Spamhaus v e360: Spamhaus loses
I hate to say "I told you so", but I told you so.
Back in October 2006 I said:
"What I want to know is, where the heck were Spamhaus's legal counsel when Spamhaus made the very silly decision to simply ignore the US lawsuit because they're in the UK and they felt somehow "safe"? Did Spamhaus receive bad advice, or did they ignore good advice? Only Spamhaus knows."
Followed by:
"They should have fought this issue. Whoever it was that told Spamhaus that they were "safe" in the UK or did not discourage the misapprehension that USA laws couldn't touch Spamhaus, have a lot of explaining to do."
The decision released on 30 August addressed Spamhaus's appeal against the validity of the default judgment against them, whether or not the default judgment was properly served at all, the size of the damages award and the injunctive relief. Except for some technicalities, Spamhaus have pretty much lost on all fronts.
Now, virtually every article by-line I have seen so far focuses on the fact that the $11+ million award against Spamhaus has been vacated, putting a nice spin on the story with by-lines like "Appeals Court Tosses $11M Spamhaus Judgement, "Court junks $11m judgment against Spamhaus", "US court grants Spamhaus reprieve", "Appeals Court Vacates $11M Judgment Against Spamhaus", "Spam Blacklists Still In Tunnel, But Is That Light Up Ahead?", "$11 Million Spamhaus Penalty Tossed" and, the best of the lot, "Spamhaus Appeal: They Win on Substance".
You know what? I think it's time to shine the light of reality on this sorry story. The only thing that could be classed as being close to a true 'win' of any real substance is the decision about the injunctive relief originally granted to e360. Everything else is a loss for Spamhaus, or a decision to reassess, but not reverse, a decision. Let's have a look at what was actually decided, shall we?
At the time of publication, Spamhaus themselves are strangely silent on their 'win' with the news latest entry being 21 June 2007.
The default judgment
This loss for Spamhaus boils down to one thing- a really stupid move on Spamhaus's part. Spamhaus answered the original e360 complaint, denied many allegations and asserted 14 affirmative defenses, including lack of personal jurisdiction and insufficient service of process. Their Counsel at the time was not too happy about his client's instructions, but he didn't have much of a choice. Snippets of the transcript from the hearing in question are, to say the least, enlightening. Counsel says:
"I am not authorized to do anything more today than to ask this Court that the answer be withdrawn; and, then, once we hear from this Court on that, to get a ruling on our motion to withdraw as counsel."
Then, in what proved to be a killing blow to Spamhaus's later attempts to rescue their situation, their ex-Counsel said:
"[Spamhaus] have been fully informed of the fact that the default judgment is a real possibility. And they are aware of that, and are prepared to take that risk."
Remember that statement, gentle reader, it is pivotal.
In short, Spamhaus responded to the suit, and then abandoned their defense. The Judge made his feelings very clear when he said:
"Here is what we are going to do. I am going to give you leave to withdraw the answer; I am going to give you leave to withdraw; and, in light of the fact that your client is aware of that - and apparently, has sent no one here to disagree with the request to withdraw; and I assume you told them it was a dead-bang certainty that default is going to be entered without any resistance to the lawsuit - I am going to enter a default order today. And I will ask you, as your, if not your final act, at least approaching finality, to let you[r] client know what happened this morning. And tell them it is not just a risk that they will lose the case, but it is a dead-bang certainty. And the first step has been undertaken with the entry of a default."
Default judgment was eventually entered against Spamhaus for $11,715,000.00 plus $1,917.50 in costs. Attorney fees and punitive damages were denied, and a permanent injunction was granted. All of a sudden this became far more than a UK company thumbing its nose at the US legal system, whilst blowing raspberries in e360 and the USA Court system's general direction.
Spamhaus lodged a Rule 60(b) motion to vacate the default and the default judgment making various assertions, including that they had received conflicting legal advice, and that its instruction that prior counsel withdraw was based on a misunderstanding of the applicable law. A lot of protection that they claimed depended on some very important features - whether or not the defendant in question had **appeared in the case** and whether the defendant had **actively abandoned their defense***. And therein lies a big problem. Putting aside the comments made by their original Counsel that made it very clear that Spamhaus had been warned what would happened if they went down the path they chose, the District Court said:
"I do not think there was anything unknowing or unintentional about the decision made not to defend this case once it got over here at some point."
