Less than an hour after the state attorney general's office sought an injunction against the Austin-based company, the two sides reached agreement, according to the attorney general's office.
As part of the proposed settlement agreement, the Amazon.com-backed Living.com agreed to destroy all of its customers' financial records, such as credit card, bank account and social security numbers.
Living.com will be allowed to sell names and email addresses, but only after notifying all its customers of the company's impending sale. A customer must also be given a choice whether to "opt out" of the proposed sale.
A federal bankruptcy judge must approve the settlement before it takes effect.
Whether Living.com was actively trying to sell its customer list remains unclear. Sources close to the Texas AG's office said that the lawsuit was an attempt by Texas Attorney General John Cornyn to set a precedent on how customer assets should be sold.
"This settlement will set the standard for future settlements and protects Texans' privacy rights," Cornyn said in a written statement.
Privacy rights have been closely watched since e-tailer Toysmart went out of business in May and tried to auction its customer information.
Texas, which was the first of more than 40 states to sue to stop the sale of Toysmart's customer list, is taking a proactive position on privacy, especially with companies in its own back yard.
Representatives at Living.com, which closed its doors and laid off 275 employees last month, did not return phone calls today.