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Hypertouch, Inc v. Valueclick

February 10, 2011

HYPERTOUCH, INC., PLAINTIFF AND APPELLANT,
v.
VALUECLICK, INC. ET AL., DEFENDANTS AND RESPONDENTS.



Los Angeles County Super. Ct. No. LC081000 APPEAL from a judgment of the Superior Court of Los Angeles County. Richard Adler, Judge. Reversed and remanded.

The opinion of the court was delivered by: Zelon, J.

opn. on rehearing

CERTIFIED FOR PUBLICATION

INTRODUCTION

Appellant Hypertouch, Inc. filed an action alleging that ValueClick, Inc., various ValueClick subsidiaries and PrimaryAds, Inc. (Respondents) violated Business & Professions Code section 17529.5, subdivision (a),*fn1 which prohibits entities from advertising in a commercial electronic message (e-mail) that contains various types of deceptive content. Respondents moved for summary judgment, arguing that Appellant's claims were preempted by the "Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003" (CAN-SPAM Act), 15 U.S.C. §§ 7701, et. seq. Alternatively, Respondents argued that (1) Appellant had failed to establish a triable issue of fact as to whether Respondents had violated section 17529.5, and (2) any claim predicated on an e-mail received more than one year prior to the filing of the complaint was barred by the one-year statute of limitations in Code of Civil Procedure section 340, subdivision (a).

The trial court granted summary judgment, ruling that the CAN-SPAM Act preempted Appellant's section 17529.5 claims. Although the Act expressly exempts from preemption state laws prohibiting "falsity or deception" in commercial e-mail, the court concluded this exemption was only intended to apply to state statutes that require a plaintiff to establish each element of common law fraud. The court entered judgment dismissing the case in its entirety and awarded Respondents approximately $100,000 in costs.

On appeal, Appellant argues that the court erred in ruling that the CAN-SPAM Act preempts claims arising under section 17529.5. In addition, Appellant argues that: (1) it introduced sufficient evidence to establish a triable issue of fact as to whether Respondents violated section 17529.5; (2) section 17529.5 claims are governed by the three-year statute of limitations in Code of Civil Procedure section 338, rather than the one-year period described in section 340, subdivision (a); and (3) the trial court abused its discretion in awarding Respondents $100,000 in costs.

We reverse the trial court's grant of summary judgment, concluding that the CAN-SPAM Act does not preempt Appellant's claims and that Respondents have failed to satisfy their initial burden to produce evidence showing the nonexistence of any triable issue of fact with respect to whether they violated section 17529.5.

FACTUAL AND PROCEDURAL BACKGROUND

I. Description of the Parties

A. Appellant Hypertouch, Inc.

Hypertouch, Inc. provides electronic mail service to approximately 100 customers located inside and outside of California, including internet start-up companies, corporations, charitable organizations and various people related to the President of Hypertouch, Joseph Wagner. Since its inception, Hypertouch's customers have received "massive quantities" of unsolicited commercial e-mail, commonly referred to as "spam." Some Hypertouch users have complained about "their spam load and the difficulties that it causes them." Hypertouch alleges that it has been forced to spend a considerable amount of money on "hardware and software as a direct result of the yearly increasing onslaught of spam e-mails."

B. Respondent ValueClick, Inc. and its Subsidiaries

ValueClick and its subsidiaries (collectively ValueClick) provide online marketing services to third-party advertisers who promote retail products. ValueClick contracts with these third-party advertisers to place promotional offers on websites that are owned and operated by various ValueClick entities. Consumers, in turn, can visit ValueClick's websites and earn rewards in exchange for participating in the advertised promotional offers.

ValueClick contracts with thousands of independent "affiliates" to drive traffic to their websites through e-mail placements and other forms of advertising. ValueClick provides affiliates with the creative material associated with any given promotion. The affiliates, in turn, send out commercial e-mail advertisements that include a link redirecting the consumer to a promotion on ValueClick's websites. In many cases, the affiliates hire sub-affiliates to conduct the e-mailing. Normally, each e-mail advertisement contains a tracking code indicating the affiliate or sub-affiliate responsible for driving the consumer to ValueClick's website. If a consumer clicks through an e-mail advertisement and participates in a promotional offer, the affiliate or sub-affiliate who sent the initial e-mail is then compensated for generating a customer "lead."

As a result of its business model, ValueClick has no knowledge of, or control over, the e-mail delivery methods or header information used by affiliates or their sub-affiliates.

C. Respondent PrimaryAds, Inc.

Respondent PrimaryAds, Inc. is an online marketing service that owns and operates a private website containing creative content associated with numerous third-party promotional offers. PrimaryAds contracts with a network of independent affiliates who download advertisement materials from PrimaryAds's website and "utilize the . . . [advertisements] in [commercial] e-mails."

