Meta remains on the hook in false advertising suit

OAKLAND, Calif. (CN) — Plaintiffs who sued Meta over deceptive advertisements scored a partial win Monday against a motion to dismiss their complaint.

U.S. Senior District Judge Jeffrey S. White denied Meta’s motion to dismiss the breach of contract and breach of the covenant of good faith and fair dealing, finding that Meta’s Terms of Services and Community Standards created an obligation for Meta to take action against deceptive advertisers.

“In the COS, Meta promises to ‘remove content that purposefully deceives, willfully misrepresents or otherwise defrauds or exploits others for money or property,’” he said in his order. “These promises manifest its intent to be legally obligated to ‘take appropriate action’ to combat scam advertisements. The ambiguous introductory language does not negate these promises.”

The George W. Bush appointee also ruled the plaintiffs plausibly alleged that Meta did not “take appropriate action” to combat scam ads and that the company may be liable even without violating the literal Terms of Service if “its actions were taken with bad faith and intentionally enabled the scam content to continue.”

However, he dismissed the plaintiff’s claim of negligent failure to warn under California’s economic loss rule.

Plaintiffs Christopher Calise and Anastasia Groschen filed a lawsuit against Meta in August 2021 after purchasing products advertised by third-party vendors on Facebook. According to the complaint, Calise ordered a car engine assembly kit that never arrived, and he could not get a refund from the seller. Groschen purchased a children’s activity board and received a small puzzle, not an activity board. She also attempted to get a refund from the vendor but was unsuccessful.

The plaintiffs sued the social media giant, claiming negligence, breach of contract, breach of the covenant of good faith and fair dealing, violations of California’s Unfair Competition Law and unjust enrichment.

“This case seeks to put an end to Facebook’s policy of actively soliciting, encouraging, and assisting scammers it knows, or should know, are using its platform to defraud Facebook users with deceptive ads, and compel Facebook to either compensate Facebook users for their losses or disgorge the billions of dollars in profits it has unjustly earned from such misconduct,” the plaintiffs said in their complaint.

In April 2022, White dismissed the case, ruling that Section 230 of the Communications Decency Act barred the plaintiffs’ claims.

Section 230 of the CDA states providers or users of an “interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider.”

The plaintiffs appealed to the Ninth Circuit, which affirmed the prior court’s dismissal of the non-contract claims: unjust enrichment, negligence and California’s Unfair Competition Law claim. However, the appeals court reversed the ruling as to the contract-related claims — breach of contract and breach of the covenant of good faith and fair dealing — and remanded the case back to the federal court.

“To the extent that Meta manifested its intent to be legally obligated to take appropriate action’ to combat scam advertisements, it became bound by a contractual duty separate from its status as a publisher,” U.S. Circuit Court Judge Ryan Nelson, a Donald Trump appointee, wrote for the majority. “We thus hold that Meta’s duty arising from its promise to moderate third-party advertisements is unrelated to Meta’s publisher status, and § 230(c)(1) does not apply to Plaintiffs’ contract claims.”

In a statement to Courthouse News, a Meta spokesperson said they “believe the plaintiff’s remaining claims are false and will continue to vigorously defend ourselves.”

A representative for the plaintiffs did not immediately respond to a request for comment.

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