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Satmodo, LLC v. Whenever Communications, LLC

United States District Court, S.D. California

April 14, 2017

SATMODO, LLC, a California limited liability company, Plaintiff,
v.
WHENEVER COMMUNICATIONS, LLC, d.b.a. StatellitePhoneStore.com, a Nevada limited liability company, HENAA BLANCO, an individual, and DOES 1 through 50, inclusive, Defendants.

          ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTION TO DISMISS

          Hon. Anthony J. Battaglia United States District Judge.

         Presently before the Court is Defendants' Whenever Communications, LLC, d.b.a. SatellitePhoneStore.com and Henaa Blanco, (collectively “Defendants”), motion to dismiss Plaintiff's Satmodo, LLC, (“Plaintiff”) complaint. (Doc. No. 9.) Having reviewed the parties' arguments and controlling legal authority, the Court finds this motion suitable for determination on the papers and without oral argument. Accordingly, the motion hearing presently set for April 20, 2017 at 2:00 p.m. is VACATED pursuant to Local Rule 7.1.d.1. For the reasons set forth below, the Court GRANTS IN PART AND DENIES IN PART Defendants' motion to dismiss.

         Background

         The following facts are taken from Plaintiff's complaint and accepted as true for the limited purpose of resolving the pending motion before the Court. See Vasquez v. L.A. Cnty., 487 F.3d 1246, 1249 (9th Cir. 2007) (noting a court must “accept all material allegations of fact as true” when ruling on a motion to dismiss).

         The present action arises out of an intentional and systematic “click fraud” scheme, wherein Defendants clicked on Plaintiff's paid online advertisements with the intent to harm Plaintiff. (Doc. No. 1 ¶ 9.) Plaintiff and Defendant Whenever Communications are two of the largest competitors in the business of online sale and rental of satellite phones. (Id. ¶ 12.) These companies buy satellite phones at wholesale and then sell or rent the phones to online customers. (Id.) Within this industry, sales and rentals are heavily reliant on a company's online presence. (Id. ¶ 14.) To promote their online presence, competing companies, including Plaintiff and Defendant Whenever Communications, take part in advertisements via search engines. (Id.) Each time a customer clicks on a company's advertisement through a search engine, the company pays for the click through a set daily advertising budget. (Id. ¶ 9.) Once a company's set daily advertising budget has been met, the search engine will stop publishing the company's advertisement for that day. (Id.)

         From 2016 to 2017, Defendant Whenever Communications, in part through its agent Defendant Henna Blanco, intentionally sought out Plaintiff's advertisements on search engines including Google, Yahoo!, and Bing, to carry out their “click fraud” scheme. (Id. ¶¶ 9-11, 20.) “Click fraud” is the practice of fraudulently or maliciously clicking the online search advertisements of an advertiser to force the advertiser to pay for the click while having no intention of buying the advertised services or products. (Id. ¶ 10.) Defendants intentionally clicked on Plaintiff's advertisements to push Plaintiff out of the market and to receive a better advertising rank over Plaintiff. (Id. ¶¶ 18-19.) Plaintiff observed the use of multiple IP addresses used to commit this click fraud scheme and believes the addresses were tied to Defendants. (Id. ¶¶ 25, 28, 31.) Plaintiff believes that Defendants are utilizing automated means and rotating through proxy servers in order to avoid detection. (Id. ¶ 27.) Specifically, on August 22, 2016, Plaintiff observed Defendants use automated means to click on Plaintiff's homepage approximately 96 times within a few minutes. (Id. ¶¶ 25-27.) At times where the IP addresses were unmasked by proxy servers, Plaintiff observed fraudulent clicks and chat requests originating from Lakeland, Florida, Las Vegas, Nevada, and San Diego, California, which are all locations where Whenever Communications maintains offices. (Id. ¶ 31.) In response to these observations, Plaintiff blocked several IP addresses associated with Defendants. (Id. ¶ 29.) In September 2016, Plaintiff's counsel sent a cease and desist letter to Defendants and asked Defendants to stop their click fraud scheme. (Id. ¶ 32.) However, instead of ceasing, Defendants used proxy servers to circumvent Plaintiff's online blockade and continued to engage in their click fraud scheme. (Id. ¶ 29, 32.) Plaintiff alleges it has been damaged in that it paid for clicks that Defendants fraudulently created and lost sales from being forced out of the market prematurely. (Id. ¶ 34.)

         On February 1, 2017, Plaintiff filed a complaint seeking compensatory damages and injunctive relief for Defendants' alleged click fraud scheme. (Doc. No. 1.) Plaintiff alleged four causes of actions in its complaint: (1) violation of the Computer Fraud and Abuse Act (“CFAA”); (2) violation of California's Comprehensive Computer Data Access and Fraud Act (“CDAFA”); (3) intentional interference with prospective economic relations; and (4) violation of California's Unfair Competition Law, Business and Professions Code Section 17200 ("UCL"). Presently before the Court is Defendants' amended motion to dismiss, which was filed on February 27, 2017. (Doc. No. 9.) Plaintiff filed an opposition on March 10, 2017, (Doc. No. 10), and Defendants replied on March 16, 2017, (Doc. No. 12).

         Legal Standard

         A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) tests the legal sufficiency of a plaintiff's complaint and allows a court to dismiss a complaint upon a finding that the plaintiff has failed to state a claim upon which relief may be granted. See Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). “[A] court may dismiss a complaint as a matter of law for (1) lack of a cognizable legal theory or (2) insufficient facts under a cognizable legal claim.” SmileCare Dental Grp. v. Delta Dental Plan of Cal., Inc., 88 F.3d 780, 783 (9th Cir. 1996) (internal quotations and citation omitted). However, a complaint will survive a motion to dismiss if it contains “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). In making this determination, a court reviews the contents of the complaint, accepting all factual allegations as true, and drawing all reasonable inferences in favor of the nonmoving party. Cedars-Sinai Med. Ctr. v. Nat'l League of Postmasters of U.S., 497 F.3d 972, 975 (9th Cir. 2007).

