Case Information
1
2
3 UNITED STATES DISTRICT COURT
4 NORTHERN DISTRICT OF CALIFORNIA 5 SAN JOSE DIVISION 6
7 CARL BARRETT, et al., Case No. 5:20-cv-04812-EJD
8 Plaintiffs, AMENDED ORDER GRANTING IN 9 PART AND DENYING IN PART v. MOTION TO DISMISS FIRST 10 AMENDED COMPLAINT; DENYING APPLE INC., et al., MOTION FOR PROTECTIVE ORDER TO STAY 30(B)(6) DEPOSITION Defendants. Re: Dkt. No. 61
Plaintiffs Carl Barrett, Michel Polston, Nancy Martin, Douglas Watson, Eric Marinbach, Michael Rodriguez, Maria Rodriguez, Guanting Qiu, and Andrew Hagene bring this putative class action against Defendants Apple, Inc., Apple Value Services LLC (collectively, “Apple”), and Does 1-100. In their First Amended Complaint (“FAC”), Plaintiffs assert the following claims: (1) unfair practices in violation of the California Consumers Legal Remedies Act (“CLRA”), Cal. Civ. Code § 1750 et seq.; (2) unfair practices in violation of the California Unfair Competition Law (“UCL”), Cal. Bus. & Prof. Code § 17200; (3) unlawful practices in violation of the CLRA; (4) unlawful practices in violation of the UCL; (5) deceptive practices in violation of the CLRA; (6) deceptive practices under the UCL; (7) violation of the California False Advertising Law (“FAL”), Cal. Bus. & Prof. Code § 17500; (8) receiving, retaining, withholding, or concealing stolen property in violation of California Penal Code § 496; (9) conversion; (10) aiding and abetting intentional torts; and (11) declaratory judgment under 28 U.S.C. § 2201. First Am. Class Action Compl. (“FAC”), Dkt. No. 59.
Before the Court is Apple’s motion to dismiss the FAC pursuant to Federal Rule of Civil Procedure 12(b)(6), as well as Apple’s motion for a protective order to stay depositions pursuant to Rule 30(b)(6). Defs. Apple Inc. and Apple Value Servs., LLC’s Not. of Mot. and Mot. to Dismiss First Am. Compl. (“Mot.”), Dkt. No. 61; Defs. Apple Inc. and Apple Value Servs., LLC’s Not. of Mot. and Mot. for Protective Order to Stay 30(b)(6) Deposition, Dkt. No. 85. The Court finds the matter suitable for resolution without oral argument. Civ. L.R. 7-1(b). Having considered the parties’ written submission, the Court GRANTS IN PART and DENIES IN PART the motion to dismiss and DENIES the motion for a protective order.
I. BACKGROUND
A. Factual Background
Defendant Apple Inc. is a California corporation with its principal place of business in Cupertino, California. FAC ¶ 16. Apple Value Services, LLC, is a Virginia corporation with its principal place of business in Cupertino, California. Id . ¶ 17. Plaintiffs are residents of Maryland, Oregon, California, New York, Massachusetts, and Missouri, all of whom fell victim to scams involving the purchase of Apple’s App Store & iTunes gift cards. ¶¶ 7-15, 112-177. The Federal Trade Commission has reported that, between 2015 and 2019, scammers stole more than $93.5 million by carrying out a formulaic gift card scam. FAC ¶ 58. FTC data indicates that gift card scammers steal more and more money with each passing year. Id . Gift card scammers stole approximately $24.4 million in 2019 alone, and $29.4 million in 2020 alone. Id . These figures may indicate only a fraction of the theft occurring each year, as many scam victims may not file a report. Id . About a quarter of all reported gift card scams involve Apple gift cards. Id .
According to Plaintiffs, the scam works as follows: The scammer contacts an individual. Id . ¶¶ 63-71. The scammer induces panic or urgency in the individual or otherwise induces the individual to give money to the scammer. Id . The scammer may, for example, tell the individual that the individual has a time-sensitive opportunity to receive a vaccine for COVID-19. Id . The scammer tells the individual that the individual can transfer money to the scammer by using iTunes gift cards. Id . The scammer tells the individual to go to a nearby retailer to buy one or more gift cards. Id . The scammer tells the individual to give to the scammer the unique code(s) located on the back of the gift card(s). Id . If the individual complies, the scammer may ask the individual to purchase more gift cards and share their codes as well. Id .
