Sixth Circuit Clarifies TCPA Liability Standards for Faxes

Practical Law Legal Update w-002-2418 (Approx. 7 pages)

Sixth Circuit Clarifies TCPA Liability Standards for Faxes

by Practical Law Commercial Transactions

Background

In November 2005, The Siding and Insulation Co. (Siding) received an unsolicited fax promoting Alco Vending, Inc.'s (Alco) services. Siding never consented to receiving faxes from Alco and sued the company for violating the TCPA's rules against sending unsolicited faxes (47 U.S.C. § 227(b)(1)(C)).

Alco, however, did not directly send the fax. Instead, Alco paid another company, Business to Business Solutions (B2B), to send advertising faxes only to consenting businesses. According to Alco:

Alco:
- provided B2B with three "selling points" that could be included in any advertisements;
- reviewed the sample advertisements B2B prepared;
- was not involved in selecting the specific businesses to which B2B sent faxes; and
- never saw or reviewed the list of recipients.
B2B:
- agreed to identify advertisement recipients from a list of businesses that had previously consented to receive fax advertising from B2B; and
- ensured Alco that any faxes it sent for Alco would be "100 percent legal."

B2B sent faxes advertising Alco's services in November 2005 and July 2006. Alco moved for summary judgment, arguing that it was not liable for B2B's TCPA violations because B2B had exceeded the scope of its authority.

Relying on a 2013 FCC order, a magistrate judge agreed with Alco and found that the company could be held liable for TCPA violations only on the basis of vicarious liability under the federal common law of agency (In the Matter of the Joint Petition Filed by Dish Network, LLC, the United States of Am., & the States of California, Illinois. N. Carolina, & Ohio for Declaratory Ruling Concerning the Tel. Consumer Prot. Act (Tcpa) Rules, 28 F.C.C. Rcd. 6574 (2013) (2013 FCC Order)). The judge granted Alco's motion.

Outcome

The US Court of Appeals for the Sixth Circuit found that the magistrate judge used the incorrect legal standard to evaluate Alco's TCPA liability. The court reversed the decision and remanded the case for further review under the correct standard.

The court had to determine which of the following was the appropriate legal standard for judging Alco's TCPA liability related to the November 2005 and July 2006 faxes:

A strict liability standard (see Strict Liability).
A vicarious liability standard (see Vicarious Liability).
An "on-whose-behalf" standard (see On-Whose-Behalf).

The court ultimately concluded that the last standard was applicable in this case.

Strict Liability

In 2006, the FCC promulgated a new regulation to define who can be held liable as a "sender" of a fax. Under the 2006 codified definition, a sender can be a person or entity either:

On whose behalf an unsolicited fax advertisement is sent.
Whose goods or services are advertised or promoted in the unsolicited advertisement.

(47 C.F.R. § 64.1200(f)(10).)

Siding argued that the second definition should apply to Alco. Under the second definition, Alco would be considered the fax sender and face strict liability because the faxes advertised its services. Alco countered that because this second definition of sender did not become effective until August 1, 2006, it does not apply to the faxes B2B sent in November 2005 and July 2006.

The Sixth Circuit agreed with Alco and found that applying the second definition to the pre-August 2006 faxes would be an impermissible retroactive application of the regulation because it would increase Alco's liability for its past conduct.

Notably, the court found that the 2006 regulation expanded the FCC's previous definition of "sender" to include not only a party on whose behalf a fax was sent (see In the Matter of Rules & Regulations Implementing the Tel. Consumer Prot. Act of 1991, 10 F.C.C. Rcd. 12391, 12407-08 (1995) (1995 FCC Order)), but also a party whose goods or services were advertised in the advertisement. The court believed that this broader definition expanded the scope of liability under the TCPA, which is exactly the kind of change in the law that should not be applied retroactively.

Therefore, the court found that the 2006 definition of sender should not apply to conduct that occurred before August 1, 2006.

