Beyond Sys., Inc. v. Kraft Foods, Inc.

777 F.3d 712

BEYOND SYSTEMS, INC., Plaintiff–Appellant,

v. KRAFT FOODS, INCORPORATED; Vict. Th. Engwall & Co.; Kraft Foods Global, Incorporated; Connexus Corporation, Defendants–Appellees,andHydra LLC; John Does 1–20, Defendants,World Avenue USA, LLC, Intervenor,James Joseph Wagner; Hypertouch, Incorporated, Third–Party Plaintiffs.

No. 13–2137.

United States Court of Appeals, Fourth Circuit.

Argued: Oct. 29, 2014.

Decided: Feb. 4, 2015.

ARGUED:Richard Kennon Willard, Steptoe & Johnson LLP, Washington, D.C., for Appellant. Darrell J. Graham, Roeser Bucheit & Graham LLC, Chicago, Illinois; Ari Nicholas Rothman, Venable LLP, Washington, D.C., for Appellees. ON BRIEF:Stephen H. Ring, Law Officesof Stephen H. Ring, P.C., Gaithersburg, Maryland; Michael S. Rothman, Law Office of Michael S. Rothman, Rockville, Maryland; Jill C. Maguire, Benjamin B. Watson, Steptoe & Johnson LLP, Washington, D.C., for Appellant. John K. Roche, Perkins Coie LLP, Washington, D.C.; John E. Bucheit, Roeser Bucheit & Graham LLC, Chicago, Illinois, for Appellees Kraft Foods, Incorporated, Vict. Th. Engwall & Co., and Kraft Foods Global, Incorporated. J. Douglas Baldridge, Lisa Jose Fales, Venable LLP, Washington, D.C., for Appellee Connexus Corporation.

Before NIEMEYER, WYNN, and THACKER, Circuit Judges.

Affirmed by published opinion. Judge WYNN wrote the opinion, in which Judge NIEMEYER and Judge THACKER joined.

WYNN, Circuit Judge:

In the late 1990s and early 2000s, legislatures across the country became increasingly concerned about unwanted commercial e-mail colloquially known as “spam.” By 2004, thirty-five states had enacted some form of anti-spam legislation, though as might be expected each addressed the problem somewhat differently. See Roger Ford, Preemption of State Spam Laws by the Federal CAN–SPAM Act, 72 U. Chi. L.Rev. 355, 363 (2005). Among the common provisions in these statutes were the creation of private rights of action for internet service providers and large statutory damage provisions.

In this case, ostensible internet service provider Beyond Systems, Inc. seeks statutory damages from Kraft Foods, Inc. and Connexus Corporation under California's and Maryland's anti-spam statutes based upon several hundred e-mails which it alleges were unlawful spam. The district court summarily ruled that Beyond Systems consented to the harm underpinning its anti-spam claims and is therefore barred from recovery. We affirm the district court's judgment on this ground.

I.

A.

Beyond Systems is a Maryland corporation that provides at least a modicum of e-mail and server access to a limited number of clients. Paul Wagner owns Beyond Systems, whose servers are housed in his parents' Maryland residence. Paul's brother, James Joseph (“Joe”) Wagner, owns Hypertouch, Inc., a nominal internet service provider in California that routes spam e-mails to Beyond Systems' Maryland servers, where they are cached in accounts designed to hold spam e-mails.

Hypertouch and Beyond Systems have histories of suing alleged spammers. To further its litigation strategy, Beyond Systems developed web pages with hidden e-mail addresses—that is, e-mail addresses embedded in the code that generates the webpages that are not visible to website visitors. The hidden e-mail addresses are discovered by “spam crawlers,” computer programs spammers use to look for e-mail addresses and subscribe them to e-mail lists. Because only spam crawlers can find these hidden e-mail accounts, Beyond Systems uses them as “spam traps.” As a result, spam-trap-based litigation has accounted for 90% of Beyond Systems' income in recent years.

Unlike other internet service providers that routinely try to block e-mail accounts from spam, Beyond Systems does nothing to filter or block spam e-mail. Further, Beyond Systems has increased its storage capacity to archive large volumes of spam messages, retaining them specifically to provide grounds for litigation.

B.

Similar to Beyond Systems, Hypertouch operated in California with the same purpose of maximizing on spam-trap-based litigation. Pertinent to the issues in this matter, in 2005, Hypertouch sued Kraft under California's anti-spam law based on e-mails it received regarding Gevalia coffee, a Kraft brand. These e-mails allegedly had false headers, including incorrect “From” addresses, misleading subject lines, and other deficiencies which Hypertouch claimed violated California's law. Under a settlement agreement reached in that litigation, Hypertouch, on behalf of itself and its assignees, specifically disclaimed all rights it had to any causes of action based on the Gevalia e-mails sent to that point and agreed to cooperate with Kraft in identifying future e-mails that might violate California law.

