A New Jersey federal court has refused to hold the CEO of companies also named as defendants in a Telephone Consumer Protection Act (TCPA) lawsuit personally liable.
Eddie Rucker sued National Automotive Financial Services (NAFS), National Auto Division (NAD), Metro Marketing, and Ariel Freud, the owner and president of all the companies.
Rucker alleged that under the guidance of Freud, the defendants ran afoul of the TCPA by placing autodialed calls to cellphones without obtaining prior express written consent and by making repeated unsolicited calls to consumers registered on the national Do Not Call Registry (DNCR).
According to Rucker, Freud owns and operates several companies that sell extended vehicle warranty plans to customers and, with the defendants, allegedly engaged in concerted telemarketing activity. Rucker alleged that Freud uses different company names, such as NAFS and NAD, in order to maintain a positive online presence; he also alleged that former employees of Freud-owned companies reported that they call consumers on the DNCR.
Rucker received a total of eight calls from telemarketers who identified themselves as calling on behalf of NAFS in February 2020. He filed a putative class action in November 2020.
The defendants moved to dismiss, arguing that Freud had no individual liability for personal participation as the owner and president of the companies.
Rucker countered that Freud was personally involved in making the calls at issue and that he directed his companies and their employees to make unsolicited calls to consumers in violation of the TCPA.
Siding with the defendants, U.S. District Court Judge Michael A. Shipp granted the motion.
Avoiding the question of whether Freud may be held personally liable under the TCPA—as the Third U.S. Circuit Court of Appeals has yet to weigh in on the doctrine of personal participation liability for corporate officers under the statute—Judge Shipp said Rucker failed to plausibly allege that Freud had any direct personal participation in the calls that Rucker allegedly received.
Rucker “relies on Freud’s status as the president and owner of the defendant entities to allege that NAFS, in partnership with the other defendants, made calls to the plaintiff ‘under the direction’ and ‘under the guidance’ of Freud,” the court wrote. “Ownership, however, is not enough to sustain personal liability for individuals.”
Instead, a plaintiff must allege that the officer has direct personal participation in or personally authorizes the conduct found to have violated the TCPA, Judge Shipp said.
“Plaintiff advanced generic allegations that the calls were made ‘under the direction’ of Freud and that he received a call from an ‘Ariel Freud owned company,’” the court said. “Moreover, plaintiff broadly alleges that Freud ‘oversaw, directed and authorized’ his companies and the calls at issue. But generic, conclusory allegations of participation or authorization are not enough.”
Even a statement by a former employee that “Freud do[es] not care as long as you get as many sales as possible,” combined with complaints from other former employees, didn’t help Rucker, as “this general workplace complaint is not enough to sustain a claim here.”
Judge Shipp also declined to pierce the corporate veil and find that NAFS was the alter ego of Freud or the other defendants.
He noted that Freud and the other defendants allegedly failed to observe corporate formalities and, “[p]articularly troubling, the court also notes that plaintiff further charges that the Better Business Bureau issued a consumer warning concerning the defendant entities.”
However, Rucker neglected to plead facts that would demonstrate a lack of corporate records, insolvency or the siphoning of funds from NAFS to Freud, Judge Shipp said.
To read the opinion in Rucker v. National Automotive Services LLC, click here.
Why it matters: The decision is a victory for Freud, with the court refusing to allow discovery on the issue of his personal participation in the companies given the plaintiff’s failure to make sufficient allegations. It also provides guidance for defendants accused of personal liability in TCPA actions, collecting related supporting authority on this issue and emphasizing that generic, conclusory allegations of participation or authorization are inadequate for a plaintiff to surpass the pleading stage, or even obtain discovery, on individual officer liability. Instead, as the court recognized, specific claims of direct personal participation or personal authorization of the conduct at issue are required.