The Federal Communications Commission’s (FCC) long awaited ruling regarding agency liability under the Telephone Consumer Protection Act (TCPA) is a mixed bag for those companies that rely on third-party telemarketers. In its ruling issued on May 9, 2013, the FCC declared that sellers “may be held vicariously liable under federal common law principles of agency including not only formal agency, but also principles of apparent authority and ratification.” The FCC did not hide the fact that this intended to provide “appropriate incentives” for companies “to monitor and police TCPA compliance by third-party telemarketers.” The FCC, however, declined to extend vicarious liability to calls made simply “to aid or benefit the seller,” if an agency relationship does not exist between the seller and the third-party telemarketer. Because this is such a hotly litigated issue, the FCC’s ruling far from settles the matter as Courts will be forced to determine, on a case-by-case basis, whether an agency relationship exists. 

The FCC’s Declaratory Ruling followed two separate lawsuits involving satellite television providers. In Charvat v. Echostar Satellite LLC, 676 F. Supp. 2d 668 (S.D. Ohio 2009), and United States v. Dish Network LLC, 667 F. Supp. 2d 952, 956 (C.D. Ill. 2009), the plaintiffs alleged that the satellite providers’ third-party telemarketers had violated the TCPA by: (a) using artificial or prerecorded voice to deliver a message without the plaintiff’s prior express consent and (b) making calls to the plaintiff in violation of the TCPA’s do-not-call provisions. The satellite providers argued that they could not be held liable under the TCPA because the calls were made by third-party independent contractors. As a result, the satellite providers argued that they did not “initiate” calls within the meaning of the TCPA.

In Charvat, the district court granted summary judgment in favor of the satellite provider applying principles of Ohio agency law. Under Ohio law, the telemarketers were not the satellite provider’s agents because the satellite providers did not have the right to control the manner and means by which the telemarketers conducted their business. On appeal, the Sixth Circuit referred the question of when a person may be held vicariously liable for a violation of the TCPA to the FCC. In United States v. Dish Network LLC, the district court denied the satellite provider’s motion to dismiss because it held that the vicarious liability under the TCPA might exist even in the absence of an agency relationship. The district court, however, stayed the case, and ordered the parties to seek a Declaratory Ruling from the FCC.

In its Declaratory Ruling, the FCC first analyzed whether sellers “initiate” calls within the meaning of the TCPA. The FCC found that sellers do not generally initiate calls made by third-party telemarketers. In doing so, the FCC rejected the argument that a seller initiates a call by contracting with a third-party telemarketer to make call on its behalf. Instead, the FCC concluded that a person or entity “initiates” a telephone call “when it physically takes steps to necessary to physically place a telephone call.” The FCC further stated that this would “not include persons or entities, such as third-party retailers, that might have some role, however minor, in the causal chain that results in the making of the telephone call.”

The FCC next analyzed vicarious liability with respect to the TCPA’s “do-not call” provisions under 47 U.S.C. section 227(c) and the “automatic dialer” provision under section 227(b). Section 227(c)(5) allows a person to sue for damages and an injunctive relief for do-not-call violations “by or on behalf of” a company. The FCC declined to extend its interpretation of “by or on behalf of” a company beyond traditional agency principles, including apparent authority and ratification. Although the TCPA’s automatic dialer provision does not contain the same “by or on behalf of” language of subsection (c), the FCC stated that the same agency principles would also apply to claims under Section 227(b).

Although the FCC did not provide a bright-line rule regarding when an agency relationship exists between a seller and a third-party marketer, it provided examples of evidence that may demonstrate that the telemarketer is the seller’s authorized representative with apparent authority to make the seller vicariously liable for the telemarketer’s section 227(b) violations. This includes:

  • Evidence that the seller allows the outside sales entity access to information and systems that normally would be within the seller’s exclusive control, including: access to detailed information regarding the nature and pricing of the seller’s products and services or to the seller’s customer information;
  • Evidence that the outside sales entity has the ability to enter consumer information into the seller’s sales or customer systems, as well as the authority to use the seller’s trade name, trademark and service mark;
  • Evidence that the seller approved, wrote or reviewed the outside entity’s telemarketing scripts; or
  • Evidence that seller knew (or reasonably should have known) that the telemarketer was violating the TCPA on the seller’s behalf and the seller failed to take effective steps within its power to force the telemarketer to cease that conduct.

While this ruling provides welcome guidance, it may also subject companies to additional expense because Courts are often reluctant to grant motions to dismiss when the dispositive issue is whether an agency relationship exists between two companies. Thus, this ruling will likely do little to quell the growing number of class action suits in this area.