United States District Court, D. Maryland
Decided August 9, 2013.
[Copyrighted Material Omitted]
For Beyond Systems, Inc., Plaintiff: Anthony Adrian Onorato, LEAD ATTORNEY, Steptoe and Johnson LLP, New York, N.Y. John J Duffy, Thomas M Barba, LEAD ATTORNEYS, frey Edward McFadden, Roger William Yoerges, Steptoe and Johnson LLP, Washington, DC; Michael Stephen Rothman, Law Office of Michael S Rothman, Rockville, MD; Stephen Howard Ring, Stephen H Ring PC, Gaithersburg, MD.
For Kraft Foods, Inc., Vict.Th.Engwall& Co., Defendants: Ari Nicholas Rothman, LEAD ATTORNEY, J Douglas Baldridge, Venable LLP, Washington, DC; Barry J Reingold, LEAD ATTORNEY, John M Devaney, PRO HAC VICE, John K Roche, Perkins Coie LLP, Washington, DC; Darrell J Graham, PRO HAC VICE, Law Office of Darrell J Graham LLC, Chicago, IL; John E Bucheit, PRO HAC VICE, Peter S Roeser, PRO HAC VICE, Roeser Bucheit and Graham LLC, Chicago, IL.
For Kraft Foods Global, Inc., Defendant: Ari Nicholas Rothman, LEAD ATTORNEY, J Douglas Baldridge, Venable LLP, Washington, DC; Darrell J Graham, PRO HAC VICE, Law Office of Darrell J Graham LLC, Chicago, IL; John E Bucheit, PRO HAC VICE, Peter S Roeser, PRO HAC VICE, Roeser Bucheit and Graham LLC, Chicago, IL; John K Roche, Perkins Coie LLP, Washington, DC.
For Connexus Corp., Defendant: Ari Nicholas Rothman, LEAD ATTORNEY, J Douglas Baldridge, Venable LLP, Washington, DC; Lisa Jose Fales, LEAD ATTORNEY, Lauren E Ingebritson, Robert Andrew Friedman, Venable LLP, Washington, DC.
For James Joseph Wagner, Hypertouch, Inc., ThirdParty Defendants: Thomas M Barba, LEAD ATTORNEY, Steptoe and Johnson LLP, Washington, DC.
For World Avenue USA, LLC, Intervenor: Sanford M Saunders, Jr, LEAD ATTORNEY, Nicoleta Burlacu, PRO HAC VICE, Greenberg Traurig LLP, Washington, DC.
For Connexus Corp., ThirdParty Plaintiff, Counter Defendant: Ari Nicholas Rothman, LEAD ATTORNEY, J Douglas Baldridge, Venable LLP, Washington, DC; Lisa Jose Fales, LEAD ATTORNEY, Robert Andrew Friedman, Venable LLP, Washington, DC.
For Hypertouch, Inc., ThirdParty Defendant: Roger William Yoerges, Steptoe and Johnson LLP, Washington, DC.
For James Joseph Wagner, Hypertouch, Inc., Counter Claimants: Thomas M Barba, LEAD ATTORNEYS, frey Edward McFadden, Steptoe and Johnson LLP, Washington, DC.
PETER J. MESSITTE, UNITED STATES DISTRICT JUDGE.
The advent of electronic mail has brought with it a flood of commercial advertising, some of it misleading, false, or deceptive, some even fraudulent, much of it unwanted. That in turn has given rise to federal and state legal initiatives intended to stem the flow of the unwanted, and especially the misleading, false, deceptive, and fraudulent e-mails, so-called anti-spam legislation. Federal legislation, notably the CAN-SPAM Act,  seeks to regulate commercial email in general terms, i.e., any message whose primary purpose is the
commercial advertisement or promotion of a product or service, and effectively pre-empts the field except for limited carve-outs for state laws providing for civil remedies where the e-mails can be shown to be deceptive or fraudulent in nature.
Typically, state statutes authorize internet service providers (ISPs), i.e. the entities that initially receive and then distribute the e-mails to end users, to sue suspected spamming companies and/or their agents for each offending e-mail, either for actual damages or for damages in a liquidated amount, such as $1,000.  Both Maryland and California have such statutes. See Maryland Commercial Law, Commercial Electronic Mail Act § 14-3001, et seq. and Cal. Bus. & Prof. Code § 17529, et seq.
