Mar 26

Ninth Circuit Restricts Vicarious Liability in TCPA Class Action

In Kristensen v. Credit Payment Services Inc., the U.S. Court of Appeals for the Ninth Circuit affirmed a district court’s summary judgment that lenders and marketers who did not ratify the actions of a third-party publisher were not vicariously liable under the Telephone Consumer Protection Act (“TCPA”) for an unauthorized text message the publisher sent to a consumer.  879 F.3d 1010, 1012 (9th Cir. 2018).  This decision adds clarity to the Ninth Circuit’s previous ruling that businesses are not vicariously liable for text messages sent by an agent without the principal’s approval or ratification.  See Thomas v. Taco Bell Corp., 582 F. App’x 678 (9th Cir. 2014) (unpublished) (franchisor not vicariously liable for unsolicited text messages sent by franchisees’ advertising association because franchisor did not approve or ratify the text message campaign).

In Kristensen, three payday lenders separately contracted with a primary marketer who bought and sold customer leads.  The primary marketer, in turn, contracted with a secondary marketer.  The secondary marketer hired a “publisher” who generated customer leads.  And if the customer leads resulted in a loan, the publisher received a percentage of the fee paid by the lender.  The publisher bought lists of consumer phone numbers from other lead generators.  The publisher, in performing the contract with the secondary marketer, sent text message advertisements to numbers on those lists that directed consumers to a loan application on the secondary marketer’s website.

One consumer who received a text message filed a class action against the three lenders and the two marketers after he received an unsolicited text message from the non-party publisher.  None of the three lenders or the primary marketer had a contract with the publisher or had even heard of the publisher before the lawsuit.

The district court certified a class of consumers who were sent text messages by the publisher. Defendants moved for summary judgment, which the district court granted, reasoning that defendants were not vicariously liable because they neither hired the publisher nor ratified its text messaging campaign.  The consumer argued on appeal that there was a genuine issue of material fact as to whether defendants ratified the publisher’s unauthorized text message by accepting the benefits of the text messages while failing to investigate if its method of acquiring phone numbers complied with the TCPA.  In other words, the consumer argued that companies that benefit from text messaging campaigns have a duty to investigate whether the phone numbers dialed belong to persons who consented to receive advertising calls or texts.

On appeal, the Ninth Circuit recognized the Federal Communications Commission’s authority to adopt rules and regulations concerning the TCPA and, like the FCC, the Ninth Circuit relied on the Restatement (Third) of Agency for principles of vicarious liability.  The FCC had previously ruled that calls made by a telemarketer’s agent are “treated as if the telemarketer itself placed the call.”  879 F.3d at 1014.  But citing the Restatement, the Ninth Circuit found that even if a principal ratifies an agent’s act, “‘[t]he principal is not bound by a ratification made without knowledge of material facts about the agent’s act unless the principal chose to ratify with awareness that such knowledge was lacking.’” Id. (internal citation omitted).

Affirming summary judgment for defendants, the Ninth Circuit ruled that the lenders and the primary marketer were not vicariously liable because they neither contracted with the publisher nor ratified the allegedly unlawful text messages the publisher sent.  The lenders and primary marketer did not contract with, communicate with, or even know of, the publisher before the lawsuit.

The secondary marketer’s liability was a closer call because it hired the publisher to generate phone numbers as leads.  But the consumer presented no evidence that the secondary marketer knew that the text messages to persons on the publisher’s lists were being sent in violation of the TCPA or had any basis to infer that the secondary marketer “had knowledge of facts that would have led a reasonable person to investigate further.”  Id. at 1015.  Rejecting the consumer’s argument that upon learning that the publisher was sending text messages on its behalf, the secondary marketer acquired a duty to investigate whether the text messages complied with the TCPA, the court found that the “knowledge that an agent is engaged in an otherwise commonplace marketing activity [sending advertising text messages] is not the sort of red flag that would lead a reasonable person to investigate whether the agent was engaging in unlawful activities.”  Id.

The possibility of a TCPA violation seems obvious when phone number lists are provided by lead generators four steps removed from the company that will benefit from the calls made.  But the Ninth Circuit rejected the proposition that this possibility is enough to make the company benefitting from the calls vicariously liable for others’ conduct.  Rather, some reason to suspect non-compliance is required.  But to reduce the chances of TCPA litigation, businesses should include in their contract with marketers that they and everyone involved in the campaign must comply with TCPA.  Taking that step will help limit TCPA class action exposure.

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