Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_09-cv-03503/USCOURTS-cand-3_09-cv-03503-1/pdf.json

Nature of Suit Code: 890
Nature of Suit: Other Statutory Actions
Cause of Action: 28:1332 Diversity-Other Contract

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United States District Court 

For the Northern District of California 

IN THE UNITED STATES DISTRICT COURT 

FOR THE NORTHERN DISTRICT OF CALIFORNIA 

ASIS INTERNET SERVICES, a 

California corporation, and JOEL 

HOUSEHOLTER, dba KNEELAND 

ENGINEERING, dba FOGGY.NET, 

Plaintiffs, 

v. 

SUBSCRIBERBASE INC., et al., 

Defendants. 

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Case No. 09-3503 SC 

ORDER DENYING DEFENDANTS' 

MOTION TO DISMISS

I. INTRODUCTION

 Plaintiffs Asis Internet Services ("Asis") and Joel 

Householter, dba Foggy.Net ("Foggy") (collectively, "Plaintiffs"), 

brought this suit against Defendants Subscriberbase, Inc., et al. 

("Defendants"), for alleged violations of section 17529.5 of the 

California Business & Professions Code.1 Docket No. 1 ("Compl."). 

This Court granted Defendants' previous motion to dismiss for 

failure to state a claim, and described the information that 

Plaintiffs needed to include in order to plead their deceit-based 

claims with particularity. Docket No. 15 ("Dec. 4, 2009 Order"). 

Plaintiffs filed a First Amended Complaint that comported with the 

Court's guidance. Docket No. 17 ("FAC"). Now Defendants have 

 

1

 Throughout this Order, all citations to "sections" are to the 

California Business & Professions Code unless otherwise stated. 

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United States District Court

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filed a second Motion to Dismiss ("Motion"), on substantially 

identical grounds to their previous motion. Docket No. 20. The 

Motion is fully briefed. Docket Nos. 22 ("Opp'n"), 23 ("Reply"). 

For the reasons stated below, the Court DENIES the Motion. 

II. DISCUSSION

 Plaintiffs seek to hold Defendants liable for violations of 

section 17529.5 of the California Business & Professions Code 

("section 17529.5"), which is part of California's False 

Advertising Law ("FAL"), Cal. Bus. & Prof. Code §§ 17500 et seq. 

The parties are familiar with the factual background of this 

dispute, as well as the legal standards applicable to Defendants' 

Motion to Dismiss, which this Court set out in its previous Order. 

Dec. 4, 2009 Order at 2-5. Although Plaintiffs have provided more 

detail in their FAC, the allegations remain substantially the same 

as in their original Complaint. 

A. Whether Plaintiffs Have Pled that Email Subject Lines 

Were False, or Known to Be Likely to Mislead a Recipient 

Acting Reasonably Under the Circumstances

The first question before the Court is whether Plaintiffs have 

sufficiently alleged that Defendants sent e-mail advertisements 

with "subject line[s] that a person knows would be likely to 

mislead a recipient, acting reasonably under the circumstances, 

about a material fact regarding the contents or subject matter of 

the message." Cal. Bus. & Prof. Code § 17529.5(a)(3). Plaintiff 

is alleging that the subject lines purport to offer the recipient 

"free" gifts, or some clever synonym for the same, while in fact 

the emails and associated web pages offer gifts only to those who 

perform additional affirmative acts, such as signing up for credit 

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cards or submitting loan applications. Dec. 4, 2009 Order at 10; 

FAC ¶ 20. 

1. Whether a Recipient Would Likely Be Deceived

In the submissions related to the first motion to dismiss, the 

parties only briefly touched upon the question of whether the 

subject lines in Defendants' emails would be likely to deceive a 

reasonable recipient. Defendants have made this question a focus 

of their current Motion. Mot. at 6-10. Defendants claim that this 

is a question of law to be undertaken by the Court at the dismissal 

stage. Id. at 7. For support, Defendants mistakenly cite to Lavie 

v. Procter & Gamble Co., which stated that "[t]he standard to be 

used in evaluating whether an advertisement is deceptive under the 

UCL is purely a question of law and certainly has important public 

policy implications for California consumers and businesses." 105 

Cal. App. 4th 496, 503 (Ct. App. 2003). 

 The Court disagrees with Defendants' reading of Lavie. Lavie

did not suggest that the question of whether an ad was deceptive 

was a question of law; it held that the question of which standard 

to use in making that determination was a question of law. The 

appellate panel in Lavie was discussing whether it could consider a 

new issue that was raised for the first time on appeal, in an 

amicus brief submitted by the California Attorney General. Id. at 

503. It concluded that it could do so as long as "the issue posed 

is purely a question of law based on undisputed facts . . . ." Id.

(quoting Fisher v. City of Berkeley, 37 Cal. 3d 644, 654-55 n.3 

(1984)). The particular issue that the Attorney General raised had 

to do with whether the trial court should have used a "least 

sophisticated consumer" standard rather than a "reasonable 

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consumer" standard to determine whether the advertisements were 

likely to mislead or deceive the public. Id. at 502. In other 

words, the issue was not whether a reasonable person would be 

deceived by the advertisements in question, but rather which 

standard of "reasonable" the court should use to resolve that 

question. That was clearly a question of law. 

 In contrast, the question here is whether a reasonable 

consumer2 is likely to be deceived by Defendants' subject headings. 

This is clearly a question of fact, which is best left for a jury, 

unless "[n]o reasonable trier of fact could conclude otherwise." 

Colgan v. Leatherman Tool Group, Inc., 135 Cal. App. 4th 663, 682 

(Ct. App. 2006). Various California authorities maintain that 

whether a reasonable consumer would be deceived by a particular ad 

or practice is a question of fact. For example, in Consumer 

Advocates v. Echostar Satellite Corp., a California appellate court 

found "a triable issue of fact on the relevant point, whether . . . 

representations are likely to deceive a reasonable consumer." 113 

Cal. App. 4th 1351, 1361-62 (Ct. App. 2003); see also Mazza v. Am. 