Once the scammer is in possession of a gift card code, the scammer is in possession of the value associated with the gift card—at least until the individual who was the victim of the scam or someone else with access to the code uses up that value. Id . At this point, the scammer does one of two things. Id . The scammer may sell the code to a third party in exchange for money. Id . Alternatively, the scammer may input the code into an Apple ID account controlled by the scammer. Id . If the scammer inputs the code into their Apple ID account, the scammer can use the value of the gift card as if it were their own and carry out transactions in either the iTunes Store or the App Store. Id . For example, the scammer may purchase songs or movies on iTunes, or they may spend the money on or within applications (“apps”) controlled by a third party. Id . Some apps are free but some cost money to download; moreover, some apps allow or induce users to pay money within the app itself—for example, to get access to special features of the app. Id . In a typical version of the scam, however, the scammer will not spend the gift card value in the iTunes Store or on or within third-party apps. Id . Instead, scammers spend the value on or within an app that the scammer theirself controls. Id . This means that, prior to contacting the individual and inducing the individual to buy a gift card, the scammer has often already created their own app or otherwise obtained control over an app someone else created. Id . In order to create an app offered in Apple’s App Store, one must become an Apple Developer. Id . ¶¶ 33-36. To become an Apple Developer, one must create an Apple ID, enroll in the Apple Developer Program, enter into the Apple Developer Program License Agreement, and pay a fee of $99 per year. Id . Whenever a purchase is made on or within an app (either with gift card value or with other loaded monetary value), Apple retains 100% of the value of that purchase until approximately 45 days after the end of the fiscal month, at which point Apple either pays 70% of the value to the Apple Developer controlling the app or retains the entire amount based on indicia of fraud. Id . ¶¶ 5-6, 71. Either way, Apple retains at least 30% of the value. Id . The scam, or at least one cycle of the scam, is complete when the Apple Developer-scammer receives their payment from Apple. The scammer has at this point effectively converted gift card codes into money.
Plaintiffs allege that Apple has control of its iTunes and App Store such that it knew or should have known about specific iTunes gift card scams as they were occurring or soon after they occurred. See, e.g. , id . ¶ 25. Plaintiffs allege that Apple knew or should have known: which Apple IDs had uploaded the codes of stolen gift cards; which iTunes Store or App Store purchases had been made with the value uploaded from stolen gift cards; and which Apple Developer accounts were associated with purchases made with the value uploaded from stolen gift cards. See, e.g. , id . ¶ 73. More generally, Plaintiffs allege that Apple knew or should have known how the iTunes gift card scam works, and that it is a widespread and impactful phenomenon. See, e.g. , FAC ¶ 63. Plaintiffs allege that Apple could have used its knowledge and control of its online stores to suspend Apple ID accounts and Apple Developer accounts associated with suspicious activity, to refuse to pay Apple Developer accounts that seemed to be involved with scams, and to refund to scam victims Apple’s 30% commission on purchases associated with scams (if not the full 100% loss of the stolen gift card value). Id . ¶¶ 97-98. Plaintiffs point out that in 2012 Apple started producing gift cards in $500 denominations, potentially increasing the impact of individual scams. Id . ¶ 106. Plaintiffs allege that Apple’s actions or failures to act indicate that Apple is aiding and abetting the scams, or is otherwise violating California fair competition statutes by knowingly paying scammers and keeping funds received because of the scams. See, e.g. , id . ¶¶ 108-110.
Apple provides warning language in bold red lettering on the backs of iTunes gift cards. ; see also Req. for Jud. Not. in Supp. of Apple’s Mot. to Dismiss Plfs.’ First Am. Compl. (“RJN”), Dkt. No. 62, Ex. 1. [1] This warning language reads as follows: “Do not share your code with anyone you do not know.” Id. ; FAC ¶ 110. Apple has created a webpage on which it shares information regarding gift card scams, including information about how to avoid scams and what to do in case a scam has occurred. RJN, Ex. 3. This webpage is titled “About Gift Card Scams.” Id . The language on the website states, among other things: “If you believe you’re the victim of a scam involving Apple Gift Cards, App Store & iTunes Gift Cards, or Apple Store Gift Cards, you can call Apple at 800-275-2273 (U.S.) and say ‘gift cards’ when prompted.” Id . at 1. The website also includes the following language: “Never provide the numbers on the back of a Gift Card to someone you do not know. Once those numbers are provided to the scammers, the funds on the card will likely be spent before you are able to contact Apple or law enforcement.” Id . Apple gift cards are subject to Terms and Conditions. See, e.g. , id. ¶¶ 43-46. A partial version of the Terms and Conditions appears on the back of the packaging sleeve for iTunes gift cards. RJN, Ex. 1. This partial version refers users to the full Terms and Conditions on Apple’s website. See, e.g. , FAC ¶¶ 43-46. There is also a reference to the Terms and Conditions website on the back of the gift card itself. RJN, Ex. 1. The Terms and Conditions language on the gift card packaging includes the following: “Neither Apple nor Issuer is responsible for any loss or damage resulting from lost or stolen cards or for use without permission.” FAC ¶¶ 43-46. The Terms and Conditions on Apple’s website includes the following: We reserve the right, without notice to you, to void or deactivate
[iTunes gift cards] (including a portion of your Account balance) without a refund, suspend or terminate customer accounts, suspend or terminate the ability to use the Services, cancel or limit orders and bill alternative forms of payment if we suspect Store Credit was obtained, used, or applied to an Apple ID fraudulently, unlawfully, or otherwise in violation of these terms and conditions.
