Lopez v. Stages of Beauty, LLC

Citation: 307 F. Supp. 3d 1058Docket: Case No.: 17cv1888–MMA (KSC)

Court: District Court, S.D. California; February 8, 2018; Federal District Court

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The court issued an order granting in part and denying in part Defendant Stages of Beauty, LLC's motion to dismiss a putative class action filed by Plaintiff Matthew Lopez, while also denying the Defendant's motion for sanctions. The case, initiated on September 14, 2017, involves allegations of violations of California's Automatic Renewal Law and Unfair Competition Law. Plaintiff, who purchased a subscription from the Defendant's website, claims that the subscription programs constitute automatic renewals and that the Defendant failed to clearly present offer terms and obtain proper consent prior to charging subscribers' accounts. Specific allegations include the absence of a complete cancellation policy on the purchase webpage and insufficient details in follow-up emails regarding cancellation procedures. Plaintiff seeks to represent individuals in California who purchased products under similar automatic renewal offers. He argues that due to these violations, all products sent to him and class members should be considered unconditional gifts. The court found the matters suitable for determination based on the submitted documents without oral argument.

Plaintiff asserts four causes of action against Defendant based on allegations of violations of the Automatic Renewal Law (ARL): 1) unclear presentation of automatic renewal terms; 2) failure to obtain affirmative consumer consent prior to subscription fulfillment; 3) lack of acknowledgment regarding automatic renewal terms and cancellation policies; and 4) violations of California's Unfair Competition Law (UCL) for unlawful or unfair practices. In response, Defendant moves to dismiss the Complaint on four grounds: a) lack of Article III standing for ARL claims; b) absence of a private right of action under the ARL; c) compliance with ARL disclosure requirements; and d) insufficient pleading of the UCL claim. Plaintiff opposes the dismissal. The court typically only considers the complaint and certain documents without converting the motion to dismiss into a summary judgment. Judicial notice can be taken of undisputed facts or documents extensively referenced in the complaint. Defendant requests judicial notice of a receipt related to Plaintiff's purchase, arguing its relevance to the claim regarding acknowledgment of renewal policy terms. The court grants this request. Plaintiff also requests judicial notice of legislative history related to the ARL, which is deemed appropriate under Federal Rule of Evidence 201(b).

The court acknowledges its authority to judicially notice public records, including court filings and materials from other proceedings, as established in case law (e.g., Mack v. South Bay Beer Distribs., Papai v. Harbor Tug & Barge Co.). The court grants the Plaintiff's request to notice Exhibits 1 through 8.

A Rule 12(b)(6) motion to dismiss examines the sufficiency of the complaint, requiring a "short and plain statement" showing entitlement to relief (Fed. R. Civ. P. 8(a)(2)). Plaintiffs must provide sufficient factual allegations to state a plausible claim (Bell Atl. Corp. v. Twombly), beyond mere formulaic recitations (Ashcroft v. Iqbal). Courts assume the truth of factual allegations and favor the nonmoving party when reviewing these motions, but do not accept legal conclusions as true (Roberts v. Corrothers). Conclusory legal assertions and unwarranted inferences are inadequate to resist dismissal. If dismissal is warranted, courts should allow amending the complaint unless defects are incurable (Knappenberger v. City of Phoenix).

A Rule 12(b)(1) motion addresses dismissals for lack of subject matter jurisdiction, which can be challenged based on the pleadings or external evidence (Warren v. Fox Family Worldwide, Inc.). For facial challenges, the court limits its review to the complaint's allegations, affording the plaintiff protections similar to those under Rule 12(b)(6) (San Luis, Delta-Mendota Water Auth. v. U.S. Dep't of the Interior). Lack of standing constitutes a subject-matter jurisdiction defect, appropriate for challenge under Rule 12(b)(1) (Wright v. Incline Vill. Gen. Imp. Dist.).

The Court's analysis focuses on three main issues: whether the Automatic Renewal Law (ARL) creates a private right of action, whether the Plaintiff has standing to bring a claim under the Unfair Competition Law (UCL), and whether the Plaintiff has adequately alleged a UCL claim to withstand a Rule 12(b)(6) dismissal motion. 

The Defendant argues that no private right of action exists under the ARL, citing the statute's plain language and legislative history. In contrast, the Plaintiff contends that the ARL does provide for such a right. The determination of whether a statute confers a private right of action hinges on legislative intent, as established in case law. The intent is discerned from the statute's language and its legislative history, with the possibility of a private cause of action emerging if the statute explicitly indicates such an intention. 

The Plaintiff's claims are based on specific provisions of California's Business and Professions Code, particularly sections 17602(a)(1), (3), and 17603, which outline unlawful practices related to automatic renewals. Section 17602(a) prohibits certain actions by businesses regarding automatic renewal offers, but does not explicitly authorize a private right of action. Nonetheless, the Plaintiff argues that section 17603 implies such a right by stating that consumers may keep unsolicited products as gifts.

