Web Dating Company Rescinds Offer For Customer Data of Bankrupt Site

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By Susanne Pagano  

Oct. 28 --A Canadian-based online dating service has withdrawn its $700,000 offer to acquire the member database of the bankrupt dating website company True Beginnings LLC of Plano, Texas, according to a termination notice filed Oct. 23 in a federal bankruptcy court (In re True Beginnings, LLC , Bankr. E.D. Tex., No. 12-42061, notice of termination filed 10/23/13).

The termination notice came in the wake of Texas Attorney General Greg Abbott's (R) Oct. 9 filing with the U.S. Bankruptcy Court for the Eastern District of Texas objecting to the sale.

Abbott said the True Beginnings database included personally identifiable information of 43 million members who hadn't consented to the sale of their data.

Sale Would Violate Privacy Policy

In an e-mail filed as an exhibit to the termination notice, an attorney representing the Canadian dating website PlentyofFish.com said the sale of the customer information violated the seller's privacy policy.

True Beginnings doesn't appear to have the “unrestricted right to sell the trade secrets that make up its customer information,” and the transfer of the customer information and other intellectual property “do not appear to be legal, valid and effective and will not vest in purchaser all right title and interest of seller in the assets,” attorney Joseph Larsen of Sedgwick LLP in Houston wrote.

Larsen also said Abbott's objection to the sale provided grounds to terminate the offer.

Bankruptcy Code Issues

True Beginnings filed for Chapter 11 protection under the Bankruptcy Code in August 2012.

The sale of the debtor's databases under terms of the asset purchase agreement “failed to adhere to the guidelines contemplated by Section 363 of the Bankruptcy Code” and failed to adequately notify True Beginning website True.com's registered members, whose personal information would be ultimately transferred to the new owner without the customers' knowledge or consent, the attorney general wrote.

Abbott had argued that the bankruptcy trustee must first give True.com's members an opportunity to object to the sale of their highly sensitive personally identifiable information and be allowed to opt in to the transfer of their sensitive data to the new owner.

True.com proposed to notify members via e-mail that their personal information had been sold and that they have the opportunity to opt out.

Consumer Protection Law Penalties

After PlentyofFish.com canceled the purchase of the online dating service's member list, the Texas attorney general Oct. 24 submitted a notice of intent to file an administrative expense claim for post-petition civil fines and penalties against True Beginnings for violations of various Texas consumer protection laws.

The Texas attorney general said True.com's privacy policies create “ambiguous and deceptive disclosures regarding the protection of customers' private information and deceptive statements regarding criminal background checks.”

Violations of the Texas Deceptive Trade Practices Act carry penalties of up to $20,000 per incident; violations of Texas Internet Dating Safety Act carry a civil penalty of up to $250 for each Texas member registered with True.com during the time of the violation, according to the notice filed with the court.

William L . Medford of Quilling Selander Lownds Winslett & Moser PC, filed the notice of termination on behalf of PlentyofFish.com.

 

To contact the reporter on this story: Susanne Pagano in Houston at spagano@bna.com

To contact the editor responsible for this story: Donald G. Aplin at daplin@bna.com


Full text of the Notice of Termination of the Asset Purchase is available at

http://www.bloomberglaw.com/public/document/True_Beginnings_LLC_Docket_No_412bk42061_Bankr_ED_Tex_Aug_01_2012/2.

Full text of the e-mail filed as Exhibit A to the termination notice is available at http://www.bloomberglaw.com/public/document/True_Beginnings_LLC_Docket_No_412bk42061_Bankr_ED_Tex_Aug_01_2012/3.

Full text of the Attorney General's Intent to File Administrative Expense Claim for Post-Petition Civil Fines and Penalties is available at http://www.bloomberglaw.com/public/document/True_Beginnings_LLC_Docket_No_412bk42061_Bankr_ED_Tex_Aug_01_2012/4.