United States: Court Shines Light On California Data-Sharing Law: Proskauer Litigators Obtain Dismissal

Last Updated: July 19 2012
Article by Kristen J. Mathews

On July 3, 2012, Orange County Superior Court Judge Nancy Wieben Stock issued a ruling dismissing a California "Shine the Light" consumer protection law case without leave to amend, making it the first "Shine the Light" case to come to a final decision in a trial court. Judge Stock dismissed the case against XO Group Inc. by filing a ruling sustaining demurrers to both of the plaintiff's two causes of action in the initial Complaint without leave to amend. The ruling holds that, based on the facts that the plaintiff admitted in her Complaint and that her attorney confirmed at oral argument, there is no possibility of showing that XO Group violated the Shine the Light law.

California's Shine the Light law ("STL") went into effect on January 1, 2005. STL is a part of the California Civil Code, codified at sections 1798.83-84. STL does not prohibit businesses from sharing consumer information with other businesses. According to the California Office of Privacy Protection ("OPP"), STL "lets consumers learn how their personal information is shared by companies for marketing purposes and encourages businesses to let their customers opt-out of such information sharing." (http://www.privacy.ca.gov/privacy_laws/index.shtml

STL has not been tested before this year, when one law firm filed several similar cases based on STL, each with a derivative Unfair Competition Law ("UCL") claim based on the STL claim.    The cases were filed as purported class actions, and most were filed in or removed to federal court. The stakes are high: if there is a violation, STL provides for damages, as well as discretionary civil penalties which could be as much as $3,000 per violation for a willful, intentional, or reckless violation, or $500 otherwise.

STL requires that companies that share California consumers' information for third party marketing purposes either give the consumers an ability to request and receive a list of the third parties with whom the company has shared their information, or, in the alternative, commit to sharing information in this way only on either an opt-in or opt-out basis. If a company chooses the first option, the company must designate contact information for customers to use to make such requests. The company can choose from three ways to provide customers with that contact information. The business can: (i) instruct personnel to provide the contact information upon request, (ii) put certain information in its Web site privacy policy, or (iii) have the contact information available in certain places of business in California.

The Complaint focused on an alleged failure by XO Group to satisfy option (ii), i.e., to include the required information in its Web site privacy policy. It alleged that the other two options (instructing personnel and having information available at places of business) are not available to XO Group, as an Internet-based business. The Complaint also alleged that XO Group did not adequately instruct its employees to provide contact information for making information requests. The Complaint did not address a business's option of complying with STL by offering consumers an opt-in or opt-out right for information sharing.

Judge Stock sustained XO Group's demurrers on several grounds:

  • A statute that is designed to provide useful information to a customer, upon request, cannot be violated if there is no request made. The Complaint alleged that the plaintiff subscribed to services with XO Group and had no further contact.
  • A business may comply with Civil Code § 1798.83(a) by giving customers an option to opt-out of information sharing in its privacy policy under Civil Code § 1798.83(c)(2). The Complaint did not and could not state that XO Group had failed to comply with Section 1798.83(c)(2). 
  • The failure to allege a violation of the STL also meant that plaintiff had failed to allege she was injured by reason of a violation and lacked standing to sue under the STL.
  • Civil Code § 1798.83(b)(1) gives covered businesses three alternative ways to comply with the STL's customer education requirement: internal instruction to personnel under Section 1798.83(b)(1)(A), privacy policy posting under Section 1798.83(b)(1)(B), and making information available at places of business under Section 1798.83(b)(1)(C). The Complaint focused on alleged deficiencies in XO Group's website privacy policy without addressing the STL's allowance for alternative means of customer education.
  • Plaintiff did not have standing to pursue the UCL cause of action because she had not lost money or property as a result of an alleged unlawful act or practice.    

This first trial court final decision in Regueiro v. XO Group, Inc. comes on the heels of the first STL ruling on a motion to dismiss, which federal District Court Judge Dale Fischer granted in a June 14, 2012 order. (Boorstein v. Men's Journal LLC, 2012 WL 2152815 (C.D. Cal. June 14, 2012).) Judge Fischer dismissed the Complaint with leave to amend, and an amended complaint was filed on July 6, 2012. Judge Fischer's decision, like Judge Stock's, held that offering an opt-in/out option and providing disclosures are independent ways of complying with STL. Judge Fischer then went on to hold that each of the plaintiff's three theories of injury fail under STL. First, diminution in value of personal information due to its sale is not recognized as legal "injury." Even if it were, STL does not prohibit the sale of customer information (it merely gives consumers the right to find out about it), so any diminution in value of that information is not the "result of" a violation of STL, and therefore cannot convey standing. Second, a violation of STL is not, in itself, injury—there must be independent harm resulting from the violation. Third, there was no implied promise in the magazine subscription that Men's Journal would comply with all laws such that a violation of STL, without actual harm, qualifies as an injury because it breaks that promise. Judge Fischer also held that the Unfair Competition Law claim failed, both as a derivative of the failed STL claim and independently because there was no injury to support it.

www.proskauer.com

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