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1 Alan Himmelfarb LAW OFFICES OF ALAN HIMMELFARB 2 2757 Leonis Blvd Los Angeles, CA 90058 3 Telephone: [phone] Fax: [phone] [e-mail] 5 Scott A. Kamber Ethan Preston 6 KAMBER & ASSOCIATES, LLC 11 Broadway, 22d Floor 7 New York, NY 10004 Telephone: [phone] Fax: [phone] [e-mail] 9 [e-mail] 10 11 12 13 Counsel for Plaintiffs IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA SAN FRANCISCO DIVISION No. C 07 2852 MJJ Judge Martin J. Jenkins PLAINTIFFS' OPPOSITION TO THE MOTION TO DISMISS Date: September 18, 2007 Time: 9:30 a.m. Location: Courtroom 11, 19th Floor 450 Golden Gate Ave. San Francisco, CA 94102

MATTHEW ELVEY, an individual, and 14 GADGETWIZ, INC., an Arizona corporation, on their own behalf and on behalf of all 15 others similarly situated, 16 17 v. Plaintiffs

18 TD AMERITRADE, INC., a New York corporation, and DOES 1 to 100, 19 Defendants. 20 21 22 23 24 25 26 27 28
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1 2 3 I. 4 I I. 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 IV. C. D. B. I II .

Table of Contents Page California Law Applies to Claims of California Resident Class Members...............1 Elvey's Claims Cannot Be Mischaracterized as Securities Claims ...........................3 A. B. C. Ameritrade Cannot Stretch SLUSA Preemption to Cover the FAC's Claims ......3 Ameritrade's Implied Preemption Argument Fails ..............................................6 The FAC Does Not Fall Within Securities Exception to the UCL, to the Extent Such Exception Even Exists ................................................................................7

Elvey and California Resident Class Members State UCL and CLRA Claims .......8 A. Elvey's Alternate Allegation That Ameritrade Intentionally Disclosed Email Addresses States Claims Under the CLRA and UCL ..........................................8 Ameritrade's Omissions and Misrepresentations About the Security Breach Violated the CLRA And UCL..............................................................................9 California Civil Code § 1798.82 Does Not Restrict Elvey's Claims..................11 Ameritrade's CLRA and UCL Violations Damaged Elvey and the Other California Resident Class Members ..................................................................11 Ameritrade's Arguments Concerning Plaintiffs' Use of Unique Email Addresses Are Disingenuous and Legally Baseless............................................................14

E.

Ameritrade Breached Its Fiduciary Duties to Elvey and the Other California Resident Class Members ............................................................................................15 Ameritrade's Arguments Against the CFAA Claim Ignore Directly Applicable Precedent .....................................................................................................................16 A. Ameritrade Can Be Liable for the Does' CFAA Violation Under the Applicable Respondeat Superior Principles .........................................................................17 The FAC Adequately Alleges That Does' Actions Were Unauthorized..............19
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1 2 3 VI . 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 B.

Table of Contents Page Ameritrade's Faulty Arguments Against the CAN SPAM Claim Cannot Prevail ..........................................................................................................................20 A. Plaintiffs Have Standing to Bring CAN SPAM Claims As Adversely Affected Internet Access Service Providers......................................................................20 As the Origin of the Traced Spam, Ameritrade Is Liable Under the CAN SPAM Act For "Initiating" the Traced Spam ................................................................23

