Opinion
Case No. C04-01463 HRL.
November 4, 2004
ORDER ON DEFENDANT'S 1) MOTION TO DISMISS; AND 2) MOTION TO STAY THE ACTION OR TO STAY DISCOVERY
Defendant has moved to dismiss the action pursuant to Fed.R.Civ.P. 12(b)(6) or for orders either staying the action or staying discovery. Plaintiff opposed both motions. The court finds this motion suitable for disposition without oral argument, and issues the following order.
BACKGROUND
On April 15, 2004, plaintiff Chuck Browning filed a class action suit against defendant Yahoo!, Inc., alleging violations of the Credit Repair Organization Act (CROA), 15 U.S.C. § 1679 et seq. Plaintiff alleges as follows: He visited defendant's web site at www.yahoo.com. In the web site's finance section, defendant advertised a service called "Yahoo's Credit Manager." The site claimed to provide advice and assistance with his credit record, history, and rating. Plaintiff entered into an agreement to purchase these services on February 24, 2004, and defendant charged $79.95 to his credit card. Plaintiff was not provided with a written contract setting forth the required disclosures and notifying him of his right to cancel pursuant to 15 U.S.C. §§ 1679c, d, and e. He alleges that defendant required him to pay in advance for the services in violation of 15 U.S.C. § 1679b(b). He also claims that defendant violated 15 U.S.C. § 1679b(a)(3) and (4) by making untrue and misleading representations and engaging in fraudulent business practices. Finally, plaintiff also asserts claims for relief based on unjust enrichment, constructive trust, and conspiracy.
On June 4, 2004, defendant filed a motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(6), or in the alternative, to dismiss or stay the action on federal comity grounds until resolution of the allegedly related case of Helms v. ConsumerInfo.com, Inc., No. CV-03-RRA-1439-M, pending in the Northern District of Alabama. On September 28, 2004, defendant filed a motion to stay initial disclosures and other discovery pending the outcome of this motion to dismiss as well as the summary judgment motions filed in the Helms action. Plaintiff opposes both motions.
DISCUSSION
I. Motion to Dismiss
A. Legal Standard
A motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(6) tests the legal sufficiency of the claims in the complaint. Dismissal can be granted only where there is a "lack of a cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal theory." Balistreri v. Pacifica Police Dept., 901 F.2d 696, 699 (9th Cir. 1990). In considering a motion to dismiss, a court should accept all material factual allegations as true and construe them "in the light most favorable to the nonmoving party." Cahill v. Liberty Mutual Ins. Co., 80 F.3d 336, 337-38 (9th Cir. 1996). "However, the court is not required to accept legal conclusions cast in the form of factual allegations if those conclusions cannot reasonably be drawn from the facts alleged." Clegg v. Cult Awareness Network, 18 F.3d 752, 754-55 (9th Cir. 1994). Generally, a court ruling a motion to dismiss should not consider any matters outside the complaint. B. Count I: Violation of the CROA
Defendant requests the court to consider relevant portions of its web site, and not just what is cited in plaintiff's complaint in ruling on this motion. A "district court may consider documents `whose contents are alleged in a complaint and whose authenticity no party questions, but which are not physically attached to the [plaintiff's] pleading.'" In re Silicon Graphics Inc. Securities Litig., 183 F.3d 970, 986 (9th Cir. 1999). This rule has been extended to the contents of web sites. See Martino-Catt v. E.I. DuPont de Nemours and Co., 213 F.R.D. 308, 321 n. 12 (S.D. Iowa 2003). Here, the court may consider portions of defendant's web site, as the contents are alleged in plaintiff's complaint, and neither party is challenging its authenticity.
Defendant argues that plaintiff has not stated a claim under the CROA because it is not a credit repair organization and its role in the transaction is limited to "providing an internet site for the receipt, storage, and display of information." Mot. to Dismiss at 8. It alleges that its web site discloses that ConsumerInfo.com (defendant in the Helms action) actually provides the credit information and bills customers.
