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Corrupt JAMS Judges

JAMS Private Judges Accused of Corruption

Corrupt JAMS Judges

JAMS is a private arbitration firm based out of Irvine, California. John Trotter helped to start the company, and today he remains one of the principals and a profit-earning shareholder. Trotter and other JAMS private judges have been accused of corruption for allegedly helping attorneys commit fraud and steal millions of dollars from clients. The absence of government regulation of the private arbitration industry has made it possible for unethical lawyers to take advantage of their clients and for big companies to abuse the arbitration system.

For more information about the corruption allegations against the JAMS private judges, keep reading this blog.

No Government Regulation of JAMS Private Judges

JAMS typically uses retired judges to serve as arbitrators and mediators in legal disputes, including business conflicts, contract disputes, intellectual property claims, personal injury claims, and civil rights actions. The former judges who administer cases are known as “JAMS Neutrals,” which is ironic because they are often anything but neutral.

A major problem with the JAMS private arbitration system is that the cases are decided behind closed doors and with little or no scrutiny. For instance, private judges are not subject to regulation by any government agency. The State Bar of California highlighted the issue by declaring in a statement that there is “no overarching regulatory framework for private judging or mediation.” California Supreme Court Chief Justice Tani Cantil Sakauye recently noted that there needs to be greater government oversight of the private judging industry so that litigants are protected.

JAMS Founder John Trotter Accused of Helping Disgraced Lawyer Swindle Clients

John K. Trotter was a retired California Appellate Justice with an unimpeachable record. Trotter began his legal career as a plaintiffs’ attorney in Orange County, and then moved on to the L.A. County Superior Court bench and later to the California Appellate Court bench. He eventually helped to start JAMS. At one point, the National Law Journal called Trotter “the most influential attorney” for Alternative Dispute Resolution (ADR) in the entire United States. Now, there are numerous questions being asked about Trotter’s role with JAMS, including whether he helped others use the private arbitration system to defraud participants.

John Trotter & Tom Girardi

John Trotter and JAMS have come under scrutiny in recent years for conflicts of interest in cases involving regular JAMS clients. In one extreme example, JAMS allegedly helped California attorney Tom Girardi steal millions from his clients. During his illustrious legal career, Girardi earned a reputation as a dogged defender of people who had been victimized by large corporations. In litigation involving aerospace company Lockheed Martin, he represented hundreds of workers who had contracted cancer and other illnesses on the job. After securing a massive settlement on behalf of his clients, Girardi enlisted multiple JAMS judges to fairly distribute the funds. The judges were tasked with determining exactly how much money each worker would get based on their specific injuries.

John Trotter served as the “special referee” who oversaw the distribution of settlement money to Girardi’s clients in another major case against a drug company that sold the diabetes medication Rezulin. The plaintiff alleged that the medication caused cancer, liver failure, and other maladies. After helping to secure a $66-million settlement, Girardi used JAMS mediator Trotter to oversee the distribution of funds. Instead of distributing the funds to the victims, however, Girardi diverted the money to his personal accounts. Moreover, while this fraud was happening, Trotter and JAMS did nothing to stop it.

In addition to having the final say on how funds were distributed in Girardi’s lawsuit settlements, Trotter also oversaw a $13-billion trust meant for the victims of Northern California wildfires. Any withdrawals from the settlement fund were supposed to reimburse the attorneys for legal costs related to the case, not for personal expenses. This is where it became apparent that Girardi’s relationship with JAMS judge Trotter was problematic. While Trotter approved millions of dollars in withdrawals for Girardi, he approved just $600,000 in withdrawals by another law firm that worked on the case. Moreover, this wasn’t the only time that a JAMS private judge has been accused of showing favoritism to one party over another.

JAMS Judge Jack Tenner Allegedly Signed False Documents to Defraud Litigants

One of the JAMS judges in the Lockheed Martin case was Jack Tenner, a respected jurist who spent a decade serving on the Los Angeles County Superior Court bench. As an attorney, Tenner had fought against racial discrimination in the city. While serving as a mediator in the Lockheed litigation, Tenner allegedly helped Tom Girardi cheat clients by signing false documents on L.A. County Superior Court letterhead. Those documents directed Comerica Bank to release millions of dollars to Girardi. Later, when Girardi came under fire from clients who questioned what he was doing with their money, Tenner explicitly supported the attorney. In a letter to the plaintiffs, Tenner said that he had personally approved all settlements and legal fees.

JAMS Judge Edward Panelli Accused of Corruption

Another JAMS judge accused of corruption is Edward A. Panelli, a retired California Supreme Court Justice. Panelli socialized with Tom Girardi even as he worked on JAMS cases for the dishonest lawyer. Panelli was chosen by Girardi to oversee the settlement distribution in a high-profile case involving a menopause drug called Prempro that allegedly caused cancer in elderly women. When many of the plaintiffs started asking questions about why they had yet to receive their portion of the $17 million settlement, Girardi said that he withheld the funds because of an order issued by Panelli. Girardi then refused to turn over financial records, as was required under California law.