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3 Am. Online, Inc. v. Nat'l Health Care Disc., Inc., 174 F. Supp. 2d 890 (D. Iowa 2001) ..13 n.17 4 Arc Ecology v. U.S. Air Force, 411 F.3d 1092 (9th Cir. 2005).........................................25 n. 37 5 Barnhill v. Johnson, 503 U.S. 393 (1992)...........................................................................21-22 6 Batzel v. Smith, 333 F.3d 1018 (9th Cir. 2003).................................................................21 n.29 7 Bell Atl. Corp. v. Twombly, 127 S. Ct. 1955 (2007) .............................................................9 n.9 8 Blum v. Stenson, 465 U.S. 886 (1984)........................................................................................4 9 Botosan v. Paul McNally Realty, 216 F.3d 827 (9th Cir. 2000) ........................................23 n.33 10 Brady v. Dairy Fresh Products Co., 974 F.2d 1149 (9th Cir. 1992) ........................17-18 & n.23 11 Brown v. Gardner, 513 U.S. 115 (1994)...........................................................................24 n.36 12 Butera & Andrews v. IBM, 456 F. Supp. 2d 104 (D.D.C. 2006) ...................................17 & n.21 13 California v. ARC Am. Corp., 490 U.S. 93 (1989) .....................................................................6 14 Chamberlan v. Ford Motor Co., 369 F. Supp. 2d 1138 (N.D. Cal. 2005).................................10 15 Chavez v. Blue Sky Natural Bev. Co., No. 06-6609, 2007 U.S. Dist. LEXIS 44487 (N.D. Cal. Jun. 11, 2007) ...............12 n.15 16 Cont'l Airlines, Inc. v. Mundo Travel Corp., 412 F. Supp. 2d 1059 (E.D. Cal. 2006) ..........3 n.2 17 Crosby v. Nat'l Foreign Trade Council, 530 U.S. 363 (2000) ....................................................6 18 CTS Corp. v. Dynamics Corp. of Am., 481 U.S. 69 (1987) ..................................................6 n.6 19 Eldred v. Ashcroft, 537 U.S. 186 (2003)...........................................................................22 n.32 20 Exxon Mobil Corp. v. Allapattah Servs., 545 U.S. 546 (2005).....................................22 & n.30 21 Fair Hous. of Marin v. Combs, 285 F.3d 899 (9th Cir. 2002)...................................................14 22 Four Seasons Hotels & Resorts B.V. v. Consorcio Barr, S.A., 23 267 F. Supp. 2d 1268 (S.D. Fla. 2003)...........................................................13 n. 17, 15 24 In re Gerwer, 898 F.2d 730 (9th Cir. 1990) .............................................................................25 25 Gordon v. Ascentive, LLC, No. 05-5079, 2007 U.S. Dist. LEXIS 44207 (E.D. Wash. June 19, 2007) ............21 n.28 26 Gordon v. Virtumundo, Inc., 27 No. 06-204, 2007 U.S. Dist. LEXIS 35544 (W.D. Wash. May 15, 2007) ...21-23 & n. 31 28 Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204 (2002)...................................4, 5
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3 Hart v. McLucas, 535 F.2d 516 (9th Cir. 1976)........................................................................25 4 Havens Realty Corp. v. Coleman, 455 U.S. 363 (1982) ...........................................................14 5 Hemmings v. Tidyman's Inc., 285 F.3d 1174 (9th Cir. 2002) ..................................................7-8 6 Hypertouch, Inc. v. Kennedy-Western Univ., 04-5303, 2006 U.S. Dist. LEXIS 14673 (N.D. Cal. Mar. 8, 2006) ...............................21 7 Koons Buick Pontiac GMC, Inc. v. Nigh, 543 U.S. 50 (2004) ..........................................24 n.36 8 In re Immune Response Sec. Litig., 375 F. Supp. 2d 983 (S.D. Cal. 2005) ......................10 n.10 9 Independent Living Resources v. Oregon Arena Corp., 982 F. Supp. 698 (D. Or. 1997)..14 n.18 10 L.A. News Serv. v. Reuters Tv Int'l, 149 F.3d 987 (9th Cir. 1998) ....................................23 n.33 11 Matsushita Elec. Indus. Co. v. Epstein, 516 U.S. 367 (1996) ..............................................6 n.6 12 Medimatch, Inc. v. Lucent Techs., Inc., 120 F. Supp. 2d 842 (N.D. Cal. 2000) ....................3 n.2 13 Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Ware, 414 U.S. 117 (1973) .........................6 n.6 14 Myspace, Inc. v. Globe.com, Inc., 15 06-3391, 2007 U.S. Dist. LEXIS 44143 (C.D. Cal. Feb. 27, 2007) ..............................21 16 Nintendo of Am. v. Dragon Pac. Int'l, 40 F.3d 1007 (9th Cir. 1994) ........................................23 17 Omni Innovations, LLC v. Impulse Mktg. Group, Inc., No. 06-1469, 2007 U.S. Dist. LEXIS 51867 (W.D. Wash. July 18, 2007)............23 n.34 18 Oki Semiconductor Co. v. Wells Fargo Bank, 298 F.3d 768 (9th Cir. 2002) .....17, 18, 19 & n.24 19 Petro-Tech, Inc. v. Western Co. of N. Am., 824 F.2d 1349 (3d Cir. 1987)............................17-18 20 Planned Parenthood of the Columbia/Willamette, Inc. v. Am. Coalition of Life Activists, 21 422 F.3d 949 (9th Cir. 2005).........................................................................................23 22 Simpson v. AOL Time Warner Inc., 452 F.3d 1040 (9th Cir. 2006) ...............................5, 9, 11 n.12, 12, 13, 20 n.26, 21 n.27 23 Sovereign Bank v. BJ's Wholesale Club, Inc., 427 F. Supp. 2d 526 (M.D. Pa. 2006) .......16 n.21 24 Theofel v. Farey-Jones, 341 F.3d 978 (9th Cir. 2003) .........................................................16-17 25 Ticknor v. Choice Hotels Int'l, Inc., 265 F.3d 931 (9th Cir. 2001) ................................3 n.2, 7-8 26 United States v. Hockings, 129 F.3d 1069 (9th Cir. 1997) .........................................................4 27 United States v. Middleton, 231 F.3d 1207 (9th Cir. 2000) ...................................13 n.17, 14-15 28 United States v. Stevens, 462 F.3d 1169 (9th Cir. 2006)...........................................................24
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3 ViChip Corp. v. Lee, No. C 04-2914, 2006 U.S. Dist. LEXIS 41756 (N.D. Cal. June 9, 2006) ........19-20 n.25 4 Williams v. Gerber Prods. Co., 439 F. Supp. 2d 1112 (S.D. Cal. 2006) .....................10 n.11, 11 5 Federal Statutes Page 6 15 U.S.C. § 77p (2007) ......................................................................................................3, 4, 5 7 15 U.S.C. § 77r (2007)...............................................................................................................5 8 15 U.S.C. § 77bb (2007) ....................................................................................................3, 4, 5 9 15 U.S.C. § 6807 (2007) ............................................................................................................7 10 15 U.S.C. § 7702 (2007) .........................................................................................21, 23, 24-25 11 15 U.S.C. § 7704 (2007) ..............................................................................................20, 23, 24 12 15 U.S.C. § 7706 (2007) ....................................................................................1, 20, 23 & n.33 13 18 U.S.C. § 1030 (2007) ..............................................................................................1, 13 n.17 14 18 U.S.C. § 1962 (2007) .............................................................................................17-18 n.23 15 47 U.S.C. § 230 (2007) ....................................................................................................22 n.29 16 47 U.S.C. § 231 (2007) ............................................................................................................20 17 Federal Regulations Page 18 17 CFR § 230.146 (2007) ....................................................................................................5 n.4 19 17 CFR § 248.17 (2007) ............................................................................................................7 20 California Cases Page 21 Aral v. Earthlink, Inc., 134 Cal. App. 4th 544, 36 Cal. Rptr. 3d 229 (Cal. Ct. App. 2005) .....2-3 22 Bardin v. DaimlerChrysler Corp., 23 136 Cal. App. 4th 1255, 39 Cal. Rptr. 3d 634 (Cal. Ct. App. 2006)......................10 n.11 24 Bowen v. Ziasun Techs., Inc., 116 Cal. App. 4th 777, 11 Cal. Rptr. 3d 522 (Cal. Ct. App. 2004)........................7 & n.8 25 Cel-Tech Commc'ns, Inc. v. Los Angeles Cellular Tel. Co., 26 20 Cal. 4th 163, 973 P.2d 527 (1999) .............................................................................7 27 Cohen v. DIRECTV, Inc., 142 Cal. App. 4th 1442, 48 Cal. Rptr. 3d 813 (Cal. Ct. App. 2006)..........................2 n.1 28
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3 Colgan v. Leatherman Tool Group, Inc., 135 Cal. App. 4th 663, 38 Cal. Rptr. 3d 36 (Cal. Ct. App. 2006)....................................8 4 Consumer Advocates v. Echostar Satellite Corp., 5 113 Cal. App. 4th 1351, 8 Cal. Rptr. 3d 22 (Cal. Ct. App. 2003)....................................8 6 Cortez v. Purolator Air Filtration Prods. Co., 23 Cal. 4th 163, 999 P.2d 706 (2000) ..5 & n.3, 8 7 Daugherty v. American Honda Motor Co., Inc., 144 Cal. App. 4th 824, 51 Cal. Rptr. 3d 118 (Cal. Ct. App. 2006)........................10 n.11 8 Discover Bank v. Superior Court, 36 Cal. 4th 148, 113 P.3d 1100 (2005).................................2 9 Discover Bank v. Superior Court, 10 134 Cal. App. 4th 886, 36 Cal. Rptr. 3d 456 (Cal. Ct. App. 2005)..................................2 11 Engalla v. Permanente Medical Group, Inc., 15 Cal. 4th 951, 938 P.2d 903 (1997) ................12 12 Estate of Sanders, 40 Cal. 3d 607, 710 P.2d 232 (1985) ..........................................................16 13 Ferguson v. Friendfinders, 94 Cal. App. 4th 1255, 115 Cal. Rptr. 2d 258 (Cal. Ct. App. 2002)......................13 n.16 14 Gatton v. T-Mobile USA, Inc., 152 Cal. App. 4th 571 (Cal. Ct. App. 2007) .........................2 n.1 15 Kasky v. Nike, Inc., 27 Cal. 4th 939, 45 P.3d 243 (2002) .....................................................8, 10 16 L. Byron Culver & Assocs. v. Jaoudi Indus. & Trading Corp., 17 1 Cal. App. 4th 300, 1 Cal. Rptr. 2d 680 (Cal. Ct. App. 1991)......................................16 18 Lisa M. v. Henry Mayo Newhall Mem'l Hosp., 12 Cal. 4th 291, 907 P.2d 358 (1995) .......19-20 19 Meyer v. Sprint Spectrum L.P., 150 Cal. App. 4th 1136 (Cal. Ct. App. 2007) .................13 n.15 20 PCO, Inc. v. Christensen, Miller, Fink, Jacobs, Glaser, Weil & Shapiro, LLP, 150 Cal. App. 4th 384, 58 Cal. Rptr. 3d 516 (Cal. Ct. App. 2007)................................19 21 Perez v. Van Groningen & Sons, 41 Cal. 3d 962, 719 P.2d 676 (1986).....................................19 22 Overstock.com, Inc. v. Gradient Analytics, Inc., 151 Cal. App. 4th 688 (Cal. Ct. App. 2007) ...7 23 Outboard Marine Corp. v. Superior Court, 24 52 Cal. App. 3d 30, 124 Cal. Rptr. 852 (Cal. Ct. App. 1975)........................................10 25 Petersen v. Securities Settlement Corp., 226 Cal. App. 3d 1445, 277 Cal. Rptr. 468 (Cal. Ct. App. 1991)............................15, 16 26 Rosenthal v. Great W. Fin. Sec. Corp., 14 Cal. 4th 394, 926 P.2d 1061 (1996) ..................15-16 27 Roskind v. Morgan Stanley Dean Witter & Co., 28 80 Cal. App. 4th 345, 95 Cal. Rptr. 2d 258 (Cal. Ct. App. 2000)....................................8
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3 Stevens v. Marco, 147 Cal. App. 2d 357, 305 P.2d 669 (Cal. Ct. App. 1956) ...................16 n.21 4 Szetela v. Discover Bank, 97 Cal. App. 4th 1094, 118 Cal. Rptr. 2d 862 (Cal. Ct. App. 2002)..........................2 n.1 5 Torres v. Parkhouse Tire Serv., 26 Cal. 4th 995, 30 P.3d 57 (2001)..........................................19 6 Oregon Cases Page 7 Fearing v. Bucher, 328 Ore. 367, 977 P.2d 1163 (1999) .................................................19 n. 23 8 California Statutes Page 9 Cal. Civ. Code § 1782 (2007) ....................................................................................................1 10 Cal. Civ. Code § 1798.82 (2007)..............................................................................................11 11 Cal. Civ. Code § 1798.84 (2007)..............................................................................................11 12 Cal. Civ. Code § 2349 (2007) ..................................................................................................20 13 Cal. Bus. & Prof. Code § 17203 (2007) .....................................................................................1 14 Cal. Bus. & Prof. Code § 17529 (2007) ...........................................................................13 n.16 15 Miscellaneous Page 16 Rainer Böhme & Thorsten Holz, The Effect of Stock Spam on Financial Markets (Apr. 2006), 17 at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=897431 ............................5-6 n.5 18 The Concise Oxford Dictionary (9th ed. 1995)................................................................24 n.35 19 Federal Trade Commission, You've Got Spam: How to "Can" Unwanted Email, at http://www.ftc.gov/bcp/conline/pubs/online/inbox.shtm (Apr. 2002) ...........................14 20 Laura Frieder & Jonathan Zittrain, Spam Works: Evidence from Stock Touts and 21 Corresponding Market Activity (Mar. 14, 2007), at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=920553 ................................5-6 n.5 22 H.R. 105-803 (1998)..................................................................................................................4 23 2 The New Shorter Oxford English Dictionary (4th ed. 1993).........................................24 n.35 24 The Oxford American Desk Dictionary (1998)................................................................24 n.35 25 10 Oxford English Dictionary (2d ed. 1989)....................................................................24 n.35 26 Ethan Preston & Paul Turner, The Global Rise of a Duty to Disclose Information Security 27 Breaches, 22 J. Marshall J. Computer & Info. L. 457 (2004) ...............................25 n.38 28 Restatement (Second) of Torts, § 519 (1977)...................................................................25 n.38
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S. Rep. No 105-182 (1998) ........................................................................................................4 S. Rep. No. 108-102 (2003) .........................................................................14, 22 n.32, 24 n.36 U.S. Equal Employment Opportunity Commission, EEOC NOTICE No. 915.002, at http://www.eeoc.gov/policy/docs/testers.html (May 22, 1996).............................14 n.19

