Paldo Sign and Display Company v. Wagener Equities, Incorporated

In the

United States Court of Appeals

For the Seventh Circuit

No. 15-1267

PALDO SIGN AND DISPLAY COMPANY,

Plaintiff-Appellant,

v.

WAGENER EQUITIES, INCORPORATED

and DANIEL WAGENER,

Defendants-Appellees.

Appeal from the United States District Court for the

Northern District of Illinois, Eastern Division.

No. 1:09-cv-07299 — John J. Tharp, Jr., Judge.

ARGUED MARCH 30, 2016 — DECIDED JUNE 16, 2016

Before WOOD, Chief Judge, and POSNER and ROVNER, Circuit

Judges.

ROVNER, Circuit Judge. Paldo Sign and Display Company

(“Paldo Sign”) filed suit under the Telephone Consumer

Protection Act (the “Act”), 47 U.S.C. § 227(b)(1)(C), against

Wagener Equities, Inc. and Daniel Wagener, seeking statutory

damages after Paldo Sign received an unsolicited facsimile

2 No. 15-1267

advertisement promoting Wagener Equities’ services. After the

district court certified a class of more than ten thousand

plaintiffs who had received the offending ad, a jury returned

a special verdict finding that Wagener Equities had not

“authorize[d] the fax broadcast transmission,” and that Daniel

Wagener did not “have direct, personal participation in the

authorization of the fax broadcast transmission.” On the basis

of those findings, the court entered judgment in favor of the

defendants. Paldo Sign appeals, claiming error in the jury

instructions and also in an evidentiary ruling. We affirm.

I.

In late 2006, Daniel Wagener received a telephone call from

a man who identified himself as a representative of Marketing

Research Center, a provider of advertising services. The man

offered to create and send drafts of advertisements for

Wagener Equities. Wagener agreed to accept and review any

proposed ads. Wagener then received a four page fax from

Marketing Research, consisting of a cover page, a pricing chart,

and two sample fax advertisements for Wagener Equities. The

cover page stated that Marketing Research would not send out

any ads unless Wagener returned an advertisement to Market-

ing Research with the words “ad ok” and a client number

written on the approved ad. After Wagener received the

proposal, a man who identified himself as Kevin Wilson from

Marketing Research called. Wagener told Wilson that he did

not like either of the sample ads.

Wilson then agreed to provide Wagener with a contact list

of potential recipients of the ad, as well as a new ad based on

a rough draft mailer that Wagener provided. Wilson instructed

No. 15-1267 3

Wagener to fax a copy of a check written to Marketing Re-

search as a show of good faith, and Wilson would then send

the draft contact list. Wagener wished to review it to verify that

the potential recipients were businesses that would be inter-

ested in the type of services Wagener Equities provides, and

that they were located in the relevant geographical region.

Wagener also wanted to review the final ad before any faxes

were sent to ensure the quality. After faxing a copy of a check

as instructed, Wagener did not receive a draft contact list or a

final ad for his approval. And although Wagener never sent

Marketing Research an approved ad with the words “ad ok”

and a client number, he was surprised to find that a fax

advertisement had been transmitted to thousands of recipients

without his approval. The ad consisted of the rough draft

mailer that he had provided to Wilson as well as ads for

“Business-to-Business Solutions” or “B2B,” another name

under which Marketing Research operated. Wagener immedi-

ately tried to contact Wilson but could not reach him and

received no response from him. When Wagener then learned

that an employee of Wagener Equities had mistakenly mailed

the check to Marketing Research, he instructed the employee

to issue a stop order for the check. Wagener’s bank successfully

implemented the stop order and Wagener never heard from

Marketing Research again.

But the damage had been done. The ad had been faxed to

more than ten thousand recipients, including Paldo Sign, the

plaintiff here. Marketing Research, which sometimes went by

the name B2B, was not a company at all, but was actually a

one-woman operation run by Caroline Abraham out of her

home with the technical assistance of a Romanian company

4 No. 15-1267

named Macaw.1 Kevin Wilson was an alias for Conor Melville,

the nephew of Abraham’s husband, and Wilson was an

independent contractor for Macaw. Another sales representa-

tive known to Wagener as “Steve Brennan” was Terence

Melville, who worked for Macaw as well. Business-to-Business

Solutions, also known as B2B, was an alias originally created

by Abraham to accept funds paid to Macaw in the United

States. She eventually began to use the name for her fax

advertising business, which grew out of her relationship with

Macaw. Macaw had been sending fax advertisements from

Romania, but with Abraham’s assistance, they were able to

facilitate fax advertising services out of her Brooklyn home.

