Alerts

AD-ttorneys@law – April 15, 2021

Alerts / April 15, 2021

In This Issue:

Will Unanimous Supremes Stem the TCPA Tide?

With a ‘random’ decision, SCOTUS reshapes the landscape of telemarketing law

What a Long Strange Trip It’s Been

Back in July of last year, we offered a summary of the sometimes-bumpy appellate terrain relating to the Telephone Consumer Protection Act (TCPA).

The number of TCPA cases exploded in the wake of a 2015 Federal Communications Commission order that defined automatic telephone dialing systems (ATDS) in a broad fashion. As we said then, referring to two Chamber of Commerce petitions protesting the order:

“The [TCPA] defines ATDS to mean “equipment which has the capacity to store or produce telephone numbers to be called, using a random or sequential number generator; and to dial such numbers.” The petition states that the Omnibus Order broadly defined “capacity” so that devices that might be modified in the future to store or generate numbers and dial them were subject to TCPA litigation, even if they were not currently configured to do so.

The petitioners urged the FCC to restore random or sequential dialing, not mere storage, to its pride of place as the logos of TCPA interpretation.”

(We worked “logos” in there because we still feel the need to justify our undergraduate classics degree.)

Narrowing the Bar?

After a summary of the mutually contradictory reactions of several circuit courts to the ATDS definition, which we won’t repeat here for sanity’s sake, we noted that the Supreme Court had granted certiorari to a dispute that, once decided on, might still the ATDS waters once and for all.

It seems that the Supremes do not disappoint. Their decision on that case—a class action bouncing up from the Ninth Circuit—came down on the side of a narrower definition of ATDS.

Here’s the summary:

“To qualify as an ‘automatic telephone dialing system’ under the TCPA, a device must have the capacity either to store a telephone number using a random or sequential number generator, or to produce a telephone number using a random or sequential number generator.”

In a breathtaking display of ideological comity—it’s amazing how robocalls bring people together, isn’t it?—the Court held unanimously that Congress’ “definition of an autodialer” was narrower than the TCPA plaintiffs’ bar believed.

The Takeaway

Whether or not this decision marked a change for the good was a matter of debate, of course.

The National Consumer Law Center, which filed an amicus brief in the case, claimed that a robocall apocalypse was nigh and demanded action by Congress to bolster the TCPA. “Americans already receive 46 billion robocalls a year,” the Center wrote. “We call on Congress to act immediately to provide needed protection against unconsented-to automated calls and texts so that cellphones are not rendered useless due to the expected huge increase in unwanted robocalls and texts.”

Massachusetts Senator Ed Markey, who helped write the TCPA, promised action, saying that he would soon “introduce legislation to amend the TCPA, fix the Court’s error, and protect consumers.”

Others believe that the decision will precipitate a fall in TCPA-related litigation, instead of a jump in robocalls. We’ll see how the TCPA plaintiffs’ bar responds.

Bravo Salt Lake Star Indicted over Telemarketing Scam

Feds: Housewives drama queen Jen Shah handing out leads like Ricky Roma

Many-Tentacled Beast

We’ll confess to feeling faint-but-steadily-mounting tinges of despair when we began to research the following story about The Real Housewives star Jen Shah.

We were aware of the Real Housewives franchise; we knew that it encompassed Orange County, Beverly Hills, New York City, New Jersey and maybe a few other locales capable of bringing the right level of crass to the tube. But then we investigated the Bravo flagship series a little further and discovered that there have been seven other “flavors” of the show in the United States, more than a dozen international versions and almost 20 separate spinoffs.

We (thankfully) missed all of them, but still—are we living in a cultural fog of war? Is there that much stuff out there?

Forget the Drama, We Got Chutzpah!

Shah is a star of the Salt Lake City version of the show. Although this raises many questions—can any city in Utah really compare with New Jersey and Atlanta for sheer drama?—none of them are as interesting as the fact that Shah has recently been cooling her heels in a Salt Lake City jail cell.

According to an indictment filed in the Southern District of New York, Shah and her assistant, Stuart Smith, were arrested in late March for alleged wire fraud and money laundering with “hundreds” of victims. The scheme? The feds claim that Shah reached out to the victims, many of whom were elderly, with offers of coaching services to build up their online businesses, but “at no point did the defendants intend that the Victims would actually earn any of the promised return on their intended investment, nor did the Victims actually earn any such returns.”

Shah and Smith allegedly ran the scheme out of several sales floors, sprinkled across the United States, that did the work while the duo raked in a percentage off the effort.

The Takeaway

In the most 2021 moment possible, Shah’s virtual arraignment was crowd-mobbed by a flood of 200-plus Housewives fans who signed in for the public hearing, audibly flushed toilets in the background, kept up a running commentary and otherwise overtaxed the bandwidth—preventing the New York City-based judge from seeing Shah at all. The call was postponed.

But an indictment for wire fraud is no joke; Shah and her crony may face up to 30 years in prison. It seems that Shah may have finally run smack into a reality that truly is “real.”

Personal Banking App Goes Up in Smoke

Beam once promised both access and interest; now, it scrambles to refund the goods

All That’s Missing Is the Tumbleweed

An “about” link that leads to a contact email address. Glowing testimonials that thank the company for returning the customer’s funds. A blank legal disclosures page.

None of these signs bode well for a company.

And so it is with Beam, a financial services app that once upon a time (March 2018, according to the feds) promised personal banking over mobile apps with high interest rates and immediate access to funds. FDIC-insured, of course.

