In Re: Universal Com v. ( 2007 )

United States Court of Appeals
For the First Circuit
No. 06-1826
UNIVERSAL COMMUNICATION SYSTEMS, INC.;
MICHAEL J. ZWEBNER,
Plaintiffs, Appellants,
v.
LYCOS, INC., D/B/A LYCOS NETWORK; TERRA NETWORKS, S.A.;
ROBERTO VILLASENOR, JR., A/K/A the-worm06; JOHN DOE #2,
A/K/A no-insiders; ROBERTO VILLASENOR, JR.,
A/K/A the-worm06A; JOHN DOE #4, A/K/A 65175R; JOHN DOE #5,
A/K/A Henry-Johnson123; JOHN DOE #6, A/K/A quondo1;
JOHN DOE #7, A/K/A Tobias95; JOHN DOE #8, A/K/A CrawleySmith,
Defendants, Appellees.
ROBERT H. COOPER; ANDREW CUNNINGHAM; DOES 1 THROUGH 8;
OMAR GHAFFAR,
Third-Party Defendants.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Robert E. Keeton, Senior U.S. District Judge]
Before
Boudin, Chief Judge,
Selya and Lynch, Circuit Judges.
John H. Faro, with whom Faro & Associates was on brief, for
appellants.
Daniel J. Cloherty, with whom David A. Bunis, Rachel Zoob-
Hill, and Dwyer & Collora, LLP were on brief, for appellee Lycos,
Inc.
Thomas G. Rohback, with whom James J. Reardon, Jr. and
LeBoeuf, Lamb, Greene & MacRae LLP were on brief, for appellee
Terra Networks, S.A.
February 23, 2007
LYNCH, Circuit Judge. Plaintiffs Universal Communication
Systems, Inc. and its chief executive officer, Michael J. Zwebner,
(collectively, "UCS") brought suit, objecting to a series of
allegedly false and defamatory postings made under pseudonymous
screen names on an Internet message board operated by Lycos, Inc.
UCS identified two of the screen names as having been registered to
Roberto Villasenor, Jr. UCS sued not only Villasenor and the other
posters of messages, as John Does, but also Lycos and Terra
Networks, S.A., Lycos's corporate parent at the time of the
postings in question.
In Section 230 of the Communications Decency Act (CDA),
47 U.S.C. § 230, Congress has granted broad immunity to entities,
such as Lycos, that facilitate the speech of others on the
Internet. Whatever the limits of that immunity, it is clear that
Lycos's activities in this case fall squarely within those that
Congress intended to immunize. UCS attempted to plead around this
Section 230 statutory immunity by asserting that Lycos did not
qualify for immunity and that UCS's claims fell within certain
exceptions to that immunity. The district court rejected these
arguments and dismissed the claims against Lycos and Terra Networks
for failure to state a claim. We agree and affirm the dismissals,
joining the other courts that have uniformly given effect to
Section 230 in similar circumstances.
-3-
As for the claims against the individuals who posted, UCS
alleged violations of federal and state securities laws, but made
only conclusory allegations that the postings at issue were in
connection with a scheme involving UCS stock. It thus failed to
meet the particularity requirement for pleading fraud under Federal
Rule of Civil Procedure 9(b). In the absence of any substantial
allegations on this point, we affirm the district court’s dismissal
of those claims.
I.
Because we review here the district court’s granting of
a motion to dismiss, we recite the facts as alleged in UCS’s
complaint, McCloskey v. Mueller, 446 F.3d 262, 264 (1st Cir. 2006),
but without crediting unsupported conclusions and assertions,
Palmer v. Champion Mortgage, 465 F.3d 24, 25 (1st Cir. 2006).
Universal Communication Systems, Inc. is a Nevada
corporation with its corporate offices in Florida. The company at
one point provided telecommunications services and currently is
developing solar-powered water extraction systems. It is a
publicly-traded company that trades under the ticker symbol "UCSY,"
a label that the company also uses in its promotional materials.
Zwebner is Chairman and CEO of the company. He is a citizen of the
United Kingdom and of Israel, with his principal residence in
Israel and a secondary residence in Florida.
-4-
Lycos is a Massachusetts corporation with its principal
place of business in Massachusetts. Terra Networks is a Spanish
corporation with its principal place of business in Spain. Terra
Networks owned Lycos from 2000 to 2004.
Lycos operates a network of web sites devoted to a wide
array of content. At times relevant here, these web sites included
Quote.com, which provides stock quotation information and financial
data for publicly-traded companies, and RagingBull.com, which hosts
financially-oriented message boards, including ones designed to
allow users to post comments about publicly-traded companies. The
message board for each such company is generally created by a user
and is generally identified using the company's stock ticker symbol
-- UCSY in this case. In addition, the two web sites are linked to
each other, so that a user who retrieves a stock quote from
Quote.com is also given a link to the corresponding message board
on Raging Bull. Both web sites contain advertisements, and Lycos
derives advertising revenue that depends in some measure on the
volume of usage of its sites.
Individuals must register with Lycos in order to post
messages on Raging Bull message boards. As part of the
registration process, users are required to agree to a "Subscriber
Agreement," which, inter alia, requires users to comply with
federal and state securities laws. Upon registration, a member
obtains a "screen name." Postings on the message board are
-5-
identified by screen name, but no further identifying information
is automatically included with the posting. The registration
process does not prevent a single individual from registering under
multiple screen names.
