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Circle Click Media LLC v. Regus Management Group LLC

United States District Court, Ninth Circuit

August 13, 2013

CIRCLE CLICK MEDIA LLC, METRO TALENT, LLC, CTNY INSURANCE GROUP LLC, on behalf of themselves and all others similarly situated, Plaintiffs,


SAMUEL CONTI, District Judge.


Plaintiffs Circle Click Media LLC ("Circle Click"), Metro Talent, LLC ("Metro Talent"), and CTNY Insurance Group LLC ("CTNY") (collectively, "Plaintiffs") bring this putative class action against Regus Management Group LLC ("RMG"), Regus Business Centre LLC, Regus plc, and HQ Global Workplaces LLC (collectively "Defendants"). Defendants filed an answer, and, as part of that answer, RMG asserts counterclaims against each of the named Plaintiffs, as well as against members of the absent class. ECF No. 78 ("Answer") at 17-26 ("Countercl."). Plaintiffs have filed two motions to dismiss the counterclaims. The first motion, which is brought under Federal Rule of Civil Procedure 12(b)(1), asserts that the Court lacks subject matter jurisdiction. ECF No. 81 ("12(b)(1) MTD").[1] The second motion, which is brought under Rules 12(b)(6) and 12(f), asserts that the counterclaims should be dismissed for failure to state a claim and struck because they are redundant. ECF No. 82 ("12(b)(6)/12(f) Mot."). All motions are fully briefed. ECF Nos. 84 ("12(b)(1) Opp'n"), 85 ("12(b)(6)/12(f) Opp'n"), 87 ("12(b)(1) Reply"), 88 ("12(b)(6)/12(f) Reply"). Per Civil Local Rule 7-1(b), the matters are appropriate for determination without oral argument. For the reasons set forth below, the motion to dismiss for lack of subject matter jurisdiction is GRANTED in part and DENIED in part, the motion to dismiss for failure to state a claim is GRANTED, and the motion to strike is DENIED.


RMG is in the business of leasing commercial office space throughout California and New York. Countercl. ¶ 1. Through its advertisements, RMG represents that it provides customers with fully equipped offices for one low monthly price. ECF No. 77 ("Apr. 22 Order") at 3-4. RMG has also represented that its services are "simple, easy, and flexible, " and that its one-page contract - the Office Service Agreement - "takes just 10 minutes to complete." Id . at 4.

Each of the named Plaintiffs in this action executed an Office Service Agreement with RMG. Countercl. ¶ 1. The Office Service Agreement is in fact one page, and it merely identifies the location of the office space, the monthly office fee, the term of the agreement, and the parties to it. Apr. 22 Order at 2. The Office Service Agreement incorporates by reference another document called the "Terms and Conditions." Apr. 22 Order at 3. The Terms and Conditions is also only one page, but it is printed in five-point font, which is almost illegible. Id . The Terms and Conditions reference another document, the "House Rules, " which discloses a number of fees, including a mandatory, "Kitchen Amenities/Beverage Fee"; a "[s]tandard services" fee, including a fee "billed upon service activation for applicable telecom and internet services"; an "Office Set Up Fee"; and a "Business Continuity Fee." Id . The House Rules reference yet another document, the Service Price Guide, which lists the prices for a variety of services. Id.

In July 2012, Plaintiffs filed this action against Defendants in California state court. ECF No. 1. The action was subsequently removed, and several rounds of pleading followed. The gravamen of Plaintiffs' Second Amended Complaint ("2AC"), Plaintiffs' operative pleading, is that RMG and the other Defendants routinely assessed Plaintiffs for charges that were not disclosed in the Office Service Agreement. ECF No. 65 ("2AC"). For example, the monthly fee listed in Circle Click's Office Service Agreement is $2, 461, but Circle Click allegedly received monthly invoices ranging from $2, 559.67 to $6, 653.79. Id . ¶ 49. Plaintiffs allege that Circle Click was assessed charges for kitchen amenities (regardless of whether these amenities were used), telephone lines, telecom handsets, office restoration, and business continuity services, among other things. Id . ¶ 52.

