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InfoBytes
CONSUMER FINANCE HEADLINES & DEADLINES FOR OUR CLIENTS AND FRIENDS
Topics – Covered This Week (Click to View)
FEDERAL ISSUES
FDIC Adopts Final FACTA Affiliate Marketing and Red Flag Rules. On October 16, the Federal Deposit Insurance Corporation (FDIC) board of directors unanimously adopted in final form several long-delayed rules implementing the Fair and Accurate Credit Transactions Act of 2003 (FACTA). The final regulation provides a separate right for the consumer to opt-out before a company that receives information from an affiliate can use that information in marketing. Another set of regulations and guidelines addresses procedures that financial institutions and creditors will be required to follow to identify “red flags” that indicate potential identity theft and to respond to a request for a credit or debit that they receive soon after receiving a change-of-address notice. The draft Federal Register notices adopted by the FDIC include draft final rules that are expected to be issued soon by the other agencies that share joint responsibility for issuing the FACTA regulation—the Office of the Comptroller of the Currency, Office of Thrift Supervision, Federal Reserve Board, and National Credit Union Administration for the affiliate-marketing rule and those agencies along with the Federal Trade Commission (FTC) for the red-flag and change-of-address rules and guidelines. For more information, please see Tuesday’s InfoBytes Special Alert at http://www.buckleykolar.com/publications/InfoBytesSpecialAlert101607.html.
Treasury Requests Public Comments on Structure of Financial Regulators. On October 11, the Department of the Treasury released a request for public comment on “a blueprint for an improved U.S. financial regulatory structure.” The request covers the regulation of all types of financial institutions, including insured depository institutions, insurance companies, securities and futures firms, and other types of financial intermediaries. Questions posed by the Treasury in the request for comment consider several aspects of the partition of regulation into “functional” areas such as banking, insurance, securities, and futures, including whether this scheme (i) is well equipped to handle new innovations in the market, such as securitization, (ii) causes inefficiencies in the market, and (iii) makes it difficult for regulators to assess systemic risk. The Treasury then goes on to ask if the U.S. should consider a single financial regulatory agency such as that in the U.K., Japan, or Germany. Among the many other questions posed, are a series regarding the wisdom of having multiple charters for depository institutions. For a copy of the request, please see http://www.treasury.gov/press/releases/reports/federalregisternoticehp602.pdf
FTC Reaches Settlement with Consumer “List Brokers.” On October 9, the FTC, working with the U.S. Postal Inspection Service and the Department of Justice, entered into an enforcement agreement with a “list broker” company that was accused of providing, without authorization, “full data leads,” which can include consumers’ bank account and routing information, credit card numbers, security codes, and expiration dates to telemarketers. FTC v. Practical Marketing, Inc., No. 07-cv-685 (S.D. Ill.). The FTC complaint alleged that the list broker knew this information would be used to unlawfully telemarket advance-fee credit cards, in part because the list broker had access to the marketers’ scripts. In the complaint, the FTC reasoned that, due to the list broker’s knowledge that the information would be used in violation of the Telemarketing Sales Rule, the list broker should likewise be liable. In the settlement agreement, the list broker company agreed to pay $110,000 in fines and penalties. It also agreed to cease selling “full data leads” and to take “reasonable steps” to assure the good conduct of their telemarketer clients. For the official press release, as well as links to the complaint and settlement agreement, please see http://www.ftc.gov/opa/2007/10/listbrokers.shtm.
STATE ISSUES
Massachusetts AG Issues New UDAP Regulations. Massachusetts Attorney General Martha Coakley recently issued final regulations under the Massachusetts Consumer Protection Act (CPA) relating to unfair or deceptive acts or practices (UDAP) by mortgage lenders and brokers. In an expansion to the 1992 CPA regulations, the new regulations prohibit specific advertising practices in connection with purchase, construction and refinance loans as unfair or deceptive. Such practices include any “bait” advertising tactics wherein an offer is made to procure or arrange a mortgage loan on terms which the broker or lender cannot, or does not, intend or want to provide, or which the broker or lender knows cannot reasonable be provided. Moreover, the new regulations enumerate a list of prohibited mortgage brokering and lending practices, including among others, (i) procuring or negotiating a loan which significantly deviates from industry-wide standards or is otherwise unconscionable, and (ii) processing a “no doc” or “stated income” loan without providing a written document to borrower for signature that identifies borrower’s source of income, and explains that, in applying for a “no doc” loan, the borrower will likely have less favorably terms for the loan. For the full text of the new regulations please see http://www.mass.gov/?pageID=cagohomepage&L=1&L0=Home&sid=Cago.
COURTS
Seventh Circuit Rules Against Lender for Hypertechnical TILA Violations. The Seventh Circuit Court of Appeals has ruled in favor of borrowers in two factually identical cases alleging violations of the Truth in Lending Act (TILA). Hamm v. Ameriquest Mortgage Co., No. 05-3984; Jones v. Ameriquest Mortgage Co., No. 06-3086 (7th Cir. Oct. 17, 2007). In this consolidated appeal, the plaintiffs took out mortgage loans with the defendant Ameriquest. The plaintiffs received TILA disclosure statements that stated the number of payments and gave the first and last payment dates. While the payments were disclosed in other closing documents as being required “monthly,” the TILA disclosure statements did not explicitly state the payment period. The plaintiffs sued, alleging TILA violations. The two cases had been heard in different district courts, which reached opposite results. The Seventh Circuit, relying on its prior decision in Handy v. Anchor Mortgage (reported in the October 6, 2006 issue of InfoBytes), ruled against the defendant in both cases. The court found that the defendant had committed an actionable violation of TILA, acknowledging that the violation was “hypertechnical,” and that not all circuits accept the “hypertechnicality” analysis endorsed by the Seventh Circuit. According to the court, “[t]he key point is that the borrower should not have to make any assumptions; she should be told her payment period in explicit terms.” For a copy of the opinion, please see http://www.ca7.uscourts.gov/fdocs/docs.fwx?submit=showbr&shofile=05-3984_029.pdf.
