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Gary Davis, An Individual On Behalf of v. Hsbc Bank Nevada

August 31, 2012


Appeal from the United States District Court for the Central District of California George H. King, District Judge, Presiding D.C. No. 2:08-cv-05692-GHK-JC

The opinion of the court was delivered by: Nelson, Senior Circuit Judge:



Argued and Submitted February 6, 2012-Pasadena, California

Before: Dorothy W. Nelson, Diarmuid F. O'Scannlain, and N. Randy Smith, Circuit Judges.

Opinion by Judge Nelson


Gary Davis appeals the district court's dismissal of his First Amended Complaint ("FAC"). In this putative class action, Davis alleges that HSBC Bank Nevada, N.A. ("HSBC") and Best Buy Stores, L.P. ("Best Buy") (collectively, "Defendants") defrauded California customers by offering credit cards without adequately disclosing that cardholders would be subject to an annual fee. We must decide whether the district court erred when it considered extrinsic evidence in deciding Defendants' motion to dismiss, and whether dismissal was proper under Federal Rule of Civil Procedure 12(b)(6). We have jurisdiction pursuant to 28 U.S.C. § 1291, and we affirm.


Best Buy operates a national chain of retail stores that sells consumer electronics and related services. As part of its marketing platform, Best Buy implements the "Reward Zone Program," which allows customers to earn "Reward Certificates" for their purchases at Best Buy stores and redeem the certificates for discounts off future purchases at such stores. At the same time, qualified consumers may also obtain a Reward Zone Program MasterCard ("RZMC"), a credit card that is issued by HSBC, a federally chartered bank regulated by the Office of the Comptroller of the Currency ("OCC"). The owner of an RZMC is automatically enrolled in the Reward Zone Program, and may earn reward certificates by using the card not only at Best Buy, but wherever MasterCard is accepted. Accordingly, Defendants advertised the RZMC as providing the cardholder, among other things, with the ability to obtain reward certificates as well as exclusive bonus point offers to earn rewards more rapidly.

In or around April 2007, Davis read a newspaper advertisement for the RZMC stating that applicants would receive $25 worth of reward certificates with their very first purchase using the card. Davis applied online to become an RZMC holder. Before applying, however, he read a webpage entitled "Program Rules - Best Buy Reward Zone." Further, while applying, Davis viewed a webpage entitled "FAQ's" (Frequently Asked Questions). Neither webpage mentioned an annual fee for using the RZMC.

At step two of the application process, Davis was directed to Best Buy's website labeled "Best Buy MBBC Consumer - Review the Important Account Credit Terms." In the upper-left corner of the page, in boldface font at least twice as large as the other text on the page, read the words "Terms and Conditions." Immediately below that, also in bold, was the subheading, "Important Terms of Your Best Buy Credit Account and Disclosure Statement" ("Important Terms & Disclosure Statement"). Underneath stood a scrolling rectangular text box, the contents of which were only partially visible because one would need to scroll down to view the whole statement. The visible portion commenced with the instruction, "Read the notice below carefully and print and/or download a copy for your records," followed by the text:

The Reward Zone® program

MasterCard® Privacy Statement HSBC BANK NEVADA, N.A.

Beneath the text box was a small check-box, which was adjacent to the following affirmation: "I agree to the Important Terms & Disclosure Statement of the Best Buy Reward Zone® MasterCard®." The FAC does not allege that Davis read the contents of the Important Terms and Disclosure Statement, but only alleges that he checked the box and completed his online application.

Davis's application was approved and shortly thereafter he received his new credit card in the mail. Also enclosed with the card were seven brochures, including a document entitled "Cardholder Agreement and Disclosure Statement," as well as one entitled "Additional Disclosure Statement." Upon reading the latter, Davis was "surprised" to learn that there was a $59 annual fee for use of the card. At that point, Davis admits, he revisited the terms and conditions website, scrolled down toward the end of the Important Terms & Disclosure Statement, and discovered the disclosure of a possible annual fee. Davis asked HSBC to waive the annual fee, but the bank declined. Instead of canceling the card, Davis refused to activate it and continued to pay the annual fee for five years.

