• by Wendy Davis  @wendyndavis, March 27, 2024

A federal appeals court has revived a lawsuit by iPhone users who said they lost money after downloading the fake cryptocurrency app Toast Plus from Apple's app store.

In an unsigned opinion issued Wednesday, a three-judge panel of the 9th Circuit Court of Appeals said Section 230 of the Communications Decency App didn't protect Apple from consumer protection claims regarding its representations about the the safety of its app store. That law generally immunizes interactive services from liability for material posted by third parties.

The ruling comes in a dispute dating to 2021, when Hadona Diep and Ryumei Nagao alleged in a class-action complaint that they incurred losses after downloading Toast Plus -- a phishing app disguised as a cryptocurrency wallet.

The pair contended that they thought the app was legitimate based on Apple's representations that its app store was “a safe and trusted place.”

U.S. District Court Judge Phyllis Hamilton dismissed the complaint in 2022, ruling that Apple was protected by Section 230 of the Communications Decency App. That dismissal was with prejudice, which prevented the duo from revising their claims and bringing them again.

Diep and Nagao appealed to the 9th Circuit, arguing that their case centered on Apple's own statements about the safety of its app store.

Apple countered the claims “inextricably depend” on the app's content -- and were therefore covered by Section 230.

The appellate panel ruled that Section 230 barred some claims in the lawsuit, but didn't apply to Apple's own statements about the app store and its process for reviewing apps.

Section 230 would not "bar a well-pleaded consumer protection claim," the judges wrote. 

At the same time, the panel ruled that the complaint brought by Diep and Nagao wasn't adequately fleshed, but said Hamilton should have allowed the pair to amend their allegations. The ruling issued Wednesday allows Diep and Nagao to beef up their claims that Apple violated state consumer protection laws and bring those claims again.

It's not clear whether they will be able to do so.

Last year, a coalition including the digital rights group Electronic Frontier Foundation, business organization Chamber of Commerce and tech-industry groups NetChoice and Chamber of Progress urged the appellate court to rule in Apple's favor.

Those groups warned that a decision against Apple could lead app stores to remove many third-party apps.

“The real thrust of plaintiffs’ claims is that they were harmed by third-party content published on an app store,” the organizations wrote. “The only way Apple could have met its alleged duties would be to monitor and remove third-party content.”

The groups added that consumers, app developers and the “broader internet ecosystem” will be harmed if companies like Apple are effectively forced to “meticulously review” apps in advance.

Santa Clara University law professor Eric Goldman, who closely follows litigation involving Section 230, predicts that plaintiffs in other lawsuits against tech companies will leverage Wednesday's decision.

“This ruling basically gives plaintiffs a way to get around 230,” he says, adding that plaintiffs might now “pick through every on-site disclosure” made by tech companies in hopes of arguing that they violated their representations by allowing harmful material on their platforms.

Jess Miers, senior counsel at the Chamber of Progress, adds that the ruling could pave the way for plaintiffs to sue tech companies over content moderation decisions. For instance, if a tech company fails to remove posts that arguably violate its content moderation policies, that company might now be more vulnerable to lawsuits claiming it misrepresented its policies.