No Vicarious Liability Without Ratification, Ninth Circuit Rules

TCPA Connect

A trio of payday lenders and two marketing companies did not indirectly violate the Telephone Consumer Protection Act (TCPA) by working with a lead generator that used an automated program to send text message ads, the U.S. Court of Appeals for the Ninth Circuit recently ruled.

Flemming Kristensen alleged that he received a text from AC Referral on December 6, 2011, that read: “Do You Need up to $5000 Today? Easy Quick and All Online at: 24 Month Repay, All Cred. Ok Reply STOP 2 End.”

The text message was generated as an indirect result of marketing campaigns undertaken by three payday lenders. The lenders entered into separate agreements with LeadPile, a marketing company that bought and sold customer leads from Click Media, another marketing company that used leads from AC Referral, a so-called “publisher” that generated leads. If the leads resulted in a loan, the lenders paid Click Media, which in turn paid AC Referral.

Kristensen neither clicked on the link nor applied for a loan; instead, he filed a putative class action complaint alleging violations of the TCPA by the payday lenders, LeadPile, and Click Media—but not AC Referral—under a theory of vicarious liability. The plaintiff alleged that AC Referral violated the TCPA by purchasing lists of consumer phone numbers from other lead generating companies, uploading the lists into a program that sent out advertisements, and sending the text messages, while the defendants ratified the unlawful activity by accepting the leads.

The defendants moved for summary judgment. Although Click Media and AC Referral entered into a contract, the three payday lenders and LeadPile had no contact with AC Referral and had not heard of the company prior to the lawsuit filed by Kristensen, they told the court. As for Click Media, it had no knowledge of the TCPA violations, the company argued.

A district court judge granted the motion and the Ninth Circuit affirmed.

While the court recognized that vicarious liability exists with regard to the TCPA, it found Kristensen failed to allege the necessary elements of federal common law agency principles, rejecting the plaintiff’s argument that a material issue of fact remained as to whether the defendants ratified AC Referral’s unlawful texting by accepting the benefits of the text messages while unreasonably failing to investigate its texting methods.

As defined by the Restatement (Third) of Agency, “ratification” means “the affirmance of a prior act done by another, whereby the act is given effect as if done by an agent acting with actual authority.” When an actor is not an agent and does not purport to be one, the doctrine of ratification does not apply, the court noted.

“It is undisputed that AC Referral did not enter into a contract with any of the lenders or with LeadPile,” the panel wrote. “It is also undisputed that AC Referral did not communicate with or even know of the lenders or LeadPile before the lawsuit was filed. Because AC Referral was neither an agent nor a purported agent of the lenders or LeadPile, AC Referral’s actions do not qualify as ratifiable acts. Accordingly, the lenders and LeadPile cannot be held vicariously liable for AC Referral’s unlawful text messages under a ratification theory.”

Nor did Kristensen raise a genuine issue of material fact with regard to whether Click Media ratified AC Referral’s unlawful text messages, the court found, despite their contractual relationship.

“Although AC Referral was an agent of Click Media, Kristensen presented no evidence that Click Media had actual knowledge that AC Referral was sending text messages in violation of TCPA,” the court said. “Nor is there any basis to infer that Click Media assumed the risk of lack of knowledge, because Kristensen did not present evidence that Click Media ‘had knowledge of facts that would have led a reasonable person to investigate further,’ but ratified AC Referral’s acts anyway without investigation.”

Contract language that permitted AC Referral to use text message marketing did not trigger Click Media’s duty to investigate whether AC Referral was acting in compliance with the law, the panel wrote.

“The knowledge that an agent is engaged in an otherwise 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,” the court said. “Because Click Media had no ‘knowledge of facts that would have led a reasonable person to investigate further,’ Click Media cannot be deemed to have ratified AC Referral’s actions and therefore is not vicariously liable.”

The Ninth Circuit affirmed summary judgment in favor of the defendants.

To read the opinion in Kristensen v. Credit Payment Services, Inc., click here.

Why it matters: Lead generation continues to be a risky business, but this case indicates a commonsense approach to imposing liability for such activities. With a practical reading of the federal common law agency principles, the Ninth Circuit concluded that none of the defendants could be vicariously liable for the acts of AC Referral. Four of the defendants had no contractual relationship with the company and had never even heard of it until the litigation. As for Click Media, the fact that the contract permitted text messaging did not establish an obligation to investigate whether AC Referral was complying with the TCPA absent any knowledge of unlawful activities, the court said.



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