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E-Commerce News
ISP's Exculpatory Clause Not Unconscionable; Corporate Officer Faces CAN-SPAM Liability for "Assisting"
September 11, 2007
ISP’S EXCULPATORY CLAUSE NOT UNCONSCIONABLE
An internet marketer seeking to recover lost profits from its Internet Service Provider cannot avoid the ISP contract terms based on an allegation that the contract is "unconscionable", according to a federal trial court in New Jersey. As a result, that court dismissed marketer’s complaint.
Asch Webhosting ("Asch"), the marketing company, had entered a contract with Adelphia Business Solutions Investment ("Adelphia") for Internet services. When Adelphia received complaints that certain Asch customers were sending spam, Adelphia announced its plans to terminate the account. Asch sued, alleging lack of proper notice and adequate justification, seeking $1.4 million in damages due to loss of business.
Unfortunately for Asch, the Adelphia contract contained a clause that precluded claims for incidental or consequential damages that arose from the loss of Internet access. Claiming that its Asch was covered by this clause (I’m sorry) Adelphia filed a motion to dismiss the complaint. Asch contended that the clause was unenforceable.
In determining whether to enforce "exculpatory" clauses, courts must consider whether the clause is: (1) written in plain and clear language, (2) entered into by equal bargaining partners, and (3) not contrary to the public interest.
In this case, the exculpatory clause satisfied the court. The court had little difficulty analyzing the first two elements of the test. The clause was conspicuously set out in the contract, and that contract was negotiated at arms-length by two businesses.
The court also deemed it reasonable for an ISP in Adelphia’s position to limit its exposure. The court also felt that, if it voided the exculpatory clause, it would be circumventing the parties’ intent at the time they entered the contract.
Most courts do not look kindly on attempts by one corporation to avoid the terms of a deal entered with another corporation. While courts are occasionally sympathetic to unsophisticated individuals, this compassion in most cases does not extend to legal entities.
CORPORATE OFFICER FACES CAN-SPAM LIABILITY FOR "ASSISTING"
A corporate officer who assists in sending unsolicited commercial e-mails (aka "spam") satisfies the "initiation" requirement for purposes of liability under the CAN-SPAM Act, according to a federal trial court sitting in Washington state. According to the court, the terms "assistance" and "initiation" are interchangeable.
The plaintiffs, all owners of Washington state e-mail accounts, filed suit when they allegedly received unsolicited e-mails from the defendant, Impulse Mktg. Group Inc., a Nevada corporation. The complaint, which asserted claims under the CAN-SPAM Act and related Washington law, also named as a defendant, Jeffrey Goldstein, an officer, director, and majority shareholder of Impulse.
The 2003 CAN-SPAM Act prohibits any person from "initiating" the transmission of e-mail messages containing misleading or deceptive information.
According to the plaintiffs, Impulse initiated the spam, and Goldstein "assisted."
Goldstein filed a motion for summary judgment, contending that the CAN-SPAM Act does not prohibit "assistance." The court denied the motion.
While acknowledging that the CAN-SPAM Act does not use the term "assist" the court found that the prohibition on "initiation" had the same effect. The court noted that "[T]he statutory meaning of the term 'initiate' is to originate or transmit the message oneself or to procure such action by inducing another person to transmit the message." In the court’s view, this language is essentially synonymous with "assist."
The law is well established that a corporation generally is a separate legal entity from the individuals that serve as officers or directors. And of course, a corporation can act only through individuals. In other words, whenever a corporation transmits an e-mail, some person has to push the "send" button. If the Washington court’s theory holds, it would seem that every time a corporation violates the CAN-SPAM Act, some individual would be liable for "assisting." Not sure that’s what Congress intended.
This Newsletter is a periodic publication of Graydon Head & Ritchey LLP and should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general information purposes only, and you are urged to consult your own advisor concerning your situation and any specific legal question you may have.