A popular topic of the news recently has been the filing of at least $500 million in lawsuits against website Ashley Madison, a site frequented by users seeking to enter into extra-marital relationships with other like-minded people. The popularity of this news topic provides me with a great opportunity to discuss "Con-Torts", a branch of civil litigation where the lines between pure Contract Law and pure Tort Law (Negligence) blur.
Wait a Second, Contracts on the Internet?
One might wonder, why would contract law come up in an Internet setting? I never signed anything and I never even got a piece of paper. Contractual agreements can arise even from purely electronic transactions between parties. With the use of Ashley Madison and other similar websites, the branches of contractual law called browse-wrap and click-wrap come into play. Browse-wrap is a contract or licensing agreement whereby a user, simply by using a website, agrees to abide by the site's terms of use or conditions of use. Hines v. Overstock.com, Inc., 668 F.Supp.2d 362, 366 (E.D.N.Y. 2009). Similarly, clickwrap agreements arise when a user clicks on an "I Agree" button in order to use a website, often with the terms of use listed above in a window or as a hyperlink that the user is instructed to read carefully before signifying agreement.
Going back to the classic elements of a contract (offer, acceptance, consideration), the offer from the website is to allow you to use the site pursuant to its terms and conditions; the clicking of "I Agree" or use of the site signifies a meeting of the minds on the terms of the offer; consideration is found through the benefits gained by the user of the site through use of the site/detriment to the provider of loss of bandwidth or the detriment of the user giving up their right to use the site as they wish/benefit of the site's increased traffic.
OK, So I "Signed" a Contract, Didn't the Website Breach?
Ashley Madison users been identified by email address, credit card information, name, and sexual proclivity in the data dump of user data made public by hackers. Didn't Ashley Madison have an obligation to keep this information secret?
Looking at the site's Terms and Conditions (TAC) and Privacy Policy, Ashley Madison does not make an affirmative pledge to safeguard user information from potential hackers. Rather, under the TAC, the site "cannot ensure the security or privacy of information you provide through the Internet and your email messages... You agree to release us, our parent, subsidiaries and affiliated entities and ours and their shareholders, officers, directors, employees and agents, successors and assigns from all claims, demands, damages, losses, liabilities of every kind, know and unknown, direct and contingent, disclosed and undisclosed, arising out of or in any way related to the release or use of such information by third parties." If effective, this waiver would seem to preclude simple contractual claims against Ashley Madison.
Further, the site (since it is a product sold to users) also expressly disclaims warranties in Sales Law and limits liability to $5,000 per user. The disclaimer is achieved through an "allocation of risk" whereby the user takes on all risk in exchange for the service being made available (it otherwise would expressly not be made available).
If effective, both the waiver of remedies for breach and the disclaimer of warranties would preclude recovery for injured parties in Contract Law and Sales (UCC) Law.
But They Were Negligent in Securing the Data!
Maybe Ashley Madison did have a duty to protect the information and maybe they did breach that duty (neither of which is clear until the litigation sorts out the respective duty and standard of care). But before we can even consider negligence as a theory of recovery, we need to examine the Economic Loss Rule.
Economic Loss Rule Precludes Tort Recovery for Parties to a Contract in Some Cases
The Economic Loss Rule is "the fundamental boundary between contract law, which is designed to enforce the expectancy interests of the parties, and tort law, which imposes a duty of reasonable care and thereby discourages [parties] to avoid causing physical harm to [other parties]." Casa Clara Condominium Ass'n, Inc. v. Charley Toppino and Sons, Inc., 620 So.2d 1244, 1246 (Fla. 1993). The rule was created by the courts to preclude recovery in tort (negligence) when the only damages suffered were purely economic damages (money). Parties in privity to a contract were generally prohibited from recovery in tort for damages caused during performance of the contract. Laufen, Inc. v. Andrew, 83 So.3d 898 (Fla. App. 2012).
Economic Loss Rule Abolished in Florida
In a landmark case, the Florida Supreme Court found the Economic Loss Rule to have expanded to the point of being "unwise and unworkable in practice", especially with its numerous exceptions. Tiara Condo. Ass'n, Inc. v. Marsh, 110 So.3d 399, 407 (Fla. 2013). Departing from prior precedent, the Florida Supreme Court held that "the application of the economic loss rule is limited to products liability cases." Id.
Ashley Madison-type Cases in Florida Going Forward
So with the abolition of the Economic Loss Rule in Florida, parties to a contract are free to attempt to recover damages, even purely economic damages, in both tort and contract law. But in the Ashley Madison claims, the contract expressly limited damages to $5,000 per user and attempted to disclaim all liability for breach due to data hacking by third parties. Is that enough to preclude tort damages as well?
The Florida Supreme Court has yet to decide whether a party, through contract, can effectively preclude tort damages that were previously barred by the Economic Loss Rule. One can surmise that, without express language to the contrary, a party could be liable in tort for damages flowing from the contract. But what language is effective in barring tort liability? Can any contractual language bar negligence? Can contractual language establish the duty of care and limit tort damages (probably)?
While I do not have a clear answer to these questions yet, at least the abolition of the Economic Loss Rule will allow parties to seek these answers in future cases like Ashley Madison.
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