Complaint Effectively Conveyed Notice of Validation Period under FDCPA. The Sixth Circuit Court of Appeals affirmed a district court’s grant of summary judgment in favor of defendants in an action involving the validation notice provisions of Fair Debt Collection Practices Act (FDCPA) § 1692g(a). Federal Home Loan Mortgage Corp. v. Lamar, No. 05-01455 (6th Cir. Sept. 25, 2007). In a footnote, the Circuit Court recognized the recent amendments to § 1692g(a) that resolved a circuit split by not treating a formal pleading in a civil action as an “initial communication” under the FDCPA, but assumed that, at the time this suit was initiated, the summons and complaint did constitute such an “initial communication.” The Circuit Court ruled that the debt collector effectively conveyed notice of the 30 day validation period to the debtor under the “’least sophisticated debtor [or consumer]’ standard,” even though the notice contained a provision giving the debtor 20 days to answer the complaint and 30 days to dispute the debt. Moreover, noting that the notice was the first substantive text in the complaint following the case caption, the court concluded that it was not overshadowed or contradicted by the remaining language in the text even though the font was the same and the validation notice was not separated by a header. The court further rebuffed the plaintiff in finding that serving a summons and complaint on two separate occasions does not lead to confusion as to the time when the 30 day period begins because it was reasonable to assume a least sophisticated consumer would inquire as to the deadline for the response after receiving the first notice. For a copy of the opinion, please see http://www.ca6.uscourts.gov/opinions.pdf/07a0390p-06.pdf.
CAN-SPAM Violation Offense Level Determined by Actual Loss to Victims. A U.S. District Court in the District of Arizona recently held that actual loss suffered by victims, even if only an estimate, is the factor to be used in determining the appropriate offense level for CAN-SPAM (Controlling the Assault of Non-Solicited Pornography And Marketing Act) violations under Sentencing Guideline § 2B1.1(b). United States of America v. Kilbride, No. 05-870 (D. Ariz. Sept.21, 2007). The court further held that if a victim’s loss cannot be reasonably estimated, the court should use the defendant’s gain that resulted from the offense as an alternative measure of loss only if it represents a reasonable approximation of the actual loss to the victim. If there is reason to believe that the defendant’s gain from an offense greatly exceeds the amount of actual loss, the gain does not represent a reasonable alternative measure of the loss. In this case, the defendants gained over $1 million from CAN-SPAM violations when recipients of their unsolicited emails signed on to pornographic websites for a fee. According to the court, because the defendants’ gain did not represent someone else’s loss—i.e., money was not fraudulently taken from the people who volitionally visited such sites—the gain to the defendants was not an appropriate alternative measure of the loss. The court recognized that many recipients of the defendants’ emails were injured in the sense that that their privacy and homes were invaded. However, the Application Notes to § 2B1.1 state that the losses which can enhance a defendant’s offense level and sentence are limited to pecuniary harm and do not include emotional distress or other non-economic harm. As such, the court held that the $10,000 suffered by AOL, the only victim identified by the Government that actually suffered pecuniary harm, to investigate the many complaints received from its customers, was the only factor to be used to determine the appropriate offense level for the defendants’ CAN-SPAM violations. For a copy of this opinion, please contact .
Ninth Circuit to Revisit CDA Immunity Decision En Banc. On October 15, the Ninth Circuit Court of Appeals agreed to rehear the case of Fair Housing Council v. Roommates.com en banc. In its earlier decision in this case (reported in the April 18th issue of InfoBytes), a divided panel of the Ninth Circuit ruled that a website operator that distributes member profiles generated using form questionnaires was not entitled to immunity under the Communications Decency Act (CDA). The majority held that Roommate.com could not claim “publisher” immunity from liability for the content created by responses to the “drop-down” and “select-a-box” portions of the questionnaire because Roommate.com “channeled” the information through its compatible preferences search function and e-mail notifications function that excluded incompatible profiles. For a list of the decisions the Ninth Circuit will hear en banc, see http://www.ca9.uscourts.gov/.
Website Terms Apply to Telephone Sales. A federal court in Texas enforced a forum selection clause contained in a website’s terms of use, despite the plaintiff’s arguments that he was a telephone customer and therefore not bound by those terms. Greer v. 1-800-Flowers.com, Inc., No. H-07-2543 (S.D. Tex., Oct. 3, 2007). In Greer, plaintiff alleged that the defendant violated its privacy policy by providing to his wife information about flowers he sent to his girlfriend. The defendant moved to dismiss the complaint for improper venue on the basis of a forum selection clause on its website that required suit to be brought in New York. The plaintiff countered that the clause did not apply because he ordered the flowers by telephone. The court granted the dismissal, finding that, although the plaintiff made the order by telephone, he had accessed the website after being directed there to review the privacy policy. The website clearly stated that, by accessing any part of it, a party agrees to the Terms of Use, including the forum selection clause. The court tersely rejected plaintiff’s additional contention that enforcement of the forum selection clause was unreasonable and would contravene public policy. For a copy of this opinion, please contact .
