Chapter 6 Q&A’s
Jonathan Cutler
October 3, 2011
Business Law 2050
6-1
Dunn has injured his reputation by stating Richard is the worst driver ever. Richard has a case of
libel.
6-2
6-3
He was trespassing; the tort violated was the Intentional Torts against Property. It is also a
conversion tort. (b) No, if the mechanics threw him off with reasonable force they would not be guilty of
assault and battery.
6-4
6-5
The Defamation of character
No, it did not.
6-6
Conversion - the wrongful possession or use of another person’s personal property without just
cause.
6-7
Minimal damages should be awarded to the petitioners based solely upon the law and the Beacon
journal should be made aware that their dialer system crashed and should be repaired.
6-8
No, it should not apply under these circumstances. She was falsely accused for having a fraudulent
check. Her sixth amendment right was also violated.
irvine v akron beacon journal chptr 6
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Case for question 6-7
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Intentional Torts - Invasion of Privacy - Irvine v. Akron Beacon (2002)
147 Ohio App. 3d 428, *; 2002 Ohio 2204,
770 N.E.2d 1105, ***; 2002 Ohio App. LEXIS 2221
GENEVA IRVINE, et al., Appellees/Cross-Appellants v. AKRON BEACON JOURNAL, et al., Appellants/CrossAppellees
C.A. Nos. 20450, 20524
COURT OF APPEALS OF OHIO, NINTH APPELLATE DISTRICT, SUMMIT COUNTY
147 Ohio App. 3d 428; 2002 Ohio 2204; 770 N.E.2d 1105; 2002 Ohio App. LEXIS 2221; 30 Media L. Rep. 1993
May 8, 2002, Decided
PRIOR HISTORY: APPEALS FROM JUDGMENTS ENTERED IN THE COURT OF COMMON PLEAS. COUNTY
OF SUMMIT, OHIO. CASE No. 99 10 3998.
Irvine v. Akron Beacon Journal, 2002 Ohio 83, 2002 Ohio App. LEXIS 39, (Ohio Ct. App., Summit County 2002).
DISPOSITION: Upon reconsideration, court of appeals' prior opinoin was vacated and trial court's judgment was affirmed,
in part, reversed, in part, and cause was remanded.
CASE SUMMARY
PROCEDURAL POSTURE: The Summit County Court of Common Pleas (Ohio) awarded compensatory and punitive
damages to appellee couple on their claims against appellant newspaper for invasion of privacy and for violations of the
Telephone Consumer Protection Act (Act). The newspaper appealed. The couple appealed from an order that stayed the
judgment but did not require the newspaper to post a bond. The case was heard upon reconsideration.
OVERVIEW: The couple received many "hang-up" calls, including three late at night, from the newspaper. The appellate
court held, among other things, that the trial court did not err in denying the newspaper's motion for judgment
notwithstanding the verdict on the claims of invasion of privacy based on telephone harassment and punitive damages. The
evidence supported that the newspaper called the couple with such persistence and frequency as to amount to a course of
hounding. Also, there was ample evidence that the newspaper acted in conscious disregard to the rights of others and that
its conduct had a great probability of causing substantial harm. When its auto-dialing system "crashed" and its disconnect
data was lost, it ran the system over two nights. Next, the calls during restricted hours qualified as "telephone solicitations"
under 47 U.S.C.S. § 227(a)(3) of the Act, in spite of the fact that there was no solicitor on the line. The newspaper
demonstrated a reckless disregard for whether its conduct of running the disconnect list overnight violated the Act.
However, the trial court erred by awarding treble damages in addition to the statutory damages, rather than in lieu of them.
OUTCOME: The judgment was reversed and remanded only insofar as the trial court awarded treble damages in addition
to statutory damages under the Telephone Consumer Protection Act. The judgment was otherwise affirmed.
OPINION: ***1107 *431
DECISION AND JOURNAL ENTRY
Dated: May 8, 2002
Upon reconsideration, the decision previously filed in this case, Irvine v. Akron Beacon Journal, 9th Dist. Nos. 20450 and
20524, 2002 Ohio 83, 2002 Ohio App. LEXIS 39, is hereby vacated and replaced with this decision and journal entry.
This cause was heard upon the record in the trial court. Each error assigned has been reviewed and the following
disposition is made:
BATCHELDER, P. J.
P1 Appellant, Akron Beacon Journal ("Beacon Journal"), appeals from a judgment of the Summit County Court of
Common Pleas that awarded compensatory and punitive damages to appellees, Edward and Geneva Irvine, on their claims
against Beacon Journal for invasion of privacy and for violations of the Telephone Consumer Protection Act. Beacon
Journal also appeals from a post-judgment order that awarded attorney fees to the Irvines. The Irvines appeal from another
order of the trial court that stayed the judgment but did not require Beacon Journal to post a bond. We affirm in part and
reverse in part.
I.
P2 On October 5, 1999, the Irvines filed this action against Beacon Journal, one of its reporters, one of its photographers,
and members of its editorial staff, alleging statutory and tort claims based upon alleged newsgathering and telemarketing
activities by the defendants. The matter commenced to a jury trial, which revealed the following facts underlying the
Irvines' claims.
Newsgathering Claims
P3 Because these claims are not at issue in this appeal, the underlying facts will be detailed only briefly. Mr. Irvine is the
former chief of the Akron Police Department. During October 1998, Mrs. Irvine was treated for injuries at a local hospital
and, while there, made allegations that her husband had caused *432 her injuries. Mrs. Irvine later recanted her statements.
This incident led to, among other things, a criminal investigation, an internal investigation by the police department,
***1108 and several articles in the Beacon Journal about the allegations of domestic abuse and the subsequent
investigations into those allegations. During this period, Mrs. Irvine went to Louisiana to stay with her sister. In an attempt
to get Mrs. Irvine's side of the story, Beacon Journal attempted to contact Mrs. Irvine while she was in Louisiana. The
Irvines' complaint alleged that the actions taken by Beacon Journal reporters and others constituted an invasion of Mrs.
Irvine's privacy.
Telemarketing Claims
P4 The bulk of this appeal focuses on Beacon Journal's telemarketing practice, and its impact on the Irvines, during the
spring and summer of 1999. During the summer of 1999, the Irvines' household was receiving numerous "hang-up"
telephone calls. Because the caller identification indicated only that these calls came from a private line, Chief Irvine was
unable to determine the source of the calls. Consequently, he filed a criminal telephone harassment complaint and
Ameritech placed a trap on the Irvines' phone line. The Ameritech trap revealed that several of the hang-up calls that the
Irvines had received had come from Beacon Journal's telemarketing department. Three of those calls rang into the Irvines'
home during early morning hours. Due to the volume of such calls that the Irvines allegedly had received, and because
they believed that some of the calls violated the federal Telephone Consumer Protection Act, the Irvines added claims to
their complaint based on the federal act and common law invasion of privacy.
P5 During the relevant period of time, Beacon Journal's telemarketing department was equipped with an automatic dialing
machine that would be programmed to dial specific telephone numbers. During business hours, the autodialer was used to
maximize the productivity of Beacon Journal's sales force. With Beacon Journal's emphasis on productivity, there were
many ways by which solicitation targets might receive "hang-up" calls from its telemarketing department. Rather than
having a sales representative waste time making calls that would not result in a connection with a potential subscriber, the
autodialer was used to call multiple telephone numbers at once. The autodialer would call two phone numbers for every
sales representative working and would connect the calls to a sales representative only after someone answered at the other
end. If the call was not answered within the first three rings, the autodialer dropped it. The recipient of such a call would
be able to identify the call only as a hang-up call, unidentifiable by their caller ID.
*433 P6 If the autodialer made multiple connections at the same time, there was sometimes no sales representative
available to take the call. In those situations, the autodialer would hang onto the call for a short period of time in case a
sales representative became available. If no sales representative became available within a set period of time, the call was
dropped. A person answering such a call would hear nothing but dead air and a hang up. The autodialer would place the
telephone number for such a "dropped call" back on the dialing list and call it again later. A specific telephone number
could potentially be called numerous times before an actual connection with a sales representative was made.
P7 During this period, Beacon Journal's subscription sales force heavily targeted two particular groups of relevance here:
former subscribers and newly-connected telephone numbers. Beacon Journal attempted to win back its former subscribers
by calling them "as much as possible" during the first weeks after cancellation ***1109 of a subscription. Beacon Journal's
telemarketers also focused on newly-connected telephone numbers because those telephone numbers potentially belonged
to new members of the community who were typically good prospects for newspaper subscription sales.
P8 Beacon Journal compiled a list of newly-connected telephone numbers through the following process. Every weekend,
after the regular sales calls were made, Beacon Journal programmed its autodialer to dial the "disconnect list," a list of
telephone numbers that Beacon Journal previously had determined were not working telephone numbers. The autodialer
would call the telephone numbers from the preprogrammed disconnect list and record one of two things: (1) a three-toned
signal, indicating that the number remained disconnected, or (2) a ring, indicating that the number had been reconnected
and was currently a working telephone number. Either way, once the autodialer detected one of those two sounds, it
recorded the information and dropped the call. Even if the call was answered, the call was not connected to a sales
representative because they were not working at the time.
P9 If the disconnect list was programmed into the autodialer properly and the autodialer was working properly, each
telephone number on the list would be called only once and the machine would record whether that number remained
disconnected or whether it was a newly-connected number.
The Irvines' Inadvertent Role as Telemarketing Targets
P10 During the spring and summer of 1999, the Irvines inadvertently became targets of Beacon Journal's telemarketing
department for two reasons. During the spring of 1999, the Irvines canceled their subscription to the Sunday Beacon
Journal. Consequently, they received numerous calls from the telemarketing department in an attempt to win back their
business. According to the *434 testimony of Chief Irvine, Beacon Journal also called him numerous times before the
subscription expired, seeking a renewal order.
P11 According to Chief Irvine, in an attempt to avoid annoying calls from the Beacon Journal and unidentified hang-up
calls, he had their telephone number changed to a new, unlisted telephone number on June 22, 1999. Unfortunately for the
Irvines, however, because their new phone number was a formerly-disconnected number, changing the phone number
merely set them up for additional telemarketing calls from Beacon Journal. Thus, even if everything had been working
properly with Beacon Journal's telemarketing system, the Irvines had unknowingly become targets for numerous
unsolicited calls.
Problems with the System
P12 Beacon Journal's telemarketing system apparently was not working properly during the spring and summer of 1999
and many of the problems with the system directly impacted the Irvines. The computerized system crashed often, causing
it to lose data. When data was lost, the autodialer would revert to the beginning of the preprogrammed list and call the
telephone numbers again. The Irvines apparently received many calls for this reason.
P13 Other calls placed in violation of the federal act, however, were due to human error. After business hours on two
nights during late June and early July 1999, because the autodialer had not worked properly during its usual time for
running the disconnect list, Beacon Journal set the machine to run all night. The list of newly-connected numbers was a
very important list to the telemarketing ***1110 department. Beacon Journal's circulation sales manager was not willing to
wait until the following weekend to run the disconnect list, apparently worried that Beacon Journal would potentially lose
several subscription sales.
P14 During those two nights, the autodialer called the Irvines' telephone number a total of three times. In addition to the
three late night calls, the Irvines' number was called on the disconnect list several other times. One call should have been
enough for the computer to detect a ring and determine that the Irvines' number was a newly-connected number. One
Beacon Journal telemarketing person attempted to explain why the Irvines number was called repeatedly. He opined that
the number might have been inadvertently programmed into the system more than once and/or that the computer crashed
and lost data so that the number was called again. On cross-examination, however, the witness essentially conceded that
neither of these explanations fully explained why the Irvines' number was called so many times.
Verdict
P15 At the close of the defendants' case, the trial court directed a verdict for the individually-named defendants on the
Irvines' telemarketing claims. The *435 jury found for the defendants on the newsgathering claims. The jury found for
each of the Irvines against the Beacon Journal, however, on their claims for common law invasion of privacy based on
telephone harassment and for violations of the Telephone Consumer Protection Act.
P16 Based on its answers to special interrogatories, the jury indicated that Beacon Journal violated the Telephone
Consumer Protection Act on three separate occasions when its autodialer called the Irvines' house between the restricted
hours of 9:00 p.m. and 8:00 a.m. The jury awarded the Irvines $ 500 for each violation, for total statutory damages of $
1500. The jury also found that the violations had been committed knowingly or willfully and awarded $ 4,500 in treble
damages.
P17 The jury also found that Beacon Journal's telemarketing practices had invaded the privacy of each of the Irvines. On
these claims, the jury awarded each of the Irvines $ 250 in compensatory damages and $ 100,000 in punitive damages. The
trial court entered judgment on the jury verdict.
P18 Following a post-trial hearing before a magistrate, the Irvines were awarded $ 60,485.25 in attorney fees. The trial
court adopted the magistrate's recommended award and overruled the objections raised by Beacon Journal.
P19 Beacon Journal appeals from those two orders, raising fourteen assignments of error, some of which will be
consolidated for ease of discussion. The Irvines also appeal from a later order of the trial court that stayed the Irvines'
judgment against Beacon Journal but did not require Beacon Journal to post a bond. The appeals were consolidated and,
though the appeals were from separate orders of the trial court, for briefing purposes, Beacon Journal was designated the
appellant and the Irvines, the cross-appellants. Consequently, Beacon Journal's assignments of error will be addressed first
and then the Irvines' sole assignment of error, designated a cross-assignment of error, will be addressed.
II.
First Assignment of Error
P20 THE TRIAL COURT ERRED BY RETURNING THE JURY TO FURTHER DELIBERATIONS AND NOT
ENTERING JUDGMENT IN FAVOR OF THE BEACON PURSUANT TO CIV.R. 49(B) AND/OR CORRECTING
THE JURY'S VERDICT IN FORM, CONSISTENT ***1111 WITH THE JURY'S INTERROGATORY ANSWER
THAT THE BEACON DID NOT INVADE THE APPELLEES' PRIVACY IN REGARDS TO TELEPHONE
HARASSMENT.
P21 Beacon Journal contends that the trial court erred when, after the jury's initial deliberations, it failed to enter judgment
on the jury's answers to special interrogatories that were inconsistent with the general verdict on the *436 Irvines' invasion
of privacy claim. Specifically, the jury initially returned with a general verdict for the Irvines on this claim, with an award
of compensatory damages of $ 250 each and an award of punitive damages of $ 100,000 for each of the Irvines. The
general verdict form was signed by six of the eight jurors. The jury's answers to three of the special interrogatories,
however, were inconsistent with the general verdict. Through those interrogatories, the jurors indicated that Beacon
Journal did not invade the privacy of either of the Irvines in regard to telephone harassment, nor did it act with actual
malice. n1
- - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - -
n1 The original forms completed by the jury are not part of the record. This court's review therefore is limited to what is
apparent from transcribed discussions between the trial judge and counsel. Beacon Journal also asserts an argument based
on a fact that does not appear in the record. Consequently, that argument will not be addressed.
- - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - P22 The trial court asked the jury to return for further deliberations but, when the jury returned, it had completed the three
interrogatories just as it had done before, except that it had failed to complete any general verdict form on this claim. The
trial court sent the jury back again for further deliberations. The jury returned with a general verdict for the Irvines, with
the same damages as it had initially awarded, and with answers to the three interrogatories that were consistent with its
general verdict.
P23 Faced with an inconsistency between the general verdict and the answers to three of the interrogatories, there were
three options available to the trial court:
P24 HN1Go to the description of this Headnote.*** When one or more of the answers to interrogatories is inconsistent
with the general verdict, 1 judgment may be entered pursuant to Rule 58 in accordance with the answers, notwithstanding
the general verdict, or 2 the court may return the jury for further consideration of its answers and verdict or 3 may order a
new trial.
P25
Civ.R. 49(B). HN2Go to the description of this Headnote.It is within the sound discretion of the trial court to determine
which of these three actions to take. Tasin v. SIFCO Industries, Inc. (1990), 50 Ohio St.3d 102, 553 N.E.2d 257, paragraph
one of the syllabus.
P26 Beacon Journal contends that the trial court abused its discretion by failing to enter judgment for Beacon Journal,
based on the original answers to special interrogatories, the first option listed in Civ.R. 49(B). Beacon Journal's argument
suggests that the option of entering judgment on the answers to interrogatories is the preferred action that the trial court
should take and that returning the jury for further deliberations is the action to be taken only in limited situations. On the
contrary, the Ohio Supreme Court has often stated that HN3Go to the description of this Headnote.the preferable option
under Civ.R. 49(B) is to send the jury back for further deliberations. See, e.g., Perez v. Falls Financial, Inc. (2000), 87
Ohio St.3d 371, 375-376, 721 N.E.2d 47; Shaffer v. Maier *437 (1994), 68 Ohio St.3d 416, 421-422, 627 N.E.2d 986. In
fact, if there is any restraint on the trial court's discretion in this situation, it is when the court is permitted to enter
judgment on the answers to special interrogatories that are inconsistent with the general verdict. See Otte v. Dayton Power
& Light Co. (1988), 37 Ohio St.3d 33, 41, 523 ***1112 N.E.2d 835. Beacon Journal has failed to demonstrate that the trial
court abused its discretion by sending the jury back for further deliberations until it resolved the inconsistency between the
general verdict and the special interrogatories.
P27 Beacon Journal further contends that the trial court erred in its instructions to the jury when it sent the jury back for
further deliberations. Although Beacon Journal raised an objection to the trial court sending the jury back for further
deliberations, it raised no objection to the manner in which court instructed the jury. Consequently, it waived all but plain
error. See Perez, 87 Ohio St.3d at 375. Beacon Journal cites only two cases in support of its argument, one of which does
not even address the issue and the other was subsequently reversed on this issue by the Ohio Supreme Court. Therefore,
Beacon Journal has failed to demonstrate error, much less that this was one of those rare situations in which the plain error
doctrine should be invoked. See id. at 375-377. The first assignment of error is overruled.
Second Assignment of Error
P28 THE TRIAL COURT ERRED IN INSTRUCTING THE JURY ON INVASION OF PRIVACY BASED ON
TELEPHONE HARASSMENT.
P29 Through this assignment of error, Beacon Journal contends that the trial court erred in its jury instruction on the
invasion of privacy claims. Although Beacon Journal raised several objections to the trial court's instruction on invasion of
privacy, it has abandoned some of those arguments on appeal and has raised some new ones. HN4Go to the description of
this Headnote."When a party fails to object to the giving of or failure to give a jury instruction before the jury retires to
consider a verdict, the party may not assign as error the giving of or failure to give such instruction." Schade v. Carnegie
Body Co. (1982), 70 Ohio St.2d 207, 436 N.E.2d 1001, paragraph one of the syllabus. Consequently, this court will
address only the argument that Beacon Journal preserved for appeal through a timely objection.
P30 Beacon Journal asserts that the trial court erred by excluding from its instruction the language from Restatement of the
Law 2d, Torts (1965) Section 652B, Comment d, that one, two, or even three telephone calls do not constitute an invasion
of privacy. By excluding that language, Beacon Journal contends, the jury was misled to believe that two or three phone
calls could constitute an invasion of privacy.
P31 *438 HN5Go to the description of this Headnote.To demonstrate reversible error, Beacon Journal must demonstrate
(1) that the trial court abused its discretion by failing to give the requested instruction, and (2) that it was prejudiced as a
result. Jaworowski v. Med. Radiation Consultants (1991), 71 Ohio App.3d 320, 327, 594 N.E.2d 9. Beacon Journal has
failed to demonstrate either error or prejudice.
P32 The trial court gave a fairly detailed instruction on invasion of privacy, which included the following explanation:
P33 It is only when telephone calls are repeated with such persistence and frequency as to amount to a course of hounding
the Plaintiffs that becomes a substantial burden to his existence that the Plaintiffs' privacy is invaded.
P34
The inclusion of this language should have made it clear to the jury that more than two or three telephone calls were
required before liability would attach. Beacon Journal has failed to demonstrate an abuse of discretion by the trial court.
P35 Beacon Journal attempts to demonstrate confusion on the part of the jury by linking the common law invasion of
privacy telemarketing claims to the statutory ***1113 telemarketing claims, suggesting that the jury verdicts against it on
all telemarketing claims were based on the same three late night phone calls. The jury's answers to interrogatories indicate
that those three calls formed the basis of Beacon Journal's statutory liability, but there was no special interrogatory to
indicate the specific conduct that formed the basis of Beacon Journal's common law invasion of privacy liability, where
the jury awarded the bulk of its damages. Although the jury found that only three telephone calls made by Beacon Journal
violated the federal act because they were made during restricted hours, HN6Go to the description of this
Headnote.telephone calls need not be made at a certain time of the day to constitute an invasion of privacy. The record
contains evidence of many more telemarketing calls generated by Beacon Journal to the Irvines during other hours of the
day. Thus, Beacon Journal's repeated suggestion that the invasion of privacy claims were based on a mere three phone
calls is unfounded. The second assignment of error is overruled.
Third Assignment of Error
P36 THE TRIAL COURT ERRED IN DENYING THE BEACON'S MOTIONS FOR DIRECTED VERDICT AND/OR
JUDGMENT NOTWITHSTANDING THE VERDICT ON APPELLEES' INVASION OF PRIVACY CLAIMS BASED
UPON TELEPHONE HARASSMENT.
Fourth Assignment of Error
P37 THE JURY'S VERDICT ON APPELLEES' INVASION OF PRIVACY CLAIMS BASED UPON TELEPHONE
HARASSMENT AND THE JUDGMENT ENTERED THEREON WERE CONTRARY TO LAW AND AGAINST THE
MANIFEST WEIGHT OF THE EVIDENCE.
P38 *439 We will address these assignments of error together because they are closely related. Beacon Journal contends
that the trial court erred in denying its motions for directed verdict and for judgment notwithstanding the verdict on the
Irvines' claims for invasion of privacy based on telephone harassment. Beacon Journal did not move for a directed verdict
on this basis, n2 but it did move for a JNOV. Beacon Journal also contends that the judgment for the Irvines on these
claims was against the manifest weight of the evidence.
n2 Although Beacon Journal moved for a directed verdict on the newsgathering invasion of privacy claim, it did not
articulate an argument on the telephone harassment invasion of privacy claim.
P39 HN7Go to the description of this Headnote.The standard for granting a motion for judgment notwithstanding the
verdict pursuant to Civ. R. 50(B) is the same as that for granting a motion for a directed verdict pursuant to Civ. R. 50(A).
Gladon v. Greater Cleveland Regional Transit Auth. (1996), 75 Ohio St.3d 312, 318-319, 662 N.E.2d 287. Civ.R. 50(A)
(4) provides:
P40 HN8Go to the description of this Headnote.*** When a motion for a directed verdict has been properly made, and the
trial court, after construing the evidence most strongly in favor of the party against whom the motion is directed, finds that
upon any determinative issue reasonable minds could come to but one conclusion upon the evidence submitted and that
conclusion is adverse to such party, the court shall sustain the motion and direct a verdict for the moving party as to that
issue.
P41 HN9Go to the description of this Headnote.It is well established that the court must neither consider the weight of the
evidence nor the credibility of the witnesses in disposing of a directed verdict motion." Strother v. Hutchinson (1981), 67
Ohio St.2d 282, 284, 423 N.E.2d 467, citing Durham v. Warner Elevator Mfg. Co. (1956), 166 Ohio St. 31, 139 N.E.2d
10. "If there is substantial competent evidence to support the party against whom the motion is ***1114 made, upon which
evidence reasonable minds might reach different conclusions, the motion must be denied." Hawkins v. Ivy (1977), 50 Ohio
St.2d 114, 115, 363 N.E.2d 367, citing Kellerman v. J.S. Durig Co. (1964), 176 Ohio St. 320, 199 N.E.2d 562.
P42 HN10Go to the description of this Headnote.When reviewing the weight of the evidence, this court applies the same
test in civil cases as it does in criminal cases. Tewarson v. Simon (2001), 141 Ohio App.3d 103, 115, 750 N.E.2d 176.
"The reviewing court * * * weighs the evidence and all reasonable inferences, considers the credibility of witnesses and
determines whether in resolving conflicts in the evidence, the finder of fact clearly lost its way and created such a manifest
miscarriage of justice that the judgment must be reversed and a new trial ordered." Id., citing State v. *440 Thompkins
(1997), 78 Ohio St.3d 380, 387, 678 N.E.2d 541, quoting State v. Martin (1983), 20 Ohio App.3d 172, 175, 485 N.E.2d
717.
P43 The trial court instructed the jury on the telemarketing invasion of privacy claim, in relevant part, as follows:
P44 One who intentionally intrudes, physically or otherwise, upon the solitude or seclusion of another or his private affairs
or concerns, is subject to liability to the other for invasion of his privacy, if the intrusion would be highly offensive to a
reasonable person. P45
***
P46 In regard to the alleged telephone harassment and invasion of privacy, it is only when telephone calls are repeated
with such persistence and frequency as to amount to a course of hounding the Plaintiffs that becomes a substantial burden
to his existence that the Plaintiffs' privacy is invaded.
P47 Beacon Journal contends that reasonable minds could only conclude, and that the jury lost its way in reaching a
conclusion to the contrary, that Beacon Journal did not call the Irvines "with such persistence and frequency as to amount
to a course of hounding" or to become a "substantial burden to their existence." This court does not agree.
P48 Although Beacon Journal again focuses solely on the three late night phone calls, there was evidence before the jury
that the Irvines received many other phone calls from Beacon Journal. Chief Irvine testified that they received hundreds of
phone calls from Beacon Journal. During some calls, the caller identified himself or herself as being from the Beacon
Journal. Many of the calls were "hang-up" calls, however. Beacon Journal contends that, other than the calls recorded by
Beacon Journal and Ameritech, the Irvines did not prove that these calls came from Beacon Journal.
P49 The evidence demonstrated, however, that Chief Irvine filed a criminal complaint because he was receiving so many
hang-up calls and could not identify the source of the calls on his caller ID. Once Ameritech placed a trap on his phone,
many hang-up calls were identified as coming from Beacon Journal's telemarketing department. In fact, Beacon Journal's
own records indicate that it placed six calls of short duration, presumably hang-up calls, to the Irvines' residence during the
few days before the trap was put on the line.
P50 Beacon Journal repeatedly asserts that the Irvines' numbers are too high and stresses the fact that their numbers are not
supported by the records of Ameritech or Beacon Journal. None of these records, however, included a full reporting of the
calls placed by Beacon Journal to the Irvines' residence. The *441 Ameritech phone trap was only on the ***1115 phone
for twenty-one days of the relevant five-month period and only recorded those calls that the Irvines asked it to.
P51 Beacon Journal's records did not include any statistics for calls placed before May. Moreover, the Beacon Journal log
failed to include some calls that were on the Ameritech log, indicating that the log did not record all calls placed to the
Irvines. A Beacon Journal witness explained that the Beacon log would not record calls that were less than seven seconds
in duration and that the system crashing might cause it to lose data on other calls. Because there also was evidence before
the jury that the autodialer system repeatedly crashed and lost data during this period, the jury could reasonably conclude
that Beacon Journal's logs were not an accurate record of the number of calls placed to the Irvines' residence.
P52 This court cannot say that the jury lost its way in concluding that Beacon Journal called the Irvines "with such
persistence and frequency as to amount to a course of hounding." The third and fourth assignments of error are overruled.
Fifth Assignment of Error
P53 THE TRIAL COURT ERRED IN DENYING THE BEACON'S MOTIONS FOR DIRECTED VERDICT AND/OR
JUDGMENT NOTWITHSTANDING THE VERDICT ON APPELLEES' PUNITIVE DAMAGES CLAIMS.
Sixth Assignment of Error
P54 THE JURY'S VERDICTS IN FAVOR OF APPELLEES ON THEIR PUNITIVE DAMAGES CLAIMS AND THE
JUDGMENT ENTERED THEREON WERE AGAINST THE MANIFEST WEIGHT OF THE EVIDENCE.
P55 We will address these assignments of error together because they are closely related. Beacon Journal contends that the
trial court erred in denying its motions for directed verdict and for judgment notwithstanding the verdict on the Irvines'
claims for punitive damages. Beacon Journal also contends that the punitive damage awards were against the manifest
weight of the evidence.
P56 The trial court instructed the jury that it could award punitive damages if it found that Beacon Journal acted with
actual malice. The trial court defined "actual malice" as "a state of mind characterized by hatred, ill will, or a spirit of
revenge or a conscious disregard for the rights and safety of other persons that has a great probability of causing
substantial harm." Beacon Journal contends that there was no evidence that it acted with actual malice.
P57 Although there is no evidence that Beacon Journal acted with hatred or ill will, there is ample evidence that it acted in
conscious disregard to the *442 rights of others and that its conduct had a great probability of causing substantial harm.
Beacon Journal's telemarketing system was purportedly designed to maximize productivity while at the same time
minimizing the intrusion caused by the phone calls. The jury could reasonably conclude, however, that Beacon Journal's
actions during the summer of 1999 demonstrated an emphasis on productivity at the expense of the recipients of the calls.
During this time, the autodialer computer system crashed repeatedly, yet there is no evidence that Beacon Journal took any
steps at that time to protect recipients of calls from the disturbance caused by additional calls. n3 Instead, when the system
crashed, the steps Beacon Journal took were to run the autodialer again so that it could regain the data it lost, calling many
telephone numbers again and again.
n3 Beacon Journal apparently replaced the system at a later time.
P58 ***1116 Even if the jury focused only on the late night phone calls, the evidence supported the jury's apparent
conclusion that Beacon Journal's actions had a great probability of causing substantial harm. Beacon Journal limits its
argument to the harm caused to the Irvines, overlooking the fact that the Irvines' telephone number was not the only one
called by Beacon Journal during prohibited hours those two nights. HN11Go to the description of this Headnote.The focus
of punitive damages is on the defendant's conduct and whether it acted in conscious disregard to others, not just the
particular plaintiffs in this case. See Preston v. Murty (1987), 32 Ohio St.3d 334, 512 N.E.2d 1174, syllabus.
