If you solicit spam emails, you can’t sue for receiving them – 4th Circuit

February 5, 2015

A Maryland company called Beyond Systems has a business model like none I’ve ever seen. The company provides Internet services to a very small clientele. But mostly, according to a ruling Wednesday by the 4th U.S. Circuit Court of Appeals, it exists to sue corporations that send out supposedly misleading email spam. For a long time, that very unusual business plan worked out quite well for Beyond Systems’ founder, Paul Wagner, and his brother, Joe Wagner, who runs a similar enterprise, called Hypertouch, in California. Beginning in 2005, when Beyond Systems switched its litigation target from spam faxes to spam emails, the company took in more than $1 million in settlements with alleged spammers, mostly Internet ad and marketing companies, according to Beyond Systems’ list of its cases.

You have to receive an awful lot of email spam to squeeze defendants for $1 million in settlements; under state anti-spam law in Maryland, where Beyond Systems did most of its litigating, Internet service providers are entitled to statutory damages of $1,000 per offending email. But volume was the beauty of the operations at Beyond Systems and Hypertouch, which were set up specifically to attract spam emails. According to the 4th Circuit ruling, Beyond Systems created fake “spam-trap” email addresses; embedded the addresses in websites to assure they’d be picked up by spamsters’ data crawlers; and increased its email storage capacity to save offending spam messages indefinitely, or at least for as long as it took to sue over them.

The Wagner brothers would even ping-pong spam between their servers in Maryland and California to boost the volume of emails they received, according to a 2013 opinion from U.S. District Judge Peter Messitte of Greenbelt, Maryland, who presided over the trial phase of the Beyond Systems case at the 4th Circuit. Messitte cited testimony from a trial held before an advisory jury in which Joe Wagner said that one spam email bounced between California and Maryland servicers could provide an opportunity to sue at least three times, under California, Maryland and federal law.

Pretty shrewd, right? Class actions over spam phone calls and texts have become a growth industry for plaintiffs’ lawyers, but the Wagners didn’t have to bother with the hassles of classwide litigation. They received enough supposedly offending spam – emails with misidentified recipients or misleading subject lines – to justify their own suits. In the case at the 4th Circuit, for instance, Beyond Systems had asserted tens of millions of dollars of damages against Kraft Foods and the marketing firm Connexus Corporation based on hundreds of thousands of supposedly misleading emails Beyond received about the Kraft coffee brand Gevalia. A joint defendants’ appellate brief described Beyond Systems as a “litigation mill” engaged in “shakedown” suits. In response, Beyond Systems said that “antipathy toward so-called professional plaintiffs” shouldn’t change the standards that apply to their cases.

But in Wednesday’s ruling, the 4th Circuit said a different standard does apply to Beyond Systems, not because its business is litigation but because of the tactics that have permitted it to assert such outsize damages claims. The three members of the 4th Circuit panel – Judges Paul Niemeyer, James Wynn and Stephanie Thacker – said in an opinion written by Wynn that the federal anti-spam law does not preempt Maryland and California statutes on deceptive emails, so the common law doctrine of “volenti non fit injuria” (or, “no wrong is done to one who consents”) applies to Beyond Systems’ case. Overwhelming evidence, according to the 4th Circuit, showed that Beyond Systems hadn’t just consented to receiving spam emails but had actively solicited the spam. The company, it said, cannot recover for an injury it invited. (Interestingly, the 4th Circuit’s conclusion on the scope of federal pre-emption relied in part on a 2011 decision by the California Court of Appeal in a spam email case brought by Beyond Systems’ brother company, Hypertouch.)

Ari Rothman of Venable, who argued the case for Connexus, told me the 4th Circuit opinion should spell the end of suits by opportunistic plaintiffs trying to gin up big claims under anti-spam statutes. On the other hand, no other plaintiffs have done that on the same scale as Beyond Systems, which Rothman called “the most extreme example” he’s come across.

Connexus’ co-defendant, Kraft, was represented at the 4th Circuit by Darrell Graham of Roeser Bucheit & Graham, who didn’t respond to my phone message. Kraft previously settled a suit by Beyond Systems’ brother company, Hypertouch, over the same email campaign that was at issue in the case at the 4th Circuit.

Richard Willard of Steptoe & Johnson argued the appeal for Beyond Systems. He didn’t return my call. I also left a phone message for Paul Wagner but he didn’t respond.

Maybe he thought it was spam.

For more of my posts, please go to WestlawNext Practitioner Insights

Follow me on Twitter

No comments so far

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/