Starting at least in 2003, a number of postings
disparaging the "financial condition, business prospects and
management integrity" of UCS appeared on Raging Bull's UCSY message
board. UCS alleges that these postings were "false, misleading
and/or incomplete." In particular, UCS identified postings made
under eight different screen names as objectionable. UCS alleges
that the individuals registered under each of these screen names
"are one [and] the same individual, Roberto Villasenor, Jr. and/or
are individuals acting in concert with Roberto Villasenor, Jr."
On January 19, 2005, UCS filed suit against Lycos and
Terra Networks in federal district court in the Southern District
of Florida. On February 2, 2005, before either defendant responded
to the complaint, UCS filed a "First Amended Complaint," adding as
defendants eight John Does, each identified by a Raging Bull screen
name. In this First Amended Complaint, UCS alleged four claims:
(1) fraudulent securities transactions under Fla. Stat. § 517.301;
(2) cyberstalking under 47 U.S.C. § 223; (3) dilution of trade name
under Fla. Stat. § 495.151; and (4) cyberstalking under Fla. Stat.
§ 784.048. The Florida securities claim was made against all of
-6-
the defendants, and the remaining claims were made against Lycos
and Terra Networks only.
In response, Lycos filed a motion to dismiss, arguing
that UCS's claims were barred under Section 230 of the
Communications Decency Act, 47 U.S.C. § 230, and that there was no
basis for either the federal cyberstalking claim or the state
dilution claim. Section 230 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 content provider," id. § 230(c)(1), and that "[n]o
cause of action may be brought and no liability may be imposed
under any State or local law that is inconsistent with this
section," id. § 230(e)(3).
In the alternative, Lycos moved to transfer the case to
the District of Massachusetts, citing a forum selection clause in
its Subscriber Agreement. In addition, Lycos sought a stay of
discovery pending the resolution of these motions. The district
court in Florida granted the stay and shortly thereafter
transferred the case to Massachusetts. This left pending the
motion to dismiss.
Following the transfer, the district court in
Massachusetts held a hearing on July 26, 2005, at which it denied
all pending motions without prejudice. It then scheduled a later
conference at which to consider any renewed motions, and held that
-7-
it would "not lift the stay on discovery at this time." In
response to UCS's request for limited discovery in the interim, the
district court judge stated that he would "not allow that until
I've had an opportunity to hear you on the matter. That will be an
issue that we will take up at the [later] conference."
Lycos and Terra Networks again filed motions to dismiss,
and on October 11, 2005, the district court granted the motions.
The court ruled from the bench that Section 230 "immunizes Lycos
[and Terra Networks] from all of the four counts in the plaintiffs'
complaint" and did not address any of the alternate arguments for
dismissal. At that hearing, UCS made no mention of any need for
discovery in order to properly oppose the motions to dismiss.
UCS then moved for leave to amend its complaint again.
In the proposed second amended complaint, UCS alleged essentially
the same four causes of action, but added factual allegations going
to the "construct and operation" of Lycos's web sites, evidently
assuming that such facts would take Lycos outside Section 230
immunity.
On December 21, 2005, the district court denied the
motion to amend the complaint as to Lycos and Terra Networks,
finding that the claims against those defendants, as framed in the
proposed second amended complaint, would continue to be barred by
Section 230. In addition, the district court held that the claim
for cyberstalking under 47 U.S.C. § 223 would be dismissed for
-8-
failure to state a claim, because that statute does not provide a
private right of action. As to the Florida trademark dilution
claim, the court held that because Lycos was not using "the 'UCSY'
trademark to market incompatible products or services," but was
only using it "on the Raging Bull message board," the claim was
"effectively . . . a defamation claim in the guise of an
antidilution claim," and was thus barred by Section 230.
The district court did, however, grant leave to file a
complaint against the John Doe defendants to assert a claim under
the Florida securities statute. On February 27, 2006, UCS filed a
"Second Amended Complaint" against Villasenor and the John Does.
In this complaint, UCS substituted Roberto Villasenor, Jr. for two
of the John Does, previously identified as "the-worm06" and
"the-worm06A."1 The complaint alleged that Villasenor was a
citizen of California. In addition to asserting a cause of action
under Florida securities laws against Villasenor and the remaining
John Does, the complaint alleged causes of action, founded on the
same set of operative facts, under federal securities laws,
Massachusetts securities laws, and Massachusetts common law fraud.
Subject matter jurisdiction was alleged based on both federal
question jurisdiction and diversity jurisdiction. UCS then moved
for entry of separate and final judgment against Lycos and Terra
1
Despite UCS's suggestion to the contrary, the complaint
squarely alleged that the John Does might not all be Villasenor,
but might be "individuals acting in concert with" Villasenor.
-9-
Networks. On April 6, 2006, Villasenor filed an answer to the
complaint, also asserting counterclaims and third-party claims.
