Articles
- Personal Phone Numbers Also Used for Business Raise DNC Protection Questions
- Made in America? FTC Considers U.S. Origin Claims and Provides Guidance
- Class Certification Denied in “Wrong Number” TCPA Suit
- Doctor Who? FTC Requires Scientific Backing and Disclaimers for Endorser Health Claims
Personal Phone Numbers Also Used for Business Raise DNC Protection Questions
Unsolicited marketing calls to a personal phone line that is also used for business purposes may not necessarily bar recovery under National Do Not Call (DNC) Registry rules according to a recent federal court in Ohio. Here, the court denied a defendant’s motion for judgement on the pleadings, finding that additional discovery was needed before it could rule on whether the plaintiff’s use of his personal phone for business purposes gutted her protections under federal DNC rules, which only protect personal phone numbers.
In Blevins v. Premium Merchant Funding One LLC, plaintiff Jeremy Blevins, whose number (used for personal and business matters) was registered on the DNC Registry, accused Premium Merchant Funding One, LLC of violating federal DNC rules after he received text messages from the company. The first text message targeted small business owners with an image of a person appearing to work by a pool, stating, “You know you’re a small business owner when…this is your idea of work life balance.” The second message suggested that the company could offer the plaintiff credit lines and other financial services, with the text, “You need working capital! I have the best rates! . . . Easy Process! Let’s talk!” Upon receiving the second text message, Blevins replied back, requesting the identity of the sender. Blevins then received a third text indicating the source was a representative from Premium. Blevins then sued, alleging that the text communications constituted prohibited communications that violated the DNC provisions of the Telephone Consumer Protection Act (TCPA), 47 U.S.C. § 227.
Premium moved for Judgment on the Pleadings arguing that Blevins could not seek protections under the TCPA because he used his phone line for both personal and business matters, precluding any potential recovery under the TCPA since the DNC rules apply only to residential numbers. Blevins countered that the Federal Communications Commission (FCC) had previously declined to remove from the DNC Registry rules’ protection calls made to residential telephone numbers also used for home-based businesses. Blevins further cited to FCC guidance concluding that such calls should be considered on a case-by-case basis to determine the circumstances and whether or not the calls were actually placed to business or residential users. Blevins argued that discovery is necessary to determine the nature and extent of the business use on the telephone line at issue in the case. The court rejected as unsubstantiated Premium’s position that discovery would be unduly expensive and burdensome and refused to stay discovery, instead allowing the case to proceed. The court agreed with Blevins and denied Premium’s motion, noting “without opining on the merits, the court notes that the viability of defendant’s motion for judgment on the pleadings turns on whether the texts plaintiff received were made to a telephone number used for business purposes, which, as such, would not be protected under the TCPA.”
Key Takeaway
Mixed business and personal use of a telephone number listed on the DNC Registry will not automatically bar recovery for consumers under the TCPA. Questions surrounding a consumer’s use of her personal phone number for business purposes are enough to survive a defendant’s attempts to dismiss the action early on.
Made in America? FTC Considers U.S. Origin Claims and Provides Guidance
U.S. origin claims remain squarely on the Federal Trade Commission’s radar. Following a number of consent orders last Fall (think hockey pucks, back packs and mattresses), the consumer protection agency issued a handful of year-end closing letters ending several investigations regarding “Made in the USA” product claims.
The FTC’s long-standing Enforcement Policy Statement on U.S. Origin Claims provides general guidance regarding use of “Made in U.S.A.” and other “U.S. origin claims included in labeling, advertising, other promotional materials, and all other forms of marketing, including marketing through digital or electronic means such as the Internet or electronic mail.” In a nutshell, the FTC requires that “unqualified U.S. origin claims be substantiated by evidence that the product is all or virtually all made in the United States.” As is generally the case, FTC jurisdiction in this arena derives from Section 5 of the Federal Trade Commission Act, which prohibits unfair or deceptive trade practices.
According to the FTC Enforcement Policy, because “consumers are likely to understand an unqualified U.S. origin claim to mean that the advertised product is ‘all or virtually all’ made in the United States,” companies should “possess and rely upon a reasonable basis that the product is in fact all or virtually all made in the United States” at the time the marketing claim is made. This means that the entirety of the product, or at least “all significant parts and processing” related to the product, is actually made in the U.S.A. with “only a de minimis, or negligible, amount of foreign content.”
