Copyright © 2015 Computer Law Reporter, Inc. All

Copyright © 2015 Computer Law Reporter, Inc. All Rights Reserved.
Click Here To Go to the Front Page
(All clickable links in green text)
YES! Please enter my trial subscription to Internet Law & Business and invoice me. If for any
reason I am not satisfied I may, within 30 days of receipt, either mark the invoice "cancelled"
and return it with the materials, or if I enclose payment now, obtain a full refund.
Please bill me $2106 for a one-year subscription to the monthly
Internet Law & Business.
I have enclosed a check (10% discount from above price).
DC SUBSCRIBERS PLEASE ADD 6% SALES TAX
NAME ________________________________________________________________
FIRM _________________________________________________________________
STREET ______________________________________________________________
CITY _____________________________ STATE _______ ZIP __________________
Return to:
Internet Law & Business
1601 Connecticut Avenue, N.W.
Suite 701
Washington, DC 20009
SAVE TIME! FAX TO (202) 328-2430
OR
EMAIL TO [email protected]
W
Internet Law & Business
May 2015
Editors
Neil J. Cohen, Esq.
David A. Dana, Esq., Professor of Law, Northwestern University School of Law
Articles
FAIR CREDIT REPORTING ACT
Round Table
on Internet Privacy............................... 3
Comments on the News................. 27
Case Summaries.................................. 42
Best of the Blogs................................. 57
CLASS ACTIONS
Third Circuit Reverses Denial of
Motion for Class Certification Because
District Court Erred in Applying
Ascertainability Precedent................................. 44
CONTRACTS
Court Might Enforce A Contract
Ban On Consumer Reviews............................... 61
Do Employers Own LinkedIn
Groups Created By Employees? ........................ 62
DERIVATIVE LIABILITY
Union Isn’t Liable For Members’
Posts To Private Facebook Group...................... 64
LinkedIn’s “Reference Search” Service
Doesn’t Violate Fair Credit Reporting Act......... 57
PRIVACY
Federal Court Denies Motion To Dismiss
Breach of Contract and California Unfair
Business Practices Claims Based on Google’s
Alleged Disclosure of Users’ Personal Data
to Apps; Because Personal Data Has
Alleged Economic Value, Claims for
Damages Under Both Contract Law
and the California Business and
Professional Code May Proceed......................... 51
TRADEMARK
Mixed Ruling in Competitive
Keyword Advertising Case................................. 59
Another Competitive Keyword
Advertising Lawsuit Fails.................................. 66
STANDING
Ninth Circuit Validates Equitable
Quasi-Contract Remedy in Lieu of
Actual Damages; Calls for Stay Rather
Than Dismissal of False Advertising
Case Under Primary Jurisdiction Doctrine........ 47
Internet Law & Business
1601 Connecticut Avenue, NW • Suite 701 • Washington, DC 20009
202-462-5755 • fax 202-328-2430
E-mail: [email protected] • Website: www.lawreporters.com
Editors
Neil J. Cohen, Esq.
David A. Dana, Esq.
Professor of Law, Northwestern University School of Law, Chicago, IL
[email protected]
Copyright Editors
Jeffrey P. Cunard, Esq.
Debevoise & Plimpton LLP
Washington, DC
Bruce P. Keller, Esq.
Debevoise & Plimpton LLP
New York, NY
Catherine S. Bridge, Esq.
The Walt Disney Company
Burbank, CA
Steven B. Fabrizio, Esq.
Jenner & Block LLP
Washington, DC
Professor Michael A. Geist, Esq.
University of Ottawa Law School
Ottawa, Ontario, Canada
Eric Goldman, Esq.
Santa Clara University School of Law
Santa Clara, CA
Linda A. Goldstein, Esq.
Manatt, Phelps & Phillips, LLC
New York, NY
Fred M. Greguras, Esq.
K&L Gates
Palo Alto, CA
Jeffrey C. Johnson, Esq.
Pryor Cashman LLP
New York, NY
Trademark Editor
Brian B. Darville, Esq.
BROCADIANT PLLC
Alexandria, VA
Jurisdiction Editor
Michael Grow, Esq.
Arent Fox PLLC
Washington, DC
Editorial Board:
Stuart D. Levi, Esq.
Skadden, Arps, Slate,
Meagher & Flom LLP
New York, NY
Tobey B. Marzouk, Esq.
Marzouk & Parry
Washington, DC
Jeffrey D. Neuburger, Esq.
Proskauer Rose, LLP
New York, NY
Robert L. Raskopf, Esq.
Quinn Emanual
New York, NY
Gary J. Rinkerman, Esq.
Drinker, Biddle, & Reath LLP
Washington, DC
Ira P. Rothken, Esq.
Rothken Law Firm
San Rafael, CA
Robert A. Shlachter, Esq.
Stoll, Stoll, Berne, Lokting
& Shlachter
Portland, OR
Thomas J. Smedinghoff, Esq.
Edwards Wildman Palmer LLP
Chicago, IL
Neil A. Smith, Esq.
Ropers Majeski Kohn Bentley PC
San Francisco, CA
Jordan S. Weinstein, Esq.
Oblon, Spivak, McClelland,
Maier & Neustadt, P.C.
Arlington, VA
J.T. Westermeier, Esq.
Finnegan, Henderson, Farabow,
Garrett & Dunner LLP
Reston, VA
Donna G. White, Esq.
Osler, Hoskin & Harcourt
Ottawa, Ontario, Canada
E. Robert Yoches, Esq.
Finnegan, Henderson, Farabow,
Garrett & Dunner, LLP
Washington, DC
Subscription price $2106 per year. Published by Computer Law Reporter, Inc., 1601 Connecticut Avenue, N.W., Suite 701,
Washington, D.C. 20009 • 202-462-5755 • Fax 202-328-2430 • Copyright © 2015 Computer Law Reporter, Inc. All Rights
Reserved. ISSN 1529-6369. Publications Director: John G. Herring. Production Manager: Kristina M. Reznikov. The views
expressed herein do not necessarily represent those of the Editors or the members of the Board of Advisors. This publication is
not affiliated with Northwestern University School of Law
Round Table on Internet Privacy
Publisher’s Introduction
By
Neil J. Cohen
This Round Table features four articles on various aspects of internet privacy. The
first, by Law Professor David A. Dana at Northwestern University analyses four recent
California cases that take an extremely liberal approach on standing, pleading and remedies. Two of these decisions come from the Ninth Circuit: In re Facebook Litig, an unpublished memorandum opinion, and Astiana v. Hain Celestial (see summary in this issue).
The other two decisions come from the Northern District of California: Opperman v. Path,
Inc., (see summary in last issue) and Svenson v. Google, Inc. see summary in this issue,
section, infra, page 51. According to Professor Dana:
Taken together, these decisions suggest that claims alleging certain California statutory and com-
mon law violations involving use or disclosure of the personal information of customers by technology
companies can survive a motion to dismiss even with very general, even arguably vague, allegations.
Specifically, claims under California’s Unfair Competition Law (“UCL”) and Consumer Legal Remedies
Act (“CLRA”) and claims for common law breach of contract and fraud and perhaps unjust enrichment
now appear to be able to survive a motion to dismiss even when (1) there are no allegations of individual
plaintiff reliance on alleged misrepresentations; (2) there are no particularized factual allegations backing up general allegations that the services or products received by plaintiffs were worth less than they
would have been worth had promised protections for personal information been afforded; and/or (3)
there are no particularized factual allegations backing up general allegations plaintiffs lost economic
opportunities because they could not sell their personal information for as much or at all once that information was disclosed or shared with others by the technology company whose product or service was
purchased. One of these cases, Opperman, also establishes that partial disclosures by a company of the
risk that users’ personal information may be used or disclosed does not eliminate the risk of fraud or
other claims against the company, but instead can form the basis of an active concealment claim.
The second article describes a United Kingdom case that goes even further than the
California courts by explicitly creating a new common law right to privacy grounded
only by the plaintiff’s emotional distress. The title of the article is “The European Privacy
Judicial Decision of a Decade: Google v. Vidal-Hall”. The author, Law Professor Omer
Tene, asserts:
3
In a field that assesses illegitimate behavior according to fickle notions such as “unfairness” and
“creepiness,” the expansion of recoverable damages to purely emotional damage is groundbreaking. And
given the rhetorical force of the UK court, companies on both sides of the Atlantic should prepare for a
potential opening of the floodgates of individual and class actions. In recognizing non-economic damages, the UK court reversed a legal fiction it had traditionally used to award damages in the absence of
pecuniary loss—finding nominal pecuniary damage, for example, one pound British, as a basis to award
more significant compensation for emotional distress.
The third article by Fernando A. Bohorquez, Jr., a partner & Jenna Felz, an associate
at BakerHosteler focuses on the shifting trend to FTC regulation and litigation involving
mobile networks and the internet of things (“IoT”). The authors describe their comment as
follows:
This post provides a high-level summary of the major 2014 trends in mobile: marketing, mobile
pay, and the IoT, as well as the legal and regulatory response. We then break out our magic eight ball to
predict the mobile marketing and legal trends that will likely unfold over the next 12 months.
The fourth article by Kaylee Cox, as associate Holland and Knight, summarizes the
71-page FTC staff report on the Internet of Things released on January 27. Her summary
focuses on the inclusion of Fair Information Practice Principles (“FIPPs”) into the IoT
realm. In particular, the summary concentrates on the FTC’s four Fair Information Practice
Principles (FIPPs): (i) security; (ii) data minimization; (iii) notice; and (iv) choice. In
addition to FIPPs, the FTC report also touches on privacy and security-related legislative
proposals.
The Spokeo Case
As this issue was going to press we learned that the Supreme Court had taken certiorari
in an injury-at-law case, Spokeo v. Robins. In our new “Comments on the News” section,
infra, page 27, the publisher provides a detailed summary of the briefs, publication of key
excerpts, and a prognosis on how the Court might rule, section, infra, page 29. The author
maintains:
How the Court rules on the standing issue ultimately affects two national policy issues: First, is
the protection of consumers more important than the risk of strike suits? Second, do government units
have insufficient resources to adequately enforce the statute so that consumers are needed to supplement
them? These are questions that are the province of the federal government.
…Because this case implicates the enforcement of many statutes enacted to benefit consumers, the
Supreme Court should be reluctant to impose standing requirements that prevent consumers from seeking a remedy in federal court. If the Court decides to dodge the question of whether a naked injury-at-law
can be an injury-in-fact it could remand the case for a determination of whether plaintiff’s allegations
4
of anxiety and potential economic damages are sufficient to confer standing. More likely the court will
choose to uphold the Ninth Circuit ruling, albeit with some language narrowing the reach of the decision.
* * *
Courts Uphold California Privacy Claims Despite Vague Allegations:
Opening The Litigation Floodgates Or Simply Giving Plaintiffs
A Reasonable Opportunity To Prove Their Claims?
David A. Dana
A burgeoning area of litigation involves claims that Internet and digital companies like
Google, Facebook, and Twitter have insufficiently protected or actively appropriated user’s
personal information. Because of the enormous numbers of users and hence enormous
number of potential plaintiffs in such cases, which invariably are framed as putative class
actions, potential liability for defendants is enormous. However, the district courts have
repeatedly dismissed such suits for lack of Article III standing and/or for failure to state a
claim. This Article addresses a recent quartet of decisions that may reflect a precedential
gold mine for plaintiffs bringing claims for unconsented-to disclosure or use of their per-
sonal information. Two of these decisions come from the Ninth Circuit: In re Facebook
Litig., _ Fed. App’x _, No. 12-151619, May 8, 2014 (“Facebook”), which is an unpublished memorandum opinion, and Astiana v. Hain Celestial (“Astiana”), No. 12-17596,
April 10, 2015, which is an opinion designated for publication. Two of the decisions come
from the Northern District of California: Opperman v. Path, Inc., Case 13-cv-00453-JST,
March 23, 2015 (“Opperman”), and Svenson v. Google, Inc., Case No. 13-cv-04080-BLF,
April 1, 2015 (“Svenson”).
Taken together, these decisions suggest that claims alleging certain California statu-
tory and common law violations involving use or disclosure of the personal information
of customers by technology companies can survive a motion to dismiss even with very
general, even arguably vague, allegations. Specifically, claims under California’s Unfair
Competition Law (“UCL”) and Consumer Legal Remedies Act (“CLRA”) and claims for
common law breach of contract and fraud and perhaps unjust enrichment now appear to
be able to survive a motion to dismiss even when (1) there are no allegations of individual
plaintiff reliance on alleged misrepresentations; (2) there are no particularized factual al-
legations backing up general allegations that the services or products received by plaintiffs
were worth less than they would have been worth had promised protections for personal
information been afforded; and/or (3) there are no particularized factual allegations back-
ing up general allegations plaintiffs lost economic opportunities because they could not
5
sell their personal information for as much or at all once that information was disclosed or
shared with others by the technology company whose product or service was purchased.
One of these cases, Opperman, also establishes that partial disclosures by a company of the
risk that users’ personal information may be used or disclosed does not eliminate the risk
of fraud or other claims against the company, but instead can form the basis of an active
concealment claim.
This apparent shift in the case law involving California law may be a response to recent
attention in the media to the problem of inadequate security for personal information; perhaps the Courts believe that these personal information suits should be allowed to at least
proceed to discovery, as a way to help keep corporate giants like Google “on their toes.”
Whatever the motivations behind these recent cases, they leave a number of ques-
tions open. While these cases can be distilled for the proposition that generalized allegations will suffice for purposes of surviving a motion to dismiss, it is not completely clear
where the line is between sufficient, albeit generalized, pleading and excessively generalized and hence insufficient pleading. This is especially the case with respect to the ques-
tion of when plaintiffs can plead their way of out of needing to allege individual reliance
under Opperman. Moreover, the Ninth Circuit may well choose to revisit the decisions
in Facebook, which is only an unpublished memorandum, and Astiana, which is a very
thinly reasoned, arguably incoherent opinion. District courts, at least outside the Northern
District of California, may choose not to follow these decisions or seek to distinguish them.
Finally, and most notably, the quartet of decisions discussed below only go the question of
whether a complaint will survive a motion to dismiss; they do not suggest that these suits
will be successful at the summary judgment phase of litigation. Courts could allow claims
to go past the motion to dismiss phase of litigation, but then hold plaintiffs to a high standard regarding proof of their allegations.
Fraud, Misrepresentation, Deceit, And Active Concealment Claims
In Opperman, Judge Tigar of the Northern District of California issued an opinion
that may invigorate efforts to hold companies accountable for their advertising regarding
privacy protections for personal data. In a putative class action alleging violations of the
UCL, CLRA, and other statutes, the plaintiffs argued that Apple fraudulently represented
that their personal information would be protected by Apple, and that Apple concealed the
fact that it knew personal information of users in fact had not been protected as promised.
Ordinarily, in a state law fraud action of this sort, purchasers of a product or service would
have to allege individual reliance on particular misrepresentations made by the defendant.
But here Judge Tigar denied the motion to dismiss the fraud claims, even though plaintiffs
6
alleged no individual reliance. Judge Tigar interpreted California law as allowing fraud
actions to proceed without individual-reliance allegations where there was “an extensive
and long-term advertising campaign” by the defendant regarding its promises to protect
personal information. According to Opperman, Federal Rule of Civil Procedure 9(b) in this
context does not require more particular pleading than would be required in a state court.
Moreover, Judge Tigar interpreted “an extensive and long-term advertising campaign” in
a way that may be quite useful to future plaintiffs. The Court also held that plaintiffs
had adequately alleged that Apple had acted unlawfully in failing to disclose it exclusive
knowledge that personal information was not being protected and in actively concealing
those same facts.
According to Opperman, even statements made by Apple before the product launch at
issue could be counted as part of the advertising campaign. In addition, statements made
by third parties and the media could be considered part of the campaign, given that Apple
allegedly sought out such “buzz.” Even though the statements regarding “security” and
the like were varied and directed at different audiences, they could constitute a single
campaign.
Opperman does not establish a bright line as to how many or what sort of alleged mis-
representations are needed in order to adequately allege that there was “an extensive and
long-term advertising campaign” of fraudulent representations. Judge Tigar found that the
twenty plus examples of security-related representations were sufficient, and seemed to
suggest that far fewer than twenty alleged misrepresentations might be too few. It appeared
to help the plaintiffs that at least a few of the alleged misrepresentations were particular
enough – for example, “[a]pplications on the device are ‘sandboxed’ so they cannot access
data stored by other applications” – that they were “capable of being proven false.”
Opperman also appears to open up opportunities for future plaintiffs to make active
concealment claims against companies when the companies only partially disclose the
risks that personal information actually might not be held secure. In Opperman, Apple con-
tended that the plaintiffs failed to allege active concealment adequately because Apple’s
Privacy Policy disclosed that third parties, including those who offer Apps, may collect
information such as “data or contact details.” But Judge Tigar found that the plaintiffs had
adequately alleged active concealment because they alleged that Apple failed to disclose
all the material facts, Apple falsely reassured consumers that its iDevices did not contain
security vulnerabilities that Apple knew they contained, and Apple did not disclose that it
taught or encouraged App developers to access users’ information. Partial disclosure of
risks that personal information is insecure, in other words, does not protect companies from
7
liability and in fact might only support the claim that the companies actively concealed material information of risks from purchasers of products or services. When companies disclose risks regarding the security of personal information, Opperman teaches, they would
be well-advised to fully disclose those risks and not withhold material information.
For technology companies and their lawyers, Opperman creates a kind of quandary. On
the one hand, a company may well want to advertise to current and potential customers it
personal information/data privacy protections as a way of keeping and wooing customers
from possible competitors and increasing sales. On the other hand, if the company does
advertise, advertisements may ex post be deemed “an extensive and long-term advertising
campaign” and used as a basis for expensive class action litigation against the company.
Breach Of Contract – Deprivation Of The Benefit of The Bargain
To state a breach of contract claim, plaintiffs must be able to plead some contract dam-
ages, which means they must be able to allege some cognizable economic injury. Likewise,
to the extent that the UCL allows claims based on “unlawful” conduct and conduct in
breach of contract is unlawful, plaintiffs bringing a UCL claim based on contract violations
also must allege economic injury, because such injury is an explicit requirement for a UCL
cause of action. A concrete injury, which usually would mean an economic injury in the
personal information/data security context, is also required for Article III standing.
The big question for plaintiffs pursuing claims in the personal information/data securi-
ty context is how far will the courts go in accepting a “creative” theory of economic injury
when there is no very straightforward theory available to the plaintiffs. One such theory
that plaintiffs lawyers have offered is a lost-benefit-of-the-bargain or overpayment theory,
which contends that when the purchaser of a computer product or service that promises pri-
vacy protection buys the product or service but does not receive the promised protection,
that person has overpaid for the product or service, and the economic injury consists of the
difference between the purchase price that was paid and the lesser price that would have
been paid had the good or service been explicitly offered as lacking in privacy protection.
One problem with his theory is that plaintiffs may be hard pressed to prove – or even
credibly allege – that they paid more for a product or service because of promised protection. Indeed, in In re Linked User Privacy Litigation, 932 F.Supp.2d 1089 (2013), Judge
Davila of the Northern District of California dismissed privacy-related claims against users
of Linked-In’s premium service, in part because Linked-In promised the same protections
to premium and non-premium users and hence it could not be presumed premium users
paid for promised privacy protection.
8
In Svenson, however, Judge Freeman of the Northern District of California refused to
dismiss a breach of contract claim in a case where there was arguably an absence of partic-
ularized factual allegations supporting the claim plaintiffs paid more than they would have
had they not been promised privacy protections.
The Court pointed to two allegations
made by plaintiffs: that “[t]he services Plaintiff and Class Members ultimately received in
exchange for Defendants’ cut of the App purchase price – payment processing, in which
their information was unnecessarily divulged to an unaccountable third party – were worth
quantifiably less than the services they agreed to accept, payment processing in which the
data they communicated to Defendants would only be divulged under circumstances which
never occurred. . . .” and “[h]ad Plaintiff known Defendants would disclose her Packets
Contents, she would not have purchased the ‘SMS MMS to Email’ App from Defendants.”
These allegations were deemed “sufficient to show contract damages under a benefit of
the bargain theory,” even though the slightly more general allegations in a prior version
of the complaint had been deemed insufficient by the same judge. One alleged fact in the
amended complaint that may have been persuasive for Judge Freeman was that Google did
receive a share of the payment for an “App” plaintiffs made, and was not providing processing for free. Overall, at least where the defendant did receive payment for a product
or service – which would seem to be most cases – Svenson seems to allow a benefit-of-
the-bargain contract claim as long as the plaintiff very explicitly alleges that they regarded
privacy or security protections as part of the bargain and would not have paid what they
paid had they known privacy or security would not be provided. Thus, it should be quite
easy – and courts one day swamped with suits may find, too easy – for plaintiffs to allege
economic injury in the form of deprived benefit of the bargain in the personal information/
data security context.
Breach of Contract – Loss Of Market Opportunity
A second theory for contract damages in the personal information/data security setting
is that purchasers of a service or product lost an opportunity to sell their own personal data
when a company that promised to preserve the privacy or security of their personal information actually uses or discloses that information for its own purposes. A line of federal
district cases, including ones from the Northern District of California, held that general
allegations that the plaintiffs lost an opportunity to sell their own personal information as
a result of contractual violations of privacy or data security promises were insufficient to
satisfy the requirement that plaintiffs allege Article III economic injury and/or damages
as part of a breach of contract claim. However, in the unpublished memorandum opinion
in Facebook, the Ninth Circuit held that where “[p]laintiffs allege[d] that the information disclosed by Facebook . . . harmed” them because they “los[t] the sales value of that
9
information,” the allegations were sufficient to show the element of damages for their
breach of contract claim. In reversing the district court’s dismissal of the contract claim
against Facebook, the Ninth Circuit, albeit in an opinion that lacks binding authority under
Ninth Circuit rules, signaled that plaintiffs need do no more than allege what the Facebook
plaintiffs alleged in order to have a breach of contract claim survive a motion to dismiss.
And the Facebook plaintiffs had not alleged facts supporting their general allegation that
they lost an opportunity to sell their own personal information due to Facebook’s alleged
misconduct.
Judge Freeman in Svenson explained that the case law prior to the Ninth Circuit’s
decision in Facebook – case law Google largely relied upon – was inapposite because the
Ninth’s Circuit’s decision changed what was required for plaintiffs to allege. For Judge
Freeman, the Ninth Circuit’s decision appeared to be governing even though it is a memorandum decision. Judge Freeman may have taken this position because even though the
Facebook memorandum opinion is inconsistent with prior district court rulings, it is not
even arguably inconsistent with any other Ninth Circuit opinions, as the Ninth Circuit had
not previously addressed this issue.
As Judge Freeman explained, the Ninth Circuit in Facebook did not require an explica-
tion of precisely how personal information was diminished in value as part of a well-pled
contract claim. Thus, even though the plaintiffs in Svenson alleged only that there is a
“robust market” for the information at issue and as a result of Facebook’s actions, plaintiffs
were deprived of their ability to sell their own personal data on the market,” those allegations were found to be sufficient.
Taken together, the Ninth Circuit’s decision in Facebook and Svenson suggest that, at
least in the Northern District of California, bare allegations of loss of value in personal in-
formation will suffice. That is certainly how litigants in that District are treating the current
state of the law, as evidenced by both the plaintiffs’ and defendants’ briefs in In re Google,
Inc. Privacy Litigation, No. 12-CV-01382 PSG, before Judge Grewal, in which the parties
seem to agree that the law has shifted with Facebook and Svenson, but disagree whether
diminution in value of personal information is actually at issue in their case or whether
their case only relates to alleged loss in battery life and bandwidth.
Implied Covenant Of Good Faith And Fair Dealing
In the Svenson litigation, Judge Freeman dismissed the complaint’s implied covenant of good faith and fair dealing claim as duplicative of the breach of contract
count. After the plaintiffs in their amended complaint added a few additional allegations, Judge Freeman held that the plaintiffs had adequately plead a stand-alone
10
claim but his opinion does not explain why the additional allegations rendered the
implied covenant claim non-duplicative. One possible way to understand the plaintiffs’ implied covenant claim, in light of the subsequent Astiana opinion (see below),
is that it is a quasi-contract claim for which restitution could be sought as a remedy
and for which contract damages need not be pled or shown. Svenson therefore may
underscore the possible implications of Astiana for privacy litigation.
Unjust Enrichment
If plaintiffs in personal information/data security cases can avoid alleging contract
claims and can instead allege unjust enrichment, then they might be able to avoid alleging
contract damages, which outside of the Northern District of California, can be difficult
(although they still need to allege economic injury for Article III purposes). However,
under California law, it has generally been understood that unjust enrichment is not a standalone action but rather a remedy that can be sought after a stand-alone claim like breach
of contract or fraud is adequately pled. Nonetheless, the Ninth Circuit’s recent decision in
Astiana perhaps suggests plaintiffs in personal information/data security cases could plead
unjust enrichment as a distinct clause of action under a quasi-contract theory, even though
the unjust enrichment/quasi-contract theory claim would look just like a breach of contract
or fraud claim. The Ninth Circuit’s analysis in Astiana is quite brief, and here is the key
passage:
As the district court correctly noted, in California, there is not a standalone cause of action for
“unjust enrichment,” which is synonymous with “restitution.” . . . . However, unjust enrichment and
restitution are not irrelevant in California law. Rather, they describe the theory underlying a claim that
a defendant has been unjustly conferred a benefit “through mistake, fraud, coercion, or request.” 55
Cal. Jur. 3d Restitution § 2. . . . When a plaintiff alleges unjust enrichment, a court may “con-
strue the cause of action as a quasi-contract claim seeking restitution.” . . . . Astiana alleged in her First
Amended Complaint that she was entitled to relief under a “quasi-contract” cause of action because Hain
had “entic[ed]” plaintiffs to purchase their products through “false and misleading” labeling, and that
Hain was “unjustly enriched” as a result. This straightforward statement is sufficient to state a quasicontract cause of action.
The Ninth Circuit’s reasoning in Astiana is unpersuasive, in that it seems to sanction
exactly what it explicitly states is impermissible under California law – the pleading of a
stand-alone, separate cause of action for unjust enrichment. If all one must do is add the
label “quasi-contract” to an unjust enrichment cause of action, then there is no real constraint on the pleading of what are in substance stand-alone unjust enrichment causes of
11
action under California law. Nonetheless, for now, Astiana is good law and it may open up
pleading opportunities for plaintiffs in personal information/data security cases.
Conclusion
In sum, the quartet of federal cases applying California appear to lower the plead-
ing thresholds for plaintiffs in personal information/data security cases. Whether these
cases lead to more complaints being filed and a consequential rethinking by the courts, or
whether the courts will simply winnow suits by requiring proof of general allegations in the
summary judgment phase of litigation, remains to be seen.
Publisher’s Note: The fate of privacy actions in California will certainly depend on how
the Supreme Court decides the standing issue in Spokeo v. Robins (see Commentary on the
News, section, infra, page 27).
* * *
The European Privacy Judicial Decision of a Decade: Google v. Vidal-Hall
Omer Tene*
Over the past few years, Google has been involved in a slate of high-stakes privacy
litigation, in issues ranging from the removal of offensive video footage to the rollout of
its Street View service to the emerging right to be forgotten. Last week, Google privacy
aficionados received another landmark case to add to an increasingly rich library with the
England and Wales Court of Appeal decision in Google v. Vidal-Hall. The case involved
Google’s alleged circumvention of privacy settings in Apple’s Safari browser, allegations
that Google settled with the Federal Trade Commission and state attorneys general in the
U.S. for more than $22 million and $17 million respectively.
The UK court’s sweeping 50-page opinion is one of the most significant judicial deci-
sions in the privacy space since the dawn of the Data Protection Directive 20 years ago.
* Omer Tene is an associate professor at the College of Management School of Law, Israel; a visiting fellow
at the Berkeley Center for Law and Technology and the Institute for Jewish Law and Israeli Law, Economy
and Society; and an affiliate scholar at the Stanford Center for Internet and Society. He is managing director
of Tene & Associates, where he consults the Israeli government, data protection authority and private sector businesses on privacy, data protection and law and technology issues. He is a member of the advisory
board of the Future of Privacy Forum; the European Advisory Board of the IAPP; and the editorial board of
International Data Privacy Law (Oxford University Press). This article was originally published in Privacy
Perspectives, a publication of the International Association of Privacy Professionals at https://privacyassociation.org/news/a/the-european-privacy-judicial-decision-of-a-decade-google-v-vidal-hall/
12
Ironically, it comes at a time when the directive is on the verge of sunset, being replaced by
the General Data Protection Regulation.
Still, the Vidal-Hall decision is a prize for lawyers who for years have been clamoring
for an authoritative interpretation of European data protection law. In Europe, data protec-
tion enforcement is sporadic, and very few cases reach the courts. Even the handful of
cases that reach their zenith, such as the CJEU decisions in the Lindqvist and Costeja (right
to be forgotten) cases, are short on analytical reasoning. Indeed, scholars have been frustrated poring over the CJEU Costeja case for clues about the justifications for the court’s
decision, which was delivered in terse, parsimonious terms. The Vidal-Hall decision is dif-
ferent, vindicating the capacity of English common law to breathe life into existing legal
concepts and legislation.
One reason the data protection docket is scant is the very issue tackled by the Vidal-
Hall court: the narrow definition of privacy harm. This problem also resonates across the
ocean in U.S. jurisprudence: Courts define privacy harms narrowly, excluding equivocal
notions of emotional distress and focusing on pecuniary losses. Time and again, privacy
lawsuits collapse against a wall of uncertainty as plaintiffs struggle to show harm. A plain-
tiff proves a retailer lost his personal information, including credit card and Social Security
numbers, but absent liability for unauthorized transactions, where’s the harm? Another
plaintiff proves an online provider surreptitiously collected her personal information for
ad-targeting purposes, but how much does this “creepy” feeling cost? As Ryan Calo observed, “A privacy harm must be ‘cognizable,’ ‘actual,’ ‘specific,’
‘material,’ ‘fundamental’ or ‘special’ before a court will consider awarding compensation.
Leading commentators to question whether privacy harm is much of a harm at all.”
For all detractors of privacy harms, the UK court now draws a line in the sand. Going
so far as to invalidate a clearly phrased statutory provision, Section 13 of the UK Data
Protection Act, insofar as it is inconsistent with the European Directive and the EU Charter
of Fundamental Rights, the UK court holds emotional distress, or “moral damage,” is re-
coverable under privacy law. In the words of the Master of the Rolls and Lady Justice
Sharp, “Since what the Directive purports to protect is privacy rather than economic rights,
it would be strange if the Directive could not compensate those individuals whose data
privacy had been invaded by a data controller so as to cause them emotional distress (but
not pecuniary damage).”
In a field that assesses illegitimate behavior according to fickle notions such as “unfair-
ness” and “creepiness,” the expansion of recoverable damages to purely emotional damage
is groundbreaking. And given the rhetorical force of the UK court, companies on both sides
13
of the Atlantic should prepare for a potential opening of the floodgates of individual and
class actions. In recognizing non-economic damages, the UK court reversed a legal fiction
it had traditionally used to award damages in the absence of pecuniary loss—finding nomi-
nal pecuniary damage, for example, one pound British, as a basis to award more significant
compensation for emotional distress.
In its decision, the Vidal-Hall court reversed another venerable legal fiction, more id-
iosyncratic to UK law, under which courts have traditionally remedied privacy violations
without recognizing a standalone right to privacy. Amazingly for any non-UK jurist, more
than 120 years after Warren and Brandeis, 50 years after the Prosser privacy torts and 17
years after the Human Rights Act and Data Protection Act, UK law has up till now declined
to recognize privacy rights.
Instead, UK courts “shoehorned” privacy into common law “breach of confidence”
claims. They did so even in cases where there was little if any proximity between plaintiff
and defendant and no obligation of confidentiality to boot. In a notable case, the House of
Lords decided that the Mirror, a British tabloid, breached a duty of confidentiality to super-
model Naomi Campbell, since it should have known that publishing a photo of Campbell
near the entrance to a meeting of Narcotics Anonymous “might jeopardize the continued
success of her treatment.” Hollywood power couple Michael Douglas and Catherine Zeta-
Jones benefited from a similar ruling, which attributed an obligation of confidentiality to
an intruder to their wedding, whose illicit photos of the event were published by another
British tabloid.
Overcoming what it called “the common law’s perennial need (for the best of reasons,
that of legal certainty) to appear not to be doing anything for the first time,” the Vidal-Hall
court held that such legal acrobatics would no longer be necessary. It recognized the misuse
of private information as a tort, stating that, “this does not create a new cause of action. In
our view, it simply gives the correct legal label to one that already exists.” Interestingly, in
an article published almost a decade ago, I suggested working in the other direction, apply-
ing an obligation of confidentiality to Google with respect to its control over users’ search
logs. I wrote there, “Whether based on an implied term of contract between Google and its
users or on the private nature of the information itself, Google should account to users in
case of disclosure of information to third parties.” Clearly, regardless of the “confidentiality” or “privacy” caption, Google owes its users a set of legal obligations grounded in the
trust that those users place in the company.
In its decision, the court tackled another fundamental issue that regularly keeps privacy
professionals on their toes: the definition of personal data. Specifically, the court assessed
14
whether browser-generated information (BGI), that is, information about users’ online
browsing habits collected via their browser, constituted “personal data” under EU and UK
law. The court conducted thorough analysis of the notions of identifiability, anonymization
and pseudonymization, holding that “identification for the purposes of data protection is
about data that ‘individuates’ the individual, in the sense that they are singled out and distinguished from all others. It is immaterial that the BGI does not name the user.”
Importantly, the court held that information that allows a company to identify an indi-
vidual based on matching or aggregating with other information in its possession is per-
sonal, regardless of whether the company in fact matches or aggregates. In doing so, it
discarded an argument often made by online providers that persistent identifiers single
out a device as opposed to an individual user. Presaging the discussion of cross-device
tracking, which has emerged at the center of privacy policy-making, the court holds that
“the concept of ‘multiple users’ is, in effect, an outdated one. The general position is that
devices are used exclusively by a single individual (smartphones and tablets, to take two
examples). In practice this means it is typically possible to equate an individual device user
with the device itself.”
Gone are the days of a single PC placed on a living room table and serving an entire
family. Today, every parent and child has his or her own device, if not several devices. In
deciding this matter, the court accepts the plaintiff counsel’s argument that “the best proof
of this is (Google’s) own business model which is predicated on the potential for the ‘individuation’ of users.”
One thing is clear: The Vidal-Hall case is a resounding declaration that privacy matters.
On privacy skeptics, the UK court decision lands a knockout in three rounds; first in its
(overdue) embrace of a privacy cause of action; second in its clarification of the definition
of personal data in an age of big data and multiple connected devices and third in its ex-
pansion of the concept of compensable harm. If not overturned on appeal, Vidal-Hall, with
its broad notions of privacy, harm and personal data, may portend a sea change in privacy
jurisprudence, emboldening individuals and regulators in their quest to rebalance the data
terrain.
* * *
15
2014 Mobile Privacy and Security Trends and What to Look for in 2015
Fernando A. Bohorquez, Jr. & Jenna Felz*
Most analysts and commentators agree that 2014 was the year mobile reached a tip-
ping point. With over 1 billion mobile smartphones in circulation, 2014 marked the first
year that mobile Internet usage surpassed desktop use in the U.S. This trend will continue
as users spend more time on mobile apps than on the Web. Mobile traffic climbed to re-
cord levels last year, with users checking their mobile devices an average of 150 times a
day. Mobile commerce grew dramatically, much faster than desktop e-commerce, and is
projected to reach $293 billion in the U.S. by 2018. And just as important, a growing num-
ber of consumers are experiencing a “mobile mind shift” to an expectation of real-time,
location-driven, context-specific user experience and engagement.
It is no surprise, then, that 2014 may also have been the year that consumer concern
about mobile privacy and data security finally caught up to consumers’ wide acceptance
and use of the platform. As we have written about previously, Uber’s recent privacy debacle is but the latest example of companies that came under intense consumer and regula-
tory scrutiny in 2014 for their privacy failings. Last year also saw an extraordinary number
of data breaches, including the disclosure by JPMorgan Chase of an issue that may have
affected up to 76 million households and 7 million small businesses, many of whom were
mobile banking customers.
The ink is barely dry on 2015 and data privacy and security have already jumped to
the forefront of our national conversation. Last week, President Obama announced two
proposed federal data privacy and security bills. The week before, FTC Chairwoman Edith
Ramirez warned at the Consumer Electronics Show of the privacy and data security risks
of the Internet of Things. Mobile’s inexorable march—be it through apps or the IoT—will
continue to demand more and more attention from lawmakers and regulators as privacy
and security concerns grow.
This post provides a high-level summary of the major 2014 trends in mobile: market-
ing, mobile pay, and the IoT, as well as the legal and regulatory response. We then break
out our magic eight ball to predict the mobile marketing and legal trends that will likely
unfold over the next 12 months.
* Fernando A. Bohoroquez is a partner, and Jenna Felz is an associate, with BakerHostetler in New York,
NY. This article originally appeared on BakerHostetler’s Data Privacy Monitor blog (http://www.dataprivacymonitor.com).
16
2014: What Happened?
Mobile Marketing Trends
With the consumer shift to mobile, marketers had to pivot to address the challenges
of a mobile space with disparate vendor technology and suboptimal cookies performance.
Chief among the new technologies that mobile marketers have adopted are cross-device
tracking and geolocation tracking.
Cross-device tracking has grown increasingly more valuable to advertisers as consum-
ers switch from device to device to view content. The goal of cross-device tracking is to
identify all the devices a consumer uses—smartphone, tablet, laptop, desktop—and retar-
get ads to that user as he or she moves from device to device. This capability is important
to advertisers because, unlike on desktops, cookies do not work on the majority of mobile
apps and platforms. Tracking consumers across devices is also integral to understanding
how consumer behavior shifts across platforms. For example, a consumer may initially
view a product on a mobile device and then purchase that product on a desktop computer.
There are two types of cross-device tracking: deterministic and probabilistic. Deterministic
cross-device tracking is very accurate, as it requires users to sign into their websites and
apps on every device they use (Facebook and Twitter are examples). Probabilistic cross-
device tracking, on the other hand, is much less accurate and requires a very large set of
data. The vast majority of companies rely on this type of tracking, as most companies do
not require users to log in to use their website or app.
Geolocation platforms track user location data collected on mobile devices to create
user profiles and connect relevant advertisers to identified consumers. In the past year,
there has been a proliferation of location-based services (LBS) leveraging geolocation
tracking and data. Geolocation or location-based services provide tremendous benefits to
consumers in the form of navigation (e.g., GoogleMaps), local search (e.g., Yelp), and
check-in (e.g., Foursquare). Sixty-five percent of businesses are projected to use LBS and
geolocation tracking by 2016. But the same principle that makes geolocation services so
appealing—the ability to provide consumers with real-time information tailored to their
location—also raises significant privacy concerns, as companies can collect and compile—
without consumer knowledge or consent—detailed records and consumer profiles on the
places one works, eats, and visits; the events consumers attend; the people one socializes
with; and more.
Mobile Payments
Mobile pay, also referred to as mobile money, mobile money transfer, and mobile wal-
let, generally refers to payment services operated under financial regulation and performed
17
from or via a mobile device. While mobile pay is not new—it has existed for over a decade—the industry saw a boom in publicity in 2014 as Apple rolled out its new mobile
payment service, Apple Pay, which allows for payment with just the swipe of the wrist
in conjunction with its Apple Watch. Other mobile pay providers include Google Wallet,
Softcard (formerly ISIS), Venmo, and PayPal, among others. The mobile pay market is
projected to reach 2 billion transactions by the end of 2017.
Most current smartphone wallet apps with a tap-to-pay feature require a phone with a
near field communication (NFC) chip to work. NFC chips allow customers to simply hold
their mobile device in front of a scanner to make purchases. The technology evolved from
radiofrequency identification (RFID) tech, which is what enables devices such as security
scan cards and E-ZPass tollbooths. The benefit of NFC, however, is that it is limited to
communication within four inches. Many experts see this small radius as a major security
benefit, which explains its popularity as a secure alternative to credit cards. Both Apple Pay
and Google Wallet use NFC chip technology, and the technology is likely to become more
commonplace in the industry.
The Internet of Things
Last year also saw the rise of the Internet of Things. IoT refers to the connection of ev-
eryday objects to the Internet and to one another, with the goal being to provide users with
smarter, more efficient experiences. Three major industries in which the IoT is expected
to really take off are home security, retail, and automotive. A well-publicized example of
IoT’s growth in the home security industry is Google’s $3.2 billion purchase of Nest, a
company selling Internet-enabled home thermostats and smoke alarms with technology
that many analysts believe will be used to manage multiple Internet-enabled home devices.
The retail industry has seen the introduction of many wearable devices that are changing
the way users communicate (see Apple Watch) and track fitness goals (see FitBit). The auto
industry also embraced IoT in 2014, as automakers aggressively promoted the “connected
car”—a vehicle equipped with Internet access and usually a wireless local area network,
which allow the car to share Internet access with other devices both inside and outside the
vehicle. In 2014, Googleannounced that it is partnering with Audi, GM, and Honda to put
Android-connected cars on the road. A variety of apps designed especially for cars have
also been gaining in popularity, including an app thatalerts parents when a teen is speeding,
and one that turns mobile device apps into a voice-activated experience.
There are an estimated 16 billion devices already connected to the IoT, and that number
is projected to balloon to 50 billion by 2020. These new devices pose unique challenges to
consumer data privacy and security.
18
Legal and Regulatory Trends
Mobile Data Privacy
A flurry of regulatory and legislative activity surrounded mobile privacy in 2014. The
FTC continued to ramp up its efforts to monitor, regulate, and provide best-practice guid-
ance in the mobile app space. In keeping with its position that geolocation data is sensitive
information deserving a greater level of privacy protection, the FTC pursued enforcement
actions against Snapchat, Fandango, and Credit Karma, among others, for failure to in-
form consumers that their geolocation data would be collected and stored by the apps.
These actions followed a number of reports the FTC has issued in recent years on mobile
privacy and data security, including What’s the Deal? An FTC Study on Mobile Shopping
Apps (2014); Protecting Consumer Privacy in an Era of Rapid Change (2012); Marketing
Your Mobile App: Get It Right from the Start (2013); Mobile App Developers: Start with
Security (2013); and Mobile Privacy Disclosures: Building Trust Through Transparency
(2013). Self-regulatory groups have also been active in the mobile space, with the Digital
Advertising Association (DAA) releasing self-regulatory mobile guidelines.
Last year also saw the introduction of a federal bill that would regulate the tracking of
geolocation data, Senate Bill 2171, the Location Privacy Protection Act of 2014 (LPPA).
This bill would, among other things, require consumer consent before companies could
track geolocation data, and require companies collecting the location data of 1,000 or more
devices to post online the kinds of data they collect, how they share and use it, and how
people can opt out of data collection. The FTC testified in favor of the LPPA before the
Senate Judiciary Committee last June.
Congress’s growing focus on geolocation data recently made evident last year when the
sponsor of the LPPA, Senator Al Franken, engaged in a very public exchange with Uber
CEO Michael Kalanick last fall. Senator Franken wrote a letter to Kalanick, requesting
very specific information on the company’s privacy policies and practices. Uber responded
to Franken’s questions, but Franken was not satisfiedwith Uber’s response and stated that
“[i]t still remains unclear how Uber defines legitimate business purposes for accessing,
retaining, and sharing customer data.” Senator Franken vowed to “continue pressing for
answers to these questions.” Senator Franken similarly questioned the rideshare app Lyft
about its privacy policies and over allegations that Lyft executives accessed the trip log of
at least one journalist for no apparent business reason, without receiving consent.
Mobile Data Security
On the data security front, the FTC brought or settled seven enforcement actions in
2014, including those involving Snapchat, HTC, and TRENDNet, relevant to mobile and
the IoT.
19
Snapchat, the developer of a popular photo messaging app, reached a settlement with
the FTC in 2014 over both data privacy and security allegations. The FTC complaint al-
leged that Snapchat had deceived consumers about the amount of personal data it collected
and security measures taken to secure that data. The data privacy allegations claimed that
Snapchat misrepresented the ephemeral nature of the Snapchat app, which Snapchat ad-
vertised would allow users to send photos that “disappear forever” 10 seconds after they
are received. The FTC alleged many ways a user could save a photo message permanently,
including by taking a screenshot of the message, using third-party apps to circumvent the
Snapchat timer, and accessing unencrypted Snapchat video snaps in a location outside the
app’s “sandbox.” The data security allegations claimed that Snapchat failed to employ
“reasonable security measures” to protect personal information transmitted in its “Find
Friends” feature that made vulnerable 4.6 million user names and phone numbers during a
security breach. Under the terms of the settlement agreement, Snapchat is prohibited from
misrepresenting the extent to which it protects the privacy, security, or confidentiality of
users’ information, and is required to implement a comprehensive data privacy program
that will be monitored by an independent privacy professional for the next 20 years.
In 2014, mobile device manufacturer HTC settled charges brought by the FTC that
alleged the company failed to take reasonable steps to secure the software it developed
for its smartphones and tablet computers. Among other things, the complaint alleged that
HTC America failed to provide its engineering staff with adequate security training, failed
to review or test the software on its mobile devices for potential security vulnerabilities,
failed to follow well-known and commonly accepted secure coding practices, and failed
to establish a process for receiving and addressing vulnerability reports from third parties.
HTC settled these charges by agreeing to establish a comprehensive data security program,
undergo independent security assessments for 20 years, and develop and release software
patches to fix security vulnerabilities found in millions of HTC devices.
TRENDnet, a company that markets video cameras designed to allow consumers to
monitor their homes remotely, reached a settlement with the FTC in 2014 over the first IoT
complaint brought by the agency. The FTC alleged that TRENDnet marketed its SecurView
cameras as “secure,” when, in fact, the cameras had faulty software that left them open
to online viewing—and possibly listening—by anyone with the cameras’ IP address. The
complaint alleged that, from at least April 2011, TRENDnet failed to use “reasonable se-
curity to design and test its software,” which included a setting for the cameras’ password
requirement. This led hundreds of consumers’ private camera feeds to be made public
on the Internet in January 2012. Under TRENDnet’s settlement with the FTC, the company is prohibited from misrepresenting the security of its cameras or the security, privacy,
20
confidentiality, or integrity of the information that its cameras or other devices transmit.
It is also prohibited from misrepresenting the extent to which a consumer can control the
security of information its devices store.
2015: What to Expect
In many ways, 2014 has set the stage for 2015. Here are the trends we see from last year
that will continue for the next several months and beyond.
More Highly Targeted Location-Based Ads. Advertisers’ increased use of cross-device
tracking and geolocation tracking will allow mobile advertisers to create more highly targeted and highly personalized campaigns, and deliver them to consumers across all forms
of technology. Facebook will be a platform to watch, as the largest social media company
made changes to its terms of service at the beginning of this year concerning the tracking
and collection of the geolocation data of its users. The purpose of this change is twofold:
(1) to deliver more targeted advertisements to users, and (2) to allow for its new, optional
Nearby Friends feature, which notifies in real time users of friends who are in the vicinity
of the user. Facebook will use this capability to send targeted ads to consumers on mobile
devices more than ever before.
Mobile Pay’s Increased Growth and Security Focus. The mobile pay eco-
system is expected to grow in popularity in 2015, as consumers grow to trust
the technology. Building on the success of major tech giants like Google and Apple, banks
are also expected to launch their own mobile wallets. As the industry grows, experts predict
that targeted attacks on mobile payment technologies can be expected.
Data Security. Speaking of which, data security will be a key concern for mobile app
developers and marketers. As the number of mobile device users continues to increase unabatedly, there is a significant risk that millions of mobile users’ personal information could
be exposed to potential data breaches. This is of particular concern with respect to personal
banking, health and financial platforms that are becoming increasingly mobile. Many experts highlight the security concerns with mobile payments and personal health inf0rmation as these platforms become more popular. Emerging mobile payment methods like
Apple Pay and others have incorporated various innovative security features in their use
of NFC technology, Among other things, the credit card number, even in encrypted form,
is not stored on the iPhone or on Apple’s servers, nor is any credit card data transmitted to
the merchant or stored on the merchant’s servers. Rather, a token is used in its place that
has no intrinsic value and would be useless to hackers. In general, mobile app developers
will now more than ever need to be more vigilant to build in from the beginning reasonable
data security measures tailored to the type of consumer information they are collecting and
21
storing and ensure compliance with relevant rules and regulations when dealing with finan-
cial, health and other sensitive information. Individuals and IT departments will also likely
become increasingly proactive in mobile data security. As a result, we should see areas like
enterprise mobile management, mobile malware detection, mobile data security apps, and
mobile app auditing become more prevalent in this space.
Expansion of the IoT. Experts predict that by 2020, revenue generated by the IoT will
hit $7.1 trillion. As these devices grow in popularity, experts predict that more than 90
percent of all IT networks will have an IoT-based security breach. With this potential risk
to consumers, those in the IoT industry can expect increased FTC scrutiny and possibly
enforcement actions in 2015 and the years to come.
Continued and Increased FTC Privacy by Design Scrutiny. The FTC has brought 50 data
security actions in the past decade. With that track record, and consumers and marketers
increasingly flocking to mobile, the FTC’s attention to mobile apps is certain to grow in
2015, especially with the proliferation of the IoT and wearables. In her opening remarks at
the Consumer Electronics Show on January 6, 2015, FTC Chair Edith Ramirez identified
the three main areas of concern that the IoT presents: (1) ubiquitous data collection, (2) unexpected uses of consumer data, and (3) increased data security risks. In response to these
risks, Ramirez outlined three key steps that companies should take to enhance consumer
privacy and security in IoT devices: (1) adopt “security by design,” (2) engage in data minimization, and (3) increase transparency and provide consumers with notice and choice for
unexpected data uses.
The FTC’s IoT privacy and security concerns mirror the agency’s stance on mobile
privacy generally and specifically when it comes to companies that do not heed its advice
(i.e., Snapchat). For emerging tech companies leveraging mobile apps for consumers, the
FTC will have little patience with privacy missteps this year after sending clear signals
in several settlements in 2014 that mobile developers and marketers need to take privacy
seriously. The FTC may send a similar message this year to IoT developers in the form of
enforcement actions.
Federal Legislation. With an increase in high-profile data breaches, the introduction of
the LPPA, and President Obama’s recent announcement of two data privacy and security
bills, Congress may be moved to take action at the federal level to legislate stronger data
privacy and security measures that would also extend to mobile. The president’s proposed
bills call for a national data-breach notification law that would attempt to harmonize the
patchwork of 47 different state data-breach laws, as well as a consumer privacy bill of
rights that would allow consumers to decide what pieces of their personal data are collected
22
by companies and how the data is used. However, most commentators expect that in the
Republican-controlled Congress, only the former has a significant chance at passage.
* * *
FTC Issues Privacy and Security Recommendations for the Internet of Things
Kaylee A. Cox
Holland & Knight
www.hklaw.com
This morning, the Federal Trade Commission (“FTC”) released a 71-page report on the
Internet of Things (“IoT”).1 The report comes on the heels of a White Paper on wearable
technology and the IoT2 and follows an FTC-hosted workshop, focused on privacy and se-
curity concerns related to the IoT.3 The report summarizes the workshop and outlines the
FTC’s recommendations in response.
In support of the report, FTC Chairwoman Edith Ramirez stated, “The Internet of
Things can only flourish when companies take privacy and data security into account.”
Chairwoman Ramirez also emphasized her primary concern with the amount of data that
can potentially be collected from IoT technologies in consumers’ homes.
However, not all Commissioners support the proposals set forth in the report.
Commissioner Joshua Wright, in particular, dissents from the issuance of the report and
issued a separate dissenting statement. Commissioner Wright was particularly concerned
with the FTC’s reliance on a single workshop as a basis for its recommendations as to best
practices or legislative action. He further voiced his opinion that the report “includes a
lengthy discussion of industry best practices and recommendations for broad-based pri-
vacy legislation without analytical support to establish the likelihood that those practices
and recommendations, if adopted, would improve consumer welfare.”
In its report, the FTC defines the IoT as “the ability of everyday objects to connect to the Internet and to
send and receive data,” noting this includes “Internet-connected cameras that allow you to post pictures online with a single click; home automation systems that turn on your front porch light when you leave work;
and bracelets that share with your friends how far you have biked or run during the day.”
2
The Application Developers Alliance Emerging Technologies Working Group collaborated with technology industry practitioners to develop a whitepaper, titled “The Internet of Me: How Wearable Tech is Changing the Internet of Things (IoT).” The paper analyzes the potential of IoT devices and considerations for
developers when constructing them.
3
On November 19, 2013, the FTC hosted The Internet of Things: Privacy and Security in a Connected
World. The workshop focused on privacy and security issues related to increased connectivity for consumers, both in the home (including home automation, smart home appliances and connected devices), and when
consumers are on the move (including health and fitness devices, personal devices, and cars).
1
23
The report focuses on the inclusion of Fair Information Practice Principles (“FIPPs”)
into the IoT realm. In particular, the report concentrated on four FIPPs: (i) security; (ii)
data minimization; (iii) notice; and (iv) choice. In addition to FIPPs, the report also touches on privacy- and security-related legislative proposals.
Below is a summary of the recommendations set forth in the report.
Security
The FTC encouraged companies to adopt the following security best practices, set forth
by workshop participants:
1. Build security into products at the outset, including:
• Conducting a privacy or security risk assessment
• Minimizing the data that is collected and retained
• Testing security measures before launching products
2. Train company personnel on best security practices
3. Retain service providers who are capable of maintaining reasonable security, and
provide oversight for such providers
4. Implement a defense-in-depth approach to identified significant risks within company systems
5. Implement reasonable access control measures to limit unauthorized access to an
IoT device, data, or network
6. Monitor products throughout the lifecycle and (if feasible) patch known
vulnerabilities
Data Minimization
The report urged companies to consider reasonably limiting their collection and reten-
tion of consumer data, arguing that doing so helps prevent against two privacy risks:
• Large amounts of data stored present a more attractive target for malicious actors
and increases potential harm to victims of an attack
• Large amounts of data increases the risk that data will be used in a way that differs
from consumers’ reasonable expectations
To accomplish data minimization, the report suggests a flexible approach, giving com-
panies the following options:
1. Abstain from collecting data altogether;
2. Collect only those fields of data necessary to the product or service;
24
3. Collect data that is less sensitive;
4. De-identify (i.e., anonymize) collected data; or
5. Obtain consumer consent for collecting additional, unexpected categories of data
Notice and Choice
Despite some workshop participants advocating that the ubiquity of data collection
and practical obstacles makes offering notice and choice challenging in the IoT, the FTC
argued that doing so is nevertheless important (but clarified that not every data collection
requires choice). Noting that there is no one-size-fits-all approach, the FTC laid out the
following options for offering notice and choice in the IoT sphere:
1. Develop video tutorials
2. Affix QR codes on devices
3. Provide choices at point of sale, within wizards, or in a privacy dashboard
The FTC articulated that companies may implement a combination of approaches, but
that no matter which strategy a company implements, the privacy choices offered must be
clear and prominent—not buried within lengthy documents.
In response to participants’ push for use limitations to be considered as a supplement to,
or in lieu of, notice and choice, the FTC incorporated certain use-based approach elements.
In particular, the report maintained that clear and conspicuous choices must be offered
where use would be inconsistent with the context of the interaction (i.e., an unexpected
use). In contrast, the report argued that choice would not be required in the following
instances:
• Where use is consistent with the context (i.e., an expected use)
• Where collected data is “immediately and effectively” anonymized
Although the report did incorporate elements of the use-based approached, the FTC
would not go as far as embracing a pure use-based model for the IoT. The FTC was specifically concerned with the fact that use-based limitations are not comprehensively articu-
lated in legislation, rules, or widely-adopted codes of conduct, which would make unclear
who would have the final say as to which additional uses are appropriate. Additionally, the
FTC stopped short of advocating for a pure-use based approach because “use limitations
alone do not address the privacy and security risks created by expansive data collection and
retention.” Finally, the FTC believes that a pure use-based model would not sufficiently
address consumer concerns pertaining to the collection of sensitive information.
25
Legislation
The FTC also opined that legislating the IoT arena would be “premature” at this stage
but encouraged the development of industry-specific, self-regulatory programs aimed at
promoting privacy and security practices. It did, however, advocate for Congress to enact
“strong, flexible, and technology-neutral federal legislation” to enhance existing data security enforcement and to provide consumer notification of security breaches.
Although the FTC stated that IoT-specific legislation would be premature, it did stress
that the IoT “reinforces the need for baseline privacy standards” and recommended that
Congress enact broad-based privacy legislation. The FTC noted that such legislation
should be “flexible and technology-neutral” while simultaneously providing clear standards regarding consumer choice for data collection and use. In the interim, the FTC promised to leverage existing resources to ensure security and privacy issues are contemplated
in the IoT sphere, including: (i) law enforcement; (ii) consumer and business education;
(iii) participation in multi-stakeholder groups; and (iv) advocacy.
The full report can be found here.
* * *
26
Comments on the News
Neil J. Cohen, Publisher
Supreme Court Grants Certiorari to Decide
Whether Standing Exists in Injury-at-Law Cases
The U.S. Supreme Court April 27 agreed to review an important statutory damages
case centered on whether a citizen has Article III standing to sue a personal information
data broker, Spokeo Inc., under the Fair Credit Reporting Act. Plaintiff asserted that the
defendant caused him anxiety and potential economic injury by marketing incorrect infor-
mation about his wealth and marital status to potential employers. The Ninth Circuit did
not reach the question of whether those injuries were sufficient to confer standing. It held
that no injury to plaintiff beyond the statutory violation need be alleged.
The brief for certiorari focused not on the narrow question of whether the plaintiff was
within the class of people meant to be protected by the statute but asserted generally that
Congress does not have the power to create statutory rights enforceable in federal courts
without a requirement that plaintiff specifically plead concrete injury and causation. Clearly
the defense bar is aiming for a home run in this case that would affect not just the Fair
Credit Reporting Act but consumer enforcement, through class actions, of all consumer
protection statutes imposing statutory damages on corporations that violate only plaintiffs’
statutory rights. The brief for certiorari is published here <http://sblog.s3.amazonaws.com/
wp-content/uploads/2014/05/13-1339-Spokeo-v-Robins-Cert-Petition-for-filing.pdf>.
The Plaintiff’s brief against taking cert. argued that since anxiety and potential eco-
nomic injury were alleged, this case did not present the naked question of whether a statutory violation is sufficient.
Before granting cert. the Court asked the Solicitor General to file an advisory brief, but
disregarded his advice not to take the case. The brief argues that the Court should let stand
the decision of the Ninth Circuit’s decision because lawmakers can elevate rights grounded
in common law to statutory causes of action. “De facto injuries that were previously inadequate in law” can be transformed by Congress into “legally cognizable injuries,” according to the brief, when the law merely codifies common law principles of harm.
The brief portrayed the case as one where the risk to consumers of credit reporting
agencies providing inaccurate information to potential employers and others was so great
as to justify Congress’s lowering the standing barrier and imposing statutory damages as a
deterrent to careless, reckless or deliberate dissemination of data that could affect a person’s
27
livelihood or reputation. The brief is published here <http://www.justice.gov/sites/default/
files/osg/briefs/2015/03/17/13-1339_spokeo_op.pdf>.
Several technology companies, including Facebook, eBay, Yahoo, and Google, sub-
mitted a joint amicus brief in support of Spokeo’s petition in which they argued that they
would be particularly harmed. They argue that if any of the hundreds of millions of their
daily users can file a damages lawsuit based solely on alleged statutory violations without
any actual injury, they could be subject to massive class actions filed purportedly on behalf
of many users who suffered no harm and may even be unaware the alleged statutory violation took place.
The defense bar would like the Supreme Court to view this as a “gotcha” case. The
plaintiff alleged emotional distress and speculative financial injury do not meet the Supreme
Court’s most recent pronouncement on standing in Amnesty International v. Clapper where
human rights organizations and media groups challenged the legitimacy of the Foreign
Intelligence Surveillance Act (FISA). The plaintiffs asserted standing because their future
communication could be intercepted. The Supreme Court held that the plaintiffs were unable to establish standing because imminent injury “fairly traceable” to the FISA could not
be established. The Court determined that while plaintiffs’ concerns were not “fanciful,
paranoid, or otherwise unreasonable,” the harm sought to be avoided was not “certainly
impending.” And standing cannot be created “merely by inflicting harm on themselves
based on their fears of hypothetical future harm that is not certainly impending...If the
law were otherwise, an enterprising plaintiff would be able to secure a lower standard for
Article III standing simply by making an expenditure based on a nonparanoid fear.” Since it is not apparent whether the misinformation on the plaintiff’s marital and eco-
nomic status harmed him, the Spokeo case can be portrayed as just an excuse for a class
action lawyer to bring a suit seeking statutory damages.
Since the Supreme Court has the ultimate power to decide what constitutes standing
under Article III it has the power to control the federal court caseload. In the brief for cert.
the defendant maintained that
Class actions invoking the FCRA, and grounded in the injury-in-law theory upheld in this case, are being filed with great frequency. “In the 40 years since FCRA was enacted, litigation has skyrocketed.”
Indeed, at least 29 putative class actions claiming statutory damages under FCRA have been filed in
the first four months of this year alone. And those lawsuits target a broad range of businesses. As
this
case demonstrates, FCRA class actions are being filed with increasing frequency against employers and
other entities that are not traditional “consumer reporting agencies,” but cannot escape the litigation (and
potentially massive exposure) at the pleading stage.
28
The implication is that the class action bar is generating strike suit litigation by advis-
ing clients to check their credit reports for misinformation. The converse implication is that
many data brokers are cutting costs by not adopting reasonable procedures to check the
accuracy of their published information.
How the Court rules on the standing issue ultimately affects two national policy issues:
First, is the protection of consumers more important than the risk of strike suits? Second,
do government units have insufficient resources to adequately enforce the statute so that
consumers are needed to supplement them? These are questions that are the province of the
federal government.
Although the defense briefs predict an avalanche of disruptive class action cases and
enormous potential statutory liability if the standing barrier is not made strict, these con-
cerns seem exaggerated. The Fair Credit Reporting Act is not a strict liability statute.
Plaintiff must still prove reckless or willful violations to claim statutory damages and the
courts will reach mixed results on whether cases requiring such individual proof are suitable as class actions. Moreover, the number of individual claims after settlement of these
cases is usually small.
If the Supreme Court follows its precedent in Clapper v. Amnesty International that
Article III standing requires actual or “certainly impending injury” there probably will
be vast consequences. The Supreme Court would effectively eviscerate consumer enforcement of such statutory damages statutes in federal courts. Those statutes include the
Telephone Consumer Protection Act, where marketing companies hired by corporations
have blatantly disregarded the law against autodialing marketing, despite many suits and
recoveries challenging the practice. Similarly, the decision will effectively nullify consumer enforcement of such statutory damages cases as The Fair Debt Collection Practices Act,
the Lanham Act, The Fair Housing Act, The Americans with Disabilities Act, the Electronic
Communications Privacy Act, Stored Communications Act, and Cable Communications
Privacy Act. Aside from statutory damages statutes, it would affect citizen suits for injunctive relief under the Clean Air and Water Acts and the Freedom of Information Act.
State courts would still be available to enforce consumer rights but that result would be
contrary to what Congress desired in passing the Class Action Fairness Act.
Because this case implicates the enforcement of many statutes enacted to benefit con-
sumers, the Supreme Court should be reluctant to impose standing requirements that pre-
vent consumers from seeking a remedy in federal court. If the Court decides to dodge the
question of whether a naked injury-at-law can be an injury-in-fact it could remand the case
for a determination of whether plaintiff’s allegations of anxiety and potential economic
29
damages are sufficient to confer standing. More likely the court will choose to uphold the
Ninth Circuit ruling, albeit with some language narrowing the reach of the decision.
Here are some pertinent excerpts from the briefs. First, the petition for cert. states:
Question Presented
Whether Congress may confer Article III standing upon a plaintiff who suffers no concrete harm,
and who therefore could not otherwise invoke the jurisdiction of a federal court, by authorizing a private
right of action based on a bare violation of a federal statute
Discussion
…This Court recognized the substantial importance of the question presented here when it granted
certiorari in First American Financial Corp.Edwards, No. 10-708. But the Court dismissed the writ
of certiorari as improvidently granted, and so did not decide whether a technical violation of a federal
statute ipso facto satisfies the injury-in-fact requirement for Article III standing in the absence of any
allegation of concrete and particularized injury. See First American Financial Corp. v. Edwards, 132 S.
Ct. 2536 (2012) (per curiam).
This case presents the same question in the context of a different, frequently litigated federal statute—the Fair Credit Reporting Act. And this case provides a cleaner vehicle. Unlike in First American—
where the statutory private action and remedy at issue were predicated on the plaintiff’s payment of
money to the defendant—no such payment took place here. Instead, in the uncluttered context of this
case the Ninth Circuit underscored its view that a mere statutory injury-in-law—standing alone—is sufficient to satisfy the Article III injury-in-fact require- ment even when the plaintiff did not sustain any
tangible harm.
Whether Congress can create Article III standing by authorizing a remedy for a bare statutory violation is a recurring question under the FCRA and a wide variety of other federal laws. The courts of
appeals have delivered conflicting answers. Unless this Court steps in, the extent and limits of federal