Id. ¶ 44. The version of the Terms and Conditions at issue here state that California law applies.
Plaintiffs cite an April 2016 NBC News report, in which an Apple spokesperson stated: [I]f someone contacts Apple Support after sending off the gift card code – and the money has not been drained from the card – [the scam victim] can freeze the account and have the money refunded to them. If the money is already gone, Apple advises people to file a complaint with the FTC.
Id . ¶ 94. Plaintiffs claim that this news report indicates, among other things, that “Apple deceptively suggests to scam victims that their money is ‘gone,’ even when [Apple] will retain a 30% commission, and, in many cases, has not yet paid or will not pay the remaining 70% into the scammer’s bank account.” Id .
Plaintiffs allege that Apple has violated California unfair competition statutes by committing affirmative misrepresentation and/or fraud by omission via its red warning language, its “About Gift Card Scams” webpage, its Terms and Conditions, its communications with news media, and its communications with gift card users who contacted Apple after having been scammed. See, e.g. , id . ¶¶ 79, 100.
Plaintiffs bring this action individually and also on behalf of a proposed nationwide class of persons in the United States who were victims of the iTunes gift card scam and who did not receive a refund from Apple. Id . ¶¶ 181-302. Plaintiff proposes one subclass that includes scam victims who contacted Apple following the scam. Id . There are nine named Plaintiffs, all of whom fell victim to a typical version of the scam as described above. Id . ¶¶ 112-177. Four of the named Plaintiffs contacted Apple after being scammed, two contacted law enforcement, and two contacted both the police and a district attorney. Id . One named Plaintiff apparently sought no remedy. Id . According to the FAC, the four individual Plaintiffs who did not contact Apple “[were] informed that once the scammers redeemed the iTunes gift card there [was] nothing that Apple would do for them.” Id . Those who contacted Apple were informed that after the cards had been redeemed, “there was nothing Apple could do.” Id.
B. Procedural Background
Plaintiffs filed this action on July 17, 2020, asserting claims for violations of the UCL, CLRA, FAL, as well as claims for breach of contract, quasi-contract, and state elder abuse laws. Dkt. No. 1. The Court granted Apple’s motion to dismiss the original complaint with leave to amend, except for the breach of contract claim (which Plaintiffs withdrew) and the quasi-contract claims. Order Granting Defs.’ Mot. to Dismiss (“MTD Order”), Dkt. No. 51. In the operative FAC, Plaintiffs dropped the elder abuse claims and instead added claims for violation of California Penal Code § 496 and conversion. Dkt. No. 59. The motion to dismiss the FAC now before the Court followed. Dkt. No. 61.
II. LEGAL STANDARD
Federal Rule of Civil Procedure 8(a) requires a plaintiff to plead each claim with enough
specificity to “give the defendant fair notice of what the . . . claim is and the grounds upon which
it rests.”
Bell Atl. Corp. v. Twombly
,
III. DISCUSSION
A. Request for Judicial Notice
Apple requests the Court take judicial notice of six exhibits: (1) a set of photographs of an Apple $50 gift card; (2) an AppleCare Support article entitled
; (3) an article entitled “About Gift Card Scams” from Apple’s website; (4) an October 2018 press release from the FTC entitled “Paying Scammers with Gift Cards,” available on the FTC’s website; (5) a November 24, 201 press release from the FTC entitled “FTC Has Gift Card Tips for Holiday Buying,” available on the FTC’s website; and (6) a December 2019 press release from the Federal Deposit Insurance Corporation entitled “FDIC Consumer News: What You Should Know About Gift Cards,” available on the FDIC’s website. RJN. The Court previously granted Apple’s request for judicial notice of Exhibits 1, 3, 4, 5, and 6. Dkt. No. 51 at 7–10. Plaintiffs oppose only the request for judicial notice of Exhibits 1 and 2. Plfs.’ Opp’n to Apple’s Req. for Jud. Not. (“RJN Opp’n”), Dkt. No. 68. Exhibit 1 includes three photographs of a $50 iTunes gift card purchased on August 18, 2020. RJN, Ex. 1. One of the photographs depicts the front of the gift card while it is still in its packaging; one depicts the back of the gift card while it is still in its packaging; and one depicts the back of the gift card once it has been removed from its packaging. Id. The Court previously took judicial notice because the disclaimer language on the back of the gift card packaging matched verbatim the language quoted in the complaint, and Plaintiffs did not assert that the language and formatting of the gift card shown in Exhibit 1 was different from the gift cards they purchased. Dkt. No. 51 at 8–9. In the FAC, Plaintiffs now allege that no such warning language appeared on the cards purchased by Barrett, Marinbach, the Rodriguezes, and Qiu. FAC ¶¶ 116- 117, 149-150, 157-158, 167-168. Plaintiffs further allege that the warning language was not added to Apple gift cards until midway through the class period. ¶ 53. However, Plaintiffs do not allege that the language did not appear on the cards purchased by Polston, Martin, Watson, and Hagene. The Court’s earlier ruling thus still applies to those four named Plaintiffs and to putative class members who purchased gift cards in the first half of the class period. Accordingly, the Court grants the request for judicial notice of Exhibit 1 as incorporated in the complaint. Id. ¶¶ 51-55.
