Maryland Court Reinstates Maryland Commercial Electronic Mail Act

The Court of Special Appeals of Maryland reinstated the Maryland Commercial Electronic Mail Act (MCEMA), reversing a Circuit Court ruling holding that MCEMA violated the Commerce Clause of the United States Constitution. The Court also reversed the lower court’s holding that Maryland lacked personal jurisdiction over defendant First Choice Internet, Inc. (First Choice), a New York-based Internet marketing company, and its holding that defendant Joseph Frevola, a New York resident and president of First Choice, could not be held personally liable for First Choice’s alleged MCEMA violations. Plaintiffs MaryCLE, LLC (MaryCLE), a Maryland-registered consumer protection company based in Washington, D.C., and defendant NEIT Solutions, its interactive computer Internet service provider, brought an action under MCEMA against First Choice and Frevola. Over the course of two months, MaryCLE received 83 unsolicited emails from First Choice, all containing misleading information as defined in MCEMA. MaryCLE alleged that it opened all these emails in Maryland. The company replied to each email asking First Choice to remove it from its mailing list. These attempts were unsuccessful until MaryCLE sent a letter via postal mail to Frevola notifying him of the MCEMA violation, at which point the emails ceased. MaryCLE subsequently commenced this action.

MCEMA provides that

a person may not ‘initiate,’ ‘conspire to,’ or ‘assist in’ the ‘transmission of electronic mail’ either from a computer within Maryland or to an email address ‘that the sender knows or should have known is held by a resident of’ Maryland, if the mail ‘[c]ontains false or misleading information’ about either the origin or transmission path of the email . . . or ‘in the subject line’ of the email.

The lower court held that “on its face, the language of MCEMA does not discriminate against residents of other states.” As applied in this case, however, it violated the Commerce Clause as it sought to regulate “conduct occurring wholly outside Maryland borders,” given that: (1) First Choice “had no contact with the State of Maryland; (2) its “emails were sent from New York, routed through Virginia and Colorado, and finally were received in Washington, D.C.” Hence, MCEMA’s application in this case was unconstitutional. In finding a lack of personal jurisdiction, the Circuit Court relied on Maryland’s long arm statute determining that First Choice (1) did not “[cause] tortuous injury in Maryland,” nor “regularly conduct[ed] business, engage[d] in persistent conduct or derive[d] revenues from Maryland;” b) did not “intentionally direct their emails to the Plaintiffs in Maryland;” and c) “did not even know and had no ability to know the Plaintiffs would actually open the emails.” The exercise of personal jurisdiction, therefore, would be a violation of due process. Finally, the Circuit Court ruled that Frevola could not be held personally liable because he “did not specifically direct First Choice to send an email to MaryCLE or to any Maryland resident.” The appeals court reversed each of these holdings, discussed in more detail below.

Personal Jurisdiction

In reversing the Circuit Court ruling and finding the exercise of personal jurisdiction over First Choice warranted, the Court first analyzed the question of whether a Maryland court can exercise personal jurisdiction over an out-of-state defendant. Its reasoning consisted of a two-party inquiry: (1) “whether the exercise of jurisdiction is authorized under Maryland’s long arm statute,” and (2) “whether the exercise of jurisdiction comports with due process.” Because Maryland’s long arm statute is considered to extend to the limits of personal jurisdiction under the Due Process Clause of the Constitution, the Court examined only the constitutional portion of the inquiry. In order to satisfy the Due Process requirements, the defendant must satisfy the minimum contacts test, Int’l Shoe Co. v. Washington, 326 U.S. 310 (1945), the purposeful availment test, Hansen v. Denkla, 357 U.S. 235 (1958), and must also “reasonably anticipate being haled into court” in the state, World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286 (1980).

