Federal Court Dismisses UCL, CLRA, FAL Claims for Failure to Plead Loss Caused by Wrongful Conduct
In the recent decision in Lyons v. Coxcom, Inc., 2009 WL 347285 (S.D. Cal. Feb. 6, 2009), the court granted a motion to dismiss, highlighting the need to plead damages resulting from wrongful conduct in actions brought under California's consumer protection statutes.
In Lyons, the plaintiff upgraded her internet service to the defendant's "premier" service with "PowerBoost" package in order to take advantage of "blazing fast" internet service and "up to 33% faster downloads." Plaintiff alleged that despite these advertised advantages of upgraded service, the defendant slowed or severely limited her coverage and that of a nationwide class by transmitting certain unauthorized hidden codes to prevent customers' computers from executing certain peer-to-peer filesharing.
The defendant moved to dismiss certain counts pursuant to Rule 12(b)(1) for lack of standing, and moved to dismiss the rest of the complaint under Rule 12(b)(6). Basically, defendant argued that although plaintiff's complaint identified representations in advertising and declared that she had upgraded her service to take advantage of increased internet speed, it failed to plead reliance or causation: "she fails to allege that she [bought] Cox's internet service as a result of any advertisement." Id. at *2.
The court concluded that California's Unfair Competition Law, its False Advertising Law, and its Consumer Legal Remedies Act all require that a claimant suffer an injury in fact and incur damages as a result of the challenged conduct. Because plaintiffs' complaint did not allege that reliance/causation element, the court dismissed these counts without prejudice, giving plaintiffs a chance to replead. The court also dismissed a count based on the consumer protection statutes from 27 other states and the District of Columbia, holding that because plaintiff could not establish standing under her own state's statutes, she (as a non-resident) could not seek relief on behalf of a class of residents of other states. Again, plaintiff was given leave to replead.
As for the defendant's Rule 12(b)(6) motion, the court took judicial notice of the defendant's Subscriber's Agreement ("SU"), Acceptable Use Policy ("AUP"), Terms and Conditions, and Limitations of Service. Each of these documents was mentioned in the plaintiff's complaint. The court dismissed the breach of contract count, giving effect to the terms of the SA, which required the application of Georgia law. The court noted that the SA and the AUP reserve to defendant the right to manage its network and to take actions against subscribers whose use impedes the use of others. Because plaintiff failed to plead a provision of the contract in which the defendant promised to provide unlimited access without interruption or to provide unlimited use of peer-to-peer applications, the court dismissed the breach of contract count, giving plaintiff leave to amend. The court also dismissed the count alleging a breach of the covenant of good faith and fair dealing, because Georgia law does not allow such a cause of action independent of a breach of contract claim.
The court dismissed without prejudice the count alleging violation of the federal Computer Fraud and Abuse Act because plaintiff did not allege that she personally suffered damages in an amount in excess of $5,000.
Although the court had dismissed the California statutory counts for lack of standing, it proceeded to analyze the substantive challenges to them as well. It noted that the CLRA claim was not pled with the particularity necessary for a fraud claim because it left out the "who, what, when, where, and how" of the claim. But the court rejected the defendant's argument that the statements plaintiff identified were non-actionable puffery. "Plaintiff does allege statements that may be demonstrated to be true or false, such as download speeds of up to 20 Mbps and whether upload speed is indeed doubled and downloads are indeed 33% faster. . . . Plaintiff has sufficiently pled statements likely to deceive under the CLRA." Id. at *11.
As for the UCL claim based on fraudulent acts and practices, the court rejected the defendant's argument that Rule 9(b) applied and held that plaintiff's claim as pled had sufficient specificity to establish a likelihood to deceive and was not mere puffery. Nevertheless, the claim remained dismissed without prejudice for failure to sufficiently allege standing. (The court also held that two UCL counts based on "unlawful acts" and "unfair acts," respectively, failed to state a claim.)
As for the False Advertising Law count, the court rejected the defendant's argument that a Rule 9(b) pleading standard applied, but reiterated that the count was dismissed for failure to plead standing.
The defendant also had made the argument -- somewhat akin to a preemption argument -- that the court should delay its consideration of the case because the Federal Communications Commission (which has primary regulatory authority over internet services) was in the process of deciding the appeal of a dispute involving a different provider (Comcast), which might resolve the key questions in this case. The court refused to defer to the FCC under the defendant's "primary jurisdiction" theory, noting that where the issues involved are primarily grounded in contract, false advertising and unfair competition, they fall squarely within the court's traditional functions.
