As we all know, the TCPA continues to generate significant litigation (which is great for our firm… because we are the best). Still, few cases highlight the complexities of TCPA liability and indemnification, like Johansen v. Liberty Mutual Group Inc. This First Circuit decision underscores the severe risks that companies face when their third-party vendors engage in telemarketing activities, and it delves into the broader implications of indemnification agreements and their procedural intricacies on appeal. See Johansen v. Liberty Mut. Grp. Inc., No. 19-2113, 2024 WL 4284641 (1st Cir. Sept. 25, 2024).

In 2015, Plaintiff filed a class-action lawsuit against Liberty Mutual and Spanish Quotes, Inc., alleging that they made unsolicited telemarketing calls to numbers listed on the National Do-Not-Call Registry. Despite Liberty Mutual settling with Plaintiff, the real battle began afterward—between Liberty Mutual and its marketing partner, Digitas. Liberty Mutual sought indemnification from Digitas for the costs associated with the TCPA lawsuit under their Master Services Agreement (“MSA”), but Digitas argued that the preconditions for indemnification had not been met. This dispute ultimately led to the appeal.

The TCPA prohibits unsolicited telemarketing calls to numbers on the Do-Not-Call Registry unless the recipient has given prior express consent. Plaintiff’s claim focused on “warm transfers,” where a customer service agent transferred a call to Liberty Mutual, which Plaintiff argued violated the TCPA. Even though Liberty Mutual did not make the calls, it was still implicated because of its business relationship with Digitas, who hired Spanish Quotes. This reinforces the idea that companies hiring third-party marketers can face TCPA liability for their vendors’ actions. FRIENDLY REMINDER: businesses must follow telemarketing regulations and ensure that their partners do as well. Take note.

The core of Johansen revolved around indemnification under the MSA, which required Digitas to cover “all third-party claims, damages, liabilities, costs, and expenses… arising out of any breach of any warranty.” Liberty Mutual argued that Digitas breached its warranty by allowing the telemarketing activities that violated the TCPA. The court supported Liberty Mutual’s interpretation, emphasizing that the indemnification could be triggered even without a final determination of Digitas’s liability under the TCPA. Drawing on precedents such as Fashion House, Inc. v. K Mart Corp., 892 F.2d 1076 (1st Cir. 1989), and Samos Imex Corp. v. Nextel Commc’ns, Inc., 20 F. Supp. 2d 248 (D. Mass. 1998), the court held that indemnification provisions should be interpreted broadly to cover third-party claims, including those settled without a final judgment.

Digitas claimed that Liberty Mutual had not fulfilled the preconditions for indemnification, such as providing adequate notice or offering control of the defense. However, the First Circuit found these arguments unpersuasive. The court cited Psychemedics Corp. v. City of Boston, 486 Mass. 724 (2021), which emphasized that an indemnitor must be given the opportunity to assume control of the defense but is not entitled to actual tender. Liberty Mutual’s repeated communications about the claim fulfilled this obligation, and Digitas’s refusal to take control and imposition of extracontractual conditions effectively undermined its defense.

But the legal complexity didn’t stop there. Judge Arias-Marxuach’s dissent focused on a different issue: the court’s use of the hypothetical jurisdiction doctrine. This doctrine allows a court to bypass the jurisdictional question if deciding the case on the merits would resolve the issue. However, Judge Arias-Marxuach asserted that jurisdiction should have been determined first before the court moved to the merits. Citing Steel Co. v. Citizens for a Better Env’t, 523 U.S. 83 (1998), the dissent raised separation-of-powers concerns, highlighting that failing to address jurisdiction first can lead to deeper constitutional problems. This dissent adds a layer of procedural complexity, reminding courts of the need to resolve jurisdictional issues before ruling on substantive matters.

So, what are the lessons here?

First, vendor compliance with the TCPA. Even if your company isn’t making the calls, TCPA liability may extend to you if your vendors fail to comply with telemarketing regulations. This case highlights the need for diligent oversight and clear expectations with third-party partners to avoid legal exposure.

Second, indemnification clauses are crucial. The broad interpretation of the indemnification clause in this matter shows that companies must draft and review their contracts carefully. A well-drafted indemnity clause can be essential in allocating liability, particularly regarding compliance with regulations like the TCPA.

Lastly, jurisdictional issues can complicate appeals. As noted, the dissent in this case reminds us that jurisdictional questions should not be ignored. Businesses and legal practitioners should be mindful of the potential complications that arise when jurisdiction is questioned in an appeal.

Johansen illustrates the risks of relying on third-party vendors for marketing services, particularly in highly regulated areas like telemarketing. The decision also reminds us of the importance of clearly defined indemnification clauses and the potential complexities of jurisdictional challenges in appellate courts. As companies continue to outsource their marketing efforts, the lessons from this case remain highly relevant.

Keep it legal, keep it smart, and stay ahead of the game.