Accordingly, the Court grants Apple’s request for judicial notice of Exhibits 1, 2, 3, 4, 5, and 6. B. Rule 12(b)(6) 1. California Penal Code § 496 (Claim 8) California Penal Code § 496 provides a civil cause of action to “[a]ny person who has been injured” by a defendant “who buys or receives any property that has been stolen or that has been
obtained in any manner constituting theft or extortion, knowing the property to be so stolen or
obtained, or who conceals, sells, withholds, or aids in concealing, selling, or withholding any
property from the owner, knowing the property to be so stolen or obtained.” Cal. Penal Code §
496(a), (c). A criminal conviction is not necessary for civil liability to attach.
Switzer v. Wood
,
The parties do not dispute that Plaintiffs’ gift card funds are property within the meaning
of section 496(a), nor do they dispute that the funds are stolen or obtained in a manner constituting
theft. Instead, Apple argues that Plaintiffs have not stated a section 496 claim for three reasons:
(1) section 496 applies only to property that has already been stolen or obtained in a manner
constituting theft, but Plaintiffs’ purchase of the gift cards was a lawful transaction; (2) Plaintiffs
have not pled Apple’s actual knowledge that the money was stolen; and (3) Apple has a refund
policy despite having no duty to offer a refund. Mot. at 10–13. In response, Plaintiffs argue that
(1) the precise moment Apple receives the funds from the gift card retailer is a question for
discovery, and that even if the funds were not stolen at the time of purchase, Apple still
subsequently concealed and withheld them in violation of section 496; (2) Apple obtained
knowledge once named Plaintiffs contacted Apple and informed Apple the funds were stolen; and
(3) Apple’s current refund policy does not negate Apple’s past failure to provide refunds. Opp’n
at 3–7.
As to Apple’s first argument, California courts are split on whether the property in
question must already be stolen before it is received, concealed, or withheld.
Compare, e.g.
,
Lacagnina v. Comprehend Sys., Inc.
,
concealing or withholding stolen property is also actionable.
See, e.g.
, Cal. Jury Instr. – Crim.
14.65 (distinguishing between purchasing or receiving stolen property, selling or aiding in selling
stolen property, or concealing or withholding stolen property);
Grouse River II
, 848 F. App’x at
243 n.4 (“[T]he withholding of funds after demand is an alternative basis for liability . . . .”);
Switzer
,
This potential alternative theory of liability leads to Apple’s second argument, which is
that Plaintiffs have only pled that Apple has “knowledge of a
claim
of theft—not
actual
knowledge
that a theft had taken place.” Mot. at 11 (citing
Freeney v. Bank of Am. Corp.
, No. 15-
2376-JGB-PWJx,
Apple’s reliance on its refund policy is misplaced.
. Even if the refund policy existed before Plaintiffs fell victim to the scam, the refund policy does not in negate the knowledge element.
[T]he mere receipt of stolen goods with knowledge that they have been stolen is not itself a crime if the property was received with intent to restore it to the owner without reward or with any other innocent intent. The critical factor is the defendant’s intent at the time he receives or initially conceals the stolen property from the owner. The intent to restore must exist at the moment the stolen property is accepted by the receiver if he is to be acquitted. If the defendant received or concealed stolen property with general criminal intent to aid the thief, or to deprive the owner of possession, or renders more difficult a discovery by the owner, . . . he possesses the requisite wrongful intent , and it is no defense that he [s]ubsequently intended to return the stolen property to the owner.
People v. Wielograf
,
2. Conversion (Claim 9)
“Conversion is the wrongful exercise of dominion over the property of another.”
