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UTC and Honeywell sued for telemarketing violations and prevail March 22, 2018

KEN KIRSCHENBAUM, ESQ
ALARM - SECURITY INDUSTRY LEGAL EMAIL NEWSLETTER / THE ALARM EXCHANGE
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UTC and Honeywell sued for telemarketing violations – and prevail
March 22, 2018
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UTC and Honeywell sued for telemarketing violations – and prevail
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            Two alarm manufacturers, UTC Fire & Security Americas Corp and Honeywell International Incorporated, were sued in consolidated class actions for violations of the Telephone Consumer Protection Act [TCPA].  TCPA prohibits calls that use a prerecorded message and calling numbers on the national Do-Not-Call Registry.  While neither manufacturer was accused of engaging in or directing the improper telemarketing, they were accused of ratifying the actions of the retail alarm dealers who sold their products and for benefiting from those sales.  The plaintiffs sought to impose liability against the manufacturers for vicarious liability.
            Both manufacturers were successful in getting the complaint dismissed against them on summary judgment, which was affirmed on appeal.  The appellate court decision will be of interest to some of you because the relationship between the manufacturers and the retail alarm companies is discussed, as well as responsibility for improper telemarketing.  You can read the entire decision on the Kirschenbaum & Kirschenbaum website under Alarm Law / leading cases / West Virginia cases.  
Click here.
            A few interesting issues reported in the decision follow:
            UTC’s involvement:
           
 “During the relevant period, UTC manufactured home-security systems. It sold the systems to distributors, which resold them to approximately 28,000 retailers. Once UTC sold systems to a distributor, the distributor took full title to the product. Accordingly, UTC did not receive any direct proceeds from a product’s resale to a retailer or consumer. Versatile Marketing Solutions, Inc., (“VMS”) was one of the retailers that purchased UTC’s home-security systems from a distributor. VMS sold the systems directly to consumers as part of a security package that included a subscription to monitoring services. It used telemarketing to sell these packages. VMS did not have a direct purchasing relationship with UTC; it only purchased systems from UTC’s distributors. However, VMS had a contractual relationship with UTC that allowed VMS to use UTC’s trademarks in limited ways. The contractual relationship began in 2010 when UTC acquired GE Security, Inc., which had entered into a “dealer agreement” with VMS the previous year. UTC continued to honor the agreement after the acquisition. The dealer agreement permitted VMS to hold itself out as an “Authorized GE Security Dealer.” J.A. 802. However, the agreement prohibited VMS from using the GE Security trademark in “its corporate or business name, or within its telephone greeting, letterhead, stationary, identification badges, telemarketing scripts or direct marketing material, or promotional items.” J.A. 802. The agreement also stated that the parties did not intend “to create an employment, agency, franchise or other relationship.” J.A. 800. Additionally, the contract required VMS to comply with all applicable laws and 6 regulations. Finally, the agreement entitled VMS to rebates if it purchased a minimum amount of GE Security products each year. In 2011, UTC began to receive complaints about VMS’s telemarketing practices. On August 24, 2011, for example, an individual complained that VMS had called his residence selling GE Security products even though his number was listed on the national Do-Not-Call Registry. And, in November 2011, UTC received at least two complaints stating that VMS was using robocalls to sell GE Security products. UTC had a system for responding to complaints about its authorized dealers. This process involved contacting the complainant to explain that UTC was a manufacturer that sold exclusively to distributors and never marketed its products directly to consumers and that none of the retailers that sold UTC products were authorized to hold themselves out as representatives of UTC or GE Security. Then, UTC would ask the complainant for identifying information about the telemarketer. If the complainant provided sufficient information to identify which authorized dealer made the relevant call, UTC would relay the complaint to that dealer and take appropriate remedial action. UTC followed this process when it received complaints about VMS, following-up with complainants and informing VMS of the grievances lodged against the telemarketer. UTC also required the head of VMS to attend an ethics presentation during which UTC reminded authorized dealers that they were prohibited from representing themselves as UTC’s or GE Security’s agents and were contractually obligated to comply with all applicable telemarketing laws. Finally, UTC terminated VMS’s dealer agreement in April 7 2012 because it determined that VMS’s misconduct was damaging UTC’s reputation and UTC was in any event likely to lose VMS’s business to a competitor.”

