From left, C. Sanders McNew of McNew P.A., ADT's Daniel McGrath, and Eric Hobbs, Charles Eblen, Richard Sander and Kim Ross of Shook, Hardy & Bacon. Courtesy photo

Security company ADT has prevailed in a multimillion-dollar federal lawsuit against an alarm group they accused of engaging in unfair and deceptive business practices.

A jury in the Southern District of Florida reached a verdict awarding $4 million to ADT in its legal action against Alder Holdings, a Utah-based home security business owned and operated by Adam Schanz. Alder, Schanz and the subsidiary businesses listed in the complaint were accused by the plaintiff of instructing salespeople to present themselves as ADT-affiliated in order to persuade customers to purchase their alarms. According to ADT's second amended complaint, “defendants have persisted in selling alarm systems to ADT customers by using false representations of affiliation that have confused ADT's customers into believing that the defendants' sales agents somehow represented ADT and were visiting to upgrade the customers' existing ADT alarm systems” since 2012. Alder employees purportedly sought to push their products on houses sporting an ADT sign on their yards and driveways.

The lawsuit contended Alder's conduct disrupted ADT's relationships with its customers, allowed the defendants to be unjustly enriched at ADT's expense and damaged ”ADT's brand, goodwill and reputation as a reliable provider of security systems.” The plaintiff's general counsel, Boca Raton attorney Daniel McGrath, told the Daily Business Review this was not his employer's first bout of litigation with the defendants. The company had previously filed suit against Alder alleging their former name Alarm Protection Technology, or APT for short, was deliberately designed to confuse customers and invoke an association with ADT. Although “ADT lost and APT received a defense verdict,” a preliminary injunction was entered forbidding Schanz from conducting business under the APT name, prompting the switch to Alder.

However, McGrath said “ADT continued to get complaints of deceptive sales” from irate customers, prompting the company to file suit against Schanz and his businesses once more in 2015.

“Prior to that case going to trial we settled in a court-ordered settlement conference conducted before a federal magistrate,” McGrath said. Despite reaching a settlement in May 2017, “the number of customer complaints that we received regarding Alder's deceptive sales practices skyrocketed.” Simultaneously, the seemingly completed settlement collapsed.

“We could not get agreement on anything,” the attorney said. “They wouldn't agree on the settlement agreement, they wouldn't agree to the terms of the promissory note. … Ultimately the settlement that was negotiated in open court before magistrate Hopkins was never signed and documented.”

The ongoing conflict between the parties culminated in ADT filing a third lawsuit against Alder in the Southern District of Florida on Nov. 9, 2017. In addition to alleging unlawful business conduct, the three-count complaint also accused the defendants of violating a permanent injunction issued against them during the preceding bout of litigation.

“As part of the May 2017 settlement Alder also agreed to enter into a permanent injunction … agreeing to stop a list of deceptive sales practices,” McGrath said, noting the most recent trial concluded with the court entering a judgment of contempt against Alder for violating the order.

---

Read the verdict form:

---

ADT argued its case by bringing attention to Alder's internal practices as well as prior litigation filed against the company.

“We learned in discovery that Alder had maintained and tracked complaints made to them regarding their deceptive sales practices, which makes sense. If you're duped by someone, you call the person that duped you or the business that duped you, you don't call the business from which you were duped,” McGrath said, referencing that Alder had a higher volume of complaints than ADT, even though they had documented more than 900 complaints dating back to 2014. ”We learned at the time of the settlement Alder destroyed a spreadsheet that it maintained containing the complaint info regarding the complaints customers made to them. So that info was presented to the jury.” The attorney also said the jury was informed of lawsuits filed against Alder by other competing security companies as well as the state of Georgia concerning their conduct. McGrath said Alder's “lack of response to these activities” and ”failure to discipline or terminate employees” that had been found acting unscrupulously were all presented as pieces of their argument.

McGrath said the defense tried to present the case as a David and Goliath story, with ADT seeking to quash an upstart business muscling in on their market. The attorney also noted the defense maintained ADT's allegations didn't comport with their business structure and compensation model for sales representatives. He explained that Adler insisted because sales representatives wouldn't see financial benefits through customer cancellations, there were “no financial incentives for deceptive sales practices.”

As noted in their response to the plaintiff's motion for summary judgment, Alder contended ADT had also been noncompliant with the terms of the injunction and settlement, and “the entire lawsuit should then be stayed” as a result. Gunster, Yoakley & Stewart attorneys Michael Marcil and Jennifer Nicole served as legal counsel to the defense. Marcil said his client ” is alive and well and thriving” in an emailed statement to the Daily Business Review.

“ This is a case where ADT requested $54 million in compensatory damages plus over $6 million in punitive damages, and only received $4 million,” he said. “So ADT did not get what it wanted, which was to put Alder out of business.”

The verdict form returned by the jury divided ADT's $4 million award between $3 million in compensatory damages and $1 million serving as punitive damages. McGrath said although the company's legal efforts have proven costly both financially and time-wise, ADT is beginning to see their efforts pay off.

“We have seen, since 2014, a decrease in the number of complaints we have received summer over summer,” the attorney said concerning notice of Alder's business practices. “Our litigation efforts … are serving as a deterrent effect. And the ultimate goal is to stop this conduct in our industry and protect customers.”

Case: ADT and ADT US Holdings v. Alder Holdings et al.

Case no.: 9:17-cv-81237

Description: Lanham Act/Unfair competition

Filing date: Nov. 9, 2017

Verdict date: May 20, 2019

Judge: United States District Judge Robin L. Rosenberg

Plaintiffs attorneys: Charles Eblen, Richard “Chip” Sander and Eric Hobbs of Shook, Hardy & Bacon, Denver; Charles Sanders McNew, McNew P.A., Boca Raton

Defense attorneys: Michael Marcil and Jennifer Nicole of Gunster, Yoakley & Stewart, Fort Lauderdale

Verdict amount: $4 million