A year ago, we reported on the FCC’s Declaratory Ruling that addressed the issue of whether parties who did not actually place telemarketing robocalls could be either directly or vicariously liable for calls made on their behalf in violation of the Telephone Consumer Protection Act (TCPA).
How has the Declaratory Ruling been applied since then? Seeking to understand significant trends and identify takeaways for businesses aiming to avoid vicarious liability exposure risk, we took a careful look at 12 federal court decisions issued since then.
The Declaratory Ruling
In its Ruling, the FCC clarified that sellers who did not actually place calls cannot be directly liable under Sections 227(b) and (c) of the Act and could only be held vicariously liable under these sections if federal common law principles of agency apply. Vicarious liability, according to the FCC, may only derive from formal agency, apparent authority or ratification.
Notably, the FCC explicitly rejected arguments seeking to hold retailers vicariously liable simply because calls were made for the benefit of a retailer where agency principles would not impose liability. Merely “hav[ing] some role, however minor, in the causal chain that results in the making of a telephone call” – without more – will not subject a retailer to liability for the acts of third parties.
How the Declaratory Ruling has been applied in 2014
With the Declaratory Ruling now more than a year old, and in the context of various ongoing matters we are litigating nationally, we took a careful look at federal court decisions issued in its wake (focusing on cases decided up through July 2014) to assess the impact of the Declaratory Ruling.
Our review considered 12 court opinions issued this year that substantively considered the issue of TCPA vicarious liability. (All but one of the twelve were district court opinions; the only circuit court of appeals decision – Thomas v. Taco Bell Corp., No. 12-56458 (9th Cir. July 2, 2014) – is not a published opinion, “is not precedent,” and its analysis of the issue is, therefore, somewhat limited.)
Surprisingly, three of the opinions (all decided in the last three months) did not discuss the FCC’s Declaratory Ruling at all. Even more disturbing, two of these decisions concluded that an entity could be held vicariously liable for calls made by a third party “on its behalf,” a standard that was considered but rejected by the FCC in its Declaratory Ruling. See, e.g., Brodsky v. HumanaDental Ins. Co., No. 1:10-cv-03233 (N.D. Ill. June 12, 2014) (denying defendant’s motion to dismiss vicarious liability claim for violations of the TCPA’s “junk fax” provisions).
In the third case (McCabe v. Caribbean Cruise Line, Inc., No. 13-CV-6131 (E.D.N.Y. July 3, 2014)), the district court denied the defendants’ motion to dismiss the vicarious liability claims even though the Court found that the plaintiff’s allegations were “sparse.” Specifically, the plaintiff’s sole basis for alleging that the seller was vicariously liable for a call made by a vendor was that it was “made pursuant to a contract.” (Every other district court opinion we reviewed did address the FCC’s Ruling and, for the most part, applied the Ruling as precedent.)
Nine of the opinions concerned motions to dismiss or motions for summary judgment. The principal takeaway from these cases is that the courts’ consideration of vicarious liability (including issues of agency, apparent authority and ratification) post-Ruling is very fact specific.
As described below, in the decisions to date courts have allowed plaintiffs to assert vicarious liability theories with fairly conclusory allegations. As a result, dismissal of vicarious liability claims at the pleading stage (where allegations must be accepted as true for purposes of the motion, whereas at the summary judgment stage at least you can test the veracity of the allegations and affiants) is thus far proving to be very difficult. Moreover, as noted below, dismissal of such claims even at the summary judgment stage is also proving to be difficult when there are any disputed facts regarding the scope of a service provider’s engagement or its authorization.
Motions to dismiss
Thus far this year, only one court has signaled it would potentially grant a defendant’s motion to dismiss a vicarious liability claim. We say “potentially” because the order on the defendants’ motion to dismiss was entered by a magistrate judge who has recommended that the defendants’ motion to dismiss the vicarious liability claim be granted. Lucas v. Telemarketer Calling from (407) 476-5670 and Other Telephone Numbers, No. 1:12-cv-630 (S.D. Ohio Mar. 20, 2014). (In early August, the district court judge granted the plaintiff’s motion to stay the Court’s ruling on the motion to dismiss pending the FCC’s consideration of a petition the plaintiff had filed seeking a further FCC ruling regarding the scope of vicarious liability.) Moreover, the court’s rationale for recommending dismissal may not recur: the court noted that the plaintiff had not alleged “any form of agency relationship” and did not “plead a theory of apparent authority, or ratification.”
