California Court of Appeals, First District, Fourth Division
Sonoma County Superior Court No. SCV-247285 Hon. Elliot Daum Judge.
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Robert W. Hicks & Associates, Robert W. Hicks and Kenneth R. Wright for Plaintiff and Appellant.
Dillon & Gerardi, Scott Alan Miller; Abbey, Weitzenberg, Warren & Emery and Mitchell B. Greensberg for Defendant and Respondent.
RUVOLO, P. J.
Two Jinn, Inc., doing business in California as Aladdin Bail Bonds (Aladdin), a licensed bail agent, brought this action to enjoin Government Payment Services, Inc. (GPS) from engaging in bail agent activities in violation of state licensing and regulatory requirements. The superior court sustained a demurrer to Aladdin’s claim for false advertising under the federal Lanham Act, 15 United States Code section 1125(a). Thereafter, the court granted a defense motion for summary judgment on Aladdin’s remaining claims alleging violations of California's unfair competition law (the UCL), Business and Professions Code section 17200 et seq., and seeking declaratory relief. In this appeal from the resulting judgment, Aladdin challenges both the demurrer and summary judgment rulings.
We conclude that (1) Aladdin lacks standing to maintain a UCL claim; (2) undisputed evidence submitted by the parties shows that the commercial activities of GPS associated with its processing of credit or debit card transactions for cash bail payments do not require GPS to obtain a bail bond license; and therefore, GPS is not in violation of the UCL; and (3) the second cause of action in Aladdin’s second amended complaint fails to state a
Lanham Act claim, as a matter of law. Therefore, we affirm the judgment entered in favor of GPS below.
STATEMENT OF FACTS
A. The Complaint Allegations
In December 2010, Aladdin filed a second amended complaint and petition for writ of mandate (the SAC) in which it alleged the following facts: Aladdin does business in California as Aladdin Bail Bonds, a “duly licensed” bail agent. GPS purports to be a “financial services entity, ” but actually conducts activities “relating to arranging pretrial release for incarcerated detainees accused of committing both felonies and misdemeanors, including but not limited to solicitation and transaction of bail within the meaning of the [Insurance] Code.” Both Aladdin and GPS “provide pretrial release services to detainees in exchange for a monetary compensation.” Aladdin performs that service through the posting of surety bonds, while GPS allegedly performs that service by posting cash bail for detainees.
According to the SAC, GPS solicits clients and posts cash bail for detainees pursuant to “contractual arrangements” with county sheriffs in Sonoma, Solano, Marin, Monterey, and Ventura. Aladdin attached copies of these contracts as exhibits to the SAC. For example, Exhibit B is an “Agreement for Processing Credit or Debit Card For Cash Bail Payments, ” which was executed by GPS’s CEO and the Sheriff-Coroner of Sonoma County in June 2009. According to that document, GPS agreed to “process credit/debit card transaction requests for cash bail payments for persons in the custody of the Sheriff upon their (or their agents[’]) telephone or [I]nternet request.” GPS agreed these services would be available “at all times, ” and that it would process payments “in real-time and, upon credit/debit card approval, [it would] transmit a payment receipt document to an authorized agent of the Sheriff” for review and approval. Upon notice of approval, GPS would then “transmit all funds for the cash bail payments electronically.”
The SAC alleged that these contractual arrangements are unlawful for three primary reasons. First, GPS’s business activities allegedly require a valid license under Insurance Code section 1800, subdivision (a), which states that “[a] person shall not in this state solicit or negotiate in respect to execution or delivery of an undertaking of bail or bail bond by an insurer, or execute or deliver such an undertaking of bail or bail bond unless licensed as provided in this chapter....” Aladdin alleged GPS does not have this required license.
Second, GPS’s contractual arrangements with county sheriffs allegedly violate other provisions of the Insurance Code regulating the conduct of bail agents by, among other things, (1) giving GPS exclusive access to detainees wishing to arrange pretrial release via credit or debit card payments; (2) authorizing GPS to advertise its services throughout the jails and areas where bail payment can be made; and (3) obligating GPS to pay sheriffs a percentage of its revenue from the sale of its services.
Third, Aladdin alleged that advertisements GPS posts in county jails are false, misleading and confusing to consumers because it employs the terms “Government, ” and “GOV” in combination with a state capitol dome logo to create the false impression that GPS’s services “are performed either by a government agency” or are performed by an entity which is “sponsored by or affiliated with the government.”
Aladdin incorporated these general allegations into four causes of action, the first three against GPS for unlawful business practices under the UCL, false advertising under the Lanham Act, and declaratory relief to resolve a dispute about whether GPS’s activities require a bail agent license.
The fourth cause of action was a petition for writ of mandate against the Department of Insurance (the Department). Aladdin added this claim to the SAC after the superior court sustained a demurrer to the first amended complaint and stayed proceedings pursuant to the primary jurisdiction doctrine, finding that the Department’s position regarding the nature of GPS’s business was critical to a resolution of this case. In support of the mandate claim, Aladdin alleged that the California Insurance Commissioner (the Commissioner) was aware of GPS’s unlawful activities, Aladdin had requested that the Department initiate an enforcement action, and the Commissioner “refused to initiate or pursue an enforcement action or otherwise attempt to enforce the [Insurance] Code with respect to Defendant’s unlawful conduct.”
