Taboola, Inc. v. Ezoic Inc.

Background

Taboola sued Ezoic Inc. and Dwayne Lafleur for damages and injunctive relief, including claims that they interfered with four contracts between Taboola and website providers. Ezoic denied Taboola’s allegations and asserted two counterclaims against Taboola.

Ezoic’s first counterclaim alleged that Taboola interfered with Ezoic’s agreements with five website operators: Média Sur 7, SwingxSwing, 24 Minutes, Muhanfeed, and Popdust. Ezoic alleged that Taboola pressured those clients to stop using Ezoic’s advertising application, causing them to breach or end their agreements with Ezoic. Ezoic’s second counterclaim alleged that Taboola interfered with Ezoic’s agreements with Google by causing some of those clients to violate Google’s advertising policies, which Ezoic claimed exposed it to possible fines or reimbursement demands.

Taboola moved to dismiss the amended counterclaims under Rule 12(b)(6), which allows dismissal when a pleading does not allege enough facts to make a legally valid claim plausible. Magistrate Judge Kevin N. Fox recommended granting the motion. Ezoic objected, and the district court reviewed the challenged portions of the recommendation independently.

Legal standards

The court applied New York law because it found no relevant conflict between New York and California law. To plead tortious interference with a contract, Ezoic had to allege a valid contract, Taboola’s knowledge of the contract, intentional and unjustified efforts to cause a breach, an actual breach, and resulting damages. The court also required allegations that Taboola had actual knowledge of the contract’s relevant terms, not merely information that would have allowed Taboola to discover them.

At the motion-to-dismiss stage, the court treated well-pleaded factual allegations as true and drew reasonable inferences for Ezoic. It did not have to accept legal conclusions or unsupported allegations.

First counterclaim: Ezoic-client agreements

The court dismissed Ezoic’s claim that Taboola interfered with the agreements between Ezoic and the five website operators. The court observed that Ezoic’s publicly available terms of service appeared to allow termination at will and did not appear to create fixed-duration contracts. Although Ezoic argued that its clients could terminate only with Ezoic’s permission, the court rejected that reading as unreasonable.

The court did not decide whether Ezoic’s allegations that Taboola threatened its clients could satisfy an exception for wrongful conduct involving agreements terminable at will. Instead, it assumed that point in Ezoic’s favor and dismissed the claim on two independent grounds.

First, Ezoic did not adequately plead an actual breach. Its allegations that the clients no longer used Ezoic’s services were not enough, particularly because the agreements appeared terminable at will. The court also stated that even a client’s decision to stop using a product would not, without more, establish a contract breach. Ezoic’s allegations that the clients breached their agreements were treated as unsupported legal conclusions.

Second, Ezoic did not adequately plead that Taboola had actual knowledge of the terms of the client agreements or the obligations allegedly breached. The court found insufficient Ezoic’s reliance on generalized conversations, publicly available terms of service, the clients’ websites, Ezoic’s communications about its Google partnership, and Ezoic’s earlier counterclaims. Those allegations might suggest that Taboola knew some business relationship existed, but they did not plausibly show that Taboola knew the specific contractual terms at issue.

Second counterclaim: Ezoic-Google agreements

The court also dismissed Ezoic’s claim that Taboola interfered with Ezoic’s agreements with Google. Ezoic alleged that Taboola knew Ezoic was a Google-certified partner and knew the responsibilities associated with that status. The court held that these allegations did not establish Taboola’s actual knowledge of the specific terms of Ezoic’s agreements with Google. Public information about Ezoic’s partnership or general industry practices could at most support constructive knowledge—information a party should or could have discovered—not the actual knowledge required for this claim.

The court separately held that Ezoic had not adequately alleged damages. Ezoic did not allege that it had paid any fine to Google. Instead, it alleged that 24 Minutes had been fined and that, if 24 Minutes succeeded in litigation against Google in Israel, Google might later seek reimbursement from Ezoic and might prevail. The court found that this chain of possible events was too speculative to establish damages.

Disposition

Judge Paul A. Engelmayer accepted Judge Fox’s recommendation and granted Taboola’s motion to dismiss Ezoic’s two amended counterclaims. The opinion does not add a with-prejudice or without-prejudice qualifier to that ruling. The court stated that the case would proceed to discovery under Judge Fox’s supervision and directed the clerk to terminate the pending motion.