"When an affiliate places downloaded creative material in an e-mail . . . [consumers] may click on a link in the e-mail," which directs them to the PrimaryAds's website and then immediately redirects them to the third-party advertiser's website which contains the promotional offer.*fn2 PrimaryAds, in turn, tracks which affiliate is responsible for driving traffic to the third-party advertiser's offer page. If the consumer participates in the promotional offer, a tracking link notifies PrimaryAds, and the affiliate receives a commission. PrimaryAds is compensated by the third-party advertiser each time a consumer participates in an offer.

Before providing access to its private website and allowing affiliates to e-mail its advertising materials, PrimaryAds requires each affiliate to sign a contract prohibiting it from issuing spam or violating any anti-spam laws. Like ValueClick, PrimaryAds alleges that it has "no control over the e-mail delivery methods used by affiliates."

II. Hypertouch's Complaint and the Trial Court Proceedings

On April 3, 2008, Hypertouch filed a complaint against ValueClick, numerous ValueClick subsidiaries and PrimaryAds (collectively Respondents) alleging that, between April 2, 2004 and the date the action was filed, Respondents had advertised in over 45,000 e-mails received by Hypertouch customers that contained deceptive "header information" in violation of section 17529.5. The complaint also included a separate cause of action alleging Respondents had violated section 17200.

During discovery, Hypertouch produced thousands of e-mails that allegedly contained links to Respondents' promotional offers. According to Hypertouch, each e-mail also contained one of three categories of deceptive header information that violated section 17529.5. First, Hypertouch alleged that numerous e-mails contained "falsified" header information because the "From" or "To" fields did not accurately reflect the identity of the sender or recipient of the e-mail. Second, Hypertouch alleged that the subject lines of many e-mails contained statements likely to mislead recipients into believing that they could obtain a free gift when, in fact, the gift could only be obtained by paying a fee or participating in additional promotional offers. Finally, Hypertouch alleged that some of the e-mails contained a "third-party's domain name without the permission of the third party."

Approximately 10 months after the case was filed, ValueClick filed a motion for summary judgment, which PrimaryAds joined. ValueClick argued that Hypertouch's section 17529.5 claims were preempted by "the Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003" (CAN-SPAM Act), 15 U.S.C. §§ 7701, et. seq., which contains a preemption clause barring any state statute "that expressly regulates the use of electronic mail to send commercial messages except any . . . statute . . . [that] prohibits falsity or deception in any portion of [an e-mail]." (15 U.S.C., § 7707, subd. (b)(1).) ValueClick argued that the exemption for state statutes prohibiting "falsity or deception" was only intended to permit state law claims based on all of the elements of common law fraud, including knowledge of falsity, intent to deceive, reliance and damages proximately caused by the misrepresentation. Respondents further argued that because Hypertouch had no evidence Respondents actually knew about the alleged e-mails or that any Hypertouch customer relied on or was harmed by the deceptive content in the e-mails, its claims were necessarily preempted. Alternatively, ValueClick argued that it was entitled to summary judgment because the allegedly "deceptive" content in the e-mails did not violate the substantive prohibitions described in section 17529.5.

PrimaryAds also filed a motion for summary judgment, which was accompanied by a motion for summary adjudication, raising two additional arguments. First, PrimaryAds contended that section 17529.5 required the plaintiff to establish that the defendant actually sent or had knowledge of the unlawful e-mails, which Hypertouch had failed to do. Second, PrimaryAds argued that, pursuant to Code of Civil Procedure, section 340, it was entitled to summary adjudication on any claim predicated on an e-mail received more than one year prior to the filing of the action.

In its opposition, Hypertouch conceded that it could not establish all of the elements associated with common law fraud, but argued that section 17529.5 only required evidence that Respondents had "advertised" in e-mails containing any category of content prohibited by the statute. Hypertouch also argued that section 17529.5 was not preempted by the CAN-SPAM Act because it prohibited "falsity and deception," and therefore fell within the narrow exception recognized in the federal statute's preemption clause.

The trial court granted summary judgment in favor of ValueClick and PrimaryAds on all of Hypertouch's claims. The court first concluded that, under section 17529.5, Respondents could only be held liable for e-mails that they actually sent to Hypertouch customers. It further concluded that Hypertouch had only established that Respondents sent 24 of the 45,000 e-mails at issue and, as a result, those were the only e-mails at issue in the suit.

The court next considered whether the CAN-SPAM Act preempted Hypertouch's section 17529.5 claims and concluded that it did. The court agreed with Respondents' interpretation of the CAN-SPAM Act, ruling that it barred any state laws regulating falsity or deception in commercial e-mails "unless such claims are for 'common law fraud or deceit.'" The court further stated that "Plaintiff has [not] . . . adduced evidence . . . that any elements of fraud exist in this case. . . . [E]ven if the Court ignores all the other elements of fraud, Plaintiff's complaint is preempted by federal law since Plaintiff's complaint omits intent to deceive or intent to cause deception."

The court entered judgment in favor of Respondents and subsequently awarded Respondents approximately $100,000 in costs. Hypertouch filed a timely appeal of the trial court's judgment.

