The Federal Communications Commission (FCC) has issued a declaratory ruling regarding the standards for vicarious liability under the Telephone Consumer Protection Act (TCPA), 47 U.S.C. § 227. That law prohibits certain telemarketing practices, such as placing telemarketing calls to phone numbers on the “do not call” list or using an “automatic telephone dialing system” to place unsolicited non-emergency calls to wireless phone numbers. In its ruling, the FCC held that sellers who use third-party telemarketers are not automatically liable for the third parties’ violations of the act, but that the seller may still be vicariously liable under “federal common law principles of agency.”

The declaratory ruling arose out of two separate federal cases in which plaintiffs were attempting to hold sellers vicariously liable for the alleged TCPA violations of third-party telemarketers. In both cases, the plaintiffs alleged that telemarketers had violated the TCPA, either by making unsolicited calls using prerecorded messages or by calling individuals who were on the do not call list. In both cases, the court referred the vicarious liability issue to the FCC. Charvat v. EchoStar Satellite, LLC, 630 F.3d 459 (6th Cir. 2010); United States v. DISH Network, L.L.C., 2011 WL 475067 (C.D. Ill. Feb. 4, 2011).

In its declaratory ruling—formally titled In re Joint Petition Filed by DISH Network, LLC, et al. for Declaratory Ruling Concerning the Telephone Consumer Protection Act (TCPA) Rules—the FCC examined two separate provisions of the TCPA. Section 227(b) creates a right of action against “any person” who uses an automatic dialing machine to call a cellular telephone or a prerecorded message to call any telephone unless the caller has the prior consent of the party being called or the call is otherwise permitted by the FCC. The other provision at issue, Section 227(c), authorizes the FCC to establish a “do not call” registry and creates a private right of action for “anyone [on the no-call list] who has received more than one telephone call within any 12-month period by or on behalf of the same entity.”

Although the do-not-call provision (Section 227(c)) explicitly allows suit with respect to calls made “on behalf of” an entity, whereas the automatic-dialer and prerecorded-call provision (Section 227(b)) does not, the FCC held that both sections incorporated the same federal common-law principles of agency. The FCC expressed the view that under these principles, vicarious liability can attach as the result of a principal-agent relationship, an “apparent” agency relationship, or “ratification.”

The FCC went on to offer specific examples of the kinds of circumstances that, under its assessment of federal common law, might demonstrate the “apparent authority” of a third-party telemarketer to act on behalf of another entity. Factors that the FCC explained “may be relevant” to determining a seller’s vicarious liability include whether:

  • The seller “allows the outside sales entity access to information and systems that normally would be within the seller's exclusive control, including: access to detailed information regarding the nature and pricing of the seller's products and services or to the seller's customer information”;
  • The “outside sales entity” has the “ability” to “to enter consumer information into the seller's sales or customer systems, as well as the authority to use the seller's trade name, trademark and service mark”;
  • The seller “approved, wrote or reviewed the outside entity's telemarketing scripts” and
  • 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 stop that conduct.”

The FCC’s ruling was not without controversy. In dissenting in part from the declaratory ruling, Commissioner Pai contended that the majority’s discussion of agency liability reflects a mistaken understanding of federal common-law principles in the area. He also identified institutional concerns with the agency’s analysis, explaining: “It is not the Commission’s place to opine on the proper contours of the federal common law of agency.… [O]nce we have determined the applicable body of law and it is evident that we have not been entrusted to administer it …, our duty and our expertise come to an end.”

Moreover, because the majority’s explanation of these factors was avowedly tentative—the majority emphasized that these circumstances merely “may demonstrate” liability or may be “persuasive,” companies faced with vicarious-liability claims should be prepared to invoke traditional common-law agency principles.

The FCC’s ruling also leaves unclear whether its vicarious-liability standard applies to cases brought under Section 227(c)(5), which authorizes suits for “do not call” violations. The ruling states:

[W]e do not find that the statute necessarily provides for a single standard of third-party liability for prerecorded call violations and do-not-call violations. Instead, we leave open the possibility that we could interpret section 227(c) to provide a broader standard of vicarious liability for do-not-call violations. We simply observe that, in light of our current rules, which do treat these provisions analogously, we could not come to such a conclusion in a declaratory ruling proceeding, but only after notice and comment rulemaking. Thus, it may well be that the Commission could ultimately decide that “on behalf of” liability goes beyond agency principles.

For further information about the declaratory ruling or TCPA issues in general, please contact Howard W. Waltzman, Archis A. Parasharami or Kevin S. Ranlett.

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