Beyond Systems, Inc. v. Kraft Foods, Incorporated , 777 F.3d 712 ( 2015 )

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 13-2137
BEYOND SYSTEMS, INC.,
Plaintiff – Appellant,
v.
KRAFT FOODS, INCORPORATED; VICT. TH. ENGWALL & CO.; KRAFT
FOODS GLOBAL, INCORPORATED; CONNEXUS CORPORATION,
Defendants – Appellees,
and
HYDRA LLC; JOHN DOES 1-20,
Defendants,
WORLD AVENUE USA, LLC,
Intervenor,
JAMES JOSEPH WAGNER; HYPERTOUCH, INCORPORATED,
Third-Party Plaintiffs.
Appeal from the United States District Court for the District of
Maryland, at Greenbelt. Peter J. Messitte, Senior District
Judge. (8:08-cv-00409-PJM)
Argued: October 29, 2014 Decided: February 4, 2015
Before NIEMEYER, WYNN, and THACKER, Circuit Judges.
Affirmed by published opinion. Judge Wynn wrote the opinion, in
which Judge Niemeyer and Judge Thacker joined.
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 OFFICES OF 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.
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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
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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.
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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.
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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
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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 (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
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(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, 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:
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(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 provides, in relevant
part:
(b) A person may not initiate the transmission,
conspire with another person to initiate the
transmission, or assist in the transmission of
commercial electronic mail that:
(1) Is from a computer in the State or is sent to an
electronic mail address that the sender knows or
should have known is held by a resident of the State;
and
(2)(i) Uses a third party's Internet domain name or
electronic mail address without the permission of the
third party;
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(ii) Contains false or misleading information about
the origin or the transmission path of the commercial
electronic mail; or
(iii) Contains false or misleading information in the
subject line that has the capacity, tendency, or
effect of deceiving the recipient.
Md. Code § 14-3002. Additionally, Maryland law allows
“interactive computer service provider[s]” to pursue damages
under the statute. Md. Code § 14-3003.
These state statutes exist against the backdrop of the
Controlling the Assault of Non-Solicited Pornography and
Marketing Act (“CAN-SPAM Act”), which Congress enacted to create
a national uniform standard regarding spam control. 15 U.S.C. §
7701(a)(11). CAN-SPAM made it illegal to “initiate the
transmission . . . of a commercial electronic message . . . that
contains . . . header information 1 that is materially false or
materially misleading.” 15 U.S.C. § 7704. Congress
specifically provided that the statute would preempt state laws,
except for those that fit within a carve-out or “savings”
provision. 15 U.S.C. § 7707(b)(1). That provision saved those
state laws that “prohibit falsity or deception in any portion of
1
Header information includes an e-mail address, a domain
name, an internet protocol address (IP address), or a “from”
line, among other information. 15 U.S.C. § 7702(8).
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a commercial electronic mail message or information attached
thereto . . . . ” Id.This Court has held that “Congress was operating in the
vein of tort when it drafted the pre-emption clause’s
exceptions”. Omega World Travel, Inc. v. Mummagraphics, Inc.,
469 F.3d 348 (4th Cir. 2006). Thus, in this Circuit, it is
clear that a state’s anti-spam statute is not preempted so long
as it deals with falsity or deception in the vein of tort. Id.While the highest court in Maryland has not spoken directly
on the issue in this matter, we find the direct pronouncement of
Maryland’s second highest court to be informative as to the
state of Maryland’s law on this subject. In 2006, the Court of
Special Appeals of Maryland made clear that violations of
Maryland’s anti-spam statute, “like violations of the Consumer
Protection Act, are ‘in the nature of a tort.’ Indeed,
[because] both statutes regulate[] false and deceptive trade
practices . . . the same principles that guide us when faced
with questions of individual liability for torts apply here.”
MaryCLE LLC v. First Choice Internet, Inc., 890 A.2d 818, 846
(Md. App. 2006) (citation omitted).
Similarly, the second highest court in California provides
us with guidance on the state of California law on this issue.
In 2011, the California Court of Appeal concluded “that the CAN–
SPAM Act’s savings clause applies to any state law that
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prohibits material falsity or material deception in a commercial
e-mail . . . . ” Hypertouch, Inc. v. ValueClick, Inc., 192 Cal.
App. 4th 805, 833 (Cal. Ct. App. 2011). The California court
thereby limited the application of California’s anti-spam law to
deceptive e-mails. Id. Thus, neither the California nor the
Maryland anti-spam statutes, both of which are in the vein of a
tort, is preempted.
