Companies that hire vendors to place automated calls to cell phones may find themselves at greater risk for Telephone Consumer Protection Act troubles following a decision from the Ninth Circuit Court of Appeals in Thomas v. Taco Bell Corp. The recent decision follows a May 2013 ruling from the Federal Communications Commission in In re Dish Network, LLC, that applied an expanded view of liability for a vendor’s conduct (also known as “vicarious liability”).

Widening the TCPA Trap for Vendor Conduct

What the FCC said in In re Dish Network, LLC  is that TCPA liability is not limited to the “classical” theory of a company’s responsibility for its vendor’s wrongdoing, the theory being that a company is liable if it controlled or had the right to control its vendor’s conduct. In the TCPA context, that could mean that the company controlled the manner and means by which its vendor made automated calls or text messages to cell phones. The FCC ruled that in addition, liability should also attach for a vendor’s TCPA bungles under the theories of apparent authority and ratification.

Apparent Authority

Apparent authority differs from the classical approach because it does not focus on control over the vendor’s conduct. Instead, liability for vendor conduct can arise when a person believes a vendor is acting as another’s agent, the belief is reasonable and the company that hired the vendor did something to foster the belief that the vendor was acting as its agent. Under this theory, even if the vendor is not an agent, liability can be established.

Ratification

Ratification does require the vendor to be an agent. But it does not require a showing of control over the vendor’s conduct. Instead, the FCC adopted the position that liability can exist under the TCPA by engaging a vendor to make communications to cell phones and “knowingly accepting their benefits.”

Nachos, Texts and the TCPA

Which brings us back to the Ninth Circuit decision.

In 2005, Taco Bell Corporation was a member of the Chicago Area Taco Bell Local Owners Advertising Association. The association decided to run a promotion featuring its Nachos BellGrande. The Nachos BellGrande is a platter of tortilla chips, covered with cheese, beef, diced tomatoes and (in case you’re counting calories at this point) low-fat sour cream. The association assigned the promotion to its advertising agency who in turn hired its own vendor to assist in preparing and sending text messages to cell phones as part of the campaign.

Tracie Thomas received one of these text messages. Thomas perhaps was not impressed by the offer of Nachos BellGrande because it prompted her, four years later, to file a putative class action against Taco Bell alleging the text message violated the TCPA.

The trial court granted judgment for Taco Bell, finding that the association, the agency and the agency’s vendor were not acting as agents of Taco Bell. Even if they were, under the “classical” theory of vicarious liability,  Taco Bell did not exercise control over the manner and means by which the text message campaign was conducted by the association, its advertising agency or the advertising agency’s vendor. Thomas appealed. While the appeal was pending the FCC issued its declaratory ruling in In re Dish Network, LLC.

Potential Expansion of Vicarious Liability

The Ninth Circuit Court of Appeals affirmed the trial court judgment in favor of Taco Bell. But, it also added some troubling dicta. Addressing the FCC’s ruling in In re Dish Network, LLC, the appeals court considered Thomas’ claim “on the assumption” that ratification and apparent authority “may provide a basis for vicarious liability” under the TCPA.

Fortunately for Taco Bell, the appeals court found no evidence to sustain either of the expanded theories of vicarious liability. Apparent authority failed because there there was no evidence Thomas reasonably relied on anything Taco Bell to lead her to believe that the association, its ad agency or the ad agency’s vendor were its authorized agents.

And Taco Bell could not be liable under ratification. Liability under ratification attaches only where the act was performed by an agent, and neither the association, the ad agency nor the ad agency’s vendor were Taco Bell’s agents. Since the trial court’s opinion did not address either concept and the Ninth Circuit’s opinion states it is “Not for Publication,” it is probably not precedential.  But even if it is not binding, it does suggest that at least this panel of judges is not adverse to these expanded concepts of liability.

This is not the first court to enter this new territory. Last fall we identified a trial court decision from the Northern District of Illinois that also adopted ratification and apparent authority liability under the TCPA.

Potential Fallout

In all three scenarios of vicarious liability, vendor management best practices should help reduce TCPA risks. Much has changed in cell phone communications since Thomas received her text message in 2005.  But it was not vendor management that saved Taco Bell from the expanded theories of liability. It was the unique relationship Taco Bell had with the other parties who carried out the promotion. Taco Bell was simply a member of an association that decided to market products using text messaging.  Had Taco Bell hired the ad agency here, the outcome could have been very different.

These same reasons suggest that the Ninth Circuit decision will likely be viewed by some as fertile ground to grow more TCPA litigation.

This post originally appeared on the Consumer Financial Services Blog, run by ARM defense firm Maurice & Needleman.