Federal Court (N.D. Cal.) Bucks Trend, Limits CAN-SPAM Preemption

Judge Alsup* of the Northern District of California issued a interesting order granting and denying in part defendants' motion to dismiss in a spam case.  The order has plenty of meaty bits and is well worth a read [pdf] (Asis Internet Servs. v. Consumerbargaingiveaways, LLC, et al., N.D. Cal. Case No. 08-04856 WHA). (h/t Prof. Goldman . . . Lexis alerts fail me again.)  Plaintiffs are small internet service providers who provide dial-up internet services "to a relatively small customer base in rural or remote areas where high-speed services . . . are unavailable."  Their customers received commercial emails and they sued under the California email statute.  Their claims alleged two key facts:  (1) the subject lines in the emails were misleading (e.g., "CONFIRMATION: We have your $100 Visa Gift Card ready to ship!") and (2) the header information was often materially inaccurate (the emails sometimes appeared to be transmitted from the recipient and in one instance used an "amazon.com" domain name).  Defendants brought a 12(b) motion to dismiss.

Standing:  The court rejected defendants' argument that plaintiffs lacked standing, noting that plaintiffs alleged specifically that they spent funds combatting the spam problem.  The court didn't even bother getting into the issue of whether the anti-spam efforts were specifically attributable to emails sent by defendants.  In the court's view, spam laws make clear that ISPs are harmed by spam, and this satisfied both Article III standing and obviated the need to allege any anti-spam efforts specifically caused by spam transmitted by defendants.  It's tough to read whether this conclusion is in accord with Virtumundo (which dismissed claims based on the plaintiff's failure to alleged any "adverse effect" tied to the spam in question).  There the plaintiff's proof on summary judgment was pretty flimsy, maybe the two rulings can be reconciled on this basis as well?  ("Defendants arguments are essentially factual challenges, and defendants provide no authority suggesting that plaintiffs must, at the pleading stage, allege some specific threshold degree of internet service provider activity in order to survive a motion to dismiss.") 

:  The court's key ruling rejected defendants' preemption argument.  Defendants argued under Mummagraphics/Virtumundo (etc.) that state spam claims survived CAN-SPAM preemption only to the extent they satisfied the traditional elements of fraud.  The court rejects this for three reasons.  First, Congress is presumed to be familiar with "fraud" and chose to use the words "falsity or deception," implying a broader concept.  Second, elsewhere in CAN-SPAM Congress used the word deception and directed that it is used in the FTC Act-sense and not in the "tort of deception" sense. Finally, Defendants (arguing for preemption) pointed to legislative history which highlighted the need for a uniform standard, but noted that states laws prohibiting "fraud and deception" do not raise any uniformity concerns (since legitimate business would not unwittingly violate these laws by sending an email into the ether).  In the court's view, the use of the word "fraud" in the report was important, but the addition of the word "deception" was telling, and reflected an intent to not limit the preemption carveout to common law fraud. 

Statute of Limitations:  The parties disputed the applicability of the 1 year statute of limitations and whether plaintiffs could avail themselves to the "discovery rule" (could plaintiffs bring claims within one year of their discovery or must they bring claims within 1 year of the events in question - i.e., would plaintiffs be limited to suing for emails received within the year preceding the filing of the lawsuit?).  The court seemed skeptical of plaintiffs' arguments that the claims would not be discoverable immediately (upon receipt of the email).  Plaintiffs argued that "detailed investigation by experienced technicians" was required to discover the emails (or the fact that the header information was misleading?).  Ultimately the court grants leave to re-allege pleadings around the discovery issue, but the underlying thrust seemed to be that the bar would be high.

More Definite Statement:  Defendants also asked for a more definite statement.  This dispute pans out typically as follows.  Plaintiffs file a general complaint alleging defendant(s) sent millions of spam messages through plaintiffs' servers.  Defendants come back and ask for a more definite statement - a list of the emails (and copies) and list of the email addresses.  The court strikes a middle ground on this, finding that requiring plaintiffs to attach every email would "create a prohibitive burden".  At the same time, plaintiffs were required to list each type of deceptive advertisement, the number of emails in each category, and the date ranges of the emails in each category.

My takeaway:  At first glance it's tempting to cast this decision as a serious departure from Mummagraphics/Virtumundo.  The tenor of the preemption discussion certainly points in that direction.  However, the tweak here is that (based on the court's description at least) the emails get closer to violating CAN-SPAM than the emails in Mummagraphics and Virtumundo.  Regardless of the scope of preemption, it would seem that emails which violate CAN-SPAM would certainly violate parallel email statutes.  And that could be the case here?  The court's preemption finding is also interesting when viewed against a case like Reunion.com.  (Again, waiting to hear from the Ninth Circuit on Virtumundo, this case (among many others) highlights the importance of the preemption discussion.)

The court's standing discussion is also interesting, but again, while it's tempting to view it as a departure from Virtumundo, I'm not so sure.  Virtumundo involved a total failure of proof.  Here, at the pleading stage, it sounds like plaintiffs had more than enough allegations to save their claims.  NB:  the fact that plaintiffs offer dial-up services is interesting!  Maybe this will save the day?

The statute of limitations discussion is fairly interesting as well.  I *guess* plaintiffs may end up being able to argue sufficient facts to satisfy the discovery rule, but I'm skeptical. 

* A funny anecdote about Judge Alsup.  I had a case a few years back in front of him and I read up on him in preparing for a hearing.  Things got off to a bad start when I filed a request for a telephonic hearing and he denied it saying he avoids these hearings because no one "can get a word in edgewise".  I went down for a fairly uneventful status hearing. Then we had a hearing on a motion to compel arbitration.  My client opposed the request to compel arbitration.  I went down for the hearing, and got a *serious grilling*.  Ultimately, he ruled in my client's favor on the arbitration issue, but it was a grilling I will definitely remember. 
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