Universal Communication v. Lycos, Inc.

• Decision Date: 23 February 2007
• Docket Number: No. 06-1826.,06-1826.
• Citation: 478 F.3d 413
• Parties: 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.
• Court: U.S. Court of Appeals — First Circuit

478 F.3d 413

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.

No. 06-1826.

United States Court of Appeals, First Circuit.

Heard November 7, 2006.

Decided February 23, 2007.

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.

Before BOUDIN, Chief Judge, SELYA and LYNCH, Circuit Judges.

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.

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.

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 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 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 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 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...