$283MM in Telemarketing Penalties: The Top 10 Things You Need to Know About the Big Dish Ruling This Week
On the heels of a crushing $60MM civil judgment in North Carolina two weeks ago, Dish was hit with a staggering $283MM in penalties in an epic ruling by Judge Sue E. Myerscough of the Central District of Illinois this week in United States v. Dish Network LLC, No. 09-cv-3073, 2017 U.S. Dist. LEXIS 8553 (C.D. Ill. June 5, 2017). The ruling is immense— 445 pages, including 259 pages of factual findings tracing Dish’s TCPA/TSR compliance efforts back to 2003 and calling out Dish executives and compliance counsel by name throughout. It’s a painful yet captivating fall-from-grace tale about a company that never thought it would be held responsible for the unlawful acts of its authorized dealers. The opinion offers a rare inside look at the thought process of Dish’s executives and compliance counsel—including the machinations of its executive working groups—as they struggle to comply with the FTC and FCC’s evolving telemarketing regulations.
In the end the Court held Dish responsible for tens of millions of illegal calls placed by third-party “order entry retailers” that were authorized dealers for Dish, but which were otherwise totally separate companies. The Court also mercilessly thrashed Dish for its own calls to phone numbers on the national DNC, despite Dish’s good faith belief that it had a valid exemption to place those calls and the fact—accepted by the Court—that Dish’s conduct was in accordance with industry standards.
The ruling is brutal and I hope it never happens to your institution. But since it happened to Dish, let’s autopsy this thing. Here are my top 10 takeaways from the decision:
1. Dish Appears to Have Taken TCPA/TSR Compliance Quite Seriously: When a company gets walloped with a $280MM penalty for telemarketing violations, it is easy to jump to the conclusion that the company just didn’t care about the law or try to comply with it. Any fair reading of the record in the Dish ruling betrays that assumption, however. Dish cared about the law. The record demonstrates that Dish always maintained a robust internal DNC, multiple scrub processes to assure that numbers on the national, state, and local directories were removed before calling (unless Dish determined that it could make use of an exemption), and would discipline vendors and authorized dealers when it received complaints from consumers. Indeed, Dish appears to have created an entire compliance department specifically to better oversee the actions of third parties pitching its products, engaged in sting operations to find bad actors, and had extremely heated exchanges with retailers/dealers that were not complying with the law. Somewhat remarkably, however, the Court appears to have built this lengthy record merely to demonstrate Dish’s knowledge of the ongoing violations and its ability to control the conduct of third-party authorized dealers so as to find that they were Dish’s agents all along.
2. According to the Dish Ruling, Sellers “Cause” Telemarketers to Make Calls Because the TSR Says So: Despite the great length of her ruling, Judge Myerscough dismissed certain arguments with pithy one liners. Among the most important is this: “Under the FTC interpretation of the TSR, a seller ‘causes’ the telemarketing activity of a telemarketer by retaining the telemarketer and authorizing the telemarketer to market the seller’s products and services.” End of analysis. The Court determined that Dish retained its order entry retailers and authorized them to sell Dish’s products. It mattered not that Dish did not dictate to these entities how they were to sell, and in many instances Dish specifically told these entities not to sell using prohibited or illegal methods and never to use sub-agents. The mere fact that these third-party entities were empowered to sell Dish’s product was all that the Court needed to see to find that Dish had “caused” the illegal calls under the TSR. How stark.
3. According to the Dish Ruling, a Telemarketer is a Seller’s “Agent” So Long as a Seller Has the Right to Control Them: As noted above, the Court built a large record to the effect that Dish could control the conduct of order entry retailers when it chose to do so. It noted a provision in the contract between Dish and these entities—the so called “because we said so” clause—that allowed Dish to dictate the conduct of entities selling its product. That, the Court found, made these third parties Dish’s agents no matter what else the contract said on the matter.
4. Courts Expect Sophisticated Businesses to Know the Law—No Matter How Complex: There’s the myth going around that TCPA/TSR compliance is easy. Well that’s probably news to Dish’s lawyers and executive working groups that were struggling long and hard to solve legal and practical problems impacting its own compliance efforts and those of its authorized dealers. What they were ultimately rung up for by the Court, however, were issues they never appear to have considered—such as liability for failing to maintain a comprehensive internal DNC across all of its outside retailers, or the idea that pre-recorded telemarketing calls might automatically violate the amended TSR’s prohibition on abandoned calls. Yet the Court showed no mercy to Dish for the sins of its lawyers:“[a] sophisticated business enterprise in Dish’s situation with both in-house and outside counsel would have known that Prerecorded Calls that were answered were Abandoned Prerecorded Calls that violated the TSR.” Ouch. Or how about: “[a] sophisticated enterprise in Dish’s position with Dish’s legal staff would have known that the FTC Guide stated that the seller was ultimately responsible for the actions of its telemarketers.” Double ouch.