Honda Motor Co., 254 F.R.D. 610, 627 (C.D. Cal. 2008) (question of 

 

2

 Defendants contend that this Court should not use a general 

reasonable consumer standard to weigh the likelihood of deception, 

but rather a special (presumably more rigorous) standard to apply 

to "internet users." Mot. at 7. Defendants again cite Lavie for 

this proposition. However, Lavie didn't say that a more rigorous 

standard should apply where advertisements might target a 

sophisticated group; rather, it held that "unless the advertisement 

targets a particular disadvantaged or vulnerable group, it is 

judged by the effect it would have on a reasonable consumer." 105 

Cal. App. 4th at 506-07. The FAC does not suggest that Defendants 

were targeting any particular group. "Internet users" and email 

are now too ubiquitous to make this a useful class, as 

distinguishable from general consumers. Of course, the ultimate 

fact finder will eventually need to consider whether a recipient 

would be likely to be misled if "acting reasonably under the 

circumstances . . . ." Cal. Bus. & Prof. Code § 17529.5(a)(3). 

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whether omission would be likely to deceive reasonable consumer was 

"common issue of fact" among class). Similarly, the question of 

whether particular practices are likely to deceive members of the 

public is generally treated as a question of fact when it arises 

under California's related Unfair Competition Law ("UCL"), Cal. 

Prof. & Bus. Code §§ 17200 et seq. See, e.g., People v. McKale, 25 

Cal. 3d 626, 635 (1980) (allegations that customers "are likely to 

be deceived" by particular practice "are sufficient to withstand 

demurrer"). California Courts have therefore found that "[w]hether 

a practice is deceptive, fraudulent, or unfair is generally a 

question of fact which requires consideration and weighing of 

evidence from both sides and which usually cannot be made on 

demurrer." Linear Tech. Corp. v. Applied Materials, Inc., 152 Cal. 

App. 4th 115, 134 (Ct. App. 2007) (citation and internal quotation 

marks omitted). 

 Defendants therefore have the relatively heavy burden of 

persuading this Court that no reasonable fact finder could conclude 

that the email subject lines were "likely to mislead a recipient, 

acting reasonably under the circumstances, about a material fact 

regarding the contents or subject matter of the message." Cal. 

Bus. & Prof. Code § 17529.5(a)(3); Colgan, 135 Cal. App. 4th at 

682. Defendants rely on Freeman v. The Time, Inc., Magazine Co., 

but this case is distinguishable. 68 F.3d 285 (9th Cir. 1995). In 

Freeman, the Ninth Circuit affirmed the dismissal of an FAL claim 

that involved an offer to enter a sweepstakes, where the offer 

included language that indicated that the recipient had already won 

a prize. Id. at 289. Because the terms of the offer were adjacent 

to the offer itself, the Ninth Circuit held that dismissal was 

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appropriate because no reasonable recipient could have been 

deceived into thinking that he or she had won the sweepstakes. Id. 

As the panel explained: 

The promotions expressly and repeatedly state the 

conditions which must be met in order to win. 

None of the qualifying language is hidden or 

unreadably small. The qualifying language 

appears immediately next to the representations 

it qualifies and no reasonable reader could 

ignore it. Any persons who thought that they had 

won the sweepstakes would be put on notice that 

this was not guaranteed simply by doing 

sufficient reading to comply with the 

instructions for entering the sweepstakes.

Id. at 289-90. 

Defendants also rely on Haskell v. Time, Inc., which is also 

inapposite. 857 F. Supp. 1392 (E.D. Cal. 1994). Haskell addressed 

similar mass mailings that involved sweepstakes and used puffed 

language to entice responses. Id. at 1399-403. That decision 

noted that "[a]ny reasonable recipient, even if unsophisticated, 

understands that these are mass mailings as part of an advertising 

campaign. The rules are set forth clearly, in a box headed 'How 

the Sweepstakes Works,' and reveal the projected odds of winning 

any prize." Id. at 1399-400. The Court noted the plaintiff's 

attempt to distort the content of the mailers to support his claim: 

The complaint alleges that the solicitation 

states that the recipient "has just won Ten 

Million Dollars!" In fact, the exemplar states, 

"If the Address Label below contains the winning 

number and you return it . . . . you'll see on 

NBC TV that you've just won ten million dollars!" 

No reasonable recipient could view this mass 

mailing as an announcement that the recipient in 

fact had been selected as the winner. 

Id. at 1400-01.3

 

3

 The mailers in Freeman involved language that was similar to that 

in Haskell, with similar qualifiers immediately adjacent to any 

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 Turning to the email subject lines cited by Plaintiffs in 

their FAC, the Court finds that these do not present the clear case 

presented by Freeman and Haskell. Unlike the express conditions 

juxtaposed with every assurance in those cases (e.g., "If the 

Address Label below contains the winning number . . ."), many of 

the subject headings in Defendants' emails include no conditional 

language. See, e.g., FAC Ex. J ("List of Emails Received by Asis") 

at 5 (e.g., "Get the latest BlackBerry Storm phones on our tab!"). 

Many of these offers are couched as offers to employ the recipient 

as some type of consumer reviewer. For example: 

• "Take a 15 second online survey to get $500 bucks from our 

sponsor to shop at Dollar General & more for Free" 

• "Review & Keep Designer Handbags worth $1500 Dollars-guys 

invited too" 

• "Test & Keep a BlackBerry Storm (Paid by Sponsors)" 

• "How would you like to be chosen to test and keep a Hi 

Definition TV?" 

• "Mystery Shoppers-Rate Local Retail Stores - Shop and Keep 

$1000 Worth-Limited Applicants Needed" 

Id. at 2, 13, 16, 19. 

 The Court finds that the above-quoted language is less 

cautious than the representations made in the sweepstakes mailers 

at issue in Freeman and Haskell. In particular, this Court notes 

that the Court in Haskell explicitly rebuked the plaintiff for 

attempting to recast the clearly qualified language in the mailers 

 

apparent assurance of winning. 68 F.3d at 287 ("If you return the 

grand prize winning number, we'll officially announce that MICHAEL 

FREEMAN HAS WON $1,666,675.00 AND PAYMENT IS SCHEDULED TO BEGIN."). 

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("If the Address Label below contains the winning number and you 

return it . . . . you'll see on NBC TV that you've just won ten 

million dollars!") as unqualified assurances that the recipient had 

won a prize ("the recipient 'has just won Ten Million Dollars!'"). 

