Federal Appeals Court Revives Faxed ‘Advertisement’ Claim

A federal appeals court has reinstated a lawsuit brought under the Telephone Consumer Protection Act, finding it should not have been dismissed because the unsolicited faxes sent to the plaintiff’s dental office were indeed “advertisements” that violated the law.

The plaintiff in Lyngaas v United Concordia Companies, Inc filed this federal lawsuit against the defendant, claiming it had faxed several unsolicited advertisements to his dental practice in violation of the Telephone Consumer Protection Act (TCPA), 47 USC §227. The U.S. District Court for the Eastern District of Michigan dismissed the plaintiff’s suit, concluding the faxes were not advertisements because the defendant’s profit incentive was “too remote.”

The 6th U.S. Circuit Court of Appeals reversed and reinstated the plaintiff’s claim (Docket No. 24-1777).

“We hold that [the defendant’s] faxes were advertisements under the TCPA,” the 6th Circuit said. “[The defendant] facially promoted direct sales by its third-party partners, and its profit motive was sufficiently direct because it sent the promotions as part of negotiated marketing agreements. Our precedent further supports this conclusion by placing liability for third-party sales on the sender of a fax, rather than the seller of the product.”

6th Circuit Judges Alice M. Batchelder, Jeffrey S. Sutton and Kevin G. Ritz were on the panel that issued the decision.

Judge Batchelder also wrote a separate concurrence, agreeing the defendant had a profit motive for sending the faxes. “But I write separately because I do not believe that the Telephone Consumer Protection Act requires plaintiffs to show that a fax’s sender had a profit motive. Rather, the Act imposes liability on ‘any person’ who sends an unsolicited advertisement through fax, … and it defines an ‘advertisement’ as ‘any material advertising the commercial availability or quality of any property, goods, or services,’ …. And so, under that definition – which mentions nothing about a sender’s reason for sending a fax – all that matters for a fax to qualify as an advertisement under the Act is that the fax ‘promotes the sale … of any property, goods, or services available to be bought or sold so that some entity can profit.’”

Background

The plaintiff contracted with the defendant, United Concordia Companies, Inc., to participate in its “Fee for Service Dental Network.” Various benefits were provided to dentists in the network, including a “Value Add Program” (VAP) that offered discounts from third-party vendors. The defendant negotiated exclusive deals with the vendors in exchange for promoting their products, and the defendant memorialized the deals by executing “marketing” and “strategic” agreements. The defendant sent the VAP benefit materials via fax.

The plaintiff’s lawsuit centered on three faxes the defendant sent as part of its VAP. The faxes provided information on 1) discounts on personal protective equipment offered by Prophy Magic, 2) discounts on dentist recycling buckets provided by Dental Recycling North America and 3) promotional services for student loan refinancing through GradFin.

The plaintiff filed a complaint in the U.S. District Court for the Eastern District of Michigan, claiming the defendant violated the TCPA by sending him “at least two” unsolicited advertisements via fax. He provided evidence that he received the Prophy Magic and Dental Recycling faxes, but was unable to show that he received the GradFin fax. The plaintiff filed a motion for summary judgment. The defendant filed a cross-motion for summary judgment, asserting the faxes were not “advertisements” as defined by the TCPA.

The federal district court ruled for the defendant, finding the faxes were not advertisements because the defendant’s profit incentive was “too remote.” (See, Lyngaas v United Concordia Companies, Inc, No. 21-11604, 2024 WL 4236462, at *4 (E.D. Mich. Aug. 29, 2024).)

The plaintiff appealed.

‘Sufficiently Direct’ Profit Motive

In its analysis, the 6th Circuit said case precedent supports the conclusion that liability should be placed for third-party sales on the sender of the fax – not the seller of the product. “[The defendant’s] faxes are advertisements under the TCPA because they facially promote third-party products as part of exclusive marketing agreements,” the panel stated.

The 6th Circuit explained that, in Sandusky Wellness Center, LLC v Medco Health Solutions, Inc, 788 F. 3d 218 (6th Cir. 2015), a previous appellate panel held that to fall under the TCPA, an advertisement “must promote goods or services to be bought or sold” and “should have profit as an aim.” In the present case, the parties primarily disputed whether the faxes qualified as “advertisements” under the Sandusky definition. The defendant argued “the faxes did not have profit as an aim” and “any purported economic benefit [the defendant] could derive from them was hypothetical.” Meanwhile, the plaintiff asserted the defendant “directly profit[ed] by maintaining and expanding their provider network through the VAP.”