On April 18, 2006, the district court denied the motion
for entry of separate and final judgment as to Lycos and Terra
Networks, finding that the court lacked subject matter jurisdiction
over the remaining claims and so judgment should be entered on all
claims filed against all defendants. The court found that
diversity jurisdiction was destroyed by the presence of the John
Doe defendants. The court also found that the claim under the
federal securities laws against Villasenor and the John Does was
not sufficiently substantial to confer federal question
jurisdiction, as UCS had failed to "allege that any individual
defendant owned, borrowed, sold, or purchased any shares in UCSY."
As a result, the district court ordered the case "dismissed as to
all defendants."
II.
We review a denial of leave to amend the complaint for
abuse of discretion, "deferring to the district court for any
adequate reason apparent from the record." Resolution Trust Corp.
v. Gold, 30 F.3d 251, 253 (1st Cir. 1994). The futility of the
amendment is an adequate reason to reject it, see id., and here the
district court found that the amendment would be futile because the
amended complaint would be subject to dismissal. Our review of a
dismissal for either failure to state a claim or lack of subject
-10-
matter jurisdiction (so long as made without factfinding) is de
novo. McCloskey, 446 F.3d at 266. We are not limited by the
district court's reasoning, and we "may affirm an order of
dismissal on any basis made apparent by the record." Id.We begin with the Florida law claims against Lycos and
Terra Networks.2 Because these claims are based, at least in part,
on the alleged impropriety of postings made by third parties on
Raging Bull, UCS must contend with the statutory immunity provided
by Section 230. UCS has attempted to plead around that immunity by
casting its claims only in terms of Lycos's actions and by
asserting causes of action that purportedly fall into one of the
statutory exceptions to Section 230 immunity. Whatever the
viability of UCS's legal theories in the abstract, however, the
facts pleaded simply do not fit those theories. On the facts
alleged, Congress intended that, within broad limits, message board
operators would not be held responsible for the postings made by
others on that board. No amount of artful pleading can avoid that
result.
2
Both before the district court and in this court, Terra
Networks has argued that, in addition to the bases for dismissal
applicable to Lycos, the claims against it should be dismissed for
lack of personal jurisdiction. Because we find that all claims
against both Lycos and Terra Networks were properly dismissed for
failure to state a claim, we need not reach this alternative
argument. In the remainder of this opinion, we refer only to
claims against Lycos, but the disposition of the claims against
Terra Networks is the same.
-11-
A. Applicability of CDA Section 230 Immunity
Section 230 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 content
provider," 47 U.S.C. § 230(c)(1), and that "[n]o cause of action
may be brought and no liability may be imposed under any State or
local law that is inconsistent with this section," id. § 230(e)(3).
Thus, unless an exception applies, Lycos is immunized from a state
law claim if: (1) Lycos is a "provider or user of an interactive
computer service"; (2) the claim is based on "information provided
by another information content provider"; and (3) the claim would
treat Lycos "as the publisher or speaker" of that information.
Although this court has not previously interpreted CDA
Section 230, we do not write on a blank slate. The other courts
that have addressed these issues have generally interpreted Section
230 immunity broadly, so as to effectuate Congress's "policy choice
. . . not to deter harmful online speech through the . . . route of
imposing tort liability on companies that serve as intermediaries
for other parties' potentially injurious messages." Zeran v. Am.
Online, Inc., 129 F.3d 327, 330-31 (4th Cir. 1997); see also
Carafano v. Metrosplash.com, Inc., 339 F.3d 1119, 1123-24 (9th Cir.
2003); Ben Ezra, Weinstein, & Co. v. Am. Online Inc., 206 F.3d 980,
985 n.3 (10th Cir. 2000). In Zeran, the Fourth Circuit noted the
"obvious chilling effect" that such intermediary tort liability
-12-
could have, given the volume of material communicated through such
intermediaries, the difficulty of separating lawful from unlawful
speech, and the relative lack of incentives to protect lawful
speech. 129 F.3d at 331. The Fourth Circuit also recognized the
congressional purpose of removing the disincentives to self-
regulation that would otherwise result if liability were imposed on
intermediaries that took an active role in screening content. Id.In light of these policy concerns, we too find that
Section 230 immunity should be broadly construed. In the context
of this case, we have no trouble finding that Lycos's conduct in
operating the Raging Bull web site fits comfortably within the
immunity intended by Congress. In particular: (1) web site
operators, such as Lycos, are "provider[s] . . . of an interactive
computer service"; (2) message board postings do not cease to be
"information provided by another information content provider"
merely because the "construct and operation" of the web site might
have some influence on the content of the postings; and (3)
immunity extends beyond publisher liability in defamation law to
cover any claim that would treat Lycos "as the publisher."
1. "Interactive Computer Service" Provider
There is no merit to UCS's suggestion that Lycos might
not be a provider of an interactive computer service and so is not
entitled to Section 230 immunity. The statute defines "interactive
computer service" to be "any information service, system, or access
-13-
software provider that provides or enables computer access by
multiple users to a computer server, including specifically a
service or system that provides access to the Internet." 47 U.S.C.
§ 230(f)(2). A web site, such as the Raging Bull site, "enables
computer access by multiple users to a computer server," namely,
the server that hosts the web site. Therefore, web site operators,
such as Lycos, are providers of interactive computer services
within the meaning of Section 230.
UCS argues that Lycos might not be such a provider
because it "does not provide user access to the internet."
