Antitrust Law Daily Wrap Up, PRIVACY—6th Cir.: Pre-2006 TCPA liability standard applied to unsolicited fax ad claim, (May 10, 2016)

By Edward L. Puzzo, J.D.

Where the recipient of unsolicited fax advertisements brought a claim under the Telephone Consumer Protection Act against the firm whose services were advertised, the liability standard to apply must be neither strict liability nor vicarious liability but instead the "on whose behalf" liability standard in effect at the time of the issuance of the fax ads, the U.S. Court of Appeals in Cincinnati has ruled (Siding and Insulation Co. v. Alco Vending, Inc., May 9, 2016, Gilman, R.).

Business to Business Solutions (B2B) offered its clients advertising services using fax broadcasting. One of those clients was Alco Vending, a vending machine company. In November 2005 and July 2006, B2B sent approximately 7,000 advertisements for Alco's services by fax. One of the recipients of faxed advertisements for Alco's services was Siding and Insulation Co., a construction contractor.

In May 2011, Siding and Insulation brought a putative class action against Alco Vending on behalf of itself and 39 other recipients of fax ads for Alco, alleging that the fax ads violated the Telephone Consumer Protection Act (TCPA), which prohibits the sending of unsolicited advertisements to fax machines. The district court granted summary judgment in favor of Alco. Siding and Insulation appealed.

Three different standards for TCPA liability were potentially applicable to this case, the appellate court stated: (1) strict liability, (2) vicarious liability, and (3) the "on whose behalf" standard.

Strict liability standard. Under FCC regulations implementing the TCPA, effective August 1, 2006, a "sender" can be either the entity on whose behalf the unsolicited fax ad was sent, or the entity whose goods or services were advertised in the unsolicited fax ad. Siding and Insulation based its claim against Alco on the second portion of this definition. Alco noted that the fax ads in question were sent on November 2005 and July 2006, and argued that the cited definition of "sender" should not apply to fax ads sent prior to August 1, 2006. Siding and Insulation replied that the 2006 codification did not actually change the standard. The appellate court disagreed, accepting Alco's interpretation of pre-2006 FCC policy. Examining the history of the FCC's policy on this issue, the court found that the 2006 regulations expanded the scope of liability under the TCPA to add the phrase "person or entity...whose goods or services are advertised or promoted." Since the application of this standard would be impermissibly retroactive, the court stated, the 2006 standard should not be applied to Alco's conduct. It follows, the court ruled, that Alco could not be held strictly liable under the TCPA simply because its goods or services were advertised in the offending faxes.

Vicarious liability standard. Alco argued that it could only be vicariously liable under federal common law principles of agency if (1) it granted B2B actual authority to send the fax ads, (2) clothed B2B with apparent authority to send the fax ads, or (3) subsequently ratified B2B's previously unauthorized sending of the fax ads. The district court had decided that liability under the TCPA for fax ads should be treated similarly to liability under the TCPA for telephone calls, as per the 2013 FCC Dish Network decision (28 FCC Rcd. 6574). According to the district court, a party is not directly liable for a TCPA violation unless the party actually transmits a fax, but the party may be vicariously liable under federal common law principles of agency for the actions of a third party. The appellate court noted that the Dish Network decision rested on definitions of the terms "telemarketer" and "seller," terms not used in the sections of the TCPA applicable to unsolicited fax ads. It therefore declined to apply the Dish Network vicarious liability standard to this case.

"On whose behalf" standard. Having ruled that the strict liability and vicarious liability standards were inapplicable to this case, the court ruled that the correct liability standard to apply was the standard in place with the FCC regarding fax solicitations prior to August 1, 2006. That standard was that the party "on whose behalf" a solicitation was made bore ultimate responsibility for violations of the TCPA. This "on whose behalf" standard existed as a middle ground between strict liability and vicarious liability, the court explained. Consequently, the plaintiff must do more than simply show that the defendant’s goods or services were advertised in the offending fax, but need not establish a complete agency relationship between the defendant and the fax broadcaster.

The phrase “on whose behalf”, the court continued, is a term of art that blends (1) federal common-law agency principles, such as whether and to what extent one entity controlled the other, and (2) policy considerations designed to address which entity was most culpable in causing a TCPA violation, such as whether and to what extent each entity investigated the lawfulness of the fax broadcasts at issue.

Applying standard. Applying the “on whose behalf” standard to the facts of the present case, the court found various indications that B2B was not acting on behalf of Alco when it issued the fax ads. B2B had never provided Alco with a list of the fax numbers it intended to send fax ads on Alco's behalf. Complaints from recipients were referred to B2B, who informed Alco that the recipients would be removed from their lists. The court viewed these actions as measures Alco took to cure non-compliance with the TCPA, and viewed subsequent violations as attributable to B2B's failure to carry out its promises and not to Alco's conduct. B2B also had assured Alco that its advertising conduct would be "100 percent legal," and a fact finder could conclude that Alco had reasonably relied on these representations. However, there were various contrary factors indicating that B2B acted on Alco's behalf, such as Alco's review and approval of ads prepared by B2B.The appellate court therefore remanded the case to the district court for further fact finding under the "on whose behalf" standard for TCPA liability.

The case is Civil Action No. 15-3551.

Attorneys: Phillip A. Bock (Bock & Hatch, LLC) and David M. Oppenheim (Anderson + Wanca) for Siding and Insulation Co. Albert M. Bower, Eric L. Samore, and Michael Resis (Smith Amundsen) for Alco Vending, Inc.

Companies: Siding and Insulation Co.; Alco Vending, Inc.

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