Toney v. Quality Resources, Inc.

Citations: 75 F. Supp. 3d 727; 61 Communications Reg. (P&F) 871; 2014 U.S. Dist. LEXIS 166253; 2014 WL 6757978Docket: No. 13 CV 42

Court: District Court, N.D. Illinois; November 30, 2014; Federal District Court

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Defendant Quality Resources, Inc. filed a motion to dismiss the Third Amended Complaint under Federal Rule of Civil Procedure 12(b)(6) or, alternatively, for summary judgment under Rule 56(c). Defendants Sempris, LLC and Provell, Inc. also moved to dismiss the complaint under Rule 12(b)(6). The court denied the motions from Quality Resources and Sempris, while granting Provell's motion.

The plaintiff, Sarah Toney, initiated a class action on January 3, 2013, alleging violations of the Telephone Consumer Protection Act (TCPA) against the three defendants: Quality Resources, a telemarketing firm; Sempris, which operates the Budget Savers website; and Provell, a defunct corporation acquired by Sempris in February 2011. Toney claims that she provided her cellular phone number while ordering slippers from Stompeez.com, under the impression it would only be used for order-related inquiries. However, she alleges that Quality purchased customer information from Stompeez to conduct telemarketing calls for third-party products, specifically targeting Sempris and Provell.

Toney received multiple calls from Quality shortly after her order, which utilized a predictive dialer. During one call, a representative attempted to sell her a Budget Savers membership after confirming her order details. Although Toney did not purchase the membership, she asserts that Quality acted as an agent for Sempris and Provell during these calls, with a long-standing business relationship established since at least February 2005. Toney alleges that Quality was bound by a Telemarketing Program Sales Agreement with Sempris, requiring it to market Budget Savers exclusively through outbound telemarketing, and that a similar relationship existed with Provell until its contract was transferred to Sempris.

Plaintiff alleges that Quality made multiple calls to confirm her address and payment information for Stompeez, despite already having provided this information, with the actual intent of selling goods from Budget Savers, owned by defendant Sempris, which is unrelated to Stompeez. In Count I, the plaintiff claims violations of § 227(c) of the Telephone Consumer Protection Act (TCPA) due to unsolicited telemarketing calls to her and other numbers listed on the National Do Not Call Registry. Count II claims violations of § 227(b) of the TCPA for using an automatic dialing system to call her and others’ cell phones. Quality has moved to dismiss the Third Amended Complaint or for summary judgment, while Sempris and Provell have filed separate motions to dismiss. 

Quality's argument for dismissal centers on the assertion that the plaintiff’s claims are conclusory and insufficiently detailed, particularly alleging that the counts improperly lump the defendants together. However, Quality overlooks the extensive sixteen pages of detailed allegations preceding the counts, which adequately outline the plaintiff's theories of liability and the specific roles of each defendant in the alleged TCPA violations.

Allegations presented by the plaintiffs adequately inform the defendants of the claims and their basis. Under the Telephone Consumer Protection Act (TCPA), it is illegal to make certain automated calls without prior express consent from the called party. A defendant can avoid liability by proving such consent. Quality acknowledges its burden to establish this defense and argues for dismissal or summary judgment based on Toney's prior express consent to receive calls regarding her order. Toney admitted in her complaint to providing her phone number to Stompeez for order inquiries, which Quality interprets as consent to call her for order confirmation.

The TCPA does not define "prior express consent," but the Federal Communications Commission (FCC) has provided guidance, stating that individuals who voluntarily share their phone numbers have effectively granted permission to be called unless otherwise specified. Quality cites a 1992 FCC order affirming this interpretation. Additionally, Quality references four cases where courts found that providing a phone number constituted prior express consent, including instances where individuals submitted their numbers for processing purposes without opposing instructions.

