Holding that approval of the marketing strategy used by a third party was sufficient to establish the possibility of liability under the Telephone Consumer Protection Act, the Sixth Circuit Court of Appeals reversed summary judgment in favor of a defendant in a putative class action.

The dispute centered around an allegedly unsolicited fax advertisement received by Siding and Insulation Company in November 2005 promoting the services of Alco Vending.

Alco hired Business 2 Business Solutions (B2B), a third-party marketing company, and engaged in a series of communications about an advertising campaign. The president of the company completed a form that provided three “selling points” about Alco that could be included in any advertisements and reviewed sample ads drafted by B2B. Multiple conversations about the ads were held between Alco and B2B, although the president testified he never saw or reviewed the list of recipients and was told that the businesses all had a preexisting relationship with B2B so that any advertising was “100 percent legal.”

B2B broadcast approximately 7,000 faxes on Alco’s behalf in November 2005 and July 2006 and was paid a total of $376.

Siding sued, asserting a violation of the TCPA. Alco responded that it was not the sender of the fax, which was transmitted by B2B. Although Alco acknowledged that it paid B2B to provide advertising services by broadcasting faxes to consenting businesses, the defendant argued that it could not be held liable for fax ads sent to non-consenting recipients.

Applying the federal common law theory of agency, a federal court judge agreed, ruling that Alco could not be vicariously liable under the TCPA, granting summary judgment for the defendant. Siding appealed to the Sixth Circuit, which found that the district court applied the wrong legal standard and reversed.

The panel first attempted to identify the proper legal standard for liability under the TCPA. Strict liability was not applicable to the time period when the fax was broadcast, the Sixth Circuit said, as the Federal Communications Commission promulgated regulations in 2006, codifying a new definition of the term “sender” that could not be applied retroactively to earlier Alco faxes.

Alco advocated for a theory of vicarious liability based on federal common law, as used by the district court. But the Sixth Circuit rejected this position. The lower court improperly relied upon a 2013 declaratory ruling from the FCC that discussed vicarious liability in the context of phone calls, defining terms for “telemarketer” and “seller”—not fax advertisements, the panel said.

Instead, the court applied the “on-whose-behalf” standard found in a 1995 FCC order that specifically addressed fax liability. There, the Commission stated that “the entity or entities on whose behalf facsimiles are transmitted are ultimately liable for compliance with the rule banning unsolicited facsimile advertisements.” That standard provided “the rule for assessing fax liability under the TCPA from the time of the 1995 Order until the strict liability standard became effective in August 2006,” the court said.

Alco’s faxes were broadcast in November 2005 and July 2006, the panel wrote, and “thus fell within the time period during which the FCC applied the ‘on-whose-behalf’ standard, so liability for sending the faxes must be judged by that standard,” a middle ground between strict liability and vicarious liability.

Relevant factors included the degree of control that Alco exercised over the preparation of the faxes, whether Alco approved the final content of the faxes as broadcast, the nature and terms of the contractual relationship between B2B and Alco, and Congress’s intent to stop fax advertisers from “coopting” recipients’ fax machines in a way that interfered with legitimate business uses.

Several of the factors indicated that B2B did not act on Alco’s behalf, the panel found: Alco employees were never provided with details about fax recipients and when Alco received complaints about the faxes, it passed them along to B2B. The marketing company also assured Alco’s president that the fax campaign would be “100 percent legal.”

However, multiple factors also supported the conclusion that B2B did in fact act on Alco’s behalf, the court said. The company’s president provided information for “selling points” about the company to use in the advertisements, which he also reviewed, evidencing that Alco had “at least some ‘degree of input and control,’ over … content” and was “substantively involved in the preparation of the advertisements.”

Also relevant when considering Alco’s potential liability: the company’s “desire to advertise its services” and the reasonableness of its reliance on B2B’s representations about the legality of the fax distribution, the panel wrote.

The court reversed summary judgment in Alco’s favor and remanded the case for the district court to apply the correct legal standard.

To read the opinion in Siding and Insulation Co. v. Alco Vending, Inc., click here.

Why it matters: Because the faxes at issue were sent prior to the FCC’s 2006 regulations, the Sixth Circuit adopted the “on-whose-behalf” standard to consider the defendant’s liability, rejecting the federal common law theory of vicarious liability used by the district court. While the multi-factor analysis includes considerations such as an advertiser’s desire to market its services and the reasonableness of its reliance on the marketing company, the application of the standard is limited only to faxed advertisements sent prior to the FCC’s 2006 regulations.