FTC Robocall Lawsuit ‘Stretches’ TSR to ‘Oblivion,’ Says Motion to Dismiss
The FTC seeks to “impermissibly expand” the scope of the Telemarketing Sales Rule to impose “strict liability” on Ace Business Solutions and its owner Sandra Barnes for TSR violations allegedly committed by other defendants, said Ace’s and Barnes’ memorandum Wednesday (docket 3:23-cv-00313) in U.S. District Court for Southern California in San Diego in support of their motion to dismiss the commission’s complaint for failure to state a claim.
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DOJ sued Feb. 16 on the FTC's behalf to stop a network of companies and individuals, including Ace and Barnes, allegedly responsible for delivering “tens of millions” of unwanted VoIP and ringless voicemail (RVM) phony debt service robocalls to consumers nationally (see 2302170032).
The FTC’s complaint “stretches the law so far that it ignores established guidance and enforcement precedent under the TSR,” said the memorandum. “This case is yet another example of blatant government overreach,” it said. The court should reject the FTC’s “uncharted effort,” it said. Alleged examples of agency overreach, it said, include the FTC’s complaint alleging Walmart knew it was processing fraudulent money transfers and failed to do enough to protect consumers (see 2305090001). Walmart is seeking 7th Circuit interlocutory review to challenge the constitutional validity of the FTC’s litigation powers (see 2304130002).
The complaint alleges a “far-reaching, unlawful scheme to bombard consumers” with tens of millions of RVMs carried out by a string of defendants, including Stratics Networks, said the memorandum. But it was a scheme in which Ace “took no part,” it said. Despite Ace’s lack of involvement, the FTC “shoehorned” Ace into the complaint by tacking on a “single, baseless claim” that Ace violated the TSR’s advance fee ban, it said. In so doing, the FTC “misapplies” the TSR, stretches the “paltry facts” alleged about Ace’s connection with the telemarketing scheme, and “contravenes” the commission’s “own TSR guidance and enforcement precedent,” it said.
To successfully argue that Ace violated the advance fee ban, the FTC must allege Ace is a telemarketer or seller that provides a debt-relief service, said the memorandum. The complaint “fails to plausibly allege all three,” it said. First, Ace isn’t a telemarketer because it didn’t induce purchases from consumers, and it’s not a seller because it didn’t receive “consideration from consumers in exchange for its services,” it said. Ace also didn’t provide debt relief services “because it never attempted to renegotiate the terms of consumers’ debt,” it said. Ace can’t be vicariously liable under the TSR for the alleged marketing and sales pitch misrepresentations of other defendants’ debt relief programs, it said.
“Context also colors” the FTC’s baseless claim of TSR wrongdoing, because it contradicts the commission’s “own TSR debt relief guidance and enforcement precedent,” said the memorandum. The FTC’s “departure from past practice” confirms that the commission is stretching the definitions of seller and telemarketer “beyond their breaking points,” it said.
The FTC slaps Ace with a civil penalty, “but fails to plead any facts showing that Ace knew or should have known that it violated the TSR,” said the memorandum. Even in a “pretend world” in which the agency “had successfully pleaded all of the above,” the FTC commissioners’ “for-cause removal protections make their vote to sue Ace unconstitutional,” it said. The FTC “stretches the TSR to oblivion, rewrites age-old tort principles, and forgets its own guidance,” it said.