High-stakes case pits small firm against plaintiff's bar, FCC

Doug Walburg has a $16 million problem, and it's all because of a seemingly nondescript fax.

For the better part of six years, the small White Bear Lake publisher of legal directories has been fighting a lawsuit involving a former potential customer who agreed to receive a fax advertisement from Walburg's company but then sued when the fax failed to include boilerplate opt-out language to ban the receipt of future faxes.

Confused? So is Walburg, whose financial loss could reach $48 million if a federal court determines that he intentionally omitted opt-out language on faxes to all of his business contacts.

"This is nuts. The guy asked for a fax and then turns around and sues me," said Walburg, the owner of Mariposa Publishing, which has been selling legal handbooks for 30 years. The company employs six, including Walburg and his wife, and does about $1 million a year in sales.

The case has become a cause célèbre among small-business advocates and experts in the area of telephone privacy who see the Walburg case as potentially damaging to all businesses.

"This fits pretty high on the outrage meter," said Karen Harned, executive director of the Small Business Legal Center for the National Federation of Independent Business. "This is a harassment tool that puts you in the position of presumed guilty until you've shown your innocence."

Mariposa Publishing produces legal handbooks that provide telephone numbers and contact information for federal, state, county and municipal courts in six different states, including Minnesota and Missouri. The books cater to law firms and are specific to each of the states in which they are sold.

Permission granted

Walburg's legal odyssey began in 2007 with a simple phone call from his one-person sales staff to the office of attorney Michael Nack, a prospective client in the St. Louis area.

"Can we fax you an advertisement for our legal directory?" asked Walburg's sales rep after a three-minute explanation about the product and a request for the Missouri attorney's fax number.

Yes, Nack's office replied.

But the next thing Walburg knew about Nack came when a process server appeared on the doorstep of his Mahtomedi home and handed Walburg a 14-page lawsuit accusing him of fraud and deceptive practices for violating a rule of the Federal Communications Commission under the federal Telephone Consumer Protection Act.

"I didn't think I'd done anything wrong," Walburg said in an interview in late December.

Indeed, at the start of the litigation, it appeared Walburg would be exonerated for his fax communication with Nack when a judge in U.S. District Court in Missouri dismissed the case.

But the Eighth U.S. Circuit Court of Appeals ruled in May 2013 that Walburg's fax to Nack was not in compliance with a 2006 requirement adopted by the FCC that even solicited faxes needed an opt-out clause to prevent possible future fax communications.

The FCC concurred in a brief it filed with the appeals court. That decision keeps the proposed class-action lawsuit against Walburg alive. Walburg's attorneys have filed a petition to have the case heard by the U.S. Supreme Court. A decision on whether the high court will hear the case is expected in January.

In their petition, Walburg's attorneys argue that the "practical consequences" of not overturning the Eighth Circuit Court decision "is to permit parties to obtain crippling monetary damages on the basis of unlawful FCC regulations."

Absent consent by the high court to hear the case, Walburg will need a change of heart by the FCC.

Restaurant analogy

In response to an e-mail from the Star Tribune, the FCC said it has several requests before it to change the opt-out clause and that the rule is under review.

Nack referred questions about his lawsuit to his attorney, Max Margulis of Chesterfield, Mo., a St. Louis suburb.

"My client didn't want to receive any more faxes," said Margulis, who specializes in bringing lawsuits under the Telephone Consumer Protection Act. "Once you give permission, you give it until you revoke it."

"It's like asking a restaurant what is on the menu and now they have your fax number and now they send you a menu weekly," Margulis said. "You need an opt-out clause on the bottom of that first menu so you're not getting one every week."

But attorney Bryan Clark disagreed. He posted a blog entry after the appeals court ruling titled "Opting Out of Common Sense."

"We think there is a strong argument to the contrary," Clark said of the appeals court decision.

In an interview Clark, who works in the Chicago office of Kansas City-based Lathrop & Gage, said the ruling on the opt-out issue is particularly tough on small- and medium-sized companies while advantageous to class-action attorneys.

Penalty — $500 per fax

"If you're on the plaintiff's side, it's easy to focus on companies that are engaged in pushing the boundaries but the real risk to medium and small businesses is that they don't have the resources to keep apprised of the regulations," Clark said. "You're getting tagged with a situation that could possibly put a small company out of business."

In the lawsuit against Walburg, Margulis asserted that recipients of unwanted faxes "lose the use of [their] fax machine, paper and ink toner."

The penalty for failing to include an opt-out clause is $500 per fax or $1,500 per fax if the omission is found to be intentional.

After he was served with the Missouri lawsuit, Walburg had to produce approximately 15,000 internal files so Margulis could determine how many faxes were sent out from his office in violation of the 2006 FCC rule. He found nearly 33,000 such instances.

If class-action status is granted in the case, the potential fine Walburg faces ranges from $16 million to $48 million.

"He'll own the company if that happens," Walburg said of Nack and the lawsuit.

David Phelps • 612-673-7269