No. 31063/94 International Cases [2000] Part 8 Case 5 [SCNY]



Stratton Oakmont Inc

- vs -

Prodigy Services Co

(a Partnership of Joint Venture with

IBM Corpn and Sears Roebuck & Co)


3 OCTOBER 1995


Justice Stuart L. Ain

  1. The following papers read on this motion:

    Plaintiff's Notice of Motion & Exhibits



    Plaintiff's Supporting Exhibits P & O (filed separately under seal pursuant to a confidentiality agreement)



    Plaintiff's Memo of Law in Support

    Appendix to Plaintiff's memo of Law

    Defendant's Opposing Affidavit and Exhibits

    Defendant's Memo of Law in Opposition

    Reply Affidavit

    Reply Memo of Law













  2. Upon the foregoing papers, it is ordered that this motion by Plaintiffs for partial summary judgment against Defendant PRODIGY SERVICES COMPANY ("PRODIGY") is granted and this Court determines, as a matter of law, the following two disputed issues as follows:

    1. that PRODIGY was a "publisher" of statements concerning Plaintiffs on its "Money Talk" computer bulletin board for the purposes of Plaintiffs' libel claims; and,

    2. that Charles Epstien, the Board Leader of PRODIGY's "money Talk" computer bulletin board, acted as PRODIGY's agent for the purposes of the acts and omissions alleged in the complaint.

  3. At issue in this case are statements about Plaintiffs made by an unidentified bulletin board user or "poster" on PRODIGY's "Money Talk" computer bulletin board on October 23rd and 25th of 1994. These statements included the following:

    1. STRATTON OAKMONT, INC. ("STRATTON"), a securities investment banking firm, and DANIEL PORUSH, STRATTON'S president, committed criminal and fraudulent acts in connection with the initial public offering of stock of Solomon-Page Ltd.;

    2. the Solomon-Page offering was a "major criminal fraud" and "100% criminal fraud";

    3. PORUSH was "soon to be proven criminal", and,

    4. STRATTON was a "cult of brokers who either lie for a living or get fired."

  4. Plaintiffs commenced this action against PRODIGY, the owner and operator of the network on which the statements appeared, and the unidentified party who posted the aforementioned statements. The second amended complaint alleges ten (10) causes of action, including claims for per se libel. On this motion, "in order to materially advance the outcome of this litigation" (Zamansky affidavit, par. 4), Plaintiffs seek partial judgment on two issues, namely:

    1. whether PRODIGY may be considered a "publisher: of the aforementioned statements; and,

    2. whether Epstien, the Board leader for the computer bulletin board on which the statements were posted, acted with actual and apparent authority as PRODIGY's "agent: for the purposes of the claims in this action.

  5. By way of background, it is undisputed that PRODIGY's computer network has at least two million subscribers who communicate with each other and with the general publisher population on PRODIGY's bulletin boards. "Money Talk" the board on which the aforementioned statement appeared, is allegedly the leading and most widely read financial computer bulletin board in the United States, whose members can post statements regarding stocks, investments and other financial matters. PRODIGY contracts with Bulletin Board Leaders, who, among other things, participate in board discussions and undertake promotional efforts to encourage usage and increase users. The Board Leader for "Money Talk" at the time the alleged libelous statements were posted was Charles Epstien.

  6. PRODIGY commenced operations in 1990. Plaintiffs base their claim that PRODIGY is a publisher in large measure on PRODIGY's stated policy, starting in 1990, that it was a family orientated computer network. In various national newspaper articles written by Geoffrey Moore, PRODIGY's Director of Market Programs and Communications, PRODIGY held itself out as an online service that exercised editorial control over the content of messages posted on its computer bulletin boards, thereby expressly differentiating itself from the competition and expressly likening itself to a newspaper. (see, Exhibits I and J to Plaintiffs' moving papers.) In one article PRODIGY stated:

    We make no apology for pursuing a value system that reflects the culture of the millions of American families we aspire to serve. Certainly no responsible newspaper does less when it chooses the type of advertising it publishes, the letters it prints, the degree of nudity and unsupported gossip its editors tolerate.

