fraud – Attorney Evan Brown

February 1, 2024 Fraud/Misrepresentation

Online marketplace not liable for causing murder committed by criminal seller

The Tenth Circuit Court of Appeals in Colorado upheld the dismissal of a tort case brought against the operator of the website Letgo. The court held that the website was not negligent and did not commit fraud in facilitating the purported transaction that resulted in the murder of a married couple.

The tragic story

At 11 PM on August 14, 2020, Mr. and Mrs. Roland met an execrable miscreant named Brown at a PETCO parking lot, intending to buy a car that Brown had placed for sale on the online marketplace Letgo. Claiming to not have the right title for the car (it turns out the car was stolen), Brown led the couple to a second location under the pretense of retrieving the correct vehicle title. But Brown ambushed the Rolands with a handgun, resulting in a struggle that led to the tragic deaths of both Mr. and Mrs. Roland, who left behind five minor children. Brown was later convicted of two counts of first-degree felony murder.

The estate sued

The Rolands’ estate sued Letgo under Colorado law, alleging a number of claims, including negligence, fraud and negligent misrepresentation. The lower court dismissed the claims. So the estate sought review with the Tenth Circuit. On appeal, the court affirmed the dismissal.

To act or not to act

The court’s negligence analysis turned on whether plaintiffs’ claim was one of misfeasance (active conduct causing injury) or nonfeasance (a failure to take positive steps to protect others from harm). The plaintiffs contended that Letgo’s claims of collaboration with law enforcement, use of technology to block stolen goods, and a user verification system created a false sense of security – that the negligence was based on misfeasance. But the court was not persuaded, emphasizing that the representations, when viewed in context, did not constitute misfeasance or active misconduct.

Instead, the court determined that the plaintiffs’ allegations were more indicative of nonfeasance, or Letgo’s failure to act, which required a special relationship between the parties for a duty of care to be established – a condition the plaintiffs could not satisfy. And in the court’s mind, even if Letgo’s actions were misfeasance, the plaintiffs failed to adequately plead that these actions were a substantial factor in the Rolands’ deaths, as the decisions made by the Rolands to pursue the transaction, and the decision of the perpetrator to commit murder, were more significant factors in the tragic outcome than the provision of the online platform.

No fraud or negligent misrepresentation either

Colorado law required plaintiffs to demonstrate a series of stringent criteria: Letgo must have made a false representation of a material fact, known to be false, with the intention that the Rolands would rely upon it, leading to damages as a result of this reliance. Negligent misrepresentation, while similar, necessitates showing that Letgo, within its professional capacity, made a careless misstatement of a crucial fact intended for the guidance of others in their business dealings, which the Rolands justifiably relied upon to their detriment.

Federal Rule of Civil Procedure 9(b) sets a higher bar for fraud claims, requiring plaintiffs to specify the circumstances of the alleged fraud with particularity, including the time, place, and content of the false representations, as well as the identity of those making them and the resultant consequences. This rule aims to provide defendants with fair notice of the claims against them and the factual basis for these claims. In certain cases, this standard may also extend to claims of negligent misrepresentation if they closely resemble allegations of fraud, highlighting the necessity for precise and detailed pleadings in such legal matters.

In this case, plaintiffs contended that Letgo’s assurances regarding safety and user verification —such as collaboration with law enforcement, technology to identify stolen goods, and “verified” user statuses — were misleading, constituting either fraud or negligent misrepresentation. However, the court found that plaintiffs failed to plausibly link the alleged misrepresentations to the tragic outcome, failing to provide sufficient factual content to demonstrate causation between Letgo’s actions and the Rolands’ deaths.

Roland v. Letgo, Inc., 2024 WL 372218 (10th Cir., February 1, 2024)

Zillow gets win in case alleging fraudulent online auction notices

section 230

Plaintiff sued Zillow and some other parties in federal court, claiming they engaged in a conspiracy to defraud her by illegally foreclosing on her home. She apparently claimed that Zillow “illegally” published information regarding the property at issue on its website, including listing it “for auction.”

