Franchisor Isn’t Liable Under the TCPA for Franchisees’ Text Message Campaign – Thomas v. Taco Bell

[Post by Venkat Balasubramani with comments from Eric]

Thomas v. Taco Bell Corp., SACV 09-01097-CJC(ANx) (C.D. Cal.; June 25, 2012)

Thomas allegedly received unauthorized text messages as part of an advertising campaign for Taco Bell’s Nachos BellGrande (“[a] large platter of crisp, freshly prepared tortilla chips covered with hearty beans, seasoned ground beef, warm nacho cheese sauce, diced ripe tomatoes, and reduced fat sour cream”–I’m sure they taste as glorious as they sound).

The text messages in question were organized by the “Taco Bell Local Owners Advertising” association, an Illinois entity comprised of 12 owners of Taco Bell stores in the Chicago area. The Association retained ESW Partners, an advertising agency, who then contracted with ipsh!net, who actually sent the messages. Taco Bell Corp., the national franchisor, had some influence over the Association’s activities through a seat on the Association’s Board of Directors, and control of the pursestrings (the funds that were used by the Association for advertising were controlled by a division of the national franchisor). While the Association was free to conduct its own separate advertising, where funds from Taco Bell (the franchisor) were used to pay for a campaign, approval from Taco Bell was required. In this case, a division of Taco Bell ended up paying for the advertising campaign.

She sued several different entities in the chain alleging violations of the TCPA, but amended the complaint to name only two defendants: Taco Bell (the national franchisor) and the Association. The Association was dismissed on jurisdictional grounds. Another defendant was dismissed earlier on jurisdictional grounds as well. The key question was whether Taco Bell (the franchisor) could be on the hook for any alleged TCPA violations.

The court says that the TCPA imposes liability on someone who actually “makes” a call that violates the statute. While Thomas argued that the TCPA also imposes liability on someone on whose behalf the call was made (i.e., any party that “receives benefit from the text message”) but the court says that the language and intent of the TCPA does not envision derivative liability on such a broad standard. In the absence of a specific basis of vicarious liability, traditional (agency) standards govern. A principal-agent relationship, the court says, “means more than passive permission; it involves request, instruction, or command.”

The court says that Thomas’s evidence falls short in this regard. Thomas did not present any evidence that Taco Bell (the franchisor)

directed or supervised the manner and means of the text message campaign conducted by the Association, and its two agents, ESW and ipsh!. She presented no evidence . . . that Taco Bell created or developed the text message. Nor did she present any evidence . . . that Taco Bell played any role in the decision to distribute the message by way of a blast text.

Thomas argued that the existence of a policy under which Taco Bell would pay for the Association’s advertising demonstrated that Taco Bell controlled the advertising, but the court says that approval of the campaign is different from control over “the manner of marketing”. Thomas also argued that the presence of a Taco Bell employee on the Association’s Board of Directors and the fact that the employee cast a vote to approve this campaign also reflected the requisite control. The court says this is insufficient to create the type of agency relationship required for derivative liability under the TCPA. Thomas tried to marshal some other evidence in support of agency liability, but the court says this is all anecdotal and doesn’t reflect Taco Bell’s control over the means of marketing.

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This could be somewhat of a blockbuster ruling under the TCPA. The big TCPA case out of the Ninth Circuit didn’t rule on derivative liability but made it painfully easy to sue anyone who sent an unsolicited text. (See Satterfield v. Simon & Schuster.) Incidentally, ipsh!, the entity that sent the messages in this case, was also involved in Satterfield and was actually a defendant in that case, but the Ninth Circuit did not delve into the relationship between ipsh! and Simon & Schuster from the standpoint of legal liability.

In the context of unsolicited text messages, Satterfield has been a boon for plaintiffs, and they have taken full advantage of the resulting litigation bonanza. We’ve blogged a bunch about TCPA cases, but this post from Tom O’Toole talks about a hockey team being sued for sending text messages … to its fans!

The big question this case raises is whether this is just an instance of a plaintiff not having the right defendant available on the other side of the v., or whether it somehow changes things as far as plaintiffs’ attempts to hold advertisers—rather than their marketing agencies—liable. I would think it’s more of the former. Here, the plaintiffs sued multiple entities and at one point amended the complaint to name only the parent entity and the association. I’m not 100% clear as to why the plaintiff did not name ipsh. (It’s possible plaintiffs settled with ipsh or there’s some other explanation, other than the obvious issue of personal jurisdiction, for why the franchisor and association ended up being the only defendants.)

Interestingly, plaintiffs have been stymied consistently in trying to smack defendants with affiliate liability in lawsuits under CAN-SPAM. (See the cases mentioned in this post.) Might we see a similar dynamic play out in future TCPA lawsuits? (See also Anderson v. Domino’s Pizza, Inc., et al., for a similar result under state law in a text spam case brought in Washington.)

FWIW, I predict this one will be appealed.

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Eric’s Comments

Even though Ipsh wasn’t in the courtroom, the ruling throws Ipsh under the bus, saying that Ipsh pushed the button on the campaign and therefore would be the prime mover behind any TCPA violation. If the campaign violated the TCPA, Ipsh would have been legally liable–perhaps along with other defendants, but possibly as the only defendant left holding the bag. Ipsh can try to put into place an airtight indemnity agreement with its customers (though those are rarer than unicorns), but this ruling can’t be a confidence-booster about the vitality of its text-messaging business line. I further wonder if this ruling will spook the marketing services companies providing email campaign outsourcing? They are governed by a different statute, but they too are the ones who “push the button.”

Meanwhile, assuming the facts are true, I don’t understand how this text-messaging campaign got greenlighted given the obvious legal risks. Sure, it would be great to reach texting young adults who have the munchies via their most precious device, but text-messaging campaigns are always fraught with legal peril. When you add in the Grande legal costs of defending the resulting lawsuits–and the plaintiff lawyers love these kinds of lawsuits–the per-text-message costs of reaching 17,000 consumers never had a chance of being profitable no matter what the conversion rate of such ads. Plus, this isn’t Taco Bell’s first ride at the text-messaging litigation rodeo.

To me, the message is clear: text-messaging ad campaigns are lawsuit bait. Until the law becomes clearer and more favorable, marketers should permanently retire text-messages from their marketing campaign toolkits.

Related posts:

Group Text Services Grapple with TCPA Class Actions

Ninth Circuit Revives TCPA Claim–Satterfield v. Simon & Schuster

Cellphone Spam Violates TCPA–Joffe v. Acacia Mortgage

Text Spam Lawsuit Against Citibank Moves Forward Despite Vague Allegations of Consent — Ryabyshchuk v. Citibank

Court Rejects Constitutional Challenge to TCPA Based on Vagueness in “Prior Express Consent” Exception — Kramer v. Autobytel, Inc.

Another Court Finds that TCPA Applies to Text Messages — Lozano v. Twentieth Century Fox Film Corp.

Court Finds that SMS Spam Messages are Subject to the TCPA and Rejects First Amendment Defense — Abbas v. Selling Source, LLC

Confirmatory Opt-Out Text Message Doesn’t Violate TCPA – Ibey v. Taco Bell

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