jurisdiction will continue to vary circuit by circuit and case by case. And in those circuits where a harmless statutory violation has been held sufficient to confer standing, class actions presenting huge damages
exposure based on harmless conduct will proliferate.
Because this fundamental and unsettled question of Article III jurisdiction has enormous practical
significance, this Court’s review is plainly warranted.
The Court of Appeals’ Decision.
…The Ninth Circuit reversed, holding that the “creation of a private cause of action to enforce
a statutory provision implies that Congress
intended the enforceable provision to create a statutory
right,” and that “the violation of a statutory right is usually a sufficient injury in fact to confer standing.”
30
App., infra, 6a (citing Edwards v. First American Corp., 610 F.3d 514, 517 (9th Cir. 2010), cert. granted,
131 Ct. 3022 (2011), cert. dismissed as improvidently granted, 132 S. Ct. 2536 (2012)).
Because “the statutory cause of action does not require a showing of actual harm when a plaintiff
sues for willful violations,” App., infra, 6a, the court reasoned, actual harm is unnecessary to establish
in- jury in fact. Instead, the court held that Robins had satisfied the requirements for Article III standing
be- cause “he allege[d] that Spokeo violated his statutory rights, not just the statutory rights of other
people,” and because his “personal interests in the handling of his credit information are individualized rather than collective.” App., infra, 8a. Thus, the court of appeals concluded, “alleged violations of
Robins’s statutory rights are sufficient to satisfy the injury-in- fact requirement of Article III.”
The court of appeals specifically refused to rest its ruling on the alleged harm to Robins’s employment prospects and related anxiety: “[b]ecause we determine that Robins has standing by virtue of the
alleged violations of his statutory rights, we do not decide whether [the alleged harms] could be sufficient injuries in fact.” App., infra, 9a n.3. The court of appeals declined to construe the statutory damages
provision as an alternate measure of damages rather than a substitute for injury-in-fact, perceiving no
“difficult constitutional questions” to be avoided.
The Ninth Circuit recognized that its analysis had the practical effect of turning the three-part test
for Article III standing into a single-factor inquiry that was satisfied by the availability of a statutory
remedy.. As the court of appeals put it, “[w]hen the injury in fact is the violation of a statutory right *
* * inferred from the existence of a private cause of action, causation and redressability will usually be
satisfied.” Causation is self-evident, because the statutory violation is the injury. And the presence of a
statutory remedy guarantees redressability, since there is no injury to redress apart from the statutory
violation itself.
…The decision below—along with those of two other circuits—directly conflicts with the decisions
of at least two other courts of appeals. Those courts have held that a plaintiff pursuing a statutory cause
of action still must demonstrate a concrete injury-in-fact (as opposed to a mere injury-in-law) in order to
establish Article III standing.
The conflict arises in part from a statement by this Court. The Court has held with unmistakable clar-
ity “that Congress cannot erase Article III’s standing requirements by statutorily granting the right to sue
to a plaintiff who would not otherwise have standing.” Raines v. Byrd, 521 U.S. 811, 820 n.3 (1997). Yet
several courts of appeals have disregarded this “settled” principle (ibid.) in favor of what they perceive
to be a contrary rule expressed in Warth v. Seldin, 422 U.S. 490, 500 (1975) (internal quotation marks
omitted): “The actual or threatened injury required by Art. III may exist solely by virtue of statutes creating legal rights, the invasion of which cre- ates standing.” App., infra, 5a (quoting Warth).
31
The need to resolve the conflict is especially acute because this fundamental question of Article III
jurisdiction has significant implications for class action litigation under a statute that generates dozens of
class actions in the federal courts every year. The Court should grant review.
…Further review is warranted for the additional reason that the serious constitutional questions
raised by the decision below, and many others like it, are the unnecessary result of an overbroad statutory
construction. “A statute must be construed, if fairly possible, so as to avoid not only the conclusion that it
is unconstitutional but also grave doubts upon that score.” Almendarez-Torres v. United States,523 U.S.
224, 237 (1998) Accordingly, where a statute is “genuinely susceptible to two constructions,” a court is
obligated to choose the one that avoids constitutional doubt. Id. at 238.
…The FCRA can readily be construed in that manner. As the Eighth Circuit has observed, “[a] reasonable reading of the statute could still require proof of actual damages but simply substitute statutory
rather than actual damages for the purpose of calculating the damage award.” Dowell v. Wells Fargo
Bank, NA, 517 F.3d 1024, 1026 (8th Cir. 2008). Under that construction, because it can be difficult to
prove the amount of damages resulting from a failure to com- ply with FCRA’s procedural provisions,
plaintiffs who have been concretely harmed by willful noncompliance need not quantify the harm. This
interpretation of Section 1681n(a) of FCRA would not affect the need to show a concrete and particularized injury-in- fact sufficient to satisfy Article III. The federal courts should not “presume—without
any basis in the stat- utory text * * * and in contradiction to long-settled constitutional precedent, see,
e.g., Lujan, 504 U.S. at 560—that Congress intended to stretch, if not breach, the constitutional limits
on federal jurisdidiction.” Wallace v. ConAgra, __ F3d __ , 2014 WL 1356860, at *5 (8th Cir. Apr.
4, 2014). Review is warranted to reinvigorate that principle as it applies to the interpretation of private
causes of action for vio- lations of federal statutes.
…If there is an actual, pal- pable injury—i.e., one that could qualify as an “injury in fact” under Article
III—but no remedy at law, Congress may create a remedy. See ibid. In other words, Congress may
“elevat[e] to the status of legal- ly cognizable injuries concrete, de facto injuries that were previously
inadequate in law.” Ibid.; see also Hart & Wechsler’s The Federal Courts and the Federal System 144
(Richard H. Fallon Jr. et al. eds., 6th ed. 2009).
But Congress may not create the necessary underlying injury by fiat. See Lujan, 504 U.S. at 578. No
plaintiff can enforce every legal obligation that involves her in some way; she can “enforce” only those
“specific legal obligations whose violation works a direct harm” to her that is actual and concrete within
the meaning of Article III. Allen v. Wright, 468 U.S. 737, 761 (1984).
The brief for the Solicitor General defended the injury-at-law doctrine in the context of
other decisions holding that mere publication of false information meets the standing–infact requirement:
32
Question Presented
Whether respondent’s complaint identified an Article III injury-in-fact by alleging that petitioner
had willfully violated 15 U.S.C. 1681e(b) by publishing inaccurate personal information about respondent in consumer reports prepared by petitioner without following reasonable procedures to assure the
information’s accuracy. . . .
Discussion
…Respondent’s putative class-action complaint alleged that petitioner is a CRA that operates a website, spokeo.com, on which users can obtain information about individuals. Respondent alleged that any
person can obtain from that website a wide range of in- formation about the subject of a search, including
the individual’s “address, phone number, marital status, age, employment information, education, [and]
ethnicity”; the “names of [his or her] siblings and parents”; and even “items [the individual has] sought
from web-sites such as Amazon.com, and music [the individual has] listened to on websites such as
Pandora.com.”Petitioner’s website also allegedly provides information about the individual’s “economic
health” (which petitioner formerly labeled as a “credit estimate”), “wealth level,” and, until shortly
before respondent’s complaint was filed, “mortgage value,” “estimated income,” and “investments.”
Petitioner has allegedly “actively marketed it[s] services to employers for the purpose of evaluating
potential employees.”
Petitioner’s website allegedly displayed a consumer report about respondent that inaccurately reported, inter alia, respondent’s age and wealth and that respondent was employed, possessed a graduate
degree, and was married with children. Respondent alleged that petitioner had disseminated that erroneous information about him when he was “out of work and seeking employment,” causing both past and
continuing “actual harm to [his] employment prospects,” monetary injury, and emotional injury from
anxiety about his “diminished employment prospects.
…The petition for a writ of certiorari virtually ignores the specific statutory elements of respon-
dent’s FCRA cause of action and the specific allegations of respondent’s complaint. Petitioner instead
seeks to litigate the abstract question whether “a bare violation of a federal statute” satisfies Article III
even when the plaintiff has “suffer[ed] no concrete harm.” Petitioner appears to construe the decision
below as holding that Congress has plenary power to create statutory causes of action, adjudicable in
federal court, on behalf of whatever class of plaintiffs Congress chooses. See, e.g., Pet. 12 (stating that
“there is broad-based and long-standing disagreement in the lower courts over whether Article III places
limitations on Congress’s ability to create constitutional standing”).
But while the court of appeals
held that respondent’s own complaint satisfied Article III, the court specifically recognized that “the
Constitution limits the power of Congress to confer standing.”
33
In any event, “[t]his Court ‘reviews judgments, not statements in opinions.’ ” California v. Rooney,
483, 307, 311 (1987) (per curiam) (quoting Black v. Cutter Labs., 351 U.S. 292, 297 (1956)). The Ninth
Circuit’s only holding in this case was that respondent had satisfied Article III by alleging that a CRA had
published inaccurate personal information about respondent in a consumer report. Because that holding
is correct and does not conflict with any decision of another circuit, this Court’s review is not warranted.
...
…Petitioner contends that its alleged “re-transmi[ssion] [of ] inaccurate personal information about
[respondent]” cannot support standing without an “allegation of tangible harm.” But the dissemination
of inaccurate information about respondent in violation of respondent’s statutory rights is a “tangible
harm.” Courts have long recognized similar legally protected interests, and the violation of those interests is a sufficient basis for Article III standing. . . .
…Petitioner argues that, at common law, defamation suits without a showing of consequential harm
were limited to contexts in which the false- hood was so egregious that “the law presume[d] an injury.”
That is incorrect. At common law, plaintiffs could recover for any written defamation without a showing of consequential harm, and for certain oral defamatory statements, even when those false statements
were of an “insignificant character” and were unaccompanied by resulting reputational or other harm. 3
Restatement (Second) of Torts § 620 cmts. . . .
…Both the common law and the literal understandings of privacy encompass the individual’s control
of information concerning his or her person. Department of Justice v. Reporters Comm. for Freedom of
the Press, 489 U.S. 749, 763 (1989);
Department of State v. Ray, 502 U.S. 164, 175 (1991) (noting
the “privacy interest” of named individuals in avoiding public disclosure of their “personal information regarding marital and employment status”). That legally protected interest is particularly salient
in modern day society given the proliferation of large databases and the ease and rapidity with which
information about individuals can be transmitted and retransmitted across the Internet. Indeed, “[t]he
capacity of technology to find and publish personal information presents serious and unresolved issues
with respect to personal privacy and the dignity it seeks to secure.” Sorrell v. IMS Health Inc., 131 S. Ct.
2653, 2672 (2011).
* * *
Is Your Samsung Television Set Spying on You?
The Electronic Privacy Information Center has filed a petition with the FTC to inves-
tigate and enjoin Samsung Electronics, Ltd. According to the complaint, those Samsung
television sets that implement voice comands “routinely intercept and record the private
communications of consumers in their homes. Consumers who have learned of this practices
34
have described it is as both “unfair” and “deceptive.” Samsung’s attempts to disclaim its
intrusive surveillance activities by means of a “privacy notice” do not diminish the harm
to American consumers. It is incumbent upon the Federal Trade Commission to take action
in this matter, and to enjoin Samsung and other companies that engage in similar practices,
from such unlawful activities.”
House of Representatives Passes The Protecting Cyber Networks Act
On April 22, the House of Representatives passed the Protecting Cyber Networks Act
(PCNA, H.R. 1560) an information sharing bill designed to shield U.S. companies from
liability risks associated with cyberthreat data sharing. The bipartisan bill would provide
liability protection to companies that voluntarily share “cyber threat indicators” or “defensive measures” with other private entities or a civilian federal agency. Companies would
be immune from lawsuits stemming from the disclosure of such information unless there
is “willful misconduct.” On the following day the House passed on a 355-63 vote an-
other cyberthreat data sharing measure (H.R. 1731) that would create a central role for the
Department of Homeland Security as well as set privacy safeguards.
According to a coalition of privacy organizations including the Open Technology
Institute these bills would enable police and other governmental units broad access to
all personal privacy information without the meaningful threat of liability for abuses.
According to the Open Technology Institute:
PROBLEM #3: PCNA Would require any federal entinty that receives cyber threat indicators to
automatically and indiscriminately disseminate them to the NSA and other federal agencies.
Not only would PCNA authorize excessive information sharing from businesses to government, it
would also authorize excessive sharing of that same information throughout the government, while also
undermining civilian control of domestic cybersecurity information sharing. While PCNA would only
allow companies to share information directly with a civilian federal entity (Sec. 3(c)(1)(A)), it would
also require any civilian entity that receives indicators to immediately disseminate all threat indicators
they receive, including personal information, to a myriad of government agencies ranging from the NSA
and the Office of the Director of National Intelligence to the Federal Bureau of Investigation (FBI) and
the Department of Commerce. (Sec. 4(a)(B), newly created section “(b)(2)(i))”) It would also prohibit
those civilian entities from doing anything to impede the real­time dissemination of indicators, or to
modify them in any way. (Sec. 4(a)(B), newly created section “(b)(2)(ii))”) This would make it impossible for the original receiving entity to conduct a second review of indicators to identify and remove any
improperly shared personal information before transmitting it to the NSA or other agencies.
35
Management of and response to domestic cybersecurity threats should be controlled by a civilian
agency. Requiring a civilian agency to automatically and indiscriminately disseminate that information
to military and intelligence agencies like the NSA undermines civilian control.
Entities within the Department of Defense, like the NSA, should only have access to information
concerning significant cyber threats, such as threats that could result in a significant loss of life or physical destruction of critical infrastructure or state sponsored espionage. . . .
SOLUTION #3: Government entities receiving information under PCNA should be required to
review it for improperly shared PII and remove that PII before disseminating the information further, and that information should only be disseminated to the NSA when it concerns significatant
threats to national security.
…PROBLEM #6: PCNA would immunize companies from liability for harms resulting from information sharing and monitoring.
PCNA would also absolve companies of any liability associated with information sharing or monitoring conducted pursuant to the Act, except for actions that constitute willful misconduct that the
harmed party must establish with a high burden of evidentiary proof. This provision would preclude
causes of action for violations of the Computer Fraud and Abuse Act as well as privacy statutes such as
the Stored Communications Act and Wiretap Act portions of ECPA. (Sec. 6) Information sharing and
monitoring that negligently or even recklessly violated the law would be immunized by PCNA, regardless of how substantial is the damage to other computer systems, individuals’ privacy rights, or any other
legal interest.
SOLUTION #6: PCNA’s liability protections should be narrowed to ensure that there is reasonable recourse for those harmed in the event that a company unnecessarily monitors or shares their
personal information.
Conclusion
For nearly two years, Americans and people the world over have learned of the NSA’s near­ubiquitous
surveillance abilities and practices. Now more than ever before, Congress should ensure that strong privacy protections are central to the provisions of any cyber information sharing legislation that it passes.
At a minimum, cybersecurity information sharing legislation must provide for effective civilian
control of information sharing between the private sector and the government while placing meaningful
limits on the role of military and intelligence agencies like the NSA. That legislation also must include
strong privacy protections to shield innocent Americans’ sensitive information, including limiting its use
to investigations and prosecutions of computer crimes; narrowly tailored liability protections to ensure
that parties who are negligently harmed may seek redress for those harms; and no new authorizations for
additional monitoring of private communications nor for the deployment of countermeasures.
36
PCNA, like CISA, fails on all of these counts. It would enhance cyber­surveillance while threatening
to undermine cybersecurity.”
* * *
The Surveillance State and Bruce Schneier
Bruce Schneier is a security expert. His influential newsletter “Crypto-Gram” and his
blog “Schneier on Security” are read by over 250,000 people. His new book is “Data and
Goliath: The Hidden Battles to Collect Your Data and Control Your World (Data is pronounced with a long “a” to resonate with David.) The advertisement for the book states:
You are under surveillance right now.
Your cell phone provider tracks your location and knows who’s with you. Your online and in-store
purchasing patterns are recorded, and reveal if you’re unemployed, sick, or pregnant. Your e-mails and
texts expose your intimate and casual friends. Google knows what you’re thinking because it saves your
private searches. Facebook can determine your sexual orientation without you ever mentioning it.
The powers that surveil us do more than simply store this information. Corporations use surveillance
to manipulate not only the news articles and advertisements we each see, but also the prices we’re offered. Governments use surveillance to discriminate, censor, chill free speech, and put people in danger
worldwide. And both sides share this information with each other or, even worse, lose it to cybercriminals in huge data breaches.
Much of this is voluntary: we cooperate with corporate surveillance because it promises us convenience, and we submit to government surveillance because it promises us protection. The result is a mass
surveillance society of our own making. But have we given up more than we’ve gained? In Data and
Goliath, security expert Bruce Schneier offers another path, one that values both security and privacy. He
shows us exactly what we can do to reform our government surveillance programs and shake up surveillance-based business models, while also providing tips for you to protect your privacy every day. You’ll
never look at your phone, your computer, your credit cards, or even your car in the same way again.
Here are some choice quotes from his various writings and interviews:
…Paula Broadwell,who had an affair with CIA director David Petraeus, similarly took extensive precautions to hide her identity. She never logged in to her anonymous e-mail service from her home network.
Instead, she used hotel and other public networks when she e-mailed him. The FBI correlated hotel
registration data from several different hotels—and hers was the common name.
…One reporter used a tool called Collusion to track who was tracking him; 105 companies tracked his
Internet use during one 36-hour period. . . .
37
Sure, we can take measures to prevent this. We can limit what we search on Google from our
iPhones, and instead use computer web browsers that allow us to delete cookies. We can use an alias on
Facebook. We can turn our cell phones off and spend cash. But increasingly, none of it matters.
There are simply too many ways to be tracked. The Internet, e-mail, cell phones, web browsers,
social networking sites, search engines: these have become necessities, and it’s fanciful to expect people
to simply refuse to use them just because they don’t like the spying, especially since the full extent of
such spying is deliberately hidden from us and there are few alternatives being marketed by companies
that don’t spy. . . .
…So, we’re done. Welcome to a world where Google knows exactly what sort of porn you all like,
and more about your interests than your spouse does. Welcome to a world where your cell phone company knows exactly where you are all the time. Welcome to the end of private conversations, because
increasingly your conversations are conducted by e-mail, text, or social networking sites.
* * *
Krebs on Security Discusses Increased Ricks of Identity
Theft Through Breaches of Data Broker Information
Brian Krebs is an American journalist and investigative reporter whose blog “Krebs on
Security” provides excellent coverage of data breaches and the methods of cybercriminals.
He personally uncovered a the breach of data brokers who provide personal credit information, including names, social security numbers and the answers to frequently asked security
questions, all of which make identity theft easier. Here is a quote from his December, 2014
post:
Some of the biggest retail credit card breaches of the past year — including the break-
ins at Target and Home Depot — were detected by banks well before news of the incidents
went public. When cards stolen from those merchants go up for sale on underground cybercrime shops, the banks often can figure out which merchant got hacked by acquiring a
handful of their cards and analyzing the customer purchase history of those accounts. The
merchant that is common to all stolen cards across a given transaction period is usually the
breached retailer.
Sadly, this process of working backwards from stolen data to breach victim generally does not work
in the case of breached data brokers that trade in Social Security information and other data, because too
often there are no unique markers in the consumer data that would indicate from where the information
was obtained. . . .
38
…As I explained in a 2013 exclusive, civilian fraud investigators working with law enforcement
gained access to the back-end server that was being used to handle customer requests for consumer information. That database showed that the site’s 1,300 customers had spent hundreds of thousands of dollars
looking up SSNs, birthdays, drivers license records, and obtaining unauthorized credit and background
reports on more than four million Americans.
Although four million consumer records may seem like a big number, that figure did not represent
the total number of consumer records available through ssndob[dot]ru. Rather, four million was merely
the number of consumer records that the service’s customers had paid the service to look up. In short, it
appeared that the ID theft service was drawing on active customer accounts inside of major consumer
data brokers.
Investigators working on that case later determined that the same crooks who were running
ssndob[dot]ru also were operating a small, custom botnet of hacked computers inside of several major
data brokers, including LexisNexis, Dun & Bradstreet, and Kroll. All three companies acknowledged
infections from the botnet, but shared little else about the incidents.
Despite their apparent role in facilitating (albeit unknowingly) these ID theft services, to my knowledge the data brokers involved have never been held publicly accountable in any court of law or by
Congress.
* * *
Privacy Advocates Bash President Obama’s
Call for Industry Self-Regulation of Internet Privacy
The Administration has drafted a bill foe privacy protection that calls on industry to
regulate security and privacy by comparing the risks, costs and benefits of various tech-
niques. His draft disappointed privacy activists who wanted a law allowing individuals to
prevent tracking or at least more active regulation by the FTC. According to the Center for
Digital Democracy:
…Three years ago, President
Obama promised that his administration would deliver
a “Privacy Bill of Rights” to protect American consumers. The bill released today is
a serious setback for privacy. Instead of effective rights that Americans can rely on
to protect themselves and their families from the onslaught of online and offline data
gathering, the administration proposal perversely reduces the power of the Federal
Trade Commission to protect the public. It fails to give the FTC, the country’s key
privacy regulator, “rule-making” authority to craft reasonable safeguards,and actually
39
empowers the companies that now harvest our mobile, social, location, financial, and health data, leaving them little to fear from regulators.
The legislation creates a huge loophole that practically eviscerates any real privacy protection and
consumer control of their data. Its provisions are tied to a standard of both “risk” and “context” that enables a company to determine whether a person’s data require greater privacy control. Since the majority
of today’s massive online data gathering is disingenuously considered by industry as “marketing” information—versus what it really is, highly detailed and continually updated profiles merging our online and
offline data—very little of a consumer’s data will trigger stronger protections.
The multi-stakeholder process at the core of this poorly constructed privacy bill has been flawed
from the outset, dominated as it is by industry lobbyists whose real goal is to ensure their companies can
continue their practices without any real safeguards. The proceedings have failed so far to generate any
meaningful and widely adopted safeguards, and the prospects for a new “code of conduct” that offers
genuine consumer protection are unlikely. Public interest and privacy groups are vastly outnumbered
in the Department of Commerce-run multi-stakeholder process, which is notable for its lack of diverse
representation, denying meaningful participation from civil rights, consumer, and other representatives.
The bill limits the FTC’s “unfair trade practices” authority once companies that collect our data
adopt a “multi-stakeholder code of conduct.” Once that code is developed, the FTC has at most 90 days
(if adopted via a Department of Commerce process) to approve or deny it, giving the agency and the
public insufficient time to analyze and address the code’s shortcomings. Hundreds of codes are predicted
to be proposed, leaving the FTC at a disadvantage in performing its duty to protect American consumers.
The bill also greatly reduces the ability of state attorneys general to protect our privacy precisely at
a time when there is an explosion of hyperlocal data mining of our neighborhoods.
The legislation also enables companies to create so-called “privacy review boards” that will most
likely rubber-stamp their data practices, another example of how corporations have been further empowered to decide what the consumer privacy rules should be. While the bill touts that it provides rights to
consumers, it gives real control to the companies that collect our information.
Although the president’s Privacy Bill of Rights promised transparency and control, it creates a
labyrinth-like process that consumers must navigate before they can actually access and correct their
own data records held by companies. Data brokers and others can hide behind a convoluted system to
determine whether individuals can access their files.
Beyond its undermining FTC authority and empowering industry self-regulation, the process by
which the bill was written also reflects poorly on the Administration. As a Commerce official said to
advocates one week ago, the bill was deliberately drafted so as not to “disrupt [the commercial data]
business—we are the Department of Commerce.” The majority of consumer and privacy advocates were
40
given only a review of the near-final text a week ago today, with just less than 30 minutes to read the bill.
Advocates told the White House early this week about some of the problems in the legislation, urging it
to postpone slightly the release of the bill and to work with us to improve its consumer protections. But
this proposal was rejected. Leading Congressional leaders on privacy issues were also denied access to
the bill until yesterday, leaving them no time for meaningful engagement with the White House. Parts of
the bill appear to have been drafted by the “Big Data” lobby itself, in order to protect industry’s current
data practices, which raise serious questions about the influence the commercial sector has within the
Department of Commerce.
“Instead of supporting the FTC, the Administration has aided the data collection industry in its ef-
forts to undermine that agency’s role,” explained Jeff Chester, CDD’s executive director. This bill fails to
fulfill what the president promised. CDD and other consumer and privacy advocates will work to ensure
Americans get the privacy rights they deserve.
* * *
41
Case Summaries
CLASS CERTIFICATION; ASCERTAINABILITY; ELECTRONIC COMMUNICATIONS PRIVACY ACT
Byrd v. Aaron’s Inc., No. 14-3050 (3rd Cir. Apr. 16, 2015)
Third Circuit Reverses Denial of Motion for Class Certification
Because District Court Erred in Applying Ascertainability Precedent......................44
PRIMARY JURISDICTION; QUASI-CONTRACT; MOTION TO DISMISS
Astiana v. The Hain Celestial Group, Inc., No. 12-17596 (9th Cir. Apr. 10, 2015)
Ninth Circuit Validates Equitable Quasi-Contract Remedy in
Lieu of Actual Damages; Calls for Stay Rather Than
Dismissal of False Advertising Case Under Primary Jurisdiction Doctrine..............47
SCA; BREACH OF CONTRACT; UCL; PRIVACY; CLASS ACTION; MOTION TO
DISMISS
Svenson v. Google, Inc., Case No. 13-cv-04080-BLF (N.D. Cal. Apr 1, 2015)
Federal Court Denies Motion To Dismiss Breach of Contract and
California Unfair Business Practices Claims Based on Google’s Alleged
Disclosure of Users’ Personal Data to Apps; Because Personal Data Has
Alleged Economic Value, Claims for Damages Under Both Contract
Law and the California Business and Professional Code May Proceed.....................51
CONTENT REGULATION; E-COMMERCE; PRIVACY/SECURITY
Sweet v. LinkedIn Corp., No. 5:14-cv-04531-PSG (N.D. Cal. Apr. 14, 2015)
LinkedIn’s “Reference Search” Service
Doesn’t Violate Fair Credit Reporting Act....................................................................57
DERIVATIVE LIABILITY; MARKETING; SEARCH ENGINES; TRADEMARK
Goldline, LLC v. Regal Assets, LLC,
Case No. 14-03680 DDP (ASx) (C.D. Cal. April 21, 2015)
Mixed Ruling in Competitive Keyword Advertising Case...........................................59
42
CONTENT REGULATION; E-COMMERCE; LICENSING/CONTRACTS
Galland v. Johnston, No. 1:2014:cv04411 (S.D. N.Y. Mar. 19, 2015)
Court Might Enforce A Contract Ban On Consumer Reviews....................................61
LICENSING/CONTRACTS; TRADE SECRETS
CDM Media USA, Inc. v. Simms, No. 14-CV-9111 (N.D. Ill Mar. 25, 2015)
Do Employers Own LinkedIn Groups Created By Employees?.................................62
CONTENT REGULATION; DERIVATIVE LIABILITY
Weigand v. N.L.R.B., No. 14-1024 (D.C. Cir. April 17, 2015)
Union Isn’t Liable For Members’ Posts To Private Facebook Group........................64
MARKETING; SEARCH ENGINES; TRADE SECRETS; TRADEMARK
Infogroup, Inc. v. Database LLC, No. 8:14-CV-49 (D. Neb. Mar. 30, 2015)
Another Competitive Keyword Advertising Lawsuit Fails..........................................66
43
Recent Decisions
CLASS CERTIFICATION; ASCERTAINABILITY; ELECTRONIC COMMUNICATIONS
PRIVACY ACT
Byrd v. Aaron’s Inc., No. 14-3050 (3rd Cir. Apr. 16, 2015)
Third Circuit Reverses Denial of Motion for Class Certification Because District
Court Erred in Applying Ascertainability Precedent
In a notorious case where a computer rental company surreptitiously inserted spyware
on its computers, the Third Circuit reversed the District Court’s denial of plaintiffs’ motion for class certification, holding that the district court erred in applying the Circuit’s as-
certainability precedent, especially by not separating the predominance requirement from
ascertainability. The Court first reviewed its ascertainability precedent in detail, in order to
dispel “apparent confusion” in the district courts between ascertainability and other simi-
lar, but distinct, requirements of Rule 23 certification. It then concluded that the district
court abused its discretion in four ways: (1) misstating the rule governing ascertainability,
(2) improperly grafting an “underinclusive” requirement to the ascertainability standard,
(3) incorrectly concluding that an “overly broad” class was not ascertainable, and (4) im-
properly applying legal precedent to the issue of whether “household members” could be
ascertainable. It remanded to the district court for a rigorous analysis of all Rule 23 certification requirements prior to any further appellate review.
The concurring opinion suggested that it was time to abolish the “business record”
or “paper trail” element of ascertainability adopted in the Circuit in 2012. Among other
things, the Judge argued that records are not the only way to determine who is a member
of a class, and the trial judge should have flexibility to determine what is adequate in each
case.
Background
Plaintiffs Crystal and Brian Byrd brought a putative class action against Aaron’s
Inc. and its franchise store Aspen Way Enterprises, Inc. for violation of the Electronic
Communications Privacy Act of 1986 (ECPA). On July 30, 2010, Crystal Byrd leased a
laptop computer from Aspen Way. Although Ms. Byrd asserted that she made full payments, on December 22, 2010, an agent of Aspen Way came to the Byrds’ home to repos-
sess the laptop on the ground of non-payment. The agent allegedly presented a screen shot
of a poker website Mr. Byrd had visited as well as a picture taken of him by the laptop’s
44
camera as he played. The Byrds were troubled and surprised by what they considered a
significant and unauthorized invasion of their privacy.
Aspen Way obtained the picture and screenshot through spyware installed on the lap-
top. The spyware had a function called “Detective Mode,” which could collect screenshots,
keystrokes and webcam images from the computer and its users. The Byrds alleged that
this spyware secretly accessed their laptop 347 times on 11 different days. They further alleged that the computers of 895 customers across the country had surveillance conducted
through spyware.
The Byrds moved to certify the class under FRCP Rule 23(b)(2) and 23(b)(3). The
proposed class definition was:
all persons who leased and/or purchased one or more computers from Aaron’s, Inc., [or an Aaron’s
franchisee] and their household members, on whose computers DesignerWare’s Detective Mode was
installed and activated without such person’s consent on or after January 1, 2007.
The Magistrate Judge recommended that the motion be denied because the proposed
class was not ascertainable. Regarding “owner and lessee” class members, the Magistrate
Judge concluded that the proposed class was underinclusive because it did not encompass all the individuals whose information was gathered by Aaron’s franchisee. The Judge
further concluded that it was also overly broad because not every computer upon which
Detective Mode was activated would state a claim under the ECPA for interception of an
electronic communication. Regarding “household members” the Magistrate Judge took
issue with the fact that the term was not defined, and that it was not enough to propose a
method by which the information as to household members could be obtained. The District
Court adopted the Magistrate Judge’s recommendations. The Byrds appealed.
Court Analysis
The Third Circuit concluded that because the District Court confused ascertainability
with other relevant inquiries under Rule 23, it abused its discretion. The Court vacated and
remanded.
I. Clarification of Third Circuit Precedent Regarding Ascertainability
Preliminarily, the Court noted that there was confusion in the district courts regarding
the application of ascertainability precedent in the Circuit, so it reviewed the precedent in
order to “dispel any confusion.” It stated that
the ascertainability inquiry is two-fold, requiring a plaintiff to show that: (1) the class is defined with
reference to objective criteria; and (2) there is a reliable and administratively feasible mechanism for
determining whether putative class members fall within the class definition.
45
(The concurring opinion noted that the Third Circuit recently adopted the second element
in 2012.)
The Court repeatedly emphasized that the ascertainability analysis dovetails with, but
is separate from, other Rule 23 requirements for class certification. For instance, predominance and ascertainability standards are distinct because ascertainability focuses on wheth-
er individuals fitting the class definition may be identified without resort to mini-trials,
whereas predominance focuses on whether essential elements of the claims can be proven
at trial with common evidence. The Court stated that ascertainability is a “narrow” inquiry
that requires only that the plaintiff show that members can be identified without extensive
and individualized fact finding. Retail records can be an acceptable method of proving
class membership, but a mere affidavit is not sufficient.
II. Reversal of District Court
The Third Circuit gave four reasons for reversing the District Court’s conclusion that
the ascertainability standard was not met.
First, the District Court abused its discretion by misstating the rule governing ascer-
tainability by conflating the standards governing class definition with the ascertainability
requirement. What the District Court described as the two requirements for a “precisely defined class”—the class must be defined with reference to objective criteria, and there must
be a reliable and administratively feasible method for determining whether individuals fell
within the class definition—was in fact the inquiry relevant to the ascertainability standard.
Second, the District Court abused its discretion in determining that the proposed class
was underinclusive. The Third Circuit stated that they “decline to engraft an ‘underinclu-
sivity’ standard onto the ascertainability requirement.” Individuals who are injured by a
defendant but are excluded from a class are simply not bound by the outcome of that par-
ticular action. The Court clarified that it only mentioned “underinclusivity” with regard to
whether records used to establish ascertainability were sufficient, not whether there were
other injured parties that could also be included in the class.
Third, the District Court abused its discretion in determining that the proposed class
was “overly broad.” The Court held that this was really a predominance issue. The Court
held that defendants’ arguments, and the District Court’s rulings, conflated the issues of as-
certainability, overbreadth (or predominance) and standing. Defendants asked the Court to
consider the issue as one of predominance, but the Court declined to do so since the District
Court had not yet conducted a rigorous analysis of that issue.
46
Fourth, the Court held that the District Court abused its discretion in determining that
the “household members” were not ascertainable. The Byrds argued that they intended the
“plain meaning” to be “all of the people, related or unrelated, who occupy a housing unit.”
The Third Circuit was “left to wonder” why the District Court found this inadequate. The
location of household members was already known from Aaron’s sales records, and there
were unlikely to be serious administrative burdens in identifying the household members.
The Third Circuit remanded to the District Court to consider the remaining Rule 23 cer-
tification requirements in the first instance. The Court noted the importance of the district
court completing a rigorous analysis of all requirements in support of certification before
any further appellate review.
Concurring Opinion
The concurring opinion suggested that the lengths to which the majority had to go to at-
tempt to clarify the requirement of ascertainability indicated that the time had come to “do
away with this newly created aspect of Rule 23 in the Third Circuit.” The opinion argued
that the new “business record” or “paper trail” requirement should be abolished because
records are not the only way to determine who is in a class, and the trial judge should have
flexibility to determine what is adequate in each case. The Judge noted that in a small
claims case like the one at bar, the “real choice for the courts is between compensating a
few of the injured, on the one hand, versus compensating none while allowing corporate
malfeasance to go unchecked, on the other.”
* * *
PRIMARY JURISDICTION; QUASI-CONTRACT; MOTION TO DISMISS
Astiana v. The Hain Celestial Group, Inc., No. 12-17596 (9th Cir. Apr. 10, 2015)
Ninth Circuit Validates Equitable Quasi-Contract Remedy in
Lieu of Actual Damages; Calls for Stay Rather Than Dismissal of
False Advertising Case Under Primary Jurisdiction Doctrine
Plaintiffs filed a putative class action against makers of cosmetics, alleging that they
were deceived into purchasing products due to false advertising claiming that the products
were natural. The District Court dismissed Plaintiffs’ California state law claims under the
primary jurisdiction doctrine and dismissed Plaintiffs’ quasi-contract cause of action as duplicative of, or superfluous to, Plaintiffs’ other claims. The panel concluded that the district
47
court erred in dismissing the quasi-contract cause of action, thus upholding Plaintiffs’ claim
even if actual damages could not be shown. (Publisher’s Note: This case could be a significant precedent in breach of privacy cases where damages are problematic. If the court is
allowed to create a customized breach of contract remedy for consumers deceived by the
defendant’s privacy policy, the Plaintiffs can survive a motion to dismiss for lack of standing and seek restitution without pleading a claim for punitive damages.)
The Ninth Circuit held that although the district court properly invoked the primary
jurisdiction doctrine by referring the case to the Food and Drug Administration, it erred
by dismissing the case rather than issuing a stay pending potential agency action by the
Agency. The panel indicated that on remand, the district court might consider whether
events during the pendency of the appeal had changed the calculus on whether further FDA
proceedings were necessary.
Background
Plaintiffs Skye Astiana, Tamar Davis Larsen, and Mary Littlehale (collectively
“Astiana”) filed a putative nationwide class action against The Hain Celestial Group and
JÂSÖN Natural Products (collectively “Hain”), makers of cosmetics. Plaintiffs alleged
that they were deceived into purchasing Hain’s cosmetics due to false advertising claiming
that the products were natural when they in fact contained artificial ingredients. Plaintiffs
sought injunctive relief and damages under the federal Magnuson-Moss Warranty Act,
California’s unfair competition and false advertising laws, and common law theories of
fraud and quasi-contract.
The district court dismissed the quasi-contract cause of action, noting that “while res-
titution is available as a remedy for plaintiffs’ other causes of action, it is not a standalone
cause of action in California and is nonsensical as pled in any event.” The district court also
dismissed the California state law claims under the primary jurisdiction doctrine, which
permits courts to determine whether a claim implicates technical and policy questions that
should first be addressed by an agency with regulatory authority over the relevant industry.
Preemption
The Court first held that the Food, Drug, and Cosmetic Act did not expressly preempt
California’s state law causes of action that create consumer remedies for false or misleading cosmetics labels.
Primary Jurisdiction
The Court next turned to whether the district court properly dismissed Plaintiffs’ claims
under the primary jurisdiction doctrine. The Court first rejected Plaintiffs’ argument that
48
Defendant waived its right to seek dismissal on primary jurisdiction grounds because the
defense was asserted in a pleading titled: “Motion to dismiss for lack of subject matter ju-
risdiction, pursuant to Federal Rule of Civil Procedure 12(h)(3).” Though the Court noted
that “this title was inaccurate because ‘[p]rimary jurisdiction is not a doctrine that impli-
cates the subject matter jurisdiction of the federal courts,’” the Court found that “a pleading
caption is hardly dispositive of the nature of the pleading,” and concluded that “[f]ar from
waiver, Hain’s motion put [Plaintiffs] on notice of the defense, and [Plaintiffs] responded
to this argument.”
Plaintiffs also urged the Court to acknowledge that Plaintiffs’ correspondence with the
FDA during the pendency of this appeal demonstrated that the agency declined to take pri-
mary jurisdiction over this case. However, the Court found that this determination should
be left to the district court on remand.
The Court then held that, although the district court properly invoked primary jurisdic-
tion, it erred by dismissing the case without prejudice rather than staying proceedings while
the parties (or the district court) sought guidance from the FDA. The Court explained:
Primary jurisdiction is a prudential doctrine that permits courts to determine “that an otherwise cognizable claim implicates technical and policy questions that should be addressed in the first instance by
the agency with regulatory authority over the relevant industry rather than by the judicial branch.” … In
evaluating primary jurisdiction, we consider “(1) the need to resolve an issue that (2) has been placed by
Congress within the jurisdiction of an administrative body having regulatory authority (3) pursuant to a
statute that subjects an industry or activity to a comprehensive regulatory authority that (4) requires expertise or uniformity in administration.” … the doctrine is reserved for a “limited set of circumstances”
that “requires resolution of an issue of first impression, or of a particularly complicated issue that Congress
has committed to a regulatory agency.”… Under our precedent, “efficiency” is the “deciding factor” in
whether to invoke primary jurisdiction… even when agency expertise would be helpful, a court should
not invoke primary jurisdiction when the agency is aware of but has expressed no interest in the subject
matter of the litigation. Similarly, primary jurisdiction is not required when a referral to the agency
would significantly postpone a ruling that a court is otherwise competent to make.
The Court found that the district court did not err in invoking primary jurisdiction, as
“[d]etermining what chemical compounds may be advertised as natural on cosmetic product labels is ‘a particularly complicated issue that Congress has committed to’” the FDA,
and “[o]btaining expert advice from that agency would help ensure uniformity in administration of the comprehensive regulatory regime established by the FDCA.”
The Court further explained:
49
Once a district court determines that primary jurisdiction is appropriate, it may either stay proceedings
or dismiss the case without prejudice. When the purpose of primary jurisdiction is for “parties [to] pursue their administrative remedies,” a district court will “[n]ormally” dismiss the case without prejudice.
… However, when a court invokes primary jurisdiction “but further judicial proceedings are contemplated, then jurisdiction should be retained by a stay of proceedings, not relinquished by a dismissal.”…
Because the Ninth Circuit “has not clearly adopted the doctrine of equitable tolling in primary jurisdiction cases,” prudence dictates that a court should stay proceedings rather than dismissing them when
there is a “possibility” that the running of the statute of limitations during administrative proceedings could
affect the parties’ rights.
Here, the Court found,
“[t]he purpose of referral to the FDA was not for the agency to adjudicate [Plaintiffs’] claims, but to
provide expert advice that would be useful to the court in considering this lawsuit. Plus, dismissing the
case had the potential to prejudice members of the putative consumer class because of the running of the
statute of limitations.”
The Court therefore reversed the dismissal. It further noted: “On remand, the district court
may consider whether events during the pendency of this appeal…affect the need for further proceedings at the FDA or demonstrate that another referral to the agency would be
futile.”
Quasi-Contract
The Court then overturned the district court’s dismissal of Plaintiffs’ quasi-contract
cause of action, finding that Plaintiffs’ pleadings, though inartful, were better read as raising a valid quasi-contract claim seeking the remedy of restitution. The Court explained:
[I]n California, there is not a standalone cause of action for “unjust enrichment,” which is synonymous
with “restitution.” … However, unjust enrichment and restitution are not irrelevant in California law.
Rather, they describe the theory underlying a claim that a defendant has been unjustly conferred a benefit “through mistake, fraud, coercion, or request.”…The return of that benefit is the remedy “typically
sought in a quasi-contract cause of action.” …. When a plaintiff alleges unjust enrichment, a court may
“construe the cause of action as a quasi-contract claim seeking restitution.”
The Court found that Plaintiffs alleged that they were entitled to relief under a “quasi-
contract” cause of action because Defendants had “entic[ed]” Plaintiffs to purchase their
products through “false and misleading” labeling, and that Defendants were “unjustly enriched” as a result. The Court concluded that this “straightforward statement” was suffi-
cient to state a quasi-contract cause of action. Finally, the Court found that even if the cause
50
of action was duplicative of or superfluous to Plaintiffs’ other claims, this was not grounds
for dismissal.
The Court therefore reversed and remanded.
* * *
SCA; BREACH OF CONTRACT; UCL; PRIVACY; CLASS ACTION; MOTION TO DISMISS
Svenson v. Google, Inc., Case No. 13-cv-04080-BLF (N.D. Cal. Apr 1, 2015)
Federal Court Denies Motion To Dismiss Breach of Contract and
California Unfair Business Practices Claims Based on Google’s Alleged
Disclosure of Users’ Personal Data to Apps; Because Personal Data Has
Alleged Economic Value, Claims for Damages Under Both Contract Law
and the California Business and Professional Code May Proceed
In this putative class action, plaintiff argued that Google violated its own privacy policy
by sharing users’ information with application vendors. Reaffirming the broad sweep of
recent Ninth Circuit precedent, the Court concluded that the amended complaint stated a
breach of contract damages claim in that it alleged that Google’s disclosure of plaintiff’s
personal information would diminish its sale value in the market for such information. The
Court also upheld a claim for breach of the implied covenant of good faith and fair dealing since Google did not disclose its true practice of sharing personal information with its
Apps.
The Court also held that the plaintiff had alleged an unlawful or unfair competition
under California law, and explained that although plaintiff did not allege that she had read
the Google contract, misrepresentation and reliance need not be alleged for that cause of
action. The Court, however, did dismiss the Stored Communications Act (SCA) claim be-
cause it held that a document regarding users’ credit cards, which did not include the actual
credit card numbers, was merely a “record” and not the “content” of a communication and
hence no subject to the SCA disclosure prohibitions.
Background
Under the Google Privacy Policy, Google may share a user’s “personal information”
only (1) with the user’s consent, (2) with domain administrators, (3) for external process-
ing, and (4) for legal reasons. Plaintiff alleged that prior to the filing of this lawsuit, Google
practice was to ignore these restrictions and, whenever a user purchased an App in the
Play Store, to share the user’s personal information with the App vendor. She asserted that
51
Google sharing of the “Packets Contents” with the App vendor was not necessary to the
App purchases and was not otherwise authorized by the Google Wallet Terms of Service.
Plaintiff claimed that Google ceased its blanket practice of sharing users’ personal information with App vendors shortly after she filed this lawsuit.
Plaintiff asserted claims on behalf of herself and those similarly situated for (1) breach
of contract, (2) breach of the covenant of good faith and fair dealing, (3) violation of the
SCA, 18 U.S.C. § 2701, and (4) § 2702 and, (5) violation of California’s Unfair Competition
Law (UCL), California Business and Professions Code § 17200.
Breach of Contract
Plaintiff alleged that Google’s conduct in making her personal information available to
YCDroid diminished the sales value of that personal information. As the Court recognized
in a prior order, the Ninth Circuit expressly recognized “that this type of allegation may
be sufficient to establish the element of damages for a breach of contract claim. See In re
Facebook Privacy Litig., 572 Fed. Appx. 494 (9th Cir.2014).” The Court concluded that
the original complaint did not allege facts sufficient to make out this theory of contract
damages because it did not allege a market for personal information. Plaintiff now alleged
that “[t]here is a robust market for the type of information contained within the Packets
Contents,” and that “[a]s a result of Defendants’ actions, Plaintiff and the Class have been
deprived of their ability to sell their own personal data on the market.”
Google asserted that more is required to allege contract damages under a diminution in
value theory, citing district court decisions requiring factual specificity as to how the de-
fendant’s use of the information deprived the plaintiff of the information’s economic value.
All but one of the cited decisions issued before the Ninth Circuit’s May 2014 Facebook
Privacy Litig. decision. Opperman, which issued six days after Facebook Privacy Litig.,
does not cite it.
The Ninth Circuit’s holding does not require the type of explication discussed by the district court decisions. In light of the Ninth Circuit’s ruling, this Court concludes that plaintiff’s allegations of diminution
in value of her personal information are sufficient to show contract damages for pleading purposes.
Regarding the breach of the implied covenant of good faith and fair dealing the Court
said the following:
Google points out, correctly, that Svenson’s implied covenant claim also contains allegations that Google
did not inform users that their personal information would be shared with App vendors in connection
with every transaction, see FAC ¶¶ 167, 169, and that the alleged failure to inform is insufficient to state
a claim for breach of the implied covenant absent an allegation that Google had a duty to inform. At the
52
hearing, the Court engaged in a colloquy with counsel as to whether it would make sense to go through
another round of amendment and –presumably – motion practice, or whether the allegations in the FAC
were sufficient to move forward on the implied covenant claim. Viewing the claim as a whole, the Court
concludes that Svenson does allege a viable claim for breach of the implied covenant despite her stray,
non-actionable allegations regarding Google’s failure to disclose.
SCA § 2702
Claim 4 alleged that disclosure of plaintiff’s personal information violated § 2702 of
the SCA, which provides that person or entity providing an electronic communication service to the public shall not knowingly divulge to any person or entity the contents of a
communication while in electronic storage by that service. The question presented by this
motion was whether the “Packets Contents” was “contents of a communication” or “a re-
cord or other information”; if the former, plaintiff has made out a claim under § 2702(a),
but if the latter she has not.
The Court previously dismissed Claim 4 after concluding that the personal informa-
tion described in the original complaint—“the user’s name, email address, account name,
home city and state, zip code, and in some instances telephone number,” constituted “re-
cord information” rather than “contents of a communication.” Because the § 2702 claim
had not previously been challenged by motion or addressed by the Court, plaintiff was
granted an opportunity to amend. However, the Court cautioned that “[g]iven the analysis
set forth herein, Plaintiff must consider whether she can allege additional facts that would
demonstrate that the alleged disclosure was more than record information.” The “Packets
Contents” described in the FAC were alleged to include “personal information about
Buyers, including credit card information, purchase authorization, addresses, zip codes,
names, phone numbers, email addresses, and/or other information.” Despite the inclusion
in this definition of the term “credit card information,” however, “it does not appear that
App vendors are given access to user’s credit card numbers.” Plaintiff’s opposition conceded that credit card information is not actually provided to App vendors. “Accordingly,
the “Packets Contents” are not materially different from the personal information alleged
to have been disclosed in the original complaint. Because none of plaintiff’s factual allegations or legal arguments are materially different from those considered and rejected by the
Court previously, the Court declines to reconsider its prior ruling.”
California’s UCL
Claim 5 asserted a violation of California Business & Professions Code § 17200. In or-
der to state a claim for relief under that provision, plaintiff must allege economic injury and
facts showing that defendants engaged in an “unlawful, unfair or fraudulent business act
53
or practice.” The Court was not persuaded by Google’s characterization of plaintiff’s UCL
claim. Her unlawful prong claim alleged in a straightforward manner that Google violated
its own privacy policies in violation of California Business and Professions Code § 22576.
No reliance is required for a violation of § 22576.
With respect to the unfair prong, plaintiff did not allege that she entered into the “Buyer
Contract” in reliance upon misrepresentations regarding the privacy protections contained
therein. She did not even allege that she read the Contract. She alleged that Google’s conduct was “oppressive, immoral, unethical, and unscrupulous” and that privacy protections
were contract benefits to which she was entitled. Further, the practice of making “blanket,
universal disclosure of any or all of the Packets Contents to third-party App Vendors” in
connection with every App purchase in the Play Store deprived her (and the Class) of any
opportunity to receive those benefits. Plaintiff’s allegation that Google had a policy that
by its very nature frustrated “[t]he agreed common purpose of the Wallet Terms for Buyers
to be able to privately purchase Apps from App Vendors” was “sufficient to take her claim
beyond mere breach of contract and into the realm of unfair competition prohibited by the
UCL.”
According to the Court:
Claim 5 asserts a violation of California Business & Professions Code § 17200. In order to state a
claim for relief under that provision, Plaintiff must allege facts showing that Defendants engaged in an
“unlawful, unfair or fraudulent business act or practice.” Cal. Bus. & Prof. Code §17200. “Because the
statute is written in the disjunctive, it is violated where a defendant’s act or practice violates any of the
foregoing prongs.” Davis v. HSBC Bank Nevada, N.A., 691 F.3d 1152, 1168 (9th Cir. 2012). In addition
to identifying a practice under one of the above prongs, a plaintiff must allege that he or she has suffered
(1) economic injury (2) as a result of the practice. Specifically, the plaintiff must allege that he or she
“suffered injury in fact and has lost money or property as a result of the unfair competition.” Cal. Bus.
& Prof. Code § 17204.
The Court previously dismissed Svenson’s UCL claim for failing to allege economic injury arising
from the challenged business practice as required by Kwikset. See Order of Aug. 12, 2014 at 16, ECF 83.
In particular, the Court concluded that “Plaintiff alleges that she purchased an App for $1.77 and received
that App,” and that she had “not alleged facts showing that she suffered any 25 damages resulting from
that transaction.” Id. Google contends that Svenson has not cured this defect. However, as discussed
above in connection with the contract claim, Svenson now alleges that “Defendants’ payment-processing
services provided under Buyer Contracts are not free:
…Defendants keep a percentage of the purchase price for each App purchase they process.” She also
alleges that “[t]he percentage of the App sales price Defendants retained is the money Defendants
54
earned from Plaintiff’s and Class Members’ purchases of Apps under the Buyer Contracts.” Svenson
thus alleges that she paid Google for services that she did not receive as a result of Google’s unlawful and unfair business practices, establishing economic injury.
The Court did not previously consider whether Svenson had alleged facts sufficient to meet the other
pleading requirements for UCL claims. Svenson asserts claims under the unlawful and unfair prongs.
With respect to the former, “[b]y proscribing any unlawful business practice, section 17200 borrows
violations of other laws and treats them as unlawful practices that the unfair competition law makes independently actionable.” Chabner v. United of Omaha Life Ins.Co., 225 F.3d 1042, 1048 (9th Cir. 2000)
(internal quotation marks and citation omitted). Svenson relies upon alleged violations of the SCA,
which are insufficient for the reasons discussed in connection with Claims 3 and 4, above. However, she
also relies upon alleged violations of California Business and Professions Code § 22576, which prohibits
an operator of a commercial web site or online service from failing to comply with its own privacy policies. Id. ¶¶ 222-223. Svenson’s allegations regarding Google’s policy of disclosing personal information
in connection with all App purchases, in violation of its own privacy policies, thus are sufficient to state
a claim under the unlawful prong. See id. ¶¶ 223-224.
With respect to the unfair prong, “the UCL does not define the term ‘unfair’ as used in Business and
Professions Code section 17200.” Durell v. Sharp Healthcare, 183 Cal. App. 4th 1350, 1364 (2010). Nor
has the California Supreme Court established a definitive test to determine whether a business practice is
unfair. Phipps v. Wells Fargo Bank, N.A., No. CV F 10–2025 LJO SKO, 2011 WL 302803, at *16 (E.D.
Cal. Jan. 27, 2011). Three lines of authority have developed among the California Courts of Appeal. In
the first line, the test requires “that the public policy which is a predicate to a consumer unfair competition action under the unfair prong of the UCL must be tethered to specific constitutional, statutory, or
regulatory provisions.” Drum v. San Fernando Valley Bar Ass’n, 182 Cal. App. 4th 247, 257 (2010)
(internal quotation marks and citation omitted). A second line of cases applies a test to determine whether
the identified business practice is “immoral, unethical, oppressive, unscrupulous or substantially injurious to consumers and requires the court to weigh the utility of the defendant’s conduct against the gravity
of the harm to the alleged victim.” Id. The third test draws on the definition of “unfair” from antitrust
law and requires that “(1) the consumer injury must be substantial; (2) the injury must not be outweighed
by any countervailing benefits to consumers or competition; and (3) it must be an injury that consumers themselves could not reasonably have avoided.” Id. (internal quotation marks and citation omitted).
Svenson alleges that Google’s alleged practice of disclosing personal information in connection with
all App purchases is “oppressive, immoral, unethical, and unscrupulous,” and that it effects substantial
consumer injury that is “not outweighed by any countervailing benefit to consumers or to competition.”
The details of Google’s alleged practice of violating its privacy policies, and the resulting injuries to
Svenson and the Class arising from such practice, are discussed in detail above and need not be set forth
55
again here. The Court concludes that Svenson has made out a UCL claim under the unfair prong as well
as under the unlawful prong.
Google argues that Svenson’s UCL claim is governed by the standards applicable to the fraudulent
prong even though she specifically confines her allegations to the unlawful and unfair prongs. “[A] consumer’s burden of pleading causation in a UCL action should hinge on the nature of the alleged wrongdoing rather than the specific prong of the UCL the consumer invokes.”Durell, 183 Cal. App. 4th at 1363.
Thus a claim that is based upon alleged misrepresentation and deception requires an allegation of actual
reliance even if brought under the unlawful or unfair prongs rather than the fraudulent prong. Kearns v.
Ford Motor Co., 567 F.3d 1120, 1125 (9th Cir. 2009) (fraud requirements may apply to claim brought
under unfair prong); Durell, 183 Cal. App. 4th at 1363 (reliance requirement may apply to claim brought
under unlawful prong). According to Google, the thrust of the UCL claim is that Google misrepresented
its practices with respect to disclosure of user information. Thus, Google asserts, Svenson must allege
reliance upon those misrepresentations in order to state a claim. Svenson does not allege that she read or
relied upon the Google Wallet Terms of Service or the privacy provisions contained therein.
The Court is not persuaded by Google’s characterization of Svenson’s UCL claim. Her unlawful
prong claim alleges in a straightforward manner that Google violated its own privacy policies in violation of California Business and Professions Code
§ 22576. No reliance is required for a violation of
§ 22576. With respect to the unfair prong, Svenson does not alleged that she entered into the “Buyer
Contract” in reliance upon misrepresentations regarding the privacy protections contained therein. She
alleges that that privacy protections were contract benefits to which she was entitled and that Google’s
practice of making “blanket, universal disclosure of any or all of the Packets Contents to third-party
App Vendors” in connection with every App purchase in the Play Store deprived her (and the Class) of
any opportunity to receive those benefits “[A] breach of contract may . . . form the predicate for Section
17200 claims, provided it also constitutes conduct that is unlawful, or unfair, or fraudulent.” Puentes v.
Wells Fargo Home Mortg., Inc., 160 Cal. App. 4th 638, 645 (2008). Svenson’s allegation that Google
had a policy that by its very nature frustrated “[t]he agreed common purpose of the Wallet Terms [ ] for
Buyers to be able to privately purchase Apps from App Vendors,” is sufficient to take her claim beyond
mere breach of contract and into the realm of unfair competition prohibited by the UCL.
Based upon the foregoing, the motion to dismiss is DENIED as to Claim 5.
Publisher’s Note: See the article by Professor David Dana in this issue entitled “Courts
Uphold California Privacy Claims Despite Vague Allegations: Opening The Litigation
Floodgates or Simply Giving Plaintiffs a Reasonable Opportunity To Prove Their Claims?”
* * *
56
Best of the Blogs
CONTENT REGULATION; E-COMMERCE; PRIVACY/SECURITY
Sweet v. LinkedIn Corp., No. 5:14-cv-04531-PSG (N.D. Cal. Apr. 14, 2015).
LinkedIn’s “Reference Search” Service Doesn’t Violate Fair Credit Reporting Act
Venkat Balasubramani
© 2015 Venkat Balasubramani. Venkat Balasubramani is a principal at Focal PLLC.
Plaintiffs alleged that potential employers found references about them through
LinkedIn’s Reference Searches functions, they were denied employment as a result, and
thus LinkedIn violated the Fair Credit Reporting Act.
LinkedIn users, including prospective employers, generally can search LinkedIn user
profiles using its “proprietary search technology.” The Reference Search tool specifically
provides: (1) the candidate’s employment history as provided to LinkedIn, and (2) a list of
other members in the prospective employer’s network who worked at the same employers
as the job candidate, with the theory that some of those other members worked with the
job candidate and therefore can provide insights about the job candidate that supplement
or replace any references the job candidate might supply him/herself. LinkedIn does not
provide any reference information directly, but it encouraged prospective employers to
use LinkedIn’s introduction function to contact prospective references identified via the
Reference Search tool so they could obtain references directly from the other members.
(Interestingly, it does not tell the job candidates when prospective employers run searches
on them using the Reference Search tool.)
Is the information provided a Consumer Report? The court says that LinkedIn’s provi-
sion of information culled from a person’s LinkedIn profile does not implicate the FCRA.
LinkedIn is making available information that consumers share with LinkedIn (for the purpose of being widely disseminated—i.e., on their profiles) and this falls within the “trans-
actions or experiences” exclusion to the definition of “consumer report”. The court also
says that the list of prospective references is not information “pertaining to” plaintiffs, so
this does not cause an FCRA problem.
Is LinkedIn acting as a Consumer Reporting Agency? Second, the court says that
LinkedIn is not acting as a consumer reporting agency. The definition for a CRA is an
entity which:
57
for . . . fees, regularly engages in . . . the practice of assembling or evaluating consumer credit information or other information on consumers for the purpose of furnishing consumer reports to third parties.
The hook is the means by which LinkedIn gathers the information. Rather than gather-
ing it for the purpose of furnishing credit reports, the court says that LinkedIn gathers the
information to “carry out consumers’ information-sharing objectives.”
Does the information bear on the consumers’ “character, reputation, or mode of liv-
ing?” Third, the court says that plaintiffs do not sufficiently allege that the Reference Search
bears on “character, general reputation, mode of living” or other consumer-credit-relevant
characteristics. Plaintiffs alleged that listing whether a particular subject has contacts in
a geographic location shows whether the subject is “well connected” and in the extreme
cause, inclusion of “notorious” references (such as Bernie Madoff) bears on credit-relevant
characteristics. But the problem with this is that LinkedIn never said that the subjects knew
the particular references; the results suggest only that the searcher may know someone who
had a common employer with the job candidate. (See the Forbes article making this point).
The court notes that, in order to be a consumer report, the report must contain information
about the person–information “about people other than the consumer who is allegedly the
subject of the report” may not qualify.
Are the Reference Searches used as a factor in employment? Finally, the court also
says that it’s not clear Reference Searches are “used as a factor in determining whether the
subjects . . . are eligible for employment.” While the underlying information obtained using
the service may be, there is no allegation that any of the information provided by LinkedIn
(e.g., “John Doe and Jane Doe may have overlapped at Acme Corporation; contact Jane to
find a reference about John”) figured in an employment decision. Plaintiffs’ allegations do
not sufficiently state that putative employers used the results themselves, rather information derived from the results, in refusing to hire them.
This is a super-interesting ruling. The conclusions appear defensible, and it is thorough
in its treatment of plaintiffs’ arguments. Still, I wonder if plaintiffs will consider appealing
just to hear what the 9th Circuit has to say. The court distinguished between the underlying
reference information (which LinkedIn did not provide) and pointers to the source of refer-
ences (which LinkedIn provide). Given that prospective employers could have culled this
information from LinkedIn directly, this distinction makes sense. (If LinkedIn had polled
the prospective references itself and presented the responses to the requestor, this would
have presented a different scenario under the FCRA.)
The FTC has an expansive view of what constitutes a credit report. See generally the
NY Times story on this lawsuit when it was filed. This ruling makes it look like there’s at
58
least one judge who takes a more limited view. Left unresolved by this ruling is the legality of the practice of providing “a score”, which the FTC went after Spokeo for. Query as
to how this ruling affects the ability of sharing economy companies to provide the likes
of employers and landlords the means of accessing reference-related information while
not providing such information directly (envision AirBNB telling employers or landlords:
“find hosts John Doe has stayed with and ask them about their experience with John Doe”).
The court ultimately says that LinkedIn did not market the searches as credit reports,
but raps LinkedIn for its marketing practices. Marketing departments probably see this as
par for the course, and don’t seem to get any more careful about the statements they make.
LinkedIn also offers the ability to apply for jobs through LinkedIn, which apparently
one of the plaintiffs did. Does this ruling suggest that people who take that route may have
slightly less protection if they submit their application directly through LinkedIn?
LinkedIn lost an argument in the publicity rights case (Perkins v. LinkedIn) that it was
merely carrying out the user’s wishes in publicizing user profiles and encouraging contacts
to join LinkedIn. It’s surely heartened to see a variant of that argument win here.
* * *
DERIVATIVE LIABILITY; MARKETING; SEARCH ENGINES; TRADEMARK
Goldline, LLC v. Regal Assets, LLC, Case No. 14-03680 DDP (ASx) (C.D. Cal. April 21,
2015)
Mixed Ruling in Competitive Keyword Advertising Case
Eric Goldman
http://www.blog.ericgoldman.org
© 2015 Professor Eric Goldman. Professor Goldman teaches at the University of Santa Clara Law
School and is the Director of the school’s High Tech Law Institute.
The lawsuit’s principal participants are rivals in the precious metals and coin industry.
The defendant organization, Regal, has an affiliate program, and it appears that some af-
filiates bought competitive keyword advertising using the plaintiff Goldline’s trademark.
The ruling is on Regal’s motion to dismiss, and the judge’s overly pithy opinion raises as
many questions as it answers. The court based its ruling on the following facts alleged in
the complaint:
59
According to Plaintiff, Defendants purchase advertising keywords that include the GOLDLINE Marks
so their websites will appear when search terms intended for Plaintiff are entered in the search engine.
Many of the search results are not identified as ads. The purpose of the affiliates’ websites is to divert
customers away from Plaintiff and other competitors, toward Regal. To that end, Regal prepares for its
affiliates’ use, scripts and website materials that purportedly offer objective, independent evaluations and
facts related to precious metal dealers. These materials allegedly infringe on the GOLDLINE Marks.
The materials also allegedly offer endorsements for Regal; false information and statements about the
independent and unbiased views of the reviewer; and false and disparaging information about Plaintiff,
including customer complaints, pending litigation, and poor consumer and industry ratings.
The court dismisses the Lanham Act trademark and false designation of origin claims:
While the allegations and attached exhibits indicate that Defendants use Plaintiff’s marks, there is simply
nothing stated, that if deemed true, constitute commercial use that would likely cause confusion as to the
origin or affiliation of Regal’s products or services. In fact, the allegations either state directly, or create
a strong inference, that the purpose of Defendants’ use of the marks is to disparage Plaintiff and endorse
Regal. Taken as true, such conduct would seemingly distinguish Regal’s products from Plaintiff’s, as
opposed to causing customers confusion as to the origins of the two products.
For this reason, I’m counting this case as yet another win where defendants defeated
a trademark claim over competitive keyword advertising–a streak of defense wins that I
think goes back to 2011. The court sidesteps the advertiser-affiliate interplay, so unfortunately we don’t get any insights into that issue.
Despite this good news, the court says a number of other claims survive the motion to
dismiss, including:
* false advertising and unfair competition
* RICO/civil conspiracy
* defamation
Given the court’s inscrutable opinion, however, it’s unclear which (if any) of these
claims survive solely due to the competitive keyword advertising aspect of the plaintiff’s
allegations. At minimum, the defamation claim appears fairly clearly to be based on ad
copy. Still, I imagine trademark plaintiffs suing over competitive keyword advertising will
think about whether these alternative claims (including normally junky claims like RICO
and civil conspiracy) might be worth a stab.
* * *
60
CONTENT REGULATION; E-COMMERCE; LICENSING/CONTRACTS
Galland v. Johnston, No. 1:2014:cv04411 (S.D. N.Y. Mar. 19, 2015)
Court Might Enforce A Contract Ban On Consumer Reviews
Eric Goldman
http://www.blog.ericgoldman.org
© 2015 Professor Eric Goldman. Professor Goldman teaches at the University of Santa Clara Law
School and is the Director of the school’s High Tech Law Institute.
Claude and Violaine Galland own an apartment in Paris, France. They offer it for rental
through VRBO, an online service for vacation rentals. The Gallands’ rental agreement
include the following language: “The tenants agree not to use blogs or websites for complaints, anonymously or not.” Though clumsily worded, this clause is similar to prior at-
tempts to restrict consumer reviews, such as the provisions used by doctors and dentists,
hotels, apartment owners and other vacation rental services. As far as I know, no court has
ever enforced any of these clauses purporting to suppress consumer reviews.
Two different renters, the Johnstons and Bowdens, rented the Gallands’ apartment and
subsequently posted critical reviews on VRBO. Mr. Galland allegedly offered $300–un-
