15‐1009‐cv FTC v. LeadClick Media, LLC

UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT

August Term 2015

(Argued: June 3, 2016 Decided: September 23, 2016)

Docket Nos. 15‐1009‐cv, 15‐1014‐cv

FEDERAL TRADE COMMISSION, STATE OF CONNECTICUT,

Plaintiffs‐Appellees,

v.

LEADCLICK MEDIA, LLC , successor to LeadClick Media, Inc., CORELOGIC, INC.,

Defendants‐Appellants,

LEANSPA, LLC, a Connecticut limited liability company, NUTRASLIM, LLC, a Connecticut limited liability company, NUTRASLIM U.K. LIMITED, a United Kingdom limited liability company, DBA LeanSpa U.K. LTD, BORIS MIZHEN, individually and as an officer of LeanSpa, LLC, NutraSlim, LLC, and NutraSlim U.K. LTD, RICHARD CHIANG, individually and as an officer of LeadClick Media, Inc., ANGELINA STRANO, Relief Defendant,

Defendants.

 The Clerk of Court is respectfully directed to amend the official caption to conform to the above.

ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF CONNECTICUT

Before: HALL, LYNCH, AND CHIN, Circuit Judges.

Consolidated appeals from a judgment of the United States District

Court for the District of Connecticut (Hall, C.J.), granting summary judgment in

favor of plaintiffs‐appellees the Federal Trade Commission and the State of

Connecticut. Defendant‐appellant LeadClick, LLC challenges the district courtʹs

rulings that (1) it is liable for deceptive practices under the Federal Trade

Commission Act and the Connecticut Unfair Trade Practices Act and (2) it is not

entitled to immunity under Section 230 of the Communications Decency Act.

Defendant‐appellant CoreLogic, Inc., LeadClick LLCʹs parent company,

challenges the district courtʹs ruling that it is liable as a relief defendant for the

obligations of LeadClick, LLC.

AFFIRMED IN PART, REVERSED IN PART, AND REMANDED.

WALTER P. LOUGHLIN (David R. Fine, Elisa J. DʹAmico, Paul F. Hancock, David A. Bateman, on the brief), K&L Gates LLP, New

‐ 2 ‐ York, NY, Harrisburg, PA, Miami, FL, and Seattle, WA, for Defendant‐Appellant LeadClick Media, LLC.

JONATHAN D. HACKER (Anton Metlitsky, Burden H. Walker, on the brief), OʹMelveny & Myers LLP, Washington, D.C. and New York, NY, for Defendant‐Appellant CoreLogic, Inc.

MICHELE ARINGTON, Assistant General Counsel (Jonathan E. Nuechterlein, General Counsel, Joel Marcus, Director of Litigation, on the brief), Office of the General Counsel, Federal Trade Commission, Washington, D.C., for Plaintiff‐Appellee Federal Trade Commission.

George Jepsen, Attorney General, Jonathan J. Blake, Matthew F. Fitzsimmons, Assistant Attorney Generals, Office of the Attorney General, Hartford, CT, for Plaintiff‐Appellee State of Connecticut. Thomas M. Hefferon, William M. Jay, Goodwin Procter LLP, Washington, D.C., for Amici Curiae United States Chamber of Commerce, Consumer Mortgage Coalition, Consumer Data Industry Association, Independent Community Bankers of America, Mortgage Bankers Association, National Consumer Reporting Association, and Real Estate Providers Council.

CHIN, Circuit Judge:

In this case, plaintiffs‐appellees the Federal Trade Commission (the

ʺFTCʺ) and the State of Connecticut (the ʺStateʺ) seek to hold defendant‐appellant

‐ 3 ‐ LeadClick Media, LLC (ʺLeadClickʺ) liable for its role in the use of deceptive

websites to market weight loss products. LeadClick managed a network of

affiliates ‐‐ known as ʺpublishersʺ ‐‐ to advertise on the internet products of its

merchant client, LeanSpa, LLC and related entities (collectively, ʺLeanSpaʺ).

Some of these affiliates created deceptive websites, falsely claiming that

independent testing confirmed the efficacy of the products. The FTC and the

State brought this action below, asserting claims against LeadClick under

Section 5 of the Federal Trade Commission Act (the ʺFTC Actʺ),

(a)(1), and the Connecticut Unfair Trade Practices Act (ʺCUTPAʺ), C.G.S.A.

§ 42‐110b(a). The FTC also filed a claim against defendant‐appellant CoreLogic,

Inc. (ʺCoreLogicʺ), LeadClickʹs parent company, as a relief defendant.

The district court (Hall, C.J.) granted summary judgment in favor of

the FTC and the State, holding that (1) LeadClick violated the FTC Act and

CUTPA as a matter of law, and (2) LeadClick was not entitled to immunity under

Section 230 of the Communications Decency Act (the ʺCDAʺ). It also ordered

CoreLogic to disgorge money that it had received from LeadClick.

We affirm the district courtʹs grant of summary judgment for the

FTC and the State with respect to the claims against LeadClick, reverse as to the

‐ 4 ‐ claim ag gainst CorreLogic, an nd remand d with instrructions to o the distriict court to o

enter ju udgment in n favor of C CoreLogic.

BACK KGROUN ND

I. The T Facts

The ffacts are la argely undisputed an nd may be summarizzed as follo ows.

A. A Lead dClick

1. LeadClicckʹs Busineess Model

Untill ceasing o operations in 2011, LeeadClick o operated an n affiliate‐‐

marketiing networrk to proviide adverttising in in nternet com mmerce. L LeadClick

arrangeed for adveertising forr its merch hant clientss by conneecting them m to third‐

party pu ublishers ‐‐‐ affiliatess ‐‐ who ad dvertised th he merchaantʹs produ ucts. The

affiliatees advertiseed produccts in a variety of way ys, includiing email m marketing g,

banner ads, search h‐engine p placement,, and creatting adverttising web bsites.

LeadCliick manag ged the affiiliate netw work throug gh trackin ng softwaree, referred to

as ʺHitP Path,ʺ that would ʺtrrack the flo ow of traffiic from eacch individual affiliatteʹs

marketiing websitte to the m merchantʹs w website wh hile remain ning invisible to the

consum mer.ʺ J. App. at 986 ¶ ¶¶ 120‐21.

‐ 5 ‐ In 2011, LeadClick employed a staff of eight to ten people in its

ʺeAdvertisingʺ division. Some of those employees worked as affiliate managers,

managing relationships with affiliate marketers, while others worked as account

managers, managing relationships with merchants. Affiliate managers were

responsible for scouting and recruiting new affiliates, researching affiliates, and

matching affiliates with particular merchant offers. LeadClick would review and

control which affiliates were selected to provide online advertising for each

merchantʹs offer.

Independent from its eAdvertising affiliate network business,

LeadClick engaged in ʺmedia buyingʺ by purchasing advertisement space for

banner advertisements from well‐known websites. After LeadClick purchased

media space, it would resell the space, sometimes to affiliate marketers, at a

markup.

2. LeadClickʹs Relationship with LeanSpa

In August 2010, an eAdvertising account manager contacted

LeanSpa to solicit business, suggesting that ʺLeanSpa could be a great fit in the

eAds network.ʺ J. App. at 714‐15a. LeanSpa, an internet retail business, sold

purported weight‐loss and colon‐cleanse products under various brand names.

‐ 6 ‐ LeanSpa hired LeadClick to provide online advertising through its affiliate

network in September 2010.