7 John K. Webb, Prosecuting Social Security Number Misuse: Attacking Identity Theft at its Source, 53 U.S. Att'ys Bull. 1, 1-2 (Jan. 2005), available at 8 http://www.usdoj.gov/usao/eousa/foia_reading_room/usab5301.pdf....................16 n.21 9 ZDNet, Intel gives home to eBay servers, at http://news.zdnet.com/2110-9595_22-871656.html (Mar. 29, 2002)............................22 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
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PLAINTIFFS' OPPOSITION TO THE MOTION TO DISMISS Plaintiffs Matthew Elvey ("Elvey") and Gadgetwiz, Inc. ("Gadgetwiz"), respectfully

3 file their Opposition to TD AMERTRADE, Inc.'s ("Ameritrade") Motion to Dismiss the 4 Plaintiffs' First Amended Complaint ("FAC"). The FAC states claims on behalf of Ameritrade 5 accountholders residing in California ("California Resident Class") under California's 6 Consumer Legal Remedies Act ("CLRA") (Cal. Civ. Code § 1782(a)), Unfair Competition 7 Law ("UCL") (Cal. Bus. & Prof. Code § 17203), and the federal Computer Fraud and Abuse 8 Act (18 U.S.C. § 1030), and for breach of fiduciary duty regarding, inter alia, Ameritrade's 9 disclosure (involuntary or not) of emails and possibly other personal information, and its 10 failure to disclose an ongoing security breach. The FAC also states claims under the CAN 11 SPAM Act (15 U.S.C. § 7706(g)) on behalf of domain name/email service providers for 12 Ameritrade accountholders ("CAN SPAM Class") which received spam due to Ameritrade's 13 disclosure of email addresses ("Traced Spam"). The CAN SPAM Class's claims arise from the 14 receipt of spam that Class members would not have received but for Ameritrade's disclosure 15 of its accountholders' email addresses. 16 Ameritrade's Motion advances a flurry of arguments, none of which sustain scrutiny.

17 Ameritrade advances several underdeveloped arguments in its Motion. This Opposition had to 18 strain to comprehensively address all such arguments, lest Ameritrade exploit Plaintiffs' 19 failure to rebut its barest arguments in its Reply (when Plaintiffs have no ability to respond). 20 Moreover, many of Ameritrade's arguments depend heavily on Ameritrade's improper factual 21 contentions. Time and again, Ameritrade effectively asks the Court to assume its version of 22 the facts are true. This is improper: Plaintiffs have a right to the opportunity to prove their 23 claims. 24 I. 25 California Law Applies to Claims of California Resident Class Members The Nebraska choice of law clause in Ameritrade's Client Agreement is not

