Flemming Kristensen v. Credit Payment Services Inc.
879 F.3d 1010 (2018)
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Rule of Law:
A principal cannot be held vicariously liable for a third party's unlawful acts under a theory of ratification unless the actor was an agent or purported agent of the principal. Even where an agency relationship exists, ratification requires that the principal had knowledge of the material facts of the agent's act or knew of facts that would lead a reasonable person to investigate further.
Facts:
- Three payday lenders, Enova International, Inc., Pioneer Financial Services, Inc., and Credit Payment Services, Inc., entered into agreements with LeadPile LLC to purchase customer leads.
- LeadPile contracted with Click Media, LLC to obtain these leads.
- Click Media, in turn, contracted with numerous 'publishers,' including a company called AC Referral, to generate the leads.
- Click Media's contract with AC Referral permitted text message marketing but required AC Referral to comply with the Telephone Consumer Protection Act (TCPA).
- AC Referral had no contract, communication, or direct relationship with the lenders or LeadPile.
- Using purchased phone number lists, AC Referral sent an unsolicited text message advertisement to Flemming Kristensen on December 6, 2011.
- The text message contained a link to a loan application website controlled by Click Media, which would then redirect applicants to a lender's website.
Procedural Posture:
- Flemming Kristensen filed a putative class action complaint against Credit Payment Services, Pioneer Services, Enova, LeadPile, and Click Media in the United States District Court for the District of Nevada.
- The district court certified a class of individuals who received certain text messages between December 5, 2011, and January 11, 2012.
- The lenders and LeadPile filed a motion for summary judgment.
- The district court granted summary judgment in favor of the lenders and LeadPile, rejecting all theories of vicarious liability, including ratification.
- The court subsequently entered a stipulated summary judgment in favor of Click Media on the same grounds.
- Kristensen (appellant) appealed the grants of summary judgment to the United States Court of Appeals for the Ninth Circuit.
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Issue:
Does a company become vicariously liable under the TCPA for a third party's unlawful text messages on a theory of ratification by accepting the benefits of those messages, when there is no direct agency relationship or when the company lacks knowledge of facts that would prompt a reasonable person to investigate the third party's methods?
Opinions:
Majority - Ikuta, Circuit Judge
No. A company is not vicariously liable under a ratification theory if no agency relationship existed or if it lacked the requisite knowledge of the unlawful act. For ratification to apply, the actor must be an agent or purport to act on the principal's behalf. Here, AC Referral was not an agent of the lenders or LeadPile, so they could not ratify its actions. Although AC Referral was an agent of Click Media, ratification still fails because Click Media lacked knowledge of the TCPA violations. A principal is only deemed to have knowledge if it knows of 'red flag' facts that would lead a reasonable person to investigate. Simply knowing that an agent is engaged in a 'commonplace marketing activity' like texting, and contractually requiring legal compliance, does not create a duty to investigate the agent's specific methods.
Analysis:
This decision significantly narrows the scope of vicarious liability for TCPA violations under a ratification theory, particularly in cases involving multi-layered marketing arrangements. It clarifies that merely benefiting from a downstream actor's conduct is insufficient to establish liability without an agency or purported agency relationship. For companies that do have an agency relationship with a marketer, the ruling establishes that general knowledge of the marketing method (e.g., text messaging) does not, by itself, create a duty to investigate for legal compliance, thereby protecting principals who lack specific knowledge of wrongdoing.