Jurisdiction, the Court noted, can be classified as either specific jurisdiction, when “the defendant’s contacts with [the forum state] form the basis for the suit,” or general jurisdiction, when the defendant has “continuous and systematic” contacts with the state but these contacts “are not the basis for the suit.” This case, the Court held, involved an issue of specific jurisdiction because “First Choice’s email contacts with Maryland . . . form the basis of this suit.” In determining whether Maryland can exercise specific jurisdiction over First Choice, the Court noted the absence of analogous Maryland cases in regard to email and the Internet in Marylandinvolving email and the Internet. Thus, in spite of its factual differences, the court adopted the three-part jurisdiction test as established in Beyond Sys., Inc. v. Realtime Gaming Holgin Co., LLC, 388 Md. 1 (2005). The test requires the Court to consider (1) the extent to which the defendant has purposefully availed itself of the privilege of conducting activities in the State; (2) whether the Plaintiffs’ claims arise out of those activities directed at the State; and (3) whether the exercise of personal jurisdiction would be constitutionally reasonable.” In shaping its reasoning the Court surveyed three cases from other jurisdictions that dealt with similar email solicitations, all holding that the exercise of personal jurisdiction was valid under similar long arm statutes.

The Court reasoned that this case easily met the second Beyond Sys. criteria because the basis of the suit was First Choice’s contacts with Maryland - its transmission of [email] to MaryCLE, a Maryland resident. In examining the first Beyond Sys. factor, purposeful availment, the Court cited Camelback Ski Corp. v. Behning, 312 Md. 330, 340-41 (1988), which held that “one who purposefully sends a product into another jurisdiction for the purposes of sale may reasonably expect to be haled into court in that State,” and that, furthermore, “that manufacturer or distributor has purposefully availed himself of the laws of the forum state.” Similarly, the Court reasoned, First Choice had purposefully availed itself of the privilege of conducting activities in Maryland because (1) it “had caused the emails to be sent to Maryland, among other states;” and (2) the business profited “by the very act of identifying email account holders . . .and transmitting emails” which “themselves were products” First Choice had sent to other jurisdictions, Maryland among them, for the purpose of sale. The Court rejected First Choice’s argument that it did not know where the emails would be opened. What mattered was that in sending its emails, First Choice was targeting its email recipients, which it knew included Maryland residents, in order to convince them to use its services.

In analyzing constitutional reasonableness, the Court followed World-Wide Volkswagen, which requires a court to examine several interests, including Maryland’s interest, the plaintiff’s interest, the interstate judicial system’s interest, and the shared interest of the several states. Rejecting First Choice’s argument that adjudication in Maryland was unreasonable the Court emphasized that the burden of complying with MCEMA is to disseminate truthful, non-deceptive emails, rather than to determine the location of email recipients, as First Choice contends. The Court also noted that “Maryland . . . has an interest in protecting its consumers . . . from the costs of [unsolicited commercial email] proliferation” and from falling prey to “fraud and schemes” resulting from “false and misleading emails.” Additionally, MaryCLE’s injury occurred in Maryland and First Choice was aware that any injuries caused by sending potentially false and misleading emails would be felt in the state in which they were received. Regarding the interstate judicial system’s interest, the court held that the “claim is based on a Maryland state statute,” and thus, “the most efficient locus for the suit is Maryland itself.” It also observed that the burden of answering a suit in Maryland is not “gravely difficult and inconvenient” since First Choice is not required to bring numerous witnesses from another state. Finally, in analyzing the shared interest of several states, the Court ascertained that, while possible, limiting jurisdiction to New York would not promote Maryland’s social policies. The Court concluded that adjudication in Maryland was reasonable.

Constitutionality of MCEMA

The Court then turned to the question of whether MCEMA was unconstitutional as a violation of the Commerce Clause, and adopted the two-part test established in Pike v. Bruce Church, 397 U.S. 137 (1970). According to Pike, the inquiry must first establish that the statue is constitutional by determining that it “regulates evenhandedly to effectuate a legitimate local public interest, and its effects on interstate commerce are only incidental.” 397 U.S. at 142. If the statute survives this prong, the Court must then determine if “the burden imposed on such commerce is clearly excessive in relation to the putative local benefits.” Pike, 397 U.S. at 142.

