Two recent judgements against Dish Network LLC (“Dish”) for violations of the Telephone Consumer Protection Act (TCPA) and similar state and federal laws demonstrate the significant liability companies may face based on the actions of their third-party contractors. Dish has been ordered to pay a total of approximately $341 million in two separate federal court actions related to TCPA violations committed by its marketing service providers. Both cases underscore the importance of maintaining strong vendor oversight in the highly regulated telemarketing industry.

Overview of Telemarketing Laws

Various laws at the federal and state level have been enacted to protect consumers from unwanted and often aggressive telemarketing practices. The TCPA places detailed restrictions on telemarketing calls and text messages, artificial or prerecorded voice calls, autodialed calls, unsolicited fax advertisements and telephone solicitations. Among other things, the TCPA requires companies to maintain a company-specific “do-not-call” list of consumers who have asked not to be called. In addition to the TCPA, companies must comply with the Telemarketing Sales Rule (TSR), which, among other things, established the national Do Not Call Registry; both the TCPA and TSR generally prohibit making calls to numbers listed on the Do Not Call Registry. Applicable state law must also be observed, as most states have enacted legislation similar to the TCPA and TSA, including state-specific “do-not-call” registries in some instances.

Violations of these laws can be costly. The TCPA provides for statutory damages of $500 per call or text made in violation of the statute, and up to $1,500 per call or text for willful and knowing violations. In addition to civil lawsuits, regulatory enforcement actions may be brought by the Federal Communications Commission (FCC) and the Federal Trade Commission (FTC).

TCPA litigation has skyrocketed in recent years, with the issue of vicarious liability often at the focus. Courts generally apply federal common law principals of agency, weighing various factors in determining whether an agency relationship exists between a company and its third party marketers, including whether the company reviewed the content of the telemarketing call, whether it knew that the third party was violating the TCPA, and whether the company engaged the third party specifically for telemarketing. In a May 2012 declaratory ruling, the FCC held that liability may be determined “under a broad range of agency principles, including not only formal agency, but also principles of apparent authority and ratification.”

In the decisions discussed below, the courts focus on the fact that Dish’s vendor agreements gave Dish the right to exercise significant control over its vendors’ telemarketing activities, yet Dish failed to take any meaningful action to ensure vendors’ compliance with relevant laws – a failure exacerbated by the fact that Dish knew that its vendors had violated telemarketing laws in the past and were likely continuing to do so. Instead, Dish continued to reap the benefits of such vendors’ services, including increased sales volume and subscriber base.

Krakauer v. Dish Network LLC

In Krakauer v. Dish Network LLC, No. 1:14-cv-00333, M.D.N.C., class members claimed that they received phone calls from Satellite Systems Network (“SSN”) promoting Dish’s services, despite the fact that their numbers were listed on the Do-Not-Call Registry. The jury rejected Dish’s argument that it should not be held responsible for the actions of SSN, ultimately finding Dish liable for the approximately 51,000 calls that SSN made to numbers on the Do-Not-Call Registry. The jury awarded $400 per call, or approximately $20.5 million.

Last month, the court trebled the jury verdict for a total award of $61.5 million after finding that Dish “willfully and knowingly” violated the TCPA. The court noted a number of findings in support of this determination, including the following:

• Dish knew that SSN had a history of TCPA violations and was calling numbers that it had not verified were not on the Do-Not-Call Registry, but continued to allow SSN to market Dish’s services.

• When Dish received complaints from individuals called by SSN even though their number was listed on the Do-Not-Call Registry, Dish responded by disclaiming responsibility for the acts of its third-party marketers, and made no effort to determine whether SSN was complying with telemarketing laws.

• While Dish had ample reason to believe that SSN was engaged in illegal telemarketing practices, Dish “repeatedly looked the other way” and failed to investigate or enforce SSN’s compliance, despite the fact that Dish had broad rights to monitor and control SSN’s telemarketing pursuant to Dish’s contract with SSN.

• In 2009, Dish signed an agreement with forty-six attorneys general, pursuant to which Dish agreed to monitor its marketers’ compliance with federal do-not-call laws and to discipline marketers or terminate their services if they failed to take measures to prevent violations of the law. However, Dish failed to show that it undertook any efforts to comply with such agreement, other than sharing its terms with its marketers.

United States of America et al. v. Dish Network LLC

United States of America et al. v. Dish Network LLC, No. 3:09-cv-03073, C.D. Ill. was brought by the U.S. Department of Justice on behalf of the FTC, as well as the states of California, Illinois, North Carolina, and Ohio, for alleged violations of the TCPA, the TSR and state law. The complaint alleged that Dish, directly and via its third party marketers, violated such laws by calling numbers listed on the National Do Not Call Registry and contacting individuals who previously said they did not want to receive sales calls from Dish.

The court found Dish liable for millions of calls made by its vendors in violation of telemarketing laws, noting that “Dish’s reckless decision to use anyone with a call center without any vetting or meaningful supervision demonstrates a disregard for the consuming public.” The court ordered Dish to pay $280 million in statutory damages and penalties, $168 million of which was awarded to the federal government — the largest civil penalty ever obtained for a violation of the FTC Act — and the remainder of which was awarded to the states. The court also ordered Dish to hire a telemarketing-compliance expert to prepare a plan designed to ensure compliance with telemarketing laws and provide a copy of such plan to the court, and to maintain records relating to telemarketing compliance (including all outbound call records and all consumer complaints received by Dish) and provide copies of such records to the plaintiffs on a semi-annual basis for the next ten years.

Steps to Ensure Vendor Compliance

Both cases show how important it is for companies engaging third party telemarketing providers to have robust vendor management programs in place. As TCPA litigation continues to be on the rise, and likely to be further fueled by the huge sums awarded in the recent Dish decisions, companies should take appropriate steps to mitigate their risk, including the following:

• Perform due diligence on all vendors performing telemarketing services on the company’s behalf.

• Develop company policies outlining vendor compliance obligations, including use of the national Do Not Call Registry, and contractually require vendors to comply with such policies.

• Ensure that all vendor agreements include an obligation to maintain detailed records evidencing the vendor’s compliance with telemarketing laws and company policy, and give the company broad rights to monitor the vendor’s telemarketing activities and audit such records.

• Implement internal company policies detailing the actions employees must take with respect to overseeing vendors, monitoring compliance and responding to consumer complaints.

• Promptly investigate consumer complaints in a systematic way to identify root causes of problems, and document all actions taken in response to complaints.

• Devote sufficient resources to maintaining and enforcing the company’s internal and vendor compliance policies, including periodic review of such policies and retention of records evidencing steps taken to ensure compliance.