Stratton Oakmont v. Prodigy

Citation: Stratton Oakmont, Inc. v. Prodigy Services, Inc., 1995 N.Y. Misc. LEXIS 229 (N.Y. Sup. Ct. May 26, 1995).

Factual Background
Prodigy Services, Inc. was an online service provider. An anonymous Prodigy subscriber posted allegedly defamatory messages about the brokerage firm Stratton Oakmont and its president on "Money Talk," a widely read Prodigy financial bulletin board where members could post statements regarding stocks, investments and other financial matters. Stratton Oakmont and its president sued Prodigy for defamation.

Trial Court Decision
In holding Prodigy to the standard of a publisher (and therefore subject to liability for defamation regardless of actual or imputed knowledge), the court distinguished Cubby v. CompuServe on several grounds. First, the court found that Prodigy held itself out as a family-oriented online service that exercised editorial control over the content of messages on its bulletin boards, thereby expressly differentiating itself from its competitors and likening itself to a newspaper. Second, the court found that Prodigy, in fact, regulated the content on its bulletin boards by (a) promulgating "content guidelines," (b) using software that automatically prescreened all bulletin board postings for offensive language, and (c) using "Board Leaders" to enforce Prodigy's content guidelines. Third, the court distinguished Cubby because in that case CompuServe had no opportunity to review the contents of the publication before it was uploaded.

The court also held that for the limited purpose of monitoring and editing "Money Talk," the Board Leader was an agent of Prodigy, notwithstanding express language to the contrary in Prodigy's Bulletin Board Leader Agreement. The court reached this conclusion because Board Leaders were required to follow procedures established by Prodigy, which exercised managerial control over the Leaders.

Subsequent Proceedings
Prodigy filed a notice of appeal and in October 1995, a provisional settlement was reached. As part of the settlement, Stratton Oakmont agree to support Prodigy's assertion that it is not a publisher and therefore cannot be liable for the acts of anonymous subscribers. On December 13, 1995, however, the court denied Prodigy's motion to vacate the court's May 26, 1995 opinion even though Stratton Oakmont supported Prodigy's motion, and the parties' settlement was conditioned on the court vacating its prior decision. The court reasoned that parties would be discouraged from settling cases early in the litigation if they knew that courts would, as a matter of course, vacate unfavorable rulings when requested to do so as a condition of settlement. In addition, the court wrote that the prior opinion dealt with:


 * a developing area of law [that] has thus far not kept pace with the technology . . . [creating] a real need for some precedents. To simply vacate that precedent on request because these two parties (or this plaintiff) has lost interest or decided that the litigation would be costly or time consuming would remove the only existing New York precedent in this area leaving the law even further behind the technology.