Opinion
2:20-CV-10511-CAS (Ex)
07-13-2022
DONELL COREY KENDALL v. BLUETRITON BRANDS, INC. ET AL.
Present: Honorable Christina A. Snyder, Judge.
CIVIL MINUTES - GENERAL ‘O'
Proceedings: DEFENDANTS' MOTION TO DISMISS THIRD AMENDED COMPLAINT (Dkt. 41, filed on MARCH 28, 2022)
I. INTRODUCTION
On September 23, 2022, plaintiff Donell Corey Kendall, on behalf of himself and all others similarly situated, filed a class action case in Los Angeles Superior Court against defendants BlueTriton Brands., Inc, formerly known as Nestle Waters North America, Inc., d/b/a ReadyRefresh, By Nestle and Does 1-20, inclusive, 20-STCV-36528, (collectively, “ReadyRefresh”). Dkt. 1-1 (“Compl.”). The gravamen of Kendall's claim is that ReadyRefresh, a retail beverage delivery service company, charged him and members of the proposed class disproportionately high late payment fees on defendants' bottled water service subscription, in violation of California's consumer protection laws. Id.
On November 17, 2020, ReadyRefresh removed the action to federal court, asserting jurisdiction pursuant to the Class Action Fairness Act of 2005 (“CAFA”), 28 U.S.C. § 1332(d)(2). Dkt. 1. On December 17, 2020, plaintiff filed a motion to remand this action to the Los Angeles Superior Court. Dkt. 9. On February 1, 2021, the Court issued an order denying plaintiff s motion to remand, determining that ReadyRefresh had sufficiently demonstrated that the amount in controversy satisfies the jurisdictional requirements under CAFA. Dkt. 16.
On April 23, 2021, plaintiff filed the first amended complaint. Dkt. 21. On October 29, 2021, plaintiff filed the second amended complaint, adding Marlon Javier as an additional plaintiff. Dkt. 30. On January 21, 2022, plaintiffs filed the operative third amended complaint. Dkt. 33 (“TAC”). The third amended complaint alleges claims for:
(1) violation of California's Unfair Competition Law (“UCL”), Bus. & Prof. Code § 17200 et seq.; (2) violation of California's Consumer Legal Remedies Act (“CLRA”), Civ. Code § 1750 et seq.; and (3) for imposition of unlawful penalties in violation of Cal. Civ. Code § 1671. Id. On March 3, 2022, the Court dismissed Doe defendants 11-20, inclusive, pursuant to Local Rule 19-1. Dkt. 39.
On March 28, 2022, ReadyRefresh filed a motion to dismiss for failure to state a claim. Dkt. 41 (“MTD”). On the same day, ReadyRefresh filed a motion to compel arbitration and stay this action. Dkt. 42. On May 9, 2022, plaintiffs filed oppositions to the respective motions. Dkt. 44; dkt. 45 (“Opp.”). On June 6, 2022, ReadyRefresh filed its replies. Dkt. 47 (“Reply”); dkt. 48.
On July 13, 2022, the Court held a hearing. Having carefully considered the parties' arguments and submissions, the Court finds and concludes as follows as to defendants' motion to dismiss.
II. BACKGROUND
Defendant ReadyRefresh, a Delaware corporation with its principal office in Connecticut, is a retail beverage delivery service company that provides bottled water and other beverages to customers' homes and offices on a monthly subscription basis. TAC at 4. Plaintiffs Donell Corey Kendall and Marlon Javier, and others similarly situated, are all citizens of California who purchased water and other beverages from defendants pursuant to contracts on a monthly basis. Id. at 4. Kendall purchased water from defendants from at least 2015 to approximately late 2018. Javier purchased water from defendants from at least 2020 to the present. Id.
Plaintiffs, on behalf of themselves and the class they seek to represent, allege that defendants charged them “exorbitant late fees” without adequate notice. TAC ¶ 13. ReadyRefresh charged plaintiffs late fees for each monthly bill they failed to pay by the “pay by” date. TAC ¶ 3. From around 2015 to the end of 2016, the fee was $15. Beginning in 2017, the fee increased to $20. Id. Plaintiffs allege that when they entered into agreements with ReadyRefresh for the water delivery services, it was plaintiffs' understanding that they had 30 days to pay their monthly bill, according to the contracts. Id. at 4. However, the “pay by” date on the invoices plaintiffs received was only 20 days from the “billing date.” Id.