Girardi’s claim that Panelli was forcing him to withhold funds from the cancer survivors turned out to be a lie. In fact, Panelli had no legal authority over the case because no court had ever appointed him to oversee the settlement. Moreover, Panelli had only spent around 20 hours working on the case. (For which JAMS billed the law firm $78,000, with another $50,000 payment being made directly to Panelli. This amounted to a $5,000 per hour pay rate.) To make matters worse, Panelli – even in his limited capacity – never instructed Girardi to hold back the money. A California magistrate judge later evaluated Panelli’s actions and concluded that the JAMS judge was culpable in the fraud because he had “rubber-stamped” all of the unlawful payouts to Girardi.

In the Prempro case, Girardi even tried to use Panelli to stop a lawsuit filed by the plaintiffs. When the clients sued Girardi, he argued that the case should be transferred from federal court to a private arbitration with Panelli making the final ruling. Not only did Girardi fight back against subpoenas and court orders, but so too did JAMS. After Girardi’s clients filed lawsuits to ensure transparency and so that they could finally get their settlement funds, JAMS spent months pushing back in court.

Other JAMS Judges, Arbitrators, and Mediators Allegedly Helped Tom Girardi Steal Settlement Funds

John Trotter, Jack Tenner, and Edward Panelli were not the only JAMS judges accused of helping Tom Girardi scam his clients. One former judge allegedly signed a fake court order that allowed Girardi to secure $3.5 million from a settlement fund meant for workers of Lockheed Martin who had been poisoned at the company’s Burbank facility. Another former state Supreme Court justice employed by JAMS allegedly assisted Girardi as he stole more than $1 million from cancer survivors.

Contact the California Arbitration Lawyers at Tauler Smith LLP

Tauler Smith LLP is a law firm with experience handling legal disputes that require mediation and arbitration in California, Texas, and New York. Our experienced arbitration lawyers also represent small business owners in class action lawsuits against JAMS. If your case is being administered by JAMS, it is very important that you contact one of our attorneys immediately. Call us or send an email.

Tom Girardi & JAMS Defraud Clients

How Tom Girardi Used JAMS to Defraud Clients

Tom Girardi & JAMS Defraud Clients

Tom Girardi has been accused of using JAMS to defraud clients. Girardi was a highly respected California attorney who spent decades representing plaintiffs in class action lawsuits against corporations. JAMS, previously known as Judicial Arbitration and Mediation Services, is the largest private mediation and arbitration company in the world with more than 400 former judges and legal professionals serving as arbitrators and mediators in California, Texas, New York, and other states. JAMS has come under intense scrutiny from arbitration lawyers and others in the legal community as several of the company’s judges were accused of unethical conduct and corruption.

To learn more about the fraud allegations against Tom Girardi and the JAMS private judges, keep reading this blog.

Tom Girardi Used to Be a Respected California Attorney

Tom Girardi’s abuse of the private judging system lasted decades and affected thousands of clients. Earlier in his legal career, Girardi was one of the lawyers responsible for the case that later inspired the acclaimed movie Erin Brockovich. As an attorney for residents of Hinkley who got cancer from local drinking water, Girardi helped to secure a $333-million settlement.

Girardi’s law firm eventually collapsed as more and more evidence came to light that he had swindled his clients out of millions of dollars. In 2022, Girardi lost his license to practice law in California and his law firm filed for bankruptcy.

Tom Girardi Stole Money from Clients

When a corporation gets sued in a contract dispute, employment claim, consumer action, or some other type of legal dispute, they often rely on JAMS to make sure that the case is handled behind closed doors with an arbitrator or mediator instead of a judge. Additionally, it is not uncommon for retired judges with JAMS to be asked to administer large settlements in mass tort cases. In Girardi’s cases, the JAMS judges failed to notice and/or take action when Girardi stole millions from the parties. This is just one of several instances of JAMS private judges with a huge conflict of interest in the cases they oversee.

A forensic accountant who examined law firm finances determined that Girardi was using his clients’ settlements “like a slush fund.” An audit of Girardi’s financial accounts reportedly showed that he had stolen money from his clients and given it to companies and individuals who had no connection to any of his cases. Even when Girardi claimed that the money was spent on “expert witnesses,” the withdrawals were suspicious. For example, one withdrawal of $450,000 for an expert witness in a case against Lockheed Martin was “confidentially” approved by a JAMS judge.