Pursuant to their contractual arrangement, LeanSpa was to pay

LeadClick a set amount ‐‐ typically $35 to $45 ‐‐ each time a publisherʹs

advertisement directed an online consumer to LeanSpaʹs landing page and that

consumer enrolled in LeanSpaʹs free‐trial program (referred to herein as an

ʺactionʺ).1 This arrangement was commonly referred to in the affiliate marketing

industry as a cost per action (ʺCPAʺ) agreement. LeadClick was responsible for

paying 80 to 90 percent of the amount it charged LeanSpa per action to the

publisher under separate CPA agreements with its affiliate marketers. LeadClick

would retain the difference as compensation for its role connecting merchants

with its affiliate network and managing those affiliates.

To keep track of individual actions, LeadClick provided a unique

link to its affiliate marketers for use in LeanSpa advertisements. When

customers clicked on that link, they would unknowingly be routed through the

1 Once customers enrolled in the ʺfree trialʺ offer, LeanSpa would deceptively enroll them in automatic credit card billing following the trial period. This practice drew the attention of the FTC, which investigated and filed an action against LeanSpa prior to discovering LeadClickʹs involvement.

‐ 7 ‐ HitPath server to the LeanSpa website. The HitPath server would record

information on the customer, including the specific affiliate that directed the

consumer to LeanSpa. The data was then used by LeadClick to determine the

total number of actions for which it could charge LeanSpa and its corresponding

contractual liability to the individual affiliates responsible for those actions.

Because both LeadClick and its affiliate marketers profited per action generated,

they were incentivized to maximize consumer traffic to LeanSpaʹs websites.

As the business relationship progressed, LeadClick became

LeanSpaʹs primary marketing network, and LeanSpa became LeadClickʹs ʺtop

customer.ʺ J. App. at 343a; 908a; 1016a. By 2011, LeanSpa offers represented

approximately 85 percent of all eAdvertising division sales.

In total, LeadClick billed LeanSpa $22 million over the course of

their contractual agreement. LeanSpa was chronically behind on its payments to

LeadClick: LeanSpa owed LeadClick $6.4 million by March 2011 and

approximately $10 million by June 2011. LeanSpa ultimately paid LeadClick

$11.9 million, approximately half of its outstanding bill.

In accordance with industry practice, LeadClick paid its publishers

before it received payment from LeanSpa. Despite LeanSpaʹs steep outstanding

‐ 8 ‐ balance, LeadClick continued to pay its affiliate marketers for advertising

LeanSpa products online. In September of 2011, LeadClick terminated its

business arrangement with LeanSpa.

3. LeadClickʹs Involvement in the Use of Fake News Sites to Market LeanSpa Products

Certain affiliates hired by LeadClick used fake news sites to market

LeanSpa products. These fake news sites, which were common in the industry at

the time, looked like genuine news sites: they had logos styled to look like news

sites and included pictures of supposed reporters next to their articles. The

articles generally represented that a reporter had performed independent tests

that demonstrated the efficacy of the weight loss products. The websites also

frequently included a ʺconsumer commentʺ section, where purported

ʺconsumersʺ praised the products. But there were no consumers commenting ‐‐

this content was invented.

The vast majority of internet traffic to LeanSpaʹs websites from

LeadClickʹs affiliate network came from fake news sites. The FTC investigator

who reviewed spreadsheets produced by LeadClick, which documented traffic to

LeanSpaʹs website from LeadClick affiliates, found that all of the 24 identifiable

‐ 9 ‐ affiliate websites that sent 1,000 or more consumers through LeadClickʹs affiliate

network were fake news sites.

While LeadClick did not itself create fake news sites to advertise

products, as discussed below, it (1) knew that fake news sites were common in

the affiliate marketing industry and that some of its affiliates were using fake

news sites, (2) approved of the use of these sites, and, (3) on occasion, provided

affiliates with content to use on their fake news pages.

i. LeadClickʹs Knowledge of Fake News Sites

First, LeadClick knew that fake news sites were commonplace in the

industry. For example, one eAdvertising division employee noted that in the

summer of 2010, fake news sites were ʺfairly common,ʺ J. App. at 158‐59a, while

another testified in his deposition that during his time at LeadClick, ʺeveryone

was using ʹem,ʺ id. at 235a. In conversations amongst themselves and with

affiliates and merchants, LeadClick employees occasionally discussed fake article

pages, fake news pages, and news style pages.

Second, LeadClick knew of its own affiliatesʹ use of fake news sites

to promote LeanSpaʹs products. For the LeanSpa account, a LeadClick employee

created an affiliate ʺscouting reportʺ which consisted exclusively of fake news

site names like Health8News.net, News‐Health6.com, ConsumerNews24.com,

‐ 10 ‐ BreakingNewsat6.com, and News6Access.com. One account manager testified

that he saw fake news sites from LeadClick affiliates that contained information

that was ʺnot truthful or accurate,ʺ including websites advertising LeanSpa

products. J. App. at 387a, 389a. LeadClick employees also discussed the content

of their affiliatesʹ fake news sites, such as ʺstep 1 and step 2,ʺ a typical fake news

site product pairing system, demonstrating that their awareness extended

beyond general knowledge. See J. App. at 800a.

ii. LeadClickʹs Approval of Affiliatesʹ Fake News Sites

LeadClick employees also affirmatively approved of the use of fake

news sites: One LeadClick employee told an affiliate interested in marketing

LeanSpa offers that ʺNews Style landers are totally fineʺ followed by two

punctuation marks commonly united to represent a smiley face. J. App. at 761a.

Another employee told a potential new client that ʺ[a]ll of our traffic would be

through display on fake article pages.ʺ Id. at 750a (emphasis added). LeadClickʹs

standard contract with affiliate marketers required affiliate marketers to submit

their proposed marketing pages to LeadClick for approval before they were

used.

‐ 11 ‐ iii. LeadClick Requested Edits to the Content of Fake News Sites

Finally, on occasion, LeadClick employees requested content edits to

some of its affiliates using fake news sites. When LeanSpa informed LeadClick

of certain requirements for its advertisements, LeadClick provided these

requirements to affiliates and would review proposed advertisements for

compliance with LeanSpaʹs requirements. For example, when LeanSpa noticed

that some of the affiliate marketers were pairing a LeanSpa ʺstep 1ʺ product with

another merchantʹs ʺstep 2ʺ on fake news sites, it informed LeadClick of a new

LeanSpa product that should be used for ʺstep 2ʺ and LeadClick ordered its

affiliates to implement that change in their fake news websites. J. App. at 800‐

801a.

In one instance, after hearing of a state action against another

network for false advertising, a LeadClick employee reached out to an affiliate to

ʺmake sure all [his] pages [were] set up good[,] like no crazy [misleading] info.ʺ

J. App. at 231a. The affiliate responded that he was removing references to his

page being a ʺnews siteʺ and thinking of ʺremoving the reporter picsʺ from the

site to be safe. Id. at 230‐31a. The LeadClick employee advised him not to stop

using the fake reporterʹs picture, but to ʺjust add [the term] advertorial.ʺ J. App.

‐ 12 ‐ at 231‐32a. In a later online conversation, the LeadClick employee advised the

affiliate to delete references to acai berry on his fake news site and instead use

words like ʺspecial [ingredient], formula, secret, bla, bla, blaʺ because ʺwe

noticed a huge increase in [actions] with stuff that doesnʹt [s]ay acai.ʺ J. App. at

1015a.