Violation of “Browsewrap” Terms of Use Constitutes Breach of Contract. A federal district court in Texas granted plaintiff’s motion for summary judgment on breach of contract claims that defendant violated plaintiff’s “browsewrapped” terms of use. Southwest Airlines Co. v. BoardFirst LLC, No. 3:06cv0891 (N.D. Tex. Sept. 12, 2007). According to plaintiff, defendant breached the express terms of use by obtaining boarding passes from plaintiff’s website for other airline passengers for a fee. In granting summary judgment on this claim, the court held that defendant was bound by the terms and conditions where the homepage clearly stated that the use of the site constitutes acceptance of those terms, even though defendant did not specifically assent to them before continuing through the website. Thus, the court held that by accessing the site, a contract was established and that by using the site for commercial purposes the defendant breached the express terms of the agreement. The court also granted a permanent injunction against the defendant. For a copy of this decision, please contact .
TJX Reaches Settlement in Data Breach Suit. In response to District Judge William Young’s questions concerning the proposed settlement of consumers’ claims in a retail data breach involving information from over 46 million credit and debit cards, TJX Companies, Inc. and plaintiffs’ counsel filed memoranda with the court revising certain terms of the proposed settlement in the class action suit styled In re TJX Cos. Retail Security Breach Litig., No. 1:07-cv-10162-WGY (D. Mass., memoranda filed Oct. 9, 2007). Under the terms of the revised settlement, which has yet to be approved, self-certifying class members will have the option of receiving a $30 voucher for any of the TJX stores (e.g., T.J. Maxx, Marshalls and/or HomeGoods) or a $15 check, with total monetary payment not to exceed $10 million. Those class members who can provide receipts proving that they shopped in a TJX store may receive either two $30 vouchers or two $15 checks, not to exceed $7 million. In addition, customers whose personal information contained on photo identification cards was breached would be eligible for free credit monitoring and identity theft insurance for three years, reimbursement of the cost in obtaining new photo identification cards, and reimbursement for any actual losses. The parties to the proposed settlement also extended the time frame for customers to file for vouchers or checks from 60 days to 90 days. The proposed settlement also provides for a one day, 15% off all merchandise sale in all TJX stores, as well as up to $6.5 million in attorneys’ fees and up to $150,000 for reasonable costs and expenses associated with the litigation. For a copy of the proposed settlement, please contact .
MISCELLANY
ESRA to Hold Conference on E-Signatures. The Electronic Signatures & Records Association (ESRA) will hold a conference entitled “Getting E-Signatures Right: Key Business, Technology, and Legal Developments” on November 13-14, 2007 in Washington, DC. Some of the conference topics include (i) success of the ESIGN Act, (ii) long term retention of electronically signed records, (iii) various industry sector case studies and (iv) key trends. Congressman Jay Inslee (D – WA) will be among the speakers, as well as Jeremiah Buckley and Margo Tank of Buckley Kolar, LLP. To learn more about the conference go to http://www.esignrecords.org/events/index.cfm.
NIST Publishes “Guidelines on Security Public Web Servers.” The National Institute of Standards and Technology (NIST) recently published guidance for federal departments and agencies on securing internet web servers from attack. For more a copy of the guidelines, please see http://csrc.nist.gov/publications/nistpubs/800-44-ver2/SP800-44v2.pdf.
MBA Releases Paper on Electronic Records in Warehouse Lending. On October 17, the Mortgage Bankers Association released a white paper entitled “Security Interests in Transferable Records Evidencing Residential Mortgage Lending Transactions and the Rights of Warehouse Lenders: An Analysis and Proposal.” It examines the legal foundations of eMortgages in the warehouse lending sector as the industry moves toward electronic loan files. For more information, please see http://www.mortgagebankers.org/NewsandMedia/PressCenter/57736.htm.
FIRM NEWS
Margo Tank will be speaking on a panel titled Electronic Signatures and Private Education Loans at the National Council of Higher Education Loan Programs (NCHELP) Fall Training Conference. The Fall Training Conference will be held November 4 - 7, 2007 in Atlanta, Georgia. To learn more or register, please see http://www.nchelp.org/conferences/event_detail.cfm?id=124.
Jeff Naimon will be speaking at the ACI’s conference on Responsible Mortgage Lending in Las Vegas, November 14-16. Mr. Naimon will be presenting a workshop entitled “Mortgage Regulation Primer: Rules, Restrictions and Requirements for State Regulated and Federally Chartered Mortgage Lenders.” For more information about the conference, or to register, please see https://webserv.c5groupinc.com/www_secure/conf_details.php?conf=4850&view=ovrv.
Andrea Lee Negroni moderated a panel on outsourcing mortgage operations to India on October 15, 2007 at the MBA’s 94th Annual Convention (Hynes Convention Center, Third Floor, Boston MA). Panelists include representatives from First Indian Corporation, Adventity/Profolio Home Mortgage, Mortgage Dynamics, CitiMortgage and Infosys Technology. For details on this presentation, see http://events.mortgagebankers.org/94th_annual/sessions/default.aspx#INFO.
