United States: TCPA Vicarious Liability Limited By Ninth Circuit In Texting Class Action

In the high-risk Telephone Consumer Protection Act (TCPA) arena, the Ninth Circuit recently offered some respite. On January 10, 2018, the Ninth Circuit limited the potential liability that companies may unknowingly face for the communication practices of their upstream vendors. In Kristensen v. Credit Payment Services, Inc., No. 16-15823 (9th Cir. 2018), the Ninth Circuit affirmed summary judgment for defendant payday lenders, finding that the lenders were not vicariously liable for any unlawful text messages sent by a third-party lead generator.

The TCPA plaintiff had received a text message from a company called AC Referral, which contained a link to a loan application website. AC Referral had contracted with lead generator Click Media, which in turn sold customer leads to a lead acquisition company LeadPile. The defendant lenders had hired LeadPile to help acquire customer leads for loans. In 2014, the District of Nevada certified a class of other similar text recipients. Even though the defendant lenders had no contact with the text sender, plaintiff argued that "defendants ratified AC Referral's unlawful texting by accepting the benefits of the text messages sent by AC Referral while unreasonably failing to investigate its texting methods." Applying principles of agency law, the Ninth Circuit concluded that the lenders could not be liable under a ratification theory. It was "undisputed that AC Referral did not enter into a contract with any of the lenders or with LeadPile" and "AC Referral did not communicate with or even know of the lenders or LeadPile before the lawsuit was filed." Thus, because AC Referral never acted as an agent or purported agent of the defendants, there was no act that could be ratified.

Summary judgment was also affirmed for the defendant intermediary company Click Media that actually contracted with AC Referral. Click Media's contract stated that "AC Referral could use text message marketing and required AC Referral to comply with the TCPA." The Ninth Circuit agreed that the plaintiff "presented no evidence that Click Media had actual knowledge" of the texting violation and "knowledge that an agent is engaged in an otherwise commonplace marketing activity [e.g., texting] is not the sort of red flag that would lead a reasonable person to investigate whether the agent was engaging in unlawful activities." This ruling could reduce litigation risks for companies that are unaware and have no reason to suspect their vendors are sending communications that may not be in compliance with the TCPA.

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morrison & Foerster LLP. All rights reserved

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