A recent federal court ruling provides a potent reminder that companies can be held liable for consumer protection law violations committed by third-party vendors—and underscores the importance of maintaining strong vendor oversight.

Earlier this year, a jury found Dish Network liable for violations of the Telephone Consumer Protection Act (TCPA) because its vendor initiated more than 50,000 calls to about 18,000 consumers whose telephone numbers appeared on the National Do-Not-Call Registry. The jury awarded damages of $400 per call, totaling nearly $20.5 million. Last week, the North Carolina federal judge presiding over the case found Dish vicariously liable for its vendor's willful and knowing violations and trebled the damages to $1,200 per call—more than $61 million in total.

The court found that Dish had a common practice of engaging vendors to initiate calls to consumers on Dish's behalf. The calls at issue were placed by one of Dish's smaller service providers, Satellite Systems Network (SSN), which accounted for less than 0.1 percent of Dish's budget for new customers. The court found that SSN knowingly and willfully violated the TCPA when it made calls to numbers on the National Do-Not-Call Registry without checking the registry and conducting account scrubs to determine whether the calls were permissible.

Dish was found to be vicariously liable for its vendor's violations. The court found that "Dish knew or should have known that its agent, SSN, was violating the TCPA, and Dish's conduct thus willfully and knowingly violated the TCPA." The court supported this conclusion by finding that Dish ignored warning signs and "repeatedly looked the other way when SSN violated the telemarketing laws and when SSN disregarded contractual duties related to compliance. Stating that Dish’s compliance department was "a compliance department in name only," the court criticized Dish for not effectively overseeing its vendors. In determining that Dish was willful, the court noted a number of other factual findings:"

  • Dish had previously entered into an "Assurance of Voluntary Compliance" (AVC) with 46 state attorneys general whereby the company "agreed to supervise its marketers, determine if they were complying with federal do-not-call laws, and discipline or terminate them if they failed to take steps to prevent violations of the law." However, the court indicated that Dish failed to take the actions set forth in the AVC.

  • Despite a contract granting Dish "virtually unlimited rights to monitor and control SSN's telemarketing," Dish failed to take action when SSN disregarded contractual duties related to compliance. The court noted that Dish was aware of consumer complaints about SSN's calls and of enforcement actions and class actions against SSN, but did not take any action or investigate the compliance issues.

  • The court noted that Dish wrongfully informed the named plaintiff that it was not responsible for the calls made by its service providers.

  • The court noted that Dish's compliance department maintained a derisive attitude toward individuals who filed TCPA lawsuits, referring to them as "harvesters," "frequent flyers," or people who "tended to make a living placing TCPA complaints."

The case is somewhat unusual in that it relates to telemarketing calls to numbers on the National Do-Not-Call Registry rather than consent requirements applicable to certain autodialed calls. But it serves as an important reminder that robust and active vendor oversight and compliance are keys to minimizing exposure under the TCPA and other consumer protection statutes.

Ballard Spahr's TCPA Task Force assists clients in navigating the complex and challenging issues that arise under the TCPA. The Task Force, which comprises regulatory attorneys and litigators, provides counsel on TCPA compliance and avoiding TCPA liability, including reviewing policies and practices and helping to design mobile text message and prerecorded and autodialed call campaigns. It also assists clients in commenting on regulatory proposals and handling scrutiny from regulators, including preparing for examinations, responding to investigations, and defending against enforcement actions. Task Force members also defend clients against TCPA class or individual actions.

Ballard Spahr's Consumer Financial Services Group is nationally recognized for its guidance in structuring and documenting new consumer financial services products, its experience with the full range of federal and state consumer credit laws, and its skill in litigation defense and avoidance (including pioneering work in pre-dispute arbitration programs).

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