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December 29, 2004, Alert No. 1,046.
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7th Circuit Holds There is No Duty to Defend and Indemnify Junk Faxer Under Advertising Injury and Privacy Violation Clause

12/23. The U.S. Court of Appeals (7thCir) issued its opinion [9 pages in PDF] in American States Insurance Company v. Capitol Associates of Jackson County, a declaratory judgment action involving whether a commercial insurance policy's advertising injury clause covers civil actions alleging the sending junk faxes in violation of 47 U.S.C. § 227(b)(1)(C). The District Court held that there is coverage under the violation of privacy provision of this policy's advertising injury clause. The Court of Appeals reversed.

In another action, JC Hauling Company filed a complaint in state court against Capitol Associates of Jackson County, Inc. alleging that it sent it a junk fax in violation of 47 U.S.C. § 227(b)(1)(C). JC Hauling also sought class action status.

Capitol Associates demanded that its insurer, American States Insurance Company, defend and indemnify it. The Appeals Court opinion does not set out all of the advertising injury language of the policy. The opinion does state that "``Advertising injury´´ is defined to include ``[o]ral or written publication of material that violates a person's right of privacy.´´ Another portion of the policy excludes injury that is ``expected or intended from the standpoint of the insured.´´" American states proceeded to defend, under a reservation of rights.

Section 227 provides, in part, that "It shall be unlawful for any person within the United States ... to use any telephone facsimile machine, computer, or other device to send an unsolicited advertisement to a telephone facsimile machine ..."

In the present action, American States filed a complaint in U.S. District Court (SDIll) against its insured, Capitol Associates, seeking a declaratory judgment that it is not obligated to defend or indemnify Capitol Associates in the JC Hauling action.

The District Court held that a junk fax invades the recipient's privacy, and hence, American States must defend. The District Court did not rule on the duty to indemnify. The District Court then dismissed the complaint without prejudice.

Judge Frank EasterbrookAmerican States appealed. The Court of Appeals reversed. Capitol Associates must fend for itself in the class action lawsuit. Judge Frank Easterbrook (at right) wrote the opinion.

The Court of Appeals first finessed its way around its obvious jurisdictional problem with deconstructive logic. Easterbrook noted that "Dismissals without prejudice are canonically non-final and hence not appealable under 28 U.S.C. §1291." However, he concluded that the District Court's use of the words "without prejudice", in Easterbrook's word, "misdescribes" the action of the District Court. In fact, he wrote, the disposition was "conclusive in practical effect". Hence, the  Court of Appeals possesses jurisdiction.

Then, Easterbrook got to the substance of the case, whether sending a junk fax constitutes a violation of the recipient's right to privacy, within the meaning of this insurance policy, thus obligating the insurer to defend and indemnify its insured, the junk faxer.

Easterbrook wrote that "``Privacy´´ is a word with many connotations. The two principal meanings are secrecy and seclusion, each of which has multiple shadings." Easterbrook reasoned that Capitol Associates had not disclosed or revealed anything about JC Hauling, so, only the seclusion meaning of the word privacy could give rise to coverage.

Easterbrook then concluded that there could be no violation of seclusion, because "JC Hauling is a corporation". He wrote that "businesses lack interests in seclusion. It is not just that they are ``open for business´´ and thus welcome phone calls and other means to alert them to profitable opportunities. It is that corporations are not alive. Where does a corporation go when it just wants to be left alone? Most states hold that business entities lack privacy interests."

However, since JC Hauling also sought class action status, Easterbrook continued the analysis.

He did not conclude take the approach that junk faxes do not violate the seclusionary interests of real people. Rather, he concluded that the language of this particular insurance policy contemplates the secrecy aspect of privacy, rather than the seclusionary aspect.

He wrote that "The structure of the policy strongly implies that coverage is limited to secrecy interests. It covers a ``publication´´ that violates a right of privacy. In a secrecy situation, publication matters; otherwise secrecy is maintained. In a seclusion situation, publication is irrelevant."

Easterbrook also noted that "§227(b)(1)(C) condemns a particular means of communicating an advertisement, rather than the contents of that advertisement -- while an advertising-injury coverage deals with informational content."

