PITTSBURGH - Federal law has turned a shoebox full of cheap cell phones into a treasure chest.
In June 2014, Melody Stoops began a business venture that would lead to the collection of at least 35 cell phones that she stored in a shoebox. Though she lived in a small town in central Pennsylvania, she used Florida area codes when she registered for a new phone number for each.
Why? After a 2013 guilty plea to theft in Colorado, it was a strategic part of her new career.
“I knew that people had hardships in Florida, that they would be usually defaulting on their loans or their credit cards,” she testified in October 2015.
More than 25 years after its passage, a federal telemarketing law hasn’t just created a cottage industry for lawyers – it has spawned a group of professional plaintiffs like Stoops who are armed with several cell phones for the purpose of receiving debt collection calls often intended for other individuals.
These calls lead to demand letters and lawsuits – sometimes filed as class actions – under 1991’s Telephone Consumer Protect Act (TCPA). Penalties can be as high as $1,500 per call, and the cost for a company to defend itself against the allegations is significantly higher.
Research conducted by Legal Newsline showed Stoops isn’t alone with her business plan. Other plaintiffs across the country have done the same while seeking a return on the simple investment of a disposable phone and a new number. For some, only one number is needed to file dozens of lawsuits.
One lawsuit blamed AT&T for trying to reach out to a customer who had signed up for possible home invasion alerts. Another plaintiff with 30 lawsuits lost his Social Security Disability benefits because he recovered too much from TCPA lawsuits (one defendant insinuates the amount approaches $800,000).
And one company recently alleged that a Los Angeles-area attorney named Todd Friedman has teamed with a client in a lawsuits-for-profit scheme, while other plaintiffs firms offer free apps that create a call log for users who are interested in bringing TCPA claims.
Ultimately, Stoops filed lawsuits against nine companies and sent approximately 20 demand letters. A federal judge ruled in her case against Wells Fargo that the calls were not “a nuisance and an invasion of privacy” under the TCPA because she admitted she had filled her shoebox with phones for the purpose of filing TCPA claims.
No injury, no case - Wells Fargo was awarded dismissal. She has not filed a lawsuit since.
The TCPA was signed into law in 1991, when only 3 percent of Americans subscribed to a wireless telephone service. It was designed to protect consumers upset with unwanted calls from telemarketers, specifically those made with an automated dialing machine.
It restricted calls made to residential phone lines without prior express consent from the consumer. Exceptions included calls made for emergency purposes or to collect a debt on behalf of the United States.
If a company violates the TCPA, it is subject to fines of $500 per call, and if the violation is found to be “knowing” or “willful,” that amount is tripled.
Individuals receiving calls they believe to be in violation have two options to try to maximize recovery:
-Answer the phone, tell the company to stop calling and hope the calls keep coming. Those calls could be construed as “willful” violations of the TCPA and lead to triple damages; or
-Don’t answer the phone, never tell the company to stop calling but chronicle how many times it does. This would lead to only $500 claims but keeps the company calling.
The more popular option, according to TCPA defense attorney Jessica Klander of Bassford Remele in Minneapolis, is to amass as many calls as possible by never answering the phone. That’s because most of the companies she represents stop calling when told to.
“There are always going to be instances where that doesn’t happen, but in most instances they stop calling,” she said.
“More often we see folks not answering, then documenting the calls.”
Kirby Spencer said he started researching the TCPA in 2011. According to court documents filed by AT&T, he eventually bought 15 inexpensive cell phones for the purpose of filing TCPA lawsuits in Nevada federal court.
And when AT&T tried to send an emergency text to a customer who had signed up for the company’s home security system, it found out that Spencer had acquired that customer’s phone number.
The AT&T customer had requested a text alert when her front or kitchen door opened. She did not notify AT&T that she had changed her number.
“Mr. Spencer is seeking to exploit the TCPA to recover a $2.7 million jackpot in statutory penalties because he inadvertently received – on a five-dollar disposable cell phone that he seldom used – emergency text alerts that the previous user of his cell phone number had requested,” AT&T’s attorneys wrote in November while asking for summary judgment.
