The Federal Communications Commission this summer released its much anticipated omnibus Declaratory Ruling and Order on the Telephone Consumer Protection Act. Although the Ruling covers the agency’s position on many important TCPA issues, such as the definition of an autodialer and the treatment of reassigned cellular telephone numbers, one key issue affecting TCPA litigation still remains unaddressed: the disparate application of direct and vicarious liability. Currently, courts use different standards in the phone and fax context to determine which theory of liability applies. Because so many companies rely on third parties for marketing solutions, resolving the applicable liability theory will become an increasingly important issue in TCPA litigation.
Vicarious Liability for Robocalls
The plain language of the TCPA assigns civil liability to the party that “makes” a robocall without consent. The statute is, however, silent as to the issue of vicarious liability. In this vacuum, courts have applied traditional federal common law principles of vicarious liability, including alter ego and agency doctrines, when analyzing whether a business is liable for robocalls made on its behalf. Because vicarious liability applies, the limitations on vicarious liability that arise out of agency relationships also apply. In other words, businesses that hire third parties to make robocalls on their behalf may be held vicariously liable for violations of the TCPA only if they have an agency relationship with the third party and only for actions within the scope of authority granted to the third party. The application of federal common law principals to vicarious liability in the context of robocalls was affirmed by the FCC in a 2013 Declaratory Ruling.
Currently, courts generally apply federal common law principals of agency and examine a number of factors when determining whether there is an agency relationship between a business and a third party, such as: (1) whether the business reviewed the content of the telemarketing call, (2) whether the business provided the third party with its trademarks, (3) whether the business knew that the third party was violating the TCPA, and (4) whether the business engaged the third party specifically for telemarketing. Accordingly, businesses that hire third parties to make robocalls on their behalf can use these federal common law principles of agency to protect themselves against TCPA liability.
This strategy has been particularly successful in situations where businesses have an attenuated connection through a chain of different marketing contractors to the third party directly violating the TCPA. For example, in Grant Keating v. Peterson’s Nelnet, 2015 WL 4430355 (6th Cir. July 21, 2015), the Sixth Circuit found that a defendant retailer was not vicariously liable where the text messages at issue were actually sent by a subcontractor whom the defendant did not know about, and where the text messages were sent despite the express ban on text messages in the defendant retailer’s agreement with its marketing contractor. The Sixth Circuit specifically noted (1) the care the defendant retailer took to comply with the TCPA, and (2) the defendant retailer’s immediate and appropriate steps to rectify breaches once it was informed of them.
The ability to use federal common law principals of agency in this context is extremely important for defendants who may find themselves without many defenses to TCPA lawsuits, particularly after the FCC’s 2015 Ruling.
Direct Liability for Faxes
In contrast, in an amicus brief in Palm Beach Golf Center-Boca, Inc. v. Sarris, the FCC stated that, with respect to faxes, a business can be held directly liable, as opposed to merely vicariously liable, if a third party advertises a business product or services via a fax that violates the TCPA. In short, direct liability attaches even if there is no agency relationship between the business and the third party under federal common law principles. The FCC made this liability distinction between robocalls and faxes on the basis of the statutory language in 47 U.S.C. § 227(b)(1)(C), which differentiates between “initiat[ing]” calls and “send[ing]” faxes. From this interpretation, however, it also follows that the third party that actually sent the faxes may not be directly liable. In its brief in Sarris, the FCC stated: “By its plain terms, 47 C.F.R. § 64.1200(f)(10) defines the direct liability-incurring ‘sender’ not as the party that physically transmits the fax, but as ‘the person or entity on whose behalf a facsimile unsolicited advertisement is sent or whose goods or services are advertised or promoted in the unsolicited advertisement.’”
The Eleventh Circuit followed the FCC’s position in Palm Beach Golf Center-Boca, Inc. v. Sarris, holding that “a person whose services are advertised in an unsolicited fax transmission, and on whose behalf the fax is transmitted, may be held liable directly” under the TCPA. Palm Beach Golf Center-Boca, Inc. v. Sarris, 781 F.3d 1245 (11th Cir. March 9, 2015). In Sarris, the owner of a dental practice gave a marketing firm free reign over the promotion of his dental practice. The marketing firm, in turn, hired a subcontractor, which sent out blast faxes advertising for the practice. Although the owner of the dental practice did not control the content of the fax sent by the subcontractor, because the advertisement was sent on behalf of the owner, the Eleventh Circuit held that the owner of the dental practice could be directly liable for the TCPA violation. At least one district court ruling in the Eleventh Circuit, Physicians Healthsource, Inc. v. Doctor Diabetic Supply, LLC, 2015 WL 1257983 (S.D. Fla. Mar. 18, 2015), has followed the holding in Sarris regarding TCPA fax cases. Sarris has also been found to be persuasive by district courts outside the Eleventh Circuit.
Some district courts outside the Eleventh Circuit, however, have used federal common law agency principles to impose vicarious liability in the fax broadcaster context, i.e., a third party that facilitates the sending of multiple faxes to numerous recipients at one time. That said, courts that have examined the discrepancy between Sarris and the application of federal common law principals on the issues of direct and vicarious liability in robocall and fax cases have sided with Sarris in fax cases.
Two Different Standards Creates Issues For TCPA Defendants
The uncertain and murky legal doctrine surrounding direct and vicarious liability in the TCPA context presents thorny issues for TCPA defendants trying to move forward. Particularly in blast fax cases, where according to the FCC and some courts, plaintiffs do not need to show an agency relationship between the actual sender of the faxes and the business being promoted in the faxes, businesses may unwillingly and without notice be exposed to litigation risk. For instance, in Helping Hand Caregivers, Ltd. v. Darden Restaurants, Inc., 2015 WL 2330197 (N.D. Ill. May 14, 2015), the court, citing Sarris, refused to dismiss a TCPA case involving faxes sent with the defendant restaurant’s name and logo by a third party, even after the restaurant sent a cease-and-desist letter to the third party regarding its use of the restaurant’s name and logo. As cases such as Helping Hand Caregivers frighteningly illustrate, businesses can be subject to TCPA lawsuits even if they in no way authorize sending the offending faxes in the first place, and at times, even if they tried to stop the sends.
The distinction between liability theories for telemarketing faxes and robocalls is not justified in the statute, nor does it make policy sense. Imposing liability on the party that did not physically transmit the robocall or fax only if there is an agency relationship between the parties is a clear standard which helps defendants structure their contractor relationships and manage litigation risk. Federal common law agency principles on vicarious liability should apply in both the robocall and fax context. As more cases dealing with these issues are filed, it remains to be seen if courts will continue to follow the FCC’s conflicting guidance or will apply federal common law agency principles, as they arguably should.
The authors gratefully acknowledge the assistance of Olga Slobodyanyuk, a former DLA Piper summer associate, now a third-year law student at Harvard Law School