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Wall Street Journal

 

Rumpelstiltskin, LLP

July 29, 2006

By Walter Olson

When porcupines were a big nuisance in rural New England half a century ago, Vermont offered 50 cents for a pair of the creatures' ears. Industrious Yankees duly submitted the auricular trophies in great volume—in 1952 the state paid out $90,000 on the bounty program—yet the woods still abounded with the prickly rodents. Author Richard Conniff quotes a district forester who explained one of the reasons: "A trapper who knew how to use his knife could get 10 or 12 sets of ears out of a single animal."

Bounty hunting has, if anything, grown more popular in modern American law, despite the unintended consequences; and when the history of this practice is written, junk-fax litigation will have a special place. It all began in 1991, when Congress banned the transmission of unsolicited commercial ("junk") faxes. As legislative ideas go, this was one of the less controversial: Unasked-for faxes rank up there with dinnertime sales calls as a source of annoyance to consumers.

How to enforce such a ban? Lawsuits by an annoyed consumer might seem unlikely, because the damages would ordinarily be too trivial to justify a trip to court. So the law provided for automatic damages of $500 per fax page received, and triple that, or $1,500, for a willful and deliberate offense. This might make sense were the idea to let offended consumers vindicate their rights in a small-claims context (although federal in origin, the law can be enforced in state court).

Since a single damage claim could roll together multiple pages and transmissions, however, the sums get serious fairly quickly. For example, a three-page newsletter faxed monthly for a year might generate damages of $18,000 (36 times $500), or $54,000 if willful.

Enter the plaintiff lawyers.

An early order of business for these litigators was to find state courts willing to entertain class actions for junk faxes; damages from large numbers of passive recipients could then be rolled together with those from one live client and a routine case vaulted into the million-dollar class. In 1995 lawyers filed a class action demanding $7 billion from more than 70 Houston restaurants, car dealerships and other businesses that had advertised in a series of omnibus fax mailings. One local Mexican eatery was potentially liable for $25 million because it advertised in 50,000 faxes.

But wasn't the target the business that sent the fax, and not those that had merely paid to advertise in it? No: The law made all parties, including advertisers, jointly and severally liable. The actual sender of the faxes, often enough an independent marketing promoter or ad agency, had often vanished from the scene (or was without assets) by the time a case reaches a court. So advertisers become the main target—and if a single fax carried coupons from a couple of dozen local businesses, each can be menaced with the law's scary penalties. A lawyer representing some of the Houston defendants dubbed the process "Powerball for the clever."

Many of the local businesses say they hadn't known about the law, or had believed promoters' assurances that all recipients had opted into tell-me-about-discount-offers arrangements, or that no one had complained. But those aren't valid defenses under the law, and a string of large judgments and settlements began that continues to this day.

A Web site in Arizona advises visitors to "Turn your fax machine into a money machine," and not without reason. The North Charleston, S.C. Ramada Inn agreed to pay $450,000 for promoting a New Year's celebration. A $12 million judgment forced a Georgia restaurant into bankruptcy. A car dealership in St. Clair County, Ill., was told to pay $7 million.

Illinois has emerged as a particular hotbed of junk-fax litigation; one Cook County judge alone has presided over more than 100 cases seeking class-action status, according to Crain's Chicago Business. Last month a plaintiff's lawyer in suburban Chicago who publishes the Internet and Class Action Law Blog told readers that they should stop regarding these unwanted transmissions as a mere throwaway nuisance: "Why not turn all those junk faxes into a college fund for your kids?"

The vast sums up for grabs have stimulated lawyers into what you might call ear-carving. California lawyers are advancing the theory that major telecom carriers have legally abetted the rogue faxers by setting them up with accounts: They too should be held liable under the law, to the tune of $2.2 trillion.

One case against AMF Bowling Centers for improper faxing of coupons was resolved by way of a promise to furnish members with more coupons; a critic pointed out that the sending of unasked-for coupons was "the conduct that got AMF in trouble" in the first place. (Lawyers of course got cash.) Incidentally, unsolicited court-ordered faxes notifying consumers of class actions going on in their name are not covered by the law's prohibitions.

There are wider lessons here about the dangers of bounty-hunting methods in law enforcement, which—from the classic small-town speed trap to the ever-richer incentives for "whistleblowing"—can undercut due process and create a constituency for harshly punitive applications of the law. In California, "citizen enforcement" provisions now attach to whole sectors of business regulation, with the result that a mercenary army of attorneys and freelancers roams the state, ginning up complaints over (among much else) the alleged sexism of Mother's Day promotions and businesses' failure to warn of "toxic emissions" from such unlikely substances as candles and billiard chalk.

No doubt you can make a case that getting at the most heinous wrongdoers through bounty-hunting is preferable to never getting at them at all. But note that where crimes are indisputably serious, the rewards for informing are fixed and often modest. The typical reward for helping solve a bank robbery is $5,000. At rewardsforjustice.net, the U.S. government offers bounties for information leading to the capture of leading terrorists: Even notorious masterminds tend to be worth at most $5 million, while turning in Osama bin Laden will win you $25 million.

If Osama had sent 100,000 junk faxes, there'd be a bigger price on his head.

Original Source: http://www.manhattan-institute.org/html/_wsj-rumpelstiltskin_llp.htm

 

 
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