Dish Ruling Includes 20-Year Injunction

(Satellite Business News) — A federal judge on Monday ordered Dish Network to pay the federal government and four states $280 million as a fine for making millions of illegal telephone calls to homes who numbers were on do-no-call lists. Combined with the damage amount Dish Network was recently ordered by another federal judge to pay in a similar case, the company is now on the hook for more than $340 million in judgements for violating telemarketing protections laws.

But perhaps even more importantly in the long run for Dish Network, Monday’s ruling also includes a 20-year permanent injunction that could severely limit the company’s ability to market its services by telephone in the future. And since the injunction applies to the company, not just Dish Network’s DBS service, it could seriously restrict Dish Network from selling other services—such as its Sling TV on-line offering, its cell phone repair service, and the installation of off-air TV antennas— using traditional telemarketing methods.

And the injunction might even hamper Dish Network’s future marketing of wireless services, if such services are eventually sold directly to consumers. The injunction, the court said, will apply to satellite TV programming and “all other goods or services marketed by Dish [Network] now or in the future” during the 20-year term of the injunction.

In a statement, Dish Network it “respectfully disagrees” with the court’s decision and “will appeal the ruling at the appropriate time.” The company could ask a federal appeals court to stay the injunction while it appeals the case, though that move would likely be an uphill fight and require Dish Network to post some amount of an appellate bond.

Such a move had not been made as of last night. In its own statement, the Federal Trade Commission, which asked the Department of Justice to file the case, called the court’s decision “historic” and said it was the “largest civil penalty ever” imposed against a company for violating the telemarketing protections laws.

On Monday, Satellite Business News reported a procedural ruling issued in the case on Friday by federal Judge Sue Myerscough suggested she was getting ready to file a final decision in the case. By late Monday afternoon, Myerscough had issued some nine different rulings, including a main judgement and injunction of more than 400 pages. As reported, the Federal Trade Commission and four states—Ohio, California, Illinois, N. Carolina—filed the lawsuit against the DBS service in March 2009, alleging Dish Network made millions of calls that violated telemarketing protection laws. The forty-six remaining states reached a settlement with Dish Network over violations of the do-not-call laws in July 2009, in which the company agreed to pay nearly $6 million and not violate the telemarketing protection laws. In Dec. 2014, Myerscough issued a summary judgement that ruled Dish Network and certain telemarketing contractors had made millions of live and pre-recorded calls that violated the do-not-call list laws. Since then, the governments and the company have been arguing over how much liability for the calls Dish Network should bear, and how much of a fine should be levied on the company.

Myerscough’s decision awarded $168 million to the federal government. In total, California was awarded more than $53 million, Ohio was awarded slightly more than $28 million, N. Carolina almost $19 million, and Illinois $17.3 million. The federal government and the states had asked for as much as $1 billion in fines be levied on Dish Network.

In fact, Myerscough said the governments were in reality asking for more than $2 billion in fines, but she could have imposed some $8.1 billion in fines on Dish Network if she applied a formula based on the maximum amount of fine per call in her judgement. In one section, Myerscough even went so far as to suggest “the total maximum possible civil penalty [Dish Network could be liable for] exceeds $37.8 billion.”

Even so, she wrote, “An award of $8.1 billion would be excessive and in violation of due process. That amount is wholly disproportionate to the offense and obviously unreasonable and might put Dish [Network] out of business.” But other than a few minor rulings in its favor, that was about the only good news for Dish Network in the decision. For example, the judge seemed insulted by Dish Network’s claim it could not pay a substantial fine, a point the company made in numerous filings. “Dish [Network’s] plea of poverty borders on the preposterous,” Myerscough wrote.

She recounted several large sums Dish Network has had to pay in fines, civil judgements, and to the FCC in other episodes that “repeatedly demonstrated [the company has] an ability to make large one-time payments and still maintain operations.” Myerscough wrote that Dish Network “has the ability to pay a significant percentage of its annual profits as a penalty. Dish [Network] would be able to pay a significant percentage of its net after-tax income as a penalty and continue operating.”

She seemed particularly irritated at Dish Network’s arguments a large fine could hamper its future operations and business plans, and seemed especially incensed regarding Dish Network’s “claims that it is cash-poor because it has invested large portions of its net after tax profits in wireless spectrum to keep the company competitive.” The company, she wrote, “cannot avoid liability because its current business plan calls for buying illiquid assets in the form of [wireless] spectrum. Dish [Network] has the assets and ability to pay the appropriate penalty for its illegal conduct.”

But Dish Network, in its statement, blasted the amount Myerscough ordered the company to pay. “The penalties awarded in this case radically and unjustly exceed, by orders of magnitude, those found in the settlements in similar actions, notably against DirecTv, Comcast, and Caribbean Cruise Lines,” Dish Network said.

Myerscough’s core 475-page decision reads like a history of Dish Network’s development of its DBS business, a playbook on how telemarketing operations are built and operated, and a proverbial blueprint on how Dish Network, its retailers, the telemarketing firms it employed, and its national and local retailers, conducted business over the years.

The opinion is sprinkled with charts detailing what telemarketing operations made what number of illegal calls, in which of the four states, and nationally. Most importantly, Myerscough repeatedly chastised Dish Network for how it has handled its entire telemarketing operation. Dish Network, she wrote, “caused millions and millions of violations of the do-not-call [list] laws, and Dish [Network] has minimized the significance of its own errors in direct telemarketing and steadfastly denied any responsibility for the actions of its [national retailers]. The injury to consumers, the disregard for the law, and the steadfast refusal to accept responsibility require a significant and substantial monetary award.”

