HYPERTOUCH, INC. v. VALUECLICK, INC. No. B218603.
191 Cal.App.4th 1209 (2011)
HYPERTOUCH, INC., Plaintiff and Appellant, v. VALUECLICK, INC., et al., Defendants and Respondents.
Court of Appeals of California, Second District, Division Seven.
January 18, 2011.
Steptoe & Johnson, Richard K. Willard , Lawrence P. Riff and Lynn R. Levitan , for Plaintiff and Appellant.
Gibson, Dunn & Crutcher, Daniel M. Kolkey , Kevin Rosen and S. Ashlie Beringer , for Defendants and Respondents ValueClick Inc., E-Babylon, Inc., Hi-Speed Media, Inc., VC E-Commerce Solutions, Inc., Webclients, Inc., and Commission Junction, Inc.
Kenoff & Machtinger and Leonard S. Machtinger for Defendant and Respondent PrimaryAds, Inc.
Appellant Hypertouch, Inc. (Appellant), filed an action alleging that ValueClick, Inc., various ValueClick subsidiaries and PrimaryAds, Inc. (Respondents), violated Business and Professions Code section 17529.5,
The trial court granted summary judgment, ruling that the CAN-SPAM Act preempted Appellant's section 17529.5 claims. Although the Act expressly exempts from preemption state laws prohibiting "falsity or deception" in commercial e-mail, the court concluded this exemption was only intended to apply to state statutes that require a plaintiff to establish each element of common law fraud. The court entered judgment dismissing the case in its entirety and awarded Respondents approximately $100,000 in costs.
On appeal, Appellant argues that the court erred in ruling that the CAN-SPAM Act preempts claims arising under section 17529.5. In addition, Appellant argues that (1) it introduced sufficient evidence to establish a triable issue of fact as to whether Respondents violated section 17529.5; (2) section 17529.5 claims are governed by the three-year statute of limitations in Code of Civil Procedure section 338, rather than the one-year period described in section 340, subdivision (a); and (3) the trial court abused its discretion in awarding Respondents $100,000 in costs.
We reverse the trial court's grant of summary judgment, concluding that the CAN-SPAM Act does not preempt Appellant's claims and that Appellant has raised a triable issue of fact regarding whether Respondents violated section 17529.5.
FACTUAL AND PROCEDURAL BACKGROUND
I. Description of the Parties
A. Appellant Hypertouch, Inc.
Hypertouch, Inc., provides electronic mail service to approximately 100 customers located inside and outside of California, including Internet start-up companies, corporations, charitable organizations and various people related to the president of Hypertouch, Joseph Wagner. Since its inception, Hypertouch's customers have received "massive quantities" of unsolicited commercial e-mail, commonly referred to as "spam." Some Hypertouch users have complained about "their spam load and the difficulties that it causes them." Hypertouch alleges that it has been forced to spend a considerable amount of money on "hardware and software as a direct result of the yearly increasing onslaught of spam e-mails."
B. Respondent ValueClick, Inc., and Its Subsidiaries
ValueClick and its subsidiaries (collectively ValueClick) provide online marketing services to third party advertisers who promote retail products. ValueClick contracts with these third party advertisers to place promotional offers on Web sites that are owned and operated by various ValueClick entities. Consumers, in turn, can visit ValueClick's Web sites and earn rewards in exchange for participating in the advertised promotional offers.
ValueClick contracts with thousands of independent "affiliates" to drive traffic to their Web sites through e-mail placements and other forms of advertising. The particular method "used to drive that traffic is determined by each [affiliate], in its discretion." ValueClick provides affiliates with the creative material associated with any given promotion. The affiliates, in turn, send out commercial e-mail advertisements that include a link redirecting the consumer to a promotion on ValueClick's Web sites. In many cases, the affiliates hire subaffiliates to conduct the e-mailing. Normally, each e-mail advertisement contains a tracking code indicating the affiliate or subaffiliate responsible for driving the consumer to ValueClick's Web site. If a consumer clicks through an e-mail advertisement and participates in a promotional offer, the affiliate or subaffiliate who sent the initial e-mail is then compensated for generating a customer "lead."
According to ValueClick, "the identity of [affiliate's] sub-affiliates is highly proprietary and generally not disclosed to ValueClick." ValueClick further alleges that, as a result of its business model, it has no "knowledge of, or
C. Respondent PrimaryAds, Inc.
Respondent PrimaryAds, Inc., is an online marketing service that owns and operates a private Web site containing creative content associated with numerous third party promotional offers. PrimaryAds contracts with a network of independent affiliates who download advertisement materials from PrimaryAds's Web site and "utilize the ... [advertisements] in [commercial] e-mails."
"When an affiliate places downloaded creative material in an e-mail ... [consumers] may click on a link in the e-mail," which directs them to the PrimaryAds's Web site and then immediately redirects them to the third party advertiser's Web site which contains the promotional offer.
Before providing access to its private Web site and allowing affiliates to e-mail its advertising materials, PrimaryAds requires each affiliate to sign a contract prohibiting it from issuing spam or violating any antispam laws. Like ValueClick, PrimaryAds alleges that it has "no control over the e-mail delivery methods used by affiliates."
II. Hypertouch's Complaint and the Trial Court Proceedings
On April 3, 2008, Hypertouch filed a complaint against ValueClick, numerous ValueClick subsidiaries, and PrimaryAds (collectively Respondents) alleging that, between April 2, 2004, and the date the action was filed, Respondents had advertised in over 45,000 e-mails received by Hypertouch customers that contained deceptive "header information" in violation of section 17529.5. The complaint also included a separate cause of action alleging Respondents had violated section 17200.
During discovery, Hypertouch produced thousands of e-mails that allegedly contained links to Respondents' promotional offers. According to Hypertouch,
Approximately 10 months after the case was filed, ValueClick filed a motion for summary judgment, which PrimaryAds joined. ValueClick argued that Hypertouch's section 17529.5 claims were preempted by the CAN-SPAM Act, 15 United States Code section 7701 et seq., which contains a preemption clause barring any state statute "that expressly regulates the use of electronic mail to send commercial messages, except ... any ... statute ... [that] prohibits falsity or deception in any portion of [an e-mail]." (15 U.S.C. § 7707(b)(1).) ValueClick argued that the exemption for state statutes prohibiting "falsity or deception" was only intended to permit state law claims based on all of the elements of common law fraud, including knowledge of falsity, intent to deceive, reliance and damages proximately caused by the misrepresentation. Respondents further argued that because Hypertouch had no evidence Respondents actually knew about the alleged e-mails or that any Hypertouch customer relied on or was harmed by the deceptive content in the e-mails, its claims were necessarily preempted. Alternatively, ValueClick argued that it was entitled to summary judgment because the allegedly "deceptive" content in the e-mails did not violate the substantive prohibitions described in section 17529.5.