            Honeywell’s involvement:

            “Like UTC, Honeywell manufactured hardware for home-security systems. Through a wholly-owned subsidiary called ADI Global Distribution, Honeywell sold its security products to thousands of retailers, which in turn resold them to consumers. Some, but not all, of these retailers had “sales agreements” with Honeywell that entitled them to purchase products from ADI at a favorable rate, guaranteed them a minimum supply of products every month, and allowed them to use Honeywell’s logo for limited purposes. ISI Alarms NC, Inc., was a retailer. It purchased Honeywell products from ADI and resold them to consumers as part of a security package that included a subscription to monitoring services. ISI used telemarketing to sell these packages. From 2005 to 2012, ISI purchased Honeywell products without a sales agreement. During this time, Honeywell received several complaints that ISI was making aggressive telemarketing calls in which its employees represented themselves as Honeywell agents. The complaints cited to by Plaintiffs, however, did not allege that ISI was using prerecorded messages or calling numbers on the Do-Not-Call Registry. Honeywell responded to these complaints by reminding ISI that it could not hold itself out as a Honeywell representative. 8 On April 11, 2012, ISI executed a sales agreement with Honeywell.
            The agreement set the prices ADI could charge ISI for security products and entitled ISI to rebates if it bought a minimum amount of Honeywell equipment. It also permitted ISI to use the Honeywell logo in its marketing materials if ISI complied with certain conditions. Specifically, the agreement prohibited anyone associated with ISI from making “any representation, whether verbal, written or otherwise, that they [were] a Honeywell employee or an agent of Honeywell or that [ISI] [had] any official association or affiliation with Honeywell.” J.A. 706. Between May and June 2012, Honeywell received new complaints about ISI’s telemarketing practices. Specifically, these complaints accused ISI of making aggressive telemarketing calls under the name ISI/Honeywell, using pre-recorded calls to solicit business, and ignoring requests to be placed on the company’s no-call list. In response to these complaints, Honeywell reiterated that ISI could not represent itself as a Honeywell agent and opened an investigation into the other allegations. During the summer of 2012, Honeywell’s legal team called ISI periodically to learn more about the complaints, and two Honeywell executives visited ISI’s headquarters to further investigate. Honeywell also explained to ISI that the complaints about ISI’s telemarketing practices had placed their business relationship in jeopardy. ISI insisted that it was not responsible for any misconduct throughout the investigation. Instead, it claimed that its competitors were impersonating ISI employees during illegal calls to hurt ISI’s reputation.[footnote 1 The contract provided that “[t]he term of this Agreement will begin on February 15, 2012.” J.A. 790. But it was not signed by both parties until April 11, 2012.]  9 Despite its refusal to accept responsibility for any misconduct, ISI hired a consulting firm to ensure that it was complying with applicable telemarketing laws and regulations. But this did not solve the problem. Honeywell continued to receive complaints about ISI throughout the fall of 2012. In January 2013, Honeywell terminated its sales agreement with ISI “due to the issues with telemarketing and . . . growing issues with credit.”

            Because the manufacturers did not authorize the dealers to engage in the improper conduct, and because there was no proof offered that the manufacturers benefited directly from the improper conduct, the Court determined that there was no vicarious liability for the telemarketers alleged misconduct. 
             The facts in the case are that the telemarketers were accused of “aggressive sales calls” but there didn’t seem to be any specific allegations of pre-recorded calls or calling numbers on the national Do-Not-Call directory.  The manufacturers were able to show that they did in fact repudiate the telemarketers’ alleged misconduct.
            The entire decision may be worth reading.  Thanks to Brad Shipp for bringing this case to my attention.
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Ken Kirschenbaum,Esq
Kirschenbaum & Kirschenbaum PC
Attorneys at Law
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Garden City, NY 11530
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