A recent FCC ruling has significant implications for any company using third-party telemarketers. The FCC declared that sellers may be held vicariously liable under agency theories for certain violations of the Telephone Consumer Protection Act (“TCPA”) that are committed by telemarketers used by the sellers. The ruling specifically applies to TCPA restrictions on initiating (a) calls to residential phone lines using prerecorded or artificial messages (Section 227(b)) and (b) telephone solicitations to such lines registered on the national Do-Not-Call List (Section 227(c)).
The Commission decision is the outgrowth of two separate Federal court referrals, under the doctrine of primary jurisdiction, arising from separate lawsuits – one by a consumer and the other by the United States - alleging violations of these TCPA provisions by third-party telemarketers seeking subscribers for satellite television services provided by the DISH Network. In furtherance of the referrals, the interested parties petitioned the FCC for declaratory rulings in February and March of 2011. The Commission ruling on May 10, 2013 acted on those petitions.
Rejecting certain arguments to the contrary, the FCC ruled that the language of the TCPA itself did not clearly answer the questions of whether and when the TCPA contemplates indirect liability by a seller for unlawful calls made by an independent telemarketer. Therefore, the Commission construed the relevant terms of the TCPA “in the course of [its] administration” of the statute as follows:
DIRECT RESPONSIBILITY FOR CALL INITIATION
The FCC held that the “initiation” of a call by a third-party telemarketer cannot generally be attributed to a seller whose products or services are being marketed on its behalf by that telemarketer.
person or entity ‘initiates’ a telephone call when it takes the steps necessary to physically place ...[the] call, and generally does not include …third-party retailers, that might merely have some role, however, minor, in the causal chain that results in the making of a…call.
The FCC noted there could be a circumstance where a seller “is so involved in the placing of a specific…call as to be directly liable for initiating it,” such as by “giving the third party specific and comprehensive instructions as to timing and the manner of the call….” However, the Commission noted that its current rules reflect a clear distinction between calls made by the seller and those made by a telemarketer, and concluded that a change to provide that a seller always initiates a call that is made by a third party on its behalf would require a rulemaking proceeding.
VICARIOUS LIABLITY FOR CERTAIN CALLS MADE BY THIRD-PARTY TELEMARKETERS
However, the FCC found that:
even when a seller does not ‘initiate’ a call under the TCPA,….it may be held vicariously liable for certain third-party telemarketing calls….under federal common law agency principles of agency for TCPA violations committed by third-party telemarketers.
These principles include “not only formal agency, but also principles of apparent authority and ratification.” Thus, for example, a seller may be deemed to have ratified a telemarketer’s conduct when it is “‘aware of ongoing conduct encompassing numerous acts by the [telemarketer]’” and the seller ‘fails to terminate’ or in some circumstances ‘promotes or celebrates’ the telemarketer.”
The Commission concluded that such vicarious liability concepts should apply in private rights of action under the TCPA for violations of (a) the “Do-Not-Call provisions of Section 227(c) and (b) other prohibitions (such as those relating to prerecorded calls) contained in the Section 227(b) of the statute.
Violations Of Do-Not-Call Provisions
Noting that the TCPA provides a private right of action “for do-not call violations ‘by or on behalf of ‘ a company,’” the Commission found that Section 227(c)(5) contemplates “at a minimum” the application of federal common law agency principles of vicarious seller liability for do-not-call violations. The FCC declined to expand “on-behalf of liability” beyond these principles - to any call “made simply to aid or benefit the seller” – because that would require a rulemaking. However, the Commission expressly “[left] open the possibility that [it] could interpret Section 227(c) to provide a broader standard of vicarious liability for do-not-call violations” – based on the “on-behalf-of” language in that Section.
Violations Of Section 227(b)
Despite the absence of the “on-behalf-of” language in the private right of action for violations of Section 227(b), the FCC concluded that “the prohibitions contained in Section 227(b) incorporate the federal common law of agency and that such vicarious liability principles reasonably advance the goals of the TCPA.” The Commission found this conclusion consistent with both judicial and administrative precedent, noting that the seller is in the “best position to monitor and police TCPA compliance by third-party telemarketers” and that “potential seller liability will give the seller appropriate incentives to ensure that their telemarketers comply with” the FCC’s rules. It emphasized that these principles go beyond “classical agency” to include “circumstances where a third party has apparent (if not actual) authority” or where the seller “ratifies… [the acts of another] by knowingly accepting” the benefits thereof.
GUIDANCE/ILLUSTRATIVE EXAMPLES FOR SELLERS
The FCC rejected concerns that the application of vicarious liability under federal common law agency principles would
- unacceptably heighten business risk for sellers,
- burden legitimate telemarketing activities,
- force sellers to pull out of the independent retailer channel in order to avoid liability,
- reduce incentive for third-party telemarketers to comply with the TCPA because liability could be shifted to the sellers, and
- extend seller liability to marketing by “big box stores and national dealers” that sell multiple manufacturers products.
The Commission advised that sellers can simultaneously employ third-party telemarketers and protect their commercial interests by
- “exercising reasonable diligence in selecting and monitoring reputable telemarketers,” and
- “including indemnification clauses in their contracts with those entities.”
Moreover, imposing vicarious liability on the seller will not absolve the telemarketers of joint liability. Also, to the extent that “big box stores or national dealers” are selling on their own account (having purchased goods from the manufacturer for resale), the manufacturer would not be the seller at all.
- Seller allows outside sales entity access to information and systems that normally would be within seller’s exclusive control (e.g., detailed information regarding nature and pricing of seller’s products and services or customer information).
- Ability of outside sales entity to enter consumer information into the seller’s sales or customer systems.
- Authority to use the seller’s trade name, trademark and service mark.
Finally, the Commission stated unequivocally that a seller:
would be responsible under the TCPA for the unauthorized conduct of a third-party telemarketer otherwise authorized to market on the seller’s behalf if the seller knew (or reasonably should have known) that the telemarketer was violating the TCPA on the seller’s behalf and the seller failed to take effective steps within its power to force the telemarketer to cease that conduct.
The potential ramifications of the FCC’s decision are far reaching. It thus is critical that any seller using third-party telemarketers promptly and carefully examine the terms and conditions of its agreements with such entities. But contract terms are not enough. In its decision the FCC allowed that in cases of apparent authority mere contractual terms forbidding unlawful conduct would not necessarily be sufficient to insulate the seller from vicarious liability. Therefore it is imperative that sellers also consider the nature and extent of their programs for monitoring and fully understanding the actual conduct of their third-party telemarketers.
Patton Boggs has extensive experience in advising clients on compliance with the TCPA and has successfully represented a number of clients before the FCC in connection with TCPA requirements and clarifications, as well as enforcement. The firm is uniquely suited to assist clients with any such review or respond to any questions concerning the implications of the FCC’s decision, as well as compliance with the similar-focused Telemarketing Sales Rule, enforced by the Federal Trade Commission. Please contact any member of the Patton Boggs team to discuss.