P59 There was no evidence of exactly how many calls were placed by the autodialer when it ran the disconnect list those
two nights. There was evidence, however, that during a regular four-hour sales shift, the autodialer would place
approximately five thousand calls and that it took several hours for Beacon Journal to run its disconnect list every
weekend. The purpose of running the list was to generate a solicitation list. Witnesses from Beacon Journal's telemarketing
department explained that the "fastest and best way for it to find new movers in the marketplace is to call through a
disconnect list *** and find newly activated telephone numbers that it can, at a later time, call for subscription sales." The
resulting data was a list of hot prospects that Beacon Journal would target heavily for the first few weeks after the number
was connected. When the system crashed in late June 1999 and Beacon lost data about the newly-connected numbers, it
was not willing to wait until the next weekend to re-gather information about these numbers. Although there was no direct
evidence of how many newly-connected numbers Beacon Journal expected to find when it ran its disconnect list, the jury
could reasonably infer from the evidence that Beacon Journal expected the number to be significant.
*443 P60 Beacon Journal repeatedly suggests that because there was no sales pitch, but merely the brief ringing of the
phone, these calls caused no real intrusion. Although the intrusion of a hang-up call apparently seems minimal to Beacon
Journal, many of these hang-up calls came in the middle of the night, potentially waking people from a sound sleep. The
recipient of a late night hang-up call would typically assume that the caller is attempting to harass him or to determine
whether anyone is at home. He would not likely conclude that the calls were coming from an autodialer in a telemarketing
department that had been experiencing computer glitches.
P61 Middle-of-the-night hang-up calls would be disturbing to anyone, but Beacon Journal apparently did not even factor
that consideration into its decision-making process. They set the machine to run all night, everyone went home, and when
they came back the next day the data was waiting for them. The evidence further demonstrated that no one even bothered
to review the data after it was gathered because they saw no need to. If they had, they could have determined that the
autodialer detected a ring on the Irvines' line on June 27, yet it called that number on the disconnect list several more
times, including the three calls in the middle of the night. It was apparently not until this litigation that Beacon Journal saw
the need to review its data and discovered that the Irvines' number, and the jury could reasonably infer many other
telephone numbers, were called on the disconnect list far more than the one time that should have been required to detect
that the number had been reconnected.
P62 ***1117 The jury could reasonably conclude that Beacon Journal acted in conscious disregard to the rights of others
and that its conduct had a great probability of causing substantial harm. Therefore, Beacon Journal has failed to
demonstrate that the trial court erred in denying its motions for directed verdict and judgment notwithstanding the verdict
or that the jury lost its way on the Irvines' claims for punitive damages. The fifth and sixth assignments of error are
overruled.
Seventh Assignment of Error
P63 THE JURY'S VERDICTS IN FAVOR OF APPELLEES ON THEIR CLAIMS FOR PUNITIVE DAMAGES AND
THE JUDGMENTS ENTERED THEREON ARE EXCESSIVE AND/OR UNCONSTITUTIONAL UNDER OHIO AND
FEDERAL LAW.
P64 In addition to its claim that the punitive damage awards were not supported by the evidence, Beacon Journal raises a
legal challenge to those awards. Beacon Journal's legal argument challenges the large disparity between the punitive
damage award ($ 100,000) and the compensatory damage award ($ 250). Beacon Journal contends that each punitive
damage award that was 400 times each compensatory damage award was, on its face, impermissible. In *444 support of
this argument, Beacon Journal cites Gray v. General Motors Corp. (1977), 52 Ohio App.2d 348, 359, 370 N.E.2d 747, in
which the court found a punitive damage award that was also 400 times the compensatory damage award to be grossly
disproportionate and, therefore, impermissible. The Gray court, however, did not find the punitive damages to be
excessive solely based on the numbers. The court did not apply a "rigid mathematical formula" but instead looked at the
evidence of wrongdoing that was before the jury. The Gray court stressed that punitive damages "must bear some
reasonable relation or proportion to actual damages, that is, the nature and extent of the wrong done the plaintiff." Id. The
court focused not only on the disparity between the punitive damages and the compensatory damages, but also on the fact
that there was no direct evidence that the defendant had acted with actual malice. Id.
P65 HN12Go to the description of this Headnote.Low compensatory damages and high punitive damages assessed by a
jury are not in and of themselves cause to reverse the judgment or to grant a remittitur, since it is the function of the jury to
assess the damages and, generally, it is not for the trial or appellate court to substitute its judgment for that of the trier of
fact. A large disparity, standing alone, is insufficient to justify a court's interference with the province of the jury.
Wightman v. Consolidated Rail Corp. (1999), 86 Ohio St.3d 431, 438, 715 N.E.2d 546 quoting Villella v. Waikem
Motors, Inc. (1989), 45 Ohio St.3d 36, 40, 543 N.E.2d 464. P66
HN13Go to the description of this Headnote.A large disparity, in and of itself, does not constitute reversible error because
an award of punitive damages is more about a defendant's behavior than the plaintiff's loss. "The purpose of punitive
damages is not to compensate a plaintiff, but to punish and deter certain conduct." Moskovitz v. Mt. Sinai Med. Ctr.
(1994), 69 Ohio St.3d 638, 651, 635 N.E.2d 331. HN14Go to the description of this Headnote.The actual damage
sustained by the plaintiff "has little to do with how a jury might effectively and fairly punish and deter the defendant's
tortious conduct ." Wightman, 86 Ohio St.3d at 439. Factors that might make a large punitive damage award appropriate in
a particular case include "a substantial harm, a continuing risk, a deterrent effect, and an economically viable defendant."
Id.
P67 Thus, Beacon Journal's legal argument essentially becomes a factual one. Beacon Journal did not articulate a factual
argument under this assigned error, however, ***1118 and this court is not inclined to make Beacon Journal's argument
for it. Consequently, the seventh assignment of error is overruled.
Eighth Assignment of Error
P68 THE TRIAL COURT ERRED IN DENYING APPELLANTS' MOTION FOR DIRECTED VERDICT ON
PLAINTIFFS' CLAIMS UNDER THE TELEPHONE CONSUMER PROTECTION ACT.
P69 Beacon Journal contends that the trial court should have granted it a directed verdict on the Irvines' claims under the
Telephone Consumer *445 Protection Act. It contends that the undisputed evidence demonstrated that the only calls
placed during restricted hours did not qualify as "telephone solicitations" under the act because the calls were placed by an
automated dialing machine and no solicitor was even intending to speak to the Irvines. This argument is not persuasive.
P70 Beacon Journal does not dispute that its telemarketing department placed the calls and that if the calls qualified as
"telephone solicitations, " they constituted violations of the Telephone Consumer Protection Act because the calls were
placed between the restricted hours of 9:00 p.m. and 8:00 a.m. Their argument is that these calls did not constitute
telephone solicitations because no sales representative was on the other end of the line; in fact, no sales representatives
were even in the building at the time the calls were placed.
P71 Section 227(a) (3), Title 47, U.S.Code defines the term "telephone solicitation" as HN15Go to the description of this
Headnote."the initiation of a telephone call *** for the purpose of encouraging the purchase or rental of, or investment in,
property, goods, or services[.] " Beacon essentially contends that a telephone call does not qualify as a "telephone
solicitation" unless a sales representative is on the other end of the line, intending to speak to the recipient of the call.
P72 Beacon Journal cites no legal authority to support its argument, nor does it point to specific language of the definition
that supports such a construction. There is no language in the statute requiring that a conversation take place or that a sales
representative be at the other end of the line. As the Irvines argued in opposition to Beacon Journal's motion for directed
verdict, the mere ringing of the phone could constitute a violation.
P73 HN16Go to the description of this Headnote.Section 227(a) (3), Title 47, U.S.Code, as quoted above, refers to the
"initiation" of a telephone call, not the completion of one. Expressions of legislative intent further support the trial court's
construction of the statute. The Congressional findings following Section 227(a) (3), Title 47, U.S.Code stress the need to
control the invasion into the privacy of the homes of consumers by telemarketers. The findings make repeated references
to the low-cost technology of "automated or prerecorded telephone calls," suggesting that, if left unchecked, consumers
could become overwhelmed by such calls. Legislative concern is directed toward the telephone calls themselves, noting
that multimillions of such calls are placed each day, and that each time a telephone line is tied up with a call, it is "seized"
for the duration of the call.
P74 The fact that no solicitor was at the other end of the line each time that Beacon Journal called the Irvines in the middle
of the night does not demonstrate to this court that no reasonable fact finder could have found that the calls were placed for
the purpose of encouraging the sale of a Beacon Journal subscription. Even if Beacon Journal did not intend to make a
solicitation at *446 those particular times, Beacon Journal's own evidence was that the purpose of these calls was to detect
***1119 recently-connected telephone numbers so that it could generate a telemarketing list of numbers to be called by
telemarketers in the future. The fact that these particular calls were one step removed from the actual sales pitch does not
mean that the purpose of the calls was not to, ultimately, attempt to sell a subscription to the Beacon Journal. This court is
not persuaded by Beacon Journal's argument that the calls it generated by the autodialer, with no intention of connecting
them to a telephone solicitor, did not qualify as "telephone solicitations." Whether a solicitor is at the other end of the
phone or not, when the telephone rings, the intrusion into the home and the seizing of the telephone line is the same. In
fact, an argument can be made that when the telephone rings and no one is on the other end, the recipient is even more
disturbed and inconvenienced than if a sales person is at the other end of the line. P75
The eighth assignment of error is overruled.
Ninth Assignment of Error
P76 THE JURY'S VERDICT IN FAVOR OF APPELLEES ON THEIR CLAIMS UNDER THE TELEPHONE
CONSUMER PROTECTION ACT IS AGAINST THE MANIFEST WEIGHT OF THE EVIDENCE.
P77 Beacon Journal contends that the judgment for the Irvines on their claims under the Telephone Consumer Protection
Act was against the manifest weight of the evidence. Beacon Journal does not dispute that it placed three calls to the
Irvines' telephone number via the autodialer during restricted hours. Its weight of the evidence argument is essentially the
same as the argument it raised through its eighth assignment of error, that such calls did not constitute violations of the
federal act. Because this court found no merit in that argument, the ninth assignment of error is likewise overruled.
Tenth Assignment of Error
P78 THE TRIAL COURT ABUSED ITS DISCRETION AND ERRED AS A MATTER OF LAW IN SUBMITTING
THE QUESTION OF ENTITLEMENT TO TREBLE DAMAGES UNDER THE TCPA TO THE JURY.
P79 Beacon Journal contends that the trial court erred in allowing the jury to determine whether the Irvines were entitled
to treble damages because that issue should have been decided by the trial judge. Section 227(c) (5), Title 47, U.S.Code
provides:
P80 HN17Go to the description of this Headnote.If the court finds that the defendant willfully or knowingly violated the
regulations prescribed under this subsection, the court may, in its discretion, increase the amount of the award to an
amount equal to not more than 3 times the amount available under subparagraph (B) of this paragraph.
*447 P81 Because the statute refers to the "court" rather than the jury, Beacon Journal contends that it requires that the
treble damage issue be tried to the trial judge, not the jury. Beacon Journal cites no case law interpreting this provision on
the issue, nor was this court able to find any.
P82 HN18Go to the description of this Headnote.Although the term "court" might reasonably be interpreted to mean judge
and not jury, see Feltner v. Columbia Pictures Television, Inc. (1998), 523 U.S. 340, 346, 140 L. Ed. 2d 438, 118 S. Ct.
1279, it could also be construed to include the judge and jury. See Feltner, 523 U.S. at 356 (Scalia, J., concurring in
judgment). Even if "court" means trial judge, the statute merely fails to afford plaintiffs a statutory "right" to a jury trial.
See id. at 346. It does not mandate that the treble damage issue be determined by the "court" without the assistance of the
jury. Moreover, the United ***1120 States Supreme Court's decision in Feltner suggests that, even if the Irvines had no
statutory right to a jury determination of this issue, they may have had a constitutional one. See id. at 355.
P83 The only case cited by Beacon Journal is one construing an entirely different statute Ohio's Consumer Sales Practices
Act, R.C. 1345.09(B). R.C. 1345.09 has no similar language referring to the "court," nor is the trebling of damages
conditioned on a knowing or willful violation of the statute; the only similarity is the trebling of damages. Although courts
have held that the trial judge, not the jury, is better equipped to determine a plaintiff's entitlement to treble damages under
R.C. 1345.09, it is because the determination is a legal one, not a factual one, and legal determinations are within the
province of the trial judge. See, e.g., Inserra v. J.E.M. Bldg. Corp. (Nov. 22, 2000), 2000 Ohio App. LEXIS 5447 at *24,
9th Dist. No. 2973-M. HN19Go to the description of this Headnote.The determination of a plaintiff's entitlement to treble
damages under the Telephone Consumer Protection Act, on the other hand, requires a mere factual finding, whether the
defendant's violation was willful and knowing. See Section 227(c) (5), Title 47, U.S.Code. Thus, the reasoning expressed
in Inserra does not apply.
P84 Consequently, Beacon Journal has failed to convince us that the trial court erred by allowing the jury to determine
whether the Irvines were entitled to treble damages. The tenth assignment of error is overruled.
Eleventh Assignment of Error
P85 THE TRIAL COURT ERRED IN FAILING TO DIRECT A VERDICT IN FAVOR OF THE BEACON ON THE
ISSUE OF TREBLE DAMAGES.
Twelfth Assignment of Error
P86 THE AWARD OF TREBLE DAMAGES IS AGAINST THE MANIFEST WEIGHT OF THE EVIDENCE.
*448 P87 Beacon Journal contends that the trial court erred in failing to direct a verdict on the Irvines' claims for treble
damages and that the treble damage awards were against the manifest weight of the evidence. n4 Beacon Journal maintains
that there was no evidence to establish the statutory requirements for treble damages.
n4 Because Beacon Journal raised no motion for a directed verdict on this basis, this court can only assume that Beacon
Journal faults the trial court for failing to sua sponte grant a directed verdict on the treble damages issue. See Gibbons v.
Price (1986), 33 Ohio App.3d 4, 12, 514 N.E.2d 127.
P88 HN20Go to the description of this Headnote.Section 227(c) (5), Title 47, U.S.Code allows the trial court to award
treble damages if "the defendant willfully or knowingly violated the regulations prescribed under this subsection[.] "
Beacon Journal contends that the evidence established that Beacon Journal did not know that it was violating the
Telephone Consumer Protection Act by running its autodialer all night. Based on the same legal reasoning asserted in its
eighth assignment of error, that these calls did not constitute "telephone solicitations" under the act, Beacon's witnesses
testified that they did not know that they were violating the act by running the disconnect list overnight.
P89 Even if the jury believed the testimony of Beacon's witnesses that Beacon Journal did not knowingly violate the act,
the act also permitted an award of treble damages if Beacon Journal willfully violated the act. Although this court found
no case law construing the "willfully *** violated" language in the Telephone Consumer Protection Act, there is a
***1121 wealth of case law construing the term "willful violation" as it is used in other federal statutes.
P90 The United States Supreme Court, construing "willful violation" as that term is used in the Age Discrimination in
Employment Act, held that an employer commits a "willful violation" of that act when it demonstrates a knowing or
reckless disregard for the matter of whether its conduct was prohibited by the act. Trans World Airlines, Inc. v. Thurston
(1986), 469 U.S. 111, 128, 83 L. Ed. 2d 523, 105 S. Ct. 613. The Thurston court further reasoned that a violation is not
willful where the employer "acted reasonably and in good faith in attempting to determine whether its conduct violated the
act." Id. at 129.
P91 The evidence was clear that Beacon Journal telemarketing people knew about the federal act and that they could not
make solicitation calls after 9:00 p.m. or before 8:00 a.m. There was also evidence from which the jury could infer that
Beacon Journal also knew or acted in reckless disregard of whether the *449 act also restricted when it could run the
disconnect list. Beacon Journal did not normally run the disconnect list at night, but typically ran the list during daytime
hours on Saturdays and Sundays. In fact, Beacon Journal's former consumer marketing manager testified that it was
against company policy to run the disconnect list overnight.
P92 Beacon Journal's former circulation sales manager testified that he came in to work one Monday morning in late June
1999 and discovered that no data had been compiled on the disconnect list over the weekend. He decided to get the
missing data by running the disconnect list overnight for two nights. He sought no opinion from Beacon's legal department
or outside counsel nor did he made any other attempt to determine whether that activity would comply with the Telephone
Consumer Protection Act. In fact, he admitted that he made the decision himself and that he told no one about it except the
night shift leader. The night shift leader ran the disconnect list on two nights, as he had been instructed to do, but he
admitted that he was uncomfortable doing it.
P93 Reasonable minds could conclude, and the jury did not lose its way in so concluding, that Beacon Journal
demonstrated a reckless disregard for whether its conduct of running the disconnect list overnight violated the Telephone
Consumer Protection Act. The eleventh and twelfth assignments of error are overruled.
Thirteenth Assignment of Error
P94 THE AWARD OF TREBLE DAMAGES MUST BE VACATED AND/OR REDUCED BECAUSE APPELLEES
ARE NOT ENTITLED TO RECOVER DAMAGES IN EXCESS OF THREE TIMES THE AMOUNT AVAILABLE
UNDER THE STATUTE.
P95 For Beacon Journal's violations of the Telephone Consumer Protection Act, the jury found that the Irvines were
entitled to total statutory damages of $ 1,500 plus treble damages of $ 4,500. The trial court then entered judgment that
awarded the Irvines both the statutory damages and the treble damages. Beacon Journal contends that, by the explicit terms
of the Telephone Consumer Protection Act, and legal principles governing the trebling of damages generally, the trial
court had authority to award the trebled damages in lieu of the statutory damages, but not in addition to them. We agree.
P96 As quoted above, Section 227(c) (5), Title 47, U.S.Code provides:
P97 HN21Go to the description of this Headnote.If the court finds that the defendant willfully or knowingly violated the
regulations prescribed under this subsection, the court may, in its discretion, increase the amount of the award to an
***1122 amount equal to not more than 3 times the amount available under subparagraph (B) of this paragraph.
P98
HN22Go to the description of this Headnote.The explicit terms of the statute authorize the trial court to increase the
statutory damages to an amount "equal to not more than 3 times" the *450 statutory damages. Nothing authorizes the trial
court to award treble damages in addition to the statutory damage award. The total damages cannot exceed the trebled
amount.
P99 HN23Go to the description of this Headnote.The concept of trebled damages generally has always been understood to
authorize the trebling of damages as a total damage figure, not one to be added to the statutory or compensatory damages.
See, e.g., Green v. U.S.A. Energy Consultants (Sept. 18, 1986), 1986 Ohio App. LEXIS 8309, 8th Dist. Nos. 50942 and
51149. The trial court erred by awarding treble damages in addition to the statutory damages, rather than in lieu of them.
The thirteenth assignment of error is sustained.
Fourteenth Assignment of Error
P100 THE TRIAL COURT ERRED IN ENTERTAINING APPELLEE'S MOTION FOR ATTORNEY FEES, IN
ADOPTING THE MAGISTRATE'S FINDINGS OF FACT AND CONCLUSIONS OF LAW CONCERNING
ATTORNEY FEES, AND IN ENTERING JUDGMENT AWARDING ATTORNEY FEES IN FAVOR OF APPELLEES.
P101 Beacon Journal contends that the trial court erred in awarding attorney fees to the Irvines because the jury, not the
court, should have made the determination of whether the Irvines were entitled to attorney fees. We need not address the
propriety of the attorney fee award because Beacon Journal has failed to preserve this issue for review.
P102 First, as the trial court noted in a post-trial order, the trial court had informed the parties that it would address the
issue of attorney fees after trial and neither party raised any objection. Moreover, the issue of attorney fees was tried to a
magistrate who decided that the Irvines should be awarded $ 60,485.25 in attorney fees. Although Beacon Journal raised
several objections to the magistrate's decision, it did not object to the fact that the attorney fee issue was tried to the
magistrate and not a jury. Civ.R. 53(E)(3)(b) expressly states that HN24Go to the description of this Headnote."a party
shall not assign as error on appeal the court's adoption of any finding of fact or conclusion of law unless the party has
objected to that finding or conclusion under this rule." Because Beacon Journal did not raise an objection on this basis, we
are precluded from addressing the merits of this assignment of error and it is overruled accordingly. See In the Matter of
Estate of Kordiac (Oct. 20, 1999), 1999 Ohio App. LEXIS 4883 at *3, 9th Dist. No. 19192. The fourteenth assignment of
error is overruled.
Cross Assignment of Error
P103 THE TRIAL COURT ERRED IN RELIEVING ITS GARNISHMENT ORDER AND IN NOT REQUIRING THE
APPELLANT TO POST A BOND IN THE AMOUNT OF THE JURY VERDICT WHILE THE CASE IS PENDING IN
THE APPELLATE COURT.
*451 P104 The Irvines contend that the trial court erred: (1) by vacating its prior order of garnishment and (2) by staying
the execution of the judgment without requiring it to post a supercedeas bond.
P105 Although no order of garnishment appears in the record, the trial court indicated through a subsequent journal entry
that it was vacating its prior order of garnishment. The Irvines contend that the trial court has no authority to vacate an
order of garnishment, but they cite no authority for that proposition. We are not inclined to make the Irvines' legal
argument for them. Collier v. Dorcik (Nov. 29, 2000), 2000 Ohio App. LEXIS 5540 at *14, 9th Dist. No. 3009-M.
Moreover, as Beacon Journal ***1123 notes, the trial court ordered garnishment before the judgment was final so its act of
vacating that order appears to be appropriate. See State ex rel. Electrolert, Inc. v. Lindeman (1994), 99 Ohio App.3d 154,
157-158, 650 N.E.2d 137.
P106 The Irvines next contend, relying on Civ.R. 62(B), that the trial court had no authority to stay the execution of the
judgment without ordering Beacon Journal to pay a supersedeas bond. Civ.R. 62(B) provides:
P107 HN25Go to the description of this Headnote.When an appeal is taken the appellant may obtain a stay of execution of
a judgment or any proceedings to enforce a judgment by giving an adequate supersedeas bond. *** The stay is effective
when the supersedeas bond is approved by the court.
P108 The Irvines cite no authority that construes Civ.R. 62(B) as mandating a bond before a stay can be granted. HN26Go
to the description of this Headnote.An "adequate supersedeas bond" could reasonably be construed to mean no bond at all,
if the trial court felt that none was necessary, as in this case. See Lomas & Nettleton Co. v. Warren (June 29, 1990), 1990
Ohio App. LEXIS 2720, 11th Dist. No. 89-G-1519 (construing "sufficient sureties" language of R.C. 2505.09 to
encompass no sureties in certain cases). n5 This court has held that HN27Go to the description of this Headnote."under
appropriate circumstances, the trial court may exercise its discretion and stay the execution of judgment without requiring
the appellant to post a supersedeas bond." Whitlatch & Co. v. Stern (Aug. 19, 1992), 1992 Ohio App. LEXIS 4218 at *25,
9th Dist. No. 15345; see, also, Lomas, supra (holding that "the posting of a supersedeas bond is not mandatory to stay an
execution in all cases[.]").
n5 The Irvines do not base their argument on R.C. 2505.09.
P109 The trial court gave a reasonable explanation for its decision that an "adequate" bond to secure the Irvines' interests
in this case was no bond at all. In its journal entry granting the stay, the trial court indicated its finding "that the Plaintiffs
are adequately secured by the Defendant's solvency and well-established ties to Akron, Ohio and that, therefore, the
Defendants are not *452 required to post a bond at this time." This court finds no abuse of discretion by the trial court. The
cross-assignment of error is overruled.
III.
P110 Beacon Journal's thirteenth assignment of error is sustained. Its remaining assignments of error are overruled. The
Irvines' cross-assignment of error is overruled. The judgment is reversed only insofar as the trial court awarded treble
damages in addition to statutory damages under the Telephone Consumer Protection Act. The cause is remanded for
correction of that aspect of the judgment only.
Judgment affirmed in part,
reversed in part, and the cause remanded.
The Court finds that there were reasonable grounds for these appeals.
We order that a special mandate issue out of this Court, directing the Court of Common Pleas, County of Summit, State of
Ohio, to carry this judgment into execution. A certified copy of this journal entry shall constitute the mandate, pursuant to
App.R. 27.
Immediately upon the filing hereof, this document shall constitute the journal entry of judgment, and it shall be file
stamped by the Clerk of the Court of Appeals at which time the period for review shall begin to run. App.R. 22(E).
Costs taxed to both parties equally.
Exceptions.
WILLIAM G. BATCHELDER
FOR THE COURT
SLABY, J.
CARR, J.
CONCUR
Case for question 6-8
question 6-8 defamation
Hagberg v. California Federal Bank (2004) , Cal.4th
[No. S105909. Jan. 5, 2004.]
LYDIA ORTIZ HAGBERG, Plaintiff and Appellant, v. CALIFORNIA FEDERAL BANK FSB, Defendant and
Respondent.
(Superior Court of Los Angeles County, No. BC216052, David L. Minning, Judge.)
(The Court of Appeal, Second Dist., Div. Two, No. B146368, Unpublished Opinion.)
(Opinion by George, C. J., with Kennard, J., Chin, J., and Moreno, J., concurring. Dissenting opinion by Brown, J., with
Baxter and Werdegar, JJ., concurring.)
COUNSEL
Vakili & Leus, Sa'id Vakili; and Peter A. Zablotsky for Plaintiff and Appellant.
Gary Williams for ACLU Foundation of Southern California as Amicus Curiae on behalf of Plaintiff and Appellant.
Delia Y. Guevara; Haight, Brown & Bonesteel, Jules S. Zemen; Yocca Patch & Yocca, Mark W. Yocca and Paul Kim and
for Defendant and Respondent.
Bill Lockyer, Attorney General, Manuel M. Medeiros, State Solicitor General, Andrea Lynn Hoch, Chief Assistant
Attorney General, James M. Schiavenza, Assistant Attorney General, and Paul T. Hammerness, Deputy Attorney General,
as Amici Curiae on behalf of Defendant and Respondent.
Leland Chan and C. Dawn Casey for California Bankers Association and American Bankers Association as Amici Curiae
on behalf of Defendant and Respondent.
OPINION
GEORGE, C. J.We granted review in this case to consider whether tort liability may be imposed for statements made when a citizen
contacts law enforcement personnel to report suspected criminal activity on the part of another person. As we shall
explain, we agree with the trial court, the Court of Appeal, and the great weight of authority in this state in concluding that
such statements are privileged pursuant to Civil Code section 47, subdivision (b) (section 47(b)), fn. 1 and can be the basis
for tort liability only if the plaintiff can establish the elements of the tort of malicious prosecution.
I
Plaintiff Lydia Ortiz Hagberg, a Hispanic woman, opened an account at a Pasadena branch of California Federal Bank,
FSB (Cal Fed). A few months later she appeared at this branch to cash a check made out to her by the commercial {Slip
Opn. Page 2} institution Smith Barney. She presented her California driver's license, her Cal Fed ATM card, the Smith
Barney check, and her Smith Barney account summary, along with the envelope in which she had received the check. The
teller, also apparently a Hispanic woman, suspected that the check was a counterfeit and brought it to her supervisor,
Nolene Showalter, apparently a person of European descent. Showalter agreed that the check had a suspicious appearance,
in that some of the print was "fuzzy and unclear" or "smudged" and part of the address line was missing -- features not
commonly found on Smith Barney checks. Showalter contacted Smith Barney by telephone, was informed that the check
was not valid, and then contacted Cal Fed's corporate security office. The regional security manager, Gary Wood,
instructed her to telephone the police, and she did so. A transcript of the telephone call to the police discloses that
Showalter explained that Hagberg had attempted to negotiate a counterfeit check. The police dispatcher asked questions
concerning the identity and appearance of the person attempting to cash the check, apparently in order to assist the police
in determining whom they should contact at the bank. Showalter answered these questions and also volunteered that the
bank's corporate security officer "just wants somebody to hang on to her [until] he can check this out. Because our first
call to them, they said it was counterfeit . . . . [¶] And we've taken a lot of losses." The dispatcher asked the person's
ethnicity, and Showalter answered, "White -- well, maybe Hispanic; kind of reddish hair, short."
While Showalter spoke to the police dispatcher, Wood, the bank's regional security manager, himself telephoned Smith
Barney and was informed that the check was valid and that the information earlier received by Showalter from Smith
Barney was erroneous. This information was relayed to Showalter, who interrupted her statement to the police dispatcher
with the news. She informed the dispatcher that Cal Fed no longer required the assistance of the police and that the {Slip
Opn. Page 3} bank was "getting into trouble here with this." The dispatcher responded that the police were already at the
bank, and when Showalter looked up, she could see a police officer approaching Hagberg. Showalter asked the dispatcher
if she should tell the police officers to leave, and the dispatcher told her to do so. Showalter stated in her declaration that
she "immediately walked over to the teller window as the police officers were approaching the customer" and that she
"reached over the teller's desk with [her] hand to catch their attention and told the police we had canceled the call." She
stated: "The police, however, proceeded with an investigation and detained the customer." Showalter did not speak to
Hagberg.
Hagberg testified at her deposition that a police officer drew her away from the teller's window, spread her legs, patted her
down, and handcuffed her. Her handbag was searched, and the officer asked her whether she was in possession of weapons
or stolen property and whether she was driving a stolen vehicle. Hagberg testified that, as the police were placing her
under arrest, she looked at the Hispanic teller who had been serving her, and that the teller announced to Hagberg that
Hagberg "looked like a criminal." Hagberg's ordeal ended 20 minutes later, when she was released. The record contains a
transcript of Hagberg's telephone call to Smith Barney, evidently later the same day, in which the Smith Barney
representative explained that Smith Barney had made a mistake in informing Cal Fed that the check was not valid. In this
telephone call, Hagberg evidenced distress over her detention.