Erika Jayne

At the time of his deceit involving JAMS, Tom Girardi was married to Erika Jayne, who is best known as one of the stars of the reality show “The Real Housewives of Beverly Hills.” According to one federal judge, Girardi committed multiple crimes when he used his clients’ settlement funds to cover personal expenses for himself and his wife. For example, Bankruptcy Court records indicated that Girardi gave $750,000 to M.M. Jewelers for the purchase of a pair of diamond earrings for his reality TV star wife. He did this shortly after gaining access to the settlement funds, and he reportedly classified the purchase as a case expense. A federal bankruptcy judge, Barry Russell, later said that Girardi’s use of client money to buy expensive jewelry “clearly was a crime” along the lines of theft or embezzlement.

At other times, Girardi took from his clients’ settlement funds to pay himself. Records showed that he would often write several million-dollar checks to his firm in the same week. In one case, Girardi withdrew more than $15 million. Girardi claimed that this money was for his “costs” of representing the plaintiffs, but the amounts and pattern of the withdrawals from the settlement suggested that it was fraud.

JAMS Private Judges Accused of Helping Tom Girardi Cheat Clients

Tom Girardi was able to get away with his deceit because he used private judges affiliated with JAMS. The JAMS private judges have wide latitude and wield substantial power in legal disputes precisely because there is basically zero government oversight of the private arbitration industry. California Supreme Court Chief Justice Tani Cantil-Sakauye reacted to the revelations about Girardi’s conduct by calling it “shocking.” Cantil-Sakauye commented further on JAMS by observing that there are currently not enough safeguards  to ensure that private judges remain fair and impartial. For instance, the retired judges are not subject to supervision by the Commission on Judicial Performance (CJP), an independent California agency tasked with investigating complaints of judicial misconduct.

Many of the JAMS private judges had impeccable reputations prior to joining the arbitration company, which allowed Tom Girardi to establish credibility even as he misappropriated money from his clients. He later used the perceived reputations of the “JAMS Neutrals” to deflect questions about his misconduct. When Girardi’s clients began to suspect that something was amiss with their settlement funds, Girardi actually referenced the private judges’ impressive credentials to justify his unethical actions. According to a Los Angeles Times investigation of Girardi’s fraud, the JAMS arbitrators “occupy a secretive corner of the legal world.” The private arbitration industry is almost entirely unregulated, which exposes parties to significant risks.

JAMS Profited from Tom Girardi’s Lawsuits

Private arbitration is a lucrative industry, and there can be plenty of financial incentives for the JAMS judges, arbitrators, and mediators to rule a certain way. In the aftermath of the revelations about the massive scale of Tom Girardi’s fraud and theft, many questions have been raised about whether the legal system has enough safeguards to protect litigants against predatory attorneys and unethical arbitrators when the JAMS Alternative Dispute Resolution (ADR) service is used. That’s because there can be a conflict of interest for JAMS arbitrators and mediators. This was especially true in Girardi’s cases, which involved Girardi paying the JAMS private judges up to $1,500 an hour.

In one of Girardi’s biggest lawsuits, he represented patients who claimed that a large drug company’s diabetes medication, Rezulin, had caused serious health problems, including liver failure. That case resulted in a $66 million settlement on behalf of the plaintiffs, many of whom desperately needed the money to cover their medical expenses. Girardi convinced the victims to allow a JAMS mediator to oversee the settlement and to supposedly ensure that the funds were distributed in the right amounts and to the right individuals. For this service, JAMS received a $500,000 cut of the proceeds.

What Did JAMS Judges Do to Earn Their Fees?

JAMS also received a $500,000 fee for handling the Lockheed Martin settlement that Girardi secured, an enormous figure that was kept secret from clients. When a bankruptcy court requested a full accounting of exactly what John Trotter and the other JAMS judges had done to earn that fee, the arbitration company refused to provide invoices.

Girardi eventually filed for bankruptcy, which has made it even more difficult for those he had deceived and stolen from to get the money they were owed. Incredibly, one of the companies participating in the bankruptcy proceedings is JAMS, which requested a sum of nearly $10,000 for “an unpaid bill.”

Conflicts of Interest When JAMS Oversees Legal Disputes

In addition to the obvious conflict of interest that exists anytime a company pays a JAMS judge to arbitrate a dispute or oversee a settlement, there were other less obvious conflicts with Tom Girardi. For instance, Girardi reportedly arranged for several JAMS judges to go on a Mediterranean cruise after they ruled in his cases. Although Edward Panelli later claimed that his attendance at the event did not affect his “impartiality as a jurist or neutral,” his actions as a JAMS private judge suggested otherwise.

Carousel Lawsuit

In one high-profile case, Girardi represented 1,500 residents of Carousel, a housing development located just outside Los Angeles. The clients were suing an oil company and a real estate developer allegedly responsible for polluted soil that caused widespread cancer and other health issues. After reaching a settlement with the defendants, Girardi specifically requested that JAMS and John Trotter serve as special master to determine how the funds should be divided among the plaintiffs.

