FTC Targets "Substantial Assistance and Support" and "Assisting and Facilitating" in National Do-Not-Call Registry Enforcement Actions
Crackdown includes $5.34 Million Settlement with DirecTV
Posted by Ronald London
Recently, two FTC announcements that it settled charges involving alleged violations of its rules surrounding the National Do-Not-Call Registry ("NDNCR") offered insight into the extent to which the agency pursues not just those who directly violate consumers' do-not-call rights, but also all parties substantially involved in the offending activity. The cases involve the largest civil penalty ever in any enforcement action involving consumer protection laws administered by the FTC, and the first case of anyone paying a civil penalty for allegedly violating the "assisting and facilitating" provision in the agency's telemarketing rules.
Toward the end of last year, the FTC announced its case against and $5.335 million settlement with DirecTV arising from alleged violations of the Telemarketing Sales Rule ("TSR") (of which the NDNCR rules are a part) by companies that placed calls to sell DirecTV goods and services. In addition, the settlement included two outside telemarketers named as defendants, American Communications of the Triad, and Communication Concepts LLC, which were made subject to judgments of $746,300 and $205,000, respectively, which amounts were suspended (due to inability pay) except for respective civil fines of $50,000 and $25,000. The settlement resolved a Department of Justice suit filed at the FTC's behest in an L.A. federal court against DirecTV and five firms and their principals that marketed on DirecTV's behalf.
The overarching claim against DirecTV was that it provided "substantial assistance or support" to outside telemarketers engaged in TSR violations as to which DirecTV had knowledge and/or consciously avoided discovering. The FTC alleged the violations involved, and that DirecTV's role exceeded, "more than a mere casual or incidental dealing with a ... telemarketer that is unrelated to" violations. In this regard, the complaint claimed DirecTV's interactions with the telemarketers included one or more of the following: providing a customer list, offering or providing hourly wage and/or commission payments for marketing services, allowing telemarketing of DirecTV goods or services and entering contracts with and/or collecting money from consumers contacted by the telemarketers. The complaint did not specify how many calls in violation of the TSR occurred, but "backward engineering," based on the maximum penalty for violations ($11,000 per) and using the settlement as the maximum potential liability (which likely was not the case in reality), suggests at minimum the case involved nearly 500 violations.
Along with a multi-million-dollar payment, the FTC extracted from DirecTV substantial going-forward commitments that are significant to the extent they suggest what the FTC may believe are the duties of sellers that use outside telemarketers. For example, the FTC requires reasonable due diligence investigation, before engaging any telemarketer, to ensure the person/entity has established and enforces effective TSR compliance policies and procedures. It requires such engagement of outside telemarketers to be evidenced by written contracts, which must include a duty of TSR compliance, as well as the termination of any such relationship if the seller knows or should know calls are made to consumers without express, written authorization from the seller. The FTC further prohibited the provision of compensation for any telemarketing-related activities if there is knowledge or reason to know they involve failure to satisfy the contractual duty of TSR compliance, and it likewise bars continuance of business with noncompliant outside telemarketers. The FTC also imposed a duty to monitor telemarketing campaigns to ensure they are conducted in compliance with the TSR, including creation and retention of detailed records regarding telemarketing complaints from consumers, coupled with the ability to produce monthly reports showing aggregate numbers of complaints and the number and type of complaints about each telemarketer. There must be "promptly investigation" of each complaint and "reasonable steps to identify the person whose activities prompted the complaint.
More recently, the FTC announced a settlement with Entrepreneurial Strategies, Ltd., and its CEO that the agency says is the first case of a payment of a civil penalty for alleged violations of the TSR's "assisting and facilitating" provision. The settlement arises out of a 2004 FTC action against Debt Management Foundation Services and related parties for allegedly calling consumers on the NDNCR and pitching debt management services, while falsely claiming nonprofit status (so as to avoid complying with NDNCR, which exempts calls for or by nonprofits). Debt Management settled last March when the defendants paid more than $200,000 and agreed to stop the alleged illegal conduct.
As to Entrepreneurial Strategies, the FTC claimed it received money from Debt Management to assist in evading compliance with the NDNCR. This was alleged to include drafting articles of incorporation representing Debt Management was organized for religious, charitable, scientific, literary, and educational purposes under Section 501(c)(3) of the IRS Code; sending documents to the Florida Secretary of State's Office for filing; and assisting with devising and implementing a plan to siphon profits from the purported nonprofit. According to the FTC, Debt Management consulted Entrepreneurial Strategies shortly before the NDNCR took effect in order to solicit assistance with getting around the do-not-call rules. A stipulated final order settling the FTC's allegations was submitted to the judge in the case, and will prohibit Entrepreneurial Strategies and its CEO from violating FTC rules, including assisting and facilitating any NDNCR violation. It also requires payment of a $13,454.71civil penalty (which can be reopened to impose a larger penalty if any misrepresentation of the settling parties' financial conditions are found).