• by Wendy Davis  @wendyndavis, October 18, 2023

Meta this week urged a federal appeals panel to uphold a trial judge's dismissal of a lawsuit by users who said they lost money after being duped by fraudulent ads on the platform.

“This is exactly the type of case that Section 230 was meant to prohibit,” Meta counsel Theodore Boutrous told a three-judge panel of the 9th Circuit Court of Appeals Tuesday during a nearly 45-minute hearing.

Boutrous added that the users' lawsuit turns on the “core allegation” that they saw fraudulent ads, relied on them, and made purchases.

“The claims hinge on Meta's failure to stop that content from getting on to the platform, or failing to take it down before they saw it,” Boutrous added.

Section 230 in general immunizes web publishers from liability for content posted by advertisers and other third parties -- including fraudulent content. That law has an exception, created by courts, for illegal content that was “developed” by web publishers.

The users' attorney, Mark Reich, countered that the company developed the fraudulent ads, which originated in China -- in part because Meta allegedly told advertisers how to circumvent the Chinese government's firewall.

The hearing came in a battle dating to 2021, when Nebraska resident Anastasia Groschen and Oregon resident Christopher Calise alleged in a class-action complaint that they were bilked by China-based advertisers who posted ads on Facebook.

Calise alleged he lost around $49 after attempting to purchase a car-engine assembly kit that was advertised on the site. He said he paid with a debit card, but the merchandise never arrived and he couldn't obtain a refund.

Groscen said she lost around $31 after attempting to purchase an activity board for her toddler, after clicking through a Facebook ad for the product. Instead of the activity board, she received “a cheap wooden” puzzle.

Their complaint 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.

U.S. District Court Judge Jeffrey White in the Northern District of California dismissed the case last year, ruling that Section 230 protects Meta from liability over the ads.

The users are now asking the 9th Circuit to reinstate the claims, arguing that Meta played a role in developing the ads by soliciting China-based advertisers and then helping them circumvent a firewall that would have prevented them from accessing the platform.

At least two of the appellate judges appeared skeptical of the plaintiffs' argument on that point.

Circuit Judge Jacqueline Nguyen asked Reich which of the allegations in the complaint would show that Facebook contributed to the ads' content.

“We have a situation in which Facebook knew the percentages, knew the dollar amount that they were generating from those unlawful ads, and they went ahead and solicited those ads and enabled those people in China ... to circumvent the firewall,” Reich said.

Nguyen responded that Reich's answer appeared to focus on allegations that Facebook gave fraudsters the opportunity to use the platform, but didn't address how the company allegedly developed the ads.

“Don't you have to allege participation in the content of the ads themselves?” she asked.

Judge Ryan Nelson also suggested that the allegations against Meta, even if proven true, wouldn't show that the company created or developed fraudulent material.

“I guess your argument is if they didn't sit around with this group ... and teach them how to get around this firewall, that those ads never would have come up,” Nelson told Reich.

“How is that developing?” Nelson continued. “That doesn't seem to be developing the ads.”

Even though Nelson appeared receptive to Meta's argument that it's protected by Section 230, he opined at one point that tech platforms should better police fraud.

“I almost feel like behind the scenes, there's this discussion of how much fraud can we allow on our platforms and get paid for, and still pass muster with the public,” Nelson said.

The panel reserved decision.