61 Million Reasons to Carefully Oversee Your Third-Party Marketer?
Ellis & Winters
As we’ve mentioned before, federal privacy statutes that permit lawsuits and award automatic damages can be a fertile source of consumer class action litigation.
The Telephone Consumer Protection Act (TCPA) fits this bill. Under the TCPA, telemarketers cannot call residential phone numbers on the National Do Not Call Registry. A TCPA violation results in statutory damages of up to $500 per unlawful call. Those damages can be trebled if the defendant knowingly or willfully violated the act.
The consequences of willful TCPA violations were on full display in Krakauer v. Dish Network, a recent case in the Middle District of North Carolina. Krakauer is notable both because it presents a rare example of a federal civil case proceeding to a jury trial, and because it resulted in a $61 million treble damages award.
Krakauer is particularly interesting because the defendant, Dish Network, did not even make the telemarketing calls at issue. Rather, those calls were made by a third party marketer that Dish Network hired to sell its satellite television programming.
The case thus turned on a key issue: when can a defendant be responsible for “knowing and willful” TCPA violations committed by a marketer acting on the defendant’s behalf?
Hello, is it Dish you’re looking for?
Krakauer concerned telemarketing calls made by Satellite Systems Network, a marketer that Dish hired to sell Dish’s satellite television programming and related services. The class action complaint alleged that Satellite made thousands of calls to individuals who registered their numbers on the Do Not Call Registry. The plaintiffs alleged that Dish should be liable for those TCPA violations. They sought statutory damages for each call, and sought to treble those damages for willful or knowing violations.
- Dish’s agreement with Satellite gave Dish broad power to oversee and control Satellite’s telemarketing activities;
- Dish received numerous complaints about Satellite’s telemarketing practices; and
- Dish typically instructed Satellite to put complainants on Satellite’s internal do-not-call list and not to call them again, but didn’t do anything else.
The jury ruled against Dish. It found that Satellite acted as Dish’s agent in making over 51,000 calls to numbers on the Do Not Call Registry, and awarded statutory damages of $400 per call, for a total award of over $20 million.
The Court then considered whether to treble those damages.
Can a principal be charged with “knowing and willful” conduct for TCPA violations committed by an agent?
The Court’s opinion on that issue evaluated whether the TCPA violations were “knowing or willful.” The Court first noted that existing case law didn’t specify whose conduct should be the focus of that inquiry in a case involving calls made by an agent: the agent’s or the principal’s.
The Court avoided deciding that issue, because it found that damages could be trebled whether the court focused on Satellite’s conduct and imputed it to Dish, or looked only at Dish’s own conduct.
As to Dish’s own conduct, the court found the following factors established Dish’s willfulness:
- Dish’s agreement with Satellite gave it “virtually unlimited rights to monitor” Satellite and “complete control” over Satellite’s telemarketing calls;
- Dish was aware that Satellite had a history of TCPA violations, but failed to closely monitor the telemarketing it conducted on Dish’s behalf; and
- Dish turned a “blind eye” to complaints that came to its attention, asking only that Satellite stop calling the specific person who complained.
This evidence, the Court concluded, showed that Dish’s TCPA compliance policy was “decidedly two-faced.” “On paper,” said the Court, Dish had “committed to monitoring its marketers’ compliance with telemarketing laws and investigating complaints.” Its failure to do so in practice, the Court concluded, showed that Dish “knew or should have known” that Satellite was violating the TCPA, but “cared about stopping complaints, not about achieving TCPA compliance.”
The Court thus trebled the per-call damages from $400 to $1,200, leading to a total damages award of more than $61 million.
Lessons from Krakauer
Krakauer presents a conundrum for companies that seek to manage risk presented by third-party marketers.
Given the stakes, those companies often insist on agreements that give them a high degree of control over the marketers’ activities, and extensive rights to monitor and enforce the marketers’ compliance with the TCPA.
But Krakauer may create an incentive for companies to avoid including these terms in their agreements with vendors, lest they lead to a finding of willfulness when a marketer fails to live up to its TCPA duties. Indeed, the potential for that outcome was recently cited as a reason not to impose punitive damages on Dish in a separate TCPA enforcement action brought against the company by the Federal Trade Commission and four state attorneys general (including North Carolina’s) in the United States District Court for the Central District of Illinois.
However a company chooses to address prospective TCPA compliance in its agreements with marketers, Krakauer makes clear that once it becomes aware of TCPA compliance issues presented by a marketer who makes calls on its behalf, the company ignores those issues at its peril.
Author: Alex Pearce