Enough Rope?: Gorss Motels Trapped by Counterclaim Alleging Manufacturing Lawsuits Amounts to Fraud

We’ve reported extensively on the saga of Gorss Motels and its long spiraling effort to certify TCPA unsolicited fax class actions. Gorss Motels has repeatedly failed in its bid to certify these cases following the FCC’s withdraw of its unsolicited fax rule, but it has recently succeeded in having the Eleventh Circuit cast serious doubt on the Hobbs Act’s viability following PDR Resources. So that’s interesting enough to justify the effort in my book.

But I may be alone here, as a new decision authorizing a fraud claim against the hotel operator certainly suggests.

In Gorss Motels, Inc. v. Illen Products LTD, Case No. 3:18-CV-01052 (AVC), Dkt No. 65 (D. Conn. Sept. 18, 2019) the district court allowed a fraud claim to proceed against the Plaintiff on a theory that it fraudulently signed up to receive information via fax from the very vendors it then sued for violating the FCC’s solicited fax rule. Simply stated: Defendant argued that the Plaintiff manufactured the TCPA suit by specifically requesting faxes that the Plaintiff hoped would be proven illegal to make some quick TCPA cash. And while those allegations are yet to be proven, if they turn out to be true it is safe to say that Gorss Motels picked on the wrong user of antiquated telecommunications technology here.

The Gorss Motels decision—available here Gorss Motels Order—  first walks through the Plaintiff’s history of soliciting faxes of the sort sent by the Defendant. It is a fascinating origin story for a frequent TCPAWorld cast member and well worth a read.

In broadstrokes: Plaintiff operated a franchise location of a familiar hotel chain. That hotel chain was purchased by another hotel chain that required the Plaintiff to purchase certain branded merchandise from franchise-approved vendors. But how is the hotel operator to know what merchandise is available?  You guessed right—sign up to receive faxes from the hotel chain’s approved vendors. And that is just what Gorss Motels did, allegedly. Apparently through various enterprising efforts to solicit faxes Gorss Motels netted over 2,000 faxes at least some of which were (allegedly) solicited solely for the purpose of setting up a lawsuit.

Rather than put up with these (alleged) shenanigans, the Defendant in Gorss Motels fired back—filing a counterclaim asserting various forms of fraud. Well the Plaintiff moved to dismiss the counterclaim making a handful of interesting arguments, which lead to the decision we’re discussing now.

First, Plaintiff argued that the fraud claim was not really a fraud claim but just a vexatious litigant complaint in disguise. Although I’m not sure why that’s any better than being sued for fraud, the Court rejected the argument straightaway. The counterclaim is for fraud. So the Court must determine whether the elements of fraud are met. The end.

Next, the Court holds directly that the factual predicate supporting the claim is sufficient to meet Rule 9’s heightened standards for alleging fraud. Here the Court absolutely does not mince words:

[t]he complaint sufficiently alleges motive and opportunity to commit fraud and facts that constitute strong circumstantial evidence of conscious misbehavior or recklessness, thereby meeting the “strong inference of fraudulent intent” standard.”

Translation: if the facts alleged are true, a jury might find Gorss Motels did, indeed, knowingly commit fraud. That’s strong medicine.

Turning to some more gory details, in addressing whether Plaintiff had actually made a “misrepresentation” to the Defendant, the Court looked at the repeated pattern of (alleged) behavior: “Gorss provided their fax number to Wyndham on at least five different occasions and Gorss received fax advertisements from Wyndham about the products of Wyndham-approved providers… beginning in 2010, Gorss consulted with their attorneys and began to regularly collect faxes from Wyndham-approved suppliers and send bundles of faxes to their attorneys ‘for the sole purpose of manufacturing TCPA claims.’ Indeed, Gorss did file TCPA claims against Imprint Plus and other Wyndham-approved suppliers.”

Down to brass tacks: “Based on these facts, Imprint Plus alleges each time Gorss agreed to abide by the branding obligations, provided their fax number, failed to follow the opt-out instructions on the fax advertisement, and failed to contact Wyndham, Gorss made a false material representation that they welcomed receipt of the fax advertisements.”

And the conclusion:

The court concludes that Imprint Plus alleged sufficient facts to support its allegation that Gorss’s failure to either follow the opt-out instructions on the fax advertisements or call Wyndham to notify them that they no longer wanted to participate in the Fax Program was done to induce Wyndham and its approved suppliers to continue to send fax advertisements related to Gorss’s branding obligations.

Message received.

Critically, the Court found that the counterclaim can survive even if the underlying TCPA claims are valid. In other words, a Plaintiff can be liable for fraud even if they have a real TCPA case. How about that!

This is quite the win for the Defendant against a serial TCPA Plaintiff, but much work remains to be done.  It remains to be seen if the allegations have merit—and we shouldn’t jump to conclusions—but the sheer volume of cases brought by Gorss Motels, and the repeatedly-advanced theory that even a solicited fax can violate the TCPA, does leave one to wonder if the counterclaim might have some merit.

We’ll keep an eye on this one.


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