On February 24, 2012 in the matter of Balsam v. Trancos, Inc., the California Court of Appeal held that: (1) commercial e-mail header information that uses a sender domain name that neither identifies the actual sender on its face, nor is readily traceable to the sender, constitutes misrepresentation in violation of California’s Anti-Spam Act; and (2) the federal CAN-SPAM Act’s preemption clause did not bar application of the California statute.
In short, California’s Anti-Spam statute (Cal. Bus. & Prof. Code § 17529.5) makes it unlawful to send commercial e-mail advertisements containing or accompanied by “falsified, misrepresented, or forged header information.” However, the act fails to define “header information.” In 2010 the California Supreme Court decided to use the federal definition from the CAN-SPAM Act (Kleffman v. Vonage Holdings Corp.).
The CAN-SPAM Act defines “header information” as “the source, destination, and routing information attached to an electronic mail message, including the originating domain name and originating electronic mail address, and any other information that appears in the line identifying, or purporting to identify, a person initiating the message.” Kleffman simply held that a commercial e-mailer is not misrepresenting its identity when it uses multiple, randomly-named but accurate and traceable domain names, in order to avoid spam filters.
The trial court in Balsam v. Trancos, Inc. decided that a number of e-mail advertisements that the defendant sent to the plaintiff violated Section 17529(a)(2) by containing header information for nonexistent or misrepresented senders. The defendant appealed, first citing Kleffman and then arguing that the federal CAN-SPAM Act preempts the state law absent a finding of fraud.
The California Court of Appeal rejected both arguments.
In Kleffman, the plaintiff alleged that Vonage violated Cal. Bus. & Prof. Code § 17529 for sending commercial advertisements to him from multiple domain names with fanciful or nonsensical names in an effort to get around his spam filter. However, although the domain names were peculiar, they all existed, were accurate, and were traceable to Vonage. The court held that silence about the sender’s identity is not the same as misrepresenting it. Therefore, the California Supreme Court ruled that the emails “neither contained nor were accompanied by ‘falsified … or forged header information’ within the meaning of Cal Bus. & Prof. Code § 17529.5(a)(2).”
The California Supreme Court in Kleffman also distinguished between an act of “misrepresenting,” and that of “misleading,” stating that the California law did not prohibit “misleading” and that the legislature intentionally drafted the statute that way because if the law covered “misleading” header information it would have been preempted by the CAN-SPAM Act.
Thus, the Kleffman court concluded that a single e-mail with an accurate and traceable domain name neither contains nor is accompanied by “misrepresented header information” within the meaning of Cal Bus. & Prof. Code § 17529.5(a)(2) merely because its domain name is random and nonsensical when viewed in conjunction with domain names used in other e-mails.”
Here, the California Court of Appeal distinguished Kleffman, explaining that “[p]roperly construed, Kleffman simply held a commercial e-mailer is not misrepresenting its identity when it uses multiple, randomly-named, but accurate and traceable domain names, in order to avoid spam filters.” The court said that, unlike Kleffman, the defendant’s motivation here was to elude identification by the recipients, rather than to merely fool spam filters. Here, the domain names were not traceable to the actual sender and the header information was “falsified” or “misrepresented” because Trancos deliberately created it to prevent the recipient from identifying the actual sender.
Trancos also argued that the CAN-SPAM Act preempts application of the California statute because the plaintiff failed to prove common law fraud – “falsity or deception” of the e-mails. CAN-SPAM preempts state rules and regulations that expressly regulate commercial e-mail, except to the extent the state statute prohibits “falsity or deception.” This issue has been the subject of much litigation and judicial splits over the scope of the federal preemption provision.
Some courts have held that all elements of common law fraud must be established to avoid application of the preemption clause. Others, such as Hypertouch, Inc. v. ValueClick, Inc., have held that the CAN-SPAM Act’s savings clause limiting preemption applies to any state law that prohibits material falsity or material deception in a commercial e-mail, regardless of a plaintiff’s ability to prove every element of common law fraud.
In Balsam v. Trancos, Inc., the court followed the Hypertouch decision. The court decided that “falsity or deception” means an element of wrongfulness and not full common law fraud. It held that the defendant’s acts of concealment involved “deception as to a material matter – the sender’s identity – as well as an element of wrongful conduct.”
This holding by the California Court of Appeal adds to the patchwork of inconsistent judicial decisions regarding the scope of CAN-SPAM Act preemption and potentially exposes online marketers to a wider net of state anti-spam actions.