Providing access to the Internet is, however, not the only way to
be an interactive computer service provider. While such providers
are "specifically" included, there is no indication that the
definition should be so limited. Other courts have reached the
same conclusion. See, e.g., Carafano, 339 F.3d at 1123.
2. "Information Provided By Another"
The message board postings to which UCS objects are, on
their face, "information provided by another information content
provider." Section 230 defines "information content provider" to
be "any person or entity that is responsible, in whole or in part,
for the creation or development of information provided through the
Internet or any other interactive computer service." 47 U.S.C.
§ 230(f)(3). This is a broad definition, covering even those who
are responsible for the development of content only "in part." In
-14-
this case, it is clear that the individual posters on the Raging
Bull web site are information content providers.
A key limitation in Section 230, however, is that
immunity only applies when the information that forms the basis for
the state law claim has been provided by "another information
content provider." Id. § 230(c)(1) (emphasis added). Thus, an
interactive computer service provider remains liable for its own
speech. See Anthony v. Yahoo! Inc., 421 F. Supp. 2d 1257, 1262-63
(N.D. Cal. 2006) (finding an online dating service not immune under
Section 230 from claims that it "manufactured false profiles" and
"sent profiles of actual, legitimate former subscribers whose
subscriptions had expired" (internal quotation marks omitted)).
It is, by now, well established that notice of the
unlawful nature of the information provided is not enough to make
it the service provider's own speech. See Zeran, 129 F.3d at 332-
33; see also Barrett v. Rosenthal, 146 P.3d 510, 514, 525 (Cal.
2006). We confirm that view and join the other courts that have
held that Section 230 immunity applies even after notice of the
potentially unlawful nature of the third-party content.
UCS "emphasize[s]" that Lycos was "manifestly aware of
the illegal nature of [the] subscriber postings," but does not rely
on notice alone in arguing against immunity. UCS argues instead
that Lycos "has involved itself with its subscriber[s']
conduct/activities and/or rendered culpable assistance to its
-15-
registered subscribers to the Lycos Network, through the construct
and operation of its web site," and that such conduct falls outside
Section 230 immunity. UCS has alleged nothing, however, that
suggests that Lycos should be considered to have been
"responsible," even "in part," "for the creation or development" of
the alleged misinformation. At best, UCS's allegations establish
that Lycos's conduct may have made it marginally easier for others
to develop and disseminate misinformation. That is not enough to
overcome Section 230 immunity.
In Carafano, the Ninth Circuit rejected the plaintiff's
suggestion that an online dating service should have been
considered a developer of a false profile because it provided the
questionnaire that a user of the service answered falsely. 339
F.3d at 1124-25. The court reasoned that the "underlying
misinformation" that formed the basis for the complaint was
contained entirely in the responses provided by the user, and that
the particularly objectionable content "bore [no] more than a
tenuous relationship to the actual questions asked." Id. at 1125.
Compared to Carafano, the allegations in this case
provide an even less substantial basis to find that Lycos was a
developer of the alleged misinformation. UCS points to the fact
that Lycos does not prevent a single individual from registering
under multiple screen names, and to the fact that Lycos links sites
providing objective financial information to the Raging Bull site.
-16-
UCS's theory is that these features of the Raging Bull site make it
possible for individuals to spread misinformation more credibly, by
doing so under multiple screen names and in a context that is
associated with objective content. In Carafano, the plaintiff at
least had a colorable argument that the misinformation may have
been prompted by the dating service's questions. Here there is not
even a colorable argument that any misinformation was prompted by
Lycos's registration process or its link structure. There is no
indication that the Lycos features that UCS criticizes are anything
but standard for message boards and other web sites. To impose
liability here would contravene Congress's intent and eviscerate
Section 230 immunity.
In a related argument, UCS argues that Lycos has provided
"culpable assistance" to subscribers wishing to disseminate
misinformation, and hence Lycos exceeded the bounds of Section 230
immunity. UCS draws an analogy to the copyright case of MGM
Studios, Inc. v. Grokster, Ltd., 125 S. Ct. 2764 (2005). In
Grokster, the Supreme Court held that copyright liability could be
premised on a theory of active inducement of infringement, so that
"one who distributes a device with the object of promoting its use
to infringe copyright, as shown by clear expression or other
affirmative steps taken to foster infringement, is liable for the
resulting acts of infringement by third parties." Id. at 2770.
-17-
UCS argues that, similarly, Lycos should enjoy no immunity if it
actively induces its subscribers to post unlawful content.
It is not at all clear that there is a culpable
assistance exception to Section 230 immunity. The language of
"culpable assistance" used by UCS appears to have been drawn from
Doe v. GTE Corp., 347 F.3d 655, 659 (7th Cir. 2003). But that
court used the language in the context of determining whether the
defendant might be secondarily liable under the Electronic
Communications Privacy Act of 1986 (ECPA), Pub. L. No. 99-508, 100
Stat. 1848 (codified as amended in scattered sections of 18
U.S.C.). We note that liability under the ECPA is specifically
exempted from Section 230 immunity. See 47 U.S.C. § 230(e)(4).
There is no ECPA claim here. Similarly, Grokster itself was a
copyright case, and secondary liability for copyright infringement
is not affected by Section 230 because intellectual property laws
are also exempted. See id. § 230(e)(2).
