Regulation Gone Wild: NFIB Takes Another Swing at FCC’s Solicited Fax Regulation

Date: November 20, 2015

In 2013 the NFIB Small Business Legal Center filed a brief asking the U.S. Supreme Court to take-up a case in which a small Midwestern publisher, Douglas Walburg, was being sued for 48 million dollars. He has been hit with a ruinous class action suit because he failed to include boilerplate language that the Federal Communications Commission (“FCC”) insists should appear on all commercial faxes. At the time, we published this editorial piece explaining his case and the greater problem of over-regulation.

In Walburg v. Nack, we asked the high court to take Mr. Walburg’s case because he had been denied the opportunity to raise a constitutional defense. Specifically, he wanted the opportunity to argue that this FCC regulation, under which he was being sued, was illegally promulgated. And he raised a good argument: Under the Telephone Consumer Protection Act and the Junk Fax Protection Act, the FCC only has authority to regulate unsolicited faxes.

Nonetheless, FCC construes the Act as authorizing it to impose a rule requiring boiler-plate language informing consumers of how they may opt out of receiving future faxes (“Solicited Fax Rule”), even if they have consented to receive the fax in question. So Mr. Walburg was being sued because he had sent a fax to someone who had consented to receiving the fax—all because he didn’t realize he needed to include that opt-out language. He was hit with a class action lawsuit from an attorney seeking $500 for each fax Mr. Walburg’s company had sent out—and $1,500 for each alleged knowing violation of the FCC regulation.

Remarkably, the Eighth Circuit Federal Court of Appeals ruled that Mr. Walburg lacked standing to raise his constitutional defense because of the Hobbes Act. The Court ruled that if Mr. Walburg wanted to challenge the validity of an FCC regulation, the Hobbes Act required that he needed to petition FCC to reconsider the rule, and that he must then proceed with a lawsuit against FCC, in the federal Court of Appeal for the District of Columbia, if the petition should be denied. The decision was outrageous for a few reasons. First, the requirement for standing applies only to the litigant seeking to invoke the Court’s jurisdiction—not the defendant who has been dragged into court against his will. But, more importantly, individuals should be entitled to raise all valid defenses—especially constitutional defenses—when dragged into to court. Unfortunately, the Supreme Court declined to take this case and Mr. Walburg was left in an unenviable position—either admit defeat, negotiate a settlement, or spend thousands and thousands more on legal expenses in an effort to bring a lawsuit against the FCC to invalidate the regulation under which he had been sued.

Fast-forward to 2015, and we are once more asking the Supreme Court to take up a case concerning FCC’s contested Solicited Fax Rule. This case, Bais Yaakov of Spring Valley v Federal Communications Commission and the United States of America, challenges the Solicited Fax Rule on First Amendment grounds. And there is no standing problem because the lawsuit was brought in the D.C. Circuit, as the Eighth Circuit insists any challenge to the regulation must be. (We still believe the Eighth Circuit’s rule to be constitutionally infirm.) But in any event, the D.C. Circuit rejected their First Amendment claims, and we’re now hoping the Supreme Court will take the case to further refine its compelled speech doctrine—which prohibits government from forcing private actors to speak when they do not wish to engage in expressive conduct. Simply put, the First Amendment protects your right to not to speak, just as much as it protects your right to speak.

Unfortunately, in recent years, the D.C. Circuit has issued inconsistent decisions in compelled speech cases—at least when the regulations have been targeted at commercial actors. Notably, the D.C. Circuit struck down the “Notice Poster Rule,” a few years ago when NFIB challenged the requirement that employers must post information about “labor rights” in the workplace. In the decision, the D.C. Circuit emphasized that the Notice Poster Rule also violated the compelled speech doctrine because it forced business owners to speak on a subject against their will. But since then the D.C. Circuit has backed away from this strict enforcement of the compelled speech doctrine—and has limited its applicability in the commercial context.

Of course, we’ve been arguing, for years, that commercial speech should be entitled to greater constitutional protections than they are currently afforded. It’s simply not right that government should condition the right to engage in economic conduct on a requirement to waive constitutional rights. But until the Supreme Court takes another commercial speech case, it is plain that the lower courts will continue to treat First Amendment rights as less important when invoked by commercial actors.

On a separate note, NFIB will be waiting anxiously for the Supreme Court’s decision in Spokeo v. Robins this term. That case asks whether a plaintiff may establish standing without proving an injury simply by virtue of the fact that he can demonstrate that the defendant violated a statute, and that Congress has conferred upon this individual a “right” to sue. Of course, we maintain that there must be a real injury in order to satisfy the requirements for Article III standing for a litigant invoking the Court’s jurisdiction. And Congress cannot simply confer standing upon individuals. Indeed, that would not only undermine Article III’s “case or controversy” requirement, but it would result in a serious breakdown in the Separation of Powers. 

If the Supreme Court agrees with us in Spokeo, that should also close the door on these Solicited Fax Rule lawsuits. After all, can an individual really claim an injury when they have received a fax—which they consented to—simply because the sender omitted FCC’s boilerplate language?  We think not. And it is outrageous to think that small business owners should face ruinous lawsuits for conduct that doesn’t really hurt anyone. That’s why we’ve called this Solicited Fax Rule a prime example of regulation gone wild.

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