The relevant terms of the contract states:
If Customer does not pay any charge within thirty (30) days of the invoice date, Customer will pay Company the greater of (i) a late fee not to exceed $20 per month, or (ii) interest of 1.5% per month on any unpaid amount from the invoice date until paid. If the late fee or interest rate exceeds the maximum rate allowed by law, the late charge will be equal to such maximum rate.Dkt. 42-2 at 10 (“ReadyRefresh Terms and Conditions”).
1. Plaintiff Donell Corey Kendall
Plaintiffs allege that they believed they would be charged a late fee that would be both proportional to their underlying balance and reasonable given the circumstances. Id. For example, Donell Corey Kendall signed up for recurring delivery of bottled water from ReadyRefresh around 2015. Id. at 4. In doing so, Kendall agreed to ReadyRefresh's Terms and Conditions. Id. ¶ 21. During the summer of 2015, Kendall realized he was being assessed a flat fee of $ 15 for making late payments on beverage delivery. Id. Kendall's monthly bill was about $30, and therefore he “could not understand why he was being charged 50% or more of that amount for a late fee, and why this late fee was assessed 20 days from the ‘pay by' date,” because when he signed up, he was told he had 30 days to pay each bill. Id. Kendall called a customer service representative who apologized and reversed the fee. Id. Over the next three years, Kendall contacted ReadyRefresh's customer service numerous times to complain about excessive late fees, and on each occasion a representative reversed the charge. Id. Based on these interactions, Kendall believed that the late fees were assessed by mistake. Id.
It does not appear from the TAC or defendants' motion to compel arbitration that Kendall's contract included an arbitration provision. Further, although not explicitly stated in the TAC, it appears Kendall's initial contract was formed over the telephone.
In early 2018, Kendall saw an online offer on ReadyRefresh's website that detailed the terms and conditions of its beverage service by recurring delivery. Id. Kendall alleges that this was the first time he read the specifics of the late-fee provision. Id.
2. Plaintiff Marlon Javier
Additionally, plaintiff Javier signed up for monthly deliveries of bottled water and beverages from ReadyRefresh pursuant to an online contract he entered into in 2020.TAC at 6. Unbeknownst to Javier, the contract contained an arbitration clause. Id. When Javier did not pay his bill on time, Javier received a charge for a late fee of $20 (over 70% of the monthly cost of the beverage service). Id. Further, Javier alleges that he was assessed a late fee 20 days after his balance was due, not after 30 days, as was specified in the written terms and conditions of his contract. For example, Javier states he received an invoice with a billing date of June 16, 2021 in the amount of $39.28 for the products he received; however, the “pay by” date on the invoice was only 20 days later, on July 6, 2021. Id. at 16. Furthermore, the $20 late fee was charged on July 14, 2021, only 8 days after the “pay by” date, and only 28 days after billing date. Id. ¶ 51.
In the Court's order on defendant's motion to compel arbitration, the Court granted defendants' motion to compel arbitration as to Javier's claims. As such, this motion to dismiss focuses on Kendall's allegations.
III. LEGAL STANDARD
A. Motion to Dismiss
A motion pursuant to Federal Rule of Civil Procedure 12(b)(6) tests the legal sufficiency of the claims asserted in a complaint. Under this Rule, a district court properly dismisses a claim if “there is a Tack of a cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal theory.'” Conservation Force v. Salazar, 646 F.3d 1240, 1242 (9th Cir. 2011) (quoting Balisteri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1988)). “While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff s obligation to provide the ‘grounds' of his ‘entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Bell Atlantic Corp, v. Twombly, 550 U.S. 544, 555 (2007). “[F]actual allegations must be enough to raise a right to relief above the speculative level.” Id.
In considering a motion pursuant to Rule 12(b)(6), a court must accept as true all material allegations in the complaint, as well as all reasonable inferences to be drawn from them. Pareto v. FDIC, 139 F.3d 696, 699 (9th Cir. 1998). The complaint must be read in the light most favorable to the nonmoving party. Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001). However, “a court considering a motion to dismiss can choose to begin by identifying pleadings that, because they are no more than conclusions, are not entitled to the assumption of truth. While legal conclusions can provide the framework of a complaint, they must be supported by factual allegations.” Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009); see Moss v. United States Secret Service, 572 F.3d 962, 969 (9th Cir. 2009) (“[F]or a complaint to survive a motion to dismiss, the non-conclusory ‘factual content,' and reasonable inferences from that content, must be plausibly suggestive of a claim entitling the plaintiff to relief.”). Ultimately, “[determining whether a complaint states a plausible claim for relief will... be a context-specific task that requires the reviewing court to draw on its judicial experience and common sense.” Iqbal. 556 U.S. at 679.