PrimaryAds also filed a motion for summary judgment, which was accompanied by a motion for summary adjudication, raising two additional arguments. First, PrimaryAds contended that section 17529.5 required the plaintiff to establish that the defendant actually sent or had knowledge of the unlawful e-mails, which Hypertouch had failed to do. Second, PrimaryAds argued that, pursuant to Code of Civil Procedure, section 340, it was entitled to summary adjudication on any claim predicated on an e-mail received more than one year prior to the filing of the action.
In its opposition, Hypertouch conceded that it could not establish all of the elements associated with common law fraud, but argued that section 17529.5 only required evidence that Respondents had "advertised" in e-mails containing any category of content prohibited by section 17529.5. Hypertouch also argued that section 17529.5 was not preempted by the CAN-SPAM Act
The trial court granted ValueClick and PrimaryAds summary judgment on all of Hypertouch's claims. The court first concluded that, under section 17529.5, Respondents could only be held liable for e-mails that they actually sent to Hypertouch customers. It further concluded that Hypertouch had only established that Respondents sent 24 of the 45,000 e-mails at issue and, as a result, those were the only e-mails at issue in the suit.
The court next considered whether the CAN-SPAM Act preempted Hypertouch's section 17529.5 claims and concluded that it did. The court agreed with Respondents' interpretation of the CAN-SPAM Act, ruling that it barred any state laws regulating falsity or deception in commercial e-mails "unless such claims are for `common law fraud or deceit.'" The court further stated that "Plaintiff has neither adduced evidence ... that any elements of fraud exist in this case.... [E]ven if the Court ignores all the other elements of fraud, Plaintiff's complaint is preempted by federal law since Plaintiff's complaint omits intent to deceive or intent to cause deception."
The court entered judgment in favor of Respondents and subsequently awarded Respondents approximately $100,000 in costs. Hypertouch filed a timely appeal of the trial court's judgment.
This appeal raises three issues. First, we must determine whether the CAN-SPAM Act preempts claims arising under section 17529.5. Because we conclude that section 17529.5 is not preempted, we must next determine whether Hypertouch has established a triable issue of fact as to whether Respondents violated section 17529.5. Third, we must determine whether PrimaryAds is entitled to summary adjudication on any claim predicated on an e-mail that Hypertouch received more than one year prior to the filing of the complaint.
I. Standard of Review
"The standard for deciding a summary judgment motion is well-established, as is the standard of review on appeal." (Richard B. LeVine, Inc. v. Higashi (2005) 131 Cal.App.4th 566, 572 [32 Cal.Rptr.3d 244].) "A defendant moving for summary judgment has the burden of producing evidence showing that one or more elements of the plaintiff's cause of action cannot be established, or that there is a complete defense to that cause of action. [Citations.] The burden then shifts to the plaintiff to produce specific facts
"On appeal, we review de novo an order granting summary judgment. [Citation.] The trial court must grant a summary judgment motion when the evidence shows that there is no triable issue of material fact and the moving party is entitled to judgment as a matter of law. [Citations.] In making this determination, courts view the evidence, including all reasonable inferences supported by that evidence, in the light most favorable to the nonmoving party. [Citations.]" (Garcia v. W & W Community Development, Inc., supra, at p. 1041.)
II. Hypertouch's Section 17529.5 Claims Are Not Preempted by the CAN-SPAM Act
A determination whether the claims are preempted by the CAN-SPAM Act requires the analysis of both section 17529.5 and the CAN-SPAM Act. (See generally Gordon v. Virtumundo (9th Cir. 2009) 575 F.3d 1040, 1047 (Virtumundo) [interpreting breadth of Wn. state statute before determining whether preemption applied].)
A. Overview of Section 17529.5 and the CAN-SPAM Act
1. California Business and Professions Code Section 17529.5
a. Overview of Senate Bill No. 186 and section 17529.5
In 2003, the California Legislature passed Senate Bill No. 186 (2003-2004 Reg. Sess.) (Senate Bill 186), which imposed broad restrictions on advertising in unsolicited commercial e-mail advertisements sent from or to a computer within California. (See § 17529 et seq.) According to the Legislature's "findings and declarations," the bill was adopted to address the "skyrocket[ing]" costs and annoyances associated with "spam," which the statute defines as "unsolicited commercial e-mail advertisements."
Although Senate Bill 186 includes a provision that prohibits the transmission of any "unsolicited commercial e-mail advertisement[s]" (see § 17529.2), the statute also prohibits certain deceptive practices in commercial e-mail, which are enumerated in section 17529.5, subdivision (a):
Section 17529.5, subdivision (b) also lists the remedies available under the statute, which include "either or both of the following: [¶] (i) Actual damages. [¶] (ii) Liquidated damages of one thousand dollars ($1,000) for each unsolicited commercial e-mail advertisement transmitted in violation of
b. Section 17529.5 does not include many elements associated with traditional common law fraud
Like several other California consumer protection statutes targeting deceptive advertising practices, section 17529.5 dispenses with many of the elements associated with common law fraud, which normally requires the plaintiff to prove "`(a) [a] misrepresentation ...; (b) knowledge of falsity (or `scienter'); (c) intent to defraud, i.e., to induce reliance; (d) justifiable reliance; and (e) resulting damage.'" (Lazar v. Superior Court (1996) 12 Cal.4th 631, 638 [49 Cal.Rptr.2d 377, 909 P.2d 981]; see Morgan v. AT&T Wireless Services, Inc. (2009) 177 Cal.App.4th 1235, 1255 [99 Cal.Rptr.3d 768] ["A claim based upon the fraudulent business practice prong of [section 17200] is `distinct from common law fraud. "A [common law] fraudulent deception must be actually false, known to be false by the perpetrator and reasonably relied upon by a victim who incurs damages. None of these elements are required to state a claim for ... relief" under [section 17200].'"].) Section 17529.5 differs from common law fraud in at least three ways.
