Stay ADvised: What's New This Week
- Illinois Attorney General Continues to Target Alternative Electric Companies
- FTC Upholds ALJ Decision on 1-800 CONTACTS Anti-Competitive Behavior
- Recent TCPA Settlements Provide Lessons in Calling Consumers
Illinois Attorney General Continues to Target Alternative Electric Companies
Illinois Attorney General Lisa Madigan has announced her second enforcement action against an alternative energy supplier company for unfairly targeting and deceiving minority groups. Following claims two years ago that PALMco Power IL LLC was targeting African-American consumers with promises of lower energy rates, Madigan’s office announced that it had recently settled charges against IDT Energy Inc. for similar violations.
Madigan’s office claimed that these alternative retail electric suppliers, commonly referred to as “ARES,” used deceptive marketing practices to entice consumers to enroll in their delivery service rather than the delivery service used by their original provider. They did so by allegedly offering hyper-competitive low rates for one year which would thereafter spike higher than what the customers would have paid with their original electric supplier. These practices, claimed Madigan’s office, violated the Illinois Consumer Fraud and Deceptive Business Practices Act.
The PALMco lawsuit (announced on March 9, 2017) claimed that the company used deceptive and aggressive door-to-door marketing techniques to mislead consumers into signing up for the services, such as telling consumers they must switch and were being visited merely as a courtesy so they could learn how to set up their account. This litigation is ongoing.
On November 18, 2018, Madigan’s office claimed that IDT Energy engaged in similar practices – purposefully targeting African-American customers in the West and South sides of Chicago by telephone and door-to-door sales. Specifically, the AG alleged that IDT failed to provide consumers with sufficient information about the company’s electric supply contracts, such as the length of the contract and the rates, so consumers could make an informed purchase decision. IDT representatives allegedly misled some consumers by telling them these were just new rates under their current supplier, ComEd, instead of telling them the truth, which was that they were switching suppliers altogether. The impacted customers often paid higher prices than the ComEd rates following that switch. Promises of reward programs, rebates, and “free” electricity, which would later be added to the customer’s bill, never materialized and are just a few examples of the deceptive marketing tactics used.
Madigan’s investigation into these schemes resulted in a settlement with IDT that required the company to refund $3 million to 176,000 impacted consumers and banned it from marketing in the entire state of Illinois for two years. Madigan says the number of complaints about ARES has surged in recent years, leading to more investigations by her office.
But Madigan’s work in this area is not limited to enforcement actions alone, as she is actively lobbying the Illinois General Assembly to enact legislation to prohibit marketing efforts by ARES and those similarly engaged in by PALMco and IDT.
Alternative energy solutions can provide consumers with greater choices and lower prices for electricity deliver, but aggressive and deceptive marketing will not be tolerated, particularly when targeted to certain populations.
FTC Upholds ALJ Decision on 1-800 CONTACTS Anti-Competitive Behavior
The Federal Trade Commission has upheld an Administrative Law Judge’s finding that contact lens seller 1-800 CONTACTS violated antitrust laws by engaging in unfair online marketing techniques and entering into contractual agreements with competitors that harmed consumers. This action concludes (for now) the FTC’s ongoing concerns regarding 1-800 CONTACTS’ attempts to stifle competition in the contact lens category.
The Commission’s November 14 Order, authored by Chairman Joseph Simons, was largely drawn from the conclusions reached in Chief Administrative Law Judge D. Michael Chappell’s October 2017 Initial Decision, which found that 1-800 CONTACTS had violated Section 5 of the FTC Act by undermining competition in the contact lens market. The decision resulted from the Commission’s August 2016 complaint alleging that 1-800 CONTACTS had entered into agreements with competitors prohibiting them from bidding for search engine results ads, which frustrated consumers’ ability to find lower prices for contact lens products online. The use of such provisions, according to the FTC, reduced the prices paid by 1-800 CONTACTS for their own search engine results and therefore harmed consumers.
This practice came to light after 1-800 CONTACTS sued certain competitors for alleged trademark infringement and breach of contract after the competitor placed a paid ad on a search engine. Many of those suits settled prior to going to trial, but the outcomes significantly affected the search engine results on the results page for consumers interested in buying contact lens products. While 1-800 CONTACTS argued that the contracts with their competitors were necessary for intellectual property protection, the FTC did not agree, claiming the lawsuits were a method of suppressing the advertising efforts by legitimate competitors.
The FTC claimed these actions constituted a violation of federal law due to misleading advertising and restricted competition.
The Commission’s Order prohibits 1-800 CONTACTS from enforcing the no-bid provisions in its existing competitor agreements and from entering into similar agreements with competitors going forward. In addition, it prohibits 1-800 CONTACTS s from agreeing to restrict search advertising from or to limit participation in search advertising auctions by competitors.
