Month: August 2007

Mess with the IRS? Online or offline, First Amendment protections are not unlimited.

Michael Erdman First Amendment, Tax law

An article in today’s New York Times highlights a federal court injunction entered earlier this month, pursuant to the Internal Revenue Code, against entities that operate a website accused of posting apparently self-authored materials advising that federal income and employment taxes are voluntary, instructing how to illegally avoid paying taxes, and providing necessary supplies.

The court rejected defendants’ First Amendment contentions, explaining that while the defendants “are free to give speeches on whether the Sixteenth Amendment was properly ratified,” their conduct here went beyond same and is enjoinable. Whether defendants’ speech at issue is considered commercial (“the government may prohibit false, misleading or deceptive commercial speech, or speech that promotes unlawful conduct”) or political (“[t]he First Amendment does not protect speech that incites imminent lawless action”), the court ruled that the First Amendment did not provide a defense.

I note that the website was not actually ordered “to close.” Instead defendants were directed, among other things, to:

“remove from their websites and all other websites over which they have control, all tax-fraud scheme promotional materials, false commercial speech concerning the internal revenue laws, and speech likely to incite others imminently to violate the internal revenue laws,” and

“remove from its websites all abusive tax shelter promotional materials, false commercial speech, and materials designed to incite others to violate the law (including tax laws), and, for a period of one year from the date of this Memorandum, Decision & Order, display prominently on the first page of the website an attachment of this Memorandum, Decision and Order.”

Thank you to my partner Ron Teeple for bringing this article to my attention.

Xcentric Ventures and Ripoffreport.com get sued (again)

Michael Erdman Pending litigation, Section 230

Xcentric Ventures, LLC has been named as a defendant in its share of lawsuits, many of which challenge materials appearing on the company’s ripoffreport.com website. Last year the Eleventh Circuit ruled on a personal jurisdiction issue involving Xcentric, and at the moment there appears to be seven suits pending against the company in various federal district courts across the country.

GW Equity, LLC v. Xcentric Ventures, LLC, et al was filed earlier this summer in the Northern District of Texas. According to the complaint (this link does not include any of the supporting affidavits or exhibits thereto), GW Equity (“GW”) is “a mergers and acquisitions firm in the middle market assisting clients in mergers, acquisitions, and strategic growth.” GW alleges that “false, misleading, disparaging and/or defamatory” information regarding its business and reputation, “discussions of intellectual property and proprietary information that clearly belong to GW Equity,” and information “regarding GW Equity’s business practices” appears on the ripoffreport.com site. The complaint also includes multiple, non-specific allegations that Xcentric created posts that appear on the website, including “numerous false and deceptively misleading statements of fact concerning GW Equity, its executives, and its employees, made at least in part in concert or conspiracy with a disgruntled former GW Equity employee.” GW further claims that defendants “includ[e] additional language to the so-called ‘Rip-off Reports,’ such as ‘ripoff,’ ‘fraud,’ and ‘scam,’” “edit, alter, change, and create report names and identifiers,” offer a search function, and categorize postings with headers such as “Corrupt Companies.”

GW alleges defamation, interference with business relationships, business disparagement, civil conspiracy and RICO violations. It seeks damages and injunctive relief, including, believe it or not, an order barring defendants “from posting any further comments and statements regarding GW Equity on [ripoffreport.com] without GW Equity having the opportunity to first respond to the alleged author privately.”

Earlier this month in a short but seemingly sweeping ruling, Judge Kinkeade denied Xcentric’s motion to dismiss for lack of personal jurisdiction, finding that the defendants “have purposefully availed themselves to this forum by maintaining an interactive website.”

Xcentric filed its Answer last week, raising Section 230 as a defense, and asserting among other things that it does not “publish, create, solicit, or develop any of the statements at issue in this matter.” It also implied that it will be serving a Rule 11 motion on GW’s counsel, seeking attorneys’ fees it incurs in connection with its defense.

The complaint no doubt contains (i) unflattering references to GW, (ii) the phrase “defamatory statements” and the like, and (iii) allegations that Xcentric authored something. Perhaps I am being overly critical, but I nonetheless could not find a single allegation wherein plaintiff clearly pulls it all together, and (i) cites a specific statement appearing on ripoffreport.com, (ii) claims the statement is defamatory or the like, and (iii) alleges that Xcentric authored such statement. Perhaps the facts would not support such an allegation, in which case this action should probably be dismissed, at least in part. While the filing of a motion for judgment on the pleadings remains a possibility, I suspect there is going to be some discovery in this case, and perhaps an amended complaint submitted, before any dispositive motions are filed. But if Xcentric merely “published and posted” statements on its website that were submitted online by others, I would expect Section 230 to immunize Xcentric against most if not all of GW’s claims, regardless of whether one or more of those statements defamed GW.