Whether or not such statutes have been successful in deterring spam, their existence has seen the emergence of the ostensible ISP whose primary purpose is to proactively attract and trap potential spam, then sue the offending company and/or its agents for tens of thousands, if not millions, of dollars, each purportedly offending e-mail carrying a statutory bounty of, for example, $1,000. Because the suspected spamming companies are exposed not only to potentially enormous verdicts if they lose in court but to discovery of extraordinary dimension, these suits frequently end with the companies entering into substantial dollar settlements with the ISPs.
The present case tests the limits of how far an ostensible ISP can go in litigating claims under state anti-spam statutes.
Is it enough that an entity meets the minimal requirements to qualify as an ISP, even if it exists primarily to attract and trap spam and sue upon it?
Or, in order to be eligible to sue, must an ISP function primarily as an internet service provider, making at least some effort to deflect spam, and suing under the anti-spam statutes, if at all, only incidentally to its primary function as a service provider? That is, must an ISP be bona fide
The answers to these questions occasion an expedition into the realm of certain legal arcana, including among other things the Plain Meaning Rule of statutory interpretation; the matter of how legislative intent should be discerned in the interpretation of statutes; the ancient maxim of tort law volenti non fit injuria ; federal preemption law; concerns of public policy; and -no less - the common sense that ought to inform the analysis of any legal question.
In broad brush, Hypertouch, Inc. is an ostensible ISP in California where, under the law of that State to be specific, it would arguably be termed an " Electronic Mail Service Provider" (EMSP). Its owner and operator is James Joseph Wagner (sometimes referred to hereinafter as " Joe" ).  While providing a limited number of typical ISP functions, Hypertouch's principal activity, especially between 2005-2011, has been to attract and harvest what
it hopes will be spam e-mails and either sue on them itself under California law or sue on them, then route them to an entity known as Beyond Systems, Inc. (BSI), ostensibly a Maryland ISP, which would arguably be termed under Maryland law an " Interactive Computer Service Provider" (ICSP). The primary function of BSI, which also provides a modicum of actual internet services, is to gather in the e-mails sent by Hypertouch, then file its own suits under Maryland's anti-spam statute (sometimes the very same e-mails Hypertouch has sued upon in California). BSI's owner and operator is Paul Wagner - brother of Hypertouch's Joe. In recent years, BSI has earned approximately 90% of its annual revenue from litigation, a total in excess of $1 million, essentially all through negotiated settlements with suspected spammers and/or their agents.
In the present case, BSI has sued Kraft Foods, Inc. which, through various subordinate companies, produces Gevalia coffee, a product broadly advertised through e-mails by Connexus Corporation.  BSI says that the Gevalia e-mails are materially misleading if not deceptive and fraudulent and maintains that in excess of 600,000 e-mails fit that description; hence, based on $1000 per item, Kraft's exposure is to more than $600 million. Unlike several other BSI targets, Kraft, in the words of The Godfather, has " gone to the mattresses" on BSI's claims. Sued by BSI, it filed a third party complaint against Joe Wagner and Hypertouch, alleging that BSI received most if not all of the e-mails it is suing upon from Joe Wagner and Hypertouch, including many that Hypertouch, by virtue of an earlier agreement with Kraft, promised Kraft it would not to sue upon.  Kraft submits that, whatever
their corporate forms, the Wagner brothers are literally in the business of manufacturing lawsuits.
When, given the 600,000 or so claims BSI has asserted, it became apparent that discovery in the case would be of a very substantial magnitude, the Court - after consulting the parties - determined that not only would it bifurcate the trial of liability and damages, it would hold a preliminary jury trial on the issue of whether BSI has standing to sue and whether the fact that BSI actively solicits, which is to say consents to receiving, suspected spam should result in termination of the proceeding in advance of discovery or trial as to liability or damages.
That preliminary jury trial, conducted as any jury trial would be, has now been held.
