Early 2014 has produced a series of court decisions highlighting third-party liability issues under the Telephone Consumer Protection Act (TCPA). In February, the U.S. Supreme Court declined to hear a case about liability for junk faxes made by an alleged agent, and other recent cases have addressed third-party issues such as vicarious liability for third-party contractors, the extension of consent from primary parties to independent contractors, indemnification agreements, and the role of VoIP providers. These cases serve as reminders that companies must be alert to the indirect ways in which they could be pulled into TCPA litigation.
U.S. Supreme Court Declines to Review Defense Win Regarding “On Behalf Of” Liability Under the TCPA
The Supreme Court recently declined to review an Illinois Appellate Court’s decision that a company is not vicariously liable for spam faxes sent by its third-party advertising agent where the company had not given the agent permission to send faxes specifically to the plaintiff. On February 24, 2014, the U.S. Supreme Court denied certiorari in Uesco Industries, Inc. et al. v. Poolman of Wisconsin, Inc., No. 13-771, a case in which the plaintiff alleged that the defendant was vicariously liable under the TCPA for spam faxes that a third-party advertising firm had allegedly sent to the plaintiff. The defendant had hired the advertising firm to send advertising faxes; however, it had not granted the firm permission to send faxes specifically to the plaintiff. The lower court denied class certification on the grounds that the advertising firm had acted outside the scope of its agreement with the defendant. Therefore, under the TCPA, the firm could not have sent the faxes “on behalf of” the defendant.
In its petition to the Supreme Court, the plaintiff argued that the lower court’s decision was in conflict with the Federal Communications Commission’s (FCC) interpretation of “on behalf of” under the TCPA. The plaintiff contended that the FCC has not differentiated between grants of permission when determining vicarious liability and did not require proof of authority or agency for liability to attach. Thus, the plaintiff argued that the lower court did not have jurisdiction to interpret the TCPA differently from the FCC and that the Supreme Court should review the decision. The lower court rejected that argument, and the Supreme Court has now declined to review it.
While the FCC has issued a Declaratory Ruling on this issue, the ruling leaves some room for interpretation with respect to informal agency relationships. In re Dish Network, LLC, FCC 13-54 (FCC Decl. Ruling May 9, 2013). Specifically, in its ruling, the FCC explained that the phrase “on behalf of” means that sellers may be held vicariously liable for calls made through third-party telemarketers. However, the agency also explained that “on behalf of” liability does not require a formal agency relationship and could also rely on principles of ratification and apparent authority. Thus, the FCC interpretation appears to have left some flexibility in the application of vicarious liability principles, depending upon the facts of a given case.
Other Recent Cases Highlight Third-Party Issues
Other decisions issued in early 2014 have also illustrated how TCPA issues can flow both upstream and downstream between third-party advertising agencies and underlying companies initiating marketing campaigns or other customer communications.
Vicarious Liability for Authorized Third-Party Dealers
Despite the defense win in Uesco, companies must still be cognizant of the risk of vicarious liability under the TCPA for actions of their “authorized dealers.” In a discovery order issued on a January 28, 2014, a federal district court in West Virginia found that the seller-company defendants could face TCPA liability on behalf of a marketing company that they had allowed to be an “authorized dealer” of their products. In In re Monitronics Int'l, Inc., Tel. Consumer Prot. Act Litig., 5:11-CV-90, (N.D. W. Va. Jan. 28, 2014), the plaintiff sued the marketing company making the allegedly unauthorized calls as well as the seller companies for which the calls were made. The plaintiff asserted that despite the fact that the seller companies had not placed the calls, the seller companies could still be vicariously liable to the plaintiff if the marketing company had made the calls “on their behalf.” The court agreed that the seller companies could be sued under the TCPA, noting that both companies had agreements with the marketing company that allowed the marketing company to hold itself out as an “authorized dealer” of their products. While the court initially made this determination in a previous summary judgment order, the seller companies again challenged the court’s finding in the discovery motion. The court responded by reiterating its previous holding and explaining that where the seller companies had agreed that the marketing company could hold itself out as an authorized dealer, the seller companies may also be vicariously liable for calls made by the marketing company in violation of the TCPA. The court did not address whether the marketing company had acted inside or outside the scope of the authorized dealer relationship that it had with the seller companies.