Enough said about that, methinks.
Fast forward to the Supreme Court appeal. The Court makes its feelings plain....
"Based on its conduct before the court, we have no doubt that Spamhaus understood the defenses available to it, consistently asserted those defenses in the early stages of those proceedings and then affirmatively elected to abandon those defenses before the District Court. We see no reason to allow Spamhaus to escape the consequences of that decision in the later stages of this proceeding."
In short, Spamhaus backed the wrong horse. My personal opinion is that Spamhaus's actions had nothing to do with conflicting or bad legal advice, or a misunderstanding of the law, or a lack of understanding of the implications of what they were doing - in my personal opinion Spamhaus knew exactly what they were doing when they made the decision to say to the Courts and e360 "nyah nyah, we're in the UK, you're in the USA, go take a long walk off a short pier, you can't touch us".
The actual award
It could be said that Spamhaus have a win here - but as far as I'm concerned it's more a stay of execution. To cut a long story short, the Court originally decided that because Spamhaus walked away thereby opening the door to the default judgment, that the damages claimed by e360 could be automatically granted in full. But that's not quite true. So, yes, the $11 million plus awarded has been set aside, **but** the Court is simply going to ask for more evidence of loss, and reassess how much will be awarded. Considering the fact that Spamhaus still lists e360 is a spammer today, years later, this could get real nasty for Spamhaus.
How much will e360 eventually get? Well, let's wait and see. The problem is *documentation*, not the total itself. In short, the Judge said:
"Mr Linhardt's affidavit is a conclusory statement of the lost value of his business, based largely on his calculations of lost future profits. It provides a list of businesses involved in "actual and pending contracts" and a total calculation of his calculation of loss, but says nothing about the status of his relationship with those businesses before e360 was listed on the ROKSO. That is, the affidavit claimed future loss in absolute numbers, but provides no information whatsoever to support a finding that such future profits were certain prior to Spamhaus' act."
and
"this affidavit alone cannot provide the requisite "reasonable certainty" for a damages award without the necessity of a hearing".
Note the decision says that what is required is "reasonable certainty", not definitive proof. All that has happened is the Courts have ordered a more extensive inquiry. The Court has *not* said that e360 is not entitled to the original amount awarded - the Court may decide that the original total is proven to be realistic. Hell, add to the damages the fact that Spamhaus continues to block e360 and the final award could be even higher!
Injunctive relief
This is a better win for Spamhaus. Basically the Court decided that the injunction granted was too all encompassing, and inappropriate in any event. To win an injunction the injured party must:
- have suffered an irreparable injury;
- the remedies available at law, such as monetary damages, must be inadequate to compensate for said injury;
- considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted;
- the public interest would not be disserviced by a permanent injunction.
That being said, there is nothing to stop the injunction being re-designed, becoming a statement instead of an injunction so that it addresses the Court's concerns about overstating when e360 spammed, and the Court's concerns about giving e360 a Get-Out-Of-Jail-Free card. Reword the notice on Spamhaus's site to say that "e360 spammed from X date to X date and we have the proof, but we blocked them in a way that punished them for more than that", and a ruling that a statement be made on the Spamhaus site, and that Spamhaus be restricted from taking action against e360 except for under specific circumstances, could be reinstated. You see, it's not the *fact* of the injunction that was rejected, it was its effect and whether it was indicative of the real situation, for Spamhaus or e360.
So what happens now?
We wait once more to find out what the final award judgment will be, and then we wait to see how it is enforced. But I say this... Spamhaus **cannot** assume that the UK courts will any more tolerant of Spamhaus's shenanigans than the USA was. There is no reason to believe that the UK Courts will allow Spamhaus to escape the effect of knowingly walking away from the lawsuit in the USA, any more than the USA courts allowed them to do so. UK Judges are just as intolerant of defendant's saying "screw you - I ain't listening" as their USA counterparts. Spamhaus choose their path, they backed their preferred horse, and now they face the music.
[Edited to fix some typos and grammatical errors]