Lead Generators and TCPA Vicarious Liability Standard

By Ari N. RothmanAugust 28, 2014

Advertisers often hire lead generators to send advertising text messages to consumers without controlling, or even knowing, how the lead generators actually conduct the text message campaigns.  Although advertisers often believe that the lead generator is solely responsible for legal violations flowing from the text message campaign, both the advertiser and lead generator may still find themselves defending Telephone Consumer Protection Act lawsuits. 

Case in point, the Ninth Circuit Court of Appeals recently held that Taco Bell was not vicariously liable under the Telephone Consumer Protection Act, 47 U.S.C. §227 (“TCPA”) for a text message sent by a third party marketer.  This decision is important because it shows that companies cannot be held liable under the TCPA where they do not exercise control over the “manner and means” of the text message campaign.  The ruling, however, is narrow and leaves plenty of room to find parties liable for TCPA violations even if such parties did not actually send the offending text message.

In Thomas v. Taco Bell Corp., No. 12-56458, 2014 WL 1959160 (9th Cir. July 2, 2014), the Chicago Area Taco Bell Local Owners Advertising Association, an association of which Taco Bell Corp. was a member, together with its advertising agency, ESW Partners, LLC, sponsored a local sweepstakes promotion for Nachos Bell Grande.  As part of that promotional campaign, ESW hired ipsh!net, Inc. to administer and send out a text message promoting the product.  The plaintiff alleged that she received one of these text messages.  Although Taco Bell did not send the text message, the plaintiff sought to hold Taco Bell vicariously liable for the alleged TCPA violation. 

The district court granted Taco Bell’s motion for summary judgment, holding that it could not be held vicariously liable for the text messages absent proof of an agency relationship between Taco Bell and its purported agents—the association, ESW, and Ipsh.  Further, the evidence showed that the agents, not Taco Bell, exercised control over the “manner and means” of the text message campaign.  Therefore, the district court granted Taco Bell’s motion and dismissed the complaint. 

The Ninth Circuit agreed with Taco Bell.  It held that the district judge properly analyzed the evidence before the court under the vicarious liability standard and principles of classical agency.  However, recognizing that a recent FCC ruling suggests that parties may be held vicariously liable not only under principles of classical agency, but also under the theories of apparent authority and ratification, the Ninth Circuit went on to address these other theories of vicarious liability.  But the Ninth Circuit held that Taco Bell could not be held liable on theories of apparent authority or ratification either.  First, the plaintiff had not shown that she reasonably relied, much less to her detriment, on anything Taco Bell did to vest its purported agents with apparent authority.  Second, ratification required proof of an agency relationship which the district court properly found did not exist.

The Ninth Circuit’s decision comes nearly a year after the FCC issued its May 2013 declaratory ruling suggesting that parties may be held vicariously liable for TCPA violations, and provides some much needed guidance regarding—and perhaps a limitation on—the application of agency principles in TCPA cases.  The Ninth Circuit’s narrow construction of apparent authority and ratification may deter some plaintiffs who, in an effort to draw into the litigation parties with deep pockets, seek to name as defendants companies with any conceivable, even if remote, connection to the allegedly offending messages, but who have no involvement in the manner and means in which the advertising campaign is conducted. 

However, whether an agency relationship exists is often a question of fact.  And, TCPA cases are likely to continue to raise claims of vicarious liability.  Therefore, lead sellers and buyers should continue to take caution and employ best practices to ensure that all partners within the marketing chain take steps to comply with the TCPA.  Marketers who know, or reasonably should have known, that vendors are engaged in conduct that violates the TCPA, and who fail to take steps to stop the vendor’s conduct, may still be liable under vicarious liability principles.

 

Ari N. Rothman is a partner in the Washington, DC and Los Angeles, CA offices of Venable LLP.  He practice focuses on all legal facets of Internet and mobile marketing, telemarketing, and direct response marketing.  Ari has extensive experience defending class actions brought under consumer fraud statutes, the federal Telephone Consumer Protection Act, and other laws. He also represents clients in lawsuits and disputes involving the Federal Trade Commission, state anti-spam statutes such as California Business & Professions Code Section 17529.5, laws regulating unfair competition, trade secret, trademark and copyright infringement, and business disputes.

Molly Cusson is an associate in the Washington, DC office of Venable LLP.  She focuses her practice on complex commercial litigation matters, including defending class actions brought under consumer fraud statutes, the federal Telephone Consumer Protection Act, and other laws.

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