United States District Court, N.D. California
ORDER GRANTING IN PART AND DENYING IN PART
FACEBOOK'S MOTION TO DISMISS
THELTON E. HENDERSON United States District Judge
before the Court is Defendant Facebook, Inc.'s
(“Facebook”) motion to dismiss Plaintiffs'
consolidated class action complaint. ECF No. 46
(“Mot.”). Plaintiffs timely opposed the motion,
ECF No. 54 (“Opp'n”), and Facebook timely
replied, ECF No. 56 (“Reply”). Facebook also
filed a request for judicial notice in support of its motion
to dismiss. See ECF No. 47. The Court heard oral
arguments on Facebook's motion and request on June 19,
2017. See ECF No. 61. After carefully considering
the parties' written and oral arguments, the Court hereby
GRANTS IN PART and DENIES IN PART Facebook's motion and
request for judicial notice for the reasons set forth below.
following factual allegations are taken from Plaintiffs'
Consolidated Amended Class Action Complaint, ECF No. 34
(“Compl.”), unless otherwise stated, and are
therefore accepted as true for the purposes of this motion.
See Bell Atlantic Corp. v. Twombly, 550 U.S. 544,
Inc. operates Facebook.com, a social media service with 1.79
billion monthly active users. Compl. ¶¶ 13-14.
Users are not charged to create a Facebook.com account. Once
an account is made, users can, among other things, create a
profile page, post content, make friends with other users,
and view content posted by other users. Id. ¶
14. Instead of charging account holders to access
Facebook.com, Facebook makes more than 95% of its revenue by
selling advertising services. Id. ¶ 15.
type of advertising that Facebook sells is video
advertisements, where advertisers can pay money to have video
displayed to Facebook users. These video advertisements
autoplay by default when Facebook users engage with the
platform, but users are allowed to scroll past autoplaying
videos (including paid advertisements) without ever watching
more than a few seconds of the video. Id. at 16.
Facebook's video advertisements are provided with
accompanying advertising metrics, which enable purchasers to
monitor and evaluate their video advertisements'
performance. Id. ¶ 18. These metrics are a main
selling point of online advertising because they offer more
detailed and closer to real-time marketing analytics than
other traditional advertising mediums like television or
radio. Id. Online advertisers use these analytics to
determine where to spend advertising dollars and the
effectiveness of their dollars spent. Id. Plaintiffs
allege advertising metrics have “become a standard
practice in the industry for online advertisers, ”
which is evidenced by companies like YouTube, LinkedIn,
Twitter, and Facebook all providing video advertisements with
advertising metrics. Id. ¶¶ 18-19.
2014, Facebook rolled out new advertising metrics, which
included “Average Duration of Video Viewed”
(“ADVV”) and “Average Percentage of Video
Viewed” (APVV). Id. ¶¶ 20-21, 25.
The ADVV metric is viewed by many advertisers as one of the
most important analytics used in evaluating video
advertisement performance. This is because “the longer
people watch an advertisement, the greater the
advertisement's impact on the viewer.” Id.
¶ 21. After Facebook's announcement, Plaintiffs, who
consist mostly of advertising and marketing professionals and
entities, purchased Facebook's video advertising services
with the understanding that these advertising metrics were
included in the purchased video advertising services.
Id. ¶¶ 6-11, 23. Facebook never disclosed
that these new metrics were not audited or accredited by the
Media Rating Council, the marketing industry's
“standard-bearer” for accurate measurements.
Id. ¶ 23.
had previously told advertising purchasers that the ADVV
would be calculated by dividing the total time spent watching
the video by all users by the total number of users who spent
any time watching the video. Id. ¶ 26. However,
in August 2016, Facebook disclosed in its “Advertising
Help Center” that this metric had been improperly
calculated. Id. ¶ 27. Rather than calculating
the ADVV by dividing the total time spent watching the video
by all users by the total number of users who spent
any time watching the video, Facebook had been
dividing the total time spent watching the video by all users
by only the total number of users who spent three or more
seconds watching the video. Id. As a result,
the APVV was also erroneously calculated because Facebook
calculated this metric using the ADVV as a calculation input.
Id. On or about September 23, 2016, David Fischer,
Facebook's Vice President of Business and Marketing
Partnerships, confirmed that, due to Facebook's
miscalculation, Facebook had overstated this ADVV metric.
