9th Circuit Affirms Vicarious Liability–for Anybody–Under TCPA
In a blow to Telephone Consumer Protection Act defendants, the Ninth U.S. Circuit Court of Appeals has ruled that a defendant may be liable for violations of the statute made by a third party – even where the violator was not the advertiser of the product.
The United States Navy hired marketing consultant Campbell-Ewald Company to develop and execute a recruiting campaign targeting young adults aged 18 to 24, including text messages sent only to cellular users who had consented to solicitation.
Campbell-Ewald outsourced the texting responsibility, making the other company responsible for both generating the list of phone numbers to be dialed and for transmitting the text messages.
On May 11, 2006, 40-year-old Jose Gomez received a text stating: “Destined for something big? Do it in the Navy. Get a career. An education. And a chance to serve a greater cause. For a FREE Navy video call [number].” Gomez filed a putative class action against Campbell-Ewald for allegedly violating the TCPA.
The marketing company argued that it could not be liable under the statute because it outsourced the dialing and did not actually make any calls on behalf of its client. But a federal appellate panel, noting that the statute itself is silent as to vicarious liability, determined that liability may be found for another’s TCPA violations where an agency relationship, as defined by federal common law, is established between the defendant and a third-party caller.
This interpretation is consistent not only with the Federal Communications Commission’s take on this issue, but with public policy, the court said. It remained unswayed by Campbell-Ewald’s contention that vicarious liability extends only to the merchant whose goods or services are being promoted by the telemarketing campaign.
“[A]lthough the FCC’s 2013 ruling may emphasize vicarious liability on the part of merchants, the FCC has never stated that vicarious liability is only applicable to these entities,” the three-judge panel wrote. “Indeed, such a construction would contradict ‘ordinary’ rules of vicarious liability, which require courts to consider the interaction between the parties rather than their respective identities.”
“Given Campbell-Ewald’s concession that a merchant can be held liable for outsourced telemarketing, it is unclear why a third-party marketing consultant shouldn’t be subject to that same liability,” the court said. “As a matter of policy it seems more important to subject the consultant to the consequences of TCPA infraction. After all, a merchant presumably hires a consultant in part due to its expertise in marketing norms. 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 court added that prior rulings from the 9th Circuit “implicitly acknowledged” the existence of vicarious liability under the TCPA and further added that the “present case affords the opportunity to clarify that a defendant may be held vicariously liable for TCPA violations where the plaintiff establishes an agency relationship, as defined by federal common law, between the defendant and a third-party caller.”
The panel also rejected the defense’s constitutional challenge, its reliance upon the derivative immunity doctrine as a contractor of the Navy, and its position that the case was moot based on its settlement offer. (The defendant offered Gomez $1,503 per violation, plus reasonable costs. Gomez allowed the offer to lapse and Campbell-Ewald moved to dismiss the case as moot, a move the court called “mistaken.” The unaccepted offer alone was insufficient to moot Gomez’s claim, the panel wrote, and the suit was still a live controversy.)
To read the opinion in Gomez v. Campbell-Ewald Co., click here.
Why it matters: Courts across the country have struggled with the intersection of the TCPA and vicarious liability. The 9th Circuit’s decision is bad news for defendants, particularly as the court had issued an unpublished decision earlier this year refusing to hold Taco Bell vicariously liable in a TCPA suit. At least in the 9th Circuit, the fight now shifts to whether the plaintiff can establish an agency relationship as defined by federal common law between the defendant and a third-party caller.
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Lakers Put Full-Court Press on Insurer for TCPA Defense
The Los Angeles Lakers are ready to play hardball.
The team filed suit against Federal Insurance Company after the insurer refused to provide defense coverage when the Lakers were hit with a Telephone Consumer Protection Act lawsuit last year.
Alleging Federal breached the terms of its contract and engaged in bad faith, the Lakers’ state court complaint seeks to recover all attorneys’ fees and expenses incurred, plus interest, as well as punitive damages.
Tipoff for the dispute occurred when David M. Emanuel filed a putative class action suit against the Lakers in November 2012. Emanuel claimed that he received multiple text messages from the team in violation of the TCPA. Importantly, Emanuel sought statutory damages under the Act and did not assert any claims or seek damages for personal injury, such as invasion of privacy.
The Lakers tendered the dispute to Federal pursuant to a $5 million coverage policy. The insurer responded with a letter denying coverage for the Emanuel lawsuit on the grounds that the policy contained an exclusion for invasion of privacy. Despite multiple attempts by the Lakers to change the insurer’s mind, Federal continued to reaffirm the coverage denial for the same reason.
In the interim, the Emanuel suit was tossed by a federal court in California with prejudice. When the plaintiff appealed to the Ninth U.S. Circuit Court of Appeals, the parties settled. Throughout the litigation, the Lakers paid their own defense fees and costs as well as the settlement amount.