Another employee sent an affiliate a list of ingredient information

about a LeanSpa product, referring to it as ʺgood content that we can use for the

pageʺ and stating ʺif we get this inserted correctly and make the page look good

we can blow this up.ʺ J. App. at 778a. Providing feedback on another affiliateʹs

page, that same employee stated that the site ʺlooks good except you CANT say

anything about a free trial.. [sic] I need that removed,ʺ id. 787a, and noted that

ʺ[i]t is much more realistic if you say that someone lost 10‐12 lbs in 4 weeks

rather than saying anything more than that,ʺ id. at 788a.

4. LeadClickʹs Media Buying on Behalf of Affiliates With Fake News Sites

In addition to providing LeanSpa access to its affiliate network,

LeadClick occasionally purchased advertising space on genuine news sites for

banner advertisements that would link to the fake news sites promoting

LeanSpaʹs products as part of its ʺmedia buyingʺ business. When soliciting

‐ 13 ‐ LeanSp paʹs businesss, a LeadC Click accou unt manag ger referred to the m media buyin ng

as a way to ʺgenerat[e] quallity traffic in very luccrative plaacements.ʺ J. App. att

714a. L occasionally identifieed fake neews sites ass destination pages ffor LeadClick o

the ban nner adverttisements w when nego otiating wiith media sellers by emailing tthe

media sseller a com mpressed v version of an affiliateeʹs page orr providing the web

addresss for the deestination page.

B. B CoreL Logic

In 20 005, CoreLo ogicʹs pred decessor, F First American Corpo oration,

togetheer with ano other publiic company, First Ad dvantage C Corporatio on (ʺFirst

Advanttageʺ), acqu uired a ma ajority inteerest in LeaadClick.2 IIn 2009, Co oreLogic aand

First Ad dvantage a acquired th he remainiing interesst in LeadC Click. Lateer that yearr,

CoreLo ogic purcha ased First A Advantagee, and chan nged its naame to Co oreLogic U.S.,

Inc. (ʺCLUSIʺ). A After the accquisition, CoreLogicc wholly o owned CLU USI directlly,

directly ow and ind wned LeadC Click throu ugh CLUSSI.

In 20 010, CoreLo ogic reorga anized its corporate structure, and

LeadCliick becamee a direct ssubsidiary y of CoreLo ogic, and aa sister com mpany to

2 First A American C Corporation n reincorpo orated and changed itss name to gic in 2010. CoreLog

‐ 14 ‐ CLUSI. During the restructuring, CoreLogic transitioned LeadClick and six of its

sister subsidiaries into a ʺshared services systemʺ to streamline and enhance back

office functions across the subsidiaries. Pl. FTCʹs Local Rule 56(a)(2) Statement in

Response to CoreLogic, Inc.ʹs Local Rule 56(a)(1) Statement (ʺFTC 56(a)(2)

Statementʺ) at ¶ 4, Federal Trade Commission v. LeanSpa, LLC, No. 3:11‐cv‐01715‐

JCH, ECF No. 309.

Shared services programs allow related entities to consolidate some

or all of their back‐office functions, such as accounting, legal and compliance,

human resources, and information technology, into a single office.

Concentrating these functions allows the companies to operate more efficiently

and reduce their administrative expenses. These programs are common in

business today ‐‐ Amici Curiae estimate that ʺmore than eighty percent of Fortune

500 companies have implemented some form of shared services in their domestic

operations.ʺ Amici Br. at 5.

As part of CoreLogicʹs shared services system, CoreLogicʹs back

office began to handle accounts payable for LeadClick and its sister subsidiaries

in January 2011. The accounts receivable process was transitioned several

months later, beginning in July 2011. After January of 2011, when LeadClick

‐ 15 ‐ accrued a payable expense, CoreLogic would make the payment directly on its

behalf, and track the payment as an advance to LeadClick. Both LeadClick and

CoreLogic intended that LeadClick would later reimburse CoreLogic for those

advances from its incoming revenue once CoreLogic transitioned LeadClickʹs

accounts receivables process to the shared services program. Pursuant to this

agreement, CoreLogic advanced approximately $13 million to pay LeadClickʹs

expenses from January through August of 2011, and recorded these expenses as

an intercompany liability. ʺ[T]here was no agreed upon repayment schedule or

repayment deadline, no security for those advances, no written loan agreement,

and no interest due in connection with the funds CoreLogic provided LeadClick

in 2011.ʺ J. App. at 38a.

Once LeadClickʹs accounts receivable system transitioned to

CoreLogic as part of the shared services agreement, CoreLogic began to recoup

its prior advances by executing daily sweeps of the revenues received by

LeadClick: Incoming funds deposited into LeadClickʹs account were

automatically swept first into an account held by CLUSI, and then directed into

an account held by CoreLogic. Through these sweeps, LeadClick repaid a total

of $8.2 million of its advance balance to CoreLogic. Half of this amount was

‐ 16 ‐ repaid in a single cash transfer on August 30, 2011 (the ʺAugust 30 Transferʺ),

when LeadClick, in transitioning its accounts receivable, withdrew $4.1 million

in customer receipts from a bank account, and deposited them into a shared

service account, which was then automatically swept to CLUSI and then

CoreLogic. This was LeadClickʹs final repayment: When it ceased operations in

September of 2011, it still owed CoreLogic approximately $8 million, and owed

its sister subsidiary CLUSI approximately $8 million under an old promissory

note.3

II. The Proceedings Below

On November 7, 2011, the FTC and the State filed a complaint in this

action against LeanSpa, NutraSlim, LLC, NutraSlim U.K., Ltd., and Boris

Mizhen, LeanSpaʹs owner, for unfair trade practices. The FTC and the State

learned of LeadClickʹs involvement in LeanSpaʹs business during discovery, and

amended their complaint on July 26, 2012 to include LeadClick and its former

officer, Richard Chiang, as defendants and Angelina Strano, Mizhenʹs wife, as a

relief defendant. The complaint was subsequently amended on August 28, 2013

3 CLUSIʹs predecessor entered into a loan agreement and promissory note with LeadClick in 2008, before LeadClick became its wholly‐owned subsidiary. That note remained partially outstanding at the time LeadClick ceased operations.

‐ 17 ‐ by the FTC to add CoreLogic as a relief defendant. The State did not join the FTC

in asserting a claim against CoreLogic. All claims except for those against

LeadClick and CoreLogic were resolved in stipulated orders before the district

court.

LeadClick and Chiang moved to dismiss, claiming immunity under

Section 230 of the CDA. The district court denied the motion on January 29,

2013, concluding that LeadClick had not established immunity. On May 5, 2014,

plaintiffs moved for summary judgment against LeadClick and CoreLogic. On

the same day, LeadClick and CoreLogic separately moved for summary

judgment.

On March 5, 2015, the district court granted plaintiffsʹ motion and

denied defendantsʹ motions. As part of that decision, the district court required

LeadClick to disgorge all proceeds that it received from LeanSpa as payment for

affiliate marketing and required CoreLogic to disgorge $4.1 million, which was

the amount that LeadClick transferred to CoreLogic in August 2011. The district

court entered final judgment in favor of plaintiffs on March 6, 2015. LeadClick

and CoreLogic filed timely notices of appeal.

‐ 18 ‐ SCUSSION DIS N

Defen ndants raise three issues on ap LeadClickʹs liability ppeal: (1) L

Section 5 of the FTC A under S Act and CU UTPA, (2) LeadClick kʹs purportted immun nity

under S Section 230 0 of the CD DA, and (3)) CoreLogiicʹs liabilitty as a relieef defendaant.

We reeview de n udgment, ʺto novo a distrrict courtʹss grant of ssummary ju

determiine whetheer the distrrict court p properly co oncluded that there was no

genuinee dispute a as to any m material facct, such thaat the mov ving party was entitlled

to judgm matter of llaw.ʺ Myerrs v. Pattersson,

(2d Cir. ment as a m

2016). W We addresss the claim ms against LeadClick k and CoreeLogic separately bellow.

