In a September 2024 opinion, the United States District Court, Southern District of New York (SDNY) addressed the conditions for transfer of consent under the FCC’s Telephone Consumer Protection Act (TCPA) Do Not Call (DNC) rules. The case, Watson et al. v. Manhattan Luxury Automobiles, Inc., which involved marketing texts sent to former customers of a now defunct car dealership by a then-related dealer seeking to service those customers, sheds light on the question of whether and when consent to receive communications can be transferred from one entity to another, particularly in cases where businesses have closed or transferred operations. While the case involved consent in the context of calls to numbers on the National Do Not Call Registry (NDNCR), it is instructive more generally as to the extent to which consent obtained by one entity may be transferred to and relied on by third-party callers and texters, and provides some key takeaways for consumer mobile terms and agreements.

Background of the Case

The plaintiffs brought a class action lawsuit against Manhattan Luxury Automobiles, Inc., doing business as Lexus of Manhattan (LOM). The case centered around LOM’s practice of sending text messages to former customers of Honda of Manhattan (HOM), a now-defunct dealership that closed in early 2017. Before its closure, HOM provided LOM, which had been an affiliated dealership, with a list of customer contact information. LOM then used this list to send marketing text messages, targeting customers who had not opted out of receiving communications from HOM. HOM notified its existing customers of its closing in 2017, and communicated that its “sister dealership Lexus of Manhattan is still capable of servicing your Honda.” The messages also contained opt-out language for customers to decline receiving future communications.

The court granted summary judgement for defendant LOM on the question of whether the texts were sent with an autodialer, which disposed of claims that the texting party required prior express written consent under the FCC’s TCPA rules prohibiting autodialed telemarketing texts to a wireless number absent such consent (or an emergency purpose). However, the court found that for purposes of the FCC’s DNC rules, which prohibit telephone solicitations to consumers on the NDNCR, in the absence of the consumer’s “prior express invitation or permission” or an established business relationship, the defendant could not rely on express consent provided to HOM without evidence that the HOM customer intended such consent to extend to LOM.

In terms of the DNC claims, the court recognized that the plaintiffs were all registered on the NDNCR. Under the FCC’s TCPA rules, telephone solicitations to individuals on the NDNCR are prohibited, except as to “any person with that person’s prior express invitation or permission” or “[t]o any person with whom the caller has an established business relationship.” There was no dispute that the plaintiffs had signed consent forms to provide consent to HOM for messages. The plaintiffs argued, however, that their original consent was limited to HOM, and thus, LOM’s text messages were unsolicited and in violation of the TCPA. LOM, on the other hand, contended that it had inherited consent from HOM, allowing it to lawfully send text messages to HOM’s former customers. LOM also argued that under two different agreements between HOM and its customers, it similarly inherited HOM’s established business relationship with those customers.

The Court’s Analysis: No Automatic Transfer of Consent

The court carefully examined the concept of transferred consent, looking at the contractual language of the two purported agreements signed by HOM’s customers. Specifically, the court highlighted the need for “prior express invitation or permission,” as stipulated by the TCPA’s implementing regulations. Under the rules, this consent must be “evidenced by a signed, written agreement between the consumer and the seller, clearly indicating that the consumer agrees to be contacted by the specific seller and includes the telephone number to which the calls may be placed.”

Under the rules, this consent must be “evidenced by a signed, written agreement between the consumer and the seller, clearly indicating that the consumer agrees to be contacted by the specific seller and includes the telephone number to which the calls may be placed.”

In its ruling, the court found that the agreements signed by HOM customers did not meet this standard. The consent forms in question were limited to HOM and did not explicitly transfer the right to send marketing messages to LOM. The court noted that while consent may be transferred in certain cases, the language of the agreement must make this transfer clear. In this case, there was no explicit indication that the customers had agreed to receive communications from LOM, including authorizing calls or texts from affiliated entities.

The court also explained that a second purported agreement between the customers and HOM, and relied upon by LOM, included language regarding certain categories of third parties. However that agreement failed to meet additional requirements of the FCC’s rules necessary to show the customer’s prior express invitation or permission, such as identifying the phone number to which the customer is agreeing calls may be placed or messages sent or identifying the type of third-party relationship that would include LOM.

Established Business Relationships and Reasonable Expectations

In determining whether the plaintiffs had an established business relationship with LOM, the court emphasized that an established business relationship does not automatically extend to affiliated or related entities unless the consumer would “reasonably expect such a relationship.”

In this case, the court found that a reasonable jury could conclude that the plaintiffs did not have an established business relationship with LOM, despite having done business with HOM. The court reasoned that, given the differences between HOM, a Honda dealership, and LOM, a Lexus dealership, customers would not reasonably expect their business relationship with HOM to extend to LOM.

Implications for Businesses: TCPA Compliance and Consent

This partial denial of summary judgement ruling has important implications for businesses, particularly those that acquire customer lists from other entities or take over operations from a defunct company. It reinforces the importance of ensuring that any consent obtained from consumers is clearly defined and transferable. Companies cannot assume that consent granted to one entity automatically extends to another, even if they are related or affiliated, unless expressly stated agreed to by the consumer.

Companies cannot assume that consent granted to one entity automatically extends to another, even if they are related or affiliated, unless expressly stated agreed to by the consumer.

To mitigate risks under the TCPA, businesses should consider the following best practices, to the extent the business is intending to rely on consent obtained by another entity in its telemarketing calling or texting activities, or the business intends that such consent it has obtained will be relied on by another entity:

1. Review and Update Consent Agreements and Mobile Terms: Ensure that any consent forms signed by customers explicitly state whether consent can be transferred to or relied on by affiliated or successor entities, or other specified third parties. If there is any ambiguity in the language, it could lead to litigation.
2. Conduct a Consent Audit: When acquiring a customer list from another entity, conduct a thorough review of the consent agreements in place. Verify that the consent obtained is valid and transferable, and that it complies with the specific requirements of the TCPA, particularly with respect to the particular type of calling or texting activity in which the company will be engaged.
3. Opt-In and Opt-Out Mechanisms: Provide clear and accessible opt-in and opt-out mechanisms for consumers. If a company acquires customer information from another entity, it should send a clear communication informing the customers of their ability to opt-out of future communications.

Conclusion

The SDNY’s ruling in Watson et al. v. Manhattan Luxury Automobiles, Inc. is an important reminder that the transfer of consent under the TCPA is not automatic. Businesses must take care to ensure that any consent obtained from consumers is valid, clearly defined, and transferable. As this case demonstrates, failing to do so can expose companies to litigation and potential TCPA risk.

By taking proactive steps to review consent agreements, businesses can reduce their risk of non-compliance and navigate the complex landscape of TCPA regulations.