Seventh Circuit Rules Against Lender for Hypertechnical TILA Violations. The Seventh Circuit Court of Appeals has ruled in favor of borrowers in two factually identical cases alleging violations of the Truth in Lending Act (TILA). Hamm v. Ameriquest Mortgage Co., No. 05-3984; Jones v. Ameriquest Mortgage Co., No. 06-3086 (7th Cir. Oct. 17, 2007). In this consolidated appeal, the plaintiffs took out mortgage loans with the defendant Ameriquest. The plaintiffs received TILA disclosure statements that stated the number of payments and gave the first and last payment dates. While the payments were disclosed in other closing documents as being required “monthly,” the TILA disclosure statements did not explicitly state the payment period. The plaintiffs sued, alleging TILA violations. The two cases had been heard in different district courts, which reached opposite results. The Seventh Circuit, relying on its prior decision in Handy v. Anchor Mortgage (reported in the October 6, 2006 issue of InfoBytes), ruled against the defendant in both cases. The court found that the defendant had committed an actionable violation of TILA, acknowledging that the violation was “hypertechnical,” and that not all circuits accept the “hypertechnicality” analysis endorsed by the Seventh Circuit. According to the court, “[t]he key point is that the borrower should not have to make any assumptions; she should be told her payment period in explicit terms.” For a copy of the opinion, please see http://www.ca7.uscourts.gov/fdocs/docs.fwx?submit=showbr&shofile=05-3984_029.pdf.
Massachusetts AG Issues New UDAP Regulations. Massachusetts Attorney General Martha Coakley recently issued final regulations under the Massachusetts Consumer Protection Act (CPA) relating to unfair or deceptive acts or practices (UDAP) by mortgage lenders and brokers. In an expansion to the 1992 CPA regulations, the new regulations prohibit specific advertising practices in connection with purchase, construction and refinance loans as unfair or deceptive. Such practices include any “bait” advertising tactics wherein an offer is made to procure or arrange a mortgage loan on terms which the broker or lender cannot, or does not, intend or want to provide, or which the broker or lender knows cannot reasonable be provided. Moreover, the new regulations enumerate a list of prohibited mortgage brokering and lending practices, including among others, (i) procuring or negotiating a loan which significantly deviates from industry-wide standards or is otherwise unconscionable, and (ii) processing a “no doc” or “stated income” loan without providing a written document to borrower for signature that identifies borrower’s source of income, and explains that, in applying for a “no doc” loan, the borrower will likely have less favorably terms for the loan. For the full text of the new regulations please see http://www.mass.gov/?pageID=cagohomepage&L=1&L0=Home&sid=Cago.
Ninth Circuit to Revisit CDA Immunity Decision En Banc. On October 15, the Ninth Circuit Court of Appeals agreed to rehear the case of Fair Housing Council v. Roommates.com en banc. In its earlier decision in this case (reported in the April 18th issue of InfoBytes), a divided panel of the Ninth Circuit ruled that a website operator that distributes member profiles generated using form questionnaires was not entitled to immunity under the Communications Decency Act (CDA). The majority held that Roommate.com could not claim “publisher” immunity from liability for the content created by responses to the “drop-down” and “select-a-box” portions of the questionnaire because Roommate.com “channeled” the information through its compatible preferences search function and e-mail notifications function that excluded incompatible profiles. For a list of the decisions the Ninth Circuit will hear en banc, see http://www.ca9.uscourts.gov/.
FDIC Adopts Final FACTA Affiliate Marketing and Red Flag Rules. On October 16, the Federal Deposit Insurance Corporation (FDIC) board of directors unanimously adopted in final form several long-delayed rules implementing the Fair and Accurate Credit Transactions Act of 2003 (FACTA). The final regulation provides a separate right for the consumer to opt-out before a company that receives information from an affiliate can use that information in marketing. Another set of regulations and guidelines addresses procedures that financial institutions and creditors will be required to follow to identify “red flags” that indicate potential identity theft and to respond to a request for a credit or debit that they receive soon after receiving a change-of-address notice. The draft Federal Register notices adopted by the FDIC include draft final rules that are expected to be issued soon by the other agencies that share joint responsibility for issuing the FACTA regulation—the Office of the Comptroller of the Currency, Office of Thrift Supervision, Federal Reserve Board, and National Credit Union Administration for the affiliate-marketing rule and those agencies along with the Federal Trade Commission (FTC) for the red-flag and change-of-address rules and guidelines. For more information, please see Tuesday’s InfoBytes Special Alert at http://www.buckleykolar.com/publications/InfoBytesSpecialAlert101607.html.
Treasury Requests Public Comments on Structure of Financial Regulators. On October 11, the Department of the Treasury released a request for public comment on “a blueprint for an improved U.S. financial regulatory structure.” The request covers the regulation of all types of financial institutions, including insured depository institutions, insurance companies, securities and futures firms, and other types of financial intermediaries. Questions posed by the Treasury in the request for comment consider several aspects of the partition of regulation into “functional” areas such as banking, insurance, securities, and futures, including whether this scheme (i) is well equipped to handle new innovations in the market, such as securitization, (ii) causes inefficiencies in the market, and (iii) makes it difficult for regulators to assess systemic risk. The Treasury then goes on to ask if the U.S. should consider a single financial regulatory agency such as that in the U.K., Japan, or Germany. Among the many other questions posed, are a series regarding the wisdom of having multiple charters for depository institutions. For a copy of the request, please see http://www.treasury.gov/press/releases/reports/federalregisternoticehp602.pdf
Complaint Effectively Conveyed Notice of Validation Period under FDCPA. The Sixth Circuit Court of Appeals affirmed a district court’s grant of summary judgment in favor of defendants in an action involving the validation notice provisions of Fair Debt Collection Practices Act (FDCPA) § 1692g(a). Federal Home Loan Mortgage Corp. v. Lamar, No. 05-01455 (6th Cir. Sept. 25, 2007). In a footnote, the Circuit Court recognized the recent amendments to § 1692g(a) that resolved a circuit split by not treating a formal pleading in a civil action as an “initial communication” under the FDCPA, but assumed that, at the time this suit was initiated, the summons and complaint did constitute such an “initial communication.” The Circuit Court ruled that the debt collector effectively conveyed notice of the 30 day validation period to the debtor under the “’least sophisticated debtor [or consumer]’ standard,” even though the notice contained a provision giving the debtor 20 days to answer the complaint and 30 days to dispute the debt. Moreover, noting that the notice was the first substantive text in the complaint following the case caption, the court concluded that it was not overshadowed or contradicted by the remaining language in the text even though the font was the same and the validation notice was not separated by a header. The court further rebuffed the plaintiff in finding that serving a summons and complaint on two separate occasions does not lead to confusion as to the time when the 30 day period begins because it was reasonable to assume a least sophisticated consumer would inquire as to the deadline for the response after receiving the first notice. For a copy of the opinion, please see http://www.ca6.uscourts.gov/opinions.pdf/07a0390p-06.pdf.
