Locke Lord QuickStudy: Ninth Circuit Again Rejects Vicarious Liability Theory Under the TCPA

The latest decision out of the Ninth Circuit regarding vicarious liability under the Telephone Consumer Protection Act (“TCPA”) has again gone in favor of defendants. See Kristensen v. Credit Payment Servs., No. 16-15823, 2018 WL 343758 (9th Cir. Jan. 10, 2018).

In Kristensen, Plaintiff received a text message containing a loan application link. The text was generated as part of a marketing campaign undertaken by three lenders. Each lender entered into an agreement with a marketing company that buys and sells consumer leads. That marketing company then entered into an agreement with a second marketing company that uses leads from publishers. Finally, that second marketing company entered into a contract with a referral company, which generates leads and received compensation if the lead resulted in a loan. The referral company purchased a list of consumer leads—including Kristensen’s contact information—and sent the marketing text message at issue.

The 9th Circuit upheld the district court’s decision that defendants were not vicariously liable for TCPA violations committed by the referral company. The Court stated that because the referral company “was neither the agent nor purported agent of four of the defendants, they [could] not have ratified [the referral company’s] acts.” Id. at *1. Further, with regard to the one marketing defendant that did have a principal-agent relationship with the referral company, the court found the defendant was “not bound by [the referral company’s] acts because it lacked knowledge that [the referral company] was violating the TCPA and did not have knowledge of facts that would have led a reasonable person to investigate further.” Id.

The only issue on appeal was whether the defendants ratified the conduct of the referral company. The court acknowledged that the FCC, relying on the Restatement (Third) of Agency, “has construed actions under the TCPA ‘to incorporate federal common law agency principals of vicarious liability.’” Id. at *2. The court then went on to explain that under the Restatement (Third) of Agency, an act can only be ratified “if the actor acted or purported to act as an agent on the person’s behalf.” Id. Because the referral company was not an agent or a purported agent of four of the defendants, the Ninth Circuit found that the district court did not err in finding those defendants could not be vicariously liable under a ratification theory for the conduct of the referral company.

As to the fifth defendant—the one with a principal-agent relationship with the referral company—the court explained that when a principal ratifies an agent’s act, the principal is not bound by the ratification if it is made without knowledge of material facts of the agent’s conduct unless the principal chooses to ratify with awareness that such knowledge is lacking. The court also explained that a principal assumes the risk of lack of knowledge if it has knowledge of facts that would lead a reasonable person to investigate further, but the principal ratifies without further investigation. Applying those principles, the court found that plaintiff presented no evidence that the second marketing company had knowledge that the referral company was sending text messages in violation of the TCPA. The court also declined to find that the second marketing company assumed the risk of lack of knowledge, because the evidence did not suggest that it had knowledge of facts that would have led a reasonable person to investigate further before ratifying the referral company’s actions. The court’s holding rejected the plaintiff’s theory that because the contract between the second marketing company and the referral company contemplated the referral company’s use of TCPA compliant text messages, the second marketing company had a duty to investigate whether the referral company was complying with the TCPA. The court stated that “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.” Id. at *3.

This decision is a significant victory for defendants looking to defend against vicarious liability under the TCPA and provides additional insight on the Ninth Circuit’s vicarious TCPA liability analysis that was set out in Jones v. Royal Admin. Servs. in the middle of last year.