I. LeadClickʹs L s Liability y

A. A FTC Act A Liabillity

1. Applicab ble Law

Sectio on 5 of thee FTC Act ʺempowerr[s] and dirrect[s]ʺ thee FTC to

nt persons,, partnersh ʺpreven hips, or corrporationss . . . from u using . . . u unfair or

deceptiv ve acts or practices iin or affectting comm merce,ʺ and d declares u unlawful

ʺunfair or deceptiive acts or practices iin or affectting comm merce.ʺ 15 U.S.C. §

‐ 19 ‐ 45(a)(1) and (a)(2).4 The FTC Act is drafted broadly to include not only

traditional anti‐trust violations but also ʺpractices that the Commission

determines are against public policy for other reasons.ʺ FTC v. Indiana Fedʹn of

Dentists,

(1986). ʺIt is important to note the generality of [this]

standard[] of illegality; the proscriptions in [Section] 5 are flexible, ʹto be defined

with particularity by the myriad of cases from the field of business.ʹʺ FTC v.

Colgate‐Palmolive Co.,

, 384‐85 (1965) (quoting FTC v. Motion Picture

Advert. Serv. Co.,

(1953)).

The FTC and the State allege that LeadClick is liable under Section 5

because it engaged in a deceptive act or practice.5 ʺTo prove a deceptive act or

practice under § 5(a)(1), the FTC must show three elements: ʹ[1] a representation,

4 CUTPA provides that ʺ[n]o person shall engage in unfair methods of competition and unfair or deceptive acts or practice in the conduct of any trade or commerce.ʺ C.G.S.A. § 42‐110b(a). The statute is interpreted consistently with the federal statute. Id. 42‐110b(b) (ʺIt is the intent of the legislature that in construing subsection (a) of this section, the commissioner and the courts of this state shall be guided by interpretations given by the Federal Trade Commission and the federal courts to Section 5(a)(1) of the [FTC] Act.ʺ); 42‐110(c) (noting that regulations may be established provided ʺ[s]uch regulations shall not be inconsistent with the rules, regulations and decisions of the federal trade commission [sic] and the federal courts in interpreting the provisions of the [FTC] Act.ʺ). Accordingly, although we discuss only the alleged violation of the FTC Act below, the analysis applies with equal force to the alleged CUTPA violation. The FTC and State of Connecticut do not assert that that LeadClick engaged in 5

an unfair trade practice.

‐ 20 ‐ omission, or practice, that [2] is likely to mislead consumers acting reasonably

under the circumstances, and [3], the representation, omission, or practice is

material.ʺ FTC v. Verity Intʹl, Ltd.,

, 63 (2d Cir. 2006) (quoting In re

Cliffdale Assocs., Inc.,

, 165 (1984)). ʺThe deception need not be

made with intent to deceive; it is enough that the representations or practices

were likely to mislead consumers acting reasonably.ʺ

The deceptive acts or

practices must be ʺlikely to cause substantial injury to consumers which is not

reasonably avoidable by consumers themselves and not outweighed by

countervailing benefits to consumers or to competition.ʺ

(n).

LeadClick argues that a defendant may be held liable under Section

5(a) for deceptive acts or practices only when a defendant creates the deceptive

content or when that content is attributable to the defendant. According to

LeadClick, because it did not create the deceptive content appearing on the false

news sites, nor was that content attributable to it, it cannot be held liable under

the FTC Act. As discussed below, we disagree that the FTC Act requires that a

defendant create deceptive content to be liable. Instead, we hold that under the

FTC Act, a defendant may be held liable for engaging in deceptive practices or

‐ 21 ‐ acts if, with knowledge of the deception, it either directly participates in a

deceptive scheme or has the authority to control the deceptive content at issue.

Both the Ninth and Eleventh Circuits have recognized that a

defendant may be liable for deceptive content even if it was not solely

responsible for a deceptive scheme. In FTC v. Neovi, Inc., the Ninth Circuit held a

check processing company liable under the FTC Act for creating and delivering

fraudulent checks drawn by its customers without proper verification, where the

company had ʺreason to believe that a vast number of checks were being drawn

on unauthorized accounts.ʺ

, 1157 (9th Cir. 2010). The defendant

argued that it could not be held liable, because its users, and not the defendant

itself, created the deceptive checks. Id. at 1155. The Ninth Circuit rejected this

argument, noting that ʺa single violation of the [FTC] Act may have more than

one perpetrator,ʺ id., and ʺbusinesses can cause direct consumer harm as

contemplated by the FTC Act in a variety of ways,ʺ id. at 1156. The check

processing company, through its own actions, ʺengaged in a practice that

facilitated and provided substantial assistance to a multitude of deceptive

schemes.ʺ Id. at 1157. The Court recognized that ʺthe creation and distribution of

most any good is subject to a host of sequential stepsʺ and that while ʺ[s]ome of

‐ 22 ‐ those steps involve the contribution of independent causal agents, . . . those

contributions do not magically erase the role of the aggregator and distributer of

the goods.ʺ Id. at 1155. Rather, because the check processing company ʺengaged

in behavior that was, itself, injurious to consumers,ʺ it was liable under the FTC

Act. Id. at 1157

Similarly, in FTC v. IAB Marketing Associates, LP, the Eleventh Circuit

considered the likelihood that the FTC would succeed in an action against a

company selling trade association memberships.

(11th Cir. 2014).

The company hired third‐party telemarketers who misrepresented that the

memberships were ʺfunctionally equivalent to major medical insurance.ʺ

. The Court found ʺno meritʺ in the argument that the company could not be

held liable for misrepresentations ʺmade by various independent contractors it

engaged to sell its products.ʺ

at 1232‐33.

The defendants argued that they could not be held liable for the

misrepresentations made by the third‐party telemarketers without ʺdirect

participation in, knowledge of, and the ability to control the telemarketersʹ

behavior.ʺ

. This test had previously been applied by the Eleventh and

Seventh Circuits to determine when an individual employee may be held liable

‐ 23 ‐ for the conduct of a corporation. See FTC v. Gem Merch. Corp.,

, 467‐68,

470 (11th Cir. 1996) (holding an individual liable under the FTC Act where ʺhe

was aware that salespeople made material representations to consumers to

induce sales, and he was in a position to control the salespeopleʹs behaviorʺ); FTC

v. Amy Travel Serv., Inc.,

(7th Cir. 1989) (holding individuals

liable under the FTC Act for deceptive practices of a corporation where those

individuals had knowledge of the deceptive practices and participated directly in

those practices or had authority to control them).

Without deciding whether the standard for imposing liability was as

ʺdemandingʺ as to require both direct participation and authority to control, the

IAB Marketing Associates court determined that the company would be liable even

under the knowledge, participation, and control test, because it directly

participated in the scheme with knowledge and had the ability to control the

telemarketers it employed to sell its trade association memberships. IAB Mktg.

Associates,

. While there was no evidence in the record that the

defendants instructed the telemarketers to make material misrepresentations, the

defendants hired the third party telemarketers to sell its products with

knowledge that the telemarketers were making the misrepresentation.

The

‐ 24 ‐ defendants also had authority over those telemarketers, and could have, but did

not, require them to cease making the misrepresentations.

