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AC Media Group v. Macchia

United States District Court, E.D. Wisconsin

January 9, 2020

AC MEDIA GROUP and ELIZABETH DUFEK, Plaintiffs,
v.
ISABEL MACCHIA, Defendant.

          ORDER

          J.P. Stadtmueller U.S. District Judge.

         On December 19, 2019, Plaintiffs Elizabeth Dufek (“Dufek”) and AC Media Group, LLC (collectively, “Plaintiffs”) filed a complaint against Isabel Macchia (“Macchia”) alleging violations of Wisconsin state law arising from an online business venture. Plaintiffs alleged that the Court had diversity jurisdiction over the case pursuant to 28 U.S.C. § 1332(a)(1). See (Docket #1 ¶ 1). The following day, Plaintiffs filed a motion for a temporary restraining order against Macchia, seeking reinstatement of financial and administrative control over the online company. (Docket #5). On December 23, 2019, the Court requested additional briefing on the issue of its jurisdiction in light of the fact that Dufek is a Wisconsin citizen, Macchia is a citizen of Australia, and AC Media Group appeared to be a citizen of both Wisconsin and Australia, thereby destroying diversity. See Thomas v. Guardsmark, LLC, 487 F.3d 531, 534 (7th Cir. 2007); (Docket #10). Plaintiffs have since filed an amended complaint, which alleges that AC Media now has only one member, that being Dufek, because Macchia recently voluntarily withdrew her membership pursuant to Wis.Stat. § 183.0802(a)(1), (c)(1). (Docket #11 ¶¶ 6, 45-46). Accordingly, both plaintiffs are citizens of Wisconsin only, and the defendant is a citizen of Australia. The Court is satisfied that it has subject matter jurisdiction under 28 U.S.C. 1332(a)(2). It will now turn to the pending motion for a temporary restraining order which, for the reasons explained below, will be denied.

         1. RELEVANT FACTS

         Instagram is a photo-sharing application that is commonly leveraged by users and companies for advertisements. Instagram users with sizeable followings may be contacted by companies to promote products in exchange for money. Instagram users who receive money to advertise products via posts try to maximize the interactions that their posts receive in order to garner additional paid promotions. It is believed that Instagram's algorithm favors posts with more likes or comments. Accordingly, if a photo has a burst of engagement-i.e. likes or comments- soon after it is posted, the Instagram algorithm will push that post to the top of other users' photo feeds, ostensibly because that post is popular and of interest.

         In order to harness the power of the algorithm, some Instagram users have created “engagement groups” in which participants agree to engage with each other's posts by liking, commenting, or sharing, in a timely fashion. Members of engagement groups will make a post appear popular and of interest in order to manipulate the algorithm into promoting the post on other users' feeds. Thus, when a user posts a new photo, they will send their engagement group a link to the post so that other members in the group can click the link and immediately like or comment on the photo. The engagement groups are based on reciprocity-i.e., they work because members agree to engage with each other's content. However, some users will pay to “drop” their content in an engagement group without having to engage with other users' content. When a paid user drops a link, the non-paying users in the group will have to engage with the content or risk being ejected from the group, and thereby lose the opportunity for their own content to receive a boost in engagement.

         These engagement groups are hosted on other online platforms, such as Telegram, because Instagram does not sanction them. Indeed, the groups violate Instagram's Platform Policy and Community Guidelines, which users must abide by under the Terms of Use. See Instagram, “Terms of Use, ” https://help.instagram.com/581066165581870 (requiring users to abide by the Community Guidelines and Platform Policy); Instagram, “Community Guidelines, ” https://help.instagram.com/477434105621119 (asking users to “foster meaningful and genuine interactions” by “not artificially collecting likes, followers, or shares.”); Instagram, “Platform Policy, ” https://www.instagram.com/about/legal/terms/api/ (prohibiting participation “in any ‘like,' ‘share,' ‘comment' or ‘follower' exchange programs.”).

         The effect of these groups is to push less meritorious content to the tops of users' feeds, contributing to a sort of content pollution akin to that perpetuated by “bots, ” or automated computer programs designed to act like humans. Moreover, advertisers working with influencers who use engagement groups may not be reaping the full benefit of their bargains, as the first wave of engagement that a post receives is artificial, and the subsequent users that a post reaches due to the artificially inflated engagement statistics may not be interested in the product or the influencer-in other words, they may not be the targets for the advertisements. Finally, there is some risk associated with using engagement groups, as Instagram may ban accounts suspected of violating its terms and conditions. See Instagram, Terms of Use, https://help.instagram.com/581066165581870 (“We can refuse to provide all or part of the Service to you (including terminating or disabling your account) immediately. . .if you. . .violate these Terms of Use or our policies (including our Instagram Community Guidelines)); see also Alex Kantrowitz, Facebook Removes 10 Instagram Algorithm-Gaming Groups with Hundreds of Thousands of Members, BuzzFeed News (May 11, 2018), https://www.buzzfeednews.com/article/alexkantrowitz/facebook-removes-ten-instagram-algorithm-gaming-groups-with.

