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Emerging Guidance on TCPA Vicarious Liability

September 2014

The Federal Communications Commission (FCC) has been active in providing guidance to businesses regarding the scope of vicarious liability for telemarketing calls under the Telephone Consumer Protection Act (TCPA).  A federal district court in Illinois recently issued an opinion, seeSmith v. State Farm Mutual Automobile Insurance Company, No. 13-cv-2018 (N.D. Ill. Aug. 11, 2014), that illustrates one judicial response to the FCC's guidance in a case involving alleged violations of the TCPA.  In addition, the FCC recently signaled that additional guidance may be forthcoming that could expand the scope of vicarious liability for telemarketing calls under the TCPA.

FCC Guidance

The TCPA, which regulates aspects of telemarketing calls, text messaging, and junk fax advertisements, creates direct liability for any person who initiates an unlawful telemarketing call.  47 U.S.C. § 227.  In 2013, the FCC issued its Dish Network Order, which was affirmed earlier this year by the D.C. Circuit, concluding that the TCPA also allows sellers to be held vicariously liable for the conduct of their third-party agents making telemarketing calls.  See In re Joint Petition filed by Dish Network, LLC, 28 F.C.C.R. 6574 (2013); aff'd, Dish Network L.L.C. v. FCC, 552 Fed. App'x 1 (D.C. Cir. Jan. 22, 2014).  Although “a seller does not generally ‘initiate' calls made through a third-party telemarketer within the meaning of the TCPA, it nonetheless may be held vicariously liable under federal common law principles of agency for violations of either section 227(b) or section 227(c) that are committed by third-party telemarketers.”  Dish Network Order ¶ 1.

In the Dish Order, the FCC also offered “guidance” to courts on how to apply common law agency principles in cases brought under the TCPA involving telemarketing calls.  Although the FCC conceded that its “guidance” is not binding on courts or entitled to Chevron deference, Dish Network L.L.C., 552 Fed. App'x at *2, it nonetheless offered “illustrative examples of evidence that may demonstrate that [a] telemarketer is [a] seller's authorized representative with apparent authority to make the seller vicariously liable for the telemarketer's section 227(b) violations.”  Dish Network Order ¶¶ 46-47.

The FCC recently issued a public notice regarding the potential expansion of indirect liability for telemarketing calls under the TCPA.  See Public Notice, Consumer and Governmental Affairs Bureau Seeks Comment on Petition for Expedited Declaratory Ruling Filed by Vincent Lucas, CG Docket No. 02-278 (rel. July 9, 2014).  The FCC sought comment on whether it should “clarify that a person is vicariously or contributorily liable if that person provides substantial assistance or support to any seller or telemarketer when that person knows or consciously avoids knowing that the seller or telemarketer is engaged in any act or practice that violates the TCPA.”  Id. at 1.

The Smith Case

The Smith case concerned the very same vicarious liability issues that the FCC had addressed in the Dish Network Order.  In Smith, class action plaintiffs sued three insurance companies—State Farm, Nationwide, and Farmers—under the TCPA for telemarketing calls sent by a joint marketing firm.  The court dismissed the lawsuit against Nationwide and Farmers but allowed the suit against State Farm to proceed, because the court found the plaintiffs “had alleged sufficient facts to make it plausible that [the telemarketer] was acting as State Farm's subagent when it placed the allegedly unlawful calls.”  The court's decision provides helpful guidance to businesses that employ telemarketing in their marketing plans.

First, the district court found that the FCC's view that the TCPA permits vicarious liability “is correct.”  The court rejected Nationwide's argument that it should not follow the Dish Order because the TCPA does not allow for vicarious liability.  The district court agreed with the FCC's reading of the TCPA that Congress intended to permit vicarious liability when it enacted the TCPA.  Because Congress legislates against the background of ordinary tort-related vicarious liability rules, the absence of evidence that Congress intended to abrogate common-law agency principles was definitive in favor of vicarious liability under the TCPA.

Second, the court's dismissal of the lawsuit against Nationwide and Farmers—but not State Farm—provides some guidance regarding the scope of vicarious liability under the TCPA.  The court held that the plaintiffs had adequately pleaded a vicarious liability claim against State Farm because they alleged that:  (1) State Farm's local insurance agents acted as State Farm's legal agents with respect to telemarketing; (2) an agency relationship existed between State Farm's insurance agents and the marketing agent because the State Farm agents directed the marketing agent's telemarketing activities; and (3) State Farm's insurance agents had State Farm's actual or apparent authority to hire the marketing firm.

By contrast, the court held that the plaintiffs had not adequately pleaded a vicarious liability claim against Farmers or Nationwide.  Unlike their allegations against State Farm, the court found the plaintiffs had failed to allege sufficient facts that either Nationwide or Farmers authorized its insurance agents to hire the telemarking firm.  The court held that plaintiffs' naked allegation that the insurance agents were authorized to hire third parties to perform telemarketing was too conclusory because they pleaded no facts to support it.  Thus, the plaintiffs had failed to adequately plead the existence of an agency relationship between the marketing firm and the insurance companies.

Third, the court did not defer to or find persuasive the FCC's guidance examples regarding how to demonstrate a telemarketer is a “seller's authorized representative with apparent authority to make the seller vicariously liable.”  The Smith plaintiffs argued that Farmers and Nationwide should be held vicariously liable under the Dish Order examples on apparent authority.  However,  the court found that the FCC's guidance conflicted with the established common-law principle that a principal can be held liable for its alleged agent's actions under an apparent authority theory even though the agent lacked authority to take such actions only when a third party reasonably believed that the agent did, in fact, act within its authority.  Other courts also have refused to defer to the FCC's guidance.  See, e.g.,Avio, Inc. v. Alfoccino, Inc., 2:10-CV-10221, 2014 WL 1870108, at *12 (E.D. Mich. May 9, 2014) (rejecting plaintiff's reliance on the FCC's guidance in the Dish Network Order because they were “offered for guidance only” and “they have no binding effect on courts, and are not entitled to deference”).

As the Smith case illustrates, the TCPA creates significant risk for businesses that use third-party companies to make telemarketing calls.  Although the precise contours of vicarious liability under the TCPA are unclear, the Smith case offers some guidance about the scope of vicarious liability for businesses using third-party marketers.  The FCC's recent public notice indicates that the Commission may be poised to attempt to expand the scope of vicarious liability under the TCPA for telemarketing calls.  Businesses should closely monitor their marketing agents to ensure that they are in compliance with the TCPA.  Failure to do so could result in significant damages under the TCPA.

Wiley Rein LLP regularly represents businesses in TCPA-related litigation across the country and in regulatory proceedings before the FCC.