The U.S. Court of Appeals for the Ninth Circuit issued a decision in Gomez v. Campbell-Ewald Company holding that the defendant marketing consultant could be liable under the Telephone Consumer Protection Act (TCPA) for unsolicited text messages that it arranged for a separate third-party to send on behalf of a client, the U.S. Navy.  The court’s holding clarifies that companies can be vicariously liable for TCPA violations if a called-party plaintiff establishes an agency relationship under federal common law between the defendant and a third-party caller, even if the content of the call was not on the defendant’s behalf and the defendant did not physically place the call.  The decision extends last year’s Federal Communications Commission (FCC) Dish Network declaratory ruling on violations of the TCPA and FCC rule provisions governing telemarketing and autodialing by third parties that a company authorizes to sell its goods/services, but does not directly ask or otherwise engage to telemarket.

The TCPA and regulations implementing it govern telemarketing and do-not-call issues, as well as automated calls to cell phones and prerecorded calls to residential lines and cells.  Under the TCPA, those who receive calls in violation of the statute or rules enjoy a private cause of action and may collect up to $500 in statutory damages per call, which can be tripled for willful violations.  Class action TCPA litigation has been on the rise for the last several years, with cases settling for upwards of tens of millions of dollars.

In Gomez v. Campbell-Ewald, the plaintiff brought a putative class action after receiving allegedly automated unsolicited text messages (which fall within the TCPA’s autodialing restrictions) from the Navy.  Campbell-Ewald, a marketing consultant the Navy hired to develop and execute a multimedia recruiting campaign, drafted the content of the text message and outsourced its transmission to Mindmatics, which in turn was also responsible for generating phone numbers fitting a target demographic and sending the texts.  Campbell–Ewald argued it could not be held liable for any TCPA violations because it outsourced the dialing and did not itself actually make any calls or send any texts for the Navy.

The Ninth Circuit rejected that argument.  It has long been clear that, when a seller of goods or services or other entity hires a third-party to place calls (or send texts) on the seller’s or entity’s behalf, and the call (or text) violates the TCPA or FCC rules, both the seller/entity and the third-party may be liable.  The FCC’s Dish Network ruling, issued on referral from the U.S. Court of Appeals for the Sixth Circuit, clarified the possibility for such liability where a seller or entity authorizes third-parties to sell its good or services, or to disseminate its message, but does not directly ask or otherwise engage the third-party to place autodialed and/or telemarketing calls.  The FCC held that if the third-party nonetheless places such calls and violates the TCPA or its implementing rules, the seller (or other entity) is not directly liable – but it may be vicariously liable under agency principles, including not only formal agency, but also apparent authority and ratification.

Such vicarious liability attaches if there is awareness of ongoing noncompliance by the third-party and the third-party is not terminated, and/or its conduct is promoted or “celebrated” by the seller or other entity.  Factors for when such liability attaches may include giving the third-party access to data from or to enter information into systems normally under the seller’s exclusive control, whether the third-party is authorized to use the seller’s trade name, trademark, etc., and whether the seller or other entity approved, wrote or reviewed scripts for the third-party calls.  Vicarious liability also can arise if the seller or other entity knows (or reasonably should know) the third party is violating the TCPA and/or FCC rules and fails to take effective steps within its power to halt that conduct.

Campbell-Ewald did not fit neatly into this FCC construct.  The content of the text messages in question was for the Navy’s benefit, and only Mindmatics selected the cell numbers to be texted and transmitted the messages.  Nevertheless, the Ninth Circuit held, the FCC has never stated that vicarious liability is only applicable to sellers or the entity identified in the content of the message, and further, such a construction contradicts ordinary rules of vicarious liability that require courts to consider the interaction between parties rather than their respective identities.  The court found no reason why a third-party marketing consultant should not be subject to that same liability, especially insofar as consultants are hired in part due to expertise in marketing norms.  In the court’s view:  “It makes little sense to hold the merchant vicariously liable for a campaign he entrusts to an advertising professional, unless that professional is equally accountable for any resulting TCPA violation.”

The Ninth Circuit’s decision thus makes clear that, so long as the requirements for vicarious liability as outlined by the FCC and in common law are met, all parties who play a role in the transmission of calls or messages that violate the TCPA may be liable to the called party.  If there was ever any doubt that would have insulated such middlemen like Campbell-Ewald, the court has removed that fig leaf.