         In late 2018, Dufek and Macchia founded “AC Media, ” which operates several Instagram engagement groups via Telegram. The AC Media engagement groups-of which there are many-also feature a mechanism by which users can pay a fee in order to drop their posts in the groups without having to reciprocally like and engage with other posts. These paid memberships are called “premium memberships.” Dufek and Macchia each ran AC Media, administered and used its engagement groups, and benefited from its premium membership profits throughout 2019. Then, in December 2019, Macchia suddenly and unilaterally appropriated control of the AC Media links and the bank account through which AC Media directed its profits. Dufek lost administrative controls to AC Media's engagement groups, and could no longer post in them herself. Moreover, she lost access to the AC Media bank account. Macchia informed their clients that Dufek was no longer affiliated with the company, and made changes to the logos of some of the engagement groups. Several days later, Macchia withdrew as a member of the AC Media.

         2. LEGAL STANDARD

         “[A] preliminary injunction is an exercise of a very far-reaching power, never to be indulged in except in a case clearly demanding it.” Roland Mach. Co. v. Dresser Indus., Inc., 749 F.2d 380, 389 (7th Cir. 1984) (quotation omitted). “To determine whether a situation warrants such a remedy, a district court engages in an analysis that proceeds in two distinct phases: a threshold phase and a balancing phase.” Girl Scouts of Manitou Council, Inc. v. Girl Scouts of U.S. of Am., Inc., 549 F.3d 1079, 1085-86 (7th Cir. 2008). In the “threshold phase, ” the Court must determine if the movant has met its burden to establish that: (1) “absent a preliminary injunction, it will suffer irreparable harm in the interim period prior to final resolution of its claims”; (2) “traditional legal remedies would be inadequate”; and (3) “its claim has some likelihood of succeeding on the merits.” Id. (internal citations omitted). If the party seeking a preliminary injunction fails to satisfy its obligation to demonstrate any of these elements, the Court should not grant the injunction. See Abbott Labs. v. Mead Johnson & Co., 971 F.2d 6, 11 (7th Cir. 1992). And, only in the event that “the [C]ourt finds that the moving party has passed this initial threshold, [will] it then proceed[] to the balancing phase of the analysis.” Girl Scouts of Manitou Council, Inc., 549 F.3d at 1086.

         “In this second phase, the court, in an attempt to minimize the cost of potential error, ‘must somehow balance the nature and degree of the [movant]'s injury, the likelihood of prevailing at trial, the possible injury to the [non-movant] if the injunction is granted, and the wild card that is the ‘public interest.'” Id. (quoting Lawson Prods., Inc. v. Avnet, Inc., 782 F.2d 1429, 1433 (7th Cir. 1986)). “Specifically, the [C]ourt weighs the irreparable harm that the moving party would endure without the protection of the preliminary injunction against any irreparable harm the nonmoving party would suffer if the [C]ourt were to grant the requested relief.” Id. (citing Abbott Labs., 971 F.2d at 11-12). This process involves engaging in what the Court of Appeals terms “the sliding scale approach; the more likely the [movant] will succeed on the merits, the less the balance of irreparable harms need favor the [movant's] position.” Ty, Inc. v. Jones Group, Inc., 237 F.3d 891, 895 (7th Cir. 2001). “[T]his balancing process should also encompass any effects that granting or denying the preliminary injunction would have on nonparties (something courts have termed the ‘public interest').” Girl Scouts of Manitou Council, Inc., 549 F.3d at 1086. “Taking into account all these considerations, the district court must exercise its discretion ‘to arrive at a decision based on a subjective evaluation of the import of the various factors and a personal, intuitive sense about the nature of the case.'” Id. (quoting Lawson Prods., 782 F.2d at 1436).

         2. ANALYSIS

         2.1 Irreparable Harm and Inadequate Remedies at Law

         The Seventh Circuit teaches that “[o]nly if [the movant] will suffer irreparable harm in the interim-that is, harm that cannot be prevented or fully rectified by the final judgment after trial-can he get a preliminary injunction. . .The question is [] whether the [movant] will be made whole if he prevails on the merits and is awarded damages.” Roland Mach. Co., 749 F.2d at 386. This is an exceedingly high burden. The movant must show not simply that obtaining money damages at judgment will be “inadequate”- he must show that they will be “seriously deficient as a remedy for the harm suffered.” Id. Further, the Supreme Court has emphasized that a movant must do more than show a possibility that irreparable ...


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