| Section IV |
On-Line Issues: B |
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The year 2002 saw a flurry of activity related to the regulation of telemarketing, particularly with challenges to federal and state “do-not-call” lists. The Federal Trade Commission announced on Dec. 18, 2002 that it would amend its Telemarketing Sales Rule (TSR) to create a national “do-not-call” registry. The rule implements the Telemarketing and Consumer Fraud and Abuse Prevention Act of 1994, 15 U.S.C. Secs. 6101-08.
The amended rule (at www.ftc.gov/os/2002/12/tsrfinalrule.pdf) prohibits a covered telemarketer from calling a person’s telephone number if the person is on the national do-not-call list, unless the telemarketer obtains the “express agreement” of the person or has an “established business relationship with such person.” The TSR does not cover political solicitations, survey calls, and calls from other entities, such as banks, telephone companies, airlines, or political fundraisers. In addition, the 1994 Act does not require charitable solicitors to comply with the national do-not-call registry.
U.S. Security v. Federal Trade Commission
Five telemarketing organizations — U.S. Security, Chartered Benefit Services, Global Contact Services, Inc., Infocision Management Corp., and the Direct Marketing Association — challenged the FTC’s national do-not-call list in a federal district court in Oklahoma in January 2003.
The complaint in U.S. Security v. Federal Trade Commission, No. 03-122 (W.D. Okla. filed Jan. 29, 2003), alleged that the national do-not-call list violates the First Amendment and equal protection rights of telemarketers. It also alleged that the FTC exceeded its statutory authority because the 1991 Telephone Consumer Protection Act specifically authorizes the Federal Communications Commission (instead of the FTC) to consider a national do-not-call list.
The plaintiffs noted that in 1992, the FCC considered and rejected such a database, writing: “[I]n view of the many drawbacks of a national do-not-call database, and in light of the existence of an effective alternative (company-specific do-not-call lists), we conclude that this alternative is not an efficient, effective, or economic means of avoiding unwanted telephone solicitations.”
The Act violates the First Amendment because it constitutes a content-based restriction on speech, exempting noncommercial and some commercial entities based on the content of their message, the lawsuit claimed.
Mainstream Marketing Services, Inc. v. Federal Trade Commission
Two telemarketing groups — Mainstream Marketing Services, Inc. and the American Teleservices Association — also filed a lawsuit on Jan. 29. This lawsuit, filed in a federal district court in Colorado, makes similar allegations to the U.S. Security suit. Mainstream Marketing Services, Inc. v. Federal Trade Commission, No. 03-N-0184 (MJW) (D. Colo. filed Jan. 29, 2003).
“Unlike the Telephone Consumer Protection Act (TCPA), which Congress adopted in 1991, and which empowered the Federal Communications Commission (FCC) to adopt a national ‘do-not-call’ list under certain specified conditions, neither the Telemarketing Act nor its legislative history said anything about FTC authority to adopt a similar rule,” the complaint stated. There are less restrictive alternatives to a national database, including “current company-specific ‘do-not-call’ lists, industry-created no-call lists, and various forms of consumer services and electronics that can screen or block unwanted calls,” the complaint said.
“From a constitutional perspective, a national ‘do-not-call’ regulation is far different from a homeowner placing a ‘no-soliciting’ sign on his or her door,” the complaint explained. “In a blanket ‘do-not-call’ regime, the government — not the individual — decides which callers are to be permitted or excluded based on the limits of the agency’s jurisdiction and the particular exemptions created by the regulation.”
In an interesting procedural choice, the plaintiffs also filed a “petition for review” with the U.S. Court of Appeals for the Tenth Circuit on the same day they filed their lawsuit in federal district court.
Stonebridge Life Insurance Co. v. Federal Trade Commission
A further lawsuit against applicability of the national do-not-call registry, and the rest of the amended TSR, was filed by Stonebridge Life Insurance Co. in the U.S. District Court for the District of Columbia. The complaint in Stonebridge Life Insurance Co. v. FTC, No. 03-739-RJL (D.D.C. filed March 21, 2003), alleged the FTC exceeded its statutory authority and violated the Administrative Procedure Act, the First Amendment, and the equal protection rights of insurance providers who rely on third-party telemarketing.
The claim arose from the FTC’s differential treatment of insurance providers conducting their own telemarketing “in-house” compared to those relying on third-party, outside telemarketers. Stonebridge challenged the FTC’s determination, in adopting and amending the TSR, that insurers conducting in-house telemarketing are not subject to the FTC Act, and by extension the Telemarketing Act and the TSR, under the McCarran-Ferguson Act. That Act exempts the “business of insurance” regulated by the states from FTC jurisdiction. Conversely, the FTC held that the McCarran-Ferguson Act’s exemption for the “business of insurance” did not apply to for-profit telemarketers utilized by insurance companies, thereby making those calls subject to the TSR.
Stonebridge argued that, unlike other exemptions from the FTC Act provided for banks, common carriers, etc., the “business of insurance” exemption was functional rather than entity-specific, and should have applied to both in-house and outside telemarketing of insurance. Stonebridge also claimed that, by treating similarly situated insurance companies differently, based only on whether they conduct their own telemarketing or contract for it externally, the FTC adopted divergent regulatory requirements without a rational basis for doing so. Thus, the agency discriminated among different speakers engaged in the same activity in violation of the First Amendment, the company charged.
