• by Wendy Davis  @wendyndavis, June 10, 2024

A federal appellate court has revived a lawsuit by two Meta Platforms users who say they lost money after responding to fraudulent ads on Facebook.

The ruling, issued last week by a three-judge panel of the 9th Circuit Court of Appeals, allows Oregon resident Christopher Calise and Nebraska resident Anastasia Groschen to attempt to prove that the company violated its terms of service by allegedly failing to police Facebook ads placed by third parties.

The decision stems from a lawsuit brought by Calise and Groschen in 2021, when they accused the company of soliciting fraudulent ads from advertisers based in China. Calise alleged that he lost around $49 after attempting to purchase a car-engine assembly kit that was advertised on the site, while Groschen said she lost around $31 after attempting to purchase an advertised activity board for her toddler.

U.S. District Court Judge Jeffrey White in the Northern District of California dismissed the complaint in 2022, ruling that Section 230 of the Communications Decency Act protects Meta Platforms from liability over ads created by outside companies. Section 230 broadly protects web companies from lawsuits over posts by third parties, but with some exceptions -- including one that applies when web companies develop illegal content.

Lawyers for Calise and Groschen then asked the 9th Circuit to revive their class-action complaint, arguing that Meta's Facebook “facilitated the publication of illegal ads,” and therefore wasn't entitled to rely on Section 230. They specifically alleged that Facebook solicited ad sales in China despite an internal study allegedly showing nearly 30% of ads placed by China-based advertisers violated a Facebook policy, and that Facebook encouraged lax enforcement of its ad policies.

The 9th Circuit judges partially ruled for Meta on that point, writing that soliciting ad sales and assisting advertisers are “neutral” activities that don't amount to developing fraudulent content.

“Without more allegations of Meta’s contribution, its 'solicitation' or 'assistance' for advertisers -- a fundamental part of Meta’s business model and that of countless other internet companies -- does not undo [Section 230's] protections,” Circuit Judge Ryan Nelson wrote in an opinion joined by Eugene Siler and Jacqueline Nguyen.

But the judges also said Section 230 wouldn't protect Meta from claims that it broke its contract with users by violating its own terms of service, which allegedly included an enforceable promise to moderate third-party ads.

The judges, however, also said in a footnote that it's not clear whether the terms of service actually created an enforceable contract, adding that a trial judge should decide that question.

Santa Clara University law professor Eric Goldman predicts that Calise and Groschen won't be able to prove a breach of contract claim when the matter returns to the district court.

“I’m pretty sure Facebook says in many different ways that it doesn’t promise any freedom from scammy ads,” Goldman writes in a blog post about the ruling. “The contract claim is almost certainly going to fall apart on remand,” he adds.