857 F. Supp. at 1400-01. Here, many of Defendants' subject lines 

do include unqualified assurances, and Plaintiffs have no need to 

recast the subject lines. Similarly, the panel in Freeman made 

specific mention of the fact that the language in the mailers 

"expressly and repeatedly state[ing] the conditions which must be 

met in order to win" was situated immediately adjacent to any 

offers. 68 F.3d 285, 289. 

 This is not to say that Defendants' emails were completely 

devoid of notice that terms existed, or that the "gifts" may not be 

unreservedly free. There were two ways that the emails included 

qualifications. First, some of the emails included some sort of 

qualifying language in the subject heading itself. Second, all of 

the emails included fine print4

 at the bottom of the 

communications, which stated that terms and conditions apply, and 

which also included links to landing pages that describe the terms 

and conditions in more detail. See FAC ¶ 20. 

 Many of the subject lines in Defendants' emails contain a wide 

variety of potentially "conditional" or "qualifying" phrases, which 

may, to varying degrees, mitigate any likelihood of misleading a 

reasonable consumer. The language in the subject lines is so 

varied that it could be arranged into a spectrum of sorts. Some of 

the statements cited above contain no qualifying language 

 

4

 The font on the notice of conditions is typically smaller than 

and spatially separate from the body of the emails. 

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whatsoever, and appear to be unconditional promises of rewards or 

lucrative positions. See, e.g., List of Emails Received by Asis at 

13 ("Test & Keep a BlackBerry Storm (Paid by Sponsors)"). Moving 

down the spectrum, some headings use language that is arguably more 

ambiguous as to the existence of terms and conditions, such as "let 

us buy you . . . ." Id. at 10 ("Let us buy you the new Blackberry 

Storm"). Others use language that suggests that the recipient may 

only have an opportunity to receive a gift. Id. at 13 ("You could 

get the newest BlackBerry Storm phone - [we'll] pay").5 Some 

subject lines pose questions. Id. at 16 ("Would you like to test 

and keep a designer bag?"). Still other subject lines append 

statements like "details apply" or "with participation." Id. at 8, 

27 ("Get the latest BlackBerry Storm phones on our tab (details 

apply)!"). At the dismissal stage, this Court will not attempt to 

draw an arbitrary line, and state that all subject lines with this 

kind of phrasing have no likelihood of deceit, while all subject 

lines with that kind of phrasing are likely to deceive. The Court 

is satisfied that a reasonable fact finder could conclude that a 

large number of the subject lines could mislead a reasonable 

recipient, and it will leave to the fact finder the task of 

determining which qualifying language successfully mitigates any 

likelihood of deception. 

 The Court also concludes that the language of the statute 

prevents the Court from considering, at this stage, whether the 

likelihood of deception is mitigated by the fine print in the 

 

5

 The excerpt actually displays "we,Äôll" instead of "we'll." 

Plaintiffs contend that the character anomaly is indicative of 

Defendants' attempt to circumvent spam-blocking software. Opp'n at 

2 n.2. This could also be caused by an encoding issue in 

Plaintiffs' email client or web-browsing software. 

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bodies of the email (which contain vague notices that conditions 

exist), or by the actual recitation of those terms and conditions 

on the landing pages (available through a hyperlink in the email's 

body). Although the panel in Freeman considered "the promotion as 

a whole" to determine if it was likely to mislead, it was 

addressing allegations that the promotion violated section 17500 of 

the FAL. That section does not focus on any particular portion of 

the allegedly deceitful statement or communication. In contrast, 

the statute at issue in this suit, section 17529.5(a)(3), focuses 

on the subject line. It expressly prohibits subject lines that are 

likely to mislead "about a material fact regarding the contents or 

subject matter of the message." Cal. Bus. & Prof. Code 

§ 17529.5(a)(3). Section 17529.5(a)(3) does not turn on whether a 

subject line is true or false, taken in the context of the email as 

a whole or in light of a hyperlinked page. It asks a very 

different question: whether the subject line might in fact lead a 

reasonable person to expect something materially different than the 

message's actual content or subject matter. In this context, it is 

inappropriate to suggest that a subject line is not deceptive 

because of corrective disclaimers in the fine print of the message 

itself, or terms written in a hyperlinked page.6

 

 Of course, a misrepresentation must be material to violate 

section 17529.5(a)(3). A finder of fact may therefore reasonably 

 

6

 Plaintiff's citation to Net2Phone, Inc. v. Superior Court, 109 

Cal. App. 4th 583, 588-89 (Ct. App. 2003) is inapposite. That case 

found that a forum selection clause in a hyperlinked document might 

be enforceable. The issue here, as framed by section 17529.5, is 

not whether the terms and conditions might be enforceable, but 

whether the "contents and subject matter" of the message and the 

landing page might be materially different from what a reasonable 

recipient may expect, based on the subject lines. 

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consider the body of an email or a hyperlinked page in determining 

whether misrepresentations in the subject lines were actually 

material. This is an inquiry best left for the finder of fact. 

 The Court finds that Plaintiffs have plausibly alleged that 

the emails in question contained subject lines that were likely to 

mislead a recipient acting reasonably under the circumstances. 

While it is not clear that a finder of fact will ultimately 

conclude that each and every email implicated by the FAC has a 

likelihood of material deception, Plaintiffs have met their burden 

at the dismissal stage. 

2. Defendants' Critique of the Federal Trade Commission 

Guidance

A substantial amount of Defendants' supporting memorandum 

addresses guidance issued by the Federal Trade Commission ("FTC"), 

16 C.F.R. § 251, which sets out a standard for the use of the term 

"free" in ads and product labeling. See Mot. at 4-5. Defendants 

do not raise this guidance as an argument that vindicates their 

subject lines; rather, they are responding to an argument that 

Plaintiffs have raised in their Complaint and FAC, and which they 

argued in their Opposition to the previous Motion to Dismiss. 

Plaintiffs cite this guidance on several occasions, and suggest 

that California courts look to this guidance to help determine when 

the term "free" or similar terms are misused. See Docket No. 7 

("Opp'n to First Motion to Dismiss") at 14; FAC. ¶ 18. 

This issue was fully briefed in connection with the first 

motion to dismiss. This Court previously concluded that Plaintiffs 

had sufficiently alleged that the subject headings were false, Dec. 