We agree that a deceptive scheme violating the FTC Act may have

more than one perpetrator. We adopt the test applied by the Eleventh Circuit in

the context of an individualʹs liability for corporate deception to determine

LeadClickʹs Section 5 liability under the FTC Act: A defendant may be held

liable for deceptive practices that cause consumer harm if, with knowledge of the

deceptive nature of the scheme, he either ʺparticipate[s] directly in the practices

or acts or ha[s] authority to control them.ʺ Amy Travel Serv.,

. A

defendant directly participates in deception when it engages in deceptive acts or

practices that are injurious to customers with at least some knowledge of the

deception.

(a) and (n). Similarly, a defendant who knows of

anotherʹs deceptive practices and has the authority to control those deceptive

acts or practices, but allows the deception to proceed, may be held liable for

engaging in a deceptive practice injurious to consumers. This is consistent with

the FTCʹs longstanding policy that an omission in certain circumstances may

constitute a deceptive or unfair practice. See Letter from Federal Trade

Commission to Hon. John D. Dingell, Chairman of the Committee on Energy and

‐ 25 ‐ Commerce (October 14, 1983), appended to Cliffdale Assocs., 103 F.T.C. at 182

(ʺThe Commission will find an act or practice deceptive if there is a

misrepresentation, omission, or other practice, that misleads the consumer acting

reasonably in the circumstances, to the consumerʹs detriment.ʺ); In the Matter of

Intʹl Harvester Co.,

(1984) (finding defendantʹs failure to warn

consumers of a material risk of harm created by its product would be an unfair

trade practice under Section 5).

LeadClick argues that applying a test that imposes liability based on

direct participation in or authority to control deceptive practices conflates

principal liability with aiding and abetting liability, which is foreclosed under

the FTC Act. We reject this argument.

We have not previously considered whether a defendant may be

held liable under the FTC Act for aiding and abetting anotherʹs deceptive acts or

practices. As LeadClick notes, the FTC Act does not expressly provide for aiding

and abetting liability. Cf. Central Bank of Denver, N.A. v. First Interstate Bank of

Denver, N.A.,

(1994) (noting that in securities fraud context that

if ʺCongress intended to impose aiding and abetting liability . . . it would have

used the words ʹaidʹ and ʹabetʹ in the statutory textʺ); Wright v. Ernst & Young

‐ 26 ‐ LLP,

(2d Cir. 1998) (noting where Section 10(b) liability is based

on making material false representations, ʺ[a]nything short of such conduct is

merely aiding and abetting, and no matter how substantial that aid may be, it is

not enough to trigger liabilityʺ). We need not decide this issue, however, because

we conclude that a defendant acting with knowledge of deception who either

directly participates in that deception or has the authority to control the

deceptive practice of another, but allows the deception to proceed, engages,

through its own actions, in a deceptive act or practice that causes harm to

consumers. As the Ninth Circuit noted in Neovi, Inc.:

To be clear, none of this is to say that [defendant] is liable under a theory of aiding and abetting. [Defendant] engaged in behavior that was, itself, injurious to consumers. [Defendantʹs] business practices might have served to assist others in illicit or deceptive schemes, but the liability under the FTC Act that attached to [defendant] is not mediated by the actions of those third parties. [Defendant] caused harm through its own deeds ‐‐ in this case creating and delivering unverified checks ‐‐ and thus § 5 of the FTC Act easily extends to its conduct.

Neovi, Inc., 604 F.3d at 1157. A defendant may be held liable for its own acts of

deception under the FTC Act, whether by directly participating in deception or

by allowing deceptive acts or practices to occur that are within its control. This

direct liability is distinguishable from liability for merely aiding and abetting the

deceptive conduct of another.

‐ 27 ‐ 2. Application

LeadClick does not dispute on appeal that its affiliates engaged in

false and deceptive advertising practices. Instead, it argues that even assuming

these statements were deceptive, such deception ʺsupport[s] only imposition of

liability against the publishers who created and made the deceptive statements ‐‐

not against a wholly separate entity[, LeadClick,] that the FTC concedes did not

make the challenged statements.ʺ LeadClick Br. at 33. As discussed below, we

reject this argument and hold that LeadClick is directly liable for its own

deceptive conduct in the eAdvertising scheme. LeadClick knew that deceptive

false news sites were prevalent in its affiliate marketing network, directly

participated in the deception, and had the authority to control the deceptive

content of these fake news sites, but allowed the deceptive content to be used in

LeanSpa advertisements on its network. Accordingly, LeadClick is liable under

Section 5 of the FTC Act for engaging in deceptive acts or practices.

i. LeadClick Knew of the Deception

LeadClick knew that (1) the use of false news pages was prevalent in

affiliate marketing, and (2) its own affiliate marketers were using fake news sites

to market LeanSpaʹs products:

‐ 28 ‐  An eAdvertising division employee noted that in the summer of 2010, fake

news sites were ʺfairly common,ʺ J. App. at 158a‐59a;

 Another employee testified in his deposition that during his time at

LeadClick, ʺeveryone was using ʹem,ʺ id. at 235;

 LeadClick employees occasionally discussed fake article pages, fake news

pages, and news style pages among themselves and with affiliates and

merchant clients;

 A LeadClick employee testified that he saw ʺmanyʺ false news sites from

LeadClick affiliates that contained false information, J. App. at 387a, 389a;

and

 LeadClick was even familiar with the specific content of these sites, and

employees occasionally referred to ʺstep 1 and step 2ʺ pairing typical of

fake news sites, see J. App. at 157a, 746a, 800a.

ii. Direct Participation in the Deceptive Practices

In addition to this knowledge, LeadClick participated in the

deceptive scheme through the following acts:

 A LeadClick employee ʺscoutedʺ fake news websites to recruit potential

affiliates for the LeanSpa account;

‐ 29 ‐  LeadClick employees required alterations to the content of its affiliatesʹ

fake news pages by instructing them to revise their pages to comply with

explicit directives from LeanSpa;

 A LeadClick employee instructed an affiliate to check that his fake news

site was not ʺcrazy [misleading]ʺ and advising him not to remove the

reporter photograph, but to ʺjust add advertorial,ʺ J. App. at 230a‐31a;

 LeadClick employees advised affiliates on the content to include in their

pages to increase consumer traffic, see J. App. at 788a (telling an affiliate

ʺ[i]t is much more realistic if you say that someone lost 10‐12 lbs[.] in 4

weeks rather than saying anything more than thatʺ); and

 LeadClick purchased banner advertisement space on genuine news sites to

resell that space to affiliates running fake news pages to ʺgenerat[e] quality

traffic in very lucrative placements.ʺ J. App. at 714a.

Considered together, this conduct clearly demonstrates LeadClickʹs

direct participation in the deceptive advertising scheme. LeadClickʹs own

actions ‐‐ recruiting and paying affiliates who used fake news sites for generating

traffic, managing those affiliates, suggesting substantive edits to fake news

‐ 30 ‐ pages, and purchasing banner space for fake news sites on legitimate news

sources ‐‐ caused significant harm to consumers.

iii. LeadClickʹs Authority to Control the Deceptive Practices or Acts

LeadClick was paid by LeanSpa to recruit and manage a network of

affiliates who would advertise LeanSpaʹs products. As established above,

LeadClick knew that some of its affiliates were using fake news sites to advertise

LeanSpa products. As the manager and orchestrator of the affiliate marketing

scheme, LeadClick had the authority to control the deceptive practices of

affiliates that joined its network:

 LeadClick had the ultimate authority to review and approve or disapprove

of an affiliate using a fake news site;

 LeadClick permitted affiliates using fake news sites to join its network and

refer customers to LeanSpa, and it paid its affiliates with fake news sites

for generating actions; and

 LeadClick employees affirmatively approved the use of fake news sites by

telling a potential affiliate that ʺNews Style landers are totally fine,ʺ

J. App. at 761a, and explaining to a potential merchant client that ʺ[a]ll of

‐ 31 ‐ [its] traffic would be through display on fake article pages,ʺ Id. at 750a

(emphasis added);

As the manager of the affiliate network, LeadClick had a responsibility to ensure

that the advertisements produced by its affiliate network were not deceptive or

misleading. By failing to do so and allowing the use of fake news sites on its

network, despite its knowledge of the deception, LeadClick engaged in a

deceptive practice for which it may be held directly liable under the FTC Act.

