The U.S. Court of Appeals for the Ninth Circuit recently reversed a summary judgment award in favor of a student loan buyer, holding that triable issues of fact existed as to whether it had actual knowledge of or willfully ignored and thereby ratified the Telephone Consumer Protection Act ("TCPA") violations of the debt collectors contracted by the owner's servicer.
A copy of the opinion is available at: Link to Opinion
The plaintiff received student loans through a federal program under which the owner of the loans "guarantees student loans made by private lenders and then takes ownership of those loans if a student-borrower defaults.
The borrower defaulted and the owner of the loans contracted with a loan servicing company, which in turn contracted with debt collectors to collect on loans in default.
Five different debt collection companies began calling the borrower and left pre-recorded messages using a cellular telephone number that "she neither provided in connection with her student loans nor consented to be called on."
The borrower sued the loan owner, loan servicer and several debt collectors, alleging the violated the TCPA by calling the borrower's telephone number without her express consent using an automatic telephone dialing system ("ATDS") and leaving pre-recorded messages. All of the defendants except the loan owner were "dismissed for lack of personal jurisdiction."
The trial court granted the loan owner's motion for summary judgment and the borrower appealed, arguing that (a) the owner was vicariously liable for the debt collectors' TCPA violations under a 2008 Order of the Federal Communications Commission; and (b) the owner was vicariously liable "under the federal common law agency principles of ratification and implied actual authority."
On appeal, the Ninth Circuit began by explaining that "[u]nder the TCPA, it is unlawful 'to make any call (other than … with the prior express consent of the called party) using any automatic telephone dialing system or an artificial or prerecorded voice … to any telephone number assigned to a … cellular telephone service."
The FCC's 2008 Order determined that "[c]alls placed by a third party collector on behalf of that creditor are treated as if the creditor itself placed the call." Because Congress had addressed the issue directly and "the 2008 FCC Order is a fully adjudicated declaratory ruling," it is entitled to deference under the Supreme Court's decision in Chevron, U.S.A. Inc. v. Natural Res. Def. Council.
Rejecting the plaintiff's first argument, the Court pointed out that "[t]hough the 2008 FCC Order implies a creditor could be liable for a debt collector's TCPA violations, the Order does not make such liability per se or automatic. … To the contrary, in a 2013 order, the FCC clarified that a court should determine whether a defendant is vicariously liable for the TCPA violations of a third-party called by using federal common law agency principles."
The Ninth Circuit also explained that the borrower's argument ignored the Court's 2014 decision in Gomez v. Campbell-Ewald Co., "which held that 'a defendant may be vicariously liable for TCPA violations where the plaintiff establishes an agency relationship, as defined by federal common law, between the defendant and a third-party caller." Thus, "there is no per se liability."
The Court then turned to analyze the applicable federal common law agency principles, looking to the Restatement (Third) of Agency for guidance, focusing on the "two agency principles that [plaintiff] believes makes [the owner/creditor] liable for the debt collectors' TCPA violations—ratification and implied actual authority."
The Ninth Circuit explained that "ratification is the principal's assent (or conduct that justifies a reasonable assumption of assent) to be bound by the prior action of another person or entity. … [and] creates consequences of actual authority, including, in some circumstances, creating an agency relationship when none existed before."
A principal ratifies a third party's acts in two ways: "[t]he first is by a 'knowing acceptance of the benefit'. … The second way … is through 'willful ignorance.'"
The Court cited its 2018 decision in Kristensen v. Credit Payment Servs. Inc., a TCPA class action and "the only case in our circuit, or any circuit, that analyzes in what circumstances ratification may create an agency relationship when none existed before …." That case involved a text message sent to plaintiff's cell phone without his prior consent "as part of a marketing campaign for payday lenders."
The plaintiff sued "the lenders and marketing companies but not the company that sent the text message. The trial court granted summary judgment for the defendants, rejecting plaintiff's theory of vicarious liability that "defendants ratified … the [sender's] unlawful texting campaign by accepting customer leads while knowing that [the sender] was using texts to generate those leads." The Ninth Circuit affirmed, holding that because the non-party sender was not an agent or "purported agent of the defendants, they could not have ratified the [sender's] acts."
The Ninth Circuit distinguished Kristensen because "[u]nlike the texting publisher in Kristensen, here, a reasonable jury could find that the debt collectors pretended and demonstrably assumed to act as [the owner/creditor's] agents."
Having found Kristensen inapplicable, the Court analyzed "whether a triable issue of fact exists as to whether [the owner/creditor's] conduct 'justifies a reasonable assumption' that it assented to the debt collector's allegedly unlawful calling practices."
Highlighting that "[t]h focal point of ratification is an observable indication that a principal has exercised an explicit or implicit choice to consent to the purported agent's acts[,]" the Court found that "a reasonable jury could conclude that [the owner/creditor] accepted the benefits—loan payments—of the collectors' calls while knowing some of the calls may have violated the TCPA. If a jury concluded that [the owner/creditor] also had 'knowledge of material facts,' [its] acceptance of the benefits of the collector's unlawful practices would constitute ratification."
Because there was "evidence that [the owner/creditor] communicated consent to the debt collectors through acquiescence in their calling practices that allegedly violated the TCPA[,]" and the knowledge of material facts requirement can be met either through "actual knowledge" or "willful ignorance," the Court found that "a reasonable jury could find that [the owner/creditor] ratified the debt collectors' calling practices by remaining silent and continuing to accept the benefits of the collectors' tortious conduct despite knowing what the collectors were doing or, at the very least, knowing of facts that would have led a reasonable person to investigate further."
Because triable issues of fact existed as to whether the owner/creditor had actual knowledge of or engaged in willful ignorance and thereby ratified the debt collector's calling practices, the Ninth Circuit held that "a reasonable jury could find that [the owner/creditor] ratified the debt collectors' calling practices" and reversed the trial court's order granting summary judgment in defendant's favor.
Ralph T. Wutscher
Maurice Wutscher LLP
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