Sending unsolicited fax advertisements is generally

prohibited by the Telephone Consumer Protection Act,

47 U.S.C. § 227(b)(1)(C), which subjects the sender to a statu-

tory penalty of $500 per violation. With more than ten thou-

sand recipients of the unsolicited fax, Wagener was thus

exposed to potential damages exceeding five million dollars.

The Act provides, in relevant part, that it is unlawful for any

person to send an unsolicited fax advertisement unless (1) the

sender of the unsolicited ad has an established business

relationship with the recipient; (2) the recipient voluntarily

made its fax number available to the sender through statutorily

specified means; and (3) the unsolicited advertisement contains

a statutorily-compliant notice allowing the recipient to opt out

of receiving future fax advertising. The fax ads sent in this case

did not comply with these statutory requirements.

1

Abraham testified that Marketing Research Center did not exist at all as

a business entity but was just a name used on letterhead.

No. 15-1267 5

Prior to trial, the district court granted Paldo Sign’s motion

for partial summary judgment, finding as a matter of law that

the fax sent was an “advertisement” as that term is defined by

the Act, that the fax was sent to 10,145 fax numbers, and that

it was sent without the recipients’ consent. The only issue that

remained for trial was whether Wagener and Wagener Equities

were liable under the Act as the “senders” of the fax even

though it was actually transmitted by Caroline Abraham doing

business as B2B.

There were only two witnesses at trial. Paldo Sign pre-

sented the testimony of Caroline Abraham by having her

deposition read to the jury and called Daniel Wagener to testify

during the plaintiff’s case-in-chief. Daniel Wagener also

testified for the defense on behalf of himself and Wagener

Equities. Documentary evidence included the faxes sent to

Wagener, including sample ads, prices, and a “Welcome

Aboard” letter with instructions on starting up the fax cam-

paign. As we noted above, a jury concluded that Wagener and

Wagener Equities were not liable for sending the faxes, and the

court entered judgment for the defendants. Paldo Sign appeals.

II.

On appeal, Paldo Sign challenges the jury instructions

regarding sender liability and also contends that the district

court abused its discretion in allowing testimony by Caroline

Abraham that, prior to running B2B, she operated a diploma

mill. We review de novo whether a challenged jury instruction

fairly and accurately summarized the law, but the trial court's

decision to give a particular instruction is reviewed for an

abuse of discretion. United States v. Lawrence, 788 F.3d 234, 245

6 No. 15-1267

(7th Cir. 2015). We will reverse only if the instructions, taken

as a whole, misled the jury. United States v. Curtis, 781 F.3d 904,

907 (7th Cir. 2015). We review the district court's evidentiary

rulings for abuse of discretion. Griffin v. Bell, 694 F.3d 817, 826

(7th Cir. 2012); Everroad v. Scott Truck Sys., Inc., 604 F.3d 471,

475 (7th Cir. 2010).

A.

The regulations implementing the Act specify that “[n]o

person or entity may … [u]se a telephone facsimile machine,

computer, or other device to send an unsolicited advertisement

to a telephone facsimile machine, unless” certain conditions are

met. 47 C.F.R. § 64.1200(a)(4). In turn, the regulations define

the “sender” as “the person or entity on whose behalf a

facsimile unsolicited advertisement is sent or whose goods or

services are advertised or promoted in the unsolicited adver-

tisement.” 47 C.F.R. § 64.1200(f)(10). After the district court

granted partial summary judgment prior to trial, the only issue

remaining for the jury was whether Daniel Wagener and

Wagener Equities qualified as “senders” of the faxes when B2B

was the entity that actually transmitted the faxes.

In instructing the jury on the meaning of “sender,” the

district court rejected a reading of the statute and regulations

that imposed strict liability. The court instructed:

In this case, Paldo Sign claims that Wagener

Equities and Dan Wagener violated the Tele-

phone Consumer Protection Act on or about

November 9th, 2006, by authorizing a third-

party sender, Business to Business Solutions,

also known as B2B, to send a facsimile advertise-

No. 15-1267 7

ment on behalf of Wagener Equities to approxi-

mately 20,000 recipients, one of which was

Paldo Sign. I will refer to the sending of that

facsimile advertisement as the fax broadcast

transmission.