Protecting Third-Party Independent Contractors Through Express Consent to Primary Contracting Party
It is not only liability but also consent that can pass between parties. For example, independent contractors can be protected by consents given to primary contracting parties. Under this principle, a federal district court in California has recently granted an independent-contractor defendant’s motion for summary judgment, dismissing a plaintiff’s TCPA challenge on the grounds that the plaintiff had consented to receiving the text messages. In Shaya Baird v. Sabre Inc., et al., No. 2:13-cv-00999 (C.D. Cal. Jan. 28, 2014), the plaintiff sued an independent contractor for receipt of an unsolicited text message regarding flight notifications. Prior to the suit, the independent contractor had contracted with an airline to provide flight notification services to the airline’s passengers. Despite the fact that the independent contractor was a wholly distinct entity from the airline, the court found that by consenting to be contacted by the airline, the plaintiff, in turn, consented to be contacted by the airline’s independent contractors. While the court’s decision ultimately turned on its interpretation of what constituted consent—i.e., the plaintiff’s provision of her phone number to the airline—the court’s extension of that consent to the airline’s independent contractor provides an important defense potentially available to independent contractors’ facing TCPA litigation.
Seeking Indemnification From Third Parties in TCPA Suits
Companies can also sometimes seek indemnification from third parties in TCPA suits depending on who had responsibility for obtaining consent. This was illustrated by a recent decision granting class certification in a TCPA case in California. In Stern v. DoCircle, Inc., No. 12-2005 (C.D. Cal. Jan. 29, 2014), the plaintiff sued the defendant, an online service provider that allowed customers to send text messages via its online platform, for violation of the TCPA. The plaintiff argued that the defendant failed to properly monitor the numbers that it was texting and, as a result, sent multiple text messages to numbers on the do-not-call list. While the defendant denied the plaintiff’s allegations, it also filed a third-party complaint, seeking indemnification from the company on whose behalf it sent the text messages, in the event that the plaintiff’s allegations were successful. The defendant alleged that the third-party defendant contracted with it to send text messages, and that under the terms of the contract, the third-party defendant was responsible for ensuring that the proper consents were obtained prior to the text messages being sent. Thus, the defendant argued that to the extent that the plaintiff is able to show any violation of the TCPA, the third-party defendant must indemnify it.
Court Tosses TCPA Suit Against Third-Party VoIP Provider
In contrast, a federal district court in Texas has rejected the theory of secondary TCPA liability against telecommunications carriers in a case against a VoIP (Voice over Internet Protocol) provider. In its January 28, 2014, decision, the court granted the VoIP provider’s motion to dismiss, on the basis that “Congress did not intend to allow secondary liability on telecommunications carriers based on an allegation of conspiracy.” In Clark v. Avatar Technologies Phl, Inc., No. 13-2777 (S.D. Tex. Jan. 28, 2014), the plaintiff sued both the company making the calls and its VoIP provider for violation of the TCPA when an allegedly unauthorized call was placed to the plaintiff’s cell phone. The plaintiff alleged that the defendant company made the call using the defendant VoIP provider’s services and that, as a result, both of the defendants had violated the TCPA. The plaintiff asserted that the VoIP provider had conspired with the other defendant to violate the TCPA by virtue of allowing the company to use its VoIP services. The plaintiff also alleged that the VoIP provider had transmitted misleading information about the identification of the caller to the plaintiff’s cell phone in violation of the TCPA. The court found that there was no precedent for holding a telecommunications carrier, such as a VoIP provider, liable under the TCPA simply for transmitting a call. Further, the court found that the plaintiff had also failed to allege its TCPA claim that the VoIP provider had transmitted misleading information, noting that there was no indication that the VoIP provider had intended to defraud or harm the plaintiff, necessary elements for this claim. Thus, the court dismissed the plaintiff’s claims against the VoIP provider under the TCPA (although the court allowed the plaintiff the opportunity to replead certain state law claims).
As the TCPA continues to spawn class action litigation and settlements, third-party liability issues will continue to play out in courts across the country. Companies are also continuing to adjust to new FCC rules that went into effect in late 2013, which set a high standard for the type of consent required for marketing calls made to cell phones. (Click here for Sutherland’s legal alert on the new FCC Rules.) With the new FCC rules and ongoing litigation risk, companies should consider obtaining written consent where appropriate and maintain adequate records of the specific details of that consent. Companies should also be cognizant of TCPA compliance when working with third parties for conducting campaigns using texts or automated calls.