successfully–to the Bowdens to remove their post. Instead, the Gallands sued the Johnstons
and Bowdens for defamation, breach of contract and other claims.
The judge dismissed the defamation claims–but refused to dismiss the breach of con-
tract claim because:
It is plausible that Defendants made the posts in violation of the contract. Moreover, it is plausible that
such negative reviews could cause injuries to the Gallands’ business. Nevertheless, these are questions
for a trier of fact to decide…
Thus, the breach of contract claim will go to a trial to decide if the reviews violated the
contract.
Surprisingly, the judge didn’t discuss the illegality of the contract clause. In 2003, a
New York court instructed a software vendor to stop banning consumer reviews in its con-
tract (the exact restriction: “The customer will not publish reviews of this product without
prior consent from Network Associates, Inc.”). The court held that using such a clause may
be a deceptive practice under New York’s consumer protection law. I can’t see any reason
why the Gallands’ clause wouldn’t violate the same law. (The Gallands’ case is being liti-
gated in a New York federal court applying New York law). Irrespective of the New York
law, the contract restriction should be void as a matter of public policy. I’m hoping the
61
court will come to its senses and realize that no trial is needed because the clause should
be condemned, not enforced.
It’s remarkable that anyone had the confidence to litigate such a clause at all. We have
seen relatively few courtroom battles over contractual bans on consumer reviews, and we
aren’t likely to see many such disputes in the future. The Gallands’ contract provision
clearly violates California’s new law against consumer review bans, and I believe a new
federal bill will be introduced to make such bans nationwide. Eventually vendors will get
the message and stop trying. Until they do, we need more tools to discourage such clauses
in the future–and to discourage wasteful litigation intended to suppress renters’ rights to
express themselves.
For more on this topic, see my article, The Regulation of Reputational Information.
* * *
LICENSING/CONTRACTS; TRADE SECRETS
CDM Media USA, Inc. v. Simms, No. 14-CV-9111 (N.D. Ill Mar. 25, 2015).
Do Employers Own LinkedIn Groups Created By Employees?
Venkat Balasubramani
© 2015 Venkat Balasubramani. Venkat Balasubramani is a principal at Focal PLLC.
Simms worked for plaintiff CDM Media but switched jobs to work for Box, allegedly
one of plaintiff’s larger customers. Plaintiff alleges that Simms violated a non-compete and
misappropriated its trade secrets.
Among other issues, plaintiff sought control of a “LinkedIn group” because both the
group’s membership and the communications’ contents were allegedly its trade secrets.
The court declines to grant the motion to dismiss:
More generally, too little is known about the contents, configuration, and function of the LinkedIn group
at this time, to conclude as a matter of law that its list of members did not constitute a trade secret.
Plaintiff alleges that the group contained the names of 679 current or potential customers, which information “would be extremely valuable to competitors of CDM” because these members “would be
good candidates for some of the services and products offered by CDM and/or good partners. . . .” The
complaint states that the “Bureau was developed over 4 years by CDM through great expenditures of
time, cost and effort. . .” Plaintiff further alleges that “privacy setting[s] . . . limited access to the Bureau
online community.”
62
Simms sought to explain that the privacy settings did not necessarily restrict group
membership to a limited group, but the court says this type of inquiry is not appropriate at
the motion to dismiss stage. However, the court concludes that the message contents are
not per se trade secrets. Perhaps certain messages could be, but a generalized allegations
that all messages were trade secrets does not cut it.
The “lawsuits over ownership of social media accounts” trend rose quickly and then
fizzled. We got a few (largely unsatisfying) rulings dealing with ownership of LinkedIn
contacts. This case does not add much to the mix. It still seems like a tough sell to char-
acterize something like the identity of members in a LinkedIn group as a trade secret.
Such memberships are often displayed publicly on LinkedIn profiles. One wonders how
much control the putative owner exercised over membership. For what it’s worth, on the
LinkedIn page, the owner of the group is designated as “Rob S.”
Illinois also has a social media privacy statute, which would seem to apply to this set
of facts. The laws’ ineffectiveness in sorting out ownership issues aside, it prohibits an
employer from requesting:
password or other related account information in order to gain access to the employee’s…account or
profile on a social networking website or to demand access in any manner to an employee’s … account
or profile on a social networking website.
LinkedIn easily falls within the statute’s definition of a “social networking website”.
Perhaps the dispute is really about alleged violation of the defendant’s non-compete
clause, with the LinkedIn account ownership thrown in as an afterthought. I really question
the value something like that could have to an employer.
* * *
63
CONTENT REGULATION; DERIVATIVE LIABILITY
Weigand v. N.L.R.B., No. 14-1024 (D.C. Cir. April 17, 2015)
Union Isn’t Liable For Members’ Posts To Private Facebook Group
Eric Goldman
http://www.blog.ericgoldman.org
© 2015 Professor Eric Goldman. Professor Goldman teaches at the University of Santa Clara Law
School and is the Director of the school’s High Tech Law Institute.
This case relates to a bus drivers’ strike in 2012. During the strike, union members post-
ed “impassioned and bellicose” comments about the strike on the union’s Facebook page,
which was accessible only to union members. The union didn’t authorize those comments.
Weigand was an employee of the bus company. He was covered by the union’s collec-
tive bargaining agreement but was not a union member. He claimed the Facebook com-
ments by union members coerced his exercise of “Section 7 rights to decide whether or not
to cross the picket line. He claimed this constituted an “unfair labor practice” and filed a
complaint with the NLRB.
The DC Circuit held that the union isn’t responsible for the Facebook posts made by
individual union members. The applicable statute governs only “a labor organization or
its agents.” The posts weren’t by the “labor organization,” and the members who posted
weren’t the union’s “agents.”
A line of cases required unions to publicly disavow rogue statements by their members,
but the court says this requirement only applies to statements made at the physical-space
picket line, not online fora. The court endorses the explanation provided by an earlier opinion in the case:
a picket line makes visible in geographic space the confrontation between the two sides. In contrast,
Respondent’s Facebook page does not serve to communicate a message to the public. To the contrary, it
is private. Moreover, it does not draw any line in the sand or on the sidewalk. Unlike a website in cyberspace, an actual picket line confronts employees reporting for work with a stark and unavoidable choice:
To cross or not to cross.
As the court further summarizes:
a picket line—unlike a private Facebook page—is a “highly visible” signal to the public and all employees of a dispute with the employer and the “coercive effect” of a threat made on a picket line is “immediate and unattenuated.”
64
The court doesn’t provide any supporting citations, but it’s dealing with a venerable
and well-explored Internet Law exceptionalism topic. Are conversations on the Internet
are different from offline conversations? Yes, for several reasons, including the potential
threat of immediate violence between conversationalists and the social opprobrium (such
as watchful eyes and hostile stares) that can attach when community members observe
and respond to another person’s decision to enter or exit a physical space (a point I stress
when I teach Noah v. AOL as my introduction to Internet exceptionalism in my Internet
Law course). Because of the different implications on both fronts, I think the court rightly
distinguished “bellicose” Facebook posts from remarks being shared at a picket line.
The court also rejects Weigand’s catch-all “but the union ran the forum…!” argument:
The Union here did not authorize or otherwise condone the posting of the contested messages on the
Facebook page. Weigand tries to overcome this point by suggesting that, in maintaining the Facebook
page, the Union somehow facilitated the publication of threats against persons who opted to cross the
picket line. The record simply does not bear this out. The Facebook page was private, for Union members only. Indeed, Weigand and other non-Union persons could not view the comments on the Facebook
page. Therefore, the most that can be said here is that the Union’s maintenance of the Facebook page
facilitated communications between Union members, not threats against non-Union employees as in the
cases cited by Weigand.
Remarkably, the court rules for the union without relying on Section 230:
in adopting the ALJ’s finding that the Union “did not violate the Act by failing to remove certain comments from its Facebook page,” the Board found it “unnecessary to rely on the [ALJ’s] application of the
Communications Decency Act, 47 U.S.C. § 230” (“CDA”). Amalgamated Transit Union, 360 N.L.R.B.
No. 44, slip op. at 1 n. 1. Weigand argues that “[t]he Board erred in refusing to consider and reverse the
ALJ’s holding that the Union is not liable under the CDA for posting threats on its Facebook page.” In
resolving this case, the Board properly applied the applicable law under the NLRA. Therefore, we agree
with Board counsel that the Board “did not need to analyze the CDA as an additional defense for the
Union, let alone consider Weigand’s unsupported assertion that the CDA somehow constitutes an affirmative cause of action necessary to the Board’s analysis.”
This is one of the rare cases that provides insights into what the law might have looked
like without Section 230’s immunity. In this case, the statute is narrowly drafted, so per-
haps its lessons aren’t generalizable. Then again, we’ve had a few nice defense wins in
cases where the court didn’t apply Section 230 but the facts were squarely in Section 230’s
scope. Examples that come to mind include the old Lunney case as well as the more recent
Armslist case.
65
This ruling follows the uncited ruling in Ricci v. Teamsters Union Local 456, 781 F.3d
25 (2d Cir. March 18, 2015), another union-related case that gave us the Second Circuit’s
first Section 230 ruling (and a favorable one at that). We have many reasons to give thanks
to unions, and I’ll add to the list their recent beneficial contributions to federal appeals
courts’ interpretations of Internet Law.
* * *
MARKETING; SEARCH ENGINES; TRADE SECRETS; TRADEMARK
Infogroup, Inc. v. Database LLC, No. 8:14-CV-49 (D. Neb. Mar. 30, 2015)
Another Competitive Keyword Advertising Lawsuit Fails
Eric Goldman
http://www.blog.ericgoldman.org
© 2015 Professor Eric Goldman. Professor Goldman teaches at the University of Santa Clara Law
School and is the Director of the school’s High Tech Law Institute.
The plaintiffs run several well-known databases, such as infoUSA and Salesgenie. The
defendants are former employees of plaintiffs who split off and launched a competitive
rival. The plaintiffs are upset that the defendants’ databases contain fake listings created
by the plaintiffs, despite the marketing claim that the defendants’ databases are “verified.”
The plaintiffs are also upset about what they perceive as various marketing overclaims that
relate to the companies’ common history.
Defendants bought plaintiffs’ trademarks as AdWords. Like most recent cases, the
trademark claims go nowhere (some cites omitted):
Infogroup argues that DatabaseUSA’s use of search engine ad placement services, triggered by
Infogroup’s marks, is somehow infringing. The Court is unpersuaded. Although the use of such targeted
advertising can be misused, it is generally understood that such tactics can be deployed consistently with
the Lanham Act. See, CollegeSource, Inc. v. AcademyOne, Inc., 2015 WL 469041, at *11 (3d Cir. Feb.
5, 2015); 1–800–Contacts, Inc. v. Lens.com, Inc., 722 F.3d 1229, 1242–45 (10th Cir.2013); Network
Automation, Inc. v. Advanced Sys. Concepts, Inc., 638 F.3d 1137, 1148–54 (9th Cir.2011); compare N.
Am. Med. Corp. v. Axiom Worldwide, Inc., 522 F.3d 1211, 1222–23 (11th Cir.2008) (advertisers created
likelihood of confusion by using competitors Web address and trademarks in their own advertisements).
The advertisements at issue here, as displayed by Infogroup’s exhibits, do not use Infogroup’s marks in
the advertisement itself, and each is either separated from the search results or plainly labeled as a sponsored advertisement. As the Tenth Circuit explained:
66
Perhaps in the abstract, one who searches for a particular business with a strong mark and sees an
entry on the results page will naturally infer that the entry is for that business. But that inference is an
unnatural one when the entry is clearly labeled as an advertisement and clearly identifies the source,
which has a name quite different from the business being searched for.
Lens.com, 722 F.3d at 1245. And that could explain why Infogroup has presented no evidence to suggest that anyone has actually been confused by the advertisements, or is likely to be. Having considered
“(1) the strength of the mark; (2) the evidence of actual confusion; (3) the type of goods and degree of
care likely to be exercised by the purchaser; and (4) the labeling and appearance of the advertisements
and the surrounding context on the screen displaying the results page,” the Court finds that Infogroup
has not shown a likelihood of success under the Lanham Act based on DatabaseUSA’s search engine
advertisements.
There are several other interesting nuggets in this opinion:
* the plaintiffs claimed the fictional listings showing up in the defendants’ databases provided evidence of trade secret misappropriation. But web scraping can’t be trade secret
misappropriation when it involves publicly accessible data because, by definition, that data
can’t be a trade secret any more. The court concludes: “to the extent that Infogroup’s motion is focused on “webscraping,” such conduct is not unlawful under Nebraska [trade
secret] law.” I just did a more complete update on scraping law.
* the defendants’ representations that they had “95% Accurate, Triple–Verified Database”
was puffery; or at minimum was not false because the inclusion of plaintiffs’ fake listings
wasn’t inconsistent with the “verified” representations.
* the court says that a departed employee “is entitled to accurately describe his experience
in the industry when marketing his company’s products and services,” so referencing a past
employer’s trademark as part of the person’s employment history wasn’t a false association. Compare my discussion about the Robert Half case.
* Although the court sides with the defense consistently, it does tell the defendants that
some of their claims may be misleading, so the court says “DatabaseUSA would be well
advised to knock it off.” I can’t recall another time I’ve seen a judge use this informal colloquialism as an admonishment. However, I bet judges silently think this many, many times
a day during courtroom proceedings.
* * *
67
PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_____________
No. 14-3050
_____________
CRYSTAL BYRD; BRIAN BYRD, Individually, and on
Behalf of all Similarly Situated Persons,
Appellants
v.
AARON’S INC; ASPEN WAY ENTERPRISES INC,
d/b/a Aaron’s Sales and Leasing, A Franchisee of
Aaron’s Inc.;
DESIGNERWARE LLC; AH & H LEASING LLC,
d/b/a Aaron’s Sales and Leasing, a Franchisee of
Aaron’s, Inc.;
AMG ENTERPRISES GROUP LLC, d/b/a Aaron’s
Sales and Leasing,
a Franchisee of Aaron’s, Inc.; ARONA CORPORATION
d/b/a Aaron’s Sales
and Leasing, a Franchisee of Aaron’s, Inc.; BEAR
RENTAL PURCHASE LTD,
d/b/a Aaron’s Sales and Leasing, a Franchisee of
Aaron’s, Inc.;
BOXER ENTERPRISE INC, d/b/a Aaron’s Sales and
Leasing,
a Franchisee of Aaron’s, Inc.; CIRCLE CITY
RENTALS, d/b/a Aaron’s Sales and
Leasing, a Franchisee of Aaron’s, Inc.; CMH LEASING
PARTNERS, LLC,
d/b/a Aaron’s Sales and Leasing, a Franchisee of
Aaron’s, Inc.;
CRAM LEASING, INC., d/b/a Aaron’s Sales and
Leasing, a Franchisee of Aaron’s, Inc.;
DC SALES AND LEASE INC, d/b/a Aaron’s Sales and
Leasing, a Franchisee of Aaron’s, Inc.;
DIRIGO LEASING INC, d/b/a Aaron’s Sales and
Leasing, a Franchisee of Aaron’s, Inc.;
DPR ALASKA LLC, d/b/a Aaron’s Sales and Leasing, a
Franchisee of Aaron’s, Inc.;
DPR COLORADO LLC, d/b/a Aaron’s Sales and
Leasing, a Franchisee of Aaron’s, Inc.;
DW3 LLC, d/b/a Aaron’s Sales and Leasing, a
Franchisee of Aaron’s, Inc.;
DWC VENTURES LLC, d/b/a Aaron’s Sales and
Leasing, a Franchisee of Aaron’s, Inc.;
FAIRWAY LEASING LLC, d/b/a Aaron’s Sales and
Leasing, a Franchisee of Aaron’s, Inc.;
FIVE STAR FINANCIALS LLC, d/b/a Aaron’s Sales
and Leasing, a Franchisee of Aaron’s, Inc.;
FT GOT THREE LLC, d/b/a Aaron’s Sales and Leasing,
a Franchisee of Aaron’s, Inc.;
GNS & ASSOCIATES INC, d/b/a Aaron’s Sales and
Leasing, a Franchisee of Aaron’s, Inc.;
2
GREAT AMERICAN RENT TO OWN INC, d/b/a
Aaron’s Sales and Leasing, a Franchisee of Aaron’s, Inc.;
GREEN RIVER CORP, d/b/a Aaron’s Sales and Leasing,
a Franchisee of Aaron’s, Inc.;
HANSON HOLDING CO, d/b/a Aaron’s Sales and
Leasing, a Franchisee of Aaron’s, Inc.;
HONEY HARBOR INVESTMENTS LLC, d/b/a
Aaron’s Sales and Leasing, a Franchisee of Aaron’s, Inc.;
HOWARD RENTS LLC, d/b/a Aaron’s Sales and
Leasing, a Franchisee of Aaron’s, Inc.;
HPH INVESTMENTS LLC, d/b/a Aaron’s Sales and
Leasing, a Franchisee of Aaron’s, Inc.;
J&L BEACH ENTERPRISES INC, d/b/a Aaron’s Sales
and Leasing, a Franchisee of Aaron’s, Inc.;
J.R. RENTS, d/b/a Aaron’s Sales and Leasing, a
Franchisee of Aaron’s, Inc.;
J.M. DARDEN AND CO, d/b/a Aaron’s Sales and
Leasing, a Franchisee of Aaron’s, Inc.;
JENFOUR LLC, d/b/a Aaron’s Sales and Leasing, a
Franchisee of Aaron’s, Inc.;
JENKINS RENTAL LLC, d/b/a Aaron’s Sales and
Leasing, a Franchisee of Aaron’s, Inc.;
KFJ ENTERPRISES LLC, d/b/a Aaron’s Sales and
Leasing, a Franchisee of Aaron’s, Inc.;
LIFESTYLE FURNITURE LEASING, d/b/a Aaron’s
Sales and Leasing, a Franchisee of Aaron’s, Inc.;
LTL INVESTMENTS LLC, d/b/a Aaron’s Sales and
Leasing, a Franchisee of Aaron’s, Inc.;
MADISON CAPITAL INVESTMENTS INC, d/b/a
3
Aaron’s Sales and Leasing, a Franchisee of Aaron’s, Inc.;
MKW INVESTMENTS INC, d/b/a Aaron’s Sales and
Leasing, a Franchisee of Aaron’s, Inc.;
NO THREE PUTTS ENTERPRISES LLC, d/b/a Aaron’s
Sales and Leasing, a Franchisee of Aaron’s, Inc.;
NW FREEDOM CORP, d/b/a Aaron’s Sales and
Leasing, a Franchisee of Aaron’s, Inc.;
POMONA LANE PARTNERS LLC, d/b/a Aaron’s Sales
and Leasing, a Franchisee of Aaron’s, Inc.;
R & DOUBLE K LLC, d/b/a Aaron’s Sales and Leasing,
a Franchisee of Aaron’s, Inc.;
REBCO INVESTMENTS LLC, d/b/a Aaron’s Sales and
Leasing, a Franchisee of Aaron’s, Inc.;
REX NEAL INC, d/b/a Aaron’s Sales and Leasing, a
Franchisee of Aaron’s, Inc.;
ROYAL RENTS INC, d/b/a Aaron’s Sales and Leasing,
a Franchisee of Aaron’s, Inc.;
ROYAL ROCKET RETAIL LLC, d/b/a Aaron’s Sales
and Leasing, a Franchisee of Aaron’s, Inc.;
SHINING STAR, d/b/a Aaron’s Sales and Leasing, a
Franchisee of Aaron’s, Inc.;
SHOWCASE HOME FURNISHINGS INC, d/b/a
Aaron’s Sales and Leasing, a Franchisee of Aaron’s, Inc.;
SULTAN FINANCIAL CORP, d/b/a Aaron’s Sales and
Leasing, a Franchisee of Aaron’s, Inc.;
TANGLEWOOD MANAGEMENT LLC, d/b/a Aaron’s
Sales and Leasing, a Franchisee of Aaron’s, Inc.;
TDS FOODS INC, d/b/a Aaron’s Sales and Leasing, a
Franchisee of Aaron’s, Inc.;
4
TUR INC, d/b/a Aaron’s Sales and Leasing, a Franchisee
of Aaron’s, Inc.;
WATERSHED DEVELOPMENT CORP, d/b/a Aaron’s
Sales and Leasing, a Franchisee of Aaron’s, Inc.;
WGC LLC, d/b/a Aaron’s Sales and Leasing, a
Franchisee of Aaron’s, Inc.;
JOHN DOES (1-45) AARON’S FRANCHISEES
_____________
On Appeal from the United States District Court
for the Western District of Pennsylvania
District Court No. 1-11-cv-00101
District Judge: The Honorable Cathy Bissoon
Argued on January 23, 2015
Before: RENDELL, SMITH, and KRAUSE,
Circuit Judges
(Filed: April 16, 2015)
Leonard A. Davis, Esq.
Andrea S. Hirsch, Esq.
Herman Gerel
230 Peachtree Street
Suite 2260
Atlanta, GA 30303
5
R. Daniel Fleck, Esq.
Mel C. Orchard, Esq.
G. Bryan Ulmer, III, Esq.
The Spence Law Firm
15 South Jackson Street
P.O. Box 548
Jackson, WY 83001
Matthew C. Gaughan, Esq.
Arnold Levin, Esq.
Frederick S. Longer, Esq.
[ARGUED]
Levin, Fishbein, Sedran & Berman
510 Walnut Street
Suite 500
Philadelphia, PA 19106
Michelle A. Parfitt, Esq.
Christopher V. Tisi, Esq.
Ashcraft & Gerel
2000 L Street, N.W.
Washington, DC 20036
John H. Robinson, Esq.
Jamieson & Robinson
215 South Grant Street
Casper, WY 82601
Counsel for Appellants
6
Kristine M. Brown, Esq.
William H. Jordan, Esq.
Thomas C. Pryor, Esq.
Jason D. Rosenberg, Esq.
Alston & Bird
1201 West Peachtree Street
One Atlantic Center
Atlanta, GA 30309
[ARGUED]
Neal R. Devlin, Esq.
Richard A. Lanzillo, Esq.
Knox, McLaughlin, Gornall & Sennett
120 West Tenth Street
Erie, PA 16501
Steven E. Bizar, Esq.
Landon Y. Jones, Esq.
Buchanan Ingersoll & Rooney
50 South 16th Street
Two Liberty Place, Suite 3200
Philadelphia, PA 19102
Mark R. Lane, Esq.
Donald J. McCormick, Esq.
Dell, Moser, Lane & Loughney
112 Washington Place
Two Chatham Center, Suite 1500
Pittsburgh, PA 15219
7
Timothy N. Lillwitz, Esq.
Todd A. Strother, Esq.
Bradshaw Fowler Proctor & Fairgrave
801 Grand Avenue
Suite 3700
Des Moines, IA 50309
Michael E. Begley, Esq.
Michele L. Braukmann, Esq.
Ross W. McLinden, Esq.
Moulton Bellingham
27 North 27th Street
Crown Plaza, Suite 1900
Billings, MT 59103
James A. McGovern, Esq.
Anthony J. Williott, Esq.
[ARGUED]
Marshall, Dennehey, Warner, Coleman
& Goggin
600 Grant Street
2900 U.S. Steel Tower
Pittsburgh, PA 15219
Brian M. Mancos, Esq.
Burns White
106 Isabella Street
Four Northshore Center
Pittsburgh, PA 15212
Counsel for Appellees
8
________________
OPINION
________________
SMITH, Circuit Judge.
Plaintiffs Crystal and Brian Byrd bring this
interlocutory appeal under Rule 23(f) of the Federal
Rules of Civil Procedure. The Byrds brought a putative
class action against Aaron’s, Inc. and its franchisee store
Aspen Way Enterprises, Inc. (collectively “Defendants”),
who they allege violated the Electronic Communications
Privacy Act of 1986 (“ECPA”), 18 U.S.C. § 2511.
Concluding that the Byrds’ proposed classes were not
ascertainable, the District Court denied their motion for
class certification. Because the District Court erred in
applying our ascertainability precedent, we will reverse
and remand.
I.
Aaron’s operates company-owned stores and also
oversees independently-owned franchise stores that sell
and lease residential and office furniture, consumer
electronics, home appliances, and accessories. On July
30, 2010, Crystal Byrd entered into a lease agreement to
rent a laptop computer from Aspen Way, an Aaron’s
franchisee. Although Ms. Byrd asserts that she made full
payments according to that agreement, on December 22,
9
2010, an agent of Aspen Way came to the Byrds’ home
to repossess the laptop on the grounds that the lease
payments had not been made. The agent allegedly
presented a screenshot of a poker website Mr. Byrd had
visited as well as a picture taken of him by the laptop’s
camera as he played. The Byrds were troubled and
surprised by what they considered a significant and
unauthorized invasion of their privacy.
Aspen Way obtained the picture and screenshot
through spyware—a type of computer software—
designed by DesignerWare, LLC and named “PC Rental
Agent.” This spyware had an optional function called
“Detective Mode,” which could collect screenshots,
keystrokes, and webcam images from the computer and
its users.
Between November 16, 2010 and
December 20, 2010, the Byrds alleged that this spyware
secretly accessed their laptop 347 times on eleven
different days.1
In total, “the computers of 895
1
The spyware allegedly captured a wide array of
personal information: “credit and debit card numbers,
expiration dates, security codes, pin numbers, passwords,
social security numbers, birth dates, identity of children
and the children’s personal school records, tax returns,
personal health information, employment records, bank
account records, email addresses, login credentials,
answers
to
security
questions
and
private
communications with health care providers, therapists,
10
customers across the country . . . [had] surveillance
conducted through the Detective Mode function of PC
Rental Agent.” Byrd v. Aaron’s, Inc., No. CIV.A. 11101E, 2014 WL 1316055, at *2 (W.D. Pa. Mar. 31,
2014).
The Byrds’ operative class-action complaint
asserts claims against Aaron’s, Aspen Way, more than 50
other
independent
Aaron’s
franchisees,
and
2
DesignerWare, LLC. The complaint alleges violations
attorneys, and other confidants.” The record also reveals
what appear to be screenshots of adult-oriented and
active webcam transmissions and conversations of an
intimate nature.
The spyware, as described in the Byrds’ complaint,
was Orwellian-like in that it guaranteed that “[t]here was
of course no way of knowing whether you were being
watched at any given moment,” George Orwell, 1984, at
3 (Signet Classics 1950), because Aspen Way’s corporate
intranet (and Aaron’s corporate server by proxy)
apparently activated the PC Rental Agent’s Detective
Mode “whenever they wanted to.” Id.
2
On March 20, 2012, the District Court issued an
order noting that DesignerWare filed for bankruptcy in
the U.S. Bankruptcy Court for the Western District of
Pennsylvania. Accordingly, the District Court ordered
that no action be taken against DesignerWare and that the
case be administratively closed as to that defendant.
11
of and conspiracy to violate the ECPA, common law
invasion of privacy, and aiding and abetting. On
Defendants’ motion to dismiss, the District Court
dismissed the claims against all Aaron’s franchisees other
than Aspen Way for lack of standing and also all claims
for common law invasion of privacy, conspiracy, and
aiding and abetting. Thus, the Byrds’ remaining claims,
and those of the class, are against Aaron’s and Aspen
Way for direct liability under the ECPA.
In the meantime, the Byrds moved to certify the
class under Federal Rules of Civil Procedure 23(b)(2)
and 23(b)(3), in which the Byrds provided two proposed
classes and one alternative proposed class.3 In briefing
3
In the motion for class certification, the Byrds
proposed the following classes:
Class I (against Aaron’s Inc. for direct liability
under ECPA) –
All persons residing in the United
States, who have purchased, leased, rented
or rented to own, Aaron’s computers and
individuals who used said computers whose
personal
information,
electronic
communications and/or images were
intercepted, used, disclosed, accessed,
monitored and/or transmitted via PC Rental
Agent or other devices or software without
the customers [sic] authorization.
12
Class II (against Aaron’s Inc., Aspen Way, and all
other Franchisee Defendants for direct liability under
ECPA, invasion of privacy, conspiracy, and aiding and
abetting) –
All customers of the Aaron’s
Defendants who reside in the United States,
who have purchased, leased, rented or rented
to own, Aaron’s computers and individuals
who used said computers whose personal
information, electronic communications
and/or images were intercepted, used,
disclosed, accessed, monitored and/or
transmitted by the Aaron’s Defendants via
PC Rental Agent or other devices or
software without the customers [sic]
authorization.
Byrd, 2014 WL 1316055, at *4. The Byrds also set forth
an alternative class definition for Class II as:
Class II (against Aaron’s Inc., and Aspen Way for
direct liability under the ECPA, invasion of privacy,
conspiracy, and aiding and abetting (under Wyoming
law)) –
All persons residing in the United
States, who have purchased, leased, rented
or rented to own, Aaron’s computers from
Aspen Way Enterprises, Inc., d/b/a Aarons
Sales and Leasing, and individual[s] who
13
the motion, the Byrds proposed the following alternative
class definitions:
Class I – All persons who leased and/or
purchased one or more computers from
Aaron’s, Inc., and their household members,
on whose computers DesignerWare’s
Detective Mode was installed and activated
without such person’s consent on or after
January 1, 2007.
Class II – All persons who leased and/or
used said computers whose personal
information, electronic communications
and/or images were intercepted, used,
disclosed, accessed, monitored and/or
transmitted by Aspen Way and/or Aaron’s
via PC Rental Agent or other devices or
software without the customers [sic]
authorization.
Id. It is worth noting that the Byrds’ revised
proposed class definitions did not expressly require
an electronic communication to be “intercepted,”
although that is a necessary element in
successfully proving their ECPA claims. See 18
U.S.C. §§ 2511, 2520(a).
14
purchased one or more computers from
Aaron’s, Inc. or an Aaron’s, Inc. franchisee,
and their household members, on whose
computers DesignerWare’s Detective Mode
was installed and activated without such
person’s consent on or after January 1, 2007.
Byrd, 2014 WL 1316055, at *5.
The Magistrate Judge recommended denying the
Byrds’ motion for certification because the proposed
classes were not ascertainable. Regarding owner and
lessee class members, the Magistrate Judge concluded
that the proposed classes were underinclusive because
they did “not encompass all those individuals whose
information [was] surreptitiously gathered by Aaron’s
franchisees.” Id. The Magistrate Judge also determined
that the classes were “overly broad” because not “every
computer upon which Detective Mode was activated will
state a claim under the ECPA for the interception of an
electronic communication.” Id. Regarding “household
members,” the Magistrate Judge took issue with the fact
that the Byrds did not define the phrase. Id. Further,
although the Byrds stated that the identity of household
members could be gleaned from “public records,” the
Magistrate Judge, citing to Carrera v. Bayer Corp., 727
F.3d 300, 306, 308 (3d Cir. 2013), reasoned that “[i]t
[was] not enough to propose a method by which this
information may be obtained.” Byrd, 2014 WL 1316055,
at *5. The District Court adopted the Report and
15
Recommendation as the opinion of the court over the
Byrds’ objections. The Byrds timely appealed.
II.
The District Court had federal question jurisdiction
under 28 U.S.C. § 1331. We have jurisdiction under 28
U.S.C. § 1292(e) and Federal Rule of Civil
Procedure 23(f). “We review a class certification order
for abuse of discretion, which occurs if the district
court’s decision rests upon a clearly erroneous finding of
fact, an errant conclusion of law or an improper
application of law to fact.” Grandalski v. Quest
Diagnostics Inc., 767 F.3d 175, 179 (3d Cir. 2014)
(quoting Hayes v. Wal-Mart Stores, Inc., 725 F.3d 349,
354 (3d Cir. 2013)) (internal quotation marks omitted).
We review de novo a legal standard applied by a district
court. Carrera, 727 F.3d at 305.
III.
The central question in this appeal is whether the
District Court erred in determining that the Byrds’
proposed classes were not ascertainable. Because the
District Court confused ascertainability with other
relevant inquiries under Rule 23, we conclude it abused
its discretion and will vacate and remand.
Before discussing these errors, however, we
believe it is necessary to address the scope and source of
16
the ascertainability requirement that our cases have
articulated. Our ascertainability decisions have been
consistent and reflect a relatively simple requirement.
Yet there has been apparent confusion in the invocation
and application of ascertainability in this Circuit.
(Whether that is because, for example, the courts of
appeals have discussed ascertainability in varying and
distinct ways,4 or the ascertainability requirement is
4
For example, some of our sister courts of appeals
have interspersed their analysis of ascertainability, or
“identifiability,” with explicit Rule 23 requirements. See,
e.g., Colo. Cross Disability Coal. v. Abercrombie &
Fitch Co., 765 F.3d 1205, 1215 (10th Cir. 2014)
(discussing
ascertainability
and
numerosity
simultaneously); Romberio v. Unumprovident Corp., 385
F. App’x 423, 431 (6th Cir. 2009) (unpublished)
(discussing ascertainability but reversing class
certification based on lack of typicality); In re Initial
Pub. Offerings Sec. Litig., 471 F.3d 24, 44-45 (2d Cir.
2006) (discussing ascertainability and predominance
simultaneously, although noting they are separate
inquiries), decision clarified on denial of reh’g sub nom.
In re Initial Pub. Offering Sec. Litig., 483 F.3d 70 (2d
Cir. 2007); Oshana v. Coca-Cola Co., 472 F.3d 506, 514
(7th Cir. 2006) (discussing identifiability—the Seventh
Circuit’s approximation of the “ascertainability”
standard—in
conjunction
with
the
typicality
requirement).
17
Conversely, others have framed ascertainability as
requiring that there be an “objective standard” to
determine whether class members are included in or
excluded from the class without reference to any
particular portion of Rule 23. See, e.g., EQT Prod. Co. v.
Adair, 764 F.3d 347, 358–60 (4th Cir. 2014) (explaining
the Fourth Circuit’s implicit “readily identifiable”
requirement for a proposed class is the same as our
Circuit’s
“ascertainability” requirement, without
discussing the source of the standard); In re Deepwater
Horizon, 739 F.3d 790, 821 (5th Cir. 2014) (requiring a
class to be “adequately defined and clearly ascertainable”
(citation and internal quotation marks omitted)), cert.
denied sub nom. BP Exploration & Prod. Inc. v. Lake
Eugenie Land & Dev., Inc., 135 S. Ct. 754 (2014);
Matamoros v. Starbucks Corp., 699 F.3d 129, 139 (1st
Cir. 2012) (discussing only that the “presence of such an
objective criterion overcomes the claim that the class is
unascertainable”); Little v. T-Mobile USA, Inc., 691 F.3d
1302, 1308 (11th Cir. 2012) (mentioning ascertainability
but ruling under Rule 23(b)(3)’s predominance standard);
Oshana, 472 F.3d at 513–14 (applying an
“identifiab[ility]” standard without discussing the source
of the rule); Shook v. El Paso Cnty., 386 F.3d 963, 972
(10th Cir. 2004) (noting an “identifiability” requirement
for 23(b)(3) classes but declining to apply the standard to
a Rule 23(b)(2) class).
18
implicit rather than explicit in Rule 23,5 we need not
Even the citations we relied upon in Marcus v.
BMW of North America, LLC, to discuss the policy
rationales behind ascertainability, 687 F.3d 583, 593 (3d
Cir. 2012), failed to address squarely the undergirding for
this implicit requirement. See, e.g., Xavier v. Philip
Morris USA, Inc., 787 F. Supp. 2d 1075, 1089 (N.D. Cal.
2011) (relying in part on our decision in Newton v.
Merrill Lynch, Pierce, Fenner & Smith, Inc., 259 F.3d
154, 191–93 (3d Cir. 2001), which in fact analyzed a
proposed class under Rule 23(b)(3) and the superiority
requirement); Sanneman v. Chrysler Corp., 191 F.R.D.
441, 446 & n.9 (E.D. Pa. 2000) (blending the issue of
ascertainability with class definition and crossreferencing a later discussion on predominance and
superiority); Federal Judicial Center, Manual for
Complex Litigation § 21.222 (4th ed. 2004) (citing to
Rule 23(c)(2)’s requirement that class members in a Rule
23(b)(3) action receive the “best notice practicable”).
Ascertainability is an “essential prerequisite,” or
an implied requirement, of Rule 23, “at least with respect
to actions under Rule 23(b)(3).” Marcus, 687 F.3d
at 592–93. Marcus identified “important objectives,” id.
at 593, or policy rationales, supporting the
ascertainability requirement. These included removing
administrative burdens that were “incongruous with the
efficiencies expected in a class action,” providing the
best notice practicable under Rule 23(c)(2) in a
5
19
say.) Not surprisingly, defendants in class actions have
seized upon this lack of precision by invoking the
ascertainability requirement with increasing frequency in
order to defeat class certification.6
We seek here to dispel any confusion. The source
Rule 23(b)(3) action, and protecting defendants by
ensuring that those persons ultimately bound by the final
judgment could be clearly identified. Id. at 593. Our
opinion in Carrera expanded on some of the concerns
addressed in Marcus, specifically relating to a
defendant’s “due process right to challenge the proof
used to demonstrate class membership.” 727 F.3d at 307.
6
See, e.g., Class Action Reporter, Courts
Scrutinize Class Certification “Ascertainability,” Vol.
17, Feb. 6, 2015, (explaining that “courts across the
country are increasingly scrutinizing ‘ascertainability’ at
the class certification stage”); Melody E. Akhavan,
Ascertainability Challenge Is Viable Weapon for
Defense,
Law360,
Nov.
26,
2014,
http://www.law360.com/articles/599335/ascertainabilitychallenge-is-viable-weapon-for-defense (“Courts’ focus
on ascertainability has become an increasingly useful tool
for defendants fighting class certification.”); Alida Kass,
Third Circuit Case Could Limit Consumer Class Actions,
N.J. Law Journal, June 25, 2014 (“[T]he Third Circuit
will be a fertile ground for exploring the boundaries of
ascertainability.”).
20
of, or basis for, the ascertainability requirement as to a
Rule 23(b)(3) class is grounded in the nature of the classaction device itself. In endeavoring to further explain
this concept, we adhere to the precise boundaries of
ascertainability previously iterated in the quartet of cases
we discuss below. The ascertainability requirement as to
a Rule 23(b)(3) class is consistent with the general
understanding that the class-action device deviates from
the normal course of litigation in large part to achieve
judicial economy. See Comcast, 133 S. Ct. at 1432
(discussing generally the nature of the class-action
device).
Ascertainability functions as a necessary
prerequisite (or implicit requirement) because it allows a
trial court effectively to evaluate the explicit
requirements of Rule 23. In other words, the independent
ascertainability inquiry ensures that a proposed class will
actually function as a class. This understanding of the
source of the ascertainability requirement takes a
forward-looking view of the administration of the Rule
23(b)(3) class-action device in practice.
A.
The class-action device is an exception to the rule
that litigation is usually “‘conducted by and on behalf of
the individual named parties only.’” Comcast Corp. v.
Behrend, 133 S. Ct. 1426, 1432 (2013) (quoting Califano
v. Yamasaki, 442 U.S. 682, 700–01 (1979)).
Accordingly, the party proposing class-action
certification bears the burden of affirmatively
21
demonstrating by a preponderance of the evidence her
compliance with the requirements of Rule 23. Id. And a
court evaluating a motion for class certification is
obligated to probe behind the pleadings when necessary
and conduct a “rigorous analysis” in order to determine
whether the Rule 23 certification requirements are
satisfied. Id.; In re Hydrogen Peroxide Antitrust Litig.,
552 F.3d 305, 309 (3d Cir. 2008), as amended (Jan. 16,
2009). A plaintiff seeking certification of a Rule
23(b)(3) class must prove by a preponderance of the
evidence that the class is ascertainable.7 Hayes, 725 F.3d
at 354.
The rigorous analysis requirement applies
equally to the ascertainability inquiry. Carrera, 727 F.3d
at 306.
The ascertainability inquiry is two-fold, requiring a
plaintiff to show that: (1) the class is “defined with
reference to objective criteria”; and (2) there is “a reliable
7
In Shelton v. Bledsoe, we held that
ascertainability is not a requisite of a Rule 23(b)(2) class.
775 F.3d 554, 559–63 (3d Cir. 2015). The Byrds sought
certification of their proposed classes under both Rule
23(b)(2) and Rule 23(b)(3). Lacking the benefit of our
Shelton decision, the District Court denied certification
without distinguishing between Rule 23(b)(2) and
Rule 23(b)(3).
Accordingly, the District Court on
remand should also consider whether the classes may be
separately certified under Rule 23(b)(2).
22
and administratively feasible mechanism for determining
whether putative class members fall within the class
definition.” Id. at 355 (citing Marcus v. BMW of N. Am.,
LLC, 687 F.3d 583, 593–94 (3d Cir. 2012)). The
ascertainability requirement consists of nothing more
than these two inquiries. And it does not mean that a
plaintiff must be able to identify all class members at
class certification—instead, a plaintiff need only show
that “class members can be identified.” Carrera, 727
F.3d at 308 n.2 (emphasis added). This preliminary
analysis dovetails with, but is separate from,
Rule 23(c)(1)(B)’s requirement that the class-certification
order include “(1) a readily discernible, clear, and precise
statement of the parameters defining the class or classes
to be certified, and (2) a readily discernible, clear, and
complete list of the claims, issues or defenses to be
treated on a class basis.” Wachtel ex rel. Jesse v.
Guardian Life Ins. Co. of Am., 453 F.3d 179, 187–88 (3d
Cir. 2006).
We have on four occasions addressed the
requirement that a Rule 23(b)(3) class be “ascertainable”
in order to be certified. Our quartet of cases began with
Marcus v. BMW of North America, LLC, in which we
adopted this implicit ascertainability requirement. 687
F.3d at 592–94. We explained, “If class members are
impossible to identify without extensive and
individualized fact-finding or ‘mini-trials,’ then a class
action is inappropriate.” Id. at 593. We concluded that
23
the proposed class “raise[d] serious ascertainability
issues,” largely because the plaintiffs could not identify
cars with the allegedly defective run-flat tires. Id. at 593.
The defendants did not maintain records that would
demonstrate whether a putative class member’s run-flat
tires “‘ha[d] gone flat and been replaced,’ as the class
definition require[d],” and the plaintiffs had not proposed
“a reliable, administratively feasible alternative” to
identify class members. Id. at 594.
Shortly thereafter, in Hayes v. Wal-Mart Stores,
Inc., we straightforwardly applied the ascertainability
rule established by Marcus and remanded the case to the
district court to apply Marcus’s standard and to allow the
plaintiffs to “offer some reliable and administratively
feasible alternative that would permit the court to
determine” whether the class was ascertainable. 725
F.3d at 355. That same month, we decided Carrera v.
Bayer Corp., an appeal involving the proposed
certification of a “class of consumers who purchased
Bayer’s One-A-Day WeightSmart diet supplement in
Florida.” 727 F.3d at 303. To prove ascertainability, the
plaintiff proposed using retailer records and class
member affidavits attesting to purchases of the diet
supplement. Id. at 308. Although we opined that retail
records “may be a perfectly acceptable method of
proving class membership,” we noted that the plaintiff’s
proposed retail records did not identify a single purchaser
of the Bayer diet supplement. Id. at 308–09. We
24
therefore rejected the proposed methods of proving
ascertainability.
As to the use of affidavits, we began by explaining
that in Marcus, “[w]e cautioned ‘against approving a
method that would amount to no more than ascertaining
by potential class members’ say so.’” Id. at 306 (quoting
Marcus, 687 F.3d at 594). We rejected the plaintiff’s
proposed methodology to screen out false affidavits
because the plaintiff’s expert declaration did not establish
that the “affidavits will be reliable” or “propose a model
for screening claims.” Id. at 311. Remarkably, even the
named plaintiff could not recall whether he had
purchased the diet supplement. Id. at 311 n.9.
We were careful to specify in Carrera that
“[a]lthough
some
evidence
used
to
satisfy
ascertainability, such as corporate records, will actually
identify class members at the certification stage,
ascertainability only requires the plaintiff to show that
class members can be identified.” Id. at 308 n.2
(emphasis added). Accordingly, there is no records
requirement. Carrera stands for the proposition that a
party cannot merely provide assurances to the district
court that it will later meet Rule 23’s requirements. Id.
at 306. Nor may a party “merely propose a method of
ascertaining a class without any evidentiary support that
the method will be successful.” Id. at 306, 307, 311.
25
Following the Marcus-Hayes-Carrera trilogy, we
again considered the issue of ascertainability in
Grandalski v. Quest Diagnostics Inc., 767 F.3d at 184–
85. There we affirmed the denial of certification of a
Rule 23(b)(3) class on predominance grounds, but noted
that the district court also erred in denying certification
based on ascertainability. Id. at 184–85. We concluded
that the district court’s analysis “conflated
ascertainability with the predominance inquiry.” Id.
at 184. The predominance and ascertainability inquiries
are distinct, we explained, because “‘the ascertainability
requirement focuses on whether individuals fitting the
class definition may be identified without resort to minitrials, whereas the predominance requirement focuses on
whether essential elements of the class’s claims can be
proven at trial with common, as opposed to
individualized, evidence.’” Id. (quoting Hayes, 725 F.3d
at 359).
Ascertainability is closely tied to the other relevant
preliminary inquiry we addressed in Marcus, 687 F.3d at
592, that plaintiffs provide a proper class definition, Fed.
R. Civ. P. 23(c)(1)(B). A trial court also needs a class to
be “defined with reference to objective criteria” and
some assurance that there can be “a reliable and
administratively feasible mechanism for determining
whether putative class members fall within the class
definition,” Hayes, 725 F.3d at 355, in order to rigorously
analyze the explicit Rule 23(a) and (b) certification
26
requirements, Comcast, 133 S. Ct. at 1432. When
combined with the separate class-definition requirement
from Wachtel, that a class-certification order contain “a
readily discernible, clear, and precise statement of the
parameters defining the class or classes to be certified,”
453 F.3d at 187–88, district courts have the necessary
tools to determine whether “a party seeking to maintain a
class action” can “‘affirmatively demonstrate his
compliance’ with Rule 23.” See Comcast, 133 S. Ct.
at 1432 (quoting Wal-Mart Stores, Inc. v. Dukes, 131 S.
Ct. 2541, 2551, 180 L. Ed. 2d 374 (2011)).
And after certification, a trial court is tasked with
providing “the best notice that is practicable” to the class
members under Rule 23(c)(2)(B), “‘including individual
notice to all class members who can be identified through
reasonable effort.’” Larson v. AT & T Mobility LLC, 687
F.3d 109, 123 (3d Cir. 2012) (quoting Fed. R. Civ. P.
23(c)(2)(B)). We are “stringent in enforcing th[at]
individual notice requirement.” Id. at 126. The separate
ascertainability requirement ensures that class members
can be identified after certification, Carrera, 727 F.3d at
308 n.2, and therefore better prepares a district court to
“direct to class members the best notice that is
practicable under the circumstances,” Fed. R. Civ. P.
27
23(c)(2)(B); see also Larson, 687 F.3d at 117 n.10, 123–
31 (applying the Rule 23(c)(2)(B) requirement).8
The ascertainability inquiry is narrow.
If
defendants intend to challenge ascertainability, they must
be exacting in their analysis and not infuse the
ascertainability inquiry with other class-certification
requirements. As we said in Carrera, “ascertainability
only requires the plaintiff to show that class members can
be identified.” 727 F.3d at 308 n.2. This inquiry will not
8
An additional post-certification concern relates to
the argument by some that the class-action device fails in
its purpose if a judgment or settlement cannot be
executed without resulting in a largely cy pres fund.
E.g., Marek v. Lane, 134 S. Ct. 8, 9 (2013) (Roberts, C.J.,
statement respecting denial of certiorari) (noting
“fundamental concerns surrounding the use of [cy pres]
remedies in class action litigation”); In re Baby Prods.
Antitrust Litig., 708 F.3d 163, 172–74 (3d Cir. 2013)
(upholding limited use of cy pres distributions but
cautioning against largely cy pres funds). Although we
need not address the propriety of cy pres funds in this
case, we do note that the risk of a cy pres fund is reduced,
even if not entirely removed, when a court has
affirmatively concluded that there is “a reliable and
administratively feasible mechanism for determining
whether putative class members fall within the class
definition.” See Hayes, 725 F.3d at 355.
28
be relevant in every case and is independent from the
other requirements of Rule 23.
B.
With this explanation of ascertainability in mind,
we will reverse the District Court for four reasons. First,
the District Court abused its discretion by misstating the
rule governing ascertainability. Second, the District
Court engrafted an “underinclusive” requirement that is
foreign to our ascertainability standard. Third, the
District Court made an errant conclusion of law in
finding that an “overly broad” class was not
ascertainable. And fourth, the District Court improperly
applied the legal principles from Carrera to the issue of
whether “household members” could be ascertainable.
1.
The District Court misstated the law governing
ascertainability by conflating our standards governing
class definition with the ascertainability requirement.
The District Court prefaced its discussion with the
section header “Ascertainability and Defining the Class.”
The District Court then stated the following as the
applicable legal standard:
“As an ‘essential prerequisite’ to the Rule 23
analysis, the Court must consider 1) whether
there is a precisely defined class and
29
2) whether the named Plaintiffs are members
of the class. Marcus v. BMW of North
America, 687 F.3d 583, 596 (3d Cir. 2012) .
. . . At the first step of the analysis,
determining whether there is a precisely
defined class entails two separate and
important elements: ‘first, the class must be
defined with reference to objective criteria’
and ‘second, there must be a reliable and
administratively feasible mechanism for
determining whether putative class members
fall within the class definition.’ Hayes v.
Wal-Mart Stores, Inc., 725 F.3d 349, 355
(3d Cir. 2013).”
Byrd, 2014 WL 1316055, at *3.
Although the District Court is correct that the class
definition requirements are applicable to a classcertification order, Wachtel, 453 F.3d at 187–88, and that
class definition is a valid preliminary consideration,
Marcus, 687 F.3d at 591–92, it was not the reason the
District Court denied class certification. What the
District Court described as the two requirements for a
“precisely defined class” was in fact the inquiry relevant
to the ascertainability standard. See Hayes, 725 F.3d
at 355. In blending the issue of ascertainability with that
of class definition (which Marcus took pains to address
as separate preliminary inquiries that preceded the Rule
23 analysis, 687 F.3d at 591–94), the District Court erred.
30
Also troubling is the District Court’s discussion of
class membership. Byrd, 2014 WL 1316055, at *3, *6
n.8. The question of “whether the named Plaintiffs are
members of the class” has nothing to do with either the
requirements of a class definition, Wachtel, 453 F.3d at
187–88, or the ascertainability standard, Marcus, 687
F.3d at 592–94. In fact, the District Court’s citation to
Marcus on this point related to its discussion of
numerosity—not class definition or ascertainability. See
Byrd, 2014 WL 1316055, at *3 (citing Marcus, 687 F.3d
at 596 (discussing numerosity)). And although the
District Court generally cited to Hayes, in that case we
addressed “membership” not as relating to
ascertainability and only with regard to whether the
named plaintiff had Article III standing to sue as a class
representative. See Hayes, 725 F.3d at 360–61. In sum,
we conclude that the District Court should have applied
nothing more or less than the ascertainability test that has
been consistently laid out by this Court.
2.
The District Court also abused its discretion in
determining that the proposed classes were not
ascertainable because they were underinclusive. The
District Court reasoned that although the records
provided by Aaron’s “may reveal the computers upon
which Detective Mode was activated and the
owner/lessee of that computer,” the Byrds did “not
provide an administratively feasible way to determine
31
whose information was surreptitiously gathered.” Byrd,
2014 WL 1316055, at *5. For this reason, the District
Court explained, the proposed “class definition [did] not
encompass all those individuals whose information ha[d]
been surreptitiously gathered by Aaron’s franchisees.”
Id. But the District Court was looking to an old, nolonger-operative class definition, see supra, n.3, because
the Byrds had redefined the proposed classes by
eliminating the requirement that a class member’s
information was “intercepted” or “surreptitiously
gathered.”9 Thus, the District Court’s analysis was not
germane to the Byrds’ proposed class definitions or the
relevant bases for class membership.
9
The ECPA permits any person to bring a civil
action “whose wire, oral, or electronic communication is
intercepted, disclosed, or intentionally used in violation
of this chapter.” 18 U.S.C. § 2520(a); see also id. §
2511. The Byrds’ operative complaint alleges that the
PC Rental Agent “allows its installer (here, the rent-toown store) to remotely and surreptitiously build and
activate the ‘Detective Mode’ function on the laptop over
the Internet and through the Aaron’s Inc. and
DesignerWare websites.” Byrd, 2014 WL 1316055, at
*2. The relevant statutory terms were discussed because
the District Court observed that “not all information
gathered surreptitiously will constitute an ‘interception’
of the ‘contents’ of an ‘electronic communication’” by
the PC Rental Agent. Id.
32
Defendants contend that “underinclusiveness” was
an appropriate consideration in support of the denial of
class certification. They rely on a district court decision,
Bright v. Asset Acceptance, LLC, 292 F.R.D. 190, 197
(D.N.J. 2013), to support their argument. But “whether
the defined class specifies a particular group that was
harmed during a particular time frame, in a particular
location, in a particular way,” Bright, 292 F.R.D. at 197
(emphasis added), is not included in our ascertainability
test.
Further, requiring such specificity may be
unworkable in some cases and approaches requiring a
fail-safe class.
See Messner v. Northshore Univ.
HealthSystem, 669 F.3d 802, 825 (7th Cir. 2012)
(explaining that a fail-safe class is “one that is defined so
that whether a person qualifies as a member depends on
whether the person has a valid claim”). Defining the
class “in terms of the legal injury,” In re Nexium
Antitrust Litig., 777 F.3d at 22, is not the same as
requiring the class to be defined “with reference to
objective criteria.” See Hayes, 725 F.3d at 355.
We decline to engraft an “underinclusivity”
standard onto the ascertainability requirement.
Individuals who are injured by a defendant but are
excluded from a class are simply not bound by the
outcome of that particular action. Cf., e.g., Taylor v.
Sturgell, 553 U.S. 880, 884, 894 (2008) (“Representative
suits with preclusive effect on nonparties include
properly conducted class actions.”); United States v.
33
Mendoza, 464 U.S. 154, 158 n.3 (1984) (“Under res
judicata, a final judgment on the merits bars further
claims by parties or their privies on the same cause of
action.”). In the context of ascertainability, we have only
mentioned “underinclusivity” with regard to whether the
records used to establish ascertainability were sufficient,
see Hayes, 725 F.3d at 355 (citing Marcus, 687 F.3d at
594), not whether there are injured parties that could also
be included in the class. Requiring a putative class to
include all individuals who may have been harmed by a
particular defendant could also severely undermine the
named class representative’s ability to present typical
claims (Fed. R. Civ. P. 23(a)(3)) and adequately
represent the interests of the class (Fed. R. Civ.
P. 23(a)(4)). The ascertainability standard is neither
designed nor intended to force all potential plaintiffs who
may have been harmed in different ways by a particular
defendant to be included in the class in order for the class
to be certified.
3.
Similarly, the District Court also abused its
discretion in determining that the proposed classes were
not ascertainable because they were “overly broad.” The
District Court concluded that “more problematic for
Plaintiffs is the fact that the alternative definitions are
overly broad” because “[n]ot every computer upon which
Detective Mode was activated will state a claim under the
ECPA for the interception of electronic communication.”
34
Byrd, 2014 WL 1316055, at *5. There was, again, no
reference to our ascertainability precedent or that of any
other court.
Defendants also rely on Bright for the proposition
that a class is not “ascertainable if it is decoupled from
the underlying allegations of harm rendering it . . .
overbroad.” See Bright, 292 F.R.D. at 197. They also
cite myriad cases from other district courts and courts of
appeals to justify the consideration of overbreadth in our
ascertainability standard.
Such applications of the
ascertainability standard fuel the precise mistake we
attempted to correct in Grandalski v. Quest Diagnostics
Inc.—that is, injecting the explicit requirements of Rule
23 into the ascertainability standard without actually
analyzing those requirements under the correct portion of
Rule 23. See 767 F.3d at 184 n.5 (“Predominance and
ascertainability are separate issues.”). And at oral
argument, Defendants conceded that the District Court’s
analysis regarding overbreadth was really identifying a
potential predominance problem.
Defendants’ reliance on authority outside this
Circuit does nothing to bolster their argument. For
example, they extensively discuss Oshana v. Coca-Cola
Co., 472 F.3d 506 (7th Cir. 2006), to support the
proposition that an overbroad class is not ascertainable.
In Oshana, the Seventh Circuit considered whether a
class consisting of “all Illinois purchasers of fountain
Diet Coke from March 12, 1999 forward” was certifiable
35
under Rule 23. Id. at 509. The Court required that in
addition to satisfying the Rule 23(a) and (b)
requirements, a “plaintiff must also show . . . that the
class is indeed identifiable as a class.” Id. at 513.
Reasoning that the proposed class could “include
millions who were not deceived and thus have no
grievance under the [Illinois Consumer Fraud and
Deceptive Practices Act],” the Seventh Circuit affirmed
the district court’s determination that the proposed class
was “not sufficiently definite to warrant class
certification.” Id. at 513–14.
The “definiteness” standard from Oshana is
distinguishable from our Circuit’s ascertainability
requirement. The standard applied in the Seventh Circuit
is based on the premise that because “[i]t is axiomatic
that for a class action to be certified a ‘class’ must exist,”
Simer v. Rios, 661 F.2d 655, 669 (7th Cir. 1981), a class
definition must be definite enough for the class to be
ascertained, Alliance to End Repression v. Rochford, 565
F.2d 975, 977 (7th Cir. 1977). In short, the class must be
“indeed identifiable as a class.” Oshana, 472 F.3d at
513. A class may be indefinite where “the relevant
criteria for class membership [is] unknown.” Jamie S. v.
Milwaukee Pub. Sch., 668 F.3d 481, 495 (7th Cir. 2012).
Although this doctrine is similar to the parameters laid
out in our ascertainability cases, it blends together our
Circuit’s
ascertainability
and
class
definition
requirements. Compare Oshana, 472 F.3d at 513, with
36
Hayes, 725 F.3d at 355, and Wachtel, 453 F.3d at 187–
88. As we made patent in Marcus, we address class
definition and ascertainability as separate inquiries. 687
F.3d at 591–94.
Defendants also argue that a proposed class is
overbroad “where putative class members lack standing
or have not been injured.” Defendants’ argument
conflates the issues of ascertainability, overbreadth (or
predominance), and Article III standing. We have
explained that the issue of standing is separate from the
requirements of Rule 23. See, e.g., Holmes v. Pension
Plan of Bethlehem Steel Corp., 213 F.3d 124, 135 (3d
Cir. 2000) (“In addition to the requirements expressly
enumerated in Rule 23, class actions are also subject to
more generally applicable rules such as those governing
standing and mootness.”). To the extent Defendants
meant to challenge any potential differences between the
proposed class representatives and unnamed class
members, such differences should be considered within
the rubric of the relevant Rule 23 requirements—such as
adequacy, typicality, commonality, or predominance.
See Grandalski, 767 F.3d at 184–85; see also Holmes,
213 F.3d at 137–38 (discussing an “overbroad” class as
requiring individual determinations that fail to satisfy
Rule 23(b)(3)’s predominance requirement). Conversely,
if Defendants intended to argue that all putative class
members must have standing, such challenges should be
squarely raised and decided by the District Court.
37
Because the District Court has yet to conduct a rigorous
analysis of the Rule 23 requirements, we decline to
address these issues in the first instance.
The Byrds’ proposed classes consisting of
“owners” and “lessees” are ascertainable. There are
“objective records” that can “readily identify” these class
members, cf. Grandalski, 767 F.3d at 184 n.5, because,
as explained by the District Court, “Aaron’s own records
reveal the computers upon which Detective Mode was
activated, as well as the full identity of the customer who
leased or purchased each of those computers.” Byrd,
2014 WL 1316055, at *5.
The District Court’s
conclusion to the contrary was an abuse of discretion.
4.
The District Court again abused its discretion in
determining that “household members” were not
ascertainable. The District Court concluded that the
inclusion of the phrase “household members” in the
Byrds’ revised class definitions was vague and not
ascertainable. In the Byrds’ reply brief on the motion for
class-action certification, they asserted in a footnote that
“[h]ousehold members can easily be objectively verified
through personal and public records. And their usage of
the owner/lessee’s computers can also be easily
objectively established.”
The Magistrate Judge
recommended denying class certification because the
Byrds did not define “household members” or prove by a
38
preponderance of the evidence how “‘household
members’ can be verified through personal and public
records.”
In their objections to the Magistrate Judge’s
Report and Recommendation, the Byrds argued that they
intended “the plain meaning of ‘household members.’”
On appeal, the Byrds continue to argue that they intended
the plain meaning of “household members” to be “all of
the people, related or unrelated, who occupy a housing
unit.” By way of example, the Byrds cite to multiple
definitions used in government documents for census,
taxation, and immigration purposes.
With these
definitions, they contend that the simple act of
confirming membership would mean matching addresses
in public records with that of an owner or lessee that had
already been identified.
The “household members” of owners or lessees are
ascertainable. Although the government documents cited
by the Byrds do contain slight variations on the definition
of a household member (as noted by Defendants), the
Byrds presented the District Court with various ways in
which “household members” could be defined and how
relevant records could be used to verify the identity of
household members.
Because the District Court
summarily adopted the Magistrate Judge’s Report and
Recommendation, and no oral argument was held on the
class-certification motion, we are left to wonder why the
District Court determined that the Byrds’ explanation in
39
their objections to the Report and Recommendation was
inadequate.
The parties also dispute whether the phrase
“household members” is often used in class definitions.
Although it is true that the phrase “household members”
has been used in other class definitions,10 we decline the
invitation categorically to conclude that the use of this
phrase will always have sufficient precision in the
ascertainability context. The inquiry in any given case
should be whether a class is “defined with reference to
10
See, e.g., Ortiz, 527 U.S. at 827 n.5 (reversing
the approval of an asbestos settlement class that
happened to include “household member” in the class
definition); Amchem Prods., Inc., 521 U.S. at 602
(analyzing the validity of a class that included
“household members” on grounds other than
ascertainability); Georgine v. Amchem Prods., Inc., 83
F.3d 610, 619 & n.3, 633 (3d Cir. 1996) (including in the
class “occupational exposure of a spouse or household
member to asbestos, or to asbestos-containing products”),
aff’d sub nom. Amchem Prods., Inc. v. Windsor, 521 U.S.
591 (1997); In re Flonase Antitrust Litig., 291 F.R.D. 93,
108 (E.D. Pa. 2013) (settlement class definition that
included “household members”), appeal dismissed (July
25, 2013); Carlough v. Amchem Prods., Inc., 158 F.R.D.
314, 319 (E.D. Pa. 1993) (using a similar definition as
Georgine).
40
objective criteria” and whether there is a “reliable and
administratively feasible mechanism for determining
whether putative class members fall within the class
definition.” Hayes, 725 F.3d at 355. Whether a class is
ascertainable is dependent on the nature of the claims at
issue. But as used here, “household members” is a
phrase that is easily defined and not, as Defendants
argue, inherently vague.
We also conclude that Defendants’ and the District
Court’s reliance on Carrera is misplaced. In Carrera,
we concluded that the plaintiffs’ proposed reliance on
affidavits alone, without any objective records to identify
class members or a method to weed out unreliable
affidavits, could not satisfy the ascertainability
requirement. 727 F.3d at 311. Here the Byrds presented
the District Court with multiple definitions of class
members and simply argued that a form similar to those
provided could be used to identify household members.
This is a far cry from an unverifiable affidavit, or the
absence of any methodology that can be used later to
ascertain class members. See id. at 310–11.
The Byrds’ proposed method to ascertain
“household members” is neither administratively
infeasible nor a violation of Defendants’ due process
rights. Because the location of household members is
already known (a shared address with one of the 895
owners and lessees identified by the Byrds), there are
unlikely to be “serious administrative burdens that are
41
incongruous with the efficiencies expected in a class
action.” Marcus, 687 F.3d at 593 (citation and internal
quotation marks omitted). There will always be some
level of inquiry required to verify that a person is a
member of a class; for example, a person’s statement that
she owned or leased an Aspen Way computer would
eventually require anyone charged with administering the
fund resulting from a successful class action to ensure
that person is actually among the 895 customers
identified by the Byrds. Such a process of identification
does not require a “‘mini-trial,’” nor does it amount to
“‘individualized fact-finding,’” Carrera, 727 F.3d at 307
(quoting Marcus, 687 F.3d at 594), and indeed must be
done in most successful class actions.
Certainly, Carrera does not suggest that no level
of inquiry as to the identity of class members can ever be
undertaken. If that were the case, no Rule 23(b)(3) class
could ever be certified. We are not alone in concluding
that “the size of a potential class and the need to review
individual files to identify its members are not reasons to
deny class certification.” See Young v. Nationwide Mut.
Ins. Co., 693 F.3d 532, 539–40 (6th Cir. 2012)
(collecting cases). To hold otherwise would seriously
undermine the purpose of a Rule 23(b)(3) class to
aggregate and vindicate meritorious individual claims in
an efficient manner. Fed. R. Civ. P. Rule 23(b)(3) 1966
advisory committee’s notes (Rule 23(b)(3) “achieve[s]
economies of time, effort, and expense, and promote[s]
42
uniformity of decision as to persons similarly situated,
without sacrificing procedural fairness or bringing about
other undesirable results.”).
As to Defendants’ contention that their due process
rights would be violated, Carrera counsels that this due
process right relates to the ability to “challenge the proof
used to demonstrate class membership.” 727 F.3d at 307.
Here, the Byrds are not relying solely on unverified
affidavits to establish ascertainability. See id. at 307–08;
Hayes, 725 F.3d at 356 (reasoning that a class is not
ascertainable where “the only proof of class membership
[was] the say-so of putative class members”). Any form
used to indicate a household member’s status in the
putative class must be reconciled with the 895 known
class members or some additional public records.
Defendants are not foreclosed from challenging the
evidence the Byrds propose to use.
In sum, the District Court erred in its application of
Carrera and in concluding that the phrase “household
members” was inherently vague.
C.
In light of the errors discussed above, we will
remand to the District Court to consider the remaining
Rule 23 certification requirements in the first instance.
At oral argument and in their briefs, Defendants urged us
to read the District Court’s ruling as one on
43
predominance, independently review the record in this
case, and conclude that the Byrds’ proposed classes fail
to satisfy Rule 23(b)(3)’s predominance requirement.
Defendants contend that the elements of an ECPA claim,
particularly that each plaintiff must show the interception
of the “contents” of an “electronic communication,”
create insurmountable barriers to proving predominance.
See 18 U.S.C. § 2511(1)(a), (c), (d). Formidable though
these barriers may be, they are not for us to address in the
first instance.
Beginning in General Telephone Co. of Southwest
v. Falcon, 457 U.S. 147, 160–161 (1982), through its
recent decision in Comcast Corp. v. Behrend, 133 S. Ct.
at 1432, the Supreme Court has repeatedly emphasized
the need for a district court to conduct a rigorous analysis
of the evidence in support of certification under Rule 23.
“By their nature, interlocutory appeals are disruptive,
time-consuming, and expensive”; thus, it makes sense to
allow the “district court an opportunity to fine-tune its
class certification order . . . rather than opening the door
too widely to interlocutory appellate review.” Waste
Mgmt. Holdings, Inc. v. Mowbray, 208 F.3d 288, 294–95
(1st Cir. 2000) (exercising discretionary authority under
Rule 23(f) in order to give a district court “a better sense
as to which aspects of the class certification decision
might
reasonably
be
open
to
subsequent
reconsideration”). This is consistent with the narrow, yet
flexible, set of considerations we address in granting a
44
Rule 23(f) petition. See Newton v. Merrill Lynch, Pierce,
Fenner & Smith, Inc., 259 F.3d 154, 164–65 (3d Cir.
2001); see also In re Nat’l Football League Players
Concussion Injury Litig., 775 F.3d 570, 578 n.9 (3d Cir.
2014). We best exercise appellate review when the dust
has settled and a district court has fully considered a
motion for class-action certification.
What is more, a close reading of Defendants’
response briefs demonstrates how they continue to
conflate ascertainability with the other relevant
requirements of Rule 23. We write again to emphasize
that at class certification, Rule 23’s explicit requirements
go beyond and are separate from the ascertainability
inquiry.
Precise analysis of relevant Rule 23
requirements will always be necessary. We therefore
decline to go beyond the scope of the District Court’s
opinion.
V.
The District Court erred both in relying on an
errant conclusion of law and improperly applying law to
fact. Accordingly, we will reverse and remand for
further consideration in light of this opinion.
45
RENDELL, Circuit Judge, concurring:
I agree with the majority that, under our current
jurisprudence, the class members here are clearly
ascertainable. Indeed, as Judge Smith points out, “Aaron’s
own records reveal the computers upon which Detective
Mode was activated, as well as the full identity of the
customer who leased or purchased each of those computers.”
(Maj. Op. at 37) (quoting Byrd v. Aaron’s, Inc., No. 11-cv101, 2014 WL 1316055, at *5 (W.D. Pa. Mar. 31, 2014)). It
is hard to argue otherwise, and I do not. However, I do
suggest that the lengths to which the majority goes in its
attempt to clarify what our requirement of ascertainability
means, and to explain how this implicit requirement fits in the
class certification calculus, indicate that the time has come to
do away with this newly created aspect of Rule 23 in the
Third Circuit. Our heightened ascertainability requirement
defies clarification. Additionally, it narrows the availability
of class actions in a way that the drafters of Rule 23 could not
have intended.
Historically, the ascertainability inquiry related to
whether the court will be able to determine who fits within
the class definition for purposes of award or settlement
distribution and the preclusion of the relitigation of claims.1
It is a test that scrutinizes the class definition, and properly
1
See Manual for Complex Litigation (Fourth) § 21.222
(2004) (“An identifiable class exists if its members can be
ascertained by reference to objective criteria.”); Joseph M.
McLaughlin, McLaughlin on Class Actions § 4:2 (11th ed.
2014) (“[C]lass members need to be able to determine with
certainty from a class notice whether they are in the class. . . .
If the class definition is amorphous, persons may not
recognize that they are in the class, and thus may be deprived
of the opportunity to object or opt out.”); 5 James Wm.
Moore et al., Moore’s Federal Practice ¶ 23.21[1] (3d ed.
1999) (noting that a class must be “susceptible to precise
definition”).
2
so.2 But this is now only the first element of our two-part test
for ascertainability. Marcus v. BMW of N. Am., LLC, 687
F.3d 583, 594 (3d Cir. 2012); see also Hayes v. Wal-Mart
Stores, Inc., 725 F.3d 349, 355 (3d Cir. 2013) (“The class
must be defined with reference to objective criteria.”).
2
Courts have found classes to be ascertainable when the class
definition is sufficiently specific. Compare Parkinson v.
Hyundai Motor Am., 258 F.R.D. 580, 593 (C.D. Cal. 2008)
(holding that prospective plaintiffs are capable of determining
whether they were class members because class definition
included purchasers of a certain vehicle who paid for the
replacement of a certain part in a certain time period), and
Bynum v. District of Columbia, 214 F.R.D. 27, 31-32 (D.D.C.
2003) (holding that prospective class members are capable of
identifying themselves based on the dates of their
incarceration included in the class definition), and Pigford v.
Gickman, 182 F.R.D. 341, 346 (D.D.C. 1998) (holding that
class members are capable of identifying themselves based on
whether they had applied for participation in a USDA federal
farm program during the specified dates), with In re Copper
Antitrust Litig., 196 F.R.D. 348, 350-51, 358-60 (W.D. Wis.
2000) (refusing to certify class of “[a]ll copper or metals
dealers . . . that purchased physical copper” during a specified
time period “at prices expressly related to LME or Comex
copper future prices” because the class definition fell “far
short of communicating to copper purchasers what they need
to know to decide whether they are in or outside the proposed
class,” in that the definition failed to explain the terms
“copper or metals dealers,” “physical copper,” and “expressly
related to”).
3
In 2012 we adopted a second element, namely,
requiring district courts to make certain that there is “a
reliable, administratively feasible” method of determining
who fits into the class, thereby imposing a heightened
evidentiary burden. Marcus, 687 F.3d at 594. We have
precluded class certification unless there can be objective
proof—beyond mere affidavits—that someone is actually a
class member. Id.; accord Carrera v. Bayer Corp., 727 F.3d
300, 308-12 (3d Cir. 2013). This concept has gained traction
in recent years.3 I submit that this “business record” or
3
Several courts have denied class certification on
ascertainability grounds similar to our current ascertainability
test. See, e.g., Randolph v. J.M. Smucker Co., 303 F.R.D.
679, 689 (S.D. Fla. 2014) (denying certification of class suing
defendant for mislabeling product as “All Natural” in
violation of Florida’s deceptive advertising law because
potential class members were unlikely to remember if they
bought a product with such a label); In re Skelaxin
(Metaxalone) Antitrust Litig., 299 F.R.D. 555, 572 (E.D.
Tenn. 2014) (denying certification of class suing drug
manufacturer for violating antitrust laws because plaintiffs
did not propose feasible model for screening fraudulent
claims); Brey Corp. v. LQ Mgmt. LLC, No. 11-cv-718, 2014
WL 943445, at *1 (D. Md. Jan. 30, 2014) (denying
certification of class suing defendant for violating antitrust
laws because ascertaining who belongs in the class would
require individualized fact-finding).
4
“paper trail” requirement is ill-advised.4 In most low-value
consumer class actions, prospective class members are
unlikely to have documentary proof of purchase, because very
few people keep receipts from drug stores or grocery stores.
This should not be the reason to deny certification of a class.5
As Judge Ambro’s dissent from the denial of the petition for
rehearing en banc in Carrera noted, “[w]here a defendant’s
lack of records . . . make it more difficult to ascertain the
members of an otherwise objectively verifiable low-value
class, the consumers who make up that class should not be
made to suffer.” Carrera v. Bayer Corp., No. 12-2621, 2014
WL 3887938, at *3 (3d Cir. May 2, 2014) (Ambro, J.
dissenting).
Records are not the only way to prove that someone is
4
While the majority cites a footnote in Carrera as standing
for the proposition that we have no “records requirement,” the
class in Carrera failed the ascertainability test because there
were no records from which the class members could be
ascertained with certainty. (Maj. Op. at 25 (citing Carrera,
727 F.3d at 308. n.2)).
5
See, e.g., McCrary v. Elations Co., LLC, No. 13-cv-242,
2014 WL 1779243, at *8 (C.D. Cal. Jan. 13, 2014) (“It
appears that pursuant to Carerra [sic] in any case where the
consumer does not have a verifiable record of its purchase,
such as a receipt, and the manufacturer or seller does not keep
a record of buyers, Carerra [sic] prohibits certification of the
class.”); Ries v. Ariz. Beverages USA LLC, 287 F.R.D. 523,
535 (N.D. Cal. 2012) (warning that, if lack of receipts dooms
certification, “there would be no such thing as a consumer
class action” in cases concerning false or deceptive labeling
of small-value items).
5
in a class. It is the trial judge’s province to determine what
proof may be required at the claims submission and claims
administration stage. It is up to the judge overseeing the class
action to decide what she will accept as proof when
approving the claim form. Could not the judge decide that, in
addition to an individual’s “say so” that he is a member of the
class, the claimant needs to submit an affidavit from another
household member or from his doctor corroborating his
assertion that he did, in fact, take Bayer aspirin? Is that not
permissible and appropriate? Yet, we foreclose this process
at the outset of the case by requiring that plaintiffs conjure up
all the ways that they might find the evidence sufficient to
approve someone as a class member.
This puts the class action cart before the horse and
confuses the class certification process, as this case makes
manifest. The irony of this result is that it thwarts “[t]he
policy at the very core of the class action mechanism,” i.e.,
“to overcome the problem that small recoveries do not
provide the incentive for any individual to bring a solo action
prosecuting his or her rights.” Amchem Prods., Inc. v.
Windsor, 521 U.S. 591, 617 (1997) (quoting Mace v. Van Ru