Mindys
Cosmetics, Inc. v. Dakar
,
Apple contends that Plaintiffs have not pled the requisite affirmative act to deprive them of
their property. Mot. at 9–10. Apple relies principally on
Archer v. Coinbase, Inc.
, 53 Cal. App.
5th 266 (2020), but that case is distinguishable. In
Archer
, the California Court of Appeals
affirmed the grant of summary judgment to the defendant online digital currency platform, ruling
that Coinbase’s refusal to support a new form of forked cryptocurrency was not action amounting
to conversion.
At any rate, “conversion can occur when a
willful
failure to return property deprives the
owner of possession.”
Fearon v. Dep’t of Corr.
,
Accordingly, the Court finds that only Plaintiffs Martin, Marinbach, Qiu, and Hagene have stated a claim for conversion, and that it would be futile to grant leave to amend to the remaining named Plaintiffs.
3. Third-party liability (Claims 1-4, 10: CLRA, UCL, FAL, aiding and
abetting intentional torts)
“Liability may . . . be imposed on one who aids and abets the commission of an intentional
tort if the person . . . knows the other’s conduct constitutes a breach of duty and gives substantial
assistance or encouragement to the other to so act.”
Fiol v. Doellstedt
,
968, 983 (1988);
see also Howard v. Superior Court
,
(Feb. 10, 1992) (“[W]hile aiding and abetting may not require a defendant to agree to join the 20
wrongful conduct, it necessarily requires a defendant to reach a conscious decision to participate 21
in tortious activity for the purpose of assisting another in performing a wrongful act”).
22
In its prior order, the Court dismissed Plaintiffs’ CLRA, UCL, FAL, and aiding and 23
abetting claims that attempted to assert liability for third-party conduct. MTD Order at 12–18.
24
The Court found that Plaintiffs had not pled facts from which it could be inferred that Apple gave 25
“substantial assistance or encouragement” to the scammers, or that Apple “reached a conscious 26
decision to participate” in the scam.
27
28 Apple contends that the FAC does not cure the deficiencies the Court previously identified.
Mot. at 5–8. In response, Plaintiffs assert that Apple “affirmatively assisted the scammers” by
uploading gift card codes onto Apple IDs, converting the codes into stored value, transferred the
stored value to iTunes apps, converting the stored value into U.S. dollars, transferring the U.S.
dollars to scammers’ financial accounts, and transferring 30% or more of the U.S. dollars into
Apple’s own bank accounts. Opp’n at 11 (citing FAC ¶¶ 67, 39-41, 66, 68-69, 71-81). Plaintiffs
also point to the fact that Apple retains at least some portion of the gift card funds despite notice
that the theft is actively ongoing as to the named Plaintiffs who contacted Apple.
Id.
Plaintiffs
argue that they have now alleged that Apple “hopes and believes” that by permitting the gift card
scam to persist, Apple will profit, thereby overcoming the Court’s earlier distinction between this
situation and
Schulz v. Neovi Data Corp.
,
4. Fraud (Claims 1-2, 5-7: CLRA, UCL, FAL) Plaintiffs allege that Apple violated the CLRA, the UCL, and the FAL by engaging in affirmative misrepresentation and fraud by omission, thereby breaching a duty to disclose. FAC ¶¶ 197-218, 239-272.
a. Affirmative misrepresentations
The elements of intentional misrepresentation in California are: (1) misrepresentation; (2)
knowledge of falsity; (3) intent to defraud or to induce reliance; (4) justifiable reliance; and (5)
resulting damage.
Yastrab v. Apple Inc.
,
The Court previously found that Plaintiffs’ four theories of affirmative misrepresentations were flawed. MTD Order at 19–20. First, Plaintiffs did not adequately plead reliance on Apple’s website, the Terms and Conditions disclaimer, and a communication to a news network, because they did not plead that any of them had viewed the website, disclaimer, or statement to the news. Second, Plaintiffs did not adequately plead causation as to statements Apple made to the two Plaintiffs who contacted Apple.
In the FAC, Plaintiffs now appear to allege three theories of affirmative misrepresentations: (1) “falsely suggesting on its website that by the time a victim can call, the funds will have become the rightful property of legitimate content sellers”; (2) “misrepresent[ing] its affiliation, connection, or association with the scammers”; and (3) informing the named Plaintiffs who spoke to Apple that “the money was redeemed and/or spent, and that there was nothing Apple could do.” FAC ¶¶ 202-203, 214-215, 245-249, 259-261. Apple asserts that Plaintiffs do not state a claim under any theory. Mot. at 17–19. In their opposition brief, Plaintiffs opted not to address their claim based on affirmative misrepresentation. Opp’n at 16. The Court understands Plaintiffs to have effectively conceded the point, if not waived it. Nevertheless, the Court proceeds to address the deficiencies in pleading affirmative misrepresentation. Plaintiffs’ first theory cannot support a claim for an affirmative misrepresentation, as Plaintiffs still do not allege that any of them viewed the alleged misrepresentation on Apple’s website, much less relied on it. See id. ¶¶ 112-177. The second theory likewise does not state a claim, as the FAC is devoid of any allegations concerning specific affirmative misrepresentation from Apple about its relationship with the scammers.
