Hypertouch Inc. v. Valueclick Inc.

192 Cal.App.4th 805

123 Cal.Rptr.3d 8

11 Cal. Daily Op. Serv. 1903

2011 Daily Journal D.A.R. 2287

HYPERTOUCH, INC., Plaintiff and Appellant,

v.VALUECLICK, INC. et al., Defendants and Respondents.

No. B218603.

Court of Appeal, Second District, Division 7, California.

Feb. 10, 2011.

Steptoe & Johnson, Richard K. Willard, Lawrence P. Riff and Lynn R. Levitan, for Plaintiff and Appellant.

Gibson, Dunn & Crutcher, Daniel M. Kolkey, Kevin Rosen and S. Ashlie Beringer, for Defendants and Respondents ValueClick Inc., E-Babylon, Inc., Hi-Speed Media, Inc., VC E-Commerce Solutions, Inc., Webclients, Inc. and Commission Junction, Inc.

Kenoff & Machtinger and Leonard S. Machtinger, for Defendant and Respondent PrimaryAds, Inc.

ZELON, J.

*813 INTRODUCTION

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

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

On appeal, Appellant argues that the court erred in ruling that the CAN-SPAM Act preempts claims arising under section 17529.5. In addition, Appellant argues that: (1) it introduced sufficient evidence to establish a triable issue of fact as to whether Respondents violated section 17529.5; (2) section 17529.5 claims are governed by the three-year statute of limitations**14 in Code of Civil Procedure section 338, rather than the one-year period described in section 340, subdivision (a); and (3) the trial court abused its discretion in awarding Respondents $100,000 in costs.

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

*814 FACTUAL AND PROCEDURAL BACKGROUND

I. Description of the Parties

A. Appellant Hypertouch, Inc.

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

B. Respondent ValueClick, Inc. and its Subsidiaries

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

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

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

*815 C. Respondent PrimaryAds, Inc.

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

"When an affiliate places downloaded creative material in an e-mail ... [consumers] may click on a link in the e-mail," which directs them to the PrimaryAds's website and then immediately redirects them to the third-party advertiser's website which contains the promotional offer.² PrimaryAds, in turn, tracks which affiliate is responsible for driving traffic to the third-party advertiser's offer page. If the consumer participates in the promotional offer, a tracking link notifies PrimaryAds, and the affiliate receives a commission. PrimaryAds is compensated by the third-party advertiser each time a consumer participates in an offer.

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

II. Hypertouch's Complaint and the Trial Court Proceedings

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

During discovery, Hypertouch produced thousands of e-mails that allegedly contained links to Respondents' promotional offers. According to Hypertouch, each e-mail also contained one of three categories of deceptive header information that violated section 17529.5. First, Hypertouch alleged that numerous e-mails contained "falsified" header information because the "From" or "To" fields did not accurately reflect the identity of the sender or *816 recipient of the e-mail. Second, Hypertouch alleged that the subject lines of many e-mails contained statements likely to mislead recipients into believing that they could obtain a free gift when, in fact, the gift could only be obtained by paying a fee or participating in additional promotional offers. Finally, Hypertouch alleged that some of the e-mails contained a "third-party's domain name without the permission of the third party."

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

PrimaryAds also filed a motion for summary judgment, which was accompanied by a motion for summary adjudication, raising two additional arguments. First, PrimaryAds contended that section 17529.5 required the plaintiff to establish that the defendant actually sent or had knowledge of the unlawful e-mails, which Hypertouch had failed to do. Second, PrimaryAds argued that, pursuant to ...