The FTC and the Department of Justice have been extremely aggressive in enforcing antitrust laws against companies that engage in anticompetitive activity where consumer choice and access to information are stifled. Contracts between competitors that restrict one or both parties from engaging in activity designed to limit consumer choice will be heavily scrutinized and thus easy targets for enforcement authorities. While companies may, in fact, have legitimate intellectual property concerns when engaging in these activities, consideration must be given to how regulators will view the behavior with an eye toward protecting a free and open marketplace.
Recent TCPA Settlements Provide Lessons in Calling Consumers
While the Federal Communications Commission and various circuit courts struggle to define an autodialer under the Telephone Consumer Protection Act (TCPA), defendants in TCPA cases continue to settle at record pace rather than face the prospect of paying consumers up to $1,500 for each unsolicited phone call. Two companies recently had their settlements approved by judges hearing their cases, with one using potential bankruptcy as leverage should the plaintiffs succeed on all of their counts.
Alarm.com was accused of sending unwanted pre recorded telemarketing ads to more than one million cell phone customers in the U.S. beginning in December 2015. Plaintiffs Philip J. Charvat, Mark Hankins and Abante Rooter and Plumbing Inc. claimed that Alarm.com violated the TCPA by ignoring Do Not Call requests; calling numbers listed on the National Do Not Call registry; using pre recorded messages and autodialers to reach landlines; and calling cell phones via autodialers with pre-recorded messages.
After U.S. District Judge Yvonne Gonzalez Rogers certified various sub-classes in May 2017 and denied Alarm.com’s bid for summary judgment a year later by rejecting its argument that it did not itself place the calls (the calls were placed by a third party dealer hired by the defendant), the parties agreed to settle the case for $28 million. Despite their success in having the classes certified and Alarm.com’s motion for summary judgment rejected, plaintiffs agreed to settle in order to avoid any risk of loss at trial and the fact that the defendant did not have the ability to pay a full award amount of up to $1.8 billion if they lost. In addition to the multi-million dollar payment, of which a third is likely to go to class counsel, the settlement provides for Alarm.com to change its advertising practices in the future and cease using the dealer that placed the calls at issue.
This lawsuit is Abante Rooter and Plumbing Inc., et al. v. Alarm.com Inc., et al., Case No. 4:15-cv-06314, in the U.S. District Court for the Northern District of California.
In another TCPA case involving calls made by a third party, payment processing firm Total Merchant Services Inc. (TMS) agreed to pay $7.5 million to settle charges for causing unsolicited sales calls to be placed to businesses. The settlement has received preliminary approval from U.S. District Judge Claudia Wilken sitting in the Northern District of California.
Plaintiff Sidney Naiman alleged that TMS placed over 235,000 calls, using its sales representative, Quality Merchant Services, in violation of the TCPA. These calls were allegedly made using automated dialing systems and pre recorded messages promoting TMS’s payment processing services.
According to the Naiman complaint, more than 50,000 consumers received these illegal calls, including people who never consented to receive them in the first place. According to the settlement, TMS sourced the numbers it called from an online “non-verifiable database.”
In addition to the financial payment to plaintiffs, approximately one quarter of which will go to class counsel, the settlement agreement provides that TMS will not use Quality Merchant Services in the future to solicit business from new or existing TMS customers.
The case is Naiman v. Total Merchant Services Inc., Case No. 4:17-cv-03806, in the U.S. District Court for the Northern District of California.
As the sun will rise in the east, plaintiffs will continue to file TCPA lawsuits. And many, if not most, will settle as these have. But valuable lessons can be learned from these cases so as to avoid these suits. First, when contracting with third parties to place calls, do not expect the ostrich defense (head-in sand) to win the day – plaintiffs and courts see right through it. Ceding control over a campaign to another party is a likely recipe for something to go wrong and it often does. Both of these companies relied on a third party to place calls on their behalf and ended up paying for it. While not all outsourcing relationships end this way, failing to conduct initial due diligence and regularly monitoring the third party’s activities could result in unlawful calls made, followed by an unwanted lawsuit.
Second, as illustrated in the TMS case, purchasing a lead list for the purpose of making unsolicited calls is never a good idea, especially if the list contains cell phone numbers. If a third party list is purchased, ensure that it is scrubbed against the National Do Not Call registry and an internal DNC list to avoid a DNC claim. Then, to avoid a TCPA claim for an unsolicited call to a cell phone, the intended list should be scrubbed against databases of known cell phone numbers maintained by the wireless carriers and aggregators. While these lists are not perfect, scrubbing will at least mitigate the risk of calling these numbers.