Pull the trigger, yes. Click the mouse, no. The WSJ on Internet hunting laws.

Michael Erdman Internet-specific laws, Online applications

I am not a hunter, and can’t say I really have any interest in becoming one. But an article that appeared earlier this month on the front page of the Wall Street Journal – “Internet Hunting Has Got to Stop – If It Ever Starts” – caught my attention.

Zachary M. Seward reports that “33 states have outlawed Internet hunting since 2005, and a bill to ban it nationally has been introduced in Congress.” Furthermore, he notes that California has banned Internet fishing (see reference to “Computer Assisted Remote Fishing” at the bottom of page 6).

What is Internet hunting you ask? In theory my understanding is that for a fee, one accesses a website featuring a live, outdoor video feed. When a deer or other game wanders into the frame on your monitor, you can – with a mouse click – cause a live round to be fired from a rifle affixed to the camera. I say “in theory” because, as the article highlights, there do not appear to be any such sites presently operating (although this hasn’t stopped a majority of states from prohibiting the practice).

Researching the subject earlier today, I see that just last week Illinois became the 34th state to ban the practice. Also, the federal bill referred to in the WSJ article, intended to ban “computer-assisted remote hunting,” was referred to the House Judiciary Committee earlier this summer.

This post is not intended to judge the values of hunters or animal rights folks, nor opine as to whether hunting should be legal. But there is no disputing that in some states, at certain times of the year, certain birds and mammals can be hunted legally. So how can it be that some of those very same states have now acted to prohibit the practice when accomplished remotely via the Internet?

Again, I’m not a hunter, but I would think that issues relating to safety, licensure, permits, fees, reporting, quotas, disposal, etc. could be addressed in a narrower fashion. Does Internet hunting somehow give the hunter more of an advantage/put the prey at more of a disadvantage, as compared to traditional hunting? Is Internet hunting somehow cruel in a way that traditional hunting is not? Or maybe this has nothing to do with the merits, and is instead a purely political development.

I would be interested in hearing your opinions on these issues.

Section 230 Saves SexSearch.com…

Michael Erdman Non-tort claims/Section 230, Section 230

. . . as did a litigant’s own claims, which were dismissed on the merits. But I figured the alliteration made for the more compelling title.

Regardless of how you might feel about its services, you’d no doubt agree that SexSearch.com makes no attempt to be subtle (homepage banner exclaims “MILLIONS OF MEMBERS LOOKING FOR SEX”). According to the ruling discussed in this post, SexSearch.com (“SexSearch”) offers “an online adult dating service which encourages its members to meet and engage in sexual encounters . . . [m]embers are permitted to provide information for a profile, which consists of a list of responses to specific questions posed by the website. Members may also upload photographs and video content to their profile.” Enter Mr. Doe, a/k/a plaintiff.

Shortly after becoming a “gold member” in October 2005, Mr. Doe found one Ms. Jane Roe’s profile, which apparently indicated that Ms. Roe was born 6/15/87, was 18 years old, and included “an authentic image of Jane Roe at her then-current age.” Doe and Roe began chatting online via SexSearch, and “the two eventually decided to schedule a sexual encounter to take place at Jane Roe’s home on November 15, 2005. The meeting went as planned, and Plaintiff and Jane Roe engaged in consensual sexual relations.” But, as you no doubt already guessed, Ms. Roe wasn’t exactly 18 – she was fourteen years old. Mr. Doe was later arrested and charged with three felony counts of engaging in unlawful sexual conduct with a minor. I have no information on the current status of those charges, or whether Ms. Roe and/or a guardian has filed a civil action.

However Mr. Doe, apparently with the assistance of counsel, concluded a civil action against the website was in order. His suit, filed in the Northern District of Ohio, was dismissed earlier this week by District Judge Zouhary, who granted the defendants’ Rule 12(b)(6) motion to dismiss. The court employed Section 230 immunity in connection with the majority of plaintiff’s claims, and its ruling is summarized here.

Mr. Doe sued the seventeen purported owners of SexSearch, asserting they had warranted that “all persons within this site are 18+.” He alleged fourteen claims against defendants, which “essentially boil down to either (a) Defendants failed to discover Jane Roe lied about her age to join the website, or (b) [SexSearch’s] contract terms are unconscionable.”

