May 16, 2013

The FCC Declares Telemarketing by Proxy May Subject Sellers to Vicarious Liability

By Laura H. Phillips and Patrick R. McFadden

The Federal Communications Commission (FCC) on May 9, 2013, released a Declaratory Ruling addressing disputed aspects of the Telephone Consumer Protection Act of 1991 (TCPA), a statute that regulates the marketing of goods and services by telephone in the U.S.  The FCC adopted certain rules implementing the statute that were called into question in two separate federal court actions that each involved a satellite service provider, its agent or third party telemarketing provider, and individuals suing to enforce the TCPA.  In both cases, plaintiffs brought actions against satellite service providers for their alleged violations of the TCPA that were in fact committed by third parties (either independent telemarketers or authorized agent dealers), and the defendant satellite companies argued that they could not be held liable for TCPA violations committed by these third parties.  Both courts referred the matter to the FCC under the doctrine of primary jurisdiction, finding that the respective claims implicated the FCC’s authority to interpret the statutory provisions. The resulting Declaratory Ruling clarifies that, under the FCC’s rules, while a seller of goods or services does not “initiate” telemarketing calls made by a third party telemarketer, the seller may nevertheless be held vicariously liable for telemarketing calls made on its behalf.  This has implications for any company that uses a third party for telemarketing services, both in terms of the company’s selection of such a service and the contractual protections the company should negotiate when contracting with a telemarketing  service provider. 

Among other things, the TCPA makes it unlawful for any person to “initiate any telephone call to any residential telephone line using an artificial or prerecorded voice without the prior express consent of the called party.”  The TCPA also authorizes the FCC to establish a national “do-not-call” registry for consumers, and, under the FCC’s rules implementing the TCPA, no person may “initiate any telephone solicitation…to any residential telephone subscriber who has registered his or her telephone number on the national do-not-call registry.”  Section 227(b)(3) of the Communications Act of 1934, as amended, authorizes a private right of action based on a violation of the statute or rules regarding prerecorded calls, and section 227(c)(5) authorizes a private right of action for persons receiving multiple calls “by or on behalf of” the same entity in violation of the do-not-call restrictions.

The FCC determined that sellers do not “initiate” telemarketing calls placed by a third party telemarketer, rejecting the argument that sellers initiate such calls by contracting with telemarketers for the placement of calls.  The FCC concluded that the term “initiate” suggests a more direct connection, and that a person “initiates” a telemarketing call by taking the steps necessary to physically place the call.  However, the FCC concluded that sellers could, under federal common law principles of agency, be held vicariously liable in claims brought under either sections 227(b)(3) and 227(c)(5) for third party telemarketing violations of the TCPA or the FCC’s rules implementing the statute.  Some commenters asserted that the “on behalf of” language in 227(c)(5), and the absence of parallel language in section 227(b)(3), demonstrated that vicarious liability should apply only in actions to enforce the FCC’s do-not-call rules, and not to actions regarding prerecorded calls.  The FCC rejected this argument, concluding that, because section 227(b)(3) authorizes a private right of action for violations of the act without reference to a person or entity placing the call, the absence of “on behalf of” language in section 227(b)(3) does not foreclose vicarious liability under federal common law agency principles.

FCC Commissioner Pai issued a vigorous partial dissent on the narrow issue of whether the FCC was acting reasonably in adopting the same standard federal common law agency principles for vicarious liability given the different language of the statutory provisions. The Declaratory Ruling sidesteps this issue by observing that the FCC was not foreclosing the possibility that it could interpret section 227(c)(5) to provide a broader standard of vicarious liability, but merely concluding that, under the FCC’s current rules, the provisions are treated analogously.  The Declaratory Ruling states that this result could be modified in the future were the FCC to go through a rulemaking process that re-examines the scope of vicarious liability under the statutory provisions in detail. 

Under federal common law, among other things, a principal may be held liable where an agent has actual or apparent authority to act on behalf of the principal, or where a principal ratifies the agent’s actions by knowingly accepting their benefits.  As a practical matter, then, this item imposes potentially broad vicarious liability for sellers that employ third party telemarketing agents, as such agents may demonstrate apparent authority by offering a seller’s good or services or accepting orders, and the seller may act to ratify the agent’s actions by accepting those sales orders. The FCC observes that sellers can protect their interests by exercising “reasonable diligence” in selecting and monitoring “reputable telemarketers,” and by including indemnification provisions in their contracts with those entities.  Companies that are considering telemarketing or are using marketing agents or third-party telemarketers would thus be well-advised to consider appropriate indemnification provisions in contracts, and consider what additional steps may be advisable in selecting and monitoring telemarketers to demonstrate the sort of reasonable diligence the FCC suggests when using telemarketers.

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