In their 2AC, Plaintiffs seek to represent a class of all persons who paid for Defendants' office space in California and New York and were assessed charges by Defendants over the monthly payments indicated in the Office Service Agreement or any similar agreement. Plaintiffs assert the following causes of action: violation of California's Unfair Competition Law ("UCL"), Cal. Bus. & Prof. Code § 17200, et seq.; violation of California's False Advertising Law ("FAL"), id. § 17509; intentional misrepresentation; unjust enrichment; and violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961, et seq.

Defendants previously moved to dismiss the 2AC, and that motion was granted in part and denied in part on April 22, 2013. The Court dismissed Plaintiffs' claim for intentional misrepresentation with prejudice, reasoning that Plaintiffs could not plausibly claim that Defendants had exclusive knowledge of various fees when those fees were disclosed in the documents referenced in the parties' agreements. Apr. 22 Order at 11. Plaintiffs' RICO claim was dismissed because Plaintiffs could not state a claim for intentional misrepresentation. Id . at 16-17. Plaintiffs' other causes of action remained largely undisturbed. Id . at 23-24.

Defendants subsequently filed an Answer, in which RMG asserted several counterclaims. The "Counterclaim-Defendants" identified in the Answer are Circle Click, Metro Talent, CTNY, and "Unnamed Counterclaim-Defendants." Countercl. ¶¶ 11-14. The Unnamed Counterclaim-Defendants are essentially the absent members of the classes proposed by Plaintiffs. See id. ¶ 14.

RMG asserts counterclaims for breach of contract against Circle Click and CTNY. RMG also asserts three "alternative" counterclaims against "all Counterclaim-Defendants": (1) breach of contract, (2) quantum meruit, and (3) unjust enrichment.[2] Countercl. ¶¶ 21-49. The facts alleged in Counterclaim are bare bones. RMG alleges that Circle Click and CTNY failed to make required payments under the Office Service Agreement. Id . ¶¶ 21-32. Specifically, RMG alleges that Circle Click failed to pay $1, 047 in business continuity fees and that CTNY failed to pay $13, 640.38 in monthly payments and "applicable taxes and fees." Id . ¶¶ 26, 32. The counterclaim contains no factual allegations regarding wrongdoing on the part of Metro Talent or the absent class members.


A. Plaintiffs' Rule 12(b)(1) Motion to Dismiss

The thrust of Plaintiffs' Rule 12(b)(1) motion is that RMG cannot state a claim against the absent class members since they are not opposing parties for the purposes of Rule 13. Plaintiffs further argue that the court lacks subject matter jurisdiction over the counterclaims without the absent class members, since with respect to the individual Plaintiffs, Defendant has alleged an amount in controversy of only $14, 687.38, well below the $75, 000 jurisdictional minimum.

1. RMG's Counterclaims against the Absent Class Members

Rule 13 allows a defendant to assert a compulsory or permissive counterclaim against an "opposing party." Fed.R.Civ.P. 13(a)-(b). Plaintiffs argue that the absent class members are not opposing parties within the meaning of Rule 13 since they are not named parties. Mot. at 3. RMG disagrees, arguing that class members who join this action should be prepared to accept the legal consequences and risks of litigation, and that RMG should be able to strike back against any party that sues it. Opp'n at 2.

RMG primarily relies on a 1977 decision out of the Southern District of New York, National Super Spuds, Inc. v. New York Mercantile Exchange , 75 F.R.D. 40 (S.D.N.Y. 1977). Id . at 2-4. The plaintiffs in that case sought to represent a class of persons who held net long positions on potato futures contracts. Nat'l Super Spuds , 75 F.R.D. at 41. They alleged that short sellers, in concert with a number of brokers, manipulated the trading price of the futures contracts. Id . at 42. One of the broker defendants asserted a counterclaim, alleging that various members of the class engaged in a counter-conspiracy to squeeze the futures market. Id . Some of the counter-defendants were identified by name, while others were not. Id.

The court held that certain absent class members were opposing parties within the meaning of Rule 13 "within the context of th[e] case." Id . The court reasoned that Rule 42 authorized the consolidation of any or all common issues related to the case, as well as orders to avoid unnecessary cost or delay. Id . at 44. The court found that "this is a particularly apt case for exercising... discretion under Rule 42 to consolidate... the various issues, " since, if the counterclaims were dismissed and asserted again in a related action, the related claims would be reassigned to the court under the local rules. Id . The court also noted that some of the issues raised by the counterclaims could be raised as affirmative defenses. Id.