Meanwhile, judges in Indiana and Colorado refused to stop implementation of state do-not-call lists. Litigation continued in federal courts in both states.
Indiana’s Telephone Privacy Act, which provides for a no-call list, has faced constitutional challenges in state and federal courts. The governor signed the do-not-call amendment to the bill in May 2001. It became effective on Jan. 1, 2002. The law survived the state court lawsuit but the federal lawsuit continues.
In state court, the owner of a cleaning-distribution business claimed the law violated the First Amendment. The owner argued, among other claims, that the state law violated his commercial speech rights. An Indiana state trial judge disagreed in Martin v. Carter, No. 82C01-0201-PL-38 (Vanderburgh) (Ind. Cir. Ct. July 5, 2002).
“The interruptions imposed by uninvited telephone solicitations constitute a serious intrusion into residential privacy,” the judge wrote. The Indiana court then noted that, although telephone solicitation calls are a form of commercial speech, “commercial speech is entitled to less protection than most non-commercial speech.”
Applying the familiar test articulated by the U.S. Supreme Court in Central Hudson Gas & Electric Corp. v. Public Service Commission, 447 U.S. 557 (1980), the Indiana court noted that the state had substantial interests in the regulation, that the law directly advanced those interests, and that it was not too speech restrictive.
The business owner could reach potential customers in other ways, such as through the mail, newspaper ads, magazine ads, radio, television, the Internet, the Yellow Pages, handbilling, leafleting, and door-to-door advertising. “The Act leaves open these ample alternative means of communications, doing nothing to inhibit those forms of solicitation,” the Indiana court wrote.
The business owner also argued that the law violated the First Amendment because it discriminated in favor of certain speakers, such as those selling newspapers, working for charities, selling insurance, and selling real estate. The court determined that those exemptions were valid and did not involve a government preference for the messages of those types of callers. “Rather, these exemptions reflect the General Assembly’s attempt to limit the domain of proscribed calls to those reasonably perceived as providing the impetus for the Act in the first place,” the court wrote.
The plaintiffs decided not to appeal the state trial court’s ruling. However, the law still faces a test in federal court. Several nonprofit groups — including the National Coalition of Prayer, the Kentucky-Indiana Chapter of Paralyzed Veterans of America, the Indiana Troopers Association, and the Indiana Association of Chiefs of Police Foundation — contended the law violates their First Amendment rights by granting exemptions only to certain nonprofits and certain commercial speakers, such as insurance companies.
In their complaint in National Coalition of Prayer, Inc. v. Carter, No. IP02-0536-C-B/S (S.D. Ind. filed April 10, 2002), the plaintiffs wrote that “the appeal for support of the public by a nonprofit organization is speech, fully protected by the First Amendment to the United States Constitution, regardless of the medium of communication.”
The plaintiffs filed a motion for summary judgment. According to Errol Copilevitz, the plaintiffs’ attorney, the state had until March 2003 to file a response.
Colorado Challenge
Colorado’s do-not-call law went into effect on July 1, 2002 despite a federal lawsuit, Colorado Citizens for Free Speech v. Smith, No. 02-RB-1192 (D. Colo. filed June 21, 2002). On June 26, 2002, federal district court Judge Robert E. Blackburn denied a request for a temporary restraining order filed by a group of businesses, led by the business coalition Colorado Citizens for Free Speech.
Judge Blackburn determined that the Colorado law appeared to comport with the Central Hudson test. The court first determined that the state had a substantial interest in protecting the privacy of its citizens. Next, the judge curiously described the third prong of the Central Hudson test as whether the “regulatory technique” was in proportion to the governmental interest. “The act regulates a class of solicitor calls and regulates that class only with regard to call recipients who individually choose to seek protection provided by the act,” the judge wrote.
Finally, the judge determined that the law was narrowly tailored because it was “calibrated to limit expression only with regard to those citizens who by definition want protection from the expression while in their homes.”
The state filed a motion to dismiss. A ruling was expected in 2003.
It will take some time to determine whether the national do-not-call list will survive the First Amendment and other constitutional challenges. What is certain is that the movement toward do-not-call lists will continue. On March 10, 2003, President Bush signed into law H.R. 395, the Do-Not-Call Implementation Act, which enables the FTC to bill telemarketers to fund the national do-not-call registry. At this writing, it is uncertain what role the FCC will take with respect to a national do-not-call registry. The FCC has considered adopting a national do-not-call list under the Telephone Consumer Protection Act of 1991. Its comment period ended on Jan. 8, 2003. The Do-Not-Call Implementation Act sets a deadline for the FCC regarding a national do-not-call list.
It remains to be seen whether any of the aforementioned court challenges will determine the scope of regulation of the FTC under the Telemarketing and Consumer Fraud and Abuse Prevention Act of 1994, and of the FCC under the 1991 law. Some judicial and/or legislative guidance on the lines of demarcation between the FCC and FTC with respect to a no-call database seems necessary.
The increased regulation of telemarketing comes at a time when the Supreme Court is hearing another telemarketing case, Madigan v. Telemarketing Associates, Inc., No. 01-1806 (argued March 3, 2003), which involves a fraud action brought against a telemarketer soliciting support for a veterans’ charity. The Supreme Court may give some glimpse of how strong it views the state interest in shielding citizens from unwanted solicitations. Whether the court will even mention the efficacy of a do-not-call database is questionable.
--David L. Hudson, Jr.
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