' 1

~`

DATE:

JUDGE:

REPORTER:

SUPERIOR COURT OF THE STATE OF CALIFORNIA

COUNTY OF SACRAMENTO

Lawrence G. Brown

People of the State of California

vs

Carl Ferrer, Michael Lacey, and

James Larkin,

Defendants

DEPARTMENT: 8

CLERK:

BAILIFF:

CASE NO. 16FE024013

Nature of Proceedings: Ruling on Defendants' Motion to Dismiss under Penal Code Section 1004 . .

Introduction

Backpage.com is one of the largest on-line classified advertisement services, through whzch users may

. ~ ~u'st advertisements in a variety of categories. Posting an advertisement in the "Adult Services" category

requires a fee. Through various levels of involvement with Backpage.com, Defendants have twice found

themselves facing criminal charges in Sacramento County relating to certain advertisements placed in the

"Adult Services" category.

The prosecution's theory is that Defendants conspired to create and organize a website that facilitates

sex trafficking. The People assert that Defendants created such a site through Backpage.com, knowing that

prostitutes and/or pimps use the site to advertise prostitution, and with the intent to m~imize their own profits

from the illegal sex trade. According to the People, this plan also included (ricking credit payment processors

into processing Backpage transactions, through the use'of shell companies and fraudulent billing descriptors.

A]Iegedly, the credit processors would not have processed the payments had they known they were doing

business with Backpage.com. The People assert that Defendants' plan has come to fruition and they have

derived massive financial support and maintenance fxom the prostitution.

Background

In 2Q16, Defendants faced various charges of pimping and conspiracy to pimp. The Honorable Michael

G. Bowman SUSTAINED the Defendants' demurrer and dismissed the complaint. Judge Bowman found that it

was apparent from the accusatory pleadings fihat the prosecution hinged on fireating Defendants as the speakers

~~

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Case 2:18-cr-00422-DJH Document 522-4 Filed 04/16/19 Page 1 of 19
,r""~'.the offensive conduct, when they were merely the publisher. Prosecution under this theory could not go

_~rward, as the Communications Decency Act ("CDA") provides immunity for online publishers and

distributors of content generated by third parties. (See 47 U.S.C. §230; Barrett v. Rosenthal (2Q06) 40 Ca1.4~'

33, 39.)

That same month, the Office of the Attorney General filed a new complaint, charging the same

Defendants with conspiracy to commit money Laundering (count 1), money laundering (counts 2-27), and

conspiracy to commit pimping (count 28). The People also allege three sentencing enhancements based on the

amount of money involved in the financial transactions. Defendant Ferrer also faces charges of pimping a

minor under 16 years old (counts 29-31, 40), pimping a minor (count 32), pimpzng (counts 33-36, 39), and

pimping a minor 16 years old (37-38).

On January 19, 2017, Defendants f led a Motion to Enforce the Court's Order of Dismissal; Alternative

Demuzxer; and Request to Transfer to Judge Bowman and Further Relief On January 23, 2017, the People filed

an Opposition. On March 6, 2017, Defendant filed a brief in fiarther support for fine above named Demurrer

under Penal Code sec#ion 1004, and the People responded in further Opposition on March 8, 2017. The People

also filed a Motion to Strike the declaration of defense counsel and Defendants' E~iibits A-J, attached to the

Motion of January 19, 2Q 17. On March 10, 2017, the parties addxessed in open court Defendants' concerns of

whether the complaint was sufficiently pled such that Defendants have been adequately apprised of the charges.

Of particular concern was the money laundering charges, which charged Defendants with money laundering

under the transactional prong but did not specify the underlying criminal activity. (See Penal Code

86.10(a)(2).) The Court invited the People to consider amending the complaint.

1 The People submitted the First ,Amended Criminal Complaint to ~e Court on March 24, 2Q17. This was

deemed filed on Apri128, 2017. The First Amended Complaint added several allegations and overt acts that

explained the theory of prosecution. In particular, the People provided clarification that fine money laundering

charges are based on bank fraud, wire fraud and prostitution. On May 26, 2017, Defendants addressed the

amended charges in their Continued Demurrer to Dismiss the State's Complaint. The People filed an

Opposition on June 9~', and Defendants filed a Reply on June 23, 2017.

Court's Leal Anaivsis and Ruling

The partizs have brizfed multiplz issues that may be grouped into three categories. Defendants argue

that the prosecution constitutes harassment and should be curtailed. Defendants also make several challenges to

the pleadings and argue that procedural and facial defects prohibit the instant prosecution from going forward.

Finally, Defendants argue that the First Amendment bars the instant prosecution because it is based on

impermissible interference with publisher functions.

I. Nature of the Prosecution

A. Basis far the prosecution

r►a

Case 2:18-cr-00422-DJH Document 522-4 Filed 04/16/19 Page 2 of 19
Since at least 2010, public officials and state prosecutors have been pressuring Backpage to remove the

"Adult Services" category from the website in an endeavor to combat sex trafficking. With Backpage's refusal

~comply, ~ a philosophical disagreement between public o~ciais and Backpage as to how best to combat sex

tricking is clearly present. (See Backpage.com, LLC v. Lynch, 216 F.Supp.3d 96, 100, fn. 2.) Defendants

note the instant prosecution is one of a recent rash of attempts to assign liability for affiliation with Backpage.

Defendants claim that in each case, including the previous prosecution dismissed by Judge Bowman, Backpage

successfully argued that it was entitled to immunity under the CDA. Defendants argue that in light of this cleax

immunity, the instant charges are brought in bad faith and the prosecution is vindictive. Defendants argue that

this is not the first time a government official has used coercive techniques to attempt to shut them down. (See

e.g., Bacl~age.com, LLC v. Dart (7~' Cir. 2015) 807 F.3d 229 [in his professional capacity, Cook County Sheriff

threatened Backpage.com business partners in an attempt to dry out Backpage business].)

Yet, perhaps another possible perspective is that there is a growing desire to hold online media

accountable far their role in disseminating infornnatian leading to condemnable acts by third parties. (See e.g.,

Cohen v. Facebook, Inc. E.D.N.Y. May 18, 2017) 201'7 U.S. Dist. LEXIS 76741, *28-31 [seeking to hold

Facebook liable for allowing Haman to use its platform to encourage terrorist attacks]; and Fields v. Twitter, Inc

(N.D. Ca1.20I6) 217 F.Supp.3d 1116 [seeking to hold Twitter liable for providing ISIS an account to use for

spreading extremist propaganda]. )

This Caurt need not decide whether this prosecution is brought in bad faith, nor is there a sufficient

factual basis to do so, at this juncture. As discussed below, whether this case proceeds depends;in part, on

whether Defendants enjoy immunity against these new charges under the CDA. Thisrmmunity was provided by

Congress, and regardless of where Backpage floats on the tide of public opinion, the immunity must be

,

.edified by Congress. ~~

B. The People's Investigation May Continue

Defendants also request this Court to enjoin further investigation by the People and to rettun the

materials already seized as part of the investigation. This argument is largely based on Defendants claim that

this prosecution is brought in bad faith. At this stage, there is insufficient justification for interference with fine

prosecutor's functions. (Compare Dart, supra, 807 F.3d at 233 [Court fording letter sent by Sheriff"containing

legal threats and demands" to sever contractual ties with Backpage was clear evidence of bad acts by

government official].) Thus, Defendants' request to enjoin the People from further investigation and to return.

the materials seized is denied.

