So just got back from Contact.io where I spent quite a bit of time discussing the FTC’s new telemarketing sweep enforcing the TSR.

And wouldn’t you know it. As soon as I return there is yet another MASSIVE development here.

In FTC v. Day Pacer, LLC 2023 WL 5671618 (N.D. Ill. Sept. 1, 2023) the Court just grated partial summary judgment in favor of the FTC and against lead generators who were allegedly calling individuals on the National DNCR. The judgment is against companies making and buying calls AND against the individual operators of the companies each PERSONALLY.

And, rather stunningly, when one of the owners died the FTC AMENDED THE COMPLAINT TO NAME THE GUY’S DAUGHTER IN HIS PLACE as she was the administrator of his estate!!!!

Holy insanity.

So not only can a company be held liable, its operators can be sued personally and if they die the FTC is willing to go after the family.

Now that is some stuff…

Plus, it is not even clear to me that these guys were intending to violate the law. Looks like they thought they were complying with the TSR–but they were dead wrong. And since they didn’t seek counsel–hint hint–they got absolutely destroyed in the end.

Really sad to see and avoidable. Not just the penalties, but the unwanted calls as well. People need to join R.E.A.C.H. to avoid this stuff.

So let’s break down what happened here.

Day Pacer and its predecessor EduTrek were allegedly lead generators that purchased data from websites where people entered their contact information, including their phone number, in connection with wanting a job. They would then take that data and give it to dialing companies to make calls, which would be transferred to its call center. They would then ask the consumer if they were interested in pursuing higher education and, if so, would sell transfers to institutions for money.

DP and ET also bought leads from “IBT Partners” who mostly generated its own leads. IBT Partners were an offshore affiliate located in India and the Philippines. So you know where this is headed..

So it was basically a scheme to convert job leads into edu leads.

This sort of things happens all the time in the lead gen world; i.e. medicare to final expense, real estate to mortgage lending, lending to solar, etc. So folks REALLY need to pay attention here.

It was undisputed that the Defendant companies made at least 3,669,914 calls to phone numbers on the Do Not Call List and Defendants did not subscribe to the Do Not Call registry and did not scrub their calling lists of DNC numbers. Additionally, IBT Partners transferred 498,597 calls to Defendants that were the product of outbound telephone calls to numbers on the DNC Registry. Also, IBT Partners made an additional approximately 39,847,000 calls to DNC numbers, which did not result in inbound transfers to Defendants.

Pause.

It is unclear to me whether the Defendants were just complete scumbags who did not care about the law at all, of if they mistakenly thought that the data they were being provided was consented. The decision does not discuss their state of mind, at all, which I find troublesome. But we will get to that.

Pause again.

Notice that IBT Partners made nearly 40MM calls to net 500k transfers. That means only 1 in 80 calls resulted in a transfer. Now some folks will say that is a pretty good ratio–which is precisely the problem. When one considers that a marketer must make 80 calls to connect with one interested person it is pretty easy to see why unwanted calls are out of control right now.

I digress.

So the FTC sued not only DP and ET but also their principles Raymond Fitzgerald, Ian Fitzgerald, and David Cumming. The FTC’s theory is that these three personally participated in the conduct at issue and should be held personally liable, despite the lack of any effort to pierce the corporate veil. (Simply not required when the TSR and TCPA are involved…)

Mr. Cumming, unfortunately in my view, died a while back. But that would not be the end of the FTC saga for his family. Specifically, the FTC pursued Mr. Cumming’s daughter Margaret in his place, which I just think is messed up–even if she was the administrator of his estate.

The Court showed no sympathy for the Cummings family and ordered that the FTC could, indeed, pursue the claim against Mr. Cumming beyond his death by suing his daughter instead. And while I frown on the heavy-handed tactics against a family mourning a father, I certainly recognize the deterrent effect this sort of ruling may have on others that might want to be less than cautious with the TSR.

After allowing the case to move forward against the Cummings estate, the Court made short work of the Defendants’ painfully bad constitutional argument (only the Czar can make these well, it seems) and allowed the FTC to push past the TSR’s standard 3 year statute of limitations and seek penalties for up to 5 years–plus equitable relief without time. This was done through an interesting shortcut leveraging the penalties under 15 U.S.C. § 45(m)–which permit the FTC to seek up to $10k per violation of any rule under this subchapter.

Not sure that was clean–is the TSR part of the same subschapter? hmm– but the Court permitted it. So now the Defendants had to deal with 5 years of potential penalties.