Credit Corp., 109 F.3d 338, 344 (7th Cir. 1997)). Indeed,
“[a] class action solves this problem by aggregating the
relatively paltry potential recoveries into something worth
someone’s (usually an attorney’s) labor.” Id. We have
effectively thwarted small-value consumer class actions by
defining ascertainability in such a way that consumer classes
will necessarily fail to satisfy for lack of adequate
6
substantiation.6 Consumers now need to keep a receipt or a
can, bottle, tube, or wrapper of the offending consumer items
in order to succeed in bringing a class action.
6
Small-value consumer class actions certified by district
courts nationwide would not pass muster in our Circuit
because of our heightened ascertainability requirement. See,
e.g., Hughes v. Kore of Ind. Enter., Inc., 731 F.3d 672, 675
(7th Cir. 2013) (reversing district court’s order decertifying
class of consumers who brought action against owners of
automatic teller machines for failing to post notice on
machines that they charged fee for use despite difficulty in
determining which plaintiffs would have been deceived by
lack of notice); Ebin v. Kangadis Food Inc., 297 F.R.D. 561,
567 (S.D.N.Y. 2014) (certifying class of consumers who
claimed defendant placed misleading “All Natural” label on
olive oil bottles even though plaintiffs were unlikely to have
retained receipts or packaging proving membership in class);
Boundas v. Abercrombie & Fitch Stores, Inc., 280 F.R.D.
408, 417 (N.D. Ill. 2012) (certifying class of plaintiffs who
possessed promotional gift cards stating “No expiration date”
that were voided by defendant or told that the cards had
expired or been voided and thrown away cards even though
some class members would only be able to claim class
membership through affidavit); see also Lilly v. Jamba Juice
Co., No. 13-cv-2998, 2014 WL 4652283, at *4 (N.D. Cal.
Sept. 18, 2014) (certifying class of consumers who purchased
frozen smoothie kits containing label “All Natural” where
product allegedly contained various artificial ingredients and
where consumers did not necessarily have proof of purchase);
Allen v. Hylands, Inc., 300 F.R.D. 643, 658-59, 672 (C.D.
Cal. 2014) (certifying class of plaintiffs who purchased
homeopathic products where packaging contained alleged
7
The policy rationales that we cite in support of our
expanded ascertainability requirement are relatively weak
when compared to the significant policy justifications that
motivate the class action mechanism. We have noted three
rationales for our ascertainability requirement: (1) eliminating
administrative burdens “incongruous” with the efficiencies of
a class action, (2) protecting absent class members’ rights to
opt out by facilitating the best notice practicable, and (3)
protecting the due process rights of defendants to challenge
plaintiffs’ proffered evidence of harm. Marcus, 687 F.3d at
593.
misrepresentations even though class members would have to
self-identify without corroborating evidence); Forcellati v.
Hylands, Inc., No. 12-1983, 2014 WL 1410264, at *5, *13
(C.D. Cal. Apr. 9, 2014) (certifying class of plaintiffs who
purchased children’s cold or flu products within a prescribed
time frame despite purchasers’ lack of proof of purchase and
defendants’ lack of records identifying consumers who
purchased their products via retail intermediaries); McCrary,
2014 WL 1779243, at *7-8 (certifying class of purchasers of
dietary joint supplement containing allegedly deceptive label
despite plaintiffs’ lack of proof of purchase); Astiana v. Kashi
Co., 291 F.R.D. 493, 500 (S.D. Cal. 2013) (certifying class of
consumers who purchased cereal and snack products labeled
as “All Natural” or “Nothing Artificial” but which allegedly
contained synthetic ingredients in violation of various false
advertising laws even though plaintiffs unlikely to have
retained receipts or containers); Ries, 287 F.R.D. at 535
(certifying class of consumers who purchased iced tea with
“natural” on label despite plaintiffs’ lack of proofs of
purchase,
finding
self-identification
sufficient
for
ascertainability).
8
Eliminating “administrative burdens” really means
short-circuiting the claims process by assuming that when
individuals file claims, they burden the court. But claims
administration is part of every class action. Imposing a proofof-purchase requirement does nothing to ensure the
manageability of a class or the “efficiencies” of the class
action mechanism; rather, it obstructs certification by
assuming that hypothetical roadblocks will exist at the claims
administration stage of the proceedings.7
Denying class certification due to concerns about
providing notice to class members makes little sense. Rule 23
requires the “best notice that is practicable under the
circumstances” to potential class members after a class has
been certified.8
Potential difficulties in providing
individualized notice to all class members should not be a
reason to deny certification of a class. As the Supreme Court
noted in Phillips Petroleum Co. v. Shutts, due process is
satisfied when notice is “reasonably calculated” to reach the
defined class. 472 U.S. 797, 812 (1985). The question is not
whether every class member will receive actual individual
notice, but whether class members can be notified of their
opt-out rights consistent with due process. See Dusenbery v.
United States, 534 U.S. 161 (2002) (holding that due process
did not require actual notice to federal prisoner of his right to
contest civil forfeiture, but rather, due process must be
See Carnegie v. Household Int’l, Inc., 376 F.3d 656, 661
(7th Cir. 2004) (“[T]here is a big difference from the
standpoint of manageability between the liability and remedy
phases of a class action.”).
8
Fed. R. Civ. P. 23(c)(2)(B).
7
9
“reasonably calculated” to apprise a party of the pendency of
an action).9
The concerns regarding the due process rights of
defendants are unwarranted as well, because there is no
evidence that, in small-claims class actions, fabricated claims
impose a significant harm on defendants. The chances that
someone would, under penalty of perjury, sign a false
affidavit stating that he or she bought Bayer aspirin for the
sake of receiving a windfall of $1.59 are far-fetched at best.
On the other hand, while most injured individuals will find
that it is not worth the effort to claim the few dollars in
damages that the class action can provide, in the aggregate,
this sum is significant enough to deter corporate misconduct.
Our ascertainability doctrine, by focusing on making
absolutely certain that compensation is distributed only to
those individuals who were actually harmed, has ignored an
equally important policy objective of class actions: deterring
and punishing corporate wrongdoing. As Judge Posner,
writing for the Court of Appeals for the Seventh Circuit,
stated in Hughes v. Kore of Indiana Enterprises, Inc., “when
what is small is not the aggregate but the individual claim . . .
that’s the type of case in which class action treatment is most
needful. . . . A class action, like litigation in general, has a
deterrent as well as a compensatory objective.” 731 F.3d 672,
677 (7th Cir. 2013). The rigorous application of the
ascertainability requirement translates into impunity for
9
See also Girsh v. Jepson, 521 F.2d 153, 159 n.12 (3d Cir.
1975) (“We do not mean to indicate that individual notice
must be given in all cases.”). Furthermore, Rule 23 requires
courts to provide the best practicable notice after a class has
been certified. See Fed. R. Civ. P. 23(c)(2)(B).
10
corporate defendants who have harmed large numbers of
consumers in relatively modest increments.10 Without the
class action mechanism, corporations selling small-value
items for which it is unlikely that consumers would keep
receipts are free to engage in false advertising, overcharging,
and a variety of other wrongs without consequence.
The concerns about defendants’ due process rights are
also overblown because damages liability under Rule 23 is
determined in the aggregate: courts determine the extent of a
defendant’s monetary liability to the entire class. Therefore,
whether an individual can establish membership in that class
does not affect the rights of defendants not to pay in excess of
their liability. Carrera’s concern that allowing undeserving
individuals to claim damages will dilute deserving class
10
As one court has noted,
[a]dopting the Carrera approach would have
significant negative ramifications for the ability
to obtain redress for consumer injuries. Few
people retain receipts for low-priced goods,
since there is little possibility they will need to
later verify that they made the purchase. Yet it
is precisely in circumstances like these, where
the injury to any individual consumer is small,
but the cumulative injury to consumers as a
group is substantial, that the class action
mechanism provides one of its most important
social benefits.
Lilly, 2014 WL 4652283, at *4 (citing Eisen v. Carlisle &
Jacquelin, 417 U.S. 156, 161 (1974)).
11
members’ recoveries is unrealistic in modern day class action
practice, and it makes little sense when used to justify the
wholesale dooming of the small-value class action such that
no injured plaintiff can recover at all. Moreover, this is an
issue to be dealt with in the implementation of a class action
settlement, not in conjunction with ascertaining the class for
purposes of certification. Concerns about claims processing
should not be used to scuttle these types of class actions
altogether.
The policy concerns animating our ascertainability
doctrine boil down to ensuring that there is a surefire way to
get damages into the hands of only those individuals who we
can be 100% certain have suffered injury, and out of the
hands of those who may not have. However, by disabling
plaintiffs from bringing small-value claims as a class, we
have ensured that other policy goals of class actions—
compensation of at least some of the injured and deterrence of
wrongdoing, for example—have been lost. In small-claims
class actions like Carrera, the real choice for courts is
between compensating a few of the injured, on the one hand,
versus compensating none while allowing corporate
malfeasance to go unchecked, on the other. As such, where
there are small-value claims, class actions offer the only
means for achieving individual redress. As the Supreme
Court stated in Eisen, when individual damages are so low,
“[e]conomic reality dictates that petitioner’s suit proceed as a
class action or not at all.” 417 U.S. at 161. The concern that
we are defeating what is at the “core” of what the class action
was designed to accomplish is very real. As Judge Rakoff
noted in certifying a class over objections regarding
ascertainability based on receipts or documentation:
12
[T]he class action device, at its very core, is
designed for cases like this where a large
number of consumers have been defrauded but
no one consumer has suffered an injury
sufficiently large as to justify bringing an
individual lawsuit. Against this background, the
ascertainability difficulties, while formidable,
should not be made into a device for defeating
the action.
Ebin v. Kangadis Food Inc., 297 F.R.D. 561, 567 (S.D.N.Y.
2014). While a rigorous insistence on a proof-of-purchase
requirement, which our heightened ascertainability
jurisprudence has imposed, keeps damages from the
uninjured, it does an equally effective job of keeping damages
from the truly injured as well, and “it does so with brutal
efficiency.”11
Therefore, while I concur in the judgment, I suggest
that it is time to retreat from our heightened ascertainability
requirement in favor of following the historical meaning of
ascertainability under Rule 23. I would therefore reverse the
District Court’s ruling, and hold that (1) hereafter, our
ascertainability analysis will focus on class definition only,
and (2) the District Court’s analysis regarding the second
prong of our ascertainability test was unnecessary. We thus
would instruct the District Court to proceed to determine
whether the class can be certified under the traditional
mandates of Rule 23. Until we revisit this issue as a full
11
Myriam Gilles, Class Dismissed: Contemporary Judicial
Hostility to Small-Claims Consumer Class Actions, 59
DePaul L. Rev. 305, 308 (2010).
13
Court or it is addressed by the Supreme Court or the Advisory
Committee on Civil Rules, we will continue to administer the
ascertainability requirement in a way that contravenes the
purpose of Rule 23 and, in my view, disserves the public.
14
FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
SKYE ASTIANA; TAMAR DAVIS
LARSEN, on behalf of themselves
and all others similarly situated,
Plaintiffs-Appellants,
No. 12-17596
D.C. No.
4:11-cv-06342PJH
v.
THE HAIN CELESTIAL GROUP, INC., a
Delaware corporation; JASON
NATURAL PRODUCTS, INC., a
California corporation,
Defendants-Appellees.
OPINION
Appeal from the United States District Court
for the Northern District of California
Phyllis J. Hamilton, Chief District Judge, Presiding
Argued and Submitted
February 10, 2015—San Francisco, California
Filed April 10, 2015
Before: Sidney R. Thomas, Chief Judge and A. Wallace
Tashima and M. Margaret McKeown, Circuit Judges.
Opinion by Judge McKeown
2
ASTIANA V. HAIN CELESTIAL GROUP
SUMMARY*
Preemption / Primary Jurisdiction /
Food and Drug Administration
The panel reversed the district court’s Fed. R. Civ. P.
12(b)(6) dismissal of a quasi-contract cause of action, and
dismissal of California state law claims under the primary
jurisdiction doctrine in a putative nationwide class action
claiming that the class members were deceived into
purchasing “natural” cosmetics.
Primary jurisdiction is a prudential doctrine that permits
courts to determine whether a claim implicates technical and
policy questions that should first be addressed by an agency
with regulatory authority over the relevant industry.
The panel held that the Food, Drug, and Cosmetic Act did
not expressly preempt California’s state law causes of action
that create consumer remedies for false or misleading
cosmetics labels. The panel also held that although the
district court properly invoked the primary jurisdiction
doctrine, it erred by dismissing the case rather than issuing a
stay pending potential agency action by the Food and Drug
Administration. The panel indicated that on remand, the
district court may consider whether events during the
pendency of the appeal had changed the calculus on whether
further FDA proceedings were necessary. Finally, the panel
concluded that the district court erred in dismissing the
*
This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
ASTIANA V. HAIN CELESTIAL GROUP
3
quasi-contract cause of action as duplicative of, or
superfluous to, the putative class’s other claims.
COUNSEL
Joseph N. Kravec, Jr. (argued) and Wyatt A. Lison, Feinstein
Doyle Payne & Kravec, LLC, Pittsburgh, Pennsylvania;
Michael D. Braun, Braun Law Group, P.C., Los Angeles,
California; Janet Lindner Spielberg, Law Offices of Janet
Lindner Spielberg, Los Angeles, California, for PlaintiffsAppellants.
James M. Schurz (argued) and Lisa A. Wongchenko,
Morrison & Foerster LLP, San Francisco, California, for
Defendants-Appellees.
OPINION
McKEOWN, Circuit Judge:
A product labeled “all natural” or “pure natural” likely
evokes images of ground herbs and earth extracts rather than
chemicals such as “Polysorbate 20” or “Hydroxycitronellal.”
This class action alleges that false or misleading product
labels duped consumers seeking natural cosmetics into
purchasing products that were chock-full of artificial and
synthetic ingredients. Although the underlying question of
what constitutes a “natural” cosmetic poses a fascinating
question, it is not the one we answer. Instead, this appeal
requires us to decide whether federal preemption or the
primary jurisdiction doctrine prevents the district court from
4
ASTIANA V. HAIN CELESTIAL GROUP
deciding when a “natural” label on cosmetic products is false
or misleading.
We conclude that the Food, Drug, and Cosmetic Act,
21 U.S.C. § 301 et seq. (“FDCA”), does not expressly
preempt California’s state law causes of action that create
consumer remedies for false or misleading cosmetics labels.
Although the district court properly invoked the primary
jurisdiction doctrine, it erred by dismissing the case rather
than issuing a stay pending potential agency action by the
Food and Drug Administration (“FDA”). On remand, the
district court may consider whether events during the
pendency of this appeal have changed the calculus on
whether further FDA proceedings are necessary.
Background
The Hain Celestial Group and JÂSÖN Natural Products
(collectively “Hain”) make moisturizing lotion, deodorant,
shampoo, conditioner and other cosmetics products. Hain
labels these products “All Natural,” “Pure Natural,” or “Pure,
Natural & Organic.”
Skye Astiana, Tamar Davis Larsen, and Mary Littlehale
(collectively “Astiana”) filed a putative nationwide class
action claiming that they were deceived into purchasing
Hain’s cosmetics, which contain allegedly synthetic and
artificial ingredients ranging from benzyl alcohol to airplane
anti-freeze. Astiana claims she likely would not have
purchased—and certainly would not have paid the going price
for—Hain’s cosmetics had she been aware of their synthetic
and artificial contents. Astiana sought injunctive relief and
damages under the federal Magnuson-Moss Warranty Act,
ASTIANA V. HAIN CELESTIAL GROUP
5
California’s unfair competition and false advertising laws,
and common law theories of fraud and quasi-contract.
Hain filed two motions to dismiss the complaint. First, it
moved to partially dismiss the suit under Federal Rule of
Civil Procedure 12(b)(6). As relevant here, the district court
dismissed the quasi-contract cause of action, noting that
“while restitution is available as a remedy for plaintiffs’ other
causes of action, it is not a standalone cause of action in
California and is nonsensical as pled in any event.”1
In its second motion to dismiss, Hain asserted that
Astiana’s state law claims are preempted by the FDCA. In
the alternative, Hain urged that the suit should be stayed or
dismissed under the primary jurisdiction doctrine. The
district court found the latter argument persuasive and
dismissed Astiana’s claims so the parties could seek expert
guidance from the FDA.
Analysis
I. PREEMPTION
Hain argues that the FDCA expressly preempts Astiana’s
state law claims. Although the district court did not address
this argument, Hain asks us to do so, citing our authority to
“affirm on any grounds supported by the record.” Franklin
v. Terr, 201 F.3d 1098, 1100 n.2 (9th Cir. 2000). We accept
this invitation because this purely legal question remains a
threshold issue for resolution.
1
The district court also dismissed plaintiff Littlehale from the suit.
Littlehale initially appealed this ruling, but voluntarily dismissed her
appeal before oral argument.
6
ASTIANA V. HAIN CELESTIAL GROUP
In analyzing express preemption, we “start with the
assumption that the historic police powers of the States were
not to be superseded by the Federal Act unless that was the
clear and manifest purpose of Congress.” Rice v. Santa Fe
Elevator Corp., 331 U.S. 218, 230 (1947). The FDCA
proscribes any cosmetics labeling that is “false or misleading
in any particular.” 21 U.S.C. § 362(a). The more specific
preemption language prohibits any state or local government
from “establish[ing] or continu[ing] in effect any requirement
for labeling or packaging of a cosmetic that is different from
or in addition to, or that is otherwise not identical with”
federal rules. 21 U.S.C. § 379s(a). Hain’s argument that this
language expressly preempts any state law claim that a
cosmetic label is false or misleading does not square with
Supreme Court precedent.
The preemption language of § 379s is virtually identical
to the statutory text at issue in two Supreme Court cases:
Medtronic, Inc. v. Lohr, 518 U.S. 470 (1996), and Bates v.
Dow Agrosciences LLC, 544 U.S. 431 (2005). Like the
statutes at issue in those cases, the FDCA bars states from
imposing new or additional labeling “requirements,” but is
silent with regards to states’ ability to provide remedies for
violations of federal law. In light of this similarity, we have
little difficulty concluding that the FDCA does not preempt
state laws that allow consumers to sue cosmetics
manufacturers that label or package their products in
violation of federal standards.
In Medtronic, the Supreme Court considered whether the
FDCA’s prohibition on state medical device safety
“requirements” that are “different from, or in addition to”
federal requirements preempted state law product liability
claims. 518 U.S. at 481 (quoting 21 U.S.C. § 360k(a)).
ASTIANA V. HAIN CELESTIAL GROUP
7
Looking to the text, the Court concluded that nothing in the
statutory language “denies [a state] the right to provide a
traditional damages remedy for violations of common-law
duties when those duties parallel federal requirements.” Id.
at 495. Simply put, the availability of state law damages for
violations of federal law “does not amount to [an] additional
or different ‘requirement.’” Id.
The Court reached a similar conclusion in Bates. There,
chemical manufacturers argued that the labeling requirements
of the Federal Insecticide, Fungicide, and Rodenticide Act
(“FIFRA”), 7 U.S.C. § 136 et seq., preempted state law
claims that their products failed to include adequate warnings.
That statute mandates certain chemical labeling requirements
and prohibits states from “impos[ing] or continu[ing] in effect
any requirements for labeling or packaging in addition to or
different from” federal requirements. 7 U.S.C. § 136v(b).
The Court determined that this language is not an absolute bar
to state law failure to warn claims, reasoning that FIFRA
“does not . . . pre-empt any state rules that are fully consistent
with federal requirements.” Bates, 544 U.S. at 452. To the
extent state law might be construed more broadly than federal
law, the solution is not to prohibit state law suits altogether,
but to “instruct the jury on the relevant [federal] standards, as
well as any regulations that add content to those standards.”
Id. at 454.
Hain attempts to escape the dictates of the Supreme Court
by arguing that Astiana’s suit would create a “novel state
labeling requirement” under California’s Sherman Act,
Health & Safety Code § 111730. This approach does not
save the preemption argument. Astiana is not asking Hain to
modify or enhance any aspect of its cosmetics labels that are
required by federal law. Rather, she claims deception as a
8
ASTIANA V. HAIN CELESTIAL GROUP
result of advertising statements that contradicted the true
ingredients listed on the FDA-mandated label. See Williams
v. Gerber Prods. Co., 552 F.3d 934, 939 (9th Cir. 2008) (“We
do not think that the FDA requires an ingredient list so that
manufacturers can mislead consumers and then rely on the
ingredient list to correct those misinterpretations and provide
a shield for liability for the deception.”). FDA regulations do
not require Hain to label its products as “All Natural” or
“Pure Natural.” If Astiana’s suit ultimately requires Hain to
remove these allegedly misleading advertising statements
from its product labels, such a result does not run afoul of the
FDCA, which prohibits “requirement[s]” that are “different
from,” “in addition to,” or “not identical with” federal rules.
Hain also argues that the complaint’s reference to the
FDA’s informal food labeling policy represents an attempt to
create a state regulatory regime where no corresponding
federal rules exist. This characterization does not ring true.
Astiana referenced these regulations to demonstrate that Hain
knew or should have known its products contained
ingredients that would likely be considered synthetic and
artificial.
Notably, the complaint referenced Hain’s
correspondence with a non-profit organization for the same
purpose.
Hain finally points out that the FDA has never issued
regulations regarding the use of “natural” on cosmetics labels.
That is true, but Hain then argues that the FDA’s failure to
issue specific regulations on the subject is tantamount to a
conscious decision by the agency to permit any use of this
term a manufacturer sees fit. This argument proves too much.
By this logic, a manufacturer could make any claim—wild,
untruthful, or otherwise—about a product whose contents are
not addressed by a specific regulation. The statute, however,
ASTIANA V. HAIN CELESTIAL GROUP
9
proscribes statements that are “false or misleading in any
particular,” not statements that are “prohibited by specific
FDA regulations.” Indeed, in a “Small Business Fact Sheet”
published on its website, the FDA itself stated that while the
agency “has not defined” the word natural, all cosmetics
labels must still be “truthful and not misleading.”2 This
statement is, of course, consistent with § 362(a)’s prohibition
on “false or misleading” labeling and reinforces our
conclusion that the FDA did not intend to permit
indiscriminate use of the word “natural” on cosmetics labels.3
The FDCA does not expressly preempt state causes of
action predicated on federal cosmetics labeling laws.
Astiana’s state law claims that Hain’s products were labeled
in a way that was “false or misleading in any particular” may
proceed.
II. PRIMARY JURISDICTION
We next address whether the district court properly
dismissed Astiana’s claims under the primary jurisdiction
doctrine. Before we reach the merits of the district court’s
decision, we consider two procedural points raised by
Astiana.
2
Small Business & Homemade Cosmetics: Fact Sheet, U.S. FDA,
http://www.fda.gov/Cosmetics/ResourcesForYou/Industry/ucm388736.
htm (last updated Oct. 20, 2014).
3
To the extent Hain claims that no consumer would be deceived by a
cosmetics label that contains the phrase “All Natural” because every
cosmetic necessarily contains artificial, synthetic, or manufactured
materials, this argument goes to the merits of Astiana’s assertion that she
was deceived by the allegedly false or misleading label, not the question
of federal preemption.
10
ASTIANA V. HAIN CELESTIAL GROUP
Astiana first urges that Hain waived its right to seek
dismissal on primary jurisdiction grounds because this
defense was asserted in a pleading titled: “Motion to dismiss
for lack of subject matter jurisdiction, pursuant to Federal
Rule of Civil Procedure 12(h)(3).” Strictly speaking, this title
was inaccurate because “[p]rimary jurisdiction is not a
doctrine that implicates the subject matter jurisdiction of the
federal courts.” Syntek Semiconductor Co. v. Microchip
Tech. Inc., 307 F.3d 775, 780 (9th Cir. 2002). In Astiana’s
view, the erroneous caption on Hain’s motion constitutes
waiver of the primary jurisdiction defense.
Astiana’s position reads too much into the caption. Just
as one can’t judge a book by its cover, a pleading caption is
hardly dispositive of the nature of the pleading. Astiana also
overlooks the reality of what occurred in the briefing of the
motion. Both Hain and Astiana addressed the merits of the
primary jurisdiction argument without reference to the
caption. Far from waiver, Hain’s motion put Astiana on
notice of the defense, and Astiana responded to this
argument.
Astiana also urges us to acknowledge that its
correspondence with the FDA during the pendency of this
appeal demonstrates that the agency declined to take primary
jurisdiction over this case. In a motion for judicial notice,
Astiana asserts that her counsel sent a letter to the FDA in
December 2013, four weeks after the district court dismissed
her claims. The letter, which was not sent to opposing
counsel or the court at that time, asserted inaccurately that
there had been a “Referral for 21 C.F.R. [§] 10.25(c)
Administrative Determination” in the case. Although
§ 10.25(c) permits federal courts to refer matters to the FDA
for administrative proceedings, the district court did not do so
ASTIANA V. HAIN CELESTIAL GROUP
11
in this case. Rather, the court had already dismissed the case
when Astiana requested that “the FDA render an
administrative determination on the meaning of ‘natural’ as
applied to personal care products regulated under the FDCA,
or advise that the agency declines to make such a
determination.” Astiana’s letter did not comply with the
FDA’s requirements for initiating a citizen petition. 21
C.F.R. § 10.30. The inquiry was never assigned a docket
number, and the FDA’s response was neither posted to its
website nor published in any other capacity. Cf. 21 C.F.R.
§ 10.65(a) (noting that “correspondence” with FDA
employees does not constitute final agency action “subject to
judicial review”).
Hain’s counsel learned of this missive nearly two months
later and immediately wrote a letter to the FDA urging it not
to respond to Astiana’s request for administrative guidance.
In March 2013, Dr. Linda M. Katz, the Director of the FDA’s
Office of Cosmetics and Colors, responded to Astiana’s
initial request and outlined the procedures for establishing the
meaning of the term “natural,” absent a pre-existing
definition. The letter noted that “making the requested
determination without adequate public participation would
not be in keeping with FDA’s commitment to the principles
of openness and transparency.” Dr. Katz further observed
that “priority cosmetic public health and safety matters are
currently fully occupying the resources that FDA has
available for proceedings on cosmetics matters” and
“proceedings to define ‘natural’ do not fit within [the
agency’s] current health and safety priorities.”
The question is what do we do with this private
correspondence on appeal? Our answer: nothing. Because
any consideration as to the weight or the substantive
12
ASTIANA V. HAIN CELESTIAL GROUP
implications of the letter should be left to the district court on
remand, we deny Astiana’s motion for judicial notice.
We now consider the meat of Astiana’s claim: whether
the district court’s decision to dismiss the case under the
primary jurisdiction doctrine was error. Although the district
court properly invoked primary jurisdiction, it erred by
dismissing the case without prejudice rather than staying
proceedings while the parties (or the district court) sought
guidance from the FDA.
Primary jurisdiction is a prudential doctrine that permits
courts to determine “that an otherwise cognizable claim
implicates technical and policy questions that should be
addressed in the first instance by the agency with regulatory
authority over the relevant industry rather than by the judicial
branch.” Clark v. Time Warner Cable, 523 F.3d 1110, 1114
(9th Cir. 2008). In evaluating primary jurisdiction, we
consider “(1) the need to resolve an issue that (2) has been
placed by Congress within the jurisdiction of an
administrative body having regulatory authority (3) pursuant
to a statute that subjects an industry or activity to a
comprehensive regulatory authority that (4) requires expertise
or uniformity in administration.” Syntek, 307 F.3d at 781.
Not every case that implicates the expertise of federal
agencies warrants invocation of primary jurisdiction. Rather,
the doctrine is reserved for a “limited set of circumstances”
that “requires resolution of an issue of first impression, or of
a particularly complicated issue that Congress has committed
to a regulatory agency.” Clark, 523 F.3d at 1114 (quoting
Brown v. MCI WorldCom Network Servs., 277 F.3d 1166,
1172 (9th Cir. 2002)) (internal quotation marks omitted).
Without doubt, defining what is “natural” for cosmetics
ASTIANA V. HAIN CELESTIAL GROUP
13
labeling is both an area within the FDA’s expertise and a
question not yet addressed by the agency.
Nonetheless, courts must also consider whether invoking
primary jurisdiction would needlessly delay the resolution of
claims. Reid v. Johnson & Johnson, No. 12-56726, 2015 WL
1089583, at *12 (9th Cir. 2015); United States v. Philip
Morris USA Inc., 686 F.3d 832, 838 (D.C. Cir. 2012) (“The
primary jurisdiction doctrine is rooted in part in judicial
efficiency.”). Under our precedent, “efficiency” is the
“deciding factor” in whether to invoke primary jurisdiction.
Rhoades v. Avon Prods., Inc., 504 F.3d 1151, 1165 (9th Cir.
2007).4
Common sense tells us that even when agency expertise
would be helpful, a court should not invoke primary
jurisdiction when the agency is aware of but has expressed no
interest in the subject matter of the litigation. Similarly,
primary jurisdiction is not required when a referral to the
agency would significantly postpone a ruling that a court is
otherwise competent to make. See Amalgamated Meat
Cutters & Butcher Workmen of N. Am., 381 U.S. at 686
(“[Primary jurisdiction] does not require resort to an
expensive and merely delaying administrative proceeding
4
Although the Supreme Court has never expressly held that courts
should weigh efficiency concerns against other factors relevant to primary
jurisdiction, see Ellis v. Tribune Television Co., 443 F.3d 71, 90 (2d Cir.
2006), the Court has discussed judicial economy in several of its primary
jurisdiction opinions. See, e.g., Reiter v. Cooper, 507 U.S. 258, 270
(1993) (expressing concern that invoking primary jurisdiction “could
produce substantial delay”); Local Union No. 189, Amalgamated Meat
Cutters & Butcher Workmen of N. Am. v. Jewel Tea Co., 381 U.S. 676,
686 (1965) (“[T]he doctrine of primary jurisdiction is not a doctrine of
futility.”).
14
ASTIANA V. HAIN CELESTIAL GROUP
when the case must eventually be decided on a controlling
legal issue wholly unrelated to determinations for the
ascertainment of which the proceeding was sent to the
agency.”) (internal quotation marks and citation omitted).
On the record before it, the district court did not err in
invoking primary jurisdiction. Determining what chemical
compounds may be advertised as natural on cosmetic product
labels is “a particularly complicated issue that Congress has
committed to” the FDA. See 21 C.F.R. § 700.3 et seq.
Obtaining expert advice from that agency would help ensure
uniformity in administration of the comprehensive regulatory
regime established by the FDCA.
While the FDA had shown some reticence to define
“natural,” Judge Hamilton was not alone in thinking that new
guidance would be forthcoming. In response to a flurry of
litigation over food labeling, three other district courts
invoked the agency’s primary jurisdiction to see if the FDA
intended to offer further regulations regarding the use of the
term “natural.”5 Following these referrals, which occurred
around the same time Hain sought to invoke primary
jurisdiction in this case, the FDA outlined the complexities of
the issue and responded to the courts that “priority food
public health and safety matters are largely occupying the
limited resources that FDA has to address food matters.”
Letter from Department of Health & Human Services, In Re
Gen. Mills, No. CIV-A-12-249, at ECF No. 94. More
5
These cases are: In re Gen. Mills, Inc. Kix Cereal Litig., No. CIV-A12-249 KM, 2013 WL 5943972 (D.N.J. Nov. 1, 2013), Barnes v.
Campbell Soup Co., No. C12-05185 JSW, 2013 WL 5530017 (N.D. Cal.
July 25, 2013), Cox v. Gruma Corp., No. 12-CV-6502 YGR, 2013 WL
3828800 (N.D. Cal. July 11, 2013).
ASTIANA V. HAIN CELESTIAL GROUP
15
specifically, the agency “decline[d] to make a determination”
at that time with respect to labeling genetically engineered
ingredients as “natural.” Id.
Once a district court determines that primary jurisdiction
is appropriate, it may either stay proceedings or dismiss the
case without prejudice. When the purpose of primary
jurisdiction is for “parties [to] pursue their administrative
remedies,” a district court will “[n]ormally” dismiss the case
without prejudice. Syntek, 307 F.3d at 782. However, when
a court invokes primary jurisdiction “but further judicial
proceedings are contemplated, then jurisdiction should be
retained by a stay of proceedings, not relinquished by a
dismissal.” N. Cal. Dist. Council of Hod Carriers v. Opinski,
673 F.2d 1074, 1076 (9th Cir. 1982).6 In either circumstance,
the district court must be attuned to the potential prejudice
arising from the dismissal of claims. Because the Ninth
Circuit “has not clearly adopted the doctrine of equitable
tolling in primary jurisdiction cases,” prudence dictates that
a court should stay proceedings rather than dismissing them
when there is a “possibility” that the running of the statute of
limitations during administrative proceedings could affect the
parties’ rights. United States v. Dan Caputo Co., 152 F.3d
1060, 1062 (9th Cir. 1998) (per curiam).
6
Indeed, this case demonstrates the mischief that can arise when a
district court dismisses claims rather than staying them while awaiting
agency action. Rather than seeking guidance from the FDA, Hain
attempted to leverage the district court’s dismissal on primary jurisdiction
into an outright dismissal of some of Astiana’s claims by arguing that she
had forfeited her right to request a stay in proceedings. Enabling such
“gotcha” litigation tactics is not the purpose of the primary jurisdiction
doctrine.
16
ASTIANA V. HAIN CELESTIAL GROUP
In dismissing the case rather than staying it, the court did
not consider whether the parties would be “unfairly
disadvantaged.” Reiter, 507 U.S. at 268. The purpose of
referral to the FDA was not for the agency to adjudicate
Astiana’s claims, but to provide expert advice that would be
useful to the court in considering this lawsuit. Plus,
dismissing the case had the potential to prejudice members of
the putative consumer class because of the running of the
statute of limitations. In light of these considerations, we
reverse the dismissal on primary jurisdiction grounds. On
remand, the district court may consider whether events during
the pendency of this appeal—including Astiana’s informal
letter, the FDA’s website publication of a Small Business
Fact Sheet regarding cosmetics labeling, and the FDA’s
response to the other courts—affect the need for further
proceedings at the FDA or demonstrate that another referral
to the agency would be futile.
III.
QUASI-CONTRACT
The district court dismissed Astiana’s quasi-contract
cause of action, concluding that restitution “is not a
standalone cause of action in California and is nonsensical as
pled in any event.” We part ways with the district court.
Astiana’s pleadings, though inartful, are better read as raising
a valid quasi-contract claim seeking the remedy of restitution.
As the district court correctly noted, in California, there
is not a standalone cause of action for “unjust enrichment,”
which is synonymous with “restitution.” Durell v. Sharp
Healthcare, 108 Cal. Rptr. 3d 682, 699 (Ct. App. 2010);
Jogani v. Superior Court, 81 Cal. Rptr. 3d 503, 511 (Ct. App.
2008). However, unjust enrichment and restitution are not
irrelevant in California law. Rather, they describe the theory
ASTIANA V. HAIN CELESTIAL GROUP
17
underlying a claim that a defendant has been unjustly
conferred a benefit “through mistake, fraud, coercion, or
request.” 55 Cal. Jur. 3d Restitution § 2. The return of that
benefit is the remedy “typically sought in a quasi-contract
cause of action.” Id.; see Munoz v. MacMillan, 124 Cal. Rptr.
3d 664, 675 (Ct. App. 2011) (“Common law principles of
restitution require a party to return a benefit when the
retention of such benefit would unjustly enrich the recipient;
a typical cause of action involving such remedy is
‘quasi-contract.’”).
When a plaintiff alleges unjust
enrichment, a court may “construe the cause of action as a
quasi-contract claim seeking restitution.”
Rutherford
Holdings, LLC v. Plaza Del Rey, 166 Cal. Rptr. 3d 864, 872
(Ct. App. 2014).
Astiana alleged in her First Amended Complaint that she
was entitled to relief under a “quasi-contract” cause of action
because Hain had “entic[ed]” plaintiffs to purchase their
products through “false and misleading” labeling, and that
Hain was “unjustly enriched” as a result.
This
straightforward statement is sufficient to state a quasicontract cause of action. To the extent the district court
concluded that the cause of action was nonsensical because
it was duplicative of or superfluous to Astiana’s other claims,
this is not grounds for dismissal. Fed. R. Civ. P. 8(d)(2) (“A
party may set out 2 or more statements of a claim or defense
alternatively or hypothetically, either in a single count or
defense or in separate ones.”).
REVERSED and REMANDED.
Case5:13-cv-04080-BLF Document118 Filed04/01/15 Page1 of 18
1
2
3
4
UNITED STATES DISTRICT COURT
5
NORTHERN DISTRICT OF CALIFORNIA
6
SAN JOSE DIVISION
7
8
ALICE SVENSON, individually and on
behalf of all others similarly situated,
Plaintiff,
9
v.
10
United States District Court
Northern District of California
11
12
GOOGLE INC., a Delaware Corporation,
and GOOGLE PAYMENT
CORPORATION, a Delaware Corporation,
Defendants.
13
Case No. 13-cv-04080-BLF
ORDER DENYING MOTION TO
DISMISS FOR LACK OF ARTICLE III
STANDING; AND GRANTING IN PART
AND DENYING IN PART MOTION TO
DISMISS FOR FAILURE TO STATE A
CLAIM
[Re: ECF 89]
14
Plaintiff Alice Svenson (“Svenson”) brings this putative class action to challenge the
15
16
alleged failure of Defendants Google, Inc. and Google Payment Corporation (collectively
17
“Google”) to honor the written privacy policies governing Google’s electronic payment service,
18
Google Wallet (“Wallet”). Google moves to dismiss the operative first amended complaint
19
(“FAC”) under Federal Rule of Civil Procedure 12(b)(1) for lack of Article III standing and under
20
Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim. The Court has considered the
21
briefing and the oral argument presented at the hearing on January 15, 2015. For the reasons
22
discussed below, the motion to dismiss for lack of Article III standing is DENIED and the motion
23
to dismiss for failure to state a claim is GRANTED IN PART AND DENIED IN PART.
24
25
I.
BACKGROUND
Wallet is an electronic payment processing service operated by Google to facilitate
26
purchases of mobile device applications (“Apps”) from the Google Play Store (“Play Store”).
27
FAC ¶¶ 25-26. Wallet is the only method by which Apps may be purchased from the Play Store.
28
Id. ¶ 32. Wallet accounts are governed by the Google Wallet Terms of Service, which incorporate
United States District Court
Northern District of California
Case5:13-cv-04080-BLF Document118 Filed04/01/15 Page2 of 18
1
the Google Wallet Privacy Policy, which in turn incorporates the Google Privacy Policy. FAC ¶
2
54 and Exhs. A-C. The Google Wallet Privacy Policy states that Google may share a user’s
3
“personal information” only: (1) as permitted under the Google Privacy Policy; (2) as necessary
4
to process a user’s transaction and maintain a user’s account; or (3) to complete a user’s
5
registration for a service provided by a third party. Google Wallet Privacy Policy at 2, FAC Exh.
6
B, ECF 84-2. Under the Google Privacy Policy, Google may share a user’s “personal
7
information” only: (1) with the user’s consent; (2) with domain administrators; (3) for external
8
processing; and (4) for legal reasons. Google Privacy Policy at 3-4, FAC Exh. C, ECF 84-3.
9
Svenson alleges that prior to the filing of this lawsuit, Google’s practice was to ignore
10
these restrictions and, whenever a user purchased an App in the Play Store, to share the user’s
11
personal information with the App vendor. FAC ¶ 70-71. Svenson confusingly refers to this
12
personal information as “Packets Contents.” Id. ¶ 71. “Packets Contents” are defined in the FAC
13
as “the data, transmitted in packets sent by Plaintiff and the Class to Defendants, that provide
14
Defendants information necessary to execute the App purchase and does not include packets
15
record information such as control elements (e.g., electronic-addressing information that enables
16
the packets to arrive at their intended destination).” FAC ¶ 9. “Packets Contents” include
17
“personal information about Buyers, including credit card information, purchase authorization,
18
addresses, zip codes, names, phone numbers, email addresses, and/or other information.” Id. ¶ 10.
19
Svenson alleges that Google made “Packets Contents” available to the App vendor after collecting
20
the App purchase price, retaining a thirty percent cut of the purchase price, remitting the
21
remaining portion of the purchase price to the App vendor, and providing the buyer with a receipt.
22
Id. ¶¶ 71, 114. She asserts that Google’s sharing of the “Packets Contents” with the App vendor
23
was not necessary to the App purchases and was not otherwise authorized by the Google Wallet
24
Terms of Service. Id. ¶¶ 72-79. Svenson claims that Google ceased its blanket practice of sharing
25
users’ personal information with App vendors shortly after she filed this lawsuit. Id. ¶ 11.
26
On May 6, 2013, Svenson used Wallet to buy the “SMS MMS to Email” App in the Play
27
Store for $1.77. FAC ¶ 87-88. Google collected the $1.77 by debiting the payment instrument
28
associated with Svenson’s Wallet account. Id. ¶¶ 90-92. Google also made Svenson’s “Packets
2
United States District Court
Northern District of California
Case5:13-cv-04080-BLF Document118 Filed04/01/15 Page3 of 18
1
Contents” available to the App vendor, YCDroid. FAC ¶ 90. Because of the way that Svenson
2
defines the term “Packets Contents,” it is unclear exactly what information was shared with
3
YCDroid. The Court understands Svenson to be alleging that Google shared with YCDroid
4
“personal information,” as that term is used in the applicable privacy policies, even though
5
YCDroid did not need the information for the App transaction and sharing the information was not
6
authorized under the privacy policies.
7
Based upon these allegations, Svenson asserts claims on behalf of herself and those
8
similarly situated for: (1) breach of contract, (2) breach of the implied covenant of good faith and
9
fair dealing, (3) violation of the Stored Communications Act, 18 U.S.C. § 2701; (4) violation of
10
the Stored Communications Act, 18 U.S.C. § 2702; and (5) violation of California’s Unfair
11
Competition Law (“UCL”), California Business and Professions Code § 17200.
12
II.
LEGAL STANDARDS
13
A.
Rule 12(b)(1)
14
A motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(1) raises a
15
challenge to the Court’s subject matter jurisdiction. See Fed. R. Civ. P. 12(b)(1). “Article III . . .
16
gives the federal courts jurisdiction over only cases and controversies.” Public Lands for the
17
People, Inc. v. United States Dep’t of Agric., 697 F.3d 1192, 1195 (9th Cir. 2012) (internal
18
quotation marks and citation omitted). “The oft-cited Lujan v. Defenders of Wildlife case states
19
the three requirements for Article III standing: (1) an injury in fact that (2) is fairly traceable to
20
the challenged conduct and (3) has some likelihood of redressability.” Id. at 1195-96 (citing Lujan
21
v. Defenders of Wildlife, 504 U.S. 555, 560-61 (1992)). If these requirements are not satisfied, the
22
action should be dismissed for lack of subject matter jurisdiction. See Steel Co. v. Citizens for a
23
Better Env’t, 523 U.S. 83, 109-10 (1998).
24
B.
Rule 12(b)(6)
25
“A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) for failure to state a
26
claim upon which relief can be granted ‘tests the legal sufficiency of a claim.’” Conservation
27
Force v. Salazar, 646 F.3d 1240, 1241-42 (9th Cir. 2011) (quoting Navarro v. Block, 250 F.3d
28
729, 732 (9th Cir. 2001)). When determining whether a claim has been stated, the Court accepts
3
Case5:13-cv-04080-BLF Document118 Filed04/01/15 Page4 of 18
1
as true all well-pled factual allegations and construes them in the light most favorable to the
2
plaintiff. Reese v. BP Exploration (Alaska) Inc., 643 F.3d 681, 690 (9th Cir. 2011). However, the
3
Court need not “accept as true allegations that contradict matters properly subject to judicial
4
notice” or “allegations that are merely conclusory, unwarranted deductions of fact, or
5
unreasonable inferences.” In re Gilead Scis. Sec. Litig., 536 F.3d 1049, 1055 (9th Cir. 2008)
6
(internal quotation marks and citations omitted). While a complaint need not contain detailed
7
factual allegations, it “must contain sufficient factual matter, accepted as true, to ‘state a claim to
8
relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl.
9
Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A claim is facially plausible when it “allows the
10
United States District Court
Northern District of California
11
court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id.
III.
DISCUSSION
12
A.
Subject Matter Jurisdiction
13
Svenson clearly has Article III standing to bring her two claims under the Stored
14
Communications Act. See In re Zynga Privacy Litig., 750 F.3d 1098, 1105 n.5 (9th Cir. 2014)
15
(“Because the plaintiffs allege that Facebook and Zynga are violating statutes that grant persons in
16
the plaintiffs’ position the right to judicial relief, we conclude they have standing to bring this
17
claim.”). However, “Article III standing is [ ] claim- and relief-specific, such that a plaintiff must
18
establish Article III standing for each of her claims and for each form of relief sought.” In re
19
Adobe Sys., Inc. Privacy Litig., --- F. Supp. 2d ----, 2014 WL 4379916, at *10 (N.D. Cal. Sept. 4,
20
2014). Google asserts Svenson has not established Article III standing to bring her state law
21
claims for breach of contract, breach of the implied covenant, and unfair competition.
22
Specifically, Google asserts that she has not alleged that she suffered any cognizable injury in fact
23
that is fairly traceable to Google. As discussed below, Svenson has alleged facts sufficient to state
24
a claim for breach of contract, breach of the implied covenant of good faith and fair dealing, and
25
unfair competition, meaning that she has alleged that she suffered damages (“injury in fact”)
26
resulting from Google’s breach of contract, breach of the implied covenant, and unfair competition
27
(“fairly traceable to the challenged conduct”). See Public Lands for the People, 697 F.3d at 1195-
28
96 (reciting Lujan factors).
4
Case5:13-cv-04080-BLF Document118 Filed04/01/15 Page5 of 18
1
Accordingly, the motion to dismiss for lack of Article III standing is DENIED.
2
B.
3
4
1.
Claim 1 – Breach of Contract
Claim 1 alleges breach of contract. To succeed on a breach of contract claim under
5
California law, a plaintiff must establish a contract, the plaintiff’s performance or excuse for
6
nonperformance, the defendant’s breach, and resulting damages to the plaintiff. Pyramid Tech.,
7
Inc. v. Hartford Cas. Ins. Co., 752 F.3d 807, 818 (9th Cir. 2014).
8
9
United States District Court
Northern District of California
Failure to State a Claim
Svenson alleges that Wallet transactions are governed by the Google Wallet Terms of
Service, which incorporate terms of the Google Wallet Privacy Policy, which in turn incorporates
10
terms of the Google Privacy Policy. FAC ¶ 54 and Exhs. A-C. The privacy policies governing
11
Wallet are set forth in a fairly straightforward manner in those three documents, which are
12
attached to the FAC. Id. However, Svenson does not assert claims based directly upon those
13
documents. Instead, she alleges that separate and distinct “Buyer Contracts” are created each time
14
a user with a Wallet account makes a purchase in the Play Store, and that those “Buyer Contracts”
15
incorporate the then-current version of the Google Wallet Terms of Service. See FAC ¶¶ 34-53.
16
According to Svenson, the “Buyer Contracts” are different from “Customer” contracts entered into
17
by users who merely register for a Wallet account but never make a purchase. See id.
18
Based upon the prior pleading and argument, the Court had understood there to be one
19
contract entered into when a user obtains a Wallet account. While the Court had understood
20
different contract provisions to cover different circumstances – e.g., Wallet being used to purchase
21
Apps versus Wallet lying dormant after initial registration – the Court was under the impression
22
that all those circumstances were addressed in a single contract. However, Svenson now alleges
23
expressly that a new contract is formed each and every time a user purchases an App in the Play
24
Store. See FAC ¶¶ 34-35. Google urges the Court to reject that allegation as implausible in light
25
of Svenson’s allegation in the original complaint that she agreed to the Google Wallet Terms of
26
Service when she registered for Wallet. See Defs.’ Reply at 5 n.2, ECF 95. Google relies upon
27
cases holding that when determining plausibility of allegations in an amended complaint, the
28
Court may consider contradictory allegations made in prior iterations of the complaint. See
5
Case5:13-cv-04080-BLF Document118 Filed04/01/15 Page6 of 18
1
Kennedy v. Wells Fargo Bank, N.A., No. C 11-0675 MMC, 2011 WL 3359785, at *5 (N.D. Cal.
2
Aug. 2, 2011) ; Fasugbe v. Willms, No. CIV 2:10-2320 WBS KNJ, 2011 WL 2119128, at *5 (E.D.
3
Cal. May 26, 2011); Stanislaus Food Prods. Co. v. USS-POSCO Indus., 782 F. Supp. 2d 1059,
4
1075 (E.D. Cal. 2011).
United States District Court
Northern District of California
5
Plaintiff does not dispute that some users agree to the Google Wallet Terms of Service
6
when initially registering for Wallet. However, she alleges that even after initially registering for
7
Wallet, users are required to enter into a new and separate “Buyer Contract” in order to complete
8
each subsequent App purchase. FAC ¶ 34-35. According to Svenson, a “Buyer Contract” is not
9
complete until the user making the purchase in the Play Store clicks a button that (1) indicates
10
consent to the Google Wallet Terms of Service existing at the time of the purchase and (2)
11
authorizes Google to execute the transaction. Id. ¶ 42. It is not clear from the FAC whether
12
Svenson initially registered for Wallet and then later purchased the App or whether she registered
13
for Wallet concurrently with purchasing the App. See id. ¶¶ 87-88. The Court concludes that this
14
lack of clarity makes little difference, as under Svenson’s theory even a user who already has a
15
Wallet account must enter into a new “Buyer Contract” at the time of each subsequent App
16
purchase. Thus the Court does not view Svenson’s current allegations to be irreconcilable with
17
her earlier allegations. Moreover, to the extent that Google disputes the factual accuracy of the
18
current allegations – that a separate “Buyer Contract” is created each and every time a user
19
purchases an App in the Play Store – resolution of that factual dispute is not appropriate on a
20
motion to dismiss. Nothing in this order precludes Google from challenging Svenson’s allegations
21
regarding “Buyer Contracts” in a motion for summary judgment or at another appropriate point in
22
the litigation. However, for pleading purposes, Plaintiff adequately has alleged the existence of a
23
“Buyer Contract” between herself and Google.
24
Svenson alleges that she performed her obligations under the “Buyer Contract” and that
25
Google breached the “Buyer Contract” by sharing her personal information – or “Packets
26
Contents” – with YCDroid when such sharing was not necessary to her App purchase and was not
27
otherwise authorized under the “Buyer Contract.” FAC ¶¶ 139, 149. Those allegations are
28
sufficient to satisfy the second and third elements of a contract claim. Google’s motion turns on
6
Case5:13-cv-04080-BLF Document118 Filed04/01/15 Page7 of 18
United States District Court
Northern District of California
1
the fourth element, damages resulting from the breach.
2
Benefit of the Bargain
3
The FAC articulates two theories of contract damages – benefit of the bargain and
4
diminution in value of Svenson’s personal information.1 Addressing benefit of the bargain first,
5
“[c]ontract damages compensate a plaintiff for its lost expectation interest. This is described as
6
the benefit of the bargain that full performance would have brought.” New West Charter Middle
7
School v. Los Angeles Unified School Dist., 187 Cal. App. 4th 831, 844 (2010). In Chavez v. Blue
8
Sky Natural Beverage Co., 340 Fed. Appx. 359 (9th Cir. 2009), the Ninth Circuit concluded that
9
the plaintiff had made out a benefit of the bargain damages theory where he alleged that he had
10
purchased Blue Sky soda instead of other brands based on representations that Blue Sky was a
11
New Mexico company; Blue Sky was not bottled or produced in New Mexico; he would not have
12
purchased Blue Sky had he known the truth about the product’s geographic origin; and as a result
13
he lost money because he did not receive what he had paid for. Id. at 361.
In her original complaint, Svenson alleged that a portion of the $1.77 App purchase price
14
15
compensated Google for the service of facilitating the App transaction without disclosing her
16
personal information; and that she was denied the benefit of her bargain when Google facilitated
17
the App transaction but disclosed her personal information to the third-party vendor. The Court
18
concluded that those allegations were insufficient to show contract damages, noting among other
19
things that Svenson had not alleged facts showing that any portion of the $1.77 App purchase
20
price was retained by Google, or that the $1.77 App purchase price was intended to pay for
21
anything other than the App, which Svenson received. Order of Aug. 12, 2014 at 7, ECF 83.
22
Svenson now alleges that “Defendants’ payment-processing services provided under Buyer
23
Contracts are not free: Defendants keep a percentage of the purchase price for each App purchase
24
they process.” FAC ¶ 142. She also alleges that “[t]he percentage of the App sales price
25
26
27
28
1
Plaintiff’s original complaint also alleged that Google’s conduct exposed her to increased risk of
identity theft. The Court’s prior order made clear that the Court viewed that theory of contract
damages to be untenable, see Order of Aug. 12, 2014 at 8, ECF 83, and Svenson has not repeated
that theory here in connection with her contract claim, although she does allege increased risk of
identity theft in connection with her unfair competition claim, see FAC ¶¶ 240, 243.
7
Case5:13-cv-04080-BLF Document118 Filed04/01/15 Page8 of 18
1
Defendants retained is the money Defendants earned from Plaintiff’s and Class Members’
2
purchases of Apps under the Buyer Contracts.” Id. ¶ 148.
United States District Court
Northern District of California
3
Svenson also has clarified her contract theory as follows: under the “Buyer Contract”
4
created at the time of her App purchase, the parties were to receive certain benefits: she was to
5
receive a payment processing service that would facilitate her Play Store purchase while keeping
6
her private information confidential in all but specific circumstances under which disclosure was
7
authorized; and Google was to obtain access to her personal information, which had value to
8
Google, and also was to retain a percentage of the App’s purchase price. Id. ¶¶ 142-150. Google
9
did obtain Svenson’s personal information and did retain a percentage of the purchase price of the
10
“SMS MMS to Email” App, but she did not receive the contracted-for privacy protections. Id. ¶¶
11
148, 151-52. Svenson alleges that “[t]he services Plaintiff and Class Members ultimately
12
received in exchange for Defendants’ cut of the App purchase price – payment processing, in
13
which their information was unnecessarily divulged to an unaccountable third party – were worth
14
quantifiably less than the services they agreed to accept, payment processing in which the data
15
they communicated to Defendants would only be divulged under circumstances which never
16
occurred.” Id. ¶ 151. She also alleges that “[h]ad Plaintiff known Defendants would disclose her
17
Packets Contents, she would not have purchased the ‘SMS MMS to Email’ App from
18
Defendants.” Id. ¶ 96. Svenson alleges that the App “is available from numerous other App
19
stores besides Google Play, including AppBrain and App Annie.” Id. ¶ 95. Under the rationale of
20
Chavez, discussed above, the Court concludes that Svenson has alleged facts sufficient to show
21
contract damages under a benefit of the bargain theory.
22
Diminution of Value of Personal Information
23
Svenson also alleges that Google’s conduct in making her personal information available
24
to YCDroid diminished the sales value of that personal information. FAC ¶ 125. As the Court
25
recognized in its prior order, the Ninth Circuit expressly has recognized that this type of allegation
26
may be sufficient to establish the element of damages for a breach of contract claim. See In re
27
Facebook Privacy Litig., 572 Fed. Appx. 494 (9th Cir. 2014). The Court concluded that
28
Svenson’s original complaint did not allege facts sufficient to make out this theory of contract
8
Case5:13-cv-04080-BLF Document118 Filed04/01/15 Page9 of 18
1
damages because it did not allege a market for Svenson’s personal information. Order of Aug. 12,
2
2014 at 8, ECF 83. Svenson now alleges that “[t]here is a robust market for the type of
3
information contained within the Packets Contents,” FAC ¶ 98, and that “[a]s a result of
4
Defendants’ actions, Plaintiff and the Class have been deprived of their ability to sell their own
5
personal data on the market,” Id. ¶ 157.
United States District Court
Northern District of California
6
Google asserts that more is required to allege contract damages under a diminution in value
7
theory, citing district court decisions requiring factual specificity as to how the defendant’s use of
8
the information deprived the plaintiff of the information’s economic value. See Opperman v.
9
Path, Inc., No. 13-cv-00453-JST, 2014 WL 1973378, at *23 (N.D. Cal. May 14, 2014) (“a
10
plaintiff must allege how the defendant’s use of the information deprived the plaintiff of the
11
information’s economic value”); Google, Inc. Privacy Policy Litig., No. C-12-01382-PSG, 2013
12
WL 6248499, at *5 (N.D. Cal. Dec. 3, 2013) (same); Google Android Consumer Privacy Litig.,
13
No. 11-MD-02264-JSW, 2013 WL 1283236, at *4 (N.D. Cal. Mar. 26, 2013) (“Plaintiffs also do
14
not allege they attempted to sell their personal information, that they would do so in the future, or
15
that they were foreclosed from entering into a value for value transaction relating to their PII, as a
16
result of the Google Defendants’ conduct.”). All but one of the cited decisions issued before the
17
Ninth Circuit’s May 2014 Facebook Privacy Litig. decision. Opperman, which issued six days
18
after Facebook Privacy Litig., does not cite it. The Ninth Circuit’s holding does not require the
19
type of explication discussed by the district court decisions, holding as follows:
20
23
Plaintiffs allege that the information disclosed by Facebook can be used to obtain
personal information about plaintiffs, and that they were harmed both by the
dissemination of their personal information and by losing the sales value of that
information. In the absence of any applicable contravening state law, these
allegations are sufficient to show the element of damages for their breach of
contract and fraud claims. Therefore, the district court erred in dismissing these
state law claims.
24
Facebook Privacy Litig., 572 Fed. Appx. at 494 (internal citations omitted). In light of the Ninth
25
Circuit’s ruling, this Court concludes that Svenson’s allegations of diminution in value of her
26
personal information are sufficient to show contract damages for pleading purposes.
21
22
27
Accordingly, the motion to dismiss is DENIED as to Claim 1.
28
9
Case5:13-cv-04080-BLF Document118 Filed04/01/15 Page10 of 18
1
2
Claim 2 – Breach of the Implied Covenant
Claim 2 alleges breach of the implied covenant of good faith and fair dealing. “‘The
3
implied promise [of good faith and fair dealing] requires each contracting party to refrain from
4
doing anything to injure the right of the other to receive the benefits of the agreement.’” Avidity
5
Partners, LLC v. State of Cal., 221 Cal. App. 4th 1180, 1204 (2013) (quoting Egan v. Mutual of
6
Omaha Ins. Co., 24 Cal. 3d 809, 818 (1979)). “The implied covenant of good faith and fair
7
dealing does not impose substantive terms and conditions beyond those to which the parties
8
actually agreed.” Id.
9
United States District Court
Northern District of California
2.
The Court previously dismissed Svenson’s claim for breach of the implied covenant after
10
concluding that it was duplicative of her claim for breach of contract in that it alleged no more
11
than Google’s disclosure of her personal information. See Order of Aug. 12, 2014 at 9, ECF 83.
12
In the FAC, Svenson alleges that among the benefits conferred upon her and the Class by the
13
“Buyer Contracts,” which incorporated the Google Wallet Terms of Service, were privacy
14
protections arising out of Google’s obligation not to disclose their personal information except as
15
necessary to a transaction or as otherwise specifically authorized. FAC ¶¶ 162-63. She alleges
16
further that “the Wallet Terms are standardized and non-negotiable terms that Defendants, at their
17
own discretion, interpreted to carry out the above-described privacy promises in a way that
18
resulted in the unnecessary disclosure of Plaintiff and other Class members’ Packets Contents to
19
third-party App Vendors.” Id. ¶ 164. Specifically, Plaintiff alleges that “while Defendants may
20
share personal information with third parties if ‘necessary to process the user’s transaction and
21
maintain the user’s account,’ that provision is not reasonably interpreted to allow blanket,
22
universal disclosure of any or all of the Packets Contents to third-party App Vendors” in
23
connection with every App purchase in the Play Store. FAC ¶ 165 (emphasis added). Svenson
24
alleges that “[t]he agreed common purpose of the Wallet Terms was for Buyers to be able to
25
privately purchase Apps from App Vendors,” and that Google exercised its discretion under the
26
Wallet Terms of Service in a way that frustrated that purpose. See id. ¶¶ 165, 168, 170. The Court
27
concludes that this theory and these allegations are sufficient to state a claim for breach of the
28
implied covenant of good faith and fair dealing.
10
Case5:13-cv-04080-BLF Document118 Filed04/01/15 Page11 of 18
1
Google points out, correctly, that Svenson’s implied covenant claim also contains
2
allegations that Google did not inform users that their personal information would be shared with
3
App vendors in connection with every transaction, see FAC ¶¶ 167, 169, and that the alleged
4
failure to inform is insufficient to state a claim for breach of the implied covenant absent an
5
allegation that Google had a duty to inform. At the hearing, the Court engaged in a colloquy with
6
counsel as to whether it would make sense to go through another round of amendment and –
7
presumably – motion practice, or whether the allegations in the FAC were sufficient to move
8
forward on the implied covenant claim. Viewing the claim as a whole, the Court concludes that
9
Svenson does allege a viable claim for breach of the implied covenant despite her stray, non-
10
United States District Court
Northern District of California
11
12
13
actionable allegations regarding Google’s failure to disclose.
Accordingly, the motion to dismiss is DENIED as to Claim 2.
3.
Claim 3 – Violation of SCA § 2701
Claim 3 alleges that disclosure of Svenson’s personal information violated § 2701 of the
14
Stored Communications Act (“SCA”), 18 U.S.C. § 2701. The Court previously dismissed Claim 3
15
without leave to amend. See Order of Aug. 12, 2014 at 11, ECF 83. Svenson acknowledges the
16
Court’s prior order and makes clear that she has included Claim 3 in her FAC to preserve her
17
appeal rights. Thus no substantive discussion of Claim 3 is required here.
18
19
20
21
22
23
24
25
26
27
28
The motion to dismiss is GRANTED WITHOUT LEAVE TO AMEND as to Claim 3.
4.
Claim 4 – Violation of SCA § 2702
Claim 4 alleges that disclosure of Svenson’s personal information violated § 2702 of the
SCA, which creates a private right of action for violation of the following provisions:
(a) Prohibitions. – Except as provided in subsection (b) or (c) –
(1) a person or entity providing an electronic communication service to the
public shall not knowingly divulge to any person or entity the contents of a
communication while in electronic storage by that service; and
(2) a person or entity providing remote computing service to the public shall not
knowingly divulge to any person or entity the contents of any communication
which is carried or maintained on that service –
(A) on behalf of, and received by means of electronic transmission from (or
created by means of computer processing of communications received by
means of electronic transmission from), a subscriber or customer of such
11
Case5:13-cv-04080-BLF Document118 Filed04/01/15 Page12 of 18
1
2
3
4
5
6
7
8
United States District Court
Northern District of California
9
service;
(B) solely for the purpose of providing storage or computer processing
services to such subscriber or customer, if the provider is not authorized to
access the contents of any such communications for purposes of providing
any services other than storage or computer processing; and
(3) a provider of remote computing service or electronic communication service
to the public shall not knowingly divulge a record or other information
pertaining to a subscriber to or customer of such service (not including the
contents of communications covered by paragraph (1) or (2)) to any
governmental entity.
18 U.S.C. § 2702(a) (emphasis added); see id. § 2707(a) (creating a private right of action).
While a provider described in subsection (a) may not disclose the “contents of a
communication,” such provider may divulge “a record or other information” regarding a
10
subscriber or customer to “any person other than a governmental entity” and to governmental
11
entities under certain circumstances. 18 U.S.C. § 2702(c) (emphasis added).
12
Google’s motion does not challenge Google’s status as an entity “providing an electronic
13
communication service” and/or “providing remote computing service” within the meaning of §
14
2702(a). The question presented by this motion is whether the “Packets Contents” Google sent
15
YCDroid was “contents of a communication” or “a record or other information”; if the former,
16
Svenson has made out a claim under § 2702(a), but if the latter she has not.
17
In its prior order, the Court discussed at length the available case law on the issue of
18
“record information” versus “contents of a communication.” See Order of Aug. 12, 2014 at 11-15,
19
ECF 83. In Zynga, the Ninth Circuit defined “contents of a communication” as “any information
20
concerning the substance, purport, or meaning of that communication.” Zynga, 750 F.3d at 1105
21
(citing 18 U.S.C. § 2510(8)); see also id. at 1104 (noting that the SCA incorporates the Wiretap
22
Act’s definition of “contents”). The Ninth Circuit explained that “the term ‘contents’ refers to the
23
intended message conveyed by the communication, and does not include record information
24
regarding the characteristics of the message that is generated in the course of the communication.”
25
Id. at 1106. The Ninth Circuit has recognized that record information generally includes “the
26
name, address, or client ID number of the entity’s customers.” Id. at 1104.
27
28
In Zynga, the plaintiffs claimed that when users clicked on certain ads or icons on a
Facebook webpage, the web browser sent a request to access the resource identified by the link
12
Case5:13-cv-04080-BLF Document118 Filed04/01/15 Page13 of 18
1
and also sent a “referer header” comprising the user’s Facebook ID and the address of the
2
Facebook webpage the user was viewing when the user clicked the link. Zynga, 750 F.3d at 1101-
3
02. The plaintiffs alleged that the referer header constituted contents of a communication such
4
that its transmission to third parties violated § 2702(a). The Ninth Circuit held that the referer
5
header did not meet the definition of “contents.” Id. at 1107. Equating the Facebook ID with a
6
user’s “name” or “subscriber number or identity,” and equating the webpage address with a user’s
7
“address,” the Ninth Circuit held that “these pieces of information are not the ‘substance, purport,
8
or meaning’ of a communication.” Id.
United States District Court
Northern District of California
9
The Ninth Circuit distinguished In re Pharmatrak, 329 F.3d 9 (1st Cir. 2003), a Wiretap
10
Act case in which the defendants allegedly intercepted the contents of electronic communications,
11
specifically, information that individuals provided to online pharmaceutical websites. That
12
information included the individuals’ “names, addresses, telephone numbers, email addresses,
13
dates of birth, genders, insurance statuses, education levels, occupations, medical conditions,
14
medications, and reasons for visiting the particular website.” Id. at 15. It was undisputed that the
15
information constituted “contents” of a communication under the circumstances of the case; the
16
arguments focused on whether the “interception” element of the Wiretap Act claim was satisfied
17
and whether the consent exception applied. Id. at 18. The Ninth Circuit opined in Zynga that the
18
information in Pharmatrak properly was characterized as contents of a communication “[b]ecause
19
the users had communicated with the website by entering their personal medical information into
20
a form provided by a website.” Zynga, 750 F.3d at 1107 (emphasis added). The Ninth Circuit
21
distinguished the case before it by noting that the Zynga defendants did not divulge a user’s
22
communications to a website but allegedly “divulged identification and address information
23
contained in a referrer header automatically generated by the web browser.” Id.
24
Although Zynga distinguished Pharmatrak in part on the basis that the referrer header at
25
issue in Zynga was automatically generated, this Court does not read Zynga so narrowly to mean
26
that only automatically generated data may constitute record information. The Court reads Zynga
27
and cases in this district to define “record information” as including a user’s name, email address,
28
account name, mailing address, and the like. See Zynga at 1104 (recognizing that record
13
Case5:13-cv-04080-BLF Document118 Filed04/01/15 Page14 of 18
1
information generally includes “the name, address, or client ID number of the entity’s
2
customers”); Chevron Corp. v. Donziger, No. 12-mc-80237 CRB (NC), 2013 WL 4536808, at *6
3
(N.D. Cal. Aug. 22, 2013) (characterizing information associated with the creation of an email
4
address, including names, mailing addresses, phone numbers, billing information, and date of
5
account creation, as “record or other information” and not “contents” of a communication);
6
Obodai v. Indeed, Inc., No. 13-80027-MISC EMC (KAW), 2013 WL 1191267, at *3 (N.D. Cal.
7
Mar. 21, 2013) (holding that no “content” of communications was implicated by a subpoena
8
seeking “subscriber information” provided when a user creates a Gmail account, such as phone
9
numbers and alternative email addresses). To hold that such information constitutes contents of a
10
United States District Court
Northern District of California
11
communication unless it was automatically generated would read § 2702(c) out of the statue.
This Court previously dismissed Claim 4 after concluding that the personal information
12
described in the original complaint – “the user’s name, email address, Google account name, home
13
city and state, zip code, and in some instances telephone number,” Compl. ¶ 49, ECF 5-1 –
14
constituted “record information” rather than “contents of a communication.” See Order of Aug.
15
12, 2014 at 11-15, ECF 83. Because the § 2702 claim had not previously been challenged by
16
motion or addressed by the Court, Svenson was granted an opportunity to amend. Id. at 15.
17
However, the Court cautioned that “[g]iven the analysis set forth herein, Plaintiff must consider
18
whether she can allege additional facts that would demonstrate that the alleged disclosure was
19
more than record information.” Id. Google argues, and the Court agrees, that Svenson has not
20
alleged such facts.
21
The “Packets Contents” described in the FAC are alleged to include “personal information
22
about Buyers, including credit card information, purchase authorization, addresses, zip codes,
23
names, phone numbers, email addresses, and/or other information.” FAC ¶ 10. Despite the
24
inclusion in this definition of the term “credit card information,” however, it does not appear that
25
App vendors are given access to user’s credit card numbers. See FAC ¶ 74 (alleging that third
26
party App vendors are given access to “the respective Buyer’s identity, address, city, zip code,
27
email address, or telephone number”). Svenson’s opposition concedes that credit card information
28
is not actually provided to App vendors. See Pls.’ Opp. at 15 n.14, ECF 94. Accordingly, the
14
Case5:13-cv-04080-BLF Document118 Filed04/01/15 Page15 of 18
1
“Packets Contents” are not materially different from the personal information alleged to have been
2
disclosed in the original complaint. Compare Compl. ¶ 49, ECF 5-1, with FAC ¶¶ 10, 74, ECF 84.
3
Svenson’s opposition to Google’s motion relies largely upon same cases discussed by the Court in
4
its prior order. See, e.g., Zynga, 750 F.3d 1098; Pharmatrak, 329 F.3d 9; Yunker v. Pandora
5
Media, Inc., No. 11-cv-03113 JSW, 2013 WL 1282980 (N.D. Cal. Mar. 26, 2013). Because none
6
of Svenson’s factual allegations or legal arguments are materially different from those considered
7
and rejected by the Court previously2, the Court declines to reconsider its prior ruling.
Accordingly, the motion to dismiss is GRANTED WITHOUT LEAVE TO AMEND as to
8
9
Claim 4.
5.
10
Claim 5 asserts a violation of California Business & Professions Code § 17200. In order to
11
United States District Court
Northern District of California
Claim 5 – Violation of California’s UCL
12
state a claim for relief under that provision, Plaintiff must allege facts showing that Defendants
13
engaged in an “unlawful, unfair or fraudulent business act or practice.” Cal. Bus. & Prof. Code §
14
17200. “Because the statute is written in the disjunctive, it is violated where a defendant’s act or
15
practice violates any of the foregoing prongs.” Davis v. HSBC Bank Nevada, N.A., 691 F.3d 1152,
16
1168 (9th Cir. 2012). In addition to identifying a practice under one of the above prongs, a
17
plaintiff must allege that he or she has suffered (1) economic injury (2) as a result of the practice.
18
See Kwikset Corp. v. Sup.Ct., 51 Cal. 4th 310, 323 (2011). Specifically, the plaintiff must allege
19
that he or she “suffered injury in fact and has lost money or property as a result of the unfair
20
competition.” Cal. Bus. & Prof. Code § 17204.
The Court previously dismissed Svenson’s UCL claim for failing to allege economic injury
21
22
arising from the challenged business practice as required by Kwikset. See Order of Aug. 12, 2014
23
at 16, ECF 83. In particular, the Court concluded that “Plaintiff alleges that she purchased an App
24
for $1.77 and received that App,” and that she had “not alleged facts showing that she suffered any
25
26
27
28
2
Svenson does advance one new legal argument, that the Court is charged with the “interpretive
duty” to find the interpretation of § 2702 that is most harmonious with its purpose of prohibiting
disclosure of the contents of electronic communications. See Pl.’s Opp. at 15, ECF at 15. This
argument does not advance Svenson’s position, as she has failed to allege facts showing that the
personal information at issue is “contents of a communication” rather than “record information.”
15
Case5:13-cv-04080-BLF Document118 Filed04/01/15 Page16 of 18
1
damages resulting from that transaction.” Id. Google contends that Svenson has not cured this
2
defect. However, as discussed above in connection with the contract claim, Svenson now alleges
3
that “Defendants’ payment-processing services provided under Buyer Contracts are not free:
4
Defendants keep a percentage of the purchase price for each App purchase they process.” FAC ¶
5
142. She also alleges that “[t]he percentage of the App sales price Defendants retained is the
6
money Defendants earned from Plaintiff’s and Class Members’ purchases of Apps under the
7
Buyer Contracts.” Id. ¶ 148. Svenson thus alleges that she paid Google for services that she did
8
not receive as a result of Google’s unlawful and unfair business practices, establishing economic
9
injury.
United States District Court
Northern District of California
10
The Court did not previously consider whether Svenson had alleged facts sufficient to meet
11