II. Procedural and Facial Challenges to the Charges

A. Authority to File New Charles.

The parties dispute whether the instant prosecution may be initiated against Defendants. Defendants

argue the People are prohibited from re-filing charges after the original demurrer was SUSTAINED and

maintain that the First Amended Complaint constitutes an improper attempt to reinstate that original complaint.

Defendants argue that the People forfeited this opportunity by failing to fallow the proper procedure to cure the

defects in the previous complaint, as outlined in Penal Cade sections 1007-1009. Defendants also argue that reCase 2:18-cr-00422-DJH Document 522-4 Filed 04/16/19 Page 3 of 19
r"`"'ing of charges is barred because the previous complaint was dismissed on constitutional grounds. (See People

.-: Pinedo (20Q5) 128 Ca1.App.4~' 968, 972 [state and federal due process clauses Iimit the People's discretion to

re-file charges].)

The People's position is that the gxanting of a demurrer does not bar the prosecution from filing a new

complaint, even where the charges are the same. "Even a dismissal in the superior court following an order

setting aside an information or indictment is no bar to a future prosecution for the same offense." (People v.

ZThlemann (1973) 9 Ca1.3d 662, 666, citing People v. Van Eyk (1961} 56 Ca1.2d 471, 477; Pen. Code, § 999; see

also Pen. Code § 1387.) Nevertheless, the People represent that the instant charges are "substantially different"

than those contained in the prior complaint and because the prior complaint was not dismissed with prejudice,

the new charges are appropriate.

The Court finds the People may file the instant charges. Judge Bowman dismissed the first compliant

after finding the Defendants were entitled to immunity from prosecution under the Communications Decency

Act. While the CDA was established to protect the constitutional right to free speech, the immunity provision

pxoviding online publishers immunity from liability for third-party speech is statutory. Thus, the dismissal was

based on statutory legal grounds. Generally, when charges are dismissed based on legal grounds, the

prosecution may file a new complaint or seek a grand jury indictment. (Uhlemann, supra, 9 Ca.l. 3d at 666.)

Moreover, Judge Bowman's ruling signaled that a prosecution based on treating publishers as the speaker was

prohibited under the CDA. This ruling would not prevent a prosecution under theories not subject to the

immunity provision. The People assert that the instant charges do not fall under the purview of the CDA.

`~'~ B. Jurisdiction

Defendants question whether California has jurisdiction over this prosecution. Defendants argue that the

allegation that they conducted transactions "throughout California," is insufficient because the People have not

identified a single act actually committed in California. Defendants argue that territorial jurisdiction maybe

raised in a demurrer and is subjected to pre-trial deternzination. (See Penal Code § 1004(1).)

A state is not prohibited from exercising jurisdiction over criminal acts that take place outside of its

borders, if the results of the crime are intended to (and do) cause harm within fine state. (People v Fortner

(2013) 217 Ca1.App.4th 1360, 1363.} California claims jurisdiction for offenses that fall under specific types of

interstate situations. (Ibid, citing People v. Betts (2005) 34 Ca1.4~' 1039, 1047.) For example, under Penal Code

section 27, a defendant may be punished under California law for any crime committed "in whole or in part" of

the state. Similarly, under Penal Code section 7$8, California has jurisdiction for offenses commenced out of

state then conslu~zmated in California. Finally, under Penal Code section ~78a, California has territorial

jurisdiction if the defendant does a preparatory act in California that is more than a de minimis act toward the

completion of the offense. (Fortner, supra, 217 Cal..App.4~' at 1363-1365.) In other words, California has

territorial jurisdiction when "with intent to commit a crime" a person "does any act within this state in execution

or part execution of that intent, which culminates in the commission of a crime, either within or without this

state." (People v. Renteria (2008) 165 Ca1.App.4th 1108, 1116.}

~

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Case 2:18-cr-00422-DJH Document 522-4 Filed 04/16/19 Page 4 of 19
Here, the People contend that Defendants concocted a scheme to trick credit payment processors into

~~ocessing payments for Backpage transactions when the processors would have otherwise declined. The

.f ~~ple contend that this misrepresentation influenced banks to release money to Defendants. For jurisdictional

purposes, the People contend that the acts of hosting a website and accepting credit payments for advertisement

placement were non-de minimis parts of the overall scheme to defraud the banks. In this way, Defendants

arguably committed more prepaaratory acts in California than what was deemed sufficient in People v. Betts

(2005) 34 Cal.4th 1039, 1047, where there was sufficient evidence that the defendant's intent to molest his stepgranddaughters formed in California when he suggested they go with him on a long haul truck drive. (Id at

1054-1056.)

This Court finds that Califoznia has jurisdiction over the instant charges. Assuming, without deciding,

that Defendants intended to conduct, and participated in, the scheme alleged by the People, hosting the website

through which payments were processed under fraudulent conditions was more than a de minimis act toward the

bank fraud. The scheme would not have been as successful had if not been able to process payments for

Backpage advertisements placed in California. For purposes of establishing jurisdiction, these allegations are

sufficient.

C. Case Assi,~nment

Defendants request that this Court transfer the case back to Judge Bowman for the sake of "efficiency

and to prevent fonun-shopping." Defendants rely upon Penal Code section 1387, which~provides exceptions to

that general rule that the prosecution has an opportunity to re-file charges after one dismissal. (Pen. Code §

?.387(a).) While section 1387 also serves to curtail prosecutorial harassment by placing limits on the number of

ies charges maybe re-filed, these limitations do not dictate judicial assignment. This Court can find no

justification for assignment through a method other than through the normal procedure governed by local rules

1032 and 10.50. Defendants' request to have the case assigned to Judge Bowman is denied.

D. Judicial Notice

Defendants have also requested this Court to take judicial notice of several documents attached as

E~zbits A-J to their Motion filed on January 19, 201 ~. The People request this Court to strike these exhibits

and the accompanying declaration from defense counsel.

Tbis Court has been expressly called upon to review the propriety of the re-filed charges in light of the

previous dismissal. Therefore, this Court takes judzcial notice of the procedural history of the prior prosecution

including the prior complaint and the Order granting Defendants' Demurrer. (See People v. Putney (201 b) 1

Ca1.App.Sth 1058, 1063, fii. 4 [taking judicial notice of the prior case's procedural histozy but not the truth of

any facts involving the underlying charge]; People v. Hill (1998) 17 Ca1.4th 80Q, 847 [taking judicial notice of

unpublished decision in separate case].)