B. The Department’s Demurrer
In February 2011, the Commissioner filed a demurer to the fourth cause of action for a writ of mandate. Evidence supporting the demurrer included an October 2010 letter from the Department’s general counsel to Aladdin’s trial counsel in which the Department officially declined to “exercise primary jurisdiction or initiate an enforcement action” against GPS. The Department determined GPS was exempt from the Insurance Code license and regulatory requirements covering the transaction of bail in California under Government Code section 6159.
Government Code section 6159, subdivision (b) states, in pertinent part: “Subject to subdivisions (c) and (d), a court, city, county, city and county, or
other public agency may authorize the acceptance of a credit card, debit card, or electronic funds transfer for any of the following: [¶] (1) The payment for the deposit of bail for any offense not declared to be a felony or for any court-ordered fee, fine, forfeiture, penalty, assessment, or restitution. Use of a card or electronic funds transfer pursuant to this paragraph may include a requirement that the defendant be charged any administrative fee charged by the company issuing the card or processing the account for the cost of the transaction....”
Subdivision (c) of Government Code section 6159 states that a “public agency desiring to authorize the use of a credit card, debit card, or electronic funds transfer pursuant to subdivision (b) shall obtain the approval of the governing body that has fiscal responsibility for that agency.” And subdivision (d) provides that, once the necessary approval is obtained, the agency may execute a contract “with one or more credit card issuers, debit card issuers, electronic funds transfer processors, or draft purchasers.”
The Department interpreted this statute as permitting “counties and other public agencies to contract with companies for the payment by credit card, debit card or electronic funds transfer of nonfelony bail by arrestees.” As the Department’s counsel explained in his October 2010 letter, “[i]f a company has a valid contract under Section 6159 to process bail by credit card, the Department reads Section 6159 as preempting Insurance Code laws related to bail. For example, if a sheriff’s office contracts with Bank of America to provide Visa and MasterCard services at a jail, we do not believe Bank of America must obtain a bail license from the Department.”
On March 30, 2011, the superior court sustained the Department’s demurrer to Aladdin’s mandate claim without leave to amend. In reaching this decision, the court found that “[a]ny action that the Commissioner can take pursuant to Insurance Code § 790.03, et seq. is within the exercise of the Commissioner’s discretion and cannot be compelled by a writ of mandamus.” The court also found the Commissioner’s decision to initiate an enforcement action was a matter of discretion which “cannot be compelled.” (Citing Ins. Code, § 12921.1, subd. (a); Schwartz v. Poizner (2010) 187 Cal.App.4th 592 [113 Cal.Rptr.3d 610].)
C. GPS’s Demurrer
On August 23, 2011, the court sustained GPS’s demurrer to the SAC’s second cause of action for false advertising without leave to amend. The court found that Aladdin failed to state a cause of action under the Lanham Act because the SAC did not identify any false statement of fact that GPS allegedly made. Instead, the theory alleged in the SAC was that GPS “uses
‘Government’ and/or the term ‘Gov’ and a capitol dome logo to imply that Gov is a governmental entity or approved by one.”
In its order sustaining the demurrer, the court recognized that, although Aladdin labeled its second cause of action as a false advertising claim, the Lanham Act also prohibits “false associations.” However, the court found that a false association claim is substantively distinct from a false advertising claim with different elements and standing requirements that were not established by the factual allegations in the SAC.
D. Summary Judgment
On September 19, 2012, the superior court granted a defense motion for summary judgment on the remaining causes of action in the SAC, the UCL and declaratory relief claims. The court found that the summary judgment evidence established the following facts: GPS is an electronic funds transfer processor; it processes credit or debit card transactions for cardholders who deposit cash bail to a local government entity. It uses common industry practices to “make transfers by electronic means” of the cardholder’s own funds. And, it provides these “electronic funds transfer processing services for the payment of cash bail from credit or debit cards” to sheriffs departments pursuant to contractual relationships with Sonoma County and several other California counties.
Pursuant to defense requests for judicial notice, the court also found that a company referred to as “EZ Card and Kiosk, LLC” is not a licensed bail agent and that it has contracts with Madera and Orange Counties to provide the same type of services GPS provides. The court also took judicial notice of the fact that the Department officially declined to pursue any action against GPS. Finally, the court took judicial notice of legislative history material pertaining to Government Code section 6159 which shows that the intent behind that statute was “to make it easier for people to pay fines, post bail and to alleviate time spent in jail.”
Based on these facts, the court found that: (1) Aladdin does not have standing to bring a UCL claim because GPS’s allegedly unfair business practices did not cause Aladdin to suffer an actual economic injury; (2) GPS’s business activities do not require that it comply with the bail agent license requirement and related regulations set forth in Insurance Code section 1800 et ...