Takeaway: Decisions addressing a seller’s exposure to vicarious liability for calls placed by a third-party telemarketer in violation of the Telephone Consumer Protection Act (“TCPA”) offer little predictability or guidance. In Jones v. Royal Admin. Servs., Inc., No. 15-17328, 2017 WL 3401317 (9th Cir. Aug. 9, 2017), the Ninth Circuit affirmed the district court’s grant of summary judgment and dismissed putative class claims against Royal Administrative Services, Inc. (“Royal”), finding that the All American Auto Protection (“AAAP”) telemarketers who made the calls were not agents of Royal. The ruling should provide some comfort to sellers that, so long as they do not overlook repeated TCPA violations or control the timing or volume of the calls, sellers can exercise control over the content of a telemarketer’s advertising without exposing themselves to TCPA liability.
Royal provides and administers vehicle service contracts (“VSCs”), car warranties that promise coverage for certain types of repairs and service. 2017 WL 3401317, at *1. Royal supplies its warranties to car dealers and direct-to-consumer marketing companies, who then market and sell the warranties to consumers. In 2001, Royal entered into an agreement with AAAP, a direct marketing firm that marketed VSCs to consumers for numerous VSC providers and administrators. The agreement provided guidelines governing the message AAAP could use to promote Royal’s VSCs and prohibited AAAP from engaging in “any act or omission that violates applicable state or Federal law, including but not limited to ‘robo-calling.’”
The named plaintiffs received calls from AAAP on their cell-phones that were allegedly made in violation of the TCPA. After the district court entered default judgment against AAAP, the plaintiffs added Royal as a defendant, alleging that AAAP’s telemarketers acted as an agent of Royal, and that Royal should be held vicariously liable for their TCPA violations.
In evaluating Royal’s liability, the Ninth Circuit applied standard agency principles, explaining that “the extent of control exercised by the principal” over the agent is the “essential ingredient” in determining whether the third-party telemarketer was an agent or independent contractor. 2017 WL 3401317, at *4. Applying the ten-factor agency test articulated by the Restatement (Second) of Agency § 220(2) (1958), the Court recognized that Royal exercised control over AAAP in numerous ways. Royal provided AAAP with scripts for the calls, trained AAAP’s telemarketers on how to sell Royal VSCs, required AAAP to keep records of its calls, and mandated that AAAP send weekly sales reports. Royal also required AAAP to take steps to protect consumer information and imposed strict guidelines on how AAAP collected payments for Royal. Id. Indeed, Royal’s president had visited AAAP’s call-center more than a dozen times in the previous three years. And AAAP performed a critical role in Royal’s business. Although Royal was in the business of selling VSCs, it relied entirely on third-party sellers like AAAP to sell its product to consumers. Id. at *6.
But the Ninth Circuit held that Royal did not exercise sufficient control to establish vicarious liability under the TCPA. Royal did not control the timing or volume of the calls. 2017 WL 3401317, at *4. AAAP picked the customers to call, determined when the calls would be made, used its own equipment, and received purely commission-based compensation. And Royal was not AAAP’s only VSC client. When calling a consumer, AAAP’s telemarketers would first sell the consumer on buying a VSC in general and then pitch a VSC of a specific company (like Royal). And there was no evidence that AAAP attempted to sell a Royal VSC to any of the named plaintiffs. Id. at *5.
The court also noted that Royal’s standards and procedures prohibited robo-calling. Unlike recent cases imposing vicarious liability, there was no evidence that Royal had overlooked repeated TCPA violations by AAAP. To the contrary, Royal had previously suspended its relationship with AAAP based on violations of Royal’s standards and procedures. 2017 WL 3401317, at *4. Although the court recognized that Royal exercised “some control over AAAP’s telemarketers,” the court concluded that AAAP’s telemarketers were independent contractors, and found no evidence that Royal exercised control over the calls at issue (because the telemarketers did not try to sell a Royal VSC). Id. at *6. The court therefore found that Royal could not be held vicariously liable for AAAP’s TCPA violations.
The TCPA’s draconian penalties, combined with courts’ unpredictable application of the fact-specific vicarious liability doctrine, put sellers in a difficult position. A seller should be able to exercise control over a third-party’s use of its trade name without risking liability for violations of the TCPA. In Jones, the Ninth Circuit sensibly distinguished between a seller’s control over the content of telemarketer’s advertising on the one hand, and control over the timing and form of the advertising on the other. The holding in Jones suggests that, even if sellers provide telemarketers with scripts and other sales materials and guidelines, sellers may be able to avoid vicarious liability by (1) contractually prohibiting TCPA violations, (2) investigating suspected violations, and (3) taking action to enforce future TCPA compliance.