Seventh Circuit Rules Against Lender for Hypertechnical TILA Violations. The Seventh Circuit Court of Appeals has ruled in favor of borrowers in two factually identical cases alleging violations of the Truth in Lending Act (TILA). Hamm v. Ameriquest Mortgage Co., No. 05-3984; Jones v. Ameriquest Mortgage Co., No. 06-3086 (7th Cir. Oct. 17, 2007). In this consolidated appeal, the plaintiffs took out mortgage loans with the defendant Ameriquest. The plaintiffs received TILA disclosure statements that stated the number of payments and gave the first and last payment dates. While the payments were disclosed in other closing documents as being required “monthly,” the TILA disclosure statements did not explicitly state the payment period. The plaintiffs sued, alleging TILA violations. The two cases had been heard in different district courts, which reached opposite results. The Seventh Circuit, relying on its prior decision in Handy v. Anchor Mortgage (reported in the October 6, 2006 issue of InfoBytes), ruled against the defendant in both cases. The court found that the defendant had committed an actionable violation of TILA, acknowledging that the violation was “hypertechnical,” and that not all circuits accept the “hypertechnicality” analysis endorsed by the Seventh Circuit. According to the court, “[t]he key point is that the borrower should not have to make any assumptions; she should be told her payment period in explicit terms.” For a copy of the opinion, please see http://www.ca7.uscourts.gov/fdocs/docs.fwx?submit=showbr&shofile=05-3984_029.pdf.
Complaint Effectively Conveyed Notice of Validation Period under FDCPA. The Sixth Circuit Court of Appeals affirmed a district court’s grant of summary judgment in favor of defendants in an action involving the validation notice provisions of Fair Debt Collection Practices Act (FDCPA) § 1692g(a). Federal Home Loan Mortgage Corp. v. Lamar, No. 05-01455 (6th Cir. Sept. 25, 2007). In a footnote, the Circuit Court recognized the recent amendments to § 1692g(a) that resolved a circuit split by not treating a formal pleading in a civil action as an “initial communication” under the FDCPA, but assumed that, at the time this suit was initiated, the summons and complaint did constitute such an “initial communication.” The Circuit Court ruled that the debt collector effectively conveyed notice of the 30 day validation period to the debtor under the “’least sophisticated debtor [or consumer]’ standard,” even though the notice contained a provision giving the debtor 20 days to answer the complaint and 30 days to dispute the debt. Moreover, noting that the notice was the first substantive text in the complaint following the case caption, the court concluded that it was not overshadowed or contradicted by the remaining language in the text even though the font was the same and the validation notice was not separated by a header. The court further rebuffed the plaintiff in finding that serving a summons and complaint on two separate occasions does not lead to confusion as to the time when the 30 day period begins because it was reasonable to assume a least sophisticated consumer would inquire as to the deadline for the response after receiving the first notice. For a copy of the opinion, please see http://www.ca6.uscourts.gov/opinions.pdf/07a0390p-06.pdf.
CAN-SPAM Violation Offense Level Determined by Actual Loss to Victims. A U.S. District Court in the District of Arizona recently held that actual loss suffered by victims, even if only an estimate, is the factor to be used in determining the appropriate offense level for CAN-SPAM (Controlling the Assault of Non-Solicited Pornography And Marketing Act) violations under Sentencing Guideline § 2B1.1(b). United States of America v. Kilbride, No. 05-870 (D. Ariz. Sept.21, 2007). The court further held that if a victim’s loss cannot be reasonably estimated, the court should use the defendant’s gain that resulted from the offense as an alternative measure of loss only if it represents a reasonable approximation of the actual loss to the victim. If there is reason to believe that the defendant’s gain from an offense greatly exceeds the amount of actual loss, the gain does not represent a reasonable alternative measure of the loss. In this case, the defendants gained over $1 million from CAN-SPAM violations when recipients of their unsolicited emails signed on to pornographic websites for a fee. According to the court, because the defendants’ gain did not represent someone else’s loss—i.e., money was not fraudulently taken from the people who volitionally visited such sites—the gain to the defendants was not an appropriate alternative measure of the loss. The court recognized that many recipients of the defendants’ emails were injured in the sense that that their privacy and homes were invaded. However, the Application Notes to § 2B1.1 state that the losses which can enhance a defendant’s offense level and sentence are limited to pecuniary harm and do not include emotional distress or other non-economic harm. As such, the court held that the $10,000 suffered by AOL, the only victim identified by the Government that actually suffered pecuniary harm, to investigate the many complaints received from its customers, was the only factor to be used to determine the appropriate offense level for the defendants’ CAN-SPAM violations. For a copy of this opinion, please contact .