The decision in National Super Spuds is not binding on this court. In any event, the case is distinguishable. The counterclaim in National Super Spuds targeted particular individuals who were allegedly engaged in a common conspiracy to manipulate prices. The breach of contract, quantum meruit, and unjust enrichment counterclaims in the instant action target the entire class, and there is no indication that these counterclaims raise common issues of fact or law. Further, unlike in National Super Spuds, taking up RMG's counterclaims against the class makes little sense from a case management perspective. Defendants would essentially have the Court assume jurisdiction over any number of distinct breach of contract claims that would otherwise be resolved in state court.

The other cases cited by RMG - which were also decided decades ago by out-of-circuit courts - are equally unpersuasive. In Wolfson v. Artisans Savings Bank, plaintiffs asserted antitrust claims against banks that required escrow accounts for the payment of taxes and insurance in connection with mortgages, but then failed to pay interest on the escrowed funds. 83 F.R.D. 552, 554 (D. Del. 1979). The court allowed the defendants to assert a counterclaim against the absent class members for expenses incurred in maintaining the escrow accounts, reasoning that the counterclaim bore a "logical relationship" to the plaintiffs' claim. Id . But the Court dismissed the defendants' counterclaim for unjust enrichment, reasoning that "it concern[ed] individual and distinct loan transactions as to which no agreement or parallel conduct is claimed and would require examination of payments collected and disbursed in the individual escrow accounts of individual class members against whom this claim is asserted." Id . at 555. RMG's counterclaims for breach of contract, quauntum meruit, and unjust enrichment resemble the unjust enrichment counterclaim that was dismissed in Wolfson, not the counterclaim for expenses incurred.

Herrmann v. Atlantic Richfield Co. , 72 F.R.D. 182 (W.D. Pa. 1976) also does not help RMG. In that antitrust action, the defendant sought leave to assert two types of counterclaims: (1) debt collection claims that sought affirmative judgment against certain individual class members, and (2) set-offs against various class members for "outstanding balances of previously-filed unsatisfied judgments against individual members of the plaintiff class." Id . at 185-86. The court dismissed the former but allowed the latter to proceed. Id . None of RMG's counterclaims resemble the set-off claims at issue in Hermann. RMG has made no reference to previously filed unsatisfied judgments. Rather, RMG appears to expect the Court to render independent judgments with respect to each individual class member. Further, RMG represents that its counterclaims are distinct from its affirmative defense of set-off because the counterclaims seek damages and other affirmative relief. See 12(b)(6)/12(f) Opp'n at 11.

In sum, the case law cited by RMG does not support the contention that RMG may assert counterclaims against the absent class members in this context. Even if it does, Plaintiffs have cited contrary authority that is more persuasive and more recent, including Allapattah Services., Inc. v. Exxon Corp. , 333 F.3d 1248 (11th Cir. 2003). In that case, the Court found that a class action defendant had a right to assert set-off claims against class members, even though it had not asserted those set-off claims in its answer. Id . at 1259. The Court explained that, although Rule 13 normally requires a party to assert a counterclaim in its pleadings, "Rule 13... is inapplicable in class action suits, because absent class members are not opposing or litigating adversaries for purposes of Rule 13." Id . at 1259 n.14 (quotations omitted). The court further stated: "[I]f absent class members are not opposing parties within the meaning of the rule, it follows that any counterclaims that may be permitted in a class action are not governed by Rule 13 and are purely discretionary with the court." Id . (quoting 2 Alba Conte & Herbert B. Newberg, Newberg on Class Actions § 4:34, at 299-300 (4th ed.2002)).

This Court reached a similar conclusion in Roberts v. Heim, C 84-8069 THE, 1994 WL 675261 (N.D. Cal. Sept. 16, 1994). Roberts involved a class action for securities fraud. Id . at *1. The defendant sought to assert breach of contract counterclaims against the limited partners of various partnerships involved in the case. Id . The court held that such absent class members could not qualify as parties to the litigation within the meaning of Rule 13. Id . The court also found that policy and due process concerns supported this conclusion, since the absent class members had not been provided with notice that failure to opt out of the class would render them vulnerable to counterclaims, waiving any personal jurisdiction objections they might have. Id . RMG argues that there is still time to provide notice to the absent class members here. However, the language of the Roberts opinion suggests that the court's decision was not based solely on concerns about notice and opt-out opportunities. See id.

