Last month, the U.S. District Court for the Southern District of Florida issued an opinion that serves as a powerful reminder of the risks of not taking telemarketing compliance seriously. In August 2014, the FTC sued the Partners in Health Care Association (“PIHC”), its principal Gary Kieper, and others for deceptively telemarketing medical discount cards. According to the FTC, the defendants misled consumers into thinking the discount card was actually health insurance. In last month’s decision, the court granted the FTC’s motion for summary judgment and entered judgment against Kieper in the amount of $8.7 million.
Relying on consumer complaints and FTC undercover calls, the Court found that PIHC and the telemarketers it hired had deceived consumers by telling them that the discount cards were, in fact, health insurance cards. The court found Kieper was well aware of the deceptions based on several state investigations into the telemarketing, numerous BBB complaints, and internal documents. The court rejected a variety of arguments raised by Kieper as to why the calls were not deceptive or that summary judgment should not be granted.
The court rejected Kieper’s argument that a “rogue” marketing partner, not he and PIHC, was legally responsible for the deceptive marketing. First, the court found that the deceptive marketing was conducted by all, not just one of the PIHC’s marketing partners. Second, the court noted that PIHC was responsible, as a matter of law, for the acts of those it hired to sell its products. This point bears emphasis: according to the FTC and most courts, you are responsible for the people you pay to advertise and sell your product be they telemarketers, affiliate marketers, or celebrity endorsers.
The court also rejected Kieper’s argument that any possible misrepresentations were “cured” by verification calls where the details of the card were fully explained to consumers. The court noted that there was scant evidence that such calls actually took place and what evidence there was did not demonstrate that such calls corrected earlier misrepresentations. Important point here: it is very difficult to correct a misrepresentation made early in the sales process with a later disclosure.
The court also rejected Kieper’s argument that he did not intend to deceive consumers and had taken steps to correct the marketing. The court found these arguments both unsupported in the record and irrelevant as intent to deceive is not a necessary element to liability under the FTC Act. Similarly, the court also rejected Kieper’s evidence of “satisfied customers,” finding such evidence irrelevant to the question of whether the advertising tended to deceive most consumers. Important point here: telling the FTC that you did not mean to deceive folks and that you have satisfied customers is not likely to change the FTC’s or a court’s mind, especially where there is strong evidence of consumer deception.
The court also found that Kieper had the authority to control the marketing in question and was aware of, or recklessly indifferent to, the deceptive nature of the marketing. As a result, the court found that individual liability for the conduct in question was appropriate. The court also concluded that PIHC and Kieper substantially assisted others in violating the Telemarketing Sales Rule through their integral involvement with and support of the entities that actually made the calls.
The court indicated its intention to later enter broad injunctive relief aimed at “fencing in” Kieper given the serious nature of the conduct and the fact that much of it continued in the face of investigations and through other companies not currently being sued by the FTC.
Regarding equitable monetary relief, the court found that Kieper was jointly and severally liable for the total sales made by the corporate defendants and their affiliates minus refunds.
This case gives 8.7 million reasons why having vigorous controls over your telemarketing is important. It might be time for a check up.