Police blotter: Mortgage 'spammers' sued by ISP

What: An Internet service provider sued prominent mortgage lenders, claiming the companies hired spammers to target its mail servers with fraudulent junk e-mail sent to defunct e-mail addresses.

When: U.S. District Judge Claudia Wilken in the northern district of California ruled on June 30.

Outcome: Mixed ruling, with the Internet service provider having some of its claims initially rejected but given a second chance.

What happened, according to court documents:
In the evening of Oct. 25, 2005, Nella White, the president of ASIS Internet Services, saw that an unusually high volume of junk mail was flooding into her company's mail servers. (ASIS is an Internet service provider in Garberville, Calif., that also provides Web hosting and computer repair.)

White noticed that the spam flood had two things in common: It was being sent to many ASIS e-mail addresses that were no longer active, and it directed (she would later tell the judge) the recipient to connect to Web sites such as wwmort.com, bbmort.com and xxmort.com.

An excerpt from the e-mail

On Oct. 27, White filled out a form on one of the Web sites using the fictitious name of "Bruce Wolf."

The next day, ASIS says, the company received this voice mail from Francis Prasad: "Hi, this message is for Bruce. Bruce, this is Francis calling from Aegis Lending Corporation (in) Sacramento. Bruce, actually, I am the loan officer who has been assigned to handle your financial request..."

A legal brief (click for PDF) that ASIS submitted includes transcripts of calls to "Bruce" from Aegis Lending, American Home Equity, Quicken Loans, Stateside Mortgage, Northstart Financial and National Fidelity Funding.

The next month, ASIS sued those mortgage lenders and the employees who left the voice mail messages, asking that a federal judge block them from spamming. Also named as defendants were Optin Global, Vision Media, Rick Yang and Peonie Chen--known spammers who inked a deal with the Federal Trade Commission in April to pull the plug on their mortgage spamming operation.

ASIS' complaint asked for statutory damages of $1 million, liquidated damages of $1 million, and aggravated damages of "up to" $3 million. It invokes the federal Can-Spam Act, the California Business and Professions Code, and state civil conspiracy law.

It's not clear exactly how the mortgage lenders received the leads from the Web sites, and whether they knew their business partners were spamming. One hint comes from a sworn statement filed in this case from an attorney for Quicken, who confirmed that "Quicken Loans received the lead from its affiliate, Azoogle."

New York City-based Azoogle has been fingered as a source of spam before--for instance in many threads on the news.admin.net-abuse.email discussion group. Azoogle, which goes by the name Azoogleleads.com--says it offers advertisers the opportunity to buy pop-up ads, banner ads and e-mail ads. Azoogle did not immediately respond to a request for comment on Friday.

In any case, Wilken dismissed the case against the mortgage lenders, but not Optin Global, saying in effect that ASIS had written a sloppy complaint that did not describe in sufficient detail how the spam was fraudulent. (Court rules specify that allegations of fraud "shall be stated with particularity.")

Wilken gave ASIS two weeks to refile its complaint, which it did on Friday. The amended complaint includes specific allegations of fraud by, for instance, describing how the subject lines of the e-mail falsely informed recipients that loans were preapproved.

Excerpt from Wilken's order on June 30:
In order to hold the mortgage defendants liable under the Can-Spam Act, plaintiff must therefore prove that they paid or induced the spammer defendants to initiate commercial e-mail messages and that the mortgage defendants acted either with actual knowledge, or by consciously avoiding knowing, that the spammer defendants' acts were illegal. This set of facts could be proved consistent with the existing allegations in the complaint.

Indeed, the complaint directly alleges that Aegis and the other mortgage defendants "approved or ratified" the conduct of the other defendants. Even if the heightened pleading standards of Rule 9(b) did apply to plaintiff's entire Can-Spam Act claim, the allegations regarding the mortgage defendants' scienter could be averred generally. Therefore, the court denies Aegis' motion to dismiss plaintiff's Can-Spam claim on this ground. However, plaintiff must replead its Can-Spam claim in order to comply with Rule 9(b), as described above...

For the foregoing reasons, the Court grants Aegis' motion to dismiss plaintiff's complaint, with respect to plaintiff's averments of fraud and its claim under California Business and Professions Code. Plaintiff may file an amended complaint within two weeks of the date of this order...

In its amended complaint, plaintiff must state with particularity the nature of the allegedly fraudulent subject lines and the identity of the sender or senders of the alleged spam. Plaintiff may include in the amended complaint its civil conspiracy claim, provided it is able successfully to state an underlying claim under either the federal or state antispam laws. Plaintiff may only bring a (California state law) claim in its amended complaint if it can state, truthfully and without contradicting the original complaint, that defendants advertised their services in the allegedly fraudulent e-mails.

Excerpt from the ASIS amended complaint filed on Friday:
Plaintiff alleges that defendants spammers transmitted, for and in the hire of defendants lead generators and mortgage brokers in excess of 10,000 deceptive and unsolicited commercial electronic mail advertisements from Oct. 25, 2005, through Nov. 14, 2005, to plaintiff's server...

The sending of these illegal advertisements was procured, from the spammers, working as employees or agents of lead generators, under contract for delivery to the mortgage brokers.

Plaintiff alleges that these illegal advertisements were intended to exploit the recipient through the information contained in the e-mails by causing them to provide personal information including financial information. The text makes statements such as "We tried to contact you awhile ago about your low interest mortgage rate. You have been selected for our lowest rate in years..." Implying that the e-mail was from a mortgage lender.

Other e-mails contained the following language: "The truth is you can get a second mortgage at rates never before offered in the past. We offer a variety of solutions for refinancing your mortgage regardless of your credit or needs. It's simple, just visit our secure site here: http://www.kqmort.com Fill out the Instant Quote Form for up to 5 quotes from interested lenders." Implying that the sender of the e-mail advertisement was advertising for the lenders.

The Web form stated that the recipient was authorizing "USA Lenders Network to send your loan request to multiple qualified brokers," implying a pre-existing relationship that prompted the e-mail advertisement.