Generally, tort-related statutes like these anti-spam laws
are not exempt from common law principles. This makes sense,
“because statutes creating torts rarely bother to set forth all
the ancillary doctrines-governing such issues as causation,
immunity, or, here, derivative liability-that are necessary to
compose a complete regime of tort liability.” Shager v. Upjohn
Co., 913 F.2d 398, 404 (7th Cir. 1990). See also, e.g.,
Busching v. Sup. Ct., 12 Cal.3d 44, 52 (1974) (“[I]t is not to
be presumed that the legislature in the enactment of statutes
intends to overthrow long-established principles of law unless
such intention is made clearly to appear either by express
declaration or by necessary implication.”); Hardy v. State, 482
A.2d 474, 478 (Md. 1984) (“Maryland courts adhere to the policy
that statutes are not to be construed to alter the common-law by
implication.”). Because the California and Maryland anti-spam
statutes are in the vein of a tort, and nothing in their text
suggests otherwise, common law tort principles that are part of
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those states’ common law also apply to the causes of action
these statutes create.
It is a general maxim of tort law that “no wrong is done to
one who consents.” Restatement (Second) of Torts 892A cmt. a
(1979). As such, “[o]ne who effectively consents to conduct of
another intended to invade his interests cannot recover in an
action of tort for the conduct or for harm resulting from it.”
Id. § 892A. This principle has been known as “volenti non fit
injuria,” or “to a willing person it is not a wrong.” Black’s
Law Dictionary 1805 (10th ed. 2014).
Maryland and California abide by volenti non fit injuria.
As the Maryland Court of Special Appeals has recognized, “[a]ll
intended wrongs have in common the element that they are
inflicted without the consent of the victim. Those who, with
full knowledge, assent to the invasion of their interests may
not complain.” Janelsins v. Button, 648 A.2d 1039, 1042 (Md.
Ct. Spec. App. 1994) (internal quotation marks and citation
omitted); see also, e.g., Brazerol v. Hudson, 277 A.2d 585 (Md.
1971) (landowners who consented to entry of dump truck on their
land to transport materials to adjoining property could not
recover for trespass and alleged crack in their basement wall).
California has gone so far as to codify the maxim: “He who
consents to an act is not wronged by it.” Cal. Civ. Code §
3515; see also Pinney & Topliff v. Chrysler Corp., 176 F. Supp.
13801, 810 (S.D. Cal. 1959) (referring to Section 3515 as “a
codification of the maxim volenti non fit injuria”).
We take pause to note that this doctrine is separate and
distinct from that of “assumption of risk,” with assumption of
risk serving as a defense when the tort is based on the
defendant’s negligent or reckless conduct, while the volenti
doctrine applies when the plaintiff has consented to the
defendant’s intentional conduct. See Restatement (Second) of
Torts Chapter 17A, scope note; id. § 892A cmt. a. In a similar
vein, while the Maryland Court of Special Appeals observed in
Janelsins that “the two doctrines substantively amount to flip
sides of a single conceptual principle,” it joined California in
holding that “the doctrine of assumption of risk does not bar
recovery for intentional torts.” 648 A.2d at 1044-45.
We agree with the district court that the evidence was
“overwhelming” that Beyond Systems consented to the harm it
claims it suffered. Beyond Sys., Inc., 972 F. Supp. 2d at 770.
Beyond Systems created fake e-mail addresses, solely for the
purpose of gathering spam. It embedded these addresses in
websites so that they were undiscoverable except to computer
programs that serve no other function than to find e-mail
accounts to spam. Beyond Systems increased its e-mail storage
capacity to retain a huge volume of spam, by which it hoped to
increase its eventual recovery under anti-spam statutes. And it
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intentionally participated in routing spam e-mail between
California and Maryland to increase its exposure to spam and
thereby allow it to sue under both states’ laws. Accordingly,
we agree with the district court that Beyond Systems’ consent
to—and indeed its solicitation of—the harm at issue in this case
prohibits Beyond Systems from recovering under the Maryland and
California anti-spam statutes. 2
IV.
For the reasons above, we find that Beyond Systems cannot
recover for the e-mails sent from Kraft or Connexus to Beyond
Systems’ servers. And because we resolve this matter as
detailed above, we need not and therefore do not address the
parties’ other arguments. We thus affirm the district court’s
judgment.
AFFIRMED
2
We do not, by this opinion, suggest that a plaintiff which
is a legitimate internet service provider whose business has
been impacted by deceptive spam but who, in preparation for a
lawsuit, gathers and retains deceptive e-mails and even sets
“spam traps” to help it identify those responsible will be
prevented from bringing suit by the “volenti non fit injuria”
principle, but that plaintiffs like Beyond System, who
“gratuitously created circumstances that would support a legal
claim and acted with the chief aim of collecting a damage award”
cannot. Gordon v. Virtumundo, 575 F.3d 1040, 1068 (9th Cir.
2009) (Gould, J., concurring).
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