In Phase I of the trial, BSI was permitted to pursue its theory of the case, arguing that it satisfies the de minimis requirements of an " interactive computer service provider" under Maryland law as well as those of an " electronic mail service provider" under California law. The jury heard limited evidence and was instructed that it could consider several factors in determining whether BSI operates as an ISP, viz., its revenue from operations; customer base; marketing efforts; types of services provided; location and type of offices; organization and configuration of computer equipment; types and uses of software to deliver/transfer e-mails; privacy policies, terms of service and customer agreements; hiring and use of employees; bookkeeping and billing practices; implementation of security and fire prevention methods; email archiving; efforts to prevent or stop spam; customer complaints; digital security of data and redundancy; commercial insurance; incident response plan; and structured cabling. The jury in Phase I, however, heard nothing about the litigation activities of BSI; the proportion that those activities bear in comparison to other activities of BSI; or the relationship between BSI and Hypertouch and the Wagner brothers, including the routing relationship between the entities, and how the brothers share the view that they can multiply litigation claims several times over with their server arrangement. On this limited record, the jury in Phase I found that BSI was an " interactive computer service provider" under Maryland law and an " electronic mail service provider" under California law.
After the jury made its findings in Phase I of the trial, it returned in Phase II to consider evidence in support of Defendants' theory of the case that BSI is not a bona fide " interactive computer service provider" and " electronic mail service provider" under Maryland and California law respectively, because in terms of BSI's operations it exists primarily to attract, trap and sue upon suspected spam, in recent years garnering some 90% of its total revenues, approximately $1 million in total from settling such litigation.  BSI was of course permitted to offer its own evidence in Phase II. At the close of Phase II, the Court instructed the jury that a bona fide ISP is one that " primarily and substantially"
provides the services set forth in the statutes, and that an entity is not a bona fide ISP if it primarily or substantially engages in attracting spam and bringing anti-spam litigation. The jury was told to consider the time period from 2005 forward, when the activity in this case took place.  It was also instructed that it could consider all the evidence from Phase I, as well as the additional evidence it heard throughout Phase II regarding BSI's litigation activities and its interaction with Hypertouch, as well as the relationship of the Wagner brothers.
Deliberating a second time, in Phase II the jury found for Defendants, deciding, within the parameters of the Court's instructions, that BSI was not a bona fide ISP under either Maryland or California law.
Following trial, the Court invited the parties to file motions for judgment as a matter of law, which they have done and which the Court now considers. BSI has styled its motion as a renewed motion for judgment as a matter of law pursuant to Federal Rule of Civil Procedure 50(b). Kraft Foods and Connexus have styled their motions as ones for summary judgment under Rule 56. BSI moves for judgment confirming that it is an " interactive computer service provider" under Maryland law and an " electronic mail service provider" under California law, and therefore has standing to maintain its suit. BSI also moves to set aside the jury's finding that it is not a bona fide plaintiff under the statutes. Kraft, joined by Connexus, moves for judgment on the grounds that BSI is not a bona fide interactive computer service provider or electronic mail service provider, which they submit is required under Maryland and California law for standing purposes as well as for purposes of invoking federal jurisdiction, and, additionally, on the grounds that because BSI in effect consented to receive the e-mails on which it sues, its claims are barred as a matter of law. Connexus, joined by Kraft, has filed a separate motion arguing BSI's consent to harm.
For the following reasons, the Court:
1) DENIES BSI's Motion for Judgment as a Matter of Law and to Set Aside Phase II Jury Verdict;
2) GRANTS Kraft's Motion for Summary Judgment as to BSI;
3) GRANTS Connexus' Motion for Summary Judgment as to BSI;
4) DENIES BSI's Renewed Motion for Default Judgment Damages as to Hydra LLC.
The Maryland and California Statutes
The anti-spam statutes at issue in this case are Maryland Commercial Law, Commercial Electronic Mail Act § 14-3001, et seq. (" CEMA" ) and Cal. Bus. & Prof. Code § 17529, et seq. Both statutes deal with e-mail that contains false and misleading information. See CEMA § 14-3002 and Cal. Bus. & Prof. Code § 17529.5. 
Both acts permit individual recipients as well as certain service provider entities (in Maryland, an " interactive computer service provider" (ICSP) and in California, an " electronic mail service provider" (EMSP)) to bring actions to recover actual or statutory damages for each false and misleading e-mail. See CEMA § 14-3003; Cal. Bus. & Prof. Code § 17529.5.
In defining a service provider, the Maryland statute reads:
" 'Interactive computer service provider' means an information service, system, or access software provider that provides or enables computer access by multiple users to a computer service. 'Interactive computer service provider' includes a service or system that provides access to the Internet and systems operated or services offered by a library or educational institution." CEMA, § 14-3001(c).
Maryland establishes that for each offending e-mail, a service provider can recover the greater of $1000 or actual damages, which is double the statutory damages an individual recipient can recover. There is no limit to the amount of actual or statutory damages ...