Opinion
23-cv-02538-JSC
12-08-2023
FAIRE WHOLESALE, INC., Plaintiff, v. TUNDRA, INC., Defendant.
ORDER RE: TUNDRA'S MOTION TO COMPEL ARBITRATION AND MOTION TO DISMISS RE: DKT. NOS. 31, 33
MACQUELINE SCOTT CORLE, United States District Judge.
Faire Wholesale, Inc. (Faire) sues its competitor, Tundra, Inc. (Tundra), challenging Tundra's unauthorized use of Faire's users' login credentials to gain access to Faire's non-public information. (Dkt. No. 29.) Tundra moves to compel arbitration and dismiss. (Dkt. Nos. 31, 33.) Having carefully considered the briefing, and with the benefit of oral argument on December 7, 2023, the Court DENIES Tundra's motion to compel arbitration. The remaining statutory claims are not intricately intertwined with, nor dependent on, Faire's service terms. So, Tundra-a nonsignatory to the service terms, and thus the arbitration agreement-cannot force Faire to arbitrate those claims.
Record citations are to material in the Electronic Case File (“ECF”); pinpoint citations are to the ECF-generated page numbers at the top of the documents.
Tundra's motion to dismiss is GRANTED with leave to amend as to the Computer Fraud and Abuse Act claim, California Comprehensive Computer Data Access and Fraud Act claim, and the California Unfair Competition Law claim to the extent it relies on the two former claims. Faire can plausibly plead those claims, but has not yet done so. The motion is DENIED as to the rest of the California Unfair Competition Law claim and the Lanham Act claim. Faire plausibly pleads Tundra made advertising misrepresentations likely to deceive the public into believing Tundra had partnered with Faire and was permitted to access Faire's computers.
COMPLAINT ALLEGATIONS
Faire operates an online marketplace connecting wholesalers with retailers. (Dkt. No. 29 ¶¶ 2, 18.) To list a product or search the catalog of products for sale on Faire's platform, users must create an account with a username and password. (Id. ¶ 3.) Only users who have logged into password-protected accounts may access inventory, pricing, and contact information related to the goods available for sale on Faire's platform. (Id. ¶¶ 3, 7.) Faire's service terms prohibit users from disclosing their passwords to third parties. (Id. ¶ 25.)
Ordinarily, Faire makes a commission on successful transactions on its platform. (Id. ¶ 21.) As an alternative incentive for small businesses, Faire offers the “Faire Direct” program, which provides wholesalers with a personalized link they can use to invite retailers to order directly from their shop on Faire's platform. (Id.) When retailers order through these personalized links, wholesalers pay 0% commission to Faire. (Id.)
In 2022, Tundra created a comparison tool called Wholesale Co-Op. (Id. ¶¶ 5-6.) Wholesale Co-Op encourages its users to disclose their Faire login credentials. (Id. ¶ 33.) To entice users to join Wholesale Co-Op and disclose their Faire login credentials, Wholesale Co-Op offers to pay the retailers up to 10% “cash back” on every purchase they make from a Faire wholesaler. (Id. ¶ 32.) Wholesale Co-Op directly solicits sellers on Faire's platform to provide their Faire Direct links to retailers registered with Wholesale Co-Op by “promising to promote their brands to new retailers and give them greater exposure” to Wholesale Co-Op retailers. (Id. ¶ 35.) Wholesale Co-Op charges sellers who participate in the Faire Direct program a fee of 15% “that replaces the marketplace commission for new retailers to a marketplace and their reorders.” (Id. ¶¶ 35-36.) Wholesale Co-Op then pays a percentage of this fee as “cash back” to the retailers and pockets the rest. (Id. ¶ 36.) In doing so, Wholesale Co-Op diverts commissions properly owed to Faire to Tundra. (Id.)
After collecting Faire's users' login credentials via Wholesale Co-Op, Tundra accesses Faire's users' accounts and copies information from otherwise secured portions of Faire's platform. (Id. ¶¶ 40, 42, 55.) This non-public information includes the contact information of Faire's users and inventory and pricing information of goods available on Faire's platform. (Id. ¶ 56.) Tundra uses the information it scrapes from Faire's platform to market Wholesale Co-Op. (Id. ¶ 57.)
