Category Archives: Fraud/Misrepresentation

Lawsuit against Yelp over how it marketed its review filters can move forward

Plaintiff restaurant owner sued Yelp under California unfair competition law, claiming that certain statements Yelp made about the filters it uses to ascertain the unreliability or bias of user reviews were misleading and untrue. For example, plaintiff alleged that Yelp advertised that its filtering process “takes the reviews that are the most trustworthy and from the most established sources and displays them on the business page.” But, according to plaintiff, the filter did not give consumers the most trusted reviews, excluded legitimate reviews, and included reviews that were demonstrably false and biased.

Yelp filed an Anti-SLAPP motion to strike plaintiff’s complaint under California Code of Civil Procedure section 425.16, arguing that the complaint sought to interfere with Yelp’s free speech rights, and targeted speech that appeared in a public forum and was a matter of public interest. The trial court granted the motion, and plaintiff sought review with the Court of Appeal of California. On appeal, the court reversed.

It held that a motion to strike under the mechanism of California’s Anti-SLAPP statute was unavailable under section 425.17 (c), which prohibits Anti-SLAPP motions against “any cause of action brought against a person primarily engaged in the business of selling or leasing goods or services,” where certain other conditions are met, including the statement being made for purposes of promoting the speaker’s goods or services.

The appellate court disagreed with the lower court which found that Yelp’s statements about its filters were mere “puffery”. Instead, the court held that these actions disqualified the Anti-SLAPP motion under the very language of the statute pertaining to commercial speech.

Demetriades v. Yelp, Inc., 2014 WL 3661491 (Cal. Ct. App. July 24, 2014)

Evan Brown is an attorney in Chicago advising clients on matters dealing with technology, the internet and new media.

Court rules against woman accused of fraudulent misrepresentation for creating fake internet boyfriend

Bonhomme v. St. James, — N.E.2d —, (Ill.App. 2 Dist March 10, 2011.)

Perhaps the most famous legal case about someone creating a false persona online and using that to dupe someone is the sad case of Megan Meier, which resulted in the (unsuccessful) prosecution of Lori Drew. The facts of that case were hard to believe — a woman created the identity of a teenage boy from scratch by setting up a bogus MySpace profile, then engaged in sustained communications with young Megan, leading her to believe the two of them had a real relationship. After the “boy” broke that relationship off, Megan committed suicide.

Here’s a case that has not seen quite as much tragedy, but the extent and the nature of the alleged deception is just as incredible, if not more so, than that undertaken by Lori Drew.

The appellate court of Illinois has held that a woman who was allegedly the victim of an elaborate ruse, perpetrated in large part over the internet, can move forward with her fraudulent misrepresentation claim against the woman who created the fake persona of a “man” who became her “boyfriend”. The story should satisfy your daily requirement of schadenfreude.

Plaintiff first got to know defendant Janna St. James back in 2005 in an online forum for fans of the HBO show Deadwood. A couple months after they first began talking online, defendant set up another username on the Deadwood site, posing as a man named “Jesse”. Plaintiff and this “Jesse” (which was actually defendant) struck up an online romance which apparently got pretty intense.

To add detail to the ploy, defendant invented no less than 20 fictitious identities — all of whom were purportedly in “Jesse’s” social or family circle — which she used to communicate with plaintiff.

The interactions which took place, both online and through other media and forms of communication (e.g., phone calls using a voice disguiser) were extensive. “Jesse” and plaintiff planned to meet up in person once, but “Jesse” cancelled. Plaintiff sent $10,000 worth of gifts to “Jesse” and to the other avatars of defendant. It even went so far as “Jesse” and plaintiff planning to move to live with one another in Colorado. But before that could happen, defendant pulled the plug on “Jesse” — he “died” of liver cancer.

Some time after that, defendant (as herself) flew from Illinois to California to visit plaintiff. During this trip, some of plaintiff’s real friends discovered the complex facade. Plaintiff sued.

The trial court dismissed plaintiff’s fraudulent misrepresentation claim. Plaintiff sought appellate review. On appeal, the court reversed, sending the case for fraudulent misrepresentation back to the trial court.

The court said some interesting things about whether the facts that plaintiff alleged supported her claim for fraudulent misrepresentation. A plaintiff suing for fraudulent misrepresentation under Illinois law must show: (1) a false statement of material fact; (2) knowledge or belief of the falsity by the party making it; (3) intention to induce the plaintiff to act; (4) action by the plaintiff in justifiable reliance on the truth of the statement; and (5) damage to the plaintiff resulting from that reliance.

