iIt’s one of the most unfair rules in all of American legal jurisprudence.
In virtually every other context, an officer or director of a company engaging in illegal acts is not personally responsible for those acts – even if he or she directed or participated in those acts. For reasons that defy explanation, however, numerous courts have held that individual officers and directors of companies making calls in violation of the TCPA can be held personally responsible for those acts – even though it was the company and not the individual that made the calls. The impact of these rulings can be truly dire.
The Third Circuit Court of Appeal recently called this unfair rule into question in City Select Auto Sales, Inc. v. David Randall Assocs., Inc., 885 F.3d 154, 160 (3d Cir. 2018) (wondering aloud whether officers can really be held directly liable for conduct undertaken on behalf of corporations – before ultimately deciding not to rule on the issue). But even after City Select, most courts continue to hold that an officer directing an act violating the TCPA can be held personally liable for it. See, e.g., Physicians Healthsource, Inc. v. A-S Medication Solutions LLC, Case No. 12 c 5105, 2018 WL 3993409 (N.D. Ill. Aug. 21, 2018) (entering summary judgment against a director who authorized faxes believing them to be legal – but which turned out to be illegal – resulting in a potential judgment of up to $7.8MM). Indeed, one Plaintiff recently tried to hold a corporate officer directly liable for TCPA violations by a company merely because the officer had not affirmatively required the company to adopt TCPA procedures. See Arwa v. Med-Care Diabetic & Med. Supplies, 14 C 5602, 2019 U.S. Dist. LEXIS 22087 (N.D. Ill Feb 11, 2019). Thankfully, that argument was rejected.
Well, on Tuesday of this week, a district court in Pennsylvania finally applied the logic of City Select to reign in the expansion of the TCPA to corporate officers. In Khs Corp. v. Singer Fin. Corp., Case No. 16-55, 2019 U.S. Dist. LEXIS 50089 (E.D. Pa. March 26, 2019), the court just flat refused to extend the TCPA to an officer directing corporate conduct. There, the Plaintiff asked the Court to find a Defendant’s officer personally liable for the faxes sent by the Defendant, relying on the old (bad) rule that common law personal-liability for corporate officers applies to TCPA violations.
Analyzing City Select, however, the Khs Corp. court found that the Third Circuit had opined “the argument that Congressional silence indicates an intent” to impose common-law personal-participation liability for TCPA violations is “a weak one at best,” because “Congress has demonstrated in many statutes that it ‘kn[ows] how to impose’ personal-participation liability ‘when it cho[oses] to do so.’” Framing the question as “whether Congress and the FCC intended that we look behind the corporate form and impose personal liability on officers who act on the corporation’s behalf rather than their own,” the court suggested that courts should only hold an officer acting on the corporation’s behalf liable where “the faxes were really sent on behalf of the individual instead of the entity.” Id. at 160.5. In other words, Khs Corp. reads City Select as mandating TCPA liability upon officers only under an alter ego theory, not under a direct participation theory.
Accordingly, the Khs Corp. court goes on to “find that a corporate officer is not liable under the TCPA under common law personal liability principles.” So even though the officer in that case personally directed and participated in the sending of unsolicited faxed advertisements, he was not found personally liable. This is so because the faxes at issue were advertisements promoting the corporate Defendant’s products and services and were sent to individuals and entities that the company hoped to do business with as a corporation.
Notably, there were only eight faxes at issue in Khs Corp., so the result in the case is not particularly meaningful to the individual litigants in that case. But the impact on TCPAworld might be truly revolutionary. More to come.