Faire sues Tundra for violation of the Computer Fraud and Abuse Act, violation of California's Comprehensive Computer Data Access and Fraud Act, tortious interference with prospective economic advantage, intentional interference with contract, violation of California's Unfair Competition Law (UCL), and violation of the Lanham Act. Tundra now moves to compel arbitration and, in the alternative, dismiss Faire's amended complaint. (Dkt. Nos. 31, 33.)
DISCUSSION
A. Motion to Compel Arbitration
Tundra moves to compel arbitration of all Faire's claims. Faire agrees to arbitrate its claims for tortious interference with prospective economic advantage and intentional interference with contract, as well as the portions of its UCL claim based on Faire's interference claims. (Dkt. No. 35 at 6.) Consequently, the Court evaluates Tundra's motion to compel arbitration only as to Faire's remaining claims: 1) the Computer Fraud and Abuse Act, 2) California's Comprehensive Computer Data Access and Fraud Act, 3) California's UCL, and 4) the Lanham Act.
The Federal Arbitration Act governs arbitration agreements “evidencing a transaction involving commerce.” 9 U.S.C. § 2. Such agreements “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” Id. In resolving a motion to compel arbitration, the Court must decide two “gateway” issues: “(1) whether a valid agreement to arbitrate exists and, if it does, (2) whether the agreement encompasses the dispute at issue. If both conditions are met, the [Federal Arbitration Act] requires the court to enforce the arbitration agreement in accordance with its terms.” Lim v. TForce Logistics, LLC, 8 F.4th 992, 999 (9th Cir. 2021) (cleaned up).
Faire's service terms bind signatories to its arbitration terms:
PLEASE READ THIS ARBITRATION PROVISION CAREFULLY BECAUSE IT AFFECTS YOUR RIGHTS.
You and Faire agree that any dispute, claim or controversy arising out of or relating to these Terms or the breach, termination, enforcement,
interpretation or validity thereof or the use of the Services (collectively, “Disputes”) will be settled by binding arbitration, except that each party retains the right to: (a) bring an individual action in small claims court; (b) the right to seek injunctive or other equitable relief in a court of competent jurisdiction to prevent the actual or threatened infringement, misappropriation or violation of a party's copyrights, trademarks, trade secrets, patents or other intellectual property rights; (c) pursue an enforcement action through the applicable federal, state or local agency if that action is available; and (d) seek injunctive relief in a court of law in aid of arbitration.(Dkt. No. 29-1 at 12.) Tundra is not a signatory to Faire's service terms. (Dkt. No. 31 at 6.)
“[Arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit.” AT&T Techs., Inc. v. Commc'ns Workers of Am., 475 U.S. 643, 648 (1986); see also Kramer v. Toyota Motor Corp., 705 F.3d 1122, 1126 (9th Cir. 2013) (“Generally, the contractual right to compel arbitration may not be invoked by one who is not a party to the agreement and does not otherwise possess the right to compel arbitration.” (cleaned up)). Acknowledging no agreement to arbitrate exists between the parties, Tundra moves to compel arbitration of all Faire's claims under an equitable estoppel theory.
1. The Court Decides Whether Tundra Can Require Arbitration
In a footnote, Tundra argues the arbitrator should decide “whether the arbitration clause in Faire's service terms encompasses all of Faire's claims” based on Faire's incorporation of the AAA Rules, which empower arbitrators to decide the existence, scope, and validity of arbitration agreements. (Dkt. No. 31 at 11 n.3.) Tundra's argument is foreclosed by binding Ninth Circuit precedent.
In Kramer, a consumer who purchased a car through a dealership sued Toyota. 705 F.3d at 1124. Toyota argued it could compel arbitration because the consumer's purchase contract with the dealer contained an arbitration clause. But first, Toyota argued the arbitrator, rather than the court, should decide arbitrability because the arbitration agreement included a delegation clause (a provision “expressly providing] that the arbitrator shall decide issues of interpretation, scope, and applicability of the arbitration provision”). Id. at 1126-27. The Ninth Circuit disagreed. Because the arbitration agreement did “not contain clear and unmistakable evidence that Plaintiffs and Toyota agreed to arbitrate arbitrability,” as opposed to the plaintiffs and the dealership, the district court had the authority to decide arbitrability. Id. at 1127 (“Given the absence of clear and unmistakable evidence that Plaintiffs agreed to arbitrate arbitrability with nonsignatories, the district court had the authority to decide whether the instant dispute is arbitrable.”). The court reasoned: “[t]he parties to this litigation did not agree to arbitrate arbitrability; Plaintiffs only agreed to arbitrate arbitrability-or any other dispute-with the Dealerships because the arbitration clause is limited to claims between ‘you and us'-i.e. Plaintiffs and the Dealerships.” Id. at 1128.