As discussed above, LeadClick is not liable here merely because it

aided and abetted its affiliatesʹ deception. Rather, its liability arises from its own

deceptive practices: directly participating in the deceptive scheme by recruiting,

managing, and paying a network of affiliates to generate consumer traffic

through the use of deceptive advertising and allowing the use of deceptive

advertising where it had the authority to control the affiliates participating in its

network. See Neovi, 604 F.3d at 1157 n.5 (rejecting similar argument and noting

that defendantʹs ʺactions caused consumer harm; it did not merely aid or abet

others who caused consumer harmʺ).

Moreover, LeadClick is directly liable regardless of whether it

intended to deceive consumers ‐‐ it is enough that it orchestrated a scheme that

‐ 32 ‐ was likeely to misllead reason nable conssumers. Seee Verity In ntʹl, Ltd., 4443 F.3d at 663.

And thee scheme d did just tha at: the ma ajority of trraffic from m LeadClick kʹs affiliatee

network k came fro generating enough trraffic to billl LeanSpaa for om fake neews sites, g

approxiimately $2 22 million a and earn L LeanSpa reecognition as LeadCllickʹs ʺtop

customer.ʺ J. App p. at 343a, 908a, 1016 6a.

Acco ordingly, th he district court did n not err in cconcluding that

LeadCliick is direcctly liable u under Secttion 5 of th he FTC Act and CUT TPA.

B. B Immu unity undeer the CDA A

Lead dClick argu ues that, ev ven if it wo ould otherrwise be liaable underr

Section 5 of the FT TC Act and d CUTPA for its parrticipation in the deceptive

mune undeer Section 2230 of the CDA. Wee conclude, marketiing scheme, it is imm

howeveer, that thee district co ourt correcctly held th hat LeadCllick was no ot entitled d to

Section 230 immu unity.

1. Applicab ble Law

n it was in When ntroduced, the primaary purposse of the CD DA was to o

protect children frrom sexua Section 230, enacted ally expliciit internet ccontent.6 S

6 In hiss statement introducin ng the propo osed legislaation, Senattor Exon proclaim med ʺ[T]he iinformation n superhighhway shoulld not beco ome a red liight districtt. This legiislation willl keep that from happpening and extend the standards of decency y

‐ 33 ‐ through an amendment to the CDA, had a different objective: ʺ[T]o preserve the

vibrant and competitive free market that presently exists for the Internet and

other interactive computer services, unfettered by Federal or State regulation.ʺ

(b)(2); see also Zeran v. America Online, Inc.,

(4th

Cir. 1997) (ʺCongress recognized the threat that tort‐based lawsuits pose to

freedom of speech in the new and burgeoning Internet medium.ʺ).

The amendment assuaged Congressional concern regarding the

outcome of two inconsistent judicial decisions applying traditional defamation

law to internet providers. 141 Cong. Rec. H8469‐70 (daily ed. Aug. 4, 1995

(statement of Rep. Cox). The first held that an interactive computer service

provider could not be liable for a third partyʹs defamatory statement, Cubby, Inc.

v. CompuServe, Inc.,

(S.D.N.Y. 1991), but the second imposed

liability where a service provider filtered its content in an effort to block obscene

material, Stratton Oakmont, Inc. v. Prodigy Servs. Co., No. 31063/94,

, at *4 (N.Y. Sup. Ct. May 24, 1995). The amendment was intended to

overrule Stratton and provide immunity for ʺinteractive computer service[s]ʺ that

which have protected telephone users to new telecommunications devices.ʺ 141 Cong. Rec. S1953 (daily ed. Feb. 1, 1995) (statement of Sen. Exon).

‐ 34 ‐ make ʺgood faithʺ efforts to block and screen offensive content.

(c).

To accomplish that goal, Section 230 provides that ʺ[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.ʺ

(c)(1).

We have had limited opportunity to interpret Section 230. Other

circuits, however, have recognized that Section 230 immunity is broad. See, e.g.,

Jones v. Dirty World Entmʹt Recordings LLC,

, 406‐07 (6th Cir. 2014)

(ʺclose cases . . . must be resolved in favor of immunityʺ (quoting Fair Hous.

Council of San Fernando Valley v. Roommates.Com, LLC,

(9th Cir.

2008) (en banc))); Almeida v. Amazon.com,

(11th Cir. 2006)

(ʺThe majority of federal circuits have interpreted the CDA to establish broad

federal immunity to any cause of action that would make service providers liable

for information originating with a third‐party user of the service.ʺ (internal

quotation marks omitted)); id. at n.3 (collecting cases). In applying the statute,

courts have ʺbroken [it] down into three component parts,ʺ finding that ʺ[i]t

shields conduct if the defendant (1) ʹis a provider or user of an interactive

‐ 35 ‐ computer service, (2) the claim is based on information provided by another

information content provider and (3) the claim would treat [the defendant] as the

publisher or speaker of that information.ʹʺ Jane Doe No. 1 v. Backpage.com, LLC,

(1st Cir. 2016) (quoting Universal Commcʹn Sys., Inc. v. Lycos, Inc.,

(1st Cir. 2007)); see also Jones,

; Zeran,

.

On appeal, LeadClick argues that it is immune under Section 230

because it meets these elements. We discuss each, in turn.

i. Provider of an Interactive Computer Service

ʺThe term ʹinteractive computer serviceʹ means any information

service, system, or access 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 and such systems operated or services

offered by libraries or educational institutions.ʺ

(f)(2).

Courts typically have held that internet service providers, website

exchange systems, online message boards, and search engines fall within this

definition. See, e.g., Zango, Inc. v. Kaspersky Lab, Inc.,

(9th Cir.

2009) (concluding that malware provider who blocked plaintiffʹs software as

ʺpotentially maliciousʺ was interactive computer service provider because it

‐ 36 ‐ provided service to consumers by screening for malicious content); Chicago

Lawyersʹ Comm. for Civil Rights Under Law, Inc. v. Craigslist, Inc.,

(7th Cir. 2008), as amended (May 2, 2008) (applying definition to Craigslist, a

classified advertisements website); Universal Commcʹns Sys. v. Lycos, Inc.,

(1st Cir. 2007) (applying definition to internet message board operator);

Zeran,

(ʺAOL is just such an interactive computer service.ʺ);

Murawski v. Pataki,

(S.D.N.Y. 2007) (concluding Ask.com

is an interactive service provider because it is a search engine).

ii. Information Content Provider

As noted above, the statute requires that the claim be based on

content provided by another information content provider. This grant of

immunity applies only if the interactive service provider is not also an

ʺinformation content providerʺ of the content which gives rise to the underlying

claim. ʺInformation content providerʺ is defined to include ʺany 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.ʺ

(f)(3). This definition ʺcover[s] even those who are

responsible for the development of content only in part.ʺ FTC v. Accusearch Inc.,