the other pleading requirements for UCL claims. Svenson asserts claims under the unlawful and
12
unfair prongs. With respect to the former, “[b]y proscribing any unlawful business practice,
13
section 17200 borrows violations of other laws and treats them as unlawful practices that the
14
unfair competition law makes independently actionable.” Chabner v. United of Omaha Life Ins.
15
Co., 225 F.3d 1042, 1048 (9th Cir. 2000) (internal quotation marks and citation omitted). Svenson
16
relies upon alleged violations of the SCA, which are insufficient for the reasons discussed in
17
connection with Claims 3 and 4, above. However, she also relies upon alleged violations of
18
California Business and Professions Code § 22576, which prohibits an operator of a commercial
19
web site or online service from failing to comply with its own privacy policies. Id. ¶¶ 222-223.
20
Svenson’s allegations regarding Google’s policy of disclosing personal information in connection
21
with all App purchases, in violation of its own privacy policies, thus are sufficient to state a claim
22
under the unlawful prong. See id. ¶¶ 223-224.
23
With respect to the unfair prong, “the UCL does not define the term ‘unfair’ as used in
24
Business and Professions Code section 17200.” Durell v. Sharp Healthcare, 183 Cal. App. 4th
25
1350, 1364 (2010). Nor has the California Supreme Court established a definitive test to
26
determine whether a business practice is unfair. Phipps v. Wells Fargo Bank, N.A., No. CV F 10–
27
2025 LJO SKO, 2011 WL 302803, at *16 (E.D. Cal. Jan. 27, 2011). Three lines of authority have
28
developed among the California Courts of Appeal. In the first line, the test requires “that the
16
United States District Court
Northern District of California
Case5:13-cv-04080-BLF Document118 Filed04/01/15 Page17 of 18
1
public policy which is a predicate to a consumer unfair competition action under the unfair prong
2
of the UCL must be tethered to specific constitutional, statutory, or regulatory provisions.” Drum
3
v. San Fernando Valley Bar Ass’n, 182 Cal. App. 4th 247, 257 (2010) (internal quotation marks
4
and citation omitted). A second line of cases applies a test to determine whether the identified
5
business practice is “immoral, unethical, oppressive, unscrupulous or substantially injurious to
6
consumers and requires the court to weigh the utility of the defendant’s conduct against the gravity
7
of the harm to the alleged victim.” Id. (internal quotation marks and citation omitted). The third
8
test draws on the definition of “unfair” from antitrust law and requires that “(1) the consumer
9
injury must be substantial; (2) the injury must not be outweighed by any countervailing benefits to
10
consumers or competition; and (3) it must be an injury that consumers themselves could not
11
reasonably have avoided.” Id. (internal quotation marks and citation omitted). Svenson alleges
12
that Google’s alleged practice of disclosing personal information in connection with all App
13
purchases is “oppressive, immoral, unethical, and unscrupulous,” and that it effects substantial
14
consumer injury that is “not outweighed by any countervailing benefit to consumers or to
15
competition.” FAC ¶¶ 225, 229. The details of Google’s alleged practice of violating its privacy
16
policies, and the resulting injuries to Svenson and the Class arising from such practice, are
17
discussed in detail above and need not be set forth again here. See id. ¶¶ 225-244. The Court
18
concludes that Svenson has made out a UCL claim under the unfair prong as well as under the
19
unlawful prong.
20
Google argues that Svenson’s UCL claim is governed by the standards applicable to the
21
fraudulent prong even though she specifically confines her allegations to the unlawful and unfair
22
prongs. “[A] consumer’s burden of pleading causation in a UCL action should hinge on the nature
23
of the alleged wrongdoing rather than the specific prong of the UCL the consumer invokes.”
24
Durell, 183 Cal. App. 4th at 1363. Thus a claim that is based upon alleged misrepresentation and
25
deception requires an allegation of actual reliance even if brought under the unlawful or unfair
26
prongs rather than the fraudulent prong. Kearns v. Ford Motor Co., 567 F.3d 1120, 1125 (9th Cir.
27
2009) (fraud requirements may apply to claim brought under unfair prong); Durell, 183 Cal. App.
28
4th at 1363 (reliance requirement may apply to claim brought under unlawful prong). According
17
United States District Court
Northern District of California
Case5:13-cv-04080-BLF Document118 Filed04/01/15 Page18 of 18
1
to Google, the thrust of the UCL claim is that Google misrepresented its practices with respect to
2
disclosure of user information. Thus, Google asserts, Svenson must allege reliance upon those
3
misrepresentations in order to state a claim. Svenson does not allege that she read or relied upon
4
the Google Wallet Terms of Service or the privacy provisions contained therein.
5
The Court is not persuaded by Google’s characterization of Svenson’s UCL claim. Her
6
unlawful prong claim alleges in a straightforward manner that Google violated its own privacy
7
policies in violation of California Business and Professions Code § 22576. No reliance is required
8
for a violation of § 22576. With respect to the unfair prong, Svenson does not alleged that she
9
entered into the “Buyer Contract” in reliance upon misrepresentations regarding the privacy
10
protections contained therein. She alleges that that privacy protections were contract benefits to
11
which she was entitled and that Google’s practice of making “blanket, universal disclosure of any
12
or all of the Packets Contents to third-party App Vendors” in connection with every App purchase
13
in the Play Store deprived her (and the Class) of any opportunity to receive those benefits. FAC
14
¶¶ 163-65. “[A] breach of contract may . . . form the predicate for Section 17200 claims, provided
15
it also constitutes conduct that is unlawful, or unfair, or fraudulent.” Puentes v. Wells Fargo
16
Home Mortg., Inc., 160 Cal. App. 4th 638, 645 (2008) (internal quotation marks and citation
17
omitted) (alterations in original). Svenson’s allegation that Google had a policy that by its very
18
nature frustrated “[t]he agreed common purpose of the Wallet Terms [ ] for Buyers to be able to
19
privately purchase Apps from App Vendors,” FAC ¶ 168, is sufficient to take her claim beyond
20
mere breach of contract and into the realm of unfair competition prohibited by the UCL.
Based upon the foregoing, the motion to dismiss is DENIED as to Claim 5.
21
22
IV.
ORDER
23
(1)
Defendants’ Motion to Dismiss for lack of Article III standing is DENIED;
24
(2)
Defendants’ Motion to Dismiss for failure to state a claim is GRANTED as to
Claims 3 and 4 without leave to amend and DENIED as to Claims 1, 2, and 5; and
25
26
27
28
(3)
Defendants shall file an answer on or before April 16, 2015.
Dated: April 1, 2015
______________________________________
BETH LABSON FREEMAN
United States District Judge
18
Case5:14-cv-04531-PSG Document33 Filed04/14/15 Page1 of 21
1
2
3
4
5
6
UNITED STATES DISTRICT COURT
7
NORTHERN DISTRICT OF CALIFORNIA
8
SAN JOSE DIVISION
United States District Court
For the Northern District of California
9
10
11
TRACEE SWEET, et. al.,
12
Plaintiffs,
13
14
v.
LINKEDIN CORPORATION,
15
Defendant.
16
17
18
19
)
)
)
)
)
)
)
)
)
)
Case No. 5:14-cv-04531-PSG
ORDER GRANTING MOTION TO
DISMISS
(Re: Docket No. 18)
Tracee Sweet wanted to work in the hospitality industry. 1 After submitting her resume to a
potential employer through LinkedIn, she was invited to an interview. 2 Sweet thought things went
well, especially when she later got word that she would be hired. 3 But soon thereafter, the
company called her back and said it had changed its mind. 4 Sweet did not get the job. 5
20
21
22
23
1
See Docket No. 1 at ¶ 52.
24
2
See id. at ¶¶ 52-55.
25
3
See id. at ¶ 56.
26
4
See id. at ¶ 57.
27
5
See id.
28
1
Case No.: 5:14-cv-04531-PSG
ORDER GRANTING MOTION TO DISMISS
Case5:14-cv-04531-PSG Document33 Filed04/14/15 Page2 of 21
1
When Sweet asked why she was first told she had the job and then was told the opposite,
2
the general manager told her what happened. 6 The company had checked some references and,
3
based on those references, changed its mind. 7 What Sweet did not learn until later was that these
4
references may have been the result of LinkedIn’s “References Searches” function. 8 Using
5
Reference Searches, employers can find people with whom an applicant may have worked
6
previously. 9
Each Plaintiff had a similar experience. 10 Believing that Reference Searches cost them
United States District Court
For the Northern District of California
7
8
jobs, they filed suit against Defendant LinkedIn Corporation, alleging that the function violated
9
their rights under the Fair Credit Reporting Act. 11 Because Plaintiffs have not alleged sufficient
10
facts to support a plausible FCRA claim, their claims must be dismissed.
11
I.
12
“The purpose of the Fair Credit Reporting Act, 15 U.S.C. § 1681 et seq., is to protect
13
consumers from the transmission of inaccurate information about them.” 12 In enacting the FCRA,
14
Congress found that “[t]here is a need to insure that consumer reporting agencies exercise their
15
grave responsibilities with fairness, impartiality, and a respect for the consumer’s right to
16
privacy.” 13 To fulfill this need, the FCRA requires consumer reporting agencies to “adopt
17
reasonable procedures for meeting the needs of commerce for consumer credit, personnel,
18
19
20
6
See id. at ¶ 58.
21
7
See id.
22
8
See id. at ¶¶ 47-49.
23
9
See id. at ¶¶ 33-35.
24
10
See id. at ¶¶ 49-50, 59-69.
25
11
See id. at ¶ 3.
26
12
Kates v. Croker National Bank, 776 F.2d 1396, 1397 (9th Cir. 1985).
27
13
15 U.S.C. § 1681(a)(4).
28
2
Case No.: 5:14-cv-04531-PSG
ORDER GRANTING MOTION TO DISMISS
Case5:14-cv-04531-PSG Document33 Filed04/14/15 Page3 of 21
1
insurance, and other information in a manner which is fair and equitable to the consumer, with
2
regard to the confidentiality, accuracy, relevancy and proper utilization of such information.” 14
3
4
Various sections of the FCRA apply only to “consumer reporting agencies” which provide
“consumer reports.” 15 The FCRA defines “a consumer report” as:
5
[A]ny written, oral or other communication of any information by a consumer reporting
agency bearing on a consumer’s credit worthiness, credit standing, credit capacity,
character, general reputation, personal characteristics, or mode of living which is used or
expected to be used or collected in whole or in part for the purpose of serving as a factor in
establishing the consumer’s eligibility for. . .
6
7
8
(B) employment purposes; or
United States District Court
For the Northern District of California
9
10
(C) any other purpose authorized under section 1681b of this title. 16
11
LinkedIn “operates an online professional network called LinkedIn, through which the
12
company’s subscribers are able to create, manage and share their professional identities online.” 17
13
LinkedIn allows anyone to become a LinkedIn member by signing up and “creat[ing] her/his own
14
professional profile, complete with a listing of professional experience and educational
15
background, among other things.” 18 Once a person has created a profile on LinkedIn, he or she can
16
17
18
19
20
21
22
23
24
14
15 U.S.C. § 1681(b).
15
See 15 U.S.C. § 1681b(b)(1) (“A consumer reporting agency may furnish a consumer
report for employment purposes only if the person who obtains such report from the agency
certifies . . .”) (emphasis added); 15 U.S.C. § 1681e(a) (Every consumer reporting agency shall
maintain reasonable procedures designed . . . to limit the furnishing of consumer reports . . .”)
(emphasis added); 15 U.S.C. § 1681e(b) (“Whenever a consumer reporting agency prepares a
consumer report…) (emphasis added); 15 U.S.C. § 1681e(d) (“A consumer reporting agency shall
provide to any person . . . to whom a consumer report is provided by the agency . . .”) (emphasis
added); 15 U.S.C. § 1681b(a)(3) (“[A]ny consumer reporting agency may furnish a consumer
report under the following circumstances and no other . . . (3) to a person which it has reason to
believe [has a permissible purpose for use of a consumer report]”) (emphasis added).
25
16
15 U.S.C. § 1681a(d)(1).
26
17
Docket No. 1 at ¶ 1.
27
18
Id. at ¶ 20.
28
3
Case No.: 5:14-cv-04531-PSG
ORDER GRANTING MOTION TO DISMISS
Case5:14-cv-04531-PSG Document33 Filed04/14/15 Page4 of 21
1
create “connections” by inviting other LinkedIn members such as “colleagues, business contacts,
2
friends or classmates” to join the member’s network. 19
3
Each time a registered LinkedIn user adds information to her LinkedIn profile page, this
4
information is added to LinkedIn’s professional database. 20 “Through this process, LinkedIn
5
assembles, aggregates, and publishes information” relating to consumers’ employment histories,
6
“co-workers, contacts, educational background, honors and awards, among other things.” 21
United States District Court
For the Northern District of California
7
LinkedIn also offers “proprietary search technology” that allows LinkedIn users to search
8
this consumer data. 22 LinkedIn’s Reference Search feature is part of this search functionality. 23
9
The Reference Search feature allows users who pay a subscription fee to search for “references” for
10
any LinkedIn member. 24 When a LinkedIn user runs a Reference Search on a particular LinkedIn
11
member, the Reference Search results provide the user with two different categories of
12
information.
13
14
15
16
17
18
19
20
21
First, the Reference Search results list the name of the LinkedIn member who is the subject
of the search and names of his or her current and former employers: 25
19
Id. at ¶ 22.
20
See id. at ¶ 21.
21
Id. at ¶ 25.
22
Id. at ¶ 31.
23
See id. at ¶ 32. Plaintiffs call the results that this feature generates “Reference Reports.” See id. at
¶ 35. Because the copy of the results of a sample Reference Search attached as an exhibit to
Plaintiffs’ complaint indicates that this feature is actually called a “Reference Search,” the court
will refer to the results this feature generates as “Reference Search results.” See id. at Ex. A.
22
24
23
25
24
25
26
27
28
See id. at ¶ 32.
See Docket No. 1, Ex. A. The following two graphics come from LinkedIn’s motion to dismiss.
These graphics are excerpts of portions of the Reference Search results attached as Exhibit A to
Plaintiffs’ complaint with annotations LinkedIn added to clarify the subject matter of text which
Plaintiffs had redacted. See Docket No. 18 at 3; see also Docket No. 18-2 at ¶ 2.
The court may take judicial notice of a “fact that is not subject to reasonable dispute” because it “is
generally known” or “can be accurately and readily determined from sources whose accuracy
cannot reasonably be questioned.” Fed. R. Evid. 201(b). A court must consider documents which
plaintiffs incorporate by reference in their complaints in ruling on a motion to dismiss. See Tellabs,
4
Case No.: 5:14-cv-04531-PSG
ORDER GRANTING MOTION TO DISMISS
Case5:14-cv-04531-PSG Document33 Filed04/14/15 Page5 of 21
1
2
3
4
Second, the Reference Search results provide a list of LinkedIn members who are in the
United States District Court
For the Northern District of California
5
6
same network as the search initiator and who may “have worked at the same company during the
7
same time period as the member [the search initiator] would like to learn more about.” 26 The
8
Reference Search results include for “each purported reference, the name of the employer in
9
common between the reference and the job applicant, and the reference’s position and years
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
employed at that common employer:” 27
Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322 (2007) (“[C]ourts must consider the
complaint in its entirely, as well as other sources courts ordinarily examine when ruling on Rule
12(b)(6) motions to dismiss, in particular, documents incorporated into the complaint by reference,
and matters of which a court may take judicial notice.”). Under the doctrine of incorporation by
reference, a court can also “consider documents in situations where the complaint necessarily relies
upon a document or the contents of the document are alleged in a complaint, the document’s
authenticity is not in question and there are no disputed issues as to the document’s relevance.” See
Coto Settlement v. Eisenberg, 593 F.3d 1031, 1038 (9th Cir. 2010) (internal citations omitted); see
also Swartz v. KPMG LLP, 476 F.3d 756, 763 (9th Cir. 2007).
The authenticity of the graphics included in LinkedIn’s motion to dismiss is not in question since
the graphics reflect excerpts from Exhibit A to Plaintiffs’ complaint and since Plaintiffs do not
contest the accuracy of LinkedIn’s annotations of the redacted text. See Docket No. 18-2 at ¶ 2.
There are also no disputed issues as to these figures’ relevance since Plaintiffs rely on the
Reference Search results in their complaint. The court therefore considers these graphics in ruling
on the motion to dismiss.
The Reference Search results also include icons next to the names of the listed references as well as
a hyperlinked phrase stating “What do these icons mean?” See Docket No. 1 at Ex. A. Plaintiffs
request that the court take judicial notice of a copy of the webpage that corresponds to this
hyperlinked phrase. See Docket No. 19 at 1-2; see also Docket No. 18-2 at ¶ 3, Docket No. 18-3.
Because the authority of this document is not in question and because there are no disputed issues
as to its relevance since Plaintiffs rely on the sample Reference Search results in their complaint,
the court takes judicial notice of the entire document, including the document to which the
Reference Search results are linked, as requested.
26
26
See Docket No. 1 at ¶¶ 33-35; see also Docket No. 1, Ex. A.
27
27
See id. at ¶¶ 35-36.
28
5
Case No.: 5:14-cv-04531-PSG
ORDER GRANTING MOTION TO DISMISS
Case5:14-cv-04531-PSG Document33 Filed04/14/15 Page6 of 21
1
2
3
4
5
6
7
LinkedIn markets Reference Searches as a way for potential employers to find “Trusted
8
United States District Court
For the Northern District of California
9
10
11
12
13
References for Job Candidates,” to “[g]et the real story on any candidate” and to “[f]ind references
who can give real, honest feedback” about job candidates. 28 The Reference Search results
encourage the search initiator to contact the listed references through an “Introduction” that
LinkedIn claims allows the initiator to “contact the users in [his or her] network through the people
[he or she] knows:” 29
14
15
16
17
LinkedIn does not tell the subjects of Reference Searches when users run searches on them. 30
18
Plaintiffs are consumers who allege that LinkedIn violated their rights under the FCRA by
19
furnishing Reference Search results for employment purposes. 31
20
Plaintiff Tracee Sweet alleges she submitted her resume through LinkedIn for a job in the
21
hospitality industry. 32 After she interviewed with the company’s general manager, the potential
22
23
28
24
29
25
26
See id. at ¶ 37. The graphic that follows is an excerpt from Exhibit A to Plaintiffs’ complaint.
See id. at Ex. A.
30
See id. at ¶¶ 40, 41, 51.
31
See id. at ¶ 47-50.
32
See id. at 7, 52.
27
28
See Docket No. 1 at ¶¶ 34, 44.
6
Case No.: 5:14-cv-04531-PSG
ORDER GRANTING MOTION TO DISMISS
Case5:14-cv-04531-PSG Document33 Filed04/14/15 Page7 of 21
1
employer advised Sweet that she was going to be hired for the position. 33 However, soon
2
thereafter, the company called her back and said that Sweet would not be hired. 34 When Sweet
3
asked why the company had changed its mind, the company told Sweet that “the company had
4
checked some references for Plaintiff Sweet and, based on those references, had changed its
5
mind.” 35
United States District Court
For the Northern District of California
6
Plaintiff James Ralston alleges that a third-party recruiter connected with him on LinkedIn
7
and, told him that she would submit his resume to two potential employers. 36 The recruiter also
8
advised him to apply to one of these potential employers online and told him that she expected that
9
the potential employer would interview him. 37 Ralston did so, but was later told that the potential
10
employer decided not to interview him. 38
11
Plaintiff Lisa Jaramillo alleges that an in-house recruiter for a company contacted her about
12
a potential job opening at the recruiter’s company and Jaramillo expressed her interest in the
13
position. 39 Another in-house recruiter for the same company connected with her on LinkedIn. 40
14
The company ultimately lost interest. 41
15
16
Plaintiff Tiffany Thomas alleges that she applied for a job in the transportation industry
through a LinkedIn job posting. 42 She then received a notification that a purchasing manager from
17
18
33
See id. at ¶¶ 53-56.
19
34
See id. at ¶ 57.
20
35
Id. at ¶ 58.
21
36
See id. at ¶¶ 9, 59-60.
22
37
See id. at ¶ 61.
23
38
See id. at ¶ 62.
24
39
See id. at ¶¶ 8, 63-64.
25
40
See id. at ¶ 65.
26
41
See id. at ¶ 66.
27
42
See id. at ¶ 10, 67.
28
7
Case No.: 5:14-cv-04531-PSG
ORDER GRANTING MOTION TO DISMISS
Case5:14-cv-04531-PSG Document33 Filed04/14/15 Page8 of 21
1
the potential employer had viewed her LinkedIn profile. 43 She interviewed with this individual and
2
had not received word as to whether the company will hire her by the time Plaintiffs filed their
3
complaint. 44
4
Plaintiffs assert five claims under the FCRA, alleging that LinkedIn has violated 15 U.S.C.
5
§§ 1681b(b), 1681e(a), 1681e(b), 1681e(d) and 1681b. 45 Plaintiffs seek certification of a class
6
under Fed. R. Civ. P. 23, statutory damages, actual damages, punitive damages, attorney’s fees and
7
costs. 46 LinkedIn now moves to dismiss Plaintiffs’ complaint for failure to state a claim. 47
8
II.
United States District Court
For the Northern District of California
9
This court has jurisdiction under 28 U.S.C. § 1331. The parties further consented to the
10
jurisdiction of the undersigned magistrate judge under 28 U.S.C. § 636(c) and Fed. R. Civ. P.
11
72(a).
12
Fed. R. Civ. P. 12(b)(6) provides that the plaintiff must allege “enough facts to state a claim
13
to relief that is plausible on its face.” 48 A plaintiff must allege facts that add up to “more than a
14
sheer possibility” that the defendant acted unlawfully. 49 While a “heightened fact pleading of
15
specifics” is not required, the plaintiff must still allege facts sufficient to “raise a right to relief
16
above the speculative level.” 50 “A pleading that offers ‘labels and conclusions’ or ‘a formulaic
17
recitation of the elements of a cause of action will not do.’” 51 “Nor does a complaint suffice if it
18
43
See id. at ¶ 68.
19
44
See id. at ¶ 69.
20
45
See id. at ¶¶ 77-116.
21
46
22
See id. at 12-14, 20-21. Plaintiffs seek to certify a class of “[a]ll persons in the United States in
the two years prior to the filing of [their complaint] who have had a Reference Search run on them
that was initiated through LinkedIn’s ‘search for references’ functionality.” See id. at ¶ 70.
23
47
See Docket No. 18.
24
48
Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007).
25
49
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).
50
Twombly, 550 U.S. at 555, 570.
26
27
28
51
Iqbal, 556 U.S. at 678 (citing Twombly, 550 U.S. at 555).
8
Case No.: 5:14-cv-04531-PSG
ORDER GRANTING MOTION TO DISMISS
Case5:14-cv-04531-PSG Document33 Filed04/14/15 Page9 of 21
1
tenders ‘naked assertion[s]’ devoid of ‘further factual enhancement.’” 52 In reviewing a Rule
2
12(b)(6) motion, a court must accept as true all facts alleged in the complaint and draw all
3
reasonable inferences in favor of the plaintiff. 53 A court is not required to accept as true
4
“allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable
5
inferences.” 54
6
III.
United States District Court
For the Northern District of California
7
At issue is whether Plaintiffs have alleged sufficient facts to support a plausible inference
8
that the Reference Searches are within the FRCA’s definition of a consumer report. Because
9
Plaintiffs falls short of this requirement, the court grants LinkedIn’s motion.
10
First, LinkedIn’s publications of employment histories of the consumers who are the
11
subjects of the Reference Searches are not consumer reports because the information contained in
12
these histories came solely from LinkedIn’s transactions or experiences with these same
13
consumers. The FCPA excludes from the definition of consumer report any “report containing
14
information solely as to transactions or experiences between the consumer and the person making
15
the report.” 55
16
In particular, Plaintiffs allege that LinkedIn “operates an online professional network . . .
17
through which [consumers] are able to create, manage and share their professional identities
18
online.” 56 LinkedIn then “publishes information from hundreds of millions of consumers related to
19
their past and present employers, past and present employment duties [and] employment dates,
20
21
52
22
Id. (citing Twombly, 550 U.S. at 557).
53
23
24
25
See al-Kidd v. Ashcroft, 580 F.3d 949, 956 (9th Cir. 2009), rev’d on other grounds, 131 S. Ct.
2074 (2011).
54
See In re Gilead Scis. Sec. Litig., 536 F.3d 1049, 1055 (9th Cir. 2008) (internal citations
omitted).
26
55
See 15 U.S.C. § 1681a(d)(2)(A)(i).
27
56
See Docket No. 1 at ¶ 1 (emphasis added).
28
9
Case No.: 5:14-cv-04531-PSG
ORDER GRANTING MOTION TO DISMISS
Case5:14-cv-04531-PSG Document33 Filed04/14/15 Page10 of 21
1
employment skills. . . .among other things.” 57 Put differently, Plaintiffs’ own allegations show that
2
consumers provide LinkedIn with information about their employment histories so that LinkedIn
3
can publish this information online.
United States District Court
For the Northern District of California
4
Plaintiffs’ assertion that the “the plain language of the exclusion” and the Federal Trade
5
Commission’s “interpretations of it” do not encompass publication of self-provided employment
6
histories is unavailing. 58 Plaintiffs cite to an FTC report finding that “[a] report by a creditor of
7
application information supplied by a consumer…is not the creditor’s ‘transaction or experience’
8
because it includes the consumer’s transaction with entities other than the creditor.” 59 This finding
9
is based on an FTC opinion letter concerning a bank that wanted to provide information it obtained
10
from “customer loan applications, regarding the customer’s transaction with entities other than the
11
bank” to other entities. 60 The FTC concluded that this information “could not be the [b]ank’s
12
‘transaction or experience’ information because it includes only the customer’s transactions with
13
entities other than the [b]ank.” 61 But this letter does not establish that LinkedIn’s communication
14
15
16
17
18
19
20
21
22
23
24
25
57
See id. at ¶ 25.
58
See Docket No. 25 at 22.
59
See id. at 22 (citing Federal Trade Commission, 40 Years of Experience with the Fair Credit
Reporting Act, an FTC Staff Report with Summary of Interpretations, July 2011,
https://www.ftc.gov/reports/40-years-experience-fair-credit-reporting-act-ftc-staff-report-summaryinterpretations, at 24 (emphasis in original)). The 40 Years Report is a compilation summary of
“the Federal Trade Commission staff’s interpretations of the Fair Credit Reporting Act,” which
includes “informal guidance staff has provided to the public in the ensuing years and [the FTC
staff’s] experience in enforcing the FCRA.” See 40 Years Report at 17. The report “does not have
the force or effect of regulations or statutory provisions,” but it does provide persuasive guidance
from the agency charged with enforcing and interpreting the FCRA before transfer of that authority
to the Consumer Financial Protection Bureau in July 2011. See id.; see also 76 Fed. Reg. 44462-01
(July 26, 2011); Klonsky v. RLI Ins. Co., Case No. 2:11-cv-250, 2012 WL 1144031, at *2 (D. Vt.
Apr. 4, 2012) (“While the FTC’s interpretation of the FRCA does not have the force of law, it
should be viewed in light of the fact that the Supreme Court has long recognized that considerable
weight should be accorded to an executive department’s construction of a statutory scheme it is
entrusted to administer.”) (internal citations omitted).
60
26
27
See Novak, FTC Informal Staff Opinion Letter, Sept. 9, 1998,
https://www.ftc.gov/policy/advisory-opinions/advisory-opinion-novak-09-09-98; see also 40 Years
Report at 24 n.32.
61
28
See id.
10
Case No.: 5:14-cv-04531-PSG
ORDER GRANTING MOTION TO DISMISS
Case5:14-cv-04531-PSG Document33 Filed04/14/15 Page11 of 21
1
of subjects’ employment histories is outside of the transactions or experiences exception. Nowhere
2
in the letter is there any indication that the banks’ customers provided the information in their bank
3
loan applications so that the bank could give this information to other entities. In contrast, sharing
4
information is precisely why the subjects here or anyone else on LinkedIn provides their
5
employment histories to LinkedIn. 62
United States District Court
For the Northern District of California
6
Likewise, Plaintiffs’ reliance on Salazar v. Golden State Warriors for the principle that “a
7
rebroadcasting of the consumer’s transactions and experiences with a third-party” is not within the
8
transactions and experience exception is misplaced. 63 In Salazar, the court held that a report from
9
a private investigator stating that an employee used drugs reflected that entity’s “transactions or
10
experiences” with the employee. 64 In making this finding, the court cited to another FTC opinion
11
letter in which the FTC found that the transactions or experiences exception applied to a
12
communication which a consumer’s prior employer provided to a credit reporting agency. 65
13
However, the FTC determined that the exception did not apply to “communications from the
14
[credit reporting agency] to [the consumer’s] potential employer ‘because the experiences referred
15
to in the communication are not between the job applicant and the [credit reporting agency]’ and
16
thus are second-hand.” 66 In other words, in the letter cited in Salazar, the FTC concluded that a
17
communication of information obtained from a “second-hand” source is outside the exception, not
18
that any communication which describes a consumer’s experience with a third party is outside the
19
exception.
20
21
Equally misplaced is Plaintiffs’ claim that the Reference Searches’ inclusion of information
about the listed references takes LinkedIn’s publication of subjects’ employment histories outside
22
62
See Docket No. 1 at ¶¶ 1, 19-25.
63
See Docket No. 25 at 22-23 (citing 124 F. Supp. 2d 1155, 1160 (N.D. Cal. 2000)).
64
See Salazar, 124 F. Supp. at 1157, 1161.
26
65
See id. at 1160.
27
66
See id. (internal citations omitted).
23
24
25
28
11
Case No.: 5:14-cv-04531-PSG
ORDER GRANTING MOTION TO DISMISS
Case5:14-cv-04531-PSG Document33 Filed04/14/15 Page12 of 21
1
the exception. 67 In Salazar, the court held a “listing of the registered owners of automobiles
2
encountered by investigator” was “second-hand information” but did not “remove the report [in
3
which this listing was included] from the exception because the list did not include information
4
pertaining to the plaintiff.” 68 As Plaintiffs note, the information about the listed references
5
included in the Reference Search results is “second-hand information” because this information
6
does not derive from the subject of the search. 69 However, like the listing in Salazar, this
7
information is about the listed references, not the subjects of the searches, and thus does not
8
“include information pertaining to the [Plaintiffs].” 70
United States District Court
For the Northern District of California
9
Second, even if the LinkedIn’s publications of the employment histories of the consumer-
10
subjects of the Reference Searches were not within the transaction or experience exception, they
11
still would not be consumer reports because Plaintiffs’ allegations do not raise a plausible inference
12
that LinkedIn acts as a consumer reporting agency when it publishes these histories. To meet the
13
definition of a consumer report, a communication must be made “by a consumer report agency.” 71
14
A “consumer reporting agency” is defined as “any person which, for monetary fees…regularly
15
engages in whole or in part in the practice of assembling or evaluating consumer credit information
16
or other information on consumers on consumers for the purpose of furnishing consumer reports to
17
third parties, and which uses any means or facility of interstate commerce for the purpose of
18
preparing or furnishing consumer reports.” 72 However, “[a]n entity does not become a [consumer
19
reporting agency] solely because it conveys, with the consumer’s consent, information about the
20
21
67
See Docket No. 25 at 23-24.
68
See 124 F. Supp. 2d at 1160.
69
See Docket No. 25 at 23-24.
70
See id.
22
23
24
25
71
26
27
See 15 U.S.C. § 1681a(d)(1) (“The term ‘consumer report’ means any…communication of any
information by a consumer reporting agency.”) (emphasis added).
72
See 15 U.S.C. § 1681a(f).
28
12
Case No.: 5:14-cv-04531-PSG
ORDER GRANTING MOTION TO DISMISS
Case5:14-cv-04531-PSG Document33 Filed04/14/15 Page13 of 21
1
consumer to a third party in order to provide a specific product or service that the consumer has
2
requested.” 73
United States District Court
For the Northern District of California
3
Plaintiffs are correct that they “need not at this stage prove that [LinkedIn] is in fact a
4
‘consumer reporting agency.’” 74 However, Plaintiffs are incorrect that their allegations are
5
“similar” to allegations found sufficient in Robins v. Spokeo, Inc. 75 In Robins, the court held that
6
the plaintiff’s allegations that the defendant “regularly accepts money in exchange for reports that
7
contain data and evaluations regarding consumers’ economic wealth and creditworthiness [were]
8
sufficient to support a plausible inference that [d]efendant’s conduct falls within the scope of the
9
FCRA.” 76 In contrast to Robins, where there was no indication that the plaintiff voluntarily
10
provided the information contained in the challenged reports to the defendant, here Plaintiffs
11
specifically allege that the consumers who are the subjects of the Reference Searches voluntarily
12
provide their names and employment histories to LinkedIn for the purpose of publication. 77 As
13
LinkedIn notes, the facts alleged in Plaintiffs’ complaint therefore support the inference that
14
LinkedIn gathers the information about the employment histories of the subjects of the Reference
15
Searches not to make consumer reports but to “carry out consumers’ information-sharing
16
objectives.” 78 As a result, Plaintiffs’ conclusory allegation that LinkedIn “for monetary fees,
17
engages in the practice of assembling information on consumers, for the purposes of furnishing
18
19
20
21
73
22
74
23
See 40 Years Report at 30-31.
See Docket No. 25 at 10 (citing Robins v. Spokeo, Inc., Case No. CV10-05306-ODW(AGRx),
2011 WL 1793334 at *2 (C.D. Cal. May 11, 2011)).
75
See Docket No. 25 at 10.
76
See Robins, 2011 WL 1793334 at *2.
24
25
77
26
27
See Docket No. 1 at ¶¶ 1, 19-25; see also Docket No. 25 at 8 (acknowledging that “consumers
may voluntarily provide the names of current and former employers to LinkedIn”).
78
See Docket No. 18 at 11.
28
13
Case No.: 5:14-cv-04531-PSG
ORDER GRANTING MOTION TO DISMISS
United States District Court
For the Northern District of California
Case5:14-cv-04531-PSG Document33 Filed04/14/15 Page14 of 21
1
consumer reports to third parties” does not support a plausible inference that LinkedIn acts as a
2
consumer reporting agency with regard to its assembly of this information. 79
3
Third, Plaintiffs’ allegations are insufficient to state a claim that the list of names and other
4
information about the references included in the Reference Search bears on the “character, general
5
reputation, mode of living” and other relevant characteristics of the consumers who are the subjects
6
of these searches. 80 Plaintiffs contend that whether a subject’s listed references have jobs in a
7
certain industry or live in a certain geographic location bears on the subject’s relevant
8
characteristics by showing whether he or she is well-connected in that industry or associates with
9
people from that location. 81 Plaintiffs also argue that the inclusion of a reference who is notorious
10
or well-respected in the industry in which the subject is seeking employment, such as “Bernard
11
Madoff for someone applying for a job in finance” or “a federal judge for someone seeking
12
employment in the legal industry,” also bears on a subject’s relevant characteristics. 82
13
The problem here is that Plaintiffs do not allege that Reference Search results indicate that
14
subjects actually knew or associated with the listed references. Instead, Plaintiffs allege that the
15
Reference Search results list people who once had a common employer with the subject of the
16
search and are in the network of the person who initiated the search. 83 Because the people listed
17
79
18
19
20
21
22
23
24
See Docket No. 25 at 7 (citing Docket No. 1 at ¶¶ 2, 20-25, 32-39, 43-46, 79). As stated above,
Plaintiffs correctly note that the Reference Search results contain information about the listed
references which the consumer who is subject of the report did not provide to LinkedIn. See
Docket No. 25 at 8-10. However, Plaintiffs’ claim that LinkedIn does not carry out “consumers’
information-sharing objectives” because most of the consumer information which LinkedIn
aggregates and disseminates is derived from “data obtained from third-parties” is unavailing. See
id. at 9. Plaintiffs ignore the distinction LinkedIn makes between its communication of the search
subject’s self-provided employment history and its communication of information about people
with whom the subject may have worked. See Docket No. 30 at 1. Contrary to Plaintiffs’ assertion,
LinkedIn does not claim that it does not act as a consumer report agency with regard to its
communication of information about people who may have worked with subject, only that it does
not act as a consumer reporting agency with regard to its communication of the subject’s selfprovided employment history. See id.
80
See Docket No. 1 at ¶¶ 78, 85, 94, 102, 110.
81
See Docket No. 25 at 12-13.
82
See id. at 13.
25
26
27
83
28
See Docket No. 1 at ¶¶ 33-35, see also Docket No. 1, Ex. A.
14
Case No.: 5:14-cv-04531-PSG
ORDER GRANTING MOTION TO DISMISS
Case5:14-cv-04531-PSG Document33 Filed04/14/15 Page15 of 21
1
are allegedly in the searcher’s network, not the subject’s network, in the situations Plaintiffs
2
describe, the Reference Search results would communicate whether the searcher, not the subject of
3
the search, is well-connected in a certain industry or is associated with a notorious person.
United States District Court
For the Northern District of California
4
Further, Plaintiffs fail to cite to any authority that actually holds that a communication
5
which provides information about people other than the consumer who is allegedly the subject of
6
the report bears on that consumer’s relevant characteristics. For instance, Plaintiffs cite to Trans
7
Union Corp. v. FTC for the proposition that “almost any information about consumers arguably
8
bears on their personal characteristics or mode of living.” 84 But in contrast to the list of references
9
at issue here, the court in Trans Union held that information in the challenged reports about the
10
consumers who were the supposed subjects of those reports—such as whether they had established
11
multiple credit accounts—bore on those consumers’ modes of living. 85 Plaintiffs’ reliance on a
12
FTC letter that found that a person’s employment history “unquestionably bears on his or her
13
character, reputation, and other listed characteristics” is similarly misplaced. 86 Like the court in
14
Trans Union, the FTC concluded that information about job applicants’ own employment
15
histories—not information about the employment histories of other people—“unquestionably” bore
16
on these applicants’ relevant characteristics. 87
17
Nor can Plaintiffs rely on cases in which courts held that a broad variety of information can
18
bear on a person’s mode of living. These cases again simply do not hold that information about
19
people other than the consumer who is the subject of a challenged report can bear on that
20
consumer’s mode of living. In particular, Plaintiffs contend that Reference Search results that
21
indicate that a consumer’s references live in a certain location would bear on that consumer’s
22
84
23
24
25
26
27
See Docket No. 25 at 10-11 (citing Trans Union Corp. v. Federal Trade Comm’n, 245 F.3d 809,
813 (D.C. Cir. 2001) (quoting Trans Union Corp. v. Federal Trade Comm'n, 81 F.3d 228, 231
(D.C. Cir. 1996)).
85
See Trans Union, 81 F.3d at 231.
86
See Docket No. 25 at 11 (citing Leathers, FTC Informal Staff Opinion Letter, Sept. 9, 1998,
http://www.ftc.gov/policy/advisory-opinions/advisory-opinion-leathers-09-09-98).
87
See id.
28
15
Case No.: 5:14-cv-04531-PSG
ORDER GRANTING MOTION TO DISMISS
United States District Court
For the Northern District of California
Case5:14-cv-04531-PSG Document33 Filed04/14/15 Page16 of 21
1
personal characteristics because the court in Moreland v. CoreLogic SafeRent LLC held that
2
“[w]here people live and how long they live there can say a lot about their ‘mode of living’—how
3
rich or poor they are, how big or small their family is, how closely or loosely they’re tied to a
4
community, what sports teams or political parties they support, how often they change jobs, and
5
what kinds of cars or pets they have, to offer just a few examples.” 88 Plaintiffs also claim that,
6
similar to cases in which courts have found that information about a consumer’s former employers
7
and whether he or she has a valid driver’s license can bear on that consumer’s mode of living, here
8
the Reference Searches allegedly contain “specific, concrete information” that bears on a
9
consumer’s relevant characteristics. 89 However, in all of these cases to which Plaintiffs cite, the
10
courts held that the challenged communications might bear on consumers’ modes of living because
11
they contained information about the consumers who were the subjects of those communications. 90
12
The allegations in Plaintiffs’ complaint contradict their claim that LinkedIn markets the
13
Reference Search results as “a means to obtain additional ‘bearing on’ information” about the
14
subjects of these searches. 91 Plaintiffs’ allegation that LinkedIn markets these results as a way for
15
16
17
18
19
20
21
22
23
24
25
26
27
88
See Docket No. 25 at 12-13 (citing Case No. SACV 13-470-AG(ANx), 2013 WL 5811357, at *4
(C.D. Cal. Oct. 25, 2013).
89
See Docket No. 25 at 16; see also Phillips v. Grendahl, 312 F.3d 357, 366 (8th Cir. 2002) (“The
Finder’s Report also lists [the subject of the report’s] former employers, which also would bear on
his mode of living by showing that he has been employed. We conclude that the Finder’s Report
contains the kind of personal information required by the definition of consumer report.”); Ernst v.
Dish Network, LLC, Case No. 12-cv-8794(LGS), 2014 WL 4693700, at *5 (S.D.N.Y. Sept. 22,
2014) (finding that “whether or not an individual has a valid driver’s license might not bear on his
character, but it might describe his ‘mode of living,’ which is broad and undefined.”).
90
Moreland, 2013 WL 5811357, at *1, 4 (rejecting defendant’s assertion that report containing
information about a prospective tenant’s former addresses did not meet the FCRA’s “bearing on”
element because “[w]here a person lives is a fundamental ‘personal characteristic’”); Phillips, 312
F.3d at 365-65 (report listing “the names of several creditors with whom [the subject of the report]
had credit accounts and the existence of a child support obligations, with dates for ‘last activity’”
and subject’s “former employers” bore on subject’s mode of living); Ernst, 2014 WL 4693700, at
*4-5 (S.D.N.Y. Sept. 22, 2014) (report labeling consumer as “high risk” communicated “bearing
on” information under the FCRA).
91
See Docket No. 25 at 16.
28
16
Case No.: 5:14-cv-04531-PSG
ORDER GRANTING MOTION TO DISMISS
United States District Court
For the Northern District of California
Case5:14-cv-04531-PSG Document33 Filed04/14/15 Page17 of 21
1
potential employers to “[g]et the real story on any candidate,” might, standing alone, support
2
Plaintiffs’ contention that LinkedIn markets the Reference Search results themselves as a way to
3
obtain bearing on information about the subjects of these searches. 92 However, Plaintiffs also
4
allege that LinkedIn markets the reference search functionality as a way for a potential employer to
5
“locate[] people in [his or her] network who can provide reliable feedback about a job candidate”
6
and to “[f]ind references who can give real, honest feedback” about job candidates. 93 Taken
7
together, these allegations support the inference that LinkedIn markets the Reference Search results
8
a way to “locate[] people” who might be able to communicate bearing on information about the
9
consumer-subjects of these results, not that these results themselves convey bearing on
10
information. 94
11
Fourth, Plaintiffs do not state a claim that the Reference Search results are used or intended
12
to be used as a factor in determining whether the subjects of the searches are eligible for
13
employment. A communication must be “used or expected to be used or collected in whole or in
14
part for the purpose of serving as a factor in establishing the consumer’s eligibility for . . .
15
employment purposes . . . .” in order to be a consumer report. 95 To determine whether a
16
communication meets this purpose element, courts consider the “purpose for which the information
17
[contained in the communication] was originally collected in whole or part by the consumer
18
reporting agency” as well as the “ultimate use” to which that information is put. 96
19
Plaintiffs’ contention that Pappas v. City of Calumet City supports its claim that Plaintiffs
20
have adequately alleged that the Reference Searches fall within the purpose element of the
21
consumer report definition is unavailing. 97 In Pappas, the defendant obtained a credit report on the
22
92
See Docket No. 1 at ¶ 44.
93
See id. at ¶¶ 33, 44 (emphasis added).
94
See id. at ¶ 33.
95
See 15 U.S.C. § 1681a(d)(1)(B).
96
See Bakker v. McKinnon, 152 F.3d 1007, 1012 (8th Cir. 1998) (internal citations omitted).
23
24
25
26
27
97
28
See Docket No. 25 at 18 (citing 9 F. Supp. 2d 943, 949 (N.D. Ill. 1998)).
17
Case No.: 5:14-cv-04531-PSG
ORDER GRANTING MOTION TO DISMISS
Case5:14-cv-04531-PSG Document33 Filed04/14/15 Page18 of 21
1
plaintiff by telling the credit reporting agency that provided the report that the defendant would use
2
the report for “employment purposes” but actually used the credit report to investigate the
3
plaintiff’s company. 98 The court concluded the credit report was a consumer report because as
4
long as the credit reporting agency “expected” the defendant to use the credit report “for
5
employment purposes,” the defendant’s “actual reason for obtaining [the credit report] is
6
irrelevant.” 99
United States District Court
For the Northern District of California
7
In contrast to the defendant in Pappas, here, as stated above, LinkedIn markets the
8
Reference Search results—and therefore expects them to be used—as a way for potential
9
employers to locate people who can provide reliable feedback about job candidates and does not
10
market the results themselves as a source of reliable feedback about job candidates. 100 Further,
11
Plaintiffs allege that one of the named plaintiffs applied to a job through LinkedIn and was not
12
hired for this job after the potential employer told her that it had “checked some references” on her
13
even though the named plaintiff had not provided any references to the potential employer. 101 This
14
allegation might support an inference that the potential employer decided not to hire the named
15
plaintiff based on information provided by references whom the potential employer located by
16
running a Reference Search on the named plaintiff, but does not indicate that the potential
17
employer used the Reference Search themselves to determine the named plaintiff’s eligibility for
18
employment. Thus, Plaintiffs’ allegations do not support a reasonable inference that LinkedIn
19
expected the Reference Search results to be used or that potential employers actually used these
20
results to determine consumers’ eligibility for employment.
21
22
Plaintiffs’ claim that their allegations support a reasonable inference that the Reference
Search results “can contribute to hiring decisions made by employers” is insufficient to show that
23
24
98
See Pappas, 9 F. Supp. 2d at 947.
25
99
See id. at 948.
26
100
See Docket No. 1 at ¶¶ 33, 44.
27
101
See id. at ¶¶ 52-58.
28
18
Case No.: 5:14-cv-04531-PSG
ORDER GRANTING MOTION TO DISMISS
United States District Court
For the Northern District of California
Case5:14-cv-04531-PSG Document33 Filed04/14/15 Page19 of 21
1
the results are used or intended to be used for employment purposes. 102 Plaintiffs need not
2
establish that the “information communicated by the [Reference Search results], standing alone,
3
could be used” to make an employment-related decision in order to establish that the Reference
4
Search results are consumer reports. 103 However, the consumer report definition does not
5
encompass every tool or reference that employers might use to access job candidates. As LinkedIn
6
notes, the fact that a potential employer could use a telephone directory for a job candidate’s
7
current employer to contact people who know the candidate does not make that directory a
8
consumer report. 104 Similarly, Plaintiffs’ claim that LinkedIn “provides the people and businesses
9
accessing the [Reference Search results] with tools to communicate directly with the ‘references’
10
listed therein” is not sufficient to establish that the results themselves are used or intended to be
11
used to determine consumers’ eligibility for employment. 105
12
Likewise, Plaintiffs’ position that their allegation that the Reference Search results are used,
13
expected to be used and marketed by LinkedIn to be used “for employment purposes” is sufficient
14
“at this stage of the litigation” lacks merit. 106 Plaintiffs contend that a communication is a
15
“consumer report” if it is “used or expected to be used or collected either to (1) ‘serve as a factor in
16
establishing the consumer’s eligibility’ for credit, insurance, employment; or (2) for “other
17
purposes authorized under section 1681b….” 107 Section 1681b(a)(3) of the FCRA provides that
18
one of the situations in which it is permissible for a consumer reporting agency to furnish a
19
consumer report is when the recipient of the report is “a person which [the consumer reporting
20
21
102
22
103
23
See Docket No. 25 at 19.
See In re Trans Union Corp., No. 9255, 2000 WL 257766, at *12 n.18 (F.T.C. Feb. 10, 2000)
(citing Trans Union, 81 F.3d at 233).
104
See Docket No. 30 at 12.
105
See Docket No. 25 at 19.
106
See id. at 21.
24
25
26
107
27
See id. at 19 (quoting Yang v. Gov’t Employees Ins. Co., 146 F.3d 1320, 1323 (11th Cir. 1998)
(citing 15 U.S.C. § 1681a(d)(1))).
28
19
Case No.: 5:14-cv-04531-PSG
ORDER GRANTING MOTION TO DISMISS
Case5:14-cv-04531-PSG Document33 Filed04/14/15 Page20 of 21
1
agency] has reason to believe…intends to use the information for employment purposes.” As
2
Plaintiffs note, courts have found that because Section 1681b(3) “restrict[s] the uses to which a
3
consumer report may be put,” for this section to be “meaningful, ‘consumer report’ must be
4
interpreted to mean any report made by a credit reporting agency of information that could be used
5
for one of the purposes enumerated in § 1681a.” 108
United States District Court
For the Northern District of California
6
But even if Plaintiffs are correct that the consumer report definition encompasses
7
communications that could be used for the purposes enumerated in Section 1681b(a), as LinkedIn
8
notes, this definition would not extend to all communications “with any attenuated connection to
9
‘employment.’” 109 Further, Plaintiffs’ reliance on cases in which courts held that communications
10
could be consumer reports if they fell within one of the purposes authorized under Section 1681b is
11
misplaced. 110 In the cases to which Plaintiffs cite, the consumer reporting agencies expected the
12
communications at issue to be used for purposes authorized under Section 1681b. 111 In contrast, as
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
108
See Docket No. 25 at 20-21 (quoting Belshaw v. Credit Bureau of Prescott, 392 F. Supp. 1356,
1359-60 (D. Ariz. 1975); see also Yang, 146 F.3d at 1323-24 (“To complete section 1681a(d)’s
definition of a consumer report, we must …refer to section 1681b, entitled “‘Permissible purposes
of consumer reports’… [S]ection 1681b …adds to section 1681a(d)’s definition of a consumer
report, as well as delineates the permissible uses for those ‘communications of information’ already
falling within the definition of a ‘consumer report.’”) but see Mende v. Dun & Bradstreet, Inc., 670
F.2d 129, 133 (9th Cir. 1982) (“The Belshaw definition depends on whether information could be
used for certain purposes, not on whether it is collected for certain purposes. This expansive
interpretation of consumer report has been criticized as bringing ‘within the coverage of the Act
any gathering of information about an individual, even if the context were such clearly nonconsumer activities as engagement in profit-making transactions…or litigation against a defendant
whose insurer requests a report…’”) (quoting Henry v. Forbes, 433 F. Supp. 5, 9 n.5 (D. Minn.
1976)).
109
See Docket No. 30 at 12.
110
See Docket No. 25 at 21.
111
See Beresh v. Retail Credit Co., 358 F. Supp. 260, 261-62 (C.D. Cal. 1973) (holding that
“insurance claims investigative reports” which were made “for the purpose of determining whether
[plaintiff] was totally disabled as a result of water skiing accident” were within the definition of
“consumer reports”); Greenway v. Information Dynamics, Ltd., 399 F. Supp. 1092, 1095 (D. Ariz.
1974) (holding that communications made in order to “furnish subscribing merchants with
information on consumers who may tender checks in payment for purchases so that the subscriber
may decide whether or not to accept the check” were within the definition of “consumer reports” in
part because the “expectation is that the information will be used by [subscribers] in connection
20
Case No.: 5:14-cv-04531-PSG
ORDER GRANTING MOTION TO DISMISS
Case5:14-cv-04531-PSG Document33 Filed04/14/15 Page21 of 21
1
2
O
3
4
5
6
7
8
UNITED STATES DISTRICT COURT
9
CENTRAL DISTRICT OF CALIFORNIA
10
11
GOLDLINE, LLC,
12
Plaintiff,
13
14
15
16
v.
REGAL ASSETS, LLC; MARK C.
TURNER; KELLY FELIX; VINCENT
CURTO; ROBERT LAMBIN; DONNY
GAMBLE; CHARLES HOWLAND; TOM
ARVAN,
17
Defendants.
18
___________________________
19
I.
20
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
Case No. CV 14-03680 DDP (ASx)
ORDER GRANTING MOTION TO DISMISS
IN PART AND DENYING IN PART
[Dkt. 15]
Introduction
Goldline, LLC (“Plaintiff”) filed a complaint against Regal
21
Assets, LLC (“Regal”), seven named individuals,1 and doe defendants
22
whose identities have not yet been determined (inclusively,
23
“Affiliate Defendants”). Plaintiff’s First Amended Complaint
24
(“FAC”) alleges claims against Regal and Affiliate Defendants
25
(collectively, “Defendants”) for (1)Trademark Infringement (15
26
U.S.C. §1125(a)); (2) False Designation of Origin and Unfair
27
28
1
The seven named individuals are Mark Turner, Kelly Felix,
Vincent Curto, Robert Lambin, Donny Gamble, Charles Howland, and
Tom Arvan.
1
Competition (15 U.S.C. §1125(a)); (3) False Advertising (Lanham Act
2
§43(a)(1)(B)); (4) False Advertising in Violation of Cal. Bus. &
3
Prof. Code § 17500; (5) Unfair Competition in Violation of Cal.
4
Bus. & Prof. Code §17200; (6) Common Law Trademark Infringement;
5
(7) Statutory Dilution under Cal. Bus. & Prof. Code §14247;(8)
6
Common Law Unfair Competition;(9) RICO (18 U.S.C. §1962(c)); (10)
7
RICO (18 U.S.C. 1962(a)); (11) Common Law Trade Libel/Commercial
8
Disparagement; and
9
(12) Civil Conspiracy.
Plaintiff alleges that it is the owner of the GOLDLINE and
10
other related registered trademarks.2 Plaintiff’s claims arise out
11
of Regal’s promotion of products and services through its
12
“affiliates program.” According to the FAC, the program induces
13
Affiliate Defendants to infringe Plaintiff’s trademarks;
14
fraudulently disparage Plaintiff and its products and services; and
15
deceptively endorse Regal’s products and services.
16
On July
3, 2014, Regal filed the present Motion to Dismiss
17
Plaintiff’s FAC. Pursuant to Federal Rule of Civil Procedure
18
12(b)(6), Regal challenges all claims set forth in the complaint.
19
For the following reasons, the court grants the motion in part,
20
denies in part, and adopts the following Order.
21
II.
Factual Background
22
The following facts are alleged in the FAC.
23
Plaintiff is an interstate dealer of precious metals and
24
numismatic products in the United States. Since 1974, Plaintiff has
25
operated its business under the GOLDLINE and related marks
26
(collectively, “GOLDLINE Marks”). From 1976 through 2011, Plaintiff
27
2
28
The related marks include GOLDLINE COIN AUCTIONS, GOLDLINE
INTERNATIONAL and Design, GOLDLINE AUCTIONS, and IGOLDLINE.
2
1
obtained trademark registrations for these marks. Plaintiff uses
2
the GOLDLINE Marks extensively and prominently in websites,
3
television, print advertising, YouTube video commercials, and word
4
of mouth.
5
Regal is also an interstate dealer of precious metals and
6
numismatic products, who offers and sells competing products and
7
services. In addition to its website, Regal promotes its products
8
and services through its “affiliates program.” Through this
9
program, Regal pays commissions to third parties, including
10
Affiliate Defendants, to operate websites that bear no apparent
11
connection to Regal. According to Plaintiff, Defendants purchase
12
advertising keywords that include the GOLDLINE Marks so their
13
websites will appear when search terms intended for Plaintiff are
14
entered in the search engine. Many of the search results are not
15
identified as ads. The purpose of the affiliates’ websites is to
16
divert customers away from Plaintiff and other competitors, toward
17
Regal. To that end, Regal prepares for its affiliates’ use, scripts
18
and website materials that purportedly offer objective, independent
19
evaluations and facts related to precious metal dealers. These
20
materials allegedly infringe on the GOLDLINE Marks. The materials
21
also allegedly offer endorsements for Regal; false information and
22
statements about the independent and unbiased views of the
23
reviewer; and false and disparaging information about Plaintiff,
24
including customer complaints, pending litigation, and poor
25
consumer and industry ratings.
26
On April 29, Plaintiff sent a cease and desist letter to
27
Regal. Regal has refused to remove or correct the websites, or
28
require the Affiliate Defendants to do so.
3
1
Plaintiff alleges that, as a result of Defendants’ conduct,
2
Plaintiff has suffered, and continues to suffer, damage to its
3
business, reputation, and goodwill. Plaintiff also alleges loss of
4
sales and profits due to Defendants’ wrongful acts. By way of its
5
complaint, Plaintiff seeks declaratory judgment; injunctive relief;
6
compensatory and punitive damages; interest; and attorneys fees and
7
costs.
8
III. Legal Standard
9
A party may move to dismiss for failure to state a claim upon
10
which relief can be granted under Federal Rule of Civil Procedure
11
(“Rule”) 12(b)(6). In deciding a Rule 12(b)(6) motion, the court
12
must assume allegations in the challenged complaint are true, and
13
construe the complaint in the light most favorable to the non-
14
moving party. Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 337-38
15
(9th Cir. 1996). The court shall not consider facts outside the
16
complaint. Arpin v. Santa Clara Valley Transp. Agency, 261 F.3d
17
912, 925 (9th Cir. 2001). Dismissal is appropriate where the
18
complaint lacks a cognizable legal theory or sufficient facts to
19
support a cognizable legal theory. Mendiondo v. Centinela Hosp.
20
Med. Ctr., 521 F.3d 1097, 1104 (9th Cir. 2008). “While a complaint
21
attacked by a Rule 12(b)(6) motion to dismiss does not need
22
detailed factual allegations, . . . a plaintiff’s obligation to
23
provide the ‘grounds’ of his ‘entitlement to relief’ requires more
24
than labels and conclusions, and a formulaic recitation of the
25
elements of a cause of action will not do.” Bell Atl. Corp. v.
26
Twombly, 550 U.S. 544, 555 (2007) (quoting Papasan v. Allain, 478
27
U.S. 265, 286 (1986)). Moreover, the court need not accept as true
28
conclusory legal allegations cast in the form of factual
4
1
allegations. W. Mining Council v. Watt, 643 F.2d 618, 624 (9th Cir.
2
1981).
3
IV.
4
Discussion
A.
Plaintiff Fails to State Claims For Trademark
5
Infringement and False Designation of Origin
6
2, and 6)
7
(Claims 1,
The FAC alleges that Regal owns valid registrations in the
8
GOLDLINE Marks (FAC, ¶ 22), and that Plaintiff has not authorized
9
Defendants’ use of those marks (FAC, ¶44). In the body of the
10
complaint, Plaintiff alleges, “Defendants purchased advertising
11
keywords which include the GOLDLINE Marks, with the intent that
12
their websites will be presented by Google when consumers enter
13
search terms intended for [Plaintiff] and which include the
14
GOLDLINE Marks . . .. Many of the search results are not identified
15
as ads, thus compounding the confusion and deception of consumers.”
16
(FAC, ¶32.) In support, Plaintiff attaches Exhibit B to the
17
complaint, which is a series of screen shots depicting a Google
18
search results page, and various web pages a user can access from
19
performing a search using the GOLDLINE Marks. (FAC, Exhibit B.) The
20
content of these websites is comprised of opinions, reviews, and
21
recommendations about both investing in gold generally, as well as
22
Plaintiff’s products and services, specifically. Id. Consistent
23
with allegations detailed in Section II, above, the websites are
24
disparaging of Plaintiff’s products and services. Id.
25
The Lanham Act, as well as its common law equivalent, prohibit
26
a person from using in commerce any trademark or false designation
27
of origin that is likely to cause confusion as to the affiliation
28
or origin of that person’s product or service. 15 U.S.C. § 1125(a).
5
1
Upon review of allegations contained in the FAC, along with
2
the attached exhibits, the Court finds that Plaintiff has not
3
adequately stated a claim for trademark infringement or false
4
designation of origin. While the allegations and attached exhibits
5
indicate that Defendants use Plaintiff’s marks, there is simply
6
nothing stated, that if deemed true, constitute commercial use that
7
would likely cause confusion as to the origin or affiliation of
8
Regal’s products or services. In fact, the allegations either state
9
directly, or create a strong inference, that the purpose of
10
Defendants’ use of the marks is to disparage Plaintiff and endorse
11
Regal. Taken as true, such conduct would seemingly distinguish
12
Regal’s products from Plaintiff’s, as opposed to causing customers
13
confusion as to the origins of the two products.
14
Deeming the facts alleged as true, the Court finds that
15
Plaintiff has not adequately stated claims for trademark
16
infringement and false designation of origin.
17
18
B.
Plaintiff Adequately Alleges Claims for False Advertising
and Unfair Competition (Claims 3,4,5, and 8)
19
Plaintiff asserts claims against Defendants for false
20
advertising in violation of the Lanham Act, 15 U.S.C. § 1125(a),
21
and California Business & Professions Code §17500. Plaintiff also
22
asserts claims against Defendants for Unfair Competition under both
23
California Business and Professions Code § 17200 and common law.
24
Regal challenges these claims on the ground that the claims are
25
insufficiently pled, both in substance and specificity.
26
As detailed in Section II, above, the FAC alleges (1)
27
Plaintiff’s and Regal’s products and services are sold in
28
interstate commerce; (2) by way of Regal’s affiliates program,
6
1
Defendants engaged in specific false, deceptive, and misleading
2
advertising regarding both Plaintiff’s and Regal’s products and
3
services; (3) the false statements were intended to deceive and
4
confuse the public, and disparage Plaintiff; (4) as a result,
5
consumers were diverted away from Plaintiff; and (5) Plaintiff
6
suffered injury as a result of Defendants’ conduct. (FAC, ¶¶ 28-57;
7
76-106; 124-131.)
8
Even assuming that the heightened pleading standards apply to
9
these claims, the court finds that Plaintiff’s allegations satisfy
10
the requisite elements of both false advertising and unfair
11
competition under the relevant federal and state statutes, and
12
common law.3
13
C.
14
15
Plaintiff Fails to State a Claim for Statutory Dilution
(Claim 7)
California Business & Professions Code §14247 protects owners
16
of trademarks from a likelihood of dilution caused by another who
17
adopts an identical or similar mark. See Cal. Bus. & Prof. Code
18
§14247(a). To prevail on a §14247 claim, a plaintiff must establish
19
(1) it is the owner of a famous mark that is distinctive; (2) the
20
defendant commenced use of a mark after the mark became famous; (3)
21
the defendant is making commercial use of the mark in commerce; and
22
(4) the defendant’s use is likely to cause dilution of the
23
distinctive value of plaintiff’s mark. Id. With regard to the last
24
element, dilution occurs when a defendant’s use of a famous mark
25
26
27
28
3
The Ninth Circuit has not yet opined on the appropriate
standard. See Western Sugar Co-op v. Archer-Daniels-Midland Co.,
No. CV 11-3473 CBM, 2012 WL 3101659 *3 (C.D. Cal. Jul. 31, 2012).
7
1
diminishes the capacity of the famous mark to identify and
2
distinguish goods or services.
3
In addition to the allegations detailed in Section II above,
4
Plaintiff alleges that for 40 years, it has been using the GOLDLINE
5
Marks to promote its goods and services through multiple outlets
6
and has spent many millions of dollars in doing so. (FAC, ¶ 116.)
7
As a result of Plaintiff’s efforts, the GOLDLINE Marks have
8
acquired distinctiveness and strong recognition and reputation
9
among the general public, thus making the marks famous. (FAC, ¶
10
11
117.)
The FAC clearly alleges that the GOLDLINE Marks are famous,
12
and that Defendants use the marks for purposes of disparaging
13
Plaintiff’s goods and services, endorsing Regal’s goods and
14
services, and directing potential sales to Regal. However, these
15
allegations do not satisfy the requisite elements for a dilution
16
claim. Specifically, Plaintiff fails to allege plausible facts
17
indicating that Defendants’ use of those marks diminishes or blurs
18
the distinctiveness of GOLDLINE Marks, for the reasons discussed in
19
Section IV(A), above.
20
fails.
21
marks has diluted the distinctive nature of the GOLDLINE Marks by
22
lessening the ability of the marks to identify and distinguish
23
Plaintiff as the sole source of its products and services, and
24
lessening the extensive and valuable goodwill associated with the
25
marks (FAC ¶¶ 119, 120.), these statements constitute only
26
conclusory allegations that merely recite a requisite element of
27
the claim. Under the principles of Twombly and Iqbal, the court
Without such allegations, Plaintiff’s claim
To the extent the FAC alleges that Defendants’ use of the
28
8
1
ignores such allegations for purposes of its Rule 12(b)(6)
2
analysis.
3
D.
4
5
Plaintiff Adequately States Claims Under RICO (Claims 9
and 10)
To plead a claim under RICO, a plaintiff must allege (1)
6
conduct (2) of an enterprise (3) through a pattern (4) of
7
racketeering activity (5) which injured his business or property.
8
Sedima, S.P.R.L. v. Imrex, Co., 473 U.S. 479, 496-97 (1985). If
9
fraudulent acts are the basis of the alleged pattern of
10
racketeering activity, Rule 9(b) requires the plaintiff to allege
11
its claims with particularity.
12
Furniture, Co., 806 F.2d 1393, 1400-01 (9th Cir. 1986).
Schreiber Distrib. Co. v. Serv-Well
13
In its complaint, Plaintiff alleges the following: (1)
14
Defendants are comprised of Regal and its many “affiliates”; (2)
15
during at least 2013 and 2014, Defendants have operated a scheme
16
whereby Regal pays commission to Affiliate Defendants to operate
17
websites over the internet; (3) the affiliates use scripts provided
18
by Regal that falsely advertise and fraudulently represent
19
Plaintiff’s goods and services; (4) the purpose of this scheme is
20
to divert customers away from Plaintiff, toward Regal; (5)
21
Defendants use a portion of the proceeds derived from this
22
operation to perpetuate the operation; and (6) as a result of
23
Defendants’ activities, Plaintiff has suffered loss of sales and
24
goodwill. (FAC, ¶¶ 132-160.)
25
26
27
28
The court finds these allegations satisfy the pleading
requirements for RICO claims under 18 U.S.C. 1962(a) and (c).
E.
Plaintiff Adequately States a Claim for Common Law Trade
Libel and Commercial Disparagement (Claim 11)
9
1
“Trade libel is the publication of matter disparaging the
2
quality of another’s property, which the publisher should recognize
3
is likely to cause pecuniary loss to the owner.”
4
Inc. v. Jackson, 93 Cal. App. 4th 993, 1010 (2001). This claim
5
includes “all false statements concerning the quality of services
6
or product of a business.” Id. (internal quotation and citation
7
omitted).
8
publication, (2) which induces others not to deal with plaintiff,
9
and (3) special damages.”
ComputerXpress,
A cause of action for trade libel must allege “(1) a
New Show Studios LLC v. Needle, No.
10
2:14-cv-01250-CAS, 2014 WL 2988271 at *13, (C.D. Cal. Jun. 30,
11
2014).
12
of a false and unprivileged statement of fact. Mann v. Quality Old
13
Tim Serv., Inc., 120 Cal. App. 4th 90, 104 (2004).
14
disparagement or defamation specifically involves injury to the
15
reputation of a business rather than disparagement of quality of
16
goods or services.
17
Cal. App. 4th 328, 340 (2006).
18
Furthermore, the claim requires the intentional publication
Commercial
See Mann v. Quality Old Time Serv., Inc., 139
The FAC alleges that Defendants intentionally published false
19
statements related to consumer ratings, customer complaints,
20
pending litigation, and industry ratings. (FAC, ¶¶ 27-31, 162-163.)
21
These statements disparaged the quality, integrity and security of
22
products and services provided by Plaintiff. (FAC, ¶ 163.)
23
Defendants made these statements knowing that the publication would
24
be harmful to Plaintiff’s business, and cause diversion of its
25
sales and harm to its interests. (FAC, ¶ 162.) These allegations
26
satisfy the requisite elements of the claim.
27
Regal’s challenge to this claim rests on the arguments that
28
none of its statements were false, and the alleged statements do
10
1
not disparage Plaintiff’s products and services. These arguments
2
are unavailing. First, the allegations of the FAC, which the court
3
deems true, expressly aver that Defendants statements are false.
4
Second, it is axiomatic that customer complaints and poor ratings
5
directly related to a business’s products and services negatively
6
impact the perceived quality of those products and services.
7
8
9
10
Based on the allegations contained in the complaint, the court
finds that Plaintiff has sufficiently pled this claim.
F.
Plaintiff Adequately States a Claim for Civil Conspiracy
(Claim 12)
11
Regal argues that, under California law, conspiracy cannot
12
form an independent claim for relief. Regal further argues that
13
because the alleged conspiracy involves misrepresentations and
14
fraud, Plaintiff must plead the elements of a fraud claim, which it
15
has not. The court disagrees.
16
The California Supreme Court has stated that civil conspiracy
17
must be activated by the commission of a actual tort, and it does
18
not per se give rise to a cause of action. Applied Equipment Corp.
19
v. Litton Saudi Arabia, Ltd., 7 Cal. 4th 503, 511 (1994).
20
not to say, however, that conspiracy cannot give rise to a claim
21
for relief under California law.
22
civil conspiracy and no action for conspiracy to commit a tort
23
unless the underlying tort is committed and damage results
24
therefrom.”
25
App. 4th 1105, 1136 (2014) (emphasis added).
26
plaintiff pleads an activating tort, the formation and operation of
27
a conspiracy, and damages to plaintiff resulting from an act done
That is
“There is no separate tort of
Prakashpalan v. Engstrom, Lipscomb and Lack, 223 Cal.
28
11
Thus, so long as a
1
in furtherance of the common design, a claim for civil conspiracy
2
may survive.
3
Applied Equipment, 7 Cal.4th at 311.
Based on Plaintiff’s allegations, particularly those stated in
4
Section IV.D, above, the court finds that Plaintiff has adequately
5
pled an underlying tort, along with the requisite elements for
6
civil conspiracy.
7
V.
8
9
Conclusion
For the reasons stated above, the court GRANTS the Motion to
Dismiss, in part.
Specifically, the court DISMISSES with leave to
10
amend Claims 1, 2, 6, and 7 of the FAC. The court denies Regal’s
11
motion as to all other claims.4 If Plaintiff chooses to file a
12
second amended complaint, it must do so within fourteen days of the
13
date of this Order.
14
IT IS SO ORDERED.
15
16
17
Dated: April 21, 2015
18
DEAN D. PREGERSON
United States District Judge
19
20
21
22
23
24
25
26
4
27
28
The court notes that the instant motion was filed by Regal’s
former counsel and taken under submission before transfer to the
undersigned. The motion is denied with respect to the RICO and
conspiracy claims without prejudice.
12
Case 1:14-cv-04411-RJS-RLE Document 32 Filed 03/19/15 Page 1 of 14
USDSSDNY
DOCUMENT
ELECTRONICALLY FILED
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
DOC#:~~~~--~­
DATE FILED: 3-J°!-
CLAUDE GALLAND, et al. ,
u:-
Plaintiffs,
No. l 4-cv-4411 (RJS)
OPINION AND ORDER ADOPTING
REPORT AND RECOMMENDATION
-v-
JAMES JOHNSTON, et al.,
Defendants.
RICHARD J. SULLIVAN, District Judge:
Claude and Violaine Galland (together, " Plaintiffs"), proceeding pro se, bring this action
against James and Judith Johnston (the "Johnstons"), and Stephen and Terri Bowden (the "Bowdens,"
and, together with the Johnstons, "Defendants") for, inter alia, breach of contract, defamation, and
tortious interference with business relations, stemming from reviews left by the Johnstons and the
Bowdens on a property rental website. (Doc. No. 2 ("Compl.").) Now before the Court is the Report
and Recommendation of the Honorable Ronald L. Ellis, Magistrate Judge, recommending that the
Court dismiss the Complaint with the exception of the breach of contract claims, deny Plaintiffs'
motion for summary judgment, and deny Plaintiffs' motion to amend the Complaint. (Doc. No. 30
("Rep." or "Report").) For the reasons set forth below, the Court adopts the Report in its entirety.
l. BACKGROUND
A. Facts
The Court assumes the parties' familiarity with the facts of this case and summarizes only
those facts necessary to the disposition of the pending motions. 1 Plaintiffs are the owners of an
1
Because the standard for dismissing a motion to amend on grounds of futility is identical to the standard for dismissing
a claim pursuant to Rule 12(b)(6) and Rule 12(c), the Court looks to facts from both the Complaint and the Proposed
Amended Complaint (Doc. No. 18 (the "PAC")) in deciding the motions. The Court has also considered the Johnstons'
memorandum of law in support of their motion to dismiss (Doc. No. 4), Plaintiffs' response and purported motion for
Case 1:14-cv-04411-RJS-RLE Document 32 Filed 03/19/15 Page 2 of 14
apartment in Paris, France (the “Apartment”), which they list on the short term property rental website
VRBO for rental by people traveling to Paris. (PAC ¶ 8.) From May 17 to May 23, 2014, the
Bowdens stayed in the Apartment, and from May 24 to May 28, 2014, the Johnstons stayed in the
Apartment. (PAC ¶ 63; PAC, Exhibits, at 43.) 2 Each couple signed a rental agreement prior to renting
the Apartment, in which they promised, among other things, “not to use blogs or websites for
complaints, anonymously or not.” (Compl., Exhibits, at 11.) Following their respective stays, each
of the Bowdens and Johnstons left a review of the Apartment on VRBO, connected to the Apartment’s
listing on that website. As set forth in the Proposed Amended Complaint, the Bowdens wrote:
Small and noisy but close to the Notre Dam [sic.]
This apartment was much smaller than it appeared in the pictures. There is a mirrored
wall that makes it look larger than it is. To be fair, it does compare in size with other
places I have stayed in Paris. It is in a very noisy neighborhood, The Latin Quarter,
and we could hear people on the street most of the night and on the weekends they
were very loud going up and down the stairs at all hours of the night!! Be prepared
for no air conditioner. There is a portable fan which was a big help. Pack light as
there is no closet and no drawers to put your clothes. The kitchen is really [too] small
to cook in other than fix coffee or heat something up. The bathroom is also tiny. I
would not recommend this for more than 2 people! On the plus side, it is attractive
enough and very close to the metro and Notre Dam [sic.].
(PAC ¶ 63.) The Johnstons wrote:
Retired couple We just left this apartment today. This was an awful experience. The studio itself will
look like the photo & the sheets are clean, but the entry “behind the blue door” is awful
and is shared as the back door to a Pizza Place. They prop the door open with a beer
keg, right next to the trash cans. Expect a 2 story climb of narrow stairs, sloping floor,
poor lighting, exposed utilities, broken and patched plaster. There is no way this Apt
is getting all 4 & 5 stars. The reviews are way too wordy and sound like the owner.
There was no mgr. Samy to help us even when we called him. Microwave didn’t work,
partial summary judgment (Doc. No. 10), the Johnstons’ reply in support of their motion to dismiss (Doc. No. 16), the
Johnstons’ opposition to Plaintiffs’ motion to amend the Complaint (Doc. No. 19), the Bowdens’ memorandum of law in
support of their motion to dismiss (Doc. No. 25), the Bowdens’ reply brief in further support of their motion to dismiss
(Doc. No. 26), and Plaintiffs’ opposition to the Bowdens’ motion (Doc. No. 27).
2
Both the Complaint and the PAC include exhibits, but neither numbers the exhibits or otherwise provides a system for
identifying them. Accordingly, in order to refer to exhibits, the Court will refer to the page on which a particular exhibit
lies within the PDF file of the Complaint or PAC. For example, here, the Johnstons’ rental agreement appears on the 43rd
page of the PDF containing the PAC.
2
Case 1:14-cv-04411-RJS-RLE Document 32 Filed 03/19/15 Page 3 of 14
hair dryer with broken wires shorted out. This self-described archeological building
is a physical mess and a fire hazard. We were embarrassed to enter and couldn’t wait
to get out of there. We have stayed in several lovely ancient apartments in Europe.
The building conditions always matched the interior of the apt. Don’t be deceived by
the #20279 advertisement.
(Id.)
Additionally, on or around June 26, 2014 – after the commencement of the instant lawsuit but
presumably before the Bowdens had been served with a copy of the Complaint, given the reference
to threatened litigation – Terri Bowden wrote a letter to VRBO, which was not posted or otherwise
available to the public, complaining about her experiences with Claude Galland. In the letter, she
noted that after she left her three-star review of the Apartment, Claude Galland sent her two emails
which she perceived to be “threatening and disturbing,” and which requested that she remove the
review from VRBO. The letter indicated that Mr. Galland offered the Bowdens $300 for the removal
of the review, which Terri Bowden found “equivalent to bribery and extortion.” The letter further
stated that Terri Bowden had “no intention of caving in to Mr. Galland’s threats and attempts to
intimidate me,” and wondered “how many people he has done this to and how many of those people
