CEO on the Hook for TCPA Liability

TCPA Connect

Demonstrating a costly lesson in personal liability for corporate executives, an Illinois federal court found a corporate officer to be on the hook for millions of dollars of damages pursuant to the Telephone Consumer Protection Act (TCPA).

In Physicians Healthsource, Inc. v. A-S Medication Solutions LLC, plaintiff Physicians Healthsource, Inc. (PHI), filed suit against defendant A-S Medication Solutions (A-S Solutions) in 2012, alleging the company violated the TCPA by faxing an advertisement to recipients without their prior express permission. PHI also named A-S Solutions’ CEO Walter Hoff as a defendant, seeking to hold him personally liable.

Via a sale of assets in 2009, A-S Solutions acquired a portion of another business, Allscripts, a company in the business of medication dispensing. A-S Solutions told the court that Allscripts had only the fax numbers of customers who permitted such faxes and presented testimony from Allscripts that the company had a policy of obtaining a customer’s permission before sending faxes.

In February 2010, a marketing employee at A-S Solutions instructed another worker to send out faxes to the 15,666 fax numbers found in Allscripts’ database, emailing that “[Hoff] says Good to Go!” She testified that Hoff directed her on what to write in the fax, which was successfully delivered to 11,422 numbers. One of those recipients was PHI.

A-S Solutions itself never sought or obtained permission from any of the recipients before sending the fax. Hoff testified he believed “[A-S Solutions] didn’t need to. We were part of Allscripts’ joint marketing arrangement.”

PHI sued and, after the judge originally assigned to the case granted class certification, moved for summary judgment on liability as to both A-S Solutions and Hoff. U.S. District Judge Matthew F. Kennelly of the Northern District of Illinois granted both motions.

First, Judge Kennelly found the fax was an advertisement, as it referenced “The A-S Medication Solutions Quality Service Guarantee” and described “the quality and value of the sender’s products and services,” making it “unquestionably an advertisement.” The defendants were the senders of the fax, the court said, because the undisputed evidence showed that Hoff, the owner and CEO of A-S Solutions, drafted and authorized sending the fax.

Turning to the question of prior express permission, the judge applied the preponderance of the evidence standard but found that A-S Solutions was unable to meet it. The defendants argued that they were allowed to rely on the permission obtained by Allscripts. But even if that were the case, the defendants failed to establish that Allscripts ever obtained prior express permission, the court said.

“A-S Solutions has not presented evidence that would permit a reasonable jury to find that Allscripts obtained prior express permission from the recipients of the fax,” the court said. The testimony by an Allscripts employee described the typical situation as follows:

“I would say hey, I’ve got something I need to send you. Example would be there’s a hurricane. We used to send hurricane notices out to the states affected to say here is what you needed to do for a disaster and, you know, to prepare for a disaster for data integrity, and we would say, hey, I have your fax number here … Is that valid? Yes. … Can I send you this fax? Yes. Boom.”

“This does not describe permission in which the customer ‘understand[s] that by providing a fax number, he or she is agreeing to receive faxed advertisements,’” the court wrote. “[The Allscripts employee] offered nothing better than this to flesh out how Allscripts supposedly obtained ‘express permission’ to send faxed advertisements.”

The defendants also attempted to rely on the fact that PHI did not check a box in its customer-accessible database that it did not want to receive faxed ads. But Judge Kennelly noted that the Federal Communications Commission (FCC) has precluded using a “negative option”—giving a recipient the option not to receive faxed ads—to establish express permission. “In other words, a recipient has to opt in, not simply decline to opt out,” the court said. “The ‘no check in the box’ evidence is arguably evidence of not opting out, but it is most definitely not competent evidence of actually opting in, which is what is required.”

Affidavits and declarations from class members were unable to sway the court either. Most stated they did not specifically remember receiving any particular faxes but “in general” consented to receiving such communications from Allscripts.

“None of these declarations says anything about prior permission, and they don’t indicate express permission,” Judge Kennelly wrote. “They cannot reasonably be read as saying anything more than the proposition that, after the fact, the recipient was okay with receiving a fax—which is not enough to permit a reasonable jury to find in A-S Solutions’ favor on the prior express permission defense.”

Concluding that A-S Solutions’ evidence failed to create a triable dispute, the court granted summary judgment in favor of PHI.

“A-S Solutions concedes that it never obtained prior express permission to send faxed advertisements,” the court said. “Rather, it relies, and says it relied at the time, on whatever Allscripts had done before. But there is no indication that Allscripts ever attempted to document, contemporaneously or otherwise, whatever permissions it claimed to have obtained. Perhaps just as importantly, A-S Solutions has not pointed in its brief to any evidence that it did any real due diligence on this point at the time it purchased Allscripts’ business other than simply taking Allscripts’ word for it.”

Judge Kennelly spilled little ink in reaching the same conclusion with regard to Hoff’s personal liability. A-S Solutions admitted that Hoff told a marketing employee what to write in the fax and authorized sending the faxes. Hoff testified that he “approved” sending the fax, leaving no dispute as to his direct, personal participation in and authorization of the fax.

Hoff argued that officer liability necessitated knowledge of the wrongful conduct or willful violation, but the court disagreed. “Neither the TCPA nor the common law requires knowing or willful violations of the TCPA as a prerequisite to officer liability,” the court wrote. “Direct participation or authorization is sufficient.”

The court therefore found Hoff personally liable for the TCPA violation, granting summary judgment in favor of PHI against both defendants.

To read the memorandum opinion and order in Physicians Healthsource, Inc. v. A-S Medication Solutions LLC, click here.

Why it matters: The ease with which the court found the company’s CEO personally liable should concern officers named as defendants in TCPA lawsuits. With 11,422 faxes successfully sent by the defendants, Hoff could be personally liable for damages of more than $5.7 million, or north of $17 million if the damages are trebled under the TCPA. And what should perhaps be even more disconcerting to would-be defendants is the fact that under this holding, it does not matter whether the officer knew the company was violating the TCPA when the alleged violations occurred. Consequently, this case should serve as a lesson in compliance—i.e., if you are going to market with faxes or texts, make sure you are compliant with the TCPA. Companies looking for help in this regard should contact Manatt’s TCPA compliance and class action defense team.



pursuant to New York DR 2-101(f)

© 2024 Manatt, Phelps & Phillips, LLP.

All rights reserved