Sound too good to be true? Especially the high interest rate part?

Losing Interest?

Beam was promising rates of up to 4 percent, which, of course, may be true if you put the emphasis on the “up to.” But these sorts of claims are a red flag in front of the snorting bulls over at the Federal Trade Commission (FTC, or Commission).

“To induce consumers to deposit funds,” the FTC’s complaint reads, “Defendants … represent that consumers will receive substantial interest rates, including ‘minimum base’ interest rates on their deposits of at least 0.2% or 1.0%. In truth, consumers who start Beam app accounts receive a base interest rate of 0.04% ... .”

In other words, one-tenth of the advertised rate.

Beam’s second sin, according to the Commission, was a failure to deliver on the promise of immediate access to funds. The company advertised “24/7 access to [their] funds” and “NO LOCKUP” of funds, but in some cases “consumers requesting withdrawals have only had their money returned to them after weeks or months of repeated complaints.” Or never received them at all, the feds claim.

The Takeaway

Beam’s worst sin was blowing off the FTC altogether. “In refusing to respond to a civil investigative demand issued by the FTC, Beam Financial offered no explanation for its failure to timely return consumers’ funds, did not identify the FDIC-insured financial institutions purportedly holding consumers’ funds, and provided no assurances that it is able to and will honor consumers’ withdrawal requests,” the Commission writes.

Youch.

One factor that may have made Beam’s promises especially hard to keep was the COVID-19 crisis, which likely sent waves of customers scrambling for their savings. That’s what the company told customers, at least.

In any case, Beam settled, inking an agreement with the Commission that explains why an eerie silence has settled over the company website. “As part of the settlement, Beam is banned from operating a mobile banking app or any other product or service that can be used to deposit, store, or withdraw funds,” the Commission stated in its press release. Additionally, all funds deposited by the former customers must be repaid, with interest.

Perhaps some sort of response to the FTC’s demand might have blunted the edge of the settlement, but it’s too late: There’s no future for Beam in its original form.

NARB Says doTERRA’s Appeal Sorta Stinks

The Board backs up NAD’s dismissal of health and ‘grade’ claims

SuperOil!

If you believe doTERRA, essential oils are the Swiss Army knife of the alt-therapeutic domain. They’re good at so many things: Anti-aging. Mood management. Boosting the immune system. Bedtime for kids. Gut detoxification. The list goes on and on.

Unsurprisingly, this wide range of claims caught the eye of one of the company’s competitors—S.C. Johnson & Son Inc. (SCJ), home of Glade brand home fragrances. SCJ took aim at the doTERRA roster by bringing a challenge to a plethora of the company’s claims before the National Advertising Division (NAD) back in October of last year. The list of challenged tags is long—you can read about them in the article—but the underlying complaint centered around express claims about the oils’ health benefits, and implied benefits regarding its “therapeutic grade” essential oils.

doTERRA decided to appeal the entirety of NAD’s decision before the National Advertising Review Board (NARB, or Board) and lost. Regarding the specific health claims, the company, NARB maintained, had not provided evidence for its claims drawn on a study of its own products—only on tests performed on third-party essential oils.

The Takeaway

The question regarding the “therapeutic grade” tag, while of smaller scope than the health claims, is worth noting.

“With regard to doTERRA’s ‘Certified Pure Therapeutic Grade’ claim,” the Board wrote, “the NARB panel agreed with NAD that the term ‘therapeutic grade’ conveys a message to reasonable consumers that the product being described provides health and wellness benefits, a message that goes beyond purity.” In other words, because the health claims were unsupported, so was the “therapeutic” claim implied in the “grade” the company assigned to its oils.

Tags that designate official-sounding grades or other “official” stamps of approval sound great, but they require their own justification—or they’ll provide a convenient hook for claims challenges.

5-Hour Energy Company Gets to Keep Playing Favorites

Wholesalers claim they were frozen out of promotions, but lose chance for second trial

Out of the Box

Here’s a case that isn’t normally within our purview.

U.S. Wholesale Outlet & Distribution, Inc. v. Living Essentials, LLC is, at its heart, a Robinson-Patman Act battle.

USWOD sued Living Essentials and Innovation Ventures—makers of the infamous 5-Hour Energy drink—for selling the product to Costco, the big-box retail giant, at prices “far lower than the prices” charged to USWOD and other wholesalers. “Plaintiff competes directly with Costco for sales of 5-Hour Energy to convenience stores and other retail outlets,” the wholesalers claim in their 2018 complaint, “and it has lost hundreds of thousands of dollars in 5-Hour Energy sales over the applicable limitations period as a result of Living Essentials’ illegal discrimination.”

The Takeaway

So why are we writing about a dispute launched under the Robinson-Patman Act, when that law primarily concerns anticompetitive practices and price discrimination?

Because the practices covered by the act ultimately affect the marketing and promotional materials that face the consumer. The “discounts, rebates, or promotions” allegedly made available to Costco were hidden altogether from the wholesalers, they claim. And while these marketing positions did not make up the entirety of the case, marketing can have an anticompetitive dimension—or so the plaintiffs argued.

It didn’t work in this case. First, the wholesalers lost in a 2019 jury trial. Most recently, their motion to secure a new trial failed when earlier this month the court denied a second go and denied an injunction that would have prevented a better deal for Costco.

We’ll be interested to see whether similar arguments gain more traction in the future.

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