After more than two years, many of the clients still had not been paid. When one of the clients requested information about Girardi’s accounting practices, Girardi once again placed the blame on Trotter and JAMS. When that same client sued Girardi, the attorney insisted that the lawsuit be moved from a courtroom into private arbitration. As usual, Girardi wanted the arbitration handled by JAMS. The perception was likely that a JAMS private judge would show favoritism and rule in Girardi’s favor.

Contact the California Arbitration Lawyers at Tauler Smith LLP

Are you one of the parties in an arbitration being administered by JAMS? Is your case being overseen by a JAMS private judge? The California and Texas arbitration lawyers at Tauler Smith LLP can help you. Our legal team represents small business owners and individuals in arbitration, mediation, and other types of alternative dispute resolution. We also handle settlement negotiations. Call or email us to schedule a free consultation.

Federal Trial in St. Louis Missouri

Tauler Smith Wins Federal Bench Trial for Insurance Consumer

Federal Trial in St. Louis Missouri

The insurance claim lawyers at Tauler Smith LLP recently won a major trial on behalf of a food & beverage manufacturer in a federal court in St. Louis, Missouri. The litigation began in a California courtroom with a business dispute over the manufacture of protein bars. Later, several of the parties in that case were also involved in insurance litigation heard by a U.S. District Court. Now, the judge has issued a ruling, with Tauler Smith winning a federal bench trial for their insurance consumer client.

The federal court’s decision can be read here. To learn more about Tauler Smith’s victory in the insurance claim lawsuit, keep reading this blog.

California Nutritional Supplement Lawyers Represent Food Manufacturer in Defective Protein Bar Lawsuit

One of the defendants in the nutritional supplement lawsuit was Eagle Mist Corporation, which does business as Osagai International and which is run by Kevin Laughlin. Eagle Mist is a company that invents and formulates functional foods, such as protein shakes and nutrition bars. They also provide other manufacturers with the technological ingredients they need for foods, beverages, and personal care products.

Nutritional Supplement Agreement

Eagle Mist entered into an agreement to supply ingredients to Sapphire Bakery, which would use the ingredients to reformulate and manufacture 13 types of nutritional protein bars. Sapphire then supplied the nutrition bars to Defense Nutrition, which finally supplied the bars to Julian Bakery.

Nutritional Supplement Dispute

Julian Bakery, the company that ultimately received delivery of the protein bars, alleged that the bars were defective due to the other companies modifying the formula of the bars, in addition to using certain processing agents during manufacturing. Julian Bakery sued Eagle Mist and Sapphire for breach of contract, damages related to defective goods, negligence, breach of warranty, unfair business practices, fraud, negligent misrepresentation, and promissory estoppel.

The lawsuit was filed in the Los Angeles County Superior Court, and the complex multi-party litigation included cross-complaints between seven (7) parties that all had a connection to the business dispute. Los Angeles nutritional supplement attorney Robert Tauler represented Eagle Mist in the California litigation, and successfully defeated three successive motions for summary adjudication in the case.

Insurance Coverage Dispute in California Food Supplement Case

Before starting production on the nutrition bars that were to eventually be delivered to Julian Bakery, Eagle Mist needed to get insurance coverage. At the time, Sapphire Bakery had a commercial general liability policy of insurance issued by Ohio Security Insurance Company. That policy called for Ohio Security to cover any legal expenses that Sapphire might one day become obligated to pay as damages in a lawsuit if sued. Since Sapphire’s insurance policy with Ohio Security allowed for the “named insured” to extend coverage to another company as an “additional insured,” Sapphire asked Ohio Security’s insurance broker to include Eagle Mist in its policy. The insurance broker then provided a certificate of liability insurance to Eagle Mist.

The insurance coverage became extremely important later when there was a business dispute over the manufacture of the nutrition bars. Sapphire Bakery’s insurance policy with Ohio Security meant that the insurance company would pay for Sapphire’s legal defense in the nutritional supplement litigation. The insurance company also agreed to pay for Eagle Mist’s legal defense in the civil suit because Eagle Mist was on the policy as an additional insured.

Texas Consumer Protection Attorney Camrie Ventry Wins Insurance Claim Litigation in U.S. District Court

The plaintiffs in the insurance claim litigation were Ohio Security Insurance Company and Ohio Casualty Insurance Company. The parent company of Ohio Security and Casualty is Liberty Mutual Insurance. Ohio Security and Liberty Mutual paid for Eagle Mist’s legal defense in the California nutritional supplement case. Later, the insurance companies argued at trial that Eagle Mist should be ordered to pay back their legal defense costs because they were never supposed to be covered under the insurance policy.