While the previously filed complaint and dismissal order is helpful to tl~e resolution of the matters before

this Court at this juncture, Defendants' other documents do not have the same utility. (See Sosinsky v. Grant

(1992} 6 Ca1.App.4th 1548, 1564 [a court may take judicial notice of the truth of facts asserted in documents

such as orders, findings of fact and conclusions of law, and judgments].) The Defendants' request to take

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Case 2:18-cr-00422-DJH Document 522-4 Filed 04/16/19 Page 5 of 19
~~icial notice for all exhibits attached to the January 19th motion, other than the previous complaint and

_ _~smissal order, is denied. The People's motion to strike these documents is SUSTAINED.

E. Challenges under Penal Code section 1Q04.

A defendant may demur on delineated statutory grounds. (Pen. Code, § 1004; People v. Saffell (1946)

74 Ca1.App.2d supp. 967, 972.) These include the ability to challenge: whether the facts stated constitute a

public offense; defects on the face of the accusatory pleading; or on the grounds that the pleading includes

information that would be a bar to prosecution. (Pen. Code, § 1004. See also People v. Goodman (2014} 225

Cal.App.4th 950, 956.) Literal compliance with pleading requirements under Penal Code section 952 is

insufficient if the accusation fails to give constitutionally adequate notice of what the accused must defend

against. (People v. Jordan (1971) 19 Cal.App.3d 362, 369.) California's system of criminal pleading under

section 952 relies in part upon the transcript of the grand jury hearing or preliminary examination which must be

funushed to the defendant to inform him of particular circumstances of his offense not shown by the accusatory

pleading. (People v. flnderson (1961) 55 Cal.Zd 655, 657; People v. Johnson (1964) 230 Cal.App.2d 80, 86;

People v..Io~dan (1971) 19 Cal. App. 3d 362, 369-371.)

However, compliance with section 952 does not necessarily overcome a due process attack and maybe

challenged in a demurrer prior to preliminary hearing. (Lamadrid v. Municipal Court (1981) 118 Cal.App3d

78b, 790; Choung v. People of State of California (1970) 320 F.Supp. 625, 629.) (See also Lott v.,~~Jnited States

(1962) 309 F.2d 115, 117 [offenses must be accurately described in an indici~nent; anal if necessary to do so, the

~

'egations must be expanded beyond the words of the statute in order to embrace all the ingredients necessary

~~the offense]; United States v. Ct-uikshank (1875) 92 U.S. 542, 558 [the object of the indictment is to fiunish

the accused with such a description of the charge against him as will enable him to make his defense and to

inform him of the facts alleged; a crime is made up of acts and intent and these must be set forth in the

indictment].) The complaint must be given a reasonable interpretation and read as a whole with its parts

considered in their context. (People v. Biane (2013) 58 Cal.4~` 381, 388.)

1. Money laundering p~ernised on federal offenses.

Defendants argue ~thhat the charges do not constitute a public offense because the People have no

authority to base their state prosecution for money laundering upon violations of federal bank oz wire fraud

laws. The People respond that California law allows the state to incorporate federal offenses by reference, and

the California money laundering statute specifically contau~.s such a reference. This Court agrees with the

People.

Penal Code section 156.10, subdivision (a), provides in pertinent part: "Any person who conducts or

atternp#s to conduct a transaction or more than one transaction within aseven-day period involving a monetary

instrument or instruments of a total value exceeding five thousand dollars ($ 5,000), or a total va3ue exceeding

twenty-five thousand dollars ($ 25,000) within a 30-day period, through one or more fnancial institutions (1)

with the specific intent to promote, manage, establish, carry on, or facilitate the promotion, management,

Case 2:18-cr-00422-DJH Document 522-4 Filed 04/16/19 Page 6 of 19
establishment, or carrying on of any crinninal activity, or (2) knowing that the monetary instrument represents