On September 9, 1999, Hagberg filed a complaint against Cal Fed and 100 unnamed parties as defendants. fn. 2 The
complaint alleged seven causes of action, {Slip Opn. Page 4} including race discrimination in violation of the Unruh Civil
Rights Act (§§ 51, 52.1), false arrest and false imprisonment, slander, invasion of privacy, intentional infliction of
emotional distress, and negligence. She claimed humiliation and emotional distress, and sought damages and penalties of
$1.6 million for past and future medical expenses and loss of earnings, as well as attorney fees and costs.
Cal Fed filed its answer on October 15, 1999 and a motion for summary judgment on July 27, 2000. In support of its
motion for summary judgment, Cal Fed contended that its statements to the police concerning suspected criminal activity
by Hagberg were subject to the absolute privilege established by section 47(b). Cal Fed also claimed immunity under
federal law, citing title 31 United States Code section 5318(g), part of the so-called safe harbor provision of the AnnunzioWylie Anti-Money Laundering Act. Cal Fed also claimed that, even if it were not entitled to immunity for privileged
communications under state and federal law, Hagberg had not presented any facts evidencing conduct in violation of the
Unruh Civil Rights Act. In support of its motion for summary judgment, Cal Fed proffered Showalter's declaration,
portions of plaintiff's deposition testimony, copies of Cal Fed's interrogatories and plaintiff's answers to interrogatories,
and the transcript of a recording of the telephone conversation between Showalter and the police dispatcher, as noted
above.
The evidence indicated that although Hagberg believed that the only explanation for her treatment was racial or ethnic
prejudice on the part of bank employees, the only evidence she possessed in support of this theory was the circumstance
that she was of Hispanic descent and the facts noted above regarding the treatment she received at the time of the incident.
On August 10, 2000, plaintiff filed her opposition to the motion for summary judgment. In support, plaintiff presented
additional testimony from her deposition, a transcript of a recordings of telephone calls made during the incident, a
photocopy of the {Slip Opn. Page 5} questioned check, the Showalter declaration, and a copy of Cal Fed's written loss
prevention procedures. Her deposition testimony indicated her belief that the teller's remark that she looked like a criminal
could have been motivated only by racial or ethnic prejudice, and added that the check she proffered would not have been
questioned at her place of business. Her deposition also indicated that one of the police officers who detained her
suggested that she complain about her treatment. On August 18, 2000, defendant filed its reply.
Plaintiff filed motions for continuance to permit further discovery, but they were denied. On August 24, 2000, the trial
court granted defendant's motion for summary judgment. It explained at the hearing on the motion for summary judgment
that the absolute privilege established by section 47(b) applied to Cal Fed's statements to the police concerning suspected
criminal activity. It declared: "Although it is subject to abuse, it seems to me the right of a private citizen, or a public
citizen for that matter, to contact the police and advise the police of what they suspect to be criminal activity must be
absolute and must be without threat of recourse." The court found support for its conclusion in a decision by this court
(Silberg v. Anderson (1990) 50 Cal.3d 205 (Silberg)) and also in several Court of Appeal decisions. It noted that there was
some disagreement on the point in the Courts of Appeal, but it followed the majority view, reiterating that "public policy
would dictate that parties must have [unfettered] access to make police reports." Because it had decided the case on this
basis, it declined to reach Cal Fed's claim to immunity under federal law. The court's judgment briefly reviewed the
evidence, including evidence plaintiff had offered in opposition to the motion for summary judgment, and stated "[a]fter
duly considering the evidence proffered by Plaintiff, the Court does not find any triable issue of fact." Furthermore, it
determined: "Defendant's report to police and communications related thereto are privileged pursuant to Section 47(b) of
the California Civil Code." {Slip Opn. Page 6}
On appeal, the Court of Appeal affirmed the trial court's order granting summary judgment in favor of Cal Fed, agreeing
with the lower court that the privilege established by section 47(b) applied to Cal Fed's communication with the police
concerning its suspicion that Hagberg was attempting to negotiate a counterfeit check.
The Court of Appeal, like the trial court, began its analysis with this court's decision in Silberg, supra, 50 Cal.3d 205, 215216. The appellate court pointed out that in Silberg, we directed that section 47(b) be applied broadly to bar tort actions
based on privileged communications, excepting only the tort of malicious prosecution.
The Court of Appeal pointed to the many cases emanating from the Courts of Appeal that hold that the absolute privilege
of section 47(b) "shields testimony or statements to officials conducting criminal investigations." These cases, it observed,
recognize the importance of ensuring an "open channel of communication" between citizens and the police. With regard to
a single Court of Appeal decision that reached a contrary result (Fenelon v. Superior Court (1990) 223 Cal.App.3d 1476
(Fenelon)), the Court of Appeal observed that Fenelon "has not been followed, and has been roundly criticized." The Court
of Appeal adopted the view embraced by the majority of appellate court decisions on this point. It observed that under the
rule set forth in these decisions, citizens are not entirely unprotected from abuse, because Penal Code section 148.5,
subdivision (a), provides that it is a misdemeanor knowingly to make a false crime report to the police.
In response to plaintiff's claim that statements are not subject to an absolute privilege when their utterance violates a
statute such as the Unruh Civil Rights Act, the Court of Appeal pointed to other instances in which causes of action
defined by statute -- statutes carrying out important public policies -- also are {Slip Opn. Page 7} subject to the privilege
established by section 47(b). (Citing, e.g., Rubin v. Green (1993) 4 Cal.4th 1187, 1203.) Further, the Court of Appeal, like
the trial court, declined to reach defendant's claim that it (defendant) also was shielded by a privilege established by
federal law. Finally, the Court of Appeal concluded that the trial court had not abused its discretion in denying plaintiff's
motions for continuance for further discovery.
We granted Hagberg's petition for review to resolve an apparent conflict in the decisions of the Courts of Appeal. Hagberg
urges us to adopt the minority view, pointing out that the ability to summon the police to accuse another of a crime is a
potent weapon that is subject to abuse and that can cause great injury to reputation and other interests of innocent persons.
She also reiterates her claim that even if the privilege is absolute in most instances when a citizen contacts the police to
report suspected criminal activity, the Unruh Civil Rights Act, with its important goal of eliminating discrimination on the
basis of race and other classifications, creates an exception when the communication violates the provisions of that act.
Cal Fed, for its part, first vigorously maintains that it is entitled to absolute immunity under 31 United States Code section
5318(g)(3), a federal provision that imposes a duty on banks to report suspected criminal activity of a specified nature to
law enforcement authorities and, specifically preempting state law, provides absolute immunity for such reports. Cal Fed
urges that even if we were to conclude that state law extends only a qualified privilege with respect to plaintiff's claims,
state law would be preempted by the more expansive federal immunity provision.
With respect to section 47(b), Cal Fed urges that this court, like the Court of Appeal and the trial court in this case,
conclude that the better view is expressed by those Court of Appeal decisions holding that section 47(b) establishes an
absolute {Slip Opn. Page 8} privilege for statements made by a citizen who contacts the police to report suspected
criminal activity. With respect to plaintiff's Unruh Civil Rights Act claim, Cal Fed contends that, by its terms, the act does
not establish an exception to section 47(b). Cal Fed also asserts that even the violation of a constitutional interest
sometimes may fail to enjoy a remedy in damages because of certain immunities and privileges, so that it is not anomalous
to extend the privilege to communications such as those alleged in the present case.
II
Section 47 establishes a privilege that bars liability in tort for the making of certain statements. Pursuant to section 47(b),
the privilege bars a civil action for damages for communications made "[i]n any (1) legislative proceeding, (2) judicial
proceeding, (3) in any other official proceeding authorized by law, or (4) in the initiation or course of any other proceeding
authorized by law and reviewable pursuant to [statutes governing writs of mandate]," with certain statutory exceptions that
do not apply to the present case. The privilege established by this subdivision often is referred to as an "absolute"
privilege, and it bars all tort causes of action except a claim for malicious prosecution. (See Kimmel v. Goland (1990) 51
Cal.3d 202, 209; Silberg, supra, 50 Cal.3d at p. 216.) Cal Fed contends that its communications to the police in the present
case fall within the absolute privilege established by section 47(b).
Section 47, subdivision (c) extends a qualified privilege to other communications. Under section 47, subdivision (c), a
qualified privilege, that is a privilege that applies only to communications made without malice, applies to
"communication[s] . . . to a person interested therein, (1) by one who is also interested or (2) by one who stands in such a
relation to the person interested as to afford a reasonable ground for supposing the motive for the communication to be
innocent, or (3) who is requested by the person interested to give the information." {Slip Opn. Page 9} (§ 47, subd. (c).)
Hagberg contends that Cal Fed's communication to the police at most fell into this category of qualified privilege, so that
she should be entitled to establish tort liability if she can demonstrate that the communication was made with malice.
We have explained that the absolute privilege established by section 47(b) serves the important public policy of assuring
free access to the courts and other official proceedings. It is intended to " 'assure utmost freedom of communication
between citizens and public authorities whose responsibility is to investigate and remedy wrongdoing.' " (Silberg, supra,
50 Cal.3d at p. 213, italics added.) We have explained that both the effective administration of justice and the citizen's
right of access to the government for redress of grievances would be threatened by permitting tort liability for
communications connected with judicial or other official proceedings. Hence, without respect to the good faith or malice
of the person who made the statement, or whether the statement ostensibly was made in the interest of justice, "courts have
applied the privilege to eliminate the threat of liability for communications made during all kinds of truth-seeking
proceedings: judicial, quasi-judicial, legislative and other official proceedings." (Ibid.)
Although the statute originally was understood as applicable only to the tort of defamation, our cases, beginning with
Albertson v. Raboff (1956) 46 Cal.2d 375, 382, have extended the privilege it provides to other potential tort claims. (See
Oren Royal Oaks Venture v. Greenberg, Bernhard, Weiss & Karma, Inc. (1986) 42 Cal.3d 1157, 1163-1165.) As noted,
the only tort claim we have identified as falling outside the privilege established by section 47(b) is malicious prosecution.
(Silberg, supra, 50 Cal.3d at p. 216.) Section 47(b), of course, does not bar a criminal prosecution that is based on a
statement or communication, when the speaker's utterance encompasses the elements of a criminal offense. (See, e.g., Pen.
Code, §§ 118 [perjury], 148.5 [false report of criminal offense].) {Slip Opn. Page 10}
In its application to communications made in a "judicial proceeding," section 47(b) is not limited to statements made in a
courtroom. Many cases have explained that section 47(b) encompasses not only testimony in court and statements made in
pleadings, but also statements made prior to the filing of a lawsuit, whether in preparation for anticipated litigation or to
investigate the feasibility of filing a lawsuit. (See Rubin v. Green, supra, 4 Cal.4th at pp. 1194-1195.) As we have said, "it
is late in the day to contend that communications with 'some relation' to an anticipated lawsuit are not within the
privilege." (Ibid.) Rather, the privilege applies to "any publication required or permitted by law in the course of a judicial
proceeding to achieve the objects of the litigation, even though the publication is made outside the courtroom [when] no
function of the court or its officers is involved. " (Silberg, supra, 50 Cal.3d at p. 212; see also PG&E v. Bear Stearns
(1990) 50 Cal.3d 1118, 1132-1133, 1137 [the privilege encompasses a private entity's statements that instigate another
person or entity to undertake litigation].) We have noted the application of the privilege to communications with " 'some
relation to a proceeding that is . . . under serious consideration;' " to " 'potential court actions;' " and to " 'preliminary
conversations and interviews related to contemplated action,' " and we also have determined that the privilege applies to
communications made, prior to the filing of a complaint, by a person "meeting and discussing" with potential parties the
"merits of the proposed . . . lawsuit." (Rubin v. Green, supra, 4 Cal.4th at p. 1194-1195.)
By the terms of the statute, statements that are made in quasi-judicial proceedings, or "any other official proceeding
authorized by law" (§ 47(b)), are privileged to the same extent as statements made in the course of a judicial proceeding.
By analogy to cases extending the litigation privilege to statements made outside the courtroom, many cases have held that
the official proceeding privilege applies to a communication intended to prompt an administrative agency {Slip Opn. Page
11} charged with enforcing the law to investigate or remedy a wrongdoing. As we summarized in Slaughter v. Friedman
(1982) 32 Cal.3d 149, "the privilege protect[s] communications to or from governmental officials which may precede the
initiation of formal proceedings." (Id. at p. 156, italics omitted.)
In Kashian v. Harriman (2002) 98 Cal.App.4th 892, for example, the privilege for communications made in connection
with "any other official proceeding" was held to apply to a letter urging a division of the Office of the Attorney General to
institute an investigation into the propriety of the tax exempt status being claimed by a health care provider named by the
letter writer. In addition, the letter urged that the Attorney General investigate the health care provider for specified alleged
unfair business practices; this, too, was found to be covered by the privilege. (Id. at pp. 926-927.) In another case, the
privilege was found to extend to communications between private parties regarding whether the parties should urge the
Attorney General's charitable trust division to investigate the alleged failure of a recording studio to pay royalties that it
owed to various charities. The Court of Appeal in that case concluded that the privilege extended to communications
between private persons "preliminary to the institution of an official proceeding." (Dove Audio, Inc. v. Rosenfeld, Meyer
& Susman (1996) 47 Cal.App.4th 777, 781-783.)
In another example, the court in Wise v. Thrifty Payless, Inc. (2000) 83 Cal.App.4th 1296 concluded that the privilege
extended to a man's allegedly unfounded and malicious report to the Department of Motor Vehicles that his estranged wife
was unfit to drive because of drug use. The court concluded that the "privilege is not limited to the courtroom, but
encompasses actions by administrative bodies and quasi-judicial proceedings. [Citation.] The privilege extends beyond
statements made in the proceedings, and includes statements made to initiate official action." (Id. at p. 1303, italics added.)
The court in Wise {Slip Opn. Page 12} explained its holding by pointing to the public policy served by section 47(b): "An
absolute privilege exists to protect citizens from the threat of litigation for communications to government agencies whose
function it is to investigate and remedy wrongdoing. [Citation.] The privilege is based on '[t]he importance of providing to
citizens free and open access to governmental agencies for the reporting of suspected illegal activity.' [Citation.]" (Wise v.
Thrifty Payless, Inc., supra, 83 Cal.App.4th at p. 1303.)
In King v. Borges (1972) 28 Cal.App.3d 27, the court held that the privilege extended to a letter written by a lawyer to the
state's Division of Real Estate complaining that a real estate agent improperly had refused to pay a refund out of an escrow
fund to the lawyer's client. The court observed that the communication was intended to prompt official action by the
Division of Real Estate, and was as much a part of that agency's proceedings as a communication made after the agency
took official action. The court warned that effective law enforcement would suffer if citizens became reluctant to call upon
the government to enforce the law for fear of potential tort liability. In the court's view, the risk of this public harm
outweighed the potential for occasional harm to a private interest that would follow from the application of the privilege to
such communications. (Id. at pp. 31-34.)
Another case applied the privilege in the context of a whistleblower statute that encourages citizens to report waste and
malfeasance on the part of governmental authorities. (Gov. Code, § 8547.1.) As the court in Braun v. Bureau of State
Audits (1998) 67 Cal.App.4th 1382, explained, the State Auditor is charged with investigating citizen complaints
concerning improper governmental activity and thereafter reporting any improper activity to appropriate enforcement
agencies. (Gov. Code, §§ 8547.5, 8547.7.) The Court of Appeal concluded that the Bureau of State Audits' investigation
and its report to an enforcement agency {Slip Opn. Page 13} constituted an "official proceeding" and were subject to the
absolute privilege -- just as initial complaints made by whistleblowers to the State Auditor necessarily would be
privileged. (Braun v. Bureau of State Audits, supra, 67 Cal.App.4th at pp. 1389-1391.)
Numerous additional cases agree that the section 47(b) privilege applies to complaints to governmental agencies
requesting that the agency investigate or remedy wrongdoing. (See Fremont Comp. Ins. Co. v. Superior Court (1996) 44
Cal.App.4th 867, 876-877 [privilege applied to a statement by two worker compensation insurers to the state Department
of Insurance and the local district attorney's office accusing a physician of insurance fraud]; Passman v. Torkan (1995) 34
Cal.App.4th 607, 616-619 [privilege applied to a letter written to the local district attorney's office intended to prompt a
criminal prosecution]; Long v. Pinto (1981) 126 Cal.App.3d 946, 948 [privilege applied to a physician's letter to the state
Board of Medical Quality Assurance accusing another physician of performing unnecessary surgeries, because the letter
"was sent to prompt board action and was thus part of an official proceeding"]; Tiedemann v. Superior Court (1978) 83
Cal.App.3d 918, 924-926 [privilege applied to communication by a "disgruntled former business associate" to the federal
Internal Revenue Service accusing a person of tax fraud]; Martin v. Kearney (1975) 51 Cal.App.3d 309, 311 ["official
proceeding" privilege extends to parents' letters to a school principal seeking to prompt official action concerning a
teacher's poor performance].)
By the same token, the overwhelming majority of cases conclude that when a citizen contacts law enforcement personnel
to report suspected criminal activity and to instigate law enforcement personnel to respond, the communication also enjoys
an unqualified privilege under section 47(b). These cases explain that a statement urging law enforcement personnel to
investigate another person's suspected violation of criminal law, to apprehend a suspected lawbreaker, or to {Slip Opn.
Page 14} report a crime to prosecutorial authorities is shielded from tort liability to the same extent as a similar statement
to administrative enforcement agencies. Reasoning that such communications are at least preparatory to "any other official
proceeding authorized by law," (ibid.) the majority of decisions in the Courts of Appeal have held such statements to be
shielded by an absolute privilege. We find these decisions to be persuasive, as we shall explain.
As the Court of Appeal in the present case observed, the leading case in this area is Williams v. Taylor (1982) 129
Cal.App.3d 745 (Williams). In that case, the Court of Appeal applied the absolute privilege of section 47(b) to statements
made by an employer who contacted the police to report suspected theft on the part of an employee and to request that the
police conduct an investigation. As a result of the police investigation, the employee was charged with various crimes.
Most of the charges ultimately were dismissed, and the employee was acquitted of the remaining charge that went to trial.
Thereafter, the employee sued the employer for slander, intentional and negligent infliction of emotional distress, and
malicious prosecution.
The Court of Appeal in Williams determined that the employee's slander and emotional distress claims failed because the
statements to the police were subject to the section 47(b) privilege: "In our view," the appellate court stated, "a
communication concerning possible wrongdoing, made to an official governmental agency such as a local police
department, and which communication is designed to prompt action by that entity, is as much a part of an 'official
proceeding' as a communication made after an official investigation has commenced. [Citation.] After all, '[t]he policy
underlying the privilege is to assure utmost freedom of communication between citizens and public authorities whose
responsibility it is to investigate and remedy wrongdoing.' [Citation.] In order for such investigation to be effective, 'there
must be an open channel of communication by which citizens {Slip Opn. Page 15} can call . . . attention to suspected
wrongdoing. That channel would quickly close if its use subjected the user to a risk of liability for libel. A qualified
privilege is inadequate under the circumstances. . . . [¶] The importance of providing to citizens free and open access to
governmental agencies for the reporting of suspected illegal activity outweighs the occasional harm that might befall a
defamed individual. Thus the absolute privilege is essential.' [Citation] And, since the privilege provided by section 47
[(b)] is absolute, it cannot be defeated by a showing of malice." (Williams, supra, 129 Cal.App.3d at pp. 753-754.)
We cited Williams with approval in Slaughter v. Friedman, supra, 32 Cal.3d 149. In that case we determined that the
privilege did not apply to communications between a dental insurance plan and a dentist's patients, in which the insurance
plan denied claims for assertedly unnecessary work and informed the patients that the insurance company intended to
report the dentist to a state dental professional association for possible discipline. These were communications between
private parties, they concerned the processing of insurance claims by a private entity, and they were not directed at
preparing for or eliciting governmental action. We distinguished these circumstances from those in which the privilege
does apply, stating that: "The 'official proceeding' privilege has been interpreted broadly to protect communication to or
from governmental officials which may precede the initiation of formal proceedings. (Williams v. Taylor (1982) 129
Cal.App.3d 745, 753 [statements to investigative officers]; Brody v. Montalbano (1978) 87 Cal.App.3d 725, 732-733
[communications between parents and school board]; Tiedemann v. Superior Court (1978) 83 Cal.App.3d 918, 924-926
[statements to I.R.S. agents investigating tax fraud].)" (Slaughter v. Friedman, supra, 32 Cal.3d at p. 156.)
Many other decisions are in accord with Williams, supra, 129 Cal.App.3d 745. In Beroiz v. Wahl (2000) 84 Cal.App.4th
485, for example, the court relied {Slip Opn. Page 16} upon Williams in determining that the privilege barred a
defamation claim based upon an American citizen's communication to Mexican prosecutors seeking the initiation of a
criminal investigation by Mexican authorities. The court declared, citing cases dating back to the 1930's, that "[g]enerally,
the absolute privilege shields . . . statements to officials conducting criminal investigations." (Beroiz v. Wahl, supra, 84
Cal.App.4th at pp. 494-495.) In Cabesuela v. Browning-Ferris Industries of California, Inc. (1998) 68 Cal.App.4th 101,
112, the court held that the absolute privilege extended to an employee's statement to the police that a coworker had
threatened the employee with violence. A defamation claim was barred, the court observed, because "Civil Code section
47 gives all persons the right to report crimes to the police, the local prosecutor or an appropriate regulatory agency, even
if the report is made in bad faith." (Ibid.)
In Hunsucker v. Sunnyvale Hilton Inn (1994) 23 Cal.App.4th 1498, 1502-1504, in the context of false imprisonment and
assault and battery claims, the court found the privilege applicable to a hotel manager's report to the police that a guest had
been brandishing a gun in a hotel room. In Cote v. Henderson (1990) 218 Cal.App.3d 796, 806, the court determined that
the privilege extended to a report made by a woman to the police and the district attorney that a man had raped her. And in
Johnson v. Symantec Corp. (N.D.Cal. 1999) 58 F.Supp.2d 1107 (Johnson), the court applied the privilege to bar a
defamation action against a man who reported to the police that a coworker had assaulted him. Applying California law,
the federal district court opined that this court would agree with the court in Williams, supra, 129 Cal.App.3d 745, that the
privilege applied not only to communications made during pending official proceedings, but also to "preinvestigation
communications intended to trigger official action." (Johnson, supra, 58 F.Supp.2d at p. 1110.) The district court pointed
to the many lower court cases in accord with Williams, to our statement in Slaughter v. Friedman, {Slip Opn. Page 17}
supra, 32 Cal.3d 149, that the official proceeding privilege should be interpreted broadly, and also to our approving
citation to Williams, supra, 129 Cal.App.3d 745, in the Slaughter case. (Johnson, supra, 58 F.Supp.2d at pp. 1109-1110, &
fn. 3; see also Forro Precision, Inc. v. International Business Machines (9th Cir. 1982) 673 F.2d 1045, 1055 [applying the
absolute privilege of section 47(b) to communications by an alleged crime victim to the local police].)
One Court of Appeal decision disagreed with these authorities, but its analysis has been rejected in numerous subsequent
decisions. In Fenelon, supra, 223 Cal.App.3d 1476, a majority of the court determined that a citizen's statement to the
police concerning the suspected criminal activity of another person did not concern an "official proceeding." The majority
declared that the term "official proceeding" encompasses solely "proceedings 'which [resemble] judicial and legislative
proceedings, such as transactions of administrative boards and quasi-judicial and quasi-legislative proceedings . . . .'
[Citation.] " (Id. at p. 1480.) The primary reason advanced for this conclusion was that it is only in such proceedings that
persons accused of wrongdoing possess a certain minimum level of due process protection. (Id. at p. 1483.) An
administrative proceeding may qualify under section 47(b), the majority stated, when the body possesses factfinding
authority and conducts hearings and renders adjudicative judgments based on the application of law to the facts. "In
general," the Fenelon majority stated, "the absolute privilege under section 47[b] is available only where there is an
express statutory authorization for the administrative agency to exercise quasi-judicial power." (Fenelon, at p. 1481.)
Citing out-of-state authority, the Fenelon majority declared that it was better policy to accord only a qualified privilege to
communications to the police that are intended to instigate official action by law enforcement. It quoted a 1978 New York
case approvingly: " 'To clothe with absolute immunity communications made to a body acting in other than a quasi {Slip
Opn. Page 18} -judicial capacity -- communications which because of the absence of a hearing may often go unheard of,
let alone challenged, by their subject -- would provide an unchecked vehicle for silent but effective character assassination
. . . .' [Citation.]" (Id. at p. 1483.)
The Fenelon majority cited a number of California cases in support of its assertion that the unqualified privilege applies
solely to statements made in official proceedings in which an administrative or legislative body possesses quasi-judicial
power vested in it by statute. The cases cited, however, do not support the proposition that the privilege applies solely
when a communication is made during a hearing at which the accused person possesses procedural protections, nor do
these cases suggest that a communication intended to prompt an administrative agency to investigate wrongdoing would
not be privileged. (See Chen v. Fleming (1983) 147 Cal.App.3d 36 [privilege applied to a complaint to the State Bar
concerning an attorney]; Imig v. Ferrar (1977) 70 Cal.App.3d 48 [privilege applied to a citizen's communication seeking
an internal affairs investigation of a police officer's alleged misconduct]; Martin v. Kearney, supra, 51 Cal.App.3d 309
[privilege applied to parents' complaints to a public school principal about a teacher]; King v. Borges, supra, 28
Cal.App.3d 27 [privilege applied to a complaint to the state Division of Real Estate accusing a real estate broker of
dishonesty].)
The cases cited do not suggest that, to be privileged, the communication must have been made at the time of a quasijudicial hearing at which the accused person had an opportunity to be heard. Indeed, they conclude otherwise. In King v.
Borges, supra, 28 Cal.App.3d 27, for example, the court acknowledged that a request that an agency conduct an
investigation into wrongdoing is not a part of the formal pleadings in an administrative action. It pointed out, however, that
the privilege that is applicable to "judicial proceedings" is not limited to formal {Slip Opn. Page 19} pleadings or
statements made in open court. To ensure open channels of communication to governmental agencies, the court applied a
similarly broad reading to the "official proceeding" privilege, concluding that it encompassed "a communication to an
official administrative agency . . . designed to prompt action by that agency ." (Id. at pp. 32-34.) In sum, the cases cited by
the Fenelon court applied the privilege to communications requesting agency investigation of possible wrongdoing -- an
investigation that, like a police investigation, might never result in any further official action at all or that, like a police
investigation, might result in a decision to charge the accused person with some kind of wrongdoing. fn. 3
We are not persuaded by the majority's analysis in Fenelon, supra, 223 Cal.App.3d 1476. As Justice Benke pointed out in
her dissent in Fenelon, prior case law establishes that the critical question is the aim of the communication, not the forum
in which it takes place. If the communication is made "in anticipation of or [is] designed to prompt official proceedings,
the communication is protected." (Id. at p. 1485 (dis. opn. of Benke, J.).) Further, as Justice Benke explained, the narrow
approach taken by the Fenelon majority to what constitutes an "official proceeding" is contrary to settled authority. (Id. at
pp. 1485-1486.) The Fenelon majority's analysis certainly depended upon a much narrower view of the scope {Slip Opn.
Page 20} and duration of the privilege in judicial proceedings than we have adopted in recent years. It is well settled that
communications may be privileged even when they occur outside any hearing or proceeding at which procedural
protections apply. In other words, the judicial proceeding privilege may apply to statements made "outside the courtroom
[when] no function of the court or its officers is involved." (Silberg, supra, 50 Cal.3d at p. 212; see also Rubin v. Green,
supra, 4 Cal.4th at pp. 1194-1195; PG&E v. Bear Stearns, supra, 50 Cal.3d at pp. 1132-1133, 1137; Slaughter v. Friedman,
supra, 32 Cal.3d at p. 156.)
Although the Fenelon majority pointed to the procedural protections that apply in judicial proceedings or in quasi-judicial
administrative enforcement proceedings, it did not explain the many decisions that extend the privilege to communications
requesting the initiation of investigation that might lead to such proceedings. As these decisions recognize, statements
made in preparation for or to prompt investigation that may result in the initiation of such proceedings fall within the
privilege. It is not required that the statement be made during the proceeding itself. A statement to the police that is
designed to prompt investigation of crime is not different, in this respect, from statements designed to prompt investigation
into the tax exempt status of a hospital, the failure of an entity to honor a contractual obligation to a charitable trust, the
failure of a real estate broker to release funds from escrow, the complaint of a physician that another physician performed
unnecessary surgery, or the many other examples noted above of complaints intended to elicit administrative action.
Although the administrative action itself, like a criminal trial should one ensue, offers procedural protections to the
accused person, there is no basis for concluding that similar protections must be in place at the moment an accusation or
complaint is made in order for the privilege to apply. {Slip Opn. Page 21}
As for the Fenelon majority's reliance upon the procedural protections offered once quasi-judicial administrative
proceedings commence, as explained by the federal district court in Johnson, supra, 58 F.Supp.2d 1107, when it rejected
the Fenelon majority's analysis, "[t]he relevant forum . . . for determining the truth of a police report is a criminal trial,
whose safeguards go beyond those employed in any quasi-judicial proceeding." (Id. at p. 1113.) Finally, the evident fear of
the Fenelon majority that citizens commonly may manipulate law enforcement personnel and use them as tools in private
vendettas seems overstated and exhibits an unwarranted assumption of gullibility on the part of law enforcement personnel
and a misplaced lack of confidence in the constitutional and legal process that constrains their exercise of authority.