In December, the FTC issued several closing letters to companies following its review of claims for products ranging from pet toys to electronics and appliances to determine the appropriateness of the companies’ U.S. origin claims. In each case the FTC was dissuaded from taking further action by the companies’ voluntarily implementing remedial programs to avoid deception. In one case, the FTC noted that the KONG Company LLC manufactures some of its pet products in the U.S. through local manufacturing efforts, but other products are either partially or entirely imported. Similarly, in reviewing Emotiva Audio Corporation’s audio products, the FTC determined that some products were manufactured (designed and assembled) in the U.S but contained significant imported materials.
So what stayed the FTC’s hand from taking further enforcement action – the fact that these companies each implemented strict compliance guidelines and programs. For example, according to one closing letter (all were very similar), “Emotiva quickly implemented a comprehensive remedial action plan to update and qualify its representations. This plan included: (1) rewriting the company website; (2) updating social media accounts; (3) destroying outdated packaging and other hardcopy marketing materials; (4) applying barcode stickers to cover claims on products; (5) purchasing back mismarked products from Amazon and updating Amazon listings; (6) instructing dealers and distributors to purge outdated materials and confirming compliance within a month; and (7) training marketing personnel on how to communicate product origin.”
Key Takeaway
These closing letters make clear that the FTC is interested in more than mere mea culpas. Companies should develop and implement carefully thought out policies and procedures before making Made in the USA (or any) origin claims. And, where deficiencies are identified, means for addressing these shortcomings including removing (and even destroying) offending goods from channels of trades, updating social media and keeping an eye on and control over distributors and retailers. Many will remember the FTC’s admonitions to companies to have social media monitoring programs in place to train and keep watch over influencers and other third parties to ensure compliance with disclosure policies in compliance with the FTC Guides Concerning Endorsements and Testimonials in Advertising. The same is clearly true with respect to companies making “Made in U.S.A.” and/or other U.S. origin claims for their products.
Class Certification Denied in “Wrong Number” TCPA Suit
A federal court in the Middle District of Florida recently denied a plaintiff’s request for class certification on the basis that ascertaining and contacting relevant class members -- those who may have received collections calls placed to the wrong numbers -- would be too difficult.
In order to certify a “class” for a class action, a court must be able to clearly ascertain who the class members are. In Wilson v. Badcock Home Furniture, identifying class members that are defined as consumers who received “wrong number” calls by accident proved to be no small task. In order to match a wrong number with contact information and other demographics related to the number in this suit, the plaintiff’s expert suggested using so-called reverse look-up technologies and subpoenas to phone companies for user records. The court noted that even when contact information is discerned from these inquiries, it may not tell the full story, such as in the case of users whose phone service is part of a family or corporate plan under one umbrella account. The plaintiff in this case was not the person who received the calls from defendant Badcock Home Furniture, but the grandmother of the person who received the call and was the telephone service account subscriber; thus, the actual person who received the call was not easily identifiable from his grandmother’s account information related to their family plan.
This disconnect suggests it could be difficult, if not impossible, to determine which user on an umbrella account actually received the wrong number call, aside from the parties’ own assertions. Further complicating matters is the “multiple hit” scenario in which “a call to an otherwise consenting customer might be designated as a wrong number simply because defendant had intended to call—and asked for—the other customer who provided the number.” Finding class members in these scenarios becomes highly problematic, relying heavily upon arduous subpoena and investigation procedures as well as due process issues. Customers may be incentivized to improperly enter classes for unjust enrichment and also burdened with duties to inform other users on their shared phone plans of the class certification and suit. Even more problematic, defendants’ records reflecting wrong numbers may constitute inadmissible hearsay. The matter of class certification is further confounded when scenarios such as customers dodging debt collectors come into play, when debtors may obscure or deny their identity to avoid collections calls.
In this case, the court distinguished the defendant’s conduct from that found in other robocall class action suits. Here, the defendant did not engage in random calls, but instead intended to only call its actual customers with a legitimate purpose (to collect on a debt). This provides the defendant with a “possible defense against many of its class members, the precise contours of which could vary substantially.” A violation of the Telephone Consumer Protection Act carries damages of up to $1,500 per call; in this case, the defendant could have been on the hook for damages totaling $45,000 for its calls to the plaintiff.