Unless a court converts a Rule 12(b)(6) motion into a motion for summary judgment, a court cannot consider material outside of the complaint (e.g., facts presented in briefs, affidavits, or discovery materials). In re American Cont'l Corp./Lincoln Sav. & Loan Sec. Litig., 102 F.3d 1524, 1537 (9th Cir. 1996), rev'd on other grounds sub nom Lexecon, Inc, v. Milberg Weiss Bershad Hynes & Lerach, 523 U.S. 26 (1998). A court may, however, consider exhibits submitted with or alleged in the complaint and matters that may be judicially noticed pursuant to Federal Rule of Evidence 201. In re Silicon Graphics Inc. Sec. Litig., 183 F.3d 970, 986 (9th Cir. 1999); see Lee v. City of Los Angeles, 250 F.3d 668, 689 (9th Cir. 2001).
As a general rule, leave to amend a complaint which has been dismissed should be freely granted. Fed.R.Civ.P. 15(a). However, leave to amend may be denied when “the court determines that the allegation of other facts consistent with the challenged pleading could not possibly cure the deficiency.” Schreiber Distrib. Co. v. Serv-Well Furniture Co., 806 F.2d 1393, 1401 (9th Cir. 1986).
TV. DISCUSSION
A. Failure to State a Claim Under the UCL
ReadyRefresh argues that the Court should dismiss plaintiff s claims under all three prongs of California's Unfair Competition Law. MTD at 1. The California Unfair Competition Law, as codified in Cal. Bus. & Prof. Code §§ 17200, et seq., provides that “unfair competition shall mean and include any unlawful, unfair or fraudulent business act or practice.”!!
ReadyRefresh's motion to dismiss addresses both Kendall's and Javier's claims; however, since the Court granted defendants' motion to compel arbitration as to Javier, the Court addresses defendant's arguments regarding Kendall's claims only.
1. Unfair Prong
ReadyRefresh first argues that plaintiff fails to state a claim under the “unfair” prong of the UCL. MTD at 1. Given that the California Supreme Court has not established a definitive test to determine whether a business practice is “unfair” in consumer cases, three tests for unfairness exist in the consumer context. Bias v. Wells Fargo & Co., 942 F.Supp.2d 915, 933 (N.D. Cal. 2013). Under the first test, (the “statutory test”), a business practice is unfair where the practice implicates a public policy that is “tethered to specific constitutional, statutory, or regulatory provisions.” Harmon v Hilton Grp., 2011 U.S. Dist. LEXIS 136064, at *8 (N.D. Cal. Nov. 28, 2011) (internal citations omitted); see also Aleksick v. 7-Eleven. 205 Cal.App.4th 1176, 1191- 93 (2012). The second test, (the “balancing test”), “determine[s] whether the alleged business practice is immoral, unethical, oppressive, unscrupulous, or substantially injurious to consumers and requires the court to weigh the utility of the defendant's conduct against the gravity of the harm to the alleged victim.” Harmon, 2011 U.S. Dist. LEXIS 136064, at *8 (internal citations and quotations omitted). Under the third test, which incorporates the standard set forth in Section 5 of the Federal Trade Commission (“FTC”) Act, (the “FTC test”), unfair conduct requires that: (1) the consumer injury be substantial: (2) the injury not be outweighed by any countervailing benefits to consumers or competition; and (3) it must be an injury that consumers themselves could not reasonably have avoided. Id.; see also Davis v. Ford Motor Credit Co. LLC, 179 Cal.App.4th 581, 597-98 (2009).
ReadyRefresh suggests that the Court apply the FTC test from Davis, noting that when “the highest court of a state has not directly spoken on a matter of state law, a federal court sitting in diversity must generally use its own best judgment in predicting how the state's highest court would decide the case.” MTD at 2 (citing Fast Trak Investment Co., LLC v. Sax, 962 F.3d 455, 465 (9th Cir. 2020)). ReadyRefresh notes that some federal courts have, in the past, avoided predicting what the California Supreme Court would do, but urges the Court to make the “required prediction” here. MTD at 3.
During oral argument, ReadyRefresh again argues that the Court should apply the FTC test from Davis, 179 Cal.App.4th at 598, because the legal issue and facts in Davis are on point regarding the question of whether a late fee is unfair under the UCL. While the Court acknowledges the persuasive authority of Davis as to the question of whether the late fees “reasonably could have been avoided,” the Court finds this question to be more appropriately decided on a motion for summary judgment, when the Court has all of the evidence in front of it. Id.