As noted, subsequent decisions have declined to follow the majority's conclusion in Fenelon, supra, 223 Cal.App.3d 1476.
(See Beroiz v. Wahl, supra, 84 Cal.App.4th at pp. 495-496; Braun v. Chronicle Publishing Co., supra, 52 Cal.App.4th at
pp. 1051-1052; Fremont Comp. Ins. Co. v. Superior Court, supra, 44 Cal.App.4th at p. 876; Passman v. Torkan, supra, 34
Cal.App.4th at pp. 618-619; Hunsucker v. Sunnyvale Hilton Inn, supra, 23 Cal.App.4th at pp. 1502-1504; Johnson, supra,
58 F.Supp.2d at pp. 1111-1112.) fn. 4 {Slip Opn. Page 22}
In the years following the decision in Williams, supra, 129 Cal.App.3d 745, and the developing weight of authority
adhering to its holding and applying the section 47(b) privilege to various communications intended to instigate official
investigation into wrongdoing, the Legislature has amended section 47(b) without indicating disapproval of those cases.
(See Moore v. Conliffe (1994) 7 Cal.4th 634, 648 [relying upon legislative acquiescence with respect to a claim
concerning the application of the section 47(b) privilege to arbitration proceedings].) fn. 5
Furthermore, support for our conclusion that communications are privileged under section 47(b) when they are intended to
instigate official governmental investigation into wrongdoing, including police investigation, also can be found in a statute
that establishes an exception that would be unnecessary under the interpretation offered by plaintiff and the Fenelon
majority. Section 47.5, enacted the same year that Williams, supra, 129 Cal.App.3d 745, was decided, creates a limited
exception to section 47(b) that authorizes a defamation action in certain restricted circumstances. It provides that
"[n]otwithstanding section 47, a peace officer may bring an action for defamation against an individual who has filed a
complaint with that officer's employing agency alleging misconduct, criminal conduct, or incompetence, if that complaint
is false, the complaint was made with knowledge that it was false and that it was made with spite, hatred, or ill will." {Slip
Opn. Page 23} (§ 47.5) Although courts have debated constitutional issues presented by section 47.5 (see People v.
Stanistreet (2002) 29 Cal.4th 497, 512 [noting constitutional debate but declining to resolve it]), they have agreed that the
statute constitutes an exception to the general rule that "[a] communication to an official agency which is designed to
prompt action is considered a part of an official proceeding for purposes of Civil Code section 47." (Walker v. Kiousis
(2001) 93 Cal.App.4th 1432, 1439-1440; see also Loshonkohl v. Kinder (2003) 109 Cal.App.4th 510, 514.) Because it is
understood that the privilege established by section 47(b) should be given an expansive reach, section 47.5 has been
construed narrowly. Actions other than for defamation (and the previously excepted action for malicious prosecution),
even if they are based upon knowingly false complaints against a peace officer, do not fall within this exception. (Shaddox
v. Bertani (2003) 110 Cal.App.4th 1406, 1415, & fn. 12.) Section 47.5 unquestionably supports the conclusion that the
privilege established by section 47(b) applies, in general, to a "communication to an official agency which is designed to
prompt action" (Walker v. Kiousis, supra, 93 Cal.App.4th at pp. 1439-1440), including a communication to the police that
is intended to trigger an investigation into possible criminal activity. fn. 6 {Slip Opn. Page 24}
It has been urged that the enactment of Penal Code section 148.5, imposing a criminal penalty upon any person who
knowingly gives a false report of a crime to any law enforcement officer or district attorney, indicates the Legislature's
belief that false reports to the police should not be protected by an absolute {Slip Opn. Page 25} privilege. In past cases in
which we recognized an absolute privilege under section 47(b), however, we have relied upon similar criminal sanctions in
support of our expansive view of the privilege in civil actions. In Silberg, supra, 50 Cal.3d 205, for example, we pointed
out that although the absolute privilege almost entirely removes civil litigation as a deterrent against false or malicious
communications, "in a good many cases of injurious communications, other remedies aside from a derivative suit for
compensation will exist and may help deter injurious publication during litigation. Examples of these remedies include
criminal prosecution for perjury . . . or subornation of perjury . . . ." (Id. at pp. 218-219.)
Concern that Penal Code section 148.5 provides an inadequate bulwark against false and malicious communications to the
police seems overstated. We note the absence of any indication that such malicious communications present a widespread
problem. As prior cases have stressed in interpreting section 47(b), the broad application of the privilege serves the
important public interest of securing open channels of communication between citizens and law enforcement personnel
and other public officials charged with investigating and remedying wrongdoing.
In support of her claim that Cal Fed's communication with the police in the present case was not subject to the absolute
privilege of section 47(b), plaintiff directs our attention to early cases discussing the tort of false imprisonment.
That tort and the crime of false imprisonment are defined in the same way. (Fermino v. Fedco, Inc. (1994) 7 Cal.4th 701,
715.) fn. 7 We have explained that " '[t]he tort of false imprisonment is the nonconsensual, intentional confinement of
{Slip Opn. Page 26} a person, without lawful privilege, for an appreciable length of time . . . .' [Citation.] A person is
falsely imprisoned 'if he is wrongfully deprived of his freedom to leave a particular place by the conduct of another.' "
(Molko v. Holy Spirit Assn. (1988) 46 Cal.3d 1092, 1123.)
In support of her claim that a knowingly false or malicious report to the police accusing another person of criminal activity
may give rise to civil liability, plaintiff relies on Miller v. Fano (1901) 134 Cal. 103 (Miller). In that case, defendant Place,
a San Diego police officer, received a telegram from a Los Angeles police officer directing him to arrest one Frank Kuhn,
and directing him to consult defendant Fano for further information. Fano was a man who traded in railroad tickets. After
learning that a ticket he had bought from Kuhn was forged, Fano tentatively identified Miller to Place, the police officer,
as the man who had sold him the questioned ticket. Place arrested Miller without a warrant, believing him to be Kuhn.
Miller later was released and secured a judgment against Place and Fano.
In our decision in Miller, supra, 134 Cal. 103, we upheld a false imprisonment verdict against Place, the police officer,
concluding that he had acted "with gross carelessness" because he failed to investigate Miller's protestations that he was
not Kuhn. (Id. at p. 108.)
As for Fano's liability, we acknowledged in Miller, supra, 134 Cal. 103, that a person may be liable for false
imprisonment even if he or she did not personally confine the plaintiff, but rather aided and abetted in an unlawful
arrest by encouraging, directing, or assisting a police officer to make the unlawful arrest. We went on to conclude that
Fano had not encouraged or directed the concededly unlawful arrest of Miller, observing that it was the duty of every
citizen to cooperate with the police in their investigation of crime and to provide information to investigating officers.
Fano merely fulfilled this duty. In language relied upon {Slip Opn. Page 27} by plaintiff in the present case, we
suggested that a person would aid and abet an unlawful arrest if he or she should "willfully identify the wrong man as
being the criminal, for the purpose of having him arrested and prosecuted . . ." (id. at p. 107), but we denied that an
"honest mistake" such as appeared in the case before us could be the basis for a defendant's liability as an instigator or
aider and abettor of a false imprisonment. (Ibid.) Rather, when a person merely conveys information to the police "
'leaving it with the constable to act or not, as he thought proper . . . then the defendant will not be liable . . . .' " (Ibid.)
Plaintiff also refers us to Turner v. Mellon (1953) 41 Cal.2d 45 (Turner). In Turner, again the question was whether the
defendant was liable as one who had assisted in bringing about a police officer's unjustified arrest. Mellon, a Western
Union employee, had been robbed several times at his place of employment. He observed plaintiff Turner behaving
suspiciously outside his office, telephoned the police, and stated his suspicion that Turner was the robber. Mellon
tentatively identified Turner as such to the police. Turner was arrested, but soon was released. We noted that an individual
is not liable for false imprisonment unless he or she has " 'taken some active part in bringing about the unlawful arrest' " by
the police. There is no liability if, " 'acting in good faith,' " he or she simply furnishes information leading to an arrest. (Id.
at p. 48.) Although not confronted with a case in which bad faith was alleged, we pointed out how unjust and injurious to
the public interest it would be to impose liability for honest mistakes. We concluded that the defendant, though he had
given mistaken information leading to the arrest, had not taken an " 'active part in bringing about the unlawful arrest.' "
(Ibid.) Defendant's conduct "as a matter of law, did not amount to participation in the arrest." (Id. at p. 49.)
These cases, however, did not mention, much less analyze, the privilege established by section 47(b). They explored the
limits of the common law tort of {Slip Opn. Page 28} false imprisonment and the potential for liability as an aider and
abettor of an unlawful arrest by police officers. The cases did not consider the issue in the context of a proceeding in
which bad faith actually was alleged. The cases also did not distinguish between malicious conduct of a citizen that aided
or promoted a peace officer's unlawful arrest, which might support liability, and pure communication, which would be
protected by the statutory privilege. (See Kimmel v. Goland, supra, 51 Cal.3d at p. 211 [distinguishing injury from
"noncommunicative conduct" from injury arising from "communicative acts"].) They did not consider whether a cause of
action for false imprisonment based upon pure communication should be permitted even though a claim for defamation or
any other tort save malicious prosecution would be prohibited by section 47(b). As we often have stated, cases are not
authority for propositions not considered. (Amwest Surety Ins. Co. v. Wilson (1995) 11 Cal.4th 1243, 1268.)
Moreover, the cases predated the expansion of the privilege that began with Albertson v. Raboff, supra, 46 Cal.2d 375, and
that led to the broad interpretation established in Silberg, supra, 50 Cal.3d 205, and other cases. The early cases upon
which plaintiff relies were decided before this court explored the broad reach of the privilege established by section 47(b)
and explained that it applies not only to defamation, as earlier had been understood, but to all tort actions that seek to
impose liability based upon a covered communication, with the exception of malicious prosecution. As we have cautioned,
the privilege cannot be defeated by providing a new label for the alleged wrong. (Rubin v. Green, supra, 4 Cal.4th at p.
1203.)
As discussed above, in Silberg, supra, 50 Cal.3d 205, and later cases we explained that section 47(b) operates to bar civil
liability for any tort claim based upon a privileged communication, with the exception of malicious prosecution, whose
requirements include malice, lack of probable cause, and termination in the {Slip Opn. Page 29} plaintiff's favor. (Silberg,
supra, 50 Cal.3d at pp. 215-216; see also Rubin v. Green, supra, 4 Cal.4th at p. 1194; Kimmel v. Goland, supra, 51 Cal.3d
at p. 209.) As we explained, "[m]alicious prosecution actions are permitted because '[t]he policy of encouraging free
access to the courts . . . is outweighed by the policy of affording redress for individual wrongs when the requirements of
favorable termination, lack of probable cause, and malice are satisfied.' " (Silberg, supra, 50 Cal.3d at p. 216.) Under
plaintiff's theory, however, we would be forced to abandon this well-settled rule and add the tort of false imprisonment as
a further exception, even though proof of a termination in plaintiff's favor would not be required. Plaintiff has not supplied
an adequate justification for taking this step.
For all these reasons, the cases relied upon by plaintiff do not constitute authority for the proposition that, under the
contemporary interpretation of section 47(b), an absolute privilege does not exist, shielding a citizen's report to the police
concerning suspected criminal activity of another person. (Accord, Beroiz v. Wahl, supra, 84 Cal.App.4th at pp. 495-496,
fn. 6.)
Plaintiff also points to the decision of the Court of Appeal in DuLac v. Perma Trans Products, Inc. (1980) 103 Cal.App.3d
937, 941. In that case the Court of Appeal, reviewing the case on demurrer, determined that the plaintiff had failed to
adequately allege a cause of action for false imprisonment but, relying on the early cases noted above, the court stated that
providing false information to the police in bad faith in order to procure an arrest could form the basis for liability for false
imprisonment. This decision is based on our early cases, does not discuss section 47(b), and does not consider how its
conclusion possibly could be reconciled with our current view of the broad scope of the privilege established by {Slip
Opn. Page 30} that statute. (Accord, Beroiz v. Wahl, supra, 84 Cal.App.4th at pp. 495-496, fn. 6.) fn. 8
Plaintiff next contends that even if we conclude that section 47(b) generally provides an absolute privilege, section 47(b)
should not be interpreted to bar liability when it is alleged that a business establishment's communication to the police
concerning suspected criminal behavior was motivated by racial or ethnic prejudice and therefore constituted unlawful
discrimination by the business establishment in violation of the Unruh Civil Rights Act (§ 51 et seq.), an enactment that
provides for equal "accommodations, advantages, facilities, privileges, or services in all business establishments" without
regard to characteristics such as race, ancestry, or place of national origin. (§ 51, subd. (b).) Although plaintiff alleged in
her complaint that Cal Fed had denied her services on the basis of her race or ethnicity and that the branch where she
presented the check had an informal policy of singling out persons of certain racial or ethnic backgrounds as "inherently
suspicious," plaintiff's deposition testimony, which was introduced in connection with the summary judgment motion,
demonstrates that plaintiff's claim primarily was based on inferences plaintiff subjectively drew from her experience on the
day she was detained, inferences that appear to have been refuted by the specific evidence Cal Fed presented with regard
to its employee's telephone conversations with Smith Barney and the police, and Cal Fed's prompt efforts to end the police
intervention once the mistake had been identified. Because our review of the record raises a serious question whether the
evidence presented in support of and in opposition to the summary judgment {Slip Opn. Page 31} motion was sufficient
even to raise a triable issue of fact on the question whether Cal Fed or its employees were motivated by racial or ethnic
prejudice in their treatment of plaintiff or followed a policy of singling out persons of certain races or ethnic backgrounds
for discriminatory treatment, we have concluded that this is not an appropriate case in which to resolve the broad legal
question whether proof that a business establishment has called for police assistance (or has a policy of calling for police
assistance) based on racial or ethnic prejudice could give rise to liability under the Unruh Civil Rights Act notwithstanding
the provisions of section 47(b). (See Cal. Rules of Court, rule 29(b)(3) [on review, this court "need not decide every issue
the parties raise or the court specifies"].)
Because we conclude that judgment correctly was entered in Cal Fed's favor on the basis of the privilege provided by
section 47(b), we need not reach Cal Fed's assertion that it is shielded under the immunity established by federal banking
law. (See 31 U.S.C. § 5318(g).)
III
For the foregoing reasons, the judgment of the Court of Appeal is affirmed.
Kennard, J., Chin, J., and Moreno, J., concurred. {Slip Opn. Page 1}
BROWN, J., Dissenting:
I respectfully dissent. Nothing in the statutory language of Civil Code section 47, subdivision (b) (section 47(b)) fn. 9
supports the conclusion that reports of suspected criminal activity are absolutely privileged. Rather, consideration of the
common law in California and the great weight of authority in our sister states, the Legislature's treatment of reports to
police in other statutory schemes, its {Slip Opn. Page 2} criminalization of false reports, and sound public policy all
demonstrate that reports of suspected criminal activity are only qualifiedly privileged.
Section 47(b) was enacted in 1872, and its relevant language has existed since an 1873-1874 amendment. Not until 1982,
however, was it ever applied to reports to police. (Williams v. Taylor (1982) 129 Cal.App.3d 745, 753-754 (Williams).)
For more than a century prior to Williams, the citizens of California reported crimes to police, and there is no evidence
they were hesitant to do so because of the common law rule that such reports were subject to only a qualified privilege.
(Turner v. Mellon (1953) 41 Cal.2d 45, 48 (Turner) ["citizens who have been criminally wronged may, without fear of
civil reprisal for an honest mistake, report to the police . . . the facts of the crime and in good faith" identify the
perpetrator]; Hughes v. Oreb (1951) 36 Cal.2d 854, 858-859 (Hughes) [a person is not liable for false imprisonment "if,
acting in good faith, he merely gives information to the authorities"]; Miller v. Fano (1901) 134 Cal. 103, 107 (Miller) ["it
would be a hard and unjust law that would hold a party responsible in damages for false imprisonment for an honest
mistake as to the identity of a party"]; Du Lac v. Perma Trans Products, Inc. (1980) 103 Cal.App.3d 937, 942 [defendant
may be liable for false imprisonment when he knowingly gives the police false or materially incomplete information of a
nature that could be expected to stimulate an arrest].)
Indeed, plaintiff asserts, and the majority does not dispute, that the overwhelming weight of authority in the rest of the
country is that a qualified, not absolute, privilege applies to reports to police. While the majority dismisses this authority
on the ground that cases from our sister states do not discuss statutes with language similar to that of section 47(b), the
majority does not in fact rely on the language of section 47(b) in reaching its conclusion regarding the scope of immunity
for reports to police. Rather, it relies primarily on case law interpreting {Slip Opn. Page 3} section 47(b), which in turn
relies solely on the public policy consideration that citizens need open channels of communication with the police.
Typically when construing a statute, we seek to determine the Legislature's intent. Here, the majority virtually ignores its
obligation to interpret the statute. Rather, it relies on the "slim reed" of legislative inaction (Quinn v. State of California
(1975) 15 Cal.3d 162, 175) to justify its policy preference, noting that while the Legislature has amended section 47 in
other respects following Williams, it has not abrogated that decision. fn. 10 (Maj. opn., ante, at p. 22.) That inaction tells
us nothing useful, however, since Fenelon v. Superior Court, supra, 223 Cal.App.3d 1476, which disagreed with Williams,
has also existed for 13 years without any legislative response. Moreover, while the relevant language of section 47(b) has
existed since 1874, thus predating this court's decisions in Turner, supra, 41 Cal.2d 45, Hughes, supra, 36 Cal.2d 854, and
Miller, supra, 134 Cal. 103, which the majority construes as inconsistent with section 47(b), the section has never, in all of
those decades, been amended to respond to these cases.
By failing to examine legislative intent, the majority overlooks the critical fact that the Legislature has already restricted
the open channels of communication so central to the majority's position. In other words, however much courts may desire
on public policy grounds that all reports to police be absolutely immunized, {Slip Opn. Page 4} the fact of the matter is
they are not. Rather, in at least three circumstances that arise with everyday frequency, the Legislature has determined that
reports to police must be made in good faith in order to receive immunity.
For example, Penal Code section 11172, subdivision (a) (section 11172(a)), enacted in 1980, bars civil and criminal
liability of statutorily mandated reporters of child abuse or neglect under the Child Abuse and Neglect Reporting Act.
However, section 11172(a) contemplates such liability for any other person making such a report if "it can be proven that a
false report was made and the person knew that the report was false or was made with reckless disregard of the truth or
falsity of the report, and any person who makes a report of child abuse or neglect known to be false or with reckless
disregard of the truth or falsity of the report is liable for any damages caused." Welfare and Institutions Code section
15634, subdivision (a) (section 15634(a)), enacted in 1985, or several years after Williams, contains a similar provision for
reports of elder or dependent-adult abuse. The purpose of both of these sections is to increase reporting of child, elder, and
dependent-adult abuse, crimes that depend on secrecy and the helplessness of their victims for their commission. Yet even
under these circumstances, the Legislature has deemed it appropriate to preserve only a qualified privilege for
nonmandated reports. It seems unlikely the Legislature would accord only a qualified privilege for those individuals who
may be the only voice for reporting crimes against the most vulnerable of victims, but grant absolute immunity to those
unsympathetic individuals who falsely report other types of crimes.
Moreover, we are compelled to read the statutes as a whole, and Penal Code section 11172(a) and Welfare and Institutions
Code section 15634(a) undertake to provide absolute civil immunity for reports to police by mandated reporters. If Civil
Code section 47(b) already provided absolute civil immunity for mandated {Slip Opn. Page 5} reporters of these suspected
crimes, there would be no reason for the Legislature to accord them such protection in Penal Code section 11172(a) and
Welfare and Institutions Code section 15634(a). We do not assume the Legislature engages in idle or superfluous acts. (In
re J. W. (2002) 29 Cal.4th 200, 210.)
In addition, in several other instances when the Legislature has been dissatisfied with case law interpretation of section
47(b), it has amended section 47(b) to create exceptions to its absolute immunity. Thus, for example, section 47(b)
contains exceptions for "any communication made in furtherance of an act" of spoliation of evidence and "any
communication made in a judicial proceeding knowingly concealing the existence of an insurance policy." (§ 47(b)(2),
(3).) It therefore seems likely that if section 47(b) were intended to give absolute immunity for reports to police, the
Legislature would have simply amended Civil Code section 47(b) to provide that false reports of child, elder, or
dependent-adult abuse by nonmandated reporters receive only qualified immunity, rather than creating an absolute
immunity for mandated reporters and a qualified immunity for nonmandated reporters in Penal Code section 11172(a) and
Welfare and Institutions Code section 15634(a).
The majority relies on the public policy of "open channels" of communication between citizens and police to support its
interpretation that section 47(b) grants absolute immunity to reports of suspected criminal activity to the police. (Maj.
opn., ante, at p. 26.) However, the majority's rule means that some reports to police are subject to a qualified privilege
while others, after today, are entitled to an absolute privilege. Therefore if the average citizen believed a report to the
police was always absolutely privileged, that belief would be incorrect. It is not clear how such an unpredictable standard
encourages such reports or fosters open channels of communication. {Slip Opn. Page 6}
Penal Code section 11172(a) and Welfare and Institutions Code section 15634(a) are not the only statutes of their kind.
Subdivisions (a) and (b) of Education Code section 48902 require the principal of a school, or the principal's designee, in
connection with suspending or expelling a student, to notify law enforcement of any acts of the pupil that may constitute
certain criminal activity. Subdivision (d) of Education Code section 48902 provides, "A principal, the principal's designee,
or any other person reporting a known or suspected act described in subdivision (a) or (b) is not civilly or criminally liable
as a result of making any report authorized by this article unless it can be proven that a false report was made and that the
person knew the report was false or the report was made with reckless disregard for the truth or falsity of the report."
Under the majority's interpretation, a principal, a principal's designee, or any other person reporting the alleged
commission of a crime delineated in Education Code section 48902 receives only a qualified immunity, but if any other
type of crime is reported, absolute immunity is now conferred. I am unwilling to accept that the Legislature intended such
arbitrary treatment of a school official's or other person's actions.
The language of Education Code section 48902, subdivision (d), was added in 1988, or long after Williams, supra, 129
Cal.App.3d 745. While it is conceivable the Legislature wanted to create an exception from any absolute immunity under
Civil Code section 47(b) for a school official's or other person's reports to the police that were intentionally or recklessly
false, it is more reasonable to conclude the Legislature was either creating immunity where none existed before or
modifying an existing qualified privilege to address recklessness. Moreover, unlike Penal Code section 11172(a), which
the majority dismisses as a part of a comprehensive statutory scheme, Education Code section 48902 stands alone. (Maj.
opn., ante, at p. 24, fn. 6.) As more and more such statutes appear, {Slip Opn. Page 7} the claim that Civil Code section
47(b) confers absolute immunity for reports to police becomes even more suspect. Why would the Legislature continue to
create separate statutory schemes to address immunity for reports to police if a comprehensive scheme has existed since
1874?
Nor, contrary to the majority's assertion, does Civil Code section 47.5 "unquestionably support[] the conclusion that the
privilege established by section 47(b) applies, in general, to a 'communication to an official agency which is designed to
prompt action' . . . including a communication to the police that is intended to trigger an investigation into possible
criminal activity." (Maj. opn., ante, at p. 23, fn. omitted.) Section 47.5 addresses complaints against, not to, a peace officer
that are filed with the peace officer's employing agency. Such a complaint inevitably invokes an administrative process
according the officer notice, due process, and other attendant protections not present for the average citizen when a report
of the citizen's suspected criminal activity is made to police.
Moreover, in concluding section 47(b) contains an absolute privilege for reports to police, the majority omits mention of
several significant limitations on that privilege. Thus, while section 47(b) "bars certain tort causes of action which are
predicated on a judicial statement or publication itself, the section does not create an evidentiary privilege for such
statements. Accordingly, when allegations of misconduct properly put an individual's intent at issue in a civil action,
statements made during the course of a judicial proceeding may be used for evidentiary purposes in determining whether
the individual acted with the requisite intent." (Oren Royal Oaks Venture v. Greenberg, Bernhard, Weiss & Karma, Inc.
(1986) 42 Cal.3d 1157, 1168 [section 47(b) "would not preclude [plaintiff] from making evidentiary use of defendants'
statements during negotiations to prove the intent with which defendants' conduct was undertaken"].) In addition,
"republications to nonparticipants in the action are generally not privileged under {Slip Opn. Page 8} section 47(2) [now
section 47(b)], and are thus actionable unless privileged on some other basis." (Silberg v. Anderson (1990) 50 Cal.3d 205,
219 (Silberg).) Finally, as the majority does note in passing, section 47(b) applies only to communications, not conduct.
(Maj. opn., ante, at p. 29; Kimmel v. Goland (1990) 51 Cal.3d 202, 205, 212 [act of illegally taping telephone conversation
not covered by section 47(b)].)
In addition, Penal Code section 148.5 makes it a misdemeanor to knowingly give a false report of a crime to a peace
officer, and Penal Code section 118.1 makes it a crime for a peace officer to knowingly and intentionally make a false
statement regarding a material matter in a report. Thus, unlike most of the prelitigation communications to which the
absolute immunity of Civil Code section 47(b) has been extended, false reports to police constitute a crime. The
ramifications for a false investigation and arrest can be enormous, and the Legislature clearly abhors such false reports.
In response, the majority notes that perjury is also criminally sanctioned, but because it acts as a deterrent to injurious
publications during litigation, the existence of the perjury sanction supported this court's expansive interpretation of
section 47(b) in Silberg. (Maj. opn., ante, at p. 26, citing Silberg, supra, 50 Cal.3d at pp. 218-219.) However, when perjury
occurs during a trial, the victim of that perjury enjoys many attendant protections, such as testimony under oath, vigorous
cross-examination informed by pretrial discovery, and rebuttal witnesses, that are not present with the filing of a police
report.
The majority asserts that statements reporting suspected criminal activity to police "can be the basis for tort liability . . . if
the plaintiff can establish the elements of the tort of malicious prosecution." (Maj. opn., ante, at p. 1.) Of course, this is of
no assistance to plaintiffs against whom charges are never brought, as in this case, and may be of little assistance when
charges are dropped {Slip Opn. Page 9} before trial, as in the companion case of Mulder. (Mulder v. Pilot Air Freight (Jan.
5, 2004, S105483) __ Cal.4th __, __ [plaintiff alleged defendants acted with malice in supplying information to police,
leading to his arrest and numerous court appearances prior to dismissal of charges ].) That is because dismissal of criminal
charges does not, by itself, constitute a favorable termination for the purpose of establishing malicious prosecution. (5
Witkin, Summary of Cal. Law (9th ed. 1988) Torts, §§ 421, 422, pp. 505-507; see Eells v. Rosenblum (1995) 36
Cal.App.4th 1848, 1854-1856.) Rather, malicious prosecution generally requires the victim of the false accusation to
establish that the accusation resulted in a criminal proceeding that was terminated in his favor, i.e., in a manner
inconsistent with the accused's guilt. (5 Witkin, supra, Torts, §§ 421, 422, pp. 505-507.) Moreover, the majority states that
making false imprisonment an "exception" to the absolute privilege under section 47(b) would mean that "proof of a
termination in plaintiff's favor would not be required," as it is in a malicious prosecution action. (Maj. opn., ante, at p. 30.)
At least one case has stated, however, that "[f]alse imprisonment and malicious prosecution are mutually inconsistent
torts." (Cummings v. Fire Ins. Exchange (1988) 202 Cal.App.3d 1407, 1422.)
The ramifications of an intentionally false report of suspected criminal activity to police are enormous. Citizens arrested
pursuant to such a report will be stigmatized, and forever thereafter have to note the arrest on job, credit, and housing
applications. Assertions that the charges were dropped, and of one's actual innocence, will likely fall on deaf ears. Under
the majority's conclusion today, such falsely accused individuals will have no opportunity to clear their name, or seek
compensation for economic loss in defending the charges or loss to their reputation. In the absence of clear support from
either the language or the history of section 47(b), this court should not approve absolute civil protection for such
destructive and criminal communications conduct. Rather, it should conclude {Slip Opn. Page 10} reports to police are
subject to a qualified privilege under either section 47, subdivision (c), or extant common law.
The Legislature has not hesitated to amend section 47(b) when courts have misinterpreted its provisions. I urge the
Legislature to do so here.
Baxter, J., and Werdegar, J., concurred.
­FN 1. Statutory references are to the Civil Code unless otherwise indicated.
­FN 2. The complaint also named Primerica Financial Services as a defendant, but because of a settlement entered
into between the parties, that entity was not a party to the appeal.
­FN 3. As one court explained, with reference to the many sister state decisions cited by the Fenelon majority,
"eighteen of the nineteen cases merely apply the common law privilege for good faith communication between interested
parties . . . or similar case law precedent. While the nineteenth case, [citation], did involve the application of a statutorily
created privilege, the possibility of an absolute privilege did not arise because the statute at issue explicitly applied only to
communications made in 'good faith.' [Citations.] [¶] In none of the nineteen cases was the scope of a statutory privilege
for 'official proceeding[s]' discussed." (Johnson, supra, 58 F.Supp.2d at p. 1112.)
­FN 4. One decision demonstrates confusion concerning the nature of the disagreement between Williams, supra,
129 Cal.App.3d 745, and Fenelon, supra, 223 Cal.App.3d 1476, concluding that Williams was correct in concluding that a
report to the police is privileged under section 47(b) and that Fenelon erred in concluding otherwise - but that the privilege
nonetheless should be a qualified one. (Devis v. Bank of America (1998) 65 Cal.App.4th 1002, 1007-1008.) The court in
Devis relied upon early cases concerning claims of false imprisonment, decisions that we discuss below. (Post, at pp. 2529.)