Here, as in Kramer, the arbitration agreement is between the plaintiff (Faire) and “you” (users with Faire accounts). Not between Faire and Tundra. Nothing in the arbitration agreement remotely suggests Faire intended to arbitrate arbitrability with nonsignatories such as Tundra. So, under Kramer, absent agreement of the parties to this litigation, the arbitrator cannot decide arbitrability.
2. Equitable Estoppel
“Generally, in the arbitration context, equitable estoppel allows a nonsignatory to a written agreement containing an arbitration clause to compel arbitration where a signatory to the written agreement must rely on the terms of that agreement in asserting its claims against the nonsignatory.” GE Energy Power Conversion France SAS, Corp. v. Outokumpu Stainless USA, LLC, 140 S.Ct. 1637, 1644 (2020) (cleaned up). Agreements governed by the Federal Arbitration Act permit “a nonsignatory to rely on state-law equitable estoppel doctrines to enforce an arbitration agreement.” Id.; (see Dkt. No. 29-1 at 12 (“The parties agree that the Federal Arbitration Act applies and will govern the interpretation and enforcement of this Arbitration Agreement.”)); see also Mundi v. Union Sec. Life Ins. Co., 555 F.3d 1042, 1045 (9th Cir. 2009) (“General contract and agency principles apply in determining the enforcement of an arbitration agreement by or against nonsignatories.”). The Court evaluates whether Tundra may compel arbitration according to California contract law. See Kramer, 705 F.3d at 1128; (see Dkt. Nos. 29 ¶¶ 13-14, 16; 29-1 at 11 (“These terms and any action thereto will be governed by the laws of the State of California without regard to its conflict of laws provisions.”)).
“Equitable estoppel precludes a party from claiming the benefits of a contract while simultaneously attempting to avoid the burdens that contract imposes.” Kramer, 705 F.3d at 1128.
Where a nonsignatory seeks to enforce an arbitration clause, the doctrine of equitable estoppel applies in two circumstances: (1) when a signatory must rely on the terms of the written agreement in asserting its claims against the nonsignatory or the claims are “intimately founded in and intertwined with” the underlying contract, and (2) when the signatory alleges substantially interdependent and concerted misconduct by the nonsignatory and another signatory and “the allegations of interdependent misconduct [are] founded in or intimately connected with the obligations of the underlying agreement.”Kramer, 705 F.3d at 1128-29; id. at 29 (holding equitable estoppel requires arbitration only if the plaintiff must rely on the contract containing the arbitration agreement to assert its claims against the defendant).
As the party seeking arbitration, Tundra bears the burden of establishing the applicability of equitable estoppel. See Jones v. Jacobson, 195 Cal.App.4th 1, 16 (2011). Tundra seeks to compel arbitration based on the first circumstance. It urges Faire's claims are inextricably intertwined with its service terms “because they are predicated on allegations that [Tundra] induced [Faire's] users to shirk and eventually abdicate their contractual obligations to [Faire].” (Dkt. No. 39 at 10.)
a. Computer Fraud and Abuse Act Claim
The Computer Fraud and Abuse Act “prohibits acts of computer trespass by those who are not authorized users or who exceed authorized use. It creates criminal and civil liability for whoever intentionally accesses a computer without authorization or exceeds authorized access, and thereby obtains information from any protected computer.” Facebook, Inc. v. Power Ventures, Inc., 844 F.3d 1058, 1065-66 (9th Cir. 2016) (cleaned up); 18 U.S.C. § 1030(a). There are two ways of committing the crime of improperly accessing a protected computer: 1) obtaining unauthorized access and 2) exceeding the bounds of authorized access. Musacchio v. United States, 577 U.S. 237, 240 (2016).
