telephoneNo, that headline wasn’t a typo. The Federal Trade Commission (FTC), or more accurately the Department of Justice (DOJ) acting on behalf of the FTC, recently won a jury verdict in a case challenging a variety of telemarketing activity by three Utah-based firms and their owner. The jury found that the defendants made more than 117 million calls violating different provisions of the Telemarketing Sales Rule (TSR). The case provides a useful insight into the different options available to the FTC in challenging conduct and also highlights the significant risks if telemarketing is found to violate the TSR.

As many readers know, a jury trial is not available in most FTC cases. What made this case different?

In most of the cases that it files in federal court, the FTC sues on its own behalf under Section 13(b) of the FTC Act seeking injunctive relief aimed at stopping the alleged illegal conduct as well as equitable monetary relief in the form of disgorgement or restitution. Because these are “equitable” forms of relief, a jury trial is not available, and the FTC routinely successfully strikes efforts by defendants to obtain a jury trial. See here and here for prior blog posts about the contours of equitable monetary relief available to the FTC when it proceeds directly.

In cases involving alleged rule violations, such as a violations of the TSR or other rules enforced by the FTC, the FTC has two enforcement options. It can proceed under Section 13(b) on its own behalf seeking injunctive relief and equitable monetary; or, it can seek injunctive relief as well as civil penalties, typically up to $11,000 or $16,000 per violation, respectively. If the FTC opts to seek civil penalties, however, it must refer the matter to the DOJ to litigate the matter as the FTC lacks the authority to seek civil penalties directly.

The FTC’s lack of direct civil penalty authority has been a sore spot at the agency for years, and the Commission has requested of the Congress such authority several times without success. That the FTC’s new kid sister agency the Consumer Financial Protection Bureau has the ability to obtain civil penalties directly makes this an even sorer subject at the FTC. In many instances challenging violations of the TSR or other rules, the FTC opts to forsake obtaining civil penalties preferring to litigate its own cases rather than referring them to the DOJ. A recent notable example of this involves the Restore Online Shoppers Confidence Act (ROSCA), which provides that violations of that statute will be treated as rule violations such that the FTC could obtain civil penalties if the matters were referred to DOJ. As noted here, here, here, and here previously, the FTC has chosen to pursue these cases itself.

Civil penalties are a legal (as opposed to equitable) remedy, which triggers the Seventh Amendment right to a jury trial. Thus, when the DOJ sued the defendants in this case the defendants were able to obtain a jury trial.

In this case, in 2011, the FTC referred to the DOJ a complaint alleging TSR violations against Feature Films for Families, Corporations for Character, Family Films of Utah, and the companies’ owner and principal officer Forrest Baker III. The companies produced and sold “family” films and also did fundraising for certain charities. The complaint alleged that the defendants made deceptive claims regarding how much of donors’ money made it charity, made calls to consumers that were on the Do Not Call Registry, failed to abide by requests from consumers to not be called further, failed to provide required caller identification, and failed to make required disclosures at the beginning of calls. The case was initially filed in Florida, but transferred to Utah, where a case that the defendants had brought against the FTC had been filed. The court dismissed the defendants’ case against the FTC for lack of jurisdiction.

In March 2015, the court rejected the defendants’ arguments that their calls were protected by the First Amendment and that the calls were surveys, fundraising calls, or informational calls exempt from the TSR, and dismissed some of the claims involving charitable solicitations. The court directed the matter proceed to a jury trial, which ended late in May of this year.

The jury found that defendants knowingly:

  • made 4 million false or misleading calls to induce the sales of a series of videos;
  • called 90 million consumers on the Do Not Call Registry in connection with several different campaigns for its films;
  • called 185,000 calls to consumers whom had requested that defendants not call them again:
  • called almost 8 million consumers without transmitting the required caller ID information;
  • called 5.7 million consumers without making the oral disclosures required by the TSR at the beginning of calls; and
  • made an unspecified amount of abandoned calls in violation of the TSR.

It’s up to the court to determine the proper civil penalty, but at up to $16,000 per violation the stakes are extraordinarily high. That should serve as a powerful reminder of the consequences of poor TSR compliance and perhaps suggest it might be time for a check on your compliance measure.