Summary
stating that on a motion to dismiss, allegations of the counterclaim were required to be taken as true
Summary of this case from Unigestion Holding v. UPM Tech., Inc.Opinion
No. C04-1465 TEH.
August 12, 2004
This matter comes before the Court on Plaintiff Bradley D. Willson's motions to dismiss Defendant Bank of America's ("the Bank's") counterclaims and to strike portions of the Bank's answer. After carefully reviewing the parties' papers, the Court finds oral argument to be unnecessary. For the reasons discussed below, the Court now DENIES Plaintiff's motion to dismiss and GRANTS IN PART and DENIES IN PART Plaintiff's motion to strike.
BACKGROUND
The following are the alleged facts, presented in a light most favorable to the Bank:
For both motions to dismiss and motions to strike, the pleadings are viewed in a light most favorable to the non-moving party. Zimmerman v. City of Oakland, 255 F.3d 734, 737 (9th Cir. 2000) (motion to dismiss); State of California ex rel. State Lands Comm'n. v. United States, 512 F. Supp. 36, 39 (N.D. Cal. 1981) (motion to strike).
In December 2002, Willson bought a diamond engagement ring from Whiteflash.com, an online jeweler, using a Visa credit card issued by the Bank. Willson originally provided the address of his then-fiancee, Christina Eriksson, as the delivery address but later asked that the ring be delivered directly to him. The parties do not dispute that Whiteflash shipped the ring to Eriksson, that Eriksson received the ring, or that the ring has never been returned to Whiteflash. However, it is unclear who currently has possession of the ring.
After Willson received his credit card bill from the Bank, he sent a billing error notice to the Bank explaining that the ring had not been delivered as agreed. The Bank accepted Willson's claim of billing error; issued him a provisional credit for $13,359, the amount of the ring; and charged the amount back to Whiteflash.
Whiteflash disputed this chargeback because it claimed that the ring was shipped to the address originally specified by Willson, was received by Eriksson at that address, and was never returned to Whiteflash. Thus, Whiteflash contended that the charge to Willson was proper, and the jeweler proceeded to bring the dispute to arbitration in accordance with Visa rules. The Bank defended Willson's position during that arbitration. On September 9, 2003, the Visa arbitration committee determined that the charge was proper and ordered the Bank to pay Whiteflash.
On October 6, 2003, the Bank notified Willson of the results of the Visa arbitration hearing and explained that this was why the charge reappeared on his billing statement. Willson subsequently closed his credit card account without paying any portion of the disputed charge. The Bank then reported Willson's account as delinquent to the credit reporting bureaus, without also reporting that the charge was in dispute.
On April 2, 2004, Willson filed suit against the Bank. In this suit, he alleges that the Bank's actions violated the Truth in Lending Act ("TILA"), the Fair Credit Reporting Act, California's Unfair Competition Law, and contract law. He asserts his TILA claims on behalf of himself and a class of all current and former Bank of America credit card holders.
On June 4, 2004, the Bank filed its answer, including twenty-four affirmative defenses and five counterclaims. Willson now moves to strike twelve of the Bank's affirmative defenses and to dismiss the Bank's counterclaims for fraud, negligent misrepresentation, and breach of contract.
DISCUSSION
As an initial matter, the Court notes that it cannot consider the declaration of John W. Pillette submitted by Willson in reply, nor any of the declaration's exhibits. On a motion to dismiss, a court may generally only consider the pleading in question and any exhibits that have been incorporated therein. Lee v. City of Los Angeles, 250 F.3d 668, 688 (9th Cir. 2001); see also Dah Chong Hong, Ltd. v. Silk Greenhouse, Inc., 719 F. Supp. 1072, 1073 (M.D. Fla. 1989) (applying the same standard to motions to strike). A court may also consider an external document to a pleading if the pleading "necessarily relies" on the document and no party contests the document's authenticity. Parino v. FHP, Inc., 146 F.3d 699, 706 (9th Cir. 1998). However, the evidence here was not attached to the Bank's counterclaims; the counterclaims do not necessarily rely on the evidence; and the Bank contests the authenticity of the evidence. Thus, the Court may not consider the submitted evidence at this stage of the proceedings.
Motion to Dismiss Fraud and Negligent Misrepresentation Counterclaims
A motion to dismiss for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6) should not be granted "unless it appears beyond doubt that the [claimant] can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46 (1957). Whenever a court grants a motion to dismiss, dismissal should be with leave to amend unless it is clear that amendment could not possibly cure the pleading's deficiencies. Steckman v. Hart Brewing, Inc., 143 F.3d 1293, 1296 (9th Cir. 1998).
