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Letizia v. Facebook Inc.

United States District Court, N.D. California

July 14, 2017

THOMAS LETIZIA, et al., Plaintiffs,
v.
FACEBOOK INC., Defendant.

          ORDER GRANTING IN PART AND DENYING IN PART FACEBOOK'S MOTION TO DISMISS

          THELTON E. HENDERSON United States District Judge

         Presently 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.

         I. BACKGROUND

         The 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, 555-56 (2007).

         Facebook, 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.

         One 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.

         In May 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.

         Facebook 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.

         Plaintiffs 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.”[1] 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.

         II. REQUEST FOR JUDICIAL NOTICE

         As a preliminary matter, the Court first turns to address Facebook's request for judicial notice prior to addressing Facebook's motion to dismiss.

         a. Legal Standards

         In 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).

         b. Discussion

         Facebook 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.

         With 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.

         III. MOTION TO DISMISS

         a. Legal Standard

         Dismissal 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.

         In 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).

         In 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).

         b. Discussion

         i. 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.

         1. Plaintiffs Fail to Allege Actual Reliance

         To 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).

         Facebook 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.

         Accordingly, 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.

         2. Plaintiffs Meet the Rule 9(b) Heightened Pleading Standard

         At the 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 ...


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