Tundra has failed to meet its burden to show Faire must rely on its service terms to assert its Computer Fraud and Abuse Act claim. While Faire's service terms prohibit disclosure of password credentials, Faire is not required to allege violation of this prohibition to meet a required element of the Computer Fraud and Abuse Act claim. Indeed, violation of a website's terms of use does not establish liability under the Act. See Facebook, Inc. v. Power Ventures, Inc., 844 F.3d 1058, 1067 (9th Cir. 2016). Instead, Faire must demonstrate Faire revoked Tundra's permission to access Faire's password-protected website. Id. Indeed, that is precisely what Tundra argues in support of its motion to dismiss. (Dkt. No. 33 at 13-14.) So, Faire need not and, actually, cannot rely on its service terms to prove this claim. Equitable estoppel thus does not apply.
b. Comprehensive Computer Data Access and Fraud Act Claim
California Penal Code § 502 imposes liability on a person who “[k]nowingly accesses and without permission takes, copies, or makes use of any data from a computer, computer system, or computer network, or takes or copies any supporting documentation, whether existing or residing internal or external to a computer, computer system, or computer network.” Facebook, Inc., 844 F.3d at 1069. “In contrast to the [Computer Fraud and Abuse Act], the California statute does not require unauthorized access. It merely requires knowing access. What makes that access unlawful is that the person without permission takes, copies, or makes use of data on the computer.” United States v. Christensen, 828 F.3d 763, 789 (9th Cir. 2015) (cleaned up).
While Tundra asserts this claim is inextricably intertwined and dependent on Faire's service terms, it provides no analysis to back up this conclusory assertion. Why is Faire required to prove a violation of Faire's service terms to prove this claim? Tundra does not say. As with Faire's Computer Fraud and Abuse Act claim, Faire is not required to allege violation of Faire's service terms to demonstrate Tundra impermissibly took or made use of Faire's data.
c. Lanham Act Claim
Faire's Lanham Act claim against Tundra for false or misleading advertising accuses Tundra of falsely claiming Faire was aware of and approved Tundra's scheme abusing the Faire Direct program. (Dkt. No. 29 ¶ 115.) Faire alleges the false advertising “is likely to deceive retailers and brands into believing that Tundra's marketplace is associated or partnered with Faire's marketplace.” (Id. ¶ 116.) This claim does not rely on Faire's service terms, and Faire is not required to show violation of its service terms to demonstrate Tundra falsely advertised Faire's endorsement or meet any other element of Faire's Lanham Act claim. Indeed, even Tundra does not contend the Lanham Act claim is predicated on allegations of breach of the service terms. (Dkt. No. 31 at 13 (identifying the claims Tundra believes are predicated on the service terms and excluding the Lanham Act)).
Tundra instead contends Faire's Lanham Act claim is predicated on Tundra's abuse of the Faire Direct program to divert commissions owed to Faire to Tundra. (Id.) Tundra is correct that Faire may reference its Faire Direct program to prove some of its damages arising from the alleged Lanham Act violation. But that is not the same as requiring reliance on Faire's service terms to assert the Lanham Act claim. See Kramer, 705 F.3d at 1129 (“merely making reference to an agreement with an arbitration clause is not enough.” (cleaned up)). Faire may assert its Lanham Act claim without proving, or even alleging, breach of its service terms. So, Tundra has also failed to show equitable estoppel applies to this claim.
d. Unlawful Competition Law Claim
As Faire's California UCL claim is derivative of the above claims, Tundra fails to meet its burden to show equitable estoppel applies for the same reasons.
Nonsignatory Tundra is not entitled to compel arbitration of Faire's remaining claims under an equitable estoppel theory because Faire is not required to rely on its service terms to assert these claims. Kramer, 705 F.3d at 1129. While the claims Faire has already agreed to arbitrate may be predicated on allegations Tundra induced Faire's users to violate their contractual obligations to Faire, none of Faire's remaining claims are “intimately founded in and intertwined with” Faire's service terms. Id. at 1128-29. Accordingly, Tundra's motion to compel arbitration is DENIED.
B. Motion to Dismiss
Tundra also moves to dismiss Faire's remaining claims. For the claims to survive, the complaint's factual allegations must raise a plausible right to relief. BellAtl. Corp. v. Twombly, 550 U.S. 544, 554-56 (2007). Though the Court must accept the complaint's factual allegations as true, conclusory assertions are insufficient to state a claim. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). A claim is facially plausible when the complaint pleads enough factual content to justify the reasonable inference the defendant is liable for the misconduct alleged. Id.
