Ninth Circuit Assigns Vicarious Liability to Company Absent Contractual Relationship

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Ninth Circuit Assigns Vicarious Liability to Company Absent Contractual Relationship

The Ninth Circuit Court of Appeals recently ruled that a company with no direct contractual relationship with independent contractors could be held vicariously liable for the actions of those contractors.

The case — Henderson v. United Student Aid Funds, Inc. — involved a claim alleging violations of the Telephone Consumer Protection Act (TCPA) after a debt collector made calls to the plaintiff using a phone number she had not provided to the loan servicing company in connection with her student loans. Nor had she consented to be contacted using that phone number. She sued the debt collection agency, the loan servicing company (Navient), and USA Funds, which owned her student loans.

Under a contract with USA Funds, Navient managed student loan servicing and collection activities. It hired debt collectors to handle collection and repayment. Although there was no contractual relationship between USA Funds and the debt collectors hired by Navient, the plaintiff claimed that the debt collectors were the agents of USA Funds.

The district court granted summary judgment in favor of USA Funds based on its lack of a contractual relationship with the debt collection agencies. On appeal, the Ninth Circuit reversed, finding issues of material fact as to whether USA Funds had ratified the collection agencies’ calling practices.

The Court explained that a jury might find that USA Funds had ratified the debt collectors’ calling practices by not taking steps to prevent TCPA violations. USA Funds routinely conducted audits of Navient’s business practices, which turned up potential TCPA violations by the debt collection agencies. Therefore, the Court concluded there was a triable issue of fact concerning USA Funds’ knowledge of the violations.

In addition, the Court noted, “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…Triable issues of fact exist, therefore, as to whether USA Funds ratified the debt collectors’ actions through willful ignorance.”

The Henderson decision serves as a warning to companies that outsource business to third parties—especially companies in the Ninth Circuit, which has appellate jurisdiction over Arizona and California—that they may need to better monitor the contractors and take appropriate steps if wrongdoing is found.

Williams Mestaz, L.L.P., is a law firm with decades of experience in commercial litigation, including IP infringement, employee lawsuits, business divorce, aviation, and high stakes litigation. Contact us at (602) 256-9400 and schedule a time to meet with us today.

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