This article originally appeared in the March 2024 issue of Security Business magazine. Don’t forget to mention Security Business magazine on LinkedIn and @SecBusinessMag on Twitter if you share it.
As a lawyer, part of my job is to rain on everyone’s parade and tell them the limits of the law. Every good lawyer does this, and sometimes, those receiving the advice heed it. Sometimes not.
In large sales organizations, there is often tension between what sales personnel want to do and what the lawyers tell them they are permitted to do. Security integrators are not exempt from this reality – because, at their core, they want to make sales.
Their lawyers want them to make sales too, but within the bounds of the law. Some companies in our industry have run afoul of this balance, and based on current developments in the law, it appears those consequences can be severe. So it was for security-giant Vivint Smart Home in a recent case in federal court in North Carolina.
Deceptive Sales Comes to Judgment
In 2020, CPI Security Systems, one of the largest privately-held security providers in the Southeast, sued Vivint in the U.S. District Court for the Western District of North Carolina, alleging that Vivint used deceptive sales practices to take over some of CPI’s existing customers and bind them to multi-year contracts with Vivint.
Specifically, CPI alleged that Vivint’s sales representatives deceptively induced CPI customers to switch by falsely telling customers they were affiliated with CPI, that Vivint was purchasing or had purchased CPI, that Vivint was “taking over” the CPI customer accounts, that Vivint manufactures CPI’s equipment, that Vivint needed to upgrade CPI’s system, and/or that Vivint was acting on CPI’s behalf. This, CPI alleged, induced CPI customers to sign long-term contracts with Vivint. CPI also alleged that Vivint made it difficult for customers to cancel their contracts, leading many CPI customers to be bound to two companies and frustrated with both.
At the conclusion of a 2023 trial, a jury rendered a verdict in favor of CPI and against Vivint for more than $189 million. Of that amount, approximately $49 million was for compensatory damages and $140 million was for punitive damages. Clearly, the jury intended to punish Vivint.
Approximately one month after the verdict, Vivint made a multi-faceted motion at the trial court for a new trial and to alter the judgment. Vivint made a series of technical legal and evidentiary arguments in support of its position.
On Jan. 8, 2024, the trial court denied Vivint’s motion in full, declining to grant a new trial or to alter the jury’s sizeable verdict, including the punitive damages. Vivint is pursuing an appeal.
The Takeaway for Integrators
Whatever happens next in this case, the lesson is clear: Security integrators must not use deception to make sales. Indeed, security service customers are especially vulnerable, because nefarious salespeople can play off the fear that customers naturally have when they are falsely told they will be left without a functioning security system or monitoring service.
Telling a customer that their provider is bankrupt or was sold is a tactic that I have seen in my experience and addressed through litigation, just as CPI did. Sales tactics that prey on the fears of vulnerable customers will not be looked upon favorably by judges or juries, as the very large punitive damage verdict in the CPI/Vivint case proves.
So, while your lawyers are busy raining on your parade and trying to keep your company from the fate Vivint is facing in its fight with CPI, just keep marching, listen to your lawyers, moderate and regularly review sales practices, and enjoy the parade.
Timothy J. Pastore Esq., is a Partner in the New York office of Montgomery McCracken Walker & Rhoads LLP (www.mmwr.com), where he is Vice-Chair of the Litigation Department. Before entering private practice, he was an officer and Judge Advocate General (JAG) in the U.S. Air Force and Attorney with the DOJ. [email protected] • (212) 551-7707
