Antitrust Law Daily Wrap Up, PRIVACY—N.D. Ill.: State Farm not vicariously liable for telemarketer’s call on behalf of insurance agent, (Sep 24, 2013)

By Tobias J. Gillett, J.D., LL.M.

A recipient of a telemarketer’s call seeking potential clients on behalf of an insurance agent for State Farm Mutual Automobile Insurance Co. failed to establish that State Farm was vicariously liable under the Telephone Consumer Protection Act (TCPA) for the call, the federal district court in Chicago has ruled (Smith v. State Farm Mutual Automobile Insurance Co., September 23, 2013, St. Eve, A.).

On January 25, 2013, Jennifer Smith received a call on her cell phone from Variable Marketing, LLC, a lead generator engaged by an exclusive agent of State Farm. The call indicated that she could save money on her car insurance, and told her to press “1” for more information. She hung up, but called the number later that day to inquire about it. An operator informed her that the call had been placed to sell State Farm automobile insurance. The call had apparently been made using an automated dialing system.

Smith filed a putative class action lawsuit against State Farm, alleging that it had violated the TCPA. State Farm filed a motion to dismiss.

The court granted the motion, concluding that Smith had not sufficiently pled State Farm’s vicarious liability for the calls. The court explained that in May 2013 the FCC had issued a declaratory ruling defining the scope of sellers’ TCPA liability for calls made by third-party telemarketers, and holding that sellers could be found vicariously liable “under a broad range of agency principles, including not only formal agency, but also principles of apparent authority and ratification.”

Formal agency. Smith failed to plead sufficient facts to demonstrate that State Farm had actual authority over Variable Marketing so as to render Variable Marketing State Farm’s formal agent. Although Smith adequately alleged that State Farm had a formal agency relationship with its own insurance agents, and that Variable Marketing acted as an agent for the insurance agent that engaged its services, Smith failed to plead that Variable Marketing was State Farm’s agent. She did not allege that State Farm made the call; that it engaged Variable Marketing’s services; that it had any authority over Variable Marketing; that it authorized Variable Marketing to engage in telemarketing on its behalf; that it authorized Variable Marketing to use its trademarks, collect money, or perform other services for it; or that it paid any incentives to Variable Marketing for telemarketing services.

Apparent authority. Smith also failed to establish State Farm’s vicarious liability under apparent authority, according to the court. Although Smith cited to “illustrative examples of evidence that may demonstrate that the telemarketer is the seller’s authorized representative with apparent authority to make the seller vicariously liable,” those examples were merely “circumstances which may support vicarious liability.”

Moreover, Smith did not allege facts that were consistent with any of the examples she cited, the court observed. At most, Smith had alleged that State Farm’s agents had apparent authority to telemarket on its behalf, not that Variable Marketing had that authority. Further, as a lead generator Variable Marketing connected potential customers to clients if a potential customer provided information meeting a particular client’s criteria. Imposing liability on State Farm here would therefore “create the absolute result of imposing liability for the same telephone call on numerous clients of the lead generator, including competitors of one another.”

Ratification. Finally, Smith did not demonstrate that State Farm had ratified Variable Marketing’s conduct so as to render State Farm vicariously liable. The court explained that ratification occurs “through conduct justifiable only on the assumption that the person consents to be bound by the act’s legal consequences.” Here, Smith did not even allege that State Farm knew that Variable Marketing was making prerecorded calls or that its insurance agents generated business through Variable Marketing. She also did not allege any benefit that State Farm had accepted as a result of the phone call to Smith, which did not even result in a lead for a State Farm agent.

The court therefore dismissed Smith’s TCPA claims, but without prejudice.

The case is No. 13 C 2018.

Attorneys: Alexander Holmes Burke (Burke Law Offices, LLC) for Jennifer Smith. James Patrick Gaughan, Jr., Joseph Anthony Cancila, Jr., and Ronald S. Safer (Schiff Hardin LLP) for State Farm Mutual Automobile Insurance Co.

Companies: State Farm Mutual Automobile Insurance Co.

Cases: Privacy IllinoisNews