26 enforceable. Ameritrade concedes that a choice of law clause which violates California public 27 policy is not enforceable. (Def.'s Mot 5, citing Nedlloyd Lines B.V. v. Superior Court, 3 Cal. 28 4th 459, 468, 834 P.2d 1148, 1153 (1992)). The elephant in the room that Ameritrade attempts
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to ignore is Section 13 in its Client Agreement, which contains a class action waiver in an arbitration clause. (Attach. A to Def.'s Mot., §13: "No person will bring a class action to arbitration . . .") California courts have definitively rejected these provisions as unconscionable and unenforceable. See Discover Bank v. Superior Court, 36 Cal. 4th 148, 159-61, 113 P.3d 1100, 1107-08 (2005).1 Application of the Nebraska law clause would strip Elvey of the ability to vindicate his rights in a class action that he enjoys under California law. Cf. Discover Bank v. Superior Court, 134 Cal. App. 4th 886, 36 Cal. Rptr. 3d 456 (Cal. Ct. App. 2005) (enforcing class action waiver under Delaware law, where California resident choose to attempt national class action under Delaware law). Ameritrade cannot accomplish with its Nebraska choice of law clause that which it could not accomplish with a class action waiver. Choice of law provisions that impair California residents' right to a class action are just as void against public policy as class action waivers. See Discover Bank, 36 Cal. 4th at 158, 113 P.3d at 1106-1107 (choice of law clause was "the `functional equivalent' of a waiver of class action lawsuits," quoting Am. Online v. Superior Court, 90 Cal. App. 4th 1, 5, 108 Cal. Rptr. 2d 699, 702 (Cal. Ct. App. 2001) with apparent approval). This is true as a matter of general contract law in California, and is not limited (as Ameritrade suggests) to Elvey's CLRA claim. Aral v. Earthlink, Inc., 134 Cal. App. 4th 544, 36 Cal. Rptr. 3d 229 (Cal. Ct. App. 2005) found that, although the defendant's Georgia choice of law clause had a reasonable basis, it was not enforceable where the plaintiff resided in California, sought to represent only California consumers in a class action, and [Class action waivers are] not only harsh and unfair to [class members] who might be owed a relatively small sum of money, but it also serves as a disincentive for [a class action defendant] to avoid the type of conduct that might lead to class action litigation in the first place. [Class action waivers] essentially grant [class action defendants] a license to push the boundaries of good business practices to their furthest limits, fully aware that relatively few, if any, customers will seek legal remedies, and that any remedies obtained will only pertain to that single customer without collateral estoppel effect. The potential for millions of customers to be overcharged small amounts without an effective method of redress cannot be ignored. Szetela v. Discover Bank, 97 Cal. App. 4th 1094, 1101, 118 Cal. Rptr. 2d 862, 868 (Cal. Ct. App. 2002). See also Gatton v. T-Mobile USA, Inc., 152 Cal. App. 4th 571, 582 (Cal. Ct. App. 2007); Cohen v. DIRECTV, Inc., 142 Cal. App. 4th 1442, 48 Cal. Rptr. 3d 813 (Cal. Ct. App. 2006).
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relied solely on California law claims: The fundamental policy at issue is not simply the right to pursue a class action remedy, but the right of California to ensure that its citizens have a viable forum in which to recover minor amounts of money allegedly obtained in violation of the UCL. [D]epriving [consumers] of any hope of class litigation would pose an insurmountable barrier to recovery of small sums unjustly obtained, and undermine the protections of the UCL. There is no doubt that California has a materially greater interest than Georgia in the determination of [this] particular issue . . .

7 Id, 134 Cal. App. 4th at 564, 36 Cal. Rptr. 3d at 244. Elvey resides in California, seeks to 8 represent only California class members, and relies solely on California and federal law 9 claims. Thus, the Nebraska choice of law clause is unenforceable. Ameritrade's authorities are 10 easily distinguished, as they involve the arms' length negotiation by commercial entities, and 11 do not implicate California's policy of protecting its consumers' right to class actions.2 1 2 II . 13 Elvey's Claims Cannot Be Mischaracterized as Securities Claims Ameritrade attempts to parlay its status as a securities broker into defenses that apply

14 in securities fraud claims. Ameritrade must fail because Elvey's claims simply do not hinge on 15 the purchase of securities: as Ameritrade concedes, "Plaintiffs do not allege that they . . . 16 traded in any stock touted by the Traced Spam." (Def.'s Mot. 13.) Rather, Elvey's claims relate 17 to the misrepresentations in Ameritrade's Privacy Statement. 18 19 20 21 22 23 A. Ameritrade Cannot Stretch SLUSA Preemption to Cover the FAC's Claims

Federal preemption under the Securities Litigation Uniform Standards Act of 1998 ("SLUSA") extends only to claims "in connection with the purchase or sale of a covered security." 15 U.S.C. §§ 77p(b), 77bb(f)(1) (2007). Ameritrade's argument that SLUSA preempts the FAC's California claims falls apart on examination. First, Ameritrade's

2 Cf. Cont'l Airlines, Inc. v. Mundo Travel Corp., 412 F. Supp. 2d 1059, 1070 (E.D. Cal. 2006) 24 (commercial litigation between two corporations that did not involve class actions); Medimatch, Inc. v. Lucent Techs., Inc., 120 F. Supp. 2d 842, 861 (N.D. Cal. 2000) (involving 25 "a choice of law made by sophisticated commercial parties through arms length negotiation"). Further, this Court is bound to apply California's contractual law as determined by the 26 California Supreme Court and articulated in the Discover Bank decision ­ not as determined by its brother courts in Medimatch and Continental Airlines. "The task of a federal court in a 27 diversity action is to approximate state law as closely as possible in order to make sure that the vindication of the state right is without discrimination because of the federal forum." 28 Ticknor v. Choice Hotels Int'l, Inc., 265 F.3d 931, 939 (9th Cir. 2001) (punctuation, citation omitted; cited in Orkin v. Taylor, 487 F.3d 734 (9th Cir. 2007)).

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interpretation of SLUSA stretches it so far that it would apply to a Three-card Monte confidence man operating outside a stock broker's office, because there was some connection to the purchase of a security. Elvey's claims, that Ameritrade violated its privacy policy and concealed a security breach, are unrelated to the purchase of securities and are well outside the subject matter of the Securities and Securities Exchange Acts. United States v. Hockings, 129 F.3d 1069, 1071 (9th Cir. 1997) (statutory interpretation "constru[es] the provisions of the entire law, including its object and policy, to ascertain the intent of Congress"). At the very most, it is ambiguous whether the phrase "in connection with the purchase or sale of a covered security" applies to claims solely because a defendant happens to be a stock broker, particularly where the claims do not necessarily involve any purchase of securities. See Blum v. Stenson, 465 U.S. 886, 896 (1984) (legislative history used to assist statutory construction when statutory language is ambiguous). It is obvious from the legislative history that Congress's intent under SLUSA was to eliminate private securities fraud class actions in state courts. See H.R. 105-803, at 13-15 (1998); S. Rep. No 105-182, at 3-8 (1998). Applying SLUSA to this case exceeds the Congressional intent behind SLUSA. Second, the only allegations in the FAC in which the omission of material facts are connected with the purchase of stocks fall outside of the definition of a "covered class action." 15 U.S.C. §§ 77p(f)(2)(A), 78bb(f)(5)(B) (2007) (definition of "covered class action" is "lawsuit in which . . . damages are sought"). The FAC seeks injunctive relief (corrective disclosures) ­ not damages ­ with respect to its claims that Ameritrade fails to disclose that the Traced Spam touts certain stocks to California Resident Class members who purchase such stocks. (Cf. FAC ¶¶ 61-76, 89 with Pl.s' Mot. Prelim. Inj.) The FAC thus falls outside SLUSA's scope: federal courts recognize long-standing distinctions between claims for damages, on the one hand, and claims for equitable relief, on the other. See, e.g., Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204, 215 (2002) ("restitution, in contrast to damages, is a remedy commonly ordered in equity cases and therefore an equitable remedy . . . which damages . . . are not"). Likewise, the common law distinction between equity and damages shields all of the FAC's state law claims for equitable relief from preemption under
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SLUSA.3 Cf. id. at 213 ("a plaintiff could seek restitution in equity . . . where money or property identified as belonging in good conscience to the plaintiff could clearly be traced to particular funds or property in the defendant's possession") (emphasis in original) with Cortez v. Purolator Air Filtration Prods. Co., 23 Cal. 4th 163, 174-78, 999 P.2d 706, 712-16 (2000) (restitution under UCL was equitable, even where restitution included damages element). Third, the the FAC does not concern "covered securities," as defined in 15 U.S.C. §§ 77p(f)(3), 77r(b), 78bb(f)(5)(e). The FAC alleges that the Traced Spam "touts low-priced, speculative stocks of smaller companies traded on exchanges like Pink Sheets and OTCBB." (FAC ¶ 31.)4 Ameritrade received a copy of the Traced Spam sent to Elvey as an exhibit to the Motion for Preliminary Injunction (filed on July 10), and has had every chance to examine it since but has abjectly failed to identify any Traced Spam which mentions "covered securities." Ameritrade claims "it is fair to infer from the FAC" that Elvey's claims "undoubtedly involve[] a `covered security' . . ." (Def.'s Mot. 8-9.) This argument is contrary to the law: on a motion to dismiss, the FAC's "allegations and reasonable inferences are taken as true, and the allegations are construed in the light most favorable to" Plaintiffs. Simpson v. AOL Time Warner Inc., 452 F.3d 1040, 1046 (9th Cir. 2006). The FAC alleges the Traced Spam touts "small, thinly-traded compan[ies] . . . whose prices can be driven up easily" in order to have an appreciable effect on the stock's value. (FAC ¶ 18.) Stocks on the major exchanges are not prone to manipulation by stock spam, as the spam's effect would be lost against the vastly larger trading volumes of stocks listed on the major exchanges. It is far more reasonable to infer that the stocks touted in the Traced Spam exclusively trade on smaller exchanges and therefore does not fall within SLUSA's definition of "covered security."5