(i) Section 17529.5 prohibits "advertising" in a deceptive commercial e-mail, rather than sending or initiating a deceptive e-mail
Similar statements appear throughout the legislative history. (See generally In re Microsoft I-V Cases (2006) 135 Cal.App.4th 706, 719 [37 Cal.Rptr.3d 660] ["Even when a statute is unambiguous, it is nevertheless common for a court to review legislative history in order to confirm its statutory analysis."].) For example, the Assembly Committee on the Judiciary's analysis of Senate Bill 186 includes a statement summarizing the purpose of the statute: "`[t]his bill will get at the real solution to unsolicited e-mails by allowing people to sue the advertisers of unsolicited e-mails. Senate Bill 186 seeks to get to the heart of the matter by penalizing the actual advertiser of the spam e-mails.... We need to go after the companies that are profiting by these e-mails and allow recipients to hold the advertisers financially responsible.'" (Assem. Com. on Judiciary, Analysis of Sen. Bill No. 186 (2003-2004 Reg. Sess.) as amended June 26, 2003, p. 5.) Similarly, in a memo prepared for the Senate Business and Professions Committee, the author of Senate Bill 186 explained that "[t]he real problem lies with the actual businesses whose products are advertised through these e-mails. Those companies are just as responsible if not more for these e-mails and need to be held accountable. They are profiting at the expense of the consumer." (Sen. Bus. & Prof. Com., Background Information Sheet for Sen. Bill No. 186 (2003-2004 Reg. Sess.) Apr. 7, 2003.)
In sum, both the text and legislative history of Senate Bill 186 make clear that section 17529.5 was intended to apply to entities that advertise in deceptive commercial e-mails, not only the spammers who send them.
(ii) Section 17529.5 does not contain a "scienter" element
Although the Legislature chose to impose liability without regard to knowledge or intent, the statute's remedy provisions include a mechanism that allows a defendant to significantly reduce its liability if it can show that it adopted "practices and procedures reasonably designed to effectively prevent unsolicited commercial e-mail advertisements that are in violation of [section 17529.5]." (§ 17529.5, subd. (b)(2).) If the defendant makes such a showing, the trial court is required to "reduce the liquidated damages ... to a maximum of ... [$100 per e-mail or $100,000] per incident." (§ 17529.5, subd. (b)(2).) Thus, rather than facing liquidated damages of $1,000 per e-mail or $1 million per incident (see § 17529.5, subd. (b)(1)(B)(ii)), an entity that violates the statute despite its good faith effort to prevent deceptive commercial e-mail might only be subject to nominal liquidated damages. (See The TJX Companies, Inc. v. Superior Court (2008) 163 Cal.App.4th 80, 85-86 [77 Cal.Rptr.3d 114] (TJX Companies) [statute imposing maximum penalty of
c. Section 17529.5 does not require reliance or damages
2. Overview of the CAN-SPAM Act
a. Summary of the CAN-SPAM act's substantive provisions
Shortly after California adopted Senate Bill 186, Congress enacted the CAN-SPAM Act, which, like Senate Bill 186, was passed "in response to mounting concerns associated with the rapid growth of spam e-mails." (Virtumundo, supra, 575 F.3d at p. 1047.) The Act does "not ban spam outright, but rather provides a code of conduct to regulate commercial e-mail messaging practices. Stated in general terms, the CAN-SPAM Act prohibits such practices as transmitting messages with `deceptive subject headings' or `header information that is materially false or materially misleading.' [Citation.] The Act also imposes requirements regarding content, format, and labeling. For instance, unsolicited e-mail messages must include the sender's physical postal address, indicate they are advertisements or solicitations, and notify recipients of their ability to decline further mailings. [Citation.]" (Id. at pp. 1047-1048.)
The Act's enforcement provision "empowers the Federal Trade Commission, state attorneys general, and other state and federal agencies to pursue legal actions to enforce the Act .... Congress also provided a limited private right of action, which states: A `provider of Internet access service adversely affected by a violation of' [the prohibited acts ...] `may bring a civil action in any district court' to enjoin further violation by a defendant or to recover either actual or statutory damages, whichever is greater." (Virtumundo, supra, 575 F.3d at p. 1048, citations omitted.) Thus, unlike section 17529.5, the CAN-SPAM Act only provides a private cause of action
The substantive provisions of the Act prohibit any person from "initiat[ing] the transmission" of any commercial e-mail containing "header information that is materially false or materially misleading" or "a subject heading" that is "likely to mislead a recipient, acting reasonably under the circumstances, about a material fact regarding the contents or subject matter of the message." (15 U.S.C. § 7704(a)(1), (2).) The Act requires the plaintiff to prove that the defendant acted with knowledge and intent in some instances, but not others. For example, government entities seeking injunctive relief are not required to prove the defendant's "state of mind." (15 U.S.C. § 7706(e), (f)(2).) Internet service providers and state government agents seeking damages, however, must generally prove that the defendant acted with "actual knowledge" or consciously avoided knowledge of the statutory violations. (15 U.S.C. § 7706(f)(9), (g)(2).)
b. The CAN-SPAM Act's preemption provision
The legislative history also makes clear, however, that the Act's preemption provision was largely intended to target state statutes imposing content requirements on commercial e-mails, while leaving states free to regulate the use of deceptive practices in commercial e-mails in whatever manner they chose. For example, the Senate report that accompanied the legislation states:
B. The CAN-SPAM Act Does Not Preempt Claims Arising Under Section 17529.5
1. General Principles Governing Preemption
"Although the analysis of the scope of preemption begins with the text, `interpretation of that language does not occur in a contextual vacuum.' [Citation.] Rather, this inquiry is guided by two principles about the nature of
"Second, the preemption analysis is guided by the `oft-repeated comment... that the purpose of Congress is the ultimate touchstone in every preemption case.' [Citation.] `As a result, any understanding of the scope of a pre-emption statute must rest primarily on a fair understanding of congressional purpose,' and calls for courts to consider not only the language of the statute itself but also the `statutory framework' surrounding it and the `structure and purpose of the statute as a whole.' [Citations.]" (Virtumundo, supra, 575 F.3d at p. 1060; see also Altria, supra, 555 U.S. at p. ___ [129 S.Ct. at p. 543].)
"It is with these principles in mind that we consider whether it was the `"clear and manifest purpose"' of Congress [citation] to preclude states from" regulating deceptive commercial e-mail messages in a manner that does not require proof of each and every element of common law fraud. (Farm Raised Salmon, supra, 42 Cal.4th at p. 1088.)