­FN 5. The dissent contends that we "rel[y] on the 'slim reed' of legislative inaction" and "virtually ignore[] . . .
[our] obligation to interpret the statute." (Dis. opn., post at p. 3.) Our interpretation of section 47(b), however, relies upon
our own broad interpretation of the statute in Silberg, supra, 50 Cal.3d 205 and later cases, upon the many decisions that
have applied the statutory privilege to communications to governmental agencies requesting that the agency investigate or
remedy wrongdoing, and upon the specific application of section 47(b) to communications with the police discussed in
Williams, supra, 129 Cal.App.3d 745 and later cases.
­FN 6. Cal Fed asserts that support for its position can be found in the Child Abuse and Neglect Reporting Act (Pen.
Code, § 11164, et seq.), which requires certain persons (and permits other persons) to report to governmental authorities
suspected instance of child abuse and specifically establishes that permissive reporters may be held liable for willfully
false reports, but that mandatory reporters are shielded by absolute immunity. (Pen. Code, § 11172, subd. (a).) Cal Fed
contends that it would have been an idle act for the Legislature to establish a qualified immunity for permissive reporters,
as it did in Penal Code section 11172, subdivision (a), if Hagberg were correct that section 47 itself establishes at most a
qualified immunity for citizen reports of criminal activity. (Accord, Johnson, supra, 58 F.Supp.2d at p. 1111.) In response,
it has been objected that the absolute privilege for mandatory reporters that the Legislature established in Penal Code
section 11172, subdivision (a) would have been unnecessary if Cal Fed were correct that section 47(b) establishes an
absolute privilege for citizen reports to the police concerning criminal activity. As evidence that our interpretation of
section 47(b) does not comport with legislative intent, the dissent also refers to a similar statutory scheme that imposes
new duties on certain persons to report instances of "physical abuse, abandonment, isolation, financial abuse, or neglect"
of an elder or dependent adult (Welf. & Inst. Code, § 15630, subd. (b)) to specified state or local agencies or to law
enforcement. The dissent indicates that the qualified privilege for permissive reporters established by these provisions
demonstrates legislative distaste for false reports to the police concerning criminal activity, as well as the Legislature's
general conclusion that "reports to police must be made in good faith in order to receive immunity." (Dis. opn., post at p.
4.) The dissent adds that there would have been no need to provide absolute immunity for mandated reporters under these
statutory schemes if the Legislature intended section 47(b) to be interpreted as the Williams decision concluded it should
be. The dissent also suggests that, if these provisions constituted an exception to a general rule of privilege, the Legislature
would have located them in section 47(b) itself, along with the other enumerated exceptions that appear there.
There is evidence that in enacting the child abuse reporting provisions, the Legislature understood that the general rule was
that reports to the police concerning criminal activity were privileged. As noted by Cal Fed and the court in Johnson,
supra, 58 F.Supp.2d at pages 1110-1111, it would have been unnecessary to provide for qualified immunity for permissive
reporters if the dissent's interpretation of section 47(b) were the correct one. Further, in 1981, while the Legislature was
considering a related measure that added section 48.7 to the Civil Code, the Legislative Counsel's digest to the bill
explained that under existing law, a person who is criminally charged with child abuse may bring a civil action for libel or
slander against "the minor, a parent or guardian of the minor, or a witness" except that "there is no liability for libel or
slander based on a privileged communication, including a communication intended to initiate or further an official
proceeding such as a criminal prosecution." (Legis. Counsel's Dig., Assem. Bill No. 42 (1981-1982 Reg. Sess.) 4 Stats.
1981, Summary Dig., pp. 73-74, italics added.)
On balance, however, it would be a mistake to rely too heavily on Penal Code section 11172 in resolving the more general
issue of the meaning and proper application of section 47(b). Penal Code section 11172 was part of a comprehensive
scheme in which the Legislature sought to increase substantially the reporting of a specific type of crime, but at the same
time to provide potential subjects of such increased reporting with explicit civil protection against malicious false reports.
(See Stecks v. Young (1995) 38 Cal.App.4th 365, 371; Storch v. Silverman (1986) 186 Cal.App.3d 671, 678-680
[describing the Legislature's attempt to increase reporting by immunizing mandated reporters, but at the same time to
prevent a vindictive spouse or neighbor from making a knowingly false report by limiting immunity for permissive
reporters].) Such an exceptional and comprehensive scheme, in which the Legislature has balanced conflicting interests,
does not reflect an attempt by the Legislature to deal generally with the subject of the potential civil liability, if any, faced
by persons who report crime to the police. It is evident that the same conclusion applies to the comprehensive scheme for
elder abuse reporting that is noted by the dissent.
The dissent also refers to Education Code section 48902, part of a chapter of the Education Code regulating pupil rights
and responsibilities and, specifically, part of an article of that code regulating suspension and expulsion procedures. The
provision in question requires school principals and their designees to report specified criminal activity on the part of
students to law enforcement authorities in connection with ordering the suspension or expulsion of a student for such
activity, and it supplies qualified civil and criminal immunity for doing so. The report required by this statute is to be made
by a supervisory public employee ¾ as an incident of the employee's official duty to discipline students. The principal who
is required to report is not thereby seeking police intervention; indeed, it appears that in most instances the report to law
enforcement will occur only subsequent to the decision to suspend or expel ¾ a decision that is the product of a formal or
informal due process hearing. Thus, the school principal's situation is quite distinct from that facing a person who seeks to
prompt police intervention or assistance, and this statute does not supply any indication of legislative intent with respect to
the application of section 47(b). Again, if the dissent were correct that section 47 supplies only a qualified privilege for
reports of criminal activity, it is difficult to understand why the Legislature found it necessary to provide for a qualified
privilege under Education Code section 48902.
­FN 7. False imprisonment consists of the unlawful violation of the personal liberty of another person; a false arrest
is merely one way in which a false imprisonment may be accomplished - the two are not separate torts. (5 Witkin,
Summary of Cal. Law (9th ed.1988) Torts, § 378, pp. 463-464.)
­FN 8. To the extent that language in Miller, supra, 134 Cal. 103, Turner, supra, 41 Cal.2d 46, and DuLac v. Perma
Trans Products, Inc., supra, 103 Cal.App.3d 937, is inconsistent with our opinion in the present case, it is disapproved.
­FN 9. Section 47(b) and (c) provide, "A privileged publication or broadcast is one made: [¶] . . . [¶] (b) In any (1)
legislative proceeding, (2) judicial proceeding, (3) in any other official proceeding authorized by law, or (4) in the
initiation or course of any other proceeding authorized by law and reviewable pursuant to Chapter 2 (commencing with
Section 1084) of Title 1 of Part 3 of the Code of Civil Procedure, except . . . [¶] (1) [in inapplicable situations involving
certain marital dissolution or legal separation proceeding allegations] . . . . [¶] (2) . . . any communication made in
furtherance of an act of intentional destruction or alteration of physical evidence undertaken for the purpose of depriving a
party to litigation of the use of that evidence, . . . [¶] (3) . . . any communication made in a judicial proceeding knowingly
concealing the existence of an insurance policy, . . . [¶] (4) . . . [or a] recorded lis pendens [which] identifies an action
previously filed with a court of competent jurisdiction which affects the title or right of possession of real property . . . . [¶]
(c) In a communication, without malice, to a person interested therein, (1) by one who is also interested, or (2) by one who
stands in such a relation to the person interested as to afford a reasonable ground for supposing the motive for the
communication to be innocent, or (3) who is requested by the person interested to give the information." (§ 47, subds.
(b)(1)-(4), (c).)
­FN 10. The majority further states that this court "cited Williams with approval in" Slaughter v. Friedman (1982)
32 Cal.3d 149, 156. (Maj. opn., ante, at p. 15.) It fails to mention, however, that a short time after the decision in Fenelon
v. Superior Court (1990) 223 Cal.App.3d 1476, we acknowledged the conflict between Fenelon and Williams but
"express[ed] no opinion on the merits of the controversy." (Lubetzky v. State Bar (1991) 54 Cal.3d 308, 317, fn. 7.) By
acknowledging that a controversy existed, we undermined any suggestion that our citation to Williams, supra, 129
Cal.App.3d 745, in Slaughter, supra, 32 Cal.3d at page 156, constituted a blanket approval of that opinion.
Case for question 6-6
GARY KREMEN, an individual, Plaintiff-Appellant, and ONLINE CLASSIFIEDS, INC., a
Delaware Company, Plaintiff, v. STEPHEN MICHAEL COHEN, an individual; OCEAN FUND
INTERNATIONAL, LTD., a foreign company; SAND MAN INTERNACIONAL LTD., a
foreign company; SPORTING HOUSES MANAGEMENT CORPORATION, a Nevada
company; SPORTING HOUSES OF AMERICA, a Nevada company; SPORTING HOUSES
GENERAL INC., a Nevada company; WILLIAM DOUGLAS, Sir, an individual; VP BANK
(BVI) LIMITED, a foreign company; ANDREW KEULS, an individual; MONTANO
PROPERTIES LLC, a California Limited Liability Company; YNATA LTD., Defendant, and
NETWORK SOLUTIONS, INC., a Delaware company, Defendant-Appellee.
No. 01-15899
UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT
337 F.3d 1024; 2003 U.S. App. LEXIS 14830; 67 U.S.P.Q.2D (BNA) 1502; 2003 Cal. Daily Op.
Service 6565
July 25, 2003, Filed
PRIOR HISTORY: Appeal from the United States District Court for the Northern District of
California. D.C. No. CV-98-20718-JW. James Ware, District Judge, Presiding. Kremen v.
Cohen, 99 F. Supp. 2d 1168, 2000 U.S. Dist. LEXIS 8476 (N.D. Cal., 2000)
DISPOSITION: AFFIRMED in part, REVERSED in part and REMANDED.
COUNSEL: James M. Wagstaffe, Kerr & Wagstaffe LLP, San Francisco, California, argued for
the appellant. Pamela Urueta and Alex K. Grab joined him on the briefs.
Kathryn E. Karcher, Gray Cary Ware & Freidenrich LLP, San Diego, California, argued for the
appellee. David Henry Dolkas and Mira A. Macias joined her on the briefs.
Professor Brian E. Gray, San Francisco, California, amicus curiae in support of the appellant.
William H. Bode, Bode & Grenier, Washington, D.C., for amicus curiae American Internet
Registrants Association in support of the appellant.
Robin D. Gross, Electronic Frontier Foundation, San Francisco, California, amicus curiae in
support of the appellant.
JUDGES: Before: Alex Kozinski and M. Margaret McKeown, Circuit Judges, and James M.
Fitzgerald, * District Judge. Opinion by Judge Kozinski.
* The Honorable James M. Fitzgerald, Senior United States District Judge for the District of
Alaska, sitting by designation.
OPINION: KOZINSKI, Circuit Judge:
We decide whether Network Solutions may be liable for giving away a registrant's domain name
on the basis of a forged letter.
Background
"Sex on the Internet?," they all said. "That'll never make any money." But computer-geekturnedentrepreneur Gary Kremen knew an opportunity when he saw it. The year was 1994;
domain names were free for the asking, and it would be several years yet before Henry Blodget
and hordes of eager NASDAQ day traders would turn the Internet into the Dutch tulip craze of
our times. With a quick e-mail to the domain name registrar Network Solutions, Kremen became
the proud owner of sex.com. He registered the name to his business, Online Classifieds, and
listed himself as the contact. n1
- - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - n1 We assume basic familiarity with the Internet. Those just tuning in should read the helpful
discussions in Kremen v. Cohen, 325 F.3d 1035, 1038-39 (9th Cir. 2003) (order certifying
question), and Thomas v. Network Solutions, Inc., 336 U.S. App. D.C. 74, 176 F.3d 500, 502-04
(D.C. Cir. 1999).
- - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - Con man Stephen Cohen, meanwhile, was doing time for impersonating a bankruptcy lawyer.
He, too, saw the potential of the domain name. Kremen had gotten it first, but that was only a
minor impediment for a man of Cohen's boundless resource and bounded integrity. Once out of
prison, he sent Network Solutions what purported to be a letter he had received from Online
Classifieds. It claimed the company had been "forced to dismiss Mr. Kremen," but "never got
around to changing our administrative contact with the internet registration [sic] and now our
Board of directors has decided to abandon the domain name sex.com." Why was this unusual
letter being sent via Cohen rather than to Network Solutions directly? It explained:
Because we do not have a direct connection to the internet, we request that you notify the
internet registration on our behalf, to delete our domain name sex.com. Further, we have no
objections to your use of the domain name sex.com and this letter shall serve as our
authorization to the internet registration to transfer sex.com to your corporation. n2
Despite the letter's transparent claim that a company called "Online Classifieds" had no Internet
connection, Network Solutions made no effort to contact Kremen. Instead, it accepted the letter
at face value and transferred the domain name to Cohen. When Kremen contacted Network
Solutions some time later, he was told it was too late to undo the transfer. Cohen went on to turn
sex.com into a lucrative online porn empire.
- - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - n2 The letter was signed "Sharon Dimmick," purported president of Online Classifieds. Dimmick
was actually Kremen's housemate at the time; Cohen later claimed she sold him the domain
name for $ 1000. This story might have worked a little better if Cohen hadn't misspelled her
signature.
- - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - And so began Kremen's quest to recover the domain name that was rightfully his. He sued Cohen
and several affiliated companies in federal court, seeking return of the domain name and
disgorgement of Cohen's profits. The district court found that the letter was indeed a forgery and
ordered the domain name returned to Kremen. It also told Cohen to hand over his profits,
invoking the constructive trust doctrine and California's "unfair competition" statute, Cal. Bus. &
Prof. Code § 17200 et seq. It awarded $ 40 million in compensatory damages and another $ 25
million in punitive damages. n3
- - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - n3 We dismissed Cohen's appeal in an unpublished memorandum disposition. See Kremen v.
Cohen, 45 Fed. Appx. 746, 2002 WL 2017073 (9th Cir. 2002).
- - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - Kremen, unfortunately, has not had much luck collecting his judgment. The district court froze
Cohen's assets, but Cohen ignored the order and wired large sums of money to offshore accounts.
His real estate property, under the protection of a federal receiver, was stripped of all its fixtures- even cabinet doors and toilets -- in violation of another order. The court commanded Cohen to
appear and show cause why he shouldn't be held in contempt, but he ignored that order, too. The
district judge finally took off the gloves -- he declared Cohen a fugitive from justice, signed an
arrest warrant and sent the U.S. Marshals after him.
Then things started getting really bizarre. Kremen put up a "wanted" poster on the sex.com site
with a mug shot of Cohen, offering a $ 50,000 reward to anyone who brought him to justice.
Cohen's lawyers responded with a motion to vacate the arrest warrant. They reported that Cohen
was under house arrest in Mexico and that gunfights between Mexican authorities and would-be
bounty hunters seeking Kremen's reward money posed a threat to human life. The district court
rejected this story as "implausible" and denied the motion. Cohen, so far as the record shows,
remains at large.
Given his limited success with the bounty hunter approach, it should come as no surprise that
Kremen seeks to hold someone else responsible for his losses. That someone is Net-work
Solutions, the exclusive domain name registrar at the time of Cohen's antics. Kremen sued it for
mishandling his domain name, invoking four theories at issue here. He argues that he had an
implied contract with Network Solutions, which it breached by giving the domain name to
Cohen. He also claims the transfer violated Network Solutions's cooperative agreement with the
National Science Foundation -- the government contract that made Network Solutions the .com
registrar. His third theory is that he has a property right in the domain name sex.com, and
Network Solutions committed the tort of conversion by giving it away to Cohen. Finally, he
argues that Network Solutions was a "bailee" of his domain name and seeks to hold it liable for
"conversion by bailee."
The district court granted summary judgment in favor of Network Solutions on all claims.
Kremen v. Cohen, 99 F. Supp. 2d 1168 (N.D. Cal. 2000). It held that Kremen had no implied
contract with Network Solutions because there was no consideration: Kremen had registered the
domain name for free. Id. at 1171-72. It rejected the third-party contract claim on the ground that
the cooperative agreement did not indicate a clear intent to grant enforceable contract rights to
registrants. Id. at 1172.
The conversion claims fared no better. The court agreed that sex.com was Kremen's property. It
concluded, though, that it was intangible property to which the tort of conversion does not apply.
Id. at 1173. The conversion by bailee claim failed for the additional reason that Network
Solutions was not a bailee. Id. at 1175.
Kremen appeals, and we consider each of his four theories in turn.
Breach of Contract
Kremen had no express contract with Network Solutions, but argues that his registration created
an implied contract, which Network Solutions breached. A defendant is normally not liable for
breach of contract, however, if he promised to do something for free. The party claiming breach
must show that, in return for the promise, it conferred some benefit the other party was not
already entitled to receive, or suffered some prejudice it was not already bound to endure. Cal.
Civ. Code § 1605. n4 The adequacy of consideration doesn't matter, but it must be "something of
real value." Herbert v. Lankershim, 9 Cal.2d 409, 475, 71 P.2d 220 (1937) (internal quotation
marks omitted).
- - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - n4 Neither party argued choice of law, so we apply California law throughout. See McGhee v.
Arabian Am. Oil Co., 871 F.2d 1412, 1424 (9th Cir. 1989).
- - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - Kremen did not pay Network Solutions or exchange some other property in return for his domain
name. Nor did his registration increase the amount of money Network Solutions received from
the National Science Foundation; under the cooperative agreement, Network Solutions was paid
on a fixed-fee basis. The cooperative agreement did contemplate that Network Solutions might
one day charge fees. Kremen seizes on this fact and claims he conferred a benefit on Network
Solutions by becoming a customer "at a time when [it] was eager to expand its customer base."
The problem with this theory is that Kremen was a nonpaying customer, so his status as a
registrant was valuable only because of the possibility he might stick around if Network
Solutions started charging fees. Kremen was under no obligation to do so. He was in the same
position as one who promises to do something but reserves the right to change his mind. See,
e.g., County of Alameda v. Ross, 32 Cal. App. 2d 135, 143-44, 89 P.2d 460 (1939); 1 Witkin
Contracts § 234. He might have become a paying customer or he might not; the choice was up to
him once Network Solutions started charging fees. As many Internet investors found out the hard
way, "mere . . . hope of profit is not consideration." Williams v. Hasshagen, 166 Cal. 386, 390,
137 P. 9 (1913).
Kremen argues that he gave Network Solutions valuable marketing data by submitting his
contact information when he registered the domain name. But there is no evidence that Network
Solutions sought the data as part of its benefit of the bargain. See Bard v. Kent, 19 Cal.2d 449,
452, 122 P.2d 8 (1942). It collected only information reasonably necessary to complete the
registration process. Any marketing value it had was an incidental consequence of the process.
This is not a case where a party's actions can only be explained as a gimmick to collect customer
information; Network Solutions was giving away domain names because the National Science
Foundation was paying it to do so. Knowledge of the recipient's identity is a nearly inevitable
consequence of any gift. Absent evidence it was actually something the donor bargained for, it is
not consideration.
Kremen did not give consideration for his domain name, so he had no contract with Network
Solutions. Cf. Oppedahl & Larson v. Network Solutions, Inc., 3 F. Supp. 2d 1147, 1160-61 (D.
Colo. 1998).
Breach of Third-Party Contract
We likewise reject Kremen's argument based on Net-work Solutions's cooperative agreement
with the National Science Foundation. A party can enforce a third-party contract only if it
reflects an "express or implied intention of the parties to the contract to benefit the third party."
Klamath Water Users Protective Ass'n v. Patterson, 204 F.3d 1206, 1211 (9th Cir. 1999). "The
intended beneficiary need not be specifically or individually identified in the contract, but must
fall within a class clearly intended by the parties to benefit from the contract." Id. When a
contract is with a government entity, a more stringent test applies: "Parties that benefit . . . are
generally assumed to be incidental beneficiaries, and may not enforce the contract absent a clear
intent to the contrary." Id. The contract must establish not only an intent to confer a benefit, but
also "an intention . . . to grant [the third party] enforceable rights." Id.
Kremen relies on language in the agreement providing that Network Solutions had "primary
responsibility for ensuring the quality, timeliness and effective management of [domain name]
registration services" and that it was supposed to "facilitate the most effective, efficient and
ubiquitous registration services possible." This language does not indicate a clear intent to grant
registrants enforceable contract rights. We accordingly reject Kremen's claim. Cf. Oppedahl &
Larson, 3 F. Supp. 2d at 1157-59.
Conversion
Kremen's conversion claim is another matter. To establish that tort, a plaintiff must show
"ownership or right to possession of property, wrongful disposition of the property right and
damages." G.S. Rasmussen & Assocs., Inc. v. Kalitta Flying Serv., Inc., 958 F.2d 896, 906 (9th
Cir. 1992). The preliminary question, then, is whether registrants have property rights in their
domain names. Network Solutions all but concedes that they do. This is no surprise, given its
positions in prior litigation. See Network Solutions, Inc. v. Umbro Int'l, Inc., 259 Va. 759, 529
S.E.2d 80, 86 (Va. 2000) ("[Network Solutions] acknowledged during oral argument before this
Court that the right to use a domain name is a form of intangible personal property."); Network
Solutions, Inc. v. Clue Computing, Inc., 946 F. Supp. 858, 860 (D. Colo. 1996) (same). n5 The
district court agreed with the parties on this issue, as do we.
- - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - n5 Network Solutions does suggest in passing that we should distinguish domain names
supported by contracts from those (like Kremen's) that are not. It also stresses that Kremen didn't
develop the sex.com site before Cohen stole it. But this focus on the particular domain name at
issue is misguided. The question is not whether Kremen's domain name in isolation is property,
but whether domain names as a class are a species of property.
- - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - Property is a broad concept that includes "every intangible benefit and prerogative susceptible of
possession or disposition." Downing v. Mun. Court, 88 Cal. App. 2d 345, 350, 198 P.2d 923
(1948) (internal quotation marks omitted). We apply a three-part test to determine whether a
property right exists: "First, there must be an interest capable of precise definition; second, it
must be capable of exclusive possession or control; and third, the putative owner must have
established a legitimate claim to exclusivity." G.S. Rasmussen, 958 F.2d at 903 (footnote
omitted). Domain names satisfy each criterion. Like a share of corporate stock or a plot of land, a
domain name is a well-defined interest. Someone who registers a domain name decides where on
the Internet those who invoke that particular name -- whether by typing it into their web
browsers, by following a hyperlink, or by other means -- are sent. Ownership is exclusive in that
the registrant alone makes that decision. Moreover, like other forms of property, domain names
are valued, bought and sold, often for millions of dollars, see Greg Johnson, The Costly Game
for Net Names, L.A. Times, Apr. 10, 2000, at A1, and they are now even subject to in rem
jurisdiction, see 15 U.S.C. § 1125(d)(2).
Finally, registrants have a legitimate claim to exclusivity. Registering a domain name is like
staking a claim to a plot of land at the title office. It informs others that the domain name is the
registrant's and no one else's. Many registrants also invest substantial time and money to develop
and promote websites that depend on their domain names. Ensuring that they reap the benefits of
their investments reduces uncertainty and thus encourages investment in the first place,
promoting the growth of the Internet overall. See G.S. Rasmussen, 958 F.2d at 900.
Kremen therefore had an intangible property right in his domain name, and a jury could find that
Network Solutions "wrongfully disposed of" that right to his detriment by handing the domain
name over to Cohen. Id. at 906. The district court nevertheless rejected Kremen's conversion
claim. It held that domain names, although a form of property, are intangibles not subject to
conversion. This rationale derives from a distinction tort law once drew between tangible and
intangible property: Conversion was originally a remedy for the wrongful taking of another's lost
goods, so it applied only to tangible property. See Prosser and Keeton on the Law of Torts § 15,
at 89, 91 (W. Page Keeton ed., 5th ed. 1984). Virtually every jurisdiction, however, has
discarded this rigid limitation to some degree. See id. at 91. Many courts ignore or expressly
reject it. See Kremen, 325 F.3d at 1045-46 n.5 (Kozinski, J., dissenting) (citing cases);
Astroworks, Inc. v. Astroexhibit, Inc., 257 F. Supp. 2d 609, 618 (S.D.N.Y. 2003) (holding that
the plaintiff could maintain a claim for conversion of his website); Val D. Ricks, The Conversion
of Intangible Property: Bursting the Ancient Trover Bottle with New Wine, 1991 B.Y.U. L. Rev.
1681, 1682. Others reject it for some intangibles but not others. The Restatement, for example,
recommends the following test:
(1) Where there is conversion of a document in which intangible rights are merged, the damages
include the value of such rights.
(2) One who effectively prevents the exercise of intangible rights of the kind customarily merged
in a document is subject to a liability similar to that for conversion, even though the document is
not itself converted.
Restatement (Second) of Torts § 242 (1965) (emphasis added). An intangible is "merged" in a
document when, "by the appropriate rule of law, the right to the immediate possession of a
chattel and the power to acquire such possession is represented by [the] document," or when "an
intangible obligation [is] represented by [the] document, which is regarded as equivalent to the
obligation." Id. cmt. a (emphasis added). n6 The district court applied this test and found no
evidence that Kremen's domain name was merged in a document.
- - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - -
n6 The Restatement does note that conversion "has been applied by some courts in cases where
the converted document is not in itself a symbol of the rights in question, but is merely essential
to their protection and enforcement, as in the case of account books and receipts." Id. cmt. b.
- - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - The court assumed that California follows the Restatement on this issue. Our review, however,
revealed that "there do not appear to be any California cases squarely addressing whether the
'merged with' requirement is a part of California law." Kremen, 325 F.3d at 1042. We invoked
the California Supreme Court's certification procedure to offer it the opportunity to address the
issue. Id. at 1043; Cal. Rules of Court 29.8. The Court declined, Kremen v. Cohen, 2003 Cal.
LEXIS 1342, No. S112591 (Cal. Feb. 25, 2003), and the question now falls to us.
We conclude that California does not follow the Restatement's strict merger requirement. Indeed,
the leading California Supreme Court case rejects the tangibility requirement altogether. In
Payne v. Elliot, 54 Cal. 339 (1880), the Court considered whether shares in a corporation (as
opposed to the share certificates themselves) could be converted. It held that they could,
reasoning: "The action no longer exists as it did at common law, but has been developed into a
remedy for the conversion of every species of personal property." Id. at 341 (emphasis added).
While Payne's outcome might be reconcilable with the Restatement, its rationale certainly is not:
It recognized conversion of shares, not because they are customarily represented by share
certificates, but because they are a species of personal property and, perforce, protected. Id. at
342. n7
- - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - n7 Intangible interests in real property, on the other hand, remain unprotected by conversion,
presumably because trespass is an adequate remedy. See Goldschmidt v. Maier, 7 Cal. Unrep.
162, 73 P. 984, 985 (Cal. 1903) (per curiam) ("[A] leasehold of real estate is not the subject of an
action of trover."); Vuich v. Smith, 140 Cal. App. 453, 455, 35 P.2d 365 (1934) (same). Some
California cases also preserve the traditional exception for indefinite sums of money. See 5
Witkin Torts § 614.
- - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - Notwithstanding Payne's seemingly clear holding, the California Court of Appeal held in
Olschewski v. Hudson, 87 Cal. App. 282, 262 P. 43 (1927), that a laundry route was not subject
to conversion. It explained that Payne's rationale was "too broad a statement as to the application
of the doctrine of conversion." Id. at 288. Rather than follow binding California Supreme Court
precedent, the court retheorized Payne and held that corporate stock could be converted only
because it was "represented by" a tangible document. Id.; see also Adkins v. Model Laundry Co.,
92 Cal. App. 575, 583, 268 P. 939 (1928) (relying on Olschewski and holding that no property
right inhered in "the intangible interest of an exclusive privilege to collect laundry").
Were Olschewski the only relevant case on the books, there might be a plausible argument that
California follows the Restatement. But in Palm Springs-La Quinta Development Co. v. Kieberk
Corp., 46 Cal. App. 2d 234, 115 P.2d 548 (1941), the court of appeal allowed a conversion claim
for intangible information in a customer list when some of the index cards on which the
information was recorded were destroyed. The court allowed damages not just for the value of
the cards, but for the value of the intangible information lost. See id. at 239. Section 242(1) of
the Restatement, however, allows recovery for intangibles only if they are merged in the
converted document. Customer information is not merged in a document in any meaningful
sense. A Rolodex is not like a stock certificate that actually represents a property interest; it is
only a means of recording information.
Palm Springs and Olschewski are reconcilable on their facts --the former involved conversion of
the document itself while the latter did not. But this distinction can't be squared with the
Restatement. The plaintiff in Palm Springs recovered damages for the value of his intangibles.
But if those intangibles were merged in the index cards for purposes of section 242(1), the
plaintiffs in Olschewski and Adkins should have recovered under section 242(2)--laundry routes
surely are customarily written down somewhere. "Merged" can't mean one thing in one section
and something else in the other.
California courts ignored the Restatement again in A & M Records, Inc. v. Heilman, 75 Cal.
App. 3d 554, 142 Cal. Rptr. 390 (1977), which applied the tort to a defendant who sold
bootlegged copies of musical recordings. The court held broadly that "such misappropriation and
sale of the intangible property of another without authority from the owner is conversion." Id. at
570. It gave no hint that its holding depended on whether the owner's intellectual property rights
were merged in some document. One might imagine physical things with which the intangible
was associated -- for example, the medium on which the song was recorded. But an intangible
intellectual property right in a song is not merged in a phonograph record in the sense that the
record represents the composer's intellectual property right. The record is not like a certificate of
ownership; it is only a medium for one instantiation of the artistic work. n8
- - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - n8 The California Court of Appeal addressed the issue most recently in Thrifty-Tel, Inc. v.
