Recently, the Federal Trade Commission (“FTC”) filed a limited objection in bankruptcy court to the proposed sale of assets of ConnectEdu, Inc. (“ConnectEdu”) on the grounds that the company’s privacy policy protecting customer personal information had potentially not been complied with.

Specifically, ConnectEdu, an education technology company that provided interactive tools to assist students, parents and school counselors in career planning sought to sell substantially all of its assets in a Chapter 11 bankruptcy proceeding in the Bankruptcy Court for the Southern District of New York.  (In Re ConnectEdu, Inc., et al., Case No. 14-11238 United States Bankruptcy Court for the Southern District of New York.)  According to the FTC, ConnectEdu collected a substantial amount of personal information from high school and college student customers including names, dates of birth, addresses, email addresses, telephone numbers and additional information.

ConnectEdu’s privacy policy provided that this personal information would generally not be distributed to third parties except without express written consent and direction of their customers.  Interestingly, ConnectEdu’s privacy policy also expressly provided:

In the event of sale or intended sale of the Company, ConnectEdu will give users reasonable notice and an opportunity to remove personally identifiable data from the service.

The FTC filed an objection to the asset sale on the grounds that ConnectEdu had potentially not complied with Section 363(b)(1)(A) of the Bankruptcy Code which requires a debtor not to sell personally identifiable information about an individual subject to a privacy policy unless the sale is consistent with the policy.  The FTC took the position that ConnectEdu’s customers may not have been provided notice and an opportunity to remove their personal information upon the potential sale of assets.  The FTC alleged that failure to comply with ConnectEdu’s privacy policy in regard to the sale of assets could violate the Bankruptcy Code as well as FTC’s prohibition against “deceptive acts or practices in or affecting commerce” (15 U.S.C. § 45(a)) exposing both the buyer and seller of the assets to liability.

This is not the first time the FTC has addressed the statements in a website privacy policy in the bankruptcy context, even where a privacy ombudsman had been appointed under Bankruptcy Code section 332. Note also that California’s California Online Privacy Protection Act regulates website content by requiring operators of commercial websites to conspicuously post a privacy policy if they collect personally identifiable information from Californians. On May 21st, 2014, California’s Attorney General, Kamala D. Harris, provided guidance for complying with the Act and recent amendments to it in 2013, requiring privacy policies to include information on how the operator responds to Do Not Track signals or similar mechanisms.  

These cases and the recent activity in California highlight the need for all companies to review their website privacy policies generally, and specifically as they relate to how personal information collected on the sites may be used and disclosed, including in connection with the potential sale of the business.  Absent such review, uses and disclosures that may be considered usual and customary, and otherwise permissible, could subject a company to significant legal liability and monetary exposure stemming from the terms of the company’s own website policy.

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Photo of Joseph J. Lazzarotti Joseph J. Lazzarotti

Joseph J. Lazzarotti is a principal in the Berkeley Heights, New Jersey, office of Jackson Lewis P.C. He founded and currently co-leads the firm’s Privacy, Data and Cybersecurity practice group, edits the firm’s Privacy Blog, and is a Certified Information Privacy Professional (CIPP)…

Joseph J. Lazzarotti is a principal in the Berkeley Heights, New Jersey, office of Jackson Lewis P.C. He founded and currently co-leads the firm’s Privacy, Data and Cybersecurity practice group, edits the firm’s Privacy Blog, and is a Certified Information Privacy Professional (CIPP) with the International Association of Privacy Professionals. Trained as an employee benefits lawyer, focused on compliance, Joe also is a member of the firm’s Employee Benefits practice group.

In short, his practice focuses on the matrix of laws governing the privacy, security, and management of data, as well as the impact and regulation of social media. He also counsels companies on compliance, fiduciary, taxation, and administrative matters with respect to employee benefit plans.

Privacy and cybersecurity experience – Joe counsels multinational, national and regional companies in all industries on the broad array of laws, regulations, best practices, and preventive safeguards. The following are examples of areas of focus in his practice:

  • Advising health care providers, business associates, and group health plan sponsors concerning HIPAA/HITECH compliance, including risk assessments, policies and procedures, incident response plan development, vendor assessment and management programs, and training.
  • Coached hundreds of companies through the investigation, remediation, notification, and overall response to data breaches of all kinds – PHI, PII, payment card, etc.
  • Helping organizations address questions about the application, implementation, and overall compliance with European Union’s General Data Protection Regulation (GDPR) and, in particular, its implications in the U.S., together with preparing for the California Consumer Privacy Act.
  • Working with organizations to develop and implement video, audio, and data-driven monitoring and surveillance programs. For instance, in the transportation and related industries, Joe has worked with numerous clients on fleet management programs involving the use of telematics, dash-cams, event data recorders (EDR), and related technologies. He also has advised many clients in the use of biometrics including with regard to consent, data security, and retention issues under BIPA and other laws.
  • Assisting clients with growing state data security mandates to safeguard personal information, including steering clients through detailed risk assessments and converting those assessments into practical “best practice” risk management solutions, including written information security programs (WISPs). Related work includes compliance advice concerning FTC Act, Regulation S-P, GLBA, and New York Reg. 500.
  • Advising clients about best practices for electronic communications, including in social media, as well as when communicating under a “bring your own device” (BYOD) or “company owned personally enabled device” (COPE) environment.
  • Conducting various levels of privacy and data security training for executives and employees
  • Supports organizations through mergers, acquisitions, and reorganizations with regard to the handling of employee and customer data, and the safeguarding of that data during the transaction.
  • Representing organizations in matters involving inquiries into privacy and data security compliance before federal and state agencies including the HHS Office of Civil Rights, Federal Trade Commission, and various state Attorneys General.

Benefits counseling experience – Joe’s work in the benefits counseling area covers many areas of employee benefits law. Below are some examples of that work:

  • As part of the Firm’s Health Care Reform Team, he advises employers and plan sponsors regarding the establishment, administration and operation of fully insured and self-funded health and welfare plans to comply with ERISA, IRC, ACA/PPACA, HIPAA, COBRA, ADA, GINA, and other related laws.
  • Guiding clients through the selection of plan service providers, along with negotiating service agreements with vendors to address plan compliance and operations, while leveraging data security experience to ensure plan data is safeguarded.
  • Counsels plan sponsors on day-to-day compliance and administrative issues affecting plans.
  • Assists in the design and drafting of benefit plan documents, including severance and fringe benefit plans.
  • Advises plan sponsors concerning employee benefit plan operation, administration and correcting errors in operation.

Joe speaks and writes regularly on current employee benefits and data privacy and cybersecurity topics and his work has been published in leading business and legal journals and media outlets, such as The Washington Post, Inside Counsel, Bloomberg, The National Law Journal, Financial Times, Business Insurance, HR Magazine and NPR, as well as the ABA Journal, The American Lawyer, Law360, Bender’s Labor and Employment Bulletin, the Australian Privacy Law Bulletin and the Privacy, and Data Security Law Journal.

Joe served as a judicial law clerk for the Honorable Laura Denvir Stith on the Missouri Court of Appeals.