The Ninth Circuit recently affirmed summary judgment for five defendants—three payday lenders and two lead-generation vendors—in a certified class action where it was undisputed that the text message at issue violated the TCPA. See Kristensen v. Credit Payment Servs. Inc., 879 F.3d 1010 (9th Cir. 2018). Rejecting Plaintiff’s ratification theory, the court held that the defendants were not vicariously liable for the actions of a non-party “publisher,” AC Referral—the entity that initiated the text. The Ninth Circuit’s opinion provides useful guidance as to scope of TCPA liability for all players involved in an SMS campaign, particularly those that do not actually press “send.”

Defendants Enova International, Inc., Pioneer Financial Services, Inc., and Credit Payment Services, Inc. (“Lenders”), had entered into separate contracts with Defendant LeadPile LLC, a company that buys and sells sales leads, to conduct a marketing campaign. To obtain its leads, LeadPile had contracted with Defendant Click Media, LLC. And Click Media had, in turn, contracted with non-party AC Referral to generate leads. The contract between Click Media and AC Referral authorized text messaging as one method to generate leads and stated that AC Referral must comply with the TCPA.

In 2011, AC Referral sent the following text message to a list of phone numbers—including Plaintiff’s:

Do You Need up to $5000 Today? Easy Quick and All Online at: 24 Month Repay, All Cred. Ok Reply STOP 2 End.

Had Plaintiff clicked on the link, he would have been directed to Click Media’s loan application website. And if he had filled out an application, he would have been redirected to a website for one of the Lenders.

Instead, Plaintiff filed suit against the Lenders, LeadPile, and Click Media—but not AC Referral. Plaintiff claimed that Defendants were vicariously liable on the theory that they ratified the actions of AC Referral by accepting leads while “knowing” that AC Referral was using text message marketing to generate those leads.

Although the district court certified Plaintiff’s proposed class, it later granted summary judgment for each of the Defendants. Plaintiff appealed, arguing only that there was a genuine issue of material fact as to whether Defendants ratified AC Referral’s conduct.

The Ninth Circuit affirmed the judgment. The court reasoned that, pursuant to an FCC ruling, a “seller” of goods or services is not directly liable for calls (or texts) initiated by a “telemarketer” on its behalf; instead, the seller’s potential vicarious liability turns on the application of federal common law agency principles (actual authority, apparent authority, and ratification) as set forth in the Restatement (Third) of Agency. See In re Joint Petition Filed by Dish Network, LLC, 28 FCC Rcd. 6574, 6584–87 (2013).

Applying these principles, the Ninth Circuit rejected Plaintiff’s ratification theory with respect to the Lenders and LeadPile. As the court observed, the Restatement limits ratifiable conduct to that where the actor “acted or purported to act as an agent.” Yet it was undisputed that AC Referral had no knowledge of (or contracts with) LeadPile or any of the Lenders. As such, the court held that AC Referral was neither an agent nor a purported agent of the Lenders or LeadPile, and these Defendants could not have ratified AC Referral’s actions.

The court also rejected Plaintiff’s ratification theory as to Click Media, but for a different reason. Unlike the other Defendants, Click Media had an agency relationship with AC Referral pursuant to their contract. Even so, the court noted that under the Restatement, a principal “is not bound by a ratification made without knowledge of material facts about the agent’s act.” Put differently, Click Media could be vicariously liable only if it had “knowledge of facts that would have led a reasonable person to investigate further,” yet ratified without further investigation.

The record contained no evidence that Click Media either knew that AC Referral was sending text messages in violation of TCPA or otherwise had knowledge that would have led a reasonable person to investigate further. Significantly, the Ninth Circuit rejected the notion that, simply by virtue of their contract requiring TCPA compliance, Click Media had a duty to investigate whether AC Referral was in fact complying with the law. As the court explained, “The knowledge that an agent is engaged in an otherwise commonplace marketing activity is not the sort of red flag that would lead a reasonable person to investigate whether the agent was engaging in unlawful activities.” The court thus concluded that Click Media could not be deemed to have ratified AC Referral’s actions.

Although any vicarious liability analysis will depend upon the specific facts in a given case, the Kristensen decision provides useful guidance as to the limits of vicarious liability in general and the ratification doctrine in particular.