4, 2009 Order at 10-11. The Court deliberately did not rely upon 

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16 C.F.R. § 251 in reaching this conclusion. By this Order, the 

Court reaffirms its earlier conclusion, and it now explicitly 

declines to rely upon 16 C.F.R. § 251. Defendants' attempt to take 

issue with an argument made by Plaintiffs, but not adopted by this 

Court, does not disturb this Court's ruling. 

B. Whether Plaintiffs Have Adequately Pled Defendants' 

 Knowledge

Section 17529.5(a)(3) forbids "any person or entity" from 

advertising in California through an email advertisement that has a 

subject line "that a person knows" is likely to be mislead. Cal. 

Bus. & Prof. Code § 17529.5(a)(3). Defendants claim that 

Plaintiffs have failed to plausibly plead that Defendants "knew" 

that the email subject lines were likely to deceive, because 

Defendants did not send the emails themselves. Instead, they 

"contract with third parties to send lawful commercial email 

advertisements under circumstances that do not permit the 

examination of every such advertisement." Mot. at 11. 

To support their position, Plaintiffs cite to Asis Internet 

Services v. Optin Global, Inc., No. 05-5124, 2008 U.S. Dist. LEXIS 

34959, *58 (N.D. Cal. April 29, 2008). The court in Optin Global 

rejected, on summary judgment, the plaintiff's section 17529.5 

claims because the defendant "did not send the offending spam. Nor 

did it knowingly 'procure' the spam . . . ." Id. At most, the 

defendant in that case had benefitted from the spam emails that 

other parties had sent, and the Court concluded that this was 

insufficient to establish that the defendant had "advertised" under 

section 17529.5. Id. This case does not help Defendants. The 

decision was issued in response to cross motions for summary 

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judgment, and not at the dismissal stage. In Optin Global the 

court was able to rely on the structure of the defendant's 

relationship with the entities that had sent the emails, which may 

or may not have been the same as the relationships that Defendants 

had with the senders in this suit. See id. at *5-7. At this stage 

of the litigation, such information is not part of the record that 

is available to this Court. This Court is only aware that 

Defendants readily admit that they used "contractors to send emails 

that entice consumers to visit" their web pages. Mot. at 11-12. 

This is sufficient to render Plaintiff's allegations, that 

Defendants knew that the subject lines of the emails were likely to 

deceive the recipients, plausible. 

Defendants also fault Plaintiffs for failing to successfully 

allege that Defendants acted as part of a conspiracy. Mot. at 12-

14. The Court fails to see how such allegations are a necessary 

element in Plaintiffs' cause of action. 

C. Whether Plaintiffs Have Standing

Defendants now argue that Plaintiffs fail to meet the standing 

requirements of Proposition 64, which "amended the unfair 

competition law to provide that a private plaintiff may bring a 

representative action under [the UCL or the FAL] only if the 

plaintiff has 'suffered injury in fact and has lost money or 

property as a result of such unfair competition'. . . ." Arias v. 

Super. Ct., 46 Cal. 4th 969, 977-78 (2009). As California's 

Supreme Court has described: 

Proposition 64 accomplishes its goals in 

relatively few words. The measure amends section 

17204 [as well as section 17535], which 

prescribes who may sue to enforce the UCL [and 

FAL], by deleting the language that had formerly 

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authorized suits by any person "acting for the 

interests of itself, its members or the general 

public," and by replacing it with the phrase, 

"who has suffered injury in fact and has lost 

money or property as a result of [violation of 

this chapter]." 

Californians for Disability Rights v. Mervyn's, LLC, 39 Cal. 4th 

223, 228 & n.2 (2006) (language in brackets added to conform with 

Cal. Bus. & Prof. Code § 17535, which was subject to "identical 

changes"). The particular sections of the UCL and FAL that 

Proposition 64 amended were the provisions that authorize litigants 

to pursue equitable relief, and which authorize courts to grant 

such relief. See Cal. Bus. & Prof. Code §§ 17203, 17204, 17535. 

Plaintiffs who seek injunctive or other equitable relief under the 

UCL or FAL therefore necessarily invoke the provisions amended by 

Proposition 64, by relying on those sections. 

The problem with Defendants' argument is that section 17529.5 

includes independent, non-exclusive standing and remedy provisions, 

which explicitly authorize "electronic mail service provider[s]" 

("EMSPs") to bring a suit for liquidated damages against an entity 

that violates section 17529.5.7 Cal. Bus. & Prof. Code 

§ 17529.5(b). This section was not amended by Proposition 64. It 

contains no requirement that EMSPs suffer injury in fact, or lose 

money or property as a result of a violation. By invoking this 

section, and by not seeking any injunctive relief under section 

17535 of the FAL, or any other provision that was amended by 

 

7

 Section 17529.5 also may be enforced by the Attorney General or 

"[a] recipient of an unsolicited commercial e-mail advertisement." 

Cal. Bus. & Prof. Code § 17529.5(b)(1)(A). The liquidated damages 

provision authorizes recovery of $1000 per offending email, up to 

one-million dollars "per incident," which is reduced tenfold if the 

Court finds that the defendant took care to establish procedures 

that prevent violations. Id. § 17529.5(b)(1)(B)(ii), (b)(2). 

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Proposition 64, Plaintiffs have avoided the standing requirements 

imposed by the ballot initiative. 

Defendants argue that this Court should nevertheless impose 

the requirements of Proposition 64 upon Plaintiffs in this case, 

and conclude that EMSPs must show that they have "suffered injury 

in fact and [have] lost money or property," just like a FAL 

plaintiff who seeks injunctive relief -- even though the special 

standing provisions of section 17529.5(b) clearly lack this 

requirement.8 Mot. at 14-16. Defendants support this argument by 

citing "the clear intent of the electorate" who passed Proposition 

64. Id. at 15. The Court must therefore examine the intent and 

purpose behind Proposition 64, to determine if it is incompatible 

with the special standing provision of section 17529.5. See Credit 

Suisse First Boston Corp. v. Grunwald, 400 F.3d 1119 (9th Cir. 

2005) (when interpreting California law, courts may consider 

whether "literal meaning of a statute comports with its purpose" 

(citation omitted)). 

