Wednesday, January 19, 2011
C.A. Revives Action Charging Advertiser Under Anti-Spam Law
Suit Not Preempted by Federal CAN-SPAM Act, Panel Rules
By KENNETH OFGANG, Staff Writer
A federal law preempting most state regulation of unsolicited commercial email exempts actions based on false or misleading statements, even if those assertions do not amount to common law fraud, the Court of Appeal for this district ruled yesterday.
Div. Seven, in reinstating an action against ValueClick, Inc. and related companies, said Los Angeles Superior Court Judge Richard Adler erred in ruling that the suit was preempted by federal law.
Hypertouch, Inc., a provider of e-mail services to about 100 customers, sued ValueClick and others in 2008, claiming they had violated Business and Professions Code Sec. 17529.5.
The statute declares it unlawful “for any person or entity to advertise in a commercial e-mail advertisement” when “[t]he e-mail advertisement contains or is accompanied by a third-party’s domain name without the permission of the third party” or “contains or is accompanied by falsified, misrepresented, or forged header information” or “has a subject line that a person knows would be likely to mislead a recipient, acting reasonably under the circumstances, about a material fact regarding the contents or subject matter of the message.”
A plaintiff injured by a violation may recover actual damages, plus liquidated damages of up to $1,000 per e-mail or $1 million per incident.
Hypertouch alleged in its complaint that over a four-year period leading up to the filing, its customers received “massive quantities” of e-mails that violated all three prongs of the statute. The company said the huge volume of spam caused problems for the customers and forced Hypertough to spend money on ““hardware and software as a direct result of the yearly increasing onslaught of spam e-mails.”
ValueClick argued that as a provider of online marketing services to third-party advertisers—whose products the company promotes by contracting with independent affiliates who send out e-mails in order to drive traffic to ValueClick’s websites—it is not responsible for the contents of the e-mails.
The company further argued that the California statute is preempted by the federal Controlling the Assault of Non-Solicited Pornography And Marketing, or CAN-SPAM Act. It provides primarily for enforcement by the Federal Trade Commission and other government regulators, but allows a limited right of action to “Internet access services” adversely affected by e-mails violating the act who can demonstrate that the defendant sent the e-mail at issue or paid another person to send it knowing it would violate the act.
The act, which was enacted in 2003, not long after passage of the California law, preempts states from regulating commercial e-mail, but subject, but expressly exempts laws prohibiting “falsity or deception” from preemption.
Los Angeles Superior Court Judge Richard Adler agreed with the defendants that the exemption from preemption only applied to cases of common-law fraud. Since the plaintiffs did not have proof of all elements of a fraud cause of action—including knowledge, intent, and reliance—the action was preempted, Adler ruled.
But Justice Laurie Zelon, writing for the Court of Appeal, said the falsity-or-deception exemption was broader.
The CAN-SPAM Act’s language, the justice said, does not indicate that Congress intended to limit the exemption to common-law fraud, but rather that it intended to allow states to regulate deceptive practices as the Federal Trade Commission does.
A number of other states adopted anti-SPAM statutes similar to California’s before Congress acted, Zelon noted, and there was no indication that Congress intended to preempt those laws.
“We therefore must assume that, at the time the CAN-SPAM Act was passed, Congress was aware that many states imposed liability for deceptive commercial e-mails without requiring reliance or other elements of common law fraud,” she said. “Despite this knowledge, Congress chose not to use the word fraud in the savings provision, thereby suggesting that it intended the phrase ‘falsity or deception’ to have a broader application.”
Zelon also rejected ValueClick’s claim that it was not liable because it did not send the e-mails and could not be charged with knowledge of their content.
“[T]he plain text of section 17529.5 indicates that its application is not limited to entities that ‘send’ the offending e-mails nor does it require plaintiff to establish that defendant had knowledge of such e-mails. Rather, the statute imposes liability on any ‘person or entity’ that ‘advertise[s]’ in an e-mail containing any of the forms of deceptive content described [the statute]. The Legislative findings make clear that the statute was specifically intended to apply to ‘the advertisers who use spam, as well as the actual spammers’ because ‘the actual spammers can be difficult to track down’ and ‘the true beneficiaries of spam are the advertisers.’”
The defendants did win a partial victory on one issue, regarding the statute of limitations. The panel agreed that the liquidated damages provision imposes a “penalty or forfeiture,” so those damages can only be recovered as to violations occurring less than one year prior to the filing of the complaint,
As to actual damages, however, the three-year limitations period for statutory causes of action applies, the justices ruled.
Attorneys on appeal were Richard K. Willard, Lawrence P. Riaff and Lynn R. Levitan of Steptoe & Johnson for Hypertouch; Daniel M. Kolkey, Kevin Rosen and S. Ashlie Beringer of Gibson, Dunn & Crutcher for six defendants, including ValueClick; and Leonard S. Machtinger of Kenoff & Machtinger for defendant PrimaryAds, Inc.
The case is Hypertouch, Inc. v. ValueClick, Inc., 11 S.O.S. 302.
Copyright 2011, Metropolitan News Company