         Notwithstanding this deference, the reviewing court need not accept “legal conclusions” as true. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). It is also improper for a court to assume “the [plaintiff] can prove facts that [he or she] has not alleged.” Associated Gen. Contractors of Cal., Inc. v. Cal. State Council of Carpenters, 459 U.S. 519, 526 (1983). However, “[w]hen 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.” Iqbal, 556 U.S. at 679.

         Further, factual allegations must meet the requisite level of specificity. See Kearns v. Ford Motor Co., 567 F.3d 1120, 1124 (9th Cir. 2009). Federal Rule of Civil Procedure 8(a)(2) requires a party's pleading to contain “a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2). However, Rule 9(b) requires that, when fraud is alleged, “a party must state with particularity the circumstances constituting fraud . . . .” Fed.R.Civ.P. 9(b). When fraud is not a necessary element of a claim, a plaintiff may choose to allege a unified course of fraudulent conduct and rely entirely on that course of conduct as the basis of a claim. Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1103 (9th Cir. 2003). In such event, “the claim is said to be ‘grounded in fraud' or to ‘sound in fraud, ' and the pleading of that claim as a whole must satisfy the particularity requirement of Rule 9(b).” Id. at 1103-04. Rule 9(b) demands that the circumstances constituting the alleged fraud “be ‘specific enough to give defendants notice of the particular misconduct . . . so that they can defend against the charge and not just deny that they have done anything wrong.'” Bly-Magee v. California, 236 F.3d 1014, 1019 (9th Cir. 2001) (quoting Neubronner v. Milken, 6 F.3d 666, 672 (9th Cir. 1993)).

         Discussion

         A. Rule 9(b) Heightened Pleading Standard

         As a preliminary matter, the Court will address to what extent Plaintiff's claims are subject to the heightened pleading requirements of Federal Rule of Civil Procedure 9(b). Defendants contend that all of Plaintiff's claims are subject to Rule 9(b) because each claim is based upon a fraudulent course of conduct. (Doc. No. 9 at 11-12, 14, 16, 18.) Plaintiff counters that only specific averments of fraud must be pled with particularity and that, even if the Court disagrees, the complaint meets the heightened pleading standard. (Doc. No. 10 at 15-18, 19-20, 21, 23.) The Court finds that each of Plaintiff's claims are subject to the Rule 9(b) pleading standard.

         Each of Plaintiff's claims against Defendants arise from the alleged click fraud scheme. (See generally Doc. No. 1.) Plaintiff defines click fraud as “generating clicks with a fraudulent or malicious intent . . . despite the fact that the person or entity making the click has no intention of buying the advertised services or products.” (Doc. No. 1 ¶ 10.) Moreover, when Plaintiff alleges how Defendants implemented the scheme, it explains that “Defendants intentionally sought out Plaintiff's ads, clicking on them to present the false impression that they were intended customers.” (Doc. No. 1 ¶ 19.) Plaintiff makes these allegations in support of its CFAA, CDAFA, UCL, and intentional interference with prospective economic relations claims; thus, it follows that all claims rely on a unified fraudulent course of conduct. See Kearns, 567 F.3d at 1125-26.

         Therefore, the Court finds that Plaintiff's complaint alleges a unified course of fraudulent conduct.

         B. Computer Fraud and Abuse Act

         Plaintiff alleges Defendants violated four subsections of the CFAA, sections 1030(a)(4) and (5)(A)-(C), when they accessed Plaintiff's computers without authorization by logging onto the search engine website and making fraudulent clicks, or alternatively, when they exceeded their authorized access after being put on notice of their wrongful conduct in September 2016. (Doc. No. 1 ¶¶ 37, 39.) Plaintiff alleges damages and economic loss exceeding $75, 000 based on the costs incurred in paying for invalid clicks and the loss of sales and profits from those clicks after Plaintiff was prematurely kicked out of the market. (Id. ¶ 39(d).) Defendants argue for dismissal because the alleged conduct does not conform to the criminal “anti-hacking” conduct that the CFAA was designed to prevent. Specifically, Defendants contend that each of Plaintiff's claims must fail because Plaintiff (1) has not shown how accessing Plaintiff's website through a publicly available third-party search engine is a recognized violation under the CFAA, (2) has not alleged sufficient facts for the requirement of loss or damage, and (3) fails to comply with Rule 9(b). (Doc. No. 9 at 8-12.) As explained below, the Court agrees with Defendants and will address each contention below.

         The CFAA was first enacted to enhance the government's ability to prosecute computer crimes and to "target hackers who accessed computers to steal information or to disrupt or destroy computer functionality, as well as criminals who possessed the capacity to access and control high technology processes vital to our everyday lives." LVRC Holdings LLC v. Brekka, 581 F.3d 1127, 1130 (9th Cir. 2009) (internal quotation marks and citation omitted). “The CFAA prohibits a number of different computer crimes, the majority of which involve accessing computers without authorization or excess of authorization, and then taking specific forbidden actions, ranging from obtaining information to damaging a computer or computer data.” Id. at 1131. Any individual may bring a private civil cause of action under the CFAA for damages and equitable relief if he or she suffers damages or loss as a result of a violation of these provisions. 18 U.S.C. § 1030(g). Within this context, the statute “targets the unauthorized procurement or alteration of information, not its misuse or ...


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