Here, the Eastern District of Michigan, applying Sandusky, agreed with the defendant’s argument and likened the VAP to an “informational project that circulates benefits to pre-existing network members,” the 6th Circuit observed. “We disagree. The faxes were advertisements because (1) they were facially promotional, and (2) [the defendant] demonstrated a sufficiently direct profit interest by contracting with its marketing partners.”

According to the 6th Circuit, Sandusky was distinguishable from the present case. “The defendant in Sandusky was a pharmacy benefit manager, which acted as an intermediary between sponsors of health insurance plans (generally employers) and prescription drug companies. … [T]he faxes at issue were informational, and any profit-driven motive was too ancillary to render the faxes a commercial solicitation. … Here, unlike the formularies in Sandusky, the faxes facially sought to sell branded products.”

Moreover, in Sandusky, “we found it important that the defendant intermediary simply communicated which products would be cheaper for patients based on their health insurance coverage,” the 6th Circuit said. “The faxes did not facially seek to influence actual purchasing decisions or attract new business. … By contrast, there is little dispute that [the defendant’s] faxes promoted goods and services to be sold. … [The defendant’s] marketing contracts obliged it to market and promote its partners’ offerings. In sending the faxes, [it] sought to promote their business partners’ products for sale to [its] own customers. …”

In addition, the defendant’s “profit aim … was sufficiently direct to incur liability,” the 6th Circuit emphasized. “Unlike [the] information … in Sandusky, the promotional rates here were designed specifically for [the defendant’s] network, and [the defendant] negotiated for them. As consideration for the more favorable rates, [the defendant] provided a network of customers for sellers of useful products. That is, the benefit of [the defendant’s] bargain – the purpose of the contract – was the ability to offer the third parties’ exclusive promotions to members of its network. Unlike the defendant in Sandusky, [the defendant] did not just passively compile relevant pricing information; rather, it built and circulated facially promotional materials on behalf of others. The only proffered explanation for this bargain is that [the defendant] sought to maintain and grow its provider network, which would in turn help grow its customer base.”

The marketing contracts “suggest[ed]” the defendant sent the faxes “with profits in mind,” the 6th Circuit noted. “It is hard for [the defendant] to argue that its faxes were informational when it offered its network in exchange for advertised discounts in the first place. The only proffered explanation for the VAP is that [the defendant], acting (understandably) out of direct profit motive, wanted to enhance benefits for its provider network and, in turn, attract new customers and profits.”

As a result, “the district court erred when it found that the facts here were sufficiently analogous to those in Sandusky,” the 6th Circuit held. The defendant’s “profit motive was sufficiently direct for liability under the TCPA.”

Moreover, the 6th Circuit pointed out the defendant could be liable “even though it was not selling the products advertised by the faxes.” Accordingly, the defendant’s argument “that the faxes must propose a transaction between [it] and the recipient is misplaced. If [the defendant] stands to profit, then TCPA liability applies, even if the profits are more direct for the sales partner. While we hold that TCPA liability applies to the sender of a third-party ad who profits indirectly, the reasoning is much weaker for a sender that truly has no profit motive, such as the district court’s hypothetical do-gooder who transmits advertisements without any financial benefit. The facts here, especially when taken in the light most favorable to [the plaintiff], easily clear the bar for liability under the TCPA. [The defendant] has presented no explanation for their marketing deals apart from profit. The VAP is, most logically, part of a mutually beneficial business relationship between [the defendant] and the direct sellers.”

In conclusion, “our precedent tells us that circulating an advertisement for a third party’s goods or services falls under the TCPA, at least if the sender has a financial interest in the seller’s advertisement,” the 6th Circuit said. “In sum, [the defendant’s] faxes were advertisements under the TCPA. One final note, though: [the plaintiff] may not move forward with a lawsuit regarding a fax that he did not actually receive. The Gradfin fax must therefore be removed from litigation going forward. As to the remaining two faxes, we reverse the district court and remand for proceedings consistent with this opinion.”