In a lengthy 475-page opinion, a federal district court recently ordered penalties totaling $280 million against Dish Network for violating the Telephone Consumer Protection Act (TCPA), the Federal Trade Commission’s Telemarketing Sales Rule (TSR), and various state law consumer protection statutes. $168 million of the civil penalty award was for violation of the FTC’s TSR – making it the largest civil penalty ever obtained for a violation of the TSR. The court also awarded injunctive relief including requirements that Dish: a) demonstrate compliance with the Safe Harbor Provisions of the TSR or face a two-year ban on any outbound telemarketing; b) hire a compliance monitor; and c) allow unannounced inspection visits.
The court entered the order after a five-week trial – the culmination of litigation that started in 2009 (although Dish vows to appeal the order).
The crux of the violations:
- Dish initiated, or caused a telemarketer to initiate, outbound telephone calls to phone numbers on the Do Not Call Registry,
- Dish violated the TSR’s prohibition on abandoned calls, and
- Dish assisted and facilitated telemarketers when it knew that the telemarketer was engaged in violations of the law.
Dish markets its programming directly through telemarketing vendors it retains, as well as through authorized dealers and retailers. The court ruled that Dish committed more than 66 million violations of the TSR either directly or as a result of the actions of its dealers and retailers.
Although Dish’s actions are likely a rarity because of their scope and brazenness, the court’s decision is a cautionary tale for all companies using telemarketing and making outbound calls.
A number of helpful lessons can be gleaned from the opinion.
- Remember that Civil Penalties Can Add Up Quickly - The court calculated that the total maximum possible penalties and statutory damages against Dish was $783 billion. $727 billion was the maximum for violations of the TSR because it carries a maximum penalty of $16,000 per violation ($11,000 for earlier violations). $8.1 billion reflected the maximum possible penalties based on TCPA claims brought by various states ($500 per violation). The rest of the maximum possible penalties, consisting of approximately $50 billion, stemmed from violations of various state consumer protection statutes. The plaintiffs, including the United States and a number of individual states, sought $2.1 billion in damages. Ultimately, the court imposed civil penalties of $280 million representing approximately 20% of Dish’s 2016 after-tax profits of $1.4 billion. (Op. at 449.) Of course, it is unlikely that your company will face hundreds of billions of dollars in fines, but statutory penalties can add up quickly even for modest telemarketing violations.
- Keep Good Records – Culpability is one of the factors the court must consider in setting the appropriate amount of civil penalties within the statutory maximum of the TSR. The court ruled that Dish’s culpability was “significant,” based, in part, on Dish’s inability to present competent evidence on its compliance actions. For example, the court ruled that Dish presented no competent evidence regarding how its lead-tracking calling lists were formulated and it failed to show that it had established business relationships with the persons on those lists. Dish also failed to present competent evidence on how its various lists were scrubbed. The lack of evidence led the Court to conclude that Dish made no efforts to remove numbers that were on the National Do Not Call Registry or its internal do-not-call lists. Dish did present evidence of a compliance audit of its systems, but the audit was performed after the fact and at a very superficial level. The court gave it no weight. The lesson: ensure your company has established procedures and records to document your compliance efforts or face the prospect of ending up in the same predicament.
- Know that You Are Responsible for Your Retailers – The court had harsh words for Dish’s handling of its retailers. It ruled that Dish had significant culpability for the “reckless manner” in which Dish operated its retail program. (Op. at 435.) The court observed, “Dish initially hired Order Entry Retailers based on one factor, the ability to generate activations. Dish cared about very little else.” (Op. at 435.) It observed that Dish’s own legal department viewed the program “as fraught with illegal and shady practices.” In sum, the court stated, “Dish sowed the wind and reaped the whirlwind when it decided to hire anybody that could get on the phone and bring in activations by any means possible.” (Op. at 435.) In fact, retailers made the majority of the illegal calls with their own call centers.
- Don’t Let Your Company Put Its Head in the Sand – Much of Dish’s liability comes from its failure to act or rein in abusive practices by its retailers or agents. The court cited testimony from one of Dish’s managers joking about consumer complaints about retailers by saying, “Are these your boys again?” (Op. at 447.) Dish failed to act even after it was sued in other cases for the actions of its retailers. The fact that third-party vendors or independent retailers are making the improper calls is, in most cases, not enough to shield your company from liability. Such agents need to be supervised diligently to prevent your company from being liable for their actions.
- Take Customer Complaints Seriously – The court indicated that it was “seriously concerned” that “Dish continued to show little or no regard for consumer complaints about [the retailers’] practices.” (Op. at 462.) “Dish’s response to these consumers was essentially: go away, it’s not our problem, go after [the retailers].” (Op. at 462.) Customer complaints are often the first warning that something may be amiss in a telemarketing campaign. They should be tracked and treated with care.
- Read and Follow the Rules – Part of the court’s reasoning for such a hefty fine is that Dish personnel did not read, or try to follow, the FTC’s rules or guidance. For example, Dish did not calculate the “established business relationship” exceptions from the last date of purchase or any other financial transaction like the rules provide. Even when Dish hired compliance consultants that pointed out this problem, it failed to correct the problem for two years. The regulators put out thoughtful guidance on how to comply with the various regulations in this area. Ignore them at your peril.
- Recognize the Harm to Consumers - The court appeared to be exceptionally livid about testimony by a Dish manager that he did not think anyone was really harmed by the millions of illegal calls: “I wouldn’t say that they are harmed.” (Op. at 464.) Additionally, the court observed (with disapproval) that Dish had taken the position that the millions and millions of illegal calls did not harm anyone. The court noted that the 226 million people on the Do Not Call Registry would likely disagree with Dish. (Op. at 466.) Remember that courts and regulators are not deaf to public opinion – they will be influenced by the overwhelming public support for restrictions such as the Do Not Call Registry.
The historic $280 million fine against Dish Network should be a wake-up call for any company engaged in telemarketing. Courts and regulators can view failures in supervision and recordkeeping very unfavorably. The potential fines for telemarketing violations can be astronomical. Failure to understand and follow the regulations in this area can easily result in devastating penalties as proved by the recent fines against Dish Network.
TCPA Compliance Training is a logical step as companies look to mitigate their TCPA risk without curbing their consumer contact efforts. Implementing effective training programs that reach front-line employees who engage directly with consumers should be an important part of the toolkit.