We need not decide whether a claim premised on active
inducement might be consistent with Section 230 in the absence of
a specific exception. Even assuming arguendo that active
inducement could negate Section 230 immunity, it is clear that UCS
has not alleged any acts by Lycos that come even close to
constituting the "clear expression or other affirmative steps taken
to foster" unlawful activity that would be necessary to find active
inducement. See Grokster, 125 S. Ct. at 2770. UCS relies in part
-18-
on Lycos's registration process and link structure; as described
above, these are standard elements of web sites "with [both] lawful
and unlawful potential," see id. at 2780, and hence, without more,
cannot form the basis to find inducement. UCS's complaint also
cites the fact that Lycos has taken legal action to protect its
subscribers, including moving to quash subpoenas and intervening in
relevant cases. Actions taken to protect subscribers' legal
rights, however, cannot be construed as inducement of unlawful
activity, and UCS does not allege that Lycos lacked a reasonable
basis for its legal activities. Cf. Prof'l Real Estate Investors,
Inc. v. Columbia Pictures Indus., Inc., 508 U.S. 49, 51 (1993)
("[L]itigation cannot be deprived of [antitrust] immunity as a sham
unless the litigation is objectively baseless."). The
"unmistakable" evidence of an "unlawful objective" found in
Grokster, 125 S. Ct. at 2782, is entirely absent here.3
Thus, it is clear that, taking UCS's allegations as true,
Lycos has done nothing in this case that might make the
3
UCS also argues that because it bases its claims on Lycos's
alleged "intentional misconduct," those claims are not subject to
Section 230 immunity. It is not clear how UCS is using the phrase
"intentional misconduct." If this refers to Lycos's acting
intentionally with knowledge of the third-party misinformation,
then such claims are barred under our holding that notice does not
preclude Section 230 immunity. If this refers to Lycos's acting
with intent to harm UCS, then this is a variant on an active
inducement theory, which, as we have described, has no basis in
UCS's factual allegations.
-19-
misinformation at issue its own, rather than that of "another
information content provider."
3. Treatment "as the Publisher"
Finally, liability under either the Florida securities
law or the Florida cyberstalking law would involve treating Lycos
"as the publisher" of the misinformation.4 UCS's securities claims
are based on the theory that individuals were taking a short
position in UCS stock and then spreading misinformation to depress
the stock price, so as to profit from their short position.5 There
is no allegation that Lycos has been involved in any UCS stock
transactions; thus, any liability against it must be premised on
imputing to it the alleged misinformation, that is, on treating it
4
On the federal cyberstalking claim under 47 U.S.C. § 223, in
addition to finding the claim barred by Section 230, the district
court also found that the cyberstalking statute does not provide a
private right of action. UCS does not challenge this dispositive
ruling on appeal, so we affirm the dismissal of the claim on that
basis, expressing no view on the appropriateness of applying
Section 230 immunity to a putative civil claim under 47 U.S.C.
§ 223. See 47 U.S.C. § 230(e)(1) ("Nothing in this section shall
be construed to impair the enforcement of section 223 or 231 of
this [title 47], . . . or any other Federal criminal statute."
(emphasis added)).
Nor do we express a view on whether the specific exception in
§ 230(e)(1) for federal criminal statutes might apply to analogous
state statutes. UCS's brief might be read to suggest something
along these lines, but "issues adverted to in a perfunctory manner,
unaccompanied by some effort at developed argumentation, are deemed
waived." United States v. Zannino, 895 F.2d 1, 17 (1st Cir. 1990).
5
To take a short position in a stock means to sell borrowed
stock at the current price in the hope that the stock price will
decline and the borrower will be able to return the borrowed stock
by purchasing it at the later, lower price.
-20-
as the publisher of that information.6 Similarly, the alleged
cyberstalking involves only the publication of a series of postings
on the Raging Bull web site. Again, Lycos's liability would depend
on treating it as the publisher of those postings.
UCS argues that the prohibition against treating Lycos
"as the publisher" only immunizes Lycos's "exercise of a
publisher's traditional editorial functions -- such as deciding
whether to publish, withdraw, postpone or alter content," Zeran,
129 F.3d at 330, and not its decisions regarding the "construct and
operation" of its web sites. This argument misapprehends the scope
of Section 230 immunity. If the cause of action is one that would
treat the service provider as the publisher of a particular
posting, immunity applies not only for the service provider's
decisions with respect to that posting, but also for its inherent
decisions about how to treat postings generally. UCS is ultimately
alleging that the construct and operation of Lycos's web sites
contributed to the proliferation of misinformation; Lycos's
decision not to reduce misinformation by changing its web site
policies was as much an editorial decision with respect to that
misinformation as a decision not to delete a particular posting.
Section 230 immunity does not depend on the form that decision
takes. See Green v. Am. Online (AOL), 318 F.3d 465, 470 (3d Cir.
6
We express no view on the viability of such a claim, absent
Section 230 immunity.
-21-
2003) (finding that liability for the "alleged negligent failure to
properly police [AOL's] network for content transmitted by its
users . . . would 'treat' AOL 'as the publisher or speaker' of that
content").