The court determined that the plaintiff had given explicit consent to receive debt-collection calls, and the debt collector acted on behalf of the payment service attempting to recover the debt. In the case of Baird v. Sabre Inc., the plaintiff's provision of her cell phone number to an airline for booking a flight constituted consent to receive notifications from a third-party contractor acting for the airline. Similarly, in Greene v. DirecTV, the plaintiff’s provision of her number to a reporting agency allowed a third party to make fraud-alert calls on behalf of potential creditors. The plaintiff argued that her case differs because she shared her number with Stompeez, not Quality; however, previous rulings establish that third-party contractors are considered agents of the original entity for consent purposes. The court noted that a reasonable consumer would not expect that consent to an airline's communication excludes contractor involvement. The plaintiff's stronger argument highlighted that her consent was limited to inquiries about her order, while Quality's calls aimed to market a membership, exceeding that scope. The FCC clarified in a 2012 order that providing a phone number for a specific purpose does not imply consent for unrelated marketing calls. In Kolinek v. Walgreen Co., a similar situation arose where the plaintiff claimed Walgreens violated the TCPA by making robocalls for prescription reminders, arguing he provided his number solely for verification purposes.

The court previously dismissed the defendant's motion based on the plaintiff's claims, but the plaintiff requested reconsideration due to recent FCC rulings regarding the prior express consent defense under the Telephone Consumer Protection Act (TCPA). Judge Kennelly reviewed the FCC's 1992, 2012, and 2008 orders, noting that the 2012 Order indicated that the scope of a consumer's consent is context-dependent, contrary to the broader interpretation seen in the 1992 Order. The FCC's GroupMe Order clarified that providing a wireless number for a specific messaging group constitutes consent only for communications related to that group, not for other purposes. This interpretation suggests that consent for one purpose does not imply consent for all. The court acknowledged that it had erred in its previous ruling by misapplying the FCC's guidance, which does not support a general rule of implied consent. Walgreens' argument, supported by out-of-district cases, was found unconvincing. The plaintiff, Kolinek, alleged that he provided his number for identity verification, which does not imply consent for automated prescription refill reminders. The court emphasized that it must accept Kolinek's allegations as true at this stage, leading to the conclusion that Walgreens cannot dismiss the case under Rule 12(b)(6) based on the prior express consent defense.

Judge Kennelly's ruling aligns with FCC orders, rejecting Quality's argument that Toney's provision of her phone number to Stompeez implied consent for marketing calls from Budget Savers. The court dismissed Quality's description of its call as merely a "confirmation telephone call." Citing a 2003 FCC order, the court noted that calls with dual purposes, such as those from mortgage brokers or credit card companies, often qualify as unsolicited advertisements if they aim to sell goods or services, despite any customer service elements. Toney asserted her consent was limited to inquiries about her Stompeez order, excluding consent for advertisements from third parties. Accordingly, Quality cannot dismiss the case based on prior express consent at this stage.

Furthermore, Quality introduced Stompeez's Privacy Policy to support its consent defense, despite it not being referenced in Toney's complaint. Since this introduction constitutes a matter outside the pleadings, the court converted the motion into one for summary judgment, allowing both parties to present relevant materials. Quality argued that Toney's agreement to the Privacy Policy permitted other organizations, including Quality, to contact her for marketing purposes. The Policy stated that information collected could be used for marketing and shared with other organizations for such purposes.

Quality asserts that the Privacy Policy indicates that the plaintiff, Toney, consented to being contacted by Quality and other organizations for marketing purposes when she provided her cellular number while ordering Stompeez. However, Quality has not presented any evidence that Toney reviewed or agreed to the Privacy Policy during her purchase. Quality's argument fails to demonstrate that merely using the Stompeez website equates to express consent for telemarketing calls. The relevant statement in the Privacy Policy is vague, failing to clearly communicate that users would be contacted by third parties for marketing. 

Regarding "upsells," Quality claims it was entitled to market third-party services after completing Toney's order but lacks evidence that her order was incomplete prior to the call. Toney contends her order was complete, and Quality's justification for the call as a verification step is seen as a pretext. Quality also claims compliance with the Telemarketing Sales Rule (TSR) but does not explain how this relates to the Telephone Consumer Protection Act (TCPA) or why it would justify summary judgment. The TSR defines "upselling" as a separate transaction, but Quality has not substantiated that any initial transaction occurred during the call. 

On class action allegations, Quality argues they are implausible and conclusory, but the court finds the Third Amended Complaint sufficiently supports them. Quality's concerns about class treatment are considered premature, as discovery is ongoing and the allegations are not facially deficient.

A decision denying class status at the pleading stage is inappropriate, as it typically involves factual and legal issues central to the plaintiff's cause of action, as established in Birchmeier v. Caribbean Cruise Line, Inc. Plaintiffs have plausibly alleged the necessary elements for class certification under Rule 23, and the court deems it premature to determine if they can substantiate this basis. Consequently, the court denies Quality's motion to dismiss or for summary judgment.

