Shared Partnership v. Meta Platforms, Inc.

Background

Shared.com, referred to in the opinion as Shared, is an online content creator and a Canada-based publisher of original online content. Shared operated Facebook pages from 2006 to 2020, used Facebook’s Instant Articles monetization program, and purchased Facebook self-service advertising. Shared alleged that it spent approximately 53,000,000 Canadian dollars on Facebook advertising from 2006 to 2020 and approximately 3,500,000 Canadian dollars optimizing its content for social media platforms.

Shared alleged that Facebook repeatedly removed its access to Instant Articles between April and November 2018, delayed revenue payments, rejected advertisements without sufficient explanations, unpublished Shared’s pages, suspended its ability to advertise, and disabled several personal profiles belonging to Shared employees. Shared alleged that these actions violated its understanding of Facebook’s terms and policies and caused it to lose revenue and lay off more than 20 employees in 2018.

Shared’s Second Amended Complaint included claims for intentional misrepresentation and negligent misrepresentation. Meta moved under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint alleges enough facts to state a legally valid claim. Meta argued that both claims were untimely under California’s three-year statute of limitations, barred by the economic-loss rule, and inadequately pleaded.

Statute of limitations

The court held that the claims were not untimely on the face of the complaint. Shared alleged that Meta fraudulently induced it to purchase advertising services after April 2019, less than three years before Shared filed its misrepresentation claims in April 2022. The court accepted Shared’s allegation at this stage that its advertising purchases involved multiple contracts. It therefore reasonably could be inferred that at least one purchase occurred within the limitations period.

The court noted that some claims might later be time-barred and that Meta could renew its timeliness argument in a later proceeding, including a motion for summary judgment, after the factual issues were more fully developed. The court found it unnecessary at this stage to decide Shared’s alternative arguments involving continuing violations or the discovery rule.

Economic-loss rule

The economic-loss rule generally prevents recovery in tort for monetary losses resulting from a contract breach unless the plaintiff shows an independent duty in tort or an applicable exception. The court held that fraudulent inducement is an exception to that rule. Fraudulent inducement occurs when a person knowingly enters a contract but does so because of fraud, making the contract potentially voidable.

For intentional misrepresentation, Shared alleged that it relied on Facebook’s promise in the “Edit Your Ads” provision that advertisers would be told why ads were rejected and how to make them comply with Facebook policy. Shared alleged that it relied on that representation before entering into, and while deciding to continue, advertising arrangements with Meta. The court held that a promise can support a fraudulent-inducement claim even if the promise also becomes part of an enforceable contract.

The court applied the same exception to Shared’s negligent-misrepresentation claim. Unlike intentional misrepresentation, negligent misrepresentation does not require knowledge that the statement was false; it involves a factual misrepresentation by someone who lacked reasonable grounds to believe it was true. The court found no basis to distinguish the two claims for purposes of the fraudulent-inducement exception.

Pleading sufficiency

Claims based on fraud must meet Federal Rule of Civil Procedure 9(b), which requires the circumstances of the alleged fraud to be stated with particularity. Meta argued that Shared could not have been induced into its initial 2008 contract by advertising-policy terms published in 2016. The court rejected that argument at the pleading stage because Shared adequately alleged that multiple contracts governed its advertising purchases from 2008 to 2020 and that it was induced to enter later agreements after relying on Facebook’s advertising policies.

Although Shared did not identify who at Shared read the “Edit Your Ads” provision or when that occurred, the court found that the Second Amended Complaint sufficiently alleged Shared’s belief in the representations, its reliance before deciding to advertise or continue advertising, and Meta’s alleged wrongful conduct. The court therefore held that Claims Four and Five satisfied Rule 9(b) and stated plausible claims.

Sealing and judicial notice

The court granted Shared’s administrative motion to seal. It found that Meta adequately supported its assertion that disclosure could place it at a competitive disadvantage, and that the requested sealing was limited to relatively narrow portions of the opposition and supporting exhibits. The court ordered highlighted portions of Shared’s opposition and Exhibits D and E to be filed under seal, along with Exhibit G in its entirety, until the propriety of the designations was fully adjudicated.

The court denied Shared’s request for judicial notice as moot because the order did not rely on the referenced exhibits.

Disposition

The court denied Meta’s motion to dismiss Shared’s Second Amended Complaint, including Meta’s challenge to the intentional- and negligent-misrepresentation claims. The court granted Shared’s administrative motion to seal and denied Shared’s request for judicial notice as moot.