“(Spencer) waited for the text alerts to accumulate, and then filed this lawsuit seeking millions of dollars unrelated to any alleged harm that he experienced.”
Spencer testified that he purchased his phones for “marketing purposes” and that he was involved in real estate matters. He also says he told AT&T to stop texting him, though the company sent him more than 2,000 messages.
AT&T blamed him for not attempting to block the texts, ask his wireless provider for a new number or not use one of his other disposable phones.
“(AT&T) kept sending Plaintiff text messages for over two months, sometimes sending more than 40 text messages in a single day,” argued Spencer’s lawyer, Craig Perry of Las Vegas.
“While (AT&T) does its best to muddy the waters and smear Plaintiff’s character, the factual basis for Plaintiff’s claim is irrefutable, and (AT&T’s) liability is clear.”
Ultimately, Spencer and AT&T reached a settlement in May. Terms of TCPA settlement lawsuits that never reach class action status are confidential.
But the tale of one plaintiff indicates how lucrative these settlements can be. In fact, court records suggest he lost his Social Security disability benefits because he made too much filing lawsuits.
Jan Konopca has brought 31 lawsuits in New Jersey federal court. He has three numbers, including one registered to his ex-wife that has created most of his claims.
The number was originally a landline but was repurposed to now also serve as a cell number. One of Konopca’s phone bills from 2011 shows it received more than 1,000 calls in one month.
The usage combined with Konopca’s other two numbers to exceed his 1,000-minute-per-month plan, causing an extra $96 in charges while giving him a legal cause of action against those who called the phones.
But the name on the wireless account is his ex-wife’s. Konopca said last year in a deposition that they divorced more than a decade ago, but he keeps the number – which features the same number appearing eight consecutive times – because it is easy for his 92-year-old mother in Poland to remember.
Sprint told him he would lose the phone number if he took his ex-wife’s name off the account, Konopca claimed. In court, FDS Bank has questioned whether Konopca had “manufactured the circumstances” that led to him suing the company.
“Calls to his landline though would not give him a cause of action under the TCPA, but calls to a cell phone potentially would,” attorneys for the company wrote last year as they fought a motion for summary judgment.
“Plaintiff knows how lucrative bringing TCPA cases can be. In fact, he has collected [redacted] in TCPA settlements.”
All mentions to the amount Konopca, who came to America from Poland in 1985, has received in TCPA settlements have been scrubbed from documents in the FDS Bank case. But Konopca testified that following a car accident in 1995, he began receiving Social Security Disability benefits – and that he no longer does.
Q. How do you pay your rent? Where does the money come from or – that is not fair. Your house note or cell bills, where does that money come from?
A. I was getting Social Security Disability.
Q. Okay. So you do get some form of money in disability payments?
A. I don’t think I am getting now.
Q. Okay. When was the last time you got a disability payment?
A. I don’t recall exactly.
Q. Do you know why you stopped getting those?
A. I report some money – I don’t recall exactly.
Q. So, I’ll cut to the chase. I know that there’s a number of these lawsuits, somewhere in the neighborhood of 29. Could it be that you got paid on some of those cases and they discontinued disability.
At a February hearing on whether Konopca manipulated the system to bring his lawsuits, and whether that means he has lost his standing to sue, FDS attorney Matthew Hendricks offered a clue into just how much Konopca has recovered.
Hendricks asked Konopca how long it would take for him to make $800,000 working construction. Konopca replied, “I’m not sure.”
Later, over Konopca’s attorney’s objection, Hendricks asked Konopca how much he has made filing TCPA lawsuits. He again pinpointed the $800,000 figure, wondering whether Konopca had made that much, or more.
“I don’t know, exactly,” Konopca said.
Konopca, who claims the car accident affected his memory and responded 108 times during his earlier deposition that he could not recall the answer to a question, said he remembered telling the company to stop calling him.
His lawsuit against FDS is one of only three that he filed that is still active. A federal judge in New Jersey is deciding whether he had standing to bring his lawsuit.