Willson moves to dismiss the Bank's fraud and negligent misrepresentation counterclaims on two grounds. First, Willson contends that the Bank has failed to meet the heightened pleading requirements of Federal Rule of Civil Procedure 9(b). The Court disagrees. Rule 9(b) requires that "[i]n all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity." However, this requirement must be read in harmony with the emphasis on conciseness and the focus on giving fair notice contained in Federal Rule of Civil Procedure 8(a). E.g., Fidelity Mortgage Corp. v. Seattle Times Co., 213 F.R.D. 573, 575 (W.D. Wash. 2003). Thus, the Court must apply Rule 9(b) in a manner that reasonably effectuates its purpose in ensuring that allegations of fraud are specific enough to apprise the accused of the misconduct alleged, so that the accused "can defend against the charge and not just deny that they have done anything wrong." Semegen v. Weidner, 780 F.2d 727, 731 (9th Cir. 1985).
Upon review of the Bank's counterclaims, the Court finds that the allegations meet that standard here. In its counterclaims, the Bank identifies specific statements made by Willson, both orally and in writing, to employees of the Bank during the period from December 27, 2002 through September 9, 2003, and further specifies the dates of three letters written by Willson containing these allegedly false statements. Counterclaims ¶ 24. The counterclaims further allege facts — which the Court must accept as true for purposes of this motion to dismiss — that, if true, would demonstrate the falsity of Willson's statements. Id. ¶ 26. Accordingly, the Court finds the allegations of fraud and negligent misrepresentation to be specific enough to meet the heightened pleading requirements of Rule 9(b).
Willson also argues that the Bank fails to allege the necessary elements of fraud or negligent misrepresentation. Willson asserts that, as a matter of law, the Bank cannot allege reasonable reliance, causation, or damages because the Bank had a duty to investigate under the Fair Credit Reporting Act ("FCRA"), 15 U.S.C. § 1666(a). However, Willson fails to persuade the Court that this is a correct statement of law. According to the counterclaims' allegations, the Bank believed Willson's representations and, as a result, credited his account. The Bank only reinstated the charge for the ring after the Visa arbitration committee ruled that Whiteflash had the right to receive payment. Willson contends that the Bank could not have reasonably relied on Willson's statements, but he cites no authority to support the proposition that a credit card issuer must conduct an independent investigation before choosing to accept a cardholder's claim of billing error. See 15 U.S.C. § 1666(a)(3)(B) (obligating a creditor, upon receipt of an obligor's claim of billing error to either "make appropriate corrections in the account of the obligor" or "send a written explanation or clarification to the obligor, after having conducted an investigation, setting forth to the extent applicable the reasons why the creditor believes the account of the obligor . . . was correctly shown in the statement"). Nor does Willson cite any authority for the proposition that a credit card issuer cannot first accept a cardholder's claim of billing error but then reinstate the charges if a Visa arbitration committee later determines that the charges must be paid to the merchant.
The two cases cited by Willson regarding reasonable reliance are inapposite. In Bank of the West v. Valley National Bank of Arizona, 41 F.3d 471, 476-79 (9th Cir. 1994), the court held that it was not justifiable for Valley National Bank to rely on representations made by Bank of the West when the parties had a contract expressly providing that Valley National Bank made its decisions independently and did not rely on Bank of the West's representations. No such contractual obligation is present here, and Willson has failed to convince the Court, at least at this stage of the proceedings, that the Bank was obligated by statute to make a decision independent of any representations made by Willson or not to rely on any such representations. Similarly, Kruse v. Bank of America, 202 Cal. App. 3d 38, 55 (1988), is also easily distinguishable. The court there held that a party cannot reasonably rely on failure to disclose a fact when the party had actual knowledge of that fact. Here, no actual knowledge is alleged.
A third case relied on by Willson also does not support his position. Kurz v. Chase Manhattan Bank, 273 F. Supp. 2d 474, 478-79 (S.D.N.Y. 2003), stands only for the proposition that a creditor must comply with the provisions of 15 U.S.C. § 1666 even if a cardholder asserts a billing error in bad faith. The case does not hold that a creditor cannot collect damages caused by its reliance on a cardholder's fraudulent representations in asserting a billing error.