The Court's conclusion is further supported by the Supreme Court's decision in Phillips Petroleum Co. v. Shutts , 472 U.S. 797 (1985), which post-dates all of RMG's authority. In that case, the plaintiffs, who owned the rights to natural gas leases, brought a class action against a natural gas producer seeking to recover interest on delayed royalty payments. Id . at 799. The plaintiffs and the class prevailed in Kansas state court. On appeal, the defendant contended that the state court erred in exerting jurisdiction over the class claims without first obtaining the class members' express consent, and that class members' failure to execute and return a request for exclusion could not constitute consent. Id . at 806. The defendant essentially argued that due process concerns prevented Kansas from exerting jurisdiction over the claims of the out-of-state class members unless those class members had sufficient minimum contacts with Kansas. Id . at 808.

The Supreme Court disagreed, finding that the burdens placed on an out-of-state defendant are "not of the same order or magnitude" as those placed on an absent, out-of-state class member:

An out-of-state defendant summoned by a plaintiff is faced with the full powers of the forum State to render judgment against it. The defendant must generally hire counsel and travel to the forum to defend itself from the plaintiff's claim, or suffer a default judgment. The defendant may be forced to participate in extended and often costly discovery, and will be forced to respond in damages or to comply with some other form of remedy imposed by the court should it lose the suit.

Id. On the other hand:

Absent plaintiff class members are not subject to other burdens imposed upon defendants. They need not hire counsel or appear. They are almost never subject to counterclaims or cross-claims, or liability for fees or costs. Absent plaintiff class members are not subject to coercive or punitive remedies. Nor will an adverse judgment typically bind an absent plaintiff for any damages, although a valid adverse judgment may extinguish any of the plaintiff's claims which were litigated.

Id. at 810. Thus, Shutts suggests that courts should have reservations about allowing defendants to assert counterclaims against absent class members, especially counterclaims which may bind absents plaintiffs for damages.

Accordingly, RMG's counterclaims for breach of contract, quantum meruit, and unjust enrichment are DISMISSED with respect to the absent class members.

2. RMG's Counterclaims against the Named Plaintiffs

Plaintiffs argue that, without the counterclaims against the absent class members, the Court lacks subject matter jurisdiction over RMG's counterclaims against the named plaintiffs. Mot. at 4. RMG alleges two bases for subject matter jurisdiction: diversity jurisdiction under 28 U.S.C. § 1332(a), and the Class Action Fairness Act ("CAFA"), 28 U.S.C. § 1453. Countercl. ¶ 8. As Plaintiffs point out, under § 1332(a), the Court can only exercise diversity jurisdiction where the amount in controversy is more than $75, 000, and RMG has only alleged $14, 687.38 in damages with respect to the individual Plaintiffs. Id . ¶¶ 26, 32. Plaintiffs also argue that class action counterclaims are not the types of claims over which CAFA may confer subject matter jurisdiction. Mot. at 4 (citing Progressive W. Ins. Co. v. Preciado , 479 F.3d 1014, 1018 (9th Cir. 2007)).

In its opposition brief, RMG does not dispute that the Court may not exercise diversity or CAFA jurisdiction without the counterclaims against the absent class members. Instead it argues, for the first time, that the court should exercise supplemental jurisdiction pursuant to 28 U.S.C. § 1367(a). Opp'n at 6. Plaintiff responds that the Court should not consider exercising supplemental jurisdiction because RMG failed to plead it. Reply at 6. Plaintiffs also argue that the exercise of supplemental jurisdiction is inappropriate since RMG's counterclaims are not compulsory, and discretionary supplemental jurisdiction should not be exercised over RMG's permissive counterclaims.

Plaintiffs' argument that the Court must refuse to consider a basis for subject matter jurisdiction that is not expressly alleged in the complaint is unavailing. It is true that Federal Rule of Civil Procedure 8(a)(1) requires that a pleading contain "a short and plain statement of the grounds for the court's jurisdiction, " and that the party invoking federal jurisdiction bears the burden of establishing jurisdiction. Lujan v. Defenders of Wildlife , 504 U.S. 555, 561 (1992). However, when considering a motion to dismiss for lack of jurisdiction, the court is not limited to the allegations of the complaint. Scolaro v. Dist. of Columbia Bd. of Elections & Ethics , 104 F.Supp.2d 18, 22 (D.D.C. 2000). Accordingly, if the facts of the case, as pled, clearly bring this case within the court's jurisdiction, a failure to expressly allege a basis for jurisdiction is not necessarily fatal.[3]