This invitation, to effectively rewrite a provision in the 

California Business and Professions Code, is not to be taken 

lightly. As a California Court of Appeal has explained: 

When a later statute supersedes or substantially 

modifies an earlier law but without expressly 

referring to it, the earlier law is repealed or 

partially repealed by implication. The courts 

assume that in enacting a statute the Legislature 

 

8

 This Court previously found that Plaintiffs had stated sufficient 

harm to establish Article III standing. Dec. 4, 2009 Order at 11; 

see also Asis Internet Servs. v. Consumerbargaingiveaways, LLC, 622 

F. Supp. 2d 935, 939-40 (N.D. Cal. 2009) ("Plaintiffs, as internet 

service providers, certainly suffer Article III injury from false 

or misleading advertising in spam email messages: spam annoys their 

customers, thus hurting business, and forces them to expend 

resources to filter and combat the spam."). Defendants have not 

challenged this conclusion. 

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was aware of existing, related laws and intended 

to maintain a consistent body of statutes. Thus 

there is a presumption against repeals by 

implication; they will occur only where the two 

acts are so inconsistent that there is no 

possibility of concurrent operation, or where the 

later provision gives undebatable evidence of an 

intent to supersede the earlier; the courts are 

bound to maintain the integrity of both statutes 

if they may stand together. 

People v. Bustamante, 57 Cal. App. 4th 693, 699 (Ct. App. 1997) 

(quoting Sacramento Newspaper Guild v. Sacramento County Bd. of 

Supervisors, 263 Cal. App. 2d 41, 54-55 (Ct. App. 1968)) (citations 

omitted). These principles apply to initiative measures as well as 

to legislative amendments. Id. at 699 n.5. 

 The language of Proposition 64 and the description of the 

effects of the ballot measure, as provided in the Official Voter 

Information Guide ("OVIG"), does create some tension with section 

17529.5. See Defendants' Request for Judicial Notice ("Defendants' 

RJN"), Docket No. 21, Ex. B ("OVIG") at 38, 109.9 In particular, 

the OVIG explained that, without the measure, a plaintiff was "not 

required to show that he/she suffered any injury or lost money or 

property. . . . This measure prohibits any person . . . from 

bringing a lawsuit for unfair competition unless the person has 

suffered injury or lost money or property." Id. at 38. The 

enacted provision also states that the pre-Proposition 64 law was 

"being misused by some private attorneys who . . . [f]ile lawsuits 

where no client has been injured in fact." Id. at 109. It also 

expressed concerns that abusive attorneys were filing suits for 

clients who had never "viewed the defendant's advertising . . . ." 

 

9

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public record. See United States v. 14.02 Acres, 547 F.3d 943, 955 

(9th Cir. 2008). 

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Id. 

 Nevertheless, this Court is not persuaded that the special 

standing provisions of section 17529.5 are incompatible with the 

amendments of Proposition 64. This is because the standing 

provisions of this section were unique prior to the passage of 

Proposition 64. Under the UCL and FAL, both before and after the 

passage of Proposition 64, plaintiffs are typically restricted to 

seeking injunctive or other equitable relief. See In re Tobacco II 

Cases, 46 Cal. 4th 298, 312 (2009) ("A UCL action is equitable in 

nature; damages cannot be recovered." (quotation marks and citation 

omitted)). The provisions that authorized this kind of relief 

"expressly conferred standing to sue upon 'any person acting for 

the interests of . . . the general public' without requiring a 

showing of actual injury." Branick v. Downey Savings & Loan Assn., 

39 Cal. 4th 235, 241-42 (2006) (quoting pre-Proposition 64 standing 

provision in section 17204). This was an extremely broad class of 

entities (i.e., the general public), and Proposition 64 was clearly 

aimed at curbing the nearly limitless scope of standing under the 

FAL, as well as the abusive litigation that it allowed. In 

contrast, section 17529.5 authorized liquidated damages only for 

the Attorney General, EMSPs, and the actual recipients of the 

unsolicited and prohibited emails -- it was never open to the 

general public. Even before Proposition 64, the class of entities 

that could bring suit as potential plaintiffs under section 

17529.5(b)(1)(B)(2) was significantly more limited than the class 

of entities that could seek injunctive relief for any violation of 

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the FAL.10 Moreover, the target of the statute is much narrower 

than that of the UCL and FAL -- it is crafted to discretely target 

email advertisers, rather than businesses or advertisers generally. 

It was therefore never subject to the same scope of abuse as the 

general provisions of the UCL and FAL. 

 This Court will not take it upon itself to rewrite the plain 

language of section 17529.5(b)(1)(A) to include a requirement for 

"lost money or property" as a prerequisite for standing. In the 

absence of clear evidence that Proposition 64 was intended to 

modify this provision, the Court finds that it need not take such 

drastic action. Section 17529.5 targets a discrete wrong, and 

provides standing requirements that are distinct from those of 

general FAL claims. These requirements were not clearly addressed 

or disturbed by Proposition 64 or the ballot initiative material 

that this Court has reviewed. 

D. Whether Plaintiff's Claims are Preempted by the CAN-SPAM

Act

The CAN-SPAM Act11 was intended to create a national standard 

for regulating mass-commercial emails, and to that end, it 

"supersedes any statute . . . except to the extent that any such 

statute . . . prohibits falsity or deception in any portion of a 

commercial electronic mail message . . . ." 15 U.S.C. 

§ 7707(b)(1). Defendants argue that this provision only saves 

state claims that include each and every element of common law 

 

10 Prior to Proposition 64, other entities could conceivably have 

brought suit for violations of section 17529.5(a), as long as they 

sought only injunctive relief under section 17535, but not if they 

sought liquidated damages under section 17529.5(b). 

11 "CAN-SPAM" stands for "Controlling the Assault of Non-Solicited 

Pornography and Marketing." 

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fraud, including reliance and damages. Mot. at 11-13. 

 In California, the elements of a fraud claim include (a) 

misrepresentation; (b) knowledge of falsity; (c) intent to defraud; 

(d) justifiable reliance; and (e) resulting damage. Lazar v. 

Super. Ct., 12 Cal. 4th 631, 638 (1996). In this suit, Plaintiffs 

have not pled the last two elements, reliance and damages. These 

elements are not required by the FAL, under which "one need not 

plead and prove the elements of a tort. Instead, one need only 

show that members of the public are likely to be deceived." 