2. The Language of the CAN-SPAM Act Does Not Support the Trial Court's Interpretation
The preemption clause at issue states: "This chapter supersedes any statute, regulation, or rule of a State or political subdivision of a State that expressly regulates the use of electronic mail to send commercial messages, except to the extent that any such statute, regulation, or rule prohibits falsity or deception in any portion of a commercial electronic mail message or information attached thereto." (15 U.S.C. § 7707(b)(1).)
The savings clause does not reference either fraud or the common law, but rather permits any state law that prohibits "`falsity or deception in any portion of a commercial electronic mail message.'" (Asis Internet Services v. Subscriberbase Inc. (N.D.Cal., Apr. 1, 2010, No. 09-3503 SC) 2010 U.S.Dist. Lexis 33645, p. *38 (Subscriberbase).) As a result, the text of the statute "betrays no intention by Congress to limit state regulation to the simple
Second, other provisions of the CAN-SPAM Act use the word "deceptive" in association with section 45 of the Federal Trade Commission Act (FTC Act; 15 U.S.C. § 41 et seq.), which is much broader than common law fraud. For example, 15 United States Code section 7704(a)(2) prohibits the use of "deceptive subject headings," which is defined as a subject heading that "would be likely to mislead a recipient ... consistent with the criteria used in enforcement of section [45 of the FTC Act]." Similarly, 15 United States Code section 7707(a)(2) clarifies that the CAN-SPAM Act does not affect the Federal Trade Commission's "authority to bring enforcement actions under [the] FTC Act for materially false or deceptive representations." Unlike common law fraud, to establish liability for deceptive statements under the FTC Act "[n]either proof of consumer reliance nor consumer injury is necessary to establish a ... violation." (F.T.C. v. Freecom Communications, Inc. (10th Cir. 2005) 401 F.3d 1192, 1203.) "[I]ntent to deceive" is also not required. (F.T.C. v. World Travel Vacation Brokers, Inc. (7th Cir. 1988) 861 F.2d 1020, 1029.) The fact that other provisions of the CAN-SPAM Act "direct that the word `deceptive ...'... should be understood not as referencing common-law fraud ... but rather deception as utilized in the FTC Act" (Consumerbargaingiveaways, supra, 622 F.Supp.2d at p. 942), is a strong indication that the word "deception" in the preemption clause was not intended to refer to common law fraud. (See People v. Crowson (1983) 33 Cal.3d 623, 633 [190 Cal.Rptr. 165, 660 P.2d 389] ["It is ... generally `presumed, in the absence of anything in the statute to the contrary, that a repeated phrase or word in a statute is used in the same sense throughout.'"],
Reading the phrase "falsity or deception" as encompassing something broader than common law fraud also finds support in the legislative history. The Senate Report accompanying the legislation stated that the CAN-SPAM Act would "supersede State and local statutes ... that expressly regulate the use of e-mail to send commercial messages except for statutes ... that target fraud or deception in such e-mail.... a State law prohibiting fraudulent or deceptive headers, subject lines, or content in commercial e-mail would not be preempted." (Sen.Rep. No. 108-102, 1st Sess. (2003) [2003 WL 21680759; 2004 U.S.C.C.A.N. 2348] (italics added).) The report further explains that although the purpose of the CAN-SPAM Act was to impose a single national standard on commercial e-mail content, the savings clause in the preemption provision reflected the Legislature's belief "Statutes that prohibit fraud and deception in e-mail do not raise the same concern, because they target behavior that a legitimate business trying to comply with relevant laws would not be engaging in anyway." (Ibid., italics added.) Thus, in three separate instances, the report refers disjunctively to state law claims predicated on "fraud or deception." The Legislature's use of the "term `deception' would be redundant (if not misleading) if Congress meant to limit state regulation solely to common law fraud." (Subscriberbase, supra, 2010 U.S.Dist. Lexis 33645 at p. *35.)
Finally, a review of the state laws in effect at the time Congress enacted the CAN-SPAM Act provides further support that the federal statute did not intend to "save" only those claims that were predicated on common law fraud. (See Hoang v. Reunion.com, Inc. (N.D.Cal., Mar. 31, 2010, No. C-08-3518 MMC) 2010 U.S.Dist. Lexis 34466, p. *17 (Reunion.com).) Before the CAN-SPAM Act was passed, section 17529.5 was one of several state statutes in existence that imposed liability for the use of deceptive commercial e-mails regardless of whether the recipient actually relied on, or was damaged by, those misrepresentations. (See Reunion.com, at pp. *18-*19 [citing Minn. and Wn. state statutes]; see also Kan. Stat. Ann. § 50-6, 107, subd. (c)(1)(A) & (B); Ariz. Rev. Stat. § 44-1372.01, subdivision (a)(2).) Generally, when interpreting a statute, courts "presume that Congress is aware of the legal context in which it is legislating." (Abrego v. Dow Chemical Co. (9th Cir. 2006) 443 F.3d 676, 684; see also Albernaz v. United States (1981) 450 U.S. 333, 341 [67 L.Ed.2d 275, 101 S.Ct. 1137] ["Congress is `predominantly a lawyer's body,' [citation], and it is appropriate for us `to assume that our elected representatives ... know the law.' [Citation.]"].) We therefore must assume that, at the time the CAN-SPAM Act was passed, Congress was aware that many states imposed liability for deceptive commercial e-mails without requiring reliance or other elements of common law fraud. Despite this knowledge, Congress chose not to use the word "fraud" in
3. Permitting State Law Claims That Lack Elements of Common Law Fraud Does Not Undermine the CAN-SPAM Act's National Standard
Respondents argue that, regardless of the actual language of the preemption clause, permitting claims for misleading or deceptive statements in a commercial e-mail without requiring a plaintiff to establish scienter, reliance and proximate damages would frustrate the CAN-SPAM Act's central purpose, which was to impose a "national standard" for the content of commercial e-mails. (See generally Virtumundo, supra, 575 F.3d at p. 1063 ["We are compelled to adopt a reading of the preemption clause that conforms with the statute's structure as a whole and the stated legislative purpose."].)
