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Article: February 2015 Entertainment Litigation Update

February 01, 2015
Business Litigation Reports

United States v. Dish Network LLC: The Increasing Risks of Liability for Authorized Dealers. An Illinois district court issued an important ruling under the Telephone Consumer Protection Act and other telecommunications laws in December, adopting an inclusive view of companies’ liability for non-compliant telemarketing by affiliated third parties. The Court granted partial summary judgment to the government on claims that Dish Network LLC (“Dish”) was liable for the acts of its authorized dealers. The case is an illustration of the increasing risk to companies that use purported independent contractors in an attempt to shield themselves from liability.

The federal government and four states alleged that Dish Network—on its own, through telemarketing vendors, and importantly through authorized retailers who conduct telemarketing—caused tens of millions of calls to be made in violation of the Telephone Consumer Protection Act, Telemarketing Consumer Fraud and Abuse Prevention Act, FCC and FTC Rules and state statutes. The prohibited conduct, primarily, was calling people on the National Do Not Call Registry.

Dish Network generally acknowledged responsibility for the conduct of telemarketing vendors as its agents, but contested vicarious liability for the telemarketing activities of authorized retailers, which it argued were independent contractors and not agents as a matter of law. However, the court disagreed in three respects, highlighting the evolving ways in which a company may become liable for the conduct of third party business affiliates, including independent contractors.

First, during the litigation, the parties petitioned the FCC to interpret a rule imposing liability on the seller for calls made to Do Not Call registrants on its behalf. The FCC determined that sellers could be liable for improper calls under federal common law principles of agency that not only include formal agency but also a broad range of other agency theories such as apparent authority and ratification. The court reviewed Dish’s retailer contracts—which defined retailers as independent contractors—and concluded that factors like Dish’s ability to make and change retailer program rules suggested agency.

Second, the Telemarketing Sales Rule (“TSR”) prohibits giving substantial assistance to a telemarketer where one knows or consciously avoids knowing that the telemarketer is violating the TSR. Concerning one authorized retailer, the court found Dish had responded promptly when it learned of TSR violations and could not be liable. Concerning another, however, the court found Dish had indications that the retailer was violating the TSR and continued to do business with it.

Finally, the TSR imposes liability where a seller “causes” a telemarketer to call individuals on the Do Not Call Registry to sell the sellers’ products. The FTC’s interpretation of “causes,” to which the court deferred, requires only that the seller retained the retailer, the seller authorized the retailer to sell its products, and the retailer made prohibited calls. As Dish had permitted certain retailers to sell Dish products through telemarketing, the court granted summary judgment against Dish on liability, finding Dish liable for over 57 million improper calls. The number of authorized dealers, compared to the number of Dish’s vendor agents who made those calls was a significant consideration: Dish and its vendor agents made 5.2 million calls; Dish’s authorized retailers made the remaining 51.8 million.

The case name is U.S., et al. v. Dish Network LLC, case number 3:09-cv-03073 in the U.S. District Court for the Central District of Illinois.