We hold that, given the allegations in UCS's complaint,
liability for Lycos under either the Florida securities statute or
the Florida cyberstalking statute would involve treating Lycos "as
the publisher" of "information provided by another information
content provider." Thus, we affirm the district court's ruling
that both claims are barred by Section 230.
B. Trademark Dilution
UCS's remaining claim against Lycos was brought under
Florida trademark law, alleging dilution of the "UCSY" trade name
under Fla. Stat. § 495.151. Claims based on intellectual property
laws are not subject to Section 230 immunity. See 47 U.S.C.
§ 230(e)(2) ("Nothing in this section shall be construed to limit
or expand any law pertaining to intellectual property."); see also
Gucci Am., Inc. v. Hall & Assocs., 135 F. Supp. 2d 409, 413
(S.D.N.Y. 2001) (finding that the "plain language of Section
230(e)(2) precludes [the defendant's] claim of immunity" from a
claim for trademark infringement).
Thus, "the pivotal issue for consideration here is
whether Plaintiff's complaint would withstand a motion to dismiss
even in the absence of § 230." Id. at 412. We hold that, because
-22-
of the serious First Amendment issues that would be raised by
allowing UCS's claim here, the claim would not survive, even in the
absence of Section 230.7
During the relevant time period, Fla. Stat. § 495.151(2006) provided that one who adopts and uses a trademark or trade
name has a cause of action
to enjoin subsequent use by another of the
same or any similar mark [or] trade name . . .
if it appears to the court that there exists a
likelihood of injury to business reputation or
of dilution of the distinctive quality of the
mark [or] trade name . . . of the prior user,
notwithstanding the absence of competition
between the parties or of confusion as to the
source of goods or services.8
UCS's theory is that Lycos is liable under this statute for
suggesting to its subscribers that they use the "'UCSY' mark for
designation of a message board on the Raging Bull web site" and
then "contribut[ing] to the development" of misinformation on that
message board and failing to remove such misinformation. UCS
7
After noting the same First Amendment concerns, the district
court held that UCS's trademark claim was "effectively . . . a
defamation claim in the guise of an antidilution claim," and that
"Lycos and Terra would therefore be shielded from [the claim] by
CDA immunity." We reason somewhat differently, holding that even
though Section 230 immunity does not apply, the claim was properly
dismissed as a matter of trademark law.
8
The statute has since been amended, effective January 1,
2007, and now applies only to "a mark that is famous in this
state." Fla. Stat. § 495.151 (2007). The new statute contains an
explicit exception for "[n]oncommercial use of the mark." Id.§ 495.151(3)(b). Our discussion below would apply equally to the
new statute.
-23-
alleges that these acts have caused injury to its business
reputation and dilution of its UCSY trade name.
The injury that UCS alleges, however, is not a form of
trademark injury. Trademark injury arises from an improper
association between the mark and products or services marketed by
others. See L.L. Bean, Inc. v. Drake Publishers, Inc., 811 F.2d
26, 31 (1st Cir. 1987). But any injury to UCS ultimately arises
from its being criticized on the Raging Bull site. To premise
liability on such criticism would raise serious First Amendment
concerns. See id. at 33. In L.L. Bean, this court held that the
"application of the Maine anti-dilution statute to [defendant's]
noncommercial parody cannot withstand constitutional scrutiny"
under the First Amendment, recognizing the role of parody "as a
form of social and literary criticism." Id. (quoting Berlin v.
E.C. Publ'ns, Inc., 329 F.2d 541, 545 (2d Cir. 1964)) (internal
quotation marks omitted). In that case, as in this one, "[i]f the
anti-dilution statute were construed as permitting a trademark
owner to enjoin the use of his mark in a noncommercial context
found to be negative or offensive, then a corporation could shield
itself from criticism by forbidding the use of its name in
commentaries critical of its conduct." Id.To be sure, UCS does allege that in this case the
criticism is false and misleading. But while such an allegation
might be relevant to a defamation claim, it is not determinative of
-24-
whether UCS's allegations can support a trademark claim. If the
injury alleged is one of critical commentary, it falls outside
trademark law, whether the criticism is warranted or unwarranted.
UCS itself makes no distinction between lawful and unlawful
criticism in its proposed remedy under trademark law: it requests
an injunction that would require Lycos to "permanently and
irrevocably delete the UCSY message board" and refrain "from
creat[ing] and maintaining . . . a UCSY message board . . . in the
future."
UCS tries to avoid the thrust of cases like L.L. Bean by
characterizing Lycos's use of the UCSY trade name as "commercial."
It certainly appears from the complaint that Lycos derives
advertising revenues from the use of its web sites, including
Raging Bull, and that Lycos is a commercial venture. This does not
imply, however, that Lycos's use of the UCSY trade name is
"commercial" in the relevant sense under trademark law. In L.L.
Bean, the defendant had used the plaintiff's trademark in a parody
article published in a "monthly periodical." 811 F.2d at 27. We
found the use noncommercial because the mark had not been used "to
identify or promote goods or services to consumers," id. at 32,
regardless of whether the article appeared in a magazine being sold
for profit. Similarly, courts have interpreted the "noncommercial
use" exemption in the Federal Trademark Dilution Act, 15 U.S.C.
