March 30, 2016
Class Action Alert
The Seventh Circuit recently weighed in on the question of liability for a third-party’s junk-fax violations under the Telephone Consumer Protection Act. This alert discusses what businesses need to know.
Last week, the Seventh Circuit weighed in on the question of liability for a third-party’s junk-fax violations under the Telephone Consumer Protection Act (“TCPA”) in Bridgeview Health Care Ctr., Ltd. v. Clark. Holding that strict liability does not apply to advertisers on whose behalf junk faxes are sent, the court instead applied principles of agency analysis to determine that a small business utilizing a fax marketing company was not liable for faxes sent beyond the scope of the business’s instruction.
The TCPA provides that it is unlawful to “use any telephone facsimile machine, computer, or other device to send, to a telephone facsimile machine, an unsolicited advertisement.” The statute is silent, however, as to who qualifies as a “sender” of junk faxes. Thus, based upon the plain language of the statute alone, it is unclear whether the “sender” is the advertiser, a fax broadcasting service hired by the advertiser, a common carrier whose network is used to send the fax, or whether multiple individuals or entities can be considered “senders.”
In 1995, the Federal Communications Commission (“FCC”), recognizing this ambiguity, issued an order providing that “the entity or entities on whose behalf facsimiles are transmitted are ultimately liable for compliance with the rule banning unsolicited facsimile advertisements.” The FCC’s definition of “sender” was codified in 2006 as “the person or entity on whose behalf a facsimile unsolicited advertisement is sent or whose goods or services are advertised or promoted in the unsolicited advertisement.”
The FCC’s clarification, however, begged the question—what liability is created by the phrase “on whose behalf”? Courts’ interpretations of this standard varied, creating uncertainty regarding sender liability. Some courts applied vicarious liability based on agency principles, others applied variations of direct liability theories, including strict liability, and some applied a combination of both. The FCC’s decision of DISH Network seemingly alleviated this uncertainty, but this turned out not to be the case.
DISH Network concerned telemarketing calls made in violation of the TCPA. The FCC held that the proper inquiry when determining liability in this context was whether an agency relationship existed between the telemarketing company and the business being advertised. Turning to the language of the TCPA provision related to telemarketing, the FCC noted that the statute prohibits “sellers” from initiating certain calls. The “seller” is defined as the person “on whose behalf” a call is made, whereas the “telemarketer” is defined as the “initiator” of the call. The FCC concluded that “a seller does not generally ‘initiate’ calls made through a third-party telemarketer within the meaning of the TCPA,” and may “be held [only] vicariously liable under federal common law principles of agency for violations . . . that are committed by third-party telemarketers.”
Subsequent to the DISH Network decision, courts began applying an agency analysis both in the context of telemarketing and junk-fax violations of the TCPA. However, this approach was short-lived.
A year after the FCC decided DISH Network, the Eleventh Circuit requested the FCC’s guidance on liability for fax advertisements sent by a third-party. In response, the FCC clarified by letter that “the DISH Network ruling applies only to liability for telemarketing calls and neither addresses nor alters the Commission’s pre-existing regulatory treatment of unsolicited facsimile advertisements.” The letter further explained that “senders” of junk faxes are directly liable, and that principles of vicarious liability are irrelevant.
The Eleventh Circuit applied the FCC’s guidance in Palm Beach and held that the application of vicarious liability does not extend to the junk-fax context. Rather, the proper approach was a direct liability analysis.
In Palm Beach, a third party sent fax advertisements promoting a dental practice. The dentist hired a marketing manager and gave him free rein to market the dental services. The marketing manager was solicited by Business to Business Solutions (“B2B”), which offered to send out mass fax advertisements for the dental practice. B2B faxed 7,085 advertisements promoting the dental practice and prompting a class action lawsuit against the dentist for violations of the TCPA. In line with the FCC’s letter, the Eleventh Circuit rejected the holding of DISH Network for purposes of junk faxes and held a person could only be held liable directly under the TCPA’s ban on sending junk faxes rather than vicariously. Applying a direct liability theory, the court found sufficient evidence existed for a jury to find the fax was sent on behalf of the defendant. The court reasoned that the dentist provided the marketing manager with free rein to market his practice and the manager contracted with B2B to initiate a fax campaign. Further, the manager had final approval of the final draft of the faxes and the recipients.
