Companies that rely on third parties to market products could face legal exposure under the Telephone Consumer Protection Act (TCPA) when those third-party agents call, text or fax consumers without the requisite consent. Under such circumstances, TCPA liability turn on issues of vicarious liability. A party may be held vicariously liable under federal common law principles of agency for TCPA violations committed by third-party telemarketers. Courts typically analyze vicarious liability under three common law principles of agency: actual authority, apparent authority, and ratification.
Actual authority is an agent’s power to act based on the principal’s manifestations to the agent. Actual authority can be express or implied. Express authority means actual authority that a principal has stated in very specific or detailed language. Conversely, implied authority is actual authority based on an agent’s reasonable interpretation of the principal’s manifestations under the circumstances.
Apparent authority is the power held by an agent to affect a principal’s legal relations with third parties when a third party reasonably believes the actor has authority to act on behalf of the principal and that belief is traceable to the principal’s manifestations. Apparent authority can be created only by the principal’s manifestations to a third party, and is not established by only the purported agent’s representations of authority to a third person.
Ratification is the affirmance of a prior act done by another, whereby the act is given effect as if done by an agent acting with actual authority. To constitute ratification a principal need not explicitly communicate consent to an agent. The ratification can be achieved simply by rewarding or congratulating the agent’s behavior or failing to object or repudiate the action.
Two recent cases from the District of Massachusetts and the Southern District of California, respectively, serve as useful case studies to businesses that rely on third-party vendors to market their products.
McDermet v. DirecTV, LLC (D. Mass)
In McDermet v. DirecTV, LLC, the plaintiff received fifty-seven unsolicited calls from four of DirecTVs authorized retailers seeking to sell him satellite television services. No. CV 19-11322-FDS, 2021 WL 217336, at *1–2 (D. Mass. Jan. 21, 2021). The plaintiff sued DirecTV, LLC, and The DirecTV Group, Inc., alleging that DirecTV was vicariously liable for the authorized retailers’ telemarketing calls.
Applying traditional agency principles on competing motions for summary judgment, the court determined that “no rational factfinder could find that defendants were directly or vicariously liable for any of the calls that [plaintiff] received and for their corresponding TCPA violations.” The court declined to find that the authorized retailers had actual authority to make any telemarketing calls to plaintiff because there was no evidence the retailers had express authority to make the calls. To the contrary, their contracts specifically prohibited them from outbound telemarketing, except via a manually placed return call or text message in response to a direct inquiry from a customer. Thus, “because any telemarketing calls that the authorized retailers made to [plaintiff] were in violation of the retailers’ explicit instructions from defendants, those calls lacked express authority.” Id. at *8. The court also found that there was no evidence the retailers had implied authority to telemarket to plaintiff, because there was “no evidence in the record to suggest that defendants otherwise led [the retailers] to reasonably believe that they should make telemarketing calls that might violate the TCPA.” Id.
As to apparent authority, the court found that, although the plaintiff believed that the retailers had authority to call on behalf of DirecTV, there was no record evidence that DirecTV directly indicated to plaintiff that the authorized retailers had permission from DirecTV to telemarket to plaintiff. Notably, the court acknowledged that apparent authority can be traceable to the principal’s manifestations “even when a principal did not directly communicate with a third party” when the principal makes “some outward manifestation” that is “at least visible to third parties” from which they could “trace their belief.” Id. at *9. Seizing on this proviso, the plaintiff argued that because defendants chose to contract with their authorized retailers, they are vicariously liable for all of those retailers’ actions. The court rejected this argument, however, explaining that “[t]he fact that one party performs a service that facilitates the other’s business does not constitute [an apparent authority] manifestation.” Id.
With respect to plaintiff’s ratification theory, the court found that the record failed to establish that DirecTV ratified the actions of the retailers. In particular, DirecTV’s account managers testified that they never authorized the actions of the retailers. And the plaintiff failed to offer any evidence that DirecTV was either aware of or shut its eyes to the retailers’ conduct. Id. at *11.
There being no remaining viable theory for vicarious liability, the court granted DirecTV’s motion for summary judgment.
McCurley v. Royal Sea Cruises, Inc. (S.D. Cal.)
The Southern District of California reached a similar conclusion in McCurley v. Royal Sea Cruises, Inc. There, plaintiffs filed a consolidated class action complaint against Royal Seas Cruises, Inc., alleging violations of the TCPA. In particular, the class representative claimed that he had received multiple calls on his cell phone from Prospect DM, a third party that sold Royal Seas leads for possible purchasers of Royal Seas vacation packages. No. 17-CV-00986-BAS-AGS, 2021 WL 312005, at *1 (S.D. Cal. Jan. 29, 2021). Although it was undisputed that none of the calls at issue were placed by Royal Seas, plaintiffs sought to hold Royal Seas vicariously liable for Prospect DM’s calls. The court rejected plaintiffs’ gambit, however, concluding that there was no evidence to support plaintiffs’ theory that Royal Seas is vicariously liable for the calls placed by Prospect DM.
The court quickly dismissed plaintiffs’ theory of actual authority, reasoning that “the express language in the contract between Royal Seas and Prospect require[ed] that any leads be from individuals who had consented to be called.” Id. at *6.
As to apparent authority, the court explained that, although the contract between Royal Seas and Prospect DM allowed Royal Seas to approve prerecorded scripts used by Prospect, there was “no evidence that Royal Seas had any reason to believe the individuals Prospect called with those prerecorded scripts had not agreed to this contact by entering their names in a third-party website.” Id. at *7.
Plaintiffs’ robust ratification theory fared no better. Plaintiffs argued that there was evidence Royal Seas willfully ignored the TCPA violations because it had knowledge of facts that would have led a reasonable entity to investigate further. According to plaintiffs, those facts were that (1) Royal Seas did nothing to verify that Prospect was following the TCPA as it contracted to do; (2) cruise lines have been subject to approximately 100 TCPA actions in the past; and (3) the fact that so few people actually purchased the cruises after transfer from Prospect should have alerted Royal Seas to the fact that not everyone consented to be called. Id. The court was not persuaded by this line of reasoning, though, finding that what was “noticeably missing from Plaintiffs’ argument is that Royal Seas ever received information from any of the individuals who were transferred that they had not consented to be called.” Id. finding no evidence of vicarious liability, the court granted Royal Seas’ motion for summary judgment.
As demonstrated by these cases (and others we’ve discussed in the past), vicarious liability issues arise frequently in TCPA cases. Businesses that rely on third-party vendors to market their products should be aware of the manner in which third parties are marketing their products and the ways to structure their contracts to protect themselves from legal liability.