Internet Laws

"Internet Rewards Program Class Action Survives Initial Motion to Dismiss -- In re Easysaver Rewards

[Post by Venkat]

In re: Easysaver Rewards Litigation (S.D. Cal.) (Aug. 13, 2010)

Plaintiffs brought a class action lawsuit against Provide-Commerce (which operated Pro.Flowers.com). The lawsuit alleged that effecting transactions on the Proflowers website resulted in plaintiffs being unwittingly enrolled in a rewards program and being charged credit card fees. The court denied the motion to dismiss brought by defendants.

Background: Provide operated ProFlowers.com. At the time of completion of transactions on ProFlowers, consumers were offered a chance to enroll in a "rewards program" which was operated for Provide by Encore Marketing. Plaintiffs alleged that they were "unwittingly" enrolled in the program:

Plaintiffs allege that Provide leads customers to believe they will receive a complimentary $15.00 gift code to use on their next flower order as a thank you gift. After Plaintiffs completed the purchase of flowers on Provide's website by providing their personal and payment information, 'a window popped up that thanked Plaintiffs and Class Members for their order and offered a gift code for $15.00 off their next purchase at ProFlowers. The window also contained a link for Plaintiffs and Class Members to click on to claim the gift code.' Plaintiffs contend the pop-up window is part of an intentionally misleading and deceptive scheme, jointly orchestrated by Provide and EMI.

The named plaintiffs all testified to slightly different experiences. Some closed the pop-up window and did not provide any personal information, others responded to the pop-up by clicking on "I accept" and entering their personal information. Ultimately, plaintiffs were unable to have the charges relating to the EasySaver program reversed, and brought a variety of claims against both Provide and Encore.

Discussion:

Breach of Contract Claims:

Provide first argued that the privacy policy is not "an actionable contract" but was instead a "general statement . . . of policy." The court doesn't treat this as a colorable argument, citing to the alleged user experience and plaintiffs' reliance on the privacy policy and terms of use, which popped up every step of the way. (But see In re JetBlue, discussed in Professor Goldman's post here: "When Does a Privacy Policy Breach Support a Breach of Contract Claim? In re JetBlue.")

Provide also argued that the applicable privacy policy allowed it to transfer information to third parties, but the court holds that there is a disputed factual issue as to whether Provide agreed to only transfer the information with consumers' "informed consent or authorization," and would not share the information "beyond that which was necessary to complete the flower order."

Finally, Provide argued that the "EasySaver Rewards Policy" was not supported by an exchange of consideration, since it only came up after the flower transaction was complete. The court rejects this argument as well, finding that the rewards program was "part and parcel of the underlying flower purchase."

Provide also tried to disclaim liability for Encore's actions by arguing that it was not responsible for anything Encore did. The court cites to language in the description of the rewards program that indicates the program was jointly operated (the program was described as "our" program and Encore was described as Provide's "partner").

A separate sub-class of plaintiffs brought contract claims against Encore. These plaintiffs argued that they did not "knowingly" consent to the rewards program, and even if they did, Encore breached the terms of the program by not providing the stated benefits. Encore argued that these plaintiffs could not have it both ways - either they enrolled in the program (in which case plaintiffs accepted the terms were clearly stated) or they didn't. The court finds that plaintiffs could plead in the alternative that they did not enter into an agreement, and even if they did, Encore breached the terms of the agreement.

Fraud Claims: Provide raised a variety of arguments against plaintiffs' fraud claims (failure to plead fraud with particularity, failure to allege causation). The court rejects these arguments, holding that whether plaintiffs read the privacy policy or had adequate notice is not something that was amenable to resolution at the motion to dismiss stage.

Conversion: Plaintiffs argued that defendants converted plaintiffs' "private payment information." With respect to plaintiffs' conversation claim, the court notes the historical trend away from limiting conversation claims to tangible property (citing to Kremen v. Cohen, among other cases). The court analogizes conversion of plaintiff's "Private Payment Information" to conversion of bank account information, and finds that plaintiffs adequately state a claim based on conversion of private payment information.

EFTA: The Electronic Funds Transfer Act prohibits, among other things, unauthorized billing. Provide argued that it was Encore and not Provide who engaged in the unauthorized billing. The court agrees and grants Provide's motion to dismiss as to the EFTA claim, finding that there is no liability under the statute for aiding and abetting an EFTA violation. With respect to Encore, the court denies the motion to dismiss. Among other things, the court rejects Encore's argument that the plaintiffs agreed to the membership charges by "entering [their] email address[es] and zip code[s] and clicking the green acceptance button."