Id. ¶ 28. Moreover, Facebook informed some of
its advertisers that the ADVV metric was inflated between
60-80%, thus making Facebook's video advertisements
appear as if they were performing better than they actually
were. Id. ¶ 33.
allege Facebook's misrepresentations induced them to
purchase the video advertisement because they “wanted
accurate video advertising metrics regarding [ADVV] and
[APVV] so that they could monitor their video
advertisements' performance.” Id. ¶
36. Plaintiffs also allege Facebook's misrepresentations
induced them to “continue purchasing video
advertisements, ” to “purchase additional video
advertisements” and to “pay more for Facebook
video advertising than they would otherwise have been willing
to pay.” Id. ¶¶ 37-38. Lastly,
Plaintiffs allege Facebook's misrepresentations:
artificially increased the price of Facebook video
advertising, provided Facebook with an unfair competitive
advantage over other online video advertising platforms, and
interfered with Plaintiffs' attempts to utilize
Facebook's video advertising analytics and to run
effective video advertising campaigns. Id.
¶¶ 30-41. Plaintiffs seek to represent the
following class: “All persons or entities who, from May
4, 2014 to Sept. 23, 2016 [the “Class Period”],
had an account with Facebook, Inc., and who paid for
placement of video advertisements on a Facebook-owned
website.” Id. ¶ 43. Plaintiffs allege
three causes of action: (1) a violation of California's
Unfair Competition Law (Cal. Bus. & Prof. Code §
17200, et seq.); (2) a breach of an implied duty to
perform with reasonable care; and (3) a quasi-contract claim
for restitution. Compl. ¶¶ 54-77.
REQUEST FOR JUDICIAL NOTICE
preliminary matter, the Court first turns to address
Facebook's request for judicial notice prior to
addressing Facebook's motion to dismiss.
deciding a Rule 12(b)(6) motion, the court generally looks
only to the face of the complaint and documents attached
thereto. Van Buskirk v. Cable News Network, Inc.,
284 F.3d 977, 980 (9th Cir. 2002). A court must normally
convert a Rule 12(b)(6) motion into a Rule 56 motion for
summary judgment if it “considers evidence outside the
pleadings . . . . A court may, however, consider certain
materials-documents attached to the complaint, documents
incorporated by reference in the complaint, or matters of
judicial notice- without converting the motion to dismiss
into a motion for summary judgment.” United States
v. Ritchie, 342 F.3d 903, 907-08 (9th Cir. 2003). Stated
differently, in ruling on a motion to dismiss, the Court can
consider material that is subject to judicial notice under
Rule 201 of the Federal Rules of Evidence. Under Rule 201,
the Court may take judicial notice of a matter or fact when
it is “not subject to reasonable dispute” because
it is either (1) generally known within the trial court's
territorial jurisdiction; or (2) can be accurately and
readily determined from sources whose accuracy cannot
reasonably be questioned.” Fed.R.Evid. 201(b). And
under the incorporation by reference doctrine, a court may
consider a document extrinsic to the complaint if the
document's “authenticity is not contested and the
plaintiff's complaint necessarily relies on [it].”
Lee v. City of Los Angeles, 250 F.3d 668, 688 (9th
Cir. 2001) (citation omitted). A plaintiff's complaint
necessarily relies on an extrinsic document “if the
plaintiff refers extensively to the document or the document
forms the basis of the plaintiff's claim.”
Ritchie, 342 F.3d at 908 (citations omitted).
requests judicial notice of five documents: (1)
Facebook's Statement of Rights and Responsibilities
(“SRR”) in existence during the Class Period, ECF
No. 47-2 (“Duffey Decl.”); (2) Facebook's
Self-Serve Ad Terms during the Class Period; (3)
Facebook's Advertising Guidelines during the Class
Period; (4) Facebook's Payment Terms during the Class
Period; and (5) a Facebook Business Post made by David
Fischer, Facebook's Vice President of Business and
Marketing Partnerships, on September 23, 2016. ECF No. 47 at
1:11-2:3. Facebook suggests that Plaintiffs refer to these
materials in their complaint and that they form the basis of
Plaintiffs' misrepresentation and contract claims.
Id. at 1:21-2:3. Facebook also states it “does
not seek to judicially notice the truth of any of the
statements contained in these documents, but merely their
existence.” Id. at 2:1-3. Because neither
party disputes the existence and authenticity of
Facebook's contracts and because Plaintiffs do not oppose
the Court taking judicial notice of documents 1-4, the Court
GRANTS this request.
regard to document 5, Plaintiffs oppose the Court taking
judicial notice of Fischer's Facebook post because
Facebook relies on the Facebook post in its motion to dismiss
to establish the truth of the matters stated in the post -
i.e., that the miscalculation “had no impact whatsoever
on billing” and that Facebook “promptly fixed the
Average Duration Metric discrepancy. ECF No. 55 at 1:12-28.
