Federal Appellate Panel Backs Walmart On Obscenity Case, But It Was One Malice Claim From Going In The Opposite Direction

A federal appellate panel on March 15 backed Walmart (NYSE:WMT), ruling that the chain had no need to train employees on when they should or shouldn't call police after seeing customer photographs. The test case involved a couple who had their children taken away for a month, until a judge saw the actual photographs and the results of an examination of the children and then ordered the children to be returned to their parents and no charges filed.

The decision from the U.S. Court of Appeals for the Ninth Circuit also flagged to retailers their Achilles heel in such cases, pointing out that the parents' case fell apart when they didn't allege that the store associates had not acted in good faith. In other words, had there been evidence that the associates acted maliciously, things might have gone very differently for Walmart. The parents certainly wouldn't have had difficulty establishing harm that resulted from the associate's actions.

The photographs in question showed very young children—not fully clothed—playing after a bath. Part of the problem is the extreme sensitivity of allegations of child abuse and child pornography. Such a situation is volatile enough that even an investigation of such acts could be sufficient to ruin reputations. It's also sufficiently sensitive that it's very difficult to conclude that a picture is innocent, if there is the slightest chance that it might not be. For that reason, associates are inclined to report anything that might possibly be problematic.

The legal territory is clear. Without that allegation of malice, there's almost nothing that could be done against the retailer. "Wal-Mart is statutorily immune from civil liability arising from Plaintiffs' negligence and false light invasion of privacy claims because those claims stem from the reporting of suspected child exploitation to police," the panel wrote. "This immunity provision provides that 'A person who on discovery in good faith reports the discovery of suspected visual depictions of sexual exploitation of a minor is immune from civil liability.'"

The law "requires only suspected child sexual exploitation before a report is made. The immunity provision does not require that the person making the report be trained to recognize exploitation or to investigate further. Thus, Plaintiffs' argument that Wal-Mart's unsuitable print policy opened the door to untrained reporting by employees, leading to unwarranted interaction with law enforcement, fails."

The panel also ruled that privacy issues did not apply. "There was no reasonable expectation of privacy in the contents of the pictures given the nature and circumstances of the transaction, which involved turning over digital images to Wal-Mart and requesting that the images be printed as photographs," the decision said. "Plaintiffs allege they were defrauded for the additional reason that Wal-Mart failed to disclose its unsuitable print policy, which could result in a customer being reported to police. This is not a cognizable consumer fraud theory because Plaintiffs are presumed to know the law. Where child exploitation is suspected, Wal-Mart has no obligation to forewarn a customer that, under the permissive reporting statute, police will be notified of any such images turned over by the customer to Wal-Mart."

How big an issue is this for retailers long term? From a photography printing perspective, it is not likely to be an ongoing concern; home printing of digital photography will likely make store photo-printing a very limited situation.

But the implications of this issue go far beyond printed photographs. As Best Buy (NYSE:BBY) was reminded last year when an associate working on a shopper's phone posted a false sexual preference message on the customer's Facebook page, using Facebook access found on the phone, retailers are getting access to private customer data in a wide range of ways.

Repairing a phone, a laptop or a tablet? Remote accessing a customer's computer to help with repairs? Visiting a customer's home to do a delivery or an installation? Associates doing any of these tasks could easily find images that may look questionable.

The panel's ruling certainly provides protection if the associate acts. But what if the customer happens to have some negative interactions with that associate? What if they knew each other from school or were neighbors?

The situation in this Walmart case would have been very different, had the parents accused the associate of seeking revenge for something. Such an allegation, coupled with the ruling that shoppers had done nothing wrong, could force the court in the opposite direction, allowing a full hearing on the matter. Malice is also highly subjective.