In 2008, Beyond Systems brought Maryland and California state-law claims against Kraft and Connexus in the United States District Court for the District of Maryland. Beyond Systems alleged that it received a large volume of e-mails regarding Kraft's Gevalia coffee in violation of California's and Maryland's anti-spam statutes. Many of these e-mails were exactly the same ones that formed the basis of Hypertouch's 2005 suit.

After discovery concluded, the district court granted partial summary judgment in favor of Kraft on “any claims based on the same e-mails that were the subject of Hypertouch's June 29, 2006 Settlement Agreement with Kraft” and “any claims based on e-mails sent directly to Hypertouch after the Settlement Agreement, where Hypertouch failed to notify Kraft within twenty days of receipt.” J.A. 655. Additionally, the district court granted partial summary judgment as to any e-mails barred by California's one-year statute of limitations.

The district court then bifurcated the trial on the remaining e-mails into a “liability” proceeding and a “damages” proceeding. Beyond Sys., Inc. v. Kraft Foods, Inc., 972 F.Supp.2d 748, 754 (D.Md.2013). During the liability proceeding, the district court held a jury trial, split into two phases, to determine whether Beyond Systems had standing to sue. Id.

The first phase presented the jury with the question as to whether Beyond Systems was an internet service provider (or its state law equivalent). This phase presented none of Beyond Systems' litigation activities, but instead focused exclusively on those services it provided to its customers, where its servers were housed, and other business-related activities. 972 F.Supp.2d at 754. The jury found that, according to this evidence, Beyond Systems was an internet service provider under California and Maryland law.

The second phase presented evidence of Beyond Systems' litigation activities, including its relationship to Hypertouch and the percentage of its revenue derived from anti-spam litigation, and asked the jury if the Appellant was a “bona fide” internet service provider. The jury found that it was not. Therefore, the district court determined as a matter of law, inter alia, that Beyond Systems had invited its own purported injury and thus could not recover for it. On appeal, we review this issue of law de novo. Wilson v. Dollar Gen. Corp., 717 F.3d 337, 342 (4th Cir.2013).

II.

As an initial matter, we are bound to address the subject matter jurisdiction issue of whether Beyond Systems had Article III standing. Steel Co. v. Citizens for a Better Env't, 523 U.S. 83, 88–102, 118 S.Ct. 1003, 140 L.Ed.2d 210 (1998) (recognizing that standing to maintain a suit implicates the court's jurisdiction to entertain a suit and is thus a threshold question to be resolved before the merits).

To have standing, a party must allege that it suffered a “concrete” harm, there must be “a fairly traceable connection between the plaintiff's injury and the complained-of conduct of the defendant[,]” and the harm must be redressable. Id. at 103, 118 S.Ct. 1003 (internal quotation marks and citations omitted). The Supreme Court has also cautioned that the “absence of a valid ... cause of action” does not implicate the court's “power to adjudicate the case,” id. at 89, 118 S.Ct. 1003, and we therefore take care not to conflate a standing inquiry with a merits inquiry.

Doing so here, we conclude that Beyond Systems had Article III standing. It claimed a harm—receiving spam e-mail—and Maryland and California law create an interest in being free from such harm. See, e.g., Cantrell v. City of Long Beach, 241 F.3d 674, 684 (9th Cir.2001) (“state law can create interests that support standing in federal courts”); Md.Code §§ 14–3002, 14–3003; Cal. Bus. and Prof.Code § 17529.5. Beyond Systems contended that Defendants sent false and deceptive spam e-mails, i.e., caused its claimed harm. And Maryland and California law provide statutory redress. Id. Accordingly, we conclude that Beyond Systems had Article III standing.

III.

The central issue in this case is whether the common law doctrine of volenti non fit injuria precludes Beyond Systems' recovery under the California and Maryland anti-spam statutes. The district court held that it does. We agree.

California's anti-spam statute provides, in relevant part:

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

...

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

...

(3) The e-mail advertisement has a subject line that a person knows would be likely to mislead a recipient, acting reasonably under the circumstances, about a material fact regarding the contents or subject matter of the message.

(b)(1)(A) In addition to any other remedies provided by any other provision of law, the following may bring an action against a person or entity that violates any provision of this section:

...

(ii) An electronic mail service provider

Cal. Bus. and Prof.Code § 17529.5.

Similarly, Maryland's anti-spam act...