    (Exhibit J)

  7. Plaintiffs characterize the aforementioned articles by PRODIGY as admissions (see, Battner v Pokoik, 81 AD2d 572, app. dsmd. 54 NY2d 750) and argue that, together with certain documentation and deposition testimony, these articles establish Plaintiffs' prima facie case. In opposition, PRODIGY insists that its policies have changed and evolved since 1990 and that the latest article on the subject, dated February, 1993, did not reflect PRODIGY's policies in October, 1994, when the allegedly libelous statements were posted. Although the eighteen month lapse of time between the last article and the aforementioned statements is not significant, and the Court is wary of interpreting statements and admissions out of context, these considerations go solely to the weight of this evidence.

  8. Plaintiffs further rely upon the following additional evidence in support of their claim that PRODIGY is a publisher:

    1. promulgation of "content guidelines" (the "Guidelines" found at Plaintiffs' Exhibit F) in which, inter alia, users are requested to refrain from posting notes that are "insulting" and are advised that "notes that harass other members or are deemed to be in bad taste or grossly repugnant to community standards, or are deemed harmful to maintaining a harmonious online community, will be removed when brought to PRODIGY's attention"; the Guidelines all expressly state that although "Prodigy is committed to open debate and discussion on the bulletin boards",

    2. use of a software screening program which automatically prescreens all bulletin board postings for offensive language;

    3. the use of Board Leaders such as Epstien whose duties include enforcement of the Guidelines, according to Jennifer Ambrozek, the Manager of Prodigy's bulletin boards and the person at PRODIGY responsible for supervising the Board Leaders (see Plaintiffs' Exhibit R, Ambrozek deposition transcript, at p. 191); and

    4. testimony by Epstien as to a tool for Board \Leaders known as an "emergency delete function" pursuant to which a Board Leader could remove a note and send a previously prepared message of explanation "ranging from solicitation, bad advice, insulting, wrong topic, off topic, bad taste, etcetera." (Epstien deposition Transcript, p. 52).

  9. A finding that PRODIGY is a publisher is the first hurdle for Plaintiffs to overcome in pursuit of their defamation claims, because one who repeats or otherwise republishes a libel is subject to liability as if he had originally published it. [Cianci v New York Times Pub. Co., 639 F2d. 54, 61; Restatement, Second Torts Section 578 (1977).] In contrast, distributors such as book stores and libraries may be libel for defamatory statements of others only if they knew or had reason to know of the defamatory statement at issue. [Cubby Inc. v CompuServe Inc., 776 F. Supp. 135, 139; see also Auvil v CBS 60 Minutes, 800 F. Supp. 928, 932.] A distributor, or deliverer of a defamatory material is considered a passive conduit and will not be found liable in the absence of fault. [Auvil supra, see also Misu v Mooney, 124 Misc2d 95 (claims against printer of weekly newspaper containing allegedly libelous articles dismissed in absence of any evidence that printer knew or had reason to know of the allegedly libelous nature of the articles). However, a newspaper, for example, is more than a passive receptacle or conduit for news, comment and advertising. [Miami Herald Publishing Co. v Tornillo, 418 US 241, 258.] The choice material to go into a newspaper and the decisions made as to the content of the paper constitute the exercise of editorial control and judgment (Id.), and with this editorial control comes increased liability. (See Cubby, supra.) In short, the critical issue to be determined by this Court is whether the foregoing evidence establishes a prima facie case that PRODIGY exercised sufficient editorial control over its computer bulletin boards to render it a publisher with the same responsibilities of a newspaper.

  10. Again, PRODIGY insists that its former policy of manually reviewing all messages prior to the posting was changed "long before the messages complained of by the Plaintiffs were posted." (Schneck affidavit, par. 4.) However, no documentation or detailed explanation of such a change, and the dissemination of news of such a change, has been submitted. In addition, PRODIGY argues that in terms of sheer volume - - currently 60,000 messages a day are posted on PRODIGY bulletin boards - - manual review of messages is not feasible. While PRODIGY admits that Board Leaders do not function as "editors". Furthermore, PRODIGY argues generally that this Court should not decide issues that can directly impact this developing communications medium without the benefit of a full record, although it fails to describe what further facts remain to be developed on this issue of whether it is a publisher.