the proceeds af, or is derived directly or indirectly from the proceeds of, criminal activity, is guilty of the crime

~~~'money laundering."

Penal Code section 186.9 defines "criminal activity" as a criminal offense punishable undex the laws of

the state by imprisonment in the state prison or from a criminal offense committed in another jurisdiction

punishable under the laws of that jurisdiction by death or imprisonment for a tezm exceeding one year. (Pen.

Code § 186.9(e).) Federal bank fraud, in turn, is punishable by imprisonment for a term of not more than 30

yeaxs. (18 U.S.C. §1344.) Similarly, federal wire fraud is punishable by not more than 20 years, absent special

circumstances. (18 U.S.C. § 1343.) Thus, it appears that federal bank and/or wire fraud may serve as the

criminal activity underlying a charge of California money laundering.

2. The .First Amended Complaint is Su, fficiently Pled.

Defendants also argue that even if a sta#e money laundering prosecution may be predicated on a federal

offense, the charges are uncertain and fail to adequately apprise them of the actions against which fihey must

defend. Despite the amendments to the charges, Defendants continue to assert a lack of specificity as to fihe

transactions and monetary instruments allegedly involved in the money laundering. Defendants assert that the

People may not rely on a simplistic pleading under Penal Code section 952, but must satisfy constitutional due

process requirements as vc~ell. The People respond that they have complied with fiheir pleading requirements and

the case should be advanced to the preliminary hearing, where the full nature of the charges.will become clear.

This Court agrees the complaint is not a model of clarity. However, the nature of the charges and

theories of prosecution are ascertainable from the amended charging instrument. Specifically, ~}ae People now

~! ~ge that Defendants conspired to orchestrate a bank fraud by misrepresenting to credit payment processors

wt at the Y were not P rocessin g transactions from Back p a g, e and this misre p resentation would tr igger a release of

funds from banks. The overt acts alleged clarify that Defendants created multiple classified websites, and when

applying for (at least one) merchant account, Defendant Ferrer omitted any reference to Backpage, despite

intending to process Backpage transactions through the account. The People allege that credit payment

processors, along with American Express, would not have knowingly processed the payments for Backpage and

the banks would not have released funds absent Defendants' trickery.

These allegations provide sufficient notice for Defendants to understand the nature of the charges and

prepare a defense. Essentially, either Defendants did - or did not -materially represent to credit payment

processors in a scheme to fraudulently obfiain money from banks. If Defendants did so, this may form the basis

for a money laundering charge. {Cf. United States v. Mason (9~' Cir. 1990) 902 F.2d 1434, 14431 [federal

money laundering conviction supported by evidence that bank would not have opened a merchant account had it

known it was laundering credit charges far prostitution; the false representation to the credit processoz

influenced the bank's release of funds].) The factual resolution to that question, however, is not at issue here.

i Overruled, on other grounds in part by United States v. Doe (9~' Cir. 2013) 705 F.3d 1134, which was later withdrawn, See also

United States v. Warshak (6~' Cir. 2010) 631 F.3d 266.

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Case 2:18-cr-00422-DJH Document 522-4 Filed 04/16/19 Page 7 of 19
~'hat is at issue is whether the First Amended Complaint has been sufficiently pled to meet statutory and due tt

'~- r_ocess requirements.

This Court finds the First .Amended Complaint provides Defendants notice of the offenses of which they

are accused, and Defendants are adequately apprised of the conduct against which they must defend. (Penal

Code §952; Lamadrid, supra, 118 Ca1.App.3d at 791.) In fact, Defendants' knowledge of the nature of the

charges and theory of prosecution has been demonstrated throughout the briefing process and during argument

to the Court. Therefore, the First Amended Complaint meets statutory and due process requirements and is

sum ciently pled to go forward.

F. Purported Defects in the Money Launderin~Char~es

To prove that the defendant is guilty of money laundering, the People must ultimately show the act of

conducting financial transactions) of a minimum amount, within a certain time frame, and that when the

defendant did so, he either intended to promote criminal activity or he knew that the money represented the

proceeds of criminal activity or was derived directly or indirectly from the proceeds of criminal activity.

(CALCRIM 2997)

One Act, One Crime Concerns

Defendants argue that even if charges are sufficiently pled, the money laundering charges are fatally

flawed because they are premised on the same acts as those allegedly constituting bank ax wire fraud.

~

,~endants argue that under the People's theory, the credit payments impermissibly constitute both the bank

_-aud and the money laundering.

Notably, fhe federal bank fraud statute punishes the fraudulent scheme, not necessarily the completion of

the scheme. The offender must acquire (oz attempt to acquire) bank property by means of the material

misrepresentation. (Loughrin v. United States (2014) 134 S.Ct. 2384, 23.93-2394.) Because bank fraud may be

completed upon attempting to effectuate the scheme, there exists a range of punishable behavior that is subject

to factual determinations by the trier of fact. That is separate and apart from the question at bar; i. e whether the

charges are adequately pled.

Nevertheless, the parties draw attention to a problem identified by the federal courts that may arise when

federal money laundering is based on federal bank or wire fraud, and suggest the same problem is present here.

When flee activity required to comrn.it the fraud encompasses activity required to commit money laundering, the

two offenses should merge into one offense under federal law. (See e.g., United States v. Wilkes (9~' Cir. 2011)

662 F.3d 524, 545-546 [if a successful bank fraud requires concealment of financial transactions, the defendants

cannot be charged with that same act of concealment a second time, as relating to -the commission of money

laundering].) Perhaps the most common "meager" problem arises when the court must parse out (or trace) the

money involved in the underlying crime and money involved in the laundering. As a result, there are a plethora

of federal cases that discuss tracing the proceeds of the criminal activity in order to determine when the bank or

wire fraud ends, and money laundering begins. Indeed, the parties spend much time debating this issue.

Case 2:18-cr-00422-DJH Document 522-4 Filed 04/16/19 Page 8 of 19
. Included in this discussion is the appropriate federal definition of "proceeds" for tracing purposes. (Compare

United States v. Santos (2008) 553 US 507 [plurality decision defining "proceeds" as profits rather than gross

!~ ~:eipts] with United States v. Grasso (9~' Cir. 2013) 724 F.3d 107, 1091 [recognizing subsequent legislative

amendment defining "proceeds" as including gross receipts of criminal activity].)

Despite the parties' request to weigh in on this vexing problem faced by federal courts, the difficulty in

defining and tracing proceeds does not appear to so plague the California money laundering statute. The bench

notes in CALCRIM 2997 governing Money Laundering instruct, "If the definition of proceeds is an issue, see

United States v. Santos —which holds that `proceeds' in the federal money laundering statute means `profits. "'

There is no recognition of the legislative definition of "proceeds" enacted after Santos. This signals an

intentional divergence from federal law and provides us with a clear definition of the type of money to be traced.

Additionally, People v. Mays (2007) 148 ~Ca1.App.4~' 13, the lead case involving money laundering,

provides guidance on how to trace the money from the underlying criminal actzvity on its path to be laundered.

The Mays court determined that our "promotional" money laundering prong under subsection (a)(1) of Penal

Code section 186.10 requires monetary transactions to be made with a specific intent to keep the criminal

activity alive. (Id at 29.) Under this section, there is no need to trace any funds, since there is no requirement

that the money to be derived from an illegal source in order to promote criminal activity. (Id at 30)

However, under the "transactional" prong of subsection (a)(2), the requisite mens rea is knowledge that a

monetary instruuzent represents criminal proceeds. Under this subsection, tracing the sources} of transactions is