Plaintiff argues that the Court should apply the balancing test to see if ReadyRefresh's business practice is “immoral, unethical, oppressive, or unscrupulous.” Opp. at 12. Plaintiff contends that defendants' conduct satisfies this test because the late-fee penalty was “substantially injurious to plaintifff] and the class members because the late fee was being charged 10 days early and was [] excessive.” TAC ¶ 42; Drum v. San Fernando Valley Bar Ass'n. 182 Cal.App.4th 247, 257 (2010). Plaintiff also acknowledges that California law is unsettled with regard to the standard applied to consumer claims under the unfair prong of the UCL. See Davis, 691 F.3d at 1169 (citing Lozano v. AT & T Wireless Servs., Inc., 504 F.3d 718, 735-36 (9th Cir. 2007)).
ReadyRefresh responds that the test plaintiff suggests the Court apply, the balancing test, is a “discredited test for unfairness.” MTD at 2 citing TAC ¶ 42. Defendants cite to Cel-Tech Commc'ns, Inc, v. Los Angeles Cellular Tel. Co., 20 Cal.4th 163, 185 (1999), to support this proposition, noting that the California Supreme Court rejected the balancing test as “too amorphous and provid[ing] too little guidance to courts and businesses.”
First, the Court notes that contrary to ReadyRefresh's contentions, California courts still apply the “traditional balancing test” when discussing consumer actions. See Lozano, 504 F.3d at 735-36 (noting that Cel-Tech's holding regarding the balancing test was “limited” and that “in the absence of further clarification by the California Supreme Court,” courts should “approach . . . the law as if it still contain[s] the balancing test”). While ReadyRefresh is correct in stating that the California Supreme Court has rejected the balancing test for some UCL claims, defendants fail to mention that the balancing test was rejected only when evaluating claims between business competitors. Cel-Tech Commc'ns, Inc.. 20 Cal.4th 163, 186 (1999). The Cel-Tech court explicitly limited its holding to claims alleging unfairness to business competitors, and California courts are divided as to the correct test to apply to consumer actions. See Lozano, 504 F.3d at 73536.
Second, the Court acknowledges that courts are divided as to which test to apply. Because “the California Supreme Court has not established a definitive test to determine whether a business practice is unfair [under the UCL], ‘a split of authority [has] developed among the Courts of Appealf.]”' Graham v. VC A Antech, Inc., No. 2.14-CV-08614-CAS-JC, 2016 WL 5958252, at *23 (C.D. Cal. Sept. 12, 2016), aff d sub nom. Graham v. VCA Animal Hosps., Inc., 729 Fed.Appx. 537 (9th Cir. 2018) (citing O'Connor v. Uber Techs.. Inc., 2013 WL 6354534, at *16 (N.D. Cal. Dec. 5, 2013)). As such, federal courts siting in diversity generally evaluate parties' claims under all three tests. See e.g., Rubio v. Capitol One Bank. 613 F.3d 1195, 1205 (9th Cir. 2010) (finding that plaintiff had stated a claim under the UCL's unfair prong under two of the alternative tests). Accordingly, here, the Court evaluates plaintiff s allegations under all three prongs.
ReadyRefresh argues that regardless of which test the Court applies, plaintiff fails to meet any of the standards for unfairness. MTD at 4. To start, ReadyRefresh contends that plaintiff s allegations fail to satisfy the third prong of the FTC test-which requires that an injury be one which a consumer could not reasonably avoid it-because consumers can avoid late fees by paying their bills in full and on time. Davis, 179 Cal. App 4th at 584. Moreover, ReadyRefresh argues that plaintiff s claim fails the other elements of the FTC test because any injury to plaintiff is outweighed by countervailing benefits to consumers. MTD at 5. ReadyRefresh notes that the California Supreme Court has recognized that late fees promote fairness by placing the costs of “bad behavior on those who engaged in it” rather than spreading the costs to customers who pay on time. Id. (citing Smiley v. Citibank, 11 Cal.4th 138, 161-62 (1995). Therefore, because it fails the second and third elements of the FTC standard, defendants argue plaintiffs' claim should be dismissed with prejudice.
Second, ReadyRefresh argues that plaintiff s allegations fail to satisfy the statutory test for unfairness sometimes applied by the California Court of Appeal. ReadyRefresh contends that plaintiff does not identify a specific constitutional, statutory, or regulatory provision that suggests ReadyRefresh's $20 late fee is “unfair” because it violates public policy. MTD at 6.
Third, ReadyRefresh contends that plaintiff cannot state a claim under the “immoral, unethical, oppressive, unscrupulous, or substantially injurious” prong of the balancing test, because plaintiff s argument that “late fees have limited or no utility” has been rejected by California courts that have applied this test. Id. ; see e.g., Smiley, 11 Cal.4th at 161.
