Opinion ID: 4380656
Heading Depth: 2
Heading Rank: 3

Heading: Federal Common Law Agency Principles

Text: A court may hold lenders, like USA Funds, vicariously liable for the TCPA violations of third party callers, like the debt collectors, “where the plaintiff establishes an agency relationship, as defined by federal common law, between the defendant and [the] third-party caller.” Gomez, 768 F.3d at 879. We rely on the Restatement (Third) of Agency for common law agency principles. See, e.g., Mavrix Photographs, LLC v. LiveJournal, Inc., 873 F.3d 1045, 1054 (9th Cir. 2017). “Agency is the fiduciary relationship that arises when one person (a ‘principal’) manifests assent to another person (an ‘agent’) that the agent shall act on the principal’s behalf and subject to the principal’s control, and the agent manifests assent or otherwise consents so to act.” Restatement § 1.01. There are several ways to establish an HENDERSON V. UNITED STUDENT AID FUNDS 9 agency relationship, including actual authority and ratification. Restatement §§ 2.01, 4.01. Whether an agency relationship exists is for a court to decide based on an assessment of the facts of the relationship and not based on how the parties define their relationship. Restatement § 1.02; see also U.S. v. Milovanovic, 678 F.3d 713, 725 (9th Cir 2012) (finding an agency relationship even though the parties’ agreements labeled them as independent contractors). Thus, it is not dispositive, as USA Funds argues, that the agreements between USA Funds, Navient, and the debt collectors define their relationships as independent contractors. Moreover, it is appropriate to consider whether the parties are trying to limit or prevent liability by characterizing their relationship as something other than an agency relationship. Restatement § 1.02 cmt. b. Henderson alleges that USA Funds is doing just that. More specifically, she argues that USA Funds, Navient, and the debt collectors had a “wink-and-a-nudge” agreement to use unlawful calling practices notwithstanding their independent contractor agreements. Finally, Henderson has the burden of establishing that an agency relationship exists. Restatement § 1.02 cmt. d.; see also, e.g., Romak USA, Inc. v. Rich, 384 F.3d 979, 985 (8th Cir. 2004); Bridas S.A.P.I.C. v. Government of Turkmenistan, 345 F.3d 347, 356 (5th Cir. 2003); E.I. DuPont de Nemours & Co. v. Rhone Poulenc Fiber & Resin Intermediates, S.A.S., 269 F.3d 187, 198 (3d Cir. 2001). Henderson advances two agency principles that she believes makes USA Funds liable for the debt collectors’ TCPA violations—ratification and implied actual authority. 10 HENDERSON V. UNITED STUDENT AID FUNDS
“Ratification is the affirmance of a prior act done by another, whereby the act is given effect as if done by an agent acting with actual authority.” Restatement § 4.01. Ratification is both an act and a set of effects. Restatement § 4.01 cmt. b. As an act, 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. Restatement § 4.01. As a set of effects, ratification creates consequences of actual authority, including, in some circumstances, creating an agency relationship when none existed before. Restatement § 4.01 cmt. b. There are two ways to ratify a third party’s acts. The first is by a “knowing acceptance of the benefit.” To prove this form of ratification, there must be “an objectively or externally observable indication . . . that the principal has exercised choice and has consented” to the acts of the purported agent. Restatement § 4.01 cmt. d. That means that the principal must have “knowledge of material facts,” also described as “actual knowledge.” Restatement § 4.06. The second way a principal can ratify the acts of a third party is through “willful ignorance.” Under the “willful ignorance” theory, the principal may not know the material facts, but has “ratified with awareness that such knowledge was lacking.” Restatement § 4.01 cmt. b. In effect, the principal can ratify the act of a third party—thereby making the third party the principal’s agent—even if it does not know all the material facts, but it must be aware that it does not know the material facts and ratify anyway. HENDERSON V. UNITED STUDENT AID FUNDS 11
