TEXAS AG TAKES ON TRUE.COM AND FREEDOM OF CONTRACT

trueTexas Attorney General Greg Abbott filed a motion in federal bankruptcy court opposing True.com, a bankrupt dating website, from gaining court approval to sell off its member’s personal information.  According to the AG, when members signed up, True.com (actual company name: True Beginnings, LLC) agreed that it would not sell or transfer their very private information to any third party unless certain actions were taken.  The trustee entered into a contract to sell the company’s assets, including its membership information, to PlentyofFish Media, Inc.  The trustee’s lawyers are claiming that the “no sell” restriction should no longer be binding, or if it is, then it should be able to send an “opt out” notification to its members and if the opt-out is not returned, the court should treat that as permission to sell the member’s personal information. True.com points to a provision buried in the boilerplate of its privacy rules that allows it to sell member information should the company go out of business, subject to notice and the chance for members to opt out.

The AG, on the other hand, argues that True.com should instead be forced – contrary to the contract language – to use an “opt in” procedure, where the information may be sold of only those members who receive notice and affirmatively respond giving  permission for the sale.  In the alternative, the AG wants the court to require True.com to provide notice of the proposed sale to members and give them the opportunity to themselves remove from the True.com databases any personal information they don’t want sold.

Generally, a bankruptcy court has wide discretion to dispose of the assets of a bankrupt debtor for the benefit of the estate’s creditors.  This authority is often wielded in a way that partially or completely disregards terms of contracts between the debtor and others.  The argument is that True.com’s privacy policies create contract obligations to its members not to sell their personal information without their permission, and latter contract language about sale contradicts that promise.  But the AG’s argument that there is an “ambiguity” in the privacy policy is without merit.  The policy all members agreed to expressly provides for exactly what is happening: True.com is going out of business and it wants to sell member information after an opt-out procedure, as plainly set forth in the policy’s language.

The case points out two problems with privacy laws and how courts construe them.  First, do members “voluntarily” submit to boilerplate privacy (or other contract) provisions that few if any of them read?  The legal presumption is that people read and understand contracts they sign, but do any of us really read or understand all the disclosures we “agree” to every time our iPhone gets updated with new software?  Or all the boilerplate in a mortgage or insurance application?  Even we lawyers?  Second, is personal information somehow more fragile or important than other kinds of information such that “public policy” should step in and rescue people from unfortunate contracts they signed allowing that information to become a commodity?  What if the members provided this “highly sensitive” information knowingly in order to effectively obtain the services they were seeking to obtain (as appears to be the case here)?  Privacy laws are designed to protect consumers, but what if the consumers willingly give up those rights for what they perceive to be a greater good?  Can adults deal with their own rights as they see fit, or does the government need to “rescue us” from ourselves?

The AG admits that the member information is an asset of the bankruptcy estate, and therefore is estate property subject to sale by the trustee.  It is the extra conditions the AG wants to impose on that sale – conditions outside the written contract and ostensibly only based on “public policy” – that are the main concern.

Unfortunately, these issues will have to await decision for another day, because PlentyofFish withdrew its offer to purchase these assets, citing both the allegedly “undisclosed” restrictions on the debtor’s ability to sell the assets and the AG’s objections and threats to seek an injunction preventing the sale. Stay tuned. Fights like this one are likely to continue.

Jim Pikl is a trial and appellate lawyer. He is Board Certified by the Texas Board of Legal Specialization in Consumer and Commercial Law. His practice emphasizes a wide range of commercial and consumer litigation, including class actions and complex disputes involving multiple parties and claims. Mr. Pikl has extensive experience as lead counsel in dozens of bench and jury trials in state and federal court, as well as appeals all the way to the Texas Supreme Court and the United States Supreme Court.”

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