In certain passages, Myerscough not only questioned Dish Network’s integrity and motivations, but came close to calling the company an outright liar. About a dozen times in her decision, Myerscough refers to testimony by Dish Network witnesses as “not credible” or a similar phrase.

For example, she wrote that “by 2009, Dish [Network’s own] legal department still considered the [national sales] program to be rife with shady, illegal activity.” The court, she wrote, “is convinced that at least some in Dish [Network] management do not believe that Dish [Network] really did anything wrong or harmed anyone with these millions and millions of illegal calls.”

Myerscough focused a good deal of her wrath on Dish Network’s sales through national retailers and telemarketing firms. Ironically, she cited AT&T—which, of course, now owns DirecTv—and Radio Shack—which is going out of business— as examples of two of the national retailers which sold Dish Network hardware and programming but did not operate like traditional retailers—such as independent satellite dealers.

“In many cases, Dish [Network] knew [the larger national] retailers were violating the do-not-call [list] laws and did nothing,” she wrote. “Dish [Network’s] retail sales managers showed little concern for compliance with the do-not-call [list] laws. Prior to 2009, their primary concern was generating activations. Their compensation was tied to activations. They knew that numerous [large national] retailers were making illegal [telemarketing] calls and did little or nothing about it.”

The sales program for national retailers and telemarketing firms, Myerscough wrote, “generated large numbers of activations for” Dish Network. By 2005, she said, those national retailers “passed” Dish Network’s “direct marketing in producing activations.” Two years later, she said, those large retailers and telemarketing firms :accounted for 30 percent of all of Dish [Network’s] activations.”

By the middle of 2007, Myerscough wrote, those retailers “were producing 70,000 to 90,000 activations per month” while Dish Network’s “direct sales were averaging 45,000 to 60,000 activations per month at the same time period.” At its height, Dish Network had 80 such national and telemarketing firm retailers, she said, “compared to 8,000 [independent satellite] retailers at the same time.”

By the end of 2009, Dish Network, she said, had “reduced the number” of those large national retailers to 32. Myerscough also claimed that Dish Network had approximately 3,000 independent satellite dealers by January of last year, but only had 10 to 20 of the large national retailers by last fall. Dish Network is believed to now have fewer than 3,000 independent satellite dealers who sell more than a handful of systems per month. As reported, sources have told Satellite Business News that independent satellite retailers now account for less than 10 percent of Dish Network’s gross DBS sales.

In its statement, Dish Network reacted angrily to Myerscough’s view it should have exercised more control over the national retailers and telemarketing firms. “The court is holding Dish [Network] responsible for telemarketing activities conducted by independent third-parties, including in circumstances where such third-parties intentionally hid their telemarketing efforts from Dish [Network]. Dish [Network] has long taken its compliance with telemarketing laws seriously, has and will continue to maintain rigorous telemarketing compliance policies and procedures, and has topped multiple independent customer service surveys along the way.”

Myerscough said she is imposing a permanent injunction regulating Dish Network’s telemarketing and call operations because the company’s “denial of responsibility and lack of regard for consumers are deeply disturbing and support the inference that it is reasonably likely that Dish [Network] will allow future illegal calls absent government pressure.”

The evidence “shows that Dish [Network] reacted to pressure from law enforcement” in 2009, when the states and federal government were investigating the company’s practices, Myerscough wrote, and thus “pressure needs to be maintained to keep Dish [Network’s] marketing personnel from reverting to their practice of trying to get around the rules.”

Unless Dish Network obtains a stay of the injunction, it will, within 90 days, have to “demonstrate” to the federal and state governments’ “satisfaction” that the company and all but its small retailers “are fully complying” with the laws that prevent calls to those who numbers are listed on do-no-call lists.

The company and its retailers must also show they have made no “pre-recorded telemarketing calls” during the last five years. If the government’s claim Dish Network and its retailers are not in compliance, the company will be entitled to a hearing on the matter. “If Dish [Network then] fails to prove that [the company’s] direct marketing operations meets the [injunction’s] requirements, Dish Network shall be barred from conducting any outbound telemarketing for two years,” the injunction states. Dish Network will also be required to hire a “telemarketing-compliance expert who will prepare a plan to ensure” the company is complying with the telemarketing protection laws and the terms of the injunction.

The injunction will also allow the federal government and four states to ask the court to conduct “unannounced inspections of any Dish [Network] or primary retailer facility or records.” If such an inspection takes place, the government interests may ask the court for “further injunctive relief, up to and including a complete telemarketing ban” against Dish Network and its retailers, the injunction states.

Dish Network will also be required to submit “telemarketing compliance materials” and extremely detailed records of its marketing and operations to the five governments twice a year for the next 10-years, the injunction ordered. The injunction also includes detailed rules—such as the number of rings allowed and seconds permitted before a call must be disconnected—for preventing Dish Network and its retailers from making calls to those consumers who do not want to receive them and who numbers are on do-not-call lists.

If any of its retailers or telemarketing firms violate the rules or the telemarketing protection laws, the injunction states, Dish Network “shall be liable for those violations as if Dish [Network] itself had placed the calls.” Dish Network’s “fundamental lack of understanding [about its past practices] is a cause for concern about Dish [Network’s] future conduct,” Myerscough wrote. “Absent an injunction, Dish [Network] will be reasonably likely to make or cause others to make illegal calls in the future in violation of the do-not-call [list] laws.”

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