1. Computer Fraud and Abuse Act Claim
Tundra seeks dismissal of Faire's Computer Fraud and Abuse Act claim on the grounds Faire cannot maintain a claim under either cited subsection of the Act. Faire alleges Tundra violated 18 U.S.C. § 1030(a)(2)(A), (a)(4)(A), and (c)(4)(A)(i)(I). (Dkt. No. 29 ¶¶ 70-71.) Section 1030(a)(2)(A) prohibits the intentional unauthorized access into a computer to obtain information from financial records of a financial institution, card issuer, or consumer reporting agency. 18 U.S.C. § 1030(a)(2)(A). Section 1030(a)(4)(A) does not exist. See id. § 1030(a). Section 1030(c)(4)(A)(i)(I) concerns the punishment for computer trespass. Id. § 1030(c)(4)(A)(i)(I).
Faire concedes § 1030(a)(2)(A) does not apply. It contends its citation to this provision is a “typographical error,” and it intended to invoke 18 U.S.C. § 1030(a)(2)(C), which prohibits computer trespass to obtain “information from any protected computer.” But Faire may not amend its complaint through its opposition brief. Tietsworth v. Sears, 720 F.Supp.2d 1123, 1145 (N.D. Cal. 2010) (“It is axiomatic that the complaint may not be amended by briefs in opposition to a motion to dismiss.”). Accordingly, Faire's Computer Fraud and Abuse Act claim is DISMISSED with leave to amend.
Tundra also argues Faire “cannot state a claim for violation of [the Computer Fraud and Abuse Act] to the extent that such a claim is based on the copying of publicly available information.” (Dkt. No. 33 at 13.) But the amended complaint does not allege Tundra copied publicly available information. Instead, Faire alleges Tundra uses users' login credentials to access password-protected portions of Faire's platform and copy non-public information from Faire's protected computers. (Dkt. No. 29 ¶ 8.) This non-public information includes the names and contact information of retailers, buyers, and brand representatives; inventory and pricing information; and retailers' order histories, shopping carts, and ability to place orders. (Dkt. No. 29 ¶¶ 56, 70.)
Tundra's reliance on hiQ Labs, Inc. v. LinkedIn Corp., 31 F.4th 1180, 1201-02 (9th Cir. 2022), is misplaced. There, the Ninth Circuit considered whether LinkedIn could prevent a competitor “from collecting and using information that LinkedIn users had shared on their public profiles, available for viewing by anyone with a web browser.” Id. at 1184. Here, in direct contrast, Faire accuses Tundra of collecting non-public information from Faire's protected computers by employing users' login credentials. This is exactly the circumstance to which the Computer Fraud and Abuse Act applies: “the [Act]'s prohibition on accessing a computer ‘without authorization' is violated when a person circumvents a computer's generally applicable rules regarding access permissions, such as username and password requirements, to gain access to a computer.” hiQ Labs, Inc., 31 F.4th at 1201.
2. Comprehensive Computer Data Access and Fraud Act Claim
Faire alleges Tundra violated California Penal Code § 502(c)(5), which criminalizes “[k]nowingly and without permission disrupting] or caus[ing] the disruption of computer services or den[ying] or caus[ing] the denial of computer services to an authorized user of a computer, computer system, or computer network.” Tundra seeks dismissal of this claim on the grounds Faire fails to allege Tundra caused the disruption or denial of computer services to authorized users “even in a conclusory manner.” (Dkt. No. 33 at 15.) Not so. Faire alleges Tundra caused Faire users to be locked out of their accounts, experience login issues, and receive notices of potential unauthorized login attempts. (Dkt. No. 29 ¶¶ 11, 50.) And Tundra's scheme is ongoing despite Faire's February 14, 2023, cease-and-desist letter. (Id. ¶ 59.) So, Faire plausibly alleges Tundra disrupted or denied computer services.
But Faire has not yet plausibly alleged Tundra knowingly did so. Faire's cease-and-desist letter mentions nothing about Tundra's conduct causing the disruption or denial of services to authorized users. (Dkt. No. 1-2.) Thus, Faire's cease-and-desist letter does not permit the inference Tundra knowingly caused the disruption or denial of services to authorized users. Accordingly, Faire's § 502(c)(5) claim is DISMISSED with leave to amend.
In opposition, Faire again seeks to invoke provisions of the Act not referenced in the complaint. In particular, California Penal Code § 502(c)(1)-(3). (Dkt. No. 41 at 12.) Faire may not amend its complaint through its opposition brief. Tietsworth v. Sears, 720 F.Supp.2d 1123, 1145 (N.D. Cal. 2010) (“It is axiomatic that the complaint may not be amended by briefs in opposition to a motion to dismiss.”).
