• by Wendy Davis  @wendyndavis, December 17, 2013

A federal appellate court has ruled that consumers can proceed with a class-action lawsuit against Intelius and Adaptive for allegedly duping people into purchasing paid subscription services.

The ruling, issued this week by the 9th Circuit Court of Appeals, stems from a potential class-action lawsuit brought by a consumer, Donovan Lee, against Intelius.

Lee alleged that he provided his credit card information to Intelius in order to purchase a report from the data broker in 2008. After he confirmed his purchase, he was taken to another page where he was given the opportunity to order a “free” seven-day trial of a Family Safety Report. The small print on the page said that the report would cost $19.95 a month after the trial period ended, according to the court papers.

Lee said he accepted the so-called “post-transaction offer” without realizing that Intelius would transfer his credit card data to Adaptive, or that he would be charged $19.95 a month, according to the court papers.

After Lee realized that he was being charged a monthly fee for the reports, he sued Intelius. That company then brought Adaptive into the case.

Adaptive argued that the dispute should be decided by an arbitrator and not a judge, given that the company's online terms contained a provision requiring arbitration. A trial judge disagreed with Adaptive, and ruled that Lee could proceed in federal court.

Adaptive then appealed to the 9th Circuit, which also ruled against the company. A three-judge appellate panel said in a written opinion that Lee and Adaptive never entered into an enforceable contract with Adaptive -- meaning that Lee didn't agree to purchase monthly reports, and also didn't agree to take any disputes to arbitration.

The judges also pointed out that Congress outlawed data-pass marketing in 2010. “Though it is not necessary to our holding, we note that the would-be contract that Adaptive is seeking to enforce is now illegal under federal law,” they write.

The Restore Online Shoppers' Confidence Act, which was passed after an 18-month investigation by the Senate Commerce Committee, prohibits online retailers from disclosing consumers' credit card information to other sellers.