Section 17603 establishes that if a business sends goods to a consumer under a continuous service agreement or automatic renewal without the consumer's affirmative consent, those goods are considered an unconditional gift. Consequently, the consumer is free to use or dispose of the goods without any obligations to the business, including shipping costs. However, the court finds that the term "unconditional gift" does not indicate a clear legislative intent to create a private right of action. The plaintiff argues for a private right of action under the Automatic Renewal Law (ARL) based on California Business and Professions Code Sections 17535 and 17604(a). Section 17604(a) states that while violations of the ARL are not criminal offenses, civil remedies are available. Section 17535 allows for injunctions against violators and enables any person who suffers an injury to seek restitution. The plaintiff contends that because the ARL is part of the same chapter as Section 17535, consumers can seek relief under it. The defendant argues that Section 17604(a) acknowledges other civil remedies like the Unfair Competition Law (UCL). The court clarifies a critical distinction between private rights to enforce the ARL and an independent cause of action under the ARL itself. It concludes that Section 17535 authorizes a private right of action for violations but specifies that such claims must be pursued under that section rather than the ARL. Ultimately, the court finds no clear legislative intent to create a private cause of action under the ARL.

The Court examines the legislative history of the Automatic Renewal Law (ARL) to ascertain if it establishes a private right of action. The Defendant argues that Senate Bill 340, which enacted the ARL, reflects the California Legislature's intent regarding civil remedies under the law. The Senate Judiciary Committee's analysis indicates that violations under the ARL are not criminal offenses but allow for all applicable civil remedies. Specifically, under the False Advertising Act (FAA), violators may face civil penalties up to $2,500, while the Unfair Competition Law (UCL) permits private parties to seek injunctive relief or restitution if they have suffered actual injury and lost money or property.

The Plaintiff contests the relevance of this analysis, claiming it predates significant amendments, including the introduction of an "unconditional gift" provision. However, the Assembly Committee on Judiciary's analysis, which is judicially noticed, confirms that the ARL includes such a provision and allows consumers harmed by violations to seek relief under existing laws, including the UCL. This legislative intent is further supported by relevant statutory provisions.

Consequently, the Court concludes that the ARL does not create a private right of action, leading to the dismissal with prejudice of the Plaintiff's first, second, and third causes of action directly under the ARL. Regarding the Plaintiff's standing to pursue a UCL claim, the Defendant contends that the Plaintiff fails to demonstrate the necessary injury in fact, as well as that the alleged harm is traceable to the Defendant's conduct and could be remedied by a favorable ruling. To establish standing under Article III, a plaintiff must show (1) an injury in fact, (2) a causal connection to the defendant's actions, and (3) that the injury is likely to be addressed by judicial intervention.

To establish standing for a UCL claim under California law, a plaintiff must demonstrate two key elements: (1) an actual injury in fact, and (2) a loss of money or property due to unfair competition. This requirement is satisfied by showing a specific, identifiable loss. Under Article III, the injury must be a concrete and particularized invasion of a legally protected interest that is actual or imminent, rather than hypothetical. A mere procedural violation may not suffice unless it also results in tangible harm.

In this case, the defendant argues that the plaintiff lacks standing because the complaint only states that the plaintiff purchased a product without adequate disclosures and does not assert any financial loss directly linked to this lack of disclosure. The defendant claims that the absence of a more comprehensive disclosure did not result in any loss of money or property that the plaintiff would have retained otherwise. Additionally, the defendant contends that the court lacks subject matter jurisdiction due to the absence of a concrete injury.

Conversely, the plaintiff asserts that he has indeed suffered monetary harm attributable to the defendant's automatic renewal policy, which allegedly violates the Automatic Renewal Law (ARL). The plaintiff claims that all products received under this violation should be deemed unconditional gifts, allowing him to seek restitution for the subscription payments made. According to the UCL, the court can issue orders necessary to restore money acquired through unfair competition. If products are delivered in violation of the ARL, they are classified as gifts, and thus, the defendant's collection of money for these products constitutes an injury to the plaintiff.

Plaintiff's fourth cause of action under the Unfair Competition Law (UCL) alleges that Defendant engaged in unlawful and/or unfair business practices by violating specific provisions of the California Business and Professions Code (Cal. Bus. Prof. Code) related to automatic renewals. Defendant contends that the UCL claim is legally insufficient because its conduct was neither unlawful nor unfair. The UCL encompasses three types of unfair competition: acts that are unlawful, unfair, or fraudulent, and a violation of any one of these prongs constitutes a UCL violation. For the unlawful prong, the UCL incorporates violations of other laws as independently actionable; thus, if a plaintiff cannot establish a claim under the referenced law, they cannot assert a UCL claim. For the unfair prong, public policy must link to a specific constitutional, statutory, or regulatory provision.

Plaintiff's UCL claim is based on alleged violations of the Automatic Renewal Law (ARL), which aims to protect consumers from automatic renewals. The ARL prohibits businesses from failing to clearly present automatic renewal terms, charging consumers without their affirmative consent, and not providing an acknowledgment of the renewal terms and cancellation policy. Defendant argues that the Complaint demonstrates compliance with these requirements. The automatic renewal terms that must be disclosed include a description of the cancellation policy.