  11. As for legal authority, PRODIGY relies on the Cubby case, supra. There the defendant CompuServe was a computer network providing subscribers with computer related services or forums including an online general information service or "electronic Library". One of the publications available on the Journalism Forum carried defamatory statements about the Plaintiff, and electronic newsletter. Interestingly, an independent entity named Cameron Communications, Inc. ("CCI") had "contracted to manage, review, create, delete, edit, and otherwise control the contents for the Journalism Forum in accordance with editorial and technical standards and conventions of style as established by CompuServe". The Court noted that CompuServe had no opportunity to review the contents of the publication as issue before it was uploaded into CompuServe's computer banks. Consequently, the Court found that CompuServe's product was, "in essence, an electronic for-profit library" that carried a vast number of publications, and that CompuServe had "little or no editorial control" over the contents of those publications. In granting CompuServe's motion for summery judgment, the Cubby court held (776 F. Supp. 135, 140):

    A computerized database it is functional equivalent of a more traditional news vendor, and the inconsistent application of a lower standard of liability to an electronic news distributor such as CompuServe than that which is applied to a public library, bookstore, or newsstand would impose an undue burden on the freeflow of information.

  12. The key distinction between CompuServe and PRODIGY is twofold. First, PRODIGY held itself out to the public and its members as controlling the content of its computer built an boards. Second, PRODIGY implemented this control through its automatic software screening program, and the Guidelines which Board Leaders are required to enforce. By actively utilizing technology and the man power to delete notes from its computer built an boards on the basis of offensiveness and "bad taste", for example, PRODIGY is clearly making decisions as to content (see, Miami Herald Publishing Co. v Tornillo, supra), and such decisions constitutes editorial control. (Id.) that such control is not complete and in enforced both as early as the notes arrive and as late as a complaint is made, does not minimize or eviscerate the simple fact that PRODIGY has uniquely arrogated to itself the role of determining what is proper for its members to post and read on its built an boards. Based on the forgoing, this Court is compelled to conclude that for the purposes of plaintiffs' claims in this action, PRODIGY is a publisher rather than a distributor.

  13. An interesting comparison may be found in Auvil v CBS 60 Minutes (supra), where apple growers sued a television network and local affiliates because of an alleged defamatory investigative report generated by the network and broadcast by its affiliates. The record established that the affiliates exercised no editorial control over the broadcast although they had the power to do so by virtue of their contract with CBS, they had the opportunity to do so by virtue of a three hour hiatus for the west coast time differential, that had the technical capability to do so, and they in fact had occasionally censored network programming in the past, albeit never in connection with "60 Minutes". The Auvil court found (800 F. Supp. at 931-932):

    It is argued that these features, coupled with the power to censor, triggered the duty to censor. That is a leap which the Court is not prepared to join in.

    * * *

    time editorial boards at local stations throughout the country which possess sufficient knowledge, legal acumen and access to experts to continually monitor incoming transmissions and exercise on-the-spot discretionary calls or face &75 million lawsuits at every turn. That is not realistic.

    * * *

    More than merely unrealistic in economic terms, it is difficult to imagine a scenario more chilling on the media's right of expression and the public's right to know.

    Consequently, the court dismissed all claims against the affiliates on the basis of "conduit liability", which could not be established therein absent fault, which was not shown.

  14. In contrast, here PRODIGY has virtually created an editorial staff of Board Leaders who have the ability to continually monitor incoming transmissions and in fact do spend time censoring notes. Indeed, it could be said that PRODIGY's current system of automatic scanning, Guidelines and Board Leaders may have a chilling effect on freedom of communication in Cyberspace, and it appears that this chilling effect is exactly what PRODIGY wants, but for the legal liability that attaches to the censorship.

  15. Let it be clear that this Court is in full agreement with Cubby and Auvil, Computer bulletin boards should generally be regarded in the same context as bookstores, libraries and network affiliates. [See Edward v DiLello, Functional Equivalency and Its application to Freedom of Speech on Computer Bulletin Boards, 26 Colum. J. Law & Eoc. Probs. 199, 210-211 (1993).] It is PRODIGY's new policies, technology and staffing decisions which have altered the scenario and mandated the finding that it is a publisher. PRODIGY's conscious choice, to gain the benefits of editorial control, has opened it up to a greater liability to CompuServe and other computer networks that make no such choice. For the record, the fear that this Court's finding of publishers status for PRODIGY will compel all computer networks to abdicate control of their built an boards, incorrectly presumes that the market will refuse to compensate a network for its increased control and the resulting increased exposure. [See, Eric Schlachter, Cyberspace, The Free Market and The Free Marketplace of Ideas: Recognizing Legal Differences in Computer Bulletin Board Functions, 16 Hastings Communication and Entertainment L.J., 87, 138-139.] Presumably PRODIGY's decision to regulate the content of its bulletin boards was in part influenced by its desire to attract a market it perceived to exist consisting of users seeking a "family -oriented" computer service. This decision simply required that to the extent computer networks provide such services, they must also accept the concomitant legal consequences. In addition, the Court also notes that the issues addressed herein may ultimately be preempted by federal law if the Communications Decency Act of 1995, several versions of which are pending in Congress, in enacted. [See, Congressional Quarterly US S 652, Congressional Quarterly US HR 1004, and Congressional Quarterly US S 314.]