The significance of the potential penalties makes it inappropriate to use mail-in affidavits for class members, and instead requiring individualized inquiries into the facts surrounding each communication. According to the court, “with such a looming threat, due process allows Defendant to inquire whether the alleged wrong number belonged to a customer by consulting each individual file and, if not, how the number entered Defendant’s records, whether the claimant was actually the one called, whether privies or associates might have consented, and whether the call represents a ‘multiple hit.’” Without the ability to determine how the defendants got the wrong numbers in the first place, or what customer consents might be in effect for each of the calls, courts must conduct individualized inquiries into each call.
Key Takeaways
When identification of a potential class requires individualized inquiry, a motion for class certification will likely be denied. Certifying classes in wrong-number class action suits presents particularly thorny scenarios because the class members may be nearly impossible to identify. When wrong-number calls are placed by defendants intending to call only their customers, failing to conduct individualized inquiries into the circumstances surrounding the calls strips those defendants of their due process rights, particularly in high stakes actions such as those filed pursuant to the TCPA, which come with hefty penalties per call.
Doctor Who? FTC Requires Scientific Backing and Disclaimers for Endorser Health Claims
The Federal Trade Commission recently halted deceptive marketing practices by a company advertising a purported diabetes treatment product which the agency said involved unsubstantiated health claims and featured fake professional and paid endorsers without appropriate disclosures.
The FTC enforcement action filed against the Nobetes Corporation and its corporate officers in the U.S. District Court for the Central District of California claimed that advertisements for the company’s products included unsupported claims for its line of vitamin supplements that were advertised to treat diabetes. These advertisements appeared on digital social medial platforms, the internet, and on television. In addition to the unsubstantiated health claims, the FTC observed that some of the ads featured a person who appeared to be a medical professional, a representation bolstered by various diplomas appearing in the ads and acronyms following his name implying he had advanced degrees. In fact, this was a paid actor and not a real medical professional.
Other ads featured consumer endorsers who claimed that using Nobetes weaned them off of prescription medication and insulin without required dietary changes.
In addition to claiming that the company violated Section 5 of the Federal Trade Commission Act by failing to possess adequate substantiation for the health claims made in the ads, the FTC complaint also alleged that Nobetes failed to disclose that consumers offering testimonials in the ads had received free samples of the products as compensation for the endorsements.
The FTC claimed that these practices violated its Guides Concerning the Use of Endorsements and Testimonials in Advertising which “set forth the general principles that the Commission will use in evaluating endorsements and testimonials, together with examples illustrating the application of those principles” to guide the public in conforming to the FTC’s legal requirements. The requirements dictate that ads that directly or indirectly imply endorsement by an expert must be substantiated by qualifications that legitimize the endorser’s status as an expert. Further, the expert endorser is expected to have conducted appropriate scientific tests on the products that are “at least as extensive as someone with the same degree of expertise would normally need to conduct in order to support the conclusions presented in the endorsement.” And as always, regardless of the endorser’s bona fides, companies must be able to independently substantiate all direct and indirect claims that flow from the endorsement, including through the use of “reliable scientific evidence” where appropriate, such as health and safety claims.
The FTC complaint was not the first interaction with the company. In 2016, the FTC and the Food and Drug Administration sent a joint warning letter to Nobetes, alleging that its marketing practices rendered its product an unapproved and mislabeled drug under the Food Drug and Cosmetic Act because of testimonials that claimed that the product could be used to treat or prevent diabetes, without directions for appropriate use. As Nobetes’ marketing efforts caused the product to be considered a “new drug” under FDA law, prior marketing approvals were required from FDA to ensure that claims were supported by appropriate clinical testing.
The FTC also accused Nobetes of failing to inform consumers that by agreeing to receive a “free trial” of the product (for a shipping and handling charge) they would be enrolled in an auto shipment program.
The settlement and order imposes numerous bans, limitations, and restrictions on Nobetes’ future marketing actions. For example, the order permanently bans Nobetes from advertising, marketing, or selling any products related to diabetes. For any other non-diabetes-related food, drug, or dietary supplement that Nobetes may manufacture, label, advertise, market, distribute, or sell, Nobetes and its officers are prohibited from making unsubstantiated health claims or using misleading expert and customer endorsements. Nobetes must support any future health claims with legitimate, reliable, randomized, double-blind, placebo-controlled, scientific tests that are conducted by credible research scientists. Further, Nobetes must disclose any material connection that any endorser has with Nobetes. The proposed settlement and Order also requires Nobetes to pay the FTC a monetary judgment of $182,000.
Key Takeaways
Advertising claims made through endorsers must meet FTC guidelines requiring valid substantiation of the claims, disclosure of compensation to the endorser, and transparency about the endorser’s expert credentials, if any.