Broker Sued for Faxing Prospects

“It was a bad business decision,” she said ruefully.

Piaggio said she purchased a fax system from a company that later changed its name to Ellipsis. The system was located in her office but remotely run via computer. The “blast faxer” sent out ads for her brokerage services to prospective customers. She claimed she was assured by the vendor that it had permission to send the faxes. Piaggio spent $21,000 on the system in addition to agreeing to “astronomical” monthly fees. “I basically got swindled,” she sighed.

Ellipsis could not be reached for comment.

The mortgage broker sent the faxes. The next day she got calls from people complaining about having received them. “We stopped sending the faxes immediately,” she said, emphasizing that the solicitations were sent out for only one day.

But the damage was already done.

After one of the fax recipients assigned his legal right to sue, Piaggio was hauled into court by the U.S. Fax Law Center.

In the last few years, companies such as U.S. Fax Law Center have become controversial for seeking out junk fax recipients and asking them to assign their right to sue over the faxes. The companies then use the legal process to go after those who send junk faxes.

Federal and state laws prohibit unsolicited faxes and allow recipients to sue and collect damages. Junk faxes are fax advertisements sent to individuals and businesses without their permission. They became illegal in the 1990s. Junk faxes became illegal under federal law with the enactment of the Telephone Consumer Protection Act of 1991. In 1999, Colorado came up with its own junk fax law called the Colorado Consumer Protection Act.

Andrew Quiat, general counsel for the U.S. Fax Law Center, said the mortgage industry is one of the most common violators of the law. The company locates the sender of junk faxes and takes them to court, demanding damages for violations.

The U.S. Fax Law Center has boasted of filing more than 1500 junk fax lawsuits in Colorado alone over the last few years.

Piaggio’s attorney, Douglas Turner, said such companies make their money by filing lawsuits in county court, asking for $5,000 or $6,000 for each fax sent. Turner said the companies accused of junk faxing often decide to settle the cases because of the legal fees involved in fighting the accusations. He said he can’t take such a case to trial for under $10,000.

Piaggio’s case was filed in October 2003 in Boulder County District Court. But Quiat said that even with accrued interest, Piaggio could settle the case for under $3,000. Quiat said that if Piaggio is out $25,000, as she has claimed, that’s because of the fees charged by her defense lawyer. “That sounds like a very poor business decision to me. It’s not my job to protect her from her stupid business decisions,” he said.

In response, Turner said he counsels his clients on several areas, including the financial ramifications of their cases. Saying that Quiat does not understand people who choose to fight against his lawsuits rather than settle, he also said Quiat’s actions are akin to sticking a “legal gun” to a person’s ribs and demanding money.

Quiat, on the other hand, has little sympathy for mortgage brokers who send out unwanted faxes. “I think there’s a lot of scamming going on in the mortgage industry,” he declared. “Junk faxes, have gotten to the point that most go through a live lead generating service that goes through a call center with an 800- number that’s only good for 30-90 days,” an attempt, he said, to circumvent the four-year statute of limitations for prosecuting such cases and to prevent connecting the broker to potential legal liability.

But, he continued, when the company goes through a live lead service and is put into contact with a local mortgage company, the local broker concedes that their name and telephone number is on the fax solicitation but professes ignorance about junk faxing.

Quiat addressed Piaggio’s circumstances. “Piaggio is a perpetrator who wants to cry that she has been victimized. There is an element of that because anyone who dealt with [Ellipsis] was dealt a bill of goods. But they also violated the law repeatedly,” he said.

However, Piaggio may have hope because of several court cases recently handed down by the federal and state courts. In March 2005, the United States District Court for the District of Colorado, in an opinion written by Chief Judge Lewis Babcock, ruled that junk fax recipients can’t assign the right to sue over the faxes to third parties such as the U.S. Fax Law Center. That decision is under appeal and was argued last week in federal appellate court.

Turner pointed out, however, that the Babcock decision — a federal court decision interpreting Colorado state law — is not controlling in the state court system. But, in the last several months, two cases have come down from the Colorado state appellate court system, deciding that junk faxes are not assignable.

As a result of the court’s decisions, Piaggio’s case is ripe for the filing of a motion to dismiss based on current case law, Turner said.

But assignability is a rationale that Quiat disputes. “All the assignment issue does is sidestep the blame. No one quarrels with the proposition that the people who actually got the fax can sue the merchant under state and federal law,” he said.

Quiat also seemed puzzled by the industry’s refusal to take advantage of a safe harbor provision — the ability to assert an existing business relationship — found in the Junk Fax Prevention Act of 2005. “No one’s bothered to use it. If people comply, they can fax to their heart’s content,” he said. But Turner indicated that the requirements for compliance with the safe harbor provision are so narrowly written that “if you don’t follow it to a “T, then you are in violation.”\

But mortgage brokers, faced with a shrinking real estate market, and wanting to expand their business might want to consider not using their fax machines to solicit clients. “Faxing can get you into huge trouble,” Turner said.

Lisa D. Burden is a legal analyst for MortgageDaily.com and holds a law degree from the University of Maryland. She is currently a freelance journalist who previously wrote for Institutional Investor publications and the Baltimore Daily Record.

e-mail Lisa at: burdenlisa@yahoo.com