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United States v. Dish Network

November 4, 2009

UNITED STATES OF AMERICA, AND THE STATES OF CALIFORNIA, ILLINOIS, NORTH CAROLINA, AND OHIO, PLAINTIFFS,
v.
DISH NETWORK, L.L.C., DEFENDANT.



The opinion of the court was delivered by: Jeanne E. Scott, U.S. District Judge

OPINION

This matter comes before the Court on Defendant Dish Network, L.L.C.'s (Dish Network) Motion to Dismiss and Motion for Oral Argument (d/e 9). The Motion for Oral Argument is denied because the parties have thoroughly briefed the issues, and so, oral argument is unnecessary. For the reasons set forth below, the Motion to Dismiss (Motion) is denied.

STATEMENT OF FACTS

The Plaintiffs' claims are set forth in the First Amended Complaint and Demand for Jury Trial (d/e 5) (Complaint). For purposes of this Motion, the Court must accept as true all well-pleaded factual allegations contained in the Complaint and draw all inferences in the light most favorable to the Plaintiffs. Hager v. City of West Peoria, 84 F.3d 865, 868-69 (7th Cir. 1996); Covington Court, Ltd. v. Village of Oak Brook, 77 F.3d 177, 178 (7th Cir. 1996). The Court may also consider matters of public record. Henson v. CSC Credit Services, 29 F.3d 280, 284 (7th Cir. 1994). When read in that light, the Complaint must set forth a short and plain statement of the claims showing that the Plaintiffs are entitled to relief. Fed. R. Civ. P. 8(a); Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 559-63 (2007); Airborne Beepers & Video, Inc. v. AT & T Mobility LLC, 499 F.3d 663 (7th Cir. 2007). In doing so, the allegations must plausibly suggest that the Plaintiffs are entitled to relief. Twombly, 550 U.S. at 569 n.14. Allegations of bare legal conclusions or labels alone are not sufficient. Ashcroft v. Iqbal, __ U.S. __, 129 S.Ct. 1937, 1949 (2009).

The Plaintiffs allege that Dish Network and its authorized dealers (Dealers) used illegal telephone solicitation techniques to sell Dish Network's products and services. Pursuant to the Federal Trade Commission Act (FTC Act) and the Telemarketing and Consumer Fraud and Abuse Prevention Act (Telemarketing Act), the Federal Trade Commission (FTC) promulgated the Telemarketing Sales Rule (TSR). 15 U.S.C. §§ 45(a), 56(a), 57b, and 6105; 16 C.F.R. Part 310, as amended. Pursuant to the TSR, the FTC established the Do Not Call Registry ("Do Not Call List" or "List"). Consumers were permitted to register their personal telephone numbers on the Do Not Call List. The TSR prohibited sellers and telemarketers from calling telephone numbers on the List to market goods and services, except in certain defined circumstances. The TSR also prohibited sellers from causing telemarketers to make prohibited calls to telephone numbers on the List. 16 C.F.R. § 310.4(b)(1)(iii)(B).*fn1

The TSR also prohibited sellers and telemarketers from abandoning outbound calls. 16 C.F.R. § 310.4(b)(1)(iv). A call is abandoned if a person answers the call and the telemarketer does not connect the call to a sales representative within two (2) seconds of the person's completed greeting.

16 C.F.R. § 310.4(b)(1)(iv). The TSR effectively prohibited use of a prerecorded sales pitch because the call must be connected to a sales representative within the two second time limit. Again, the TSR prohibited sellers from causing telemarketers to abandon outbound calls. Id.

The TSR also included a provision entitled Assisting and Facilitating. This provision prohibited a person from providing substantial assistance or support to any telemarketer when the person knew or consciously avoided knowing that the telemarketer was engaged in any practice that violated the TSR. 16 C.F.R. § 310.3(b).

Any violation of the TSR constituted an unfair and deceptive act or practice in or affecting commerce in violation of § 5(a) of the FTC Act. 15 U.S.C. §§ 45(a), 57a(d)(3), 6102(c). The FTC may authorize the Attorney General to bring actions on behalf of the United States against anyone violating § 5(a) of the FTC Act. The United States may seek injunctive relief and, in appropriate cases, civil penalties. 15 U.S.C. §§ 45(m), 53(b), 56(a)(1). The United States brought this action pursuant to such authorization from the FTC. Complaint, at 1.