Facebook later conceded in its Reply that it was indeed
relying on the post's statement that “Facebook has
fixed the error at issue - as extrinsic evidence in support
of its challenge to Plaintiffs' standing to obtain
injunctive relief.” ECF No. 57 at 1: 27-2:1. During
oral arguments, the Court probed Facebook's request by
directly asking why judicial notice of Mr. Fischer's post
is needed at all, to which Facebook replied it did not think
judicial notice was needed. ECF No. 63 at 6:4-8. Accordingly,
the Court DENIES Facebook's request for judicial notice
of Mr. Fischer's Facebook post.
MOTION TO DISMISS
is appropriate under Rule 12(b)(6) when a plaintiff's
allegations fail “to state a claim upon which relief
can be granted.” Fed.R.Civ.P. 12(b)(6). Specifically, a
plaintiff must plead “enough facts to state a claim to
relief that is plausible on its face.” Bell
Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007).
“The plausibility standard is not akin to a
‘probability requirement, ' but it asks for more
than a sheer possibility that a defendant has acted
unlawfully.” Ashcroft v. Iqbal, 556 U.S. 662,
678 (2009). “A claim has facial plausibility when the
plaintiff pleads factual content that allows the court to
draw the reasonable inference that the defendant is liable
for the misconduct alleged.” Id.
ruling on a motion to dismiss, a court must “accept all
material allegations of fact as true and construe the
complaint in a light most favorable to the non-moving
party.” Vasquez v. L.A. Cty., 487 F.3d 1246,
1249 (9th Cir. 2007). Courts are not “bound to accept
as true a legal conclusion couched as a factual
allegation.” Iqbal, 556 U.S. at 678 (citation
omitted). Dismissal of claims that fail to meet this standard
should be with leave to amend, unless it is clear that
amendment could not possibly cure the complaint's
deficiencies. Steckman v. Hart Brewing, Inc., 143
F.3d 1293, 1296, 1298 (9th Cir. 1998).
addition, fraud claims are subject to a heightened pleading
standard. “In alleging fraud or mistake, a party must
state with particularity the circumstances constituting fraud
or mistake. Malice, intent, knowledge, and other conditions
of a person's mind may be alleged generally.”
Fed.R.Civ.P. 9(b). Allegations of fraud must state “the
who, what, when, where, and how” of the misconduct
charged, as well as “what is false or misleading about
a statement, and why it is false.” Vess v.
Ciba-Geigy Corp. USA, 317 F.3d 1097, 1106 (9th Cir.
2003) (citation omitted). Such allegations must be
“specific enough to give defendants notice of the
particular misconduct which is alleged to constitute the
fraud charged so that they can defend against the charge and
not just deny that they have done anything wrong.”
Kearns v. Ford Motor Co., 567 F.3d 1120, 1124 (9th Cir.
2009) (citation omitted).
Plaintiffs' UCL Claim
“To bring a UCL claim, a plaintiff must show either an
(1) unlawful, unfair, or fraudulent business act or practice,
or (2) unfair, deceptive, untrue or misleading
advertising.” Lippitt v. Raymond James Fin. Servs.
Inc., 340 F.3d 1033, 1043 (9th Cir. 2003) (internal
quotation marks omitted). Because the UCL is written in the
disjunctive, “it establishes three varieties of unfair
competition-acts or practices which are unlawful, or unfair,
or fraudulent.” Cel-Tech Commc'ns, Inc. v. L.A.
Cellular Tel. Co., 20 Cal.4th 163, 180 (1999).
Plaintiffs allege that Facebook violated the UCL under both
the “fraudulent” and “unfair” prongs.
Compl. ¶¶ 54-61. Facebook contends Plaintiffs'
UCL claim fails to state a claim for three reasons. First,
Facebook claims Plaintiffs have failed to plead actual
reliance. Second, Facebook claims Plaintiffs have failed to
meet the Rule 9(b) heightened pleading standard. And third,
Facebook claims Plaintiffs have failed to show how
Facebook's conduct was “unfair.” The Court
turns to address each of Facebook's contentions.
