About That Bond Requirement
CAN-SPAM contains a bond provision. A provision which allows courts to impose a bond requirement for the anticipated payment of costs, which is defined to include fees. Buried in the last little clause of section 7706 is the following language: “the court may, in its discretion, require an undertaking for the payment of the costs of such action, and assess reasonable costs, including reasonable attorneys’ fees, against any party.”
The one case to consider this issue (Asis Internet Servs. v. Optin Global, Inc., 2006 U.S. Dist. LEXIS 46309 (N.D. Cal. 2006)) denied defendant’s request for bond after somewhat cursory analysis. According to the court, “[because the case presented] a new area of law in which the scope of liability is not clear; requiring Plaintiff to post a security bond at this juncture could chill private enforcement of anti-spam laws.” The court did not consider (1) why Congress chose to include this provision in CAN-SPAM; (2) what Congressional intent to shift the default rules – under which the court can impose bond (In re Merrill Lynch Relocation Mgmt., Inc., 812 F.2d 1116, 1121 (9th Cir. 1987)) – can be gleaned from Congress’s decision to include this provision; and (3) how the bond provision in CAN-SPAM compares to bond provisions in other statutes (e.g., securities litigation: Weil v. Investment/Indicators, Research & Management, 647 F.2d 18, 22 (9th Cir. 1981) (requiring bad faith and frivolity)). [The court didn’t even consider its own decision to dismiss some of plaintiff’s claims for lack of particularity. Some would say this is an acceptable early indicator for the merits of the claim.]
Most courts are generally reluctant to impose hurdles on plaintiffs. As Weil recognized, it’s not entirely appropriate to make a finding of bad faith or frivolity at the early stages in which defendants generally request a bond: “an order requiring an undertaking need not be based on a formal, factual finding that the claim or defense is obviously without merit or is asserted in bad faith; such a finding is premature and inappropriate at the time when the decision whether to require an undertaking must be rendered.” On the other hand, Congress must have included the bond requirement in the statute for a reason. Right?
[I briefly looked at the legislative history and at caselaw construing other statutes, but did not find anything earthshattering. Readers who have insights are welcome to email or leave a comment.]
The one case to consider this issue (Asis Internet Servs. v. Optin Global, Inc., 2006 U.S. Dist. LEXIS 46309 (N.D. Cal. 2006)) denied defendant’s request for bond after somewhat cursory analysis. According to the court, “[because the case presented] a new area of law in which the scope of liability is not clear; requiring Plaintiff to post a security bond at this juncture could chill private enforcement of anti-spam laws.” The court did not consider (1) why Congress chose to include this provision in CAN-SPAM; (2) what Congressional intent to shift the default rules – under which the court can impose bond (In re Merrill Lynch Relocation Mgmt., Inc., 812 F.2d 1116, 1121 (9th Cir. 1987)) – can be gleaned from Congress’s decision to include this provision; and (3) how the bond provision in CAN-SPAM compares to bond provisions in other statutes (e.g., securities litigation: Weil v. Investment/Indicators, Research & Management, 647 F.2d 18, 22 (9th Cir. 1981) (requiring bad faith and frivolity)). [The court didn’t even consider its own decision to dismiss some of plaintiff’s claims for lack of particularity. Some would say this is an acceptable early indicator for the merits of the claim.]
Most courts are generally reluctant to impose hurdles on plaintiffs. As Weil recognized, it’s not entirely appropriate to make a finding of bad faith or frivolity at the early stages in which defendants generally request a bond: “an order requiring an undertaking need not be based on a formal, factual finding that the claim or defense is obviously without merit or is asserted in bad faith; such a finding is premature and inappropriate at the time when the decision whether to require an undertaking must be rendered.” On the other hand, Congress must have included the bond requirement in the statute for a reason. Right?
[I briefly looked at the legislative history and at caselaw construing other statutes, but did not find anything earthshattering. Readers who have insights are welcome to email or leave a comment.]
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