Software Licensing

"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."

Your friendly Indianapolis attorney at Alerding Castor Hewitt LLP here with a history lesson and tie in to business law.  Most of you have probably heard the term “gerrymander” and know that it refers to a process of dividing a territory into districts in order to give one political party an advantage over another by concentrating the voting strength of that party in as many districts as possible.  Fewer of you probably know the origin of the term, and I imagine that  even fewer know much about the man whose name spawned the term.

The term first originated in 1812 to describe a rather bizarre looking district boundary in Essex County, Massachusetts attributable to then-Governor of that state, Elbridge Gerry.  Gerry had signed a bill passed by the state’s legislature to redraw districts that favored his party, the Democratic-Republicans, over the Federalists (whose influence was on the decline).  Gerry would go on to be elected Vice President later that year and served under President James Madison; however, he died a couple of years later in office at the age of 70, thereby becoming the  first Vice President who did not go on to become President.

Despite the notorious practice that has been associated with his name, Gerry was a Founding Father who made several contributions to the country:  For example, he was a signer of both the Declaration of Independence and of the Articles of Confederation.  He was also among the dissenting voices that refused to sign the Constitution because it did not contain a bill of rights.  As those historians among you know, it was an agreement to create the Bill of Rights (the first ten amendments to the Constitution) that helped to secure ratification of the Constitution.

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.    

• ownership of the business (at least 51%);
• the requisite expertise in the industry;
• management and control of the entity and its operations; and
• U.S. citizenship.

FIRM JOINS INNOVATION SUMMIT AS SPONSOR

For the second year in a row, the firm committed to this year’s Innovation Summit as the Plenary Panel Sponsor. 

This annual event brings together entrepreneurs, executives and policymakers for learning, dialogue and debate on the central challenge of today’s economy – turning today’s ideas into tomorrow’s business breakthroughs. The Summit includes keynote speakers, breakout sessions on a variety of innovation related topics, and dozens of trade and industry booths. 

Innovation Summit will feature iconoclastic technology writer Nicholas Carr as the keynote speaker, author of the recently released book, The Shallows: What the Internet Is Doing to Our Brains. Agree or disagree with him, Carr makes us think – and that’s the first step towards innovation.

“There is no other event in the city that brings together this unique blend of people. The end result is sure to be an unprecedented amount of thought leadership in the innovation realm. Alerding Castor Hewitt, LLP could not be more excited to be a corporate partner,” comments David Castor, founding partner of Alerding Castor Hewitt, LLP.  

Annual attendees include: Chief Executive Officers, CIO, CFO, CTO Executives, University Presidents, Association Leaders, Marketing Executives, Leading Educators and Scientists & Engineers.

Firm at a Glance:

Practice Areas: business counsel, licensing and technology legal counsel, software litigation

Headquarters: 47 S. Pennsylvania St., Suite 700

Founded: April 2007

Partners: Michael Alerding, David Castor, Brian Hewitt

Employees: 17, nine of them attorneys

Clients: 300, including Compendium Blogware, Iasta, First Merchants Bank, Indiana Bank and Trust, MainSource Bank

It’s not often that we at Alerding Castor Hewitt, LLP run into issues regarding the payment of commissions for our business law, SaaS law, and Indiana technology clients.  When the subject does arise, however, it usually occurs when an employee separates from employment and makes a wage claim for unpaid commissions.  The debate about whether the commissions are wages centers on whether the employee was entitled to the commission at the time of sale OR when the client pays for the product, service, etc.  Employers often want to argue that the latter applies, and for two obvious reasons:  (1) they want to avoid the penalties for unpaid wages, and (2) it can be economically difficult if not impossible to pay a commission if you don’t have the funds available because you are waiting on the client(s) to pay.

A recent decision by the Indiana Court of Appeals this week illustrates the issue.  On Wednesday, the Court issued its for-publication decision in Wells Fargo Insurance, Inc. v. Land, No. 48A02-0911-CV-1099.  The facts are fairly straight forward. Mr. Land sold crop insurance for Wells Fargo.  After Mr. Land separated from Well Fargo to start his own business, Wells Fargo sued Mr. Land for violating a covenant not to compete.  Mr. Land counterclaimed for unpaid commissions.  Wells Fargo argued that the unpaid commissions were not earned until after a farmer paid the insurance premium and relied on a written plan or policy to support its position.  In contrast, Mr. Land presented evidence – including deposition testimony from a manager – that he was never advised of this policy and was unaware that the policy existed.  Mr. Land won at the trial level and on appeal.

In addressing the issue on appeal, the Court of Appeals noted the general rule that a party is entitled to commissions right away on business that he/she has secured regardless of when payment is received by the employer.  The Court also noted that this general rule can be altered by written agreement or conduct of the parties.  Ultimately, the Court concluded that Wells Fargo’s policy did not alter the general rule because Mr. Land was neither aware of nor apprised of the policy on commissions.

