(CN) - A couple who briefly lost custody of their children after developing bath-time photos told the 9th Circuit that Wal-Mart should have disclosed its "unsuitable print policy."
Lisa and A.J. Demaree say they photographed their daughters, who were 5, 4 and 1 1/2 at the time, in the bathtub while on a family trip to San Diego in 2008. The couple then returned home to Arizona and dropped off the camera's memory stick at a Wal-Mart in Peoria to have the photos developed.
Wal-Mart employees later reported the photos to the Peoria Police Department, which called in the Arizona Child Protective Services Agency (CPS). The Demarees ended up losing custody of the girls for more than a month while they fought to prove their innocence. A Maricopa County Superior Court judge eventually reunited the family after finding the photographs were not pornographic.
The Demarees sued
Wal-Mart in 2009 for consumer fraud, alleging that it has a secret "unsuitable print policy" for handling nude photos of perceived minors, and that it should inform customers that it might turn over unsuitable photos to the police.
Their attorney, Richard Treon with Treon, Aguirre, Newman & Norris, said at the time that seven of the 150 photos on the memory stick showed the girls "with a towel around and in various portions of nudity."
A federal judge in Phoenix ruled for Wal-Mart, finding that Arizona's immunity statutes relieve employees of civil liability for reporting suspected child pornography. The Demarees appealed
the case to the 9th Circuit, which held oral arguments on Wednesday during a special sitting at the University of Arizona's James E. Rogers College of Law in Tucson.
"These were innocent bathtime photos," Treon said Wednesday.
Judge N. Randy Smith opened the hearing by asking Treon if the Demarees' claims were not "akin to arguing that Wal-Mart failed to explain the law to your client?"
Smith was joined on the panel by Judge William Canby and U.S. District Judge Larry Burns, sitting by designation from the Southern District of California.
"Wal-Mart had the duty to tell the truth," Treon said, adding that Wal-Mart had for decades warned its customers that it reserved the right to call the police over a photograph, but stopped doing so in 1989. That's when a change in the law made the possessor of nude photographs potentially guilty of possessing contraband.
"Wal-Mart adopted this policy not because they are concerned about being the 'police of the world,' but rather because their employees did not want to print photographs that showed nudity, in addition to which Wal-Mart did not want to have on its premises photographs that could be held to be contraband," Treon said.
Judge Burns asked Treon "what warning should Wal-Mart be giving?"
"The same one they gave 25 years ago," Treon said. "We reserve the right to review your photographs as you provide them to us, and if they contain nudity, be warned that our clerks will review them and if they decide they are bothersome or troublesome, they will have the right to report them to police. That's their policy. And they should tell the customer the truth about that."
Treon added that Wal-Mart does provide such a warning on its website, but not in its stores.
For Wal-Mart's attorney, Lawrence Kasten of Lewis and Roca, the case boils down to simple immunity.
Under Arizona statute, an employee who makes a report of child abuse without malice is immune from prosecution.
"It would be a significant hole in the immunity statutes if they left out consumer fraud," Kasten said.
He said that there is no evidence of malice in the record, and that the three employees involved in reporting the photographs had all testified that they did so out of concern for the children,.
"My reaction is different from saying they were simple bathtime photos," he said.
Kasten warned that a reversal in this case could upset the clear intention of the immunity statutes, which is to prevent employees from ignoring red flags out fear of legal action.
"I fear that what may happen after this case is [that the] employee will sit there and say, boy, if I turn these over my employer is going to spend millions of dollars in legal fees, and I'm going to get hauled in front of a deposition for eight hours, [so] maybe I'll just stick them back in the envelope and not worry about them," he said.
"Immunity is supposed to prevent exactly that from happening."