## Facts

- Toysmart.com operated an online toy retailer that collected personal information from customers and website registrants, including names, addresses, billing information, shopping preferences, and family profile information (customer lists).
- Toysmart posted a privacy policy stating that personal information submitted by visitors (including name, address, billing information, and shopping preferences) was “never shared with a third party,” and was for Toysmart’s internal use.
- In May 2000, Toysmart ceased operations and began seeking bids to purchase its assets.
- In June 2000, Toysmart’s creditors filed an involuntary bankruptcy petition against Toysmart.com, LLC, and Toysmart listed customer lists containing personal information among the assets available for sale.
- Toysmart sought bankruptcy-court approval for an asset sale that included the customer list; after a hearing, the bankruptcy court stated it would postpone deciding whether the list could be sold until a specific purchaser was identified.
- On July 21, 2000, the FTC filed a civil enforcement action in the U.S. District Court for the District of Massachusetts against Toysmart.com, LLC and Toysmart.com, Inc., alleging that offering the customer list for sale conflicted with Toysmart’s privacy representations and violated § 5(a) of the FTC Act; the complaint also alleged COPPA violations based on children’s information in the list.
- The State of Texas moved to intervene in the FTC’s district court case and later moved to refer (transfer) the district court proceeding to the bankruptcy court handling Toysmart’s case.
- The district court noted a threshold concern: bankruptcy filings indicated Toysmart.com, LLC (the debtor) owned the customer list, raising questions about why the FTC had also sued Toysmart.com, Inc. (a non-debtor).

## Issues

1. Whether the State of Texas should be permitted to intervene in the FTC’s federal enforcement action concerning Toysmart’s proposed sale of customer information.
2. Whether the district court should refer or otherwise yield to the bankruptcy court with respect to disputes tied to the proposed sale of the customer list in Toysmart’s bankruptcy.
3. Whether the FTC needed to explain its rationale for naming Toysmart.com, Inc. as a defendant where bankruptcy filings indicated Toysmart.com, LLC owned the customer list at issue.

## Decision

- The court denied the State of Texas’s motion to intervene.
- The court deemed Texas’s motion to refer the proceeding to the bankruptcy court moot and stated it would defer judgment because the dispute was properly before the bankruptcy court.
- The court ordered the FTC to file, within fifteen days, an explanation of why it named Toysmart.com, Inc. as a defendant given indications that Toysmart.com, LLC owned the customer list.

## Legal Principles

- Intervention may be denied where adding an intervenor would likely invite numerous similar intervention requests and complicate case management, particularly when participation as amicus curiae can address the asserted public interest.
- When a dispute is bound up with the disposition of estate assets in an active bankruptcy case, a district court may defer to the bankruptcy court to avoid parallel proceedings and inconsistent rulings about the proposed sale.
- A court may require clarification of party naming and entity roles when the record indicates that a named defendant may not own or control the property that forms the basis of the requested relief.

## Conclusion

In this unreported 2000 district court memorandum and order, the court addressed procedural motions arising from the FTC’s enforcement suit challenging Toysmart’s proposed bankruptcy-era sale of a customer list allegedly contrary to Toysmart’s “never shared with a third party” privacy policy: the court denied Texas’s request to intervene, treated Texas’s referral motion as moot while deferring to the bankruptcy court on the asset-sale dispute, and directed the FTC to explain why it sued Toysmart.com, Inc. when bankruptcy filings indicated Toysmart.com, LLC owned the customer list.


FTC v. Toysmart.com, Civ. Action No. 00-11341-RGS (2000)