Companies Must be Careful in Hiring Marketing Firms

A Florida dentist is currently in litigation over the actions of the subcontractor of his subcontractor. Briefly, the dentist hired an individual to help him market his dental practice. That individual then hired a third-party marketing firm located in Romania to send 10,000 fax ads to phone numbers within a specific zip code. The plaintiff, a golf course, filed a class action lawsuit based on violations of the Telephone Consumer Protection Act, which permits consumers to sue and receive statutory damages for certain unsolicited telemarketing efforts.

A few preliminary comments.... Companies must be careful when engaging third parties to undertake marketing efforts on their behalf. In the past several years, there has been a hot bed of litigation surrounding the TCPA, particularly since certain regulatory changes in October 2013, which removed the "established business relationship" exemption and put in place a requirement of prior express written consent for certain types of marketing efforts (e.g., text messages). The current case provides a great example that the chain of responsibility can be quite long. This is similar to what providers see in the context of HIPAA, where, generally, covered entities remain ultimately responsible. When engaging marketing firms, consider engaging only parties who are experienced, understand the regulatory landscape, and carry their own insurance. Be sure to ask for a copy of the certificate of insurance and double check that the type of insurance is appropriate for the services being offered.

Companies often hold the mistaken belief that they cannot be held legally responsible for the actions of their independent contractors. Often, based on contract terms, they can be held directly responsible. For example, many commercial contracts may include a clause similar to:
USE OF SUBCONTRACTORS. Company may engage subcontractors to perform services under this Agreement.  Company understands and agrees that the management of any subcontractor is the sole responsibility of Company to the same extent as if Company had not subcontracted such performance and that a subcontractor's non-performance shall not relieve Company of any obligations or performance required under this Agreement.
Similarly, companies may be held responsible for the actions of their vendors under federal and state laws.

One such law is the Telephone Consumer Protection Act (TCPA) (47 U.S.C. ß 227), which permits consumers to sue and receive damages for receiving unsolicited telemarketing calls, faxes, pre-recorded calls, auto-dialed calls, or text messages without their prior written authorization. The TCPA has been a hotbed of litigation, particularly class action litigation, because it provides for either actual damages or statutory damages ranging from $500.00 to $1,500.00 per unsolicited call/message.

The TCPA has become an issue for one Florida dentist. In February 2012, Palm Beach Golf Center-Boca filed a class action against Dr. John G. Sarris for allegedly sending unsolicited faxes. But, the faxes were not sent directly by Dr. Sarris, but by an independent contractor of an independent contractor. That is, Dr. Sarris engaged an individual named Roberts, an independent contractor, to market his dental practice. This contractor then engaged another entity called Business to Business Solutions ("B2B"), which sold facsimile advertising services in the US on behalf of a Romanian company called Macaw, to send 10,000 fax ads to phone numbers within a specific zip code. The Plaintiff purportedly received one of these fax advertisements.

On October 22, 2013, the United States District Court for the Southern District of Florida granted summary judgment in favor of Dr. Sarris. The court rejected the plaintiff's direct liability claim, ruling that the golf center could establish liability, if at all, only on the basis of vicarious liability. The court further held that Dr. Sarris could not be held vicariously liable for purported violations of the TCPA. The court's decision was based, in part, on a 2013 FCC decision, In re Joint Petition filed by Dish Network, 28 FCC Rcd. 6574 (2013) (addressed availability of direct and vicarious liability for unlawful telemarketing calls under the TCPA), where the FCC ruled "that the seller generally is not directly liable for unlawful telemarketing calls initiated by third-party telemarketers on the sellerís behalf." [1]

The Plaintiff appealed the decision to the Eleventh Circuit and on July 7, 2014, the Court sought comments from the FCC asking the FCC's position "on whether the [TCPA] and its accompanying regulations allow a plaintiff to recover damages from a defendant who sent no facsimile to the plaintiff, but whose independent contractor did." In a letter brief filed Thursday, July 17, 2014, the FCC answered in an affirmative yes. The FCC specifically addressed its decision in the Dish Network case, explaining:
The DISH Network ruling did not address or alter the treatment of facsimile transmissions under the TCPA or the Commissionís implementing regulations. Under the terms of the statute and regulations, the recipient of an unsolicited facsimile advertisement may recover damages from a defendant that does not itself transmit the offending facsimile, if the defendant has hired an independent contractor to transmit facsimiles advertising the defendantís goods or services. Such liability does not depend upon the application of federal common law vicarious liability principles.
According to the court's docket, the Eleventh Circuit has scheduled to hear oral arguments on the appeal on July 30, 2014.

The case is Palm Beach Golf Center-Boca, Inc. v. John G. Sarris, D.D.S., P.A. et al., 9:12-cv-80178-KMW (S.D. Fla.), app. docket 13-14013. Complaint is available here.

[1] FCC Brief in Response to Palm Beach Golf Center-Boca, Inc. v. Sarris, No. 13-14013, July 17, 2014.

Posted by Tatiana Melnik on July 22, 2014