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Tasha Smith, Et. Al v. Intuit Inc


September 10, 2012


The opinion of the court was delivered by: Edward J. Davila United States District Judge

United States District Court For the Northern District of California


Pending before the court is Defendant Intuit Inc.'s ("Intuit") motion to dismiss Plaintiff Tasha Smith and Plaintiff Frederick Smith's (collectively "Plaintiffs") Complaint. For the reasons 19 discussed below, Intuit's motion is GRANTED with leave to amend. 20


A. Factual Background

On March 19, 2012, Plaintiffs filed the Complaint alleging violations of California's refund 23 anticipation loan ("RAL") statute, Cal. Bus. & Prof. Code § 22250 et seq.; California's False 24 Advertising Law ("FAL"), Cal. Bus. & Prof. Code § 17500 et seq.; California's usury laws, Cal. 25 Const., art. XV, § 1 and Cal. Civ. Code. § 1961-1 et. seq.; and California's Unfair Competition 26 Law ("UCL"), Cal Bus. & Prof. Code § 17200 et. seq. In support of these claims, Plaintiffs allege 27 the following factual allegations.

Intuit is the nation's leading provider of electronic tax preparation and filing services.

Compl. ¶ 15. Among Intuit's primary revenue generating products is tax preparation software 3 called "TurboTax." Id. TurboTax consists of two basic components: a user interface which prompts 4 users to provide relevant information and an underlying tax engine which processes the 5 information. Id. ¶ 10. Consumers access TurboTax either by purchasing the software and installing 6 it on their computers or online via Intuit's website. Id. ¶ 11. Those who use TurboTax Online 7 choose between two forms of payment: (1) paying immediately with a credit card or (2) deferring 8 payment and deducting the cost from their federal income tax refund. 9

This latter payment option is called the Refund Processing Option ("RPO"). Id. ¶¶ 41-42. Plaintiffs utilized TurboTax Online's electronic tax preparation software for the 2008, 2009, and 2010 tax years. Id. at 48-55. In each instance they also chose the RPO as the method for paying their tax preparation fees and receiving their refunds. Id. 13

The RPO entails the establishment of a deposit account at a participating bank ("Deposit Account"). Id. ¶ 43. The Deposit Account is a non-interest-bearing account established for the sole 15 purpose of receiving the customer's federal tax refund and dispersing those funds. Id. The bank, 16 upon receiving the customer's tax refund, deducts the TurboTax fees and a $29.95 Refund 17

Processing Service Fee ("RPO fee") for creating and administering the bank account and providing 18 other bank services. Id. ¶ 45. The bank then disburses the balance of the refund to the customer via 19 the customer's choice of a prepaid debit card or direct deposit to a checking or savings account. Id. 20

With the RPO, Intuit defers payment for its TurboTax service for approximately eight to fifteen 21 days (the time needed to receive the tax refund). Id. ¶ 46. The RPO's deferral of payment 22 constitutes a loan, and Intuit provides no disclosure of the interest rate or finance charge for the 23 RPO. Id. 24

26 the RAL statute, FAL, California Usury Law, and UCL. Id. On March 19, 2012, Intuit filed a 27 motion to dismiss for failure to state a claim. ECF No. 32. On April 13, 2012, Plaintiff filed an 28

B. Procedural Background

The Complaint was filed on January 13, 2012. ECF No. 1. Plaintiffs alleged violations of opposition. ECF No. 50. On April 27, 2012, Defendant filed a reply. ECF No. 54. On May 29, 2 2012, the court took the motion under submission without oral argument. See Civil L.R. 7-1(b).

