Faxes Could Cost Small Business Owner Up to $48 Million

He says he was only trying to stay in touch with potential clients. But now, one Minnesota small business owner is facing a $48 million class-action lawsuit over his company’s faxed advertisements.

Mariposa Publishing owner Doug Walburg, who publishes legal directories, was first sued in 2007 by attorney Michael Nack. Walburg says Nack agreed to receive faxes – and then turned around and sued him for violating an FCC rule, which requires faxes to have opt-out clauses. These clauses should include instructions for unsubscribing to faxes.

“It doesn’t seem right to be sued by a guy who requested the fax,” says Walburg, adding that it’s been a little hard to concentrate on work for the past seven years as the case has made its way through the court system. The potential fines could range from $16 million to $48 million – a high price for a small publisher that does only $1 million in sales annually.

But Nack’s lawyer Max Margulis disagrees – and says the FCC’s rule is plain and simple.

“The FCC made their position very clear. An opt-out notice should be on faxes where there’s an established business relationship, even if the business was given permission, so anyone knows how to stop getting the faxes,” says Margulis.

Now, Walburg and his legal team are waiting to hear whether the Supreme Court will hear his case – a decision that may come early this winter.

The $48 Million Question

The FCC’s rule on faxes is part of the Telephone Consumer Protection Act – the law that aims to protect individuals from annoying telemarketing calls.

While tossing an unwanted fax in the recycling bin may not be as frustrating as dealing with prerecorded voice messages, the intention is the same: to save people from unwanted solicitation. The big question in Walburg’s case is whether or not the FCC rule on opt-out clauses pertains to faxes sent to people who have already agreed to receive them.

The U.S. District Court in Missouri didn’t think so – and dismissed the case in 2007 – but the Eighth U.S. Circuit Court of Appeals ruled last year that even solicited faxes need opt-out clauses.

If the Supreme Court doesn’t decide to weigh in on Walburg’s case, his only hope will be for the FCC to step in and clarify the rule with an exemption for solicited faxes. If it doesn’t go his way, Walburg and his insurer could face a $500 penalty for each individual fax that was sent out without an opt-out clause.

Russell Watters, Walburg’s attorney, says attorneys across the country have been exploiting the FCC’s rule.

“These are set-up lawsuits in my opinion. There are thousands filed every year, many of them filed by the same law firms with the same plaintiffs,” says Watters. He alleges that plaintiffs will solicit faxes – and then immediately turn around to launch class-action suits.

“Generally speaking, it’s a nationwide problem for small businesses,” says Watters.

The National Federation of Independent Business agrees – and has come out in support of Walburg’s case, having previously testified on this issue and the potential for abuse.

“The FCC has gone off the ranch,” says Elizabeth Milito, senior executive counsel for the NFIB. “It has gone beyond what Congress authorized.”