  16. The Court now turns to the second issue presented here, of whether Epstein was PRODIGY's agent for the purposes of the acts and omissions alleged in the complaint. Agency is a legal relationship which results from the manifestation of consent of one person to allow another TO act on his or her behalf and subject to his or her control, and consent by the other to so act. [Maurillo v Park Slope U-Haul, 194 AD2d 142; Restatement (second) of Agency s1.] The starting point for an agency analysis in this case in the "Bulletin Board Leader Agreement" ("the Agreement" found as Exhibit A to Opposition Affidavit of William C. Schneck) between PRODIGY and Epstein. This Agreement sets forth eleven specific responsibilities expected of a Board Leader including

    1. the posting of a minimum of 120 notes on the bulletin board each month:

    2. working with member Representatives;

    3. providing monthly reports and

    4. following any additional procedures provided by PRODIGY.

    The Agreement also requires prior PRODIGY approval of all promotional EFFORTS. In addition, the Agreement contains the following language.

    Although you will not be a Prodigy representative, your actions as Board Leader will still reflect on Prodigy.

    You will be solely responsible for all of your actions as a Board Leader. While Prodigy will certainly support your actions as a Board Leader and a general matter (so long as they are not in breach of this Agreement), we will not assume any liability for anything you do (or fail to do) as a Board Leader. You hereby indemnify and agree to hole Prodigy harmless from and against all claim cost, liabilities judgments .... arising out of or in connections with anything you do ....

    Being a Board Leader does not make you a Prodigy Services Company employee, representative or agent, and you agree not to claim or suggest that you are one.

  17. Prodigy relies on this language to extricate itself from any alleged agency relationship with Epstein. However, Talismanic language does not determine an agency relationship. [Matter of Shulman Transport Enterprises, Inc., 33 B.R.383, 385, aff'd 744 F2d 293.] The Court must look to the substance of the relationship. (Id.) Where one party retains a sufficient degree of direction and control over another, a principal-agent relationship exists. [Garcia v Herald Tribune Fresh Air Fund, Inc., 51 Ad2d 897.] In addition, whether one is an independent contractor is not determinative of whether one is an agent. [Columbia Broadcasting System, Inc. v Stokely-Van Camp Inc., 522 F2d 369; Ackert v Ausman, 29 Miso2d 962 aff'd 20 AD2d 850.]

  18. As to the substance of the relationship between PRODIGY and its Board Leaders, PRODIGY Security Officer McDowell testified that Board Leaders are required to follow the Guidelines and that PRODIGY performs a "management function" with respect to the activities of the Board Leaders. (McDowell deposition transcript p. 78, found at Exhibit S to the moving papers.) Furthermore, Epstein's Supervisor, Jennifer Ambrozek, testified that PRODIGY reviews the Guidelines with Board Leaders, who are then required to enforce the Guidelines. (Ambrozek deposition transcript pp. 23 and 191, found at Exhibit R to the moving papers.) Board Leaders are also given a 28 page "Bulletin Board Leader Survival Guide" (Exhibit O to the moving papers), dated October 1994, wherein many technical terms and procedures are explained, and the following caveat is given:


  19. Where the facts are not disputed the question of agency should be resolved by the court. [Plymouth Rock Fuel Corp. v Leucadia Inc., 100 AD2d 842.] This is such a case. The aforementioned testimony by PRODIGY employees and documentation generated by PRODIGY, together with the Guidelines themselves, cannot be disputed by PRODIGY and leave no doubt that at least for the limited purpose of monitoring and editing the "Money Talk" computer bulletin Board, PRODIGY directed and controlled Epstein's actions. In reaching this conclusion the Court has taken care not to rely on any testimony by Epstein, inasmuch as it is the conduct of the principal which must create the impression of authority, not the conduct of the agent. [See Ford v Unity Hosp., 32 NY2d 464, 473.] Based on the foregoing, the Court holds that Epstein acted as PRODIGY's agent for the purposes of the acts and omissions alleged in the complaint.