On July 28, 2008, Davis filed a class action complaint in state court against Defendants*fn2 on behalf of a putative class including all California residents who applied for an RZMC between 2004 and 2008, and were charged an annual fee. He alleges that Defendants failed to disclose adequately the existence of the annual fee. The case was removed to federal court and then remanded to state court, triggering an appeal to this Court, which reversed the remand order. Davis v. HSBC Bank Nevada, N.A., 557 F.3d 1026, 1030 (9th Cir. 2009). Upon return to federal court, Defendants filed a motion to dismiss, which the district court granted on federal preemption grounds. Davis was given 30 days to amend the complaint.

On September 25, 2009, Davis filed the FAC on the same theory that Defendants failed to disclose adequately whether RZMC owners would be charged an annual fee. The operative complaint alleges four causes of action for (1) false advertising in violation of the California Business & Professions Code § 17500, et seq. ("False Advertising Law" or "FAL"), as to Best Buy; (2) fraudulent concealment as to both Defendants; (3) "unlawful" business practices in violation of the California Business & Professions Code § 17200, et seq. ("Unfair Competition Law" or "UCL") as to HSBC; and (4) "unfair" and "fraudulent" business practices in violation of the UCL as to Best Buy.

Defendants filed a Rule 12(b)(6) motion to dismiss the FAC, along with a motion requesting judicial notice of three disclosure documents that were referenced in, but not attached to the FAC: (1) a copy of the complete Important Terms & Disclosure Statement contained in the scrolling box from the online application; (2) a copy of the Additional Disclosure Statement received in the mail; (3) a copy of the Cardmember Agreement and Disclosure Statement received in the mail (collectively, "disclosure documents").

The district court dismissed all four claims with prejudice on the ground that they fail to state claims entitling Davis to relief.

Davis timely appealed the dismissal of his claims.


We review de novo a district court's order granting a motion to dismiss pursuant to Rule 12(b)(6). Stearns v. Ticketmaster Corp., 655 F.3d 1013, 1018 (9th Cir. 2011). To survive dismissal, the complaint must allege "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). " 'Factual allegations must be enough to raise a right to relief above the speculative level.' " Williams v. Gerber Prods. Co., 552 F.3d 934, 938 (9th Cir. 2008) (quoting Bell Atl. Corp., 550 U.S. at 555). We must accept "all factual allegations in the complaint as true and construe the pleadings in the light most favorable to the nonmoving party." Rowe v. Educ. Credit Mgmt. Corp., 559 F.3d 1028, 1029-30 (9th Cir. 2009) (quoting Knievel v. ESPN, 393 F.3d 1068, 1072 (9th Cir. 2005)). At the same time, "we can affirm a 12(b)(6) dismissal on any ground supported by the record, even if the district court did not rely on the ground." United States v. Corinthian Colls., 655 F.3d 984, 992 (9th Cir. 2011) (internal citation and quotation marks omitted). As we sit in diversity, California law governs our analysis of the state law claims. See, e.g., Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 338 (9th Cir. 1996).

We take this opportunity to clarify what standard of review applies to a district court's decision to incorporate by reference documents outside the pleadings. Our relevant case law has recognized consistently that the district court may, but is not required to incorporate documents by reference. See, e.g., Marder v. Lopez, 450 F.3d 445, 448 (9th Cir. 2006) (observing that a court "may consider" evidence that is incorporated by reference); Knievel, 393 F.3d at 1076 (noting that the incorporation doctrine "permits" the court to consider extrinsic documents); United States v. Ritchie, 342 F.3d 903, 908 (9th Cir. 2003) (explaining that a document "may be incorporated by reference into a complaint if the plaintiff refers extensively to the document or the document forms the basis of the plaintiff 's claim"). Additionally, in Hamilton Materials, Inc. v. Dow Chemical Corp., 494 F.3d 1203, 1207 (9th Cir. 2007), we explained that "Federal Rule of Civil Procedure 12(b)(6) specifically gives courts the discretion to accept and consider extrinsic materials offered in connection with these motions, and to convert the motion to one for summary judgment when a party has notice that the district court may look beyond the pleadings." Thus, we have held, for example, that a district court's decision to take ...

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