Fed up, the Lakers filed suit. Unlike other policies, Federal’s policy did not contain an exclusion for TCPA claims, the team noted. And while the policy did feature an exclusion for invasion of privacy, the Lakers said it was inapplicable to the underlying litigation.
“The crux of the allegations in the Emanuel lawsuit focused upon the economic damages from the annoyance and nuisance of incurring cellular telephone charges or consumer cellular telephone time,” the team alleged in its complaint. The TCPA reflects not only “a concern over intrusions into privacy, but also the separate recognition of, and protection against, the economic impact associated with the receipt of unauthorized communications.”
Therefore, by refusing to provide defense coverage to the Lakers, Federal breached the terms of the policy, the team said. “Federal had a duty to conduct a thorough investigation of [the Lakers’] claim for coverage and seek facts that would support [the Lakers’] claim.”
Further, Federal’s repeated “shuffling” of inquiries from the Lakers among multiple claims handlers and disregard for information provided by the team amounted to “despicable” conduct, according to the complaint. Federal “engaged in a series of acts designed to deny the benefits due under the policy,” and the insurer’s actions were “done with a conscious disregard of [the Lakers’] rights, continuing oppression, fraud, and/or malice.”
Based on such conduct, the Lakers requested punitive damages in addition to the damages the team incurred from the Emanuel litigation as well as the costs of the current action against Federal.
To read the complaint in Los Angeles Lakers v. Federal Insurance Co., click here.
Why it matters: As TCPA cases continue to proliferate, companies often find themselves facing a two-pronged battle against not only the plaintiff but also an insurer refusing to chip in for a defense. While policies increasingly feature an exclusion for TCPA litigation (an option that Federal declined to exercise, the Lakers’ complaint notes), Federal opted to rely upon the invasion of privacy exclusion in the Lakers’ policy.
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Court Tosses TCPA Settlement Based on Insurance Proceeds
An $8.7 million Telephone Consumer Protection Act settlement based on insurance proceeds has been rejected by a Florida federal court judge.
The putative class action lawsuit was filed by Physicians Healthsource against Doctor Diabetic Supply LLC, alleging that the defendant sent 17,440 faxed advertisements that did not contain a clear and conspicuous notice in violation of the TCPA.
DDS’s insurers – Federal Insurance Co., Essex Insurance Co., and Endurance American Specialty Insurance Co. – all refused to defend the litigation. Because DDS said a verdict based on the number of faxes sent would send the company into bankruptcy, the parties reached a settlement deal based on DDS’s insurance proceeds.
Under the terms of the deal, the court would enter judgment in favor of the settlement class in the total amount of $8.72 million (or $500 for each of the alleged 17,440 faxes). DDS agreed to pay the cost of settlement notice up to $10,000. The class would execute a covenant not to seek any other recovery from DDS but to collect the remainder of the judgment from the insurers for the settlement amount as well as attorneys’ fees (30 percent of the future recovery) and a $15,000 incentive award for the named plaintiff.
The parties argued that the deal was reasonable and fair given the range of potential damages (up to $26.16 million if the statutory damages were trebled) and DDS’s inability to pay.
“Further litigation of the underlying claims against DDS in this court, on appeal, or in bankruptcy will be expensive for the class and will not move the class members closer to collecting any money,” according to the motion in support of preliminary approval of the settlement. “On the other hand, if this action is settled, the class can concentrate the efforts on seeking recovery from . . . the insurers. The settlement should be preliminarily approved because it will minimize the inevitable costs of future litigation of this matter.”
Not so fast, ruled U.S. District Court Judge Patricia A. Seitz, who found the deal too speculative to even grant preliminary approval.
In a terse order, she rejected the settlement. “The Court will not approve a settlement with such an uncertain recovery,” she wrote.
Both parties went back to the drawing board in the wake of the court’s ruling. Physicians Healthsource filed a motion to certify the class, while DDS filed a motion to dismiss the suit for lack of subject matter jurisdiction. The defendant told the court that it served an offer of judgment of the maximum amount of statutory damages plus costs and an injunction prohibiting future violations of the TCPA (around $6,000).
The offer of judgment would provide the plaintiff with the full relief requested in the complaint, DDS argued, and therefore the action no longer presented a live case or controversy and should be dismissed.
To read the proposed settlement in Physicians Healthsource, Inc. v. Doctor Diabetic Supply LLC, click here.
To read the order rejecting the settlement, click here.
To read DDS’s motion to dismiss, click here.
Why it matters: Insurers are increasingly playing a role in TCPA litigation as the suits continue to mount and plaintiffs look for deep pockets in their quest for multimillion-dollar awards. Judge Seitz refused to sign off on a proposed deal that was based solely on the defendant’s insurance proceeds, a move she said provided “an uncertain recovery,” which is not a surprising decision given the insurers’ refusal to provide defense coverage for the suit.
