FCC Ruling: Companies Can Be Held Vicariously Liable Under the TCPA for Actions Taken by Third-Party Vendors
The law is clear that if a company makes a call for telemarketing or solicitation purposes, it can be subject to the Telephone Consumer Protection Act (TCPA). An open question has been whether that same company, which hires an outside third-party vendor to make these calls on the company’s behalf, has responsibility for the vendor’s compliance with the TCPA. The Federal Communications Commission (FCC) in a May 9, 2013 declaratory ruling on the petitions in the Charvat v. Echostar and United States v. Dish Network matters (FCC-13-54A1 (Dec. Ruling)), held that the ordinary principles of agency set forth in the “federal common law” apply to alleged violations of both 47 U.S.C. § 227(b) and§ 227(c).
Under this declaratory ruling, a company can be held liable for the acts of its “agent,” with agency established by ordinary agency principles. The ruling, however, also states that a company can avoid TCPA liability for its “agent” by adequately supervising and controlling the conduct of the vendor – in other words, by exercising control over the vendor which, under normal agency law, would be prime evidence that an agency relationship exists in the first place. The ruling creates a potentially difficult choice for a company: trying to avoid exercising control over a vendor to avoid triggering agency liability, or accepting agency liability and undertaking the duty to fully police the conduct of the vendor. The FCC ruling, if adopted by courts, therefore, holds out the threat of massive liability based on a facts-and-circumstances test under federal common law, while holding out the carrot of a defense if a company accepts responsibility for the vendor’s conduct and takes reasonable steps to ensure compliance with the TCPA.
Background
In Charvat v. Echostar Satellite LLC, 676 F. Supp. 2d 668 (S.D. Ohio 2009), the plaintiff asserted that telemarketers for Echostar had made numerous calls in violation of the TCPA. Echostar moved for summary judgment, arguing that if the TCPA violations occurred, they were committed by independent contractors of Echostar and, therefore, Echostar could not be held liable. The district court granted the motion holding that under Ohio law, the telemarketers were not Echostar’s agents because Echostar did not have the right to control the manner and means by which the telemarketers conducted their business.
On appeal, the Sixth Circuit found that the question of what standard to apply to determine when a person may be held vicariously liable for a violation of the TCPA “implicate[s] the FCC’s statutory authority to interpret the Act.” Charvat v. Echostar Satellite LLC, 630 F.3d 459, 465-66, 468 (6th Cir. 2010). The Sixth Circuit then referred the matter to the FCC.
Meanwhile, the FTC and attorneys general of several states sued Dish Network in federal court in Illinois for alleged violations of the TCPA. See United States v. Dish Network LLC, 667 F. Supp. 2d 952, 956 (C.D. Ill. 2009). Again, the issue of vicarious liability was squarely presented. Dish itself had not made the calls at issue. The calls had been made by Dish dealers and telemarketers hired by those dealers. The court denied Dish’s motion to dismiss, holding that the meaning of the phrases “on whose behalf” and “on behalf of” used in the TCPA suggested that “an act by a representative of, or an act for the benefit of, another” might not require establishing an actual agency relationship. Following the lead of the Sixth Circuit in Charvat, the district court stayed further proceedings and directed the parties to seek an interpretation from the FCC.
Issues Before the FCC
The questions presented to the FCC by the Sixth Circuit and the Central District of Illinois were:
(1) Under the TCPA, does a call placed by an entity that markets the seller’s good or services qualify as a call made on behalf of, and initiated by, the seller, even if the seller does not make the telephone call (i.e., physically place the call)?; and
(2) What should determine whether a telemarketing call is made “on behalf of” a seller, thus triggering liability for the seller under the TCPA? Should federal common law agency principles apply? What, if any, other principles could be used to define “on behalf of” liability for a seller under the TCPA?
Decision
In short, the FCC found that a company “may be held vicariously liable under federal common law principles of agency for TCPA violations committed by third-party telemarketers.” The FCC went further, though, and stated that this vicarious liability may be determined “under a broad range of agency principles, including not only formal agency, but also principles of apparent authority and ratification.”
The FCC offered some “illustrative examples” as guidance to when a company might be held liable for a telemarketer’s or call center’s violation of the TCPA. It provided, for example, that “apparent authority may be supported by evidence that the seller allows the outside sales entity access to information and systems that normally would be within the seller’s exclusive control, including: access to detailed information regarding the nature and pricing of the seller’s products and services or to the seller’s customer information. The ability by the outside sales entity to enter consumer information into the seller’s sales or customer systems, as well as the authority to use the seller’s trade name, trademark and service mark may also be relevant.”
The FCC’s analysis, therefore, purports to be relying on normal agency law principles. In the ruling, however, the FCC also stated that knowledge by the defendant of a violation of the TCPA, and the defendant’s “fail[ure] to take effective steps within its power to force the [vendor] to cease that conduct”, were relevant to the question of whether the defendant could be held liable for a violation committed by another person.
Practical Implications
The effect of the FCC’s ruling is to create strong incentives for companies to police their vendors. If they do not do so, they might be held liable under the TCPA under vague principles of “federal common law.” But if the company accepts the responsibility and exercises reasonable efforts to “take effect steps … to cease that conduct”, the company might have a valid defense. Under the FCC’s ruling, the only paths to safety are: (a) being absolutely clean of any facts that might show an agency relationship, or (b) successfully policing the vendor. This poses a tough decision for companies to make, especially given the lack of comprehensive and definitive guidance on how to successfully navigate either path as well as the potentially huge exposure under the TCPA (up to $1,500 a call).
This decision represents a further wake-up call, if any is needed, that companies involved in potential activities governed by the TCPA need to assess TCPA compliance and risks and take appropriate action to enhance the former and mitigate the latter.
Troutman Sanders’ Financial Services Litigation Practice
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