Hence, there is no coverage, and the District Court is reversed.

This case is American States Insurance Company v. Capitol Associates of Jackson County, Inc., U.S. Court of Appeals for the 7th Circuit, App. Ct. No. 04-1659, an appeal from the U.S. District Court for the Southern District of Illinois, D.C. No. 02-00975-DRH, Judge David Herndon presiding. Judge Frank Easterbrook wrote the opinion of the Court of Appeals, in which Judges Bauer and Kanne joined.

Financial Regulators Publish Notice of Final Rule Implementing Section 216 of FACT Act

12/28. The Department of the Treasury's (DOT) Office of the Comptroller of the Currency (OCC), the DOT's Office of Thrift Supervision (OTS), the Federal Reserve System, and the Federal Deposit Insurance Corporation (FDIC) published a notice in the Federal Register that recites, describes and sets the effective date (July 1, 2005) for their final rule implementing Section 216 of the Fair and Accurate Credit Transactions Act of 2003, which is also known as the FACT Act.

The FACT Act was HR 2622 in the 108th Congress. It is now Public Law No. 108-159. Section 216 of the FACT Act adds a new Section 628 to the Fair Credit Reporting Act (FCRA) that pertains to protecting consumers against the risks associated with unauthorized access to information about the consumer contained in a consumer report, such as fraud and related crimes, including identity theft. The FCRA is codified at 15 U.S.C. § 1681 et seq. The new section is codified at 15 U.S.C. § 1681w.

The statute requires certain federal agencies to promulgate regulations "requiring any person that maintains or otherwise possesses consumer information, or any compilation of consumer information, derived from consumer reports for a business purpose to properly dispose of any such information or compilation."

See, Federal Register, December 28, 2004,  Vol. 69, No. 248, at Pages 77610 - 77621.

More News

12/28. The U.S. Court of Appeals (7thCir) issued its opinion [PDF] in Sutter Insurance v. Applied Systems, a contract dispute regarding the sale of business software. Sutter is an insurance company that purchased a commercial software program from Applied Systems. This is an appeal from the U.S. District Court (NDIll). It exercised jurisdiction based upon diversity of citizenship. The law involved is entirely contract law of the state of Illinois. The District Court rejected both Sutter's claim, Applied System's counterclaim. The Court of Appeals vacated and remanded. This case is Sutter Insurance Company v. Applied Systems, Inc., U.S. Court of Appeals for the 7th Circuit, App. Ct. No. 04-1871, an appeal from the U.S. District Court for the Northern District of Illinois, Eastern Division, D.C. No. 02 C 5849, Judge Matthew Kennelly presiding. Judge Richard Posner wrote the opinion of the Court of Appeals, in which Judges Bauer and Rovner joined.

12/28. The Department of Homeland Security (DHS) announced that it selected Electronic Data Systems Corporation (EDS) as the vendor for the DHS's eTravel Services (eTS) program. The DHS stated in a release that "EDS will provide a web-based reservation service as well as implementation support, and training and customer support. The eTS program scope includes travel planning, cost estimating, approval processing, reservation booking, and activity reporting. EDS is also committed to integrating their solution with the eMerge2 and MAXHR programs."

12/28. The Copyright Office published a notice in the Federal Register that recites, describes and sets the effective date (January 27, 2005) of its final rule regarding reconsideration procedure. See, Federal Register, December 28, 2004, Vol. 69, No. 248, at Pages 77636 - 77637.

12/27. The U.S. Patent and Trademark Office (USPTO) published a notice in its web site regarding increases in trademark fees that will take effect on January 31, 2005.

Washington Tech Calendar
New items are highlighted in red.
Wednesday, December 29

The House will next meet on January 4, 2004 at 12:00 NOON. See, Republican Whip Notice.

The Senate will next meet on January 4, 2005 at 12:00 NOON.

The Supreme Court will next meet on Monday, January 10, 2005. See, Order List [9 pages in PDF] at page 9.