§ 1125(c), to apply to commentary about trademarked products, even
-25-
if that commentary takes the form of a commercial product, such as
a widely-marketed song. See Mattel, Inc. v. MCA Records, Inc., 296
F.3d 894, 899, 907 (9th Cir. 2002). Thus, Lycos might profit by
encouraging others to talk about UCS under the UCSY name, but
neither that speech nor Lycos's providing a forum for that speech
is the type of use that is subject to trademark liability.
Other courts have dealt with similar issues under the
rubric of a "nominative fair use defense." New Kids on the Block
v. News Am. Publ'g, Inc., 971 F.2d 302, 308 (9th Cir. 1992).
Unlike a classic fair use defense, "where the defendant has used
the plaintiff's mark to describe the defendant's own product," a
nominative fair use defense is designed to protect the ability of
others to use a mark "to describe the plaintiff's product." Id.Thus, the Ninth Circuit found that a newspaper's use of a musical
group's trademarked name to conduct a poll about the group was a
nominative fair use, even though the poll was conducted for profit.
See id. at 309.
This court has not previously decided whether to endorse
the Ninth Circuit's test for nominative fair uses, and we have no
occasion to do so here. We have, however, recognized the
underlying principle. In WCVB-TV v. Boston Athletic Ass'n, 926
F.2d 42 (1st Cir. 1991), the owner of the mark "Boston Marathon"
tried to enjoin the use of the mark on an unlicensed broadcast of
-26-
the marathon. Id. at 44. In rejecting a right to such an
injunction, we noted
[T]he words "Boston Marathon" . . . do more
than call attention to Channel 5's program;
they also describe the event that Channel 5
will broadcast. . . . [T]he use of words for
descriptive purposes is called a "fair use,"
and the law usually permits it even if the
words themselves also constitute a trademark.
Id. at 46. The unlicensed broadcaster, Channel 5, was not
asserting a right to use the mark for a different marathon located
in Boston; it was using the mark to indicate that it was
broadcasting the "Boston Marathon." We held that it had the right
to use the mark to indicate what it was in fact broadcasting.
Similarly here, trademark law should not prevent Lycos from using
the "UCSY" mark to indicate that a particular company is the
subject of a particular message board.
While Florida courts do not appear to have addressed this
particular issue with respect to the Florida anti-dilution statute,
there is every indication that the Florida courts would read the
Florida statute to exclude the uses made in this case. Despite its
broad language, "the Florida antidilution statute is not intended
to apply to the use of a similar mark on similar goods," but rather
only to the use of "similar marks on dissimilar products."
Harley-Davidson Motor Co. v. Iron Eagle of Cent. Fla., Inc., 973 F.
Supp. 1421, 1426 (M.D. Fla. 1997). Lycos is not using the "UCSY"
-27-
trade name "on" a product (or business) at all, but is simply
referring to the existing company that has adopted that trade name.
It is not our role to define the specific contours of the
Florida anti-dilution law, and we do not do so here. As other
courts have also found, however, anti-dilution laws should be
interpreted to provide breathing room for First Amendment concerns.
See MCA Records, 296 F.3d at 904. Whether Lycos's use of the
"UCSY" trade name is viewed as a noncommercial use, as a nominative
use, or in some other way, we hold that using a company's trade
name to label a message board on which the company is discussed is
not a use covered by the Florida anti-dilution statute. As a
result, we affirm the district court's dismissal of UCS's dilution
claim for failure to state a claim.
C. Discovery
UCS argues that its claims against Lycos would not have
fared so poorly had the district court given it the opportunity to
conduct preliminary discovery. We review this claim for an abuse
of the district court's broad discretion in managing discovery, and
we will not "interfere unless it clearly appears that a 'discovery
order was plainly wrong and resulted in substantial prejudice to
the aggrieved party.'" Dynamic Image Techs., Inc. v. United
States, 221 F.3d 34, 38 (1st Cir. 2000) (quoting Mack v. Great Atl.
& Pac. Tea Co., 871 F.2d 179, 186 (1st Cir. 1989)).
-28-
At the outset, UCS may well have forfeited this point by
failing to explain to the district court its need for discovery
either in its opposition to the motions to dismiss or at the
October 11, 2005 hearing on those motions. See id. UCS argues
that the need for discovery was apparent from its request at the
July 26, 2005 hearing, together with the nature of the arguments
made at the October 11 hearing, but it was not the district court's
job to infer an explanation from these scattered statements.
In any event, it is clear that even before this court,
UCS has not pointed to any discovery that would support a viable
claim against Lycos that falls outside of Section 230 immunity.9
Cf. id. at 39. UCS focuses on discovery concerning the "construct
and operation" of Lycos's web sites, but as we have explained
above, Lycos is as entitled to immunity for its decisions about how
to construct its web sites as for its decisions with respect to
individual message board postings. Any suggestion that Lycos may
have done more specifically to encourage the postings at issue is
sheer speculation. "[P]laintiffs should not be permitted to
conduct fishing expeditions in hopes of discovering claims that
9
UCS does argue that discovery as to the identity (and
citizenship) of the persons using particular screen names to post
the allegedly unlawful comments would have allowed it to stave off
the district court's jurisdictional dismissal. Since we affirm the
dismissal on alternate grounds below, we need not address the
propriety of such discovery.
