Antitrust Law Daily Wrap Up, CONSUMER PROTECTION—DConn: Communications Decency Act May Not Provide Immunity to Internet Marketer from FTC Weight Loss Scam Charges, (Jan 30, 2013)

By Tobias J. Gillett, J.D., LLM.

The FTC and the state of Connecticut can proceed with claims against an Internet marketing company that hired affiliate marketers who prepared allegedly deceptive websites, despite a provision in the Communications Decency Act extending immunity to “interactive service providers” for information disseminated by “another information service provider,” the federal district court in New Haven, Connecticut has ruled (Federal Trade Commission v. LeanSpa, LLC, January 29, 2013, Hall, J.). The court concluded that the marketer may not satisfy the CDA’s definition of an “interactive service provider,” and that the marketer may have partial responsibility for the content of the websites even if it did meet the definition.

According to the FTC and the state of Connecticut, the entities LeanSpa, LLC, NutraSlim, LLC, and NutraSlim, U.K., Ltd., as well as the individual Boris Mizhen (LeanSpa), engaged in a scheme to market “purported weight-loss and related health products” over the Internet, often with “false and misleading claims” about their effectiveness in causing weight loss. LeanSpa would allegedly offer products to consumers on a “risk-free” trial basis for a nominal shipping and handling fee, but would then enroll them in continuity plans charging them $79.99 or more monthly, often without their prior knowledge or authorization. Consumers allegedly had great difficulty cancelling the plans or obtaining refunds.

LeanSpa allegedly hired LeadClick Media to market their products, and LeadClick in turn hired third party affiliate marketers who created false news websites that promoted the LeanSpa products. The websites described clinical studies that the FTC alleged had never actually been performed, displayed names and logos of major television networks and endorsements from supposedly independent consumers, and provided links to LeanSpa’s websites. LeanSpa and LeadClick allegedly monitored the sites and worked to increase their use.

The FTC and the state of Connecticut brought an action against LeanSpa, LeadClick, LeadClick’s officer Richard Chiang, Boris Mizhen, and Mizhen’s wife Angelina Strano charging violations of the Federal Trade Commission Act, the Electronic Funds Transfer Act, the Federal Reserve’s Regulation E, and the Connecticut Unfair Trade Practices Act. The district court issued a temporary restraining order, and the parties later stipulated to a preliminary injunction.

In the present decision, LeadClick sought dismissal of certain counts alleging misrepresentations and deceptive acts and practices related to the so-called “fake news sites” pursuant to the Communications Decency Act (CDA). The court explained that the CDA provides that “[n]o provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information service provider.” The court initially noted that a CDA defense “is generally not fodder for a Rule 12(b)(6) motion,” although LeadClick argued that it should still receive immunity at the motion to dismiss stage because all elements of the defense “appear[ed] on the face of the complaint.”

The court concluded that LeadClick could not show it was entitled to CDA immunity at the motion to dismiss stage. The CDA defines an “interactive computer service” as “any information service, system, or access software provider that provides or enables computer access by multiple users to a computer server.” LeadClick argued that a fake news site constituted an “interactive computer service,” and that LeadClick provided that service by providing “pass-through network links” connecting the fake news sites to the LeanSpa websites. However, the complaint had only alleged that LeadClick provided links from one website to another, not that LeadClick operated websites. The court found it unclear whether providing those links met the CDA’s definition, and hence concluded that it was “plausible that LeadClick is not an ‘interactive service provider’ as that term is defined under the CDA.”

Moreover, the court concluded that LeadClick could be an information content provider in its own right, and hence not immune under the CDA. Although LeadClick had pointed out that the complaint attributed the “fake news sites” to third party affiliate marketers, that did not mean that LeadClick was not also an information content provider, since several “providers” could be responsible in part for a single piece of information. The complaint also alleged that LeadClick had monitored the news sites, discussed their use and ways to reduce credit card chargebacks resulting from them, and worked to match products to their content. These facts could demonstrate that LeadClick had more than mere knowledge of their existence, making LeadClick potentially at least partially responsible for their content.

The court also concluded that the complaint had alleged that Richard Chiang had sufficiently participated in or controlled LeadClick’s allegedly deceptive practices to render him personally liable. However, the court concluded that the complaint did not adequately allege Chiang’s unjust enrichment. The complaint did not allege “that LeadClick’s fees went to Chiang, nor [did] it allege that Chiang was paid for his role in the alleged deceptive scheme.” The court therefore concluded that the complaint had “failed to plausibly allege that Chiang was unjustly enriched.”

The court did conclude that the complaint stated a claim against Strano as a relief defendant, even though it did not identify the dates or amounts of any alleged transfers of funds to her. The complaint had alleged “a spousal relationship between Strano and Mizhen, the owner of the LeanSpa Entities, describing the deceptive conduct of the LeanSpa defendants, and alleging that Strano received funds or otherwise benefited from the LeaSpa defendants’ ill-gotten funds.” Those allegations were sufficient at the motion to dismiss stage.

The case is No. 3:11-CV-1715.

Attorneys: Darren H. Lubetzky for Federal Trade Commission. Jonathan J. Blake, Connecticut Office of the Attorney General, for State of Connecticut. Bryan Charles Altman (The Altman Law Group) for LeanSpa, LLC. Elisa J. D'Amico (K & L Gates LLP) for LeadClick Media, Inc. David T. Grudberg (Carmody & Torrance) for Angelina Strano.

Companies: LeanSpa, LLC; NutraSlim, LLC; NutraSlim, U.K., LLC; LeadClick Media, Inc.; LeadClick Media, LLC

Cases: ConsumerProtection FederalTradeCommissionNews StateUnfairTradePractices ConnecticutNews