Who’s calling? Standards for third-party liability under the TCPA

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Companies that market products through third-party agents or distributors face a particular risk under the Telephone Consumer Protection Act (TCPA) when their agents call, text or fax consumers without obtaining the necessary consent. TCPA cases often implicate issues of vicarious liability when a third-party initiated the communications on behalf of another party. Courts generally apply traditional agency principles in cases involving telephone calls and text messages, but the standard has been less clear in so-called junk fax cases. Several court decisions have suggested, in dicta, the possibility of applying a strict liability standard against a company whose goods or services are advertised in an unsolicited fax, whether or not that company sent the fax directly or through a third party. In a recent decision, however, the US Court of Appeals for the Sixth Circuit rejected what it considered to be an overbroad application of third-party liability for faxing and dismissed claims against defendants that were not involved directly in sending unsolicited faxes. See Health One Med. Ctr., Eastpointe P.L.L.C. v. Mohawk, Inc., 889 F.3d 800 (6th Cir. 2018).

Calls and Texts and Traditional Agency Principles

The TCPA makes it unlawful “to initiate” certain telephone calls and text messages, and both the Federal Communications Commission (FCC) and courts have agreed that traditional agency principles govern the application of third-party or vicarious liability. The 2012 FCC declaratory ruling, In re Dish Network, 28 FCC Rcd. 6574 (2012), has been interpreted to establish that a person who does not physically initiate a telephone call, but rather relies on a third party to do so, may be held liable under the TCPA under the common law of agency, based on actual approval, apparent authority and ratification. Subsequent cases have applied the vicarious liability standard articulated in In re Dish Network to assess third-party liability under the TCPA. A recent Eversheds Sutherland Legal Alert (“Do as I say, not as I do: Third-Party Liability and the TCPA”) reports on several decisions from earlier in 2018 involving calls and texts and discusses the courts’ analyses.

Fax Advertisements and a Shifting Standard

For faxing, the TCPA imposes liability on the “sender” of the fax, but for purposes of assessing third-party liability, courts have disagreed about whether to apply a traditional agency standard or some different standard. The Seventh Circuit, which expressly adopted an agency test, and the Sixth Circuit, which rejected an agency test, had seemingly created a circuit split, but a recent decision by the Sixth Circuit has resolved some of the tension between the circuits regarding the application of vicarious liability.

The Seventh Circuit has applied a traditional agency standard to TCPA fax cases. In Bridgeview Health Care Ctr. Ltd. v. Clark, 816 F.3d 935 (7th Cir. 2016), the Seventh Circuit affirmed the dismissal of claims against a small business where the unsolicited fax advertisements were sent outside the scope of the business owner’s express authorization. The defendant had authorized a marketing company to send faxes advertising its services within a 20-mile radius of its location. Despite this specific limitation, the marketing company sent more than 5,000 faxes across three states. In its analysis, the Seventh Circuit examined the three types of common law agency—express actual authority, implied actual authority and apparent authority—and, finding that no theory of agency applied, limited the defendant’s liability to only the faxes the defendant authorized and that were sent within the authorized 20-mile radius. The court’s holding articulated a common sense approach to assessing third-party fax liability under the TCPA, in line with vicarious liability standards used for telephone calls and texts. The court reaffirmed this approach in Paldo Sign v. Wagener Equities, Inc., 825 F.3d 793 (2016), and specifically rejected a reading of the regulations that would apply strict liability against any company whose goods or services were advertised in a fax.

In Siding and Insulation Co., v. Alco Vending, Inc., 822 F.3d 886 (6th Cir. 2016), by contrast, the Sixth Circuit took an alternative approach and expressly declined to apply common law agency principles for assessing third-party liability, as had the Seventh Circuit. Instead, the court applied an “on-whose-behalf” standard that involved a hybrid analysis blending “(1) federal common-law agency principles, such as whether and to what extent one entity controlled the other, and (2) policy considerations designed to address which entity was most culpable in causing a TCPA violation, such as whether and to what extent each entity investigated the lawfulness of the fax broadcasts at issue.” The court noted several relevant factors under the “on-whose-behalf” standard including, but not limited to, the degree of input and control the defendant exercised over the preparation and content of the faxes, awareness of the circumstances of the broadcast (including facsimile list and transmission information), and measures taken to ensure compliance with the TCPA. Applying these (non-exhaustive) factors, the court found facts that weighed both for and against the defendant’s liability and therefore remanded the case for further proceedings under the new legal standard.1

Although the Sixth Circuit applied an “on whose behalf” standard to the facts in Alco Vending, the Sixth Circuit also suggested, in dicta, that liability for faxes sent under current FCC rules might be assessed under a strict liability standard. In 2006, the FCC adopted a new definition of “sender” in 47 C.F.R. § 64.1200(f)(10), after the faxing at issue in Alco Vending. As defined by FCC regulations since 2006, the “sender” is the person on whose behalf the advertisement is sent or the person “whose goods or services are advertised or promoted in the unsolicited advertisement.” In Alco Vending, the Sixth Circuit referred to this definition as a “strict-liability standard” that might impose strict liability on any person whose goods or services were advertised, regardless of whether the fax was sent on that person’s behalf or even with their knowledge. This potential application of strict liability would be a significant divergence from the agency standard applicable in the Seventh Circuit and even from the “on whose behalf” standard that the Sixth Circuit applied to faxes sent before 2006.

Keeping the situation from falling in an abyss, recently, in Health One Med. Ctr. v. Mohawk, Inc., 889 F.3d 800 (6th Cir. 2018), the Sixth Circuit declined to apply the strict liability test against defendants that were not involved in sending the faxes. The Health One decision clarified that the Sixth Circuit standard still requires a material connection between the defendant and the faxing.

In Health One, the plaintiff brought a class action lawsuit against pharmaceutical manufacturers whose products had been marketed by fax by a third party without their knowledge or consent. Under those facts, the court stated that strict liability would be a “legal alchemy” that cannot be imposed on a defendant that was not involved in sending the fax.  Instead, the court held that only the “sender” can be liable and stated that the regulation “does not strip the ‘send’ out of sender” simply because a defendant’s product happens to be marketed by a third party without its involvement. The court specifically distinguished the fact pattern from Alco Vending, where the defendant had hired a fax broadcaster to send faxes on its behalf. By rejecting strict liability outright, the decision is a material development that limited over-broad application of third-party liability in the Sixth Circuit and brings the standard closer in line with the Seventh Circuit’s agency standard or the Sixth Circuit’s earlier “on whose behalf” standard.

Conclusion

Third-party liability issues arise with frequency in TCPA cases, and companies should be aware of the manner in which third parties are marketing their products. Regardless of the legal standard, courts are likely to consider any limits placed upon the scope of authorization provided to third parties to distribute marketing materials. Courts will consider whether there was a defined scope of authority for the content of the materials, the method and scope of transmission, the number of communications, and the intended recipients.
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1 On remand, the district court held that the third-party liability issue was a question of fact for trial. The case ultimately settled on an individual basis.

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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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