Defendant made a strange kind of circular argument as to the first element — falsity of a material fact. She asserted that plaintiff’s claim was based more on the fiction that defendant pursued rather than specific representations. And the concepts of “falsity” and “material fact,” defendant argued, should not apply in the context of fiction, which does not purport to represent actuality. So defendant essentially argued that so long as she knew the masquerade was fiction, there could be no misrepresentation. The court recognized how invalid this argument was. The logic would shift the element of reliance on the truth of the statement from the injured party to the utterer.

Though the appellate court ruled in favor of plaintiff, the judges disagreed on the question of whether plaintiff was justified in relying on the truth of what defendant (as “Jesse,” as the other created characters, and herself) had told plaintiff. One judge dissented, observing that “[t]he reality of the Internet age is that an online individual may not always be — and indeed frequently is not — who or what he or she purports to be.” The dissenting judge thought it simply was not justifiable for plaintiff to spend $10,000 on people she had not met, and to plan on moving in with a man sight-unseen. (In so many words, the judge seemed to be saying that plaintiff was too gullible to have the benefit of this legal claim.)

The majority opinion, on the other hand, found the question of justifiable reliance to be more properly determined by the finder of fact in the trial court. For the motion to dismiss stage, plaintiff had alleged sufficient facts as to justifiable reliance.

(Congratulations to my friend Daliah Saper for her good lawyering in this case on behalf of plaintiff.)

Facebook victorious in lawsuit brought by kicked-off user

Young v. Facebook, 2010 WL 4269304 (N.D. Cal. October 25, 2010)

Plaintiff took offense to a certain Facebook page critical of Barack Obama and spoke out on Facebook in opposition. In response, many other Facebook users allegedly poked fun at plaintiff, sometimes using offensive Photoshopped versions of her profile picture. She felt harassed.

But maybe that harassment went both ways. Plaintiff eventually got kicked off of Facebook because she allegedly harassed other users, doing things like sending friend requests to people she did not know.

When Facebook refused to reactivate plaintiff’s account (even after she drove from her home in Maryland to Facebook’s California offices twice), she sued.

Facebook moved to dismiss the lawsuit. The court granted the motion.

Constitutional claims

Plaintiff claimed that Facebook violated her First and Fourteenth Amendment rights. The court dismissed this claim because plaintiff failed to demonstrate that the complained-of conduct on Facebook’s part (kicking her off) “was fairly attributable to the government.” Plaintiff attempted to get around the problem of Facebook-as-private-actor by pointing to the various federal agencies that have Facebook pages. But the court was unmoved, finding that the termination of her account had nothing to do with these government-created pages.

Breach of contract

Plaintiff’s breach of contract claim was based on other users harassing her when she voiced her disapproval of the Facebook page critical of the president. She claimed that in failing to take action against this harassment, Facebook violated its own Statement of Rights and Responsibilities.

The court rejected this argument, finding that although the Statement of Rights and Responsibilities may place restrictions on users’ behavior, it does not create affirmative obligations on the part of Facebook. Moreover, Facebook expressly disclaims any responsibility in the Statement of Rights and Responsibilities for policing the safety of the network.

Good faith and fair dealing

Every contract (under California law and under the laws of most other states) has an implied duty of good faith and fair dealing, which means that there is an implied “covenant by each party not to do anything which will deprive the other parties . . . of the benefits of the contract.” Plaintiff claimed Facebook violated this implied duty in two ways: by failing to provide the safety services it advertised and violating the spirit of the terms of service by terminating her account.

Neither of these arguments worked. As for failing to provide the safety services, the court looked again to how Facebook disclaimed responsibility for such actions.

The court gave more intriguing treatment to plaintiff’s claim that Facebook violated the spirit of its terms of service. It looked to the contractual nature of the terms of service, and Facebook’s assertions that users’ accounts should not be terminated other than for reasons described in the Statement of Rights and Responsibilities. The court found that “it is at least conceivable that arbitrary or bad faith termination of user accounts, or even termination . . . with no explanation at all, could implicate the implied covenant of good faith and fair dealing.”

But plaintiff’s claim failed anyway, because of the way she had articulated her claim. She asserted that Facebook violated the implied duty by treating her coldly in the termination process, namely, by depriving her of human interaction. The court said that termination process was okay, given that the Statement of Rights and Responsibilities said that it would simply notify users by email in the event their accounts are terminated. There was no implied obligation to provide a more touchy-feely way to terminate.