5 state a claim upon which relief can be granted. In deciding whether to grant a motion to dismiss, 6 the court generally "may not consider any material beyond the pleadings." Hal Roach Studios, Inc. 7 v. Richard Feiner & Co., 896 F. 2d 1542, 1555 n. 19 (9th Cir. 1990). However, "material which is 8 properly submitted as part of the complaint may be considered." Id. 9


Under Federal Rule of Civil Procedure 12(b)(6), a complaint may be dismissed if it fails to

In considering a motion pursuant to Rule 12(b)(6), the court must accept as true all "well-

10 pleaded factual allegations." Ashcroft v. Iqbal, 129 S. Ct. 1937, 1950 (2009). The court must also construe the alleged facts in the light most favorable to the plaintiff. Love v. United States, 915 F. 2d 1242, 1245 (9th Cir. 1988). Even so, "courts are not bound to accept as true a legal conclusion 13 couched as a factual allegation." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). 14

"[T]o survive a motion to dismiss, a complaint must contain sufficient factual matter, 15 accepted as true, 'to state a claim to relief that is plausible on its face.'" Iqbal, 129 S. Ct. at 1949 16 (internal citations omitted). "A claim has facial plausibility when the plaintiff pleads factual 17 content that allows the court to draw the reasonable inference that the defendant is liable for the 18 misconduct alleged." Id. at 1949. "While legal conclusions can provide the framework of a 19 complaint, they must be supported by factual allegations." Id. at 1950. A complaint "does not need 20 detailed factual allegations: but the "[f]actual allegations must be enough to raise a right to relief 21 above the speculative level." Twombly, 550 U.S. at 555. 22

23 other facts consistent with the challenged pleading could not possibly cure the deficiency." 24

v. Smith, 203 F. 3d 1122, 1127 (9th Cir. 2000). Where amendment to the complaint would be 26 futile, the court may order dismissal with prejudice. Dumas v. Kipp, 90 F. 3d 386, 393 (9th Cir. 27 1996).


Leave to amend should be freely granted "unless the court determines that the allegation of Schreiber Distrib. Co. v. Serv-Well Furniture Co., 806 F.2d 1393, 1401 (9th Cir. 1986); see Lopez 25

III. Discussion

A. Violation of the RAL Statute

Plaintiffs allege violations of three provisions of California's RAL statute - Cal. Bus. & Prof. Code § 22253.1(d)(1) & (2) and § 22253.1(f)(2). Compl. ¶¶ 71-74. Sections 22253.1(d)(1) 5 and (2) require that, prior to a client's completion of an RAL application, a tax preparer that offers 6 to facilitate an RAL shall provide to the client particular disclosures and information. Section 7 22253.1(f)(2) prohibits any tax preparer who facilitates an RAL from misrepresenting a material 8 factor or condition of an RAL. Plaintiffs allege that the RPOs facilitated by Intuit are RALs and 9 that, for each RPO, Intuit failed to disclose any interest rate or finance charge, failed to disclose the 10 schedule. Compl. ¶¶ 70-71.

Intuit moves to dismiss the RAL claim, arguing the RPO is not a RAL or any other type of 13 loan. Intuit argues the RPO merely deferred payment of tax preparation fees but did not make a 14 loan to Plaintiffs. Plaintiffs argue that deferring payment of the preparation fee until Plaintiffs 15 received their tax refund is a loan of the amount of the fees in anticipation of the refund. 16

17 as a financial institution, in anticipation of, and whose payment is secured by, a client's federal or 18 state income tax refund or by both." Cal. Bus. & Prof. Code § 22251(f). A "loan" is "a contract by 19 which one delivers a sum of money to another, and the latter agrees to return at a future time a sum 20 equivalent to that which he borrowed." Cal. Civ. Code § 1912; Sw. Concrete Prods. v. Gosh 21

Constr. Corp., 798 P. 2d 1247, 1249 (Cal. 1990) ("A loan of money is the delivery of a sum of 22 money to another under a contract to return at some future time an equivalent amount."). 23