3. Unlawful Competition Law Claim
The California UCL prohibits “any unlawful, unfair or fraudulent business act or practice.” Cal. Bus. & Prof. Code § 17200. Tundra seeks dismissal of this claim on the grounds Faire lacks statutory standing, fails to plead any underlying violation of law, and fails to plead likely deception by members of the public.
a. Statutory Standing
Statutory standing under California's UCL is limited to those who have suffered injury in fact and lost money or property as a result of the unfair competition. Cal. Bus. & Prof. Code § 17204; Kwikset Corp. v. Superior Ct., 51 Cal.4th 310, 326 (2011) (“a plaintiff's economic injury [must] come ‘as a result of' the unfair competition or a violation of the false advertising law.”). “The phrase ‘as a result of in its plain and ordinary sense means ‘caused by' and requires a showing of a causal connection or reliance on the alleged misrepresentation.” Kwikset Corp., 51 Cal.4th at 326 (emphasis added). Only when a misrepresentation forms the basis of a plaintiff's unfair competition claim does statutory standing require reliance on the alleged misrepresentation. Id. (“Recognizing that reliance is the causal mechanism of fraud, we held that a plaintiff proceeding on a claim of misrepresentation as the basis of his or her UCL action must demonstrate actual reliance on the allegedly deceptive or misleading statements.” (cleaned up)); see also Swearingen v. Late July Snacks LLC, No. 13-CV-04324-EMC, 2017 WL 1806483, at *4 (N.D. Cal. May 5, 2017) (“The California Supreme Court has made it clear that, regardless of which prong of the UCL a plaintiff asserts, when the basis of a plaintiff's UCL claim is a claim of misrepresentation, a plaintiff must demonstrate actual reliance on the allegedly deceptive or misleading statements.”).
i. Unlawful Prong
Faire's “unlawful” prong claim is predicated on Tundra's alleged violations of the Computer Fraud and Abuse Act, California Comprehensive Computer Data Access and Fraud Act, and Lanham Act. (Id. ¶ 109.) Because this claim is not based on Tundra's alleged misrepresentations, Faire is not required to allege reliance. Kwikset Corp., 51 Cal.4th at 326-27. So, Tundra's motion to dismiss Faire's unlawful competition claim for lack of statutory standing is DENIED.
ii. Fraudulent Prong
Faire's “fraudulent” prong claim is predicated on 1) Tundra's misrepresentations it was an authorized user when logging into Faire's platform and 2) Tundra's misrepresentations Faire was aware of and approved Tundra's practices. (Dkt. No. 29 ¶ 110.) Because this claim is based on Tundra's alleged misrepresentations, Faire must allege reliance. Kwikset Corp., 51 Cal.4th at 326-27.
Faire adequately alleges its own reliance as to the login misrepresentations. Faire alleges Tundra falsely represented it was an authorized Faire user when logging into Faire's users' accounts. (Dkt. No. 29 ¶ 110.) Tundra gained access to Faire's password-protected platform based on Faire's reliance on Tundra's misrepresentation it was an authorized Faire user. (Id. ¶¶ 40-42, 53-55.) As a result of Tundra's access to Faire's password-protected platform, Faire spent money to investigate and prevent Tundra's circumvention of its technical defenses. (Id. ¶¶ 49, 111.) Thus, Faire plausibly alleges reliance sufficient to establish statutory standing to assert a fraudulent competition claim against Tundra based on its login misrepresentations.