Dallas consumer protection attorney Camrie Ventry of Tauler Smith LLP represented Eagle Mist in the insurance coverage lawsuit. The case was heard by the United States District Court for the Eastern District of Missouri, with the court holding a one-day bench trial and issuing a memorandum opinion on December 16, 2022. The court was tasked with determining whether Ohio Security Insurance Company did, in fact, have a legal obligation to defend Eagle Mist under the terms of its insurance policy, as well as whether Ohio Security was entitled to reimbursement of the legal defense costs that they provided to Eagle Mist.

Federal Court Rules That Insurance Company Unreasonably Delayed Its Coverage Decision

Ohio Security’s argument at trial was that because Eagle Mist was never covered under the insurance policy, the insurance provider was entitled to recover all expenses it paid for Eagle Mist’s legal defense. The U.S. District Court rejected this argument and found that, under the circumstances, it was justified for Eagle Mist to retain the benefits of the legal expenses paid by the insurance company. Accordingly, the court entered judgment in favor of the Tauler Smith LLP client.

The court cited four main reasons for its ruling in favor of Eagle Mist and against the insurance company:

  1. Ohio Security voluntarily assumed the defense of Eagle Mist in the nutritional supplement lawsuit.
  2. Ohio Security had ongoing knowledge that Eagle Mist was not actually covered under the insurance policy.
  3. Ohio Security continuously paid the defense costs of Eagle Mist in the nutritional supplement lawsuit.
  4. Ohio Security unreasonably delayed for three (3) years before finally notifying Eagle Mist that they were not covered under the policy.

#1 – Insurance Company Agreed to Extend Policy Benefits

One of the benefits of Ohio Security’s insurance policy with Sapphire Bakery (and with Eagle Mist) was that Ohio Security agreed to pay all legal defense costs if there was a lawsuit brought by a third party.

As soon as the defective protein bars lawsuit was filed, Kevin Laughlin and Eagle Mist contacted Ohio Security Insurance Company to confirm that Eagle Mist was covered under the insurance policy. The U.S. District Court said that Eagle Mist had a good faith basis to believe that they were covered under the insurance policy. Kevin Laughlin communicated both verbally and in writing with Ohio Security to confirm that Eagle Mist was an additional insured under the policy, and he did the same with Sapphire Bakery. Moreover, the court found, Laughlin reasonably believed that the Certificate of Insurance issued by the insurance broker explicitly conferred coverage.

#2 – Insurance Company Knew the Policy Was Invalid

Shortly after the supplement civil suit was filed, the insurance company conducted its own investigation to verify whether Eagle Mist qualified as an additional insured under the insurance policy. During this investigation, Eagle Mist provided Ohio Security with email communications, purchase orders, and contracts.

According to the U.S. District Court, Ohio Security knew for several years that Eagle Mist was not actually covered under the insurance policy. But rather than acting quickly to provide notice, the insurance company delayed for three (3) years before finally informing Eagle Mist at a time when it would be most inconvenient for the food & beverage ingredient supplier.

#3 – Insurance Company Continued to Pay Legal Bills

After the investigation, Ohio Security still agreed to cover Eagle Mist’s legal fees for the nutritional supplement lawsuit. For the next three (3) years, the insurance company paid all of Eagle Mist’s legal bills in the case. During this time, Ohio Security made no statements to indicate that Eagle Mist was not covered under the insurance policy, nor did they provide notice to Eagle Mist that the food and beverage company was not covered under the insurance policy. It was only when the lawsuit was set to start trial that Ohio Security suddenly revealed that Eagle Mist never should have been covered under the policy. Ohio Security withdrew their defense, stopped paying Eagle Mist’s legal bills, and demanded that Eagle Mist repay nearly $1 million in defense costs already paid.

#4 – Insurance Company Delayed Its Coverage Decision

Although Ohio Security assumed the defense of Eagle Mist in the case and agreed to cover all legal costs, the insurance company argued that they had explicitly reserved the right to opt out of the arrangement. The court found this argument unpersuasive because the insurance company “essentially buried their head in the sand,” only to later “ask the Court to claw back funds they voluntarily paid over a span of years without producing any evidence that Defendants acted unjustly or that a three-year delay in asserting their coverage position was justified or reasonable.”

The insurance company knew at the start of the California nutritional supplement litigation that Eagle Mist was not supposed to be covered under the policy, but nevertheless continued to pay all legal costs while telling Eagle Mist that there were no issues. Then, after delaying for several years, the insurance company suddenly informed Eagle Mist that they were not covered under the policy. This sudden change in coverage came just one month before trial in the supplement lawsuit, when Eagle Mist would be most vulnerable.

The insurance company tried to justify its decision to withdraw coverage by pointing to a single, vague sentence about “reservation of rights” buried in a 25-page boilerplate letter. The court rejected this argument by noting that “a single mention in a twenty-five-plus-page boilerplate reservation of rights letter, without any further action by Plaintiffs for three years, was insufficient to put Defendants on notice they might not be covered under the Policy.”

