The Ninth Circuit Court of Appeals tackled an important TCPA question: if companies benefit from a sales or marketing lead secured by violating the TCPA, can the consumer hold the seller liable for the TCPA violation? Not in this case, where the Ninth Circuit held that the TCPA violation was so far removed from the companies’ knowledge. But a word of caution: we don’t believe all courts would reach this same, sensible result. The cause of causes is infinite, as they say, and courts differ on where they draw the line in vicarious liability cases.
Every business is looking for good, qualified leads, but we don’t all rely on developing those leads internally. Enter the lead-generation industry, which identifies (or creates) consumers’ interest in a given product or service. The lead-gen company then markets or sells their marketing data—or the consumers themselves—to companies that might benefit from those leads.
The chain of actors in these lead-gen cases can get long, forked, and opaque, so I won’t bog you down with every name in this garden of forking paths.
Take it as true that the relevant actors played the following parts:
- Several payday lenders each hired a marketing company, LeadPile, to find leads for their lending services;
- LeadPile hired Click Media, a company that picks up leads from thousands of “publishers,” who are also out hunting for leads;
- One of the publishers—called AC Referral—bought a list of consumer phone numbers and, the TCPA notwithstanding, texted them an offer to click on a link to apply for a $5,000 loan;
- The link in AC Referral’s SMS took you to a ClickMedia pre-application, if you will, which, if completed properly, redirected the consumer to one of the payday lenders’ sites above.
- (The money goes like this: if the lender issues a loan from that lead, they pay Click Media, which, in turn, pays the publisher for its part.)
AC Referral—the company that indisputably violated the TCPA—either settled early, or was judgment-proof, because it wasn’t named as a defendant in the class action that quickly followed the sending of these non-compliant text messages.
Instead, the plaintiff sued the payday lenders and marketing companies, LeadPile and Click Media. He claimed that each of them were vicariously liable for AC Referral’s TCPA violations. They got fat on the fruit of the poisonous tree, so it’s only fair to hold them liable, the plaintiff argued.
The trial court disagreed, and, on January 10, 2018, so did the Ninth Circuit. The Ninth Circuit followed the FCC’s ruling that the Restatement (Third) of Agency provides the applicable legal framework for deciding questions of vicarious liability under the TCPA.
The key question was whether the defendants ratified AC Referral’s actions in violating the TCPA. Ratification is “the affirmance of a prior act done by another, whereby the act is given effect as if done by an agent acting with actual authority.” But you cannot ratify the action of someone who “is not an agent and does not purport to be one.” And even if you do ratify an agent’s acts, you are not liable if you are “without knowledge of material facts about the agent’s act” or, even if you did have that knowledge, if you did not have “knowledge of facts that would have led a reasonable person to investigate further.” In the end, we are back to tort law’s centuries-old reasonable-person standard.
Here, it was undisputed that the lenders and LeadPile were not even aware of AC Referral’s existence, and vice versa. Since AC Referral did not claim to be any of those companies’ agents, and those companies had no reason to think AC Referral violated the TCPA in their name, the Ninth Circuit affirmed that defendants were properly awarded summary judgment.
And even though Click Media did have a direct contractual relationship with AC Referral, Click Media was also entitled to summary judgment because there was no evidence that Click Media knew—or had reason to investigate whether—AC Referral was violating the TCPA. The plaintiff pointed to Click Media’s contract with AC Referral, which acknowledged AC Referral’s ability to use SMS marketing, but the Ninth Circuit rejected the notion that that clause created some duty-to-enforce on Click Media: the “knowledge that an agent is engaged in an otherwise commonplace marketing activity is not the sort of red flag that would lead a reasonable person to investigate whether the agent was engaging in unlawful activities.”
One of the most important TCPA developments in 2017 was the nearly $300,000,000 of penalties and damages awarded against Dish Network for the actions of its marketing agents in violating the TCPA. While it’s too early to say how 2018 will shake out for conscientious, compliant businesses that want to engage their customers with modern communications technology but without exposing themselves to bet-the-company TCPA litigation by professional plaintiffs (and yacht-chasing plaintiffs’ attorneys), this opinion from the Ninth Circuit is a welcome tailwind to start the new year.