Bezenek, 46 Cal. App. 4th 1559, 54 Cal. Rptr. 2d 468 (1996), which noted that courts had
"traditionally" refused to acknowledge conversion of intangibles "not merged with, or reflected
in, something tangible." Id. at 1565 (citing Olschewski and Adkins). The court declined to decide
whether that limitation was still good law and resolved the case on other grounds. See id. at
1565-66.
- - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - Federal cases applying California law take an equally broad view. We have applied A & M
Records to intellectual property rights in an audio broadcast, see Lone Ranger Television, Inc. v.
Program Radio Corp., 740 F.2d 718, 725 (9th Cir. 1984), and to a regulatory filing, see G.S.
Rasmussen, 958 F.2d at 906-07. Like A & M Records, both decisions defy the Restatement's
"merged in a document" test. An audio broad-cast may be recorded on a tape and a regulatory
submission may be typed on a piece of paper, but neither document represents the owner's
intangible interest.
The Seventh Circuit interpreted California law in FMC Corp. v. Capital Cities/ABC, Inc., 915
F.2d 300 (7th Cir. 1990). Observing that "'there is perhaps no very valid and essential reason
why there might not be conversion' of intangible property," id. at 305 (quoting Prosser & Keeton,
supra, § 15, at 92), it held that a defendant could be liable merely for depriving the plaintiff of
the use of his confidential information, id. at 304. In rejecting the tangibility requirement, FMC
echoes Payne's holding that personal property of any species may be converted. And it flouts the
Restatement because the intangible property right in confidential information is not represented
by the documents on which the information happens to be recorded.
Our own recent decision in Bancroft & Masters, Inc. v. Augusta National Inc., 223 F.3d 1082
(9th Cir. 2000), is especially relevant. That case involved a domain name -- precisely the type of
property at issue here. The primary question was personal jurisdiction, but a majority of the
panel joined the judgment only on the understanding that the defendant had committed
conversion of a domain name, which it characterized as "tortious conduct." Id. at 1089 (Sneed &
Trott, JJ., concurring); cf. Astroworks, Inc., 257 F. Supp. 2d at 618 (holding that the plaintiff
could maintain a claim for conversion of his website).
In short, California does not follow the Restatement's strict requirement that some document
must actually represent the owner's intangible property right. On the contrary, courts routinely
apply the tort to intangibles without inquiring whether they are merged in a document and, while
it's often possible to dream up some document the intangible is connected to in some fashion, it's
seldom one that represents the owner's property interest. To the extent Olschewski endorses the
strict merger rule, it is against the weight of authority. That rule cannot be squared with a
jurisprudence that recognizes conversion of music recordings, radio shows, customer lists,
regulatory filings, confidential information and even domain names. n9
- - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - n9 Witkin cites the Restatement favorably. See 5 Witkin Torts § 613. Notably, though, he points
to only three cases rejecting conversion of intangibles: Olschewski (which disavowed binding
California Supreme Court authority directly on point, see p. 10168 supra); Vuich (which
involved real estate and so was not within Payne's holding anyway, see n.7 supra); and Italiani v.
Metro-Goldwyn-Mayer Corp., 45 Cal. App. 2d 464, 114 P.2d 370 (1941) (which denied
protection to intellectual property rights and has been overtaken by later cases such as A & M
Records and Lone Ranger Television, see pp. 10169-70 supra).
- - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - Were it necessary to settle the issue once and for all, we would toe the line of Payne and hold
that conversion is "a remedy for the conversion of every species of personal property." 54 Cal. at
341. But we need not do so to resolve this case. Assuming arguendo that California retains some
vestigial merger requirement, it is clearly minimal, and at most requires only some connection to
a document or tangible object -- not representation of the owner's intangible interest in the strict
Restatement sense.
Kremen's domain name falls easily within this class of property. He argues that the relevant
document is the Domain Name System, or "DNS" -- the distributed electronic database that
associates domain names like sex.com with particular computers connected to the Internet. n10
We agree that the DNS is a document (or perhaps more accurately a collection of documents).
That it is stored in electronic form rather than on ink and paper is immaterial. See, e.g., ThriftyTel, 46 Cal. App. 4th at 1565 (recognizing conversion of information recorded on floppy disk);
A & M Records, 75 Cal. App. 3d at 570 (same for audio record); Lone Ranger Television, 740
F.2d at 725 (same for magnetic tape). It would be a curious jurisprudence that turned on the
existence of a paper document rather than an electronic one. Torching a company's file room
would then be conversion while hacking into its mainframe and deleting its data would not. That
is not the law, at least not in California. n11
- - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - n10 Network Solutions complains about the absence of specific record evidence regarding the
DNS. But whether domain names are a species of property to which conversion applies is a
question of law rather than of adjudicative fact; we may consider record evidence but need not so
restrict ourselves. See Fed. R. Evid. 201(a) advisory committee notes. Network Solutions has had
ample opportunity to contest the nature of the DNS in both its answering brief on appeal and its
response to amici. It has raised no material point of dispute.
n11 The Restatement requires intangibles to be merged only in a "document," not a tangible
document. Restatement (Second) of Torts § 242. Our holding therefore does not depend on
whether electronic records are tangible. Compare eBay, Inc. v. Bidder's Edge, Inc., 100 F. Supp.
2d 1058, 1069 (N.D. Cal. 2000) ( "It appears likely that the electronic signals sent by [Bidder's
Edge] to retrieve information from eBay's computer system are . . . sufficiently tangible to
support a trespass cause of action."), with Intel Corp. v. Hamidi, 30 Cal. 4th 1342, 1 Cal. Rptr.
3d 32, 71 P.3d 296, 2003 WL 21488209, at *11 (Cal. 2003) (implying that electronic signals are
intangible).
- - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - The DNS also bears some relation to Kremen's domain name. We need not delve too far into the
mechanics of the Internet to resolve this case. It is sufficient to observe that information
correlating Kremen's domain name with a particular computer on the Internet must exist
somewhere in some form in the DNS; if it did not, the database would not serve its intended
purpose. Change the information in the DNS, and you change the website people see when they
type "www.sex.com."
Network Solutions quibbles about the mechanics of the DNS. It points out that the data
corresponding to Kremen's domain name is not stored in a single record, but is found in several
different places: The components of the domain name ("sex" and "com") are stored in two
different places, and each is copied and stored on several machines to create redundancy and
speed up response times. Network Solutions's theory seems to be that intangibles are not subject
to conversion unless they are associated only with a single document.
Even if Network Solutions were correct that there is no single record in the DNS architecture
with which Kremen's intangible property right is associated, that is no impediment under
California law. A share of stock, for example, may be evidenced by more than one document.
See Payne, 54 Cal. at 342 ( "The certificate is only evidence of the property; and it is not the only
evidence, for a transfer on the books of the corporation, without the issuance of a certificate,
vests title in the shareholder: the certificate is, therefore, but additional evidence of title . . . .");
see also Phansalkar v. Andersen Weinroth & Co., 175 F. Supp. 2d 635, 640-42 (S.D.N.Y. 2001)
(citing Payne). A customer list is protected, even if it's recorded on index cards rather than a
single piece of paper. See Palm Springs, 46 Cal. App. 2d 234, 115 P.2d 548. Audio recordings
may be duplicated, see A & M Records, 75 Cal. App. 3d 554, 142 Cal. Rptr. 390; Lone Ranger
Television, 740 F.2d 718, and confidential information and regulatory filings may be
photocopied, see FMC, 915 F.2d 300; G.S. Rasmussen, 958 F.2d 896. Network Solutions's
"single document" theory is unsupported.
Network Solutions also argues that the DNS is not a document because it is refreshed every
twelve hours when updated domain name information is broadcast across the Internet. This
theory is even less persuasive. A document doesn't cease being a document merely because it is
often updated. If that were the case, a share registry would fail whenever shareholders were
periodically added or dropped, as would an address file whenever business cards were added or
removed. Whether a document is updated by inserting and deleting particular records or by
replacing an old file with an entirely new one is a technical detail with no legal significance.
Kremen's domain name is protected by California conversion law, even on the grudging reading
we have given it. Exposing Network Solutions to liability when it gives away a registrant's
domain name on the basis of a forged letter is no different from holding a corporation liable
when it gives away someone's shares under the same circumstances. See Schneider v. Union Oil
Co., 6 Cal. App. 3d 987, 992, 86 Cal. Rptr. 315 (1970); Ralston v. Bank of Cal., 112 Cal. 208,
213, 44 P. 476 (1896). We have not "created new tort duties" in reaching this result. Cf. Moore v.
Regents of the Univ. of Cal., 51 Cal.3d 120, 146, 271 Cal. Rptr. 146, 793 P.2d 479 (1990). We
have only applied settled principles of conversion law to what the parties and the district court all
agree is a species of property.
The district court supported its contrary holding with several policy rationales, but none is sufficient grounds to depart
from the common law rule. The court was reluctant to apply the tort of conversion because of its strict liability nature. This
concern rings somewhat hollow in this case because the district court effectively exempted Network Solutions from
liability to Kremen altogether, whether or not it was negligent. Network Solutions made no effort to contact Kremen
before giving away his domain name, despite receiving a facially suspect letter from a third party. A jury would be
justified in finding it was unreasonably careless.
We must, of course, take the broader view, but there is nothing unfair about holding a company
responsible for giving away someone else's property even if it was not at fault. Cohen is
obviously the guilty party here, and the one who should in all fairness pay for his theft. But he's
skipped the country, and his money is stashed in some offshore bank account. Unless Kremen's
luck with his bounty hunters improves, Cohen is out of the picture. The question becomes
whether Network Solutions should be open to liability for its decision to hand over Kremen's
domain name. Negligent or not, it was Network Solutions that gave away Kremen's property.
Kremen never did anything. It would not be unfair to hold Network Solutions responsible and
force it to try to recoup its losses by chasing down Cohen. This, at any rate, is the logic of the
common law, and we do not lightly discard it.
The district court was worried that "the threat of litigation threatens to stifle the registration
system by requiring further regulations by [Network Solutions] and potential increases in fees."
Kremen, 99 F. Supp. 2d at 1174. Given that Network Solutions's "regulations" evidently allowed
it to hand over a registrant's domain name on the basis of a facially suspect letter without even
contacting him, "further regulations" don't seem like such a bad idea. And the prospect of higher
fees presents no issue here that it doesn't in any other context. A bank could lower its ATM fees
if it didn't have to pay security guards, but we doubt most depositors would think that was a good
idea.
The district court thought there were "methods better suited to regulate the vagaries of domain
names" and left it "to the legislature to fashion an appropriate statutory scheme." Id. The
legislature, of course, is always free (within constitutional bounds) to refashion the system that
courts come up with. But that doesn't mean we should throw up our hands and let private
relations degenerate into a free-for-all in the meantime. We apply the common law until the
legislature tells us other-wise. And the common law does not stand idle while people give away
the property of others.
The evidence supported a claim for conversion, and the district court should not have rejected it.
Conversion by Bailee
Kremen's complaint finally alleges a separate claim for "conversion by bailee." The district court
granted summary judgment, holding that Network Solutions was not a bailee of Kremen's
property.
We need not decide the issue because Kremen's "conversion by bailee" claim does not state a
cause of action independent of his conversion claim. As we read California law, "conversion by
bailee" is not a distinct tort, but merely the tort of conversion committed by one who is a bailee.
See, e.g., Byer v. Can. Bank of Commerce, 8 Cal.2d 297, 300-01, 65 P.2d 67 (1937); Gonzales
v. Pers. Storage, Inc., 56 Cal. App. 4th 464, 476-77, 65 Cal. Rptr. 2d 473 (1997); 4 Witkin
Personal Property § 138; 5 Witkin Torts § 622. Kremen's complaint does not allege any claim of
bailee liability other than conversion. Cf., e.g., Windeler v. Scheers Jewelers, 8 Cal. App. 3d 844,
850-52, 88 Cal. Rptr. 39 (1970) (negligent breach of the bailment contract). To prove
"conversion by bailee," Kremen must establish all the elements of conversion but, having done
so, he gains nothing by also showing that Network Solutions is a bailee.
***
Kremen had a viable claim for conversion. The judgment of the district court is reversed on this
count, and the case is remanded for further proceedings.
AFFIRMED in part, REVERSED in part and REMANDED. No costs.
Case for question 6-5
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF IOWA
WESTERN DIVISION AMERICA ONLINE, INC.,
No. C98-4111-PAZ
Plaintiff,
vs.
ORDER ON MOTION
FOR SUMMARY JUDGMENT
NATIONAL HEALTH CARE DISCOUNT,
INCORPORATED,
Defendant.
I. INTRODUCTION
This case is before the court on the motion of the plaintiff America Online, Inc. ("AOL") for partial summary judgment on
the issue of liability (Doc. No. 27). This case was commenced on December 18, 1998, when AOL filed a seven-count
Complaint (Doc. No. 1) against the defendant National Health Care Discount, Incorporated ("NHCD"). In its Complaint,
AOL alleges the following causes of action:
Count I: Violations of the federal Computer Fraud and Abuse Act, 18 U.S.C. § 1030 et seq. ("CFAA");
Count II: Dilution of interest in service marks, in violation of 15 U.S.C. § 1125(c)(1);
Count III: Violations of the Virginia and Iowa Computer Crimes Acts, Virginia Code Annotated § 18.2-152.1 et seq., and
Iowa Code, Chapter 716A;
Count IV: Violation of Washington's Commercial Electronic Mail Act, Washington Revised Code Annotated, title 19,
chapter 19.190, and the Washington Consumer Protection Act, Washington Revised Code Annotated, title 19, chapter
19.86;
Count V: Conversion of or trespass to chattels under the common law;
Count VI: Civil conspiracy; and
Count VII: Unjust enrichment.
AOL prays for compensatory and statutory damages, punitive damages, preliminary and permanent injunctive relief,
attorney fees, and costs.
On March 24, 1999, NHCD answered the Complaint, generally denying liability on all counts, and asserting nine
affirmative defenses. (Doc. No. 13) Two of these affirmative defenses are significant for purposes of AOL's motion: (1) as
its second affirmative defense, NHCD asserts, "Any loss, injury, or damage incurred by AOL was proximately caused by
the acts of third parties who[m] NHCD neither controlled nor had the right to control, and was not proximately caused by
any acts, omissions, or other conduct of NHCD"; and (2) as its ninth affirmative defense, NHCD asserts that "should AOL
prove any of the allegations in the Complaint, the mailing of any bulk electronic mail advertisement was performed by an
independent contractor(s) whose actions NHCD is not liable for." (Doc. No. 13, ¶¶ 9 and 16)
Along with its Answer, NHCD filed a counterclaim, alleging three counts: (1) libel per se; (2) interference with
prospective contractual relations; and (3) interference with contractual relations. (Doc. No. 13, ¶¶ 17-45) On March 22,
1999, AOL filed its Answer to the allegations in the counterclaim, generally denying liability and asserting numerous
affirmative defenses. (Doc. No. 15)
On April 16, 1999, the parties consented to jurisdiction over this case by a United States Magistrate Judge (Doc. No. 17),
and on April 19, 1999, the Honorable Donald E. O'Brien signed an order transferring the case to Magistrate Judge Paul A.
Zoss (Docket No. 19).
On January 10, 1999, AOL filed its summary judgment motion (Doc. No. 27), supported by a memorandum brief (Doc.
No. 38). AOL's motion seeks a determination that NHCD is liable on the following counts: Count I (the CFAA claim)
(Doc. No. 38, at 12-14); Count III (only as to the Virginia Computer Crimes Act) (Doc. No. 38, at 14-16); Count V (only
as to trespass to chattels) (Doc. No. 38, at 6-12); Count VI (civil conspiracy) (Doc. No. 38, at 20); and Count VII (unjust
enrichment) (Doc. No. 38, at 16-20).(1) On March 31, 1999, NHCD filed a resistance to the motion. (Doc. No. 58) On
April 13, 2000, NHCD filed a cross-motion for summary judgment, asking that the Complaint be dismissed with
prejudice. (Doc. No 69) AOL resisted NHCD's motion on April 17, 2000. (Doc. No. 72)
After the parties filed numerous briefs and other supporting documents concerning the motions and the resistances, the
court heard oral arguments on April 17, 2000. At the conclusion of the hearing, the court denied NHCD's cross-motion for
summary judgment (see Doc. No. 74, issued Apr. 18, 2000). The court also found the actions of Forrest Dayton (discussed
infra, Section II) constituted trespass to chattels. Indeed, NHCD conceded for purposes of AOL's motion for summary
judgment that AOL has established a prima facie case of trespass to chattels by Dayton. The question still remains,
however, as to whether NHCD is liable for Dayton's actions. The court now will address that issue and the other issues
raised by AOL's motion for partial summary judgment.
II. STATEMENT OF FACTS
AOL is a Delaware corporation, with its principal place of business in Virginia. AOL provides a variety of services to its
customers, or "members," as they are called by AOL. These services include the transmission of electronic mail ("e-mail")
to and from other members and across the Internet.
NHCD is an Iowa corporation with administrative offices in Sioux City, Iowa, and sales offices in Atlanta, Kansas City,
Phoenix, Dallas, and Denver. NHCD is engaged in the business of selling discount optical and dental service plans. NHCD
membership entitles members to discounts from participating dentists and optical care providers.
This lawsuit concerns advertising via the Internet. There are various methods of advertising products on the Internet,(2)
but this dispute concerns the sending of large-volume, unsolicited, commercial e-mail messages to Internet users. These
messages, called "unsolicited bulk e-mail" or "UBE," are often referred to pejoratively as "junk e-mail" or "spam." It is
undisputed that at times relevant to this lawsuit, a large volume of e-mail messages was sent through AOL's computer
system to generate leads for NHCD's products.
AOL has put in place various "filtering programs" in an attempt to block UBE. By using these programs, AOL attempts to
identify UBE coming into AOL's computer systems so that it can be rejected. These filtering programs have had only
limited success, however, because bulk e-mailers have developed counter-programs to thwart the filtering programs.
In a declaration filed in support of AOL's motion (Doc. No. 30), AOL's Chief Mail Systems Architect, Jay Levitt,
explained how AOL's efforts to limit UBE have been thwarted. AOL's filtering programs look for large numbers of emails coming from the same source. This usually can be determined from the message because the sender of an e-mail
message ordinarily is identified in a "header" which is generated automatically by most e-mail software programs. To
circumvent these filters, bulk e-mailers have developed software to allow the manipulation of headers to display false or
misleading information concerning a message's author. For example, one program substitutes a random arrangement of
numbers and letters for the sender's name each time a message is transmitted. As a result, each message appears to
originate from a different sender when, in fact, the messages are all coming from the same source. Other programs cause
text to appear at the end of the body of the e-mail message that is designed to look like a header, but which contains false
information having no relationship to the actual source or transmission path of the message. These messages contain a
number of "hard returns" at the end of the message to push the automatically-generated header down the screen where the
reader is unlikely to see it. Sometimes these messages also contain "font color codes" that change the text of the
automatically-generated header to the same color as the background so the header becomes unreadable. (See id., ¶6)
AOL has adopted policies applicable to its members in an effort to prevent them from sending UBE over AOL's computer
system or from facilitating the sending of UBE over AOL's computer system by others. As bulk e-mail has become
increasingly problematic, AOL's policies have been revised and strengthened to make it clear that members are not
authorized to use AOL for bulk e-mail purposes.
The "Conditions of AOL Membership," displayed on every new member's computer screen at the time of enrollment,
include the following:
Your use of the America Online (AOL) service is conditioned upon your acceptance of AOL's Terms of Service (TOS)
and Rules of the Road (ROR). We strongly encourage you to review the TOS and the ROR now by clicking the Read Now
button below. (Both documents are always available online, free of hourly usage charges, and can be accessed directly on
AOL directly by using Keyword: TOS.)
As AOL may modify its TOS and ROR from time to time, you agree to check the TOS online area regularly for updates.
All TOS and ROR modifications will be effective thirty days after the notice of change is posted in the TOS online area.
(Doc. No. 32, Declaration of Charles D. Curran, AOL's Senior Counsel, in support of AOL's summary judgment motion,
at Exhibit 4.)
AOL's Rules of the Road ("ROR") effective on June 15, 1996, provided members were not allowed to "post or use AOL to
. . . post or transmit unsolicited advertising, promotional materials, or other forms of solicitation to other Members,
individuals or entities, except in those areas (e.g., the classified areas) that are designated for such a purpose," nor could
members use AOL to collect or "harvest" screen names of other Members without the Member's express permission. (Doc.
No. 32, ¶ 6 & Ex. 6, ¶ 2(C)(a)(8) & (a)(viii))
AOL's Terms of Service ("TOS") effective May 1, 1997, provided members could not "use, or allow others to use, [an]
AOL account, either directly or indirectly, to . . . post or transmit, or cause to be posted or transmitted, any unsolicited
advertising, promotional materials, or other forms of solicitation to other Members, individuals or entities, except in those
areas that are expressly designated for such a purpose (e.g., the classified areas), or collect or harvest screen names of
other Members, without permission[,]" and stated AOL "reserve[d] the right to protect its Members and AOL from
offensive e-mail communication, including, but not limited to, the right to block mass e-mail solicitations or 'junk e-mail.'"
(Doc. No. 32, Ex. 7, TOS, ¶ 4(C)(7)) The ROR for the same date provided as follows:
Advertising, Solicitation and Name Harvesting. Unless you obtain express permission from the Member in advance,
you may not use AOL to send unsolicited advertising, promotional material or other forms of solicitation to another
Member except in areas designated for such a purpose (e.g., the classified area). You may not use AOL to collect or
"harvest" screen names of Members without the express prior permission of the Member. AOL, Inc. reserves the right to
block or filter mass e-mail solicitations on or through AOL.
(Doc. No. 32, ¶ 8 & Ex. 7, ROR, ¶ C(iii)(g))
In the fall of 1997, AOL published an "Unsolicited Bulk E-mail Policy," which provided that AOL:
does not authorize the use of its proprietary computers and computer network (the ["]AOL Network") to accept, transmit
or distribute unsolicited bulk e-mail sent from the Internet to AOL members. In addition, Internet e-mail sent, or caused to
be sent, to or through the AOL Network that makes use of or contains invalid or forged headers, invalid or non-existent
domain names or other means of deceptive addressing will be deemed to be counterfeit. Any attempt to send or cause such
counterfeit e-mail to be sent to or through the AOL Network is unauthorized. Similarly, e-mail that is relayed from any
third party's mail servers without the permission of that third party or which employs similar techniques to hide or obscure
the source of the e-mail, is also an unauthorized use of the AOL Network. AOL does not authorize anyone to send e-mail
or cause e-mail to be sent to the AOL Network that violates AOL's Terms of Service. AOL does not authorize the
harvesting or collection of screen names from the AOL service for the purpose of sending unsolicited e-mail. AOL
reserves the right to take all legal and technical steps available to prevent unsolicited bulk e-mail or other unauthorized email from entering, utilizing or remaining within the AOL Network. Nothing in this policy is intended to grant any right to
transmit or send e-mail to, or through, the AOL Network. AOL's failure to enforce this policy in every instance in which it
might have application does not amount to a waiver of AOL's rights.
(Doc. No. 32, ¶ 9 & Ex. 9)
AOL's TOS effective July 15, 1998, provided:
Unsolicited Bulk E-mail. Your AOL membership allows you to send and receive e-mail to and from other AOL members
and users of the Internet. This does not mean that you may use AOL to send unsolicited bulk e-mail or junk e-mail.
Information about unsolicited bulk e-mail can be found at Keyword: Junk Mail. Your AOL membership and your
authorization to use the AOL e-mail service do not allow you to send unsolicited bulk e-mail or to cause unsolicited bulk
e-mail to be sent by someone else. You may not use the Member Directory or any other area of AOL to harvest or
collect information, including screen names, about AOL members, and the use of such information for the purpose
of sending unsolicited bulk e-mail is strictly prohibited. . . . AOL also reserves the right to take any and all legal and
technical remedies to prevent unsolicited bulk e-mail from entering, utilizing or remaining within the AOL network.
(Doc. No. 32, ¶ 9 & Ex. 8; emphasis in original)
AOL's "Community Guidelines" (the successor to the "Rules of the Road") effective July 15, 1998, declare: "Unsolicited
bulk e-mail is strictly prohibited." The Guidelines also provide, "You may not use the Member Directory or any other area
of AOL to harvest or collect information, including screen names, about AOL members, and the use of such information
for the purpose of sending unsolicited bulk e-mail is strictly prohibited. This includes the collection of names on a Member
Web page." (Id.)
AOL maintains a searchable database on its computer system called "TOSSpam." AOL asks its members to forward UBE
to TOSSpam so AOL can identify and attempt to stop the messages. According to Ivan Histand, a software engineer with
AOL, during the period relevant to this litigation over 100,000 pieces of bulk e-mail were forwarded each day to
TOSSpam by AOL members. (Doc. No. 34, Declaration of Ivan Histand, ¶ 3) According to Histand, this represented
merely a fraction of the total number of unsolicited e-mails sent to AOL members because in order to complain about a
particular piece of UBE, a member must be aware of the TOSSpam database, know how to forward messages to the
database, and take some affirmative action to send the message to TOSSpam. (Id., ¶ 6) He estimates the actual number of
UBEs received by AOL members is hundreds of times higher than the number of complaints forwarded to TOSSpam. (Id.,
¶ 8) Utilizing studies from two other lawsuits, he estimates the appropriate ratio of complaints to actual UBEs sent is
1:500. (Id., ¶ 9)
According to Histand, 152,805 complaints have been received by AOL members concerning NHCD's UBEs, a number he
believes is "at least ninety-five percent accurate." (Id., ¶ 11) Multiplying 152,805 by 500, Histand estimates NHCD has
sent or caused to be sent 76,402,500 pieces of UBE over AOL's network. (Id., ¶ 13)
According to the declaration (Doc. No. 33) of A. Douglas Steinberg, AOL's Senior Director of E-Mail Operations, AOL's
central computer systems are all physically located in Virginia. (Doc. No. 33, ¶3) One of the services AOL provides its
members is access to the Internet, including the ability to transmit and receive e-mail to and from other AOL members and
also other Internet users. (Id., ¶4) According to Steinberg, the "per recipient charge" for each e-mail is $.00078. This
charge is born by AOL and is not passed on as a direct charge to its members. It reflects AOL's equipment costs only, and
not its overhead. (Id., ¶12) Steinberg estimates that between five and thirty percent of AOL's daily Internet e-mail volume
is UBE. (Id., ¶ 21)
NHCD was founded in 1989, by Kenneth Opstein, its chief executive officer and sole shareholder. The company entered
into agreements with dentists and optical care providers to offer discounted services and products to the general public,
and then solicited the general public to pay a fee to NHCD for the right to receive these services at the discounted prices.
NHCD made arrangements with a number of self-employed sales representatives to market these services to the general
public from "leads" provided by NHCD. NHCD used a variety of advertising methods to generate these leads, including
direct mail, newspaper, radio, television, and door-to-door sales.
NHCD first became involved in generating leads with UBE when Hermann Wilms, a vice president and "participating
manager" of NHCD, was contacted by one of its "lead generators," Michael Kiger, about providing NHCD with leads
obtained from the Internet. Kiger advised Wilms that he was knowledgeable about e-mail and he could use Internet e-mail
to generate leads for NHCD. Wilms found this idea exciting, and agreed, on behalf of NHCD, to pay Kiger $1.00 for each
lead he generated from the Internet.
After some initial problems,(3) Kiger, and then several other "e-mailers," began providing NHCD with leads generated
from UBE. All of these bulk e-mailers worked without a written agreement, and under arrangements NHCD contends
made them "independent contractors." The primary "contract e-mailer" used by NHCD was Forrest Dayton from Marietta,
Georgia.
Contract e-mailers were directed to use a "script" provided by NHCD, which stated the following:
Hello, we work with a group of your local doctors and dentists and are offering a Dental - Optical Plan that runs
approximately $2 a week for an individual and $3 a week for the entire family with no limit to the number of children.
Would you like our office to furnish you with the details?
Our doctors are grouped by area code and zip code, therefore please list your name, address, area code and phone number.
Thank you.
Using this script, Dayton performed an initial "test" mailing in late August and early September 1997. The test consisted of
one million pieces of UBE. (Doc. No. 35, Declaration of Forrest Dayton in Support of AOL's Motion for Summary
Judgment, ¶5)
On August 29, 1997, Wilms sent Dayton an e-mail with the following instructions concerning the test:
If your results are not over 1%, I would attribute it to the subject. The term "insurance" is a turn off and probably a number
of people will delete the message and not read it. We discovered that early on. The very best results we get is when we put
into the subject box only the words . . . Dental Plan.
We run approx 3,000 leads per week from our predictive-dialers and salaried personnel for these past 7 years and that
script I sent you is word for word. The only change is in the SUBJECT BOX.
If the results are poor, you may want to re-run to get a true indicator.
As a postscript, Wilms stated, "The 'shelf life' on the leads is short, so if you could forward to my AOL account daily, I
would appreciate it." On September 1, 1997, Wilms sent Dayton an e-mail that stated, "Dental Plan in subject box is good
for ½%. From our experience all you need are those 2 words . . . nothing else."
On September 14, 1997, Wilms sent Dayton an e-mail stating the following:
Based on what the promo has produced, you can see that 1 million hits per week will yield approx 1,000 leads. This is
what I will offer:
I will pay you each week $1 per lead with 'phone number (at first we will have to cap it at 1,000 leads or $1,000 per week
until the offices can absorb the leads) and the lead is not more than 1 week old.
