In Van Alstyne v. Electronic Scriptorium, Ltd., Nos. 07-1892 and 07-1899 (March 18, 2009), the Fourth Circuit vacated and remanded a district court award of statutory and punitive damages and attorney's fees and costs under the Stored Communications Act (SCA). The court found that under the SCA: (1) statutory damages are available only where a plaintiff can prove actual damages; (2) punitive damages are available where a plaintiff can prove intentional or willful conduct, even if there are no actual damages; and (3) attorney's fees and costs are available even where there are no actual damages. Practically, this case actually makes it easier for plaintiffs to survive motions to dismiss for failure to plead actual damages because they now can assert the conduct was "willful or intentional" and discovery will be required to determine if punitive damages are warranted. And, because whether conduct is willful or intentional is a question of fact, it will be difficult for defendants to win summary judgment after discovery as well. In sum, the Fourth Circuit's decision may open the door to much more SCA litigation.

Facts and procedural history

In 2001, Electronic Scriptorium, Ltd. (ESL) hired Bonnie Van Alstyne as a vice president of marketing. ESL assigned her a company email account, but she also used her private AOL email account to conduct business. In 2002, ESL terminated Van Alstyne, resulting in litigation. During a deposition, one of ESL's owners admitted to accessing Van Alstyne's private AOL email account after she had left the company. Van Alstyne brought claims against ESL and the owner, including under the SCA for statutory minimum and punitive damages. ESL moved for summary judgment based on a failure to allege actual damages. The district court denied the motion.

At trial, the jury awarded Van Alstyne $175,000 in compensatory damages (based on the statutory minimum of $1,000 for each violation); $100,000 in punitive damages; and approximately $135,000 in attorney's fees and costs. ESL and its owner appealed based on Van Alstyne's failure to prove actual damages.

Clarifications to the SCA's damages provisions

The Van Alstyne court addressed the need to prove actual damages in relation to three types of damages: (1) statutory damages, (2) punitive damages, and (3) attorney's fees and costs. In civil actions under the SCA, section 2707, subsection (c) allows a district court to award damages as "the sum of the actual damages suffered by the plaintiff … but in no case shall a person entitled to recover receive less than the sum of $1,000." Second, it states that "[i]f the violation is willful or intentional, the court may assess punitive damages." Finally, in a successful action, the subsection allows a court to "assess the costs of the action, together with reasonable attorney fees."

First, relying on the Supreme Court's interpretation in of a nearly identical statutory damages provision in Doe v. Chao, the court found that SCA section 2707(c) requires proof of actual damages as a prerequisite to recovery of statutory damages. The court noted that the SCA limits an award of damages to the "actual damages suffered." The following phrase--"but in no case shall a person entitled to recover receive less than the sum of $1,000"--simply relates back to the preceding clause; it does not create a separate means of calculating statutory damages.

On this first point, the court's result was different than that of several district courts, including those in In re Hawaiian Airlines, Inc., 355 B.R. 225 (D. Haw. 2006); Freedman v. Town of Fairfield, 2006 U.S. Dist. LEXIS 66857 (D. Conn. Sept. 19, 2006); and Cedar Hill Assocs. V. Paget, 2005 U.S. Dist. LEXIS 32533 (N.D. Ill. Dec. 9, 2005). The court, however, determined that Doe and its "straightforward textual analysis" controlled, requiring it to vacate the "statutory minimum" damages award for failure to prove actual damages.

Second, the court found that an award of punitive damages under the SCA does not require proof of actual damages. The court noted that the SCA phrase regarding punitive damages is not limited like the phrase regarding actual damages. The only limitation on a punitive damages award is that the SCA violation be "willful or intentional." Despite this finding, however, the court vacated and remanded the award for reevaluation in light of its ruling on statutory damages.

Finally, the court found that the SCA allows for an award of attorney's fees and costs without proof of actual damages. Although Congress could have spoken more clearly on the issue, the court noted that the SCA allows an award of attorney's fees or costs "apart from any requirement that damages, actual or otherwise, be recovered." Like the punitive damages claim, however, the court vacated and remanded the award of attorney's fees and costs for further consideration.

Impact on litigation

The Van Alstyne decision will have practical effects that will reverberate through the class action landscape. Plaintiff attorneys who sue companies, service providers, and other entities for alleged SCA violations may no longer need to plead or prove actual damages to recover under the SCA.

Now, after Van Alstyne, plaintiff attorneys likely will allege willful or intentional violation of the SCA and thereby improve their chances of success on two fronts. First, pleading willful or intentional conduct will get them past a motion to dismiss for failure to plead actual damages. Second, discovery - an expensive proposition in any case - will proceed on the question of the company's good faith and lack of intent. Intent is a factual determination that will make the case less susceptible to summary judgment. In short, SCA class actions now have a better chance of survival and the cost of defense, and probably settlement, has increased proportionately.

Companies should carefully consider when and whether to access, use, or disclose stored communications or customer information and ensure their conduct comports with SCA-authorized activities to avoid the now higher risk of litigation.

Albert Gidari

Ryan Mrazik