required. Monetary instnzments must be composed of the minimum statutory amount solely from criminal

proceeds; it is insufficient merely to show the transaction was the right amount and from an account with

comingled funds. This requires the government to show: the defendant's entire business was illegal, there were

t7osits of the minunum statutory amount or more in criminally dexived funds, or there was a transfer of ail

funds out of the account. (Mays, supra, 148 Cal.App.4~' at 32.)

Here, Defendants have been charged under both prongs of the money laundering statute. This means

Defendants are being chaxged with, essentially, either investing money into the underlying criminal scheme, or

conducting transaction wifih profits from the scheme and the People must show that the profits came solely from

that underlying criminal activity. Regardless of whether the People will succeed in meeting their burden of

proof, the theory and the charges under which they are proceeding appear to be valid under California Iaw and

adequately pled such that any defect does not bar prosecution.

2. Bank Fraud tray be Premised on Intent to Defraud a Thzrd Party

Defendants argue that even if the "criminal activity" underlying a money laundering charge maybe

based on a federal bank charge, the instant allegations of bank fraud are facially deficient because Defendants

had no relationship with the banks iiarned in fhe First Amended Complaint and therefore could not have been

victims of bank fraud.

The federal bank fraud statute states: "Whoever knowingly executes, or attempts to execute, a scheme

or artifice (1 } to defraud a financial institution; or (2) to obtain any of the moneys, funds, credits, assets,

securities, or other property owned by, or under the custody or control of, a financial institution, by means of

~~

Case 2:18-cr-00422-DJH Document 522-4 Filed 04/16/19 Page 9 of 19
r Ise or fraudulent pretenses, representations, or promises; shall be fined not more than $ 1,000,000 or

~,.

~prisoned not more than 30 years, or both." (1 ~ USC § 1344.)

Subsection (1) requires intent to defraud a financial institution. To act with the "intent to defraud"

means to act willfully, and wifih the specific intent to deceive or cheat for the purpose of either causing some

financial Ioss to another, or bringing about some financial gain to oneself. (United States v. Brandon (lst Cir.

1994) 17 F.3d 409, 425.) Subsection (2) requires that a defendant "knowingly execute[ ], or attempt[ ] to

execute, a scheme or artifice" and has two elements. First, the clause requires that the defendant intend "to

obtain any of the moneys ... or other property owned by, or under the custody or control of, a fuiancial

institution." Second, the clause requires that the envisioned result i.e., the obtaining of bank property—occur

"by means of false or fraudulent pretenses, representations, or promises." (Loughrin v. United States (2014) 134

S. Ct. 2384, 2388-2389.} There must be a "relational" connection between the alleged false statements ox

representations and the obtaining of bank property, such That the misrepresentation is material. (Loughrin v.

United States (2014) 134 S. Ct. 2384, 2393.)

A material misrepresentation made to a third party may qualify if it induces the bank to depart with its

property. (See United States v. Nguyen 2017 U.S.Dist. LEXIS 32549, * 15-19 and Louglu~in v. United States

(2014) 134 S.Ct. 2384, 2389 [both stating that bank fraud can cover deception of a non-bank custodian with a

goal to obtain a bank's property].) This theory of bank fraud has been pursued in other jurisdictions. For

example, in United States v. McNeil (9~' Cir. 20Q3) 320 F.3d 1034, 1039, the defendant used fake identifzcation

to open an account for the purposes of receiving a false tax refund, with the ultimate goal of transferring money

r~nm the fake account to his own. The 9th Circuit rejected the argument that the conviction was invalid because

'true victim was the IRS and not the bank. The court determined that the plan was two-fold; fraudulently

obtain money from the IR.S, then (after the bank becomes aholder-in-due-course) misrepresent to the bank that

Defendant was ultimately enfiitled to the money. (See also United States v. I~Yarshak (6~' Cir. 2010) 631 F.3d

266, 309-310 [jury could find that misrepresentation made to deceive payment processor to continue to process

payments when they would otherwise decline constitutes bank fraud]; United States v. Johnson (C.D. Ut. 2015)

2015 U.S.Dist. LEXIS 145102, *6 [submitting a fraudulent merchant account applications to a bank so that

onlzne sales could be processed can constitute bank fraud].)

By extrapolation, the instant allegations of bank fraud based on the theory that Defendants made a

material misrepresentation to a credit payment processor, which induced a bank to depart with its properly, may

be proper and may serve as the predicate "crzminal activity" for a state money laundering charge.

3. Money Laundering Based on Wire Fraud

Defendants are also charged with both prongs of money laundering after violating the federal wire fraud

statute under 1 S USC section 1343. Wire fraud is committed when: "Whoever, having devised or intending to

devise any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent

pretenses, representations, or promises, transmits or causes to be transmitted by means of wire, radio, ox

television communication in interstate or foreign commerce, any writings, signs, signals, pictures, or sounds for

~

`.

10

Case 2:18-cr-00422-DJH Document 522-4 Filed 04/16/19 Page 10 of 19
the purpose of executing such scheme or artifice, shall be fined under this title or imprisoned not more than 2d

years, oz both...." (18 USCS § 1343.)

(~- Wire fraud does not require proof that the defendant's conduct violated a separate law or regulation.

Rather, wire fraud has only three elements: "(1) a scheme to defraud; (2) use of the wires in furtherance of the

scheme; and (3} a specifzc intent to deceive or defraud." (United States v. Green {2p10) 592 Fad 1057, 1064,

quoting United States v.~ Shipsey (9th Cir. 2004) 363 F.3d 962, 971.) The scheme to defraud must only include

an "affirmative, material misrepresentation." (Green, supra, 592 F.3d at 1064).

Here, Defendants are faced with two counts of money laundering based on wire fraud, listing American

Express as the victim and describing the fraudulent behavior as "using interstate wires by using various payment

entities to disguise the true nature of the transactions." Factually, the People have alleged that American

Express signaled its intent to discontinue processing Backpage's credit payments after May 1, 2015, but

Defendants continued to process American Express transactions from Backpage. The People also allege that

Defendants created shell companies and engaged in factoring in order to obscure the nature and/or source of the

credit payments.

In light of the general money laundering discussion above, this Court finds no reason to prevent

prosecution for money laundering based on wire fraud.

III. Application of The First Amendment

In addition to the above facial attacks on the complaint, Defendants contend that the First Amendment

bars prosecution for all charges, as the People are seeking to prosecute them for publishing functions. However,

t. e instant charges are not based on an overt attempt to criminalize the act of publication, and traditional First

~ aendment analysis is not required here. Indeed, the money laundering charges based on bank and wire fraud,

on their face, are not based on publication of third party speech at all. Rather, they are based on the purported

illegality of Defendants financial operations. This Court finds that the immunity provision of the CDA is not

triggered by the money laundering charges based on bank or wire fraud. Thus, the following discussion is

directed at the pimping charges faced by Defendant Ferrer and the money laundering charges based on

prostitution.

That is not to say that the First Annendment is net implicated at all. Indeed, the protections afforded by

the First Amendment were the motivating factors behind the enaclxnent of the CDA. Congress expressly

intended to relieve online publishers from liability for publishing third-party speech. (47 U.S.C. § 230)

As noted above, Penal Code section 1Q04 allows for a demwrrer on the basis that the complaint contains

matter which, if true would legally bar the prosecution. (Penal Cade § 1004.) The language of the CDA itself

states, "No cause of action may be brought and no liability will may be imposed under any State or local law

That is inconsistent with Phis section." (47 U.S.C. §230 (e) (3) (emphasis added).) This statutory language

clearly demonstrates a legislative intent to provide both a bar to prosecution and an afffir~native defense at trial.

