Judge Denies Roomster's Motion to Dismiss Fake-Reviews Complaint

U.S. District Judge Colleen McMahon for Southern New York denied Roomster’s motions for dismissal, to stay discovery and for a protective order in a fraud case brought by the FTC and five states to thwart Roomster's proliferation of fake positive online reviews. Section 230 of the Communications Decency Act doesn't shield Roomster from its alleged violations of federal and state consumer protection laws, said McMahon's decision and order Wednesday (docket 1:22-cv-07389).

The FTC and attorneys general of California, Colorado, Florida, Massachusetts and New York sued the room-finding app and co-founders John Shriber and Roman Zaks in August for false advertising, deceptive trade practices, including fake reviews, and fraudulent businesses, among other claims.

Roomster sought to have the case dismissed, saying the FTC failed to state a claim and “lacks constitutional authority” to initiate the suit. The defendants “ceased all allegedly improper conduct” in 2018, they said, and are willing to stipulate to injunctive relief sought by the FTC “to the extent that any allegedly improper conduct continues.” But plaintiffs’ complaint “plausibly alleges” ongoing violations of FTC Act U.S.C. Section 45(a), prohibiting unfair or deceptive acts, McMahon ruled.

Even if plaintiffs bring their claims, defendants argued, they can’t be held liable for injuries stemming from user-generated listings and reviews because they're an interactive computer service provider “immune from liability for inaccuracies in user-supplied content” under Section 230. McMahon said a defendant interactive computer service isn't entitled to Section 230 immunity “for its own deceptive acts or practices, or its direct participation in a deceptive scheme.”

Defendants claimed the FTC improperly asked the court to grant monetary relief for the alleged violations, but McMahon ruled that argument “moot.” Only the plaintiff states are seeking monetary relief in the case, and if a monetary judgment is granted, the money will go only to the plaintiff states, she said.

California Attorney General Rob Bonta (D) hailed McMahon’s decision Thursday, saying it will allow the case to move forward “in our fight to seek justice for Californians who were duped by fake reviews, scams and unverified listings that Roomster let proliferate on its site.”

The subscription-based Roomster app advertises private rooms in cities worldwide and is targeted at lower-income renters for whom “every penny counts,” Bonta said, quoting Roomster marketing. An investigation into Roomster found the company bought at least 20,000 fake positive reviews for its app in the Google and Apple app stores, he said. Though Roomster made representations that its app offered “millions of verified” and “authentic” listings, “in reality, the app features a myriad of scam listings, and the company does not appear to do any sort of verification of posts,” Bonta said.

Roomster purports to be an intermediary between individuals looking for rentals, sublets and roommates, but users “are more likely to get scammed” on the platform than to get an apartment, said the complaint. Many of the listings on Roomster are “fake, and the platform is rife with fraudsters who have taken hundreds and thousands of dollars from its often-low-income users,” plaintiffs alleged.