His attorney, Yitzchak Zelman of Marcus & Zelman, says FDS is classifying his client as a “conniving schemer” to avoid liability for its own actions. Konopca, he said, was “not motivated by greed” and that his litigious history does not cause him to lose legal standing.
Konopca testified in court that he attempted to register for do-not-call lists and has contacted the Long Branch, NJ, Police Department to complain of harassment, though none of the police reports apparently had a relationship to calls from FDS. Konopca also said he was not under the direction of any attorneys when he ported his landline to one of his cell phones.
But FDS says Konopca’s behavior, phone records and “disingenuous” testimony show that he intended to receive as many wrong calls as possible during the four-year statute of limitations for TCPA claims in order to recover as much as possible.
“Defendant FDS Bank was one of many entities to fall into his trap, a premeditated, profit-maximizing scheme to exploit a federal statute by manufacturing the very harm for which he now sues,” the company says.
At the hearing on standing, Hendricks presented a spreadsheet that showed Konopca used the cell phone in question to make an outgoing call in only 10 of 34 months between May 2011 and March 2014 – there were 24,949 incoming calls and 142 outgoing during that time.
Asked if he was short of money, Konopca simply answered “No.”
If FDS Bank is successful in its defense, it will come at a cost, though. Defendants pay approximately $100,000 in attorneys fees and other costs to defend themselves from the beginning of a lawsuit through a trial. And if the plaintiff is successful in earning class action status for the lawsuit, that figure can jump to approximately $500,000.
But most cases end in a quick settlement. Companies would rather pay off the plaintiff than pay attorneys to fight the claims at trial and risk an adverse jury verdict that could reach millions of dollars.
“Courts are hesitant to – there’s an ability if (defendants) think the claim is frivolous to move for sanctions or to have their attorneys fees paid – but courts are hesitant to grant that. It’s a lose-lose,” Klander said.
The hope in fighting TCPA claims is that it will deter plaintiffs attorneys from targeting the company in the future. But it’s unclear if that strategy works.
Plaintiffs aren’t taking a gamble when filing claims. Costs are paid by the attorneys representing them on a contingency fee.
“There’s not a lot of skin in the game for plaintiffs,” Klander said. “They can file lawsuits, and there’s not a lot of risk.”
One company recently brought into the world of TCPA litigation doesn’t like what it sees. BrandRep is taking its anger out on Beverly Hills, CA, attorney Todd Friedman, one of the most prolific lawsuit-filers in the country (a search of his name on the federal court database returns more than 2,400 results).
Some defendants say Friedman is also the leader of a lawsuit mill, with BrandRep characterizing it as “legalized extortion.” The case filed by Friedman and frequent plaintiff Jason Alan is only the second TCPA case the company has ever faced in federal court.
The company in August filed a counter-lawsuit against Alan and John Does soon to be revealed as Friedman and the attorneys at his firm. It alleges that Alan registered 30 phone numbers to various businesses in order to invite calls that would serve as the bases of TCPA lawsuits.
“Why does one person need nearly 30 telephone numbers?” attorneys for the company asked in September.
Alan’s alleged plan goes beyond simply collecting as many phone numbers as possible and hoping they once belonged to someone who would be contacted by debt collectors. He registered his numbers with various businesses and published them in the Yellow Pages and the Los Angeles Times classified section.
BrandRep says 22 of Alan’s phone numbers have been published as numbers for a group of plumbing businesses. This has the effect under the TCPA of providing worldwide written consent to be called, BrandRep claims.
Lead source companies confirmed that the numbers were for business purposes and have gone through a verification process, then sold the leads to companies like BrandRep, the company says. This is what led the company to call Alan.
“Companies such as BrandRep are then damaged by buying these bad leads because no true business advertised by Jason Alan exists,” the company wrote in its counter-claim. “However, a fabricated business exists in order to fabricate, create, and/or devise a new scheme to litigate against businesses who call his cell phone.”
At the time BrandRep submitted its filings, the company said Friedman had filed 390 TCPA lawsuits in Los Angeles federal court. Friedman doesn’t just represent TCPA clients – he’s also the plaintiff in a few cases.