This approach was also applied by the Sixth Circuit in Imhoff Inv., LLC v. Alfoccino, Inc. In Imhoff, the Sixth Circuit held that a local restaurant could be held directly liable as the “sender” of faxes sent by a third-party marketing company. While the court concluded that direct liability was the proper standard to apply, it noted that “[n]either the FCC’s Palm Beach letter nor its regulations explain why the FCC has attached direct liability to the ‘telemarketer’ that actually places a voice call while requiring proof of vicarious liability for the ‘seller’ on whose behalf the call was made, yet has attached direct liability to the ‘sender’ on whose behalf a fax advertisement was sent by a third party.” Nevertheless, the court noted that the FCC regulations are “explicit” and provide that “the party whose goods or services are advertised—and not the fax broadcaster—is the sender” and for this reason, the restaurant was subject to direct liability, which was to be applied on remand.
Following the Sixth and Eleventh Circuits’ decisions in holding that direct liability must be found in order to establish liability against a fax-sender under the TCPA, the Seventh Circuit waded into the issue in Bridgeview and held a small Indiana business owner was not liable for faxes sent by a third-party marketing company that it hired.
In Bridgeview, defendant Jerry Clark, the owner of a small business (Affordable Digital Hearing), hired a marketing company (B2B) to market Affordable Digital Hearing’s services to potential customers. Clark authorized B2B to fax about 100 advertisements to consumers within 20 miles of Terre Haute, Indiana, where the business was located. B2B, however, faxed 4,849 advertisements across Indiana, Illinois and Ohio, far beyond the 20-mile radius as directed. After receiving an unsolicited fax, Bridgeview Health Care Center in Illinois brought a class action against Clark, asserting violations of the TCPA.
The district court granted Bridgewater’s motion for partial summary judgment with respect to Clark’s liability for faxes sent to plaintiffs within 20 miles of Affordable Digital Hearing. The court awarded a statutory penalty of $500 per recipient located within the 20-mile radius, resulting in a $16,000 judgment against Clark. With respect to Clark’s liability to the plaintiffs outside of the 20-mile radius, the court conducted a bench trial and concluded that Clark was not liable for those faxes.
The Seventh Circuit affirmed this decision, noting that the district court correctly rejected the application of strict liability to the junk-fax scenario. The Court concluded that an agency analysis was the proper standard to apply when determining what was sent “on behalf” of a seller.
In applying agency principles, the court reviewed each type of agency relationship: express actual authority, implied actual authority and apparent authority, and concluded no such relationship existed. For express agency to arise, the court noted that Clark would have had to directly speak or write to B2B telling it to send the 5,000 faxes across multiple states. While Clark did give B2B express authority to send 100 faxes within 20 miles of Terre Haute, he did not direct B2B to send faxes outside of the 20-mile radius, and thus express authority was missing. As for implied authority, which is inherently contained in the agent’s position and established through circumstantial evidence, the court found “[n]othing about fax marketing inherently calls for sending thousands of advertisements” and “nothing about fax marketing inherently demands sending these ads to states where the advertiser does not do business.” The court also concluded that B2B lacked apparent authority, which exists when the principal speaks, writes or otherwise acts toward a third party, the plaintiff in this case, to make them reasonably believe that the principal consented to an action done on his behalf. The court reasoned that Clark did nothing to create an appearance that B2B had authority to send faxes on behalf of either Affordable Digital Hearing or himself and that the advertisement itself did not reference B2B. Because the court concluded that an agency relationship did not exist between Clark and B2B, the court affirmed the lower court’s ruling that Clark was not liable for statutory penalties arising out of the faxes sent to consumers outside of the 20-mile radius.
The Seventh Circuit’s analysis tends to fall in line with the approach taken by the Sixth and Eleventh Circuits, as the court, without directly stating so, appears to have held that the business owner could be held directly liable for the third-party’s unsolicited faxes. However, the Seventh Circuit analyzed the facts under federal common law agency principles, which the Sixth and Eleventh Circuit did not explicitly apply. While the Court’s analysis does not clearly indicate it is doing so, the Court appears to assess direct liability under principles of agency. Such an analysis is consistent with the previous circuit courts’ rulings in that it applied direct liability, but unique in the sense that it applies principles of agency in its application of direct liability.
Overall, the Seventh Circuit’s analysis in Bridgeview is consistent with the FCC’s and Sixth and Eleventh Circuits’ position that direct liability applies in cases of junk-faxes. The decision, however, creates a dispute between the Circuits as to whether applying an agency analysis to determine if there is direct liability for a third-party’s actions is appropriate. Bridgeview’s holding that agency principles do in fact apply in the context of direct liability can be gleaned from the Seventh Circuit’s concern for small businesses facing liability. The court noted that it doubted “Congress intended the TCPA, which it crafted as a consumer protection law, to become the means of targeting small businesses” and that “Congress likely should have targeted the marketing firms, rather than their unsuspecting clients.” However, it is difficult to reconcile this approach with that of the Sixth and Eleventh Circuits. Regardless, whatever analysis a court uses, businesses need to ensure their vendors are compliant with the TCPA because they may be directly liable for the vendor’s actions.
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