Antitrust Law Daily Wrap Up, PRIVACY—6th Cir.: Marketing company, parent not liable for unknown downstream vendor’s violation of TCPA, (Jul 22, 2015)

By Michael Menzhuber, J.D., LL.M.

An attorney’s complaint, claiming that a student loan financial services company and the marketing services company that it formed were vicariously liable for sending an unsolicited text message, in violation of the Telephone Consumer Protection Act (TCPA), was properly dismissed. The U.S. Court of Appeals in Cincinnati agreed with the federal district court that there was insufficient evidence to establish that the companies were liable for actions of the downstream vendor that sent the text message (Keating v. Peterson’s Nelnet, LLC, July 21, 2015, Daughtrey, M.).

Background. Nelnet, Inc., a student loan financial services company, formed CUnet, LLC to provide marketing services to higher-education institutions. CUnet contracted with CornerBlue, a marketing company specifically focused on mobile devices, to carry out its CollegeQuest campaign. Although its contract with CUnet prohibited the assignment, transfer or delegation of any obligation under the contract without its prior written consent, CornerBlue subcontracted the “click-to-call” portion of the campaign to AKMG, without informing CUnet of the subcontracting.

While the campaign was in progress, CUnet received complaints from individuals who had received an unauthorized text message and suspended the campaign. After receiving further assurances that CornerBlue would not send text messages, CUnet reactivated the campaign.

Grant Keating received an unauthorized text message and filed a lawsuit on behalf of himself and all other persons similarly situated who received text messages in relation to the defendants’ campaign. The district court concluded that there was no evidence that the defendants authorized the subcontractor to send the text messages and, therefore, granted the defendants’ motion to dismiss.

Direct liability. The defendants did not contest the proposition that the unauthorized transmission of text messages falls under the prohibitions listed in the TCPA, but argued that they could not be held liable for any statutory violation because the evidence was clear that they did not ever send a text message in connection with the campaign. The court agreed because the evidence conclusively showed that the subcontractor, at the direction of AKMG, sent the text messages.

Vicarious liability. Keating argued that the defendants were vicariously liable for the sent text messages because CornerBlue was CUnet’s agent and, thus, had actual or apparent authority to approve the subcontractor’s text message campaign. The court disagreed because: (1) the clear wording of the contract between CUnet and CornerBlue stated that the parties were independent contractors and that CornerBlue had “no authority to make or accept any offers or representations on CUnet’s behalf”; (2) the unauthorized sending of text messages, which Keating sought to impute through the defendants’ relationship with CornerBlue, were not performed by CornerBlue; and (3) there was no evidence to support an assertion that the subcontractor could have been acting at CUnet’s behest.

Actual authority. Keating argued that, despite the fact that CornerBlue did not send the text messages, CUnet could be deemed liable for any texts sets as a result of its contract with CornerBlue. In support of his argument, Keating noted that CUnet had entered into an identical contract with another company and that the advertising campaign admittedly involved the transmission of text messages to consenting recipients. Thus, according to Keating, CUnet must have envisioned the possibility that text messaging would be used in its CollegeQuest campaign.

The court disagreed because (1) neither contract made explicit mention of text messaging; (2) CUnet and CornerBlue stated unequivocally that text messaging was not to be used in the campaign; and (3) CUnet directed that the campaign be conducted through the use of graphical banners that could not be used in text messages as a “click-to-call.”

Apparent authority. The court also determined that there was no evidence that Keating reasonably could have believed that CornerBlue or the subcontractor possessed apparent authority form CUnet to send unauthorized text messages as part of its campaign. The court found that (1) the sending of the text messages was done by the subcontractor, a company unknown to the defendants; (2) there was no evidence that the defendants had any knowledge of the text messages until CUnet began receiving complaints; (3) once CUnet learned of the text messaging, it suspended the campaign until it was reassured that CornerBlue did not and would not send text messages.

The case is No. 14-3558.

Attorneys: Patrick J. Perotti (Dworken & Bernstein) for Grant Keating. Bryan T. Kostura (McGlinchey Stafford) for Peterson's Nelnet, LLC, Nelnet, Inc., and CUnet, LLC.

Companies: Peterson's Nelnet, LLC; Nelnet, Inc.; CUnet, LLC

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