The Seventh Circuit’s recent decision in United States v. DISH Network LLC, 954 F.3d 970 (7th Cir. 2020), comes with a stern warning to companies that violate state and federal telemarketing statutes: "Someone whose maximum penalty reaches the mesosphere only because the number of violations reaches the stratosphere can’t complain about the consequences of its own extensive misconduct."
DISH Network, LLC ("DISH") sold its satellite TV services through third-party "order-entry retailers." The order-entry retailers took telephone orders from customers, entered the orders directly into DISH’s computer system, and received a commission for each new customer they signed up.
The United States, Illinois, and several other states sued DISH. They alleged that DISH, through the order-entry retailers, violated various federal and state telemarketing statutes, including the Telemarketing Sales Rule (the "Rule"), 16 CFR § 310, and the Telephone Consumer Protection Act (the "TCPA"), 47 USC § 227, by, for example, calling people who placed their names on DISH’s internal do-not-call list. Following a bench trial, the district court found that DISH committed more than 65 million statutory violations and slapped DISH with a $280 million penalty.
DISH raised several issues on appeal. With respect to liability, DISH first argued that it was not the "cause" of any statutory violations because it hired the order-entry retailers to sell its services, and the contracts between DISH and the order-entry retailers expressly disclaimed any agency relationship. The court quickly disposed of this argument, explaining: "parties cannot by ukase negate agency if the relation the contract creates is substantively one of agency." The contracts gave DISH the right to control the retailers’ performance, which was enough to make the retailers DISH’s agents "notwithstanding the contractual disclaimer" and, therefore, enough to make DISH liable for the retailers’ violations.
DISH next argued that it had no obligation under the Telemarketing Sales Rule to coordinate its internal do-not-call list among the order-entry retailers. The court rejected this argument, explaining that because the order-entry retailers were DISH’s agents, DISH and the retailers were one "seller" under the plain language of the Rule and therefore "had to act collectively." Accordingly, DISH was required to share its internal do-not-call list among vendors; "otherwise any household could receive endless calls peddling DISH’s service, as long as each came from a different order-entry retailer."
DISH then argued that even if it was required to coordinate its internal do-not-call list, its failure to do so was a "continuing violation" of the Rule and its penalty was thus capped to one violation per day, rather than per call. DISH based its argument on 15 U.S.C. § 45(m)(1)(C), which states: "In the case of violation through continuing failure to comply with a rule[,] each day of continuance of such failure shall be treated as a separate violation." The court noted that neither the Supreme Court nor any federal courts of appeal had examined this provision. But, the court found, the plain language of the statute makes clear that the statutory violation is the callnot the failure to coordinate the internal do-not-call list. Thus, the court held, "[a] call that lasted multiple days would count as one violation per day; otherwise there is one violation per call."
Finally, DISH argued that it could not be liable for the order-entry retailers’ violations because its contracts ordered the retailers to "follow all applicable laws." The court again rejected DISH’s argument, holding that "generic instructions to follow the law" do not "immunize a principal from liability resulting from its agent’s illegal acts, taken within the scope of authority."
Having failed on the liability front, DISH next turned to damages. DISH first argued that the federal and state telemarketing laws violate the Due Process Clause of the Fifth Amendment because they fail to provide notice of "potentially whopping penalties." Not so, the court held. The government is under no obligation to provide any notice to potential violators on top of the statutes and rules themselves, all of which are unambiguous.
DISH next argued that the maximum penalties allowed by the Rule, the TCPA, and the related state laws violate the Due Process Clause because they are too high. Not so, the court held again. The maximum penalty is $10,000 for each violation. And, while DISH’s 66 million statutory violations could have resulted in $660 billion in total penaltiesan admittedly "huge" numberthe court held that "it is not possible to evaluate [total penalties] separately from the penalty per violation, which is a normal number for an intentional wrong." Thus, the court held: "Someone whose maximum penalty reaches the mesosphere only because the number of violations reaches the stratosphere can’t complain about the consequences of its own extensive misconduct." In any event, DISH’s actual penalty, as determined by the district court, was closer to $4 per violation than the $10,000 statutory maximum.
But the district court did not get DISH’s damages entirely correct, the court went on to explain. The district court improperly measured damages based on DISH’s ability to pay, even though ability to pay is not "even a permissible factor" under some of the statutes DISH violated. But even under statutes that do allow a court to consider the defendant’s ability to pay, the court held: "It is hard for us to see a justification . . . for starting from the defendant’s wealth rather than harm." The court remanded the case to the district court to reassess damages, suggesting that the "best way" to do so was to "start from harm rather than wealth, then add an appropriate multiplier."