Your beeper business has seen better days. Sure, it was doing great for a few years, but ever since Clinton left office, things haven’t quite been the same. You know it’s time for a big play to turn things around. I know it’s a bit flashy, but it’s time to start thinking about advertising. And not just any advertising. You need to bring out the big guns. Yeah, you know what I’m talking about.
Unsolicited mass faxes.
You’ve decided to send out fliers to every single fax machine within a 10-mile radius. But you don’t have the know-how for such techno-wizardry, so it’s time to bring in the reformed Phone Phreaks over at Sir FaxALot. You tell them the plan. You give them the money. They get to work.
Two weeks later, you get a knock on your door. It’s a process server. Turns out that sending out unsolicited advertising faxes is a violation of the Telephone Consumer Protection Act (TCPA) of 1991. It also turns out that the console jockeys down at Sir FaxALot misplaced a decimal point, and your ad went out to every single fax machine within a 100-mile radius.
So here’s the question: with whom does the liability lie? Is it all on you? Or is Sir FaxALot on the hook?
Surprisingly, the circuits are still split on this (somehow) pressing issue.
The American consumer is protected by several different laws. Insofar as Americans are protected against abuses related to telecommunications, the TCPA has been a bedrock of consumer protection law for over three decades. Protections such as the Federal Do Not Call Registry, regulations against spammers, and the all-important ban on unsolicited advertising faxes can be traced to this act. Parties who violate the TCPA are subject to stiff penalties, which are keyed to the medium of the violation (e.g., telephone, SMS, fax, etc.) and each individual consumer affected by the infraction. In 2005, the TCPA was expanded and amended by the Junk Fax Prevention Act, the penalty for unsolicited advertising faxes is $500 per page per person.
Naturally, nobody wants to pay such a penalty should they get caught, so it becomes necessary to see which type of third party liability applies. Determining the extent to which each party is liable is where we find our split.
Here, we have the Sixth Circuit and the Seventh Circuit disagreeing over the extent to which third party liability for faxing violations applies.
In Bridgeview Health Care Ctr. Ltd. v. Clark (2016), a small medical supply business instructed a third-party marketing firm to send roughly 100 faxed advertisements to local businesses within a 20-mile radius of Terre Haute, Indiana. Instead, the marketing firm sent 4,849 faxed advertisements across three states. In determining whether the medical supply business was liable for faxes sent out beyond the 20-mile radius, the Seventh Circuit applied three types of common law agency analysis: express actual authority, implied actual authority, or apparent authority.
First, express actual authority:
Because B2B expressly contradicted Clark’s actual instructions, this is clearly not express actual agency.
Second, implied actual authority:
While express actual authority is proven through words, implied actual authority is established through circumstantial evidence. Id. Nothing about fax marketing inherently calls for sending thousands of advertisements. And nothing about fax marketing inherently demands sending these ads to states where the advertiser does not do business. We thus find it impossible to conclude that implied actual authority exists here.
Third: apparent authority:
To create apparent authority, the principal must speak, write, or otherwise act toward a third party. His conduct must make the third party reasonably believe that he has consented to an action done on his behalf by someone purporting to act for him…In short, B2B made an independent decision to blast faxes across multiple state lines.
In short, the medical supply company could not be held liable for the violations of the TCPA committed by a third party.
The Sixth Circuit
In deciding Siding and Insulation Co. v. Alco Vending Inc., the Sixth Circuit split itself. First, the court held that a hybrid test to determine “on whose behalf” such faxes were sent would be more appropriate for faxes sent before 2006. Such a test involved balancing between common law agency principles (as outlined above) and certain policy considerations, such as “whether and to what extent each entity investigated the lawfulness of the fax broadcasts at issue.”
However, in dicta the court indicated that the standard post-2006 as established by the Federal Communications Commission’s (FCC’s) governing regulations applied a standard of strict liability. In other words, the small business that contracted out for the infringing advertising services would be on the hook for the full extent of the damages.
This is going to be a brave new world for fax-based mass marketing. The split indicates that we may be headed for a showdown between common law agency analysis and strict liability. Depending on the jurisdiction one poor, outdated marketing decision could be a small business’s last.