The Telephone Consumer Protection Act (TCPA) authorized the Federal Communication Commission (FCC) to promulgate regulations to prevent unwanted telephone solicitations. 47 U.S.C. § 227(c). The FCC promulgated a rule (FCC Rule) that prohibited sellers and telemarketers from making telephone solicitations to telephone numbers on the List. The FCC Rule also explicitly prohibited the use of pre-recorded messages in telephone solicitations. 47 C.F.R. § 64.1200. The FCC Rule defined a seller as "the person or entity on whose behalf a telephone call or message is initiated for the purpose of encouraging the purchase or rental of . . . goods, or services, which is transmitted to any person." 47 C.F.R. § 64.1200(f)(7).

The TCPA further authorized state Attorneys General to bring actions on behalf of the citizens of such states for violations of the TCPA. Each Attorney General could seek injunctive relief and secure actual damages or $500 per violation, or both. The Attorneys General could also recover treble damages for willful or knowing violations. 47 U.S.C. § 227(f)(1).

The Plaintiffs alleged that Dish Network, through its own sales force and its Dealers, violated the TSR and the FCC Rule. The Plaintiffs alleged that Dish Network and its Dealers: (1) called numbers on the Do Not Call List; (2) abandoned calls; and (3) used pre-recorded sales pitches. The Plaintiffs alleged that Dish Network authorized the Dealers to engage in telemarketing on behalf of Dish Network to sell Dish Network products and services. Dish Network authorized Dealers to use Dish Network trademarks and trade names, to collect money for Dish Network, and to perform other services as part of their positions as authorized dealers. Dish Network paid commissions and other financial incentives to the Dealers for telemarketing services.

The Plaintiffs also alleged that Dish Network received complaints from consumers regarding the Dealers' telemarketing practices, and thereby, knew or consciously avoided knowing that the Dealers were violating the TSR and the FCC Rule. The Plaintiffs alleged Dish Network was contractually entitled to terminate its relationship with a Dealer at any time. The Plaintiffs alleged Dish Network, however, continued to retain the Dealers to perform telemarketing services to market Dish Network products and services after receiving consumer complaints.

Based on these allegations, the United States has sought an injunction and civil penalties for violation of the FTC Act and the Telemarketing Act. Count I alleged that Dish Network called telephone numbers on the Do Not Call List and caused its Dealers to do the same. Count II alleged that Dish Network abandoned outbound calls and caused its Dealers to do the same. Count III alleged that Dish Network provided substantial assistance and support to certain Dealers when Dish Network knew or consciously avoided knowing that the Dealers were abandoning outbound calls in violation of the TSR. Complaint, Counts I, II, and III.

In Counts IV and V, the Attorneys General of California, Illinois, North Carolina, and Ohio have sought injunctions and damages for violations of the TCPA. Count IV alleged that Dish Network, either directly or through third parties acting on its behalf, called telephones on the Do Not Call List in violation of the TCPA. Count V alleged that Dish Network, either directly or through third parties acting on its behalf, used pre-recorded sales pitches in violation of the TCPA. Complaint, Counts IV and V.

In addition to these federal claims, each state Attorney General also has sought relief under each state's respective statute that prohibit these forms of telephone solicitations. Complaint, Counts VI- XI.

ANALYSIS

Dish Network seeks partial dismissal of the Complaint. Dish Network seeks dismissal of the Plaintiffs' claims in Counts I-V based on acts by a Dealer rather than directly by Dish Network. Dish Network argues that the Plaintiffs have failed to state claims that Dish Network is liable for the actions of the Dealers. In the alternative, Dish Network argues that even if these claims survive, the United States has failed to state a claim for civil penalties for the actions of the Dealers under FTC Act § 5(m). 15 U.S.C. § 45(m). Dish Network also seeks to dismiss state law claims in Counts VII-XI based on interstate calls. Dish Network argues that TCPA preempts all state laws regulating interstate telephone solicitations. The Court will address the TSR claims in Counts I, II, and III, then the FTC Act § 5(m) civil penalties issue, then the TCPA claims in Counts IV and V, and finally the state law claims in Counts VI-XI.

