Mark Friedman, who covers health care and law for Arkansas Business readers, has a preternatural talent for finding a compelling story. He spotted the wacky gambling case out of Rogers in which a financial adviser’s suspicious banking activity led the FBI to his bookie. He’s also the guy whose report on a $12.5 million fax has nagged at me for days now.
If you missed the Aug. 20 story, you missed a cautionary tale for the ages: A New Jersey business owner sends a single fax to an occasional customer in Russellville and ends up filing Chapter 11 bankruptcy and has to go to court to keep his house because he’s been ordered to pay $500 each for 25,000 faxes in a class-action case in which no other recipients were ever identified.
The lesson most business executives want to take from it seems to be “We need tort reform!” But there is nothing in the amendment on Arkansas’ Nov. 6 ballot that would do anything at all to mitigate what feels like an incredible miscarriage of justice completely out of proportion to the offense and the harm done.
The real lesson should be this: You cannot ignore a lawsuit filed against you or your business, not even if it is frivolous or ridiculous or hundreds of miles away. You must respect the process even if you don’t respect the parties and question their motives.
The lawyers who sued Eugene Kalsky and his Gen-Kal Pipe & Steel Corp. are James Streett of the Streett Law Firm in Russellville and Joe P. Leniski Jr. of Branstetter Stranch & Jennings of Nashville, Tennessee. I remember the Branstetter firm from my days at the Nashville Bar Association in the 1990s, but I don’t recall it making a business plan out of stuff like technical violations of the Telephone Consumer Protection Act.
Kalsky’s fax to his occasional client, M.S. Wholesale Plumbing Inc. of Russellville, included instructions for getting off the fax distribution list. But it wasn’t the exact language that the TCPA requires — a violation of the letter of the law but not the spirit. So Kalsky and Gen-Kal joined more than a dozen other defendants that Streett and Leniski have sued for this kind of thing.
No other case seems to have blown up into an eight-digit jackpot, and there are at least two reasons for that: Kalsky used real contact information in what seems to have been a bona fide solicitation, and he ignored for too long a bona fide lawsuit.
Now, I have no idea what Streett and Leniski were hoping for when they sued Kalsky and Gen-Kal Pipe. They don’t claim that their client attempted to be removed from the fax list using the nonconforming instructions on the fax itself, and there’s no allegation at all that Kalsky sent more than one fax to M.S. Wholesale Plumbing. There is, in fact, no allegation of harm or inconvenience, just that Kalsky’s fax didn’t comply with a very specific requirement of the TCPA.
“It’s a huge impact in a small business,” Streett told Friedman. “When you are trying to deal with legitimate customers and you have to deal with an accumulative mass of stuff that comes in, the cost is really significant. That’s what people don’t realize.”
If Streett and Leniski didn’t set out to crush a 34-year-old business that employs eight people, they surely took the opportunity when it presented itself. Rather than being content to punish Kalsky for a single fax — a $500 or $1,500 penalty that would certainly be a deterrent to me — they proceeded to have their case certified as a class action.
And it was the very best kind of class action: One with only one known class member and a defendant who didn’t answer an allegation that he sent 25,000 faxes. The number doesn’t seem to be based on any evidence, but his failure to deny it was received by the court as an admission of guilt — no discovery required, no proof needed.
Kalsky finally took the case seriously and has appealed the $12.5 million judgment that was entered in March 2017. (Attorneys fees have not yet been determined.) Meanwhile, more than $130,000 has been seized from Kalsky’s accounts and Gen-Kal filed Chapter 11 bankruptcy. For now, Kalsky still has his home, but he expects to spend a half-million dollars to fight the judgment.
Friedman interviewed Todd Henderson, a law professor at the University of Chicago Law School, who said the 1991 TCPA was “a very bad fix” for what is — or certainly was — the problem of unwanted faxes. Outsourcing enforcement to private attorneys created a business plan like the one Streett and Leniski have pursued, Henderson said.
But recognizing problems with the statute doesn’t help Eugene Kalsky and won’t protect anyone else. If your business uses faxes to solicit business, make sure you fully comply with the law. And in the name of all that’s holy, if you get sued — even for something ridiculous in a rural court hundreds of miles away — do not ignore it.
Email Gwen Moritz, editor of Arkansas Business, at GMoritz@ABPG.com and follow her on Twitter at @gwenmoritz.