Zillow moved to dismiss for failure to state a claim. The court granted the motion. It held that Section 230 (47 U.S.C. 230) immunized Zillow from liability. This statute immunizes providers of interactive computer services against liability arising from content created by third parties.

The court found that Zillow was an “interactive computer service,” demonstrated by how its website stated that it is “reimagining the traditional rules of real estate to make it easier than ever to move from one home to the next.”

It also found that plaintiff’s claims sought to hold Zillow liable for posting “auction notices”. But since the court did not believe plaintiff could demonstrate that Zillow developed or created this content, it found that plaintiff’s claims fell squarely within the purview of Section 230.

Choudhuri v. Specialised Loan Servicing, 2024 WL 308258 (N.D. Cal., January 26, 2024)

See also:

June 18, 2020 Computer Crime, Contracts

Click fraud might violate CFAA

Click fraud is a problem in online advertising and in situations where companies and advertisers use publishers to promote their content. A federal court in Delaware recently addressed this problem.

Plaintiff job search engine sued one of its former “publishing partners” and its owners. Defendants sent out email messages with links to job search results. Plaintiff paid defendants on a “pay-per-click” basis – a certain amount each time someone clicked on one of the links.

The Alleged Click Fraud

Eventually plaintiff noted that “conversions” were low from defendants’ activities. That means there were a lot of clicks on links but not many actual job applicants. Plaintiff began to suspect defendants were artificially inflating the number of clicks – that is, committing click fraud. The contract between plaintiff and defendants prohibited this conduct.

After investigating, plaintiff learned one of its employees was allegedly working with defendants to engage in the click fraud scheme. Plaintiff sued defendants, asserting a number of claims, including one under the federal Computer Fraud and Abuse Act, 18 USC 1030 (“CFAA”).

Defendants moved to dismiss. The court denied the motion.

CFAA and Click Fraud

The CFAA imposes liability when a plaintiff pleads and proves that a defendant:

has accessed a protected computer (defined in the statute);
did so without authorization or by exceeding such authorization as was granted;
has done so knowingly and with intent to defraud; and
as a result has furthered the intended fraud and obtained anything of value.

Defendant argued that CFAA liability should not apply because there were no allegations of “hacking” in this case. The court rejected that argument.

The court looked to the case of CollegeSource, Inc. v. AcademyOne, Inc., 597 F. App’x 116 (3d Cir. 2015) to hold that if a defendant accesses the plaintiff’s computers and uses information in violation of a contractual agreement with the plaintiff, that could be enough to impose CFAA liability. And the court believed that is essentially what is alleged to have happened in this case: that defendants violated the terms of contractual agreements with plaintiff by causing illegitimate clicks to be directed to plaintiff’s computer servers.

Juju, Inc. v. Native Media, LLC, 2020 WL 3208800 (D. Del., June 15, 2020)

May 17, 2018 Fraud/Misrepresentation

No fraud claim against VRBO over bogus listing because website terms did not guarantee prescreening

Plaintiff sued the website VRBO for fraud after he used the website to find a purported vacation rental property that he paid for and later learned to be nonexistent. He specifically claimed that the website’s “Basic Rental Guarantee” misled him into believing that VRBO pre-screened the listings that third parties post to the site. The lower court granted VRBO’s summary judgment motion. Plaintiff sought review with the First Circuit Court of Appeals. On appeal, the court affirmed summary judgment, finding the guarantee was not fraudulent.

The court found the Basic Rental Guarantee was not fraudulent for a number of reasons. The document simply established a process for obtaining a refund (of up to $1,000) that involved satisfying certain conditions (e.g., having paid using a certain method, being denied a refund by the property owner, and making a claim to VRBO within a certain time). The document gave no indication that VRBO conducted any pre-screening of listed properties, but instead the document mentioned investigation that would be conducted only in the event a claim of “Internet Fraud” (as VRBO defined it) was made. And VRBO’s terms and conditions expressly stated that VRBO had no duty to pre-screen content on the website, and also disclaimed liability arising from any inaccurate listings.