Ninth Circuit to Revisit CDA Immunity Decision En Banc. On October 15, the Ninth Circuit Court of Appeals agreed to rehear the case of Fair Housing Council v. Roommates.com en banc. In its earlier decision in this case (reported in the April 18th issue of InfoBytes), a divided panel of the Ninth Circuit ruled that a website operator that distributes member profiles generated using form questionnaires was not entitled to immunity under the Communications Decency Act (CDA). The majority held that Roommate.com could not claim “publisher” immunity from liability for the content created by responses to the “drop-down” and “select-a-box” portions of the questionnaire because Roommate.com “channeled” the information through its compatible preferences search function and e-mail notifications function that excluded incompatible profiles. For a list of the decisions the Ninth Circuit will hear en banc, see http://www.ca9.uscourts.gov/.
Website Terms Apply to Telephone Sales. A federal court in Texas enforced a forum selection clause contained in a website’s terms of use, despite the plaintiff’s arguments that he was a telephone customer and therefore not bound by those terms. Greer v. 1-800-Flowers.com, Inc., No. H-07-2543 (S.D. Tex., Oct. 3, 2007). In Greer, plaintiff alleged that the defendant violated its privacy policy by providing to his wife information about flowers he sent to his girlfriend. The defendant moved to dismiss the complaint for improper venue on the basis of a forum selection clause on its website that required suit to be brought in New York. The plaintiff countered that the clause did not apply because he ordered the flowers by telephone. The court granted the dismissal, finding that, although the plaintiff made the order by telephone, he had accessed the website after being directed there to review the privacy policy. The website clearly stated that, by accessing any part of it, a party agrees to the Terms of Use, including the forum selection clause. The court tersely rejected plaintiff’s additional contention that enforcement of the forum selection clause was unreasonable and would contravene public policy. For a copy of this opinion, please contact .
Violation of “Browsewrap” Terms of Use Constitutes Breach of Contract. A federal district court in Texas granted plaintiff’s motion for summary judgment on breach of contract claims that defendant violated plaintiff’s “browsewrapped” terms of use. Southwest Airlines Co. v. BoardFirst LLC, No. 3:06cv0891 (N.D. Tex. Sept. 12, 2007). According to plaintiff, defendant breached the express terms of use by obtaining boarding passes from plaintiff’s website for other airline passengers for a fee. In granting summary judgment on this claim, the court held that defendant was bound by the terms and conditions where the homepage clearly stated that the use of the site constitutes acceptance of those terms, even though defendant did not specifically assent to them before continuing through the website. Thus, the court held that by accessing the site, a contract was established and that by using the site for commercial purposes the defendant breached the express terms of the agreement. The court also granted a permanent injunction against the defendant. For a copy of this decision, please contact .
TJX Reaches Settlement in Data Breach Suit. In response to District Judge William Young’s questions concerning the proposed settlement of consumers’ claims in a retail data breach involving information from over 46 million credit and debit cards, TJX Companies, Inc. and plaintiffs’ counsel filed memoranda with the court revising certain terms of the proposed settlement in the class action suit styled In re TJX Cos. Retail Security Breach Litig., No. 1:07-cv-10162-WGY (D. Mass., memoranda filed Oct. 9, 2007). Under the terms of the revised settlement, which has yet to be approved, self-certifying class members will have the option of receiving a $30 voucher for any of the TJX stores (e.g., T.J. Maxx, Marshalls and/or HomeGoods) or a $15 check, with total monetary payment not to exceed $10 million. Those class members who can provide receipts proving that they shopped in a TJX store may receive either two $30 vouchers or two $15 checks, not to exceed $7 million. In addition, customers whose personal information contained on photo identification cards was breached would be eligible for free credit monitoring and identity theft insurance for three years, reimbursement of the cost in obtaining new photo identification cards, and reimbursement for any actual losses. The parties to the proposed settlement also extended the time frame for customers to file for vouchers or checks from 60 days to 90 days. The proposed settlement also provides for a one day, 15% off all merchandise sale in all TJX stores, as well as up to $6.5 million in attorneys’ fees and up to $150,000 for reasonable costs and expenses associated with the litigation. For a copy of the proposed settlement, please contact .
CAN-SPAM Violation Offense Level Determined by Actual Loss to Victims. A U.S. District Court in the District of Arizona recently held that actual loss suffered by victims, even if only an estimate, is the factor to be used in determining the appropriate offense level for CAN-SPAM (Controlling the Assault of Non-Solicited Pornography And Marketing Act) violations under Sentencing Guideline § 2B1.1(b). United States of America v. Kilbride, No. 05-870 (D. Ariz. Sept.21, 2007). The court further held that if a victim’s loss cannot be reasonably estimated, the court should use the defendant’s gain that resulted from the offense as an alternative measure of loss only if it represents a reasonable approximation of the actual loss to the victim. If there is reason to believe that the defendant’s gain from an offense greatly exceeds the amount of actual loss, the gain does not represent a reasonable alternative measure of the loss. In this case, the defendants gained over $1 million from CAN-SPAM violations when recipients of their unsolicited emails signed on to pornographic websites for a fee. According to the court, because the defendants’ gain did not represent someone else’s loss—i.e., money was not fraudulently taken from the people who volitionally visited such sites—the gain to the defendants was not an appropriate alternative measure of the loss. The court recognized that many recipients of the defendants’ emails were injured in the sense that that their privacy and homes were invaded. However, the Application Notes to § 2B1.1 state that the losses which can enhance a defendant’s offense level and sentence are limited to pecuniary harm and do not include emotional distress or other non-economic harm. As such, the court held that the $10,000 suffered by AOL, the only victim identified by the Government that actually suffered pecuniary harm, to investigate the many complaints received from its customers, was the only factor to be used to determine the appropriate offense level for the defendants’ CAN-SPAM violations. For a copy of this opinion, please contact .