If you are interested in pursuing this, please email me.
Wilms sent Dayton an e-mail dated September 16, 1997, asking for Dayton's home address so Wilms could "overnite
[him] some payroll forms." Wilms said, "The payroll is cutoff Monday mornings and your check will be mailed from
Sioux City, Ia. on
Thursdays to your home. $1 for each lead I receive with 'phone number, not over a week old, capped at 1,000 leads for
first few weeks 'till we grow into." In a deposition given in this case on June 16, 1999, Wilms described this paperwork as
the "original independent contractor's form." (See Doc. No. 31, Ex. 4, Deposition of Hermann Wilms ("Wilms Depo."), at
p. 135, lines 2-11)
On October 6, 1997, Wilms sent Dayton an e-mail which stated the following:
After talking with you last night, I think we can do some increasing, however, if you were to do too much at one time you
run the risk of being shut down and then we also have too many leads to work at one time . . . so we have to find a balance.
***
Later this week, I'll call. In the meanwhile, if you want to increase the dental leads to 1,500, that's fine.
In his deposition, Wilms explained his reference to "being shut down" as follows:
Well, he told me that - that or Kiger was shut down, and so I said to him - actually, what I was trying to do was to keep his
production low. I didn't want high production. And the real reason for it is, let's say that he could produce X number. I
would have to hire more salespeople, and I didn't want to.
(Id., page 136, lines 11-17.) When asked again about "risk of shut down," Wilms answered, "Well, see, he always wants
more money because he's going to be shut down all the time. He said I can't afford to do this for a dollar because I'm going
to be shut down." (Id., page 140, lines 19-22) Later, Wilms explained that if he hired and trained people to follow up leads,
"and the leads weren't there because [Dayton] shut down or went out of business or moved or whatever, it wasn't secure.
That's why I refer to shutdown on there. I was just feeling the water." (See id., page 141, lines 14-21)
On November 5, 1999, Wilms was deposed in AOL v. Dayton, et al., No. 98-1815-A (E.D. Va.). When asked about the email dated October 6, 1997, the following exchange occurred:
Q. In the first paragraph, you tell - or you write that if you were to do too much at one time, you run the risk of being shut
down; is that right?
A. That's what he told me.
Q. That's what Mr. Dayton told you?
A. Yes.
Q. And what did you understand him to mean when he told you that?
A. He couldn't send out - his production was limited by - apparently by his equipment.
Q. Okay. He told you that he didn't have the capability to send out A. Yes.
Q. Okay. Can you explain to me what the term "shut down" in this means?
A. He said he'd lose his server capabilities.
Q. What did you understand that to mean?
A. I really didn't know.
Q. Okay. But Mr. Dayton told you that if he sent out too much at one time, he'd run the risk of being shut down?
A. Yes.
(Doc. No. 61, Ex. 5, page 58, line 9 through page 59, line 16)
Wilms then was asked about an e-mail he sent to Dayton on October 13, 1997,(4) and the following exchange occurred:
Q. When you said "two t-1s," what did you mean?
A. We have some telephone equipment, he asked me if I had t-1s, and I said, yes, we have t-1s and he said, can I use them,
and I asked him, why, and he said he could use them for mailing.
Q. Okay. Did he tell you what he was currently using for mailing?
A. No.
Q. Okay. In the next sentence, when you ask, "Can you send out more with less risk of shutdown," what were you
referring to?
A. Well, he always wanted more money and he said he was going to be shut down if he couldn't get more money, so that's
why it keeps recurring all the time.
(Id., page 60, lines 8-24)
In early 1998, Dayton hired other contract e-mailers to transmit commercial e-mail for him. In his deposition, he testified
that in late 1998, he stopped transmitting or having subcontractors transmit e-mail on NHCD's behalf. (Doc. No. 61, Tab 3,
page 570, line 22 through page 571, line 5)
On April 15, 1998, Wilms asked Dayton to provide 2,000 leads per week, but Dayton was unable to comply. (Doc. No. 13,
Tab 4, page 166, line 23 through page 167, line 1) On May 12, 1998, Wilms sent Dayton an e-mail requesting that Dayton
provide 4,000 leads per week. (Id., page 169, line 20 through page 170, line 2)
On May 28, 1998, the Attorney General of the State of Washington sent a letter to Hermann Wilms, stating, inter alia, the
following:
We have received a complaint regarding your firm's use of unsolicited email in the State of Washington. It appears you
have sent multiple solicitations to citizens of this state using forged or false headers and hidden transmission routings.
Please note that on June 11, 1998, a new law will go into effect which restricts the use of misleading return addresses and
subject lines.
(Doc. No. 31, Tab 32) After receiving this letter, Wilms advised his contract e-mailers to stop doing business in the State
of Washington.
In an e-mail to Wilms dated June 9, 1998, Dayton stated, "I got 500,000 out this morning with all tests came through. Will
do 500k tonight." Wilms responded with an e-mail stating, "I'll be happy with 2,000 to 3,000 for now!" In a postscript to
that e-mail, Wilms stated, "These 'against email' fanatics think this stuff is free!!" In his deposition, Wilms could not
initially explain his reference to the "against email fanatics." (See Wilms Depo, page 181, lines 8-11). He then stated, "I
think there was a man that has cameras inside of his house, his apartment. Instead of a female, it's a male, and he received
some E-mail and wrote all kinds of stuff on one of the news groups about us." (Id., page 181, lines 15-20)
On July 1, 1998, Charles D. Curran, an attorney for AOL, wrote a letter to NHCD stating the following:
On behalf of America Online, Inc. ("AOL"), I am writing to demand that you, your companies, and any of your agents
immediately cease and desist from your practice of transmitting, distributing and facilitating the distribution of unsolicited
bulk e-mail ("UBE") to AOL and its members. . . . Your transmissions of UBE to AOL and its members have resulted in
numerous complaints, and have been accompanied by a variety of fraudulent practices. . . . Please be advised that any
future attempt by you, your companies or agents - or anyone working in concert with you or on your behalf - to access
AOL's proprietary computers and computer networks, or to use AOL's domain
ame and service marks, will constitute a violation of federal and state law, including the Computer Fraud And Abuse Act
(18 U.S.C. Section 1030); the Lanham Act; the Virginia Computer Crimes Act (Va. Code Ann. Sections 59.196 et seq.);
and Virginia common law. Failure to comply with this demand and to confirm such compliance via return letter within ten
days, will result in AOL pursuing all available technical and legal remedies.
(Doc. No. 32, Ex. 1) In his affidavit, Wilms said when he received this letter, he telephoned Dayton and was assured "there
were no laws that were being broken as no laws in fact prohibited the sending of this type of solicitation." (Doc. No. 61,
Tab 1, at ¶3)
On July 16, 1998, Anne M. Breitkreutz, an attorney for NHCD, wrote to Curran and stated NHCD was an Iowa
corporation with numerous offices throughout the United States in the business of selling "discounted service
memberships for such services as dental, chiropractic, optical, etc." (Id., Ex. 3) She stated further:
NHCD buys leads from independent contractors who generate these leads from direct mail, newspapers, radio, TV,
telemarketing and the Internet. They buy the leads in bulk at so much per lead. NHCD cannot impose any restrictions or
give directions on how these independent contractors procure these leads. However, NHCD does not authorize nor
approve of the use by its independent contractors of the 'AOL.com' domain name or AOL's service or trademarks. In fact,
NHCD will forward your letter of July 1, 1998 on to its independent e-mailers, particularly instructing them not to use said
domain name or service mark when obtaining leads for NHCD. I believe this should address your concerns expressed in
the letter dated July 1, 1998.
(Id.)
On August 13, 1998, Curran wrote a second letter to NHCD, stating in part:
AOL does not authorize the use of the AOL Network to accept, transmit, relay, process or distribute UBE sent from the
Internet to AOL members. In addition, AOL deems Internet e-mail sent, or caused to be sent, to or through the AOL
Network that makes use of or contains invalid or forged headers, invalid or non-existent domain names or other means of
deceptive addressing to be counterfeit. Any attempt to send or cause such counterfeit e-mail through the AOL Network is
unauthorized. Similarly, e-mail that is relayed from any third party's mail servers without permission of that third party, or
which employs similar techniques to hide or obscure the source of e-mail, is also an unauthorized use of the AOL
Network.
(Id., Ex. 2) In his letter, Curran also requested that NHCD identify the parties responsible for the UBE, and provide
NHCD's policies concerning "spam." In his affidavit, Wilms said when he received the August 13, 1998, letter from AOL,
he again called Forrest Dayton, and Dayton again assured him that no laws were being broken. (Id., ¶ 5)
This lawsuitThis lawsuit was commenced on December 18, 1998. In a deposition given on November 2, 1999, in a
separate lawsuit,(5) Forrest Dayton testified Wilms told him NHCD was being sued by AOL, but did not tell him why.
(Doc. No. 61, Tab 3, page 571, lines 6-22) Dayton denied he had been advised by Wilms of any of AOL's warning letters.
(Id., page 572, line 5 through page 573, line 10)
Dayton testified he began sending bulk e-mail in 1996. In 1997, he started using e-mail address lists he created by
stripping e-mail addresses from newsgroups. Later, he began stripping e-mail addresses from AOL "chat rooms." He
estimated that he has harvested 5,000,000 AOL e-mail addresses. He used a number of different e-mail accounts to send
commercial e-mails because recipients would complain to AOL about the receipt of bulk e-mail, and then his account
would be terminated. While he was in the bulk e-mail business, between fifteen and thirty of his e-mail accounts were
terminated because of complaints to Internet service providers.
On March 18, 1999, Wilms sent Dayton an e-mail in which he stated the following: "In today's USA Today the big
antispam device is Sendmail, is that a big deal?" During his deposition, Wilms was asked why he sent this e-mail to
Dayton. He responded, "Because he must have been complaining about I'm not going to be in business much longer,
something like that." (Doc. No. 31, Tab 4, page 165, lines 5-8) Wilms then stated he was unfamiliar with anti-spam
devices. (Id, page 165, lines 22-24).
In a declaration dated January 6, 2000, Dayton confirmed that from January 1997, until early 1999, he was engaged in the
business of marketing goods and services by sending UBE and by developing software (including a program called
"Stealth Mass Mailer") to harvest e-mail addresses and automatically send massive quantities of e-mail quickly. (Doc. No.
35, ¶1) The software could fill in the "To" and "From" fields with random or otherwise inaccurate information. (Id.)
Dayton described this process as follows:
At various times during my e-mailing for NHCD, AOL used filtering devices to attempt to stop UBE. To get around these
filters, I input, either manually or with the assistance of software, nonexistent or otherwise inaccurate "From" information,
as well as other inaccurate information. Most often, the "From" information consisted of an actual domain name (but not
the name of my own internet service provider), such as "juno.com", and made up prefixes, often random letters and
numbers, so the result would look something like "1a2b3c@juno.com."
(Id.,¶12)
According to Dayton, over the time period relevant to this lawsuit, a fair estimation of the ratio of pieces of e-mail sent to
actual leads generated for NHCD was approximately 1000:1.(6) (Id., ¶8) Dayton said he could not determine the exact
number of e-mails he sent on behalf of NHCD, but estimated the number to be in the hundreds of millions. (Id., ¶9)
Dayton said he provided NHCD with more than 130,000 leads from late summer 1997, to early 1999. (Id., ¶7)
NHCD confirmed that, from all of its contract e-mailers, it received 33,866 bulk e-mail leads in 1997; 323,686 in 1998;
and 35,708 from January 1 to February 11, 1999. (Doc. No. 31, Tab 2, response to Interrog. No. 11) This is a total of
393,260 leads, for which NHCD paid a total of $612,577.75. Dayton estimated "as much as 75% of the UBE sent was to
AOL e-mail addresses." (Doc. No. 35, ¶11) Using Dayton's ratio of 1000:1, in order to produce 393,260 leads, the contract
e-mailers had to send out nearly 400 million UBEs, about 300 million of which (i.e., 75%) were sent to AOL members.(7)
There is no evidence that Wilms ever instructed Dayton, or any of NHCD's other contract e-mailers, on the exact method
of transmitting UBE. However, according to Dayton, "Wilms never told me not to generate leads by e-mail, or that NHCD
would not condone me harvesting e-mail addresses or using inaccurate 'To' and 'From' information to facilitate their
mailings. In fact, even after Wilms told me AOL had sued NHCD, I continued to send UBE for NHCD and get paid by
NHCD for leads generated by UBE." (Doc. No. 35, ¶13)
In an affidavit filed in resistance to the motion for summary judgment, Wilms acknowledged he had engaged Dayton "to
transmit unsolicited commercial e-mail on behalf of NHCD." (Doc. No. 61, Tab 1, ¶2) NHCD maintains, however, that it
had no knowledge of any improper activities by these contract e-mailers. In his affidavit, Kenneth Opstein states:
With regard to solicitation of leads on the internet, NHCD has employed various independent contractors from time to
time to generate leads via the internet. These independent contractors have never been employees or agents of NHCD in
any way. NHCD has never told these independent contractors how to solicit the leads. Specifically with regard to Forrest
Dayton, neither [Opstein] nor any company representatives had any knowledge of the methods employed by Mr. Dayton
to generate leads for [NHCD]. [NHCD] simply paid Mr. Dayton $1.00 to $2.00 for every lead generated by him. All
payments made to Dayton by NHCD were done by NHCD's Sioux City office in the form of checks.
(Doc. No. 61, Tab 2, ¶5)
Opstein further states, "NHCD paid bulk e-mailers for all leads generated by them, regardless of the number of e-mails
sent. [NHCD] had no knowledge of the arrangements made between [NHCD's] e-mailers and internet service providers,
such as AOL, for the e-mailers to transmit bulk e-mail on the ISP's systems." (Id., ¶6) According to Opstein, "NHCD
never authorized e-mailers to employ false or misleading entries in the 'To' or 'From' lines in bulk e-mail." (Id., ¶7) These
statements are confirmed, to some extent, by Dayton's statement that companies like NHCD, which paid him a certain
amount for each lead, would simply order a certain number of leads, and he would do what was necessary to generate the
leads. He did not provide his customers with an estimate of how many e-mail messages he would have to transmit to
generate the number of leads ordered. (See Doc. No. 61, Tab 3, page 232, line 8 through page 234, line 15) III. LEGAL
ANALYSIS
The court first will address the choice of law questions applicable to this case. Next, the court will discuss the general
standards applicable to summary judgment motions. The court then will analyze each of the six grounds asserted by AOL
in support of its motion for partial summary judgment.(8) Finally, the court will determine whether AOL has shown, for
summary judgment purposes, that NHCD should be held responsible for the acts of its contract e-mailers.(9)
A. Choice of Law
The court first must determine what law should be applied to the non-statutory claims in this case; i.e., the claims for
conversion of or trespass to chattels (Count V); civil conspiracy to commit trespass to or conversion of chattels, and to
violate the CFAA and certain Washington, Iowa and Virginia statutes (enumerated at page 2, supra) (Count VI); and
unjust enrichment and imposition of a constructive trust (Count VII). AOL argues Virginia law applies "because Virginia
is the location of AOL's computers which have been assaulted by NHCD's UBE." (Doc. No. 38, p. 3) NHCD disagrees
with AOL's focus on the situs of the alleged injury. NHCD argues Iowa law applies under Iowa's "most significant
relationship" test. (Doc. No. 59, pp. 2-3)
A federal court exercising supplemental jurisdiction over state law claims in a federal question lawsuit must follow the
choice-of-law rules of the forum state. MRO Comm., Inc. v. American Tel. & Tel. Co., 197 F.3d 1276, 1282 (9th Cir.
1999); BancOklahoma Mortgage Corp. v. Capital Title Co., 194 F.3d 1089, 1103 (10th Cir. 1999); Ideal Elec. Sec. Co. v.
Int'l Fidelity Ins. Co., 129 F.3d 143, 148 (D.C. Cir. 1997); Glennon v. Dean Witter Reynolds, Inc., 83 F.3d 132, 136 (6th
Cir. 1996); Paracor Fin., Inc. v. General Elec. Capital Corp., 96 F.3d 1151, 1164 (9th Cir. 1996); System Operations, Inc.
v. Scientific Games Devel. Corp., 555 F.2d 1131, 1136-37 (3d Cir. 1977) (citing Klaxon v. Stentor Elec. Mfg. Co., 313
U.S. 487, 61 S. Ct. 1020, 85 L. Ed. 1477 (1941); Suchomajcz v. Hummel Chemical Co., 524 F.2d 19 (3d Cir. 1975); and
UMW v. Gibbs, 383 U.S. 715, 726, 86 S. Ct. 1130, 16 L. Ed. 2d 218 (1966)); F.D.I.C. v. Deloitte & Touche, 834 F. Supp.
1129, 1135 n.3 (D. Ark. 1992) (citing Klaxon). See also Butler v. Local Union 823, Int'l Bhd. of Teamsters, Chauffeurs,
Whsmen. & Helpers, 514 F.2d 442, 448 n.6 (8th Cir. 1975) ("[T]he question of which law governs as between two states is
purely a state question[,]" citing Klaxon). Accordingly, the court looks to Iowa's choice-of-law rules to determine which
state's law applies.
As both AOL and NHCD agree,(10) Iowa follows the "most significant relationship" test expressed in section 145,
Restatement (Second) Conflict of Laws ("Restatement"). See, e.g., Christie v. Rolscreen Co., 448 N.W.2d 447, 450 (Iowa
1989); Zeman v. Canton State Bank, 211 N.W.2d 346, 348-49 (Iowa 1973); Berghammer v. Smith, 185 N.W.2d 226,
(Iowa 1971). See also Dethmers Mfg. Co. v. Automatic Equip. Mfg. Co., 23 F. Supp. 2d 974, 1002 (N.D. Iowa 1998)
(recognizing the Iowa rule). The agreement ends there, however, as the parties differ on how the Restatement factors apply
in the circumstances of this case.
The Restatement's "General Principle" set forth in section 145 provides:
(1) The rights and liabilities of the parties with respect to an issue in tort are determined by the local law of the state
which, with respect to that issue, has the most significant relationship to the occurrence and the parties under the principles
stated in § 6.
(2) Contacts to be taken into account in applying the principles of § 6 to determine the law applicable to an issue include:
(a) the place where the injury occurred,
(b) the place where the conduct causing the injury occurred,
(c) the domicil[e], residence, nationality, place of incorporation and place of business of the parties, and
(d) the place where the relationship, if any, between the parties is centered.
These contacts are to be evaluated according to their relative importance with respect to the particular issue.
Restatement (Second) Conflict of Laws § 145 (1971).(11)
Section 145 must be read together with section 6, to which it refers:
(1) A court, subject to constitutional restrictions, will follow a statutory directive of its own state on choice of law.
(2) When there is no such directive, the factors relevant to the choice of the applicable rule of law include
(a) the needs of the interstate and international systems,
(b) the relevant policies of the forum,
(c) the relevant policies of other interested states and the relative interests of those states in the determination of the
particular issue,
(d) the protection of justified expectations,
(e) the basic policies underlying the particular field of law,
(f) certainty, predictability and uniformity of result, and
(g) ease in the determination and application of the law to be applied.
Restatement (Second) Conflict of Laws § 6 (1971).
The parties only address the section 145 factors in their arguments concerning which state law applies here. As NHCD
points out in its brief, none of those factors points conclusively to Virginia -- nor, however, do those factors point clearly
to Iowa or to any other state. The section 145 factors provide little in the way of resolving the choice-of-law issue. The
court therefore turns to the principles set forth in section 6.
The principles in section 6(2) "underlie all rules of choice of law and are used in evaluating the significance of a
relationship, with respect to the particular issue, to the potentially interested states, the occurrence and the parties."
Restatement § 145, comment (b). Subsections 6(2)(d), (e) and (f) are less important in the field of torts than they are in
other areas such as contracts, property, wills and trusts. Id. "Because of the relative insignificance of the above-mentioned
factors in the tort area of choice of law, the remaining factors listed in § 6 assume greater importance . . .," particularly the
relevant policies of "the state with the dominant interest in the determination of the particular issue[.]" Id. The court finds
the factors in subsections (2)(b) and (c) to be controlling; i.e., the relevant policies and interests of Iowa and Virginia.
As noted previously, NHCD is an Iowa corporation, doing business in Iowa. "[A] state has an obvious interest in
regulating the conduct of persons within its territory. . . ." Restatement § 6, comment d. Iowa's interest in regulating the
actions of corporations doing business in Iowa is embodied in the Iowa Business Corporation Act, Iowa Code chapter 490.
A corporation has no rights, including the right to do business, other than the rights conferred by the state's lawmaking
power, and the state retains the right to amend the conditions under which corporations may do or continue to do business,
and enforce those conditions by revoking a corporation's privileges for noncompliance. See Iowa Code Ann. § 290.102; St.
John v. Iowa Bus. Men's Bldg. & Loan Ass'n, 136 Iowa 448, 113 N.W. 863 (1907). The state, therefore, has a vested
interest in determining the rights and liabilities of domestic corporations as to actions arising within the state.
Here, however, the only actions by NHCD that appear to have arisen within Iowa are incorporation of the entity,
maintenance of an office, and issuance of checks to pay the contract e-mailers. One could add to this list the receipt of
NHCD's UBE by Iowa residents. Otherwise, all the actions giving rise to this lawsuit appear to have occurred elsewhere,
in a number of states. AOL is incorporated in Delaware, and likely has members who received NHCD's UBE in all fifty
states. Dayton's actions originated in Georgia. The record indicates NHCD contracted with other e-mailers from, inter alia,
New York, California, Ohio, Florida, Missouri, Michigan, Tennessee, Kansas, Ohio and Maryland.(12) (See Doc. No. 31,
tab 2, NHCD's supplemental discovery responses) NHCD's vice president Hermann Wilms, who, among other things, was
responsible for contracting with Dayton, operated out of Overland Park, Kansas. (See, e.g., Doc. No. 31, tab 4, page 3,
lines 4-8; tab 32, letter to Wilms from Washington Attorney General).
In addition to "regulating the conduct of persons within its territory," a state also has "an obvious interest . . . in providing
redress for injuries that occurred there." Restatement § 6, comment e. In the instant case, because there is no clearly
demonstrable place where the alleged conduct occurred, "the place where the injury occurred is a contact that, as to most
issues, plays an important role in the selection of the state of the applicable law." Id. (citation omitted).
The only locale in which AOL's alleged injury is clearly demonstrable is Virginia. This is the site of AOL's hardware that
it alleges was overburdened by NHCD's UBE. It also is the place where AOL allegedly sustained economic loss. Although
no state has a clear relationship to the events giving rise to this action, Virginia's relationship appears to be the most
significant. Accordingly, the court finds Virginia law shall control the non-statutory claims raised in this lawsuit.
B. Standards for Summary Judgment
Rule 56 of the Federal Rules of Civil Procedure governs motions for summary judgment and provides that either party to a
lawsuit may move for summary judgment without the need for supporting affidavits. Fed. R. Civ. P. 56(a) & (b). Rule 56
further states that summary judgment shall be rendered forthwith if the pleadings, depositions, answers to interrogatories,
and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and
that the moving party is entitled to judgment as a matter of law.
Fed. R. Civ. P. 56(c). "A court considering a motion for summary judgment must view all the facts in the light most
favorable to the nonmoving party, . . . and give [the nonmoving party] the benefit of all reasonable inferences that can be
drawn from the facts." Lockhart v. Cedar Rapids Comm. Sch. Dist., 963 F. Supp. 805, 814 (N.D. Iowa 1997) (citing
Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S. Ct. 1348, 1356, 89 L. Ed. 2d 538 (1986)).
The party seeking summary judgment must "'inform[ ] the district court of the basis for [the] motion and identify[ ] those
portions of the record which show lack of a genuine issue.'" Lockhart, 963 F. Supp. at 814 (quoting Hartnagel v. Norman,
953 F.2d 394, 395 (8th Cir. 1992)); Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S. Ct. 2548, 2552-53, 91 L. Ed. 2d
265 (1986). A genuine issue of material fact is one with a real basis in the record. Lockhart, 963 F. Supp. at 814 n.3 (citing
Matsushita, 475 U.S. at 586-87, 106 S. Ct. at 1355-56). Once the moving party has met its initial burden under Rule 56 of
showing there is no genuine issue of material fact, the nonmoving party, "by affidavits or as otherwise provided in [Rule
56],(13) must set forth specific facts showing that there is a genuine issue for trial." Rule 56(e); Lockhart, 963 F. Supp. at
814 (citing Matsushita, 475 U.S. at 586, 106 S. Ct. at 1356).
Addressing the quantum of proof necessary to successfully oppose a motion for summary judgment, the United States
Supreme Court has explained the nonmoving party must produce sufficient evidence to permit "'a reasonable jury [to]
return a verdict for the nonmoving party.'" Lockhart, 963 F. Supp. at 815 (quoting Anderson v. Liberty Lobby, Inc., 477
U.S. 242, 248, 106 S. Ct. 2505, 2510, 91 L. Ed. 2d 202 (1986)). Furthermore, the Court has held the trial court must
dispose of claims unsupported by fact and determine whether a genuine issue exists for trial, rather than "weigh the
evidence and determine the truth of the matter." Lockhart, 963 F. Supp. at 815 (citing Anderson, 477 U.S. at 249, 106 S.
Ct. at 2510-11; Celotex, 477 U.S. at 323-24, 106 S. Ct. at 2552-53; Matsushita, 475 U.S. at 586-87, 106 S. Ct. at 1355-56).
The Eighth Circuit recognizes "summary judgment is a drastic remedy and must be exercised with extreme care to prevent
taking genuine issues of fact away from juries." Wabun-Inini v. Sessions, 900 F.2d 1234, 1238 (8th Cir. 1990) (citing Fed.
R. Civ. P. 56(c)). The Eighth Circuit, however, also follows the principle that "summary judgment procedure is properly
regarded not as a disfavored procedural shortcut, but rather as an integral part of the Federal Rules as a whole, which are
designed 'to secure the just, speedy and inexpensive determination of every action.'" Id. (quoting Celotex, 477 U.S. at 327);
Hartnagel v. Norman, 953 F.2d 394, 396 (8th Cir. 1992).
Thus, the trial court must assess whether a nonmovant's response would be sufficient to carry the burden of proof at trial.
Hartnagel, 953 F.2d at 396 (citing Celotex, 477 U.S. at 322). If the nonmoving party fails to make a sufficient showing of
an essential element of a claim with respect to which it has the burden of proof, then the moving party is "entitled to
judgment as a matter of law." Celotex, 477 U.S. at 323; Woodsmith, 904 F.2d at 1247. However, if the court can conclude
that a reasonable jury could return a verdict for the nonmovant, then summary judgment should not be granted. Anderson,
477 U.S. at 248; Burk, 948 F.2d at 492; Woodsmith, 904 F.2d at 1247.
The court now will apply these standards to AOL's motion for summary judgment.
C. AOL's Claim Under the CFAA
AOL argues the evidence in this case is sufficient to establish NHCD's liability to AOL under the Computer Fraud and
Abuse Act, 18 U.S.C. § 1030 et seq.(14) Specifically, AOL argues NHCD violated 18 U.S.C. §§ 1030(a)(5) and (a)(2)(C).
The former subsection prohibits a person or entity from:
• knowingly caus[ing] the transmission of a program, information, code, or command, and as a result of such
conduct, intentionally caus[ing] damage without authorization, to a protected computer;
• intentionally access[ing] a protected computer without authorization, and as a result of such conduct, recklessly
caus[ing] damage; or
• intentionally access[ing] a protected computer without authorization, and as a result of such conduct, caus[ing]
damage[.]
18 U.S.C. § 1030(a)(5).(15) Section (a)(2)(C) prohibits a person or entity from:
(2) intentionally access[ing] a computer without authorization or exceed[ing] authorized access, and thereby obtain[ing] ***
(C) information from any protected computer if the conduct involved an interstate or foreign communication[.]
18 U.S.C. § 1030(a)(2)(C).
Civil penalties are provided by subsection 1030(g), which provides, "Any person who suffers damage or loss by reason of
a violation [of section 1030] may maintain a civil action against the violator to obtain compensatory damages and
injunctive relief or other equitable relief." 18 U.S.C. § 1030(g). The term "damage" is defined by the CFAA as "any
impairment to the integrity or availability of data, a program, a system or information that . . . causes loss aggregating at
least $5,000 in value during any 1-year period to one or more individuals; . . . ." 18 U.S.C. § 1030(e)(8)(A).
The elements of a civil claim under section 1030(a)(5)(C) are as follows: (1) the person or entity must intentionally access
a computer; (2) the computer must be a "protected computer;" (3) the access must be without authorization; and (4) the
access must cause damage. There is no question that AOL's computers are "protected computers."(16) However, it remains
for the court to determine whether NHCD's contract e-mailers intentionally accessed AOL's computers, whether any such
access was "without authorization," and whether such access caused damage to AOL.
The CFAA does not define "access," but the general definition of the word, as a transitive verb, is to "gain access to."
th
MERRIAM-WEBSTER'S COLLEGIATE DICTIONARY (hereinafter "Webster's") 6 (10 ed. 1994). As a noun, "access,"
in this context, means to exercise the "freedom or ability to . . . make use of" something. Id. The question here, therefore,
is whether NHCD's e-mailers, by harvesting e-mail addresses of AOL members and then sending the members UBE
messages, exercised the freedom or ability to make use of AOL's computers. The court finds they did. For purposes of the
CFAA, when someone sends an e-mail message from his or her own computer, and the message then is transmitted
through a number of other computers until it reaches its destination, the sender is making use of all of those computers,
and is therefore "accessing" them. This is precisely what NHCD's e-mailers did with respect to AOL's computers.
