Federal Court Rules Balsam Spam Lawsuit Preempted, Dismisses Claims

On September 13, 2012, in the case of Davison Design & Development v. Riley, Case No. C 11-2970 PJH, Judge Phyllis J. Hamilton granted a motion to dismiss claims filed by Daniel Balsam on behalf of his wife (and professional plaintiff) Cathy Riley for alleged violations of California Business & Professions Code section 17529.5(a)(2).  Judge Hamilton, United States District Judge, Northern District of California (Oakland Division), ruled that all of Riley’s claims were preempted by the federal CAN- SPAM Act of 2003.  A transcript of the hearing may be downloaded here.

The motion follows a widespread shakedown of email marketers and advertisers by plaintiff’s attorneys in the wake of the controversial decision in Balsam v. Trancos, 203 Cal. App. 4th 1083 (2012), in which a California Court of Appeals judge ruled that a commercial e-mailer’s deliberate use of untraceable, privately registered domain names to conceal its identity as a falsification or misrepresentation for purposes of the statute.

While there remains a split in the federal courts as to whether the CAN-SPAM Act preempts the California spam statute, prior to the September 13 ruling the trend of decisions had been in the plaintiffs’ favor.  The decision in the Riley matter may signify a judicial recognition that the Balsam v. Trancos decision expands the scope of private plaintiff email marketing claims, thus subjecting the already overburdened/underfunded court system with a material increase in the number of such lawsuits.  As discussed in Gordon v. Virtumundo, 575 F. 3d 1040, 1057 (9th Cir. 2009):

“We, like Congress, are sympathetic to legitimate operations hampered by a deluge of unwanted e-mail marketing. Our record, however, conclusively demonstrates that this is not the case before us. Gordon has created a cottage industry where he and his ‘clients’ set themselves up to profit from litigation. The CAN-SPAM Act was enacted to protect individuals and legitimate businesses—not to support a litigation mill for entrepreneurs like Gordon.”

Similarly, the Balsam v. Trancos decision has taken the “cottage industry” of being a private spam plaintiff and turned it into a litigation mill for entrepeneurs like Balsam and his “clients”.  In deciding that lack of traceability is the functional equivalent of deception or falsity, Trancos employs a fiction in order to avoid federal preemption.  Viewed in this light,  it is not surprising to see a court apply federal preemption against a “Trancos suit,” particularly where, as here, the claims go beyond the facts in the Trancos decision.  Balsam is not only targeting emailers (and, by extension, advertisers) whose domain names are registered by proxy.  He is also targeting those with non-private registrations whose identities he contends are not readily traceable by way of a WHO-IS search.

It is also notable that the Trancos decision relied in part upon a finding of an intent by the emailer to conceal its identity from consumers.  There are a multitude of other reasons why an emailer may wish to register its domain by proxy (including, for example, to increase deliverability, or to maintain anonymity in an affiliate marketing relationship).  There is as-yet no published precedent in which liability under the statute has been found where an intent to conceal an emailer or advertiser’s identity is not established.

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