Friedman, naturally, wasn’t pleased with the company’s claims. BrandRep also accused Friedman of sharing attorneys fees with his plaintiff.
“BrandRep is skating on thin ice, as evidenced by the razor thin allegations it lays forth in its absurd and implausible fraud claims…” he wrote in August. “Such bizarre allegations are more worthy of a suspense novel than they belong (in) a legitimate court of law.
“Even more shocking than these defamatory allegations is the fact that Defendant openly retaliated against Plaintiff by filing these counter-claims, in a brazen attempt to strong-arm Plaintiff and his counsel into dismissing this valid and important class action lawsuit.”
BrandRep likened the alleged scheme to the business practices of the Trevor Law Group, which was also based in Beverly Hills before it was accused of shakedown tactics. The firm used one plaintiff – the Consumer Enforcement Watch Corporation – to file lawsuits against companies listed on the Bureau of Automotive Repair as violators of certain laws.
BrandRep alleges Alan and Friedman have created lawsuits like an automobile factory would manufacture its own cars, using boilerplate complaints so they could file a large number of complaints easily.
Friedman called the company’s claims “frivolous” and that they show the company has no idea how to comply with the TCPA.
“This is precisely why this class action case is so important. Instead of acknowledging its own widespread privacy violations, BrandRep shockingly has attempted to cast blame on (Alan) and his counsel… in retaliation for bringing a meritorious and legitimate class action against this serial robocaller,” Friedman wrote.
Calls to the number are the subjects of other lawsuits. Alan claims Lighthouse Insurance Group called the number three times in April 2015 to sell insurance.
A different defendant that had a third party call the number said Alan asked for a $10,000 business loan during an eight-minute phone conversation. When it sent a follow-up text message, Alan filed a lawsuit.
Another Friedman client, Casey Blotzer, sued at least 30 companies from 2012-2015, including RCF, LLC.
“Plaintiffs’ own complaint and its paucity of factual allegations reveal this is nothing more than a lawyer-driven strike suit as this is the 25th time in the Central District of California alone the Law Offices of Todd M. Friedman and (Blotzer and co-plaintiff Edward Makaron) have worked together to fill the court’s docket by filing TCPA class actions since January 2013,” the company wrote in July 2015.
Friedman did not address the company’s claim, instead reminding a Los Angeles federal judge that RCF is accused of using an “intrusive and obnoxious robo-dialer” to cold-call thousands of consumers in violation of federal law.
Fellow target Dura Medic says it was tricked into calling Blotzer as it tried to collect on crutches provided to Jabaree Williams. On his hospital form, Williams had provided Blotzer’s Social Security number, though the last three pairs of numbers were transposed.
Williams listed Blotzer’s address and Blotzer’s phone number, which he also claimed was his own. A defendant in another Blotzer case said she allowed her husband, daughter and daughter’s boyfriend to use her phone number when entering into financial transactions and called her lawsuit frivolous.
“(I)t appears that (Blotzer) has engaged in a ‘set-up’ designed to ‘trick’ Dura Medic into calling her cellular telephone. Indeed, (Blotzer) is no stranger to TCPA litigation...” the company’s attorneys wrote in May 2013.
That case settled five months later, before Friedman responded to the claims. In 2015, after filing 30 lawsuits, Blotzer was deposed for the first time, and her testimony was used in Northstar Location Services’ motion for summary judgment. Three weeks later, the case settled.
Ammunition for defendants to fight claims brought by serial plaintiffs has come from the courts, not Congress. The U.S. Supreme Court’s 2016 ruling in Spokeo v. Robins required a plaintiff to show concrete harm in order to have standing to bring a lawsuit.
If plaintiffs have created a scheme to create these calls, then they can’t prove they’ve been harmed if they’re called, a Pennsylvania federal judge ruled in Melody Stoops’ case.
A Republican Congress and President give defendants the best chance at legislative reform, Klander said. But interpretation of the TCPA is left up to the Federal Communications Commission and changing the law to address the professionals it has created “doesn’t seem to be on the top of anyone’s mind,” she added.
