Profit from fraud–pay the consequences.

That seems to be the message from a new court ruling out in Florida in connection with a carrier that allegedly ignored over 200 warnings that its traffic was fraudulent.

Smart Biz Telecom is facing a massive suit brought by the Florida STATE AG challenging that it knowingly allowed illegal (fraudulent) calls to traverse its network. The AG is seeking massive penalties that could cripple the Telecom company. And the court in Office of Attorney General v. Smartbiz Telecom, LLC 2023 WL 5491835 (S.D. Fl. Aug. 23, 2023) said the case can proceed past the pleadings stage!

The background here is pretty straightforward. Smart Biz has received over 200 traceback (ITG) tickets over the last couple of years. Despite the high volume of tickets it continued to work with robocallers that generated complaints and were sending fraudulent traffic.

Additionally, “Smartbiz transmits high volume, short duration call traffic that originates in a country that does not use the same numbering format as the United States, but where the calls appear as United States’ phone number.”

So the Florida state AG brought suit against Smartbiz under the TCPA, the Truth in Caller ID Act, the Telemarketing Sales Rule, and Florida’s Deceptive and Unfair Trade Practice Act, standing in the shoes of the consumers that had been injured by the calls.

SmartBiz moved to dismiss making various arguments. Spoiler alert: they were all losers.

First SmartBiz alleged Plaintiff–the AG!– does not have Article III standing. The Court made short work of this argument because the AG is literally “the people” and “the people” have allegedly been harmed by fraudulent robocalls on SmartBiz’s network.

Second, SmartBiz argued the TRACED Act preempts the AG’s claims but since that argument makes no sense it was rejected. (TRACED literally enhances the penalties under the TCPA, so how can it preempt the TCPA? Plus the TCPA specifically preserves state law remedies–so the TCPA cannot be found to preempt state law remedies.)

Third, SmartBiz argued it did not ““make” or “initiate” the calls at issue. Now this argument MIGHT have teeth later in the case but at the pleadings stage the Court did not bite. The Court cited the old rule that a carrier can be liable for calls where it has “a high degree of involvement or actual notice of an illegal use and failure to take steps to prevent such transmissions.” Hold onto that test folks because it is an important one and will become more important over time, I suspect. But since the complaint alleged SmartBiz knew all about the calls and let them pass on through the allegations were sufficient to deem SmartBiz potentially liable for them:

Plaintiff alleges that Defendant was notified approximately 250 times of fraudulent calls it has transmitted, despite having this knowledge it continued to connect these calls, profited from these fraudulent calls, refused to implement a means to check for these robocalls, and the calls would not have connected but for Defendant’s decision to allow them to transit its network. Looking to the totality of the circumstances, the Defendant not only demonstrated a high involvement, but also had actual notice of transmitting fraudulent calls.

Eesh. But tough to say I disagree under the alleged facts here.

Next, SmartBiz argued that the AG should have sued the companies that actually made the calls and not just the carrier. The Court shrugged at this argument–perhaps others were liable too, but that does not excuse SmartBiz.

The Court also determined the Truth in Caller ID Act claim was properly pleaded. Specifically, the Court found SmartBiz was alleged to have “knowingly caus[ed] the caller identification services of the recipients of [Defendant’s] call traffic to transmit misleading or inaccurate caller identification information including spoofed or otherwise misleading and inaccurate phone numbers.”

These TICIDA cases are tricky because no one knows what they actually cover. Specifically, what does it mean for a caller ID to be “misleading or inaccurate”? Businesses COMMONLY use 800 numbers or local touch area codes to allow a consumer to call back a toll free number. But if I let Los Angeles area callers call my business–located in Florida–back on a Los Angeles number does that mean I am spoofing and violating TICIDA? Maybe.

Now the calls SmartBiz was sending were a little less ambiguous. Specifically, the calls were originating from out of the country! So allowing a Toronto call center’s number to show up as if it were coming from Alabama is a little bit different. Still though, if the number actually rings through to the Toronto call center can it really be said to be spoofing? Regardless the Court found enough was alleged to allow the claim to proceed against SmartBiz for the time being.

Additionally the Court found the AG does not need to demonstrate anyone suffered $50k in damages to bring suit under the TSR (it does not) and also finds that the Florida unlawful business practice claim can proceed in light of all the other claims that are valid.

Wow.

Alot to unpackage here.

Probably the scariest piece of the ruling is the TICIDA. A lot of companies use local touch numbers to make outbound calls–and carriers permit this, and should. But this decision suggests that practice might not be legal. Hmmm.

But do not lose track of the high degree of involvement or actual notice rule for carriers. IF YOU HAVE ACTUAL NOTICE OF FRAUDULENT TRAFFIC ON YOUR NETWORK AND LET IT THROUGH YOU COULD BE SUED! Not saying it is right–in fact, I think that is a misstatement of the law. But that is the prevailing theory right now. So watch out.

Another big take away: even stage AG investigations are dangerous. Smartbiz might not have been too concerned here because they are facing a Florida AG suit and not the big boy fed suit, but the state AGs can swing pretty hard too. As Smartbiz just found out.

Last, while the amount of damages sought in the complaint is not clear from the ruling you can bet your bottom dollar it will cost Smartbiz its bottom dollar if it loses. Undoubtedly hundreds of millions at stake here. Big time risk for carriers out there right now.