Thus, the relevant question in this case is whether, and to what extent, Defendants' activity entitles them to

protection of their First Amendment rights through the immunity provision of file CDA.

A. Immunity Under the Communications Decency Act

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Case 2:18-cr-00422-DJH Document 522-4 Filed 04/16/19 Page 11 of 19
The CDA provides immunity for online publishers and distributors of content generated by third parties.

arYett v. Rosenthal (2006) 40 Ca1.4fih 33, 39.} Protection from the CDA is broken down into three parts.

Conduct is shielded if the defendant (1) is a provider or user of an interactive computer service; (2) that the

plaintiff seeks to treat as a publisher or speaker; (3) of information provided by another information content

provider. (Fields v. Twitter, Inc. (N.D. Ca1.2016) 217 F.Supp.3d 1116, *1121; Doe v. Backpage.com LLC

(2016) 81'7 F.3d 12, 19; 47 U.S.C. §230.) "There has been near-universal agreement that section 230 should not

be construed grudgingly." (Doe, supra, 817 F.3d at 118 [citations omitted].)

To determine whether defendant faces a claim that seeks to treat the defendant as a publisher or speaker

of information provided by a thud party, "courts must ask whether the duty that the plaintiff alleges the

defendant violated dexives from the defendant's status or conduct as a publisher or speaker." (Barnes v. Yahoo!,

Inc. 570 F.3d 1096, 1101-02.} Moreover, because distributors are included in the publisher ca#egory,

distributors are also entitled to protection under the CDA. After a11, publication includes evezy repetition and

distribution of material. (Baf-rett v. Rosenthal (2006) 40 Cal.4th 33, 45.) Under the CDA, "any activity fihat

can be boiled down to deciding whether to exclude material that third parties seek to post online is perforce

immune." (Fair Housing Council of San Fernando Valley v. Rommates. com, LLC, (9th Cir. 2008) 521 Fad

1157, 11'70-Z 171.) The Ninth Circuit has recognized that although "there will always be close cases where a

clever lawyer could argue that something the website operator did encouraged the illegality... Such close cases

must be resolved in favor of immunity..." (Id at 1174.)

As applied to the instant case, there are two possible theories of prosecuting Defendants for pimping. A

'~~endant can be convicted of pimping under a theory that involves actual solicitation of prostitution.

Eernatively, defendants may be prosecuted under the theory that defendants derived support from the earnings

of another's act of prostitution. (See People v. McNulty (1988) 202 Ca1.App.3d 624, 630 [stating the two

theories of prosecution for pimping].) The People rely on the second theory in asserting that Defendant Ferrer

knowingly lived and derived support from prostii~ution earnings.

1. Theory that Defendant's derived financial support fpom prostitution

The People maintain that pimping will be shown when the People demonstrate that Defendants acquired

income from prostitution resulting from advertisements placed in Backpage.com. Defendants maintain they

merely accepted payment for a legitimate publishing function.

This Court finds People v. Grant (2011) 195 Cal..App.4th 107 helpful. Grant discusses a distinction

befween financial support received by the prostitute (illegal} and funds paid by the prostitute for services

rendered or other purposes (legal). The appellate court emphasized that "the statutory prohibition does not

preclude a person from accepting a known prostitute's funds gained from the prostitute's lawlu3 activities or for

purposes other than the person's support and maintenance." (Id at 116. See also Allen v. Stratton (C.D.Cai.

2Q06) 428 F.Supp.2d 1064, 1 Q'72, fn 7 [a natural reading of the pimprng statute does not apply to an individual

who provides a legitimate professional service to a prostitute even if paid with proceeds earned from

prostitution, the service provider derives support from his own services]; People v. Reitzke (1913) 21

12

Case 2:18-cr-00422-DJH Document 522-4 Filed 04/16/19 Page 12 of 19
Cal.App.740, 742 [a legitimate defense to pimping is t~iat a prostitute supplied defendant money for any purpose

~ther than being supported or maintained by the prostitution].)

'(~~ Here, there is no dispute that Sackpage charged money for the placement of advertisements. Providing a

forum for online publishing is a recognized legal purpose that is generally provided immunity under the CDA.

This immunity has been extended by the courts to apply to functions traditionally associated with publishing

decisions, such as accepting payment for services and editing. (See e.g.,Doe v. Backpage.com, LLC (817 F.3d

12, 15, petitzon for ceYtioraYi denied January 9, 2017[decisions regarding posting standards and requirements,

including accepting payments for posting, are not distinguishable from publisher functions].)

However, the People dispute the "services" at issue. The People argue that the Backpage website

generated income through its "Escort" section, which invariably contained prostitution advertisements. Because

these advertisements are not for legal services and Defendants were well aware of the nature of the

advertisements, the People argue that any claim of immunity under the CDA is defeated. (Pre-trial proceedings,

July 14, 2017) The People would have this Court determine that the services provided are based on the content

of the advertisement rather than the forum on which the advertisement is posted. Yet, to hold Defendant

responsible for the content of the advertisement would require holding a publisher liable as if he was the speaker

of the content. Contrary to the People's claim, doing so directly triggers, not defeats, the immunity provision of

the CDA.

However, that does not end our inquiry. Immunity may be xemoved if Defendants' conduct went beyond

those of a publisher and constituted content creation. This may happen when a provider crosses the line from

providing a neutral interactive service that simply replicates offending third party matter and instead takes active

control of the content of a web postzng. (Doe v. Backpage.com LLC {D.C. Mass 2015) 104 F. Sup.3d 149, 156.)

short, if a provider's acts "materially contribute" to the illegality of the material, immunity will be lost. (See

Fair Hous. Council v. Rommates.com, LLC (9th Cir. 2008) 521 F.3d 1157, 1166 [defendant became a content

provider by requiring an answer to discriminatory questions, defendant's unlawful questions sought unlawful

answers as a condition to doing business]; Jones v. Dirty World Entmt Recordings LLC (6th Cir. 2014) 755 F.3d

398-408-409 [a service provider must require third-parties to enter unlawful or actionable content to be deemed

a content provider]; FTC v. LeadClick Media {2nd Cir. 2016) 838 F.3d 158, 175 [encouraging and managing

another site to post fake news in order to boost web traffic and sales for client results in content creation]; and

(FTC v. Accusearch Ine. (l Oth Cir. 2009) 370 F.3d 1187 [no immunity for company that created offensive

content by paying researchers to illegally obtain phone numbers, then resold the numbers online].}

The People claim that Defendant Ferrer has gone a step beyond merely accepting payments for

advertisements placed online. Allegedly, Defendant Ferrer created content, connected pimps and trackers

wifih purchasers, and helped them avoid law enforcement. The People allege that, through Backpage's posfiing

guidelines, Defendant Ferrer encouraged, maintained and assisted illegal prostitution for purposes of his own

financial gain.

a. Edi#ing

The People allege Defendants created a moderation system where terms would be deleted or blocked by

Backpage but the user would still be allowed to post the advertisement and compensate Defendants. The People

13

Case 2:18-cr-00422-DJH Document 522-4 Filed 04/16/19 Page 13 of 19
,/~ '~ege that "such edits would nat change the users' intent....but merely create a disguise." (Amend. Comp. 26}

'~. _pie People allege that these actions resulted in blocking certain prostitution terminology, but coded or obscured

Iangu.age and pictures were allowed to be posted. The People allege that Defendant Ferrer directed staff to

delete or block words that were code for underage girls, but allowed the advertisement to be posted for a fee.

(Amend. Comp. 26) The People contend that this constitutes "material contribution" to the offensive material.

(Pre-trial proceedings, July 14, 2017, p 26)

In light of the People's acknowledgement that Backpage's edits would not change the user's intent, there

can be no material contribution to the offensive content. Indeed, such actions generally fall within the scope of

protected editorial functions. {See Doe v. Backpage.com LLC (lst Cir. 2016) 817 F.3d 12, 20-21 [service