“It’s a nonpartisan issue though – this is not the purpose of the statute, it’s not what it’s intended for,” Klander said.
“It creates a clog in the court system with cases that shouldn’t be there. There’s a time and a place for laws to protect consumers, but for them to seek to financially benefit – that’s not what the statute’s for.”
A House subcommittee on communications and technology held a September hearing called “Modernizing the Telephone Consumer Protection Act,” but no proposed legislation immediately followed. A bill introduced in January targets “transparency and efficiency” in the FCC.
The FCC took on the issue of reassigned numbers in a June 2015 ruling – if a company is trying to reach a customer who has jettisoned the phone number he or she has registered, the company will not face liability when it calls the new holder of the number the first time.
Any calls after that, though, are violations under the TCPA. Callers can check a database to determine whether a number has been reassigned, the FCC says, and they can include an interactive opt-out mechanism in their artificial or prerecorded voice calls, among other safeguards.
The FCC rejected arguments that callers should have a liability-free year after a number has been reassigned.
Defense attorneys complain that the TCPA has had a hard time adapting to the way technology has changed in its 26 years. Plaintiffs attorneys, though, are having no problems utilizing new tools.
Block Calls Get Cash is a free app developed for Lemberg Law. It creates legal documentation for telemarketing and debt collection calls that is evaluated by the firm. “Remember, there is zero out-of-pocket cost to you to bring a TCPA claim,” the website reminds.
The same idea is behind the Agruss Law Firm’s Stop Calls Get Cash – “You won’t pay us a penny. Download our free app to stop the harassment, get money, and you won’t pay us a penny for our services,” its site says.
Meanwhile, the FCC has struggled to process the concerns of defendants in the wireless age, the other side says.
“One of the, sort of, criticisms by the defense industry is that it hasn’t kept up with that,” Klander said. “The FCC has come down with guidance to try and assist interpreting the statute to be more modern by defining what an Automatic Dialing System is, in terms of what that means in modern tech, and by including a safe harbor provision if it’s a repurposed number – the debt collector gets a chance to stop calling.
“The guidance wasn’t clear, so it hasn’t done much to clarify the law, but that was the intention.”
Republican Sen. John Thune, of South Dakota, complained in a Commerce, Science and Transportation Committee hearing last year that the law is “showing its age.”
“(A)nd there are opportunities to build on its consumer benefits while also ensuring consumers fully benefit from modern communications,” he said.
Democrats in the committee were opposed to creating more relaxed standards for robocalls, especially Claire McCaskill of Missouri. If defendants have evidence they obtained consent prior to a call, they should push back against plaintiffs lawyers, she said.
“Take them to trial and kick them in the rear in the courtroom,” she said.
Plaintiffs filed nearly 5,000 TCPA lawsuits last year, and trials rarely occur. Every argument in a TCPA case is essentially made to broker a settlement.
Attacking the lawyers filing these claims seems to be a new strategy, and it is unclear whether it will be successful. The counter-claim against Friedman and his law office idles while a judge determines whether to impose a stay during a challenge to the FCC’s interpretation of an automatic telephone dialing system.
Friedman has challenged whether BrandRep can even pursue the strategy. “Defendant’s conspiratorial claims rest on the assumption that Plaintiff and his counsel are engaged in some sort of elaborate scheme to frivolously sue numerous companies and extort sums out of them in settlements,” he wrote.
“Even if this were true (it’s not, and it’s ridiculous) BrandRep has failed to demonstrate it has standing to bring these claims.”
Friedman says he hasn’t acquired any money or property from BrandRep, so the company can’t bring a claim for restitution.
Elsewhere, Konopca’s TCPA attorneys face a similar attack. Collection Solutions sued Zelman and his firm, as well as two other firms, in December, alleging they have conspired to develop professional plaintiffs for the purpose of bringing class actions under the Fair Debt Collection Practices Act.
