FCC Clarifies Companies' Liability for Third-Party Marketer TCPA Violations

by Davis Wright Tremaine LLP
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The Federal Communications Commission (FCC) has issued a long-awaited declaratory ruling governing when a company is liable under the Telephone Consumer Protection Act (TCPA), and FCC telemarketing and autodialing rules, for violations committed by a third party that the company authorizes to sell its goods or services but does not directly ask or otherwise engage to telemarket, by holding that the company may be vicariously liable under federal common law principles of agency for TCPA violations that the third party commits.

The FCC ruling arises out of two TCPA cases involving telemarketing of Dish satellite TV services: one, a “private attorney general” case brought in Ohio federal court, Charvat v. EchoStar Satellite, and another brought by the United States for the FTC and Attorneys General from California, Illinois, North Carolina, and Ohio in Illinois federal court, U.S. v. Dish Network. Charvat sued EchoStar for calls made by independent contractors who had retailer agreements with EchoStar to advertise, promote and solicit orders for its programming, and to install and activate equipment for receiving it. EchoStar defended on grounds it did not place any illegal calls to Charvat, did not operate or control the equipment that initiated the calls, did not provide the retailers with phone numbers or instruct them to place calls, and – until Charvat filed suit – did not even know the retailers made the calls. The government suit involved similar issues.

The trial court dismissed the Charvat suit, but the U.S. Court of Appeals for the Sixth Circuit, after inviting input from the FCC, referred the question of EchoStar’s vicarious liability to the agency under the doctrine of primary jurisdiction. The Illinois court stayed its case pending FCC resolution as well. Petitions invoking the FCC’s declaratory ruling authority followed, resulting in the present order.

Even before Charvat, it had long been clear that under FCC (and Federal Trade Commission (FTC)) rules, when a company outsources telemarketing calls to be made on its own behalf, and the calls violate the law or rules, both the telemarketer and the company that hired it can be liable. The present ruling addresses what happens when a company simply allows others to market its goods or services, without instructing or encouraging them to telemarket, and the third party places non-compliant calls under the TCPA or hires a telemarketer that does so.

The declaratory ruling clarifies that such a company, i.e., the “seller” in TCPA parlance, is not directly liable unless it initiates the non-compliant call, but may be vicariously liable “under a broad range of agency principles, including not only formal agency, but also principles of apparent authority and ratification.” The FCC recognized that a seller can concurrently be a telemarketer and thus be directly liable for non-compliant calls – e.g., when it initiates a call on its own behalf, or when it is intrinsically involved in specific calls by third parties by, e.g., giving them specific and comprehensive instructions as to calls’ timing, manner, etc. However, beyond that, actions taken to benefit a seller by a third party, without more, do not trigger TCPA liability for the seller.

Rather, the FCC held, sellers may be liable for non-compliant conduct by third parties marketing the seller’s goods or services, if the seller is aware of “ongoing conduct encompassing numerous acts” by the third party, and the seller fails to terminate the third party and/or promotes or “celebrates” the third party’s conduct. In that circumstance, the seller has the ability, through its authorization to the third party, to oversee the conduct, even if that supervisory power is unexercised. In such cases, liability is determined based on “general common law” agency-related principles, rather than the law of any particular state, though it is not limited to classical agency principles, but rather also includes apparent authority and ratification as bases for vicarious seller liability.

Factors for when such liability attaches may include whether the seller grants a third party the ability to access data from or enter information into systems normally under the seller’s exclusive control (e.g., about the nature and pricing of a seller’s products/services, or customer information), the third party’s right to use a seller’s trade name, trademark, etc., and whether the seller approved, wrote or reviewed the third party’s telemarketing scripts. A seller is also responsible for unauthorized conduct of a third party that is otherwise authorized to market on the seller’s behalf, if the seller knows (or reasonably should know) the third party is violating the TCPA and/or FCC rules on the seller’s behalf, and fails to take effective steps within its power to halt that conduct, similar to how the FTC has imposed liability under its rules in the past.

These broad outlines will have to be tested by specific cases, but in the meantime, companies can protect themselves by exercising diligence in selecting and monitoring reputable marketers, and by including indemnification clauses in contracts with third-party marketers.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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