Finally, the court found that the guarantee did not, under a Massachusetts statute, constitute a representation or warranty about the accuracy of the listings. Among other things, the document clearly and conspicuously disclosed the nature and extent of the guarantee, its duration, and what the guarantor undertook to do.

Hiam v. Homeaway.com, 887 F.3d 542 (1st Cir., April 12, 2018)

About the Author: Evan Brown is a Chicago technology and intellectual property attorney. Call Evan at (630) 362-7237, send email to ebrown [at] internetcases.com, or follow him on Twitter @internetcases. Read Evan’s other blog, UDRP Tracker, for information about domain name disputes.

January 12, 2015 Computer Crime, Fraud/Misrepresentation

Facebook wins against alleged advertising fraudster

Defendant set up more than 70 bogus Facebook accounts and impersonated online advertising companies (including by sending Facebook falsified bank records) to obtain an advertising credit line from Facebook. He ran more than $340,000 worth of ads for which he never paid. Facebook sued, among other things, for breach of contract, fraud, and violation of the Computer Fraud and Abuse Act (CFAA). Despite the court giving defendant several opportunities to be heard, defendant failed to answer the claims and the court entered a default.

The court found that Facebook had successfully pled a CFAA claim. After Facebook implemented technological measures to block defendant’s access, and after it sent him two cease-and-desist letters, defendant continued to intentionally access Facebook’s “computers and servers to obtain account credentials, Facebook credit lines, Facebook ads, and other information.” The court entered an injunction against defendant accessing or using any Facebook website or service in the future, and set the matter over for Facebook to prove up its $340,000 in damages. It also notified the U.S. Attorney’s Office.

Facebook, Inc. v. Grunin, 2015 WL 124781 (N.D. Cal. January 8, 2015)

March 19, 2011 Fraud/Misrepresentation

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.)

July 13, 2010 Fraud/Misrepresentation, Spam

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.

April 15, 2010 Cybersquatting, Trademarks, Uncategorized

UDRP loser did not commit fraud on USPTO by saying it was exclusive user of mark

Salu, Inc. v. Original Skin Store, Slip Copy, 2010 WL 1444617 (E.D.Cal. April 12, 2010)

This is kind of a wonky trademark/domain name case. So if that’s not in your wheelhouse, don’t strain yourself.

Plaintiff sued defendant for infringement of plaintiff’s registered trademark. Defendant moved for summary judgment, claiming that the asserted trademark registration was obtained by fraud on the United States Patent and Trademark Office. Specifically, defendant argued that plaintiff misrepresented when it told the USPTO that its SKINSTORE mark had “acquired distinctiveness” (i.e., was not merely descriptive of the goods and servcies) by means of “substantially exclusive” use in commerce.

The court denied the motion for summary judgment.

Defendant had argued that plaintiff committed fraud by saying its use was exclusive. It pointed to a case under the Uniform Domain Name Dispute Resolution Policy (UDRP) that the plaintiff had brought against the user of the domain name eskinstore.com. The WIPO panel in that case refused to find a clear case of cybersquatting.

In this case, defendant argued that plaintiff’s earlier unsuccessful UDRP challenge to a similar mark showed there were third parties using the mark and therefore the claim of exclusivity was fraudulent.

The court rejected this argument, noting that the plaintiff had undertaken significant efforts to protect its exclusive rights in the trademark. (It had sent out an astounding 300 cease and desist letters in the past couple of years alone!)

Moreover, and more importantly, the court noted that the WIPO panel hearing the UDRP complaint specifically declined to determine cybersquatting had occurred, finding it to be a question of infringement better addressed by the United States courts.

April 8, 2008 Fraud/Misrepresentation, Trademarks

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.