3 For instance, the California Resident Class's UCL claim cannot be a "covered class action" 24 because, unlike equitable relief such as restitution, "[d]amages are not available under section 17203." Cortez v. Purolator Air Filtration Prods. Co., 23 Cal. 4th 163, 173, 999 P.2d 706, 712 25 (2000). Likewise, SLUSA does not preempt the FAC's breach of fiduciary duty and CLRA claims for equitable restitution and disgorgement. (FAC ¶¶ 63, 76.) 26 4 The exchanges which trade "covered stocks" as defined in SLUSA are listed in 17 CFR § 230.146(b) (2007). Section 230.146(b) does not list either the Pink Sheets or OTCBB 27 exchanges, and so stocks traded on those exchanges do not qualify as "covered securities." 5 The authors of one empirical study of stock spam found that "[t]he touted stocks in our 28 sample are nearly always found listed on the Pink Sheets market, and sometimes additionally on the . . . OTCBB . . . [and] are not listed on any major exchange, nor are they traded in large

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B.

Ameritrade's Implied Preemption Argument Fails

Ameritrade also argues that the federal securities laws, and specifically the SEC's activities with respect to stock spam, implicitly preempt the FAC's claims. (Def.'s Mot. 8.) There is no implied preemption unless "the challenged state law stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress." Crosby v. Nat'l Foreign Trade Council, 530 U.S. 363, 373 (2000). There is no "federal policy against States imposing liability in addition to that imposed by federal law. [S]tate causes of action are not pre-empted solely because they impose liability over and above that authorized by federal law . . ." California v. ARC Am. Corp., 490 U.S. 93, 105 (1989) (no federal preemption of state antitrust laws that permitted antritrust claims which were not permitted under federal law). Ameritrade's argument fails because it does not show how Elvey's suit could possibly disrupt the SEC's activities, and utterly fails to "overcome the pre-sumption against finding pre-emption of state law in areas traditionally regulated by the States" including "regulation to prevent the deception of consumers." Id. at 101 (quotation marks omitted). It would be plainly unfair for Ameritrade to attempt to rectify this deficiency in its Reply (to which Plaintiffs have no opportunity to respond) when it could and should have been addressed in its Motion. Ameritrade's argument also fails to account for the widespread enforcement of state securities laws (which led to the passage of SLUSA in the first place)6 or the savings clauses in federal

total dollar amounts, making them amenable to manipulation." Laura Frieder & Jonathan 21 Zittrain, Spam Works: Evidence from Stock Touts and Corresponding Market Activity, 2 (Mar. 14, 2007), at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=920553. See also Rainer 22 Böhme & Thorsten Holz, The Effect of Stock Spam on Financial Markets 5 (Apr. 2006), at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=897431 (study of 391 unique spam-touted 23 stocks, all were traded on either the Pink Sheets or OTCBB because spam's impact was greater on stocks with low trading volumes). 24 6 "Congress plainly contemplated the possibility of dual litigation in state and federal courts relating to securities transactions." Matsushita Elec. Indus. Co. v. Epstein, 516 U.S. 367, 383 25 (1996). See also CTS Corp. v. Dynamics Corp. of Am., 481 U.S. 69, 83 (1987) (no implied preemption where Indiana securities law "furthers the federal policy of investor protection"). 26 See also Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Ware, 414 U.S. 117, 135-36 (1973) (Securities Exchange Act did not preempt California labor law where broker defendant did not 27 demonstrate that "nationwide uniformity of an exchange's housekeeping affairs is necessary or desirable" under Exchange Act and the relationship between California labor law's subject 28 matter and Act's interests of "fair dealing and investor protection" was "extremely attenuated and peripheral, if it exists at all.")
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privacy laws that mandated Ameritrade's Privacy Statement expressly limit preemption of state law. See 15 U.S.C. § 6807(a) (2007); 17 CFR § 248.17(a) (2007). C. The FAC Does Not Fall Within Securities Exception to the UCL, to the Extent Such Exception Even Exists

Ameritrade's argument that Bowen v. Ziasun Techs., Inc., 116 Cal. App. 4th 777, 11

6 Cal. Rptr. 3d 522 (Cal. Ct. App. 2004) restricts the UCL's application to securities transactions 7 is both irrelevant and contrary to the law. (Def.'s Mot. 15.)7 First, Bowen is simply irrelevant 8 because this case falls outside of Bowen's narrow application. 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Whether one agrees with Bowen or not, its holding that securities transactions are not covered under the UCL bars lawsuits based on deceptive conduct in the sale and purchase of securities, nothing more. [Bowen does not apply where the plaintiff's] claims do not arise from any stock transactions between the parties. Overstock.com, Inc. v. Gradient Analytics, Inc., 151 Cal. App. 4th 688, 715-16 (Cal. Ct. App. 2007) (emphasis in original). Bowen does not apply Ameritrade did not sell stock to the California Resident Class members ­ Bowen does not apply simply because Ameritrade is the California Resident Class members' stock broker.8 Second, Bowen contradicts the California Supreme Court's sweeping interpretation of the UCL: "unfair competition . . include[s] any unlawful, unfair or fraudulent business act or practice[,] . . . embracing anything that can properly be called a business practice . . ." CelTech Commc'ns, Inc. v. Los Angeles Cellular Tel. Co., 20 Cal. 4th 163, 180, 973 P.2d 527, 539 (1999) (punctuation, citations omitted). This Court must apply Cel-Tech's broad interpretation of the UCL. In a diversity action, the Court is "bound by the pronouncements of the state's highest court on applicable state law." Ticknor v. Choice Hotels Int'l, Inc., 265 F.3d 931, 939 (9th Cir. 2001) (citation omitted). Moreover, the Court cannot assume that the California Supreme Court will adopt Bowen's restrictions on the UCL. "If the particular issue has not
7