have been intimidated enough to withdraw their less than 4 to 5 star reviews. There is no way this
property could be considered to be 4 or 5 stars!” (PAC ¶ 63.) Finally, the letter requested that the
Gallands be banned from making any listing on VRBO or any affiliated website, because VRBO is
“not the place for a person who chooses to run his business in a threatening manner to get good
reviews.” (Id.)
B. Procedural History
On June 18, 2014, Plaintiffs commenced this action by filing the Complaint, bringing claims
for (1) breach of fiduciary duty, (2) breach of contract, (3) “intentional negligence,” (4) extortion, and
(5) defamation. (Compl. ¶¶ 36–40.) The gist of the Complaint is that the reviews left by the Johnstons
and the Bowdens, and the letter sent by Terri Bowden, are defamatory. On July 11, 2014, the
3
Case 1:14-cv-04411-RJS-RLE Document 32 Filed 03/19/15 Page 4 of 14
Johnstons filed a motion to dismiss the Complaint pursuant to Federal Rule of Civil Procedure
12(b)(6). (Doc. No. 4.) Plaintiffs filed an opposition to the Johnstons’ motion, along with a crossmotion for summary judgment as to the breach of contract claims, on July 28, 2014. (Doc. No. 10.)
On August 25, 2014, Plaintiffs filed a motion to amend the Complaint, together with the PAC. The
PAC adds a claim for tortious interference with business relations and, for the first time, sets forth in
their entirety the reviews and letter upon which the claims are based. The Johnstons filed an
opposition to the motion to amend on September 12, 2014. (Doc. No. 19.) On October 14, 2014, the
Bowdens filed a motion for judgment on the pleadings pursuant to Rule 12(c), along with a
memorandum of law in support of the motion. (Doc. Nos. 23–24.) That motion was fully briefed
following Plaintiffs’ opposition on October 27, 2014. (Doc. No. 27.)
On January 13, 2015, Judge Ellis issued the Report, which recommends that the Court dismiss
the Complaint with the exception of the breach of contract claims, deny Plaintiffs’ motion for
summary judgment, and deny Plaintiffs’ motion to amend the Complaint on grounds of futility.
(Rep.) On January 26, 2015, Plaintiffs timely filed objections to the Report.
(Doc. No. 31
(“Objections” or “Objs.”).) The Objections take exception to the Report’s (1) conclusion that
Defendants’ reviews are strictly opinion and do not constitute defamation, (2) failure to consider Terri
Bowden’s letter separately in assessing the defamation claims, and (3) conclusion that the Complaint
does not adequately allege that Plaintiffs’ business relationship was injured, such that the tortious
interference with business relations claim cannot lie. None of the Defendants filed any objections or
responded to Plaintiffs’ Objections.
II. LEGAL STANDARD
A. Motion to Dismiss
To survive a motion to dismiss pursuant to Rule 12(b)(6) or 12(c) of the Federal Rules of Civil
Procedure, a complaint must “provide the grounds upon which [the] claim rests.” ATSI Commc’ns,
4
Case 1:14-cv-04411-RJS-RLE Document 32 Filed 03/19/15 Page 5 of 14
Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 98 (2d Cir. 2007); Patel v. Contemporary Classics of Beverly
Hills, 259 F.3d 123, 126 (2d Cir. 2001) (The standard for granting a Rule 12(c) motion for judgment
on the pleadings is identical to that of a Rule 12(b)(6) motion for failure to state a claim.”); see also
Fed. R. Civ. P. 8(a)(2) (“A pleading that states a claim for relief must contain . . . a short and plain
statement of the claim showing that the pleader is entitled to relief . . . .”). To meet this standard,
plaintiffs must allege “enough facts to state a claim to relief that is plausible on its face.” Bell Atl.
Corp. v. Twombly, 550 U.S. 544, 570 (2007). “A claim has facial plausibility when the plaintiff
pleads factual content that allows the court to draw the reasonable inference that the defendant is
liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). In reviewing a
motion to dismiss for failure to state a claim, a court must accept as true all factual allegations in the
complaint and draw all reasonable inferences in favor of the plaintiff. ATSI Commc’ns, 493 F.3d at
98. However, that tenet “is inapplicable to legal conclusions.” Iqbal, 556 U.S. at 678. Thus, a
pleading that offers only “labels and conclusions” or “a formulaic recitation of the elements of a cause
of action will not do.” Twombly, 550 U.S. at 555. If the plaintiff “ha[s] not nudged [its] claims across
the line from conceivable to plausible, [its] complaint must be dismissed.” Id. at 570.
B. Motion to Amend the Complaint
Under Federal Rule of Civil Procedure 15(a), a “court should freely give leave [to amend a
pleading] when justice so requires.” However, the Court should deny leave to amend if there is
“evidence of undue delay, bad faith, undue prejudice to the non-movant, or futility.” Milanese v.
Rust-Oleum Corp., 244 F.3d 104, 110 (2d Cir. 2001). Futility is assessed based on the same standard
as dismissal for failure to state a claim, such that “leave to amend will be denied as futile only if the
proposed new claim cannot withstand a 12(b)(6) motion to dismiss for failure to state a claim.” Id.
5
Case 1:14-cv-04411-RJS-RLE Document 32 Filed 03/19/15 Page 6 of 14
C. Motion for Summary Judgment
Pursuant to Rule 56(a) of the Federal Rules of Civil Procedure, summary judgment should be
rendered “if the movant shows that there is no genuine dispute as to any material fact and the movant
is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). There is “no genuine dispute as to
any material fact” where (1) the parties agree on all facts (that is, there are no disputed facts); (2) the
parties disagree on some or all facts, but a reasonable fact-finder could never accept the nonmoving
party’s version of the facts (that is, there are no genuinely disputed facts), see Matsushita Elec. Indus.
Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986); or (3) the parties disagree on some or all
facts, but even on the nonmoving party’s version of the facts, the moving party would win as a matter
of law (that is, none of the factual disputes are material), see Anderson v. Liberty Lobby, Inc., 477
U.S. 242, 248 (1986).
In determining whether a fact is genuinely disputed, the court “is not to weigh the evidence
but is instead required to view the evidence in the light most favorable to the party opposing summary
judgment, to draw all reasonable inferences in favor of that party, and to eschew credibility
assessments.” Weyant v. Okst, 101 F.3d 845, 854 (2d Cir. 1996). Nevertheless, to show a genuine
dispute, the nonmoving party must provide “hard evidence,” D’Amico v. City of N.Y., 132 F.3d 145,
149 (2d Cir. 1998), “from which a reasonable inference in [its] favor may be drawn,” Binder & Binder
PC v. Barnhart, 481 F.3d 141, 148 (2d Cir. 2007) (internal quotation marks omitted). “Conclusory
allegations, conjecture, and speculation,” Kerzer v. Kingly Mfg., 156 F.3d 396, 400 (2d Cir. 1998), as
well as the existence of a mere “scintilla of evidence in support of the [nonmoving party’s] position,”
Anderson, 477 U.S. at 252, are insufficient to create a genuinely disputed fact. A moving party is
“entitled to judgment as a matter of law” on an issue if (1) it bears the burden of proof on the issue
and the undisputed facts meet that burden; or (2) the nonmoving party bears the burden of proof on
the issue and the moving party “‘show[s]’ – that is, point[s] out . . . – that there is an absence of
6
Case 1:14-cv-04411-RJS-RLE Document 32 Filed 03/19/15 Page 7 of 14
evidence [in the record] to support the nonmoving party’s [position],” see Celotex Corp. v. Catrett,
477 U.S. 317, 325 (1986).
D. Review of Report and Recommendation
The standard for reviewing a magistrate judge’s report and recommendation is well settled.
When no party objects, the Court may adopt the report if there is no clear error on the face of the
record. See Adee Motor Cars, LLC v. Amato, 388 F. Supp. 2d 250, 253 (S.D.N.Y. 2005). A magistrate
judge’s decision is “clearly erroneous” only if the district court is “left with the definite and firm
conviction that a mistake has been committed.” Easley v. Cromartie, 532 U.S. 234, 242 (2001)
(quoting United States v. United States Gypsum Co., 333 U.S. 364, 395 (1948)). When a party objects,
the objections “must be specific and clearly aimed at particular findings in the magistrate judge’s
proposal.” Harden v. LaClaire, No. 07-cv-4592 (LTS) (JCF), 2008 WL 4735231, at *1 (S.D.N.Y.
Oct. 27, 2008). “[I]f the party makes only conclusory or general objections, or simply reiterates his
original arguments, the Court reviews the Report and Recommendation only for clear error.” Dawson
v. Phillips, No. 03-cv-8632 (RJS) (THK), 2008 WL 818539, at *1 (S.D.N.Y. Mar. 25, 2008) (internal
quotation marks omitted); see also Forsberg v. Always Consulting, Inc., No. 06-cv-13488 (CS), 2008
WL 5449003, at *4 (S.D.N.Y. Dec. 31, 2008) (“[E]ven a pro se party’s objections to a Report and
Recommendation must be specific and clearly aimed at particular findings in the magistrate’s
proposal, such that no party be allowed a second bite at the apple by simply relitigating a prior
argument.”). However, “[t]he district judge must determine de novo any part of the magistrate judge’s
disposition that has been properly objected to.” Fed. R. Civ. P. 72(b)(3); 28 U.S.C. § 636(b)(1); see
also Grassia v. Scully, 892 F.2d 16, 19 (2d Cir. 1989) (explaining that § 636(b)(1) “affords the district
court broad latitude” in reviewing the magistrate judge’s recommendation).
7
Case 1:14-cv-04411-RJS-RLE Document 32 Filed 03/19/15 Page 8 of 14
III. DISCUSSION
With respect to the argument that Judge Ellis erred in concluding that the reviews are not
defamatory, Plaintiffs’ contention is a merely generalized assertion that is not aimed at any specific
finding in the Report, and simply reiterates arguments previously made to Judge Ellis. This purported
objection is thus improper as seeking a “second bite at the apple.” Thomas v. Astrue, 674 F. Supp.
2d 507, 511 (S.D.N.Y. 2009). Accordingly, the Court reviews the conclusion that Defendants’
reviews are not defamatory only for clear error, and has very little difficulty concluding that the
recommendation was not clearly erroneous. Indeed, to have concluded otherwise would most
certainly have constituted clear error. However, Plaintiffs do raise two objections properly: that
Judge Ellis failed to consider Terri Bowden’s letter separately in assessing Plaintiffs’ defamation
claims, and that Judge Ellis overlooked the fact that Plaintiffs pre-pay for VRBO ad space, such that
his conclusion that Plaintiffs’ business relations were unharmed by Terri Bowden’s letter was
erroneous. Accordingly, the Court will consider each of these objections de novo.
A. Defamation in Terri Bowden’s Letter
As to Plaintiffs’ contention that Terri Bowden’s letter to VRBO – separate from the reviews
left on the Apartment’s VRBO listing by the Bowdens and the Johnstons – was defamatory, the Court
concludes that dismissal of the defamation claim, and denial of the motion to amend as to the
defamation claim, is warranted. 3 “In New York, a plaintiff must establish five elements to recover in
libel: (1) a written defamatory factual statement concerning the plaintiff; (2) publication to a third
party; (3) fault; (4) falsity of the defamatory statement; and (5) special damages or per se
actionability.” Chau v. Lewis, 771 F.3d 118, 126–27 (2d Cir. 2014). To meet the first requirement,
3
All claims relating to Terri Bowden’s letter were first put forth in the PAC, as the letter was sent after the commencement
of this litigation.
8
Case 1:14-cv-04411-RJS-RLE Document 32 Filed 03/19/15 Page 9 of 14
the statement at issue must be “defamatory, it must be . . . factual – that is, not opinion – and it must
be . . . about the plaintiff, not just a general statement.” Id.
In New York, the determination of whether a statement is a fact or an opinion is left to the
Court. See, e.g., Belly Basics, Inc. v. Mothers Work, Inc., 95 F. Supp. 2d 144, 145 (S.D.N.Y. 2000). 4
“There is no bright line test to aid in determining whether a statement is one of opinion or fact, as
expressions of ‘opinion’ may often imply an assertion of objective fact.” Id. Rather, the Court must
consider three factors: “(1) whether the challenged statements have a precise and readily understood
meaning; (2) whether the statements are susceptible of being proven false; and (3) whether the context
signals to the reader that the statements are more likely to be expressions of opinion rather than fact.”
Cytyc Corp. v. Neuromedical Sys., Inc., 12 F. Supp. 2d 296, 302 (S.D.N.Y. 1998); see also Brian v.
Richardson, 660 N.E.2d 1126, 1129 (1995) (outlining the three factors). In considering context, the
Court must look to “the content of the communication as a whole, as well as its tone and apparent
purpose,” and should examine the “nature of the particular forum.” Brian, at 660 N.E.2d at 1129–30.
“When the defendant’s statements, read in context, are readily understood as conjecture, hypothesis,
or speculation, this signals the reader that what is said is opinion, not fact.” Sabratek Corp. v. Keyser,
No. 99-cv-8589 (HB), 2000 WL 423529, at *6 (S.D.N.Y. Apr. 19, 2000). Additionally, while
statements of opinion may imply a basis in fact and be actionable in defamation, statements of opinion
“that are accompanied by a recitation of supporting facts, or . . . that do not imply the existence of
such facts, are not.” Abbott v. Harris Publications, Inc., No. 97-cv-7648 JSM, 1998 WL 849412, at
*5 (S.D.N.Y. Dec. 4, 1998) (citing Gross v. New York Times Co., 623 N.E.2d 1163, 1168 (1993)
(“[A] proffered hypothesis that is offered after a full recitation of the facts on which it is based is
readily understood by the audience as conjecture.”)); see also Levin v. McPhee, 119 F.3d 189, 197
4
Although neither party addressed choice of law, the briefs assume New York law, and “such implied consent is sufficient
to establish choice of law.” Krumme v. WestPoint Stevens Inc., 238 F.3d 133, 138 (2d Cir. 2000) (internal quotation
marks omitted).
9
Case 1:14-cv-04411-RJS-RLE Document 32 Filed 03/19/15 Page 10 of 14
(2d Cir. 1997) (“Though some statements may be characterized as hypothesis or conjecture, they may
yet be actionable if they imply that the speaker’s opinion is based on the speaker’s knowledge of facts
that are not disclosed.”).
Here, after considering the three factors necessary to determining whether a statement is fact
or opinion – that is, whether the statement has a “precise and readily understood meaning,” whether
the statement is “susceptible of being proven false,” and whether the “context signals to the reader
that the statements are more likely to be expressions of opinion rather than fact,” Cytyc, 12 F. Supp.
2d at 302 – the Court concludes that all of the letter’s allegedly defamatory statements are pure
opinion and are thus non-actionable.
First, there is little doubt that statements reflecting that (1) “There is no way [the Apartment]
could be considered 4 or 5 stars!,” (2) “[Mr. Galland] has offered me $300 to rescind the review,
which in my mind is equivalent to bribery and extortion,” (3) “I have received 2 emails from Mr.
Galland which I found to be both threatening and disturbing in which he requested that I withdraw
my review or face legal action for ‘breach of contract,’” and (4) “I . . . do not wish to hear from Mr.
Galland again and would request that he be banned from advertising on VRBO or any affiliated sites,”
are opinion on their face. (PAC ¶ 63 (emphasis added).) Each of these statements is expressly
couched in terms indicating that the writer – Terri Bowden – was stating her opinion as to actions
undertaken by Galland, or as to the nature of the Apartment. Additionally, the letter recites that
Galland offered $300 in exchange for her taking down the VRBO review, and that Galland threatened
a lawsuit for breach of contract if she did not comply – neither of which is disputed by Plaintiffs –
without any suggestion that Terri Bowden premised her opinions on any facts besides these. Clearly,
the allegedly defamatory letter was written by a frustrated renter to VRBO in order to voice
dissatisfaction with the conduct of one of its property owners; read in context, the statements would
be immediately understood by any reasonable reader as opinion. In fact, the Proposed Amended
10
Case 1:14-cv-04411-RJS-RLE Document 32 Filed 03/19/15 Page 11 of 14
Complaint makes clear that the letter’s recipient – a VRBO representative – actually understood the
letter as opinion-based, since when he forwarded the letter to Plaintiffs, he noted, “We take complaints
seriously, but also understand that there are two sides to every story.” (PAC Ex. p. 57.)
Likewise, the letter’s reference to the fact that VRBO is “not the place for a person who
chooses to run his business in a threatening manner to get good reviews,” and its speculation as to
“how many people [Claude Galland] has done this to and how many of those people have been
intimidated enough to withdraw their . . . reviews,” are clearly opinions in context. Obviously, such
statements are not readily understood as having a precise meaning, nor are they susceptible of being
proven false. To the extent these statements imply any fact – e.g., that Plaintiffs run their business in
a threatening manner to maintain good reviews – the statements are accompanied by a recitation of
the facts on which they are based, as noted above. Indeed, in context, those very facts – that Mr.
Galland threatened Terri Bowden with litigation and offered her money in exchange for the rescission
of the review, and that the Apartment’s reviews are more positive than she would expect – clearly
demonstrate that her speculation regarding Plaintiffs’ conduct with other renters is just that:
speculation, based on her own experiences, as to whether Plaintiffs have engaged in the same conduct
with other renters. Her belief that Plaintiffs might be engaging in threatening and intimidating
conduct with other renters is based exclusively on the fact that she felt threatened and intimidated,
and any reasonable reader would have, in context, understood the letter to be expressing conjecture
and speculation, not fact. See Sabratek, 2000 WL 423529, at *6. Accordingly, the Court grants the
Bowdens’ motion to dismiss and denies Plaintiffs’ motion to amend insofar as the Complaint and
PAC are premised on Terri Bowden’s letter.
B. Tortious Interference with Business Relations
The Objections also challenge Judge Ellis’s conclusion that Plaintiffs’ proposed amendment,
which added a tortious interference with business relations claim, was futile. (See Objs. at 2; Rep. at
11
Case 1:14-cv-04411-RJS-RLE Document 32 Filed 03/19/15 Page 12 of 14
4.) Specifically, the Report found that the PAC failed to allege that Plaintiffs’ relationship with
VRBO was injured – which is an element of tortious interference with business relations under New
York law – such that amendment would be futile. 5 This conclusion was based in part on the fact that
Plaintiffs’ ads are still running on VRBO, but according to the Objections, those ads “were pre-paid
a year in advance,” and the fact that they remain is not evidence of a continuing relationship with
VRBO. (Objs. at 2.) However, even accepting the fact that Plaintiffs’ ad space with VRBO was prepaid – a fact alleged nowhere in the Complaint or PAC – Plaintiffs have still failed to affirmatively
plead the fact that the relationship between Plaintiffs and VRBO was actually injured. 6 Plaintiffs
have thus failed to plead a necessary element of their tortious interference with business relations
claim, and Judge Ellis correctly denied their motion to amend the complaint.
C. Remainder of the Report
Finally, the Court has carefully reviewed the rest of Judge Ellis’s recommendation and the
record, and, in the absence of any other objections, concludes that the Report is not otherwise clearly
erroneous. Accordingly, the Court adopts the remainder of the Report in its entirety.
IV. CONCLUSION
For the foregoing reasons, the Court adopts the Report in its entirety and HEREBY ORDERS
THAT the Johnstons’ and Bowdens’ motion to dismiss are GRANTED to the extent they seek
dismissal of all but the breach of contract claims and DENIED to the extent they seek dismissal of
5
The elements of tortious interference with business relations in New York are: “(1) there is a business relationship
between the plaintiff and a third party; (2) the defendant, knowing of that relationship, intentionally interferes with it; (3)
the defendant acts with the sole purpose of harming the plaintiff, or, failing that level of malice, uses dishonest, unfair, or
improper means; and (4) the relationship is injured.” Goldhirsh Grp., Inc. v. Alpert, 107 F.3d 105, 108–09 (2d Cir. 1997).
6
Judge Ellis correctly limited the tortious interference with business relations inquiry to Plaintiffs’ relationship with
VRBO, as opposed to Plaintiffs’ hypothetical relationships with future renters, since a relationship must presently exist
for it to form the basis of a tortious interference claim. See, e.g., Mahmud v. Kaufmann, 454 F. Supp. 2d 150, 162
(S.D.N.Y. 2006) (“To claim tortuous interference with a prospective business relationship a plaintiff must specify some
particular, existing relationship through which plaintiff would have done business but for the allegedly tortuous behavior.”
(alteration and internal quotation marks omitted)).
12
Case 1:14-cv-04411-RJS-RLE Document 32 Filed 03/19/15 Page 13 of 14
the breach of contract claims. IT IS FURTHER ORDERED THAT Plaintiffs' motion to amend the
complaint and motion for summary judgment as to the breach of contract claims are DENIED.
IT IS FURTHER ORDERED THAT the Johnstons shall file an answer to the Complaint with
respect to the sole remaining cause of action - the breach of contract claim - no later than April 13,
2015. The case shall remain referred to Judge Ellis for general pre-trial supervision and for a report
and recommendation on any dispositive motions, and the parties shall comply with any orders set
forth by Judge Ellis. The Clerk of the Court is respectfully directed to terminate the motions pending
at docket entry numbers 4, I 0, 18, and 22.
SO ORDERED.
Dated:
vE?~
March 19, 2015
New York, New York
RICJ4"'ARD J. SULLIVAN
UNITED STATES DISTRICT JUDGE
13
Case 1:14-cv-04411-RJS-RLE Document 32 Filed 03/19/15 Page 14 of 14
A copy of this Order has been sent to:
Claude and Violaine Galland
166 West 75th St
Suite 1214
New York, NY 10023
James and Judith Johnston
1025 Pinecrest Terrace
Ashland, OR 97520
14
Case: 1:14-cv-09111 Document #: 23 Filed: 03/25/15 Page 1 of 14 PageID #:142
UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
CDM MEDIA USA, INC.,
Plaintiff,
No. 14 CV 9111
v.
Judge Manish S. Shah
ROBERT SIMMS,
Defendant.
MEMORANDUM OPINION AND ORDER
Plaintiff CDM Media USA has sued its former employee, defendant Robert
Simms, for refusing to transfer control of a LinkedIn group the company says it
owns. Plaintiff also alleges that defendant wrongfully held onto the company’s
confidential information after he left the company, which he used in competition
with his former employer.
In a three-count amended complaint, plaintiff claims defendant’s conduct
constituted breach of contract, violation of the Illinois Trade Secrets Act, and
common law misappropriation. Defendant has moved under Rule 12(b)(6) to dismiss
the complaint in its entirety for failure to state a claim. For the following reasons,
defendant’s motion is granted in-part and denied in-part.
I.
Legal Standard
“A motion under Rule 12(b)(6) tests whether the complaint states a claim on
which relief may be granted.” Richards v. Mitcheff, 696 F.3d 635, 637 (7th Cir.
2012). Under Rule 8(a)(2), a complaint must include “a short and plain statement of
Case: 1:14-cv-09111 Document #: 23 Filed: 03/25/15 Page 2 of 14 PageID #:143
the claim showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). The
short and plain statement under Rule 8(a)(2) must “give the defendant fair notice of
what the claim is and the grounds upon which it rests.” Bell Atlantic Corp. v.
Twombly, 550 U.S. 544, 555 (2007) (quotation omitted). In reviewing the sufficiency
of a complaint, a court accepts the well-pleaded facts as true. Alam v. Miller
Brewing Co., 709 F.3d 662, 665-66 (7th Cir. 2013).
II.
Background
Plaintiff CDM Media USA, Inc. offers a variety of marketing and media
services to its customers [1-1]1 ¶ 8. “A crucial part of CDM’s business lies in its
contacts and the channels and methods for communicating with its clients and
prospective clients and developing products and services for those clients and
prospective clients.” Id. ¶ 11. As a result, CDM must “constantly develop new and
innovative ways to market itself and its services and communicate with its
customers and its potential customers . . . .” Id. ¶ 12.
Defendant Robert Simms worked for CDM from June 2009 until July 2014.
Id. ¶ 13. At the time he began working for plaintiff, defendant agreed to abide by
the company’s employee handbook. Id. ¶ 21. Among other things, the handbook
instructed defendant to keep certain of plaintiff’s information confidential and to
return plaintiff’s property when he left the company. Id. In March 2013, defendant
also entered into a non-compete agreement with plaintiff, which (1) required
defendant to return plaintiff’s confidential information upon leaving the company,
1
Citations to [1-1] refer only to the amended complaint contained in that document.
2
Case: 1:14-cv-09111 Document #: 23 Filed: 03/25/15 Page 3 of 14 PageID #:144
(2) prohibited defendant from competing with CDM for one year following his
departure, and (3) assigned defendant’s inventions to the company. Id. ¶¶ 24-26.
As part of the senior management team, defendant had access to
“confidential and restricted-access CDM materials including vendor and customer
lists and pricing and cost data.” Id. ¶ 14. For instance, defendant had access to
plaintiff’s Event Logistic Management database, in which the company stored some
of its “most sensitive information, including CDM vendor and customer lists, pricing
and cost data regarding its products and services, profit and loss information, etc.”
Id. ¶ 29. Access to this database was restricted and only a small number of senior
management had complete access. Id. ¶ 31.
In the spring of 2010, CDM launched a LinkedIn group called “the CIO
Speaker Bureau,” a private online community of chief information officers and
senior IT executives interested in participating in or speaking at CDM events. Id.
¶ 15. The names of Bureau members and the communications between members
were not generally available to the public at large. Id. ¶ 16. Membership in the
Bureau was controlled by CDM. Id. ¶ 17. Defendant was made CDM’s point person
for this LinkedIn group, as well as for the other online communities CDM used in
connection with its business. Id. ¶ 18. By the time defendant left CDM, membership
in the Bureau had grown to about 679 members. Id. ¶ 20. Plaintiff alleges that “the
Bureau and all rights therein or in connection therewith was at all times the
property of CDM.” Id. ¶ 48.
3
Case: 1:14-cv-09111 Document #: 23 Filed: 03/25/15 Page 4 of 14 PageID #:145
Defendant resigned from CDM in July 2014 and began working for one of
plaintiff’s larger customers, a company called Box. Id. ¶¶ 38, 40. Plaintiff asked
defendant to complete paperwork changing the contacts for the social media
accounts he had used in his work for CDM. Id. ¶ 49. Although defendant made the
changes for the other social media accounts, he refused to do it for the Speaker
Bureau LinkedIn group. Id. ¶ 50. Defendant likewise “refused to return the Bureau
membership list and Bureau communications,” and he later used the materials “to
compete against CDM by soliciting customers and vendors and potential customers
and vendors for competitive products and services in further violation of his NonCompete.” Id. ¶¶ 50, 52. Three customers advised plaintiff that defendant had
“solicited them in violation of his Non-Compete.” Id. ¶ 44.
Plaintiff also asked defendant to return any confidential information or other
company property in his possession. Id. ¶ 53. Although defendant told plaintiff he
had nothing of the like, plaintiff’s subsequent internal investigation revealed that
defendant had been using a personal cell phone to access the ELM database, and he
did not return the data stored on his phone. Id. ¶ 57.
Plaintiff filed a three-count complaint in state court, which defendant
removed to this court under 28 U.S.C. §§ 1332(a)(2) and 1446.2 Plaintiff seeks relief
based on theories of breach of contract, violation of the Illinois Trade Secrets Act
(765 ILCS 1065/1 et seq.), and common law misappropriation. Defendant has moved
2
Plaintiff is an Illinois corporation and defendant is a resident and citizen of Great Britain.
4
Case: 1:14-cv-09111 Document #: 23 Filed: 03/25/15 Page 5 of 14 PageID #:146
under Federal Rule of Civil Procedure 12(b)(6) to dismiss each of plaintiff’s three
claims.
III.
Analysis
A.
Count I – Breach of Contract
“Under Illinois law, a plaintiff looking to state a colorable breach of contract
claim must allege four elements: ‘(1) the existence of a valid and enforceable
contract; (2) substantial performance by the plaintiff; (3) a breach by the defendant;
and (4) resultant damages.’” Reger Development, LLC v. National City Bank, 592
F.3d 759, 764 (7th Cir. 2010) (quoting W.W. Vincent & Co. v. First Colony Life Ins.
Co., 351 Ill. App. 3d 752, 759 (1st Dist. 2004)). In this case, plaintiff claims
defendant breached his employment contract by (1) working for Box, (2) soliciting
plaintiff’s customers, (3) failing to transfer control of the LinkedIn group, and (4)
failing to return the contents of his personal cell phone. Plaintiff believes the
agreement defendant breached consisted of both the CDM Employee Handbook and
the non-compete.
1.
“The existence of a valid and enforceable contract”
Defendant argues that Count I should be dismissed because plaintiff has not
alleged a valid and enforceable contract. This argument is plainly incorrect with
regard to the non-compete, a signed copy of which defendant attached to his brief
(and which plaintiff referenced in the complaint). Defendant’s argument has more
merit, however, as concerns the CDM Employee Handbook. The signed non-compete
5
Case: 1:14-cv-09111 Document #: 23 Filed: 03/25/15 Page 6 of 14 PageID #:147
makes clear that no other agreement governed the parties’ relationship ([13-3]
¶ 5.3):
Employee acknowledges and agrees that his or her employment with
the Company exists solely at the will of either party and may be
terminated by either at any time without notice and with or without
cause. Employee likewise acknowledges and agrees that any employee
handbooks or policies and procedures of the Company are strictly
guidelines and do not constitute a contract between the Company and
the Employee. No employee or representative of the Company has any
authority to enter into any agreement contrary to the foregoing.
Although plaintiff alleges that defendant “agreed to follow the CDM employee
handbook,” [1-1] ¶ 21, this allegation does not plausibly support a breach of contract
claim in light of the non-compete’s explicit terms. And to the extent the handbook
was an enforceable contract when defendant started, the parties altered that
agreement when they entered into the non-compete.
2.
“Substantial performance by the plaintiff”
The non-compete does not place any affirmative obligations on plaintiff, other
than the implicit obligation to pay defendant. Along these lines, paragraph 28
explicitly states that “[i]n consideration for the Non-Compete, [defendant] enjoyed
continued employment with [plaintiff] and also received a car allowance.” Id. ¶ 28.
This adequately alleges substantial performance by plaintiff.
3.
“A breach by the defendant”
Defendant argues that plaintiff failed to allege a breach of § 2.2
(“Noncompetition”) or § 2.3 (“Customers”) of the non-compete. He first contends that
plaintiff has not alleged a breach of either section because the two provisions
regulate defendant’s activity with regard to plaintiff’s competitors not customers.
6
Case: 1:14-cv-09111 Document #: 23 Filed: 03/25/15 Page 7 of 14 PageID #:148
This argument stems from the allegation that Box was one of plaintiff’s “larger
customers.” [1-1] ¶ 40. But simply because Box was once plaintiff’s customer does
not mean it could not have become its competitor. If a customer wanted to enter into
a new market and start competing with its former vendor, a logical first step might
be to hire the vendor’s employees. Plaintiff’s allegation that defendant has been
competing for CDM’s customers while at Box is therefore plausible. Id. ¶¶ 2, 44-46.
Defendant next argues that the complaint fails to allege he performed
services for Box that were—as § 2.2 proscribes—“substantially similar to the
services he or she performed for” CDM. To be sure, the complaint does not contain
many details about the nature of defendant’s work for Box. But, construing the
pleadings in the light most favorable to plaintiff, the claim that defendant’s new job
is “substantially similarly” to his old one can be reasonably inferred from the
allegations that (1) defendant was partly responsible for business development at
CDM, (2) he now works for plaintiff’s (former) customer where he competes for
plaintiff’s current customers, and (3) he has been using CDM’s property and
confidential information in furtherance of that competition. Accordingly, I cannot
say as a matter of law that defendant is not performing services for Box that are
substantially similar to what he was doing at CDM.
Defendant next argues that, contrary to plaintiff’s claim, he was under no
duty to remit his personal cell phone when he left CDM. While true the complaint
demonstrates no such specific duty, that is not what plaintiff actually claims.
Instead, the company contends that defendant took data from the ELM database,
7
Case: 1:14-cv-09111 Document #: 23 Filed: 03/25/15 Page 8 of 14 PageID #:149
stored it on his personal phone, and then failed to return the data upon his
departure. Although defendant allegedly told plaintiff that he “did not have any
confidential information or property in his possession,” [1-1] ¶ 53, plaintiff clearly
alleges that this representation was false. Accepting plaintiff’s allegation as true,
defendant’s retention of plaintiff’s data constituted a breach of § 1.1 of the noncompete (“Return of Data”).
Finally, defendant argues that his alleged failure to transfer control of the
LinkedIn group could not have violated § 1.1 because the group does not “contain[]
or relate[] to Confidential Information.” At this early stage of the litigation,
however, I cannot conclude whether or not control of the Speaker Bureau falls
within the scope of § 1.1. For example, plaintiff alleges that defendant refused to
return “Bureau communications.” If these communications were private messages
between the members and plaintiff, which is reasonable to infer, they likely would
fall within § 1.1.
On Count I, defendant’s motion is granted as to all claims premised on the
CDM Employee Handbook, and denied as to the others.
B.
Count II – Illinois Trade Secrets Act
To state a claim under the Illinois Trade Secrets Act, a plaintiff must allege
(1) the existence of a trade secret, (2) misappropriation of that trade secret, and (3)
that the trade secret was used in the defendant’s business. See Strata Marketing,
Inc. v. Murphy, 317 Ill. App. 3d 1054, 1068 (1st Dist. 2000). The Illinois Trade
Secrets Act defines “trade secret” as:
8
Case: 1:14-cv-09111 Document #: 23 Filed: 03/25/15 Page 9 of 14 PageID #:150
[I]nformation, including but not limited to, technical or non-technical
data, a formula, pattern, compilation, program, device, method,
technique, drawing, process, financial data, or list of actual or potential
customers or suppliers, that: (1) is sufficiently secret to derive
economic value, actual or potential, from not being generally known to
other persons who can obtain economic value from its disclosure or use;
and (2) is the subject of efforts that are reasonable under the
circumstances to maintain its secrecy or confidentiality.
765 ILCS 1065/2(d). In addition to this statutory definition, Illinois courts have
identified six common-law factors relevant to evaluating whether information
qualifies as a trade secret:
(1) the extent to which the information is known outside the employer’s
business, (2) the extent to which it is known by employees and others
involved in the business, (3) the extent of the measures taken by the
employer to guard the secrecy of the information, (4) the value of the
information to the employer and to his or her competitors, (5) the
amount of effort or money expended by the employer in developing the
information, and (6) the ease or difficulty with which the information
could be properly acquired or duplicated by others.
Stenstrom Petroleum Services Group, Inc. v. Mesch, 375 Ill. App. 3d 1077, 1090 (2d
Dist. 2007). In this case, the alleged trade secrets are (1) the Speaker Bureau’s
membership list, (2) the “confidential information contained” in the LinkedIn group
(e.g., “private communications”), and (3) the contents of the ELM database. [1-1]
¶ 67.
1.
Speakers Bureau Membership List
Defendant believes Count II should be dismissed because the Speakers
Bureau LinkedIn group is not secret. Defendant points out that plaintiff announced
its creation through a press release. This argument is a non-starter, however,
because plaintiff does not claim the group’s existence to be secret—only its contents.
9
Case: 1:14-cv-09111 Document #: 23 Filed: 03/25/15 Page 10 of 14 PageID #:151
More generally, too little is known about the contents, configuration, and
function of the LinkedIn group at this time, to conclude as a matter of law that its
list of members did not constitute a trade secret. Plaintiff alleges that the group
contained the names of 679 current or potential customers, which information
“would be extremely valuable to competitors of CDM” because these members
“would be good candidates for some of the services and products offered by CDM
and/or good partners . . . .” Id. ¶ 72. The complaint states that the “Bureau was
developed over 4 years by CDM through great expenditures of time, cost and effort .
. . .” Id. ¶ 74. Plaintiff further alleges that “privacy setting[s] . . . limited access to
the Bureau online community.” Id. ¶ 69.
Defendant disagrees with plaintiff’s characterization.
He cites LinkedIn’s
“About Page,” its terms, and its conditions. Defendant also invites the court to visit
the Speaker Bureau’s page on LinkedIn. Defendant cites no authority for the
proposition, however, that judicial notice of any of these materials, or consideration
of the information they contain, is appropriate at this stage on a motion to dismiss
where the complaint plausibly alleges that the membership list was a valuable
secret commodity. Defendant’s evidence merely raises a factual issue that cannot be
resolved now.
On Count II, the motion is denied as to the Speaker Bureau membership list.
2.
“Confidential Information”
Plaintiff’s complaint gives little sense of what “confidential information” is
contained in the LinkedIn group other than saying there are “private
10
Case: 1:14-cv-09111 Document #: 23 Filed: 03/25/15 Page 11 of 14 PageID #:152
communications” about “the IT industry and the members’ business needs and
desires.” Id. ¶ 72. While a private communication can contain a trade secret, it is
not itself a trade secret. It is therefore insufficient for plaintiff to allege that the
LinkedIn group’s private communications were trade secrets under the Illinois Act.
Plaintiff must allege that certain messages—or at least classes of messages—
contained trade secrets, setting forth what it is about the messages that plausibly
satisfies the applicable definitions. For example, plaintiff must allege facts
supporting the inference that a message from a company sharing its business needs
is somehow CDM’s secret.
On Count II, the motion is granted as to the “confidential information”
contained in the Speaker Bureau group.
3.
ELM Database
Defendant says Count II should be dismissed because plaintiff does not allege
that defendant had access to the ELM database after he left the company. This
argument is not persuasive, however, because—as already noted—that is not
plaintiff’s claim. Instead, CDM alleges that defendant downloaded data from the
ELM database onto his personal phone and failed to return that data when leaving.
Nevertheless, this trade-secrets claim fails because plaintiff does not allege
that defendant actually used the data from the ELM database in his business.
Although plaintiff claims in its brief that it did so allege, nothing in the paragraphs
it cites (¶¶ 44-47) supports the inference that defendant used the ELM data to
11
Case: 1:14-cv-09111 Document #: 23 Filed: 03/25/15 Page 12 of 14 PageID #:153
solicit any customers. Instead, plaintiff acknowledges that “Simms had contact with
[the customers he allegedly solicited] while he was employed by CDM.” [1-1] ¶ 46.
The parties also debate whether the “inevitable disclosure doctrine” is
satisfied in this case. Under that rule, a plaintiff may bring a trade-secrets claim—
even if the trade secret has not yet been used—if the defendant “could not operate
or function without relying on [plaintiff’s] alleged trade secret.” Strata Marketing,
317 Ill. App. 3d at 1070. Plaintiff believes its complaint states a claim under this
theory and it cites paragraphs 73 and 75 in support. These paragraphs are
insufficient, however. Paragraph 73 merely describes how valuable the data in the
ELM database was, while paragraph 75 asserts only that:
Given Simm’s position and responsibilities while he was at CDM, given
his access to restricted and sensitive data while at CDM and given his
activities after leaving CDM, further disclosures of CDM trade secrets
and confidential information are so threatened that it is inevitable that
Simms will disclose other confidential information and trade secrets
belonging to CDM.
This sole paragraph is far too vague and conclusory to do all the work of stating a
claim under the inevitable disclosure doctrine. Plaintiff argues that this allegation
is “nearly identical to the allegations found to be sufficient” in Strata Marketing,
but a review of that decision demonstrates that its allegations were vastly more
specific about which information would inevitably be disclosed. See 317 Ill. App. 3d
at 1070-71.
On Count II, the motion is granted as to the ELM database.
12
Case: 1:14-cv-09111 Document #: 23 Filed: 03/25/15 Page 13 of 14 PageID #:154
C.
Count III – Common Law Misappropriation
Defendant argues that Count III should be dismissed because the Illinois
Trade Secrets Act preempts it. See 765 ILCS 1065/8(a) (“this Act is intended to
displace conflicting tort, restitutionary, unfair competition, and other laws of this
State providing civil remedies for misappropriation of a trade secret.”). Plaintiff’s
response is that it brings Count III, which does not depend on the information being
confidential, as an alternative to Counts I and II. The Seventh Circuit has
recognized that the Illinois Trade Secrets Act’s preemptive reach does not “apply to
duties imposed by law that are not dependent upon the existence of competitively
significant secret information.” Hecny Transportation, Inc. v. Chu, 430 F.3d 402,
405 (7th Cir. 2005). The contours of common law misappropriation are far from
clear in Illinois. But the tort has its genesis in International News Service v.
Associated Press, 248 U.S. 215 (1918), which involved the misappropriation of “hot
news”—not “competitively significant secret information.” Similarly, in Capitol
Records, Inc. v. Spies, 130 Ill. App. 2d 429 (1st Dist. 1970), the cause of action was
applied to a case involving the sale of unauthorized recordings of music albums—
again, not a situation involving “competitively significant secret information.” It
would appear, therefore, that like the torts of conversion, theft, and breach of
fiduciary duty, the tort of common law misappropriation is not necessarily
preempted by the Illinois Trade Secrets Act since it does not depend on secret
information.
13
Case: 1:14-cv-09111 Document #: 23 Filed: 03/25/15 Page 14 of 14 PageID #:155
Plaintiff’s Count III is quite brief, but it does distinguish itself from Counts I
and II through its lack of reference to confidential or secret information. Unlike
defendant’s cited case, Holman v. Indiana, 211 F.3d 399 (7th Cir. 2000), it is
therefore reasonable to read Count III as constituting an alternative theory of
liability.
On Count III, defendant’s motion to dismiss is denied.
IV.
Conclusion
Defendant’s motion to dismiss [13] is granted in-part and denied-in part.
ENTER:
___________________________
Manish S. Shah
United States District Judge
Date: 3/25/15
14
United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued October 20, 2014
Decided April 17, 2015
No. 14-1024
CHARLES WEIGAND,
PETITIONER
v.
NATIONAL LABOR RELATIONS BOARD,
RESPONDENT
On Petition for Review of an Order of
the National Labor Relations Board
John N. Raudabaugh argued the cause and filed the briefs
for petitioner.
Heather S. Beard, Attorney, National Labor Relations
Board, argued the cause for respondent. With her on the brief
were Richard F. Griffin, Jr., General Counsel, John H.
Ferguson, Associate General Counsel, Linda Dreeben,
Deputy Associate General Counsel, and Usha Dheenan,
Supervisory Attorney. Robert J. Englehart, Supervisory
Attorney, entered an appearance.
Before: KAVANAUGH, Circuit Judge, SRINIVASAN,
Circuit Judge, and EDWARDS, Senior Circuit Judge.
2
Opinion for the Court filed by Senior Circuit Judge
EDWARDS.
EDWARDS, Senior Circuit Judge: Charles Weigand
(“Weigand”) petitions for review of a decision and order of
the National Labor Relations Board (“Board”). Weigand
claims that the Board erred in dismissing his charge that the
Amalgamated Transit Union, Local Union No. 1433, AFLCIO (“Union” or “Respondent”) violated Section 8(b)(1)(A)
of the National Labor Relations Act, (“NLRA” or the “Act”),
29 U.S.C. § 158(b)(1)(A), by failing to remove derisive and
allegedly threatening comments posted on a Facebook page
maintained for Union members. The disputed comments,
which were written by some Union members without the
permission of the Union, appeared on Facebook when the
Union was on strike against Veolia Transportation Services in
Phoenix, Arizona (“Veolia” or the “Employer”). The
Facebook postings made disparaging remarks about people
who crossed the Union’s picket line. Weigand filed a charge
with the Board’s Acting General Counsel, who issued a
complaint alleging that the Union had committed an unfair
labor practice in violation of Section 8(b)(1)(A).
During the hearing before the Administrative Law Judge
(“ALJ”), the General Counsel argued that the Union had a
“duty to disavow” the Facebook comments, just as it might
have a duty to disavow picket-line misconduct. Amalgamated
Transit Union, Local Union No. 1433 (“Amalgamated Transit
Union”), 360 N.L.R.B. No. 44 (Feb. 12, 2014), slip op. at 5.
The ALJ rejected the General Counsel’s position, holding that
the “Facebook page is in no way ‘an electronic extension’ of
[the Union’s] picket line.” Id. The Board largely affirmed the
judgment of the ALJ. Id. at 1 & n.1. With respect to the
matter now before this court, the Board held that the Union
was not responsible for the Facebook comments because “the
3
individuals who posted the comments were neither alleged
nor found to be agents of the [Union].” Id. at 1 n.1. Two
members of the Board’s three-person panel also held that the
Facebook comments did not violate the Act because they
were not “threats” under Section 8(b)(1)(A). Id.
In his petition for review, Weigand does not challenge
the Board’s finding that the persons who posted the allegedly
threatening comments at issue in this case were not agents of
the Union. Instead, he argues that the Union should be held
responsible for the Facebook entries posted by Union
members because a Union officer controlled the Facebook
page. We disagree and therefore deny Weigand’s petition for
review.
In accepting most of the ALJ’s proposed rulings,
findings, and conclusions, the Board embraced the position
that the comments on the Union’s private Facebook page
were not analogous to misconduct on a picket line.
Undergirding this position are two important findings: first,
the Facebook page was not accessible or viewable by anyone
other than active Union members – that is, the derisive
messages were not aimed at either the public at large or at
non-union persons who opted to cross the picket line; and
second, the disputed postings were made by persons who
acted on their own without the permission of the Union. In the
Board’s view, the second finding is critical and dispositive.
See id. at 1 n.1. In light of these findings, the Board concluded
that the Union was not liable for the contested speech posted
by persons who were not acting as agents of the Union.
The Board’s decision regarding the Facebook postings is
“the product of reasoned decisionmaking,” Motor Vehicle
Mfrs. Ass’n of U.S. v. State Farm Mut. Auto. Ins. Co., 463
U.S. 29, 52 (1983), and it is supported by the record. In
4
circumstances such as this, “[w]hen the NLRB concludes that
no violation of the NLRA has occurred, that finding is upheld
unless it has no rational basis or is unsupported by substantial
evidence.” United Steelworkers of Am., Local 14534 v. NLRB,
983 F.2d 240, 244 (D.C. Cir. 1993) (internal quotation marks
omitted). On the record before us, we have no basis to
overturn the Board’s judgment that the Union was not liable
for the acts of non-agents. We need not reach the question
whether the disputed Facebook postings were “threatening,”
i.e., in the sense that they might have constituted a violation
of Section 8(b)(1)(A) if made by agents of the Union. We
leave this issue for another day.
Finally, in adopting the ALJ’s finding that the Union “did
not violate the Act by failing to remove certain comments
from its Facebook page,” the Board found it “unnecessary to
rely on the [ALJ’s] application of the Communications
Decency Act, 47 U.S.C. § 230” (“CDA”). Amalgamated
Transit Union, 360 N.L.R.B. No. 44, slip op. at 1 n.1.
Weigand argues that “[t]he Board erred in refusing to
consider and reverse the ALJ’s holding that the Union is not
liable under the CDA for posting threats on its Facebook
page.” Br. for Petitioner 6. We disagree. In resolving this
case, the Board properly applied the applicable law under the
NLRA. Therefore, we agree with Board counsel that the
Board “did not need to analyze the CDA as an additional
defense for the Union, let alone consider Weigand’s
unsupported assertion that the CDA somehow constitutes an
affirmative cause of action necessary to the Board’s analysis.”
Br. for the NLRB 11.
5
I.
BACKGROUND
A. Statutory and Legal Background
Section 7 of the NLRA protects employees’ rights “to
self-organization, to form, join, or assist labor organizations,
to bargain collectively through representatives of their own
choosing, and to engage in other concerted activities for the
purpose of collective bargaining or other mutual aid or
protection.” 29 U.S.C. § 157. Section 7 also guarantees the
right to “refrain from any and all of such activities.” Id.; see
also NLRB v. Granite State Joint Board, Textile Workers
Union of America, Local 1029, 409 U.S. 213, 216 (1972)
(“Under § 7 of the Act the employees have ‘the right to
refrain from any or all’ concerted activities relating to
collective bargaining or mutual aid and protection . . . .”).
Section 8(b)(1)(A) of the Act makes it “an unfair labor
practice for a labor organization or its agents . . . to restrain or
coerce . . . employees in the exercise of [their Section 7
rights].” 29 U.S.C. § 158(b)(1)(A).
B. Facts
At all relevant times, the Union was the exclusive
representative of a bargaining unit of full-time and part-time
bus drivers employed by Veolia. Weigand was an employee
of Veolia and a member of the collective bargaining unit
represented by the Union, but he was not a Union member.
From 2011 to 2012, the Union and Veolia were engaged in
collective bargaining negotiations regarding the terms of a
successor agreement. A breakdown in the negotiations led to a
six-day strike in March of 2012. During the negotiations and
the strike, the Union used the Facebook page to communicate
with members about its progress and its planned picket lines.
6
The Union’s Facebook account was created in 2010 by
then-Union Vice President Michael Cornelius (“Cornelius”).
The Facebook page could only be accessed by Union
members who were employed and in good standing with the
Union. No other persons had access to the site or could post
comments on the Facebook page. Leading up to and during
the strike, communications on the Facebook page by Union
members were often impassioned and bellicose. For example,
the posted comments included a rhetorical question asking if
the picketers could “bring the Molotov Cocktails” to picket
the hotel where the “scabs” were being housed. Amalgamated
Transit Union, 360 N.L.R.B. No. 44, slip op. at 4. However,
there were no allegations or findings of violence or untoward
disturbances during the Union strike.
C. Proceedings Below
In April 2012, Weigand filed an unfair labor practice
charge with the Board alleging that the Union had restrained
and coerced him in the exercise of his Section 7 rights. The
Acting General Counsel filed a complaint against the Union
alleging violations of Section 8(b)(1)(A) on the basis of the
posts on the Union’s Facebook page, statements made by
Cornelius at a monthly membership meeting on May 20,
2012, and verbal statements made by Union executive board
members and strike team leaders to persons who crossed the
picket line.
The Complaint alleged, in particular, that in mid-January
of 2012, comments posted on the Union’s Facebook page
“threatened employees with less favorable representation” and
“with physical harm because employees refused to participate
in Respondent’s strike against the Employer.” Amalgamated
Transit Union, 344 N.L.R.B. No. 44, slip op. at 3. The
Complaint also alleged that in March of 2012, the Union’s
7
Facebook page “threatened employees with violence by the
use of explosives because employees refused to participate in
Respondent’s strike against the Employer.” Id.
The ALJ found that the Facebook page was limited to
Union members in good standing. Indeed, as noted above, the
record is clear that no persons could post comments or even
see the Facebook page to view comments that had been
posted, unless they were members in good standing with the
Union.
It was neither alleged nor found that any of the contested
comments on the Facebook page had been posted by Union
officials or agents. And the Acting General Counsel did not
assert that the Union should be held liable for its members’
Facebook comments because the members were acting as
agents of the Union. Id. at 5. On this point, the Acting General
Counsel made it clear that “the Government does not rely on
an agency theory” in seeking to hold the Union liable for the
statements of members who acted on their own without
permission from the Union. Id. Rather, the Acting General
Counsel advanced a theory that the Union had a “duty to
disavow” any statements posted on the Facebook page that
were “unlawful threats.” Id. at 3. In support of this theory, the
Acting General Counsel relied on case law that holds a labor
organization responsible for its members’ picket-line
misconduct when it does not correct or disavow the
misconduct. The Acting General Counsel thus argued that the
Union’s Facebook page was “an electronic extension of
Respondent’s picket line.” Id. at 5. The ALJ rejected this
argument.
The ALJ’s opinion on this point, which was adopted by
the Board, offers the following rationale:
8
A picket line proclaims to the public, in a highly visible
way, that the striking union has a dispute with the
employer, and thus seeks to enlist the public in its effort
to place economic pressure on the employer. . . . The
picket line also signals to employees – both employees of
the struck employer and, in certain instances, employees
of other employers – that there is a labor dispute, to the
end that these employees will not cross the picket line but
instead will withhold their services. Thus, a picket line
makes visible in geographic space the confrontation
between the two sides.
In contrast, Respondent’s Facebook page does not
serve to communicate a message to the public. To the
contrary, it is private. Moreover, it does not draw any
line in the sand or on the sidewalk.
Unlike a website in cyberspace, an actual picket line
confronts employees reporting for work with a stark and
unavoidable choice: To cross or not to cross. Should
someone acting as a union’s agent make a threat while on
the picket line, the coercive effect is immediate and
unattenuated because it falls on the ears of an employee
who, at that very moment, must make a decision
concerning the exercise of his Section 7 rights.
Considering
the
marked
differences,
the
Respondent’s Facebook page certainly does not amount
to an extension of Respondent’s picket line and was not
created for that purpose. Respondent’s vice president,
Cornelius, fashioned the website to be a forum for the
sort of unfettered, candid discussion which typifies the
Internet.
Id.
As noted above, the Complaint also alleged that the
Union had committed unfair labor practices based on conduct
9
apart from the Facebook postings. As to one such complaint,
the ALJ found that statements made by Cornelius during a
Union membership meeting – which included a remark that
the persons who leaked the contents of the Facebook page to
the NLRB “should be ashamed of themselves” – did not
violate Section 8(b)(1)(A) because the statements were not
threats. Id. at 6. The ALJ also addressed a charge that Union
agents at the picket line threatened employees who crossed
the line. He found that these actions were coercive and
constituted unfair labor practices in violation of Section
8(b)(1)(A). Id. at 10.
The NLRB largely adopted the ALJ’s rulings, findings,
and conclusions. See id. at 1 & n.1. Two of the Board
members, Chairman Pearce and Member Hirozawa, would
have affirmed the ALJ’s proposed Order as to the Facebook
comments on two grounds: that the comments were not
threats under Section 8(b)(1)(A) of the NLRA and that the
people who made those comments were not agents of the
Union. Id. One Board member, Member Miscimarra, believed
that at least some of the comments could have been perceived
as threats. He concurred in the judgment, however, on the
ground that the Union was not responsible for the Facebook
comments that had been posted by non-agents. Id.
The Board agreed with the ALJ that the Union had
violated Section 8(b)(1)(A) when its agents made threatening
statements to employees on the picket line. The Board thus
ordered that the Union: (1) “[c]ease and desist from . . .
[t]hreatening employees that they will receive less favorable
representation because they exercised their right to refrain
from participating in a strike”; (2) cease and desist from
“restraining or coercing employees in the exercise of the
rights guaranteed them by Section 7 of the Act”; (3) post and
distribute electronically a notice to employees of their rights
10
under Section 7. Id. at 1. The Union has complied with the
Board’s order. Br. for the NLRB 9 n.6.
Weigand filed this petition for review, challenging only
the Board’s order regarding the Facebook comments.
II. ANALYSIS
“As we have noted many times before, our role in
reviewing [a] NLRB decision is limited. We must uphold the
judgement of the Board unless, upon reviewing the record as
a whole, we conclude that the Board’s findings are not
supported by substantial evidence, or that the Board acted
arbitrarily or otherwise erred in applying established law to
the facts of the case.” Wayneview Care Ctr. v. NLRB, 664
F.3d 341, 348 (D.C. Cir. 2011) (internal quotation marks
omitted). We afford “a very high degree of deference to
administrative adjudications by the NLRB.” United
Steelworkers, 983 F.2d at 244. Where, as here, the Board
adopts the ALJ’s findings and conclusions as its own, we
apply the same deferential standard to those findings and
conclusions. NLRB v. KSM Indus., Inc., 682 F.3d 537, 544
(7th Cir. 2012).
Before addressing the merits of this case, we must
dispose of arguments that Weigand has raised for the first
time on appeal. In his brief to the court, Weigand points to
two allegedly threatening comments posted on the Facebook
page by Cornelius when he was Union Vice President. Br. for
Petitioner 5. These claims came too late. In the Acting
General Counsel’s complaint and in the briefing before the
ALJ and the Board, it was never alleged that Facebook
comments posted by Cornelius constituted unfair labor
practices. The General Counsel, not the Charging Party, has
discretion to decide whether or not to issue a complaint, and
11
therefore exclusively controls the issues contained in the
complaint. See 29 U.S.C. § 153(d) (providing that the General
Counsel “shall have final authority . . . in respect of the
investigation of charges and issuance of complaints under
section 160 of this title, and in respect of the prosecution of
such complaints before the Board”); see also Int’l Union of
Operating Eng’rs, Local 150 v. NLRB, 325 F.3d 818, 830 (7th
Cir. 2003). Furthermore, although Weigand’s exceptions to
the ALJ’s decision referenced a comment posted by
Cornelius, he never specifically challenged the ALJ’s failure
to find that the Union committed any unfair labor practices on
the basis of any comment made by Cornelius. See N.Y. &
Presbyterian Hosp. v. NLRB, 649 F.3d 723, 733 (D.C. Cir.
2011) (holding that respondent failed to preserve issue on
petition for review where “the language [in respondent’s
exceptions to the ALJ’s decision] was too broad to put the
Board on notice” of respondent’s specific objection). And
during oral argument, counsel for Weigand conceded that his
client was not claiming that any comments posted by Union
agents were threats. Therefore, Weigand’s belated claims
regarding Cornelius are not properly before the court. Section
10(e) of the Act prevents us from considering an argument
raised for the first time on appeal. See 29 U.S.C. § 160(e)
(“No objection that has not been urged before the Board . . .
shall be considered by the court, unless the failure or neglect
to urge such objection shall be excused because of
extraordinary circumstances.”).
The sole question before the court is whether the Board’s
holding that the Union was not liable for the contested speech
posted on Facebook by persons who were not acting as agents
of the Union is supported by the record and consistent with
applicable law. In considering this question, our starting point
is Section 8(b)(1)(A), which applies only to conduct by “a
labor organization or its agents.” 29 U.S.C. § 158(b). If
12
neither the Union nor one of its agents is responsible for the
cited conduct then the conduct cannot form the basis of an
unfair labor practice charge against the Union.
Ordinarily, “[t]he agency relationship must be
established with regard to the specific conduct that is alleged
to be unlawful.” Cornell Forge Co., 339 N.L.R.B. 733, 733
(2003). Thus, in the context of alleged misconduct on a Union
picket line,
[t]he Board will, in applying these agency principles,
impute the conduct of the union’s pickets to the union
only where it is shown that the union, either actually or
impliedly, authorized the picket’s conduct beforehand or
ratified the conduct after it occurred. For example, where
an authorized union representative such as a union
official or picket captain participates in picketing
misconduct or is present at the time the misconduct
occurs, the Board will not hesitate to find that the union
is responsible. Similarly, where the union has knowledge
of its pickets’ misconduct, but fails to take steps
“reasonably calculated” to control that misconduct, the
Board readily imputes responsibility for the misconduct
to the union.
Teamsters Local 860, Int’l Bhd. of Teamsters, 229 N.L.R.B.
993, 994 (1977) (footnotes omitted) (holding that union could
not be responsible for isolated misconduct by picketers that it
was not aware of and had expressly forbidden); see also Soft
Drink Workers Union Local 812, 307 N.L.R.B. 1267, 1272–
73 (1992) (finding union violated Section 8(b)(1)(A) by
violent misconduct committed by its strikers, when acts were
done in the presence of union agents or done with apparent
authority of the union, but not when an alleged assault was
committed apart from any union activity and the striker
13
involved in the incident disappeared from the picket line,
“indicating that the union did not condone” his actions).
Even when there has been violence during a strike, the
Supreme Court has said that, while “[n]ational labor policy
requires that national unions be encouraged to exercise a
restraining influence on explosive strike situations . . . [t]here
can be no rigid requirement that a union affirmatively
disavow such unlawful acts as may previously have
occurred.” United Mine Workers of Am. v. Gibbs, 383 U.S.
715, 739 (1966). “What is required,” the Court has stated, “is
proof, either that the union approved the violence which
occurred, or that it participated actively or by knowing
tolerance in further acts which were in themselves actionable
under state law or intentionally drew upon the previous
violence for their force.” Id.
Weigand argues that “[w]hen a union officer/agent
creates and controls access to a union Facebook page, actively
participates [in] and initiates Facebook postings, participates
in unlawful misconduct or fails to admonish online union
members when misconduct occurs, the union should be held
responsible.” Br. for Petitioner 8. However, the cases cited by
Weigand involve misconduct on the picket line, which the
Board found inapposite. In adopting the ALJ’s opinion, the
Board reasoned that a private Facebook page available only to
union members is nothing like a Union’s picket line. In the
Board’s view, a picket line – unlike a private Facebook page
– is a “highly visible” signal to the public and all employees
of a dispute with the employer and the “coercive effect” of a
threat made on a picket line is “immediate and unattenuated.”
Amalgamated Transit Union, 360 N.L.R.B. No. 44, slip op. at
5. Weigand does not challenge the Board’s reasoning, and we
have no legitimate legal basis upon which to question it. In
stark contrast to violence or threats occurring on a picket line,
14
the speech complained of here occurred on a private forum on
the internet that was meant for Union members’ eyes only.
Weigand also argues that a union has a duty to disavow
allegedly threatening conduct that occurs out of the context of
picket line misconduct. In support of this position, he cites
Battle Creek Health System, 341 N.L.R.B. 882 (2004), and
NLRB v. Bulletin Co., 443 F.2d 863 (3d Cir. 1971). Reply Br.
for Petitioner 8. These cases are readily distinguishable,
however, because they involved situations in which union
officials or their agents were implicated in the misconduct. In
Battle Creek, the Board found that the union had committed
an unfair labor practice based on threats made by a union
agent in the employee break room. 341 N.L.R.B. at 892–93.
The union’s liability in that case was explicitly based on an
agency relationship. Id. at 894 (“I conclude that Mietz’[s]
statements, made as an agent of the Union, violated Section
8(b)(1)(A) of the Act.”). In Bulletin Co., the Board found that
the union had “ratified and condoned” “continual” harassment
and violent behavior towards non-union workers, that the
employer had complained to the union president to no avail,
and that the misconduct had escalated to a point where the
workers were sent home “for their own protection.” 443 F.2d
at 865–67 & n.4. These cases clearly do not support
Weigand’s position in this case.
The Union here did not authorize or otherwise condone
the posting of the contested messages on the Facebook page.
Weigand tries to overcome this point by suggesting that, in
maintaining the Facebook page, the Union somehow
facilitated the publication of threats against persons who
opted to cross the picket line. The record simply does not bear
this out. The Facebook page was private, for Union members
only. Indeed, Weigand and other non-Union persons could not
view the comments on the Facebook page. Therefore, the
15
most that can be said here is that the Union’s maintenance of
the Facebook page facilitated communications between Union
members, not threats against non-Union employees as in the
cases cited by Weigand. The Board reasonably concluded that
this was not a violation of the Act.
It is undisputed in this case that the Union members who
posted the comments on Facebook were not agents of the
Union. It is also undisputed that the Facebook page was
private to Union members only and was not meant to be seen
by anyone outside of the Union. Therefore, we have no
occasion to consider whether the legal considerations might
be different in a case in which real “threats” were posted by
union members on an open Internet site, i.e., communicated in
an open forum that could be readily viewed by persons who
were the subjects of the threats. Nor do we mean to suggest
that the Board is foreclosed from ever finding a union guilty
of unfair labor practices for postings on “closed” Internet
sites. We are in no position to speculate about the range and
limits of communications in the fast-changing world of social
media. Our denial of the petition for review is thus limited to
the record before us.
III. CONCLUSION
For the reasons set forth above, the petition for review is
denied.
So ordered.
8:14-cv-00049-JMG-CRZ Doc # 88 Filed: 03/30/15 Page 1 of 33 - Page ID # 1777
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEBRASKA
Infogroup, Inc., et al.,
Plaintiffs,
vs.
8:14-CV-49
MEMORANDUM AND ORDER
DatabaseLLC, et al.,
Defendants.
This matter is before the Court on the plaintiffs' motion for preliminary
injunction (filing 12), motion to strike affirmative defenses (filing 61), and
motion to dismiss counterclaims (filing 63). The Court will deny each of the
plaintiffs' motions.
I. BACKGROUND
The plaintiffs and the defendants are all, generally speaking, in the
information business: they compile databases about consumers and
businesses and they sell access to that information through various Web
sites. The plaintiffs are Infogroup, Inc., infoUSA, Inc., and infoUSA
Marketing, Inc. (collectively, Infogroup). Filing 23 at 1. The defendants are
DatabaseUSA.com and several individual employees of DatabaseUSA.com
(collectively, DatabaseUSA).1 Filing 23 at 1-2 The individual defendants are
all former employees of Infogroup—most pertinently, Vinod Gupta, the
founder of Infogroup, and a former officer and shareholder. Filing 23 at 2;
filing 13 at 2. Gupta founded DatabaseUSA after leaving Infogroup, and
there is no love lost between them.
Infogroup has pled several claims for relief, but as relevant to the
current motions, Infogroup's claims generally fall into three categories: (1)
DatabaseUSA's alleged acquisition of information from Infogroup's
To be precise, the primary defendant is "DatabaseUSA.com LLC d/b/a Database101.com,
d/b/a InfoFree.com, d/b/a AtoZ Databases." Filing 23 at 1. The names used by Infogroup
include infoUSA, Salesgenie.com, ReferenceUSA.com, and Credit.net. DatabaseUSA's
names include Infofree.com, AtoZdatabases, DB101, Database101.com, and Creditjam.com.
For present purposes, it is generally unnecessary to identify precisely which entity or Web
site has done (or is accused of doing) particular acts, and for the sake of clarity, the Court
will use the collective terms "Infogroup" and "DatabaseUSA" most of the time.
1
8:14-cv-00049-JMG-CRZ Doc # 88 Filed: 03/30/15 Page 2 of 33 - Page ID # 1778
proprietary database, (2) alleged false advertising regarding the extent to
which DatabaseUSA's information is "verified," and (3) alleged false
representations suggesting to potential customers that there is a corporate
relationship between DatabaseUSA's products and Infogroup.
1. PROPRIETARY INFORMATION
As mentioned above, the basis of Infogroup's business is its proprietary
database. To check the security of its database, Infogroup inserts "seed data"
into its listings, containing fictitious combinations of name, address, and
telephone number. Filing 14-1 at 3. Seed data is disbursed through the
database geographically, and per industry, on a monthly basis. Filing 32-2 at
19-20; filing 33-1 at 2. So, if Infogroup's seed data appears in the wild, in a
competitor's list, Infogroup knows that the competitor has somehow gained
access to Infogroup's information.2 Filing 14-1 at 3. But the word "somehow"
is important, because how the competition got information from Infogroup's
database makes all the difference when it comes to establishing liability—
and, as a precursor to liability, obtaining a preliminary injunction.
In June 2013, Infogroup found its November 2011 seed data in
DatabaseUSA's products.3 Filing 33-1 at 5; filing 40-1 at 2. Specifically,
Infogroup found all of the expected seeds for its November 2011 data set.
Filing 33-1 at 3. According to Infogroup's Vice President of Business
Optimization, the presence of November 2011 seed files—but no other seed
files—and the high match rate between Infogroup's data and DatabaseUSA's
data suggests that DatabaseUSA acquired Infogroup's full business database
at one point in time.4 Filing 40-1 at 2-3. Infogroup sued, theorizing that the
individual defendants—each of whom had left Infogroup and been hired by
DatabaseUSA—had provided DatabaseUSA with misappropriated data or
access to Infogroup's systems. Filing 23 at 7, 11, 13-14, 16-17.
The use of fictitious entries is an old, well-established technique used by compilers, such
as mapmakers, encyclopedists, and dictionary editors, to detect copyright infringement and
plagiarism. See Wikipedia, Fictitious Entry, http://en.wikipedia.org/wiki/Fictitious_entry
(last visited March 28, 2015).
2
Infogroup obtained DatabaseUSA's data under false pretenses to make its comparison.
The propriety of that act, while disputed by the parties, is not relevant at this point.
3
The parties have devoted a great deal of evidence and argument to expert analysis
disputing the extent to which samples of Infogroup's database "match" DatabaseUSA, how
precise that "match" needs to be to prove anything, and how high a "match" rate would be
meaningful. E.g., filing 48-2 at 3-25; filing 48-3 at 2-7; filing 78 at 15-17, 40-44, 53-61. But
the Court finds, from the seed files if nothing else, that Infogroup has sufficiently proven
that DatabaseUSA obtained a substantial portion, if not the entirety, of Infogroup's
database information at some point. How that happened is the more uncertain part.
4
-2-
8:14-cv-00049-JMG-CRZ Doc # 88 Filed: 03/30/15 Page 3 of 33 - Page ID # 1779
But DatabaseUSA's evidence pokes some holes in that theory. The
information in Infogroup's database is not wholly unavailable to the world at
large—to begin with, while some data may come from private sources or
Infogroup's own information-gathering, a substantial amount of the data is
compiled from publicly-available sources. Filing 32-2 at 5-6; filing 33-1 at 2.
And, of course, because Infogroup makes money by selling information, some
data is made publicly available after it is compiled. Some of Infogroup's data
is available to the public on search services such as Google, Yahoo!, Bing, and
Ask.com. Filing 32-2 at 8-10. The business database is available through a
reference service provided to libraries. Filing 32-2 at 10. Obviously, data sets
have been sold to customers, sometimes through resellers, although
Infogroup's licensed customers are prohibited by licensing agreements from
providing that data to DatabaseUSA. Filing 32-2 at 10-11; filing 33-1 at 12,
18-19. And DatabaseUSA points out that third parties have been able to
"scrape" database information from publicly-accessible sources and bundle it
for resale. Filing 33-2 at 4. Information from at least some of Infogroup's seed
files has been found in other competitors' data and on public search engines.
Filing 33-1 at 9-10; filing 33-3 at 69-225.
DatabaseUSA's evidence also casts substantial doubt on whether any of
the individual employee defendants could have obtained the data at issue.
Three of the five individual defendants were terminated by Infogroup before
the November 2011 seed data was inserted into the Infogroup database.
Another was not hired by DatabaseUSA until after the June 2013 audit that
discovered the seed data. And none of the former Infogroup employees (with
the presumable exception of Gupta, who was out the door by 2008) had the
necessary access to Infogroup's database to have perpetrated a heist.
None of that conclusively proves that the individual defendants were
uninvolved—for instance, someone might have been secretly working for
DatabaseUSA, exceeded his authorized access to Infogroup's database, or
been working with someone else at Infogroup. But there is no evidence of any
of that. Infogroup speculates that perhaps DatabaseUSA bought the
information from someone else who "scraped" it. Filing 39 at 4. But in the
end, it suffices to say this: it is certain that information from Infogroup's
proprietary database ended up in DatabaseUSA's hands, and it is wholly
uncertain how that happened.5
Infogroup's complaint alleges not only acquisition of its proprietary database, but also its
own customer list, and the software for its proprietary user interfaces. Filing 23 at 16-17. It
appears that only the database is at issue right now—there is nothing in the record about
the user interfaces, and Infogroup's brief in support of motion for preliminary injunction
describes "Infogroup Trade Secrets," for purposes of this motion, as "[t]he information
compilations that make up Infogroup's consumer and business databases." Filing 13 at 4.
5
-3-
8:14-cv-00049-JMG-CRZ Doc # 88 Filed: 03/30/15 Page 4 of 33 - Page ID # 1780
2. "VERIFIED" LISTINGS AND FALSE ADVERTISING
Infogroup claims that DatabaseUSA is falsely representing its database
entries as "verified" when they are not. Filing 23 at 9-11, 32-33. This claim,
factually, is mostly derived from the presence of Infogroup's seed files in
DatabaseUSA's database. DatabaseUSA promotes its database as "TripleVerified." Filing 14-2 at 36. When Infogroup marks a listing in its database
as "verified," that apparently means an Infogroup employee has confirmed
that the information is accurate and current. Filing 14-1 at 2. It is far less
apparent what a "verified" record means to DatabaseUSA. E.g., filing 48-1 at
2; filing 51 at 8. But there is evidence that DatabaseUSA promotes its
"verification process" as involving "original sources," telephone verification,
and Internet research. Filing 82-1 at 8; Ex. A.
DatabaseUSA displayed some of Infogroup's seed files as "verified"
records, stating that "Verified Records have been through our verification
process that includes phone verification, search engine research and business
website review." Filing 14-2 at 23. Infogroup's argument is simple: how could
DatabaseUSA have "verified" a fictitious entry? Filing 13 at 9. And Infogroup
points to other inaccuracies in supposedly-"verified" entries in
DatabaseUSA's data. Filing 82-3. But DatabaseUSA points out that even
Infogroup's seed files contain some real information. For instance, one of the
seed files at issue is a fictional business, but the address is a real place, and
the telephone number is a working number belonging to an Infogroup
employee. Filing 31 at 19. So, there is still some information that could be
"verified" by certain methods. DatabaseUSA also points to similar
inaccuracies among Infogroup's "verified" listings, filing 86-3, and argues that
even "verified" listings will sometimes be incorrect because information
changes and not every listing can be verified every day. Filing 85 at 12-13.
And DatabaseUSA presented evidence of the process that it uses, internally,
to verify the accuracy of its listings. Filing 33-2 at 2-3; filing 48-1 at 1-2.
3. FALSE REPRESENTATIONS ABOUT RELATIONSHIP BETWEEN COMPANIES
Infogroup claims that DatabaseUSA is making misleading statements,
in press releases and advertisements, that falsely imply an ongoing
relationship between Gupta and Infogroup, or DatabaseUSA and Infogroup.
Infogroup has presented evidence of these instances:

A press release about a managerial promotion at
AtoZdatabases said that the promoted employee had "spent
eight years at InfoGroup, a similar reference company that
shares the same Founder, Vin Gupta." Filing 14-2 at 25.
-4-
8:14-cv-00049-JMG-CRZ Doc # 88 Filed: 03/30/15 Page 5 of 33 - Page ID # 1781

A press release about a private equity investment in
infofree.com said that it "was founded by and is under the
leadership of industry pioneer Vin Gupta, proprietor of
companies such as infoUSA and Salesgenie. He brings nearly
40 years of experience in building databases, creating sales
leads, and helping salespeople and small businesses to his new
company." Filing 14-2 at 27.

A press release touting customer savings at infofree.com
included a quotation from Gupta, "who also founded InfoUSA,
infogroup, and Sales Genie." Filing 14-2 at 30.

A promotional article published on infofree.com described it as
having been "started by the founder and former head of
InfoGroup, Vin Gupta." Filing 14-2 at 33.

An advertising letter to a "loyal customer" from DatabaseUSA
included a picture of Gupta at the bottom, and a facsimile of
his signature; the picture was captioned, "Vin Gupta, Founder
& Chairman (also Founder of infoUSA)." Filing 14-2 at 36.

DatabaseUSA uses Google AdWords, or similar products with
other search engines, to place DatabaseUSA advertisements in
proximity to search results when a consumer searches for
Infogroup marks. Filing 82-1 at 25-26; filing 82-2 at 5, 7.

A letter sent to Gupta by President Bill Clinton is posted on
infofree.com. The letter, sent to Gupta in 1998, was addressed
to Gupta as the "Chairman and Chief Executive Officer" of
infoUSA. Filing 82-1 at 5, 33-34.

DatabaseUSA advertising describes DatabaseUSA as "Serving
the Database Industry Since 1972" or "Creators of the Finest
Databases Since 1972." Filing 82-1 at 28-29, Ex. A; filing 82-2
at 9. As Infogroup points out, it was Infogroup that was
founded in 1972; DatabaseUSA was founded in 2009. Filing
82-1 at 16.
Infogroup also complains about excerpts of a "60 Minutes" segment that
are played in a video on infofree.com, and referenced in DatabaseUSA
advertising. The story, originally aired in August 2003, was meant to alert
viewers to the amount of personal information that was being sold to data
-5-
8:14-cv-00049-JMG-CRZ Doc # 88 Filed: 03/30/15 Page 6 of 33 - Page ID # 1782
companies. Filing 82-2 at 15-21. Gupta, then the CEO of infoUSA, was
interviewed for the story, and the portions of the video played by
DatabaseUSA include Gupta describing the detailed data that infoUSA had
compiled about businesses and consumers. Filing 82-2 at 16-18.
The video was recorded at infoUSA while Gupta was in charge there,
but the clips played by DatabaseUSA do not identify the company. Filing 821, Ex. A, Ex. E. DatabaseUSA contends that it has permission from Infogroup
to use those clips, pursuant to a prior agreement. Filing 14-2 at 42. But
DatabaseUSA's advertising also makes repeated claims to the effect that its
databases are "so good, they were featured on '60 Minutes.'"6 Filing 82-1 at
20, 22, Ex. A, Ex. E; filing 82-2 at 9.
Infogroup contends that references by DatabaseUSA to Infogroup have
led to confusion among consumers about the association among the various
business entities. Infogroup cites these instances:

The "loyal customer" advertising letter described above, sent
to an Infogroup customer, caused the recipient to contact
Infogroup asking if Infogroup and DatabaseUSA were the
same company. Filing 14-1 at 8; Hr'g Ex. 2.

In September 2012, two consumers called Infogroup asking
about an advertising special that was being offered by
infofree.com. Filing 14-1 at 8-9.

A customer question posted at infofree.com's customer support
portal asked, "You are not part of Sales Genie are you?" An
agent replied, "Yes, that is correct. Vin Gupta was the founder
of InfoUSA (Sales Genie), but sold it and is not the CEO of
infofree.com which is a separate company." Filing 14-2 at 38.

A customer of Infogroup sent an email to an Infogroup account
executive asking for a copy of a particular invoice, but when
the account executive replied that no such invoice existed, the
customer replied, "You are info free correct?" Filing 14-2 at 40.
Infogroup also points to these claims, and DatabaseUSA's advertising dating itself to
1972, as instances of false advertising. E.g. filing 81 at 15. But, as described below,
Infogroup has not asked the Court to enjoin such conduct except to the extent that it might
suggest an ongoing relationship between DatabaseUSA and Infogroup. See filing 81 at 24.
So, the Court only considers this evidence in that context.
6
-6-
8:14-cv-00049-JMG-CRZ Doc # 88 Filed: 03/30/15 Page 7 of 33 - Page ID # 1783

In a telephone call from a consumer to Infogroup, the
consumer said that he had been told (by whom is unclear) that
"the Database USA company was the one that has been
around forever." Filing 82-1, Ex. C.

A customer had been exchanging emails with a DatabaseUSA
sales manager for several months regarding a purchase. When
an email wasn't replied to for a couple of days, the customer
emailed an Infogroup employee he had apparently also been in
contact with to ask about it, implying that he believed the two
worked for the same company.7 Hr'g Ex. 3.