Jacob Zamansky for plaintiffs.

Martin Garbus for defendants.


Congress reversed the legal effect of this decision by passing section 230 of the Communications Decency Act 1996:

47 USC § 230 - Protection for private blocking and screening of offensive material



The Congress finds the following:


The rapidly developing array of Internet and other interactive computer services available to individual Americans represent an extraordinary advance in the availability of educational and informational resources to our citizens.


These services offer users a great degree of control over the information that they receive, as well as the potential for even greater control in the future as technology develops.


The Internet and other interactive computer services offer a forum for a true diversity of political discourse, unique opportunities for cultural development, and myriad avenues for intellectual activity.


The Internet and other interactive computer services have flourished, to the benefit of all Americans, with a minimum of government regulation.


Increasingly Americans are relying on interactive media for a variety of political, educational, cultural, and entertainment services.



It is the policy of the United States—


to promote the continued development of the Internet and other interactive computer services and other interactive media;


to preserve the vibrant and competitive free market that presently exists for the Internet and other interactive computer services, unfettered by Federal or State regulation;


to encourage the development of technologies which maximize user control over what information is received by individuals, families, and schools who use the Internet and other interactive computer services;


to remove disincentives for the development and utilization of blocking and filtering technologies that empower parents to restrict their children’s access to objectionable or inappropriate online material; and


to ensure vigorous enforcement of Federal criminal laws to deter and punish trafficking in obscenity, stalking, and harassment by means of computer.


Protection for “Good Samaritan” blocking and screening of offensive material


Treatment of publisher or speaker

No provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider.


Civil liability

No provider or user of an interactive computer service shall be held liable on account of—


any action voluntarily taken in good faith to restrict access to or availability of material that the provider or user considers to be obscene, lewd, lascivious, filthy, excessively violent, harassing, or otherwise objectionable, whether or not such material is constitutionally protected; or


any action taken to enable or make available to information content providers or others the technical means to restrict access to material described in paragraph (1).


Obligations of interactive computer service

A provider of interactive computer service shall, at the time of entering an agreement with a customer for the provision of interactive computer service and in a manner deemed appropriate by the provider, notify such customer that parental control protections (such as computer hardware, software, or filtering services) are commercially available that may assist the customer in limiting access to material that is harmful to minors. Such notice shall identify, or provide the customer with access to information identifying, current providers of such protections.


Effect on other laws


No effect on criminal law

Nothing in this section shall be construed to impair the enforcement of section 223 or 231 of this title, chapter 71 (relating to obscenity) or 110 (relating to sexual exploitation of children) of title 18, or any other Federal criminal statute.


No effect on intellectual property law

Nothing in this section shall be construed to limit or expand any law pertaining to intellectual property.


State law

Nothing in this section shall be construed to prevent any State from enforcing any State law that is consistent with this section. No cause of action may be brought and no liability may be imposed under any State or local law that is inconsistent with this section.


No effect on communications privacy law

Nothing in this section shall be construed to limit the application of the Electronic Communications Privacy Act of 1986 or any of the amendments made by such Act, or any similar State law.



As used in this section:



The term “Internet” means the international computer network of both Federal and non-Federal interoperable packet switched data networks.


Interactive computer service

The term “interactive computer service” means any information service, system, or access software provider that provides or enables computer access by multiple users to a computer server, including specifically a service or system that provides access to the Internet and such systems operated or services offered by libraries or educational institutions.


Information content provider

The term “information content provider” means any person or entity that is responsible, in whole or in part, for the creation or development of information provided through the Internet or any other interactive computer service.


Access software provider

The term “access software provider” means a provider of software (including client or server software), or enabling tools that do any one or more of the following:


filter, screen, allow, or disallow content;


pick, choose, analyze, or digest content; or


transmit, receive, display, forward, cache, search, subset, organize, reorganize, or translate content.

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