(10th Cir. 2009) (quoting Universal Commcʹn Sys., Inc. v. Lycos,

‐ 37 ‐ Inc.,

(1st Cir. 2007)). A defendant, however, will not be held

responsible unless it assisted in the development of what made the content

unlawful. Id. at 1201. For example, a defendant who paid researchers to uncover

confidential phone records protected by law, and then provided that information

to paying customers, fell within the definition because he did not merely act as a

neutral intermediary, but instead ʺspecifically encourage[d] development of

what [was] offensive about the content.ʺ Id. at 1199; see also Roommates.com, 521

F.3d at 1167‐68 (holding defendant liable for developing content by ʺnot merely

. . . augmenting the content generally, but . . . materially contributing to its

alleged unlawfulnessʺ when it required subscribers to provide information

which enabled users of site to unlawfully discriminate in selecting a roommate).

iii. Whether the Claim Treats the Defendant as the Publisher or Speaker of Content Provided by Another

ʺAt its core, § 230 bars ʹlawsuits seeking to hold a service provider

liable for its exercise of a publisherʹs traditional editorial functions ‐‐ such as

deciding whether to publish, withdraw, postpone or alter content.ʹʺ Dirty World

Entmʹt Recordings LLC,

(quoting Zeran,

). Section

230(c)(1) provides that ʺno provider of an interactive computer service shall be

treated as the publisher or speaker of any information provided by another

‐ 38 ‐ information content providerʺ but it does not define the terms ʺpublisher or

speaker.ʺ

(c)(1).

In Barnes v. Yahoo!, Inc., the Ninth Circuit addressed ʺhow to

determine when, for purposes of this statute, a plaintiffʹs theory of liability

would treat a defendant as a publisher or speaker of third‐party content.ʺ

(9th Cir. 2009), as amended (Sept. 28, 2009). The Ninth Circuit

considered traditional dictionary definitions of publisher, including ʺthe

reproducer of a work intended for public consumptionʺ and ʺone whose business

is publication.ʺ

at 1102 (quoting Websterʹs Third New International

Dictionary 1837 (Philip Babcock Gove ed., 1986)). In deciding whether the claim

at issue sought to hold the defendant liable as a publisher or speaker, the Court

noted that ʺwhat matters is whether the cause of action inherently requires the

court to treat the defendant as the ʹpublisher or speakerʹ of content provided by

another. To put it another way, courts must ask whether the duty that the

plaintiff alleges the defendant violated derives from the defendantʹs status or

conduct as a ʹpublisher or speaker.ʹʺ

.

In Accusearch, Inc., the only other case considering the application of

Section 230 immunity to liability arising under Section 5 of the FTC Act, the

‐ 39 ‐ Tenth Circuit concluded that the defendant could not be immune for its payment

to researchers to uncover confidential phone records and subsequent publishing

of that information because it was an information content provider of the

offensive conduct. 570 F.3d at 1197. The majority concluded that the defendant

was not immune because liability was based on the defendantʹs own content

rather than the content of another, while the concurrence was of the view that the

defendant was not immune because liability was premised not on content but on

its conduct. Id. at 1197, 1205.

2. Application

LeadClick argues that it should be immune from liability under the

FTC Act and CUTPA because it was an interactive computer service provider, it

did not publish deceptive content, and the plaintiffs seek to hold it liable for the

deceptive statements of its affiliates. We disagree and conclude that LeadClick is

not entitled to Section 230 immunity because it is an information content

provider with respect to the deception at issue and because LeadClick is liable

under the FTC Act for its own deceptive acts or practices, rather than for

publishing content created by another.

‐ 40 ‐ i. Provider of an Interactive Computer Service

As an initial matter, we are doubtful that LeadClick is an ʺinteractive

service provider.ʺ The definition is indeed broad, but we are not convinced that

LeadClick provides computer access in the sense of an internet service provider,

website exchange system, online message board, or search engine. LeadClick

contends that it is covered because it ʺenabled computer access by multiple users

to a computer serverʺ by routing consumers from its affiliatesʹ webpages to

LeanSpaʹs websites via the HitPath server. LeadClick Reply Br. at 4.

But LeadClick cites no case law applying the definition of

ʺinteractive service providerʺ in a similar context, where the defendantʹs

provision of services (in this case, consumer access to LeadClickʹs HitPath

computer server) was wholly unrelated to its potential liability under the statute.

Moreover, the ʺserviceʺ LeadClick purportedly provided ‐‐ access to the HitPath

server ‐‐ is not the type of service that Congress intended to protect in granting

immunity. The statute aims to promote the continued development of the

internet, through ʺthe availability of educational and informational resources to

our citizensʺ and to ʺoffer a forum for a true diversity of political discourse,

unique opportunities for cultural development, and myriad avenues for

intellectual activity.ʺ

(a)(1), (a)(3); see also

at (b)(1), (b)(3)

‐ 41 ‐ (noting that it is the policy of the United States ʺto promote the continued

development of the Internet and other interactive computer servicesʺ and to

ʺmaximize user control over what information is received by individuals,

families, and schools who use the Internet and other interactive computer

servicesʺ). The computer access service LeadClick actually provided, routing

customers through the HitPath server before reaching LeanSpaʹs website, was

invisible to consumers and did not benefit them in any way. Its purpose was not

to encourage discourse but to keep track of the business referred from its affiliate

network.

In any event, we need not reach this issue because we conclude, as

described below, that LeadClick is an information content provider with respect

to the content at issue and that LeadClick is liable for its own content and not

merely because it was the ʺpublisher or speakerʺ of deceptive content provided

by its affiliates.

ii. Information Content Provider

LeadClick is not entitled to immunity because it participated in the

development of the deceptive content posted on fake news pages. As discussed

in greater detail above, LeadClick recruited affiliates for the LeanSpa account

that used false news sites. LeadClick paid those affiliates to advertise LeanSpa

‐ 42 ‐ products online, knowing that false news sites were common in the industry.

LeadClick employees occasionally advised affiliates to edit content on affiliate

pages to avoid being ʺcrazy [misleading],ʺ J. App. at 231a, and to make a report

of alleged weight loss appear more ʺrealisticʺ by reducing the number of pounds

claimed to have been lost,

at 788a. LeadClick also purchased advertising

banner space from legitimate news sites with the intent to resell it to affiliates for

use on their fake news sites, thereby increasing the likelihood that a consumer

would be deceived by that content.

LeadClickʹs role in managing the affiliate network far exceeded that

of neutral assistance. Instead, it participated in the development of its affiliatesʹ

deceptive websites, ʺmaterially contributing to [the contentʹs] alleged

unlawfulness.ʺ Roommates.com, LLC,

. Accordingly, LeadClick is

an information content provider with respect to the deceptive content at issue

and is not entitled to immunity under Section 230.

iii. The Claim does not treat LeadClick as a Publisher or Speaker of Anotherʹs Content

LeadClick cannot establish the third element necessary for immunity

because it is not being held liable as a publisher or speaker of anotherʹs content.

Rather, as discussed above, LeadClick is being held accountable for its own

‐ 43 ‐ deceptive acts or practices ‐‐ for directly participating in the deceptive scheme by

providing edits to affiliate webpages, for purchasing media space on real news

sites with the intent to resell that space to its affiliates using fake news sites, and

because it had the authority to control those affiliates and allowed them to

publish deceptive statements. Accordingly, because LeadClickʹs Section 5

liability is not derived from its status as a publisher or speaker, imposing liability

under Section 5 does not ʺinherently require[] the court to treat the [LeadClick] as

the ʹpublisher or speakerʹʺ of its affiliatesʹ deceptive content, and Section 230

immunity should not apply. See Barnes, 570 F.3d at 1101‐02; see also Accusearch,

570 F.3d at 1204‐05 (Tymkovitch, J., concurring) (noting that ʺthe FTC sought and

ultimately held [defendant] liable for its conduct rather than for the content of the

information is was offering on [its] websiteʺ and arguing that there should be no

immunity because ʺSection 230 only immunizes publishers or speakers for the

content of the information from other providers that they make publicʺ).

