How could a single fax sent to a Russellville company lead to a $12.5 million judgment against the sender?
Ask Eugene Kalsky, owner of Gen-Kal Pipe & Steel Corp. of Mount Laurel, New Jersey.
“It’s an absolute nightmare,” said Kalsky, who has operated the steel pipe distribution company for 34 years. “Everybody that hears the story just can’t believe how it got this far.”
Kalsky and Gen-Kal were hit with the judgment in March 2017, the result of a class-action lawsuit filed over Kalsky’s failure to include a specific opt-out notice on fax advertisements.
M.S. Wholesale Plumbing Inc. of Russellville filed the lawsuit in Pope County Circuit Court, alleging that receiving the fax without the opt-out notice was a violation of the federal Telephone Consumer Protection Act. The case is one of more than a dozen filed in Pope County since 2015 by the same attorneys who represent M.S. Wholesale: James Streett of the Streett Law Firm in Russellville and Joe P. Leniski Jr. of Branstetter Stranch & Jennings of Nashville, Tennessee.
“It’s a severe miscarriage of justice in our view, and it leads to the government basically ruining someone’s life over one fax,” said one of Kalsky’s attorneys, Chris Burks of the Sanford Law Firm of Little Rock.
Kalsky has appealed the case to the Arkansas Court of Appeals, but in the meantime, he said, his business has been forced into Chapter 11 bankruptcy and his home in New Jersey was almost sold to satisfy the judgment. Kalsky said about $133,000 has been seized to satisfy the judgment, and he estimated he’ll spend about $500,000 in attorneys’ fees fighting the class-action lawsuit.
“This case is typical of how these fax cases can be extremely dangerous,” said Joshua Anderson, an attorney at the global law firm Womble Bond Dickinson. Anderson, whose practice includes representing clients in TCPA cases and compliance, operates from Womble Bond’s office in Costa Mesa, California.
The TCPA statute calls for a $500 penalty per violation, unless a judge finds “willful or knowing” conduct, then the penalty can be $1,500 per violation, said Anderson, who was not familiar with the facts in Kalsky’s case.
Anderson said there are “multiple layers of defense” in TCPA cases, but they need to be handled carefully.
Off to a Bad Start
Kalsky will be the first to say that he didn’t handle the M.S. Wholesale case correctly. He didn’t hire an attorney after he was served with the complaint, which was filed Oct. 15, 2015. Since no attorney represented Kalsky or Gen-Kal, the plaintiff’s request for class certification sailed through without an objection and was approved by Pope County Circuit Court Judge Ken Coker Jr.
M.S. Wholesale was appointed class representative and its attorneys were named co-lead class counsel.
After that, neither Kalsky nor Gen-Kal answered three questions from M.S. Wholesale’s attorneys. The key one was: “Please admit that you sent a minimum of 25,000 faxes since October 15, 2011, which do not contain the required TCPA opt-out disclosures required by law and identified in the Complaint.”
Without a denial in the record, the statement was accepted as true, allowing M.S. Wholesale to obtain the judgment on behalf of class members without a trial. In its motion for summary judgment, M.S. Wholesale said “it is undisputed” that a minimum of 25,000 noncompliant faxes — at $500 per violation, adding up to $12.5 million — were sent to class members nationwide.
No evidence that any other business received a fax was ever presented, and no other members of the plaintiff class have been named.
Judge Coker said in his ruling that if any of the judgment is collected, the attorneys will have to file a plan on how to distribute the money to the class members. He also then would rule on their attorneys’ fees and costs, which would be deducted from the amount recovered from Kalsky and his company.
Streett declined to comment on Kalsky’s case because it’s pending. But he did note that his firm devotes a portion of its practice to stop the flood of junk faxes and emails, which “can paralyze a small business.”
Todd Henderson, a law professor at the University of Chicago Law School, said the TCPA statute, enacted by Congress in 1991, was “a very bad fix” to try to address the problem of unwanted faxes or calls. He said the TCPA statute sweeps up people who are not engaging in telemarketing fraud.
And the overbroad statute was made worse because it allows the government to outsource enforcement to private lawyers, who have an objective of getting “as much fees as they possibly can,” Henderson said.
Streett said he thinks it’s going to take a combination of state and federal oversight and legal action by individuals to stop the blast messages.
“It’s a huge impact in a small business,” Streett said. “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.”
The complaint Streett filed against Gen-Kal on behalf of M.S. Wholesale alleged no actual damages. The fax itself included valid contact information and even instructions for how to be removed from the fax distribution list, although that language didn’t comply with the exact requirements of the TCPA.
Professor Henderson said the TCPA’s definition of misconduct is extremely broad and covers everything from IRS scammers to business developers. He encouraged companies to consult a lawyer before faxing or making calls to generate business.
“This is a pitfall and you need to be careful,” Henderson said.
The Hunt for Junk Faxes
About four and a half years ago, Streett said, his law office was “virtually paralyzed” by a combination of telemarketers, spam emails and junk faxes. He said one junk fax used all the fax machine’s paper, resulting in the law firm missing an order from a judge.