In another case, Kristensen v. Credit Payment Servs., No. 2:12-cv000528 (D. Nev. Mar. 26, 2014), the district court denied a motion to dismiss, finding that the plaintiff had sufficiently plead “a plausible agency relationship based on actual authority…arising through contractual relationships,” and other seemingly conclusory allegations of apparent authority and ratification.
This year, two courts have granted defendants’ summary judgment motions. Interestingly, the two courts took different approaches regarding the import of the Declaratory Ruling. One concluded that the Declaratory Ruling “applies” and that its reasoning was “controlling” and, therefore, analyzed the plaintiff’s claim under agency, apparent authority and ratification theories. Avio, Inc. v. Alfoccino, Inc., No. 2:10-cv-10221 (E.D. Mich. May 9, 2014) (applying the Declaratory Ruling in a “junk fax” context).
The other court cited the Declaratory Ruling for its determination that TCPA vicarious liability incorporates federal common law agency principles, but then looked to case law, not the Declaratory Ruling, for those principles. Keating v. Peterson’s Nelnet, LLC, No. 1:11 CV 1775 (N.D. Ohio May 12, 2014). This court examined whether the defendant “controlled or had the right to control” the alleged agent but did not consider apparent authority or ratification theories.
Five courts denied motions for summary judgment on vicarious liability issues. Some of these motions were brought by plaintiffs, others by defendants; and some were cross motions for summary judgment. These four examples are drawn from these five cases:
Legg v. Voice Media Grp., Inc., No. 13-62044-CIV (S.D. Fla. May 16, 2014) (denying both plaintiff’s and defendant’s motions, noting “summary judgment on vicarious liability is appropriate only in cases where evidence of the relationship is clear and unequivocal”)
The Siding & Insulation Co. v. Combined Ins. Grp., Ltd, No. 1:11CV1062 (N.D. Ohio Apr. 17, 2014) (denying plaintiff’s motion for summary judgment because “a disputed issue of material fact exists on the question of [defendant’s] apparent authority”)
Creative Montessori Learning Ctr. v. Ashford Gear, LLC, No. 1:09-cv-03963 (N.D. Ill. Mar. 03, 2014) (denying plaintiff’s motion “because a genuine issue remains as to what, if any, authorization defendant ever gave” the alleged agent)
Imhoff Inv., LLC v. SamMichaels, Inc., No. 10-10996 (E.D. Mich. Jan. 15, 2014) (denying plaintiff’s motion because the “issue of agency turns on the control exercised” by the alleged principal “which cannot be determined as a matter of law”)
In all five cases, the motions were denied because each court concluded there was a genuine issue of material fact regarding some aspect of the alleged agency or apparent authority.
The law of TCPA vicarious liability will continue to develop, not only because courts will continue to grapple with the implications of the Declaratory Ruling, but also because but also because the FCC is poised to issue further guidance. Earlier this month, the FCC began seeking public comment on a pending petition that asks the FCC to further expand the parameters of TCPA vicarious liability. Specifically, the petition asks
the Commission to clarify that a person is vicariously or contributorily liable if that person provides substantial assistance or support to any seller or telemarketer when that person knows or consciously avoids knowing that the seller or telemarketer is engaged in any act or practice that violates the TCPA.
Public Notice, Consumer and Governmental Affairs Bureau Seeks Comment on Petition for Expedited Declaratory Ruling Filed by Vincent Lucas, CG Docket No. 02-278 (Released July 9, 2014). The comment period for this petition closes on August 25, 2014. One federal district court has already urged “THE FCC TO ACT PROMPTLY UPON THE CONCLUSION OF THE COMMENT PERIOD, AS THIS ISSUE HAS WIDESPREAD IMPLICATIONS.” (Emphasis in original)
When the FCC initially issued its Declaratory Ruling, we recommended that both retailers and service providers review their practices as well as contractual terms and conditions (particularly indemnification clauses) to ensure compliance with the TCPA. The post-Ruling litigation results – which to date illustrate that vicarious liability claims are fact intensive, and therefore are not easily susceptible to dispositive motions – and the potential for further FCC action in the future reinforce the need for such a recurring assessment.