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Stay ADvised: What's New This Week, January 20

By Marc Roth, Nancy J. Felsten, and Robert J. Driscoll
01.22.20
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FTC Settles with Mortgage Broker Over Revenge Yelp Replies

They say revenge is a dish best served cold, and though that old adage may be true, it is also a dish best served by not disclosing private information on Yelp. So says the Federal Trade Commission (FTC), which recently settled allegations against a mortgage broker accused of posting private client information on Yelp in response to negative reviews.

The FTC’s complaint against Mortgage Solutions FCS, doing business as Mount Diablo Lending, and its sole owner Ramon Walker, alleged that Walker disclosed the personal and financial information of multiple clients in his replies to negative reviews those clients had posted on the popular review site. Walker unleashed a barrage of private customer information about customers who he believed had impugned his company, including their credit histories, tax and health information, personal relationships, and even some people’s first and last names.

“The truth of the matter is you didn’t have one late 2 years ago,” wrote Walker in his reply to one review. “Your credit report shows 4 late payments from the Capital One account, 1 late from [Community] Bank which is Pier 1, another late from Credit First Bank, 3 late payments from an account named San Mateo,” continued Walker, who obtained the private information during the course of his work as a mortgage broker.

The complaint alleged that Walker’s actions violated the FTC Act, the Fair Credit Reporting Act (FCRA), Regulation P and other laws by revealing personal information to third parties without authorization. FCRA forbids the improper use of consumer credit reports. Regulation P is a privacy rule under the Consumer Financial Protection Bureau (CFBP) that prohibits financial institutions from disclosing any private information without first providing consumers an opportunity to opt out.

Walker and Mount Diablo were also accused of failing to implement adequate information security protections in violation of the requirement that financial institutions develop and implement a comprehensive “information security plan” containing safeguards to protect consumer information, and failing to regularly test the security program as required by the FTC Act and the Gramm-Leach-Bliley Act.

To resolve the allegations, defendants agreed to pay a $120,000 penalty for violating FCRA. The settlement order prohibits Mount Diablo and Walker from further disclosing the personal nonpublic information of clients to third parties or from misrepresenting the company’s data and security practices. The order also obligates the company to implement a comprehensive data security program to protect personal customer information it collects, and to obtain a third-party assessment of the program every three years.

Key Takeaways

The defendants’ actions here were unusually aggressive, thoughtless, and extraordinary, but as a general matter, companies should take great care in their efforts to prevent or otherwise interfere with negative customer reviews, not to mention playing fast and loose with protected consumer information. For example, prior to and after enactment of the Consumer Review Fairness Act in 2016, the FTC brought actions against companies that include gag provisions in their consumer contracts prohibiting their customers from publishing negative reviews about the company or its services.

As Andrew Smith, Director of the FTC’s Bureau of Consumer Protection noted in the press release announcing this action, “Companies that use credit reports and scores have a legal obligation to keep that information confidential. They should not disclose that information to third parties without a legitimate reason to do so, and they certainly should not post that information on the Internet to embarrass or punish consumers, as happened here.”

Telemarketers Settle FTC Complaint Over Grand Bahama Robocalls

With the ink hardly dry on the recently enacted Telephone Robocall Abuse Criminal Enforcement and Deterrence Act (TRACED), the FTC announced a settlement that demonstrates the continued pervasiveness of robocalls. The FTC reached a settlement with telemarketers over allegations that they made thousands of illegal robocalls on behalf of Grand Bahama Cruise Line. Grand Bahama, also a defendant in the case, has not settled and the FTC has said it will litigate against the cruise company in federal court.

The complaint accuses the telemarketers, their principals, and Grand Bahama of operating a massive telemarketing operation that placed billions of robocalls to consumers offering “free” cruise vacations. Grand Bahama is charged with using both in-house marketers and outside telemarketing call centers to handle its robocalls, and Grand Bahama allegedly even provided the call centers with scripts and marketing materials.

According to the FTC, as late as 2017 Grand Bahama hired various call centers to make telemarketing calls selling the company’s cruise vacations. To identify consumers to contact, the company bought call lists from lead generators who also used illegal robocalls to develop such lists. The FTC also accused Grand Bahama of hiring companies it knew had a long and spotty track record of telemarketing violations.

Other allegations against the defendants include knowingly calling numbers on the federal Do Not Call List, placing calls to consumers who specifically requested to not be called, and falsifying their caller ID information in violation of the Telemarketing Sales Rule (TSR). Despite receiving multiple consumer Do Not Call complaints, Grand Bahama continued to make calls to people on the list in what the complaint describes as a “relentless and calculated effort to obtain customers using illegal marketing tactics.”

“This case shows the FTC’s sustained effort to tackle illegal robocall operations that bombard consumers with unsolicited calls,” said Andrew Smith, Director of the FTC’s Bureau of Consumer Protection. “It also demonstrates that anyone who provides substantial assistance to illegal robocall operations may be liable for substantial civil penalties.”

The proposed settlement permanently bars the settling defendants Christopher Cotroneo, call center Cabb Group, LLC, and Christina and Robert Peterson II from making marketing robocalls or assisting others to make robocalls. It also imposed a judgment for damages totaling $7.8 million, a majority of which was suspended due to defendants’ inability to pay.