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Eleventh Circuit Sides with TCPA Defendant, Finds Express Consent
Reversing summary judgment in favor of a Telephone Consumer Protection Act plaintiff, the Eleventh U.S. Circuit Court of Appeals held that a cell phone number provided on a hospital admissions form constituted express consent to be contacted by a third-party debt collector.
While Mark Mais was being treated in the emergency room of Westside Regional Hospital, his wife filled out an admissions form. She provided his cell phone number and signed the form, which stated that the information included could be shared with third parties for billing purposes. Mais allegedly received between 15 and 30 prerecorded calls from Gulf Coast Collection Bureau, a debt collector seeking to recover for radiology costs incurred during Mais’s hospital visit.
Mais filed a putative class action suit under the TCPA. Gulf Coast moved for summary judgment, arguing that it could not be liable because Mais expressly consented to be contacted when his wife gave his cell phone number and signed the admissions form. The calls fell within a statutory exception for “prior express consent” as interpreted in a 2008 declaratory ruling from the Federal Communications Commission, the defendant told the court.
A federal district court disagreed, finding the Ruling did not apply. But on appeal, the Eleventh Circuit reversed and entered summary judgment in the debt collector’s favor.
Pursuant to the Hobbs Act, Congress unambiguously deprived the federal district courts of jurisdiction to invalidate FCC orders by granting the exclusive power of review to the federal appellate courts, the unanimous panel explained, and the lower court should never have reviewed the validity of the 2008 Ruling.
Mais’s claims fell squarely within the scope of the FCC order, the court said, providing an exception to liability under the TCPA.
“The 2008 FCC Ruling ‘conclude[d] that the provision of a cell phone number to a creditor, e.g., as part of a credit application, reasonably evidences prior express consent to be contacted at that number regarding the debt,” the panel wrote. “There is no dispute that Mais’s wife listed his cell phone number on a hospital admissions form and agreed to the hospital’s privacy practices, which allowed the hospital to release his health information for billing to the creditor. As a result, the TCPA exception for prior express consent – as interpreted in the 2008 FCC Ruling – entitles Gulf Coast to judgment as a matter of law.”
The TCPA permits the FCC to create exemptions by rule or order for certain automatically dialed or prerecorded calls, the panel noted. The 2008 FCC Ruling, issued after notice and comment, established an exception to the “prior express consent” requirement where a cell phone number was provided to a creditor during the transaction resulting in the debt owed.
The district court exceeded its jurisdiction by considering the wisdom and efficacy of the Ruling, the court said, recognizing its validity and finding that it governed Mais’s claims.
Further, the FCC did not distinguish or exclude medical debt in the 2008 Ruling, the panel added. “Quite the opposite, the FCC’s general language sends a strong message that it meant to reach a wide range of creditors and collectors, including those pursuing medical debts,” the court wrote, and the use of the term “credit application” was meant to be an illustration, not an exclusive description.
“When it comes to expectations for receiving calls, we see no evidence that the FCC drew a meaningful distinction between retail purchasers who complete credit applications and medical patients who fill out admissions forms like the Hospital’s,” the court said.
Mais’s contention that he did not “provide” his cell phone number to Gulf Coast because the hospital passed it along also failed to sway the panel. “[W]e reject Mais’s argument that the 2008 FCC Ruling only applies when a cell phone number is given directly to the creditor,” the court said. “Mais’s narrow reading of the 2008 FCC Ruling would find prior express consent when a debtor personally delivered a form with his cell phone number to a creditor in connection with a debt, but not when the debtor filled out a nearly identical form that authorized another party to give the number to a creditor.”
The plaintiff offered no functional distinction between the two scenarios and “[p]lainly, Mais’s wife made his number available” by granting the Hospital permission to disclose it in connection with billing and payment, the panel said, noting an FCC ruling from earlier in the year that the TCPA doesn’t prohibit a caller from obtaining consent through an intermediary.
“Ultimately, by granting the Hospital permission to pass his health information [along] for billing, Mais’s wife provided his cell phone number to the creditor, consistent with the meaning of prior express consent announced by the FCC in its 2008 ruling,” the panel concluded. “Gulf Coast is entitled to summary judgment precisely because the calls to Mais fell within the TCPA prior express consent exception as interpreted by the FCC.”
To read the opinion in Mais v. Gulf Coast Collection Bureau Inc., click here.
Why it matters: In a positive development for both debt collectors and the medical industry, the federal appellate panel resoundingly upheld the FCC’s 2008 Ruling as well as its application to the calls at issue in the case. The FCC intended to include a broad range of creditors in the scope of the Ruling, the panel found, including medical debt. Coupled with a ruling from the agency on consent provided by intermediaries issued earlier this year, the court found it clear that when the plaintiff’s wife shared his cell phone number with the hospital, she provided prior express consent to be contacted by third-party debt collectors.
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