providers' decisions on website structure, rules for posting and reposting -even when previously blocked -are

protected publisher functions] and .Fields v. Twitter, Inc. (N.D. CaI. 2016} 217 F.Supp.3d 1116, 1122 [protected

publishing activity included decisions about what third party content may be posted or reposted online].)

Even if the edits ox posting rules allow advertisers to use coded language, this is insuff cient to render

the website operator a content provider. The crucial distinction is between engaging in actions (traditional to

publishers) that are necessary to the display of unwelcome and actionable content, and responsibility for what

makes the displayed content illegal or actionable. (Jones v. Dirty World Entmt Recordings LAC (6th Cir. 2014)

755 F.3d 398, 414 [].) Here, zt is the third-party who is responsible far the illegal content of the advertisement.

The People also allege that Defendants knew that the ads placed were for prostitution and Defendants

pwrposefully crafted their posting procedures to maximize their profits from this prostitution. Yet courts have

~

`ra.irzed from presuming to know a publisher's motivations for editorial decisions. First, "it is well established

~at notice of the unlawful nature of the information provided is not enough to make it the service provider's

own speech." (universal Corjzmun. Sys. v. Lycos, Inc. (1st Cir. 2007) 478 F.3d 413, 420, citing Barrett v.

.Rosenthal (2006) 40 Cal. 4th 33). Thus, even if Backpage knew of the unlawfulness of the content of the ads,

knowledge is insufficient to render Defendants liable. This is true regardless of whether Backpage even

exercised its editorial discretion and deleted or blocked certain terms from ads. (See Doe II v. MySpace Inc,

(2009) 175 Cal.App.4th 561, 571 [immunity under section 230 applies even when self-regulation is

unsuccessful or unattempted]; Doe v..Backpage.com, LLC (lst Dist. 2016) 817 F.3d 12, 21 [rejecting claim that

website operators should be liable for failing to provide sufficient protections to users from harmful content

created by others].)

Additionally, in Backpage.com v. McKenna (Wash. VV.D.C. 2012) 881 F.Supp.2d 1262, the court

recognized the difficulty in assigning knowledge of athird-party's intent to a publisher when that third party

places an ad with Backpage. The court acknowledged that the pimp who publishes the advertisement certainly

knows whether his offer is implicitly for sex, but expressed serious doubt that one could assign such knowledge

to a publisher as to whether an advertisement "implicitly" offered sex. If an online service provider publishes

advertisements that employ coded language, a reasonable person could be misled to believe that facts exist when

they do not: an advertisement for escort sezvices may be just that. Moreover, if the offer is "implicit," a third

14

Case 2:18-cr-00422-DJH Document 522-4 Filed 04/16/19 Page 14 of 19
party cannot ascertain that which is being offered before the transaction is actually consuirunated — a fact not

likely to be known by a publisher. (Id at 1279.}

~` Finally, courts have stated that the motivation behind editorial decisions "do not alter the fact that the

complaint premises liability on the decisions that Backpage is making as a publisher with respect to third-party

content." (Doe v. Backpage. com, LLC (1st Dist. 2016} 817 F.3d 12, 21.) Irrununity depends on the source of

the information in Elie injurious statement, not the source of the statement itself. (I~niversal Conzmun. Sys. v.

Lycos, Inc., (1st. Cir. 2007) 478 F.3d 413, 419-420 [immunity only applies when the infozmatian that forms the

basis for the state law claim has been provided by "another information content provider"); 47 U.S.C. §230

t~)~l)•)

Here, the People acknowledge ~t1~,at advertisements are placed by third parties and Backpage's edits

"would not change the users' intent." Nor is there an allegation that Defendants) set up the website to require

offensive content to be supplied, as in Roorrcmates, Bollaert or Dirty WoYld. As such, there is no material

contribution to the offensive content in the advertisements, and the allegations reference traditional publisher

functions.

b. Use of Profile Information

The People also specifically allege that "Defendants created profiles for the victims named in [several]

counts [ ]without their knowledge." (Amend. Comp. 20, avert act 18) These false ar nonexistent profiles were

"created from Backpage data and [then] used on other websites." Allegedly, sometimes content that was edited

out on Backpage was displayed on the affiliated websites of BigCity.com or EvilEmpire.com. In doing so,

Defendants unlawfully used another's image "for the Defendants' own commercial gain," and to advertise their

~n product. (Amend. Comp. 25) The People claim that this "misappropriation" of the likeness of Backpage

users resulted in content creation. (Amend. Comp. 25)

Similar allegations were considered in Dae v. Backpage.com LLC (lst Cir. 2016} 817 F.3d 12 and

Anthony v. Yahoo! Inc (N.D. Cal. 2006) 421 F.Supp.2d 7257. The People cite .~4nthony as instructive. (Opp.

12) In ~Inthony, Plaintiffs belonged to an online dating service through Yahoo!. Plaintiffs alleged that,Yahooi

created false profiles and seat those false profiles to users as enticement to renew their dating subscription. T'he

court refused Yahoo!'s claim of immunity under the CDA at the dismissal stage. The court stated that the

allegations that Yahoo! actively created false profiles, not merely that Yahoo! failed to delete the expired

profiles, were sufficient to allow the case to go forward.

In Doe v. Backpage.com LLC (1st Cir. 2016) 817 F.3d 12 ,plaintiffs brought claims against Backpage

alleging unauthorized use of a person's picture. Plaintiffs alleged that Backpage used their photos to garner

advertising revenues from their lxaffickers. (Id at 27.) The court found that although Backpage profited from

the sale of advertisements, it was "not the entity that benefitted from the misappropriation." Rather, the party

who benefitted from the misappropriation was the original advertiser. The court stated, "Matters might be

different if Backpage had used the pictures to advertise its owe services..." (Ibid.} (See also Perkins v.

Linkedln Corp (N.D. Cal. 2014} 53 F.Supp.3d 1222, 1247 [defendant was a content provider when defendant, in

an effort to increase its own business, unilaterally crafted and sent membership invitation einails to users'

contacts].)

15

Case 2:18-cr-00422-DJH Document 522-4 Filed 04/16/19 Page 15 of 19
( ,r ~^,~,

The People assert that Defendant Ferrer falls under the above exceptions when he created and then used

'`: j.afile information to increase Backpage revenue. Ye# the People acknowledge that the information used was

"created from Backpage data." Thus, it is clear that Defendants did not fabricate the data, as in Anthony. There

is no allegation that in taking the data from the Backpage ads, Defendants created the injurious nature of the

matezial. (See Doe v. Friendfinder Networl~ Inc. (D,C. N.H. 2008) 540 F.Supp.2d 288, 295 [website operator is

not a content provider when there is no indication it contributed to the injurious character of the content].)

Moreover, the People's allegation that the purpose of these "new" posts was to direct web traffic back to

Backpage demonstrates that if a person was interested in the reposted profile, the person was redirected to the ad

on Backpage. While additional advertisement revenue may have been a byproduct of this redirection, the

original poster gained increased visibility of his ad. Increased visibility to the classified ads posted by third

parties permissibly Leads to search engine optimization in an effort to increase the visibility of the information

provided by the third party. (See Asia Econ. Inst. V. Xcentric Ventures LLC (C.D. Ca1. 2011) 2011 U.S. Dist.

LEXIS 145380, * 19 [increasing the prominence of a page in Internet searches do not amount to "creation or

development of information"].) Indeed, the very purpose of the online advertising accessed by the third party in

placing an ad in Backpage was to provide accessibility to the public on a large scale. (See Ibid [the purpose of

consumer reports is to provide accessibility to the public on a grand scale and "increasing the visibility of a

statement is not tantamount to altering its message"]; See also M.tl. ex rel. P.D. v. Village Voice Media

Holdings, ~,LC (E.D. Mo. 201 I) 809 F.Supp.2d 1041 ["Whatever [Backpage] did to increase their profitability

ad visibility, did not create the content of the offensive posted information."].)

~~ c. Overall Course of Conduct

The People attempt to establish a pattern of an overall course of conduct to indicate Defendants sought