The Court noted that a statute’s extraterritorial effect could also render it unconstitutional and elaborated on this extraterritoriality approach by restating the Pike factors according to Brown-Forman Distillers Corp. v. N.Y. State Liquor Auth., 476 U.S. 573 (1986) and similar cases. It noted three guiding principles: (1) the “Commerce Clause . . . precludes the application of a state statute to commerce that takes place wholly outside of the State’s borders, whether or not the commerce has effects within the State;” (2) “a statute that directly controls commerce occurring wholly outside the boundaries of a state exceeds the inherent limits of the enacting State’s authority and is invalid regardless of whether the statute’s extraterritorial reach was intended by the legislature;” (3) “the practical effect of the statute must be evaluated . . . by considering how the challenged statute may interact with the legitimate regulatory regimes of other States and . . . [its effect] if . . . many or every, State adopted similar legislation.”

In its application of the Pike factors, the Court relied on Washington v. Heckel, 143 Wash. 2d 824 (2001), a case that the Circuit Court had rejected. The Court noted that in rejecting Heckel by concluding that First Choice “had no contact with the State of Maryland,” the Circuit Court relied on the erroneous premise that none of the emails were opened in Maryland, when, in fact, affidavits alleged otherwise.

In Heckel, the Supreme Court of Washington considered the constitutionality of an act similar to MCEMA, and found that it satisfied the Pike test. The Court found several parallels with the reasoning in Heckel. It held that MCEMA is “facially neutral . . . [and] does not discriminate against out-of-state-senders.” It prohibits anyone in any geographic region, rather than only people outside of Maryland, from sending emails containing false information. Addressing the second Pike factor, the balancing of interests, the Court referenced its jurisdictional analysis and held that, as with the jurisdiction issue, “the benefits of MCEMA clearly outweigh the burden on First Choice and other email advertisers.”

The Court also found that MCEMA satisfied the first two extraterritoriality factors in the restated Pike test. It noted that MCEMA regulates spammers that target Maryland consumers by making a business decision “to send [unsolicited commercial emails] all over the country.” The court reasoned that “‘[s]uch a business decision simply does not establish that [MCEMA] controls conduct occurring wholly outside’ Maryland.” Ferguson v. Friendfinders, Inc., 94 Cal.App.4th 1255, 1265 (Cal.Ct.App. 2002). Furthermore, MCEMA does not regulate the conduct of email senders in other states, but “merely regulates [emails] that are sent to Maryland residents or from equipment located in Maryland.” As to the third factor, the Court held that regulation of false emails is unlikely to promote “economic Balkanization” or “plague relations” among the states, and, furthermore, “[n]o state is likely to consider the welfare of a business that engages in false or misleading advertising a legitimate interest, worthy of state protection.”

The Court also dismissed a First Amendment violation claim, given that “MCEMA regulates only false or misleading commercial emails, and, according to Lubin v. Agora, Inc., 389 Md. 1, 22 (2005), “[c]ommercial speech enjoys a lower level of protection when it is true, and no protection at all when it is false or misleading.”

Individual Liability

The Court then dealt with the issue of whether Frevola, First Choice’s president, could be held individually liable, and specifically whether the lower court erred in granting Frevola’s motion for summary judgment. In addressing this issue, the Court examined T-Up, Inc. v. Consumer Prot. Div., 145 Md.App. 27 (2002) and drew an analogy between the MCEMA and Maryland’s Consumer Protection Act. That case held that a corporate officer could be personally liable “if [the] officer specifically directed, or actively participated or cooperated in the corporation’s tort.” T-Up, 145 Md.App. at 72-73. It was not necessary, the Court reasoned, for Frevola to have personally selected any particular recipient of First Choice’s emails so long as he directed the sending of the email advertisements in general. Therefore, the allegations that Frevola assisted in sending the mass emails that violated the MCEMA were sufficient to survive a motion for summary judgment and he could be held personally liable.