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State Supreme Court Rules Inbound Telephonic Sales Require Wet Signature Unless Specific Exemption Met

Dissent Says New "Bright Line" Standard Created For Inbound Calls

February 26, 2024

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Copyright 2010-23
Reporting by Paul Ring •

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The Supreme Court of Maryland has concluded that the Maryland Telephone Solicitations Act (MTSA), which generally requires a wet signature for telephonic sales, applies, "to sales made over the telephone where the consumer places the telephone call to the merchant in response to a merchant’s marketing materials unless the transaction falls within one of the statutory exemptions outlined in CL § 14-2202."

The Court's opinion arose from an appeal filed by Smart Energy Holdings, LLC (SmartEnergy) against the Maryland PSC's interpretation that a wet signature was required for contracts SmartEnergy entered into with customers over the phone when such customers placed an inbound call to SmartEnergy in response to a specific postcard mailer

See background concerning the case, including specific facts surrounding SmartEnergy's marketing and the PSC's interpretations, in our prior story here

SmartEnergy, through its counsel, provided the following statement concerning the matter:

"We are obviously surprised by the ruling of the Maryland Supreme Court which established Maryland as the only state in the history of the United States to interpret a Telephone Solicitations Act as a legal violation when a telephone call is actually placed by a consumer to a merchant, as opposed to what the language of the statutes plainly states, that a violation may only occur when the merchant initiates the telephone call. In so doing, this Court also opined that Telephonic Solicitations Acts were created to mandate oral telephone contracts to become written signed contracts. While this is correct, this Court ignored the fact that the legislative history of Telephonic Solicitations Acts were created to prevent unwanted, cold outbound telephone solicitations by stranger companies to consumers at unwanted times and that any such contract that may be entered into as a result of such an intrusion must be memorialized by a ‘wet’ signed written contract. The Court’s majority opinion is completely void of any mention of the public policy and Draconian impact that this ruling would have not only on Maryland’s pro-consumer retail energy companies but its effect on commerce from small businesses to large companies such as Geico, Pizza Hut, and any other business that advertises and then receives a telephone call from an interested consumer.

"We plan to move the Court for Reconsideration of its extraordinary, unique and novel finding that an inbound call initiated by a consumer when he or she picks up the telephone (or now hand-held device) and calls a merchant violates the Maryland Telephone Solicitations Act ('MTSA'). Obviously, should that telephone call be rendered by the consumer as a result of an advertisement that violates the Maryland Consumer Protection Act ('CPA') or Unfair or Deceptive Acts or Practices ('UDAP'), the merchant could and should be subject to violations of those acts."

--- Statement from SmartEnergy

The MTSA generally provides that a contract made pursuant to a telephone solicitation shall, "be reduced to writing and signed by the consumer."

The MTSA defines "telephone solicitation" to mean, "the attempt by a merchant to sell or lease consumer goods, services, or realty to a consumer located in this State that is: (1) Made entirely by telephone; and (2) Initiated by the merchant."

SmartEnergy generally argued that inbound telephone calls made by customers in response to a postcard mail campaign were not telephone solicitations, and thus not subject to the MTSA, because such transactions were not entirely by phone, and the calls were not initiated by the merchant

The PSC had held that an inbound/outbound distinction conflates the 'initiation' of the telephone call and the initiation of the attempt by the merchant to sell or lease consumer goods. The PSC had held that SmartEnergy initiated the attempt to sell its retail supply product to customers by sending the postcard to the customer. The PSC further held that the sales process used by SmartEnergy was consummated entirely over the telephone, meaning the MTSA applied, and a wet signature was required. SmartEnergy did not obtain wet signatures for the transactions at issue.

The Supreme Court affirmed the PSC's conclusion, stating that, "[t]he Commission correctly concluded that the MTSA applies to SmartEnergy’s business practices."

The Court held that, "The MTSA applies to sales made over the telephone where the consumer places the telephone call to the merchant in response to a merchant’s marketing materials unless the transaction falls within one of the statutory exemptions outlined in CL § 14-2202."

The Court said, "The plain language of the definition of 'telephone solicitation' explicitly separates the requirement relating to the 'making' of a sales attempt from the requirement relating to the 'initiation' of a sales attempt. While each requirement must be satisfied for an 'attempt by a merchant to sell' to be a 'telephone solicitation,' they do not, as written, apply to or limit each other."

The Court said, "We disagree with SmartEnergy’s interpretation that the initiation of the sales attempt is necessarily part of the sales attempt itself. SmartEnergy’s act of sending the postcard 'initiates' the attempt to sell. In other words, the postcard sets in motion SmartEnergy’s attempt to sell electricity, which SmartEnergy 'makes' entirely by telephone. We determine that, under the MTSA, the act or event that 'initiates' a telephonic sales attempt is not necessarily the same as attempting to 'make' a sale over the telephone -- it can be, as here, the sending of marketing materials to consumers."

The Court said, "we determine there is only one reasonable and logical interpretation of 'telephone solicitation' -- it applies to both telephone calls initiated by the merchant, as well as telephone calls initiated by the consumer in response to marketing materials sent by the merchant, unless the transaction falls within one of the statutory exemptions outlined in CL § 14-2202."