The next disputed element of AOL's claim under section 1030(a)(5)(C) is whether the access was "without authorization."
Again, the CFAA again gives no direct guidance on the meaning of the phrase "without authorization."(17) In a case
similar factually to the present one, the United States District Court for the Eastern District of Virginia found an e-mailer's
actions constituted "unauthorized access" because they violated AOL's Terms of Service. See America Online, Inc. v.
LCGM, Inc., 46 F. Supp. 2d 444, 450-51 (E.D. Va. 1998); see also Hotmail Corp. v. Van$ Money Pie, Inc., 1998 W.L.
388389 (N.D. Cal. Apr. 16, 1998). No other reported opinion contains precisely this interpretation of the statute.
Although AOL clearly advised its members they were not authorized to harvest member e-mail addresses from its system
or to use its system to send UBE to its members (see Terms of Service, Rules of the Road, and Community Guidelines,
summarized above at pages 6-9), it is not clear that a violation of AOL's membership agreements results in "unauthorized
access." If AOL members are "insiders" rather than "outsiders" for purposes of section 1030(a)(5), then subparagraph (C)
does not apply at all, and this inquiry ends for purposes of AOL's motion. (See, footnote 15, supra.) AOL members, such
as Dayton, obviously have "authorization" to access the AOL network. Having done so, is a member's authorized access
converted into unauthorized access when the member violates one of the terms and conditions of membership? Similarly,
is the member converted from an "insider" to an "outsider" for purposes of the CFAA by violating AOL's policies? On the
other hand, if AOL members are "outsiders," then why would AOL's membership policies apply to them at all?
Furthermore, by imposing restrictions on its members, can AOL deny or restrict the rights of non-member Internet users
with respect to sending any type or volume of e-mail to AOL members, including UBE? These unanswered questions
represent mixed issues of fact and law, requiring further factual development before the court can rule. This record is not
clear enough on these issues for the court to grant summary judgment.
Even assuming arguendo that NHCD's e-mailers accessed AOL's system "without authorization," the question still
remains whether such access caused AOL "damage" for purposes of the CFAA. "Damage" is defined by the CFAA as
"any impairment to the integrity or availability of data, a program, a system or information that. . . . causes loss
aggregating at least $5,000 in value during any 1-year period to one or more individuals; . . . ." 18 U.S.C. § 1030(e)(8)(A).
There is no dispute AOL has suffered the $5,000 threshold amount of loss required for civil relief under the CFAA.
Multiplying the most conservative estimate in this record of the number of NHCD UBEs sent over AOL's system (i.e.,
76,402,500) by the direct cost to AOL of each e-mail (i.e., $.00078), AOL's damages would be $59,594. However, the
court also must determine whether NHCD's UBEs impaired "the integrity or availability of data, a program, a system or
information." Neither the CFAA nor any of the reported cases is instructive in this regard.
"The starting point for interpreting a statute is the language of the statute itself." Consumer Prod. Safety Comm'n v. GTE
Sylvania, Inc., 447 U.S. 102, 108, 100 S. Ct. 2051, 2056, 64 L. Ed. 2d 766 (1980). The court will begin by examining the
"ordinary, contemporary, common meaning" of the terms contained in the statute, Pioneer Inv. Servs. Co. v. Brunswick
Assocs. L.P., 507 U.S. 380, 388, 113 S. Ct. 1489, 1495, 123 L. Ed. 2d 74 (1993), defining those terms with regard to the
context in which they are used in the statute. See Robinson v. Shell Oil Co., 519 U.S. 337, 340-41, 117 S. Ct. 843, 846-47,
136 L. Ed. 2d 808 (1997).
Section 1030(e)(8)(A) provides, in relevant part: "the term 'damage' means any impairment to the integrity or availability
of data, a program, a system, or information, that . . causes loss aggregating at least $5,000 in value during any 1-year
period to one or more individuals[.]" Each of the underlined terms is defined below:
Impairment: something that damages or makes worse by diminishing in some material respect. (See Webster's at 580)
Integrity: Unimpaired, sound, complete, without corruption. (See Webster's at 608)
Availability: The state of being present or ready for immediate use; accessible. (See Webster's at 79)
Data: Information output that must be processed to be meaningful; information in numerical form that can be transmitted
or processed digitally. (See Webster's at 293)
Program: A sequence of coded instructions that can be inserted into a computer, causing it to perform a particular function.
(See Webster's at 931)
System: "[A] regularly interacting or interdependent group of items forming a unified whole . . . [such as] a group of
devices or artificial objects . . . forming a network . . . ." (Webster's at 1197)
Information: Knowledge obtained from investigation, study, or instruction; facts, data; "a signal or character (as in a
communication system or computer) representing data." (Webster's at 599)
From these definitions, it can be concluded that when a large volume of UBE causes slowdowns or diminishes the capacity
of AOL to serve its customers, an "impairment" has occurred to the "availability" of AOL's "system."(18)
AOL has submitted witnesses' written declarations establishing that UBE, generally, has created a substantial burden to
AOL's computer system, and caused AOL to incur significant costs. AOL's problem, both for purposes of summary
judgment and at trial, is showing specifically that NHCD's UBE, which by AOL's admission represents a mere fraction of
the quantity of UBE regularly forced through AOL's system, caused the requisite "damage" contemplated by the statute.
The fact that NHCD's UBE may have cost AOL over $50,000 does not, necessarily, mean NHCD's actions caused an
"impairment to the integrity or availability of data, a program, a system, or information," which directly resulted in a
$50,000 loss. The court finds a material issue of disputed fact exists in this regard, precluding summary judgment.
A disturbing issue is whether subsection (a)(5)(c) is intended to address UBE at all. The original statute, enacted in 1984,
was directed at protecting classified information in government computer systems, and protecting financial records and
credit histories in financial institution computers. See S. Rep. No. 99-432, at § I (1986 W.L. 31918) (discussing the 1986
amendments to the statute). When the statute was amended in 1986, the Senate Judiciary Committee expressly rejected the
approach of enacting a comprehensive, sweeping statute that would leave "no computer crime . . . potentially uncovered,"
opting instead "to limit Federal jurisdiction over computer crime to those cases in which there is a compelling Federal
interest, i.e., where computers of the Federal Government or certain financial institutions are involved, or where the crime
itself is interstate in nature." Id.
The statute provided only criminal penalties until enactment of the Computer Abuse Amendments Act of 1994, which
added the civil remedies subsection 1030(g). See S. Rep. No. 104-357, § IV(1)(E) (1996 W.L. 492169) ("1996 S. Rep.");
H.R. Conf. Rep. No. 103-711, § 290001(d) (1994 W.L. 454841). At the same time, subsection 1030(a)(5) was amended
"to further protect computers and computer systems covered by the statute from damage both by outsiders, who gain
access to a computer without authorization, and by insiders, who intentionally damage a computer." In discussing the
amendments to subsection (a)(5), the Senate Judiciary Committee noted: In sum, under the bill, insiders, who are
authorized to access a computer, face criminal liability only if they intend to cause damage to the computer, not for
recklessly or negligently causing damage. By contrast, outside hackers who break into a computer could be punished for
any intentional, reckless, or other damage they cause by their trespass.
1996 S. Rep., § IV(1)(E). AOL does not claim NHCD's e-mailers were "outside hackers," or that NHCD "intend[ed] to
cause damage to the computer." Rather, NHCD's e-mailers (or at least Dayton) were members of AOL, accessing AOL's
system as a result of that membership. Realistically, no federal statute currently exists which would prohibit a non-AOL
member from sending UBE to any number of AOL members' e-mail addresses, without ever accessing AOL directly.
AOL's claims against NHCD seem to fall more properly under subsection 1030(a)(2)(C), which proscribes intentionally
accessing a computer either without authorization or in excess of authorized access, and thereby obtaining "information
from any protected computer if the conduct involved an interstate of foreign communication[.]" 18 U.S.C. §
1030(a)(2)(C). Legislative history indicates the "premise of [subsection (a)(2)] is privacy protection[.]" Id. Prior to the
amendment, the statute only protected "information on the computer systems of financial institutions and consumer
reporting agencies, because of their significance to our country's economy and the privacy of our citizens." 1996 S. Rep. at
§ IV(1)(B). The amendment extended the statute's reach to include information held on private computers, under
appropriate circumstances. See id.
The Committee noted intangible information, stored electronically, could be obtained for purposes of the statute not only
by actual physical theft, but by "mere observation of the data," explaining the "crux of the offense under subsection
1030(a)(2)(C), however, is the abuse of a computer to obtain the information." Id. The statute's distinction for purposes of
criminal penalties is instructive in discussing damages for civil purposes; i.e., individuals who obtain information with a
value of $5,000 or less are subject to misdemeanor penalties, while "[t]he crime becomes a felony if the offense was
committed for purposes of commercial advantage or private financial gain[.]" Id. There is no question the information
obtained from AOL was for purposes of NHCD's private financial gain. Thus, it appears the elements of a claim under
subsection (a)(2)(C) have been met, to-wit: (1) NHCD's e-mailers "intentionally accesse[d] a computer"; (2) they
"exceed[ed] authorized access" by violating the Terms of Service; (3) as a result, they obtained information; (4) the
information was obtained from a "protected computer"; and (5) their conduct involved an interstate or foreign
communication.
Nevertheless, even having reached this conclusion, we again arrive at the issue of damages. Even though NHCD's
violation of subsection (a)(2)(C) appears to be much clearer than a violation of (a)(5)(C), AOL still must show NHCD's
UBE caused the requisite damage for purposes of the statute. The court finds such a showing has not been made, and
remains a disputed issue of material fact for trial. Therefore, AOL's motion for summary judgment on this claim is denied.
D. AOL's Claim Under the Virginia Computer Crimes Act
In Count III of its Complaint, AOL claims NHCD violated the Virginia Computer Crimes Act, Virginia Code Annotated §
18.2-152.1 et seq. ("VCCA"), specifically section 18.2-152.3, which provides:
Any person who uses a computer or computer network without authority and with the intent to:
....
(3) Convert the property of another shall be guilty of the crime of computer fraud. . . .
Va. Code Ann. § 18.2-153.3 (1999). The VCCA provides a civil remedy in section 18.2-152.12, for the recovery of
damages. The section provides its remedies are in addition to other available civil remedies, and prescribes damages
applicable to AOL's claim, as follows: If the injury arises from the transmission of unsolicited bulk electronic mail, an
injured electronic mail service provider may also [in addition to damages and costs of suit] recover attorneys' fees and
costs, and may elect, in lieu of actual damages, to recover the greater of ten dollars for each and every unsolicited bulk
electronic mail message transmitted in violation of this article, or $25,000 per day.
Va. Code Ann. § 18.2-152.12(C) (1999).
Application of the VCCA to the facts of this case is a simpler matter than application of the CFAA, largely because of the
VCCA's specific definition of relevant terms. The Virginia statute seems to have been crafted for just the type of injury
alleged by AOL in this case. The statute specifically defines "without authority" as follows:
A person is "without authority" when (i) he has no right or permission of the owner to use a computer or he uses a
computer in a manner exceeding such right or permission or (ii) he uses a computer, a computer network, or the
computer services of an electronic mail service provider to transmit unsolicited bulk electronic mail in contravention of
the authority granted by or in violation of the policies set by the electronic mail service provider.
Va. Stat. Ann. § 18.2-152.2 (1999) (emphasis added).
The court finds Dayton and other e-mailers violated the Virginia statute; however, they are not parties to this lawsuit.
Whether NHCD is liable for Dayton's actions still remains to be determined, as discussed below. If NHCD is liable for its
e-mailers' actions, then AOL is entitled to summary judgment on this claim, with damages to be determined at trial.
E. AOL's Claim for Trespass to Chattels AOL has asserted a common-law claim for trespass to chattels (Count V).
Because the court has found Virginia law applies to AOL's common-law claims, the court looks to the law of that state to
see whether AOL has shown it is entitled to judgment as a matter of law on its common-law trespass to chattels claim.
Neither the statutes nor the case law of Virginia appear to define precisely the tort of trespass to chattels with respect to
personal property. Therefore, the court will look to other law that may be applied by analogy. The Virginia Supreme Court
has noted that when someone illegally seizes another's personal property and converts it to his own use, the property's
owner may bring an action for trespass (among other claims). See Vines v. Branch, 244 Va. 185, 190, 418 S.E.2d 890, 89394 (1992). With respect to real property, the Virginia Code makes it a crime for a person to enter land or buildings for the
purpose of "interfer[ing] with the rights of the owner, user or the occupant thereof to use such property free from
interference." Va. Code § 18.2-121. The Restatement (Second) of Torts indicates "[a] trespass to chattels occurs when one
party intentionally uses or intermeddles with personal property in rightful possession of another without authorization."
AOL v. IMS, 24 F. Supp. 2d 548, 550 (E.D. Va. 1998) (citing Restatement (Second) of Torts § 217(b), and applying the
section in a similar UBE case).
Based on these authorities, it seems reasonable to define a trespass to chattels, under Virginia law, as any unauthorized
interference with or use of the personal property of another. It also seems reasonable to adopt the Virginia standard for
conversion in determining who has standing to assert trespass to chattels; that is, "An action for conversion [or trespass to
chattels] can be maintained only by the person having a property interest in and entitled to the immediate possession of the
item alleged to have been wrongfully converted [or trespassed upon]." Economopoulos v. Kolaitis, 259 Va. 806, 528
S.E.2d 714, 719 (2000) (citing United Leasing Corp. v. Thrift Ins. Corp., 247 Va. 299, 305, 440 S.E.2d 902, 906 (1994)).
See also Acorn Structures, Inc. v. Swantz, 846 F.2d 923, 926 n.1 (4th Cir. 1988) (quoting the Restatement (Second) of
Torts § 228, as follows: "One who is authorized to make a particular use of a chattel, and uses it in a manner exceeding the
authorization, is subject to liability for conversion to another whose right to control the use of the chattel is thereby
seriously violated").
On the issue of damages, the Virginia courts have spoken, noting "[o]ne who commits a trespass to a chattel is liable to its
rightful possessor for actual damages suffered by reason of loss of its use." Vines v. Branch, 244 Va. 185, 190, 418 S.E.2d
890, 894 (1992) (citing Zaslow v. Kroenert, 29 Cal. 2d 541, 551-52, 176 P.2d 1, 7 (1946)).
As noted previously, the court found at the April 17, 2000, hearing that Dayton's actions constituted trespass to chattels,
and NHCD conceded for purposes of AOL's motion for summary judgment that AOL has established a prima facie case of
trespass to chattels by Dayton. This again returns the court to the question, discussed below, of whether NHCD is liable
for Dayton's actions. If the answer is in the affirmative, then AOL is entitled to summary judgment on this claim as a
matter of law, with damages to be determined at trial.
F. AOL's Claims of Civil Conspiracy
AOL argues NHCD was involved in a conspiracy with its contract e-mailers, among others, to violate the CFAA, VCCA,
and commit trespass to chattels. (Doc. No. 1, Count VI; Doc. No. 38, § X) AOL correctly sets forth the elements of civil
conspiracy as applied in the State of Virginia (Doc. No. 38, § X), to-wit: two or more persons engaged in concerted action
either to accomplish a criminal or unlawful purpose, or to accomplish a lawful purpose by criminal or unlawful means, and
resulting in damages. See Commercial Bus. Sys., Inc. v. Bellsouth Servs., Inc., 249 Va. 39, 453 S.E.2d 261 (1995).
However, the court, once again, first must decide the issue of whether or not the contract e-mailers were acting as NHCD's
agents. If they were, then a civil conspiracy is not legally possible because a principal and its agents are, for this purpose,
not separate entities. See Perk v. Vector Resources Group, Ltd., 485 S.E.2d 140 (Va. 1997). If the e-mailers were
independent contractors, then AOL must show NHCD knowingly engaged in concerted action with the e-mailer that were
intended to accomplish a criminal or unlawful purpose. The court finds, on the record before it, that AOL has not met this
burden. Accordingly, either way, summary judgment on the civil conspiracy claim is denied.
G. AOL's Claim of Unjust Enrichment
Count VII of AOL's Complaint states a claim for unjust enrichment, and seeks imposition of a constructive trust "on all
monies received by [NHCD] as a result of its bulk e-mail activities." (Doc. No. 1, ¶ 86) "Unjust enrichment is a quasicontract claim based upon the equitable remedy available when a recipient of a benefit obtains it under conditions where
the receipt amounts to unjust enrichment." Wright v. Cangiano, Chancery No. 15084, 1993 W.L. 946172, at *1 (Va. Cir.
Ct. July 20, 1993) (citing Marine Dev. Corp. v. Rodak, 225 Va. 137, 142 (1983)). It is a common-law doctrine that
provides restitution in the situation where "one person is accountable to another on the ground that otherwise he would
unjustly benefit or the other would unjustly suffer loss." Restatement, Restitution, p. 1 (1937).
The doctrine has been recognized historically in Virginia:
An action for a contract implied in law is to remedy an unjust enrichment. The concept is found in Virginia law as early as
Lawson v. Lawson, 57 Va. (16 Gratt.) 230, discussing the comparison of the concept of assumpsit[,] or an action to recover
money of another had and received which the possessor had no right to retain[,] with contract implied in law. In more
modern times (1919), the Virginia Supreme Court agreed that the action has been extended to "all cases in which the
defendant is bound by ties of natural justice and equity to refund the money . . . from the relation of the parties the law will
imply a debt, and give this action, founded on the equity of the plaintiff's case, as it were, upon a contract - 'quasi ex
contractu' . . . and upon this debt found the requisite undertaking to pay." Rhinehart v. Pirkey, 126 Va. 346 (1919), citing
with approval Clark on Contracts (1894 ed.) § 314, p. 757.
May v. Rainsley Fin. Corp., 32 Va. Cir. 396, 1994 W.L. 1031067, at *1 (Va. Cir. Ct., Feb. 28, 1994). As the Virginia
Supreme Court has explained:
To avoid unjust enrichment, equity will effect a "contract implied in law," requiring one who accepts and receives the
services of another to make reasonable compensation for those services. See Marine Dev. Corp. v. Rodak, 225 Va. 137,
142-44, 300 S.E.2d 763, 765-66 (1983); Ricks v. Sumler, 179 Va. 571, 577, 19 S.E.2d 889, 891 (1942); Hendrickson v.
Meredith, 161 Va. 193, 200, 170 S.E. 602, 605 (1933). The liability to pay for the services is based on an implication of
law that arises from the facts and circumstances presented, independent of agreement or presumed intention. Marine Dev.
Corp., 225 Va. at 142, 300 S.E.2d at 766; Hendrickson, 161 Va. at 200-01, 170 S.E. at 605. The promise to pay is implied
from the consideration received. Id.Po River Water & Sewer Co. v. Indian Acres Club of Thornburg, Inc., 255 Va. 108,
114, 495 S.E.2d 478, 482 (1998).
To recover on its claim for unjust enrichment, AOL must show:
(1) AOL conferred a benefit upon NHCD by rendering services or expending properties;
(2) AOL had a reasonable expectation of being compensated;
(3) The benefits were conferred at the express or implied request of NHCD; and
(4) If NHCD is allowed to retain the benefits without compensating AOL, then NHCD would be unjustly enriched.
See Primrose Devel. Corp. v. Benchmark Acquisition Fund L.P., No. 19161, 1998 W.L. 957312 (Va. Cir. Ct., Oct. 29,
1998).
One remedy for unjust enrichment is imposition of a constructive trust. "A constructive trust is appropriately imposed to
avoid unjust enrichment of a party." Cooper v. Cooper, 249 Va. 511, 517, 457 S.E.2d 88, 92 (1995) (citing Leonard v.
Counts, 221 Va. 582, 589-90, 272 S.E.2d 190, 195-96 (1980)). Moreover,
"Constructive trusts . . . occur not only where property has been acquired by fraud or improper means, but also where it
has been fairly and properly acquired, but it is contrary to the principles of equity that it should be retained, at least for the
acquirer's own benefit."
Rash v. Hilb, Rogal & Hamilton Co., 251 Va. 281, 287, 467 S.E.2d 791, 795 (1996) (citations and emphasis omitted).
"[T]he burden of establishing the grounds for the imposition of a constructive trust [is] by clear and convincing evidence."
Hill v. Brooks, 253 Va. 168, 174, 482 S.E.2d 816, 820 (1997).
Ruffin v. Ruffin, Nos. 1792-99-1, 1804-99-1, 2000 W.L. 198078, at *2 (Va. Ct. App., Feb. 2, 2000).
In considering AOL's claim for unjust enrichment and imposition of a constructive trust, the court notes ab initio that this
claim involves crafting a remedy for AOL's loss. Rather than being an operative rule itself, unjust enrichment is "a
principle which underlies many particular rules." Calamari & Perillo, CONTRACTS § 15-2 (3d ed. 1987). On the record
before the court, this appears to be a "situation[ ] in which one's sense of justice would urge that unjust enrichment has
occurred, yet no relief is available." Id.AOL's motion for summary judgment on this claim must fail for two reasons. First,
AOL has failed, for summary judgment purposes, to meet the considerable burden of showing by clear and convincing
evidence that it is entitled to relief from NHCD. Second, AOL has other remedies at law for any wrong NHCD is proven
to have perpetrated on AOL. "The 'unjust' in 'unjust enrichment' refers to the lack of the plaintiff having a remedy at law
for any wrong perpetrated on him by the defendant." Wright, supra, at *1.
AOL's motion for summary judgment on the basis of unjust enrichment is denied.
H. NHCD's Liability for Acts of Its Contract E-Mailers
The court has found AOL is entitled to summary judgment on its claims for trespass to chattels and violation of the VCCA
- if NHCD is responsible, in law or in equity, for the acts of its contract e-mailers. This requires a determination of
whether the contract e-mailers who sent UBE through AOL's system were acting as NHCD's agents. Under Virginia law,
[a]gency is defined as a fiduciary relationship arising from "the manifestation of consent by one person to another that the
other shall act on his behalf and subject to his control, and the agreement by the other so to act." Allen v. Lindstrom, 237
Va. 489, 496, 379 S.E.2d 450, 454 (1989) (quoting Raney v. Barnes Lumber Corp., 195 Va. 956, 966, 81 S.E.2d 578, 584
(1954)); accord State Farm Mut. Auto. Ins. Co. v. Weisman, 247 Va. 199, 203, 441 S.E.2d 16, 19 (1994); Reistroffer v.
Person, 247 Va. 45, 48, 439 S.E.2d 376, 378 (1994). The party who alleges an agency relationship has the burden of
proving it. Weisman, 247 Va. at 203, 441 S.E.2d at 19; Allen, 237 Va. at 496, 379 S.E.2d at 454.
Hartzell Fan, Inc. v. Waco, Inc., 256 Va. 294, 300, 505 S.E.2d 196, 200 (1998).
The thorny problem for AOL in this case is proving the contract e-mailers were acting 'subject to NHCD's control.'
Further,
[a]n agency relationship is never presumed; to the contrary, the law presumes that a person is acting for himself and not as
another's agent. Moreover, the party alleging an agency relationship bears the burden of proving it. Further, whether an
agency relationship exists is a question to be resolved by the fact finder unless the existence of the relationship is shown
by undisputed facts or by unambiguous written documents. [Citations omitted.]
State Farm Mutual Auto. Ins. Co. v. Weisman, 247 Va. 199, 203, 441 S.E.2d 16, 19 (1994).
While the evidence in this case strongly suggests the e-mailers were NHCD's agents, this is not a question that can be
resolved on summary judgment. The question of whether the e-mailers were acting as NHCD's agents is one of fact - and,
in this case, a material, disputed question of fact. The court finds AOL has failed, albeit only slightly, to show the emailers were acting as NHCD's agents. As a result, this issue remains for trial, and AOL's motion for summary judgment is
denied.
IV. CONCLUSION
Based upon the foregoing analysis, the court finds the plaintiff's motion for summary judgment should be denied. The
court has not addressed in this opinion the additional constitutional claims raised by NHCD in its proposed Amended
Answer and Counterclaim. NHCD's Motion (Doc. No. 70) to amend its Answer and Counterclaim is granted. The
constitutional claims raised in the amended pleading will be addressed at trial.
IT IS SO ORDERED.
th
DATED this 29 day of September, 2000.
________________________________________________________________________
1. AOL also includes in its brief (Doc. No. 38) a section entitled "Defendant has Committed Fraud" (Section VIII), in
which AOL argues NHCD committed common-law fraud, entitling AOL to summary judgment "on Count VII of AOL's
Complaint." As noted above in the enumeration of AOL's claims, Count VII of the Complaint states a claim for unjust
enrichment and imposition of a constructive trust. AOL's Complaint does not include a claim for fraud. Accordingly, to the
extent it is based on a fraud claim, AOL's motion for summary judgment is denied, and the court will not address the fraud
arguments contained in AOL's brief.
2. Another method of advertisement involves the placement of "banner" advertisements on Internet sites, usually for a fee.
A banner advertisement consists of a short phrase appearing on an Internet user's computer screen that encourages the
reader to "click" on the banner, which either results in the reader being provided with more information about the product
or takes the reader to another Internet site sponsored by the advertiser. AOL sells banner advertisements to advertisers.
3. For example, many of the leads provided initially were from other countries, where NHCD did not do business.
4. This e-mail contains, inter alia, the following:
I am serious about getting more involved in these mailings, however, I have a problem getting them processed by noon on
Mondays for the payroll. It would be an immense help if you could send them 2 me midweek & Sat. That way if there is a
glitch, as today I can make the payroll.
I have 2 t-1's which can be modified for internet . . . if you were to use them for mailings for me would there be any
advantage over what you are now doing. Can you send out more with less risk of shutdown? Pls let me know.
(Doc. 31, Tab 16)
5. AOL v. Forrest Dayton, et al., No. CA98-1815-A (E.D. Va.). In the lawsuit, a judgment was entered in which Dayton
was enjoined from transmitting unsolicited bulk e-mail communication over AOL's computer networks, from harvesting
AOL member e-mail addresses, and from engaging in any activity that would constitute the unauthorized use of AOL
computers. He stipulated that he was responsible for the acts of his "independent contractors," and he was liable to AOL
for $1,200,000.00.
6. This low response ratio reflects the fact that most recipients of UBE do not respond.
7. This estimate is much larger than Histand's estimate of 76,402,500 UBEs sent over AOL's system, which was an
extrapolation from the number of complaints received. See page 9, supra.
8. For purposes of this analysis only, the court will assume NHCD is responsible for the conduct of its contract e-mailers.
9. On this record, there is no evidence NHCD sent out any bulk e-mail other than through contract e-mailers.
10. See AOL's brief, Doc. No. 38, at 3-4; NHCD's brief, Doc. No. 59, at 2-5.
11. Note subsection (1) states this section applies to "an issue in tort"; thus, the section 145 analysis will apply only to
AOL's claims in Count V (trespass to chattels) and that portion of Count VI (civil conspiracy) relating to trespass to
chattels. Counts I and III are statutory causes of action governed by the statutes themselves. Count VII, unjust enrichment,
is a quasi-contractual claim that requires analysis under section 6 of the Restatement, discussed infra in this Section.
12. However, there is nothing in this record to indicate which, if any, of the contract e-mailers besides Dayton actually
utilized AOL to send UBE for the purpose of soliciting leads on NHCD's behalf. 13. I.e., by "affidavits . . . supplemented
or opposed by depositions, answers to interrogatories, or further affidavits." Fed. R. Civ. P. 56(e).
14. As stated in footnote 7, supra, for purposes of this analysis, the court will assume NHCD is responsible for the conduct
of its contract e-mailers.
argument in support of its claims under subparagraphs (A) and (B). As discussed infra in this opinion, the CFAA initially
contained only criminal penalties. Subparagraph (A), which applies to an "insider" who intentionally causes damages to a
protected computer, and subparagraph (B), which applies to an "outsider" who accesses a protected computer and
recklessly causes damage, both carry five-year prison sentences for a The court noted, in dicta, "Lawmakers around the
country have determined that when a computer's data is there is damage; when a computer's services are interrupted, there
is damage; and when a computer's software or network is altered, there is damage." Id. at *3.
15. The court will limit its consideration of AOL's claim to subsection (a)(5)(C), because AOL has advanced no first
offense. Subparagraph (C), which applies to an "outsider" who accesses a protected computer and causes damage
apparently without regard to intent; i.e., intentionally, recklessly, or inadvertently), carries a one-year sentence for a first
offense. 18 U.S.C. § 1030(c)(2)(A) and (B). Civil remedies were added to the statute by the 1994 amendments. For
purposes of a civil claim against an "outsider," there is no reason for AOL to assume the higher burden required by
subparagraph (B), instead of the lower burden required by subparagraph (C). However, to the extent NHCD's e-mailers
may have been "insiders," as "members" of AOL, AOL has not sought summary judgment under subsection (A).
16. A "protected computer" is defined in 18 U.S.C. § 1030(e)(2)(B) as any computer "which is used in interstate or foreign
commerce or communication."
17. The statute does define the phrase "exceeds authorized access" as "to access a computer with authorization and to use
such access to obtain or alter information in the computer that the accesser is not entitled so to obtain or alter." 18 U.S.C. §
1030(e)(6). In a case with analogous facts to the present one, the court found AOL member addresses obtained by a bulk
e-mailer were proprietary "information" for purposes of the statute. See AOL v. LCGM, Inc., 46 F. Supp. 2d 444, 450-51
(E.D. Va. 1998).
18. See American Guarantee & Liability Ins. Co. v. Ingram Micro, Inc., ___ F.3d ___, 2000 W.L. 726789 (D. Ariz. Apr.
18, 2000), where the court found the term "physical damage" was "not restricted to the physical destruction or harm of
computer circuitry but includes loss of access, loss of use, and loss of functionality." Id. at *2.
unavailable,