5. According to the Dish Ruling, Pre-Recorded Calls Answered by Live Call Recipients are Necessarily Abandoned Calls Prohibited by the Amended TSR: The largest component of Dish’s liability was for pre-recorded calls placed by its order entry retailers that were answered by live individuals. Even though Dish placed zero pre-recorded telemarketing calls itself, Dish was held liable for 51,121,506 calls placed by its authorized third-party dealers. (Penalty exposure on those calls alone exceeds half a trillion dollars—we’ll get to that in a second.) Again, the Court had no mercy for Dish’s pleas that it did not know that was the law or that it would be responsible for the actions of third-party authorized dealers. The Court imputed knowledge of such legal issues through Dish’s retention of sophisticated counsel and hammered it.
6. According to the Dish Ruling, if a Customer Tells One Telemarketer to Stop Calling, the Seller Better Make Sure None of Its Other Marketers Call that Number Again: Another large component of liability against Dish turned on its “failure” to maintain a comprehensive internal DNC list amongst all of its third-party order entry retailers. In my view, Dish could be forgiven for not attempting to align all of these third-party entities since, you know, it never realized these folks were its agents in the first place (a necessary requirement before a DNC request/revocation is binding on the principal.) The Court absolutely disagreed and—once again—imputed knowledge to Dish and hammered it for penalties on 9,000,000 calls placed by Dish or its authorized dealers to phone numbers appear on a different authorized dealer’s internal DNC list.
7. Make Sure Your Evidence is Admissible When You Roll into Federal Court: Dish was also held liable for millions of calls it placed to numbers on the National DNC registry. It is important to point out, however, that Dish was not just firing off calls to random numbers without scrubbing against the DNC. Rather, it had developed sophisticated calling campaigns designed to call numbers appearing on the Registry only in accord with the TSR’s exemptions for EBR and consumer-initiated inquiries. But the Court rejected Dish’s effort to take advantage of these exemptions based upon the use of inadmissible evidence—it concluded that Dish’s EBR calculations were erroneous, and that its witness called to establish that it only called numbers when a customer initiated an inquiry to Dish lacked personal knowledge on the subject. Yikes.
8. Things Could Have Been Much (Much) Worse for Dish—These Penalties Are Staggering!: As bad as things turned out for Dish, matters could have been much worse. Remember that in an enforcement action, the United States can recover up to $16,000.00 per violation of the Telecommunications Act (including the TCPA/TSR). Since this was not a case brought by a civil plaintiff (where damages are “limited” to $500-$1,500.00) per call, the Court calculated the maximum statutory damages for Dish’s misconduct at $783 billion, including $8.1 billion in liability on the state-specific versions of the TCPA alone. The Court found that these amounts were either not in accord with due process (TCPA), or inconsistent with the Defendant’s ability to pay (TSR), however. As such, it reduced the damages awarded to a mere $283 million, estimating that 20% of Dish’s net annual profits was a reasonable penalty. Even the $783 billion was not the true “worst case” exposure, however. ALL of the violations Dish was held liable for occurred after 2007—yet the statutory period in the case went all the way back to 2003. Plaintiffs presented evidence that an additional 94,804,008 illegal calls were placed prior to 2007. The Court rejected this evidence, however, finding that many of the calls on the list were duplicates, and that the Plaintiffs had not specifically proven the precise number of calls so as to make the assessment of a civil penalty on a per call basis proper. (The Court noted that it could have assessed an “ongoing violation” penalty of $11,000.00 a day during this period under the Communications Act—since it concluded “millions” of violations did, in fact, occur— but declined to do so since the US Attorney General had not asked for that remedy.) Tallying up all the money “left on the table,” therefore, true exposure for the wrongful conduct found in this case was easily in excess of—pinky to my lips—one trillion dollars.
9. The National DNC Registry is Really, Really Out of Date: Another revealing aspect of the ruling was Dish’s ability to build a strong record demonstrating just how badly maintained the national DNC list is. Dish devoted considerable firepower to demonstrating that the FTC’s vendors responsible for maintaining the National DNC Registry had failed to faithfully tend to it, and developed a surprisingly strong record that the DNC is full of numbers that shouldn’t be included. Nonetheless, the Court rejected Dish’s “as applied” constitutional challenge to the national DNC when it did not/could not connect the dots and demonstrate that any of the registry numbers it called were actually holdovers from prior subscribers. Too bad, as that was a really neat and creative argument.
10. Dish’s Conduct Was Consistent with the Industry Standard—So Watch Out!: Perhaps the scariest part of the Dish ruling is that the Court accepted one of Dish’s expert’s testimony that Dish’s conduct was actually fully within the industry standard. I suspect that standard may change a smidge after this ruling. Undoubtedly, that was the point.