The Court said, "accepting SmartEnergy’s interpretation of the MTSA -- that it excludes telephone sales transactions arising from a consumer placing a call to a merchant in response to marketing material -- would create an irrational loophole ... under SmartEnergy’s interpretation, the merchant could send false and misleading marketing materials, and escape the mandates of the MTSA simply because the consumer called the merchant, instead of the merchant calling the consumer. Such an interpretation is not only illogical, but it is also inconsistent with the legislative purpose and intent of the MTSA[.]"

Under one of its exemption provisions, the MTSA statute provides that its provisions do not apply to a transaction, "in which the consumer purchases goods or services pursuant to an examination of a television, radio, or print advertisement or a sample, brochure, catalogue, or other mailing material of the merchant that contains: (i) The name, address, and telephone number of the merchant; (ii) A description of the goods or services being sold; and (iii) Any limitations or restrictions that apply to the offer[,]" (the § 14-2202(a)(5) exemption aka marketing materials exemption)

The Court agreed with the PSC's finding that the SmartEnergy postcards did not fall within the marketing materials exemption set forth in CL § 14-2202(a)(5).

The Court said, "the Commission found that SmartEnergy designed the postcards to misleadingly appear to have been sent by the customers’ utility. There is substantial evidence in the record to support this finding. We agree with the Division [Division of Consumer Protection in the Office of the Attorney General] that, for the marketing materials exemption to apply, the postcard should identify who the real 'merchant' is, and not mislead the customer that the merchant is someone else."

The Court said, "Additionally, the postcards fail to describe SmartEnergy’s services, as required by CL § 14-2202(a)(5)(ii). We agree with the Division that the postcards failed to explain the basic facts that SmartEnergy is a third-party energy supplier selling electricity, and SmartEnergy was soliciting the consumer to switch energy suppliers from the consumer’s existing utility to SmartEnergy."

Justice Steven Gould dissented in part, stating that, "The Majority appears to create a bright-line rule that direct mail advertisements are part of the attempt to sell -- and therefore telephone calls prompted by such ads are not 'telephone solicitations' -- only if the ad contains all the information set forth in CL § 14-2202(a)(5). I disagree."

"The General Assembly could have drafted the statute to include in the definition of 'telephone solicitation' all inbound calls except those made in response to advertisements containing the information identified in CL § 14-2202(a)(5). But it didn’t," Gould wrote

The Court also affirmed that the PSC is empowered to enforce the MTSA. SmartEnergy had argued that only the Division of Consumer Protection in the Office of the Attorney General could enforce the MTSA

The Court said, "we hold that, under the plain language of the Choice Act, the General Assembly granted the Commission the express authority to determine whether electricity suppliers under its jurisdiction have violated Maryland’s consumer protection laws, including the MTSA, and to impose statutory remedies when it determines that the supplier has violated any applicable consumer protection law of this State."

The Court said, "under the Choice Act, the Commission has the power to conduct its 'own investigation' and upon a finding of 'just cause,' impose remedies for a violation of the Choice Act or the Commission’s regulations, including imposing a civil penalty, ordering a refund or credit to a consumer, imposing a moratorium on adding or soliciting additional customers, or even revoking or suspending the electricity supplier’s operating license. PU § 7-507(k)(1). The statutory definition of 'just cause' includes an electricity supplier’s violation of 'any other applicable consumer protection law of the State.' Id. § 7-507(k)(3)(viii)."

The Court said, "Thus, under the plain language of the Choice Act, the Legislature has granted the Commission the authority to 'investigate' electricity suppliers to determine whether a penalty or other remedy should be levied for 'just cause,' which exists if the supplier violated the consumer protection laws of Maryland. We agree with the Appellate Court that the Commission has the authority to ensure that electricity suppliers, such as SmartEnergy, 'comply with specific consumer protection laws, under which the MTSA falls.' In re SmartEnergy, 256 Md. App. at 42."

The Court further said, "The MTSA states that violations of its provisions can be enforced by 'any remedies . . . available at law.' CL § 14-2205. Certainly, the Commission’s statutory authority to impose remedies on an electricity supplier when it finds, upon its own investigation, that the supplier has violated Maryland’s consumer protection laws, would constitute 'remedies available at law' to the Commission."

As to matters relating to SmartEnergy's specific alleged behavior, and less applicable to the broader market, the Court found that the PSC's findings were supported by substantial evidence in the record.

The Court further said, "we determine that the remedies imposed by the Commission in this case are within its statutory discretion and are not arbitrary or capricious."

In a dissent, Gould took issue with the PSC's Consumer Affairs Division (CAD) informing SmartEnergy, in three letters summarizing CAD's review of three customer complaints, that the MTSA’s requirements do not apply to situations where the customer initiates the call to enroll with an electricity supplier.

"Thus, in my view, the Commission’s departure from the precedent it established with SmartEnergy was arbitrary and capricious," Gould wrote

Gould wrote, "the [CAD] letters were the product of the process mandated by the Commission’s duly promulgated rules. The significance of these letters, therefore, should not be so casually dismissed."

Gould also objected to the PSC's conclusion that SmartEnergy engaged in a systemic pattern of behavior based on a review of only 34 calls out of 104,000 (of which 32,000 turned into enrollments)

"[T]he Commission premised findings of systemic misconduct, at least in part, on only 0.033% of all the calls generated by the postcards, and only 0.106% of the calls that were converted into enrollments," Gould wrote in the partial dissent

Case: In the Matter of Smart Energy Holdings, LLC D/B/A SmartEnergy, No. 1, September Term, 2023


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