Ameritrade argues in a footnote that "the logic foreclosing the application of the UCL to securities transaction should apply to foreclose application of the CLRA." (Def.'s Mot. 15-16 26 n.4.) Ameritrade concedes it has no authorities to support this argument, and it must be discarded just as the UCL argument. 27 8 The UCL claims in Bowen dealt with securities transactions between the defendant and plaintiff. The only defendant on appeal in Bowen was the company offering its stock. Bowen, 28 116 Cal. App. 4th at 779 n.2, 11 Cal. Rptr. 3d at 523 n.2. Applying Bowen to this case would exceed its actual holding.
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been decided, federal courts must predict how the state's highest court would resolve it. . . . In making that prediction, federal courts look to existing state law without predicting potential changes in that law." Hemmings v. Tidyman's Inc., 285 F.3d 1174, 1203 (9th Cir. 2002) (punctuation, citations omitted, emphasis added). Other California appellate courts have contradicted Bowen's reasoning, further undermining Ameritrade's assumption that the California Supreme Court would reverse Cel-Tech in favor of Bowen. See Roskind v. Morgan Stanley Dean Witter & Co., 80 Cal. App. 4th 345, 350-56, 95 Cal. Rptr. 2d 258, 261-65 (Cal. Ct. App. 2000) (UCL claim against stock broker which delayed client's trades, cited and followed by Overstock.com, 151 Cal. App. 4th at 715-16). III. Elvey and California Resident Class Members State UCL and CLRA Claims Elvey's UCL and CLRA claims arise from false and misleading representations in the Privacy Statement. The Privacy Statement represents that "TD AMERITRADE does not . . . disclose your personal information to any third party for any reason . . ." (FAC ¶ 21.) The disclosure of Ameritrade accountholders' email addresses renders the non-disclosure assertion false and misleading ­ regardless of whether the disclosure was intentional or not. (Id.) Elvey's claim under the UCL only requires "that members of the public are likely to be deceived." Kasky v. Nike, Inc., 27 Cal. 4th 939, 951, 45 P.3d 243, 250 (2002) (citations omitted). "The UCL imposes strict liability [on] conduct that constitutes an unfair business practice." Cortez, 23 Cal. 4th at 181, 999 P.2d at 717. The CLRA and the UCL share the same standard of liability. Consumer Advocates v. Echostar Satellite Corp., 113 Cal. App. 4th 1351, 1360, 8 Cal. Rptr. 3d 22, 29 (Cal. Ct. App. 2003) (cited by Colgan v. Leatherman Tool Group, Inc., 135 Cal. App. 4th 663, 680, 38 Cal. Rptr. 3d 36, 46 (Cal. Ct. App. 2006)). "Conduct that is `likely to mislead a reasonable consumer' thus violates the CLRA." Colgan, 135 Cal. App. 4th at 680, 38 Cal. Rptr. 3d at 46. A. Elvey's Alternate Allegation That Ameritrade Intentionally Disclosed Email Addresses States Claims Under the CLRA and UCL

The FAC alleges in the alternative that "Ameritrade's disclosure of its accountholders'

28 email addresses was intentional. " (FAC ¶ 44.) Ameritrade addresses this allegation by
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contending that "the mere fact that e-mail addresses ended up in the possession of spammers cannot reasonably support" the FAC's allegation. (Def.'s Mot. 12.) Ameritrade's factual contention is contrary to established pleading standards: on motion to dismiss, the FAC's "allegations and reasonable inferences are taken as true." Simpson, 452 F.3d at 1046. As the FAC alleges, Ameritrade had a motive to disclose accountholder email addresses to spammers "because its accountholders trade stocks based on tips in the Traced Spam and Ameritrade earns commissions on those trades." (FAC ¶ 31.) This is enough to state a claim, and the FAC withstands the Motion to Dismiss on the strength of its alternative "intentional disclosure" theory alone.9 "When two or more statements are made in the alternative and one of them if made independently would be sufficient, the pleading is not made insufficient by the insufficiency of one or more of the alternative statements." Fed. R. Civ. P. 8(e)(2). B. Ameritrade's Omissions and Misrepresentations About the Security Breach Violated the CLRA And UCL

The FAC's core theory is that there is an ongoing security breach at Ameritrade.

16 Ameritrade induced Elvey and continues to induce customers into providing personal 17 information on the Privacy Statement's representation that Ameritrade does not disclose 18 information to third parties: that representation was knowingly and intentionally false during 19 times when Ameritrade was aware of the possibility of a specific, existing security breach. 20 (FAC ¶ 40.) Ameritrade argues that the unauthorized disclosure of accountholder email 21 addresses "is in no way inconsistent with the Privacy Statement," because the statement 22 statement "no security system is absolutely impenetrable" in the Privacy Statement disclosed 23 the possibility of a security breach. (Def.'s Mot. 12.) Read in conjunction with Ameritrade's 24 promise not to disclose personal information to third parties, however, this statement only 25 discloses the general possibility of a future breach ­ the Privacy Statement fails to disclose 26 Ameritrade's knowledge of a specific, ongoing security breach which presently threatened 27 See Bell Atl. Corp. v. Twombly, 127 S. Ct. 1955, 1965 (2007) (requirement that complaint allege "plausible grounds" for claim "does not impose a probability requirement at the 28 pleading stage; it simply calls for enough fact to raise a reasonable expectation that discovery will reveal evidence" supporting claim).
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to disclose accountholders' personal information. The UCL and CLRA prohibit misleading omissions of material facts, not just affirmative fraud. Kasky, 27 Cal. 4th at 951, 45 P.3d at 250 (UCL prohibits representations which "although true, is either actually misleading or which has a capacity, likelihood or tendency to deceive or confuse the public"); Outboard Marine Corp. v. Superior Court, 52 Cal. App. 3d 30, 38, 124 Cal. Rptr. 852, 857 (Cal. Ct. App. 1975) (CLRA prohibits omission of material facts). See also Chamberlan v. Ford Motor Co., 369 F. Supp. 2d 1138, 1144-46 (N.D. Cal. 2005) (omission of automobile defects could violate UCL, CLRA). When the Privacy Statement's generalized warning that "no security system is absolutely impenetrable" is read in conjunction with the promise not to disclose information, it is clear that the Privacy Statement does not discharge Ameritrade's obligation to disclose its investigation into a specific, ongoing security breach.10 Ameritrade's fixation on its disclosure of the possibility of a unspecified future security breach is besides the point ­ the relevant material omission is the specific, existing security breach that Ameritrade is now investigating. Thus, the authorities cited by Ameritrade to argue that it owes no duty to disclose the security breach do not apply.11 The statement that "TD AMERITRADE does not . . . disclose your personal information to any third party for any reason" creates a reasonable expectation that Ameritrade does not disclose email addresses to spammers. Conversely, the
10