In short, accepting, as the Court must at this stage, the allegations of the counterclaims as true, the Court cannot conclude that the Bank fails to state a claim for fraud or negligent misrepresentation. Simply put, Willson has failed to meet his burden of showing that it appears beyond doubt that the Bank can prove no set of facts that would allow it to recover on these counterclaims. Motion to Dismiss Breach of Contract Counterclaim
Willson has also failed to convince the Court that dismissal of the Bank's breach of contract counterclaim would be appropriate. As discussed above, the Court finds that the Bank has adequately alleged the circumstances surrounding Willson's allegedly fraudulent statements even under the heightened standard of Rule 9(b). In addition, the Bank has alleged existence of a written contract, performance by the Bank under the contract, breach of the contract by Willson, and causation and damages. Counterclaims ¶¶ 15-18. This is all that is required, and the Bank need not allege specific terms of the contract under federal notice pleading standards. See Westways World Travel v. AMR Corp., 182 F. Supp. 2d 952, 963 (C.D. Cal. 2001) (applying Federal Rule of Civil Procedure 8(a)(2) to conclude that plaintiffs adequately stated a breach of contract claim, despite defendants' argument that plaintiffs failed to allege specific terms of the contract).
Motion to Strike
Federal Rule of Civil Procedure 12(f) permits a court to strike from the pleadings "any insufficient defense or any redundant, immaterial, impertinent, or scandalous matter." A defendant need only plead an affirmative defense with the necessary specificity to give the plaintiff "fair notice" of the defense. Wyshak v. City Nat'l Bank, 607 F.2d 824, 827 (9th Cir. 1979). Thus, to succeed on a motion to strike a defense as insufficient as a matter of law, "the moving party must convince the court that there are no questions of fact, that any questions of law are clear and not in dispute, and that under no circumstances could the defense succeed." Sec. Exch. Comm'n v. Sands, 902 F. Supp. 1149, 1165 (C.D. Cal. 1995). "Redundant allegations are those that are needlessly repetitive or wholly foreign to the issues involved in the action." Cal. Dep't of Toxic Substances Control v. Alco Pacific, Inc., 217 F. Supp. 2d 1028, 1033 (C.D. Cal. 2002). "'Impertinent' matter consists of statements that do not pertain, and are not necessary, to the issues in question." Fantasy, Inc. v. Fogerty, 984 F.2d 1524, 1527 (9th Cir. 1993), rev'd on other grounds, Fogerty v. Fantasy, Inc., 510 U.S. 517 (1994).
The Bank concedes that violation of Rule 11 is not technically an affirmative defense, and it therefore withdraws its twenty-third affirmative defense. As a result, Willson's motion is moot on this point.
Willson moves to strike three other affirmative defenses (failure to state a claim, plaintiff not entitled to damages, and reservation of rights) as redundant or impertinent, but his arguments fail to meet the high standard required on a motion to strike. It cannot be said that these defenses have no bearing on any of the issues in question or that they are needlessly repetitive. Willson hardly attempts to make the former argument, and his argument for the latter is only cursory. He argues that the defenses of failure to state a claim and plaintiff not entitled to damages are redundant because they simply repeat the Bank's general denial, but he ignores the fact that the Federal Rules of Civil Procedure offer failure to state a claim as a model affirmative defense. Fed.R.Civ.P. Form 20; Fed.R.Civ.P. 84 (providing that the examples in the forms satisfy the Federal Rules of Civil Procedure). Moreover, even if the claims are repetitive, Willson has shown no prejudice.
However, reservation of rights is not an affirmative defense. The parties agree that if discovery were to reveal the possibility of an additional affirmative defense, the Bank would either have to obtain a stipulation for leave to amend or file a motion seeking such leave. The Bank would retain the ability to do so regardless of whether it specifically reserved the right in its answer. Accordingly, the Court strikes the Bank's twenty-fourth affirmative defense, reservation of rights, from the answer.
Finally, Willson moves to strike eight other affirmative defenses because he contends they do not put him on sufficient notice, but the Court again finds that Willson has not met the high standard required on a motion to strike. In particular, he has not demonstrated that there are no circumstances under which these defenses could succeed, nor has he argued that any of the defenses are subject to the heightened pleading requirements of Rule 9(b). Moreover, the Court finds that the defenses provide Willson with fair notice of what is at issue in this case, especially when read in conjunction with the factual allegations contained in the Bank's counterclaims filed simultaneously with the answer.
CONCLUSION
Accordingly, with good cause appearing for the reasons discussed above, IT IS HEREBY ORDERED that:
1. Willson's motion to dismiss the Bank's counterclaims is DENIED in its entirety.
2. Willson's motion to strike portions of the Bank's answers is GRANTED IN PART and DENIED IN PART. The Bank has withdrawn its twenty-third affirmative defense, for violation of Rule 11, and the motion is therefore moot as to that defense. The motion is granted as to the Bank's twenty-fourth defense, reservation of rights, and denied as to all other defenses.
IT IS FURTHER ORDERED that the initial case management conference shall proceed as originally scheduled on Monday, August 16, 2004, at 1:30 PM.
IT IS SO ORDERED.