In Thomas v. Taco Bell Corp., No. 12-56458 (9th Cir. July 2, 2014) the Ninth Circuit Court of Appeals recently held that Taco Bell, one defendant in a putative class action lawsuit alleging violations of the Telephone Consumer Protection Act (“TCPA”), 47 U.S.C. § 227, could not be held vicariously liable for text messages that it did not send or authorize without proof of an agency relationship.  The unpublished decision is one of the first by an appellate court to address the issue of vicarious liability following the Federal Communications Commission’s (“FCC’s”) 2013 declaratory ruling in Dish Network.

The FCC’s Dish Network ruling injected vicarious liability into TCPA class action litigation by suggesting that such liability could attach based on concepts of “apparent authority” and “ratification,” which the FCC left undefined.  Following the FCC’s decision, plaintiffs’ counsel quickly latched onto vicarious liability theories to pursue companies with only tenuous connections to alleged TCPA violations.

The Ninth Circuit’s decision provides much needed guidance and a clear limitation on the vicarious liability concepts introduced by the FCC into the TCPA litigation mix by establishing a bright line and high bar that class action plaintiffs must meet to hold companies vicariously liable for the alleged TCPA violations of third-party vendors.  Relying on traditional agency principles, the court explained that TCPA plaintiffs must show that the company “controlled or had the right to control the [vendor]” and “the manner and means of the text message campaign [the vendor] conducted.”  The Ninth Circuit also adopted stringent standards that plaintiffs must establish for vicarious liability to attach under theories of “apparent authority” or “ratification.”

The events leading up to Thomas v. Taco Bell began in 2005, when the Chicago Area Taco Bell Local Owners Advertising Association (consisting of 12 members, including local Taco Bell store operators and Taco Bell Corp.) hired an advertising agency to promote Taco Bell’s Nachos Bell Grande.  The advertising agency, in turn, contracted with a vendor to coordinate the text messaging component of the promotion.  The plaintiff alleged that she received an unauthorized text message on her mobile phone promoting Taco Bell’s product sent from the vendor on behalf of Taco Bell.  She then filed a putative class action against Taco Bell under the TCPA.

In 2012, the Central District Court of California dismissed the case on summary judgment, rejecting the plaintiff’s theory that Taco Bell could be held vicariously liable for the conduct of its advertising vendors.  Specifically, the district court held that the plaintiff failed to show that Taco Bell controlled the advertising agency or the vendor, or that it controlled or had the right to control the “manner and means of the text message campaign.”

The Ninth Circuit affirmed the District Court’s dismissal in reliance on traditional agency principles.  But, at the same time, it recognized that in Dish Network, issued after the District Court’s ruling, the FCC concluded that vicarious liability under the TCPA is not limited “to the circumstances of classical agency,” and should include “[p]rinciples of apparent authority and ratification.”  Even though the FCC’s interpretation of the TCPA is entitled to deference, the Ninth Circuit construed the doctrines of apparent authority and ratification narrowly and concluded that Taco Bell could not be held liable under either.  It explained that the plaintiff failed to establish Taco Bell’s apparent authority because she failed to show “that she reasonably relied, must less to her detriment, on any apparent authority with which Taco Bell Corp. allegedly cloaked” the Association, the advertising agency, or the vendor.  As for ratification, the court held that “the principal-agent relationship is still a requisite.”  Because there was no evidence of an agency relationship, there could be no ratification.

Although the Ninth Circuit’s decision is unpublished – and therefore is non-binding precedent – it is a well-considered application of traditional principles to theories the FCC has recognized may support liability under the TCPA that future courts may look to as they address TCPA actions brought under a vicarious liability theory.  And based on the Ninth Circuit’s analysis, companies will remain protected from vicarious liability under the TCPA in the absence of a traditional principal-agent relationship.  If this construction takes hold, it represents an important limitation on the FCC’s Dish Network ruling and the availability of theories of vicarious liability under the TCPA.