-29-
they do not know they have." McCloskey, 446 F.3d at 271. The
district court did not err in not permitting preliminary discovery.
III.
The remaining issue concerns UCS's claims against the
individual posters: Villasenor and six John Does. The district
court found that it lacked subject matter jurisdiction over these
claims because the putative federal claim was insubstantial, and
because the presence of John Does destroyed diversity
jurisdiction.10 We bypass the jurisdictional issues raised and
hold, on similar reasoning, that UCS's allegations are insufficient
to plead a claim for securities fraud.11
10
The presence of John Does does not destroy diversity
jurisdiction in cases removed to federal court. See 28 U.S.C.
§ 1441(a) ("For purposes of removal under this chapter, the
citizenship of defendants sued under fictitious names shall be
disregarded."); see also Howell v. Tribune Entm't Co., 106 F.3d
215, 218 (7th Cir. 1997). Federal courts do not agree on whether
John Does are permitted in diversity cases originally filed in
federal court, as this case was. Compare Howell, 106 F.3d at 218(no) with Macheras v. Ctr. Art Galleries-Hawaii, Inc., 776 F. Supp.
1436, 1440 (D. Haw. 1991) (yes). The First Circuit has never
directly addressed this issue, nor do we do so here. See McMann v.
Doe, 460 F. Supp. 2d 259, 264 (D. Mass. 2006).
11
The Supreme Court has held that courts must resolve issues
of Article III jurisdiction before reaching questions on the
merits, even if "(1) the merits question is more readily resolved,
and (2) the prevailing party on the merits would be the same as the
prevailing party were jurisdiction denied." Steel Co. v. Citizens
for a Better Env't, 523 U.S. 83, 93-94 (1998). However, the rule
is well established in this circuit that "while Article III
jurisdictional disputes are subject to Steel Co., statutory
jurisdictional disputes are not." Restoration Pres. Masonry, Inc.
v. Grove Eur. Ltd., 325 F.3d 54, 59 (1st Cir. 2003). Article III
requires only "minimal diversity" for jurisdiction based on
diversity of citizenship, that is, "two adverse parties [who] are
-30-
UCS's theory of securities fraud appears to be, as we
have described, that Villasenor and the John Does first took short
positions in UCS stock and then spread misinformation to depress
the stock price. Cf. SEC v. Mandaci, No. 00 Civ. 6635, 2004 U.S.
Dist. LEXIS 19143, at *1 (S.D.N.Y. Sept. 27, 2004) (describing
scheme to "purchase[] certain stocks and then . . . artificially
inflate the market prices of those stocks by posting false
information . . . on Internet message boards"). However, UCS does
not sufficiently allege such a scheme. UCS's Second Amended
Complaint contains copious allegations regarding the postings on
Raging Bull, but as to a short-selling scheme, only a single
allegation that "[u]pon information and belief," the individual
defendants "fraudulently manipulate[d] the market in the securities
for publicly traded companies" using a short-selling scheme.
Nowhere does the complaint specifically allege UCS stock
transactions by the defendants.
Such a conclusory allegation of securities fraud runs
afoul of the requirement of Federal Rule of Civil Procedure 9(b) to
plead "the circumstances constituting fraud . . . with
not co-citizens." State Farm Fire & Cas. Co. v. Tashire, 386 U.S.
523, 530-31 (1967). In this case, Villasenor, a citizen of
California, is diverse from Universal Communication Systems, a
Nevada corporation with its principal place of business in Florida.
Thus, the district court did have Article III jurisdiction over the
claims in the Second Amended Complaint filed by UCS.
-31-
particularity."12 Not only has UCS failed to specifically allege
a connection between the postings and a scheme involving UCS stock,
the sole allegation of a short-selling scheme is made on
information and belief. "Where allegations of fraud are explicitly
or . . . implicitly based only on information and belief, the
complaint must set forth the source of the information and the
reasons for the belief." Romani v. Shearson Lehman Hutton, 929
F.2d 875, 878 (1st Cir. 1991). UCS has not done so here. UCS does
not purport to state a claim for securities fraud based solely on
negative effects that the Raging Bull postings had on the company's
stock price; in the absence of further factual allegations, it
cannot proceed merely on the hope that it will find more. See
Hayduk v. Lanna, 775 F.2d 441, 443 (1st Cir. 1985).
Finally, these pleading defects are also fatal to UCS's
claims under state law based on the same allegations. "Although
state law governs the burden of proving fraud at trial, the
procedure for pleading fraud in federal courts in all diversity
suits is governed by the special pleading requirements of Federal
Rule of Civil Procedure 9(b)." Id.12
To the extent applicable, the pleadings also fall short of
the standard required by the Private Securities Litigation Reform
Act of 1995, 15 U.S.C. § 78u-4, which we have held to embody "at
least the standards of Rule 9(b)." Greebel v. FTP Software, Inc.,
194 F.3d 185, 193 (1st Cir. 1999).
-32-
IV.
Therefore, while some of UCS's claims are barred by
Section 230 immunity, the remaining ones simply do not state a
claim based on the facts alleged. If UCS has in fact been injured,
redress is not available through any of the avenues it has chosen
to pursue in this case. The district court's dismissal of all
claims is affirmed. Costs are awarded to appellees.
-33-