18 September 2023

Lead Generator Found Liable For Major TSR Violations

Klein Moynihan Turco LLP


Klein Moynihan Turco LLP (KMT) maintains an extensive practice, with an international client base, in the rapidly developing fields of Internet, telemarketing and mobile marketing law, sweepstakes and promotions law, gambling, fantasy sports and gaming law, data and consumer privacy law, intellectual property law and general corporate law.
On September 1, 2023, Judge Lindsay C. Jenkins of the Northern District of Illinois entered an order granting the Federal Trade Commission ("FTC') partial summary judgment against Day Pacer LLC...
United States Consumer Protection
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On September 1, 2023, Judge Lindsay C. Jenkins of the Northern District of Illinois entered an order granting the Federal Trade Commission ("FTC') partial summary judgment against Day Pacer LLC and associated defendants (collectively "Day Pacer"). The Court found that Day Pacer violated the Telemarketing Sales Rule ("TSR") by: 1) placing millions of telephone calls to numbers on the National Do-Not-Call Registry ("NDNC"); and 2) otherwise assisting business partners with their improper telemarketing practices. Enacted in 1995, the TSR prohibits sellers and telemarketers from engaging in certain abusive practices that invade upon consumer rights to privacy. The TSR empowers the FTC and state attorneys general to initiate enforcement action for violation of the statute.

The Day Pacer enforcement action is notable because of the massive number of violations at issue; The FTC alleged that Day Pacer violated the TSR four (4) million times. In its complaint, the FTC asked the Court for injunctive relief and a penalty of $28 million. The Court chose to focus on the FTC's proposed penalty instead of what the TSR's maximum penalty would be for this number of violations – more than $100 billion.

The FTC's Case Against Day Pacer

Day Pacer is a company that telemarkets to consumers and sells consumer leads to third parties in the educational space. Like many in the lead generation business, Day Pacer purchased lead information from third party consumer-facing websites. Day Pacer then called these consumers and/or provided their lead information to third party telemarketing companies. The contact information for interested consumers was then sold to educational institutions. In some instances, Day Pacer not only provided numbers to third party telemarketers, but it also provided telemarketing scripts and guidance to these telemarketers on how to increase success rates.

Day Pacer's large scale conduct eventually resulted in an avalanche of complaints. These complaints came from all angles – consumers, operators of the consumer-facing websites, educational institutions, and other lead purchasers. These complaints were lodged not only with Day Pacer, but also the third party telemarketers that bought leads from Day Pacer. Nevertheless, Day Pacer stayed the course, maintaining that its continued conduct did not violate the TSR.

Eventually, the FTC began building a case based upon these complaints. In 2016, the FTC issued a Civil Investigative Demand to EduTrek, Day Pacer's predecessor. In 2019, the FTC filed the current enforcement action against Day Pacer alleging two counts: 1) calls to phone numbers found on the NDNC; and 2) assisting and facilitating calls to phone numbers found on the NDNC.

The Court's Finding of Repeated TSR Violations

Under the TSR, it is a violation to place commercial calls to telephone numbers that are on the NDNC without obtaining the express consent of the consumer or having an established business relationship with the consumer. It is also a violation of the TSR to substantially assist a third party telemarketer when you know that the telemarketer is violating the TSR.

Between March 2014 and June 2019, the Court detailed that Day Pacer made at least 3,669,914 calls to phone numbers on the NDNC. In fact, it seems that Day Pacer did not subscribe to the NDNC, nor did it scrub its telemarketing lists against it. During the same time period, Day Pacer's received 498,597 call transfers that originated from outbound calls to telephone numbers on the NDNC.

In its defense, Day Pacer argued that: 1) the FTC did not have authority to bring an enforcement action and that the TSR was unconstitutional; 2) its calls were purely informational; and 3) it only called consumers who had provided consent to do so. The Court found that: 1) the FTC had authority to bring the subject action and that the TSR is constitutional; 2) Day Pacer's calls were for telemarketing purposes because they profited from the sale of consumer leads to educational institutions; and 3) Day Pacer's assertion that it contacted consumers that had previously provided consent was without merit, as it could not provide evidence of said consent. In addition, the Court found that Day Pacer also violated the TSR by providing substantial assistance to a third party that it "knew or consciously avoided knowing . . . was violating the TSR." Based on the undisputed record, the Court granted summary judgment to the FTC on both counts. The Court indicated that it was "inclined" to grant an injunction and $28,681,863.88 in damages against Day Pacer, but that it needed further briefing on assorted issues before doing so.

Why is the Day Pacer Decision Important to your Business?

Businesses that violate the TSR face civil penalties of up to $50,120 for each violation. This is a staggering difference from the $500 to $1500 per violation penalty under the Telephone Consumer Protection Act ("TCPA"). In addition, the process by which alleged violations of the TSR are prosecuted by the FTC and attorneys general is also markedly different from that of a TCPA lawsuit.

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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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