In a blow to Telephone Consumer Protection Act defendants, the Ninth U.S. Circuit Court of Appeals has ruled that a defendant may be liable for violations of the statute made by a third party – even where the violator was not the advertiser of the product.

The United States Navy hired marketing consultant Campbell-Ewald Company to develop and execute a recruiting campaign targeting young adults aged 18 to 24, including text messages sent only to cellular users who had consented to solicitation.

Campbell-Ewald outsourced the texting responsibility, making the other company responsible for both generating the list of phone numbers to be dialed and for transmitting the text messages.

On May 11, 2006, 40-year-old Jose Gomez received a text stating: “Destined for something big? Do it in the Navy. Get a career. An education. And a chance to serve a greater cause. For a FREE Navy video call [number].” Gomez filed a putative class action against Campbell-Ewald for allegedly violating the TCPA.

The marketing company argued that it could not be liable under the statute because it outsourced the dialing and did not actually make any calls on behalf of its client. But a federal appellate panel, noting that the statute itself is silent as to vicarious liability, determined that liability may be found for another’s TCPA violations where an agency relationship, as defined by federal common law, is established between the defendant and a third-party caller.

This interpretation is consistent not only with the Federal Communications Commission’s take on this issue, but with public policy, the court said. It remained unswayed by Campbell-Ewald’s contention that vicarious liability extends only to the merchant whose goods or services are being promoted by the telemarketing campaign.

“[A]lthough the FCC’s 2013 ruling may emphasize vicarious liability on the part of merchants, the FCC has never stated that vicarious liability is only applicable to these entities,” the three-judge panel wrote. “Indeed, such a construction would contradict ‘ordinary’ rules of vicarious liability, which require courts to consider the interaction between the parties rather than their respective identities.”

“Given Campbell-Ewald’s concession that a merchant can be held liable for outsourced telemarketing, it is unclear why a third-party marketing consultant shouldn’t be subject to that same liability,” the court said. “As a matter of policy it seems more important to subject the consultant to the consequences of TCPA infraction. After all, a merchant presumably hires a consultant in part due to its expertise in marketing norms. It makes little sense to hold the merchant vicariously liable for a campaign he entrusts to an advertising professional, unless that professional is equally accountable for any resulting TCPA violation.”

The court added that prior rulings from the 9th Circuit “implicitly acknowledged” the existence of vicarious liability under the TCPA and further added that the “present case affords the opportunity to clarify that a defendant may be held vicariously liable for TCPA violations where the plaintiff establishes an agency relationship, as defined by federal common law, between the defendant and a third-party caller.”

The panel also rejected the defense’s constitutional challenge, its reliance upon the derivative immunity doctrine as a contractor of the Navy, and its position that the case was moot based on its settlement offer. (The defendant offered Gomez $1,503 per violation, plus reasonable costs. Gomez allowed the offer to lapse and Campbell-Ewald moved to dismiss the case as moot, a move the court called “mistaken.” The unaccepted offer alone was insufficient to moot Gomez’s claim, the panel wrote, and the suit was still a live controversy.)

To read the opinion in Gomez v. Campbell-Ewald Co., click here.

Why it matters: Courts across the country have struggled with the intersection of the TCPA and vicarious liability. The 9th Circuit’s decision is bad news for defendants, particularly as the court had issued an unpublished decision earlier this year refusing to hold Taco Bell vicariously liable in a TCPA suit. At least in the 9th Circuit, the fight now shifts to whether the plaintiff can establish an agency relationship as defined by federal common law between the defendant and a third-party caller.