Although this is decidedly not a securities case, Ameritrade's argument is analytically similar to an unsuccessful defense under bespeaks caution doctrine. Under the bespeaks caution doctrine, cautionary language only exculpates misleading statements when it puts a [consumer] sufficiently on notice of the danger of the [transaction] investment to make an intelligent decision about it according to her own preferences for risk and reward . . . Put differently, the cautionary statement must discredit the alleged misrepresentations to such an extent that the risk of real deception drops to nil. In re Immune Response Sec. Litig., 375 F. Supp. 2d 983, 1033 (S.D. Cal. 2005) (quotations omitted). 11 Cf. Bardin v. DaimlerChrysler Corp., 136 Cal. App. 4th 1255, 39 Cal. Rptr. 3d 634 (Cal. Ct. App. 2006) (no duty to disclose alleged exhaust manifold defect where defendant made no affirmative representations and public had no expectations or assumptions regarding exhaust manifolds); Daugherty v. American Honda Motor Co., Inc., 144 Cal. App. 4th 824, 51 Cal. Rptr. 3d 118 (Cal. Ct. App. 2006) (same; car engine). See also Williams v. Gerber Prods. Co., 439 F. Supp. 2d 1112, 1115 (S.D. Cal. 2006) (product packaging which depicted fruits was not misleading under UCL because it did not make "specific affirmative representation that the product contains those fruits" and ingredient list on packaging made specific disclosure.
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statement "no security system is absolutely impenetrable" amounts to no more than a generalized caution that future security breaches are possible. Indeed, Ameritrade's own authority holds that "misdescriptions of specific or absolute characteristics" are actionable. Williams v. Gerber Prods. Co., 439 F. Supp. 2d 1112, 1115 (S.D. Cal. 2006) (generalized puffery is not action, but "consumer reliance [is] induced by specific rather than general assertions"). C. California Civil Code § 1798.82 Does Not Restrict Elvey's Claims

Ameritrade misstates the law when it implies that the California legislature limited its duty to disclose security breaches under Cal. Civ. Code § 1798.82(e). (Def.'s Mot. 12-13.) Section 1798.82's remedy is found in Cal. Civ. Code § 1798.84, which explicitly provides that "rights and remedies available under this section are cumulative . . . to any other rights and remedies available under law." Cal. Civ. Code § 1798.84(g) (2007) (emphasis added). Section 1798.82 mandates disclosure of security breaches regardless of whether there is a contract or privacy policy. Cal. Civ. Code § 1798.82(a) (2007). Conversely, Elvey's CLRA and UCL claims hinge on the misleading representations in the Privacy Statement: his claims are entirely independent of Cal. Civ. Code § 1798.82. Restricting those claims to section 1798.82 would pervert the legislative intent behind the savings clause in section 1798.84(g). Even if section 1798.82 could be read to limit Ameritrade's disclosure obligations to security breaches that expose Social Security numbers, the FAC alleged that. (FAC ¶¶ 41-42.)12 D. Ameritrade's CLRA and UCL Violations Damaged Elvey and the Other California Resident Class Members

The FAC alleges that the damage from Ameritrade's CLRA and UCL violations includes the loss of the benefit of bargain on Ameritrade's brokerage fees, which were premised, in part, on Ameritrade's compliance with the privacy statement and full disclosure of facts relevant to the security of accountholders' information. The damage from the Traced Spam includes California Resident Class members' lost time required to sort, read, discard and attempt to prevent future Traced Spam, and lost storage space, Internet connectivity, and computing resources on the personal computers on which they received the
12

Hence, Plaintiffs are entitled to take discovery on the matter. Simpson v. AOL Time Warner Inc., 452 F.3d 1040, 1046 (9th Cir. 2006) (on motion to dismiss, FAC's "allegations and 28 reasonable inferences are taken as true, and the allegations are construed in the light most favorable to" Plaintiffs).
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Traced Spam. Further, California Resident Class members are subject to a identity theft to the extent Ameritrade's security has been breached. (FAC ¶¶ 62, 68.) Ameritrade argues that the FAC fails to allege damages to state either a UCL or CLRA claim, by attempting to gloss over this allegation. (Def.'s Mot. 9-10, 14.) Ameritrade's lone argument as to the loss of the benefit of the bargain is that the FAC does not allege that "the non-receipt of spam was material to the bargain made with [Ameritrade] or that [it] failed to provide any of the brokerage services sought or purchased." (Id. 9.) Plaintiffs are not obliged to plead their complaint to specifications desired by Ameritrade: Ameritrade can presents absolutely no authority to support its assertion that the FAC had to explicitly use the word "material" with respect to its CLRA and UCL claims.13 Moreover, it is reasonable to infer from the FAC's CLRA and UCL allegations that the nondisclosure of Elvey's email address was a material term to the Privacy Statement. Simpson, 452 F.3d at 1046.14 Elvey lost the benefit of his bargain under the Privacy Statement when Ameritrade disclosed his email addresses to spammers: the FAC gives a detailed explanation of why the confidentiality and security of Elvey's personal information was material. (FAC ¶¶ 26, 28, 39-43 (describing costs of receiving spam, and risks of an ongoing security breach).) The Privacy Statement's representations are material "if a reasonable man would attach importance to [their] existence or nonexistence in determining his choice of action in the transaction in question, and as such [their] materiality is . . . a question of fact" that cannot be resolved on a motion to dismiss. Engalla v. Permanente Medical Group, Inc., 15 Cal. 4th 951, 977, 938 P.2d 903, 919 (1997) (citations, punctuation omitted, emphasis added). Because Ameritrade's representation that it would not disclosure Elvey's email address was material, Ameritrade's authorities are inapplicable to Elvey's claims.15

13 Doubtless if the FAC had alleged only that the Privacy Statement was material, Ameritrade 24 would complain the allegation was insufficient because it was conclusory. 14 The FAC does allege in the breach of fiduciary duty claim that "[t]he security of personal 25 information given to Ameritrade was a material fact, because exposure of accountholders' personal information subjects the accountholders to spam and increased risk of identity theft." 26 (FAC ¶ 72) (emphasis added). 15 Chavez v. Blue Sky Natural Bev. Co., No. 06-6609, 2007 U.S. Dist. LEXIS 44487 (N.D. Cal. 27 Jun. 11, 2007) found that damages stemming from alleged promises regarding the origin of the defendant's soft drinks were "nonexistent because [the] alleged promise had no value." Id. 28 at *9. Keeping one's email address out of the hands of spammers plainly has a benefit and value beyond the value of the promise that a soft drink was made in one place, rather than

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Ameritrade belittles the harms caused to its customers alleged in the FAC: "Plaintiffs attempt to dress up the `damage' by alleging generally lost time to read and discard spam emails and lost storage space and `Internet connectivity,' but this is unavailing . . ." (Def.'s Mot. 10.) California recognizes the precise effects alleged in the FAC as damage.16 Likewise, the CFAA's definition of damages undermines Ameritrade's argument.17 Ameritrade urges that the FAC's damages allegations are inadequate because "Elvey's alleged lost time is de minimis and alleged `80' spam messages could not have any appreciable impact on such systems or functions." (Def.'s Mot. 10.) Again, Ameritrade's factual contention, which essentially concedes Elvey has alleged some damage, must be resolved in Plaintiffs' favor on a motion to dismiss. Simpson, 452 F.3d at 1046. Ameritrade ­ indifferent to the potential risks to its accountholders ­ also derides the FAC's allegations about the possible risk of identity theft as "conjur[ing] speculative harms that they do not allege actually occurred." (Def.'s Mot. 10). It is significant that, while Ameritrade has no hesitation in contesting the FAC's factual allegations (and going so far as to introduce evidence), it does not contest the FAC's core allegation that there is an ongoing security breach. (FAC ¶ 42.) Without any evidence that Ameritrade managed to secure Elvey's Social Security number but not his email address, there is no reason to believe that the use of