Ninth Circuit to Revisit CDA Immunity Decision En Banc. On October 15, the Ninth Circuit Court of Appeals agreed to rehear the case of Fair Housing Council v. Roommates.com en banc. In its earlier decision in this case (reported in the April 18th issue of InfoBytes), a divided panel of the Ninth Circuit ruled that a website operator that distributes member profiles generated using form questionnaires was not entitled to immunity under the Communications Decency Act (CDA). The majority held that Roommate.com could not claim “publisher” immunity from liability for the content created by responses to the “drop-down” and “select-a-box” portions of the questionnaire because Roommate.com “channeled” the information through its compatible preferences search function and e-mail notifications function that excluded incompatible profiles. For a list of the decisions the Ninth Circuit will hear en banc, see http://www.ca9.uscourts.gov/.
Website Terms Apply to Telephone Sales. A federal court in Texas enforced a forum selection clause contained in a website’s terms of use, despite the plaintiff’s arguments that he was a telephone customer and therefore not bound by those terms. Greer v. 1-800-Flowers.com, Inc., No. H-07-2543 (S.D. Tex., Oct. 3, 2007). In Greer, plaintiff alleged that the defendant violated its privacy policy by providing to his wife information about flowers he sent to his girlfriend. The defendant moved to dismiss the complaint for improper venue on the basis of a forum selection clause on its website that required suit to be brought in New York. The plaintiff countered that the clause did not apply because he ordered the flowers by telephone. The court granted the dismissal, finding that, although the plaintiff made the order by telephone, he had accessed the website after being directed there to review the privacy policy. The website clearly stated that, by accessing any part of it, a party agrees to the Terms of Use, including the forum selection clause. The court tersely rejected plaintiff’s additional contention that enforcement of the forum selection clause was unreasonable and would contravene public policy. For a copy of this opinion, please contact .
Violation of “Browsewrap” Terms of Use Constitutes Breach of Contract. A federal district court in Texas granted plaintiff’s motion for summary judgment on breach of contract claims that defendant violated plaintiff’s “browsewrapped” terms of use. Southwest Airlines Co. v. BoardFirst LLC, No. 3:06cv0891 (N.D. Tex. Sept. 12, 2007). According to plaintiff, defendant breached the express terms of use by obtaining boarding passes from plaintiff’s website for other airline passengers for a fee. In granting summary judgment on this claim, the court held that defendant was bound by the terms and conditions where the homepage clearly stated that the use of the site constitutes acceptance of those terms, even though defendant did not specifically assent to them before continuing through the website. Thus, the court held that by accessing the site, a contract was established and that by using the site for commercial purposes the defendant breached the express terms of the agreement. The court also granted a permanent injunction against the defendant. For a copy of this decision, please contact .
FTC Reaches Settlement with Consumer “List Brokers.” On October 9, the FTC, working with the U.S. Postal Inspection Service and the Department of Justice, entered into an enforcement agreement with a “list broker” company that was accused of providing, without authorization, “full data leads,” which can include consumers’ bank account and routing information, credit card numbers, security codes, and expiration dates to telemarketers. FTC v. Practical Marketing, Inc., No. 07-cv-685 (S.D. Ill.). The FTC complaint alleged that the list broker knew this information would be used to unlawfully telemarket advance-fee credit cards, in part because the list broker had access to the marketers’ scripts. In the complaint, the FTC reasoned that, due to the list broker’s knowledge that the information would be used in violation of the Telemarketing Sales Rule, the list broker should likewise be liable. In the settlement agreement, the list broker company agreed to pay $110,000 in fines and penalties. It also agreed to cease selling “full data leads” and to take “reasonable steps” to assure the good conduct of their telemarketer clients. For the official press release, as well as links to the complaint and settlement agreement, please see http://www.ftc.gov/opa/2007/10/listbrokers.shtm.
ESRA to Hold Conference on E-Signatures. The Electronic Signatures & Records Association (ESRA) will hold a conference entitled “Getting E-Signatures Right: Key Business, Technology, and Legal Developments” on November 13-14, 2007 in Washington, DC. Some of the conference topics include (i) success of the ESIGN Act, (ii) long term retention of electronically signed records, (iii) various industry sector case studies and (iv) key trends. Congressman Jay Inslee (D – WA) will be among the speakers, as well as Jeremiah Buckley and Margo Tank of Buckley Kolar, LLP. To learn more about the conference go to http://www.esignrecords.org/events/index.cfm.
NIST Publishes “Guidelines on Security Public Web Servers.” The National Institute of Standards and Technology (NIST) recently published guidance for federal departments and agencies on securing internet web servers from attack. For more a copy of the guidelines, please see http://csrc.nist.gov/publications/nistpubs/800-44-ver2/SP800-44v2.pdf.
MBA Releases Paper on Electronic Records in Warehouse Lending. On October 17, the Mortgage Bankers Association released a white paper entitled “Security Interests in Transferable Records Evidencing Residential Mortgage Lending Transactions and the Rights of Warehouse Lenders: An Analysis and Proposal.” It examines the legal foundations of eMortgages in the warehouse lending sector as the industry moves toward electronic loan files. For more information, please see http://www.mortgagebankers.org/NewsandMedia/PressCenter/57736.htm.
