September 24, 2014

Ninth Circuit Weighs in on When Franchisors May Be Liable for Franchisees' Unlawful Text Messaging Campaigns

In July 2014, the Court of Appeals for the Ninth Circuit held that franchisor Taco Bell Corp. was not vicariously liable under the Telephone Consumer Protection Act (TCPA)[1] for an allegedly unlawful text messaging campaign initiated by a franchisee association.[2] 

In Thomas v. Taco Bell Corp.,[3] a franchisee association planned a promotion in which text messages were sent to 17,000 people in the Chicago area to promote a local sweepstakes contest. The lower court dismissed the case against Taco Bell because there was no evidence that Taco Bill directed or supervised the manner and means of the text message campaign. Although Taco Bell's national advertising fund paid for the promotion, and it had a representative on the association board who voted for the promotion (in her individual capacity), the district court found these facts insufficient to establish an actual agency relationship. The Ninth Circuit affirmed, agreeing that the franchisor was not vicariously liable under an actual agency theory. The Ninth Circuit further held that, although vicarious liability under the TCPA could be based on apparent authority or ratification, there were no facts before it to support those theories. Specifically, the Ninth Circuit noted that Taco Bell did not say or do anything on which the plaintiff reasonably relied and Taco Bell did not ratify the text messages.

Not all franchisors have fared as well under the TCPA. In 2013, Papa John's settled a TCPA text messaging lawsuit for $16.5 million after the court granted class certification in light of Papa John's encouraging its franchisees to use a text blast service.[4] The same year, Domino's settled for up to $20 million a TCPA case resulting from a franchisee's automated phone call campaign.[5] The court had refused to dismiss the complaint against Domino's after the plaintiff argued that the alleged phone calls specifically named Domino's and provided the recipient with ways to reach Domino's.[6] Thus, the recipient could reasonably infer that the calls were made by Domino's or on behalf of Domino's.

Imposition of vicarious liability is factually driven. The TCPA cases are instructive in reinforcing the notion that franchisors may be able to minimize their risk of vicarious liability if they do not supervise or play an active role in orchestrating any franchisee telemarketing or texting promotion.

[1] The Telephone Consumer Protection Act (TCPA) prohibits making any call using any automatic telephone dialing system or artificial or prerecorded voice to any telephone number assigned to a cellular service. 47 U.S.C. § 227(b)(1)(A). The Ninth Circuit has held that a text message constitutes a call. Satterfield v. Simon & Schuster, Inc., 569 F.3d 946, 952 (9th Cir. 2009).
[2] Thomas v. Taco Bell Corp., 2014 U.S. App. LEXIS 12547 (9th Cir. July 2, 2014).
[3] Thomas v. Taco Bell Corp., 879 F. Supp. 2d 1079, 1082-1083 (C.D. Cal. 2012).
[4] Agne v. Papa John's International, Inc., 2013 WL 3328114 (W.D.Wash. May 17, 2013); Agne v. Papa John's Int'l, 286 F.R.D. 559, 561 (W.D. Wash. 2012).
[5] Spillman v. RPM Pizza, LLC, 2013 U.S. Dist. LEXIS 72947, at *13-14 (M.D. La. May 23, 2013).
[6] Spillman v. Domino's Pizza, LLC, 2011 U.S. Dist. LEXIS 17177, at *5-6, 9-10 (M.D. La. Feb. 21, 2011).

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