While Faire does not allege its own reliance as to the advertising misrepresentations, it does not have to. The parties are competitors, and no California state court has addressed “if competitor plaintiffs must plead their own reliance or whether pleading consumer reliance is sufficient for fraudulent business practices claims brought by competitors.” Heartland Payment Sys., Inc. v. Mercury Payment Sys., LLC, No. C 14-0437 CW, 2015 WL 3377662, at *7 (N.D. Cal. Feb. 24, 2015). However, a “growing chorus” of federal district courts have held individual reliance is not required for statutory standing where a competitor plaintiff alleges fraudulent competition based on a defendant's misrepresentation if the plaintiff has alleged a sufficient causal connection between the misrepresentation and the plaintiff's injury. ScilexPharms. Inc. v. Sanofi-Aventis U.S. LLC, No. 21-CV-01280-JST, 2021 WL 11593043, at *6 (N.D. Cal. Aug. 16, 2021). Indeed, “strict adherence to the rule requiring pleading reliance would create an absurd result where a plaintiff could never bring a UCL claim against its competitor for false or misleading advertising.” Simpson Strong-Tie Co. Inc. v. MiTek Inc., No. 20-CV-06957-VKD, 2021 WL 1253803, at *6 (N.D. Cal. Apr. 5, 2021); see also Scilex Pharms. Inc., 2021 WL 11593043, at *6 (agreeing the reliance requirement would impose a superficial hurdle on competitor plaintiffs “because false advertising claims between competitors are fundamentally different from false advertising claims brought by consumers”).
“The UCL's purpose is to protect both consumers and competitors by promoting fair competition in commercial markets for goods and services.” Kasky v. Nike, Inc., 27 Cal.4th 939, 949 (2002), as modified (May 22, 2002) (emphasis added). Because requiring Faire to plead individual reliance as to Tundra's advertising misrepresentations would frustrate the UCL's purpose, the Court declines to impose such a requirement. Still, Faire must allege consumer reliance to establish statutory standing for its fraudulent competition claim. Kwikset Corp., 51 Cal.4th at 326-27.
Faire alleges facts sufficient to plausibly support an inference of consumer reliance on Tundra's misrepresentations. Tundra misrepresented to brands and retailers that Faire endorsed Tundra's scheme. (Dkt. No. 29 ¶¶ 37-38, 110.) Relying on this misrepresentation, users disclosed their Faire login credentials to Tundra. (Id. ¶¶ 32-33, 39.) Tundra then employed Faire users' login credentials to gain access to Faire's password-protected platform. (Id. ¶¶ 40-42, 53-55.) As a result of Tundra's access to Faire's password-protected platform, Faire spent money to investigate and prevent Tundra's circumvention of its technical defenses. (Id. ¶¶ 49, 111.) In sum, Faire alleges consumer reliance sufficient to establish statutory standing to assert a fraudulent competition claim against Tundra for its misrepresentations that Faire endorsed Tundra's scheme. Accordingly, Tundra's motion to dismiss Faire's fraudulent competition claim for lack of statutory standing is DENIED.
b. Claim Under Unlawful Prong
The unlawful UCL prong prohibits “any practices forbidden by law, be it civil or criminal, federal, state, or municipal, statutory, regulatory, or court-made.” Saunders v. Superior Ct., 27 Cal.App. 4th 832, 838-39 (1994). Faire's unlawful competition claim is predicated on Tundra's alleged violations of the Computer Fraud and Abuse Act, California Comprehensive Computer Data Access and Fraud Act, and Lanham Act. (Dkt. No. 29 ¶ 109.) For the reasons explained above, Faire has not yet stated claims under the alleged computer abuse statutes. So, to the extent the UCL claim is premised on violations of those statutes, it is DISMISSED with leave to amend. But, as the Court concludes below, Faire plausibly states a claim for violation of the Lanham Act. So, to the extent Faire's UCL claim is based on the Lanham Act violation, the motion to dismiss is DENIED.
c. Claim Under Fraudulent Prong
Tundra also seeks dismissal of Faire's fraudulent competition claim on the grounds Faire fails to allege Tundra's misrepresentations are likely to deceive the public. “In order to state a cause of action under the fraud prong of the UCL, a plaintiff must show that members of the public are likely to be deceived.” In re iPhone Application Litig., 844 F.Supp.2d 1040, 1073 (N.D. Cal. 2012). But Faire alleges Tundra's “false advertising and promotion of Faire's endorsement is likely to deceive retailers and brands into believing that Tundra's marketplace is associated or partnered with Faire's marketplace.” (Dkt. No. 29 ¶ 116.) For example, Faire provides a screenshot of Tundra's commercial representation seeking a consumer's login credentials:
(Image Omitted) (Dkt. No. 29 ¶ 33.) This allegation, or more precisely, this screenshot, plausibly supports an inference the public would falsely believe Tundra was partnering with Faire and had Faire's permission to obtain the consumer's Faire login credentials.
