independent contractors as agents in creating fake reviews

RingCentral, Inc. v. Nextiva, Inc., 2021 WL 2476879, No. 19-cv-02626-NC (N.D. Cal. Jun. 17, 2021)

The parties are cloud-based communications companies. RingCentral offers voice, virtual private branch exchange, audio and video conferencing, messaging, contact center collaboration, SMS, online meetings, contact center, and fax. Nextiva’s offerings inlcude voice, video, and messaging.

RingCentral sued for tortious interference, defamation, trade libel, unfair competition, and cybersquatting. Nextiva’s independent contractor, Baruch Labunski, “fabricated fictitious online personas of RingCentral personnel, registered domain names using fake contact information, and created fraudulent websites associated with those domains for the purpose of redirecting users away from RingCentral, and toward unrelated business websites.” Nextiva also allegedly posted fake negative reviews of RingCentral and fake positive reviews of Nextiva.

Likewise, RingCentral allegedly created a customer review page selectively aggregating only positive reviews from other review sources.

Starting with the counterclaims against RingCentral:  The review page “reflects an overall 4.8-star rating in the marketplace,” but Nextiva argued that, on the sourced websites where the reviews originate, it has “at least hundreds of one- and two-star reviews; rather than the five one- and two-star reviews reflected on RingCentral’s Reviews Page.” RingCentral blamed a third party contractor, though I’m not sure why that should matter; the court found there were genuine issues of material fact, including about whether the third party had discretion to exclude reviews. (Even if it did, I don’t see why RingCentral wouldn’t be liable for them.)

RingCentral then argued that Nextiva failed to prove causation or economic injury. “Here, Nextiva’s experts used regression analyses to show that traffic to RingCentral’s web pages closely coincided with reduced Nextiva sales, and that Nextiva would have to spend significant funds to correct the misimpressions that RingCentral’s pages caused in the market.” Though RingCentral pointed out that the experts relied on claims that were no longer being challenged and didn’t apportion the harm, this was for a jury to resolve.

Nor could RingCentral’s unclean hands argument be resolved on summary judgment.

So too with Nextiva’s motion for summary judgment, except for claims based upon allegedly fake positive reviews of Nextiva. Starting with those, defamation and trade libel don’t cover fake positive reviews of the defendant.

As mentioned above, Labunski, under the supervision of Nextiva’s former CMO, “posted over 10,000 fake positive reviews of Nextiva on downdetector.com and verified-reviews.com,” as well as a smaller number of fake positive reviews on other sites.  Nextiva allegedly published at least 85 fake negative reviews of RingCentral’s services, though RingCentral’s own expert testified that approximately five of those fake negative reviews were “verified” as false by being tied to domains known to be registered by Labunski.

Defamation: Fake positive reviews of Nextiva were not “of and concerning the plaintiff,” and RingCentral didn’t show that third parties reasonably understood the fake positive reviews to be a part of a “defamatory scheme” against RingCentral. In fact, the law doesn’t recognize RingCentral’s theory that the fake positive reviews were part of drawing a contrast between the parties with a “defamatory scheme.” It had to prove that prospective customers reasonably understood the challenged statements to be derogatory against RingCentral under the circumstances. RingCentral did show that that three prospective customers, who ultimately chose Nextiva, made a comparison between the two companies after looking at reviews. “But there is no evidence that those prospective customers interpreted positive reviews about Nextiva to mean something derogatory about RingCentral…. To agree with RingCentral’s ‘defamatory scheme’ argument would be to say that any statements made in the course of market competition, whether falsified or factual, would necessarily result in defamation.”

However, fake negative reviews of RingCentral were definitely “of and concerning” RingCentral, so the defamation and trade libel claims based on them could continue.

Trade libel: Trade libel is the intentional disparagement of another’s property that results in pecuniary damage. A trade libel plaintiff “must also prove that the statement played ‘a material and substantial part in inducing others not to deal with [the plaintiff],’ ” along with special damages in the form of specifically itemized pecuniary harm that was proximately caused by the libelous statements. Nextiva argued that RingCentral couldn’t prove causation and damages. The court agreed that, under governing law, a plaintiff is required to “identify particular customers and transactions of which it was deprived as a result of the libel.” But there was a genuine dispute of material fact on causation and loss: RingCentral identified prospective customers who saw reviews of both companies and chose Nextiva, but it wasn’t clear whether they saw the allegedly fake reviews, and if so, whether those fake reviews played a substantial and material role in their decision to choose Nextiva over RingCentral.

Tortious interference: Same thing.

UCL: Nextiva argued that RingCentral didn’t show it was entitled to an injunction.  But “[t]hat Nextiva has since fired the alleged wrongdoers and discontinued its policy does not mean that a risk of future injury is lacking.” There were disputes of fact about whether the officers and employees still employed by Nextiva were complicit or failed to act on the fake review scheme, and whether changes were implemented company-wide or only by specific teams.

Cybersquatting: Could Nextiva be held liable for the acts of its independent contractor “falsely register[ing] at least one domain name strongly suggestive of the RingCentral brand name.”

Masjedi was the CMO who hired Labunski to work on search engine optimization. He instructed Labunski to impersonate another competitor to post fake negative reviews. Labunski then re-used that idea to impersonate RingCentral; he purchased the domain name “ringcetrnal.com” and used fake identities and funds supplied by Nextiva, he created fake email accounts on the “ringcetrnal.com” domain to impersonate RingCentral’s CEO and the CEO’s daughter, and tried to use those false identities to eliminate positive reviews of RingCentral with the Better Business Bureau and Fit Small Business.

Nextiva argued that there was no evidence that the impersonation caused harm. RingCentral’s 30(b)(6) witness testified that “the reputation of RingCentral was diminished...through the fraudulent emails,” but also lacked knowledge of any changes to RingCentral’s Better Business Bureau membership or of any RingCentral reviews being removed from Fit Small Business. It was for the jury to weigh the credibility of this testimony.

Was Nextiva liable for its independent contractor’s domain name registration? The Restatement (ThirdO of Agency says: “An agency relationship arises “when one person (a ‘principal’) manifests assent to another person (an ‘agent’) that the agent shall act on the principal’s behalf and subject to the principal’s control, and the agent manifests assent or otherwise consents so to act.” “An agent acts with actual authority when, at the time of taking action that has legal consequences for the principal, the agent reasonably believes, in accordance with the principal’s manifestations to the agent, that the principal wishes the agent so to act.” There was sufficient evidence for a jury to find that Labunski was an agent of Nextiva for purposes of cybersquatting liability by finding that Labunkski’s wrongful conduct was within his authority, or that Labunski was negligently supervised by Nextiva. The fact that Labunski’s consulting agreement disclaimed an agency relationship was insufficient.