DISCUSSION

This appeal raises three issues. First, we must determine whether the CAN-SPAM Act preempts claims arising under section 17529.5. Because we conclude that section 17529.5 is not preempted, we must next determine whether Hypertouch has established a triable issue of fact as to whether Respondents violated section 17529.5. Third, we must determine whether PrimaryAds is entitled to summary adjudication on any claim predicated on an e-mail that Hypertouch received more than one year prior to the filing of the complaint.

I. Standard of Review

"The standard for deciding a summary judgment motion is well-established, as is the standard of review on appeal." (Richard B. LeVine, Inc. v. Higashi (2005) 131 Cal.App.4th 566, 572.) "A defendant moving for summary judgment has the burden of producing evidence showing that one or more elements of the plaintiff's cause of action cannot be established, or that there is a complete defense to that cause of action. [Citation.] The burden then shifts to the plaintiff to produce specific facts showing a triable issue as to the cause of action or the defense. [Citations.] Despite the shifting burdens of production, the defendant, as the moving party, always bears the ultimate burden of persuasion as to whether summary judgment is warranted. [Citations.]" (Garcia v. W & W Community Development, Inc. (2010) 186 Cal.App.4th 1038, 1041 (Garcia).)

"On appeal, we review de novo an order granting summary judgment. [Citation.] The trial court must grant a summary judgment motion when the evidence shows that there is no triable issue of material fact and the moving party is entitled to judgment as a matter of law. [Citations.] In making this determination, courts view the evidence, including all reasonable inferences supported by that evidence, in the light most favorable to the nonmoving party. [Citations.]" (Garcia, supra, 186 Cal.App.4th at p. 1041.)*fn3

II. Hypertouch's Section 17529.5 Claims Are Not Preempted By the CAN-SPAM Act

A determination whether Hypertouch's claims are preempted by federal law requires an analysis of both section 17529.5 and the CAN-SPAM Act. (See generally Gordon v. Virtumundo (9th Cir. 2009) 575 F.3d 1040, 1047 (Virtumundo) [interpreting breadth of Washington State statute before determining whether preemption applied].)

A. Overview of Section 17529.5 and the CAN-SPAM Act

1. California Business and Professions Code section 17529.5

a. Overview of Senate Bill 186 and section 17529.5

In 2003, the California Legislature passed Senate Bill 186, which imposed broad restrictions on advertising in unsolicited commercial e-mail advertisements sent from or to a computer within California. (See § 17529, et seq.) According to the Legislature's "findings and declarations," the bill was adopted to address the "skyrocket[ing]" costs and "annoyance[s]" associated with "spam," which the statute defines as "unsolicited commercial e-mail advertisements."*fn4 (§ 17529, subds. (a)-(e).) The Legislature concluded that, to effectively regulate the abuses associated with spam, it was necessary to target not only the entities that send unsolicited commercial e-mail advertisements, but also the advertisers whose products and services are promoted in those e-mails:

Many spammers have become so adept at masking their tracks that they are rarely found. . . . [¶] There is a need to regulate the advertisers who use spam, as well as the actual spammers, because the actual spammers can be difficult to track down. . . . [¶] The true beneficiaries of spam are the advertisers who benefit from the marketing derived from the advertisements.

(§ 17529, subds. (i), (j) and (k).)

Although S.B. 186 includes a provision that prohibits the transmission of any "unsolicited commercial e-mail advertisement[s]," (see § 17529.2), the statute also prohibits certain deceptive practices in commercial e-mail, which are enumerated in section 17529.5, subdivision (a):

(a) It is unlawful for any person or entity to advertise in a commercial e-mail advertisement either sent from California or sent to a California electronic mail address under any of the following circumstances:

(1) The e-mail advertisement contains or is accompanied by a third-party's domain name without the permission of the third party.

(2) The e-mail advertisement contains or is accompanied by falsified, misrepresented, or forged header information. . . .

(3) The e-mail advertisement 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.

Section 17529.5, subdivision (b), in turn, contains an enforcement provision that permits the "Attorney General," "an electronic mail service provider" or "a recipient of an unsolicited commercial e-mail advertisement" to "bring an action against a person or entity that violates any provision of this section." (§ 17529.5, subds. (b)(1)(A)(i)-(iii).)

Section 17529.5, subdivision (b) also lists the remedies available under the statute, which include "either or both of the following: [¶] (i.) Actual damages. [¶] (ii.) Liquidated damages of one thousand dollars ($1,000) for each unsolicited commercial e-mail advertisement transmitted in violation of this section, up to one million dollars ($1,000,000) per incident." (§ 17529.5, subds. (b)(1)(B).) The statute further provides, however, that if the court finds the "defendant established and implemented, with due care, practices and procedures reasonably designed to effectively prevent unsolicited commercial e-mail advertisements that are in violation of this section, the court shall reduce the liquidated damages . . . to a ...


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