230 defense fails where speaker's ownership/control of D is sufficiently alleged

Tang v. Guo, 2020 WL 6414371, No. 17 Civ. 9031 (JFK) (S.D.N.Y. Nov. 2, 2020)

Further on this case about a dispute between a political activist and a rival. Plaintiffs sued defendants including Guo a/k/a Kwok and four entities that Kwok allegedly founded and controls, collectively the media defendants and the ROL defendants (“Rule of Law” Society and Foundation). A media defendant and the ROL defendants moved to dismiss the claims against them under §230 and the court denied the motion because it was properly pled that they were owned/controlled by the speaker who posted the challenged content on their websites, and thus not third parties for §230 purposes.

Plaintiffs allege that Kwok owns, directs, and/or controls the media Defendants and ROL defendants, which he allegedly created to promote certain for-profit endeavors of his under the guise of advocating for greater human rights and democracy in China. Each entity operates out of Kwok’s residence; and Kwok is the sole agent and promoter of the corporations’ services, which are allegedly designed to compete with plaintiffs’ nonprofit organizations and media outlet, which also advocate for greater human rights and democracy in China.

Kwok, via the media defendants and other outlets such as YouTube and Twitter, allegedly made and continues to make available, false and defamatory statements about plaintiffs, as well as false or misleading statements about the purported use of funds donated to the ROL defendants, in order to garner attention for Kwok’s nonprofit and media organizations and ultimately drive donors away from plaintiffs’ competing organizations.

After an initial dismissal, the court allowed plaintiffs leave to file an amended complaint alleging Lanham Act, unfair competition, defamation, and harassment claims to move forward, and adding media defendant SMG and the ROL defendants to be added to this action. Relevant allegations: (1) that the ROL defendants, which are owned and controlled by Kwok, use the media defendants to publish Kwok’s false and misleading statements; (2) that the ROL defendants engaged in false advertising regarding the foundations’ non-tax exemption for certain charitable donations, and the foundations’ lobbying efforts and non-charitable expenditures; and (3) that the media defendants promote Kwok’s and the ROL defendants’ false statements and advertising by receiving funding from the ROL defendants and publishing Kwok’s misleading infomercials on their platforms.

Media defendant SMG argued that §230 shielded it from any liability, and the ROL defendants argued that the complaint didn’t plausibly allege a principal-agent relationship between Kwok and the ROL defendants, and even if it did, the complaint didn’t allege how the ROL defendants’ purportedly false advertising caused any harm to Plaintiffs.

Previously, the court found Lanham Act/unfair competition claims permissible because the complaint plausibly alleged (1) a sufficient economic motivation for Kwok’s speech based on the “DONATE” buttons he included in certain video infomercials as well as the plausible allegation that Kwok sought to increase viewership on the media defendants’ platforms in order to encourage donations to the ROL defendants; (2) that Kwok and the entities he controls have misled the public regarding the use of donated money; and (3) that Kwok’s false statements were made for the purpose of influencing donors to make contributions to his charitable organizations instead of to Plaintiffs’ competing organizations. [I suspect there’s a greater noncommercial speech problem here than litigated out here, given Riley & progeny.]

CDA:  “[I]mmunity pursuant to the CDA is generally only available where the complained of content is provided by a third-party.” The complaint plausibly alleged that defendant SMG itself published the false statements, because plaintiffs plausibly alleged that Kwok owns and controls SMG and used it to violate the Lanham Act and unfairly compete with plaintiffs’ fundraising efforts.

The ROL defendants: The complaint alleged that the two organizations are essentially the same except that one is a 501(c)(4) entity which is allowed to engage in lobbying, and the other is a 501(c)(3) entity which is not, and that the two organizations compete with plaintiffs for donations, gifts, and other contributions intended for promoting human rights and democracy in China. They allegedly engaged in false advertising by soliciting charitable contributions without distinguishing between the two or disclosing to potential donors that the ultimate use of the funds was for non-charitable purposes, such as lobbying efforts, funding Kwok’s personal asylum application, and funding his for-profit media organizations, the media defendants.

The ROL defendants could be held directly liable based on the plausible allegation that they failed to disclose that the use of certain donations was for purposes other than the organizations’ stated objectives. And proximate cause was plausibly pled because plaintiffs alleged that they derived income from the same types of donations and gifts that were redirected to the ROL defendants based, at least in part, on their false advertising.

Comment: Not every court would be so generous with this proximate cause allegation—why would money be diverted from plaintiffs in particular? Are there literally no other organizations doing similar work?