As I told you at the outset of this trial, there are

two issues that you must decide in this case. The

first is whether defendant Wagener Equities

authorized the fax broadcast transmission, and

the second is whether defendant Dan Wagener

had direct, personal participation in the authori-

zation of the broadcast transmission.

As used in these instructions, the word “autho-

rized” or the word “authorization,” and you will

see that authorization is in brackets, authorized

means caused by words or conduct the fax

broadcaster, B2B, to believe reasonably that

Wagener Equities approved the sending of the

fax broadcast transmission. It does not mean

that Wagener Equities approved the recipients

of the fax broadcast transmission.

Similarly, authorization means the causing of by

words or conduct the fax broadcaster, B2B, to

believe reasonably that Wagener Equities ap-

proved the sending of the fax broadcast trans-

mission. It does not mean that Wagener Equities

approved the recipients of the fax broadcast

transmission.

R. 319 at 247-48.

8 No. 15-1267

Paldo Sign argues that the court should have confined the

definition of “sender” to the language of the regulation.

According to Paldo Sign, the court’s instruction instead

imported a common law vicarious liability standard through

the use of the word “authorized,” which required the jury to

find something more than B2B sending the advertisements “on

behalf of” Wagener and Wagener Equities. Paldo Sign also

contends that the court’s use of agency analysis conflicts with

cases from other circuits.

After the appeal was briefed, we issued an opinion in a

very similar case that also involved sender liability for a

company that used the services of B2B for fax advertising. See

Bridgeview Health Care Ctr., Ltd. v. Clark, 816 F.3d 935 (7th Cir.

2016). In Clark, we rejected a reading of the regulations that

would impose strict liability on a company whose goods or

services were advertised, recognizing that this would lead to

absurd and unintended results. 816 F.3d at 938. For example,

if a competitor of Wagener Equities sent out ten thousand

unsolicited fax advertisements promoting Wagener’s services,

the resulting lawsuit could bankrupt Wagener even though

Wagener played no part in sending the faxes. Although the

literal language of the regulation suggests that such a result is

possible, we noted that to be liable as a sender, a person must

have done something to advertise goods or services. Citing

47 C.F.R. § 64.1200(f)(10), we ultimately held that “agency rules

are properly applied to determine whether an action is done

‘on behalf’ of a principal.” 816 F.3d at 938.

The instruction given by the district court required the

plaintiffs to prove that Wagener and Wagener Equities “caused

by words or conduct the fax broadcaster, B2B, to believe

No. 15-1267 9

reasonably that Wagener Equities approved the sending of the

fax broadcast transmission.” R. 319 at 247-48. That language is

consistent with the agency analysis we applied in Clark. We

noted in Clark that for the plaintiff to prove express, actual

authority, the defendant “must have directly spoken or written

to B2B, telling it to send … fax ads across multiple states.”

Paldo Sign’s theory of the case2 was that Wagener took all the

steps listed in B2B’s “Welcome Aboard” fax to initiate the

advertising campaign, and that Wagener is therefore liable as

a sender. Wagener defended by noting that the initial fax

indicated that no advertisement would be sent without his

final approval, that he had an agreement with Wilson to

review the contact list and final ad before any faxes went out,

and that the faxes were sent without an opportunity to review

the contact list or to approve the final content and form of the

ad. The jury apparently credited Wagener’s testimony that he

had told B2B not to send any ads without his final approval

and an opportunity to review the contact list. As in Clark,

“[b]ecause B2B expressly contradicted [defendant’s] actual

instructions, this is clearly not express actual agency.” Clark,

816 F.3d at 939. Paldo Sign did not argue that the faxes were

sent under Wagener’s implied or apparent authority, and so

the jury instructions given were a correct and complete

statement of the law. Paldo Sign gives us no reason to doubt

the holding of Clark. We conclude that the challenged jury

2

Paldo Sign initially also pursued a strict liability theory, that Wagener was

liable because Wagener Equities’ goods and services were promoted in the

faxes. Paldo Sign appears to have dropped that argument on appeal. In any

case, we clearly rejected strict liability in Clark, and so we need not address

that theory further.

10 No. 15-1267

instruction fairly and accurately summarized the law, and that

the trial court did not abuse its discretion in giving this

particular instruction. Lawrence, 788 F.3d at 245; Curtis, 781 F.3d

at 907.

B.

In seeking to prove its case, Paldo Sign relied on documen-

tary evidence and the testimony of Abraham and Wagener.

