Do as I say, not as I do: third-party liability and the TCPA

Eversheds Sutherland (US) LLP

Eversheds Sutherland (US) LLP

Many companies employ third parties to assist with communications to consumers, or to market their products and services through semi-independent agents, brokers, or contractors. As a result, companies may face vicarious liability risk arising from the Telephone Consumer Protection Act (TCPA) based on the actions of these third parties. Unfortunately, courts across the country have not applied a consistent standard when it comes to third party liability and the TCPA.

All is not lost, however, as demonstrated by two recent court decisions. These cases illustrate some of the ways to defend against TCPA lawsuits where the defendant company is not directly responsible for sending the allegedly offending communications.

Ratification and Summary Judgment

On January 10, 2018, the US Court of Appeals for the Ninth Circuit upheld dismissal of a certified class action lawsuit arising from a single marketing text. The plaintiff in Kristensen v. Credit Payment Srvcs. Inc., 879 F.3d 1010 (9th Cir. 2018), alleged that he received an unsolicited text from a company named AC Referral, allegedly in violation of the TCPA. The plaintiff did not sue AC Referral. Instead, the plaintiff sued three lenders along with a lead generating company named LeadPile with whom the lenders contracted, and Click Media, a company hired by LeadPile to accumulate leads. Click Media, in turn, contracted with AC Referral to generate leads via text campaigns. The contract between Click Media and AC Referral specifically stated that AC Referral must comply with the TCPA.

The plaintiff alleged, on behalf of the class, that the lenders, LeadPile, and Click Media were all vicariously liable for the messages sent by AC Referral. The defendants moved for summary judgment, on the basis that they were not liable for the acts of AC Referral, and the District of Nevada dismissed the case. The plaintiff appealed to the Ninth Circuit.

On appeal, the plaintiff argued that the defendants ratified AC Referral’s unlawful text campaign by accepting leads “while unreasonably failing to investigate” AC Referral’s texting methods. Id. at 1013. The Ninth Circuit rejected this theory.

Relying on guidance from the Restatement (Third) of Agency, the court first explained that AC Referral was not an agent or purported agent of the lenders or LeadPile. Those defendants did not contract with, and, significantly, were not even aware of AC Referral. Accordingly, they could not have ratified AC Referral’s acts. Although not cited by the court here, this outcome is consistent with the earlier Ninth Circuit decision in Thomas v. Taco Bell Corp., 582 Fed. App’x 678 (9th Cir. 2014), where the court applied agency principles and found that the defendant Taco Bell was not liable under the TCPA for texts ostensibly sent on its behalf by a third party, about which Taco Bell was unaware.

The Ninth Circuit then found that Click Media also did not ratify the texting, despite having a contract with AC Referral to send text messages to potential leads. There was no evidence submitted at summary judgment to show that Click Media knew that texts were being sent in violation of the TCPA, nor was there evidence that Click Media “had knowledge of facts that would have led a reasonable person to investigate further.” Simply because Click Media knew about texting—which the court dubbed “an otherwise commonplace marketing activity”—was not enough to raise a red flag with Click Media. 879 F.3d at 1015.

Interestingly, the court pointed out in a footnote that Click Media had knowledge of AC Referral’s unlawful texting, as evidenced by communications between the companies. Those communications came after the close of the class period, however, so Click Media had no reason to know about AC Referral’s unlawful text campaign at the time it sent the text to the plaintiff. Had those communications preceded the text to the plaintiff, the court’s analysis would have been different.

Agency Principles and Lack of Personal Jurisdiction

The Northern District of California addressed also agency principles in the context of a TCPA suit, in Knapp v. Sage Payment Solutions, Inc., No. 17-cv-03591-MMC (N.D. Ca. Feb. 1, 2018). In that case, the plaintiff alleged that the defendant Sage was liable for TCPA violations arising from alleged unlawful faxing undertaken by its co-defendant Merchant Service, Inc. (MSI), with whom Sage had contracted for advertising services.

Sage moved to dismiss the complaint on the basis that the California court did not have personal jurisdiction because Sage has no physical presence in California and it did not engage in any faxing to the plaintiff in California. Sage argued that MSI acted without its implied or apparent authority, and that it did not ratify MSI’s actions. According to Sage, the plaintiff could not attribute MSI’s activities in California to Sage. In analyzing these questions, the court relied heavily on the advertising services agreement between Sage and MSI.

First, the court analyzed a 10-factor test to conclude that MSI did not act with Sage’s implied authority. Most notably, the court found that: 

  • Sage had, at most, limited control over MSI’s activities; 
  • MSI is an independent business; 
  • Sage did not provide MSI with the tools to engage in the challenged faxing (or any advertising for that matter); 
  • Sage paid MSI on a commission basis; and 
  • the parties’ contract reflected their subjective intent that MSI was acting as an independent contractor.

These factors outweighed any neutral factors or findings in favor of implied agency, including that marketing was a regular part of Sage’s business.

Second, the court determined that MSI did not act with Sage’s apparent authority. Sage, as the principal, did not do anything that would reasonably lead another person to believe that MSI had authority to act on Sage’s behalf in sending faxes. Most notably, the fax to the plaintiff did not reference Sage.

Third, the court concluded, as had the Ninth Circuit in Kristensen, that the alleged principal (here, Sage) did not do anything to ratify the actions of the alleged agent (MSI). Even if Sage had benefited from the faxing—and it did not—Sage had no knowledge of the faxing before it happened so it was not reasonable to expect Sage to investigate.


Although the defendants in Kristensen and Knapp avoided liability, these cases highlight the potential pitfalls of engaging outside vendors, even on an expressly limited basis. Maintaining control over one’s own consumer-facing activities is difficult enough. Given the potentially exorbitant damages at play in successful TCPA class actions, it is imperative for businesses that employ third-party vendors to text, call, or fax on their behalf, to take necessary steps to protect themselves, including: 

  • Vetting all third parties for past TCPA violations, and not engaging third parties on an informal or non-contractual basis.
  • Expressly limiting the role of the third party’s responsibilities and clearly defining the third party as a contractor, as in the Sage case, above.
  • Periodically reviewing the policies and practices of the third parties to ensure their compliance with the TCPA.

[View source.]

Written by:

Eversheds Sutherland (US) LLP

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