Freeman, 68 F.3d at 289. Section 17529.5(a)(3) allows suits 

against advertisers who knowingly send emails with subject lines 

that are "likely to mislead a recipient." Cal. Bus. & Prof. Code 

§ 17529.5(a)(3). It allows selected entities to bring suits for 

statements that are merely "potentially" misleading -- i.e., 

statements upon which nobody has relied, and which have caused no 

"damages" by or through the falsehoods themselves -- so long as the 

plaintiff can prove a "likelihood" of deception. The question is 

whether this sufficiently targets "falsity or deception" to avoid 

preemption under 15 U.S.C. § 7707(b)(1). 

1. Whether Virtumundo Requires State Statutes to 

Include the Elements of Reliance and Damages

 Defendants rely upon Gordon v. Virtumundo, 575 F.3d 1040 (9th 

Cir. 2009), which they claim controls the preemption question at 

hand. Mot. at 11-12. Virtumundo considered a cause of action and 

a Washington statute that are both distinguishable from the claim 

that Plaintiffs now advance under section 17529.5. Virtumundo

affirmed a summary judgment against a plaintiff who sought to hold 

the defendants liable for sending messages that did not clearly 

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display the identity of the sender. The court concluded that this 

amounted to allegations that the defendants sent messages that 

contained, "at best, incomplete or less than comprehensive 

information regarding the sender." 575 F.3d at 1064. Assuming 

that such activity violated the Washington statute, this did not 

amount to "falsity or deception" as used in the savings provision 

because "[t]here is of course nothing inherently deceptive in 

Virtumundo's use of fanciful domain names." Id. at 1063. The 

plaintiff's "alleged header deficiencies relate to, at most, nondeceptive statements or omissions . . . ." Id. at 1064. The panel 

concluded that "[s]uch technical allegations . . . find no basis in 

traditional tort theories and therefore fall beyond the ambit of 

the exception language in the CAN-SPAM Act's express preemption 

clause." Id. Put otherwise, the panel held that any statute 

requiring that an advertiser's "name expressly appear in the 'from 

lines'" of an email is preempted under the CAN-SPAM Act because it 

is not based on "traditional tort theories." Id.

Prior to Virtumundo, discussion of this question centered 

around a Fourth Circuit decision, Omega World Travel, Inc. v. 

Mummagraphics, Inc., 469 F.3d 348 (4th Cir. 2006), which was, at 

the time, "the only federal circuit court decision addressing 

preemption of state law claims by the CAN-SPAM Act." Virtumundo, 

575 F.3d at 1061. Much like Virtumundo, the Fourth Circuit had 

concluded that "falsity and deception" referred to "traditionally 

tortious or wrongful conduct" rather than "errors that do not sound 

in tort," and found a state statute, which reached merely erroneous 

conduct by an email advertiser, to be preempted. Omega, 469 F.3d 

at 354. The reasoning of the Fourth Circuit informed much of the 

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subsequent discussion that took place among the district courts of 

California. Nevertheless, as this Court previously discussed, a 

split existed in this district as to whether plaintiffs could only 

plead "falsity or deception" by pleading all of the elements of 

common law fraud, or whether the CAN-SPAM Act spared section 

17529.5 plaintiffs from pleading reliance and damages under state 

statutes. See Dec. 4, 2009 at 4-5; compare Asis Internet Servs. v. 

Vistaprint USA, Inc., 617 F. Supp. 2d 989 (N.D. Cal. 2009) (section 

17529.5 is not preempted, even though it does not require showing 

of reliance or damages) and Asis Internet Servs. v. 

Consumerbargaingiveaways, LLC, 622 F. Supp. 2d 935, 940-44 (N.D. 

Cal. 2009) (same) with Hoang v. Reunion.Com, Inc., No. 08-3518, 

2008 U.S. Dist. LEXIS 85187, *4-6 (N.D. Cal. Oct. 6, 2008) (finding 

that CAN-SPAM only allows state causes of action based on common 

law fraud and dismissing section 17529.5 complaint that does not 

allege reliance and damages). 

Virtumundo did not clearly resolve this split. It "reach[ed] 

the same conclusion" as Omega, and held that the CAN-SPAM Act 

forbids state statutes that reach non-deceptive practices. 

Virtumundo, 575 F.3d at 1061-62. Since Virtumundo, no federal 

authority citing that case specifically addresses the question that 

is now before the Court.12 As submissions by both parties 

indicate, state trial courts have continued to disagree on this 

 

12 Gordon v. Commonwealth Mktg. Group, Inc., found a plaintiff's 

claims under Washington state law preempted because he had "not 

adequately pleaded nor developed the record to allege fraud," but 

the court did not discuss whether the plaintiff's allegations 

sounded in "deception" or "mere error." No.08-5074, 2009 U.S. 

Dist. LEXIS 105217, *2 (E.D. Wash. Dec. 29, 2009). Notably, the 

plaintiff in this suit was also the plaintiff in Virtumundo. 

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topic since the decision in Virtumundo was issued. See, e.g., 

Balsam v. Trancos, Inc., Civ. No. 471797 (Cal. Super. Ct., County 

of San Mateo, Jan. 15, 2010) (tentative statement of decision) 

(finding section 17529 claim not preempted); Silverstein v. Liquid 

Minds LLC, B.C. 375173 (Cal. Super. Ct., County of Los Angeles, 

August 18, 2009) (minute order) (finding finding section 17529.5 

preempted because not based on traditional fraud theory).13 

Virtumundo did not reject the plaintiff's claims because they did 

not include the elements of reliance and damages, or because his 

theory was not based on common law fraud per se. It rejected the 

plaintiff's claims because it found that Washington's prohibition 

reached "non-deceptive statements," and was therefore not 

sufficiently grounded in "traditional tort theories such as claims 

arising from fraud or deception." See Virtumundo, 575 F.3d at 

1063-64. Therefore, while it is clear that "the word 'deception' 

certainly denotes something more than immaterial inaccuracies or 

inadvertent mistakes," id. at 1062, it is not clear that the word 

restricts states to creating causes of action that require a 

showing of reliance and damages. 

