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McKean v. ABC Financial Services, Inc.

United States District Court, S.D. California

October 31, 2019

JACOB MCKEAN, individually, on behalf of himself and all others similarly situated, Plaintiff,
v.
ABC FINANCIAL SERVICES, INC., a Arkansas Corporation; THE ARENA MARTIAL ARTS, a business entity form unknown, Defendants.

          ORDER

          WILLIAM Q. HAYES, UNITED STATES DISTRICT COURT

         The matter before the Court is the Motion to Dismiss Plaintiff's Second Amended Complaint filed by Defendant ABC Financial Services, Inc. (ECF No. 43).

         I. BACKGROUND

         A. Procedural History

         On May 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.

         On 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. at 14.

         On July 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. 46).

         B. Allegations in the SAC

         On July 7, 2015, [1] Plaintiff signed a twenty-four month membership contract (the “Membership Agreement”)[2] 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].”[3] (ECF No. 42 ¶ 13).

         Plaintiff 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. Plaintiff alleges:

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 ...

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