Antitrust Law Daily Wrap Up, CONSUMER PROTECTION—N.D. Ill.: Preliminary injunction halts sales of Lifewatch medical alert devices, (Apr 5, 2016)

By Edward L. Puzzo, J.D.

The FTC and the State of Florida were entitled to a preliminary injunction against continued sales of Lifewatch medical alert devices because the telemarketers using false and misleading representations to sell the product were agents of Lifewatch, the federal district court in Chicago has ruled (Federal Trade Commission v. Lifewatch Inc., March 31, 2016, Feinerman, G.).

Lifewatch provides medical alert watches and pendants worn by the elderly and others to summon emergency medical assistance. Lifewatch does not have its own sales force and sells all of its products through various telemarketers.

In November 2014, one of Lifewatch’s telemarketing firms, Worldwide Info Services, agreed to stop making robocalls or engaging in other deceptive conduct to settle charges brought by the FTC and State of Florida against it. Subsequently, the FTC and Attorney General of the State of Florida brought claims against Lifewatch, alleging violations of the FTC Act, the Telemarketing Sales Rule (TSR), and Florida’s Deceptive and Unfair Trade Practices Act (FDUTPA). They charged that Lifewatch knew of, and was responsible for, the illegal activities in the Worldwide Info Services case and that Lifewatch simply continued its telemarketing campaign using a variety of other telemarketers after Worldwide was shut down. They sought a preliminary injunction against Lifewatch.

Lifewatch argued that they were independent of the telemarketing companies and could not be held responsible for their conduct. However, the plaintiffs contended that Lifewatch “employed a revolving door of outside telemarketers who have engaged in widespread abusive and deceptive sales tactics” and “structured its relationships with telemarketers in such a way as to insulate itself from liability.” The court stated that there was strong evidence to believe that Lifewatch knew that Worldwide and the other telemarketers it used were engaging in deceptive conduct and that Lifewatch knew of and approved the deceptive telemarketing scripts.

Quality control. Lifewatch argued that, even if they were liable for telemarketers’ past conduct, their new quality control program insured that current telemarketers were legally compliant, so a preliminary injunction was not necessary or warranted. They claimed that they had terminated 24 telemarketers due to compliance issues, but were unable to produce even one record of a telemarketer being terminated. Further, the FTC was able to identify seven telemarketers currently being used by Lifewatch and noted that numerous do-not-call violations were lodged against them.

Agency. A key issue was whether the telemarketers were agents of Lifewatch. If so, Lifewatch could be liable for their conduct. Lifewatch claimed that the telemarketers were employed on a non-exclusive basis and the telemarketers could sell the products of other medical alert companies. The FTC found only that the telemarketers may have worked for other companies selling debt-relief services, but they did not work for any other medical alert device companies. The FTC argued that Lifewatch and its telemarketers were in a de facto exclusive relationship.

The court found that there was direct evidence that some telemarketers sold medical alert devices only for Lifewatch. Several of the telemarketing companies arranged live transfers from consumers directly to Lifewatch’s verification department. Consumers were often told that their monthly charges would appear on their credit card bills as “Lifewatch.” Finally, Lifewatch was unable to produce any evidence of any other medical alert company that used their telemarketers.

There was also strong evidence that Lifewatch exercised control over its telemarketers, the court stated. There was evidence that Lifewatch approved the sales scripts used by the telemarketers, including instructions that they deny working for Lifewatch. Due to the characteristics of the sales and the extent of control Lifewatch exercised over the scripts used by the telemarketers, the court ruled that the telemarketers acted as agents of Lifewatch.

False statements. Lifewatch’s telemarketers regularly made misrepresentations to consumers that: the American Diabetes Association, the American Heart Association, the American Red Cross, the National Institute on Aging, and the American Association of Retired Persons had endorsed the device; the device was “free” even though consumers would have to return it if they cancelled; consumers would not be charged until they received and activated the device; the system had been recommended or paid for by a family member, friend, or doctor; and if consumers were not satisfied, the device could be returned at no cost. None of these statements were true, the court stated, and they were material to the buying decision. Since the telemarketers were found to be agents of Lifewatch, Lifewatch was liable for their false statements.

Preliminary injunction. The court found that plaintiffs had established a strong likelihood of success against Lifewatch and its chief executive officer as liable for violating the FTC Act, the TSR, and FDUTPA. On balance, the court continued, the equities weighed heavily in favor of injunctive relief. Lifewatch argued that, even if plaintiffs established a likelihood of success on the merits, a preliminary injunction could only be entered if there was a demonstration that the violations were likely to recur. The court stated that there was evidence of a disturbingly consistent pattern of unlawful behavior and noted that three of Lifewatch’s current telemarketers had nearly 17,000 do-not-call registry and robocall complaints against them. The plaintiffs adequately met their burden of a likelihood of future violations, and the court therefore granted plaintiffs’ motion for a preliminary injunction.

The case is Civil Action No. 1:15-cv-05781.

Attorneys: David A. O’Toole for the Federal Trade Commission. Kristen K. Johnson, Office of the Attorney General for the State of Florida, for the State of Florida. David Benjamin Goodman (Greensfelder, Hemker & Gale, PC) and Jason P. Sultzer (The Sultzer Law Group) for Lifewatch Inc.

Companies: Lifewatch Inc.

Cases: ConsumerProtection Privacy StateUnfairTradePractices FederalTradeCommissionNews IllinoisNews