Plaintiffs Fail to Allege Actual Reliance
establish standing under the UCL, a plaintiff must
demonstrate that he or she “suffered an injury in fact
and  lost money or property as a result of the
unfair competition.” Cal. Bus. & Prof. Code §
17204 (West 2017) (emphasis added). Although the UCL does not
define the meaning of the phrase “as a result of,
” see In re Tobacco II Cases, 46 Cal.4th 298,
325 (2009), “California courts have held that when the
‘unfair competition' underlying a plaintiff's
UCL claim consists of a defendant's misrepresentation, a
plaintiff must have actually relied on the misrepresentation,
and suffered economic injury as a result of that reliance, in
order to have standing to sue.” In re iPhone
Application Litig., 6 F.Supp.3d 1004, 1013 (N.D. Cal.
2013). This actual-reliance requirement has been extended to
claims under the unlawful prong of the UCL when the predicate
unlawful conduct is based on misrepresentations. Durell
v. Sharp Healthcare, 183 Cal.App.4th 1350, 1363 (2010).
Thus, in order for a UCL claim to survive a motion to
dismiss, a plaintiff must sufficiently satisfy the
actual-reliance requirement, which means the plaintiff must
allege that he or she saw the specific misrepresentation at
issue and actually relied on it. Id. A mere factual
nexus causation between a defendant's conduct and the
plaintiff's injury is not enough to support a UCL claim.
Id. at 1362-63 (citing In re Tobacco II
Cases, 46 Cal.4th at 325).
argues Plaintiffs lack standing to bring forth their UCL
claim because Plaintiffs have not shown actual reliance -
i.e., Plaintiffs have not alleged they actually saw
either of the erroneous metrics at issue and because
of that metric decided to spend more money on Facebook
video ads. Mot. at 8:7-11. Plaintiffs counter that they do
have standing because their complaint states they were
“induced” by the metric, which would necessarily
require Plaintiffs to see and rely on the inflated metric.
Opp'n at 7:25-28. The Court agrees with Facebook. Indeed,
as Facebook correctly points out, Plaintiffs never state in
their complaint that they ever saw the miscalculated metrics;
Plaintiffs do not contend otherwise. And while Plaintiffs
cite to In re Google Adwords Litig., No. C 08-03369
JW, 2011 WL 7109217, at *4 (N.D. Cal. Mar 17, 2011), where a
court found actual reliance was established by the
plaintiffs' allegations that “as a result of
Defendant's fraudulent conduct, they spent money on
advertising that they would not have otherwise spent, ”
the Court is more persuaded by the numerous other decisions
that have required plaintiffs to allege they actually saw and
relied on alleged misrepresentations. See, e.g.,
Figy v. Amy's Kitchen, Inc., No. CV 13-03816 SI,
2013 WL 6169503, at *4 (N.D. Cal. Nov. 25, 2013) (“to
adequately allege reliance, a plaintiff must still at a
minimum allege that he saw the representation at
issue.”); Durell, 183 Cal.App.4th at 1363
(affirming dismissal of plaintiff's UCL claim where
plaintiff failed to allege that he ever saw and read the
alleged misrepresentations); Kane v. Chobani, No.
12-CV-02425-LHK, 2013 WL 5289253, at *8 (N.D. Cal. Sept. 19,
2013) (“Under the UCL and the FAL, as modified by
Proposition 64, Plaintiffs are typically required to
establish reliance by alleging facts showing they
‘viewed the defendant's advertising.'”);
Bruton v. Gerber Prods. Co., 961 F.Supp.2d 1062,
1091 (N.D. Cal. 2013) (dismissing UCL claim where plaintiff
claimed she relied on defendant's statements but failed
to allege that “she ever actually viewed any of the
alleged misrepresentations”), reversed on other
grounds and remanded by Bruton v. Gerber Prods. Co., No.
15-15174, 2017 WL 1396221 (9th Cir. Apr. 19, 2017). During
oral arguments, Plaintiffs' counsel represented their
claim could be amended to cure this deficiency. See
ECF No. 63 at 27:24-28:4.
the Court GRANTS Facebook's motion to dismiss
Plaintiffs' UCL claim WITHOUT PREJUDICE. While this may
end the Court's inquiry into Plaintiffs' UCL claim,
for the benefit of the parties the Court shall proceed to
address Facebook's other contentions.
Plaintiffs Meet the Rule 9(b) Heightened Pleading
outset, the Court notes that both parties agree that Federal
Rule of Civil Procedure 9(b) applies here. See Mot.
at 9; Opp'n at 8-10. Thus, the parties acknowledge
Plaintiffs must state “the who, what, when, where, and
how” of the misconduct charged, as well as “what
is false or misleading about a statement, and why it is
false.” Vess, 317 F.3d at 1106 (citation
omitted). Such allegations must be specific enough to put
defendants on notice of the particular misconduct which is