C.A. Says Federal Law Does Not Preempt Anti-Spam Statute

Monday, February 27, 2012

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C.A. Says Federal Law Does Not Preempt Anti-Spam Statute

Use of Private Domain Name Registrations Held Actionable as Misrepresentation

By KENNETH OFGANG, Staff Writer

The use of private domain name registrations by an Internet advertising company in order to prevent recipients from readily identifying the sender violated California’s Anti-Spam Law, the First District Court of Appeal ruled Friday.

Div. One affirmed a judgment awarding San Francisco attorney and anti-spam activist Daniel Balsam $7,000 in liquidated damages and nearly $82,000 in attorney fees for his suit against Trancos, Inc.

Balsam, who operates the website danhatesspam.com and says he has won more than 50 anti-spam actions in small claims court, sued Trancos, Inc. and its chief executive Brian Nelson in San Mateo Superior Court four years ago.

When the case went to trial before Judge Marie Weiner in 2009, the San Francisco Chronicle said it was likely the first case to reach a full-blown superior court trial under the statute banning the dissemination of uninvited commercial e-mail from California, or to a California recipient, that misrepresents either the source or the subject.

Balsam brought his action four years ago, after Meridian E-mail, a Redwood City-based division of Trancos, which was based in Pacific Palisades, sent a series of ads to his personal e-mail in-box in 2007.

The “from” line in each e-mail named a nonexistent source such as “Christian Dating,” “Your Promotion,” “Bank Wire Transfer Available,” “Dating Generic,” “Paid Survey” or “Join Elite.” At least one message had a subject line, promising recipients $5 to complete a survey, which the judge found to be misleading.

Information Subpoenaed

None of the advertising e-mails named Trancos, which sent all the messages, and all of them contained fanciful domain names for the addresses from which they were sent. Balsam sourced the e-mails back to Trancos using a Los Angeles street address at the bottom of each mail, which turned out to be that of a UPS Store, and serving a subpoena on the UPS Store for what turned out to be the identity of Trancos.

Nelson acknowledged that he registered private domain names in order to make the company’s identity difficult to trace. Nelson testified he had been advised that private registration was a good idea because “what if there’s a complaint, you know, I don’t want someone like Dan Balsam . . . driving through my front window or coming in there and harassing us or . . . phoning us and badgering us.”

Weiner, in a 2010 ruling, found the ads violated the 2004 California statute banning SPAM. There is a similar federal law, the 2003 “Controlling the Assault of Non-Solicited Pornography And Marketing” or CAN-SPAM Act, but it allows suits only by the government or an Internet service provider.

The state law provides for a minimum recovery of $1,000 for each offending message received by the plaintiff.

Contentions on Appeal

On appeal, Trancos argued that the header information in its e-mails to Balsam was not misleading, since Balsam could have obtained the company’s identity through its hosting company, Godaddy.com. The defendant also contended that the CAN-SPAM Act preempts the Anti-SPAM Law to the extent the state law allows recovery by a plaintiff who cannot prove the elements of fraud, including reliance and actual damages.

But Justice Sandra L. Margulies, writing for the Court of Appeal, rejected both arguments.

“There is good reason to treat a commercial e-mailer’s deliberate use of untraceable, privately registered domain names to conceal its identity as a falsification or misrepresentation for purposes of the statute,” the justice wrote. “Judging from Trancos’s Meridian eMail business, such e-mailers send out millions of commercial e-mail offers per month. Each such e-mail sent has the potential to cause harm to the recipient, ranging from mere annoyance or offense to more tangible harms such as inducing the recipient to visit Web sites that place malware or viruses on their computer, defraud them out of money, or facilitate identify theft. Sending millions of such e-mails, as Trancos did, makes harm inevitable.”

She continued:

“…Because Trancos hides its identity behind an impenetrable shield of made-up names, an aggrieved recipient cannot look up public information about Trancos’s business, cannot find its Web site, cannot call and speak to a Trancos employee, cannot write to Brian Nelson, cannot report Trancos to the Better Business Bureau or the Attorney General, and cannot warn others about Trancos by writing a letter to a newspaper or posting a complaint on the Internet. Using a privately registered domain name leaves it entirely up to Trancos whether it will or will not respond to or provide redress to persons (other than determined litigants like Balsam) who are harmed, annoyed, or offended by its communications. Trancos does not explain why its business is so sensitive and so different from all other businesses that it must be free to hide its identity from the millions of individuals to whom it directed its commercial solicitations.”

There is a split of opinion, the justice went on to acknowledge, regarding the extent of federal preemption over state anti-spam laws. But Margulies agreed with this district’s Div. Seven, which held last year in Hypertouch Inc. v. ValueClick, Inc. (2011) 192 Cal.App.4th 805 that the federal law allows state-based actions for false or misleading statements, even if those assertions do not amount to common law fraud.

The case is Balsam v. Trancos, Inc., A128485.