Tauler Smith Insurance Litigation Team Represents Businesses & Consumers in California, Texas, and Throughout the U.S.

The Tauler Smith consumer protection & insurance litigation team is proud of its strong track record in insurance claim cases in state courts across California and Texas, as well as in federal courtrooms. Insurance companies must be held accountable when they attempt to take advantage of customers, which is why Camrie Ventry and our Texas litigators always fight so hard for clients in these cases.

After successfully defending Eagle Mist against Ohio Security and Liberty Mutual, Ms. Ventry called it “a great victory” for businesses and individuals who are unfairly forced to pursue the insurance benefits to which they are entitled. Ms. Ventry added, “This ruling shows that insurance companies cannot overreach by demanding to recover an exorbitant amount of money from the very people they are charged with protecting. The court got it right.”

Contact the California and Texas Insurance Claim Lawyers at Tauler Smith LLP

The attorneys at Tauler Smith LLP represent businesses and individuals in a range of practice areas, including dietary supplement lawsuits, consumer protection litigation, and insurance litigation. Call us today or send an email to schedule a free initial consultation about your case.

Texas Telephone Solicitation Act

Texas Telephone Solicitation Act

Texas Telephone Solicitation Act

Telemarketing is an important tool used by many businesses to generate revenues, but it can also expose consumers to misinformation and fraud. That’s why Texas lawmakers passed important consumer protection laws that explicitly prohibit false, misleading, or deceptive practices. One such law is the Texas Telephone Solicitation Act, which regulates attempts by companies to sell or rent property, products, or services to consumers via telephone solicitation. The law is part of the Texas Business and Commerce Code, which protects consumers against a wide range of fraudulent business practices. The section of the statute governing telephone solicitations is meant to protect purchasers against false, misleading, or deceptive practices on sales calls. When a company makes a sales call, they must abide by the guidelines set forth in the statute. This includes filing a registration statement that contains relevant sales information, as well as making required disclosures to purchasers during telephone solicitations about both the company and the items for sale.

To learn more about the Texas Telephone Solicitation Act and the protections it affords consumers, keep reading this blog.

What Is the Texas Telephone Solicitation Act?

The Telephone Solicitation Act is codified in Texas Bus. & Com. Code, Title 10, Subtitle A, Chapter 302. The statute defines a “telephone solicitation” as a telephone call that is initiated to induce someone to buy, rent, claim, or receive an item. Importantly, the Texas law also covers phone calls made by consumers in response to a solicitation that was sent electronically (e.g., an email) or physically (e.g., a letter in the mail). Moreover, the law applies to calls placed manually, calls initiated by an automatic dialing machine, and calls that involve a recorded messaging device.

Telephone Solicitation Registration Requirements in Texas

The requirements of the Texas Telephone Solicitation Act are strictly enforced, with any violation by a telemarketer possibly triggering both civil and criminal penalties. The statute imposes requirements on companies both during the registration process and when the phone solicitation is made.

Seller Disclosures at Registration

Before making a telephone solicitation, sellers must first fill out a Telephone Solicitation Registration Statement and obtain a registration certificate for their business. Moreover, the registration statement must list each telephone number that will be used by the seller, as well as the specific locations from which any phone solicitations will be made. Other sales information that must be disclosed in the statement includes a copy of all telephone solicitation scripts and other material provided to salespersons, a copy of any written material that might be sent to consumers, and the contact information for outside product suppliers.

The registration statement is filed with the Texas Secretary of State, and it must identify each principal of the seller: owners, executive officers, general partners, trustees, etc. The registration certificate is valid for one year, and it must be renewed annually. Additionally, for every three-month period after the certificate was issued, the business must provide information for each salesperson who solicited on behalf of the business.

One of the most important requirements imposed by the Telephone Solicitation Act is the security requirement: sellers must submit a security deposit in the amount of $10,000. The deposit is meant to ensure that the seller complies with the law. When a seller is found to have violated the statute, the deposit may be used as payment for any penalties imposed by the court.

Seller Disclosures on the Call

In addition to requiring disclosures in the registration statement filed with the state, the Texas Telephone Solicitation Act also compels companies to make certain disclosures to consumers before a purchase is made through a phone solicitation. For example, prior to the finalization of any transaction on a sales call, the seller must provide the consumer with the street address of the building or office from which the call is being made. Additionally, if the seller tells the consumer that the item is being offered at a reduced price, the seller must provide the name of the manufacturer. Along those same lines, if the seller represents that one of the items is a gift or prize, then they also need to clearly state the contest rules.

