9th Circuit rings the ‘Bell’ on level of control required for vicarious liability under TCPA

company can continue to apply a “hands off” approach to dealings with third-party vendors after the 9th Circuit's recent Thomas ruling

Plaintiffs’ attorneys have increasingly filed lawsuits against corporate sellers and retailers for calls placed by third-party marketers, even where the corporate client reasonably relied on the third-party marketers’ expertise and representations regarding compliance with federal and state telemarketing laws. Enterprising plaintiffs’ attorneys have targeted the “deeper pockets” after the FCC ruled in 2013 (In re Joint Petition filed by Dish Network LLC ) that sellers may be vicariously liable under traditional agency principles for violations of Section 227(b), Chapter 47 of the United States Code. Arguing that the FCC applied a loose standard for liability, these plaintiffs’ attorneys argue the Restatement (Third) of Agency § 1.01 applies because it arguably requires only that the principal have the right to control the agent’s work.

Seller must control “the manner and means” of the telemarketing campaign

Before the 9th Circuit’s Ruling affirming the district court order in Thomas v. Taco Bell Corp., federal district courts in the 9th Circuit (and elsewhere) were split as to the level of control necessary for a finding of vicarious liability and agency under the TCPA. Relying on the district court ruling in Thomas v. Taco Bell Corp., corporate sellers and retailers argued that in the context of the TCPA, plaintiffs must adduce evidence that the purported principal had the right to control “the manner and means” of the marketing conduct over which the plaintiff had sued. Any looser standard, such as a proposition that the principal need not control the full range of the agent’s acts to establish agency, would run afoul of the purposes of the TCPA and chill outsourcing of business and the provision of legitimate marketing services. For example, plaintiffs could point to a series of routine facts that are present in virtually every relationship between a seller and a third party marketer, such as “monetary incentives” to the marketer, a telephone line to the vendors for the transfer of calls, and objective criteria for defining qualified leads . In effect, plaintiffs’ arguments, if adopted, would impose strict liability on corporations for any unauthorized calling procedures of its third party marketers simply because it contracted with them to perform lawful services, and then paid them for those services. The line between an actual agent and a non-agent independent contractor would be gone.

On July 2, 2014, the 9th Circuit affirmed the standard applied by the district court in Thomas, finding that a plaintiff must demonstrate that the corporate defendant “controlled the actions of the [telemarketer] with respect to the campaign.” The three-judge appeals panel unanimously held that Taco Bell was not vicariously liable for unauthorized text messages sent to thousands of people as part of a promotion lead by Chicago Area Taco Bell Local Owners Advertising Association and its marketing partners. The 9th Circuit and district court’s application of the vicarious liability doctrine sanctioned by the FCC is in line with other federal district courts, which have applied a similar narrow standard, such as Mais v. Gulf Coast Collection Bureau, Inc. from the Southern District of Florida (to satisfy the level of “control” necessary to establish vicarious liability under the TCPA, Plaintiff must establish that defendants, as the principals, maintained control over, and supervised, key aspects of the specific undertaking).

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Apparent authority requires some manifestation of the principal

The 9th Circuit also affirmed that, with respect to an apparent authority theory of agency, there must still be some manifestation by the principal, on which the plaintiff reasonably relied. The agent’s purported representations, alone, would not suffice to create agency between the seller and consumer. By so holding, the 9th Circuit adopted the approach taken in Smith v. State Farm Mut. Auto Ins. Co., wherein the Northern District of Illinois found that the “illustrative examples” of apparent authority in the FCC ruling was “dicta.” The 2013 FCC Ruling arguably provides “illustrative examples” of evidence that demonstrate a telemarketer had apparent authority, such as the ability of the telemarketer to enter information into the entity’s system, the authority to use the entity’s name, and the entity’s drafting or approval of the telemarketer’s script. The 9th Circuit disagreed, relying instead on a 1997 ruling defining the scope of apparent authority.

Ratification requires an agency relationship

Finally, the 9th Circuit agreed with earlier decisions that ratification alone, i.e., the payment of money for services rendered with knowledge of key facts, would not establish liability without first showing that an agency relationship exists. By so finding, the 9th Circuit blocked plaintiffs’ attempts at establishing liability without first showing the requisite control over the telemarketing processes undertaken by the third-party vendor.

The potential implications for companies, whether they are retailers or service vendors, are significant. The 9th Circuit’s ruling affirming the district court’s decision on the motion to dismiss clarifies the vicarious liability standards applicable in this jurisdiction, limiting risks associated with outsourcing marketing aspects of one’s business, as well as supporting companies' efforts to dismiss TCPA suits over communications they didn't send or authorize. A company can continue to apply a “hands off” approach to dealings with third-party vendors, relying on the expertise and representations of the third party in the generation of leads and other potential sales.

Contributing Author

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Ana Tagvoryan

Ana Tagvoryan handles a wide variety of privacy, social media, and unfair competition matters in federal and state courts of California. She is a member...

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Contributing Author

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Joshua Briones

Joshua Briones advises clients regarding compliance with state and federal laws, which govern the use and disclosure of consumer information. Mr. Briones is a member...

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