Relationship When None Existed Before USA Funds argues it could not have ratified the actions of the debt collectors because there is no agency relationship between it and the debt collectors. We disagree. Restatement § 4.01 cmt. b makes clear that, in most jurisdictions, ratification may create an agency relationship when none existed before if the acts are “done by an actor . . . who is not an agent but pretends to be.” Kristensen v. Credit Payment Servs. Inc. is the only case in our circuit, or any circuit, that analyzes in what circumstances ratification may create an agency relationship when none existed before as described in the Restatement (Third) of Agency. 879 F.3d 1010 (9th Cir. 2018). It also happens to be a TCPA case. In Kristensen, Plaintiff Kristensen received a text message from a texting publisher, AC Referral, on his cell phone without his prior consent. Id. at 1012. AC Referral sent the text messages as part of a marketing campaign for payday lenders. Id. Kristensen brought a TCPA class action against the lenders and marketing companies but not AC Referral, the entity that sent the texts. Id. at 1013. The district court granted summary judgment in favor of the defendants, rejecting Kristensen’s theories of vicarious liability, including his theory that the defendants ratified AC Referral’s unlawful texting campaign by accepting customer leads while knowing that AC Referral was using texts to generate those leads. Id. We affirmed the district court’s grant of summary judgment, holding that “[b]ecause AC Referral (which is not a party to the suit) was neither the agent nor purported agent [ ] of the defendants, they could not have ratified AC Referral’s acts.” Id. at 1012. 12 HENDERSON V. UNITED STUDENT AID FUNDS Unlike the texting publisher in Kristensen, here, a reasonable jury could find that the debt collectors pretended and demonstrably assumed to act as USA Funds’ agents. See Restatement § 4.01 cmt b. As previously described, the debt collectors collected on unpaid loans by calling the studentborrowers. The collectors told the borrowers that they were calling about a loan owned by USA Funds. Without needing USA Funds’ approval, the collectors negotiated, deferred, and took payments on USA Funds’ behalf. In Kristensen, the texting publisher did not pretend to be the lenders’ agent because the publisher did not identify itself in the text message. Id. at 1012. Rather, the text message simply included a link to the lenders’ website. Id. Before the litigation, none of the text message recipients knew that AC Referral had sent the text messages. Kristensen v. Credit Payment Servs. Inc., 12 F. Supp. 3d 1292, 1297 (D. Nev. 2014). Because here, unlike in Kristensen, the debt collectors did purport to act as agents of USA Funds, Kristensen’s material facts are distinguishable from the facts in this case, and therefore, its holding is not binding here.
Collectors’ Calling Practices Because Kristensen’s holding does not apply in this case, we must resolve whether a triable issue of fact exists as to whether USA Funds’ conduct “justifies a reasonable assumption” that it assented to the debt collectors’ allegedly unlawful calling practices. Restatement § 4.01. Comment d explains the kind of conduct that constitutes ratification, including “conduct justifiable only on the assumption that [a] person consents to be bound by [an] act’s legal consequences.” § 4.01 cmt. d. The illustration to comment d illuminates this point. HENDERSON V. UNITED STUDENT AID FUNDS 13 In the illustration, a used car dealer (the principal) employs a retail salesperson (the agent) not authorized to make public statements for the dealer. When the salesperson defames the dealer’s competitor on TV, and the dealer congratulates the salesperson’s TV appearance, the dealer ratified the salesperson’s tortious conduct. To constitute ratification, therefore, a principal need not explicitly communicate consent to an agent. Similarly, failure to object to or repudiate an action may indicate approval when an agent is likely to draw such an inference from a principal’s silence. § 4.01 cmt. f. The 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. § 4.01 cmt. d. For example, “[a] person may ratify an act . . . by receiving or retaining benefits it generates if the person has knowledge of material facts.” § 4.01 cmt. g. Here, a reasonable jury could conclude that USA Funds 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 USA Funds also had “knowledge of material facts,” USA Funds’ acceptance of the benefits of the collector’s unlawful practices would constitute ratification. Restatement § 4.06 requires that a principal knows of the material facts involved in the act it is ratifying. This knowledge requirement is met if the principal either has “actual knowledge” or “choose[s] to affirm without knowing the material facts.” § 4.06 cmt. b. Comment d adds that “a factfinder may conclude that a principal has made such a choice when the principal is shown to have had knowledge of facts that would have led a reasonable person to investigate further, but the principal ratified without further 14 HENDERSON V. UNITED STUDENT AID FUNDS investigation.” § 4.06 cmt. d. This can also be described as “willful ignorance.” Here, there is evidence that USA Funds communicated consent to the debt collectors through acquiescence in their calling practices that allegedly violated the TCPA. In other words, a reasonable jury could find that USA Funds 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.