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.

Your friendly Indianapolis attorney at Alerding Castor Hewitt LLP here with an issue for those of you who, from time to time, might find yourselves embroiled in collections litigation over business law, SaaS law, or technology law matters.  How often have you seen a debtor issue a check for payment and include on the memo line words to the effect of “as full satisfaction of claim,” “final payment in full of debt,” or some similar words despite the fact that the debtor owes you more than the face amount of the check?  How many of you would go ahead and cash the check, or worse yet not even notice the memo line because you routinely cash every check you receive or utilize an automated system to process checks?

The questions I pose are more than mere hypotheticals.  The savvy debtor, or more likely the debtor relying on the advice of savvy counsel, realizes that by including such words on the memo line of a check he or she could create a potential issue regarding an accord and satisfaction of the debt he or she owes to you if you have to file suit to collect on the debt.  If nothing else, the debtor knows that you will either have to negotiate with them or spend money litigating the issue.  Either way, when it’s all said and done, you will likely lose money collecting on the debt.

The applicable Indiana statute here is Indiana Code § 26-1-3.1-311.  I encourage you to read the provision for yourself; however, in a nutshell, it gives the debtor who utilizes the memo line a possible “out” on the debt.  For instance, the debt can be considered as discharged if you knew that the check was tendered in full satisfaction of the debt and either (a) before tender of the check did not send a conspicuous statement to the debtor that communications regarding disputed debts or instruments tendered as full satisfaction must be sent to a designated person, office or place, or (b) did not tender repayment to the debtor within 90 days.  Those of you who take the time to read the statute might also notice that, technically speaking, the debtor is required to prove that he or she tendered the payment in good faith as full satisfaction and prove that the amount “was unliquidated or subject to a bona fide dispute.”  In practice, however, it has been our experience at ACH that courts either do not enforce the technical requirements or, more often, are reluctant to resolve them because they see the issue as a factual dispute (a case of “he/she says v. what you say”) that requires a trial to resolve.          

So what should you do when faced with this scenario?  The best solution harkens back to the old saw about an ounce of prevention being worth a pound of cure:  we at ACH recommend that you implement some process or system to monitor payment checks and, if you find that a debtor is trying to slip by on what they owe you by utilizing the memo line as I’ve described, do NOT cash the check.  Instead, notify the debtor immediately of the dispute and non-conforming payment.  While the risk is that you might lose out on a payment from a debtor who intends to stop paying you anyway, the benefit of such a practice is that you do not give the debtor a potential defense argument that results in greater collection costs and could result in you being unable to collect on the full debt owed to you. 

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.

        War at its best is barbarism.

Every attempt to make war easy and safe will result in humiliation and disaster.

                                    --William Tecumseh Sherman

Though he said these words nearly a century and a half ago, General Sherman’s comments apply equally well to litigation, including the world of business law, technology law, SaaS law, and probate law.  Litigation is a serious business, not something to be undertaken lightly.  And it is often expensive – regardless of who has so-called “right” on their side because, just as in warfare, both sides often express to being on the “right” side.

Just like warfare, there is an element of risk and chance in litigation.  Further, litigation can entail subterfuge and trying to pscyh out the opposing party.  Sometimes you can achieve victory by making your opponent think that Point A is your objective so that when he or she marshals all of their forces in defense around that position, you pop up over at Point B.  General Sherman employed this same tactic in his march to the sea, and it can be just as effective in litigation.

You might wonder why litigation seems to be much ado about nothing at times, why a large amount of energy, time and money is spent sweating over details.  The reason is that the minutiae should not be underestimated.  Those of us who are litigators in business law, technology law, SaaS law, and probate law don’t engage in these skirmishes simply because we want to or love to (though admittedly this might be true for some); we do it because in order to fully represent you our clients we HAVE to do so.  We know that the little details can make or break a case, and we know that those fights over the placement of a comma or definition of a word, though long and tedious, can help stave off those future battles or wars – or at least give you the advantage of the high ground from which to pounce on your opponent later on.

Just like warfare, fairness has nothing to do with it.  If you want to be involved in a lawsuit, you have to be willing to go the distance, and no matter how tiring you have to keep your eye on your objective.  It’s a marathon, not a sprint, and you have to be ready for the long haul.  If litigation were easy, you wouldn’t be in a lawsuit in the first place; you could sort out your differences over a couple of beers.  But sadly that’s often not the case.  It takes money, time, and even frustration to flesh out a resolution.  Someone, and probably both sides, will probably bleed before it is over.

At Alerding Castor Hewitt LLP, we are ready and willing to go that distance with you, but the process works best if you are prepared to make that journey and are prepared for the cost and risk.  If you stumble during a battle, get back up and remember that it’s warfare and that we will be there for you in those trenches.