another. Chavez is not applicable. Likewise, Meyer v. Sprint Spectrum L.P., 150 Cal. App. 4th 19 1136 (Cal. Ct. App. 2007) found that allegations that the terms of a wireless service were unconscionable failed to allege damages, where the plaintiffs did not allege the relevant terms 20 ever constrained them in any way, and the wireless service performed as represented under the contract. Id. at 1144. In contrast, Elvey has alleged damages: Ameritrade did not perform its 21 services as represented under the Privacy Statement by disclosing Elvey's email address. 16 Cal. Bus. & Prof. Code § 17529(e) (2007) ("spam imposes a cost on users, using up 22 valuable storage space in e-mail inboxes, as well as costly computer band width, and on networks and the computer servers that power them, and discourages people from using e23 mail"); Ferguson v. Friendfinders, 94 Cal. App. 4th 1255, 1267-1268, 115 Cal. Rptr. 2d 258, 267 (Cal. Ct. App. 2002) (spam recipients "experience increased Internet access fees because 24 of the time required to sort, read, discard and attempt to prevent future sending of UCE"). 17 See 18 U.S.C. § 1030(e)(8) (2007) (defining damages for CFAA claim as "any impairment 25 to the integrity or availability of data, a program, a system, or information"); United States v. Middleton, 231 F.3d 1207, 1213 (9th Cir. 2000) (damages under CFAA include costs used to 26 resecure a computer to avoid further damage); Four Seasons Hotels & Resorts B.V. v. Consorcio Barr, S.A., 267 F. Supp. 2d 1268, 1323 (S.D. Fla. 2003) (where "unauthorized 27 broadcast traffic . . . caused congestion on" computer, the availability of that computer to other systems in the network was impaired and constituted damage under the CFAA); Am. 28 Online, Inc. v. Nat'l Health Care Disc., Inc., 174 F. Supp. 2d 890, 899 (D. Iowa 2001) (detailed explanation of why spam constitutes damage under CFAA).
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Elvey's Social Security number in a recent identity theft crime was not connected with the breach at Ameritrade. (Id. ¶¶ 41-42.) E. Ameritrade's Arguments Concerning Plaintiffs' Use of Unique Email Addresses Are Disingenuous and Legally Baseless

Plaintiffs' use of unique email addresses was essential to detecting the leakage of their

6 email address was the only way to identify spam's source. It is typically impossible to identify 7 the persons responsible for transmitting spam. S. Rep. No. 108-102, at 5 (2003) (testimony 8 that 90 percent of all of the spam sent worldwide is ``untraceable'' to its actual source). Thus, 9 the FTC recommends using unique email addresses as a "best practice" for email users. 10 Federal Trade Commission, You've Got Spam: How to "Can" Unwanted Email, at 11 http://www.ftc.gov/bcp/conline/pubs/online/inbox.shtm (Apr. 2002). Unique email addresses 12 email users to identify firms that leak email addresses to spammers, and (as Ameritrade itself 13 notes) to limit the damage caused by such leaks by "discontinuing the use of these unique 14 email addresses." (Def.'s Mot. 10.) Courts recognize damages and standing where statutory 15 violations can only be detected through such investigative techniques: "testers" have standing 16 to claim damages under a wide variety of discrimination laws where violations are difficult to 17 detect.18 "[A] tester may . . . fully expect[] that he would receive false information [regarding 18 the availability of housing], and without any intention of buying or renting a home, [but that] 19 does not negate the simple fact of injury . . ." Havens Realty Corp. v. Coleman, 455 U.S. 363, 20 374 (1982). A tester suffers injury because it devotes "resources . . . to identifying and 21 counteracting [statutory violations], and this diversion of resources frustrate[s]" the tester's 22 other goals. Fair Hous. of Marin v. Combs, 285 F.3d 899, 903 (9th Cir. 2002).19 Here, 23 Plaintiffs have sustained injury because they were obliged to devote time and energy towards 24 identifying the source of the spam sent to them. Time spent on preventative measures and 25 "investigating and repairing" a CFAA violation are compensable damages under the CFAA. 26
18 See Independent Living Resources v. Oregon Arena Corp., 982 F. Supp. 698, 761 n.86 (D. 27 Or. 1997) (tester standing "may reflect a doctrine of necessity" where "[t]esting [is] the most effective method ­ and perhaps the only effective method ­ of enforcing" statute). 28 19 See also U.S. Equal Employment Opportunity Commission, EEOC NOTICE No. 915.002, at http://www.eeoc.gov/policy/docs/testers.html (May 22, 1996).

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United States v. Middleton, 231 F.3d 1207, 1214 (9th Cir. 2000). See also Four Seasons Hotels & Resorts B.V. v. Consorcio Barr, S.A., 267 F. Supp. 2d 1268, 1309 (S.D. Fla. 2003) (CFAA damages include cost of investigating CFAA violation). Ameritrade argues that Elvey "manufactured a `harm' for the sole purpose of bringing suit" by using unique email addresses. (Def.'s Mot. 1.) On reflection, this argument is ridiculous ­ Ameritrade chides Plaintiffs for collecting evidence that Ameritrade disclosed their email addresses.20 While Ameritrade disingenuously implies that Plaintiffs have no claim because they used unique email addresses, Ameritrade would surely argue Plaintiffs lacked sufficient evidence to prove liability without such email addresses. Doubtless, Ameritrade prefers a damned-if-you-do-damned-if-you-don't resolution that allows it to avoid liability in either situation ­ but it must be rejected. IV. Ameritrade Breached Its Fiduciary Duties to Elvey and the Other California Resident Class Members The FAC states claims for breach of fiduciary duty, notwithstanding Ameritrade's

15 arguments. Ameritrade's central argument is that Nebraska law applies. This is wrong, as 16 discussed in Section I, infra. 17 Ameritrade cites Petersen v. Securities Settlement Corp., 226 Cal. App. 3d 1445, 277

18 Cal. Rptr. 468 (Cal. Ct. App. 1991) for its argument under California law that it owes no 19 fiduciary duty to accountholders, as a "broker simply process[ing] unsolicited trade orders." 20 (Def.'s Mot. 17.) This is wrong: the Peterson court had "no doubt [defendant] owed 21 [plaintiffs] the duties of a fiduciary" but found that investment advice was beyond scope of 22 those duties. Petersen, 226 Cal. App. 3d at 1451, 277 Cal. Rptr. at 470. Petersen only follows 23 the rule that "[g]rant[s] the existence of a fiduciary relationship between securities brokers 24 and their customers, [but holds] the scope of the duty varies with the facts of the relationship." 25 Ameritrade also complains that "Elvey waited more than seven months after he began receiving spam to file this action . . . and collected spam e-mail with which to pursue this 26 litigation" during that time. (Def.'s Mot. 1.) As discussed in Plaintiffs' Opposition to Ameritrade's Motion to Extend Time, there are many good reasons for that delay, which 27 include Ameritrade's own emails indicating the situation was under control, Elvey's due diligence investigation to "[t]o ensure that he was not responsible for leaking" his email 28 addresses, FAC ¶ 24, and the relative difficulty of locating legal representation that would represent him economically in a case like this. (Pl.s' Opp. Extension of Time 4.)
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Rosenthal v. Great W. Fin. Sec. Corp., 14 Cal. 4th 394, 425, 926 P.2d 1061, 1080 (1996). In Petersen, the defendant's contract with the plaintiffs stated that the defendant's services were limited to clearing the plaintiffs' orders, and refuted any suggestion of agency by the defendant. Petersen, 226 Cal. App. 3d at 1452-53, 277 Cal. Rptr. at 470-471. Here, conversely, the Privacy Statement stated that Ameritrade would not disclose its