Plaintiff, however, says his allegations are sufficient to establish that defendant is a credit repair organization for purposes of § 1679a(3), and also argues that this action does not depend upon whether it is a credit repair organization. He states that the CROA also prohibits "persons" from making "untrue and misleading representations[s] of the services of the credit repair organization" or engaging in action that constitutes a "fraud or deception" in connection with the sale of services by a credit repair organization. 15 U.S.C. § 1679b(a)(3)-(4). He argues that, even if defendant is not a credit repair organization, he has stated a claim "based on Yahoo!'s representations that it does provide such advice or assistance." Opp. at 12. Defendant responds that plaintiff's complaint fails because he has not alleged particularized facts that defendant made "untrue or misleading representation[s]" or engaged in business practices that result in "a fraud or deception," as required by Fed.R.Civ.P. 9(b).
(i) Plaintiff Has Pleaded Sufficient Facts to Demonstrate that Defendant is a Credit Repair Organization
Section 1679a(3) of the CROA defines a credit repair organization as:
[A]ny person who uses any instrumentality of interstate commerce or the mails to sell, provide, or perform (or represent that such person can or will sell, provide, or perform) any service, in return for the payment of money or other valuable consideration, for the express or implied purpose of (i) improving any consumer's credit record, credit history, or credit rating; or (ii) providing advice or assistance to any consumer with regard to any activity or service described in clause (i).
Plaintiff has alleged that defendant's web site states that purchasers of Yahoo Credit Manager services will "receive `personalized tips and analysis' on how to improve their credit score and would `[l]earn what factors may influence [the credit] score, [including] what issues can positively and negatively affect [their] credit standing.'" Compl. at ¶ 9. He further alleges that defendant provides the services in exchange for a payment of $79.95. Compl. at ¶ 11. These allegations are sufficient to state a claim that defendant is a credit repair organization under the CROA. Plaintiff alleged that defendant used the Internet to represent that it can improve or provide assistance in improving a consumer's credit score in exchange for payment.
Defendant's arguments that it does not actually provide the services and that plaintiff paid ConsumerInfo.com, are unpersuasive, as section 1679a(3)(A) does not require a party to provide the services, but simply to "represent" that it can or will provide such services. Furthermore, these are factual issues, and are not relevant on a motion to dismiss.
(ii) Plaintiff Has Not Pleaded Sufficient Facts to State a Claim Under Section 1679b(a)(3)-(4)
Section 1679b(a)(3)-(4) states that no "person" may:
(3) [M]ake or use any untrue or misleading representations of the services of the credit repair organization; or
(4) [E]ngage, directly or indirectly, in any act, practice, or course of business that constitutes or results in the commission of, or an attempt to commit, a fraud or deception on any person in connection with the offer or sale of the services of the credit repair organization.
Fed.R.Civ.P. 9(b) states that "[i]n all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity." Rule 9(b) "requires particularity as to the circumstances of the fraud" including identifying the "time, place, persons, [and] statements made, [and an] explanation of why or how such statements are false or misleading." In re GlenFed, Inc. Securities Litig., 42 F.3d 1541, 1548 n. 7 (9th Cir. 1994) (superceded by statute on other grounds).
Plaintiff's complaint alleges that:
Defendant also violated 15 U.S.C. §§ 1679b(a)3 and 4 by making or using untrue and/or misleading representations about defendant's services and by engaging, directly and/or indirectly, in acts, practices, and courses of business that constitute or resulted in the commission of, or an attempt to commit, a fraud or deception on plaintiff and members of the class in connection with the offer and/or sale of the credit repair services defendant provided and continues to provide. Compl. at ¶ 13. Plaintiff's allegations are conclusory. They do not identify any untrue or misleading representations, or any practices that result in the commission of a fraud. The allegations also do not particularly identify the circumstances of the misrepresentations and fraud. In fact, they provide no information other than the statutory language. As such, they are insufficient to state a claim pursuant to 15 U.S.C. § 1679b(a)(3)-(4). Defendant's motion to dismiss is granted with leave to amend.
