7th Circuit Quietly Effects Potentially Significant Change in Federal Do-Not-Call Laws' "Established Business Relationship" Exception
In Remanding DISH Telemarketing Damage Award, Appeals Court Decides Collateral Issue That Could Have Far-Reaching Operational Implications
On March 26, 2020, the U.S. Court of Appeals for the 7th Circuit issued its decision in U.S. v. DISH Network, affirming liability but remanding the trial court’s award of $280 million in civil penalties and statutory damages. The trial judge found more than 65 million violations on behalf of DISH of theTelemarketing Sales Rule (TSR) maintained by the Federal Trade Commission (FTC), the Telephone Consumer Protection Act (TCPA) and its rules administered by the Federal Communications Commission (FCC), and analogous state laws. Most observers have focused on affirmance of DISH’s liability and/or on vacation and remand of the monetary awards.
There is, however, another less-noted portion of the opinion that upsets a long-accepted understanding of how the underlying federal telemarketing rules operate, involving a widely used exception to the do-not-call framework. That holding might well warrant operational changes at companies that telemarket, especially those that are paid in advance for goods or services delivered thereafter over an extended period.
Background and Review of Judgment
U.S. v. DISH was an enforcement action by the federal government and the states of California, North Carolina, Illinois, and Ohio, alleging violations of federal and state telemarketing laws. The 7th Circuit’s decision largely affirmed DISH’s liability for approximately 66 million marketing calls made by third-parties selling its satellite TV service. However, the court vacated and remanded the $280 million award on grounds the trial court based that penalty entirely on DISH’s ability to pay (using 20 percent of a year of the company’s profits).
This was improper, the 7th Circuit held, because ability to pay is but one of several factors for setting penalties under the FTC’s enabling statute, only one of the state statutes includes it as a factor, and the remaining state laws and TCPA do not mention it at all. Thus, “two of the statutes underlying this penalty permit consideration of wealth—though none permits it to be the sole factor,” which the 7th Circuit said, made it “hard for us to see a justification … for starting from the defendant’s wealth rather than harm.” The trial court will revisit the award on remand.
Ruling on the EBR Exemption
Meanwhile, in assessing DISH’s liability, the court was called upon to interpret and apply the underlying telemarketing rules, one of which involved an exception to the federal do-not-call regime the company was accused of violating. Under essentially identical provisions of the TSR and TCPA rules, it is unlawful to telemarket to phone numbers on the National Do-Not-Call Registry.
The only exceptions are where a called party gives prior express invitation or permission to phone solicitations from a company or has an established business relationship (EBR) with it. Under both the TSR and TCPA rules, an EBR exists based on a consumer having inquired about a company’s goods or services within three months before the telephone solicitation, or a purchase or other transaction with the company within 18 months prior to the call.
For purposes of the purchase/transaction-based EBR, it has long been understood that 18 months is calculated from the later of the last purchase of, payment for, or delivery of the goods or services in the transaction. The FTC articulated as much when it adopted the rule, and it is reflected in the FTC’s TSR FAQs to this day. Both the FTC and the FCC acknowledged such calls are expected from companies with whom a consumer has already done business, including renewal and/or “winback” efforts, and both cited in particular the examples of subscriptions and/or memberships for which consumers may pay upfront for an extended period of service.
The 7th Circuit, in fact, quoted the FTC’s articulation that EBRs can be measured from the last shipment or delivery in construing the exception but ultimately held the 18-month period after a purchase/transaction must be measured from the consumer’s last payment. It rejected post-payment delivery date(s) as a proper starting point for the 18-month EBR, based on the text of the rule mentioning only “purchase, rental or lease” and entry into a “financial transaction.” The FTC’s commentary (and FAQ) that incorporates delivery, if it post-dates payment, did not warrant deference, the court held, given the clarity of the rule’s text.
Impact of Ruling on the EBR Exception
The court’s ruling on this point is a potentially major change in interpretation of how the transaction-based EBR exception operates under the do-not-call rules. For nearly two decades, companies have relied on the FTC commentary (and FAQ), and the FCC’s adoption and ratification of a parallel EBR in its rules, to begin counting the 18 months for the EBR period from the later of the last purchase of, payment for, or delivery of the goods or services involved in the transaction. Ratcheting back to date of last payment could be operationally disruptive.
It is easy to envision companies like newspaper or magazine publishers, or health club or other membership services—which may be paid in advance—finding the duration of paid-for goods/services extending far into or even beyond the 18-month EBR, thus greatly limiting the ability to make renewal or winback calls to former customers whose numbers are on the National Do-Not-Call Registry.
Companies for whom such outreach to former customers forms an important part of their telemarketing should review their procedures to ensure they properly account for the 7th Circuit’s reinterpretation of the transaction-based EBR under its DISH decision.