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.

from Blogger https://ift.tt/3nHCBG1

This entry was posted in Uncategorized and tagged , , . Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s