When to Rely on Established Business Relationships to Avoid Liability for Telemarketing Activities
In order to market goods or services through telephone solicitations, a seller of goods or services and the telemarketing companies that act on its behalf must comply with various laws and regulations. Those include regulations from both the FTC and the FCC. The FTC regulates telemarketing pursuant to the Telemarketing Consumer Fraud and Abuse Prevention Act (Telemarketing Act) and the FCC regulates telemarketing pursuant to the Telephone Consumer Protection Act.
The FTC and FCC’s regulations are overlapping and have been summarized as prohibiting three main types of telemarketing practices:
(1) Calling a person who has previously stated that he or she does not wished to be called by or on behalf of the seller whose goods or services are being offered for sale; (2) calling a person who has registered his or her telephone number on the National Do Not Call Registry … ; and (3) calling and delivering a prerecorded telemarketing message to the recipient of the call …
The Telemarketing Sales Rule (TSR) resulted from the Telemarketing Act’s direction to the FTC to issue regulations to prohibit deceptive and abusive telemarketing acts or practices. Among the TSR’s prohibitions are: “[m]aking a false or misleading statement to induce any person to pay for goods or services or to induce a charitable contribution”; and “misrepresenting ‘[a]ny material aspect of the performance, efficacy, nature, or central characteristics of goods or services that are the subject of a sales offer.’ ”
The TSR created the Do Not Call Registry, “which allows consumers to opt out of receiving unwanted marketing calls.” Any violation of the TSR is an unfair and deceptive practice in violation of the Section 5(a) of the FTC Act, which prohibits “a practice that ‘entails a material misrepresentation or omission that is likely to mislead consumers acting reasonably under the circumstances.’ ”
Among the permitted ways a telemarketer may call a consumer who has listed his or her telephone number in the Do Not Call Registry, the consumer must have provided consent or the consumer must have an “established business relationship” with the seller and the consumer has not stated that he or she does not want to receive calls. The TSR defines an “established business relationship” (EBR) as:
A relationship between a seller and a consumer based on: (1) the consumer’s purchase, rental, or lease of the seller’s goods or services or a financial transaction between the consumer and seller, within the eighteen (18) months immediately preceding the date of a telemarketing call; or (2) the consumer’s inquiry or application regarding a product or service offered by the seller, within the three (3) months immediately preceding the date of a telemarketing call.
The EBR is different from another “business” defense to violation of the TSR. Because the TSR prohibits calls to consumers on the Do Not Call Registry, it is a defense that the solicitation call was placed to a business, as opposed to a residence: “The TSR includes a ‘business-to-business exemption’ that exempts from its requirements ‘[t]elephone calls between a telemarketer and any business, except calls to induce the retail sale of nondurable office or cleaning supplies.’ ” Interestingly, though, “while the TSR defines the terms ‘seller,’ ‘telemarketer’ and ‘customers,’ it does not define the term ‘business.’ ”
Concerning the EBR exemption, like other affirmative defenses, it must be proven by the seller asserting it. For many defendants attempting to rely on the EBR exemption, the burden of proof is fatal to their defense. For example, in one case, the court held that the defendant could not rely on the EBR exemption because it failed to provide admissible evidence (including testimony) to support its argument that a code in its business records showed that the call recipient had previously made an inquiry to the defendant, and it did not produce documents during the discovery portion of the litigation documenting any consumer leads. In another case, where the defendants made two calls to potential donors, the EBR defense failed, both calls were held not to create a business relationship, and the court noted that the potential donor had not made an inquiry to the defendant. Rather, the defendant reached out to the potential donor.
In other cases, lack of evidence on the seller’s part similarly failed to raise a fact issue as to whether or not the defendant was entitled to rely on the EBR exemption. In one case, the defendant’s contention — that it was “obvious” that his company’s salespeople would only contact consumers who were recorded requesting information about his company’s services — failed to carry the day where the defendant had provided no admissible evidence to support that contention. In another case, the defendant did not offer evidence that the call recipients were prior customers, had previously requested information from the defendant or had provided their information to a leads broker working with the defendant.
Thus, in order to rely on the EBR exemption to the TSR’s prohibition on calling consumers listed on the Do Not Call Registry, the seller must have had a relationship with the consumer where the consumer purchased, rented or leased the seller’s goods or services within the past 18 months or the consumer made an inquiry or application to the seller within the past three months. In addition, in case there is litigation about the propriety of the call to such consumers, the seller should maintain and retain records documenting the purchases, rental, leases or inquiries, and if litigation is brought, the seller must produce those records during the discovery phase and provide testimony to make the records admissible.
Related story: 12 Steps to Successful Telemarketing Calls
Lisa S. Mankofsky is a partner at Foley & Lardner LLP’s Washington, D.C. office, who advises corporate executives on, and litigates, a range of complex commercial issues involving consumer products She is a member of the Consumer Law, Finance and Class Action; Distribution and Franchise; and Intellectual Property practice groups at Foley. Reach her via firstname.lastname@example.org.