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)

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

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?

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