FDIC Adopts Final FACTA Affiliate Marketing and Red Flag Rules. On October 16, the Federal Deposit Insurance Corporation (FDIC) board of directors unanimously adopted in final form several long-delayed rules implementing the Fair and Accurate Credit Transactions Act of 2003 (FACTA). The final regulation provides a separate right for the consumer to opt-out before a company that receives information from an affiliate can use that information in marketing. Another set of regulations and guidelines addresses procedures that financial institutions and creditors will be required to follow to identify “red flags” that indicate potential identity theft and to respond to a request for a credit or debit that they receive soon after receiving a change-of-address notice. The draft Federal Register notices adopted by the FDIC include draft final rules that are expected to be issued soon by the other agencies that share joint responsibility for issuing the FACTA regulation—the Office of the Comptroller of the Currency, Office of Thrift Supervision, Federal Reserve Board, and National Credit Union Administration for the affiliate-marketing rule and those agencies along with the Federal Trade Commission (FTC) for the red-flag and change-of-address rules and guidelines. For more information, please see Tuesday’s InfoBytes Special Alert at http://www.buckleykolar.com/publications/InfoBytesSpecialAlert101607.html.
TJX Reaches Settlement in Data Breach Suit. In response to District Judge William Young’s questions concerning the proposed settlement of consumers’ claims in a retail data breach involving information from over 46 million credit and debit cards, TJX Companies, Inc. and plaintiffs’ counsel filed memoranda with the court revising certain terms of the proposed settlement in the class action suit styled In re TJX Cos. Retail Security Breach Litig., No. 1:07-cv-10162-WGY (D. Mass., memoranda filed Oct. 9, 2007). Under the terms of the revised settlement, which has yet to be approved, self-certifying class members will have the option of receiving a $30 voucher for any of the TJX stores (e.g., T.J. Maxx, Marshalls and/or HomeGoods) or a $15 check, with total monetary payment not to exceed $10 million. Those class members who can provide receipts proving that they shopped in a TJX store may receive either two $30 vouchers or two $15 checks, not to exceed $7 million. In addition, customers whose personal information contained on photo identification cards was breached would be eligible for free credit monitoring and identity theft insurance for three years, reimbursement of the cost in obtaining new photo identification cards, and reimbursement for any actual losses. The parties to the proposed settlement also extended the time frame for customers to file for vouchers or checks from 60 days to 90 days. The proposed settlement also provides for a one day, 15% off all merchandise sale in all TJX stores, as well as up to $6.5 million in attorneys’ fees and up to $150,000 for reasonable costs and expenses associated with the litigation. For a copy of the proposed settlement, please contact .
FTC Reaches Settlement with Consumer “List Brokers.” On October 9, the Federal Trade Commission (FTC), working with the U.S. Postal Inspection Service and the Department of Justice, entered into an enforcement agreement with a “list broker” company that was accused of providing, without authorization, “full data leads,” which can include consumers’ bank account and routing information, credit card numbers, security codes, and expiration dates to telemarketers. FTC v. Practical Marketing, Inc., No. 07-cv-685 (S.D. Ill.). The FTC complaint alleged that the list broker knew this information would be used to unlawfully telemarket advance-fee credit cards, in part because the list broker had access to the marketers’ scripts. In the complaint, the FTC reasoned that, due to the list broker’s knowledge that the information would be used in violation of the Telemarketing Sales Rule, the list broker should likewise be liable. In the settlement agreement, the list broker company agreed to pay $110,000 in fines and penalties. It also agreed to cease selling “full data leads” and to take “reasonable steps” to assure the good conduct of their telemarketer clients. For the official press release, as well as links to the complaint and settlement agreement, please see http://www.ftc.gov/opa/2007/10/listbrokers.shtm.
ESRA to Hold Conference on E-Signatures. The Electronic Signatures & Records Association (ESRA) will hold a conference entitled “Getting E-Signatures Right: Key Business, Technology, and Legal Developments” on November 13-14, 2007 in Washington, DC. Some of the conference topics include (i) success of the ESIGN Act, (ii) long term retention of electronically signed records, (iii) various industry sector case studies and (iv) key trends. Congressman Jay Inslee (D – WA) will be among the speakers, as well as Jeremiah Buckley and Margo Tank of Buckley Kolar, LLP. To learn more about the conference go to http://www.esignrecords.org/events/index.cfm.
NIST Publishes “Guidelines on Security Public Web Servers.” The National Institute of Standards and Technology (NIST) recently published guidance for federal departments and agencies on securing internet web servers from attack. For more a copy of the guidelines, please see http://csrc.nist.gov/publications/nistpubs/800-44-ver2/SP800-44v2.pdf.
MBA Releases Paper on Electronic Records in Warehouse Lending. On October 17, the Mortgage Bankers Association released a white paper entitled “Security Interests in Transferable Records Evidencing Residential Mortgage Lending Transactions and the Rights of Warehouse Lenders: An Analysis and Proposal.” It examines the legal foundations of eMortgages in the warehouse lending sector as the industry moves toward electronic loan files. For more information, please see http://www.mortgagebankers.org/NewsandMedia/PressCenter/57736.htm.
© Buckley Kolar, LLP 2005. INFOBYTES is not intended as legal advice to any person or firm. It is provided as a client service and information contained herein is drawn from various public sources, including other publications.
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