The third theory presents a somewhat closer call. Plaintiffs Martin, Marinbach, Qiu, and Hagene each allege that the Apple representative they spoke to over the phone informed them that “there was nothing Apple could do.” ¶¶ 135-136 (“The Apple representative told Plaintiff Martin that because the gift cards had been redeemed, there was nothing that Apple could do, and refused to return to Plaintiff Martin any portion of the money she spent on the gift cards. The Apple representative told Plaintiff Martin that Apple does not receive the money she spent to purchase the iTunes gift cards.”); ¶ 152 (“The Apple representative told Plaintiff Marinbach that because the gift cards had been redeemed, there was nothing that Apple could do, and refused to return to Plaintiff Marinbach any portion of the money he spent on the gift cards. The representative told Plaintiff Marinbach that it is Apple’s policy not to refund iTunes gift cards, and refund requests must be directed to the merchant that sold him his iTunes gift cards. Plaintiff Marinbach informed Apple that the retailer denied his request for a refund, but Apple advised Plaintiff Marinbach that there was nothing further that Apple could do.”); ¶ 169 (“[D]espite telling her that the funds had not been spent, Apple refused to provide Plaintiff Qiu with a refund, and told her there was nothing Apple could do.”); ¶ 177 (“[T]he Apple representative informed Plaintiff Hagene that because the gift cards had been spent, there was nothing that Apple could do. Apple denied Plaintiff Hagene’s requests for a refund.”). Plaintiffs adequately plead facts suggesting that there was, in fact, something Apple could do—based on Apple’s complete control over the iTunes ecosystem, it could have easily determined who redeemed the stolen gift card funds, dealt with them accordingly, halted the processing of any payments, and returned at least some of the funds to Plaintiffs. However, while Plaintiffs have pled a false statement with knowledge of falsity and facts suggestive of intent, they do not adequately plead reliance and resulting damage necessary to state a claim for fraud by affirmative misrepresentation. The only things Plaintiffs allege that a reasonable consumer would have done differently at this stage of the scam had Apple not misrepresented that “there was nothing Apple could do” are: (1) demand at least a partial refund, and (2) pursue legal or other action against Apple regarding its involvement in and profiting from the scam. Id. ¶¶ 252, 262. However, each of the Plaintiffs who contacted Apple were denied a refund, suggesting that they did demand at least a partial refund. ¶¶ 135-136, 152, 169, 176- 77. And this lawsuit itself is evidence that Plaintiffs were not prevented from pursuing legal action against Apple. Plaintiffs tacitly acknowledge their inability to adequately plead reliance by expressly choosing not to address fraud by affirmative misrepresentation in their opposition brief. Opp’n at 16 (“However, because reliance is most clear in connection with Apple’s omissions of material fact on the packaging sleeve and the cards themselves . . . Plaintiffs focus on those omissions here.”).
Accordingly, the Court finds that Plaintiffs again have failed to state a claim for fraud based on affirmative misrepresentations.
b. Fraud by omission
“Omissions may be the basis of claims under California consumer protection laws, but to
be actionable the omission must be contrary to a representation actually made by the defendant, or
an omission of a fact the defendant was obliged to disclose.”
Hodsdon v. Mars, Inc.
, 891 F.3d
857, 861 (quoting
Daugherty v. Am. Honda Motor Co.
,
In the FAC, Plaintiffs now espouse two theories of fraud by omission [5] : (1) the failure to adequately warn customers about the existence, nature, and prevalence of the scam and to direct victims to call Apple immediately on the gift card packaging and on the cards themselves; and (2) failing to tell victims who contacted Apple that Apple possessed their stolen gift card funds, that Apple retains those funds for weeks before paying them out to vendors, that the vendors are the scammers themselves, and that Apple keeps 30% or 100% of the proceeds for itself. FAC ¶¶ 202, 214, 243-252, 258-262, 270. The Court previously rejected earlier versions of these theories because Plaintiffs did not allege that they read the language on the packaging or the cards, and because the purported omissions concerning Apple’s alleged participation in or control over aspects of the scam was not contrary to Apple’s disclaimer policy stating that Apple is not responsible for stolen gift cards. MTD Order at 21–23.