Unlike the plaintiff in Virtumundo, Plaintiffs' section 

17529.5 claim is not based on merely "incomplete" information. 

Instead, Plaintiffs can plausibly claim that there is something 

"inherently deceptive" in Defendants' alleged practices. C.f., id.

at 1063 ("There is of course nothing inherently deceptive in 

Virtumundo's use of fanciful domain names."). Plaintiffs' theory 

 

13 These Orders are attached as Exhibit C to Plaintiffs' Request 

for Judicial Notice, Docket No. 22-4 (Balsam), and Exhibit A to 

Defendants' RJN (Silverstein). 

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is grounded in a much more substantial variety of intentional 

deception: Plaintiffs allege that Defendants represented something 

as "free" when it was in fact not. 

Section 17529.5(a)(3) is also quite distinct from the 

Washington statute in Virtumundo. This provision does not prohibit 

any conduct that is not prohibited by the CAN-SPAM Act. Compare 15 

U.S.C. § 7704(a)(2) with Cal. Bus. & Prof. Code § 17529.5(a)(3).14 

Neither the CAN-SPAM Act nor 17529.5 require that plaintiffs plead 

each and every element of fraud. 15 U.S.C. § 7704(a)(2); Asis 

Internet Servs. v. Optin Global, Inc., No. 05-5124, 2006 U.S. Dist. 

LEXIS 46309, *13 (N.D. Cal. June 30, 2006) ("[T]he required 

elements of a claim by an internet access provider under the CANSPAM Act . . . do not include all of the elements of common law 

fraud."). Both statutes prohibit what might be termed "attempted" 

or "potential" deception, i.e., subject lines that are only "likely 

to mislead," without regard to whether or not they have actually 

ever misled anyone. The question still remains whether this 

prohibition, when found in a state statute, is sufficiently based 

in "traditional tort theories" to avoid preemption, or whether the 

statute must be read to include the requirement that plaintiffs 

plead reliance and damages to meet this burden. 

/// 

/// 

 

14 CAN-SPAM applies to emails where "a subject heading of the 

message would be likely to mislead a recipient, acting reasonably 

under the circumstances, about a material fact regarding the 

contents or subject matter of the message." 15 U.S.C. 

§ 7704(a)(2). Section 17529.5(a)(3) applies to emails with "a 

subject line that a person knows would be likely to mislead a 

recipient, acting reasonably under the circumstances, about a 

material fact regarding the contents or subject matter of the 

message." 

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2. Whether Congress Intended for "Falsity or Deception" 

to Be Limited to Pure Forms of Common Law Fraud

The explicit language of the preemption clause betrays no 

intention by Congress to limit state regulation to the simple 

codification of common law fraud in its purest form. Both the 

preemption clause itself and the relevant legislative history 

suggest that Congress intended to allow states to regulate more 

than simple fraud. The relevant authorities, including Virtumundo, 

refer disjunctively to "falsity or deception" and "fraudulent or 

deceptive . . . subject lines." 15 U.S.C. § 7707(b)(1); S. Rep. 

No. 108-102, at 21; Virtumundo, 575 F.3d at 1061-63. The term 

"deception" would be redundant (if not misleading) if Congress 

meant to limit state regulation solely to common law fraud. See

Consumerbargaingiveaways, 622 F. Supp. 2d at 942 ("Congress, 

however, is certainly familiar with the word "fraud" and choose not 

to use it; the words "falsity or deception" suggest broader 

application."). This language supports a broad reading of the 

exemption within the savings clause, which this Court is obliged to 

credit because "express preemption statutory provisions should be 

given narrow interpretation." Virtumundo, 575 F.3d at 1060 

(quoting Air Conditioning & Refrigeration Inst. v. Energy Res. 

Conservation & Dev. Comm'n, 410 F.3d 492, 496 (9th Cir. 2005)). 

As the Virtumundo Court observed, the justification for the 

CAN-SPAM Act's preemptive effect is to prevent state and local 

lawmakers from "manipulat[ing] that standard to create more 

burdensome regulation." 575 F.3d at 1063. But adding the 

traditional fraud elements of reliance and damages does not add 

anything to Congress's efforts to create a uniform system of 

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regulation governing email advertisements. Indeed, requiring these 

elements would not in any way affect the scope of tortious behavior 

that is prohibited by section 17529.5. This is because the 

elements of reliance and damages do not speak to the substance of 

the emails or subject lines that are prohibited. 

The difference between deception in the strict "fraud" sense, 

and deception without reliance and damages, is merely the 

difference between actual and attempted fraud. Once an advertiser 

makes a material, intentional misrepresentation, whether the 

elements of reliance and damages manifest in any instance depends 

upon the naiveté, vulnerability, or circumstance of the recipient. 

Congress explicitly crafted the savings clause so that preemption 

would turn on whether a state staute targets the behavior of 

advertisers: "[State s]tatutes that prohibit fraud and deception 

in e-mail do not raise the same concern [of inconsistency], because 

they target behavior that a legitimate business trying to comply 

with relevant laws would not be engaging in anyway." S. Rep. No. 

108-102, at 22 (2003). This suggests that states may regulate 

deceptive behavior without consideration of conditions that do not 

turn on the behavior of advertisers. 

While the elements of reliance and damages do not affect the 

nature of the behavior that is prohibited, they do affect who may 

properly bring suit for a violation of the provision. Requiring 

these elements would therefore have one clear practical 

consequence: It would limit the scope of entities that are 

entitled to bring suit under section 17529.5. It would restrict 

enforcement suits to the (presumably more rare) case where a 

plaintiff had actually been duped by a misleading subject line. 

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The bulk of deceptive email would go unpunished, until such an 

email happened to mislead someone with the resources and 

wherewithal to pursue a private claim. Removing the elements of 

reliance and damages, and allowing the punishment of attempted as 

well as actual fraud, allows the states to enact more effective 

enforcement mechanisms without expanding the scope of prohibited 

behavior beyond that which is tortious in nature. 