C. Count II: Unjust Enrichment
Defendant argues that plaintiff cannot state a claim for unjust enrichment, since plaintiff paid the money for the credit services to ConsumerInfo.com, not defendant.
To demonstrate unjust enrichment, a party must show "receipt of a benefit and unjust retention of the benefit at the expense of another." Lectrodryer v. Seoul Bank, 77 Cal. App. 4th 723, 726 (Cal.Ct.App. 2000); see also Posern v. Prudential Securities, Inc., No. C03-0507 SC, 2004 WL 771399 *8 (N.D. Cal. Feb. 18, 2004). Plaintiff states that it paid defendant for credit repair services, that defendant violated the CROA by failing to provide the necessary disclosures, and that "[d]efendant holds money, which, in equity and good conscience and under law, belongs to plaintiff and the class members because it was improperly and unlawfully paid to defendant." Compl. at ¶ 34. These allegations are sufficient to state a claim for unjust enrichment. Whether plaintiff paid ConsumerInfo.com or defendant is a factual issue.
D. Count III: Constructive Trust
Defendant argues that plaintiff's claim for constructive trust fails, as constructive trust is a remedy rather than a separate cause of action. Plaintiff does not challenge the dismissal of this count, but maintains that it is an appropriate remedy. As constructive trust is not a cause of action under California law, defendant's motion to dismiss count III is granted with prejudice. See Stansfield v. Starkey, 220 Cal. App. 3d 59, 76 (Cal.Ct.App. 1990).
E. Count IV: Civil Conspiracy
Defendant argues that plaintiff fails to state a claim for conspiracy, as conspiracy is not an independent claim, but a theory of joint liability. Plaintiff asserts that conspiracy is a cognizable claim under California law and that it has sufficiently stated a claim for it, alleging formation of a conspiracy, wrongful acts done in furtherance, and resulting damages.
Conspiracy is not an independent cause of action, "but a legal doctrine that imposes liability on persons who, although not actually committing a tort themselves, share with the immediate tortfeasors a common plan or design." Applied Equip. Corp. v. Litton Saudi Arabia Ltd., 7 Cal. 4th 503, 510-511 (Cal. 1994). Thus, to state a claim for conspiracy, "the complaint must allege (1) the formation and operation of a conspiracy; (2) the wrongful act or acts done pursuant thereto; and (3) the damage resulting from such act or acts." General American Life Ins. Co. v. Rana, 769 F. Supp. 1121, 1125 (N.D. Cal. 1991) (citing Younan v. Equifax Inc., 111 Cal.App.3d 498, 511 n. 9 (1980)). "To establish the `wrongful act' element of civil conspiracy, defendant must satisfy all of the elements of a cause of action for some other tort or wrong." Id. A conspiracy necessarily involves two or more people or entities. Black v. Bank of America, 30 Cal. App. 4th 1, 6 (Cal.Ct.App. 1995).
Plaintiff alleges that "[d]efendant conspired and combined to damage plaintiff and the class through the wrongful conduct alleged above," and that plaintiff and the class have suffered damages as a result of the wrongful conduct. Plaintiff has failed to state a claim for conspiracy, as he has not alleged the formation of such a conspiracy. Plaintiff has failed to identify with whom defendant conspired to injure him. "[I]t is basic in the law of conspiracy that you must have two persons or entities to have a conspiracy," as "[a] corporation cannot conspire with itself." Black, 30 Cal. App. at 6. Defendant's motion to dismiss count IV is granted with leave to amend. If plaintiff chooses to amend, he should "clearly allege specific action on the part of each defendant that corresponds to the elements of a conspiracy cause of action," making the allegations "within the sections of the complaint that contain [the] claims for the underlying torts." AccuImage Diagnostics Corp. v. Terarecon, Inc., 260 F. Supp. 2d 941, 948 (N.D. Cal. 2003). II. Motion to Stay or Dismiss the Action on Federal Comity Grounds or to Stay Discovery
Defendant asked the court to stay initial disclosures as well. That request is moot, since the court shortly after the filing ordered the parties to exchange initial disclosures by October 19, 2004. See Case Management Conference Order dated Oct. 5 at 1.
