D.C. High Court Holds that Businesses Do Not Face Strict Liability for Junk Faxes Advertising Their Products, Agency Principles Apply

FDS Restaurant, Inc. v. All Plumbing, Inc., No. 16-CV-1009, 2020 WL 1465919 (D.C. Mar. 26, 2020)

In a recent TCPA junk-fax case, the District of Columbia Court of Appeals drew the intuitive conclusion that businesses do not incur TCPA liability whenever their products are advertised via fax. The proposition that strict vicarious liability does not apply to advertised businesses is a simple one, but—as the D.C. Court of Appeals noted—courts have diverged as to the proper standard to apply for assessing vicarious liability for faxes sent in violation of the TCPA. In FDS Restaurant, the D.C. Court of Appeals had to decide for itself which standard to apply in this context.

On September 23, 2006, FDS Restaurant (“FDS”)—a business in D.C.—received an unsolicited fax from Business to Business Solutions (“B2B”), containing an advertisement for All Plumbing, Inc.’s commercial plumbing services. 2020 WL 1465919, at *1-2 (D.C. Mar. 26, 2020).  FDS brought suit against All Plumbing in 2011 for the fax, id. at *1, and discovery revealed that, in 2006, All Plumbing asked B2B to send 5,000 faxes to apartments, restaurants, and other businesses located within certain Virginia zip codes, id. at *2. B2B was to receive $350 for sending the faxes. Id. For a reason never found, B2B ended up circulating over 10,000 faxes to numbers across D.C., Maryland, and Virginia. Id. FDS was one of the D.C. recipients of a fax advertising All Plumbing’s services. Id. 

FDS sought to pursue a TCPA class action against All Plumbing for B2B’s facsimile blast. Id. The trial court denied certification of a class of D.C., Maryland, and Virginia residents who received All Plumbing advertisements, explaining that individualized questions existed as to whether a fax recipient was located within a zip code authorized by All Plumbing for dissemination of the faxes. Id. After trial on FDS’s individual TCPA claim, the trial court found that B2B did not send the fax to FDS in D.C. “on behalf of” All Plumbing because B2B was told to send faxes only to specific zip codes in Virginia. Id. at *4. All Plumbing therefore had no vicarious liability for the junk fax to FDS, and judgment was entered in favor of All Plumbing. Id.

On appeal, FDS argued that the trial court should have employed a strict-liability standard against All Plumbing for the junk fax. Id. Because the TCPA does not define who qualifies as a “sender” of an illicit junk fax, see 47 U.S.C. § 227 (2019), the D.C. Court of Appeals turned to FCC regulations and the decisions of other courts for guidance.

In August 2006, the FCC issued a regulation that defined the “sender” of an unsolicited fax to mean the entity “on whose behalf” the fax was sent “or whose goods or services are advertised or promoted” in the fax. FDS Restaurant, supra, at *6 (quoting 47 C.F.R. § 64.1200(f)(8) (now codified at (f)(10)) (emphasis added). Despite the regulation’s broad language, the D.C. Court of Appeals agreed with the Seventh Circuit that an absurd potential for “sabotage liability” arose when the 2006 order was given a literal construction. See id. at *11 (recognizing that, under a literal construction of the order, business competitors could ruin one another by blasting facsimile advertisements for each other’s products) (citing Helping Hand Caregivers, Ltd. v. Darden Restaurants, Inc., 900 F.3d 884, 888 (7th Cir. 2018)). The Court did not find any non-textual evidence in the TCPA’s legislative or regulatory history to suggest that Congress or the FCC intended to impose strict liability upon businesses whose products are advertised via fax. Id.

After discarding strict liability, the question for the Court became which standard of vicarious liability applied to All Plumbing with respect to B2B’s facsimile blast. According to the Seventh Circuit, common-law principles of agency govern whether an advertised business is liable for the conduct of a facsimile broadcaster. Id. at *8 (citing Bridgeview Health Care Ctr., Ltd. v. Clark, 816 F.3d 935, 938 (7th Cir. 2016)). By contrast, the Sixth Circuit holds that the TCPA’s junk-fax provision creates an “on-whose-behalf” form of vicarious liability, which is stricter than the common-law agency analysis but less severe than strict liability. Id. at *9 (citing Siding & Insulation Co. v. Alco Vending, Inc., 822 F.3d 886, 899 (6th Cir. 2016)). Previously, the Sixth Circuit followed a literal construction of the 2006 FCC order regarding junk faxes, holding that the TCPA imposes strict liability upon all businesses whose products are advertised via fax. Id. at *7 (citing Imhoff Inv., LLC v. Alfoccino, Inc., 792 F.3d 627, 634 (6th Cir. 2015)).

The D.C. Court of Appeals found that the Sixth and Seventh Circuits’ respective approaches to vicarious liability were indistinguishable. Traditional agency law and the Sixth Circuit’s “on-whose-behalf” standard, the Court of Appeals explained, both call for a fact-intensive inquiry into the relationship between the advertised business and the facsimile broadcaster. See id. at *12 (identifying the Circuits’ common analytical factors to include the degree of control exercised by the advertised business and the terms of the entities’ written agreement). Seeing no difference between the available tests, and noting that “agency law principles of vicarious liability are typically applied in the context of the federal statutory tort actions,” id. at *13 n.25, the D.C. Court of Appeals concluded that common-law agency principles govern vicarious liability under the TCPA’s junk-fax provision, id. at *11.

The Court of Appeals held that the trial court—which couched its analysis in “on-whose-behalf” terms—essentially applied the correct standard for vicarious liability by first determining the scope of B2B’s authorization to send faxes and then concluding, based on that inquiry, that B2B did not create liability for All Plumbing by sending unsolicited faxes beyond the authorized zip codes. Id. at *15.  The Court of Appeals also concluded that the trial court did not abuse its discretion in denying FDS’s motion for class certification due to clear issues of commonality and typicality. Id. at *16.

FDS Restaurant illustrates how the patchwork of FCC regulations and orders supplies narrow hooks that TCPA plaintiffs use to fuel prolonged litigation against businesses that hire outside contractors to advertise their products. Simple errors of wording in agency regulations or orders can and do prompt waves of litigation against unsuspecting businesses. See id. at *10 n.20 (suggesting that a scrivener’s error produced the part of the 2006 FCC order that purports to impose strict liability upon businesses advertised via fax). Even where a court can rectify the meaning of a seemingly draconian regulatory provision, it may take years for a given litigation to advance to a point where the court has the opportunity to perform an adjusted reading.