Federal Court Limits Vicarious Liability for TCPA Claims

Earlier this week United Student Aid Funds prevailed on a summary judgment motion in a suit under the Telephone Consumer Protection Act, providing a measure of hope for creditors that are sued for dialer calls placed by independent third-party debt collectors   In Henderson v. United Student Aid Funds, No.: 13cv1845, 2017 U.S. Dist. LEXIS 28165 (S.D. Cal. Feb. 27, 2017) District Judge Janis Lynn Sammartino held that the defendant could not be liable for the calls made by its contracted debt collector, Navient Solutions, Inc.

The plaintiff had sued USAF under the TCPA alleging that she never gave prior express consent to receive on her cell phone calls that involved the use of the use of an autodialer or a prerecorded message.  USAF is a non-profit guaranty agency that works with the Federal Family Education Loan Program, insuring  student loans.  When the loan defaults, USAF hires NSI to collect the debt.

The consumer originally sued only USAF, but later amended her complaint to include NSI and several other collectors.  Those added defendants were dismissed by the Court for lack of jurisdiction, leaving only USAF.

The suit against USAF proceeded with USAF arguing that under the 2015 Budget Act it was exempted from the TCPA requirements because the calls made were “solely to collect on a debt owed to or guaranteed by the United States.” 47 U.S.C. § 227(b)(1)(A)(iii).  The District Court rejected that argument, looking to the FCC’s Report and Order issued in May 2016.

[T]he FCC Order construed the phrase ‘owed to or guaranteed by the United States’ as including ‘only debts for which the United States is currently the owner or guarantor of the debt,’ to the exclusion of debts merely ‘insured by the United States.’

The Court found that Congress was clear when drafting the statute and specifically excluded student loans “insured by the United States.”  Thus, the Court held that student loan in this lawsuit was not exempted from the TCPA.

Although it failed on its exemption argument USAF was successful in persuading the Court that it could not be held vicariously liable for the acts of NSI.  The Court looked closely at the contractual relationship between USAF and NSI, eventually agreeing with USAF that NSI was “merely an independent contractor.”

As part of its analysis, the Court found that USAF “controlled only the outcome of NSI’s work, rather than the manner and means by which it was accomplished.”  USAF would conduct audits of NSI’s performance, including making recommendations to NSI, but that did “not constitute control over the manner and means by which NSI and its Collectors achieve results for Defendant.”  USAF’s ability to withhold placements from NSI as a result of poor performance was merely a carrot for NSI’s proverbial stick in order to perform at a certain level, but not a sufficient level of control for the court to impose vicarious liability.

This decision may provide incentives for creditors to reexamine not only their defensive strategies, but also their vendor contracts.