Spam Claims Covered by Contract’s Indemnity Clause–Commonwealth Marketing Group v. IMG Assocs.

[Post by Venkat Balasubramani]

Commonwealth Mktg. Group v. IMG Assocs., 08-5074 (W.D. Wash. Sept. 28, 2011)

Commonwealth Marketing asserted claims for indemnification against IMG Associates, for underlying claims brought by prolific spam plaintiff James Gordon. Among other cases, Gordon is famous for litigating the Virtumundo case, which ended with the dismissal of his claims on standing and preemption grounds. See Eric’s post titled “An End to Spam Litigation Factories?” for more background.

IMG provided marketing services to Commonwealth. The agreement between the parties contained an indemnification clause, which in relevant part read as follows:

IMG shall indemnify, defend (with legal counsel reasonably acceptable to [IMG]) and hold CMG . . . harmless at all times after the Effective Date of this Agreement, from and against and in respect of, any liability, claim, deficiency, loss, damage, penalty, or injury . . . suffered or incurred by CMG . . . arising from (i) any breach or default on the part of IMG . . . , (ii) any act outside the scope of IMG’s duties . . ., (iii) any breach by IMG . . . of the CAN-SPAM Act of 2003 . . ., (iv) any misrepresentation by, or breach of any covenant or warranty of IMG contained in this Agreement . . .

IMG argued that since Gordon’s claims turned out to be meritless, they were not covered by the indemnification clause. The court disagrees, and says:

the duty to defend arose when Mr. Gordon alleged statutory violations of the CAN-SPAM Act; the merit of those claims is irrelevant.

It was undisputed that Gordon’s claims were premised on emails sent by IMG–the emails produced by Gordon in discovery indicated they were sent by IMG. End result: judgment in favor of Commonwealth in the amount of $131,938.93, the fees incurred by Commonwealth in defending against Gordon’s claims (which were ultimately dismissed for lack of standing).

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The indemnification clause did not obviously cover Commonwealth’s claims for indemnification, and it’s not surprising that IMG refused the initial tender. Indemnitors often refuse to accept a tender regardless of what the contract actually says. The indemnification clause in this case was tied to IMG’s breach of IMG’s contractual obligations, a representation or warranty, or “a breach . . . of . . . the CAN-SPAM of 2003.” A catch-all clause which offered Commonwealth protection from “any third party claims alleging that IMG’s marketing efforts violated applicable laws or third party rights” would have more clearly protected Commonwealth, but the court did not put the indemnification clause at issue under a microscope.

Gordon and other spam plaintiffs must have left a sea of similar indemnification claims in their wake. Fees are available in CAN-SPAM cases, but collecting against the likes of Gordon is no easy task. (See Serial Anti-Spam Lawsuit Filer Loses Appeal… And His Possessions.) A contract’s indemnity clause does not often trigger an indemnity obligation, so Commonwealth has to feel good about this result.

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