A. COUNTS I and II

Dish Network's Motion to Dismiss parts of Counts I and II turns on the meaning of the verb "cause". The TSR states: "It is an abusive telemarketing act or practice and a violation of this Rule for a telemarketer to engage in, or for a seller to cause a telemarketer to engage in," certain prohibited acts, including calling a telephone number on the List and abandoning a call. 16 C.F.R. § 310.4(b)(1). Dish Network argues that Counts I and II fail to allege that Dish Network caused the Dealers to engage in a prohibited act. Dish Network argues that it did not cause the Dealers to violate the TSR because it did not direct, request, or coerce them to engage in a prohibited act. Rather, the Dealers were independent businesses that controlled their own conduct. Defendant's Memorandum of Law in Support of its Motion to Dismiss (d/e 10), at 10. Therefore, according to Dish Network, Counts I and II fail to state claims.

The United States argues that Dish Network caused the Dealers to violate the TSR because Dish Network engaged the Dealers to perform in telemarketing, sold its goods and services through the Dealers' telemarketing, provided the Dealers with the means to violate the TSR, and provided financial incentives and compensation to engage in telemarketing. According to the United States, the seller, Dish Network, was responsible for the conduct of its telemarketers even if the telemarketers were independent businesses. Thus, Dish Network caused the Dealers' violations of the TSR.

The TSR does not define the verb "cause". In such circumstances, the Court looks to the plain meaning of the word. Varhol v. National R.R. Passenger Corp., 909 F.2d 1557, 1573 (7th Cir. 1990) (Mannion, J. concurring). The Court must also defer to the FTC's construction of the TSR unless that interpretation is plainly erroneous or inconsistent with the regulation. Joseph v. Holder, 579 F.3d 827, 832 (7th Cir. 2009); Clancy v. Office of Foreign Assets Control of United States Dept. of Treasury, 559 F.3d 595, 606 (7th Cir. 2009); Sierra Club v. Franklin County Power of Illinois, LLC, 546 F.3d 918, 931 (7th Cir. 2008).*fn2

The verb "cause" means to bring about a consequence: for example, earth's gravity causes objects to fall. The verb "cause", standing alone, does not denote or connote the degree of connection between the action and the outcome. An action may cause an outcome directly, indirectly, immediately, proximately, remotely or otherwise. The verb "cause" also does not denote or connote intent or motive. A person may cause an outcome intentionally, unintentionally, recklessly, negligently, innocently, accidentally or otherwise. The relevant section of the TSR, § 310.4(b)(1), contains no additional language that would either limit the degree of connection between the action and the outcome, or add an intent or motive requirement.

In contrast, the Assisting and Facilitating provision of the TSR contains language that defines both a degree of connection between the action and the rule violation and the actor's intent. The provision states:

It is a deceptive telemarketing act or practice and a violation of this Rule for a person to provide substantial assistance or support to any seller or telemarketer when that person knows or consciously avoids knowing that the seller or telemarketer is engaged in any act or practice that violates . . . this Rule.

16 C.F.R. § 310.3(b). The person must provide substantial assistance or support. The person must also know or consciously avoid knowing that the seller or telemarketer is violating the Rule. The fact that the FTC included such limiting language in § 310.3(b), but chose not to include such limiting language in § 310.4(b), supports the inference that the FTC did not intend to limit the scope of the plain meaning of the verb "cause" in the latter section. Thus, under the plain meaning, a seller causes a telemarketer to violate the TSR, if the seller takes an action that results in the telemarketer's violation of the TSR, without an express limitation on the degree of connection between the action and the violation, and without regard to motive or intent.

The TSR's use of the verb "cause" without limitation arguably created strict liability for sellers for the actions of its telemarketers. The FTC recognized the possibility of strict liability and included a safe harbor provision in the original TSR to avoid this problem. ...


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