Key Takeaways

The FTC has called Grand Bahama’s illegal robocalling a “massive scheme,” and these strong settlements with the company’s vendors and partners signal the agency’s intention to aggressively pursue Grand Bahama for its alleged role in the campaign. As Smith put it, the matter is also a reminder that both companies hiring robocallers and the telemarketers who facilitate the calls may be liable for making illegal robocalls.  

Appeals Court Finds Missouri Alcohol Ad Prohibition Unconstitutional

A three-judge panel sitting for the 8th Circuit Court of Appeals has ruled that a Missouri law restricting the scope of advertising of alcohol products violates the First Amendment as an almost total ban on the right to free speech.

Missouri’s Liquor Control Law bans alcohol producers and distributors from most types of advertising. Although the text of the law does not per se restrict speech, said the panel, in “practical operation [it] restricts speech based on content and speaker identity.”

The court also struck down two separate Missouri regulations curbing advertisement of discounts on alcohol on similar grounds, finding that the state had failed to show that these rules were “no more extensive than necessary” to achieve the state’s goal of limiting excessive alcohol consumption.

The Missouri Broadcaster’s Association, together with a radio operator, and a winery and bar sued the state of Missouri in 2013 on the grounds that the laws at issue impeded their First Amendment right to free speech. After the district court ruled for plaintiffs in 2018, the Division of Alcohol and Tobacco Control of Missouri appealed to the 8th Circuit.

The state of Missouri argued that it enacted these laws in order to prevent alcohol companies from wielding “undue influence” on retailers. The court found that the state has a right to enact laws to ensure an “orderly marketplace,” but there was no evidence that “the harm of undue influence is real or that the statute alleviates this harm to a material degree.”

Moreover, the court found that the content of the law itself contained inconsistencies, such as the fact that an alcohol producer cannot advertise that a product is available from a certain store, but it can allow a retailer to disseminate the alcohol producer’s own message. These types of discrepancies “render the statute as applied irrational and ineffective,” found the court.

The court noted many other options available to the state to achieve the stated purpose of the law (ie, “lower overconsumption and underage drinking”) such as instituting higher taxes on alcohol, banning discounted alcoholic beverages, or instituting educational programs without trampling on the first amendment.

Missouri Broadcaster’s Association president Mark Gordon said he was pleased with the decision. “We have always believed that it was wrong for Missouri law to stand in the way of truthful media advertising,” he said. “We believe today’s decision makes it crystal clear that Missouri broadcasters can deliver, and Missouri citizens can receive, truthful advertising about alcoholic beverage prices just as they can with other goods and services.” 

Key Takeaways

The case is a reminder that although it is lesser-protected form of speech, advertising is still protected by the First Amendment, and as such, laws regulating advertisements must be narrowly tailored to achieve the purpose of the law. Here, Missouri failed to meet its burden to show the law was “no more extensive than necessary to further its alleged interest of preventing undue influence.”

Health Food vs. Edibles: Companies Battle It Out Over "Kiva" Trademark, Lanham Act

Two companies using the word “Kiva” in their brand name are duking it out in California federal court over a trademark dispute and allegations of unfair competition under the Lanham Act, with each asking the judge to throw out the other’s claim and declare it the victor.

The matter began when health food company Kiva Health Brands (Kiva Health) filed a lawsuit against Kiva Brands, a maker of cannabis edibles, alleging unfair competition under the Lanham Act, trademark infringement, and unfair and deceptive trade practices under California state law.

In its complaint, Kiva Health alleged, among other things, that Kiva Brands’ use of the Kiva name in the marketplace to sell cannabis products “is causing a likelihood of confusion or misunderstanding as to the source, sponsorship, or approval of [Kiva Brands]” and “is likely to … [create] the false and misleading impression” that the two companies are related. Kiva Health contends that Kiva Brands is infringing on a brand it registered as early as 2014, a point the latter disputes, arguing it has been using the mark since as early as 2010.

In its motion for partial summary judgment, Kiva Health argued that because the sale of cannabis is illegal under federal law, Kiva Brands is unable to show prior use of the mark under common law that is superior to Kiva Health’s Lanham Act claims.

Kiva Brands’ own motion for summary judgment is pending as well, with the company contending that Kiva Health’s allegations are barred by expiration of the statute of limitations. Kiva Brands claims that the applicable statute of limitations is the two- or three-year statute of limitations period for Lanham Act cases alleging “fraud, misrepresentations or passing off,” which would bar Kiva Health’s claims. The cannabis provider also argued that Kiva Health unreasonably delayed legal action, and while it did so, Kiva Brands grew into “one of the leading cannabis companies in the United States” and invested millions of dollars into the enterprise and brand.

In response, Kiva Health averred that the appropriate statute of limitations is the one applicable to Lanham Act allegations of trademark infringement, which extends for four years and allows Kiva Health to make its claims. This four-year statute of limitations period has been consistently applied in the Ninth Circuit in similar cases, argued Kiva Health.

Kiva Brands had also counterclaimed to cancel the use of Kiva Health’s registered trademark for food, but did not prevail. The court reasoned that because it could not show lawful commercial use given the legal status of the products it offers under the name, Kiva Brands could not show the earlier use of the trademark required for it to obtain a common law right, even though it had used the trademark earlier in time.

Key Takeaways

This case is instructive of the hurdles cannabis companies face when making Lanham Act and trademark law claims due to the tricky position they are in of selling a product that is illegal under federal law even as it is legal in some states. This could become problematic for cannabis companies trying to prove lawful common law use as long as cannabis continues to be unlawful at the federal level.

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