed.Reg.at 4586. This statementsuggeststhat the FfC choseto exclude
non-profit corporationsfrom the registrybasedon favoritism of nonprofit corporationsandtheir
missionsover the objectivesof for-profit corporations. Suchfavoritism is not a valid reasonfor
content-basedregulation. The governmentmay not regulatespeechbasedon hostility or
favoritism towardsthe underlyingmessageexpressed.R.A.V., 505 u.S. at 386, 112S. Ct. 2545.
Furthennore,becausethe FfC did not assertthis as its governmentinterest,suchfavoritism
cannotjustify the content-baseddistinction in this case.
-26-
charitableover commercialspeech.The First Amendmentprohibits the governmentfrom
enactinglaws creatinga preferencefor certaintypesof speechbasedon content,without
assertinga valid interest,premisedon content,to justify its discrimination. Becausethe
do-not-call registry distinguishesbetweenthe indistinct, it is unconstitutionalunderthe First
Amendment. Having held that the amendedRulesfail the secondpart of the Central Hudson
test,the court choosesnot to addressthe fmal part of the test or to detemlinethe now-moot issue
of whetherthe FrC may chargea fee for obtainingthe do-not-<:allregistry.
3.
StatutoryAuthority Under the TelemarketingAct
Plaintiffs challengethe FfC's interpretationof the TelemarketingAct and arguethat the
FTC doesnot have statutoryauthorityto promulgaterules concerninga do-not-call registry and
abandonedcalls. Becausethe court hasalreadyaddressedthe amendedRulesconcerningthe
do-not-call registry andheld they cannotwithstandconstitutionalscrutiny,it needonly review
the amendedRulesconcerningabandonedcalls to detemlinewhetherthe FTC had authority to
promulgate them.
When a court reviews an agency's construction of a statute which it administers, the court
must examinetwo questions. Chevron,U.S.A.,Inc. v. Natural Res.De! Council,Inc., 467 U.S.
837, 842, 104 S. Ct. 2778, 2781 (1984). First, the court should examine whether Congress has,
in the statute, addressedthe precise question at issue in the agency's interpretation. [d. If the
intent of Congress is clear, then the court and the agency must give effect to this intent. [d. at
842-843, 104 S. Ct. at 2781 If, however, Congress has not directly addressedthe precise
question at issue, the question for the court is whether the agency's interpretation of the statute is
basedon a permissibleconstructionof the statute. [d. at 843,104 S. Ct. at 2781-2782. If
-27-
Congress, by failing to directly address an issue, has left a gap for the agency to fill, the agency's
regulations filling this gap are given controlling weight unless they are arbitrary, capricious, or
manifestly contrary to the statute. [d. at 843-844, 104 S. Ct. at 2782. Considerable weight
should be accorded to an executive department's construction of a statutory scheme it is
entrusted to administer. [d. at 844, 104 S. Ct. at 2782
First, plaintiffs argue that the FTC's regulations regarding abandoned calls regulate the
use of predictive dialers, by prohibiting abandoned calls unless telemarketers utilize "technology
that ensuresabandonment of no more that three percent (3%) of all calls." (PIs.' Br. at 51 [citing
16 C.F.R. § 310.4(b)(4)(i)].) Predictive dialers are machines employed in telemarketing, which
use algorithms to determine the number of calls to prospective customers which may be dialed
simultaneously in order to ensure that when a sales agent is finished with one call he may transfer
immediately to a new call dialed by the predictive dialer. (PIs.' Br. at 49.) Using a predictive
dialer allows a telemarketer's sales agents to remain on the phone perpetually without any dialing
or other down time, and provides an extremely cost-effective way of doing business. (Id.) The
useof predictivedialers,however,often resultsin calls being "abandoned,"when a salesagentis
not availableto transferto the new call and the customeransweringthe telephonehears"dead
air." (Id. at 49-50.)
Plaintiffs arguethat regulationof predictivedialers,definedas "customerpremises
equipment"underthe CommunicationsAct, is within the solejurisdiction of the FCC. (ld.)
According to plaintiffs, therefore,the FTC doesnot havethejurisdictional authorityto adopt
regulationsconcerningabandonedcalls, which affect predictivedialers. (ld.) The
CommunicationsAct defmes"customerpremisesequipment"asequipment"employedon the
-28-
premisesof a person(oilier ilian a carrier) to originate,route, or terminatetelecommunications
47 U.S.C.A. § 153(14)(West 2001 & Supp.2003). Predictivedialers qualify as "customer
premisesequipment"becausethey areemployedon the premisesof telemarketersto originate,
route, and terminatetelephonecalls to potential customers.Regulationof predictivedialers,
therefore,is within thejurisdiction of the FCC. The fact that the FCC hasjurisdiction to regulate
in an area,however,doesnot necessarilymeanthat the FTC lacksjurisdiction to regulatein the
samearea.