An email exchange between Gupta and Infogroup's CEO
referenced a recorded call to Infogroup from a customer who
apparently used both businesses, and an email from an
Infogroup customer about a DatabaseUSA promotional email
that he was repeatedly receiving. Hr'g Ex. 5, 6, 7. But the
voice recording is not in the record (or if it is, it is not
identified as such), and it is not clear from the email exchange
what either customer was confused about, or why.8
II. DISCUSSION
As noted above, Infogroup's audit detected its seed files in
DatabaseUSA's database in June 2013. But Infogroup waited several months
to file suit. See filing 1. Infogroup explains that at the time, Infogroup and
Gupta were codefendants in litigation arising from events that occurred while
Gupta was associated with Infogroup. Filing 40-2 at 1. Infogroup, needing
Gupta's participation and cooperation with that litigation, waited until it was
resolved to file suit against him. Filing 40-2 at 2; filing 78 at 45-49. But as
soon as that litigation concluded, Infogroup determined to settle all family
It may be worth noting that the DatabaseUSA sales manager promptly replied to the
second email and explained that the two worked at separate companies. Hr'g Ex. 3 at 1.
7
Infogroup also accused a DatabaseUSA representative of calling an Infogroup customer
and claiming to represent Infogroup. Filing 81 at 10-11; filing 82-1, Ex. K. Infogroup claims
that this conduct violated the Lanham Act, the Nebraska Deceptive Trade Practices Act,
and the Nebraska Consumer Protection Act, and was common-law tortious interference
with a business expectancy. Filing 81 at 16-20. But that was based solely on what the
customer reported to an Infogroup account representative. DatabaseUSA has provided a
detailed account history from the DatabaseUSA employee whose conduct is at issue, along
with documentation and recordings that, it suffices to say, cast substantial doubt on the
customer's story. Filing 86-1. The Court does not find Infogroup's evidence on this point to
be credible, and will not discuss it further.
8
-7-
8:14-cv-00049-JMG-CRZ Doc # 88 Filed: 03/30/15 Page 8 of 33 - Page ID # 1784
business: it initiated the present case and moved for a preliminary injunction.
See filing 12. Limited discovery, an evidentiary hearing, and extensive
briefing have been had on that motion.9 DatabaseUSA also raised several
affirmative defenses and alleged several counterclaims in its answer to
Infogroup's operative complaint. See filing 60. Infogroup, in turn, moved to
strike DatabaseUSA's affirmative defenses and dismiss some of its
counterclaims. Filing 61; filing 63.
So, there are three pending motions that require disposition: a motion
for preliminary injunction (filing 12), a motion to strike (filing 61), and a
motion to dismiss (filing 63). The Court will address each in turn.
1. MOTION FOR PRELIMINARY INJUNCTION
At the time of the hearing on Infogroup's motion for preliminary
injunction, Infogroup had narrowed its request for injunctive relief to the
following proposed terms:
1.
Absent Infogroup's written permission, DatabaseUSA
should be enjoined and restrained from "[a]cquiring data
directly from Infogroup, or from sources that expressly
purport to offer Infogroup data compilations in their
published descriptions."
2.
DatabaseUSA should be enjoined and restrained from
making false or deceptive statements of fact regarding the
extent to which it has verified the accuracy of each of its
business listings.
3.
DatabaseUSA should be enjoined and restrained from
"[r]eferencing or using any of Infogroup’s registered or
unregistered trademarks . . . except in in statements of fact,
or statements conspicuously labeled as statements of
opinion, which statements shall include clear disclaimers
stating that Infogroup is the registered owner" of the mark
and has no association with DatabaseUSA.
Evidence was adduced at the hearing that was received subject to several objections, most
pertinently hearsay, relevance, foundation, and proper notice. Filing 78 at 21-23, 26-31, 34,
67. To make sure the record is clear: the Court will, for purposes of these motions, overrule
those objections. The Court finds, based on its disposition of these motions and
DatabaseUSA's opportunity to meet the evidence at the hearing and in subsequent filings,
that DatabaseUSA was not prejudiced by any belated disclosure. And the Court finds that
DatabaseUSA's other objections go to the weight, not the admissibility, of the evidence.
9
-8-
8:14-cv-00049-JMG-CRZ Doc # 88 Filed: 03/30/15 Page 9 of 33 - Page ID # 1785
4.
DatabaseUSA should be enjoined from publishing any
marketing materials "claiming or suggesting the existence
of any past or present association" with Infogroup or "to the
effect that Gupta founded InfoUSA, or any Infogroup
company."
See filing 81 at 24. As a way of combing through the often-interwoven tangle
of factual allegations and legal theories presented by the parties, the Court
has focused on the proposed injunction: only those facts or claims relevant to
the terms of the proposed injunction need be considered.
When deciding whether to issue a preliminary injunction, the Court
weighs the four Dataphase factors: (1) the threat of irreparable harm to the
movant; (2) the state of the balance between this harm and the injury that
granting the injunction will inflict on other parties; (3) the probability that
the movant will succeed on the merits; and (4) the public interest. Johnson v.
Minneapolis Park & Recreation Bd., 729 F.3d 1094, 1098 (8th Cir. 2013);
(citing Dataphase Sys., Inc. v. C L Sys., Inc., 640 F.2d 109, 114 (8th Cir. 1981)
(en banc)). A preliminary injunction is an extraordinary remedy, and the
movant bears the burden of establishing its propriety. Roudachevski v. AllAmerican Care Centers, Inc., 648 F.3d 701, 705 (8th Cir. 2011); see also H&R
Block Tax Servs. LLC v. Acevedo-Lopez, 742 F.3d 1074, 1077 (8th Cir. 2014).
As will be explained below in more detail with respect to Infogroup's
separate claims, the Court finds that the Dataphase factors weigh against a
preliminary injunction in this case. In particular, the Court is not persuaded
that Infogroup has shown a likelihood of success on the merits sufficient to
warrant an injunction. And the Court bases that conclusion, in part, on
Infogroup's failure to show how it has been injured by DatabaseUSA's
allegedly-wrongful conduct—which means, in turn, that Infogroup's showing
of irreparable harm—or, indeed, any harm—is also deficient.
(a) Proprietary Information
Infogroup's claim regarding its database rests, for purposes of the
present motion, on the Nebraska Trade Secrets Act, Neb. Rev. Stat. §§ 87-501
et seq. See, filing 13 at 12-17; filing 81 at 21.10 It is important to note, from
That is to say that, while Infogroup has alleged other claims for relief based on these
facts in its operative complaint (like, for instance, the Computer Fraud and Abuse Act),
Infogroup's briefing in support of preliminary injunctive relief raises only the Trade Secrets
Act as a claim on which Infogroup argues it has proven a likelihood of success on the
merits. The Court's analysis is, as to each of Infogroup's specific requests for injunctive
relief, limited to the theories of recovery Infogroup has specifically raised in support of its
motion for a preliminary injunction.
10
-9-
8:14-cv-00049-JMG-CRZ Doc # 88 Filed: 03/30/15 Page 10 of 33 - Page ID # 1786
the outset, that Infogroup does not propose that DatabaseUSA be required to
scrub its existing database of any data that may have originated with
Infogroup. See filing 78 at 11-12. Rather, Infogroup proposes an injunction
that would, as described at the evidentiary hearing,
say don't obtain our data going forward and to the degree that
they're doing something called webscraping which involves
basically programming a computer -- it's basically a computer
program that accesses various Internet websites and extracts
data and then they put it in their database and they do whatever
it is they do with it, to the degree that those websites state that
those -- that information was powered by or provided by
Infogroup, just don't use it.
Filing 78 at 12.
But that poses a problem for the Court, because it is questionable
whether the activity Infogroup wants enjoined is actually proscribed by the
Trade Secrets Act. To prevail under the Trade Secrets Act, Infogroup would
need to prove, among other things, the existence of a trade secret and
DatabaseUSA's misappropriation of it. See, Neb. Rev. Stat. §§ 87-502 to 504;
Richdale Development Co. v. McNeil Co., Inc., 508 N.W.2d 853, 859 (Neb.
1993). And Infogroup's argument is strained on both points.
To begin with, under Nebraska law, a "trade secret" is defined as
information that:
(a)
Derives independent economic value, actual or potential,
from not being known to, and not being ascertainable by
proper means by, other persons who can obtain economic
value from its disclosure or use; and
(b)
Is the subject of efforts that are reasonable under the
circumstances to maintain its secrecy.
Neb. Rev. Stat. § 87-502(4). That definition is narrow; it means that "if an
alleged trade secret is ascertainable at all by any means that are not
'improper,' the would-be secret is peremptorily excluded from coverage under
the [Act]." First Express Servs. Grp., Inc. v. Easter, 840 N.W.2d 465, 474 (Neb.
2013) (emphasis in original) (citations and quotations omitted).
So, for instance, in Easter, the Nebraska Supreme Court concluded that
the Trade Secrets Act did not protect the customer list of a company that sold
crop insurance, which included "customers' names and their 2009
information: what crops the farmers had, what counties the crops were
- 10 -
8:14-cv-00049-JMG-CRZ Doc # 88 Filed: 03/30/15 Page 11 of 33 - Page ID # 1787
located in, what insurance plan the farmers bought, what percentage of
coverage each farmer had, and what commission [the insurer] had earned."
Id. at 469. The court explained that "simple Internet searches could identify
which farmers farmed what land and could provide contact information for
those farmers." Id. at 475. And the other
information on the list essentially reflected the farmers' previous
insurance coverage on their crops. It is undisputed that the
individual farmers had all of that information and that [the
defendant] could have obtained the information from them
through a simple telephone call. Also, once a customer changed
agencies, all of the customer's prior insurance information
became available from the insurance carrier's Web site. Though
the exact information required to transfer a customer is a bit
unclear, the record shows that, at most, all that is required is the
customer's name, address, type of crops, and signature, all of
which are ascertainable by proper means.
Id. So, because the information on the customer list was ascertainable
through proper means, the court concluded as a matter of law that it was not
a trade secret. Id. at 476. Similar reasoning applies here.
Nor is Infogroup likely to be able to prove that purchasing or using lists
that were obtained by "webscraping" is "misappropriation" under the Trade
Secrets Act. "Misappropriation" is defined as:
(a)
Acquisition of a trade secret of another by a person who
knows or has reason to know that the trade secret was
acquired by improper means; or
(b)
Disclosure or use of a trade secret of another without
express or implied consent by a person who:
(i)
Used improper means to acquire knowledge of the
trade secret;
(ii)
At the time of the disclosure or use, knew or had
reason to know that his or her knowledge of the trade
secret was:
(A)
Derived from or through a person who had
utilized improper means to acquire it;
- 11 -
8:14-cv-00049-JMG-CRZ Doc # 88 Filed: 03/30/15 Page 12 of 33 - Page ID # 1788
(iii)
(B)
Acquired under circumstances giving rise to a
duty to maintain its secrecy or limit its use; or
(C)
Derived from or through a person who owed a
duty to the person seeking relief to maintain its
secrecy or limit its use; or
Before a material change of his or her position, knew
or had reason to know that the information was a
trade secret and that knowledge of it had been
acquired by accident or mistake[.]
Neb. Rev. Stat. § 87-502(2). "Improper means," in turn, are "theft, bribery,
misrepresentation, breach or inducement of a breach of a duty to maintain
secrecy, or espionage through electronic or other means[.]" Neb. Rev. Stat. §
87-502(1).
Clearly, if DatabaseUSA obtained direct possession of Infogroup's
database—by, for instance, working with an Infogroup employee or accessing
Infogroup's system without permission, or obtaining data from someone it
knew had—that would be "misappropriation" under the Trade Secrets Act.
And if Infogroup's internal database contained information that was not
publicly available, or perhaps was the product of Infogroup's time and effort
in developing information, then the database might be a "trade secret" under
Nebraska law. Cf. Easter, 840 N.W.2d at 475. But there is no evidence
proving such corporate espionage here. As a result, Infogroup has made little
showing of its likelihood to succeed on the merits of its Trade Secrets Act
claim. A party seeking injunctive relief need not necessarily show a greater
than 50 percent likelihood that it will prevail on the merits. Planned
Parenthood Minnesota, North Dakota, South Dakota v. Rounds, 530 F.3d 724,
731 (8th Cir. 2008). But there must be some showing, and here there is not:
to the extent that Infogroup's motion is focused on "webscraping," such
conduct is not unlawful under Nebraska law.
And to the extent that Infogroup's motion is more broadly directed—
that is, at "acquiring data directly from Infogroup" or from someone who
had—then there has been no showing of irreparable harm. To show a threat
of irreparable harm, the movant must show that the harm is certain and
great and of such imminence that there is a clear and present need for
equitable relief. Roudachevski, 648 F.3d at 706. Stated differently, the harm
"must be actual and not theoretical." Brady v. Nat'l Football League, 640 F.3d
785, 794 (8th Cir. 2011). And here, the evidence does not prove that
DatabaseUSA has violated the Trade Secrets Act by hacking or copying
- 12 -
8:14-cv-00049-JMG-CRZ Doc # 88 Filed: 03/30/15 Page 13 of 33 - Page ID # 1789
Infogroup's database in the past, much less that it intends to do so in the
future. It is clear that the parties neither like nor trust one another, and that
Infogroup, in particular, suspects Gupta and DatabaseUSA of all sorts of
malfeasance. But for a preliminary injunction, the Court must have evidence
that the complained-of misconduct is likely to occur—that is, the movant
must "demonstrate that irreparable injury is likely in the absence of an
injunction." Winter v. Natural Resources Defense Council, Inc., 555 U.S. 7, 22
(2008). Infogroup has not demonstrated such a likelihood here.
In deciding whether to grant a preliminary injunction, likelihood of
success on the merits is the most significant factor. Laclede Gas Co. v. St.
Charles Cnty., 713 F.3d 413, 419-20 (8th Cir. 2013). The absence of a
likelihood of success on the merits strongly suggests that preliminary
injunctive relief should be denied. Barrett v. Claycomb, 705 F.3d 315, 320
(8th Cir. 2013). And, of course, a preliminary injunction cannot issue without
a showing of irreparable harm. Dataphase, 640 F.2d at 114 n.9. Both of those
factors are missing from Infogroup's Trade Secrets Act claim. And the other
Dataphase factors do not help Infogroup. The Court does not find the public
interest to be significantly implicated by this dispute. Nor does the balance of
harms tip either way, given both the lack of evidence showing an impending
harm, and the ineffectual nature of Infogroup's proposed injunction. In sum,
the Court finds no basis to issue a preliminary injunction based on
Infogroup's trade secrets claim.
(b) "Verified" Listings and False Advertising
Infogroup claims that DatabaseUSA's promotion of listings as "verified"
is false advertising actionable under the Lanham Act, 15 U.S.C. § 1051 et
seq.11 Filing 13 at 17-23; filing 81 at 13-16. Under the Lanham Act, a
In a supplemental memorandum, Infogroup also invoked the Nebraska Uniform
Deceptive Trade Practices Act, Neb. Rev. Stat. § 87-301 et seq., and the Nebraska Consumer
Protection Act, Neb. Rev. Stat. § 59-1601 et seq. Filing 81 at 17-19. The Court does not
discuss them separately, because for purposes of the present motion, they are essentially
coextensive with Infogroup's Lanham Act claims, and are disposed of by the same
reasoning. See, Neb. Rev. Stat. § 87-302; Prime Home Care, LLC v. Pathways to
Compassion, LLC, 809 N.W.2d 751, 764 (Neb. 2012); Stenberg v. Consumer's Choice Foods,
Inc., 755 N.W.2d 583, 591-92 (Neb. 2008). In particular, because the Trade Practices Act
provides injunctive relief for "[a] person likely to be damaged," see § 87-303(a), it provides
relief from future damage, not past damage—and as will be explained in the context of the
Lanham Act, Infogroup has not proven that such damage is likely. And the Consumer
Protection Act has another requirement Infogroup does not meet—its ambit is limited to
unfair or deceptive acts or practices that affect the public interest. See, Eicher v. Mid Am.
Fin. Inv. Corp., 748 N.W.2d 1, 12 (Neb. 2008); Arthur v. Microsoft Corp., 676 N.W.2d 29, 36
(Neb. 2004). Specifically, the conduct at issue must affect numerous citizens of Nebraska.
11
- 13 -
8:14-cv-00049-JMG-CRZ Doc # 88 Filed: 03/30/15 Page 14 of 33 - Page ID # 1790
defendant may be liable if it, "in commercial advertising or promotion,
misrepresents the nature, characteristics, qualities, or geographic origin of
his or her or another person’s goods, services, or commercial activities[.]" 15
U.S.C. § 1125(a)(1)(B). To establish a Lanham Act false advertising claim, a
plaintiff must prove (1) a false statement of fact by the defendant in a
commercial advertisement about its own or another's product; (2) the
statement actually deceived or has the tendency to deceive a substantial
segment of its audience; (3) the deception is material, in that it is likely to
influence the purchasing decision; (4) the defendant caused its false
statement to enter interstate commerce; and (5) the plaintiff has been or is
likely to be injured as a result of the false statement, either by direct
diversion of sales from itself to defendant or by a loss of goodwill associated
with its products. Buetow v. A.L.S. Enters., 650 F.3d 1178, 1182 (8th Cir.
2011); United Indus. Corp. v. Clorox Co., 140 F.3d 1175, 1180 (8th Cir. 1998).
The false statement necessary to establish such a violation usually falls
into one of two categories: a commercial claim that is literally false as a
factual matter; or a claim that may be literally true or ambiguous but which
implicitly conveys a false impression, is misleading in context, or is likely to
deceive consumers. Id. If a plaintiff proves that a challenged claim is literally
false, the court may presume that consumers were misled and grant an
irreparably-injured competitor injunctive relief without requiring consumer
surveys or other evidence of the ad's impact on the buying public. Buetow,
650 F.3d at 1183; see Clorox Co., 140 F.3d at 1180. But even then, the
plaintiff must show that it will suffer irreparable harm absent the injunction.
Buetow, 650 F.3d 1183.12 And even when a court finds that a defendant's ads
are literally false, the plaintiff, to succeed on a claim of false advertising,
must still establish that the defendant's deception is material—that is, likely
to influence the purchasing decision. Johnson & Johnson Vision Care, Inc. v.
1-800-Contacts, Inc., 299 F.3d 1242, 1250-51 (11th Cir. 2002); see, Rice v. Fox
Broad. Co., 330 F.3d 1170, 1181 (9th Cir. 2003); Cashmere & Camel Hair
See, Eicher, 748 N.W.2d at 12; Arthur, 676 N.W.2d at 37-38. Infogroup has not made that
showing at this point, and does not even advance the point. See filing 81 at 19.
Infogroup cites Clorox Co. for the proposition that irreparable harm may be presumed
when an advertisement is deceptive. Filing 13 at 33; filing 81 at 21-22. That proposition is
difficult to square with Buetow, which clearly holds that a plaintiff must prove irreparable
harm absent an injunction, even if the advertisement is literally false. 650 F.3d at 1183; see
Flexible Lifeline Sys., Inc. v. Precision Lift, Inc., 654 F.3d 989, 994-1000 (9th Cir. 2011)
(citing eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006) and Winter v. Natural Res.
Def. Council, Inc., 555 U.S. 7 (2008)); see, e.g., Ferring Pharm., Inc. v. Watson Pharm., Inc.,
765 F.3d 205, 215-17 (3d Cir. 2014); Salinger v. Colting, 607 F.3d 68, 76-80 (2d Cir. 2010);
see also Novus Franchising, Inc. v. Dawson, 725 F.3d 885, 894-95 (8th Cir. 2013).
12
- 14 -
8:14-cv-00049-JMG-CRZ Doc # 88 Filed: 03/30/15 Page 15 of 33 - Page ID # 1791
Mfrs. Inst. v. Saks Fifth Ave., 284 F.3d 302, 311-12 (1st Cir. 2002); HewlettPackard Co. v. NU-Kote Int'l, Inc., 155 F.3d 571 (Fed. Cir. 1998) (unpublished
table decision); Nat'l Basketball Ass'n v. Motorola, Inc., 105 F.3d 841, 855 (2d
Cir. 1997); cf. Buetow, 650 F.3d at 1182; but cf. Pizza Hut, Inc. v. Papa John's
Int'l, Inc., 227 F.3d 489, 497 (5th Cir. 2000).13
The Court finds, first, that DatabaseUSA's description of its listings as
"verified" has not been shown literally false.14 DatabaseUSA presented
evidence of the process it uses to verify listings, and that evidence is
substantially uncontested. Infogroup's theory, instead, seems to be that
DatabaseUSA's verification process isn't effective enough to warrant use of
the word "verified," or that DatabaseUSA describes records as "verified" that
haven't been through its verification process.15 But in assessing whether an
advertisement is literally false, the Court must analyze the message
conveyed within its full context. Buetow, 650 F.3d at 1185. The context here
is inconsistent with any implication that every listing—even "verified"
listings—are guaranteed to be completely accurate. For instance, one of
Infogroup's exhibits is a DatabaseUSA advertisement that describes its "95%
Accurate, Triple-Verified Database. . . ." Filing 82-1 at 22; see also filing 82-2
at 9-10. There is not, so far as the Court can see, any attempt to guarantee
every line item as accurate. So, Infogroup's instances of inaccurate data—and
it doesn't present very many—do little to prove that DatabaseUSA's data is
not generally "verified," or that any particular "verified" listing hasn't been
The Eighth Circuit has not clearly weighed in on this point, so to the extent that Pizza
Hut can be read to support a circuit split, the Court will say this: the majority rule,
represented by the 11th Circuit's decision in 1-800-Contacts, is far more persuasive. There
is a difference between whether a consumer is likely to be deceived by a falsehood, and
whether that deception makes a difference to the consumer. The Fifth Circuit may have
elided the distinction (albeit in dicta, given that the advertising slogan at issue in that case
was not literally false). Pizza Hut, 227 F.3d at 497. But there is good reason to presume
that a literally false statement has a tendency to deceive. See Saks Fifth Ave., 284 F.3d at
314. That does not mean the deception made a difference, so there is no basis to also relieve
the plaintiff of the materiality element of its prima facie case. See Corizon, Inc. v. Wexford
Health Sources, Inc., No. 4:10-cv-2430, 2013 WL 3821268, at *9 (E.D. Mo. July 23, 2013).
13
14
Or variations on the term, such as "triple-verified."
It is not entirely clear to the Court whether Infogroup is only complaining about specific
instances in which an inaccurate listing is nonetheless described as "verified," or is
generally objecting to DatabaseUSA's promotion of its verification process. But Infogroup's
argument suggests the latter, broader argument. Infogroup argues that DatabaseUSA
"engages in an overall practice of labeling business listings as 'verified' when in fact they
are not" and seeks to enjoin DatabaseUSA from making "false or deceptive statements of
fact regarding the extent to which" it "has verified the accuracy of each of its business
listings." Filing 13 at 9; filing 81 at 24.
15
- 15 -
8:14-cv-00049-JMG-CRZ Doc # 88 Filed: 03/30/15 Page 16 of 33 - Page ID # 1792
verified to some degree. Infogroup's argument asks the Court to make a very
hasty generalization.
To the extent that DatabaseUSA's representations might be misleading
in context, the Court finds that they are, at worst, puffery. Although the
Eighth Circuit has generally categorized false advertising as either literally
false, or literally true or ambiguous but misleading in context, the Court of
Appeals has observed that many claims will actually fall into a third
category, generally known as "puffery" or "puffing." Clorox Co., 140 F.3d at
1180. Puffery is exaggerated advertising, blustering, and boasting upon
which no reasonable buyer would rely and is not actionable under the
Lanham Act. Id. Nonactionable puffery includes representations of product
superiority that are vague or highly subjective. Id. However, false
descriptions of specific or absolute characteristics of a product and specific,
measurable claims of product superiority based on product testing are not
puffery and are actionable. Id. Whether a database entry is "verified" is not
(as the parties' disagreements here demonstrate) a specific, measurable
attribute. And it should also be noted that both Infogroup and DatabaseUSA
are primarily in the business of providing information about consumers and
businesses to people who want to market their own goods and services—in
other words, to people who are themselves sales professionals. Such an
audience is unlikely to be confused by such advertising techniques. Cf.,
Sensient Techs. Corp. v. SensoryEffects Flavor Co., 613 F.3d 754, 766 (8th Cir.
2010); WSM, Inc. v. Hilton, 724 F.2d 1320, 1330 (8th Cir. 1984). No
reasonable buyer of such services would expect verification to be foolproof.
And, even if DatabaseUSA's claim of "verified" listings was misleading
in context, there is nothing to show that anyone was misled. Where a
commercial claim is not literally false but is misleading in context, proof that
the advertising actually conveyed the implied message and thereby deceived
a significant portion of the recipients becomes critical. Clorox Co., 140 F.3d at
1182. If a plaintiff does not prove the claim to be literally false, he must prove
that it is deceptive or misleading, which depends on the message that is
conveyed to consumers. Id. at 1182-83. Unless a commercial claim is literally
false, or a competitor acted willfully with intent to deceive or in bad faith, a
party seeking relief under this section of the Lanham Act bears the ultimate
burden of proving actual deception by using reliable consumer or market
research. Id. at 1183.
There is no evidence in the record of any customer of DatabaseUSA
who claims to have been deceived or misled by the claim that a DatabaseUSA
listing was "verified." Nor does the Court find bad faith or an intent to
deceive, given the evidence of the efforts DatabaseUSA makes to verify its
data. The Court recognizes that at the preliminary injunction stage, full- 16 -
8:14-cv-00049-JMG-CRZ Doc # 88 Filed: 03/30/15 Page 17 of 33 - Page ID # 1793
blown consumer surveys or market research are not an absolute prerequisite.
Id. But Infogroup has far less than that.
Because the Court finds that DatabaseUSA's use of the word "verified"
is neither literally false, nor misleading in context, and that no tendency to
deceive or actual deception has been shown, the Court finds that Infogroup
has not shown a likelihood of succeeding on its claim. But Infogroup's claim
has another problem: Infogroup has not shown that it has been injured or is
likely to be injured by DatabaseUSA's actions. This has a number of
implications. It means that another element of Infogroup's false advertising
claim is missing, further diminishing its likelihood of success on the merits. It
may even mean that Infogroup lacks standing to prosecute the claim. And, of
course, absent evidence of an injury, much less an irreparable one, Infogroup
cannot obtain an injunction.
As noted above, a false advertising claim under the Lanham Act
requires that the plaintiff has been or is likely to be injured as a result of the
false statement, either by direct diversion of sales from itself to defendant or
by a loss of goodwill associated with its products. Buetow, 650 F.3d at 1182;
Clorox Co., 140 F.3d at 1180. The Court finds no evidence to suggest that this
is the case. And failure to show such injury may be a more fundamental
defect in Infogroup's case: in Lexmark Int'l, Inc. v. Static Control
Components, Inc., the Supreme Court explained that a plaintiff's right to sue
under a particular statute depends on whether the plaintiff comes within the
"zone of interests" protected by the law involved, and that the statutory cause
of action is limited to plaintiffs whose injuries are proximately caused by
violations of the statute. 134 S. Ct. 1377, 1387-88 (2014). Specifically, to come
within the zone of interests for false advertising under the Lanham Act, the
plaintiff must allege an injury to a commercial interest in reputation or sales.
Id. at 1390. And to satisfy the proximate cause requirement, the plaintiff
must show economic or reputational injury flowing directly from the
deception wrought by the defendant's advertising, "and that that occurs when
deception of consumers causes them to withhold trade from the plaintiff." Id.
at 1391 (emphasis supplied).
There is nothing here that persuades the Court that Infogroup has
been, or is likely to be, injured by DatabaseUSA's description of its
occasionally-inaccurate data as "verified." Without that showing, the Court
can find neither a likelihood of success on the merits of this claim, nor the
irreparable harm that is a necessary prerequisite to a preliminary injunction.
The Court may not issue a preliminary injunction based only on a possibility
of irreparable harm. Winter, 555 U.S. at 22.
So, the Court finds neither a likelihood of success on the merits nor a
likelihood of irreparable harm and, as above, that much would be dispositive.
- 17 -
8:14-cv-00049-JMG-CRZ Doc # 88 Filed: 03/30/15 Page 18 of 33 - Page ID # 1794
See, Barrett, 705 F.3d at 320; Dataphase, 640 F.2d at 114 n.9. But for the
sake of completeness, the Court also finds that the public interest is not
implicated by this claim, and that the balance of harms tips significantly in
DatabaseUSA's favor: Infogroup has not shown a likelihood of harm, but
Infogroup's proposed injunction would undoubtedly be disruptive to
DatabaseUSA's business. Infogroup has not established the propriety of a
preliminary injunction on this claim.
(c) False Representations about Relationship Between Companies
There are two specific provisions of the Lanham Act at issue here.16
First, a defendant may be liable for using a mark in commerce, in connection
with goods or services, in a way that "is likely to cause confusion, or to cause
mistake, or to deceive as to the affiliation, connection, or association of such
person with another person, or as to the origin, sponsorship, or approval of
his or her goods, services, or commercial activities by another person[.]" 15
U.S.C. § 1125(a)(1)(A). And second, as discussed in detail above, a defendant
may also be liable if it, "in commercial advertising or promotion,
misrepresents the nature, characteristics, qualities, or geographic origin of
his or her or another person’s goods, services, or commercial activities[.]" 15
U.S.C. § 1125(a)(1)(B). Infogroup relies upon both provisions, almost
interchangeably at times, with respect to DatabaseUSA's alleged attempts to
confuse potential customers about the affiliation between DatabaseUSA and
Infogroup entities.
(i) False Association Claim
Mark infringement requires proof that the plaintiff has ownership or
rights in the mark and that the defendant has used the mark in commerce, in
connection with goods or services, in a manner likely to cause consumer
confusion as to the source or sponsorship of the goods or services. Cmty. of
Christ Copyright Corp. v. Devon Park Restoration Branch of Jesus Christ's
Church, 634 F.3d 1005, 1009 (8th Cir. 2011). In evaluating a likelihood of
confusion between a mark and an allegedly-infringing mark, courts generally
consider such factors as the strength of the owner's mark, the similarity
between the marks, the degree to which the allegedly-infringing service
competes with the mark-owner's service, the alleged infringer's intent to
confuse the public, and evidence of actual confusion. See Devon Park, 634
F.3d at 1009. No one factor controls, and because the inquiry is inherently
Infogroup also invoked the Trade Practices Act and the Consumer Protection Act in
support of this claim in its supplemental memorandum. The Court does not discuss these
statutes separately, for the same reasons explained above. See supra, n.11.
16
- 18 -
8:14-cv-00049-JMG-CRZ Doc # 88 Filed: 03/30/15 Page 19 of 33 - Page ID # 1795
case-specific, different factors may be entitled to more weight in different
cases. Id.
Of course, at this point, the degree of similarity is not a relevant
criterion, because only Infogroup's marks are at issue—Infogroup's theory is
that DatabaseUSA is using Infogroup's marks in a manner that could confuse
the public.17 See Masters, 631 F.3d at 473. So, this case does not fit neatly
into the rubric set forth above. Courts considering similar facts have, instead,
considered whether the allegedly-infringing use comports with the
nominative fair use doctrine, which is implicated when the defendant uses
the plaintiff's mark to describe the plaintiff's product. See, Playboy Enters. v.
Welles, 279 F.3d 796, 801 (9th Cir. 2002); Commerce Bankcorp, LLC v. Hill,
Civil No. 08-5628, 2010 WL 2545166 (D.N.J. June 18, 2010); Maurag, Inc. v.
Bertuglia, 494 F. Supp. 2d 395, 398 (E.D. Va. 2007); cf. Hensley Mfg. v.
ProPride, Inc., 579 F.3d 603, 611-12 (6th Cir. 2009).
The Ninth Circuit has said that whether a defendant is entitled to
nominative fair use depends on whether the product or service is readily
identifiable without use of the mark, whether only so much of the mark is
used as is reasonably necessary to identify the product, and whether the user
has done anything that would, in conjunction with the mark, suggest
sponsorship or endorsement by the trademark holder. New Kids on the Block
v. News Am. Publ'g, Inc., 971 F.2d 302, 308 (9th Cir. 1992). In other words,
the defendant's conduct or language must reflect the true and accurate
relationship between plaintiff and defendant's products or services. Century
21 Real Estate Corp. v. Lendingtree, Inc., 425 F.3d 211, 222 (3d Cir. 2005).
The Eighth Circuit has not discussed the doctrine, and the Ninth Circuit's
approach has not been universally adopted, but the broad parameters of the
doctrine are consistent. See Dwyer Instruments, Inc. v. Sensocon, Inc., 873 F.
Supp. 2d 1015, 1030 (N.D. Ind. 2012); see also Bd. of Supervisors v. Smack
Apparel Co., 550 F.3d 465, 489 (5th Cir. 2008); cf. Swarovski
Aktiengesellschaft v. Building No. 19, Inc., 704 F.3d 44, 49-53 (1st Cir. 2013);
Rosetta Stone Ltd. v. Google, Inc., 676 F.3d 144, 154 (4th Cir. 2012); Tiffany
(NJ) v. eBay, Inc., 600 F.3d 93, 102 (2d Cir. 2010).
Infogroup also presented evidence of DatabaseUSA's use of "-genie" as a suffix for various
services, apparently in an attempt to play off Infogroup's "Salesgenie" mark. Hr'g Ex. 4. But
Infogroup's complaint does not allege a claim for relief based on mark infringement of that
nature. See filing 23. In other words, the claim presented in the pleadings is that
DatabaseUSA is using Infogroup's marks in a way that falsely suggests an affiliation—not
that DatabaseUSA is using its own, but confusingly similar, marks. Absent such a claim,
the Court does not view the use of "-genie" as particularly relevant, although the Court will
admit the evidence for what weight it has.
17
- 19 -
8:14-cv-00049-JMG-CRZ Doc # 88 Filed: 03/30/15 Page 20 of 33 - Page ID # 1796
And in this case, Gupta's identification of himself as the founder of
Infogroup and its associated entities is accurate—and Gupta is entitled to
accurately describe his experience in the industry when marketing his
company's products and services.18 For instance, in Bertuglia, the court
dismissed a trademark claim that was based on a defendant restauranteur's
description of himself as the "former owner" of a popular restaurant in
advertising for his new restaurants. 494 F. Supp. 2d at 398. The court found
that the defendant "did not use the accused phrases for the purpose of luring
customers into his restaurants under false pretenses. Rather, [he] intended to
convey that if a customer liked [his old restaurant] in the past, that customer
may also like his new restaurants." Id.; cf. Hensley, 579 F.3d at 612.
Similarly, in Welles, the Ninth Circuit found that a former "Playmate of the
Year" was entitled to describe herself as such on her personal Web site
(although some of her uses of the plaintiff's mark were excessive). 279 F.3d at
802-04. The Court of Appeals reasoned that the marks were clearly used to
describe the title she had been awarded by the plaintiff, "a title that helps
describe who she is." Id. at 803. And in Hill, the court found that a defendant
was entitled to make use of his former employer's marks in autobiographical
material that was part of a presentation the defendant made for his new
consulting business (although the Court denied the defendant summary
judgment because he might have used the marks too many times). 2010 WL
2545166, at *15.
Granted, some of Gupta's descriptions come very close to the line. 19 But
on balance, the Court finds that Gupta's descriptions of his experience are
sufficiently accurate to avoid preliminary injunctive relief—particularly the
sweeping injunction sought by Infogroup against any marketing materials "to
the effect that Gupta founded InfoUSA, or any Infogroup company."20 Filing
The letter from President Clinton to Gupta is factually a bit distinct, but the conclusion is
the same: Infogroup does not dispute that the letter is genuine, and it is clearly dated 1998.
The obvious purpose of publicizing it is to suggest that Gupta is an important person, not
that he is still associated with Infogroup. It happened, and Gupta is entitled to say so.
18
He should, for instance, strongly consider avoiding the word "proprietor," as opposed to
"founder," and may want to think about confining himself to relatively unambiguous
phrases such as "founder and former CEO." The fact that Infogroup's motion for
preliminary injunction is denied does not mean this case is over.
19
To the extent that the other terms of proposed injunction are less sweeping, such as
enjoining marketing materials "claiming or suggesting the existence of any past or present
association with Infogroup," they are troublingly vague. An injunction must "state its terms
specifically" and "describe in reasonable detail . . . the act or acts restrained or required."
Fed. R. Civ. P. 65(d)(1). It is questionable whether some terms of Infogroup's proposed
instruction are consistent with those standards.
20
- 20 -
8:14-cv-00049-JMG-CRZ Doc # 88 Filed: 03/30/15 Page 21 of 33 - Page ID # 1797
81 at 24. Whether considered under the nominative fair use doctrine or the
ordinary (if somewhat ill-fitting) rubric set forth in Devon Park, 634 F.3d at
1009, and other cases, the Court's conclusion is the same: DatabaseUSA's use
of Infogroup's marks has not been shown, at this point, to create a sufficient
likelihood of confusion to establish Infogroup's likelihood of succeeding on the
merits of its mark infringement claim.21
Nor, the Court finds, has Infogroup sufficiently demonstrated actual
confusion on the part of consumers. Infogroup's evidence of confused
consumers is, again, anecdotal at best. The only instance of confusion that
was clearly tied to any of Gupta's representations was the letter sent to a
"loyal customer" which led the customer to call Infogroup and ask about the
mailing. Filing 14-1 at 8-9. But the precise nature of the customer's inquiry is
not reflected in the record. See filing 14-1 at 8-9; Hr'g Ex. 2; see also Duluth
News-Tribune, Inc. v. Mesabi Publ'g Co., 84 F.3d 1093, 1098 (8th Cir. 1996)
("vague evidence of misdirected phone calls and mail" was "hearsay of a
particularly unreliable nature given the lack of an opportunity for crossexamination of the caller or sender regarding the reason for the 'confusion'").
And even then, the fact that the customer called to ask "indicates a
distinction in the mind of the questioner, rather than confusion." Id.
The evidence does not directly connect the other instances of purported
confusion proffered by Infogroup to any conduct by Gupta or DatabaseUSA.
The Court finds that evidence "to be de minimis and to show inattentiveness
on the part of the caller or sender rather than actual confusion." Id. The
various Infogroup and DatabaseUSA entities do similar business, and the
prefixes "info-" and "data-" have similar connotations and can only be
conjoined in so many ways. To be candid, it would be surprising if someone
hadn't confused them at some point, particularly when at least some
customers apparently use both businesses. Ask enough people and you could
probably find someone who thought infofree.com and Infowars.com were
somehow associated.22
The Court does not find the evidence offered by Infogroup to be
persuasive evidence of actual confusion, much less confusion attributable to
DatabaseUSA's use of Infogroup's marks. The Eighth Circuit has said, for
purposes of summary judgment, that "even several isolated incidents of
actual confusion" may be "insufficient to establish a genuine issue of material
Some possibility of consumer confusion is consistent with a fair use defense. KP
Permanent Make-Up, Inc. v. Lasting Impression I, Inc., 543 U.S. 111, 121-22 (2004). But the
Court finds no significant possibility to have been proven in this case at this point.
21
To be clear, they aren't. It is unlikely that Gupta and Alex Jones would have much in
common.
22
- 21 -
8:14-cv-00049-JMG-CRZ Doc # 88 Filed: 03/30/15 Page 22 of 33 - Page ID # 1798
fact as to the likelihood of confusion." Id. Evidence that could not prevent
summary judgment is surely insufficient to warrant a preliminary injunction.
Unrelated to Gupta's résumé, Infogroup argues that DatabaseUSA's
use of search engine ad placement services, triggered by Infogroup's marks, is
somehow infringing. Filing 81 at 6-7. The Court is unpersuaded. Although
the use of such targeted advertising can be misused, it is generally
understood that such tactics can be deployed consistently with the Lanham
Act. See, CollegeSource, Inc. v. AcademyOne, Inc., ___ F. App'x ___, 2015 WL
469041, at *11 (3d Cir. Feb. 5, 2015); 1-800-Contacts, Inc. v. Lens.com, Inc.,
722 F.3d 1229, 1242-45 (10th Cir. 2013); Network Automation, Inc. v.
Advanced Sys. Concepts, Inc., 638 F.3d 1137, 1148-54 (9th Cir. 2011);
compare N. Am. Med. Corp. v. Axiom Worldwide, Inc., 522 F.3d 1211, 1222-23
(11th Cir. 2008) (advertisers created likelihood of confusion by using
competitors Web address and trademarks in their own advertisements). The
advertisements at issue here, as displayed by Infogroup's exhibits, do not use
Infogroup's marks in the advertisement itself, and each is either separated
from the search results or plainly labeled as a sponsored advertisement. See,
filing 82-1 at 25; filing 82-2 at 5, 7. As the Tenth Circuit explained:
Perhaps in the abstract, one who searches for a particular
business with a strong mark and sees an entry on the results
page will naturally infer that the entry is for that business. But
that inference is an unnatural one when the entry is clearly
labeled as an advertisement and clearly identifies the source,
which has a name quite different from the business being
searched for.
Lens.com, 722 F.3d at 1245. And that could explain why Infogroup has
presented no evidence to suggest that anyone has actually been confused by
the advertisements, or is likely to be. Having considered "(1) the strength of
the mark; (2) the evidence of actual confusion; (3) the type of goods and
degree of care likely to be exercised by the purchaser; and (4) the labeling and
appearance of the advertisements and the surrounding context on the screen
displaying the results page," the Court finds that Infogroup has not shown a
likelihood of success under the Lanham Act based on DatabaseUSA's search
engine advertisements. See Network Automation, 638 F.3d at 1154.
One final note: Infogroup also contends that the "60 Minutes"
references, and description of DatabaseUSA as having been creating
databases "since 1972," somehow support its false association claim. Filing 81
at 16-17. But neither the "60 Minutes" excerpts, nor the slogan, make any
direct reference to Infogroup. Because Database's conduct in this regard does
- 22 -
8:14-cv-00049-JMG-CRZ Doc # 88 Filed: 03/30/15 Page 23 of 33 - Page ID # 1799
not actually make use of Infogroup's marks, it does not support a claim under
§ 1125(a)(1)(A). Perhaps they could be false advertisements—but, as noted
above, Infogroup has not asked the Court to enjoin them as such, so that
issue is not presented by the motion before the Court.23
(ii) False Advertising Claim
Infogroup also contends that by implying a connection between
DatabaseUSA and Infogroup, DatabaseUSA is falsely advertising its services.
As discussed above, a false advertising claim requires proof of a false
statement of fact in a commercial advertisement that had a tendency to
deceive, was material to the purchasing decision, and injured the plaintiff.
See, Buetow, 650 F.3d at 1182; Clorox Co., 140 F.3d at 1180.
But, although the factors are phrased differently, the Court's reasoning
with respect to Infogroup's false association theory is equally dispositive of its
false advertising theory. The challenged statements were not literally false,
and were (at most) misleading in isolated instances. Saying that the
challenged advertising was not likely to confuse consumers is effectively the
same as saying that it had no tendency to deceive them. Absent persuasive
evidence of actual confusion, there is also no persuasive evidence of injury to
Infogroup. And as explained above, without evidence of actual or imminent
injury, Infogroup can demonstrate neither a likelihood of prevailing on the
merits nor the irreparable injury necessary for a preliminary injunction.
(iii) Remaining Dataphase Factors
For the reasons explained above, the Court finds that Infogroup has
shown neither a likelihood of success on the merits, nor a likelihood of
irreparable injury, for its claims based on allegedly-false representations
about the association between Infogroup and DatabaseUSA. That is enough
to deny Infogroup's motion for preliminary injunction. See, Barrett, 705 F.3d
at 320; Dataphase, 640 F.2d at 114 n.9. But for the sake of completeness, the
remaining Dataphase factors do not help Infogroup. The public interest is
again not implicated, except to the extent that it might favor permitting
Gupta to make truthful statements about his experience in the field, so that
consumers can make fully-informed choices. The balance of harms does not
swing as far in DatabaseUSA's favor on these claims, because unlike with the
"verified" data, it would not be as disruptive to DatabaseUSA's business
operations (as opposed to its marketing) to preclude its use of Infogroup's
That said, there's an argument to be made that they're misleading, so DatabaseUSA
would be well advised to knock it off.
23
- 23 -
8:14-cv-00049-JMG-CRZ Doc # 88 Filed: 03/30/15 Page 24 of 33 - Page ID # 1800
marks. But because Infogroup has not shown how it would be injured, the
balance of harms still favors DatabaseUSA.
In sum, the Court finds when the Dataphase factors are applied to each
of Infogroup's claims, Infogroup has not met its burden of establishing the
propriety of preliminary injunctive relief. Infogroup's motion for preliminary
injunction (filing 12) will be denied.
2. MOTION TO STRIKE
Infogroup moves the Court to strike DatabaseUSA's affirmative
defenses pursuant to Fed. R. Civ. P. 12(f). Filing 61. Infogroup complains that
DatabaseUSA has failed to allege facts supporting its affirmative defenses,
and that some fail as a matter of law. Filing 61.
But as a preliminary matter, the Court must address the appropriate
standard for such a motion. Specifically, the question is whether the elevated
pleading requirements of Fed. R. Civ. P. 8(a), as explicated in Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009) and Bell Atl. Corp. v. Twombly, 550 U.S. 544,
555 (2007), also apply to affirmative defenses stated pursuant to Rule 8(c)(1).
Neither the Supreme Court nor any circuit court has considered the question,
and district courts are sharply divided.24 This Court, however, is persuaded
that Iqbal and Twombly should not be applied in this context.
To begin with, the Eighth Circuit's law is clear regarding motions to
strike affirmative defenses: while the Court enjoys "liberal discretion" to
strike pleadings under Fed. R. Civ. P. 12(f), it is "an extreme and disfavored
measure." BJC Health Sys. v. Columbia Cas. Co., 478 F.3d 908, 917 (8th Cir.
2007); Stanbury Law Firm v. I.R.S., 221 F.3d 1059, 1063 (8th Cir. 2000). A
motion to strike a defense will be denied if the defense is sufficient as a
matter of law or if it fairly presents a question of law or fact which the Court
ought to hear. Lunsford v. United States, 570 F.2d 221, 229 (8th Cir. 1977).
And while defenses must be asserted in a responsive pleading, they need not
be articulated with any rigorous degree of specificity, and may be sufficiently
raised for purposes of Rule 8 by their bare assertion. See Zotos v. Lindbergh
Sch. Dist., 121 F.3d 356, 361 (8th Cir. 1997).
There is, in fact, not even a consensus on the majority rule. Compare Alston v. Equifax
Info. Servs., LLC, No. 13-934, 2014 WL 580148, at *2 (D. Md. Feb. 11, 2014) (majority view
applies Iqbal/Twombly to affirmative defenses), and Lakeside Roofing Co. v. Nixon, No.
4:10-cv-1761, 2011 WL 2600421, at *1 n.3 (E.D. Mo. June 29, 2011) (same), with U.S.
Commodity Trading Comm'n v. U.S. Bank, N.A., No. 13-cv-2041, 2014 WL 294219, at *10
(N.D. Iowa Jan. 27, 2014) (at first majority of courts applied Iqbal/Twombly, but that is now
minority position), and Powers v. Fifth Third Mortg. Co., No. 1:09-cv-2059, 2011 WL
3418290, at *3 n.2 (N.D. Ohio Jul. 18, 2011) (majority of courts have rejected application of
Iqbal/Twombly). But this Court need not resort to nose-counting to decide a question of law.
24
- 24 -
8:14-cv-00049-JMG-CRZ Doc # 88 Filed: 03/30/15 Page 25 of 33 - Page ID # 1801
Of course, Zotos precedes the Supreme Court's decisions in Iqbal and
Twombly. The Eighth Circuit, if presented with the question, might well
conclude that Zotos has been abrogated by Iqbal and Twombly (although it is
unlikely to do so, for the reasons explained below). But Zotos is squarely on
point, and Iqbal and Twombly are not, which means Zotos remains the law of
this Circuit. Strauss v. Centennial Precious Metals, Inc., 291 F.R.D. 338, 34243 (D. Neb. 2013); Bank of Beaver City v. Sw. Feeders, L.L.C., No. 4:10-CV2309, 2011 WL 4632887, at *5-8 (D. Neb. Oct. 4, 2011). As far as this Court is
concerned, it is the Eighth Circuit's prerogative to overrule its own decisions.
See, Rodriguez de Quijas v. Shearson/Am. Express, 490 U.S. 477, 484 (1989);
Hood v. United States, 342 F.3d 861, 864 (8th Cir. 2003); Okruhlik v. Univ. of
Ark., 255 F.3d 615, 622 (8th Cir. 2001).
But even if faced with an open question, the Court would hold that the
Iqbal/Twombly standard does not apply. To plead a claim for relief, Rule
8(a)(2) requires, as relevant, a "short and plain statement of the claim
showing that the pleader is entitled to relief." This, the Supreme Court
explained in Twombly, "requires a 'showing,' rather than a blanket assertion,
of entitlement to relief." 550 U.S. at 555 n.3. The Supreme Court's holding in
Twombly, and its iteration of that standard in Iqbal, were expressly grounded
on Rule 8(a)(2)'s language requiring a "showing" of the pleader's entitlement
to relief. See, e.g., Iqbal, 556 U.S. at 679; Twombly, 550 U.S. at 556-56. But
the terms of Rule 8(c)(1) require no such "showing": rather, a party is only
required to "affirmatively state any avoidance or affirmative relief." Several
district courts have relied on that distinction in concluding that the reasoning
of Iqbal and Twombly does not apply with equal force to Rule 8(c). See, Phelps
v. City of Parma, Idaho, No. 14-cv-85, 2015 WL 893112, at *2 n.2 (D. Idaho
Mar. 2, 2015); Sibley v. Choice Hotels Int'l, Inc., 304 F.R.D. 125, 132
(E.D.N.Y. 2015); Fed. Trade Comm'n v. AMG Servs., Inc., No. 2:12-CV-536,
2014 WL 5454170, at *5-6 (D. Nev. Oct. 27, 2014); Hansen v. R.I.'s Only 24
Hour Truck & Auto Plaza, Inc., 287 F.R.D. 119, 122 (D. Mass. 2012); Kohler
v. Staples the Office Superstore, LLC, 291 F.R.D. 464, 468-69 (S.D. Cal. 2013);
Bank of Beaver City, 2011 WL 4632887, at *6-7; Falley v. Friends Univ., 787
F. Supp. 2d 1255, 1258 (D. Kan. 2011); Lane v. Page, 272 F.R.D. 581, 591-94
(D.N.M. 2011); but see, e.g., Dodson v. Strategic Rests. Acquisition Co. II,
LLC, 289 F.R.D. 595, 600 (E.D. Cal. 2013).25
That conclusion is bolstered by Fed. R. Civ. P. App. of Forms, Form 30, which provides an
example of an answer presenting an affirmative defense which is stated in very general
terms—it is, in fact, only a sentence long. Because a pleading that complies with one of the
official Forms cannot be attacked, the brevity of Form 30 suggests that Iqbal and Twombly
do not apply. Lane, 272 F.R.D. at 594; see Falley, 787 F. Supp. 2d at 1258. Of course, Iqbal
and Twombly were decided after Form 30 was most recently amended. See AMG Servs.,
25
- 25 -
8:14-cv-00049-JMG-CRZ Doc # 88 Filed: 03/30/15 Page 26 of 33 - Page ID # 1802
And there is good reason to make such a distinction. As courts have
also observed, a complaint and an answer place asymmetrical demands on
the parties. The time for filing a complaint and pleading a claim for relief is
generally bounded only by the statute of limitations, while a defendant
asserting an affirmative defense must, absent an extension, file a responsive
pleading containing all its affirmative defenses within 21 days of service. See
Fed. R. Civ. P. 12. It would, therefore, be somewhat unreasonable to hold the
defendant to the same pleading standard as the plaintiff, given the limited
time that the defendant has to respond. See, Phelps, 2015 WL 983112, at *2
n.2; Sibley, 304 F.R.D. at 133; Hansen, 287 F.R.D. at 123; Kohler, 291 F.R.D.
at 469; Bank of Beaver City, 2011 WL 4632887, at *6-7; Falley, 787 F. Supp.
2d at 1258-59; Lane, 272 F.R.D. at 595-96. Of course, those deadlines are not
inflexible: the time to file a responsive pleading can be extended, and leave to
amend a responsive pleading may be obtained even after that. See, AMG
Servs., 2014 WL 5454170, at *8; Dodson, 289 F.R.D. at 602. And some
asymmetry is already tolerated with respect to defendants who must file
counterclaims. But the Court need not exacerbate it further, particularly
where the textual foundation of Iqbal and Twombly is absent.
It is, of course, not the Court's place to question whether Iqbal and
Twombly are themselves sound policy, or consistent with the plain language
of the Federal Rules of Civil Procedure—but the Court need not extend them
further absent clear authority compelling that conclusion. Whatever its
faults, the Iqbal/Twombly standard, when applied to claims for relief, at least
helps resolve cases. Applying that standard to affirmative defenses, however,
merely invites motions to strike—and while "[m]otions to dismiss help resolve
cases; motions to strike, in most cases, waste everyone's time." Lane, 272
F.R.D. at 586. In sum, neither the language of Rule 8 nor basic principles of
fairness and practicality weigh in favor of applying the Iqbal/Twombly
standard to affirmative defenses, and the Court declines to do so.
Infogroup contends, in the alternative, that the Court should strike at
least some of DatabaseUSA's affirmative defenses regardless of whether the
Iqbal/Twombly standard is applied. Infogroup complains that some of the
affirmative defenses are "bare bones" conclusions insufficient to provide
notice, and that others are not actually affirmative defenses. Filing 62 at 911. The Court is not persuaded.
As noted above, striking an affirmative defense is "an extreme and
disfavored measure." BJC Health Sys., 478 F.3d at 917; Stanbury Law Firm,
2014 WL 5454170, at *8. But other forms have been amended since then, and Form 30 was
left alone. Compare, Fed. R. Civ. P. App. of Forms, Forms 52 and 60. And the Court is not
at liberty to ignore Fed. R. Civ. P. 84's clear admonition that "[t]he forms in the Appendix
suffice under these rules. . . ."
- 26 -
8:14-cv-00049-JMG-CRZ Doc # 88 Filed: 03/30/15 Page 27 of 33 - Page ID # 1803
221 F.3d at 1063. Motions to strike are often considered "time wasters," and
should be denied unless the challenged allegations have no possible relation
or logical connection to the subject matter of the controversy. Lane, 272
F.R.D. at 587 (citing 5C C. Wright and A. Miller, Fed. Prac. & Proc. Civ. §
1382 (3d ed. 2004); see Lunsford, 570 F.2d at 229. And Infogroup does not
explain how it is prejudiced by the alleged defects in DatabaseUSA's
pleading.26 See, Person v. Heartland Emp't Servs, LLC, No. 1:14-cv-1297,
2014 WL 6980572, at *1 (C.D. Ill. Dec. 10, 2014); U.S. Commodity Futures
Trading Comm'n v. A.S. Templeton Grp., 297 F. Supp. 2d 531, 533 (E.D.N.Y.
2003); FDIC v. Niblo, 821 F. Supp. 441, 448-49 (N.D. Tex. 1993); SEC v.
Toomey, 866 F. Supp. 719, 721-22 (S.D.N.Y. 1992); FDIC v. Ashley, 749 F.
Supp. 1065, 1066 (D. Kan. 1990); Lunsford v. United States, 418 F. Supp.
1045, 1051-52 (D.S.D. 1976), aff'd, 570 F.2d 221.
Nor is the Court cited to any authority for Infogroup's repeated
demands that the Court strike DatabaseUSA's affirmative defenses "with
prejudice." E.g. filing 62 at 1. The remedy for striking defenses at this stage
of the litigation is often to permit amendment later. Falley, 787 F. Supp. 2d
at 1259. And leave to amend a pleading to add a defense is to be freely
given—it should be denied "only where it will result in 'undue delay, bad
faith or dilatory motive on the part of the movant, repeated failure to cure
deficiencies by amendments previously allowed, undue prejudice to the
opposing party by virtue of allowance of the amendment, [or] futility of
amendment.'" Dennis v. Dillard Dep't Stores, Inc., 207 F.3d 523, 525-26 (8th
Cir. 2000); see also Joseph v. Allen, 712 F.3d 1222, 1226 n.3 (8th Cir. 2013)
(amendment adding affirmative defense should be allowed with liberality,
even after motion for summary judgment has been filed). The intent of Rule
12(f) is to "minimize delay, prejudice, and confusion"—not create it by
establishing a cycle of pleading and striking and repleading. See Falley, 787
F. Supp. 2d at 1259 (citation and quotation omitted). The Court is not
inclined, at this point in the proceedings, to accept Infogroup's apparent
The Court particularly notes Infogroup's contention that two defenses should be stricken
because they are not "affirmative defenses" but, rather, assert defects or denials of
Infogroup's prima facie case. See filing 62 at 10-11. The deficiency of the answer, according
to Infogroup, seems to be that some of the defenses listed under the heading "Affirmative
Defenses" are not actually affirmative enough. The Court does not believe the distinction is
worth parsing at this point. Such matters need not be pleaded, see Masuen v. E.L. Lien &
Sons, Inc., 714 F.2d 55, 57 (8th Cir. 1983), but they are hardly worth striking. See, Joe
Hand Promotions, Inc. v. Ridgway, No. 6:14-CV-3401, 2015 WL 1321477, at *3 (W.D. Mo.
Mar. 24, 2015) (citing 5 Charles Alan Wright & Arthur R. Miller, Federal Practice &
Procedure § 1269 (3d ed. 2014)); Bank of Beaver City, 2011 WL 4632887, at *9-10.
26
- 27 -
8:14-cv-00049-JMG-CRZ Doc # 88 Filed: 03/30/15 Page 28 of 33 - Page ID # 1804
invitation to take a blue pencil to DatabaseUSA's answer, so Infogroup's
motion to strike (filing 61) will be denied.
3. MOTION TO DISMISS
Infogroup has moved to dismiss two of DatabaseUSA's counterclaims—
specifically, its tortious interference and unjust enrichment claims. See filing
63. Infogroup also, in its motion to dismiss, moves the Court to strike what it
calls "undisclosed facts" cited in support of the counterclaims. See filing 63.
To survive a motion to dismiss for failure to state a claim, a pleading
must set forth a short and plain statement of the claim showing that the
pleader is entitled to relief. Rule 8(a)(2). This does not require detailed
factual allegations, but it demands more than an unadorned accusation.
Iqbal, 556 U.S. at 678. The pleading need not contain detailed factual
allegations, but must provide more than labels and conclusions; a formulaic
recitation of the elements of a cause of action will not suffice. Twombly, 550
U.S. at 555. For the purposes of a motion to dismiss a court must take all of
the factual allegations in the pleading as true, but is not bound to accept as
true a legal conclusion couched as a factual allegation. Id. And the pleading
must also contain sufficient factual matter, accepted as true, to state a claim
for relief that is plausible on its face. Iqbal, 556 U.S. at 678.
(a) Tortious Interference
DatabaseUSA alleges that Infogroup knows that customers come to
DatabaseUSA's Web sites looking for information about its products and
services, and that Infogroup made false statements about DatabaseUSA's
products and services for the purpose of interfering with its business
expectancies. Filing 60 at 40. Infogroup asserts that this claim fails because
DatabaseUSA has alleged neither that the alleged interference caused any
harm, nor that it was damaged. Filing 64 at 5. DatabaseUSA, Infogroup
argues, "do[es] not identify any prospective customers who reviewed any
alleged false statements made by plaintiffs about any products, or that any
such customers declined to purchase defendants’ services because of any false
statements. Nor do[es DatabaseUSA] allege any facts from which this
conclusion can reasonably be inferred." Filing 64 at 5. In response,
DatabaseUSA directs the Court to allegations found elsewhere in the answer,
and incorporated by reference into its tortious interference counterclaim: that
agents of Infogroup left false reviews on DatabaseUSA's Web sites for the
purpose of harming its reputation. Filing 60 at 34; filing 72 at 3.
To succeed on a claim for tortious interference with a business
relationship or expectancy, a plaintiff must prove (1) the existence of a valid
business relationship or expectancy, (2) knowledge by the interferer of the
- 28 -
8:14-cv-00049-JMG-CRZ Doc # 88 Filed: 03/30/15 Page 29 of 33 - Page ID # 1805
relationship or expectancy, (3) an unjustified intentional act of interference
on the part of the interferer, (4) proof that the interference caused the harm
sustained, and (5) damage to the party whose relationship or expectancy was
disrupted. Steinhausen v. HomeServices of Neb., Inc., 857 N.W.2d 816, 831
(Neb. 2015). The interference must impact a valid business relationship or
expectancy, and the relationship or expectancy interfered with must belong to
the party asserting the claim. Id.
Although Nebraska law is not fully developed on this point, it is true
that proving a business expectancy "valid" will generally require proof that
there was a reasonable likelihood or probability of a business relationship.
See, e.g., Lucas v. Monroe Cnty., 203 F.3d 964, 978 (6th Cir. 2000) (applying
Michigan law); Gieseke ex rel. Diversified Water Diversion, Inc. v. IDCA, Inc.,
844 N.W.2d 210, 221-22 (Minn. 2014). And this may require proof of a
potential relationship with a particular party, or at least a class of parties.
See, Lucas, 203 F.3d at 978; Dunn v. Air Line Pilots Ass'n, 193 F.3d 1185,
1191 (11th Cir. 1999) (applying Florida law); Gieseke, 844 N.W.2d at 222. But
this case is at the pleading stage, not the proving stage. The Court finds that
DatabaseUSA's pleading sufficiently alleges the existence of a group of
potential customers who may have been diverted from doing business with it
by a wrongful act of Infogroup. See TYR Sport Inc. v. Warnaco Swimwear,
Inc., 679 F. Supp. 2d 1120, 1139-40 (C.D. Cal. 2009) (citing Cook v. Winfrey,
141 F.3d 322, 328 (7th Cir. 1998)); see also Am. Home Assurance Co. v.
Greater Omaha Packing Co., No. 8:11-CV-270, 2012 WL 2061941, at *2 (D.
Neb. 2012). Accordingly, the Court will not dismiss DatabaseUSA's tortious
interference claim.
(b) Unjust Enrichment
Infogroup also moves to dismiss DatabaseUSA's unjust enrichment
claim. Filing 64 at 6-7. DatabaseUSA alleges that Infogroup has received
"substantial financial benefit" as a result of "tortious and improper conduct,
including but not limited to unfair competition and deceptive trade practices."
Filing 60 at 40. So, DatabaseUSA asserts that it would be "inequitable and
unjust for Infogroup to retain the revenue[,]" which should be disgorged to
DatabaseUSA. Filing 60 at 40-41. Infogroup argues that in Nebraska, unjust
enrichment contemplates a quasi-contractual arrangement between the
plaintiff and defendant which was not pled here. Filing 64 at 6.
To recover under a theory of unjust enrichment in Nebraska, one must
allege facts that the law of restitution would recognize as unjust enrichment.
City of Scottsbluff v. Waste Connections of Nebraska, 809 N.W.2d 725, 743
(Neb. 2011). Restitution constitutes an independent basis of liability
comparable to a liability in contract or tort. Id. Unjust enrichment may
- 29 -
8:14-cv-00049-JMG-CRZ Doc # 88 Filed: 03/30/15 Page 30 of 33 - Page ID # 1806
result, as Infogroup contends, from a transaction that the law treats as
ineffective to work a conclusive alteration in ownership rights. Id. But there
may also be cases in which the remedy for unjust enrichment gives the
plaintiff something, such as the defendant's wrongful gain, that the plaintiff
did not previously possess. See Restatement (Third) of Restitution and Unjust
Enrichment § 1, cmt. a (2011). As the Restatement (Third) explains, the
"inherent flexibility" of the concept of unjust enrichment means that
almost every instance of a recognized liability in restitution
might be referred to the broad rule of the present section. The
same flexibility means that the concept of unjust enrichment will
not, by itself, yield a reliable indication of the nature and scope of
the liability imposed by this part of our legal system. It is by no
means obvious, as a theoretical matter, how "unjust enrichment"
should best be defined; whether it constitutes a rule of decision, a
unifying theme, or something in between; or what role the
principle would ideally play in our legal system.
Id. But the Restatement—and the Nebraska Supreme Court—reject the view
that "restitution" is limited to a remedy. Id., cmt. e(3); see Waste Connections,
809 N.W.2d at 743. Instead, the Restatement explains, while "a claim for
restitution or 'disgorgement' of the profits of conscious wrongdoing . . .
normally incorporates as its predicate the substantive elements of a cause of
action for tort or other breach of duty[,]" the Restatement
generally refers to the wrongdoer's unjust enrichment in such
cases as a parallel source of liability: the defendant, in other
words, is liable both on a theory of tort and (alternatively) on a
theory of unjust enrichment. Some observers prefer to
characterize restitution in this context as an alternative remedy
(the alternative being damages) for a single underlying wrong.
Nothing practical turns on this disagreement except the
identification of the applicable period of limitations, and the
history of the field rebuts any suggestion that there is only one
way such a claim may properly be pleaded. Ordinarily, a
complaint that alleges profitable wrongdoing by the defendant
states a claim for restitution of unjust enrichment as well as a
claim for damages in tort . . . .
Id. (citation omitted).
DatabaseUSA's allegations fall within the scope of unjust enrichment
for which restitution may be available under the Restatement (Third): "A
- 30 -
8:14-cv-00049-JMG-CRZ Doc # 88 Filed: 03/30/15 Page 31 of 33 - Page ID # 1807
person who obtains a benefit by conscious interference with a claimant's
legally protected interests (or in consequence of such interference by another)
is liable in restitution as necessary to prevent unjust enrichment . . . ."
Restatement (Third) of Restitution and Unjust Enrichment § 44. "Conscious
interference with property rights of any kind, with contractual expectations,
or with other interests to which the law of torts extends a similar protection,
will support the claim in restitution described in this section." Id., cmt. b.
The Nebraska Supreme Court has adopted the Restatement (Third)
view of unjust enrichment. See, United Gen. Title Ins. Co. v. Malone, 858
N.W.2d 196, 232-13 (Neb. 2015); Waste Connections, 809 N.W.2d at 738-48.
Accordingly, the Court finds that DatabaseUSA has adequately stated a
claim for unjust enrichment under Nebraska law. Infogroup's motion to
dismiss will be denied.
(c) "Undisclosed Facts"
Infogroup also complains about a handful of references in the answer to
"additional facts" that are confidential, and thus unpled, but which will also
(according to DatabaseUSA) support some of its counterclaims. Filing 60 at
37-39; filing 64 at 1. Infogroup insists that these allegations should be
stricken "with prejudice" and that DatabaseUSA should be precluded from
relying on them, or, in the alternative, that the Court should order
DatabaseUSA to amend its answer. Filing 64 at 1-2.
This matter is easily disposed of. The Court has already explained its
view on striking "with prejudice" and will not revisit it. Nor is the
complained-of language prejudicial to Infogroup: it is mere surplusage, which
does not affect the issues. Bd. of Comm'rs of Lake Cnty. v. Keene Five-Cents
Sav. Bank, 108 F. 505, 515 (8th Cir. 1901); see Moran v. Judson, 96 F.2d 551,
552-53 (D.C. Cir. 1938); cf. United States v. DeRosier, 501 F.3d 888, 897 (8th
Cir. 2007). Infogroup does not contend that the relevant claims are not well
stated without them. See Bd. of Comm'rs, 108 F. at 515. The Court could
strike such allegations. Cf. DeRosier, 501 F.3d at 897. But the Court sees no
need to do so.
III. CONCLUSION
For the reasons explained above, Infogroup's various motions are
denied. One final matter: the Court has, in reaching its conclusions, relied
upon and described some of the contents of documents that were filed as
restricted-access pursuant to NEGenR 1.3(a)(1)(B)(ii) and NECivR 5.3(c) and
the protective order agreed to by the parties. Filing 29. However, it has not
always been clear to the Court what information in those documents was
intended to be confidential.
- 31 -
8:14-cv-00049-JMG-CRZ Doc # 88 Filed: 03/30/15 Page 32 of 33 - Page ID # 1808
The Court has endeavored to avoid including information in this
memorandum and order that would require it to be restricted as well. The
Court has done so because under the common law, judicial records and
documents have been historically considered to be open to inspection by the
public. In re Search Warrant for Secretarial Area Outside Office of Gunn, 855
F.2d 569, 573 (8th Cir. 1988); see also Nixon v. Warner Commc'ns, 435 U.S.
589, 597 (1978). Accordingly, there is a common-law presumption in favor of
public access to judicial records.27 United States v. McDougal, 103 F.3d 651,
657 (8th Cir. 1996); see also, IDT Corp. v. eBay, 709 F.3d 1220, 1222 (8th Cir.
2013); Webster Groves, 898 F.2d at 1376; United States v. Webbe, 791 F.2d
103, 106 (8th Cir. 1986). This right of access bolsters public confidence in the
judicial system by allowing citizens to evaluate the reasonableness and
fairness of judicial proceedings and keep a watchful eye on the workings of
public agencies. IDT Corp., 709 F.3d at 1222; see also Nixon, 435 U.S. at 59798. It also provides a measure of accountability to the public at large, which
pays for the courts. IDT Corp., 709 F.3d at 1222; see also Richmond
Newspapers, Inc. v. Virginia, 448 U.S. 555, 572 (1980).
But records or parts of records are sometimes sealed for good reasons,
including the protection of state secrets, trade secrets, and informers; and to
protect the privacy of children, rape victims, and other particularly
vulnerable parties or witnesses. See Doe v. Blue Cross & Blue Shield United
of Wisc., 112 F.3d 869, 872 (7th Cir. 1997); see also NECivR 5.3(b). So, when
determining whether access to a document should be restricted, the Court
must consider the degree to which sealing a judicial record would interfere
with the interests served by the common-law right of access and balance that
interference against the interests served by maintaining confidentiality of the
information sought to be sealed. IDT Corp., 709 F.3d at 1222.
As noted, the Court is not aware of anything in this memorandum and
order that implicates confidentiality to the extent necessary to overcome the
strong presumption of public access to a court order. But from an excess of
caution, the Court will provisionally restrict access to this memorandum and
order to attorneys of record and court users. That restriction will be lifted on
April 3, 2015, in the absence of a persuasive objection from a party.
There may be a constitutional presumption as well, but neither the Supreme Court nor
the Eighth Circuit have definitively spoken as to whether there is a First Amendment right
of access to civil proceedings. See Webster Groves Sch. Dist. v. Pulitzer Publ'g Co., 898 F.2d
1371, 1376-77 (8th Cir. 1990).
27
- 32 -
8:14-cv-00049-JMG-CRZ Doc # 88 Filed: 03/30/15 Page 33 of 33 - Page ID # 1809
IT IS ORDERED:
1.
Infogroup's motion for preliminary injunction (filing 12) is
denied.
2.
Infogroup's motion to strike (filing 61) is denied.
3.
Infogroup's motion to dismiss (filing 63) is denied.
4.
The Clerk of the Court is directed to provisionally restrict
access to this Memorandum and Order to attorneys of
record and court users, pursuant to NEGenR 1.3(a)(1)(B)(ii)
and NECivR 5.3(c).
5.
The parties are directed to notify the Court on or before
April 2, 2015, whether they have any objection to lifting the
access restriction that has been provisionally placed on this
memorandum and order and, if they object, to provide the
factual basis and legal authority supporting such objection.
6.
The Clerk of the Court is directed to set a case
management deadline of April 3, 2015, with the following
docket text: "Check for objection to public access to
memorandum and order."
Dated this 30th day of March, 2015.
BY THE COURT:
John M. Gerrard
United States District Judge
- 33 -