Jones v. All American Auto Protection, Inc., 3:14-cv-00199-LRH-WGC (D. Nev. Nov. 24, 2015)

Plaintiff filed a class action lawsuit against Defendant, a provider and administrator of vehicle service contracts, seeking to hold it vicariously liable for text messages allegedly sent by a direct marketing vendor in purported violation of the TCPA. In passing on this issue, the Court recognized that even if Defendant did not physically send the text messages, it could still be held vicariously liable under federal common law principles of agency including: (1) Formal Agency; (2) Apparent Authority; and (3) Ratification. Analyzing each principle in turn, the Court concluded:

Actual Authority:

The Court recognized that “An agent acts with actual authority when, at the time of taking action that has legal consequences for the principal, the agent reasonably believes, in accordance with the principal’s manifestations to the agent, that the principal wishes the agent so to act.” The Court then went on to juxtapose several cases in conjunction with reaching its conclusion. For example, the Court cited Thomas v. Taco Bell Corp, 879 F. Supp.2d 1079 (C.D.Cal 2012), wherein although Defendant knew of, approved and funded a campaign to send text messages, this was insufficient to prove an actual agency relationship because the facts did not establish Defendant controlled the campaign. The Court also cited Makaron v. GE Sec. Mfg., Inc., CV-14-1274-GW AGRX (C.D. Cal. May 18, 2015) wherein the Court found actual authority was lacking when the only evidence of Defendant’s control was it licensed the use of its trademarks and required its distributors and dealers to comply with all local, state and federal laws in their marketing and sales tactics. Also noteworthy was that the contracts between Defendant and authorized dealers indicated that the authorized dealers were independent contractors and provided that the dealers shall have no right or authority to assume or create any obligation or responsibility, express or implied, on behalf of, on account of, or in the name of Defendant, or to legally bind Defendant in any manner whatsoever.

The Court then compared these case with others where actual authority was found to exist. For example, in Dobkin v. Enter Fin. Grp., Inc., 2:14-cv-01989 WHW (D.N.J. Sept. 3, 2014), Defendant outsourced sales of its product and both groups jointly benefited from calls through a revenue sharing agreement wherein each group was paid when products were sold. In Smith v. State Farm Mut. Auto ins. Co., 30 F. Supp.3d 765 (N.D. Ill. 2014), Defendant entered into contracts with a telemarketing company that specified the days of the week and times in which the company should make calls, the geographic location of the customers to be called, and the number of calls that should be made.

Comparing the facts of the cases above to the one pending before it, the Court noted that while Defendant provided materials, training, and scripts, it did not tell the marketing company when, where, and how many people to call. Additionally, Plaintiff never alleged that any of the callers identified themselves as calling on behalf of Defendant. As such, actual authority was lacking.

Apparent Authority:

“Apparent authority is the power held by an agent or other actor to affect a principal’s legal relations with third parties when a third party reasonably believes the actor has authority to act on behalf of the principal and that belief is traceable to the principal’s manifestations.” This authority cannot be established merely by showing that the alleged agent claimed authority or purported to exercise it. Noting that Defendant did not market to end users, but only supplied products to vehicle dealers and direct-to-customer marketing companies who then sell the products to consumers, the Court concluded that Defendant did not make (or cause to make) any direct communications to end-users such that they might think a vendor or dealer was acting on Defendant’s behalf. The Court also noted that “[a]pparent authority arises from the principal’s manifestations to a third party that supplies a reasonable basis for that party to believe that the principal has authorized the alleged agent to do the act in question. [T]he ostensible authority of an agent cannot be based solely upon the agent’s conduct. The third party’s belief must not only be reasonable, but also ‘traceable’ to the principal’s manifestations.”  Holding Plaintiffs had not produced any evidence from which one could trace their belief as to the marketer’s apparent authority to Defendant, the Court rejected this ground for vicarious liability.

Ratification:

“Ratification is the affirmance of a prior act done by another, whereby the act is given effect as if done by an agent acting with actual authority.” A principal can ratify by: (1) manifesting assent that the act shall affect the person’s legal relationships; or (2) conduct that justifies a reasonable assumption that the person so consents. A principal is not, however, 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. Additionally, a seller can be liable for the acts of another under traditional agency principles if it ratifies those acts by knowingly accepting their benefits. Thus, to be liable under a ratification theory, “the principal must either (1) have actual knowledge of all material facts about the agent’s act or (2) should have known of the actual facts because a reasonable person under the circumstances would have investigated further.”

In this case, the Court concluded that Plaintiffs did not provide any specific allegations that Defendant received any benefit from the marketing calls. No Plaintiff alleged that they spoke to, or did business with Defendant as a result any call. Plaintiffs also failed to provide evidence that Defendant knew or should have known the marketer was violating the TCPA, and the contract between the parties specifically provided that the marketer had to comply with all state and federal laws, stating: “Expressly excluded from these methodologies is any act or omission that violates applicable state or Federal law, including but not limited to ‘robo-calling,’ or contacting any consumer who has expressly affirmed his or her desire not to be contacted or called. To the extent that Vendor uses telephone equipment in the performance of its obligations herein, Vendor acknowledges that outbound telephone calls to any Consumer must be expressly authorized by such Consumer.” Moreover, Defendant made efforts to enforce compliance, and investigated the marketer when wrongdoing was suspected. For these reasons, there was not plausible basis to hold Defendant liable under principles of ratification.