We live in an "era of overlappingagencyjurisdiction underdifferent statutorymandates."
FTC v. Texaco,Inc., 555 F.2d 862, 881 (D.C. Cir. 1977). Here,Congresshasgiven both the
FfC and the FCC the authorityto adoptregulationseffectingthe telemarketingindustry. 15
U.S.C.A. §§ 6101-6108; 47 U.S.C.A. § 227. Specifically,Congressgavethe FfC the authority
underthe TelemarketingAct to promulgaterules prohibiting "deceptiveor abusivetelemarketing
practices."15 U.S.C.A § 6102. Congressrequiredthe FrC to defme"deceptiveor abusive
telemarketingactsor practices." Id. In the amendedRules,the FI'C defmesabandoningcalls as
an abusiveact or practiceand requirestelemarketersto either havea salesagentavailableto take
the call or playa messagewith the seller's nameand telephonenumber. 16 C.F.R. §
310.4(b)(1)(iv),(b)(4)(ii). The FTC was well within its authorityto enactregulationsdefIning
"abusiveanddeceptivetelemarketingpractices,"sinceCongressexpresslygrantedthe FTC this
authorityin the TelemarketingAct.
Chevron,467 U.S. at 842-843,104 S. Ct. at 2781 As
statedearlier,if the intent of Congressis clear in the statute,then the court and the agencymust
give effect to this intent. fd.
Plaintiffs arguethat, althoughthe FTC hasexpressCongressionalauthorityto defme
.29-
"abusiveand deceptivetelemarketingpractices,"the FrC doesnot havethe authority to defme
the practiceof abandoningcalls as one of thesepracticesbecausethe FCC hasexclusive
jurisdiction over predictivedialers. (pIs.' Br. at 51-55.) Basically,accordingto plaintiffs, the
FTC abusedits discretionin concludingthat the TelemarketingAct permitsthe FTC to define the
practiceof abandoningcalls as an abusiveand deceptivepractice. Plaintiffs cite no cases
showingthat the FCC hasexclusivejurisdiction over the regulationof abandonedcalls or
predictivedialers in light of the TelemarketingAct. The casescited by plaintiffs are inapposite
becausethey address(1) thejurisdiction of the FCC vis-a-vis the states,over interstate
telecommunicationsand (2) the notion that the FCC regulatoryschemedoesnot provide a basis
for implied exemptionfrom antitrustlaws. EssentialCommunicationsSys.,Inc. v. Am. Tel. &
Tel. Co., 610F.2d 1114,
16 (3d Cir. 1979);MacomProds. Corp. v. Am. Tel. & Tel. Co., 359 F.
Supp.973, 977 (C.D. Ca!. 1973). Plaintiffs' argumentsdo not addressa situationwhere
Congress has directly granted authority to one federal agency in an area where another federal
agencyalreadyhasjurisdiction, as is the casehere. Basedon independentresearch,the court
finds no basisto concludethat the FCC hasexclusivejurisdiction to regulatethe practiceof
abandoningcalls. BecauseCongresshasnot directly addressedwhetherthe FfC canregulate
abandonedcalls, the questionis whetherthe FTC's interpretationof the TelemarketingAct is a
pennissibleconstructionof the statute. Chevron,467 U.S. at 843, 104 S. Ct. at 2781-2782. The
FfC's regulationsareto be given controlling weight becausethey are not arbitrary,capricious,or
manifestlycontraryto the statute. [d. at 843-844, 104S. Ct. at 2782. The court, therefore,holds
that the amended Rules concerning abandoned calls rest on a valid interpretation of the
TelemarketingAct
-30-
Plaintiffs seem to claim that even if the FTC could defme the practice of abandoning calls
as abusive and proscribe such practice under its Rules, it still could not require predictive dialers
to operate at ninety-seven percent efficiency, as such regulation of technology is the FCC's
domain. This argument does not bear analysis. Because the FfC has the statutory to defme
abusive telemarketing practices and prohibit them, the FTC has the authority under the
Telemarketing Act to prohibit all abandoned calls, and, therefore, all use of predictive dialers.
