LoanStreet Inc. v. Troia

Background

LoanStreet operates an online platform for sharing, managing, and originating loans. Wyatt Troia worked as a software engineer for LoanStreet from February 2019 until June 12, 2020, when the company fired him, allegedly for cause. During and after his employment, Troia posted statements on Glassdoor, Reddit, Teamblind, and other websites criticizing LoanStreet, Lampl, and other employees. His posts accused LoanStreet and Lampl of withholding more than $100,000 in stock options and described alleged employment practices. Troia also bought Google advertisements that displayed the LoanStreet name, excerpts from his posts, and links to those posts.

LoanStreet and Ian Lampl sued Troia, asserting claims for breach of contract, defamation per se, defamation, injurious falsehood, unfair competition and false designation of origin under Section 43(a) of the Lanham Act, common-law unfair competition, and permanent injunctive relief. Troia moved to dismiss under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim and Rule 12(b)(1) for lack of subject-matter jurisdiction. The court stated that Troia did not move to dismiss the breach-of-contract claim.

Subject-Matter Jurisdiction

The court rejected Troia’s jurisdictional arguments. The complaint asserted a federal Lanham Act claim based on Troia’s use and public display of LoanStreet’s trademark in Google advertisements. The court held that those allegations were sufficient to establish federal-question jurisdiction at this stage, even if the Lanham Act claim might ultimately fail on the merits. Because federal-question jurisdiction existed, the court did not resolve the parties’ dispute about diversity of citizenship or address supplemental jurisdiction.

Defamation Claims

The court held that the complaint plausibly alleged that statements concerning Troia’s stock options conveyed provable facts and were not merely protected opinions. The statements accused LoanStreet and Lampl of cheating or defrauding Troia, and Troia did not provide the complete stock-option terms or relevant dates in his posts. The court also rejected the argument that online publication automatically made the statements nonactionable.

The court concluded that the stock-option-related statements were potentially defamatory per se—that is, statements for which New York law does not require proof of special financial harm—because they accused the plaintiffs of serious misconduct and could damage their business reputations. The court therefore denied dismissal of the defamation claims based on the statements identified in paragraphs 76(a)-(g) and 93(a)-(b) of the complaint.

The court reached a different conclusion about statements concerning LoanStreet’s hiring and firing practices, including statements about firing without warning, the vesting period, the paid-time-off policy, and the experience of LoanStreet’s engineers. The plaintiffs alleged that those statements were false but did not provide supporting facts showing why they were false. The court therefore granted Troia’s motion to dismiss the defamation claims based on paragraphs 93(c)-(h), granted that dismissal without prejudice, and gave the plaintiffs permission to file an amended complaint repleading those claims.

Injurious Falsehood

The court granted Troia’s motion to dismiss the injurious-falsehood claim. It held that the claim was duplicative of the defamation claims because it relied on the same statements and alleged harm. The statements also attacked the plaintiffs’ business reputations rather than the quality of their goods or services. In addition, the plaintiffs did not plead special damages—the specific financial losses required for this type of claim—with enough detail.

Lanham Act and New York Unfair-Competition Claims

The court denied dismissal of the unfair-competition and false-designation claims under Section 43(a) of the Lanham Act and the related New York common-law claim. It held that publicly displaying the LoanStreet name in Google advertisements could qualify as a “use in commerce.” The complaint alleged that Troia used the name as a search keyword and in the advertisements themselves, intending to divert people searching for LoanStreet toward his posts.

The court also held that the complaint plausibly alleged a likelihood of confusion. Although the advertisements identified themselves as stories criticizing LoanStreet and linked to Reddit, the court found that a searcher could still be confused when Google displayed advertisements using the LoanStreet name in response to a search for that name. The court further found that the allegations supported the bad-faith element required for the New York common-law claim.

Disposition

Judge Naomi Reice Buchwald concluded that Troia’s motion to dismiss was granted in part and denied in part. Dismissal was granted for the injurious-falsehood claim and for the specified defamation claims concerning hiring and firing practices; dismissal of those defamation claims was without prejudice, and the plaintiffs could amend their complaint within 30 days. Dismissal was denied for the stock-option-related defamation claims and for the unfair-competition claims.