Turning to the merits of the parties' jurisdictional arguments, 28 U.S.C. § 1367(a) provides for supplemental jurisdiction over state law claims "that are so related to claims in the action within [the district court's] original jurisdiction that they form part of the same case or controversy under Article III of the United States Constitution." Section 1367 applies to claims brought by a plaintiff, as well as counterclaims brought by a defendant. As noted above, Federal Rule of Civil Procedure 13 defines two types of counterclaims, compulsory and permissive.

Compulsory counterclaims are those that "arise[] out of the transaction or occurrence that is the subject matter of the opposing party's claim." Fed.R.Civ.P. 13(a)(1)(A). Federal courts apply a liberal "logical relationship" test to determine whether two claims arise out of the same transaction or occurrence. Pochiro v. Prudential Ins. Co. of Am. , 827 F.2d 1246, 1249 (9th Cir. 1987). "This flexible approach to Rule 13 problems attempts to analyze whether the essential facts of the various claims are so logically connected that considerations of judicial economy and fairness dictate that all the issues be resolved in one lawsuit." Id . (quotations omitted). "The traditional rule is that federal courts have supplemental jurisdiction over compulsory counterclaims, since a plaintiff would otherwise lose his opportunity to be heard on that claim." Sparrow v. Mazda Am. Credit , 385 F.Supp.2d 1063, 1066 (E.D. Cal. 2005).

Permissive counterclaims are those that are not compulsory, i.e., those that do not arise out of the transaction or occurrence that is the subject matter of the opposing party's claim. Fed.R.Civ.P. 13(b). Courts may exercise supplemental jurisdiction over permissive counterclaims so long as they "arise out of facts that bear some relationship to the facts from which the federal claim arises so that the state claim and the federal claim are considered part of the same constitutional case.'" Sparrow , 385 F.Supp.2d at 1067. However, even if supplemental jurisdiction exists over a counterclaim, a district court may decline to exercise jurisdiction where:

(1) the claim raises a novel or complex issue of State law,
(2) the claim substantially predominates over the claim or claims over which the district court has original jurisdiction,
(3) the district court has dismissed all claims over which it has original jurisdiction, or
(4) in exceptional circumstances, there are other compelling reasons for declining jurisdiction.

28 U.S.C. § 1367(c).

Where plaintiffs have brought claims under the Fair Debt Collection Practices Act ("FDCPA"), other courts in this circuit have found that counterclaims for underlying consumer debts are permissive. See Robles v. Ally Bank, 12CV01013 AJB MDD, 2013 WL 28773, at *4 (S.D. Cal. Jan. 2, 2013); Sparrow , 385 F.Supp.2d at 1069. Some of these courts have found that the potential for supplemental jurisdiction exists under § 1367(a), but have exercised their discretion to decline jurisdiction pursuant to § 1367(c). See Robles, 2013 WL 28773, at *4-5. For example, in Robles, the court reasoned that "exercising supplemental jurisdiction over counterclaims brought by debt collector defendants, based on the underlying debt, might have a chilling effect on plaintiffs who otherwise might and should bring suits under the FDCPA." Id . at *5. The court also found that Defendants' counterclaims involved questions of "no federal significance, " adjudicating those counterclaims would "increase both the complexity and length of time necessary to resolve Plaintiffs' FDCPA claim, and declining jurisdiction did not raise the risk of inconsistent judgments. Id . at *5.

The Court finds that RMG's counterclaims bear at least some relationship to the facts from which Plaintiffs' claims arise. Both Plaintiffs' claims and RMG's counterclaims implicate the Office Service Agreement. Plaintiffs allege that RMG unlawfully assessed fees that were not disclosed in the Office Service Agreement, and RMG alleges that the named Plaintiffs breached the agreement by failing to pay some of the fees that Plaintiffs claim were not disclosed. The Court also finds that declining to exercise jurisdiction pursuant to § 1367(c) would be inappropriate. RMG's counterclaims do not raise novel or complex issues of state law. Nor do the counterclaims substantially predominate over Plaintiffs' claims. Moreover, the exceptional circumstances cited in Robles are not present here, primarily because both Plaintiffs' claims and RMG's counterclaims implicate whether RMG can lawfully assess certain incidental fees. In contrast, the FDCPA claims at issue in Robles did not implicate the underlying debt.