Instead, in order to avoid forcing the elimination of predictive dialers altogether, the FTC
allowed that telemarketers could abandon up to three percent of all calls, enabling them to
continue using predictive dialers The FfC's statutory authority to do the greater certainly
encompassesits authority to do the lesser. Plainly, the FfC has effectively defined abusive
telemarketing as abandoning more than three percent of calls. Becausethe Telemarketing Act
specifically grants the FTC the authority to define abusive telemarketing practices, the amended
Rules pertaining to abandoned calls are within the statutory authority of the FrC under Chevron.
Plaintiffs arguethat the FTC abusedits discretionbecausethe amendedRulesconcerning
abandonedcalls conflict with the TCPA andFCC rules. (PIs.' Br. at 55-59.) The FfC's
amendedRulesallow telemarketersto avoid liability for abandoningcalls by playing a
pre-recordedmessagewith the seller's nameandtelephonenumber. 16 C.F.R. § 310.4(b)(4)(iii).
The TCPA makes it "unlawful for any person.
to initiate any telephone call to any residential
telephone line using an artificial or prerecorded voice to deliver a message" except for those calls
"made for commercial purposes that the FCC determines. .
rights. . . and
will not adversely effect privacy
do not include the transmissionof any unsolicitedadvertisement."47
U.S.C.A.§ 227(b)(1)(B),(b)(2)(B)(ii)(l)-(ll). FCC rules exceptfrom applicationof the TCPA's
-31-
prohibition thosecalls madefor a commercialpurposethat do not include unsolicited
advertisements.47 C.F.R. § 64.1200(c).
Basedon a plain readingof theseprovisions,underthe deferentialreview of Chevron,the
FrC's amendedRulesdo not conflict with the TCPA or the FCC's rules. A pre-recorded
statementof the seller's nameandphonenumberis madeunderthe FfC's amendedRulesas a
meansof identification, to preventresidentsfrom fearingthe call was madeby a would-be
burglar or assailant.In that sense,the pre-recordedidentification messagefalls underthe FCC's
rule exceptingcommercialcalls that do not containany unsolicitedadvertisement.47 C.F.R. §
64.1200(c). The court seesno conflict amongthe statute,the FCC's rules, and the FrC's rules.
Accordingly, the FfC's amendedRulespertainingto abandonedcalls are valid and enforceable
under the Telemarketing Act.
4.
Conclusion
Basedon the foregoingfmdings and conclusions,it is
ORDERED asfollows:
Plaintiffs' consent motion to amend the complaint (#34) is GRANTED.
2. Plaintiffs' motion for summary judgment (# 24) is GRANTED in part and DENIED in
part. It is GRANTED asto plaintiffs' claim that the FrC's amendedRulescreatinga do-not~l
registry are unconstitutional under the First Amendment. It is DENIED in all other respects.
3. Defendants' motion for summary judgment (#28) is GRANTED in part and DENIED
in part. It is GRANTED as to plaintiffs' claim that the amended Rules concerning abandoned
calls are invalid under Chevron. It is DENIED in all other respects.
4. The clerk shall enterjudgment in favor of plaintiffs and againstthe FrC (1) enjoining
-32-
the FTC from enforcingthe amendedRules (issuedin December2002) creatingand
implementinga federaldo-not-call registry and (2) dismissingwith prejudiceall of plaintiffs'
remainingclaims.
Datedthis
~
day of September,2003
BY THE COURT:
..-wARD W.
United StatesDistrict Judge
.33-
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Civil Action No. 03-N-184 (MJW)
CERTIFICATE OF SERVICE
I herebycertify that a copy of the MemorandumOpinion and Order signedby
JudgeEdwardW. Nottinghamon September25, 2003 was servedon September25, 2003 by
hand-delivery,where a "D.C." box nwnber or asterisk(*) is indicatedafter the recipient'sname,
by electronicmail to the electronicmail addressspecifiedwhere a doubleasterisk(**) is
indicatedafter the recipient'sname,or otherwiseby depositingit in the United Statesmail,
postageprepaid,addressedto the recipient:
MagistrateJudgeMichaelJ. Watanabe*
Robert Com-Revere,Esq.
RonaldG. London, Esq.
Davis Wright Tremaine,LLP
1500K Street,N. W., Suite450
Washington,D.C. 20005
Attorneysfor Plaintiffs
SeanR.-Gallagher,Esq.
MarianneN. Hallinan,Esq.
Hogan& Hartson
1200 17d1
Street,Suite 1500
Denver,CO 80202
Attorneysfor Plaintiffs
LawrenceDeMille-Wagman,Esq.
FederalTrade Commission
Office of the GeneralCounsel,Room H-582
600 Pennsylvania
Avenue,N.W.
Washington,D.C. 20580
Attorneyfor Defendants
GREGORY C. LANGHAM, CLERK