We agree that the CAN-SPAM Act was intended to establish uniform standards for the content of commercial e-mail. The substantive provisions of the Act make clear that this "uniform standard" includes prohibitions on the use of "materially false or materially misleading header information," as well as deceptive subject lines that are likely to mislead the recipient of a commercial e-mail. (Virtumundo, supra, 575 F.3d at p. 1062 ["the CAN-SPAM Act prohibits only deceptive subject line headings or materially false or materially misleading header information. [Citations.] Significantly, Congress intended this standard to regulate commercial e-mail messaging practices `on a nationwide basis.' [Citation.]" (fn. omitted)]; see also 15 U.S.C. § 7704(a)(1), (2).) The justification for the CAN-SPAM Act's preemptive effect, in turn, is to prevent state and local lawmakers from "manipulat[ing] that standard" by broadening the scope of e-mail content that might subject a defendant to liability. (Virtumundo, supra, 575 F.3d at p. 1063.)
The fact that California imposes liability for e-mails containing deceptive header information without requiring the traditional elements of fraud does not alter the "uniform standard" applicable to the content of commercial e-mails. The elements of reliance and damages, for example, have nothing to do with the content of an e-mail. Whether those elements are present in any case depends not on the "substance of the e[-]mails or subject lines" at issue, but rather "upon the naivete, vulnerability, or circumstance of the recipient." (Subscriberbase, supra, 2010 U.S.Dist. Lexis 33645 at p. *36.) Similarly, imposing strict liability for advertising in commercial e-mails that contain deceptive content does not alter the type of content that might subject a defendant to liability. Instead, it broadens the class of persons who may be held responsible for such content.
Finally, although Respondents contend that section 17529.5 frustrates the CAN-SPAM Act by dispensing with the elements of reliance, proximate damages, or scienter, it overlooks the fact that, in many cases, the federal statute does not impose such requirements. For example, 15 United States Code section 7706(g)(1) permits a "provider of Internet access service [IAS] adversely affected" by commercial e-mail to bring an action for damages. The Act does not require that the IAS (Internet access service) demonstrate that it, or any of its customers, relied on or was harmed by the deceptive content in the e-mail.
4. Our Holding Is Consistent with Virtumundo and Omega World Travel, Inc. v. Mummagraphics 348
Respondents also argue that two federal circuit court decisions, Virtumundo, supra, 575 F.3d 1040, and Omega World Travel, Inc. v. Mummagraphics (4th Cir. 2006) 469 F.3d 348 (Omega), have expressly held that the CAN-SPAM Act preempts "strict liability" claims pertaining to false or deceptive commercial e-mail content. In Respondents' view, these cases stand for the proposition that the CAN-SPAM Act preempts claims that do not impose a knowledge or intent requirement.
a. Summary of Omega and Virtumundo
In Omega, supra, 469 F.3d 348, 353, the Fourth Circuit considered whether the CAN-SPAM Act preempted state claims for "immaterial errors" contained within the header of a commercial e-mail.
The court then reviewed the structure and purpose of the CAN-SPAM Act as a whole, and "concluded that Congress could not have intended, by way of the carve-out language, to allow states to enact laws that prohibit `mere error' or `insignificant inaccuracies.'" (Virtumundo, supra, 575 F.3d at p. 1061 [discussing and analyzing Omega, supra, 469 F.3d at pp. 354-355].) Specifically, the court noted that the CAN-SPAM Act provided a private cause of action for "`header information that is materially false or materially misleading,'" suggesting that Congress only intended to "target ... e-mails
In Virtumundo, supra, 575 F.3d 1040, the Ninth Circuit considered whether the CAN-SPAM Act preempted a state law claim alleging that the defendant sent commercial e-mails from domain names that "obscure[d] the identity of the sender." (575 F.3d at p. 1058.) The defendant, Virtumundo, Inc., had sent the plaintiff commercial e-mails from several different domain names, including "vmmail.com," "vmadmin.com," "vtarget.com," and "vmlocal.com." (Id. at p. 1064.) The plaintiff conceded that the domain names were "properly registered to Virtumundo," but argued that they "fail[ed] to clearly identify Virtumundo as the e-mails' sender and therefore misrepresent[ed] or obscure[d] the identity of the sender" in violation of the Washington law. (Id. at pp. 1064, 1063.)
Like the Omega court, the Ninth Circuit began its analysis by interpreting the meaning of the phrase "falsity or deception" as used in the CAN-SPAM Act's carve-out provision. After reviewing the text and history of the statute, the court agreed with Omega's conclusion that the phrase was not intended to permit states to "to create liability for immaterial inaccuracies or omissions." (Virtumundo, supra, 575 F.3d at p. 1062.) The court explained that the CAN-SPAM Act specifically prohibited "deceptive subject line headings or materially false or materially misleading header information" and "intended this standard to regulate commercial e-mail messaging practices `on a nationwide basis.' [Citation.]" (575 F.3d at p. 1062, fn. omitted.) In the court's view, "[i]t would be logically incongruous to conclude that Congress endeavored to erect a uniform standard but simultaneously left states and local lawmakers free to manipulate that standard ..." by imposing liability for inaccuracies that did not rise to the level of deception. (Id. at p. 1063.)
The court further concluded that, under its interpretation of the Act, the plaintiff's claims for "obscured" domain names were necessarily preempted, explaining that "[t]here is ... nothing inherently deceptive in Virtumundo's use of fanciful domain names." (Virtumundo, supra, 575 F.3d at p. 1063.) As a result, the plaintiff's claims "relate[d] to, at most, non-deceptive statements or omissions" (id. at p. 1064), and targeted "e-mail activity that is not unfair or deceptive" (id. at p. 1063, fn. 21, italics omitted).
b. Our holding is consistent with Virtumundo and Omega
Neither Virtumundo nor Omega decided the issue presented here: whether a state law that targets commercial e-mails containing deceptive content is
Respondents disagree, arguing that Omega specifically held that the CAN-SPAM Act preempts state law claims imposing "strict liability" for deceptive e-mail content. Omega, however, held that the federal statute preempts state law claims "imposing strict liability for insignificant inaccuracies" or "errors." (Omega, supra, 469 F.3d at p. 355.) It did not hold that Congress preempted state law claims that impose strict liability for commercial e-mails that contain materially deceptive content.
III. Hypertouch Has Raised a Triable Issue of Fact Regarding Whether Respondents Violated Section 17592.5
Because the CAN-SPAM Act does not preempt claims arising under section 17529.5, we must review Respondents' alternative argument that summary judgment is appropriate because Hypertouch failed to establish a triable issue of fact as to whether Respondents violated section 17529.5. Respondents argue that they are entitled to summary judgment on Hypertouch's section 17529.5 claim for two reasons. First, they argue that Hypertouch failed to establish that Respondents sent or had any knowledge of the offending e-mails. Second, Respondents argue that the allegedly "deceptive" content of the e-mails did not violate the substantive prohibitions described in section 17529.5.