Negligence

Among other things, to be successful in a negligence claim, a plaintiff has to allege a duty on the part of the defendant. Plaintiff’s negligence claim failed in this case because she failed to establish that Facebook had any duty to “condemn all acts or statements that inspire, imply, incite, or directly threaten violence against anyone.” Finding that plaintiff provided no basis for such a broad duty, the court also looked to the policy behind Section 230 of the Communications Decency Act (47 U.S.C. 230) which immunizes website providers from content provided by third parties that may be lewd or harassing.

Fraud

The court dismissed plaintiff’s fraud claim, essentially finding that plaintiff’s allegations that Facebook’s “terms of agreement [were] deceptive in the sense of misrepresentation and false representation of company standards,” simply were not specific enough to give Facebook notice of the claim alleged.

Yelp successful in defamation and deceptive acts and practices case

Reit v. Yelp, Inc., — N.Y.S.2d —, 2010 WL 3490167 (September 2, 2010)

Section 230 of Communications Decency Act shielded site as interactive computer service; assertions regarding manipulation of reviews was not consumer oriented and therefore not actionable.

As I am sure you know, Yelp! is an interactive website designed to allow the general public to write, post, and view reviews about businesses, including professional ones, as well as restaurants and other establishments.

Lots of people and businesses that are the subject of negative reviews on sites like this get riled up and often end up filing lawsuits. Suits against website operators in cases like this are almost always unsuccessful. The case of Reit v. Yelp from a New York state court was no exception.

Plaintiff dentist sued Yelp and an unknown reviewer for defamation. He also sued Yelp under New York state law for “deceptive acts and practices”. Yelp moved to dismiss both claims. The court granted the motion.

Defamation claim – protection under Section 230

Interactive computer service providers are immunized from liability (i.e., they cannot be held responsible) for content that is provided by third parties. So long as the website is not an “information content provider” itself, any claim made against the website will be preempted by the Communications Decency Act, at 47 U.S.C. 230.

In this case, plaintiff claimed that Yelp selectively removed positive reviews of his dentistry practice after he contacted Yelp to complain about a negative reivew. He argued that this action made Yelp an information content provider (doing more than “simply selecting material for publication”) and therefore outside the scope of Section 230′s immunity. The court rejected this argument.

It likened the case to an earlier New York decision called Shiamili v. Real Estate Group of New York. In that case, like this one, an allegation that a website operator may keep and promote bad content did not raise an inference that it becomes an information content provider. The postings do not cease to be data provided by a third party merely because the construct and operation of the website might have some influence on the content of the postings.

So the court dismissed the defamation claim on grounds of Section 230 immunity.

Alleged deceptive acts and practices were not consumer oriented

The other claim against Yelp — for deceptive acts and practices — was intriguing, though the court did not let it stand. Plaintiff alleged that Yelp’s Business Owner’s Guide says that once a business signs up for advertsing with Yelp, an “entirely automated” system screens out reviews that are written by less established users.

The problem with this, plaintiff claimed, was that the process was not automated with the help of algorithms, but was done by humans at Yelp. That divergence between what the Business Owner’s Guide said and Yelps actual practices, plaintiff claimed, was consumer-oriented conduct that was materially misleading, in violation of New York’s General Business Law Section 349(a).

This claim failed, however, because the court found that the statements made by Yelp in the Business Owner’s Guide were not consumer-oriented, but were addressed to business owners like plaintiff. Without being a consumer-oriented statement, it did not violate the statute.

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State law spam claim in federal court not pled with required particularity

Hypertouch, Inc. v. Azoogle.com, Inc., 2010 WL 2712217 (9th Cir. July 9, 2010)

Pleading in federal court is generally a straightforward matter. Federal Rule of Civil Procedure 8 requires only that the plaintiff set forth a short and plain statement as to why that party is entitled to relief. But in cases involving fraud, there is a heightened pleading standard imposed by Rule 9.

In the case of Hypertouch, Inc. v. Azoogle.com, Inc., the plaintiff sued the defendants in federal court over almost 400,000 allegedly spam email messages. Hypertouch brought claims under California law (California Business and Professions Code § 17529.5(a)) but did not meet the heightened pleading standard of Rule 9. So the district court dismissed the case.

Plaintiff appealed to the Ninth Circuit. On review, the appellate court affirmed. It found that not only does the California statute speak in terms of commercial e-mail advertisements that contain “falsified,” “misrepresented,” “forged,” or misleading information — terms common to fraud allegations — but the complaint repeatedly described the advertisements and their content as “fraudulent.” The court held that plaintiff could not circumvent the requirements of the Rules by arguing that it did not plead all of the allegations sufficiently to set forth a claim of fraud.

It’s important to note that the court made clear, despite its holding, that it was not articulating a standard for pleading under this California statute. It merely found that in the circumstances of this case, the claim was not pled with the requisite particularity.