Thursday, December 30

EXTENDED TO JANUARY 31. Extended deadline to submit reply comments to Federal Communications Commission (FCC) in response to its Notice of Proposed Rulemaking (NPRM) [38 pages in PDF] regarding use by unlicensed devices of broadcast television spectrum where the spectrum is not in use by broadcasters. See, story titled "FCC Adopts NPRM Regarding Unlicensed Use of Broadcast TV Spectrum" in TLJ Daily E-Mail Alert No. 898, May 14, 2004, and story titled "FCC Releases NPRM Regarding Unlicensed Use of TV Spectrum" in TLJ Daily E-Mail Alert No. 905, May 26, 2004. This NPRM is FCC 04-113 in ET Docket Nos. 04-186 and No. 02-380. See, notice (setting original deadlines) in the Federal Register, June 18, 2004, Vol. 69, No. 117, at pages 34103-34112; and notice [PDF] of extended deadlines, and erratum [PDF]. See, December 22, 2004 Public Notice [PDF] (DA 04-4013) further extending the deadline for reply comments to January 31.

Friday, December 31

The Federal Communications Commission (FCC) and other federal offices will be closed. See, Office of Personnel Management's (OPM) list of federal holidays.

Monday, January 3

Deadline to submit comments to the National Archives and Records Administration (NARA) in response to its notice of proposed rulemaking regarding permitting the destruction of "very short-term temporary e-mail" of federal agencies. See, notice in the Federal Register, November 3, 2004, Vol. 69, No. 212, at Pages 63980 - 63981.

Tuesday, January 4

The House will meet at 12:00 NOON. See, Republican Whip Notice.

The Senate will convene at 12:00 NOON. It will not meet again until January 20. See, Senate calendar.

Wednesday, January 5

2:00 - 4:00 PM. The Department of State's International Telecommunication Advisory Committee (ITAC) will meet to prepare for the International Telecommunications Union's ITU-T Study Group 3 (tariff and accounting principles) meeting. See, the ITU's calendar of meetings. See, notice in the Federal Register, December 20, 2004, Vol. 69, No. 243, at Page 76027. For more information, including the location, contact Julian Minard at Location: undisclosed.

Thursday, January 6

10:00 AM. The Senate Judiciary Committee will hold a hearing on the nomination of Alberto Gonzales to be Attorney General. Sen. Arlen Specter (R-PA) will preside. Location: Room 216, Hart Building.

10:00 AM. The Senate Health, Education, Labor and Pensions Committee will hold a hearing on the nomination of Margaret Spelling to be Secretary of Education. Location: Room 430, Dirksen Building.

Deadline to submit comments to the Export-Import Bank of the United States regarding its notice in the Federal Register that states that it "has received an application to finance the export of approximately $1.2 billion in U.S. semiconductor manufacturing equipment to dedicated foundries in China." The notice adds that "The U.S. exports will enable the dedicated 200-mm and 300-mm foundries to produce approximately 80,000 wafers per month (200-mm equivalent) of logic products. Available information indicates that some of this new production will be exported from China and consumed globally." See, Federal Register, December 23, 2004, Vol. 69, No. 246, at Page 76945.

Friday, January 7

Deadline to submit nominations to the Federal Communications Bar Association (FCBA) for its Executive Committee and Foundation. Send nominations to Alexandra Wilson at

People and Appointments

12/21. Yasuhei Taniguchi was elected Chairman of the of the World Trade Organization's (WTO) Dispute Settlement Body's (DSB) Appellate Body for a term that will run until December 16, 2005. He will replace Georges Abi-Saab, who was the Chairman for 2004. See, WTO release.

12/21. The Federal Reserve Bank of Dallas announced that Richard Fisher will become its President, effective April 4, 2005. Fisher is currently Vice Chairman of Kissinger McLarty Associates, Henry Kissinger's firm. He will replace Robert McTeer, who resigned November 4, 2004, to become Chancellor of the Texas A&M University System. McTeer had been vocal on several technology related public policy issues, including providing more visas for high tech workers. See for example, May 20, 1999 op ed in the Wall Street Journal by McTeer, 1998 Annual Report of the Federal Reserve Bank of Dallas, and TLJ story titled "Sen. Gramm to Introduce Bill to Raise H1B Visa Cap", June 3, 1999.

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