A summary judgment may be granted only where it is shown that the entire "action has no merit." (Code Civ. Proc., § 437c, subd. (a).) Therefore, if there is a triable issue of fact regarding any portion of Hypertouch's section 17529.5 claim, summary judgment must be denied.
A. Hypertouch Is Not Required to Demonstrate That Respondents Sent or Had Knowledge of the Offending E-mails
Respondents first argue that summary judgment is appropriate because Hypertouch has failed to identify any evidence establishing that Respondents "sent the e-mails at issue," or "knew" that an affiliate was sending e-mail advertisements containing content that was prohibited by section 17529.5.
Therefore, for purposes of section 17529.5, the relevant question is not whether Hypertouch can demonstrate that Respondents sent or had knowledge of the e-mails, but rather whether they advertised in those e-mails. In this case, the evidence raises a triable issue of fact as to whether Respondents advertised in some or all of the e-mails received by Hypertouch.
The record demonstrates that Respondents market and advertise third party promotional offers. To increase participation in these offers, Respondents contract with "affiliates" that send commercial e-mails containing links to the offers. If a consumer opens the e-mail, and ultimately chooses to participate in the promotional offer, Respondents pay the affiliate a fee for generating a consumer lead. Hypertouch's evidence showed that at least some portion of the e-mails it received contained a link redirecting the consumer to Respondents' promotional materials. Moreover, Respondents admitted that thousands of these e-mails were sent by one of their affiliates. We believe this evidence is sufficient to raise a triable issue of fact as to whether Respondents "advertised" in the e-mails at issue.
B. There Are Triable Issues of Fact with Respect to Whether the Content of the E-mails Violated Section 17529.5
Respondents next contend that they are entitled to summary judgment because Hypertouch has failed to establish a triable issue of fact as to whether the e-mails at issue in this suit contained content that violates the substantive prohibitions described in section 17529.5, subdivision (a).
Hypertouch has asserted three different categories of section 17529.5 violations. First, it alleges that Respondents violated section 17529.5, subdivision (a)(1) by advertising in e-mails that contained a third party's domain name without the permission of the third party. Second, it alleges that Respondents violated section 17529.5, subdivision (a)(2) by advertising in e-mails that included fictitious names in the "From" and "To" fields. Third, it alleges that Respondents violated section 17529.5, subdivision (a)(3) by advertising in e-mails that contained false and misleading subject lines.
1. Summary of alleged violations of section 17529.5, subdivision (a)(3)
Hypertouch has alleged that numerous e-mails at issue in this suit violate section 17529.5, subdivision (a)(3), which prohibits the use of "a subject line that a person knows would be likely to mislead a recipient, acting reasonably under the circumstances, about a material fact regarding the contents or subject matter of the message." Hypertouch identified numerous e-mails that contain subject lines purportedly offering the recipient free products or merchandise. Representative subject lines include: "Get a FREE Golf Retreat to 1 of 10 destinations"; "Let us know your opinion and win a free gift card"; "Do you think Hillary will win? Participate now for a Visa gift card"; "which would you choose? win a free gift card for letting us know." Hypertouch contends that, in fact, in order to procure such items the recipient was required to spend money or sign up for another offer of products or services promoted on Respondents' Web sites.
In support of these allegations, Hypertouch's president provided deposition testimony that, after receiving some of these e-mails, he clicked on a link that took him to a promotion page demonstrating that "in order to receive [the advertised free item] you have to ... purchase from one these offers ... I do not recall ever seeing an offer for an incentive award ... that did not require a purchase or other obligation." In addition, an employee of a ValueClick subsidiary stated that, in order to obtain the advertised "gifts," the recipient of the e-mail was typically required to participate in additional offers.
2. Hypertouch has demonstrated a triable issue of material fact
Respondents allege that they are entitled to summary judgment on Hypertouch's subdivision (a)(3) claims for three reasons, all of which lack merit.
a. The language of subdivision (a)(3) encompasses claims where the subject line misleads consumers about the terms and conditions of an offer
First, Respondents argue that "to violate [subdivision (a)(3)] an e-mail's subject line must suggest that the contents of the e-mail will concern one topic (e.g., great to see you, suggesting a personal message), when in fact, the contents or subject matter of the message relate to an entirely different topic (e.g., an advertisement.)" Respondents further contend that, in this case, "the subject lines and corresponding advertisements in the e-mails at issue here ... concern precisely the same subject matter: both promote incentive rewards for participating in the offers contain on promotional websites." In other words, Respondents argue that subdivision (a)(3) has no application
b. Respondents have failed to carry their initial burden to show that the terms of the offer were consistent with representations in the subject line
Respondents also argue that they are entitled to summary judgment because Hypertouch has identified "no evidence that individuals were required to pay anything to receive any promotional item offered." Thus, Respondents contend that Hypertouch has failed to establish that consumers were actually required to pay money to obtain the "free" gift advertised in the subject line of the e-mail. This argument fails, however, because Respondents have failed to carry their initial burden of production, as required under summary judgment procedures.
It is well established that, as the party moving for summary judgment, Respondents had the "initial burden of production to make a prima facie showing of the nonexistence of any triable issue of material fact." (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 850 [107 Cal.Rptr.2d 841, 24 P.3d 493] (Aguilar).) "A prima facie showing is one that is sufficient to support the position of the party in question." (Id. at p. 851.) To satisfy its initial burden, a defendant must "present evidence ... and not simply point out that the plaintiff does not possess, and cannot reasonably obtain, needed evidence." (Id. at p. 854, fn. omitted.) The defendant may satisfy this requirement in one of two ways: First, it may "present evidence that conclusively negates an element of the plaintiff's cause of action." (Id. at p. 855.) In the alternative, defendant "may ... present evidence that the plaintiff does not possess, and cannot reasonably obtain, needed evidence—as through admissions by the plaintiff following extensive discovery to the effect that he has discovered nothing." (Ibid.)