The Telephone Solicitation Act also places a significant limitation on exactly what telemarketers are allowed to say during a sales call: the caller is not allowed to state or otherwise reference their supposed compliance with the statute. The idea behind this restriction is that sellers should not be able to discourage consumers from investigating on their own to determine whether a seller violated the law by making a deceptive sales call.

How to File a Civil Lawsuit Against a Telemarketer in Texas

Consumers who are defrauded, scammed, or otherwise injured by a telemarketer’s violation of the Telephone Solicitation Act can take legal action. Experienced Texas consumer fraud lawyers know just how strong the statute’s protections are, and they also know how to navigate the legal system to hold businesses accountable for violating the law.

One option available to consumers is to file a civil suit against the company or person who made the sales call. Any individual who suffered economic losses due to a seller breaching an agreement that was entered into during a telephone solicitation may be eligible to recover financial compensation against the seller’s security deposit with the state. It might also be possible for consumers to bring a claim under the Deceptive Trade Practices Act (DTPA) because a violation of the Telephone Solicitation Act qualifies as a violation of the DTPA. Additionally, a person bringing a civil action under either statute may be entitled to compensation for reasonable attorney’s fees and related legal expenses.

Burden of Proof

The protections set forth in the Texas Telephone Solicitation Act are far-reaching and tend to be interpreted broadly by judges. In fact, the statute even stipulates that the burden of proof in these cases will be on the defendant accused of violating the law. For example, in civil proceedings where the defendant argues that they are exempt from the law, the burden of proving the exemption will fall on the defendant. Similarly, a company or individual who faces criminal charges for violating the telephone solicitation law is required to produce evidence supporting their defense that they are exempt from the statute.

Which Sellers Are Exempt from the Texas Telephone Solicitation Act?

Some sellers accused of violating the Telephone Solicitation Act may be able to argue that the consumer protection law does not apply to them, but only in certain situations. Those who may be exempt from the statute include agents of publicly traded companies, sellers for banks or other supervised financial institutions, anyone associated with companies regulated by the Public Utility Commission of Texas, individuals who are already subject to regulation by the Federal Communications Commission (FCC), and educational institutions or nonprofit organizations that are exempt from taxation by the IRS. In many instances, exemption from the Telephone Solicitation Act is possible because another law or regulation applies instead and takes precedence.

The Texas Business and Commerce Code also includes explicit exemptions from the phone solicitation law for the following categories of sellers:

  • Anyone selling a subscription to a newspaper, magazine, or cable television service.
  • Anyone selling items to a consumer who has consented in advance to receiving periodic deliveries of those items.
  • Individuals or companies delivering catalogs that are distributed in at least one other state and that have a circulation of at least 250,000 customers.
  • Anyone selling items to a business that plans to resell the items.
  • Persons or companies attempting to sell food products.
  • Persons calling about maintenance or repair of an item that was previously purchased from them.
  • Businesses soliciting a former or current customer.

Criminal and Civil Penalties Imposed by the Texas Telephone Solicitation Act

Every individual violation of a provision in the Texas Telephone Solicitation Act is considered a separate offense, which means that the penalties can add up very quickly even when the offenses stem from a single sales call. Beyond that, there can be both civil and criminal penalties imposed against sellers who violate the statute.

Criminal Penalties

Violations that may be charged as criminal offenses include failing to obtain the necessary registration certificate before making a phone solicitation, failing to make necessary disclosures to the consumer before finalizing a sale, and mentioning compliance with the statute on the sales call. Each of these offenses can be charged as a class A misdemeanor, which carries a possible fine of $4,000 and a sentence of up to one year in jail. Moreover, these criminal penalties can be imposed against both the business owner and the salesperson or telemarketer who made the call. Additionally, the defendant in a criminal action may be ordered to pay the costs of prosecuting the case, including the attorney general’s expenses for the investigation, depositions, witnesses, and related attorney’s fees.

Civil Penalties

Sellers who violate a provision in the Texas Telephone Solicitation Act are also subject to civil penalties. These penalties can be substantial, with the statute calling for a fine of up to $5,000 for each violation. The penalties become even harsher when the seller violates an injunction brought by the secretary of state for a previous offense: a $25,000 fine for each subsequent violation, plus an additional $50,000 fine for all violations after the injunction was issued.

Contact the Texas Consumer Protection Lawyers at Tauler Smith LLP

Did you receive a telemarketing call from a person who failed to identify themselves, their business, or their reason for calling? Did the telemarketer’s attempts to sell you something feel like part of a scam? The Texas Telephone Solicitation Act gives consumers the ability to take legal action by notifying the secretary of state and possibly filing a civil suit, and the Texas consumer protection attorneys at Tauler Smith LLP can help you.

Call 972-920-6040 or email us today to discuss your case.

