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Title News - November/December 2005

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November/December 2005 - Volume 84 Number 6

Junk Faxes: More Than a Small Claims Matter

by Russell J. Kutell, Esq.

Competitive title insurance companies market their businesses to lenders, real estate agents, and sometimes consumers. New federal prohibitions concerning the faxing of unsolicited advertisements or “junk faxes” may significantly change the way companies market their services. What was designed to provide individuals with a means to prevent the receipt of junk faxes has been used in class action lawsuits in which classes of plaintiffs have sought multi-million dollar verdicts. Consequently, it has become even more important than ever that businesses understand the prohibitions found in the federal Telephone Consumer Protection Act of 1991 (TCPA), as amended by the recent Junk Fax Prevention Act of 2005 (Junk Fax Act), and the outcomes from recent junk fax cases.

The Federal Telephone Consumer Protection Act
In December 1991 Congress enacted the TCPA after finding, among other things, that “[m]ore than 300,000 solicitors call more than 18,000,000 Americans every day” and that “[u]nrestricted telemarketing . . . can be an intrusive invasion of privacy and. . . a risk to public safety.” Among several prohibited telephonic communications contained in the Act, Congress made it unlawful for “any person within the United States, or any person outside the United States if the recipient is within the United States . . . to use any telephone facsimile machine, computer, or other device to send an unsolicited advertisement to a telephone facsimile machine.” In contrast to other TCPA prohibitions, Congress drafted the unsolicited fax transmission prohibition to apply both to personal and commercial recipients of unsolicited faxed advertisements.

The TCPA defined an “unsolicited advertisement” as “any material advertising the commercial availability or quality of any property, goods, or services which is transmitted to any person without that person’s prior express invitation or permission.” As originally drafted, the TCPA provided that a party accused of violating the TCPA by sending junk faxes only had one substantive defense - that the party had received prior consent to send faxes to the recipient. In the absence of specific evidence that the recipient had provided such prior consent, some courts held that a prior established business relationship between the sender and the recipient was insufficient to permit the faxing of ads. This holding, however, seemed to contradict a 1992 Federal Communications FCC finding that a prior established business relationship with the recipient provided a sender with the necessary express permission to send faxed advertisements to the recipient.

If an individual or entity violates the junk fax prohibition, the recipient of the unsolicited faxed advertisement can typically bring a private cause of action against the violator in an appropriate state court, but not in federal court. In contrast to many federal statutes, the TCPA does not grant jurisdiction to the federal courts for TCPA violations.

If a party is found liable for violating the TCPA’s unsolicited fax prohibition, the recipient of the fax can recover actual monetary losses arising from the violation or $500 for each violation, whichever is greater. Courts have held that each page transmitted without prior express permission constitutes a separate violation. The recipient also can recover treble damages if the TCPA violator willfully or knowingly violates the unsolicited fax prohibition. Additionally, the recipient may recover damages if the unsolicited fax fails to contain some technical requirements in the fax header. In particular, the TCPA requires at least the first page of each fax to have a header or footer containing:

  • the date and time the fax is sent,
  • the identification of the individual or entity sending the fax, and
  • the phone number of the sending machine or the sender of the fax.

The Junk Fax Prevention Act of 2005
To formally adopt the FCC’s prior “established business relationship” exemption, Congress recently introduced and passed The Junk Fax Prevention Act of 2005. President Bush signed the Junk Fax Act on July 9, 2005, at which time the Act became effective.

The Junk Fax Act amends the TCPA to prohibit the use of a fax machine, computer, or other device to send an unsolicited advertisement to another fax machine unless three requirements are met:

  • the unsolicited advertisement is from a sender with an established business relationship with the recipient;
  • the sender obtained the recipient’s fax number either through:
    (a) the recipient voluntarily providing the fax number as part of the established business relationship or
    (b) a directory, advertisement, or Internet site in which the recipient voluntarily makes its fax number available for public distribution; and
  • the sender’s unsolicited advertisement contains a notice satisfying the requirements of the Act.

