Federal telemarketing regulations enforced by the Federal Communications Commission (FCC) and the Federal Trade Commission (FTC) hold "sellers"—generally meaning the entity whose product is being advertised-responsible for seeing to it that their campaigns comply with the law. The FCC and FTC also generally take the position that the seller's responsibility to ensure compliance also means that the seller is responsible for the actions of telemarketing firms that it hires to perform campaigns.

However, whether a seller will be held liable in private litigation for illegal actions by its telemarketing firm can depend upon whether the latter acts as an agent or as an independent contractor. As a recent Ohio decision illustrates, cases turning on this issue are very fact-specific.

Telemarketing Rules

As background, the Telephone Consumer Protection Act imposes liability in private actions on both the telemarketer placing a call and on the seller on whose behalf the call is made. 47 U.S.C. §227(c)(5). Similarly, under the FTC's Telemarketing Sales Rule (TSR), it is illegal for a seller to initiate, "or to cause any telemarketer to initiate," a telemarketing call in violation of provisions of the rule. 16 CFR Part 310. Certain provisions of the TSR impose distinct and non-delegable obligations on both sellers and telemarketers.

However, the intersection of federal telemarketing regulations and the state laws of agent/independent contractor can complicate these seemingly straightforward provisions.

Generally speaking, matters are simplest where the telemarketer is plainly an "agent" of the seller under state law. Where the seller controls the message, or provides the telephone numbers to be called, there is little doubt that the seller bears responsibility. But even these situations can prove tricky in the case of "captive" independent insurance agents. For example, in 2004, an FTC staff advisory letter indicated that independent or franchised agents of an insurance company could, depending upon specific facts, either be deemed an independent seller or an agent of the insurance company, at least for purposes of determining whether the agents would be required to pay separate annual fees for accessing the Do Not Call database.

The issue becomes more complicated, however, when the contract between seller and telemarketer characterizes the relationship as one of an independent contractor. In such cases, regulators routinely seek to hold the seller responsible. For example, in 2005, the FTC fined two timeshare sellers and their telemarketer more than $500,000 for violations of the TSR. The then-chair of the FTC stated: "You cannot hire subcontractors to break the law for you and then walk away free of consequences."

More recently, DirecTV has twice paid fines (or made "voluntary contributions" to the U.S. Treasury) to settle FTC investigations into its compliance with the TSR. It paid a $5.4 million fine in 2005, and more than $2.3 million to resolve a second investigation in 2009. In each case, the agency also obtained smaller payments from companies hired by DirecTV to conduct the telemarketing.

The Echostar Case

But some sellers have resisted liability for calls made by their hired telemarketers. Most recently, DirecTV's competitor Echostar won summary judgment in a private action brought in Ohio. Charvat v. Echostar Satellite, LLC, Case No. 2:07-cv-1000 (S.D. Ohio, December 15, 2009). In that case, Mr. Charvat brought a private action under the TCPA and state law after having received some 30 telemarketing calls (27 prerecorded, and three by live agents) attempting to sell Echostar's DISH Network brand satellite television programming, and after having made several requests to be placed on the Do Not Call list. The calls were placed by at least five different companies pursuant to Retailer Agreements with Echostar. Mr. Charvat sought damages from Echostar.

Echostar moved for summary judgment on the grounds that it did not initiate the calls, and that it is not liable for the actions of the Retailers that placed the calls because they were independent contractors. Mr. Charvat contended that Echostar is liable because the calls were made by authorized agents acting on its behalf.

Although the court agreed with Echostar, it noted that the label describing the relationship between Echostar and the telemarketers was not dispositive. Rather, the court ruled that liability turned on whether Echostar retained the right to control the manner or means by which the Retailers carried out their contractual duties. Here, the contracts provided that the details of when, how, and by whom the marketing and sales were to be performed were up to the Retailers, and that the Retailers could use any lawful means of advertising. Echostar did not supply or review the names or numbers of persons the Retailers contacted. The court found that Echostar therefore did not retain control over the marketing.

The court also ruled that contractual language requiring the Retailers to "comply with all federal, state, and local laws" and reserving to Echostar a right to discipline Retailers that fail to comply with law did not establish a "right of control." Said the court: "There is a significant difference between generally requiring the Retailers to comply with the law, and retaining the right to micro-manage the Retailers' marketing efforts to ensure such compliance."

Finally, the court distinguished the present action from a recent federal court decision in U.S. v. DISH Network, LLC, 2009 U.S. Dist. Lexis 102743 (C.D. Ill. 2009), which had denied a motion to dismiss a telemarketing enforcement case contending that the seller was not responsible for actions of the dealers. The court reasoned that the DISH Network case denied a motion to dismiss, in which the plaintiff's complaint averments must be taken as true, while the Echostar ruling was on summary judgment, where the evidence is considered and mere complaint allegations are not sufficient.

The takeaway is that sellers should carefully consider how much direction and control they wish to assert over the telemarketing firms that they hire to conduct marketing campaigns. It is the content of the contract, not the label, that will determine whether the telemarketing firm is regarded as an independent contractor. In closing, it should be noted that Mr. Charvat has noticed an appeal, so there may be more developments to come