Living Vicariously — and Dangerously — Under the TCPA4 Mar, 2014 By: William I. Rothbard
The legal landscape of the Telephone Consumer Protection Act (TCPA), both before and after the Federal Communications Commission (FCC) required telemarketers last October to begin obtaining the “prior express written consent” of consumers to solicit them, is so densely packed that it is impossible, in limited space, to do more than scratch the surface of the terrain. Courts coast to coast are being asked to wrestle with, and decide, a host of issues of importance to marketers who are, or any day could be, the target of a TCPA class action.
Plaintiff and defense lawyers are arguing ferociously, for example, over: what devices fit the TCPA definition of “auto-dialer,” thus subjecting their users to the Act’s prior written consent and other requirements; whether the issue of “consent” raises individualized or common questions for purposes of class certification; and whether “confirmatory texts” are covered by the TCPA. Another hot issue, and possible defense for merchants who utilize third-party telemarketers, is vicarious liability. Even if the telemarketer fails to obtain the requisite written consent or is in other violation of the TCPA, can its merchant-client be liable for its misconduct, and for statutory damages that could run into the millions of dollars?
The FCC has shed some light on the answer. In a declaratory ruling last May on a petition from DISH Network, it stated that sellers who use third-party telemarketers are not automatically (“strictly”) liable for their violations of the TCPA, but still may be vicariously liable under “federal common law principles of agency.” The FCC opined that under these principles, vicarious liability can attach not only as the result of a formal agency relationship (in which the principal is clearly in charge of and controls the agent), but also an “apparent” agency relationship, or “ratification.”
The FCC offered examples of the kinds of circumstances that might demonstrate the “apparent authority” of a telemarketer to act on behalf of another entity. These include whether: (1) the seller allows the third party access to information that normally would be within its exclusive control, such as detailed product or pricing or customer information; (2) the third party has the ability to enter consumer information into the seller’s systems, as well as the authority to use the seller’s trade name or trademark; (3) the seller approved, wrote or reviewed the telemarketing scripts; and (4) the seller knew or reasonably should have known that the telemarketer was violating the TCPA on the seller’s behalf, and failed to take effective steps stop it.
While an important statement and source of guidance, the FCC DISH Network opinion is not binding on the courts, which in the end must look at each case and apply pertinent legal precedent in determining whether a seller is liable for its telemarketer’s TCPA violations. Because the inquiry is so case-specific, it should not be surprising that decisions have split on the issue. Three federal court cases out of California are illustrative.
In “In re Jiffy Lube International Inc.” (2012), in the Southern District, the court denied a motion to dismiss by the seller, holding that the TCPA recognizes liability for any party responsible for the text messages, regardless of which entity physically sends them. Were it otherwise, the seller could effectively make an “end run” around the TCPA’s prohibitions.
In “Thomas v. Taco Bell Corp.” (2013), in the Central District, the seller won summary judgment because it did not send the text messages and was not involved in developing or directing the telemarketer’s campaign. It did not control the “manner and means” of the campaign and played no role in the decision to distribute the message by way of text.
In another case in the Southern District, “Friedman v. Massage Envy Franchising LLC” (2013), the court, in granting dismissal for the seller, strictly construed vicarious liability, stating that it requires sufficient pleading of the elements of formal agency, including the right of the principal to control its agent. The TCPA, the court said, applies only to the party that “makes” the call, and therefore can apply only to the seller or one who is, in fact and law, its agent. It also suggested that the plaintiff could lack standing to pursue a TCPA claim since it had not shown any “causal relationship” between the sending of the text messages and the actions of the seller, such that no injury is “fairly traceable” to the seller.
Pro-defendant decisions — like those in Taco Bell and Massage Envy Franchising — which rest on a seller’s lack of control and supervision, could create tension with the “best practice” of seller monitoring of the telemarketer to reduce TCPA risk. Even absent an actual agency relationship, the greater the level of watching, the easier it can be to show control and direction by the seller. Still, the best practice of regular monitoring, and corrective action against discovered infractions, is the wisest practice. Short of using a telemarketer who is known to be so compliance-conscious that monitoring is unnecessary, it is the most effective way for a merchant to avoid a TCPA class action in the first place.
William I. Rothbard is a former FTC attorney and practices in Los Angeles, specializing in advertising and marketing law. He can be reached at (310) 453-8713, Rothbard@FTCAdLaw.com, and www.ftcadlaw.com.