Texas AG Reaches Deal with Living.com

In a pre-emptive move aimed at ensuring that defunct online home furnishings retailer Living.com Inc. doesn't try to sell all of its customer data as part of bankruptcy proceedings, the Texas attorney general's office yesterday filed both a lawsuit against the company and a proposed settlement that sets restrictions on such a sale.

Under the settlement agreement announced yesterday by Texas Attorney General John Cornyn, all of the personal financial data that Living.com collected -- such as credit-card, bank account and social security numbers -- would be destroyed under the supervision of the Austin, Texas-based company's court-appointed bankruptcy trustee.

The trustee could then sell or transfer Living.com's customer list, but only after notifying all of the company's customers of the proposed sale and giving them the chance to have their remaining information deleted from the list. The settlement agreement still has to be approved by the judge overseeing Living.com's case in U.S. Bankruptcy Court in Austin.

Texas officials said the lawsuit seeking an injunction against an unfettered customer-data sale by Living.com and the subsequent settlement deal weren't filed in response to any specific proposal by the online retailer, which shut down and filed for bankruptcy protection last month.

But Hal Morris, an assistant attorney general in Texas, today said Cornyn's office has followed the bankruptcy case closely since Living.com went out of business in order to head off any possible sale that didn't conform to the company's privacy policy, which promised that data collected from customers wouldn't be shared or sold without their consent.

Living.com's bankruptcy attorneys were contacted by the attorney general on the privacy issue immediately after the bankruptcy filing. "This is an important issue for this administration," Morris said, noting that Cornyn also has been involved in efforts to block a proposed customer-data sale by defunct online toy store Toysmart Inc. in Waltham, Mass.

Toysmart's planned sale of customer information as part of a bankruptcy liquidation in Massachusetts created a firestorm of opposition from privacy advocates, the U.S. Federal Trade Commission (FTC) and the attorneys general of 46 states. Cornyn was among the state officials who objected to the proposed sale before a bankruptcy judge in Boston.

The judge overseeing Toysmart's bankruptcy case later rejected a proposed settlement between the company and the FTC that would have allowed the customer data to be sold under limited circumstances. In doing so, she put off a final decision on whether any of the information could be sold and what kind of restrictions would be imposed on such a sale.

Cornyn said in a statement as part of yesterday's announcement that the proposed deal with Living.com "will set the standard for future settlements" in similar cases. "It is important that Internet companies respect Texans' privacy rights whether the company is in the black or in the red," Cornyn said.

According to the announcement, Living.com's privacy policy promised customers that the company "does not sell, trade or rent your personal information to others without your consent." Living.com retained the right to do so "with trustworthy third parties" in the future, but said that customers could opt out of having their information shared with other companies.

Living.com's telephone line continues to have a recorded message announcing that the company is out of business, and company officials couldn't be reached for comment today.

Stephen Keating, executive director of the Privacy Foundation, a Denver-based privacy organization, said enforcement actions such as Cornyn's are good for online shoppers. In the Living.com case, Keating said, consumers "were put first [so] that their data won't be used without their permission."

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