Texas Deceptive Trade Practices Act

Texas Deceptive Trade Practices Act

Texas Deceptive Trade Practices Act

Texas has strong consumer protection laws that safeguard residents against scams, deceptive sales calls, and other illegal practices. Chief among these laws is the Texas Deceptive Trade Practices Act (DTPA), which gives plaintiffs the ability to recover additional damages when they have been defrauded by false, misleading, or deceptive business practices. When state lawmakers passed the DTPA, the intent behind the bill was that companies should think twice before committing any kind of fraud against consumers. Texas consumer protection lawyers know just how effective the DTPA can be at holding fraudsters accountable for their unethical actions.

To learn more about the Texas Deceptive Trade Practices Act, keep reading this blog.

What Is the Texas Deceptive Trade Practices Act?

The Texas Deceptive Trade Practices Act, or DTPA, is a consumer protection law that prohibits businesses from making false or misleading statements in advertisements, contracts, and any transactions involving consumers. The DTPA gives consumers a cause of action for a civil suit when they have been misled by a business. The text of the statute casts a wide net by explicitly forbidding businesses from knowingly deceiving customers in advertisements, marketing materials, and sales transactions. This includes “false, misleading, and deceptive business practices, unconscionable actions, and breaches of warranty.”

The DTPA applies to several different types of consumer transactions, including the sale or lease of commercial goods, products, services, or property. The Texas DTPA law has a lengthy list of examples of deceptive business acts, including the following:

  • Passing off goods or services as those of another.
  • Confusing consumers about the true source of goods or services.
  • Lying about the certification status of a product or service.
  • Misrepresenting whether a product or service has received sponsorship or approval.
  • Lying about the geographic origin of goods or services.
  • Misrepresenting the ingredients of goods such as food products or nutritional supplements.
  • Selling an item as “new” when the product is used or reconditioned.
  • Lying about the quality or grade of a product.
  • Using misleading statements to disparage a competitor’s goods or services.
  • Advertising items as available for sale when they are unavailable or there is only a limited supply.
  • Lying about the reasons for a price reduction.
  • Misrepresenting the need for additional parts, replacement, or repairs.
  • Falsely presenting a salesperson as having the authority to negotiate final terms of a transaction.
  • Secretly resetting the odometer on a motor vehicle for sale.
  • Lying about a “going out of business” sale when the store is not going out of business.
  • Using “corporation” or “incorporated” in the name of a business when it has not been incorporated.
  • Falsely representing that a solicitation has been sent on behalf of a governmental entity.
  • Price gouging during a natural disaster.

Additional Damages Available Under the DTPA

The damages and compensation that may be available to plaintiffs filing lawsuits under the Texas Deceptive Trade Practices Act include actual damages (i.e., economic damages), mental anguish damages, and attorney’s fees. The actual damages could involve things like the money spent on the purchase, as well as repair or replacement costs after the transaction.

Additionally, when a plaintiff in a DTPA case wins their claim, they may be eligible for up to three (3) times the usual damages awarded in a Texas civil suit.

Mental Anguish Damages

If the judge or jury finds that the defendant knowingly deceived the plaintiff, then it may be possible for the plaintiff to receive an award for mental anguish damages. The ability to recover damages for mental anguish is unique in DTPA claims because business transactions typically don’t involve the same kinds of mental or emotional harms as personal injury and wrongful death claims.

Treble Damages

The DTPA also allows for the recovery of treble damages, which means that the judge may impose a multiplier on the judgment or ruling and award up to three times the damages amount. When a defendant’s conduct is deemed egregious, it is not uncommon for plaintiffs to be awarded significantly higher damages as a way of sending a message and discouraging unethical behavior by other businesses in the future.

DTPA Waiting Period & Deadlines

Texas law requires victims of business fraud to wait at least 60 days before filing a DTPA lawsuit. The statute specifically requires plaintiffs to send a demand letter to the business owner or individual so that they have an opportunity to address the alleged fraud and potentially resolve the matter before a legal claim is necessary. Once 60 days have passed since the demand letter was sent to the defendant, then the plaintiff may choose to formally file their lawsuit in a Texas court.

Just as there is a waiting period on the front end of any DTPA claim, there is also a time limit for the plaintiff to take legal action. The deadline for a consumer to file a DTPA lawsuit is two (2) years from the date on which the false or deceptive business practice occurred. This statute of limitations is half the time that a plaintiff typically has available to file a breach of contract lawsuit in Texas.

Contact the Texas Consumer Fraud Lawyers at Tauler Smith LLP

The Deceptive Trade Practices Act (DTPA) gives Texas consumers the right to file a lawsuit and pursue damages when they have been victimized by a scammer or fraudulent business. If you have been misled or deceived in a commercial transaction, the Texas consumer fraud attorneys at Tauler Smith LLP can help you file a DTPA claim. Call 972-920-6040 or email us today to go over your options.