Regarding Provell, Toney claims to have received calls in December 2012; however, Provell asserts it was dissolved as of October 30, 2012, and provides a Certificate of Dissolution confirming this. The court agrees to take judicial notice of this Certificate, as it is a matter of public record and does not convert the motion into one for summary judgment. Toney cites a Delaware statute (Del. Code Ann. tit. 8, § 278) that allows dissolved corporations to defend suits for three years post-dissolution, but the court clarifies that this does not imply a dissolved corporation can engage in acts that incur liability. Toney's argument overlooks the statute's provision that a dissolved entity cannot continue its original business purpose. Although Toney mentions that Provell was referenced as the owner of the Budget Savers website in May 2013, this does not alter the fact of Provell's dissolution. Toney also claims that Provell should be held liable for Sempris's actions due to Provell's role in the telemarketing scheme, suggesting that Sempris and Provell should be treated as a single entity.

Plaintiff's claims against Sempris and Provell are dismissed, with Provell being dismissed with prejudice for failure to state a claim. Sempris argues that Toney has not provided sufficient facts to support her claims of direct or vicarious liability. Specifically, Toney's 'Do Not Call' claim is dismissed because she did not allege receiving more than one call within a year from Sempris. Toney does not claim she received calls from Sempris but rather from Quality, leading Sempris to assert that Toney cannot establish direct liability under the Telephone Consumer Protection Act (TCPA). Toney implicitly concedes this point and does not effectively argue that “on behalf of” liability equates to direct liability. Furthermore, her argument neglects to engage with a relevant 2013 FCC Declaratory Ruling, which specifies that a seller is only directly liable if it initiates a call. The ruling also clarifies that a seller may be held vicariously liable for violations by a third-party telemarketer under common law agency principles. Since Quality made the calls, Toney fails to establish a direct claim against Sempris and Provell. Regarding vicarious liability, while the 2013 Ruling allows for such claims, Toney must demonstrate that Sempris falls under the relevant agency principles, which she has not adequately done.

The FCC ruling is acknowledged as applicable to this case. The plaintiff argues that Sempris is vicariously liable for telemarketing calls made by Quality under the principles of formal agency, apparent authority, and ratification. Formal agency is defined as a fiduciary relationship where a principal authorizes an agent to act on their behalf, with the principal having control over the agent's actions. The plaintiff claims sufficient facts to suggest that Quality acted as Sempris's agent when making the calls, asserting that a telemarketing agreement existed which authorized Quality to solicit Budget Savers contracts for Sempris. 

Allegations indicate that Sempris controlled various aspects of Quality's telemarketing, including script development, call recording, and specific guidelines for handling customer information. Additionally, the plaintiff asserts that Sempris was directly involved in the telemarketing process, particularly through a script implying a "verification department" role attributed to Sempris. 

Sempris counters that the allegations contradict their contract with Quality, which states Sempris would not control Quality's marketing methods. However, the contract also includes requirements that imply a degree of control. Sempris further claims that the agreement explicitly denies the creation of an agency relationship, but the determination of agency status can depend on factual circumstances, which may arise from both contractual terms and actions taken by the parties involved.

Sempris and Quality's intended operational relationship is relevant but not definitive in assessing its actual function. Discovery remains incomplete, limiting the plaintiff’s access to full details of their relationship. Sempris argues that the plaintiff has not alleged that it had the power to give Quality interim instructions, a key characteristic of an agency relationship. While the existence of a contract between the two does not automatically confer such power, the plaintiff has presented sufficient facts indicating that Sempris exercised control over Quality's telemarketing activities, making an agency relationship plausible under federal notice-pleading standards.

Regarding apparent authority, the principle holds a principal liable based on third-party beliefs about an agent's authority, provided this belief is reasonable and linked to the principal's manifestation. To establish apparent authority, Toney must demonstrate that she reasonably believed Quality acted as Sempris's agent and that this belief stemmed from Sempris's indications, not just Quality's representations. Toney fails to substantiate her claim, as she does not allege a reasonable belief in Quality's agency nor connect any such belief to actions or statements made by Sempris. Thus, her apparent authority theory lacks a plausible basis for holding Sempris liable, as it relies solely on Quality's assertions without direct or indirect communication from Sempris itself.