Abraham, whose testimony was presented by deposition, was

the sole proprietor of the fax advertising business that she ran

under the names B2B, Business to Business Solutions and

Marketing Research Center. Paldo Sign called Wagener as an

adverse witness in hopes of establishing that he was the person

who caused the faxes to be disseminated, that he was the

“sender” as that term is used in the statute and regulations.

Needless to say, Abraham’s testimony was key to Paldo Sign

proving its case.

Abraham testified extensively about how she ran her fax

advertising business with the assistance of a Romanian

company, Macaw, and their independent contractor sales

personnel, including Kevin Wilson. She explained the sales

process and the regular business practices of the enterprise.

Abraham drafted all of the business documents for the

venture, including the sales materials that were transmitted to

potential customers such as Wagener. At various points in her

testimony, counsel asked Abraham whether she strove to be

truthful and accurate in her business communications, and she

consistently affirmed that she did. R. 318 at 67 (“I’m assuming

you wanted to be truthful in your representations of the

wording on those documents, correct?” “Yes.”); R. 318 at 68

No. 15-1267 11

(“And all of those documents that provided the process for

those fax advertisement services were accurate and truthful,

correct?” “Yes.”); R. 318 at 70 (“Again, you wanted to be

truthful and make accurate representations about the process

in that [payment] letter, correct?” “Yes.”). Abraham also

testified that she sent out the payment letter to Wagener under

Wilson’s name and that she did not show the letter to Wilson

first. The payment letter instructed the recipient on the steps to

take to initiate the fax campaign. When asked whether there

was any indication from Wilson that he agreed that the

payment letter set forth the terms of his arrangement with

Wagener, she replied, “Only the fact that I wrote it based on

what he told me about. I wouldn’t have written anything else.”

R. 318 at 99. Paldo Sign never called Wilson to testify. Aside

from Wagener’s testimony, the only information presented to

the jury regarding agreements between Wilson and Wagener

came from inferences that could be drawn from Abraham’s

testimony and from faxes sent to Wagener purportedly by

Wilson (which were actually sent by Abraham). The plaintiff

thus made Abraham’s credibility the centerpiece of its case.

In questioning Abraham about her business background,

counsel engaged in the following exchange with Abraham:

Q. Did you have any involvement in something

called university degree program?

A. Yes. Years before that.

Q. What was that business about?

12 No. 15-1267

A. That was a diploma mill selling diplomas to

people based on work experience and life expe-

rience as opposed to classes.

Q. Were you the owner of that business entity?

A. No.

Q. Who was the owner of that business entity?

A. There were a number of different companies

connected different ways. I don’t remember

being an actual owner, but I was in charge of a

lot of it.

Q. Who was the owner? Do you know?

A. I don’t know. I don’t remember how it was

set up. My husband and I, we were the people

running the whole thing.

Q. You indicated you were the sole employee of

or owner representative for that entity, correct?

A. Yes.

R. 318 at 63. The exchange occupied less than one page in

testimony lasting fifty-eight pages.

Prior to trial, Paldo Sign moved to exclude Abraham’s

testimony that she had run a diploma mill, arguing that the

testimony amounted to inadmissible character evidence of a

prior bad act, that it was unrelated to the events at issue in the

case, and that it was too remote in time to be relevant. On

appeal, Paldo Sign adds that, although the testimony con-

cerned a prior unrelated business, and did not suggest that the

business was deceitful to its customers, the defendants used

No. 15-1267 13

the evidence to argue that Marketing Research and its employ-

ees were generally inclined to defraud clients. Paldo Sign

contends that the court should have excluded the evidence

under Federal Rules of Evidence 404(a), which generally

prohibits evidence of a person’s character to prove that on a

particular occasion the person acted in accordance with that

character, and 608(b), which prohibits the use of extrinsic

evidence to prove specific instances of a witness’s conduct in

order to attack the witness’s character for truthfulness.

The district court did not abuse its discretion in admitting

the diploma mill evidence. The court ruled that the disputed

testimony was admissible

because Abraham admitted that the business

was a diploma mill which is a term that I don’t

find to be ambiguous as to its import. I think it

clearly refers to an acknowledgment that the

operation issued illegitimate diplomas. There

was an argument, well, they weren’t defrauding

the customer, certainly, but I don’t think that’s

the point. The point of a diploma mill is to issue

diplomas that are going to be used to misrepre-

sent the academic achievements of the people

who are buying them. She was in a business, by

her own admission, I think, that was facilitating

that process. I do find that to be quite probative

of her character for honesty. It’s not remote in

time.… It’s limited. This is the only excerpt I am

permitting on this subject, even though several

others were proposed that also touched on this.