24 essence of a loan." Great American Ins. Co. v. National Health Services, 62 Cal. App. 3d 785, 791 25 (1976). The court "must look to the substance of the transaction and not to its form." Id. For 26 example, in Great American, a California Court of Appeals held that an action by a surety to 27 recover on an indemnification agreement for payment of its bond was an action based on a loan. 28

RPO as a finance charge, and failed to provide a clear, written disclosure containing the fee

A RAL is defined as "a loan, whether provided by the tax preparer or another entity, such

However, "[t]he manual passage of money loaned into the hands of the borrower is not the

Specifically, the court held that the substance of the bond transaction was "strikingly similar to the commonplace loan transaction" because the plaintiff had "agreed to satisfy an obligation of 2 defendant if the latter was unable to do so, upon the express understanding that in that event it 3 would be reimbursed by defendant and the indemnitors." Id. at 792. Thus, the remedies available to 4 plaintiff should not be different than "if, instead of posting a bond, it had delivered to [defendants] 5 the amount of the bond so that they could have made a personal undertaking." Id. 6

In contrast, a delay in receiving payment for goods or services does not constitute a loan.

See, e.g., People v. Thrasher, 98 Cal. Rptr. 3d 693, 697. (Ct. App. 2009). "In any economic 8 transaction where payment is not simultaneous with delivery of goods or services, the supplier of 9 the goods or service does not have use of the money until payment is received," but "that delay in 10 receiving payment does not make the supplier a lender to the purchaser by any common 13 loan: Intuit did not give Plaintiffs money, or satisfy an obligation on behalf of Plaintiffs. Instead, 14 the RPO allowed Plaintiffs to delay payment for use of the TurboTax software until after Plaintiffs 15 receive their refund from the IRS. Intuit did not provide any amount of money to Plaintiffs; the 16 only money Plaintiffs received was from the IRS in the form of their refund. Thus, the RPO is not a 17 loan because the nature of the transaction does not deliver a sum of money to another or require 18 that money be returned at a future time. The fact that Intuit allows for a delay in receiving payment 19 for use of its tax preparation software is not sufficient to demonstrate that Intuit plausibly made a 20 loan to its customer in the amount of the payment owed. 21

JTH Taxoffered two separate services: RALs (actual loans of money in anticipation of a refund) 24 and electronic refund checks ("ERCs"). Id. at 2-4. The court defined them differently and analyzed 25 them separately. According to the Superior Court, "[an] RAL is a short-term loan secured by a 26 *fn1 Intuit argues that JTH Tax is uncitable pursuant to Cal. Rule of Court 8.1115. Rule 8.1115, however, pertains to an opinion of a California Court of Appeal or superior court appellate 27 division. Intuit has not cited any authority indicating that this rule prohibits citations to unpublished California Superior Court opinions. Thus, the court considers Plaintiff's arguments relying on JTH 28 Tax.

customer's anticipated refund and issued by a third-party bank. Id. at 2. The loan amount is based 2 on the anticipated refund minus all fees, including a finance charge, the tax preparation fees, and an 3 'account' or 'handling' fee, and is usually disbursed in one to two days." Id. With an ERC, by 4 contrast, "the bank sets up a temporary 'account' to receive the customer's refund. After the refund 5 is disbursed by the IRS, the bank deducts the tax return preparation fees, the 'account' or 'handling' fee, and any other applicable charges, and pays the remainder to the customer (typically) 7 in the form of a personal check . . . ." Id. at 3 (internal citations omitted). 8

The RPOs at issue in this case are similar to the JTH Tax court's description of the ERC, not the description of the RAL. Because the court in JTH Tax did nothold that an ERC is a loan or 10 a RAL, Plaintiffs have failed to show how JTH Tax supports their argument that Intuit's RPOs are

RALs. Thus, JTH Tax does not contradict the court's finding that the facts alleged in Plaintiffs' Complaint do not state a RAL claim. 13

RAL, or any type of loan for that matter. Intuit's motion to dismiss Plaintiffs' claim for violations 15 of the RAL statute therefore is GRANTED with leave to amend. 16