Defendant requests the court to either 1) stay or dismiss the action in favor of the Helms v. ConsumerInfo.com action; or 2) stay discovery pending the outcome of the summary judgment motions filed in the Helms action.
Defendant also asked that the court stay discovery pending resolution of its motion to dismiss. This request is also moot, since the motion to dismiss is being heard concurrently with the request to stay discovery.
A. Motion to Stay or Dismiss on Comity Grounds
Federal comity is "a discretionary doctrine which permits one district to decline judgment on an issue which is properly before another district." Church of Scientology of California v. United States Dept. of the Army, 611 F.2d 738, 749 (9th Cir. 1979). When a complaint involves the "same parties and issues," a district court may decline jurisdiction in favor of the first filed action. Pacesetter Systems, Inc. v. Medtronic, Inc., 678 F.2d 93, 95 (9th Cir. 1982). This "`first to file' rule is not a rigid or inflexible rule to be mechanically applied, but rather is to be applied with a view to the dictates of sound judicial administration." Id.
Defendant alleges that staying or dismissing the action is appropriate as this action is substantially similar to theHelms action, which was filed first. It alleges that the central issue in both cases — whether ConsumerInfo.com is a credit repair organization — is identical. It also alleges similarity of the parties, in that plaintiff in this case is member of the class in the Helms action, and that the class he seeks to represent is simply a subclass of the class in that action. Given this similarity, defendant argues that collateral estoppel applies to the issues.
The court declines to stay the action on federal comity grounds. Defendant's primary argument is that its liability is derivative of ConsumerInfo.com's liability, and that if it is found not to be a credit repair organization, then defendant cannot be either, since it provided all the relevant credit information. This argument is unpersuasive. The CROA does not impose liability solely on those who provide or perform the services, but also on those who "represent that [they] can or will sell, provide, or perform" the services. 15 U.S.C. § 1679a(3)(a). Defendant could be a credit repair organization based on its representations, independent of ConsumerInfo.com's status. As a result, the issues are not substantially similar. Defendant's argument that plaintiff is a member of the class in Helms is unpersuasive for the same reason. Since the liability of the defendants in both cases could be different, the interests of the plaintiffs are not necessarily aligned, and any relief obtained here after Helms would not necessarily be inconsistent or duplicative. Defendant's motion to stay discovery, essentially based upon the same argument, is similarly denied.
ORDER
Based on the foregoing, IT IS ORDERED THAT:
1. Defendant's motion to dismiss claims pursuant to 15 U.S.C. §§ 1679b(b), 1679c, 1679d, and 1679e is DENIED. Plaintiff has plead sufficient facts to state a claim that defendant is a credit repair organization within the meaning of 15 U.S.C. § 1679a(3).
2. Defendant's motion to dismiss claims pursuant to 15 U.S.C. § 1679b(a)(3)-(4) is GRANTED. The allegations concerning these claims are conclusory. They do not identify the untrue or misleading representations or the practices that resulted in fraud. Plaintiff is granted leave to amend.
3. Defendant's motion to dismiss plaintiff's claim for unjust enrichment is DENIED.
4. Defendant's motion to dismiss plaintiff's claim for constructive trust is GRANTED WITH PREJUDICE. This is a remedy, and not a cause of action. Further, plaintiff does not oppose its dismissal.
5. Defendant's motion to dismiss the claim for conspiracy is GRANTED. Plaintiff failed to properly allege the formation of a conspiracy or any co-conspirators. Plaintiff is granted leave to amend.
6. Defendant's motions to stay the action on comity grounds or to stay discovery are DENIED.
7. If plaintiff wishes to amend his complaint in accordance with this order, he shall do so by November 24, 2004.
IT IS SO ORDERED.