Vicarious Liability

The Sixth Circuit found that the district court incorrectly relied on the 2013 FCC Order to determine that the vicarious liability standard applied in this case. In the 2013 FCC Order, the FCC:

Considered liability for sellers and telemarketers under 47 U.S.C. Section 227(b)(1)(B).
Concluded that parties may be held vicariously liable for certain third-party telemarketing calls under federal common law principles of agency.

However, the Sixth Circuit found that the 2013 FCC Order rested largely on the definitions of "telemarketer" and "seller" and is inapplicable to fax transmissions.

The Sixth Circuit's decision not to apply the 2013 FCC Order's vicarious liability standard to faxes aligns the court with the US Court of Appeals for the Eleventh Circuit (see Legal Update, Updated: Eleventh Circuit: Party Is Directly Liable Under TCPA for Junk Faxes Sent on Its Behalf), but creates a split with the US Court of Appeals for the Seventh Circuit (see Bridgeview Health Care Center, Ltd. v. Clark, 816 F.3d 935 (7th Cir.2016)).

On-Whose-Behalf

The Sixth Circuit ultimately concluded that the appropriate liability standard for Alco's alleged violations was the standard in force when B2B sent the faxes in November 2005 and July 2006. The court held that the "on-whose-behalf" standard is appropriate in this case because:

It was the standard the FCC adopted in the 1995 FCC Order.
In Palm Beach Golf Center-Boca, Inc. v. John G. Sarris, D.D.S., P.A., the FCC confirmed that the on-whose-behalf standard provided the rule for assessing fax liability under the TCPA from the 1995 FCC Order until the strict liability standard became effective in August 2006 (781 F.3d 1245, 1254-55 (11th Cir. 2015)).

Under this standard, a court considers the following factors to determine if a third party sent an unauthorized fax on behalf of another entity and exposed that entity to TCPA liability:

The degree of control that the latter entity exercised over the preparation of the faxes.
Whether the latter entity approved the final content of the faxes as broadcast.
The nature and terms of the contractual relationship between the fax broadcaster and the latter entity.
The existence of measures taken to ensure compliance and/or to cure noncompliance with the TCPA.

Alco's Liability under the On-Whose-Behalf Standard

The Sixth Circuit did not make an ultimate determination of Alco's liability. However it did outline the factors that tended to show how B2B did and did not act on Alco's behalf.

Factors Weighing for Alco

The following factors indicated that B2B did not act on Alco's behalf:

Alco had only limited access to and control over the fax lists and transmission information.
Alco took measures to ensure compliance with the TCPA by forwarding complaints about unwanted faxes to B2B with the understanding that B2B would remove the complaining businesses from the fax list.
A factfinder could reasonably conclude that Alco reasonably relied on B2B's representations that its faxes would be "100 percent legal" and sent only to parties who had consented to receive faxes.

Factors Weighing Against Alco

The following factors indicated that B2B did act on Alco's behalf:

Alco had some degree of input in and control over the content of the faxes because it provided the three "selling points" to B2B.
Alco was substantively involved in the preparation of the faxes because it reviewed and approved drafts from B2B.
The faxes promoted Alco's business.

The court also stated that the district court could consider the reasonableness of Alco relying on B2B's representations by exploring Alco's efforts to determine whether B2B is a reputable company.

Practical Implications

The legal standard for judging TCPA liability can vary based on when a party sent a fax advertisement and the circuit where the suit is litigated. The Sixth Circuit has now clarified that faxes sent before the FCC's 2006 regulations subject parties to a lighter standard of legal liability (the on-whose-behalf standard) than would a fax sent after the 2006 regulations (the strict liability standard). The court also created a circuit split by rejecting the Seventh Circuit's holding that vicarious liability standards govern fax senders.

Parties should carefully review this decision to determine how it could affect their own potential liability.

When hiring a third party to send faxes or other advertisements on its behalf, a business should ensure that this third party is:

Complying with the business' instructions, the TCPA, and other relevant laws.
A reputable company.
Contacting only parties that have provided prior consent to be contacted.

For more information on complying with the TCPA, see:

Sixth Circuit Clarifies TCPA Liability Standards for Faxes | Practical Law