___

Defendants will have another opportunity to show that plaintiffs' claims are without merit, but I think the court's resolution at the pleading stage is interesting. A more robust disclaimer and a non-leaky acknowledgment would have no doubt been useful here. (See professor Goldman's post on Scherillo v. Dun and Bradstreet for some good pointers.)

The case also illustrates the importance of the transaction flow and process (the user experience). Often lawyers provide advice, but implementation is left to the business or marketing folks. This case illustrates that in addition to the language of the terms, courts will look to the transaction process to poke holes in the contract formation argument.

Data breach claims alleging a breach of the applicable privacy policy have met with little success. (See, e.g., Ruiz v. Gap, discussed in this post: "9th Circuit Affirms Rejection of Data Breach Claims Against Gap.") Where there is out of pocket loss that is a result of a violation of the privacy policy, plaintiffs have a much easier time bringing claims for violation of the privacy policy. In this case, defendants didn't even raise the argument that plaintiffs had not suffered out of pocket loss or lacked standing - it was a nonstarter.

It was also interesting that defendants tried to rely (and have judicial notice taken of) the online terms, but the court refused to do so, in light of the changing content of the webpages. When defendants pushed this argument, the court predictably trotted out the "[i]nformation from the internet does not necessarily bear an indicia of reliability" argument."

I recently caught a glimpse of the logo for one of our SaaS Law clients, ExactTarget, while flipping through the television channels.  It was an episode of TLC’s “American Chopper” that first aired last Thursday for a bike built for Window World.  The bike was unveiled during the ceremonies surrounding the Indianapolis 500.  ExactTarget’s logo appeared briefly on the side of the pavilion and again on one of the race cars.

As cheesy as it might sound, I was excited to see one of our client’s logos on television, just as I am any time I see or read something positive about them in any form of media.  It’s like catching a familiar face in a crowded room.  It’s a part of our philosophy and culture at ACH:  our clients – be they in the areas of business law, entrepreneurial law, information technology law, SaaS law, internet law, or some other area – are more than just names on an accounting sheet; we think of them as partners, and we enjoy seeing their growth and success.  I look forward to that trend continuing, and to seeing many more of our client’s in the media.    

Your friendly Indianapolis attorney and Partner In Success at Alerding Castor Hewitt, LLP here with another post, this time for both business entities and lawyers who find themselves in the trenches of business law, SaaS law, internet laws, and privacy litigation and probate litigation.  Partner and fellow blogger Dave Castor sort of beat me to the bunch by pointing out a great blog post by Michael P. Alerding (ACH’s Mike Alerding’s father) at Alerding & Co., LLC, which Dave re-posted below.  I encourage all of you to read it if you haven’t already.

Mr. Alerding’s blog is not only great for businesses; it’s good for lawyers, too.  We can debate all day long the chicken and the egg analogy about who is to blame for the “downward spiral” Mr. Alerding mentions.  I propose that a better use of our time would be to recognize the problem and all work collectively as lawyers and business people to resolve it.  Indeed, lawyers have a unique opportunity to help guide their clients to a resolution of issues, and they should feel that it is an obligation to work to get the client to do the “right thing.”  Not only that, we as lawyers should take pride in being able to assist with that process.     

Of course, I am one of those people who believe that words mean something.  But I agree with the implications of Mr. Alerding’s post that the world is getting a little “overly-lawyered” with its legalese.  For instance, if you can say something in 10 words, why use 45 to say the same thing?  Do you have to flex your ego or demonstrate your academic prowess, or are you trying bill that extra time to demonstrate your worth to the client or partners?  Likewise, a deal or agreement should remain a deal or agreement.  So, as lawyers, if we tell another lawyer that we are going to look into something, or make a concession, why do we feel that we aren’t bound if we didn’t put it in writing?  Why do some of us feel like we can play games (like “gotcha”) with an opposing party or competitor?  Why do we as lawyers avoid doing the “right thing” and focus so much on “winning” an argument, or fall back on the excuse “well, I have to be a zealous advocate”?     

All that the one-upmanship mentality or reneging on oral promises does is add to an aura of mistrust in a world that, in the modern age of technology, isn’t that big.  Lawyers, i.e., folks engaged in the business and practice of law, can take away a lot from Mr. Adlerding’s message in our practice and in our counseling of our clients.