The FCC's 2013 ruling provided guidance on establishing a telemarketer as an authorized representative of a seller. Key examples included allowing telemarketers access to seller information, enabling them to enter consumer data into seller systems, and reviewing telemarketing scripts. The court clarified that the FCC's guidance is not binding and only holds persuasive value. Federal common law principles state that a principal can be held liable for an agent's actions if a third party reasonably believed the agent acted within their authority based on the principal's representations. The court found that the plaintiff's allegations of apparent authority, which align with FCC examples, were insufficient.

Regarding ratification, which is the affirmance of an act done by an agent, a principal can ratify actions through explicit assent or conduct indicating consent. However, ratification cannot occur without knowledge of material facts unless the principal knowingly chooses to ratify despite lacking such information. The plaintiff argued that Sempris ratified Quality’s actions by accepting benefits from sales made through questionable telemarketing practices, despite being aware of complaints about those practices. However, the court found this argument unconvincing, noting that the plaintiff did not show that Sempris or Provell benefited from Quality’s calls to her, nor did she establish a business relationship with them as a result of those calls. The court's findings ultimately dismiss the plaintiff's claims regarding apparent authority and ratification.

Toney's "Do Not Call" claim in Count I is challenged by Sempris on the grounds that Toney only answered one call related to Budget Savers. For a valid claim, Toney must demonstrate receiving multiple calls from the same entity within a year, as specified in 47 U.S.C. 227(c)(5). While Sempris acknowledges that Quality made four calls to Toney in December 2012, they argue Toney cannot prove the three unanswered calls were for marketing Budget Savers, as she lacks personal knowledge of those calls' content. Toney asserts these calls were made at the direction of Sempris/Provell. Sempris contends that Quality could have been calling for various other reasons, labeling Toney's claims as mere speculation. However, the court finds that the timing and content of the calls provide reasonable grounds to infer that the first three calls were indeed related to Sempris's services. Consequently, the court denies Sempris and Provell's motion to dismiss regarding Sempris. The court also denies Quality Resources, Inc.'s motion to dismiss and partially grants and denies Sempris and Provell’s motion, dismissing Provell with prejudice while allowing the claim against Sempris to proceed as it contains sufficient factual allegations for vicarious liability under agency theory, though not for apparent authority or ratification. A status hearing is scheduled for December 9, 2014, to discuss the discovery timeline. Additionally, Toney has removed Stompeez as a defendant in the latest complaint, and the Telemarketing Program Sales Agreement is deemed part of the pleadings as it is central to Toney's claims.

The court will consider the Agreement referenced in the complaint as it is central to the plaintiff's claims, allowing this without converting the motion by Sémpris and Provell into a summary judgment motion. The excerpt cites a 2008 FCC Declaratory Ruling that clarifies that autodialed and prerecorded calls to wireless numbers provided by a consumer to a creditor regarding an existing debt are permissible under the Telephone Consumer Protection Act (TCPA), contingent upon prior express consent. This consent is only valid if the number was provided during the transaction that resulted in the debt. Calls made by third-party collectors on behalf of creditors are treated as if the creditor made the call. Although this ruling specifically pertains to debt collectors, the plaintiff does not argue against applying the FCC's reasoning to other callers contracted to provide calling services.

The plaintiff claims that Quality's confirmation of her address for the Stompeez order was a pretext for promoting Budget Savers. The attached call script indicates that some recipients may have already received their ordered products. However, the evidence regarding the accessibility of the Privacy Policy on the Stompeez website is insufficient, and Quality has not demonstrated that the version of the Privacy Policy was in effect at the time of the plaintiff's order in December 2012. 

The court dismissed Provell, noting it did not exist at the time of the alleged misconduct, and highlighted that the plaintiff failed to establish a claim against Provell. The federal common law of agency aligns with the Restatement, but the plaintiff did not assert that Provell and Quality had the same contract, only a "similar arrangement," nor did she claim that Provell had control over Quality as Sempris did. 

While the plaintiff suggests Quality might be the true entity responsible for closing and verifying the sale, she also indicates ambiguity in the call script regarding whether Sempris participated in the call. Ultimately, the plaintiff fails to establish a claim against Provell for vicarious TCPA liability under both formal agency and apparent authority theories.