Getting to the meat here– the Defendants argued the TSR did not apply to them because they “never engaged in a conversation in which a sales pitch or sales offer was made or accepted during the conversation, or any sales call of any kind.” But the Court rejected that argument finding the TSR’s definition of marketing included any “plan, program, or campaign which is conducted to induce the purchase of goods or services or a charitable contribution…” And the calling campaign at issue PLAINLY did since the goal was to sell the consumer education: “Their entire business model depended on being a marketing partner as part of a plan between multiple businesses to connect consumers to various for-profit programs.”

Making matters worse the Court refused to allow the Defendants to argue to the jury they had made a mistake of law–which is a defense to a TSR claim. The Court found the provision at issue was unambiguous and no objective person would have thought they weren’t telemarketing.

Eesh.

The Defendants also argued that they had the needed consent to make the calls. But here they made a crucial mistake–they did not introduce any evidence of of consent itself. The FTC performed a review of 750 of the URLs where consent allegedly came from and ZERO of them showed consent. The Defendants complained about how the FTC performed its review but they did not provide their own evidence. Plus Consumers entered their contact information on websites primarily focused on job opportunities, not education So… Defendants lost.

The Court also found Defendants liable for the calls made by IBT Partners–!!!–because, in essence, they “paid” IBT Partners to violate the TSR. Here the analysis by the Court is a bit short. The Court seems to assume that the calls violated the TSR and also seems to presume knowledge by the Defendants that the calls were illegal. I don’t see anything in the record that would MANDATE a finding of fact in favor of the FTC on that issue–definitely seems triable to me. But, either way, the Court found the Defendants liable for calls PURCHASED from a third-party. Eesh. Eesh. Eesh.

So now to the individual Defendants. The Court found that the individual defendants could be held liable because of their role with the corporate defendants. Ian ran Day Pacer, and Raymond was its managing member. Cumming was the corporate manager. All of them, allegedly, had control and input on critical issues related to the TSR violations. And all of them knew, or should have known, about their violations according to the Court (again this part of the analysis feels very weak to me… should have gone to the jury in the Czar’s view.)

Regardless, the Court then turned to the issue of damages.

The FTC sought an award of civil penalties in the amount of $28,681,863.88, which was the amount of the total gross revenue generated by the company during the period at issue. While that is “substantially less than the maximum allowable civil penalty that is in excess of $100 billion” it is nuts to think people could be liable for every penny their companies made for a multi-year period–with no discount for costs, expenses, wages, etc.

Notably the FTC, apparently, did not even prove the SPECIFIC number of phone calls that violated the TSR–but the Court was unmoved. The FTC presented a breakdown of penalties as “2,548,695 violations from 2014 to 2016 at $16,000 per violation (over $40BB), 366,626 violations from 2016 to 2017 at $40,000 per violation (over $14BB), 592,650 violations from January 24, 2017 to January 21, 2018 at $40,654 per violation (over $24BB), 507,894 violations from January 22, 2018 to February 13, 2019 at a rate of $41,484, (over $21BB) and 152,646 violations  from February 2019 forward at $42,530 per violation of March 22, 2014 to June 12, 2019.” (over $6BB.)

Again…I really struggle with this since the FTC did not actually prove which calls here violated the TSR (i.e. which calls were made without consent.) This feels like an instance where the Defendants were actually trying to comply with the law–perhaps not very hard, but still trying–and the FTC simply hit them as if they had no regard for the law at all. These guys were NOT just cold calling folks. They seemingly were buying consented data and they were telling their buyers that their calls WERE made compliantly. Now they might have been lying scumbags–I don’t know one way or the other–but the over all record here does not tell me judgment was inevitable. Should have gone to a jury in my view.

But my view is irrelevant.

In the end the Court was inclined to hear more information from the Defendants about their ability to pay the judgment before entering a final award.

Bunch of take aways here:

1. Do not violate the TSR;
2. Be very very very careful that you are not violating the TSR;
3. GET COUSEL!!!! Do not just rely on YOUR view of the TSR. The individuals involved in this case very likely BELIEVED they were not violated the TSR. But it didn’t matter. Because they, apparently, did not seek competent counsel they are facing an insane amount of exposure;
4. If you die, the FTC may very likely pursue a claim against your family members–and that is just messed up. But still this is a very important reason not to mess around with this stuff;
5. The FTC has no problem riding the line when it comes to lead generators. Again, I highly suspect these guys were NOT scumbags that were intentionally violating the law–they might have been, but that is not clear in the record to me–but the FTC still pursued them fully. I think the lynchpin here is that most of the leads were from sites offering JOBS and they were selling EDUCATION. That multi-vertical stuff will get you KILLED!!!
6. But even if you are killed the FTC might still pursue you…
7. And seriously, if you are making calls, paying for call, generating leads, selling leads, YOU REALLY NEED COUNSEL. (If you don’t get help from Troutman Amin, LLP PLEASE PLEASE PLEASE get help somewhere.)

We will keep a very close eye on this. And you should too.