Faire also alleges a specific instance of Tundra's false advertising campaign, which included “emails and direct sales phone calls targeting hundreds of brands.” Tundra's employee assured Brand A of Faire's approval of Tundra's scheme. (Id. ¶¶ 37-38.) Because these allegations are sufficient to support an inference Tundra's false advertising of Faire's endorsement is likely to deceive members of the public into believing Faire endorsed Tundra's conduct, Tundra's motion to dismiss Faire's fraudulent competition claim is DENIED.
Accordingly, Tundra's motion to dismiss Faire's UCL claim is GRANTED in part and DENIED in part.
4. Lanham Act Claim
Faire's Lanham Act claim requires five elements:
(1) the defendant made a false statement either about the plaintiff's or its own product;
(2) the statement was made in a commercial advertisement or promotion;
(3) the statement actually deceived or has the tendency to deceive a substantial segment of its audience;
(4) the deception is material, in that it is likely to influence the purchasing decision;
(5) the defendant caused its false statement to enter interstate commerce; and
(6) the plaintiff has been or is likely to be injured as a result of the false statement, either by direct diversion of sales from itself to the Tundra, or by a lessening of goodwill associated with the Faire's product.Jarrow Formulas, Inc. v. Nutrition Now, Inc., 304 F.3d 829, 835 n.4 (9th Cir. 2002). Tundra seeks dismissal of Faire's Lanham Act claim on the grounds Faire fails to allege the second, third, and fourth elements and/or meet the requirements of Federal Rule of Civil Procedure 9(b).
i. Commercial Advertisement or Promotion
Tundra insists Faire fails to allege Tundra made any misrepresentation in a commercial advertisement. But Faire alleges Tundra repeatedly falsely advertised on its website and via phone and email solicitations that Faire was aware of and approved Tundra's scheme. (Dkt. No. 29 ¶¶ 33, 37-38, 115, 117.) The screenshot of Tundra's webpage alone satisfies the commercial advertisement element. (Id. ¶ 33.) And, on December 15, 2022, Tundra's employee told Brand A Faire approved of Tundra's scheme and “it was above board.” (Id. ¶ 37.) Tundra insists these allegations are insufficient under Federal Rule of Civil Procedure 9(b) because Faire “fails to provide where or how it took place.” (Dkt. No. 33 at 21.) But Faire alleges the false statements were “part of an advertising campaign that included emails and direct sales phone calls targeting hundreds of brands that sell on Faire.” (Dkt. No. 29 ¶ 38.) Faire has sufficiently alleged Tundra made misrepresentations in commercial advertisements.
ii. Deceive Substantial Segment
Next, Tundra argues the hundreds of brands alleged to have been targeted by Tundra's false advertising “falls well short of a substantial segment” of Faire's audience. (Dkt. No. 33 at 22.) Tundra does not explain how the Court must draw this inference from the amended complaint's allegations. Faire's allegation hundreds of brands have been targeted by Tundra's false advertising supports an inference Tundra's misrepresentations have the tendency to deceive a substantial segment of Faire's audience.
iii. Material Deception
Finally, Tundra complains Faire fails to allege Tundra's false statements constitute a material deception likely to influence any purchasing decision. But Faire alleges brands pay for its services and Tundra's false advertising influences brands to purchase Tundra's services instead of Faire's services. (Dkt. No. 29 ¶¶ 21, 32, 35-36.) Again, the screenshot of Tundra's website is alone sufficient. (Id. ¶ 33.) Drawing inferences in Faire's favor, as the Court must, a consumer is likely to be influenced by the false representation that Faire endorses Tundra's obtaining of its users' Faire login credentials.
* * *
Accordingly, Tundra's motion to dismiss Faire's Lanham Act claim is DENIED.
CONCLUSION
Tundra's motion to compel arbitration is DENIED. Tundra has failed to meet its burden of showing the remaining claims rely on or are intricately intertwined with Faire's service terms.
Tundra's motion to dismiss is GRANTED with leave to amend as to Faire's Computer Fraud and Abuse Act claim, California Comprehensive Computer Data Access and Fraud Act claim, and UCL claim to the extent it is based on those two claims, and is DENIED as to the remainder of Faire's UCL claim and the Lanham Act claim.
Faire may file an amended complaint by December 15, 2024. The Court will hold an initial case management conference on February 1, 2024 at 1:30 p.m. via Zoom webinar. A joint case management conference statement is due one week in advance.
This Order disposes of Docket Nos. 31 and 33.
IT IS SO ORDERED.