Internet Defamation Case Goes to Calif. High Court

Rhett Pardon
SAN FRANCISCO — California’s highest court on Wednesday unanimously accepted a case that will determine whether Internet businesses can be held liable for defamatory website postings.

The state Supreme Court said it will hear a civil suit filed by Roger M. Grace, an eBay seller who sued a buyer and eBay after the buyer had posted negative comments about him.

Earlier this year, the state’s Court of Appeal said that website operators who knowingly repeat a defamatory remark are not immune from liability under the federal Communications Decency Act because it does not immunize distributors.

The appellate court did, however, uphold the dismissal of eBay Inc. from a suit by Grace. His claim against eBay is within the scope of a release that is part of the eBay user agreement, the appeal court said in its ruling.

The libel claim against eBay was initiated after Tim Neeley, who sells Hollywood memorabilia on the site, posted on eBay a feedback comment about Grace, who purchased several items from the seller: “Complaint: SHOULD BE BANNED FROM EBAY!!!! DISHONEST ALL THE WAY!!!!”

Grace, publisher of the Los Angeles Bulletin and the Metropolitan News-Enterprise, notified eBay that the seller’s comments were defamatory, but eBay refused to remove them.

Grace sued eBay and the seller, alleging counts against eBay for libel, specific performance of eBay’s user agreement with the seller, and violation of the unfair competition law. Grace withdrew the second count after eBay removed the challenged comments from its website.

The appellate court concluded that eBay could not avail itself of CDA immunity because it was a distributor.

“Although a distributor can be held liable for libel in certain circumstances, a distributor is subject to a different standard of liability from that of a primary publisher, and liability as a distributor ordinarily requires a greater showing of culpability,” the court said in its ruling.

EBay also contested the complaint based on language of 1996’s CDA and a release clause in its user agreement.

EBay's website “User Agreement” contains a written release that states, "Because we are a venue, in the event that you have a dispute with one or more users, you release eBay (and our officers, directors ... ) from claims, demands and damages (actual and consequential) of every kind and nature, known and unknown, suspected and unsuspected, disclosed and undisclosed, arising out of or in any way connected with such disputes."

In his appeal to the state Court of Appeal, Grace argued that the language of the release is not sufficiently precise to encompass a claim against eBay based on defamatory information provided by a third party and that his dispute is not merely a dispute with a user, but a dispute with eBay directly.

It disagreed, holding that the type of dispute referenced in the release clearly encompasses a dispute with another user relating to comments posted by the user on the website.

Grace, who is also an attorney, was told by the appeal court that he likely blundered in his legal strategy.

“The appropriate place for such a legal argument would have been in Grace’s opposition to the demurrer and in his opening brief on appeal, rather than in an amended complaint,” the court said. “In any event, in light of our conclusion that 47 U.S.C. § 230 [of the CDA] provides no immunity in these circumstances and that Grace released his claims and demands against eBay, the question of constitutionality does not arise.”

After the state Court of Appeal ruling, Grace blasted the court’s reasoning to a reporter at ZDNet, calling it “disturbing.”

"The ruling is just too sophomoric and silly not to be appealed," Grace said. “I don't think [eBay] can shrug their shoulders and stand on immunity."

The case is Roger M. Grace vs. eBay Inc., No. S127338.