Antitrust Law Daily DISH Network liable for retailers’ telemarketing violations, but $280M penalty needs recalculati
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Friday, March 27, 2020

DISH Network liable for retailers’ telemarketing violations, but $280M penalty needs recalculati

By Nicole D. Prysby, J.D.

DISH was liable for the violations of retailers acting as DISH agents, but the penalty assessed for the 66 million violations should be recalculated starting from harm, not from what DISH can afford to pay.

Order-entry retailers that took orders from customers and entered them directly into DISH Network’s computer system were DISH’s agents and DISH was vicariously liable for calls the retailers made in violation of the Telemarketing Sales Rule (TSR), the U.S. Court of Appeals in Chicago has decided. The district court in that city had found that DISH was liable for the TSR, Telephone Consumer Protection Act (TCPA) and other telemarketing violations of its retailers because it failed to supervise them and DISH was ordered to pay $280 million in civil penalties. Because the order-entry retailers were DISH’s agents, DISH and the retailers were collectively one seller under the TSR and required to act collectively (for example, by working from one, coordinated do-not-call list). The penalty assessed by the district court was not unconstitutionally high, but the district court erred when it based the penalty entirely on DISH’s ability to pay, setting it at 20 percent of a year’s profits. The penalty assessment should have started from harm rather than wealth, then added an appropriate multiplier (U.S. v. Dish Network L.L.C., March 26, 2020, Easterbrook, F.).

DISH sells satellite television programming to consumers. As part of its marketing practices, DISH contracts with third parties to provide telemarketing services, including "order-entry retailers" that took orders from customers and entered them directly into DISH’s computer system. The United States filed suit, alleging that DISH violated the Telemarketing Sales Rule (TSR). The district court found that DISH was liable for the telemarketing violations of its retailers because it failed to supervise them. DISH was ordered to pay $280 million in penalties and appealed.

DISH was liable for the acts of the retailers because they acted as agents for DISH and DISH failed to ensure that it and all of its agents shared an internal do-not-call list, according to the appellate court. Although the contract between DISH and the order-entry retailers stated that it does not create an agency relationship, parties cannot by edict negate agency if the relationship the contract creates is substantively one of agency. Here, the contract gave DISH the right to control the performance of the retailers, and could modify any of the applicable business rules at any time. The retailers acted directly for DISH, entering orders into DISH’s system; they did not have their own inventory and were not resellers of any kind. They were DISH’s agents, notwithstanding the contractual disclaimer, the court held. Because the order-entry retailers were DISH’s agents, DISH and the retailers were collectively one "seller whose goods or services are being offered" under the TSR. This meant that they had to act collectively; otherwise any household could receive endless calls peddling DISH’s service, as long as each came from a different retailer.

DISH also argued that even if it was liable under the TSR, its conduct amounted to a continuing violation under the TSR, with each day counting as a violation. The district court rejected that analysis and treated each call as a violation. The Seventh Circuit agreed with the lower court’s analysis—under the TSR, the violation is the call, not the failure to coordinate internal do-not-call lists.

DISH was liable for calls the retailers made that were wrongful independent of the list-coordination issue. The fact that DISH’s contracts with the retailers told the retailers to follow all applicable laws did not affect DISH’s liability. DISH’s agents acted within their authority to sell TV service using phone calls, and those acts benefitted DISH (which knew what the retailers were doing). That was enough for DISH to be liable for the order-entry retailers’ illegal calls under those federal and state laws that extend beyond the failure to coordinate internal do-not-call lists.

The district court found DISH liable under the TSR for "substantially assisting" Star Satellite in making abandoned calls. This effectively meant that the district court held DISH liable twice per abandoned call: once for making the call (through an agent) and once for assisting that agent. As DISH was vicariously liable for the acts of its agents, it was not assisting itself. The district court declined to double count the calls for purposes of the penalty, but to the extent that the "substantial assistance" finding affected its exercise of discretion in selecting the penalty, however, that finding could matter, the appellate court reasoned.

The court rejected DISH’s statutory defenses. DISH did not know of each individual call placed by the retailers, but the retailers’ knowledge was imputed to it. DISH’s mistaken belief that a disclaimer in the contract could avoid liability did not provide a defense. DISH also claimed that for the purposes of calling a person with whom it has an "established business relationship," it was entitled to start the 18-month period on the date it disconnected a customer’s service. The court rejected that argument: the customer’s final payment date was the start of the 18-month window.

Damages. As to damages, DISH argued that the maximum penalties allowed by the TSR, TCPA, and related state laws substantively violated the Due Process Clause because they were too high. The maximum penalty is $10,000 per violation. Multiplying this by the 66 million violations the district judge found was $660 billion. But the district court only awarded $280 million, closer to $4 than to $10,000 per improper call. This could be a constitutional problem only if a combination of compensatory and punitive damages adding to $4 violated the Due Process Clause. Yet if an unwanted call caused even $1 of harm, the "punitive" multiplier (around 3) likely came within the Constitution’s limit. However, the district court did make an error in assessing damages. The TCPA does not include a provision that a court should consider a violator’s ability to pay. Yet the district court based the penalty entirely on DISH’s ability to pay, setting it at 20 percent of a year’s profits. The judge should have started from harm rather than wealth, then added an appropriate multiplier, after the fashion of the antitrust laws (treble damages) or admiralty (double damages), to reflect the fact that many violations are not caught and penalized.

The case is No. 17-3111.

Attorneys: Lindsey Powell, U.S. Department of Justice, for the United States. Vesna Cuk, Office of the Attorney General for State of California. Evan Siegel, Office of the Attorney General for State of Illinois. Teresa L. Townsend, Office of the Attorney General for State of North Carolina. Erin B. Leahy, Office of the Attorney General for State of Ohio. Easha Anand (Orrick, Herrington & Sutcliffe LLP) for Dish Network LLC.

Companies: Dish Network LLC

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