9th Circuit Holds Creditor May be Vicariously Liable for Debt Collectors’ Alleged TCPA Violations
The U.S. Court of Appeals for the Ninth Circuit recently reversed a district court’s order granting summary judgment for a creditor, holding that the district court incorrectly determined that a reasonable jury could not hold the creditor vicariously liable for alleged TCPA violations by debt collectors.
The plaintiff in this case sued the creditor, the owner of the plaintiff’s student loans, for alleged TCPA violations by debt collectors related to the collection of her student loan debt. The creditor operates under a government program by which it guarantees student loans made by private lenders and then takes ownership of those loans if a student-borrower defaults. The creditor hired a student loan servicer, which hired the debt collectors at issue to collect on unpaid loans. The plaintiff alleged that the debt collectors engaged in “skip-tracing” (the action or practice of locating people who are missing or have defaulted on a debt, typically through online resources) and autodialing (the process by which a mechanical device or software dials telephone numbers automatically) without the plaintiff’s prior express consent, in violation of the TCPA. The plaintiff argued that the creditor was vicariously liable for the debt collectors’ alleged TCPA violations. The district court granted summary judgment in favor of the creditor.
On appeal, the court held that the creditor was not per se vicariously liable for the debt collectors’ alleged TCPA violations under prior FCC orders. The court held, however, that genuine issues of material fact existed under federal common law as to whether the creditor ratified the debt collectors’ calling practices and had a principal-agent relationship with the debt collectors. According to the court, although the creditor did not have a contractual relationship with the debt collectors or any day-to-day dealings with them, the creditor had access to the loan servicer’s daily, weekly, and monthly reports tracking the debt collectors’ performance. Moreover, the creditor could, and did, review debt collectors’ calling notes when it had “an issue” with a debt collector’s calling practices. The creditor also regularly reviewed the loan servicer’s operations and performance, including its regulatory compliance, or lack thereof. Even though the creditor’s service agreement with the loan servicer did not give the creditor the ability to fire debt collectors, the creditor could ask the loan servicer to replace underperforming collectors and could have fired the servicer for noncompliance. Further, the creditor conducted an annual audit of the debt collectors. According to the court, the creditor was also aware that debt collectors handling the creditor’s loans had been sued regarding their calling practices, but the creditor did nothing to ensure TCPA compliance.
The court held that a reasonable jury could find that the creditor ratified the debt collectors’ calling practices by remaining silent and continuing to accept the benefits of the collectors’ alleged 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. Moreover, the court stated that evidence supports that the creditor had actual knowledge of the debt collectors’ allegedly unlawful calling practices. Therefore, the court held that there is evidence suggesting that the creditor consented—with material knowledge—to the debt collectors’ likely unlawful calling practices. According to the court, the record suggests that the creditors set up the collection structure between itself, the loan servicer, and the debt collectors “to remain willfully ignorant and avoid liability.” For example, the creditor’s directions to the loan servicer and the debt collectors were general and open-ended. The creditor did not set performance or operational standards for the loan servicer or the debt collectors. Moreover, neither the creditor nor the loan servicer had policies or procedures in place to ensure their debt collectors’ calling practices complied with the TCPA. The creditor did not receive information about the debt collectors’ calling practices, and it did not monitor the debt collectors’ skip tracing activities. The creditor forwarded all consumer complaints about the debt collectors to the loan servicer, including alleged TCPA violations. Accordingly, the court held that triable issues of fact exist as to whether the creditor ratified the debt collectors’ actions through willful ignorance. The court reversed the district court’s decision and remanded for further proceedings.