For these reasons, the Court declines to dismiss RMG's counterclaims against the named Plaintiffs for lack of subject matter jurisdiction.

B. Plaintiffs' Rule 12(b)(6) Motion to Dismiss and Rule 12(f) Motion to Strike

As the Court chooses to exercise jurisdiction over RMG's counterclaims against the named Plaintiffs, it now turns to Plaintiffs' Rule 12(b)(6) motion to dismiss and Rule 12(f) motion to strike. The Court does not address Plaintiffs' arguments with respect to the absent class members, since it has already dismissed RMG's counterclaims against the class because they are not opposing parties for the purposes of Rule 13. See Section III.A.1 supra.

1. Legal Standard

A Rule 12(b)(6) motion to dismiss "tests the legal sufficiency of a claim." Navarro v. Block , 250 F.3d 729, 732 (9th Cir. 2001). "Dismissal can be based on the lack of a cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal theory." Balistreri v. Pacifica Police Dep't , 901 F.2d 696, 699 (9th Cir. 1988). "When there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement to relief." Ashcroft v. Iqbal , 556 U.S. 662, 664 (2009). However, "the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions. Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Id . at 663 (citing Bell Atl. Corp. v. Twombly , 550 U.S. 544, 555 (2007)). The allegations made in a complaint must be both "sufficiently detailed to give fair notice to the opposing party of the nature of the claim so that the party may effectively defend against it" and "sufficiently plausible" such that "it is not unfair to require the opposing party to be subjected to the expense of discovery." Starr v. Baca , 633 F.3d 1191, 1204 (9th Cir. 2011).

Federal Rule of Civil Procedure 12(f) provides that a court may, on its own or on a motion, "strike from a pleading an insufficient defense or any redundant, immaterial, impertinent, or scandalous matter." Motions to strike "are generally disfavored because they are often used as delaying tactics and because of the limited importance of pleadings in federal practice." Rosales v. Citibank , 133 F.Supp.2d 1177, 1180 (N.D. Cal. 2001). In most cases, a motion to strike should not be granted unless "the matter to be stricken clearly could have no possible bearing on the subject of the litigation." Platte Anchor Bolt, Inc. v. IHI, Inc. , 352 F.Supp.2d 1048, 1057 (N.D. Cal. 2004).

2. Breach of Contract Counterclaims against Circle Click and CTNY

RMG asserts breach of contract counterclaims against Circle Click and CTNY. RMG alleges that Circle Click failed to pay a $1, 047.00 business continuity services fee pursuant to Paragraph 1.7 of the Terms and Conditions and Paragraph 38 of the House Rules. Countercl. ¶ 23-24. As to CTNY, RMG alleges the company breached the terms of its agreement by "by failing to make its monthly payments plus applicable taxes and fees for services, such as for kitchen amenities, internet activation and access, and business continuity, " and alleges damages in "an amount no less than $13, 640.38." Id . ¶¶ 30, 32.

Plaintiffs argue that these counterclaims fail as a matter of law since neither the House Rules nor the Service Price Guide - which set forth the business continuity and kitchen amenities fees, among other things - are part of the parties' agreements. 12(b)(6)/12(f) Mot. at 10. Under California law, "[f]or the terms of another document to be incorporated into the document executed by the parties the reference must be clear and unequivocal, the reference must be called to the attention of the other party and he must consent thereto, and the terms of the incorporated document must be known or easily available to the contracting parties." Chan v. Drexel Burnham Lambert, Inc. , 178 Cal.App.3d 632, 641 (Cal.Ct.App. 1986) (quotations omitted). Likewise, New York law requires that: (1) the agreement "specifically reference and sufficiently describe the document to be incorporated, such that the latter may be identified beyond all reasonable doubt"; and (2) "it must be clear that the parties to the agreement had knowledge of and assented to the incorporated terms." Ryan, Beck & Co., LLC. v. Fakih , 268 F.Supp.2d 210, 223 (E.D.N.Y. 2003) (internal quotations omitted). Plaintiffs argue that these factors are not satisfied here because Defendant has not alleged that the House Rules and Service Price Guide were provided to Circle Click or CTNY. 12(b)(6)/12(f) Mot. at 11. Plaintiffs further argue that because the Terms and Conditions are practically illegible, the reference to the House Rules contained in the Terms and Conditions is neither clear nor unequivocal. Id.

