United States District Court, S.D. California
JACOB MCKEAN, individually, on behalf of himself and all others similarly situated, Plaintiff,
ABC FINANCIAL SERVICES, INC., a Arkansas Corporation; THE ARENA MARTIAL ARTS, a business entity form unknown, Defendants.
WILLIAM Q. HAYES, UNITED STATES DISTRICT COURT
matter before the Court is the Motion to Dismiss
Plaintiff's Second Amended Complaint filed by Defendant
ABC Financial Services, Inc. (ECF No. 43).
11, 2018, Plaintiff initiated this action by filing a
Complaint against Defendants ABC Financial Services, Inc.
(“ABC Financial”) and The Arena Martial Arts
(“The Arena”). (ECF No. 1). On October 25, 2018,
the Court dismissed the claims against ABC Financial. (ECF
No. 26). The Court found:
In this case, Defendant ABC Financial is not a signatory to
the Membership Agreement. A non-signatory entity acting as a
payment processor does not enter into a contractual
relationship with a payor solely by being named the payee in
a contract. See, e.g., Conder v. Home Sav. of
Am., 680 F.Supp.2d 1168, 1174 (C.D. Cal. 2010) (loan
servicer's service of a loan pursuant to a contract with
the lender did not create contractual privity with the
borrower); Grant v. Seterus, Inc., 2016 WL 10988678
(C.D. Cal. Dec. 9, 2016) (same). Further, there is no
agreement between Defendant ABC Financial and Plaintiff to
provide health studio services as defined by the HSSL.
See Cal. Civ. Code § 1812.81. Plaintiff has not
alleged facts sufficient to plausibly establish the existence
of a contract between Plaintiff and Defendant ABC Financial.
. . .
In order to plead a plausible claim against Defendant ABC
Financial under an aiding and abetting theory, Plaintiff must
plead facts sufficient to infer that ABC Financial (i) knew
The Arena's conduct was unlawful, and (2) provided
substantial assistance or encouragement to The Arena's
unlawful activities. . . . In this case, Plaintiff has failed
to allege facts to show that Defendant ABC Financial's
role in the alleged unlawful activity extended beyond that of
a passive payment processor for Defendant The Arena and into
“substantial assistance or encouragement.” Unlike
the “tight control” and extensive day-to-day
involvement Arthur Murray Inc. exercised in the operations of
the licensee dance studios, Plaintiff alleges no facts in the
Complaint to support the inference that Defendant ABC
Financial exercised control over Defendant The Arena or the
terms of the allegedly unlawful Membership Agreement. . . .
Id. at 6-7.
December 24, 2018, Plaintiff filed the First Amended Class
Action Complaint (“FAC”). (ECF No. 33). On May 7,
2019, the Court again dismissed the claims against ABC
Financial. (ECF No. 38). The Court found:
ABC Financial may be liable for violations of the HSSL under
an aiding and abetting theory if it knew The Arena's
conduct was unlawful and provided substantial assistance or
encouragement to The Arena's unlawful activities. . . .
Plaintiff alleges that ABC Financial drafted the Membership
Agreement, but the Court finds that the remainder of
Plaintiff's allegations are conclusory. Plaintiff has not
alleged sufficient facts to support a theory of aiding and
abetting liability against ABC Financial. See Iqbal,
556 U.S. at 678 (“Threadbare recitals of the elements
of a cause of action, supported by mere conclusory
statements, do not suffice.”). . . .
Moreover, even if Plaintiff had adequately alleged a theory
of agency or aiding and abetting liability, to recover
damages under the HSSL Plaintiff must be able to demonstrate
that the statutory violation caused his injury. See
§ 1812.94. . . .Under the terms of the contract,
Plaintiff could have provided notice thirty days before
8/7/17 and paid the $50 cancellation fee to avoid a rollover
to a month-to-month contract after 8/7/17. (ECF No. 10-3 at
3). Plaintiff has not plausibly alleged that the Membership
Agreement violated section 1812.84(a) because it
“contain[s] payment and/or financing conditions that
exceed the term of the contract.” . . . Plaintiff has
not plausibly alleged that the Membership Agreement violates
section 1812.84(b) by failing to disclose the initial or
minimum length of the term of the contract in a size 14 font.
Plaintiff did not attempt to cancel the Membership Agreement
in the first thirty days. Consequently, Plaintiff has not
established that the Membership Agreement's failure to
provide a thirty-day cancellation period caused Plaintiff to
suffer any injury.
The Court finds that Plaintiff has not plausibly alleged that
any of the injuries Plaintiff has suffered-the $50
cancellation fee, $99 membership fee, late fee, and injury to
his credit-were caused by any of the violations of the HSSL
Plaintiff has plausibly alleged. Consequently, Plaintiff has
not demonstrated that he has standing to bring a claim for
damages under the HSSL.
Id. at 9-11. The Court ordered that “[a]ny
amended complaint shall address Plaintiff's standing to
bring a claim under 28 U.S.C. § 1332 on behalf of
‘all current and former Health Studio consumers who
entered into a 1) Payment-Processing Agreement with ABC
FINANCIAL in connection with a HSMA, 2) HSMA with ARENA
and/or ABC FINANCIAL, and/or 3) HSMA drafted by ABC FINANCIAL
for a Health Studio in California.'” Id.
8, 2019, Plaintiff filed a Second Amended Class Action
Complaint (“SAC”). ECF No. 42). On July 22, 2019,
ABC Financial Filed a Motion to Dismiss Plaintiff's SAC
pursuant to Federal Rule of Civil Procedure 12(b)(6). (ECF
No. 43). On August 13, 2019, Plaintiff filed a Response in
Opposition to Defendants' Motion to Dismiss. (ECF No.
45). On August 19, 2019, Defendants filed a Reply. (ECF No.
Allegations in the SAC
7, 2015,  Plaintiff signed a twenty-four month
membership contract (the “Membership
Agreement”) with Defendant The Arena, a training and
fitness gym in San Diego. Plaintiff alleges that Defendant
ABC Financial drafted the Membership Agreement. (ECF No. 42
¶ 13). The Membership Agreement provided that beginning
on August 7, 2015, Plaintiff would be required to make
monthly payments of $99 until August 7, 2017. Id.
¶ 14. Per the terms of the Membership Agreement,
payments were to be made directly to ABC Financial,
identified in the Membership Agreement as The Arena's
“billing company.” (ECF No. 43-3 at 5). Plaintiff
alleges that “[c]ontemporaneous with entering into the
[Membership Agreement]” he also entered into a separate
written Payment- Processing Agreement “for purposes of
effectuating the terms of [the Membership
Agreement].” (ECF No. 42 ¶ 13).
alleges that at the end of the initial twenty-four months,
the Membership Agreement “automatically roll[ed]
over” into an “open-ended/month-to-month”
membership. Plaintiff alleges that the Membership Agreement
“did not include a statement printed in a size at least
14-point type or presented in an equally legible electronic
format that discloses the initial or minimum length of the
term of the contract.” Id. ¶ 15.
Specifically, on page 1 of the agreement, the language
containing the initial length of the contract violates
section 1812.84(b) because the printed words ‘expires
on' are not in printed font which is 14 points or larger.
Nor is the handwritten date of ‘8/7/17' 14 points
or larger, because not all of the characters in the