Lawsuits under the FDCPA feature similar allegations and statutory penalties as TCPA cases. The lawsuit against Zelman alleges a “classic, Mafia-style racketeering enterprise” among the New Jersey firms Jones, Wolf & Kapasi, Marcus & Zelman and the Law Offices of Laura S. Mann.
This alleged enterprise involves using the FDCPA to file class actions lawsuits in which, Collection Solutions says, there is no chance that a class could ever be certified and no “actual damages” in controversy.
Still, defendants feel pressured to quickly agree to mid-five-figure settlements in what Collection Solutions calls a “litigation ploy to obtain attorneys fees” instead of a “proper attempt to posit and represent a putative class.”
When the Jones firm asked a New York federal judge to certify a class and approve a settlement with Northland Group, accused of sending a debt collection letter that violated the FDCPA to 100,000 individuals, the request was shot down.
Under the proposed settlement, the Jones firm would have received up to $35,000 and lead plaintiff Jeffrey Gallego would have earned $1,000. If there were 100,000 class members, each would have received 16.5 cents, Judge Alvin Hellerstein wrote. The U.S. Court of Appeals for the Second Circuit affirmed the denial of class certification in February 2016.
Collection Solutions is making several serious claims against the firms. In addition to racketeering, the firms allegedly committed fraud, negligence and legal malpractice. The company is seeking class action status on behalf of all the targets of the firms.
The Jones firm says the company’s allegations are “an affront to the legal profession” and contest the argument that there are no “actual damages” to the firm’s clients when they receive a debt collection letter or call in violation of the law.
“A plaintiff is not required to prove actual damages in order to recover statutory damages,” attorneys for the Jones firm wrote in a recent motion to dismiss the case. “Moreover, it is well-settled that litigation activities by attorneys, without more, cannot support the predicate acts required to state a civil RICO claim or otherwise subject attorneys to liability for pursuing a FDCPA claim on behalf of their clients.
“Indeed, exposing attorneys to the type of collateral attack leveled by Plaintiffs in this action would have a chilling effect on open access to courts and encourage the multiplication of such collateral, frivolous litigation.”
Success in these two racketeering claims would likely persuade other companies to consider doing the same. Chevron’s use of the RICO statute has, so far, been key in preventing it from having to pay a multibillion-dollar verdict in Ecuador. U.S. District Judge Lewis Kaplan found in 2014 that the $9.5 billion verdict obtained by plaintiffs attorney Steven Donziger was the product of racketeering, and the Second Circuit agreed in 2016. Donziger is still pursuing enforcement of the verdict.
Less famously, CSX Transportation accused a former Pittsburgh asbestos firm known as Peirce, Raimond & Coulter of conspiring with a West Virginia radiologist to file fabricated claims. CSX won more than $1 million after damages were tripled under the RICO statute.
And other asbestos defendants took note, especially Garlock Sealing Technologies. The company successfully argued during its bankruptcy proceeding that asbestos firms had been manipulating the system by blaming the company for their clients’ injuries in civil courts while doing the same to other companies in the asbestos trust system.
After receiving a landmark ruling in 2014 in North Carolina bankruptcy court that found verdicts and settlements were the products of fraud, the company filed racketeering lawsuits against a handful of law firms. Those suits were ultimately settled as part of Garlock’s bankruptcy trust agreement, but John Crane Inc. took up the baton by filing its own racketeering lawsuits against two of the firms. Those cases are pending.
So TCPA defendants will wait to see if going on the offensive makes a better defense than what has previously been tried.
And Melody Stoops’ name might live forever as the precedent used to dismiss lawsuits brought by plaintiffs who are in the business of filing TCPA lawsuits. Konopca’s attorneys, as they fight racketeering claims, are hoping the New Jersey federal court finds a distinction between Stoops’ actions and Konopca’s.
Konopca had no shoebox full of phones and has not admitted, as Stoops did, that it was his intent to amass TCPA claims. On the witness stand in February, he explained why he waited several years after the deluge of calls to file his 30 lawsuits.
“I don’t know the rules, regulations and laws,” he said.
Nicholas Malfitano contributed to this report. Reach editor John O'Brien at firstname.lastname@example.org.