to structure their business to obtain maximum profits from the illegal sex trade. The People allege that

Defendants "manipulated" advertisements to evade law enforcement detection. The People state, "In this way,

rather than prevent a child from being sold far sex, the Defendants would knowingly profit from the child's

commercial sexual exploitation and assist the tricker to evade law enforcement." (Amend. Comp. 26)

The People maintain Backpage's conduct is similar to J.S v. Vill. Voice Media Holdings, LLC (2015)

184 'VJn.2d 95. In that case, advertisements featuring three minor girls were posted online on a site owned by

Backpage. These girls became victims of sex tricking and later brought suit against Backpage. Backpage

moved to dismiss the case on fine basis of immunity provided by the CDA. The Washington Supreme Court

refused to grant the motion to dismiss. {Id at 98-99.) The J.S. court stated that the case tinned on whether

Backpage merely hosted the advertisements or helped develop the content of those advertisements. (.Fd at 101)

Applying the applicable state standard for a motion to dismiss, the .I.S. court found that the plaintiffs

alleged facts that, if proved true, would show that Backpage did more than simply maintain neutral policies

prohibiting or limiting certain content. Specifically, those allegations included that Backpage intentionally

developed its website to "require" information that allows and encourages illegal tricking of underage girls,

developed content requirements that it knows will allow solicitors to evade law enforcement and that Backpage

~`y/,

I6

Case 2:18-cr-00422-DJH Document 522-4 Filed 04/16/19 Page 16 of 19
knows that the foregoing content requirements are a fraud and ruse actually aimed at helping pimps and

prostitutes. (Id at 102.)

~~ Here, however, the factual allegations fall short of those alleged in J.S`.. There is no allegation that

Defendants required information essential to the illegal trafficking of underage girls. Instead, the People's

allegations attempt to assign criminal liability to Defendants who offered an online forum, on which other

people posted advertisements that Ied to prostitution, and that Defendants realized profits instead of "actively

preventing" the sale of sex. These allegations confuse moral obligations with legal ones and have been rejected

in other jurisdictions. For example, in M.A. ex rel. P.D. v. Village T>'oice Media .Holdings, LLC (B.D. Mo. 20i 1)

809 F.Supp.2d 1041, Defendants were SUSTAINED immunity under the CDA for allegations that Backpage

knowingly accepted a fee for advertisements leading to prostitution, and "created information" by hosting a

search engine, providing instructions for increased visibility of advertisements and allowed for anonymous

payment. (~'d at 1044.) (See also Doe v. Backpage.com LLC {2016) 817 F.3d 12, 22 [rejecting the plaintiffs'

assertion that Backpage participated in an affirmative course of conduct and actual participation in sex

trafficking by charging for advertisements and allowing users to pay an additional fee for increased

advertisement visibility and holding that "claims that a website facilitates illegal conduct #.hrough its posting

rules necessarily treat the website as a publisher or speaker of content provided by third parties and, thus, are

precluded by section 230(c}(1)."].)

As alleged here, the prostitution took place as a result of an advertisement placed by a third party. Thus,

the only "manipulation" would be zn the act of extracting the content from the original ad andlor from the act of

physically posting the extracted content on a new site. Backpage's decision to charge money to allow a third

natty to post content, as well as any decisions regarding posting rules, search engines and information on how a

(~ ;;r can increase ad visibility, are all traditional publishing decisions and are generally immunized under the '

CDA. In short, the victimization resulted from the third party's placement of the ad, not because Backpage

profited from the ad placement. (See Doe, supra, 817 F.3d at 2Q [noting that the plaintiffs were harmed when

they were trafficked through the advertisements whose content was created by a third party]; Cohen v.

Facebao7~ Inc. (E.D.N.Y. May 18, 2017) 2017 U.S.Dist.LEXIS 76701, at *28-31 [Facebook immune from

liability for allowing Hamas to use its platform to post offensive content that incited or encouraged terrorist

attacks in Israel because although Facebook's role in publishing that content was an essential causal element of

the claims, allowing liability to be imposed on that basis would inherently require the court to treat the

defendant as the publisher or speaker of content provided by Hamas, and was impermissible under the CDA].)

B. Money Laundering Based on Prostitution

The People charge Defendants with both prongs of money laundering based on a specific intent to

promote prostitution in violation of 18 USC 1952, pimping in violation of Penal Code section 266h, or knowing

the monetary instruments represented the proceeds of the prostitution. (See counts IS-16)

Referred to as the "Travel Act," section 1952 prohibits travel in interstate commerce or use of interstate

facilities with intent to promote unlawful activity. (united States v Villano (10th Cir. 1976) 529 F2d 1046.)

The Travel Act defines an "unlawful activity" as any crime of prostitution under state law. (See United States v.

17

Case 2:18-cr-00422-DJH Document 522-4 Filed 04/16/19 Page 17 of 19
~f"'~mpione (7th Cir. 1991} 942 F.2d 429, 434.). Section 1952 refers to state law only to identify the defendant's

't` ~~awful activiiy; it does not require that the state crime ever be completed or proved. (Ibid.)

Although the parties do not discuss these specific charges at length, the previous discussion of the

CDA's immunity provision as it relates to the pimping charges informs the Court's analysis with respect to

these charges. As discussed above, the People are attempting to prosecute Defendants as if they were the

speaker of the offensive contEnt leading to prostitution, which is prohibited under the immunity provision of the

CDA. This Court rej ected fihe People's claim that Defendants actually created the content that led to their

ability to live and derive support and maintenance from prostitution proceeds, when the face of the complaint

demonstrated that Defendants engaged in protected publisher functions. Because this Court has rejected the

prosecution based on the theory that T7efendants engaged in pimping, their purported use of proceeds from

prostitution cannot now serve as the basis for money laundering charges. As i-l~is Court has already determined,

Defendants provide an online forum for third-party speech, and their decision to charge money for such postings

constitutes activity protected under the CDA.

Conclusion

As amply briefed by the parties, federal iaw provides broad immunity for Internet service providers from

both federal and state prosecutions. Indeed, the 9~' Circuit fedexal appellate court has instructed such isnmuniiy

be applied liberally. The underlying public policy is to permit, and promote, the robust growth of the Internet by

shielding Internet providers from facing suit over the content created by those posting on their sites. If and until

Congress sees fit to amend the immunity law, the broad reach of section 230 of the Communications Decency

even applies to those alleged to support the exploitation of others by human trafficking.

1

HovcTever, immunity afforded to iraternet service providers is not without limit. Even the most ardent

defenders of a vigorous world wide web would have to concede that if a provider engaged in their own criminal

acts, versus those of their customers, immunity must fail. And so it is in this case. While the charges relating to

pimping will not be allowed to proceed, the offenses pertaining to allegations that the Defendants themselves

engaged in financial crimes, to include bank fraud and money laundering to disguise their business dealings,

will survive the demurrer stage.

Court's ruling:

Defendants' request to enjoin further prosecutorial investigation and return of the materials seized is

OVER.R.ULED.

Defendants' request for judicial notice is OVERRULED, except as to the prior charges and orders

grantzng the demurrer and dismissal. Within that contest, the People's motion to strike the remaining

exhibits is SUSTAINED.

Defendants' request to assign the case to the Honorable Michael G. Bowman is OVERRULED.

Defendants' demurrer is SUSTAINED for counts 15-16, 28-40, OVERRULED as to the remainder of "

the charges.

r;._

zs

Case 2:18-cr-00422-DJH Document 522-4 Filed 04/16/19 Page 18 of 19
~( )

Dated:

Honorable Lawrence G. Brown

Judge of the Superior Court of California

County of Sacramento

~./

Case 2:18-cr-00422-DJH Document 522-4 Filed 04/16/19 Page 19 of 19