“We had a firm meeting and decided we were going to devote a portion of our practice to try and stop it,” Streett said. It’s not a large part of its practice, but “anytime anybody has a complaint on these, we’ve been willing to take it on.”
It’s not clear from the record whether M.S. Wholesale was solicited as a plaintiff or whether it sought legal representation after receiving the single fax on which its complaint rested.
Most of the time, Streett said, the senders of junk faxes are hard to find because they hide behind shell corporations or have fake offshore phone numbers. (This was not the case with Gen-Kal.)
In general, if he’s able to find the person sending the fax, the cases can be “resolved very quickly,” Streett said. And in those cases, the business owners “give assurances that they’re going to stop. That’s usually the end of the case.”
‘This Complaint Is Ridiculous’
After being served with the M.S. Wholesale lawsuit, Kalsky fired off a letter to the Pope County deputy clerk, denying M.S. Wholesale’s allegations that he violated the statute by sending the fax.
He said he received permission to fax advertisements to the company in 2005, and he’s been sending faxes to M.S. Wholesale and other customers for years.
“I stock pipe all around the country, and everybody [sends faxes],” Kalsky told Arkansas Business. “It’s an industry norm.”
In his letter to the deputy clerk, Kalsky said a toll-free phone number was listed on the fax, and M.S. Wholesale could have called or emailed Gen-Kal and asked to be removed from the list of recipients.
He also wrote in the response that he wanted to bill M.S. Wholesale $1,000 “for the time expended on this attempt to extort money from me. This complaint is ridiculous.”
Judge Coker treated that letter from Kalsky as an answer to the lawsuit, and the case moved forward.
Kalsky didn’t respond to another filing. Kalsky told Arkansas Business that he didn’t hire a lawyer at that time because “I thought it was a bunch of crap.”
After the judgment was entered, Kalsky hired Chris Burks, who asked that it be set aside.
Burks argued that “Mr. Kalsky could not have answered on behalf of the corporation because he is not a lawyer.” A person who isn’t a lawyer can’t represent someone else or a corporation in a lawsuit, he said.
Andrew Klein, an attorney in Washington, D.C., who also is representing Kalsky, said the letter Kalsky wrote to the deputy clerk should have been treated as if it didn’t exist because Kalsky can’t represent his company in court.
If anything, Klein said, the case should have ended with a default judgment for the single fax to M.S. Wholesale, resulting in a $500 penalty.
“To allow a case like this to not only proceed, but then to allow a judgment for that amount with zero proof of anything beyond one fax is just insane,” Klein said.
Nevertheless, Coker kept the judgment in place.
Brian Brooks of Greenbrier, an attorney representing M.S. Wholesale and the class members in the appeal, said in his filing that the judgment should stand because Kalsky and his company waited too long after the judgment was entered to ask that it be set aside.
“It is beyond question that, at the time the motion for summary judgment was decided, the TCPA required opt-out notices on all facsimile advertisements and Defendants violated that law,” Brooks wrote. “The only thing Defendants are victims of is their own decision to commit widespread TCPA violations then refuse to participate in this lawsuit.”
The appeal isn’t expected to be heard until the end of the year.
Streett and Leniski have also landed a default judgment in a case brought by M.S. Wholesale against Diversified Safety Industries of Boynton Beach, Florida. Another client, Davis Neurology of Russellville, received a similar default judgment against National Billing Co. of New York.
In those cases, the plaintiffs each were awarded $1,500 and the attorneys’ fees were $25,000 — roughly 17 times the amount given to the nominal victims. Streett said he wasn’t seeking to enforce the judgment against Diversified Safety Industries because it promised to stop sending mass faxes. Davis Neurology’s judgment will likely never be collected, he said.
But Streett and Leniski have been aggressively seeking to enforce the $12.5 million judgment by hunting for assets of Kalsky or his company.
Kalsky said a payroll account containing $82,400 was seized, and four of his customers received garnishment letters, resulting in money that was supposed to go to Gen-Kal going instead to satisfy the judgment.
The company generated $3.2 million in gross revenue in 2015, according to Gen-Kal’s bankruptcy filing.
“I have put my life savings into the company to grow it,” Kalsky said in an email to Arkansas Business.
“The success of my company and the welfare of my eight employees has been my life’s work.”
Two lawsuits related to the Arkansas judgment are pending against Kalsky and Gen-Kal in New Jersey.
One seeks to enforce the judgment, and Klein said no determination had been made in that case.
In another proceeding, the plaintiffs received an order granting the sale of Kalsky’s home, Klein said. “We’ve had that order stayed because the judge realized that there’s still questions about the validity of the judgment that has to be answered both in Arkansas and New Jersey,” he said.
Gen-Kal also filed the Chapter 11 bankruptcy reorganization in an effort to stay the judgment, Kalsky said.
“I’m trying to operate and limp through as best I can,” Kalsky said. “It’s devastating. … The sad part is even if I win, I lose, because they’ve ruined my business.”