Considering the applicability of Section 230, the court quickly concluded that SexSearch is an interactive computer service, and “[w]hile SexSearch may have reserved the right to modify the content of profiles in general, Plaintiff does not allege SexSearch specifically modified Jane Roe’s profile, and is thus not an information content provider in this case.” Apparently viewing the website’s functionality as more like Matchmaker.com (see Carafano case) than Roommate.com (see Fair Housing Council case), the court added that “the mere fact SexSearch provided the questionnaire Jane Doe answered falsely is not enough to consider SexSearch the developer of the false profile.”

Lastly, the court considered whether Doe’s claims “would involve treating the website ‘as the publisher’ of the false information.” The court first determined that it was not precluded from “extending [Section 230 immunity] to Plaintiff’s non-tort claims.” [Note, however, that the legislative history the court alluded to in support of this determination appeared to have more to do with subsection (c)(2) that (c)(1).] And as for whether some of plaintiff’s claims would treat SexSearch as a publisher, the Court stated that

[t]he underlying basis for Plaintiff’s claim is that if SexSearch had never published Jane Roe’s profile, Plaintiff and Jane Roe never would have met, and the sexual encounter never would have taken place. Plaintiff thus attempts to hold SexSearch liable for “decisions relating to the monitoring, screening, and deletion of content from its network-actions quintessentially related to a publisher’s role.” Section 230 specifically proscribes liability in such circumstances.

Thus given “they all hinge on SexSearch’s failure to remove Jane Roe’s profile, or their failure to prevent John Doe from communicating with her,” Section 230 immunized defendants from the following counts: breach of contract, fraud, negligent infliction of emotional distress, negligent misrepresentation, breach of warranty, certain violations of the Ohio Consumer Sales Practices Act (2 counts), and failure to warn. Separately, the court found that each and every claim failed on the merits, including those claims that were not subject to Section 230 immunity (three claims that alleged “Defendants incorporated unconscionable clauses into the Terms and Conditions” in violation of the OCSPA, and three common-law claims based on alleged unconscionability of the Terms and Conditions).

Online Innovation attracts Offline Litigation

Michael Erdman First Amendment, Pending litigation, Section 230, SLAPP

I am certainly not the first person to observe the current relationship between the launch of an innovative website (be it a VC-funded start-up or a rage-inspired, spare time project) and litigation. For reasons I will perhaps surmise at in a future post, it seems that the former is almost immediately followed by the latter more often now than at any other time in the admittedly youthful Internet age.

With that observation, two old adages come to mind – “all publicity is good publicity” and “no good deed goes unpunished.”

I’m no PR expert, but I do know that more often than not, rules end up having exceptions. So while there may be some PR folks out there appreciative of the media attention various lawsuits have generated, I would guess that the more common reaction is something along the lines of “we didn’t start this business so we could spend ridiculous amounts of time and money defending ourselves in court.”

As for good deeds, while not every new website can necessarily be said to provide a novel and useful service to its prospective users, there are plenty that do – often by disrupting the status quo. Now a number of them are experiencing punishment in the form of a visit from the local process server.

As you could have guessed, these suits typically allege, among other things, defamation, commercial disparagement or some other harm to a personal or business reputation. In some suits plaintiffs allege violations of state or federal statutes.

The purpose of this post is to simply provide a few current examples of these types of websites and subsequent lawsuits. If you are aware of others, I’d be interested in hearing from you.

1. Earlier this summer I remember reading about the launch of Avvo.com, a website intended to provide consumers, small businesses and others with a free and straight-forward way to identify and screen lawyers appropriate for their particular needs. Core components of the site include a proprietary numeric rating system, third-party comments and attorney disciplinary information. Faster than you can say class action, just such a suit was filed against Avvo and its founder by two Seattle attorneys, alleging the site harmed their reputations, etc. The parties are presently briefing the defendants’ motion to dismiss, which mainly relies upon the First Amendment and Section 230, and, mindful of a recent Ninth Circuit decision, attempts to distinguish the website from Roommate.com.

2. Business Week recently reported that a number of disgruntled homebuyers, and, in at least one case, an unhappy real estate broker, have created websites aimed at collecting and showcasing alleged deficient practices by certain homebuilders. One of these sites has been named in several lawsuits filed in South Carolina and Florida by a targeted builder, Lennar Corp. Referring to Lennar, the site’s founder was quoted by Business Week as saying that “[t]hey want me dead, there’s no way around that.”

3. The Wall Street Journal’s Law Blog has previously reported on Mortgage Lender Implode-O-Meter. The site, less than a year old, is an online compilation of mortgage lenders that have allegedly “imploded.” It has already been sued by at least one lender featured on the site, and according to a July 30, 2007 Inman News story (only available to subscribers), the state court has already ruled that Section 230 is inapplicable to plaintiff’s claims, and denied defendant’s anti-SLAPP motion.