Trademark infringement and false designation claims not subject to heightened pleading standard

Court also foreshadows that if all they’re talking about is metatags, there won’t be much of a case.

Indiaweekly.com, LLC v. Nehaflix.com, Inc., 2009 WL 189867 (D. Conn. January 27, 2009)

In moving to dismiss claims brought against it for trademark infringement and false designation of origin under 15 U.S.C. Secs. 1114(1) and 1125(a), Indiaweekly.com, LLC claimed that the counterplaintiff Nehaflix.com had failed to allege sufficient facts to meet the standard of Fed. R. Civ. P. 9(b). That rule requires that “[i]n alleging fraud . . . a party must state with particularity the circumstances constituting fraud . . . .”

Bollywood mudflap

The U.S. District Court for the District of Connecticut rejected Indiaweekly.com’s assertion that such claims were subject to Rule 9′s heightened pleading standard. Nehaflix.com’s allegations that Indiaweekly.com placed Nehaflix’s trademark on Indiaweekly.com to draw in search traffic survived the motion to dismiss. It was plausible that potential Nehaflix customers, when searching for the term “Nehaflix” would, upon being directed to another site containing the term and selling competing goods, conclude that the two businesses were related when in fact they were not.

It is important to note that the court assumed for the sake of the motion to dismiss that the allegations that the Nehaflix mark “appeared” on Indiaweekly.com meant that the mark was visible when viewing the site and not merely in metatags. The court nodded to S&L Vitamins v. Australian Gold, Inc., 521 F.Supp.2d 188 (E.D.N.Y. 2007), which held that mere metatag use was not “use in commerce” for purposes of the Lanham Act.

Photo courtesy Flickr user Meanest Indian under this Creative Commons license.

Sender of DMCA takedown notice should consider fair use

Lenz v. Universal Music Corp., No. 07-3783 (N.D. Cal. August 20, 2008). [Download the opinion]

Hat tip to Joe Gratz for breaking this story.

One of the things that a person sending a takedown notice under the Digital Millennium Copyright Act (DMCA) has to swear to is that he or she “has a good faith belief that use of the material in the manner complained of is not authorized by the copyright owner, its agent, or the law.” 17 U.S.C. §512(c)(3)(A) (emphasis added). If the sender of the takedown notice makes a knowingly material misrepresentation as to whether the law authorizes the use of the material, the party whose content is taken down can sue under 17 U.S.C. §512(f). This serves as a backstop against DMCA takedown abuses.

Suppose that the complained-of work may be protected by fair use. If the sender is deliberately ignorant of that possibility, can that result in a misrepresentation that runs afoul of 512(f)? That question had not been answered before today, when the U.S. District Court for the Northern District of California said “yes.”

The case is Lenz v. Universal Music Corp., No. 07-3783. You may have heard of this case before, as it’s the one where the mom filmed her daughter dancing to Prince’s “Let’s Go Crazy” and uploaded that to YouTube, only to have it removed after a Universal DMCA takedown notice. Lenz sued under §512(f) and Universal moved to dismiss.

In its motion to dismiss, Universal contended that copyright owners cannot be required to evaluate the question of fair use prior to sending a takedown notice because fair use is merely an excused infringement of a copyright rather than a use authorized by the copyright owner or by law.

But the court disagreed. “[T]he fact remains that fair use is a lawful use of a copyright. Accordingly, in order for a copyright owner to proceed under the DMCA with ‘a good faith belief that use of the material in the manner complained of is not authorized by the copyright owner, its agent, or the law,’ the owner must evaluate whether the material makes fair use of the copyright.” The court went on to say that “[a]n allegation that a copyright owner acted in bad faith by issuing a takedown notice without proper consideration of the fair use doctrine thus is sufficient to state a misrepresentation claim pursuant to Section 512(f) of the DMCA.”

Because Lenz’s complaint contained allegations of this nature, it was detailed enough to pass Twombly muster [Bell Atlantic Corp. v. Twombly, --- U.S. ----, 127 S. Ct. 1955, 1964-65 (2007)], and the case moves forward.

The practical effect of this decision is that one sending a DMCA takedown notice without considering whether the person who posted the content is making a fair use, does so at his or her peril. Let’s be clear — the decision does not mean that sending a takedown notice in a situation where it turns out to be a fair use will automatically result in a finding of §512(f) misrepresentation. But it does add another implicit item on the checklist of the takedown notice sender.

Apple vs. the Big Apple charity over apple-shaped logos

Apple, Inc. is seeing red over New York City’s attempts to register a trademark for green-friendly services, and the dispute challenges one of Apple’s trademark registrations for its ubiquitous logo.