RMG responds that the Court's April 22 Order already found that the House Rules and Services Price Guide are expressly incorporated into the Office Service Agreement. 12(b)(6)/12(f) Opp'n at 7. The April 22 Order held that Plaintiffs could not state a plausible claim for intentional misrepresentation based on a theory of non-disclosure, because RMG's fees were disclosed in the Terms and Conditions, House Rules, and Service Price Guide. Apr. 22 Order at 10-11. The Court reasoned that Plaintiffs confirmed that they had "read and understood" the Terms and Conditions when they signed the Office Service Agreement, the Terms Conditions expressly referred to the House Rules, and the House Rules expressly referred to the Service Price Guide. Id . The Court agrees with the Plaintiffs, that its April 22 holding was limited to Plaintiffs' fraud claim. See 12(b)(6)/12(f) Reply at 9-10. However, the reasoning of the April 22 Order applies with equal force here. Plaintiffs cannot claim ignorance of the Terms and Conditions or the documents referenced therein if they expressly confirmed that they had read and understood the Terms and Conditions. Further, it remains unclear whether the copy of the Terms and Conditions provided to Plaintiffs at the time of contract formation was as illegible as the copy before the Court.[4]

Plaintiffs also argue that the allegations in RMG's counterclaim against Circle Click are contradicted by an RMG invoice. 12(b)(6)/12(f) Mot. at 9. Plaintiffs argue that the Court may take judicial notice of the invoice because it is referenced in the Terms and Conditions. Id . (citing Terms and Conditions § 8.5). The Court disagrees. In relevant part, Section 8.5 of the Terms and Conditions provides: "If the Client disputes any part of an Invoice, the Client must pay the amount not in dispute by the due date or be subject to late fees." The Terms and Conditions do not specifically refer to the particular invoice proffered by Plaintiffs. As such, that invoice constitutes extrinsic evidence - not a written instrument incorporated by reference into the pleadings - and is not appropriate for consideration on a Rule 12(b)(6) motion to dismiss.[5]

Nevertheless, RMG's breach of contract counterclaims against Circle Click and CTNY suffer from a number of significant pleading defects. First, RMG has not alleged that the House Rules and the Service Price Agreement were in fact made available to Plaintiffs. Second, RMG has not alleged what provisions of the relevant agreements were breached. As to CTNY, RMG's pleading does not refer to a particular provision of the Office Service Agreement, the Terms and Conditions, or the House Rules. Further, RMG does not allege what portion of the allegedly unpaid $13, 640.38 in fees constitutes monthly payments and what portion is for taxes and services. RMG's allegations with respect to Circle Click offer more detail. RMG alleges that Circle Click breached Paragraph 1.7 of the Terms and Conditions and Paragraph 38 of the House Rules. However, the Counterclaim does not set forth the language of these provisions, and, due to miniscule font size and poor image quality, the Court cannot clearly make out certain terms in the copy of the Terms and Conditions previously filed, even with magnification.

Accordingly, RMG's breach of contract counterclaims against Circle Click and CTNY are DISMISSED with leave to amend. If RMG elects to amend these counterclaims, its pleading should set forth the relevant provisions of the agreements verbatim, specify how Plaintiffs breached those provisions, and allege whether the House Rules and Service Price Guide were made available to Plaintiffs.

3. "Alternative" Counterclaim for Breach of Contract

RMG also asserts "alternative" counterclaims against "all Counterclaim-Defendants, " which presumably includes the named Plaintiffs, Circle Click, CTNY, and Metro Talent. These alternative counterclaims are entitled: (1) breach of contract, (2) quantum meruit, and (3) unjust enrichment. As to the first alternative counterclaim for breach of contract, RMG alleges: "In the event the Court determines that the late payment penalty provisions set forth in [the Office Service Agreement] is invalid, or is otherwise unenforceable, and that the [Office Service Agreement] did not allow Counterclaim-Defendants to make past-due payments, then Counterclaim-Defendants damaged RMG by failing to timely pay all amounts due to RMG." Countercl. ¶ 35. In its opposition brief, RMG clarifies that it is merely alleging that Plaintiffs breached their contractual obligations with RMG by failing to make timely payments. 12(b)(6)/12(f) Opp'n at 9.