The second piece of evidence Respondents cite is deposition testimony in which Hypertouch's president stated that he could not recall whether "consumers could obtain the incentive reward identified in [the] `Subject line' ... if they participated in the corresponding offer." Again, this evidence does not establish that the terms of the offer permitted the consumer to obtain a free gift without paying a fee. Rather, the statement only indicates that Hypertouch was unaware whether a consumer could obtain the advertised gift if it actually fulfilled whatever terms were required.
Because Respondents have identified no evidence negating Hypertouch's allegation that individuals were actually required to pay money to obtain the "free" gifts referenced in the subject line of the e-mails, it has not carried its initial burden.
c. There is a triable issue of fact regarding whether the subject lines were likely to mislead
Finally, Respondents argue that they are entitled to summary judgment on Hypertouch's section 17529.5, subdivision (a)(3) claim because the subject lines at issue are not "likely to mislead" the recipient.
The "likely to mislead" language in section 17529.5, subdivision (a)(3) is "virtually identical" to the standard that is used in applying other consumer protection laws that target false or deceptive advertisements, including section 17200 and 17500. (Kleffman, supra, 49 Cal.4th at p. 343 ["the language in section 17529.5, subdivision (a)(3) ... is virtually identical to the language that, only months before section 17529.5's passage, a California appellate court announced for applying sections 17500 and 17200"].) It is well established that whether a statement is "likely to deceive" a reasonable consumer is "generally a question of fact." (Linear Technology Corp. v.
The numerous subject lines at issue in this suit contain a wide variety of different statements. Some simply state that the recipient of the e-mail can get a free gift ("Get a $300 gift card FREE"; "Get a FREE Golf Retreat to 1 of 10 destinations"), others suggest that the recipient can obtain something free for doing a particular task ("Let us know your opinion and win a free gift card"; "Do you think Hillary will win? Participate now for a Visa gift card"), while still others contain a variety of phrases that might indicate to the recipient that there are terms and conditions that must be fulfilled to obtain the gift ("Let us buy you a designer department store gift card. Participate now"; "Participate to receive a Holiday iPhone! (See offer for details)").
Respondents have made no effort to explain why a reasonable trier of fact could not conclude that many of the subject lines at issue here, such as those offering a free gift card with no qualifying language, would be likely to mislead a reasonable person. Instead, they target isolated e-mails in the record, such as one e-mail with the subject line "GAP Promotion," and argue that those particular e-mails are, as a matter of law, not deceptive. Regardless of whether Respondents are correct that the isolated e-mails they cite are not likely to mislead the recipient, that alone does not entitle them to summary judgment on Hypertouch's subdivision (a)(3) claim, which includes many other subject lines that Respondents do not address.
IV. Respondents Are Not Entitled to Summary Adjudication
Finally, PrimaryAds argues that, pursuant to Civil Code of Procedure section 340, subdivision (a), which prescribes a one-year limitations period for "[a]n action upon a statute for a penalty or forfeiture," it is entitled to summary adjudication on any claim that is predicated on an e-mail received more than one year prior to the filing of this action. Hypertouch disagrees, arguing that claims arising under section 17529.5 are governed by Code of Civil Procedure section 338, subdivision (a), which prescribes a three-year limitations period for "[a]n action upon a liability created by statute, other than a penalty or forfeiture."
"(i) Actual damages.
"(ii) Liquidated damages of one thousand dollars ($1,000) for each unsolicited commercial e-mail advertisement transmitted in violation of this section, up to one million dollars ($1,000,000) per incident. Hypertouch's complaint, in turn, seeks recovery under both provisions.
In G.H.I.I. v. MTS, Inc. (1983) 147 Cal.App.3d 256 [195 Cal.Rptr. 211] (G.H.I.I.), the court analyzed whether Code of Civil Procedure section 340 applied in the context of a statutory scheme that, like section 17529.5, contains independent provisions for recovery of actual damages and statutory damages. The plaintiff in G.H.I.I. asserted violations of the Unfair Practices Act (§ 17000 et seq.), which provides for the award of actual damages in one section (§ 17070), and treble damages in another section (§ 17082). Both forms of recovery are required "if a violation of the [act] is established." (G.H.I.I., supra, 147 Cal.App.3d at p. 277.) In other words, the act does not require a plaintiff to make any additional showing to obtain treble damages; such damages attach upon establishing a statutory violation.
The appellant argued that, under the statutory scheme, a "two-fold statute of limitations" applied: "the one-year period [in Civil Code of Procedure section 340] to the claim for treble damages, and the three-year period [in Civil Code of Procedure section 338] to the recovery of actual damages." (G.H.I.I., supra, 147 Cal.App.3d at p. 278.) The court agreed, concluding that different statute of limitations may apply where the plaintiff seeks "actual and treble damages ... based upon separate statutes contained within the same act." (Id. at p. 278.) The court further concluded that, for the purposes of the Unfair Practices Act, a different statute of limitations did apply to recovery of actual damages versus recovery of treble damages: "Appellants claim compensatory damages pursuant to section 17070, and request trebling of those damages in accordance with section 17082. Since these claims are patently severable, and the actual damages are not in the nature of a `penalty or forfeiture,' we conclude that appellants are entitled to recover all actual damages which accrued within three years of the filing of the complaint, and that all of such damages which accrued within one year prior to the filing of the complaint may be trebled under section 17082." (147 Cal.App.3d at p. 279.)
Based on the holdings in G.H.I.I. and Menefee, we must independently assess the appropriate statute of limitations applicable to section 17529.5, subdivision (b)(1)(B)(i), which permits the plaintiff to recover "[a]ctual damages," and subdivision (b)(1)(B)(ii), which permits the plaintiff to recover "[l]iquidated damages" in the amount of $1,000 per e-mail or $1 million per incident. Section 17529.5 shares essentially the same structure as the statutory provisions at issue in G.H.I.I. First, a plaintiff that elects to seek both actual and liquidated damages is entitled to both forms of recovery if it establishes a statutory violation. (G.H.I.I., supra, 147 Cal.App.3d at p. 277 [Unfair Practices Act requires award of actual and treble damages "if a violation of the [act] is established"].) Second, claims seeking actual versus liquidated damages are "patently severable" (147 Cal.App.3d at p. 279), as evidenced by the fact that the plaintiff may elect to seek "either or both" forms of recovery. (§ 17529.5, subd. (b)(1)(B).)
