America Online v. National Health Care Discount

Decision Date29 September 2000
Docket NumberNo. C98-4111-PAZ.,C98-4111-PAZ.
Citation121 F.Supp.2d 1255
CourtU.S. District Court — Northern District of Iowa

Richard A. Malm, Bret Alan Dublinske, Dickinson Mackaman Tyler & Hagen, P.C., Des Moines, Iowa, for plaintiff.

Daniel L. Hartnett, Crary-Huff-Inkster-Hecht-Sheehan-Ringenberg-Hartnett-Storm, Sioux City, Iowa, for defendant.


ZOSS, United States Magistrate Judge.

                TABLE OF CONTENTS
                I. INTRODUCTION ......................................................... 1258
                II. STATEMENT OF FACTS .................................................. 1259
                III. LEGAL ANALYSIS ..................................................... 1268
                     A. Choice of Law ................................................... 1268
                     B. Standards for Summary Judgment .................................. 1270
                     C. AOL's Claim Under the CFAA ...................................... 1271
                     D. AOL's Claim Under the Virginia Computer Crimes Act .............. 1276
                     E. AOL's Claim for Trespass to Chattels ............................ 1277
                     F. AOL's Claims of Civil Conspiracy ................................ 1277
                     G. AOL's Claim of Unjust Enrichment ................................ 1278
                     H. NHCD's Liability for Acts of Its Contract E-Mailers ............. 1279
                IV. CONCLUSION .......................................................... 1280

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
                    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.


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 e-mails 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...

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