II. CoreLogicʹs Liability as Relief Defendant

CoreLogic appeals from the district courtʹs finding that it must

disgorge money it received from LeadClick in the August 30 Transfer. As

described below, the district court erred in holding CoreLogic liable for

‐ 44 ‐ LeadCliickʹs fines as a relief defendantt, because CoreLogicc had a leg gitimate claaim

to repay yment of itts prior ad dvances to LeadClick k.

A. A Appllicable Law w

ʺA reelief defend dant is a p person who o ʹholds the subject m matter of th he

litigatio on in a subordinate o or possesso ory capacitty as to wh hich there is no

disputee.ʹʺ Commoodity Futurees Trading Commʹn vv. Walsh,

, 225 (2d C Cir.

2010) (q quoting SE EC v. Colelloo, 139 F.3d d 674, 676 ((9th Cir. 19998)). The typical relief

defenda ant ʺis a ba ank or trusstee, which h has only a custodiaal claimʺ to o the subjeect

matter o of the litig gation. Colello, 139 F.3d at 677. A relief d defendant h has no

ownership interesst in the prroperty, bu ut ʺmay bee joined to aid the reccovery of

relief.ʺ SEC v. Cav vanagh (Caavanagh II),,

, 109 n..7 (2d Cir. 2006).

ʺFedeeral courtss may ordeer equitablle relief against a [rellief

defenda ant] not acccused of w wrongdoin has received ng . . . wherre that perrson: (1) h

ill‐gotteen funds; a and (2) doees not havee a legitim mate claim tto those fu unds.ʺ S.E.C.

v. Cavan nagh (Cavaanagh I), 15

(2d C Cir. 1998). ʺDistrict ccourts may y

only req quire disgo orgement of the asseets of a reliief defendaant upon aa finding th hat

she lack ks a legitim mate claim.ʺ Walsh, 6 618 F.3d att 226 (interrnal quotattion markss

omitted d).

‐ 45 ‐ While we have not ʺdeveloped explicit guidelines for what qualifies

as a legitimate claim sufficient to immunize . . . property from disgorgement,ʺ we

have recognized that ʺrelief defendants who have provided some form of

valuable consideration in good faith . . . are beyond the reach of the district

courtʹs disgorgement remedy.ʺ

(internal quotation marks omitted). An

outstanding loan from a relief defendant constitutes valuable consideration,

giving rise to a ʺlegitimate claimʺ to repayment of the outstanding amount of

principal and accrued interest. See Janvey v. Adams,

(5th Cir.

2009) (debtor‐creditor relationship ʺconstitutes a sufficient legitimate ownership

interest to preclude treating [defendants] as relief defendantsʺ). A gratuitous

transfer, however, without the payment of consideration, does not give rise to a

legitimate claim. See Cavanagh I, 155 F.3d at 137 (concluding that neither relief

defendant had a legitimate claim to property received as a gift, because to hold

otherwise, ʺwould allow almost any defendant to circumvent the SECʹs power to

recapture fraud proceeds, by the simple procedure of giving [property] to friends

and relatives, without even their knowledgeʺ).

‐ 46 ‐ B. B Appllication

The ffacts here a are undisp puted. Insttead, the p parties disp pute wheth her

on thesee facts, Co oreLogic ha ad a legitim mate claim m to the Au ugust 30 Trransfer of

$4.1 milllion. The FTC arguees that thiss transfer sshould be characteriized as a

gratuito ous distrib bution beca ause it lack ked a form mal loan agrreement an nd,

accordin ngly, was not in exch hange for valuable cconsideratiion. CoreL Logic

disagrees, contend ding that tthis transaction was the repaym n outstanding ment of an

intercom mpany loa an, implem mented as p vices agreement. Th part of its sshared serv he

district court conccluded tha at CoreLog gic had no legitimatee claim to tthe funds

becausee there wass no forma al loan agreement beetween thee parties an nd ordered d

disgorg We disagreee with the district courtʹs concllusion thatt a formal loan gement. W

agreem ment was reequired in this contex xt and hold d that CorreLogic waas not a pro oper

relief deefendant b had a legittimate inteerest in thee transferreed funds. We because it h

conclud de that und der these u undisputed d facts, CoreLogicʹs aadvances tto LeadClick

constitu uted ʺvalua able consid derationʺ eentitling it to repaym ment from LeadClick k.

Both parties ag gree that affter CoreLo ogic impleemented th he shared

servicess system, C CoreLogic paid Lead dClickʹs acccounts pay yable. For accountin ng

purposees, CoreLo ogic and LeeadClick d documenteed the advances as in ntercompaany

‐ 47 ‐ balances. The parties intended these advances to be repaid automatically from

LeadClickʹs revenue once the accounts receivable function was transitioned to

CoreLogic, six months after the transition of accounts payable. Once Core Logic

transitioned LeadClickʹs accounts receivable system to the shared services

program, LeadClick did in fact begin to repay these amounts through an

automatic diversion of cash receipts deposited in the shared services account to

CoreLogic.7 LeadClick repaid a total of $8.2 million of its advance balance to

CoreLogic through the automated transfers. CoreLogic held a right to

repayment under these circumstances. It did not merely hold the transferred

funds in a custodial capacity. See Cavanagh II, 445 F.3d at 109 n.7; Colello, 139 F.3d

at 677.

The district court reasoned that the advances constituted gratuitous

transfers that could not give rise to a legitimate claim to repayment because there

was no formal debtor‐creditor relationship in place between LeadClick and

CoreLogic. But, as Amici Curiae point out, the lack of a formal agreement is not

surprising in the shared services context. The FTCʹs own expert acknowledged

7 The funds were first swept automatically into an account held by CLUSI, LeadClickʹs sister subsidiary, which subsequently transferred the funds into CoreLogicʹs central treasury, pursuant to the shared services agreement

‐ 48 ‐ that it is not customary to use promissory notes or charge interest on

intercompany advances made pursuant to a shared services program. Requiring

such documentation ʺis incompatible with the very purpose of shared services:

streamlining operations and increasing efficiency by reducing excess

paperwork.ʺ Amici Br. at 6. An interest charge would also be artificial, because

the companies were consolidated under general accounting principles for public

companies. Under these circumstances, the lack of a formal loan agreement does

not create suspicion that the transactions were a sham.

Even without the formalities of an armʹs‐length loan agreement, it is

undisputed that CoreLogic advanced funds to LeadClick, both parties intended

these advances to be repaid, and the August 30 Transfer reduced the outstanding

intercompany balance. Under these facts, CoreLogicʹs claim to the August 30

Transfer was therefore legitimate.8 Accordingly, CoreLogic was not a proper

relief defendant, and the district court erred in ordering it to disgorge the funds

it received from LeadClick.

8 Similarly, CoreLogicʹs claim is not undermined by the fact that LeadClickʹs ability to repay depended upon its future business performance. Repayment of an uncollateralized loan based on a borrowerʹs income generally depends upon the borrowerʹs ability to generate revenue.

‐ 49 ‐ CONCLUSION

For the reasons set forth above, the judgment of the district court

imposing liability on the defendants is AFFIRMED with respect to LeadClick

and REVERSED with respect to CoreLogic, and we REMAND with instructions

to the district court to enter judgment in favor of CoreLogic.

‐ 50 ‐