As to the first theory relating to omissions on the gift cards and their packaging, Plaintiffs
now allege that each of them read both the outer packaging and the card but nevertheless still
failed to realize that they were being scammed. FAC ¶¶ 114-119, 121-128, 130-134, 137-144,
146-150, 153-161, 163-168, 170-175. They further allege that had the cards or the card packaging
advised of the existence and nature of the scams, or stated that anyone asking for payment by gift
card was a scammer, or advised the purchaser to call Apple immediately if they had been deceived
into providing the code to a scammer, Plaintiffs would have either not purchased the card, not
given the code(s) to the scammer, and contacted Apple immediately.
Id.
Furthermore, Barrett,
Marinbach, the Rodriguezes, and Qiu allege that no warning language appeared on the cards they
purchased. ¶¶ 116-117, 149-150, 157-158, 167-168. The Court accepts these factual
allegations as true.
See Reese.
,
Apple argues that Plaintiffs cannot plead an omission claim under either of their theories
because they have not adequately pled a duty to disclose “the existence, nature, and prevalence of
gift card scams” in the absence of a safety hazard or physical defect affecting the gift cards’
central function. Mot. at. 13–17; Reply at 9–11 (citing
Hodsdon
,
The Court respectfully disagrees with the holding of
In re Toyota Rav4
, which states that
Hodsdon
“left the relationship between
LiMandri
materiality and safety hazard/central
functionality defects unsettled but did not affirmatively require plaintiffs to plead both to state an
omission-based consumer protection claim.” at 1102. On the contrary, the
Hodsdon
court
dismissed the plaintiff’s CLRA, UCL, and FAL claims precisely because the information about
child and slave labor that was allegedly omitted from the defendant’s chocolate candy labels did
not concern a physical product defect relating to the central function of chocolate—thus, no duty
to disclose the nature of the labor existed.
Hodsdon
,
In the absence of a duty to disclose, Plaintiffs may still plead an omission claim if the
omission is contrary to a representation that Apple made.
Daugherty
,
23
“Under California law, a contractual clause is unenforceable if it is both procedurally and 24
substantively unconscionable. Procedural unconscionability focuses on oppression or surprise due 25
to unequal bargaining power, while substantive unconscionability focuses on overly-harsh or one- 26
sided terms.”
Antonelli v. Finish Line, Inc.
, No. 5:11-CV-03874 EJD,
28
(N.D. Cal. Feb. 16, 2012) (citation omitted);
see also Fimby-Christensen v. 24 Hour Fitness USA,
Inc.
, No. 5:13-CV-01007-EJD,
Apple focuses almost entirely on arguing that its disclaimer is neither substantively nor procedurally unconscionable to the extent it disclaims third-party liability. Mot. at 21–24. The Court previously held that the disclaimer does not violate California Civil Code § 1668, and that conclusion remains unchanged in the absence of a properly pled claim for third-party liability. MTD Order at 25–27; see supra Section III.B.3. However, Plaintiffs have now stated claims for violation of section 496 and conversion, which concern Apple’s own conduct, not that of third parties. See supra Sections III.B.1-2. Apple offers no real opposition other than to say such a theory is irrelevant because Plaintiffs have not stated a claim for those acts. Reply at 13. The disclaimer is substantively unconscionable in that it purports to avoid liability for Apple’s own conduct as to withholding or concealing stolen property and conversion. Cal. Civ. Code § 1668 (“All contracts which have for their object, directly or indirectly, to exempt anyone from responsibility for his own fraud, or willful injury to the person or property of another, or violation of law, whether willful or negligent, are against the policy of the law.”).
As to procedural unconscionability, the “analysis begins with an inquiry into whether the
contract is one of adhesion.”
OTO, L.L.C. v. Kho
,
oppression. According to the California Supreme Court:
The circumstances relevant to establishing oppression include, but
are not limited to (1) the amount of time the party is given to
consider the proposed contract; (2) the amount and type of pressure
exerted on the party to sign the proposed contract; (3) the length of
the proposed contract and the length and complexity of the
challenged provision; (4) the education and experience of the party;
and (5) whether the party’s review of the proposed contract was
aided by an attorney.
OTO
,
Although an adhesive contract is not per se unconscionable, “California courts apply a
‘sliding scale,’ so that ‘the more substantively oppressive the contract term, the less evidence of
procedural unconscionability is required to come to the conclusion that the term is unenforceable,
and vice versa.’”
Shroyer v. New Cingular Wireless Servs., Inc.