"loan or forbearance of any money, goods or things in action." Cal. Const. art. XV, § 1; see Cal. 20

Civ. Code § 1916.1 et seq. Plaintiff alleges that the $29.95 fee for using the RPO is usurious 21 interest. Intuit argues that Plaintiffs have failed to state a claim for usury because Plaintiffs have 22 not pleaded facts showing the RPO is a loan or forbearance, instead of a manner of paying for 23

"Without a loan or forbearance, usury cannot exist." Ghirardo v. Antonioli, 883 P. 2d 960, 967 (Cal. 1994). As discussed above, because Plaintiffs have not alleged that Intuit delivered 26 money to Plaintiffs or to another on Plaintiffs' behalf, Plaintiffs have not pleaded facts sufficient to 27 show the RPO is a loan. The court therefore must determine whether Plaintiffs have pleaded facts 28 showing the RPO is a forbearance.

Thus, Plaintiffs did not plead facts sufficient to state a plausible claim that the RPO is a

B. Violation of California's Usury Law

Plaintiffs allege Intuit violated California's usury laws. Under certain circumstances, the California Constitution and usury statute limit the amount of interest an entity may charge on a Intuit's sale of a license to use tax-preparation software. 24

2 to insist upon payment at the due date." O'Connor v. Televideo System, Inc., 267 Cal. Rptr. 237, 3

239 (Ct. App. 1990). However, "both a loan of money and a forbearance are to be distinguished 4 from a sale which is the 'transfer of property in a thing for a price in money." See Southwest 5

O'Connor, 267 Cal. Rptr. at 239). "In determining whether a transaction constitutes a loan or 7 forbearance, we look to the substance rather than the form of the transaction. 'In all such cases the 8 issue is whether or not the bargain of the parties, assessed in light of all the circumstances and with 9 a view to substance rather than form, has as its true object the hire of money at an excessive rate of 10 interest.'" Id. at 1249-50 (citing Boerner v. Colwell Co., 21 Cal. 3d 37, 44 (1978).

A forbearance "is the giving of further time for the payment of a debt or an agreement not Concrete Products. v. Gosh Construction Corp., 798 P. 2d 1247, 1249 (Cal. 1990) (citing 6

One exception to the usury law is the "time-price" doctrine. Under this doctrine, a sale of goods or services is not a forbearance subject to the usury laws, regardless of whether payment is 13 deferred in exchange for a higher price or additional fees. A sale in which "the seller finances the 14 purchase of property by extending payments over time and charging a higher price for carrying the 15 financing. . . . is not subject to the usury law because it does not involve a loan or forbearance." Id. 16 at 1250. "It is manifest that any person owning property may sell it at such price and on such terms 17 as to time and mode of payment as he may see fit, such a sale, if bona fide, cannot be usurious . . ." 18

Verbeck v. Clymer, 261 P. 1017, 1019 (Cal. 1927). "[T]he owner of property . . . has a perfect right 19 to name the price on which he is willing to sell, and to refuse to accede to any other. He may offer 20 to sell at a designated price for cash or at a much higher price on credit, and a credit sale will not 21 constitute usury however great the difference between the two prices. Id. at 1019. 22

23 time for Plaintiffs . . . to pay an obligation due to Defendant (the charges associated with 24

Plaintiffs do not dispute that Intuit sold Plaintiffs a license to use its TurboTax software. As the 26 seller, Intuit has the right to sell its license on its own terms, including charging a fee for later 27 payment. 28

Here, the Complaint alleges that the RPO fee is charged "in exchange for extending the Defendant's electronic tax preparation and filing services)." Compl. ¶ 85 (emphasis added). 25

