Ninth Circuit Finds No Vicarious Liability Under the TCPA for Marketing Text Message

In Kristensen v. Credit Payment Services, Inc., --- F.3d ---, 2018 WL 343758 (9th Cir. 2018), the Ninth Circuit recently held that three lenders and two marketing companies could not be vicariously liable under the TCPA for text messages sent in connection with marketing campaigns.

Plaintiff Flemming Kristensen received a text message containing a link to apply for a loan. The text was generated in connection with a marketing campaign undertaken by three lenders, Enova International, Inc., Pioneer Financial Services, Inc., and Credit Payment Services, Inc. Each lender entered into an agreement with LeadPile, LLC, which is a company that buys and sells leads. In turn, LeadPile contracted with Click Media, LLC, which uses leads from publishers. Click Media entered into a contract with publisher AC Referral, which generates leads and would receive a portion of the fee if the lead resulted in a loan. AC Referral purchased a list of consumers and phone numbers (which included Kristensen) and sent the marketing text message. AC Referral did not have a contractual relationship with any of the lender defendants, and AC Referral was not named as a party to the lawsuit.

After receiving the text message, Kristensen filed a putative class action alleging a violation of the TCPA based on the theory that defendants ratified AC Referral's actions and were therefore vicariously liable. The district court certified the class, and the lenders and LeadPile moved for summary judgment. The court granted summary judgment finding that the moving parties were not vicariously liable and further held that Click Media was entitled to summary judgment on the same grounds. Kristensen appealed.

On appeal, the Ninth Circuit addressed whether defendants could be vicariously liable for a violation of § 227(b)(1)(A)(iii) of the TCPA. The court acknowledged the FCC's 1995 Order, in which the FCC said that "calls placed by the agent of a telemarketer are treated as if the telemarketer placed the call." See In re Rules & Regulations Implementing the TCPA of 1991, 10 FCC Rcd. 12391, 12397 (1995). The court also deferred to the FCC's reliance on the Restatement (Third) of Agency as the federal common law of agency.

Turning to the Restatement's definition of "ratification," the court noted that an act is ratified "if the actor acted or purported to act as an agent on the person's behalf." See Restatement (Third) of Agency § 4.03. Thus, ratification does not apply if the actor is not an agent. Citing the Restatement, the court also held that even if there is an agency relationship, the principal is not bound if the principal lacks knowledge of material facts about the agent's act. However, pursuant to the Restatement, ratification may arise if the principal chooses to ratify an act with awareness that such knowledge was lacking, and a principal assumes the risk of lack of knowledge if the principal is shown to have had knowledge of facts that would have led a reasonable person to investigate further.

Because AC Referral did not enter into a contract with the lenders or LeadPile and had no communications with them, the court held that AC Referral was not their agent or purported agent. As a result, AC Referral's actions were not ratifiable acts. Although Click Media had entered into an agreement with AC Referral and was therefore Click Media's agent, the court said that Kristensen presented no evidence that Click Media had knowledge that AC Referral was sending text messages in violation of the TCPA. Further, the court declined to infer that Click Media assumed the risk of lack of knowledge, as the evidence did not suggest that Click Media had knowledge of facts that would have led a reasonable person to investigate further but ratified AC Referral's actions anyway. In so holding, the court rejected Kristensen's argument that because Click Media's contract with AC Referral contemplated AC Referral's use of marketing text messages that complied with the TCPA, Click Media had a duty to investigate whether AC Referral was complying with the law. The court emphasized that engaging in "commonplace marketing activity is not the sort of red flag that would lead a reasonable person to investigate whether the agent was engaging in unlawful activities." See 2018 WL 343758, at *3. Accordingly, the Ninth Circuit affirmed the district court's grant of summary judgment.

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