Appeals Court affirms $189 million ruling for Charlotte-based firm in home security fight

The 4th US Circuit Court of Appeals has upheld a $189.7 million award to Charlotte-based CPI Security in a legal battle with competitor Vivint Smart Home.

“When a business deliberately engages in widespread unfair competition against one of its rivals over a period of years, the consequences can be expensive,” Judge Paul Niemeyer wrote Tuesday for a unanimous three-judge appellate panel. “In this case, a jury found that Vivint Smart Home, Inc., a home security company, did just that against CPI Security Systems, Inc., a competing home security company, and awarded CPI a total of $189.7 million in compensatory and punitive damages.”

“The jury heard evidence that Vivint salespersons regularly and deliberately lied to CPI’s customers to induce them to become Vivint customers,” Niemeyer continued. “More specifically, Vivint salespersons told CPI customers that Vivint had purchased CPI and would be taking over their accounts, that CPI was otherwise going out of business and would no longer be monitoring their alarm systems, and that Vivint had manufactured their equipment and needed to upgrade their systems.”

“As a result, Vivint was able to lure away many CPI customers, causing CPI substantial losses,” the 4th Circuit opinion added. “The jury returned a verdict finding that Vivint (1) violated the Lanham Act, (2) violated the North Carolina Unfair and Deceptive Trade Practices Act (UDTPA), (3) committed the common-law tort of unfair competition, and (4) committed the common-law tort of tortious interference with contracts.”

The Lanham Act of 1946 addresses trademarks and related issues, including false advertising.

A jury in a Charlotte federal trial awarded CPI $49.7 million in compensatory damages and another $140 million in punitive damages in 2023.

Appellate judges found “no reversible error” and affirmed the trial court’s judgment in the case.

“CPI commenced this action against Vivint in September 2020, alleging that Vivint’s door-to-door sales representatives had used false and deceptive practices to induce a significant number of CPI customers to switch to Vivint,” Niemeyer explained. “It alleged that ‘[a]s a result of Vivint’s deceptive practices, a number of CPI customers … confused Vivint’s sales agents with CPI representatives, and thus … unwittingly found themselves with Vivint’s alarm systems installed in their homes and with contractual obligations to both Vivint and CPI.’ CPI alleged that these deceptive tactics had been employed for years and were also systematic and widespread.”

“During a two-week jury trial, CPI presented testimony from twelve current or former CPI customers who had been solicited by Vivint sales representatives. These witnesses all testified that a Vivint sales representative had used deceptive tactics in an effort to convince them to sign a service contract with Vivint,” Niemeyer explained.

CPI presented evidence of “widespread and systematic” misconduct, the court opinion added.

“The evidence showed that Vivint had trained its sales representatives to focus on overcoming the inherent resistance of customers who were already being served by other security companies, and as Vivint became aware of its sales representatives’ use of deceptive sales practices to overcome that resistance, it essentially did nothing,” Niemeyer wrote.

Vivint also had a record of targeting other competitors such as ADT, Niemeyer noted. “Evidence also showed that between 2009 and 2022, 16 state attorneys general had brought enforcement actions against Vivint for its sales agents’ conduct, which included misrepresenting Vivint’s affiliation with a competitor, and that Vivint had entered consent decrees to settle those actions,” he wrote.

Through complaints, CPI identified 565 customers who had switched to Vivint. The Charlotte-based firm estimated “over 11,000 customers had switched as a result of Vivint’s practices.”

Appellate judges rejected Vivint’s arguments against the trial decision. “We conclude that CPI’s evidence was sufficient to allow the jury to reasonably estimate that Vivint had made as much as $52 million in net profits from its systematic conduct of targeting CPI customers with deceptive sales practices and luring them away to become Vivint customers,” Niemeyer wrote.

“Vivint had its day in court, and the two-week trial was essentially a fair one. The district court performed well within its discretion in making procedural rulings, and the jury spoke clearly, based on the evidence,’ Niemeyer concluded.

Judges DeAndrea Gist Benjamin and Nicole Berner joined Niemeyer’s decision.