There is evidence in the record that USA Funds had actual knowledge of the debt collectors’ allegedly unlawful calling practices. “The fact that the principal had knowledge may be inferred” by circumstantial evidence. Restatement § 4.06 cmt. b. Henderson claims that starting in 2009, debt collectors called her every 30 to 40 minutes on a number she did not provide in connection with her student loans. The calling practice described by Henderson is consistent with several of USA Funds’ audit findings and its general understanding of the debt collection industry. USA Funds does not dispute that it knew that some of the debt collectors used auto dialers. Evidence in the record shows that USA Funds knew that both auto dialing and skip tracing are ubiquitous in the debt collection industry. While collectors may legally use each method separately, several of USA Funds’ audits found that its debt collectors might have violated the TCPA by combining these methods. Despite these findings, USA Funds made no effort to end its relationship with any of these debt collectors or to ensure future TCPA compliance. Instead, it continued to accept the HENDERSON V. UNITED STUDENT AID FUNDS 15 benefits of the collectors’ conduct. Under these circumstances, the debt collectors were “likely to draw [the] inference” that USA Funds’ silence manifested its assent to these practices. § 4.01 cmt. f. Hodgin v. UTC is the only circuit case, other than Kristensen, to apply ratification in the TCPA context. 885 F.3d 243 (4th Cir. 2018). In Hodgin, home security system manufacturers entered into sales agreements with retailers through distributors. Id. at 246–48. When the manufacturers received multiple complaints about their retailers’ telemarketing practices from consumers, including practices that allegedly violated the TCPA, the manufacturers investigated those complaints and ultimately terminated the sales agreements with the offending retailers. Id. Unlike the defendant in Hodgin, which fired the retailers that had allegedly violated the TCPA, USA Funds did not direct Navient to fire the debt collectors it knew were using calling practices that allegedly violated the TCPA despite having directed Navient to fire underperforming debt collectors. Nor did USA Funds terminate its contract with Navient. USA Funds’ objective was clear—collect as much money as possible. This evidence suggests that USA Funds consented— with material knowledge—to the debt collectors’ likely unlawful calling practices. Therefore, a triable issue of fact exists as to Restatement § 4.06’s actual knowledge requirement.
Even if the facts are insufficient to infer actual knowledge by USA Funds that the debt collectors were violating the TCPA, USA Funds at a minimum “had knowledge of facts that would have led a reasonable person 16 HENDERSON V. UNITED STUDENT AID FUNDS to investigate further.” § 4.06 cmt. d. USA Funds’ audit findings combined with its knowledge about common practices in the industry should have alerted USA Funds that it needed to investigate further. Instead, USA Funds continued to accept the benefits of the debt collectors’ violations and to remain silent about the collectors’ legal obligations under the TCPA. Indeed, the record suggests that USA Funds set up the collection structure between itself, Navient, and the debt collectors to remain willfully ignorant and avoid liability. For example, USA Funds’ directions to Navient and the debt collectors were general and open-ended. USA Funds did not set performance or operational standards for Navient or the debt collectors. Nor did USA Funds or Navient have policies or procedures in place to ensure their debt collectors’ calling practices complied with the TCPA. USA Funds did not receive information about the debt collectors’ calling practices, and it did not monitor the debt collectors’ skip tracing activities. USA Funds forwarded all consumer complaints about the debt collectors to Navient, including alleged TCPA violations. Triable issues of fact exist, therefore, as to whether USA Funds ratified the debt collectors’ actions through willful ignorance. Accordingly, based on the evidence in the record, we hold that a reasonable jury could find that USA Funds ratified the debt collectors’ calling practices that allegedly violated the TCPA. We, therefore, need not address whether the debt collectors acted with implied actual authority.