FOR IMMEDIATE RELEASE
July 23, 2010
Contact: Lainey Scheetz
317.403.9012
lscheetz@alerdingcastor.com

ALERDING CASTOR HEWITT, LLP CLIENT NAMED 10TH FASTEST GROWING PRIVATE COMPANY IN INDIANA FOR THIRD TIME

Indianapolis, IN – Iasta, the leading provider of eSourcing software and solutions, was titled as the 10th Fastest Growing Private Company in Indiana for 2010 by the Indianapolis Business Journal (IBJ).  A third time honoree, Iasta boosted its three-year growth rate at 134 percent.

The report profiled Iasta’s founding’s, current offerings and future outlook.

The IBJ ranks companies by their revenue growth over the last three consecutive years, which must exceed $1 million annually.  In 2009, Iasta ranked 17th and in 2008 they ranked 14th.  The award is based on revenue growth of the last three consecutive years.  Iasta has thrived in a market where many others have been forced to make budget cuts and layoffs.  “We’ve established a lot of credibility and there’s a lot of growth yet to be had,” said Bush.

Iasta experienced very rapid growth in its younger years at 80 to 90 percent a year.  These days, the company still grows at 30 to 40 percent annually.  Bush attributes the success of Iasta to flexibility and high quality in both software and services.

Dave Castor has represented Iasta as general counsel since 2002. 

Firm at a Glance:

At Alerding Castor Hewitt, LLP, the attorneys focus on business law, litigation and technology law services.  The firm has unique experience in niche markets such as software and technology licensing, e-commerce and Internet law and international business law. 

For additional information, please visit www.alerdingcastor.com.

You might wonder why an Indiana law firm with a practice in several areas of technology (Indiana Internet Litigation, SaaS Legal Consulting to name just two) finds itself supporting a golf outing that raises money for adoption?  "As a firm that prides itself on supporting the local community, we don't always align our charitable giving strictly to serve our immediate demographic.  There are many organizations deserving of our support and Adoptions of Indiana is certainly one of them," comments Dave Castor, Founding Partner and lead counsel in the firm's involvement with Internet-based companies. 

On Tuesday, August 31st Adoptions of Indiana will host it's third annual golf classic at the Golf Course of Indiana.  Now in its third year, this event looks to build upon past successes and top past earnings to ensure that critical programming continues for birth parents and adoptive families alike.

Adoptions of Indiana was founded in 1995 by professionals in the fields of mental health and social work whose lives were personally touched by adoption. ADOPTIONS OF INDIANA is a not-for-profit 501(c)(3) corporation that is licensed by the State of Indiana as a child-placing agency.

The agency is a member of the Joint Council on International Children's Services, the North American Council on Adoptable Children, and Indiana’s Adoption Coalition. In addition to being licensed in the state of Indiana, they are also licensed and approved by the state of Connecticut to assist their families who are adopting children born in Indiana.

Adoptions of Indiana works with highly respected and well established adoption agencies and adoption attorneys throughout the United States. Our agency provides domestic and international adoption services to Indiana residents.

 

Indianapolis has done some amazing things in SaaS technology markets.  As many readers of this blog know, much of my business law practice focuses on SaaS law, Internet law and funding law.  Most of this is in business-to-business (B2B) SaaS markets.  This week I was thinking about how this is not just true of my practice, but it also is true for Indianapolis as a whole.  Most software companies in Indianapolis are in B2B markets. 

The other two markets are business-to-consumer (B2C) and consumer-to-consumer (C2C). 

The list of successful B2B SaaS or cloud computing companies in Indy is huge.  Examples include ExactTarget, Compendium, BlueLock, Iasta, FormStack, iGoDigital, Aprimo and Cantaloupe, to name a few.  A couple of emerging companies in this field that I expect to be stellar (because I love their applications and leadership teams) are Gauge Telematics and TinderBox.

B2C SaaS companies are those that sell SaaS applications directly to consumers.  In Indianapolis the most popular examples may be Redcats USA and SigmaMicro.  An emerging Indy company in this field is RewardSnap. 

C2C Internet companies are often social media sites.  These are companies built more on rapid scale and person-to-person buy-in than sellable units.  The company value is in the ultimate consumer database rather than pricing for a SaaS application. 

It is clear that the Indianapolis entrepreneurial culture accepts and supports B2B companies.  It is less clear to me how much it supports or fully understands B2C and C2C markets.  I have seen companies in these markets struggle to win peer support or obtain first-money funding locally; Whereas I see coastal investors much more willing to back companies in B2C and C2C markets.