For the sender to have an “established business relationship” with the recipient, the sender and the recipient must have had prior or existing voluntary two-way communication with each other, with or without the exchange of any consideration. The communication must have been part of the recipient’s purchase or transaction with the sender or on the basis of the recipient’s inquiry or application regarding products or services provided by the sender. Moreover, the relationship must not have been terminated by either party. In the Junk Fax Act, Congress expressly permitted the FCC to limit the duration of the established business relationship. The FCC, however, had to wait until at least October 9, 2005, before commencing a proceeding to decide whether to provide such a duration limitation and must review certain factors before creating such a limitation.

Even if the sender has an established business relationship with the recipient and satisfies the other requirements of the Junk Fax Act, a sender is prohibited from sending the unsolicited advertisement if the recipient has previously informed the sender, as provided in the Act, to not send future unsolicited ads to the recipient’s fax number.

The Junk Fax Act now requires that a sender ensure that the unsolicited advertisement contains a clear and conspicuous notice located on the first page of the advertisement. The notice must state: (1) that a recipient can request that the sender of the advertisement no longer send any unsolicited advertisements to the recipient’s fax machines, (2) the required contents of the opt-out request, and (3) that the sender’s failure to comply with a proper opt-out request within any minimum time set by the FCC is unlawful. The notice must also provide a domestic telephone and fax number for the recipient to make a cost-free opt-out request. Each of the means to provide an opt-out request must be available at any time of any day of the week.

For the opt-out request to be proper, the recipient’s request must satisfy certain statutory requirements. First, the opt-out request must specify the telephone number or numbers corresponding to the facsimile machines to which the request relates. Second, the request must be sent to the telephone number or facsimile number provided in the notice or by any other method determined by the FCC. Finally, the recipient making the request cannot subsequently provide express permission to the sender, in writing or otherwise, to send such advertisements to the recipient at a fax machine.

Nicholson v. Hooters
Now you may say to yourself, “Why should I care about the TCPA and the Junk Fax Prevention Act of 2005? At worst, if I mistakenly send an unwanted fax without proper notice, a recipient may obtain a judgment in the sum of $1,500 against me.” However, such an oversight could actually result in a much greater liability. The most infamous TCPA case to date is probably Nicholson v. Hooters of Augusta, Inc. In Hooters, the named plaintiff, Sam Nicholson, commenced a class action against Hooters of Augusta, Inc. and its independent contractor, Bambi Clark, in Georgia state court for faxing six advertisements to Hooters’ customers. On behalf of a class of 1,321 people who received Hooters’ faxed advertisements, Nicholson sought injunctive relief and statutory damages against the defendants. The independent contractor, Ms. Clark, never appeared in the action.

In attempting to avoid liability, Hooters argued that it should not be liable under the TCPA for Ms. Clark’s actions because she was an independent contractor. The trial court rejected this argument and certified the proposed class. On appeal, the Georgia appellate court affirmed the trial court’s decision, finding that an advertiser could not avoid liability under the TCPA because an independent contractor actually transmitted the advertisement. On March 21, 2001, a jury found that the defendants had violated the TCPA by unlawfully transmitting six unsolicited Hooters’ advertisements by fax to a class of 1,321 members. The jury also found that Hooters and Clark’s transmission of the advertisements was willful or knowing. As a result, each class member was entitled to recover trebled statutory damages equal to $9,000. Accordingly, on April 25, 2001, a judgment was entered against both of the defendants in the sum of $11,889,000. Hooters of Augusta, Inc. subsequently filed for bankruptcy court protection on June 8, 2001. Given such a potential outcome, it is imperative that all businesses ensure that they do not transmit any unsolicited advertisements by fax, unless:

  • the business has an established business relationship with the recipient which the business believes is sufficiently recent (such that it is defensible if subsequently questioned),
  • the business obtained the recipient’s facsimile number as permitted by the Junk Fax Act,
  • the recipient has not already sent a request to the business instructing the business not to send such ads, and
  • the unsolicited advertisement contains the required notice.

Even if a business believes it has prior authorization to fax advertisements to potential customers, the business should think twice. After all, who wants to be the next Hooters of Augusta?

Russell J. Kutell is a partner in the Litigation Practice Group of Schottenstein Zox & Dunn, Co. L.P.A. in Columbus, Ohio. Mr. Kutell’s litigation practice includes the representation of lenders, title insurers, and title agents in real estate disputes.

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