And this will be brief. It does not require the

14 No. 15-1267

introduction and I am not permitting the intro-

duction of any further extrinsic evidence on the

point.

R. 305-3 at 9-10.

In arguing for the inadmissibility of the diploma mill

evidence, the plaintiff relies in part on Rule 404(a), but that rule

contains an exception for evidence admitted under Rules 607

and 608. Rule 607 provides that any party may attack a wit-

ness’s credibility. And Rule 608(a) provides in relevant part

that a witness’s credibility may be attacked by testimony about

the witness’s reputation for having a character for untruthful-

ness. The evidence admitted here comes squarely within those

two rules. Abraham’s testimony demonstrated a character for

untruthfulness because she admitted running a business whose

sole product was a deceitful document misrepresenting the

credentials of the person presenting it.3 She ran a business that,

in essence, sold lies. That evidence was highly relevant to her

character for untruthfulness, and her credibility was the key to

Paldo Sign’s case. Abraham emphasized in her testimony that

she sought to be truthful in all of her business documents. She

3

The Federal Trade Commission warns consumers that “there are some

organizations that peddle bogus degrees. A ‘diploma mill’ is a company

that offers ‘degrees’ for a flat fee in a short amount of time and requires

little to no course work. Degrees awarded through diploma mills are not

legitimate, and can cost you more than just your money.” See

https://www.consumer.ftc.gov/articles/0206-college-degree-scams (last

visited May 25, 2016). The FTC goes on to warn that persons using “a

so-called ‘degree’ from a diploma mill to apply for a job or promotion …

risk not getting hired, getting fired, and possible prosecution.”

No. 15-1267 15

testified that she wrote the payment letter according to the

terms communicated to her by the sales person, Kevin Wilson,

and that she would not have written it any other way. The

payment letter purportedly instructed Wagener on how to

commence the ad campaign, but the terms differed from those

to which Wagener said he agreed.

The plaintiff’s argument that the evidence somehow

violated Rule 608(b) misses the mark. Rule 608(b) prohibits

only the use of extrinsic evidence, not lines of questioning.

United States v. Dvorkin, 799 F.3d 867, 883 (7th Cir. 2015). And

the rule expressly affords the trial judge broad discretion to

allow such questioning regarding prior instances of conduct if

they are probative of the character for truthfulness or untruth-

fulness of the witness. Fed. R. Evid. 608(b); United States v. Holt,

486 F.3d 997, 1002 (7th Cir. 2007). As the district court noted,

no extrinsic evidence was allowed to prove specific instances

of misconduct. For example, there was no testimony by a

customer who purchased a diploma from Abraham’s business,

or a company that was defrauded when it hired an employee

on the basis of a fake diploma. The evidence was limited to

Abraham’s own admission that she ran a “diploma mill,” a

term that the district court acknowledged is not ambiguous.

This evidence was not extrinsic and so Rule 608(b) does not bar

it. See also United States v. Abair, 746 F.3d 260, 263-64 (7th Cir.

2014) (noting that Rule 608(b) bars extrinsic evidence of prior

conduct to undermine a witness’s credibility but gives trial

judges discretion to allow counsel to ask questions about that

conduct on cross-examination, subject to Rule 403). Nor did the

court abuse its discretion under Rule 403, which provides that

the “court may exclude relevant evidence if its probative value

16 No. 15-1267

is substantially outweighed by a danger of … unfair preju-

dice.” The court carefully limited the testimony to one brief

instance of Abraham’s prior conduct that the court found most

probative of her character for untruthfulness, and concluded

on balance that admission of this evidence was fair.

Paldo Sign also misses the mark in complaining that the

diploma mill testimony was used to undermine Wilson’s

credibility. Wilson never testified and so his credibility was not

at issue. In fact, it was Abraham who wrote the documents that

were sent under Wilson’s name. Wilson’s only role was to

engage in sale calls with Wagener, and Wagener was the only

witness presented by Paldo Sign with personal knowledge of

the content of those conversations. By relying so heavily on

Abraham’s testimony regarding the deal between B2B and

Wagener, Paldo Sign placed Abraham’s credibility, not Wil-

son’s, at the center of the case. The court did not abuse its

discretion in admitting her own limited testimony that she

previously ran a diploma mill, an admission that fairly called

her credibility into question.

AFFIRMED.