,
Accordingly, the Court dismisses with prejudice the portions of the CLRA and UCL unfair practices claims concerning unconscionability of Apple’s disclaimer as to third-party liability. Otherwise, Plaintiffs have pled a claim that Apple’s disclaimer of its own tortious acts is unconscionable and an unfair practice. As a result, Plaintiffs have also stated a claim for declaratory judgment seeking a declaration that Apple’s attempt to disclaim liability is unconscionable and unenforceable as to its own conduct.
6. Unlawful conduct (Claims 3 and 4: CLRA, UCL) Claim 3 of the FAC alleges unlawful practices in violation of the CLRA based on violation of the UCL, California Penal Code § 496, and Apple’s unconscionable disclaimer. FAC ¶¶ 219- 229. Similarly, Claim 4 of the FAC alleges unlawful practices in violation of the UCL based on violation of the CLRA, section 496, and Apple’s unconscionable disclaimer. ¶¶ 230-238.
Apple argues that the CLRA does not generally apply to unlawful or unfair conduct and
simply prohibits a discrete list of business practices. Mot. at 19. Apple further contends that the
UCL requires a violation of a predicate statute or law, which it believes Plaintiffs have not pled.
But as discussed above, Plaintiffs have adequately pled a section 496 claim and unconscionability
of Apple’s disclaimer as to Apple’s own tortious acts.
See supra
Sections III.B.1, 5. The CLRA
prohibits the insertion of an unconscionable provision into a contract. Cal. Civ. Code §
1770(a)(19). Therefore, Plaintiffs have adequately stated a claim for violation of the CLRA on
that basis, and for violation of the UCL based on violation of section 496 and the CLRA.
Alvarez
v. Chevron Corp.
,
Accordingly, the Court finds that Plaintiffs have stated claims for unlawful conduct under the CLRA and UCL.
C. Apple’s Motion for Protective Order
While the motion to dismiss the FAC was pending, Plaintiffs sought to take Apple’s deposition pursuant to Federal Rule of Civil Procedure 30(b)(6). Apple moved for a protective order barring Plaintiffs from seeking those depositions “until and unless the Court determines that Plaintiffs have stated a viable claim against Apple . . . .” Dkt. No. 85 at 1. Because the Court has now ruled on the motion to dismiss and determined that Plaintiffs have stated viable claims against Apple, the Court DENIES as moot the motion for a protective order.
IV. CONCLUSION
For the foregoing reasons, the Court GRANTS IN PART and DENIES IN PART the motion to dismiss as follows:
(1) The portions of Claims 1-7 and 10 relating to third-party liability are dismissed with prejudice.
(2) The portions of Claims 1-2 and 5-7 relating to fraud by affirmative misrepresentation or by omission are dismissed with prejudice.
(3) The portions of Claims 1, 2, and 11 relating to unconscionability of disclaiming third- party liability are dismissed with prejudice. (4) The Court dismisses with prejudice Claims 8 and 9 only as to Plaintiffs Barrett, Polston, Watson, Michael Rodriguez, and Maria Rodriguez. (5) The Court otherwise denies the motion to dismiss as to Claims 8 and 9, the portions of Claims 3 and 4 concerning unlawful conduct, and the portions of Claims 1, 2, and 11 relating to unconscionability of disclaiming Apple’s own tortious or illegal conduct. Apple shall file its answer by June 24, 2022 .
The Court DENIES as moot Apple’s motion for a protective order.
The parties shall submit a joint case management statement by July 18, 2022 and appear before the Court for an initial case management conference on July 28, 2022 at 10:00 a.m.
IT IS SO ORDERED.
Dated: June 13, 2022
EDWARD J. DAVILA United States District Judge
Notes
[1] As discussed below, the Court grants Apple’s motion to request judicial notice of this language and the other exhibits referenced throughout this Order. See infra Section III.A.
[2] Plaintiffs contend that Lacagnina , Hueso , and Instant Brands rely on the district court’s decision in Grouse River Outfitters Ltd. v. NetSuite, Inc. (“ Grouse River I ”), No. 16-cv-02954-LB, 2016 25 WL 5930273 (N.D. Cal. October 12, 2016), which the Ninth Circuit reversed. Grouse River Outfitters, Ltd. v. Oracle Corp. (“ Grouse River II ”), 848 F. A’ppx 238 (9th Cir. 2021). The Ninth Circuit in Grouse River II does not directly address the question of whether property must be 26 stolen at the time of receipt. See id. at 242–43. 27 28
[3] An Apple representative went so far as to inform Martin that “Apple does not receive the money she spent to purchase the iTunes gift cards.” FAC ¶ 136. 25
[4] 26 27 28
[5] An FAL claim cannot be predicated on an omission.
McCoy v. Nestle USA, Inc.
, 173 F. Supp. 3d
954, 969–70 (N.D. Cal. 2016),
aff’d sub nom. McCoy v. Nestle USA, Inc.
,