Congress authorized California to "prohibit[] falsity or 

deception in any portion of a commercial electronic mail message," 

15 U.S.C. § 7707(b)(1), and it indicated no intent to limit the 

mechanisms that California may authorize to enforce such 

prohibitions. The Court finds no basis for concluding that 

California is barred from deterring deceptive practices by, for 

example, authorizing its Attorney General to bring civil suits 

against advertisers who have attempted to commit email fraud upon 

its citizens. Nor is it barred from authorizing EMSPs to bring 

private actions against those who have attempted fraud upon their 

customers. 

 In short, the purpose of the preemption clause is to achieve 

uniform regulation with respect to lawful advertisement activity, 

while allowing states to continue regulation the narrow field of 

"falsity and deception." 15 U.S.C. § 7707(b)(1); Virtumundo, 575 

F.3d at 1063. Congress intended that preemption turn on the nature 

of the advertiser behavior that is being regulated. See S. Rep. 

No. 108-102, at 22. This can be achieved without requiring 

plaintiffs, under every state statute aimed at deceptive email, to 

plead reliance and damages. California may therefore prohibit 

emails that result in actual deception, and it may prohibit emails 

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that attempt to deceive (just as the CAN-SPAM Act does). It may 

also enforce these prohibitions by authorizing EMSPs to bring suit, 

including EMSPs that have not relied upon the allegedly misleading 

email subject lines. 

 This Court is satisfied that, because section 17529.5(a)(3) 

prohibits only behavior that Congress authorized California to 

prohibit, it is not preempted by the CAN-SPAM Act. As long as 

Plaintiffs can establish that Defendants were responsible for 

making knowing and material misrepresentations (as required by 

section 17529.5(a)(3)), their claim will sound in "falsity or 

deception" and will not be preempted by the CAN-SPAM Act. 

Plaintiffs have pled a claim that is sufficiently grounded in 

"traditional tort theories," as required by Virtumundo and 15 

U.S.C. § 7707(b)(1). 

3. Whether the Broad Enforcement Permitted by Section 

17529.5 Conflicts With the CAN-SPAM Act

The Court is compelled to comment on the difference in 

standing conferred by section 17529.5 and the CAN-SPAM Act. 

Plaintiffs could not have brought this claim under the CAN-SPAM 

Act. Several nearly identical suits brought by Plaintiff Asis 

under the CAN-SPAM Act have been dismissed because they failed to 

meet that Act's particular standing requirements. See, e.g., ASIS 

Internet Servs. v. Azoogle.com, Inc., No. 08-15979, 2009 U.S. App. 

LEXIS 26232, *2-3 (9th Cir. Dec. 2, 2009). As the Ninth Circuit 

has observed, the CAN-SPAM Act "conferred standing only on a narrow 

group of possible plaintiffs." Virtumundo, 575 F.3d at 1049. The 

language of the federal statute authorizes internet access service 

providers ("IAS providers") to bring suit against advertisers only 

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if they have been "adversely affected by a violation" of the CANSPAM Act. 15 U.S.C. § 7706(g)(1). The Ninth Circuit has 

interpreted this language to require "something beyond the mere 

annoyance of spam and greater than the negligible burdens typically 

borne by an IAS provider in the ordinary course of business." Id., 

575 F.3d at 1053. However, section 17529.5(b) lacks the "adversely 

affected" language of the CAN-SPAM Act. 

This raises the question: May California issue a statute with 

prohibitions that are parallel to those found in the CAN-SPAM Act, 

but which authorizes a broader class of plaintiffs to bring suit, 

without disturbing "the fine balance struck by Congress?" Id. 575 

F.3d at 1049. The limitations that Congress placed on standing for 

IAS providers were certainly deliberate. "Congress's intent was to 

limit enforcement actions to those best suited to detect, 

investigate, and, if appropriate, prosecute violations of the CANSPAM Act -- those well-equipped to efficiently and effectively 

pursue legal actions against persons engaged in unlawful practices 

and enforce federal law for the benefit of all consumers." See

Virtumundo, 575 F.3d at 1049-50. In concurring with the Virtumundo

decision, Judge Gould expressed his belief that Congress crafted 

the standing language of the Act to avoid suits by "litigation 

factories," where "the purported harm is illusory and more in the 

nature of manufactured circumstances in an attempt to enable a 

claim." Id. at 1067-68 (Gould, J., concurring). 

 By eschewing the standing requirements of the CAN-SPAM Act, 

section 17529.5 allows a broader scope of plaintiffs -- including 

Asis and Foggy -- to bring suit against email advertisers. 

However, to the extent that Plaintiffs seek only to enforce section 

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17529.5(a)(3), the section remains within the narrow subject matter 

that Congress has explicitly left to state regulation. The CANSPAM Act's preemption provision grants states the authority to 

regulate certain behavior, and specifically to "prohibit[] falsity 

or deception in any portion of a commercial electronic mail 

message," without regard to the methods that states may use to 

enforce these prohibitions. 15 U.S.C. § 7707(b)(1). It would be 

both unnecessary and disingenuous to attempt to impose parity in 

the standing provisions between the two statutes, by imposing a 

narrow reading on Congress's express reservation of this right for 

the states.15 This Court will not find that Congress has 

superseded California's power to authorize this kind of enforcement 

mechanism without a showing that this was Congress's "clear and 

manifest purpose," particularly "when Congress has legislated in a 

field traditionally occupied by the States." See Altria Group, 

Inc. v. Good, 129 S. Ct. 538, 543 (2008). The Court therefore 

finds that section 17529.5 does not overstep the scope of authority 

designated to California under the CAN-SPAM Act. 

/// 

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15 Requiring plaintiffs to plead reliance and damages would not 

impose parity between the statutes. IAS providers who have never 

relied upon a deceptive subject line may be "adversely affected" by 

emails with potentially misleading subject lines, and can bring a 

suit identical to this one under the CAN-SPAM Act, if they 

experience "network crashes, higher bandwidth utilization, and 

increased costs for hardware and software upgrades, network 

expansion and additional personnel." Virtumundo, 575 F.3d at 1053 

(quoting Asis Internet Servs. v. Active Response Group, No. 07-

6211, 2008 U.S. Dist. LEXIS 60535, *12 (N.D. Cal. July 30, 2008). 

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III. CONCLUSION

For the reasons stated above, Defendants' Motion to Dismiss is 

DENIED. 

IT IS SO ORDERED. 

Dated: April 1, 2010 

UNITED STATES DISTRICT JUDGE

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