On April 24, a panel of the 4th Circuit affirmed the dismissal of a class action lawsuit brought against Davis Polk’s client, General Dynamics Information Technology (“GDIT”), for alleged violations of the Telephone Consumer Protection Act (“TCPA”).  The suit sought potentially massive damages based on statutory penalties afforded by the TCPA on a per-call basis for auto-dialed calls placed in contravention of the TCPA’s consent requirements.

GDIT was hired by the Centers for Medicare & Medicaid Services (“CMS”) to assist with public outreach in connection with the Affordable Care Act, including to place informational, pre-recorded calls to individuals who had enrolled or started the process of enrolling for health coverage on the HealthCare.gov website. GDIT received the phone numbers and verbatim content of the desired phone messages from the government and handled the mechanical aspects of recording the messages and placing the calls to the government’s intended recipients using auto-dial technology. A serial plaintiff named Craig Cunningham received one of these calls and brought a class action lawsuit against GDIT, alleging that it had violated the TCPA by not obtaining the consent of Cunningham and other call recipients before placing the auto-dial calls.

Before Judge O’Grady in the Eastern District of Virginia, GDIT moved to dismiss for, inter alia, lack of subject matter jurisdiction. Specifically, Davis Polk argued that GDIT was entitled to “derivative sovereign immunity,” also known as “Yearsley immunity,” based on the 1940 Supreme Court case Yearsley v. W.A. Ross Construction Co. After Judge O’Grady ordered limited jurisdictional discovery, including depositions of GDIT and CMS employees, he granted GDIT’s motion to dismiss with prejudice on May 1, 2017. Cunningham appealed that ruling to the 4th Circuit.

In his briefs and at oral argument, Cunningham argued that the District Court erred in conferring Yearsley immunity for three primary reasons: (1) the Yearsley doctrine only applies to violations of state law, and therefore GDIT could not enjoy immunity for violating the TCPA; (2) even if Yearsley applied to violations of federal law, GDIT was not entitled to immunity here because it was not authorized to make calls without first obtaining consent and because the federal government cannot authorize violations of federal law; and (3) even if immunity was properly conferred, the District Court erred in treating it as an immunity from suit rather than a merits defense. 

Oral argument took place on January 24, 2018. On April 24, 2018, the Fourth Circuit affirmed the District Court’s judgment in full.  Judge Floyd, joined by Judges Traxler and Shedd, authored an opinion rejecting all three of the arguments advanced by Cunningham. First, the panel held that nothing in Yearsley or its progeny compels the conclusion that contractors cannot enjoy immunity for violations of federal law. Second, the Court agreed with GDIT that it followed CMS’s instructions precisely and that the authority to carry out the project was validly conferred. The Court explained that Cunningham misinterpreted Yearsley, and that the proper inquiry is whether Congress had authority to assign the contractor to complete the task that was delegated, not, as Cunningham put it, whether the government could instruct a contractor to engage in conduct that would violate the law. Last, the Court agreed with GDIT that under prior Fourth Circuit precedents, derivative immunity is indeed a jurisdictional bar to suit, not simply a defense to liability, and noted that it was satisfied that the jurisdictional discovery conducted below provided the District Court with sufficient information to rule on GDITs’s motion to dismiss.

The Davis Polk team included partners James P. Rouhandeh (who argued the appeal), Neil H. MacBride and Paul S. Mishkin; associates Marc J. Tobak, Julien du Vergier, Mondaire L. Jones, Eliza Beeney and Trishna Velamoor. Members of the Davis Polk team are based in the New York and Washington DC offices.

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