Apple comparison

Apple has filed an Opposition (No. 91/181,984) with the United States Patent and Trademark Office’s Trademark Trial and Appeal Board against NYC & Company, Inc.’s attempts to register the “Infinite Loop Apple” design mark (shown above at left). Apple asserts that use of NYC’s mark would likely cause confusion with Apple’s famous logo (shown at right) especially given the presence of Apple’s flagship Manhattan retail location.

NYC’s application states the mark is to be used for, among other things, promoting “education on environmentally friendly policies and practices of the City of New York” (See Application Nos. 77/179,942 and 77/179,968). Apple claims that confusion would be likely because of the similarities in appearance and commercial impression between the marks, and because certain of the goods and services recited by NYC are identical or highly related to goods and services offered under the Apple mark.

NYC answered the Notice of Opposition and filed a Counterclaim seeking to cancel Apple’s registration for the logo as used in connection with “mugs, dishes, drinking glasses, and wine glasses.” NYC claims that Apple procured the registration through fraud, because it knowingly misrepresented that it was using the mark in connection with those goods on its Declaration of Use and Renewal Application under sections 8 & 9 of the Trademark Act, when it fact no such use was being made. If the Board finds such fraud, Apple faces cancellation of its entire registration for those goods. Fraud has been a recurring issue before the TTAB of late, as evidenced by this recent post from John Welch’s TTABlog.

Apple, of course, denies the allegations of fraud. In any event, if the cancellation is successful, Apple’s most important marks (i.e., for computer hardware) would remain intact.

Time will tell whether Apple’s efforts to protect its mark will bear fruit. The company probably feels even more incentive to keep others from trading on its reputation and goodwill after hearing about this recent study, which found that people who see the Apple logo may feel more creative.

Online purchaser not entitled to $1 hard drives

Perez v. Luu, — S.W.3d —-, (Tex. App. November 1, 2007).

Perez sued Luu in Texas state court after Luu refused to fulfill Perez’s order of 100 hard drives that Perez ordered from Luu online. Luu’s website mistakenly listed the price of the hard drives as $1 each, when in reality Luu charged closer to $1,200 apiece.

The matter proceeded to trial and the court entered judgement in favor of Luu. Perez appealed, and the appellate court affirmed. It held that Perez failed to establish a violation of the Texas Deceptive Trade Practices Act.

The court determined that the relevant portions of the statute [Tex. Bus. & Com. Code Sec. 17.41 et seq.] required a showing of intent to misrepresent the price of goods being offered for sale. Luu introduced evidence showing that the $1 pricing was merely a mistake — the website was new and the developer had previously used a $1 quantity for testing purposes. Moreover, there was language on Luu’s website which gave him the right to correct any errors in pricing.

Internet marketer not fraudulent in predicting success of future advertising campaign

Hallmark Institute of Photography, Inc. v. CollegeBound Network, LLC, — F.Supp.2d —-, 2007 WL 3145433 (D. Mass. October 29, 2007).

CollegeBound LLC is an Internet marketing company that gathers “leads” for its customers. These “leads” are people who visit CollegeBound’s websites, express interest in the services provided by CollegeBound’s customers, and provide their contact information. CollegeBound then sells this lead information to its customers on a “cost per lead” basis. The customers then follow up with their own marketing efforts.

One of CollegeBound’s customers was Hallmark Institute of Photography. It signed written agreements with CollegeBound whereby it agreed to pay more than $30 for each lead that CollegeBound provided. When the parties were negotiating the deal, CollegeBound allegedly orally represented that between three and seven percent of the leads would enroll for Hallmark’s photography courses.

Although CollegeBound gathered leads and sent them on to Hallmark, less than one percent of them applied. Hallmark was disappointed in this result, and sued CollegeBound for breach of contract and for fraud and misrepresentation. CollegeBound moved to dismiss, and the court granted the motion.

On the breach of contract claim, the court held that the parol evidence rule precluded it from considering any extrinsic evidence. The alleged representations were made orally, and not included in the written agreement. Although the contract did not contain an “integration clause,” the court found that the agreement was fully integrated, where essentially all the important terms were included, and there was no indication the parties intended there be any additional terms. Since the agreement was not ambiguous, the court could not consider any evidence outside the document’s four corners.

As for the fraud and misrepresentation claims, the court held that CollegeBound’s statements were of a “fundamentally predictive nature,” and “concerned a matter of opinion, estimate or judgment which was not susceptible of actual knowledge at the time of [their] utterance.” For these reasons, the court found that Hallmark could not have reasonably relied on the statements. So the claims failed as a matter of law.