We next construe the proper statute of limitations applicable to Hypertouch's claims for liquidated damages under section 17529.5, subdivision (b)(1)(B)(ii). The "`settled rule'" in California is that statutes which provide for damages that are in "`addition to actual losses incurred'" (Menefee, supra, 228 Cal.App.3d at p. 243), or "not based upon actual injury" (Montalti v. Catanzariti (1987) 191 Cal.App.3d 96, 98 [236 Cal.Rptr. 231]), are generally "`considered penal in nature [citations], and thus governed by the one-year period of limitations stated in section 340, subdivision (1).' [Citation.]" (Menefee, supra, 228 Cal.App.3d at p. 243.) However, section 340 does not apply if the award of a penalty is discretionary, rather than mandatory. (See generally Jensen v. BMW of North America, Inc. (1995) 35 Cal.App.4th 112, 133 [41 Cal.Rptr.2d 295] (Jensen) ["Code of Civil Procedure section 340, subdivision (1), applies only where the penalty is mandatory.... The key question is whether the penalty is mandatory or discretionary ... (citation
The liquidated damages described in section 17529.5 have several features indicating that they are penal in nature. First, section 17529.5 provides that liquidated damages are to be awarded in addition to actual losses. (Menefee, supra, 228 Cal.App.3d at p. 243 ["statutes which provide for mandatory recovery of damages additional to actual losses incurred ... are considered penal in nature ...]; G.H.I.I., supra, 147 Cal.App.3d at p. 277.) The fact that the Legislature allowed a plaintiff to "recover `either or both' of actual damages and statutory damages" indicates "that the two kinds of damages are different and thus logically serve different purposes: compensatory in the case of the former and penal in the case of the latter." (Phillips v. Netblue, Inc. (N.D.Cal., Dec. 12, 2006, No. C-05-4401 SC) 2006 U.S.Dist. Lexis 92573, p. *16 (Netblue); see also Hypertouch, Inc. v. Azoogle.com, Inc. (9th Cir., July 9, 2010, No. 09-15943) 2010 U.S.App. Lexis 14121, p. *4 (Azoogle.com) [finding liquidated damages provision to be penalty because they may be awarded "in addition to actual damages"].)
Second, nothing in the text of the statute indicates that the amount of the liquidated damages—$1,000 per e-mail or $1 million per incident—is in any way based on the actual injury suffered by the entity seeking redress. (Netblue, supra, 2006 U.S.Dist. Lexis 92573 at pp. *16-*17 ["calculation of statutory damages [under section 17529.5, subdivision (b)(1)(B)(i)] is completely independent of any determination regarding actual damages"]; Azoogle.com, supra, 2010 U.S.App. Lexis 14121 at p. *4 ["An award of liquidated damages under § 17529.5(b)(1)(B)(ii) has no relation to the amount of damages ..."].) Indeed, the legislative history specifically states that the liquidated damages provision was intended to allow a plaintiff to recover more than its actual damages: "`In addition to actual damages (likely to be small in many such suits) the bill permits the plaintiff to seek liquidated damages ....' [Citation.]" (Netblue, supra, 2006 U.S.Dist. Lexis 92573 at p. *17, quoting Assem. Com. on Judiciary, Analysis of Sen. Bill No. 186
Hypertouch, however, contends that the award of liquidated damages is discretionary under the statute and therefore cannot constitute a penalty within the meaning of section 340. (See Jensen, supra, 35 Cal.App.4th at p. 133 ["Code of Civil Procedure section 340, subdivision (1), applies only where the penalty is mandatory."].) It offers two arguments in support of its position. First, Hypertouch contends that liquidated damages are not "mandatory" because section 17529.5, subdivision (b)(2) requires the trial court to reduce liquidated damages to a maximum of $100 per e-mail or $100,000 per incident if it finds the defendant "established and implemented ... practices and procedures reasonably designed to effectively prevent ... e-mail advertisements that are in violation of [section 17529.5.]." In Hypertouch's view, this safety valve provision effectively renders the imposition of penalties discretionary.
In TJX Companies, supra, 163 Cal.App.4th 80, the appellate court considered and rejected a similar argument. The specific issue presented in TJX Companies was whether claims arising under a statute that required the court to impose "a civil penalty not to exceed two hundred fifty dollars ($250) for the first violation and one thousand dollars ($1,000) for each subsequent violation" was a penalty within the meaning of section 340. (163 Cal.App.4th at p. 84.) The plaintiff argued that because the court could choose any penalty amount above the statutory maximums, the penalty was discretionary.
The appellate court disagreed, explaining that the statute did not provide the trial court discretion to decide whether or not to impose penalties. Instead, the statute only provided the court discretion in determining "the amount of the penalty assessment." (TJX Companies, supra, 163 Cal.App.4th at p. 86.) The court further noted that although the amount of the penalty could "[p]resumably... span between a penny (or even the proverbial peppercorn we all encountered in law school) to the maximum amounts authorized by the statute," the imposition of some penalties was still mandatory. (Id. at p. 86.)
In this case, the language of section 17529.5, subdivision (b)(2) cannot be meaningfully differentiated from the statute at issue in TJX Companies. The subdivision requires the court to reduce the liquidated damages to a maximum of $100 per e-mail or $100,000 per incident. Therefore, although the trial court is required to reduce liquidated damages, even to a nominal amount, nothing in the subdivision suggests that the court is permitted to dispense with penalties altogether.
Hypertouch's argument also fails to consider why our courts have held that discretionary, as opposed to mandatory, penalties are not subject to a one-year limitations period: "If the one-year limitations period applied to discretionary penalties, a plaintiff would be placed in the untenable position of being unable to determine the applicable statute of limitations until after trial, when the court determined whether to allow up to [such] damages." (Jensen, supra, 35 Cal.App.4th at p. 133; see also Holland v. Nelson (1970) 5 Cal.App.3d 308, 312 [85 Cal.Rptr. 117].) Those concerns are not present where the plaintiff is permitted to choose at the outset whether to pursue penalties that are ultimately mandatory if a violation is shown.
In sum, Hypertouch may seek actual damages for any e-mail it received within three years prior to the filing of the complaint and liquidated damages for any e-mail received within one year prior to the filing of the complaint. As a result, PrimaryAds is not entitled to summary adjudication. Although section 340 limits the type of recovery that Hypertouch may seek for e-mails received more than one year prior to the filing of the complaint, it does not bar Hypertouch's claims on those e-mails altogether.
We reverse the trial court's grant of summary judgment, vacate its award of costs and remand for further proceedings consistent with this ruling.
Woods, Acting P.J., and Jackson, J., concurred.
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