As to Circle Click and CTNY, the alternative breach of contract counterclaim fails for the same reasons as RMG's other counterclaims for breach of contract. See Section III.B.2 supra. It is entirely unclear from the pleading what payments Circle Click or CTNY failed to make or what provisions of the agreements they breached. RMG's counterclaim against Metro Talent is even less plausible. The only factual allegation specific to Metro Talent in the Counterclaim states that Metro Talent is a limited liability company organized and existing under the laws of California. Countercl. ¶ 12. RMG essentially urges the Court to ignore the pleading defects in the counterclaim and focus on Plaintiffs' 2AC. 12(b)(6)/12(f) Opp'n at 4. However, contrary to RMG's argument, the 2AC does not establish that Metro Talent failed to timely pay its bills. The 2AC paragraphs cited by RMG merely allege that Metro Talent was assessed fees that were not disclosed in the Office Service Agreement, that Metro Talent questioned these fees, and that RMG threatened to evict Metro Talent if it failed to pay the fees within in a certain time period. See 2AC ¶¶ 62(c)-69. The 2AC does not suggest that Metro Talent failed to pay the challenged fees or that its payments were late.

RMG's alternative counterclaim for breach of contract is DISMISSED with leave to amend as to the named Plaintiffs. Should RMG choose to amend this counterclaim, it should allege specific facts as to each Plaintiff supporting each element of a claim for breach of contract.

4. RMG's Alternative Counterclaims for Quantum Meruit and Unjust Enrichment

Plaintiffs also move to strike RMG's second and third alternative counterclaims for quantum meruit and unjust enrichment. Both claims essentially assert that if the Court finds that RMG imposed unauthorized charges, then RMG is entitled to recover damages because Plaintiffs received the benefit of their contracts with RMG. See Countercl. ¶¶ 39, 46. Plaintiff moves to strike these counterclaims pursuant to Rule 12(f) on the grounds that (1) the counterclaims are mirror images of the claims asserted in the 2AC, and (2) the counterclaims are redundant of affirmative defenses already asserted by Defendants in their Answer.[6] 12(b)(6)/12(f) Mot. at 13.

Plaintiffs appear to abandon the first argument in their reply brief. In any event, the argument is unpersuasive. Plaintiffs rely on Daily v. Fed. Ins. Co., C 04-3791 PJH, 2005 WL 14734, at *6 (N.D. Cal. Jan. 3, 2005), in which this court struck the defendant's counterclaim for declaratory relief because it was redundant of the plaintiff's claim for declaratory relief. Both the claim and the counterclaim asked the court to determine whether the plaintiff was entitled to insurance coverage from defendant. Id . In contrast, none of the parties have sought declaratory relief in this action, and RMG's counterclaims raise new issues that are not contemplated in Plaintiffs' 2AC.

Plaintiffs' second argument is also unavailing. RMG's counterclaims for unjust enrichment and quantum meruit are not merely repackaged affirmative defenses, because they are different in scope and seek a different remedy. As Plaintiffs point out, RMG also asserts affirmative defenses for "benefits realized, " "setoff, " and "unjust enrichment." However, these affirmative defenses merely assert that Plaintiffs' claims are barred. In contrast, RMG's counterclaims seek to recover damages.

Accordingly, Plaintiffs' motion to strike is DENIED and RMG's counterclaims for unjust enrichment and quantum meruit remain undisturbed.


For the foregoing reasons, Plaintiffs' Rule 12(b)(1) motion to dismiss is GRANTED in part and DENIED in part. RMG's counterclaims are DISMISSED with respect to the putative class. Plaintiffs' Rule 12(b)(6) motion to dismiss is GRANTED. RMG's first and second counterclaims for breach of contract against Circle Click and CTNY are DISMISSED with leave to amend, as is RMG's first alternative counterclaim for breach of contract against Circle Click, CTNY, and Metro Talent. Plaintiffs' motion to strike the second and third alternative counterclaims for unjust enrichment and quantum meruit is DENIED.

RMG shall file an amended counterclaim within thirty (30) days of the signature date of this order. Failure to do so will result in dismissal with prejudice of its first and second counterclaims for breach of contract, as well as its first alternative counterclaim for breach of contract.


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