In Calise v. Meta Platforms, Inc., plaintiffs allege that Facebook violated its own Terms of Service (ToS). In relevant part, Facebook’s ToS represent that it will take appropriate action to protect its community. Plaintiffs have tales of woe, ranging from ordering something and not getting it to ordering something and getting a cheap knockoff, to arranging to swap cars only to have the counterparty steal the car. In each case, Facebook provided no meaningful remedy to its users, and the plaintiffs allege that the wrongdoers seem to be free to continue to prey on Facebook users.
Back in August 2021, plaintiffs filed suit, alleging negligence, breach of contract, breach of the duty of good faith and fair dealing, violations of California consumer protection statutes, and unjust enrichment. After a trip to the Ninth Circuit, only the contractual and good faith claims survived Facebook’s motion to dismiss based on Section 230 of the Communications Decency Act (§ 230). Plaintiffs amended their complaint to add a claim for failure to warn.
In seeking to dismiss plaintiffs’ claims, Meta argued that Facebook’s ToS govern users’ conduct and do not entail any promises from Meta to users. It does so in reliance on cases in which courts have found that the relevant language in the ToS entails no promises from Meta. However, those courts were responding to the claims before them, and courts in Northern District of California have never issued categorical statements indicating that Facebook’s ToS include no promises from Meta. In this case, the Court found, “The specific provisions which Plaintiffs claim Meta violated are unambiguous and well-defined promises from Meta to users.”
Meta next argues that it has no affirmative obligations because its ToS include a waiver. The waiver is irrelevant to the extent that it relates to warranty claims, as plaintiffs are not bringing a warranty claim. However, Meta also disclaims liability for the acts of third parties. That is valid, but plaintiffs are not trying to hold Meta accountable for the acts of third parties. They are alleging that Facebook breached an independent promise in the ToS to take appropriate action to combat scam advertisements.
The Court agreed with Meta that its $100 cap on liability applies to plaintiffs’ claims, so long as that liability cap is enforceable. The Court also agreed with Meta that Section 1668 of the California Civil Code does not void the disclaimer. Section 1668 provides:
All contracts which have for their object, directly or indirectly, to exempt anyone from responsibility for his own fraud, or willful injury to the person or property of another, or violation of law, whether willful or negligent, are against the policy of the law.
Section 1668 does not apply to ordinary breach of contract claims, and so it does not apply to plaintiffs’ contracts claims.
However, the Court found the limitation on liability to be unconscionable. The Court found that procedural unconscionability was established because the contract is one of adhesion. Because California adopts the sliding-scale approach to unconscionability, that de minimis procedural unconscionability suffices where the substantive unconscionability is great. Here, Meta “seeks to avoid all liability for breach of any of its promises relating to promoting and benefiting from known fraudulent content, or to otherwise cap damages at a level so low that no party would seek to vindicate its rights under the agreement.” The Court acknowledges some tension with an earlier case in this same district (Bass v. Facebook, Inc., 394 F. Supp. 3d 1024 (N.D. Cal. 2019)), but the ToS language at issue is slightly different here, and that makes all the difference.
Plaintiffs’ good faith and fair dealing claim is not duplicative of the breach of contract claim. At this point in the proceedings, plaintiffs have alleged sufficiently distinct facts to proceed with both claims. However, Meta was successful on its motion to dismiss the failure to warn claim. That claim is barred by the economic loss rule.
Two things seem to be of note in this case. First, plaintiffs seem to be using a breach of contract claim to get around the immunity from suit that websites enjoy under § 230. This may be a model that other plaintiffs will adopt, or it may lead Internet Service Providers to tighten their ToS to avoid any language that might be construed as a contractual promise.
When the Distirct Court opinion came out, Eric Goldman (below) described it as “disastrous” and likened it to taking a “wrecking ball” to § 230. He was reiterating his earlier expressions of alarm about the harm to § 230 caused by the Ninth Circuit opinion in the case. Indeed, Eric also has a post about Huckabee v. Meta, which is from June of this year and seems to demonstrate a trend in which courts are rewarding plaintiffs’ attorneys for coming up with novel ways to dodge § 230. Eric really doesn’t like this end run around § 230. He makes the very strong point that the Ninth Circuit is supposed to be applying California law, but California courts have never recognized a breach-of-contract carve-out of the scope of § 230. For those interested in a deeper dive on this subject, you can’t do better than Eric’s posts, including his round-up of § 230 decisions from January.
Second, the Court’s unconscionability analysis seems vulnerable. It may well be that California courts are willing to treat all contracts of adhesion as entailing just enough procedural unconscionability to allow a court to consider substantive unconscionability. However, other courts may not view the substantive unconscionability here as particularly severe. It is true that nobody is going to go to court to vindicate a $100 claim, but consumer arbitration might be a low-cost alternative. And if Meta does not have an arbitration clause, then class actions exist for precisely this reason.
It will be interesting to see what the Ninth Circuit does with this case on appeal. Meta’s petition for permission to appeal was granted in March. Eric blames what he calls “Trump Appointed, Federalist Society Judges” for plaintiffs’ earlier win in the Ninth Circuit. He thinks those judges are especially hostile to § 230. My sense is that hostility to § 230 can come from anywhere on the political spectrum but that conservative judges are less likely to be sympathetic to broad constructions of unconscionability. We’ll see how it goes.
Looking beyond the case, I don’t have the bandwidth to look into it, but if anybody out there would like to chime in, I would love to learn what you know or hear your theories. First, I wonder why Meta did not move to compel arbitration. Was this claim filed during that window when companies were dropping their arbitration clauses to avoid mass arbitration?
In addition, I wonder why this claim is not being brought as a class action. My hunch is that each plaintiff has their own unique encounter with Internet scammers. It may be that commonality would have been a challenge. If that is the case, then the $100 liability cap may indeed make it impossible for plaintiffs to vindicate their rights. The claim is too paltry to bring as an individual case, but each claim is too idiosyncratic to be shoehorned into a class action claim.
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