Defendant claims compliance with cancellation policy requirements by directing subscribers to call a specified phone number for cancellation. However, Plaintiff argues that the webpage lacks proximity between the cancellation information and the subscription offer, asserting that it fails to mention the necessity of calling at least one day before the next delivery to cancel. Plaintiff contends this omission renders the cancellation policy incomplete, potentially violating the Automatic Renewal Law (ARL), as outlined in Cal. Bus. Prof. Code § 17601(b)(2).

Defendant also asserts that it met the ARL's post-transaction requirements by providing an acknowledgment that includes the cancellation policy and cancellation instructions. In response, Plaintiff argues that the acknowledgment does not convey the full cancellation policy, particularly the one-day notice requirement. Although Defendant claims to have included the full terms in a physical receipt sent with the product, Plaintiff maintains that this summary also lacks critical information about the cancellation policy, specifically the need to call the cancellation number at least one day prior to the next shipment. The summary provided in the receipt describes the trial offer and automatic enrollment in a membership program but fails to mention the crucial cancellation requirement identified by Plaintiff.

Plaintiff alleges that Defendant failed to provide a complete cancellation policy, specifically regarding the required cancellation timeframe, potentially violating the ARL's mandate for clear and conspicuous disclosure of cancellation policies (Cal. Bus. Prof. Code §§ 17601(b)(2), 17602(a)(1), (3)). Defendant claims entitlement to protection under California Business and Professions Code § 17604(b), which states that businesses complying in good faith with ARL provisions are shielded from civil remedies. This safe harbor defense, if established, could bar Plaintiff's recovery under the Unfair Competition Law (UCL). Defendant argues it acted in good faith by providing extensive and conspicuous cancellation information through its website and purchase process. However, Plaintiff contends that Defendant has not sufficiently proven its good faith compliance and highlights a key inconsistency: Defendant's assertion that it fully informs customers about cancellation procedures is undermined by Plaintiff’s claim that the necessary cancellation notice (one day prior to delivery) is not included.

At this stage, the Court finds Plaintiff has plausibly alleged a violation of the ARL, supporting the UCL claim, and thus denies Defendant's motion to dismiss this claim. Conversely, the Court grants Defendant's motion to dismiss Plaintiff's first three causes of action related to the ARL, with prejudice. Additionally, Defendant seeks sanctions under Federal Rule of Civil Procedure 11, arguing that Plaintiff's Complaint is frivolous and baseless, while Plaintiff opposes this motion. The Court must first assess whether any part of Rule 11(b) has been violated before considering sanctions.

A subjective bad faith finding is not necessary for Rule 11 sanctions, as established in Smith v. Ricks. Counsel cannot evade Rule 11 scrutiny by claiming ignorance; the focus is on whether the presented paper had evidentiary support or contained frivolous legal arguments at the time of submission. If a Rule 11 violation is found, the court may impose sanctions on the violating attorney, law firm, or party.

The Defendant argues that the Plaintiff's counsel breached Rule 11(b)(2) by presenting "objectively legally baseless" claims with no chance of success, supporting this with arguments for dismissal under Federal Rules of Civil Procedure 12(b)(6) and 12(b)(1). In contrast, the Plaintiff asserts that the claims under the ARL and UCL are not legally baseless. The Court finds that the UCL claim is not baseless, having denied the motion to dismiss it, referencing that a claim is only considered baseless if no reasonable litigant could expect success. Regarding the ARL claims, the Plaintiff provided legal precedent indicating that a private right of action exists, demonstrating at least a plausible basis for the claims.

The Court disagrees with the interpretation of the cited case law by the Plaintiff but acknowledges that it protects against claims being deemed "objectively baseless." The Court concludes that the Plaintiff has plausibly alleged noncompliance by the Defendant with the ARL, which could have survived dismissal if a private right of action were established. 

Ultimately, the Court grants in part and denies in part the Defendant's motion to dismiss, dismissing the first three ARL claims with prejudice and denying dismissal of the UCL claim. The motion for sanctions is also denied. The Court must accept the allegations in the complaint as true since this matter is partially under a motion to dismiss. Recent rulings indicate that a private right of action under the ARL may not exist.

The court granted the defendant's motion for summary judgment, concluding that the Automatic Renewal Law (ARL) does not establish a private right of action, as seen in multiple cases: Roz v. Nestle Waters, Siciliano v. Apple, and Mayron v. Google. In these cases, the courts found that sections 17602 and 17603 of the ARL do not create such a right and dismissed the claims. Although some rulings, such as Kissel v. Code 42 Software and In re Trilegiant Corp., suggested that the ARL might create a private right of action, the court disagreed, noting that these cases either failed to distinguish between enforcing the ARL through existing laws or did not directly address the creation of a private right of action. The court emphasized that the ARL only provides a private cause of action for California consumers harmed in California. The defendant asserted that its automatic renewal policy was clearly disclosed and that the plaintiff had given affirmative consent. However, the court did not address these arguments, focusing instead on the plaintiff's claim regarding the alleged incompleteness of the cancellation policy's disclosure. Finally, the court denied the plaintiff's request for attorneys' fees and costs related to opposing the defendant's motion for sanctions, citing its discretion under Federal Rule of Civil Procedure 11(c)(1).