09.24.15

Publication,

The Telephone Consumer Protection Act’s Latest Pitfall and Catch-22: Vicarious Liability

PRACTICE GROUPS

As people more than ever are addicted to their cell phones, calling or texting customers on their cell phones seems an obvious, direct route for businesses to promote their products and expand their reach. But beware, the Telephone Consumer Protection Act (“TCPA”) is a trap for the unwary and a boon for plaintiff’s counsel just waiting to take advantage of any violation. And this trap now exists in the form of vicarious liability even if the business itself did not make the call or send the text message.

Overview of the TCPA

Enacted in 1991, the intent of the TCPA (47 U.S.C. § 227) is to protect consumers from certain telemarketing and solicitation calls and automatic telephone dialing systems (“ATDS”), aka “robocalls.” The TCPA prohibits the following acts:

  • Non-emergency calls using an ATDS or an artificial or prerecorded voice to a cell phone or pager without express prior consent of the recipient. 47 U.S.C. § 227(b)(1)(A)(iii). Courts generally interpret “call” to include text messages.
  • Non-emergency calls using an artificial or prerecorded voice to a residential phone line without prior express consent. 47 U.S.C. § 227(b)(1)(B). Some calls are exempted, such as calls not made for a commercial purpose (e.g. political campaign ads).
  • Unsolicited fax advertisements, except when there is an established business relationship between the sender and recipient and the fax contains a certain opt-out notice. 47 U.S.C. § 227(b)(1)(C).

Calls and text messages to wrong numbers are not currently exempt from TCPA liability, which can expose businesses to liability if they unwittingly call or text a number that no longer belongs to a customer who previously consented to such calls or texts.

The TCPA provides for damages in the amount of $500 per violation (i.e. per wrongful call, text or fax), and up to $1,500 for each willful or knowing violation. 47 U.S.C. § 227(b)(3). Potential damages can be quite significant in a class action. Indeed, TCPA lawsuits are on the rise and becoming expensive for businesses to defend and settle. In August 2014, Capital One Financial Corp. and several collection agencies agreed to pay $75.5 million to end a class action lawsuit alleging that the companies used an ATDS to call customers’ cell phones without consent. In September 2014, AT&T Mobility signed a $45 million settlement agreement to end a class action based on similar allegations. And, in 2012, a Jiffy Lube franchisee settled a spam text class action with 1.9 million class members for potentially up to $47 million.

Expanding Liability Under the TCPA

Aggressive plaintiffs and plaintiff’s counsel have accused a wide range of conduct as violating the TCPA and sought to stretch the bounds of liability to sweep in as many defendants along the marketing chain as possible. One such way is through vicarious liability. Previously, many businesses successfully used the “it wasn’t me” defense to shift liability to the third-party vendors who actually placed the calls and texts as part of the businesses’ ad/marketing campaign or debt collection effort.

But, in a 2013 declaratory ruling, the FCC partially closed the door on this defense. The FCC held that a business/seller who did not actually place the calls and texts could not be held directly liable under the TCPA, but could still be vicariously liable if its third-party vendor violated the TCPA, provided that third-party vendor was an agent of the business/seller. The FCC said common law principles apply to determine if an agency relationship exists (e.g. right to control test), and held that vicarious liability may be derived from an actual agency relationship or even apparent authority or ratification. Potential liability is now more expansive – no longer can a business escape TCPA liability by hiring a third-party independent contractor to place calls, texts, or faxes on their behalf.

The expanded liability and new uncertainty for businesses has been demonstrated in spades over the past year as federal courts have addressed whether and to what extent a seller of commercial products and services can be held vicariously liable for violating the TCPA by third-parties that place the calls, texts, and faxes on their behalf.

Courts have denied motions to dismiss and allowed cases to go forward on seemingly sparse and conclusory agency and vicarious liability allegations. See, e.g., McCabe v. Caribbean Cruise Line, Inc., 2014 WL 3014874, No. 13-cv-6131 (E.D.N.Y. July 3, 2014); Kristensen v. Credit Payment Servs., 2014 WL 1256035, No. 2:12-cv-00528 (D. Nev. March 26, 2014). Because whether an agency relationship exists is typically a question of fact, numerous courts have denied summary judgment motions, invariably finding issues of fact regarding the control exercised over the third-party vendor or the existence of apparent authority. See, e.g., Legg v. Voice Media Grp., Inc., 2014 WL 2004383, No. 13-62044-civ (S.D. Fla. May 16, 2014); The Siding and Insulation Co. v. Combined Ins. Grp., Ltd., 2014 WL 1577465, No. 1:11CV1062 (N.D. Ohio Apr. 17, 2014). However, the Ninth Circuit, in an unpublished decision, dismissed a plaintiff’s TCPA case related to a text message sweepstakes promotion because there was no evidence of control by Taco Bell over the third-party vendor who sent the text messages or any evidence to support apparent authority or ratification. See Thomas v. Taco Bell Corp., 2014 WL 2959160, No. 12-56458 (9th Cir. July 2, 2014). One can only hope District Courts in the Ninth Circuit will follow suit.

Takeaways and Ways to Protect Your Business

It is now more difficult to obtain dismissal of a TCPA case involving vicarious liability given the inherent fact specific inquiry associated with agency law (e.g. the scope of the third-party engagement or authorization) and the relatively conclusory allegations that courts have allowed to pass muster. The current state of the law unfortunately leaves businesses faced with a tough choice: (1) attempt to avoid exercising any control over your vendor to thereby avoid vicarious/agency liability then hope that the vendor does not run afoul of the TCPA; or (2) actively police and control your vendors, i.e., embrace the agency relationship, to try to enforce and ensure TCPA compliance. This difficult and binary choice is magnified by potentially large monetary exposure under the TCPA. To be sure, attempting to chart a middle course between these options is fraught with peril.

But there are a few simple ways your business can increase its protection from TCPA liability:

  • Include conspicuous consent provisions in your customer agreements where customers agree to receive auto dialed calls, pre-recorded voice calls, text messages, or faxes in exchange for the product or service your business provides;
  • Include language in your third-party vendor/telemarketer agreements disclaiming any agency relationship and instead deeming the third-party vendor/telemarketer an independent contractor;
  • Include in your third-party vendor/telemarketer agreements broad indemnity provisions in your favor for any TCPA violations committed by the third-party vendor/telemarketer; and
  • Insist that the third-party vendor/telemarketer explain and show, to your satisfaction, their TCPA compliance measures and policies prior to doing business with them.

Vicarious liability under the TCPA will continue to evolve as plaintiffs and plaintiffs’ counsel add more targets to their TCPA crosshairs. Hopefully, courts will either rein in vicarious liability or provide more bright-line rules, rather than the murky agency principles currently in use.


Published by Association of Corporate Counsel – Washington – 3Q, 2015 (PDF)

If you have any questions or concerns regarding the Telephone Consumer Protection Act and how it affects your business, please contact commercial and class action litigators Gavin W. Skok and Bryan J. Case.