2 charges or installment payments over a period of time, but not to a contract providing for a single 3 payment at a later time such as the RPO. Plaintiffs, however, have not cited any authority in 4 support of their argument that whether the deferred payments were made in installations or at one 5 time is material in determining whether a sale, as opposed to a loan, has taken place. Rather, it is 6 not material whether the agreement for the purchase price in the future specifies the whole sum 7 then to be paid or names a particular sum as principal and interest that it will draw. Verbeck, 261 P. 8 at 1019. 9

Plaintiffs argue that this time-price exception applies only to contracts providing for late

Because the Complaint pleads facts demonstrating that the fees Plaintiffs owed to Intuit 10 were for the sale of goods or services, the Complaint has failed to state a plausible claim that Intuit granted a forbearance by offering the RPO to collect those fees at a later time for an additional fee.

Because the Complaint has not alleged facts demonstrating Inuit's RPO fee was charged in 13 connection with a loan or forbearance, it has not sufficiently pleaded that the RPO fee is usurious 14 interest. Thus, Intuit's motion to dismiss the usury claims is GRANTED with leave to amend. 15

FAL, it is unlawful for anyone to make false or misleading representations in connection with the 18 sale of services. Cal. Bus. & Prof. Code § 17500. California's UCL prohibits unfair, unlawful, and 19 fraudulent business practices. Id. § 17200. Plaintiffs' claims are based upon their allegations that

Intuit violated California's RAL statute, California usury laws, and the allegation that Intuit misled 21 customers by neglecting to label the RPO fee a "finance charge" under TILA. See Compl. ¶¶ 79, 22

Intuit moves to dismiss Plaintiffs' FAL and UCL because Plaintiffs have failed to plead 24 facts showing they have statutory standing to bring these claims. To have statutory standing, 25 plaintiffs are required to show an economic injury that was the result of, i.e., caused by, the unfair 26 business practice or false advertising that is the gravamen of the claim. Kwikset Corp. v. Superior 27 Court, 246 P.3d 877, 885 (Cal. 2011) (emphasis in original). "For purposes of pleading a fraudulent 28 omissions claim under the UCL . . . a plaintiff satisfies the 'as a result of' requirement by pleading

C. Violation of UCL and FAL

Plaintiffs' remaining claims concern alleged violations of the UCL and FAL. Under the 80, 95, 96. 23

that he would have behaved differently if he had been aware of the information and the undisclosed 2 information would have been important to reasonable consumers." Shin v. BMW of North 3

Although Plaintiffs allege they paid exorbitant finance fees (see, e.g., Compl. ¶ 55),

Plaintiffs do not allege they would not have paid those finance charges if they had been properly 6 disclosed as such rather than being labeled as an RPO fee. Specifically, Plaintiffs do not allege that 7 they "paid more" for the RPO than they would have if the RPO fee were labeled as a finance 8 charge. Peterson v. Cellco Partnership, 80 Cal. Rptr. 3d 316, 322 (Ct. App. 2008). Nor do they 9 allege that they were "deceived . . . into spending money to purchase" the RPO that they "would 10 not have purchased it otherwise." Kwikset, 246 P.3d at 881. The Complaint does not contain a single allegation that Plaintiffs "could have bought the same" service "for a lower price," Peterson,

80 Cal. Rptr. 3d at 322, or that Plaintiffs were uninformed of the actual cost of the RPO, id. Thus, 13 Plaintiffs have failed to plead economic injury that was the result of the unfair business practice or 14 false advertising that is the gravamen of their claims.*fn2

America, No. 09-00398 AHM (AJWx), 2009 WL 2163509, at *3 (C.D. Cal. July 16, 2009).

Because the Complaint fails to plead facts demonstrating that Plaintiffs standing under the FAL and UCL, Intuit's motion to dismiss Plaintiffs' UCL and FAL claims is GRANTED with 17 leave to amend.


For the reasons discussed above, Intuit's motion to dismiss Plaintiffs' Complaint is GRANTED with leave to amend. Any amended complaint must be filed no later than 30 day of the 21 date of this Order. 22


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