Moreover, ReadyRefresh argues that plaintiff s additional claim under the unfair prong, that the terms of the late fee are unclear, also fails. MTD at 7. According to ReadyRefresh, the Terms and Conditions are clear and express, such that a late fee may be assessed “if [the] Customer does not pay any charge within thirty (30) days of the invoice date.” Id. at 7 (citing to TAC at 5:3-4). ReadyRefresh contends that the 20-day “pay by” date is proper because a customer should pay their bill in 20 days, but if they do not, and have not paid 10 days after that - now 30 days from the invoice date - they may incur a late fee. Id.
Plaintiff responds that an unfair violation is fact intensive and ill-suited for resolution on the pleadings. Opp. at 15 (Citing Williams v. Gerber Prods. Co., 23 F.3d 934, 939 (9th Cir. 2008)); Progressive W. Ins. Co. v. Super. Ct., 135 Cal.App.4th 263, 287 (2005) (noting that the balancing test under the unfair prong is “fact intensive and is not conducive to resolution at the demurrer stage”). Further, plaintiff contends that he has pled facts sufficient to meet the balancing test under the unfair prong because the late fee was neither a fair nor reasonable approximation of any damage defendants sustained as a direct result of the late payment, because the late fee assessed against plaintiff “was always a fixed amount and not, in any way, proportional to the original underlying invoice,” nor to the actual costs defendant incurred as a result of a customer's late payment. Opp. at 17. Plaintiff pleads that there is “absolutely no relationship . . . between what it costs defendant Nestle to add a line to its customers' invoices indicating a late penalty fee and the $20 fees it has been charging its customers for year.” Opp. at 17-18. Plaintiff also notes that if the Court applies the FTC test, plaintiff has sufficiently pled facts under this standard: plaintiff notes he could not have avoided the injury because he was not provided the full 30 days to make a payment before a fee was charged. Id.
The Court finds, at this stage in the litigation, that plaintiff has sufficiently pled a claim under the unfair prong of the UCL. The Ninth Circuit has noted that whether a business practice is unfair “is generally a question of fact which requires consideration and weighing of evidence from both sides and which usually cannot be decided on a motion to dismiss.” Williams v. Gerber Products Co.. 552 F.3d 934, 939 (9th Cir. 2008) (internal citations omitted). Regarding the balancing test, the TAC alleges facts showing that a late fee of over 70% is oppressive and injurious to consumers. Regarding the utility of ReadyRefresh's conduct, plaintiff has alleged facts to support a claim that Ready Re fresh's late fee is substantially injurious to consumers by alleging that “the fixed amount defendants assess as a late fee unfairly and unproportionally punishes consumers who place smaller orders of water bottles,” and that the fees have “limited or no utility as compared with alternatives that would more fairly measure the harm (if any) incurred by defendants.” TAC at 10, 15. Plaintiff has “not yet had the opportunity” to uncover the “reasons, justifications, or motives,” regarding the specific utility of defendants' conduct, and will only have the opportunity to do so once this case proceeds to discovery. Progressive West Ins. Co. v Superior Court, 135 Cal.App.4th 263, 287 (2005).
With regard to the statutory test, the Court notes that plaintiff s allegations are tied to claims under Cal. Civ. Code § 1671 and the CLRA, and as such meet the requirement that the business practice is “tethered to a specific” statutory provision. Aleksick, 205 Cal.App.4th at 1191-93. Finally, with regard to the FTC test, accepting plaintiff s material allegations in the complaint as true, the fact that the due date for payments on customers' invoices was 20 days instead of 30 days as specified in the contract, TAC ¶ 45, raises a question of fact as to whether consumers could have reasonably avoided the late fee charge.
ReadyRefresh's citation to Smiley. 11 Cal.4th at 161, in its reply, for the proposition that any injury regarding the late fee is outweighed by the benefit to the consumer, is unpersuasive. First, Smiley applied federal law when evaluating plaintiff s claims, noting that the “complaint based on California law ... is preempted” by federal law. Id. Moreover, the Smiley court did not hold, as ReadyRefresh suggests, that “the benefits to those who pay their bills on time outweigh the cost to those who pay delinquently.” MTD at 5. Rather, the court in Smiley simply notes that some late-fee payments may be justifiable as a matter of policy. Smiley, 11 Cal.App. at 161. Here, plaintiff has sufficiently alleged facts to support a claim that a late fee of 70% of his total monthly bill is sufficiently oppressive compared to the potential utility it might have on other customers or ReadyRefresh, and as such satisfies the balancing test under the unfair prong of the UCL. !
2. Fraudulent Prong
A business act or practice is fraudulent under the UCL if it is likely to deceive members of the consuming public. While the California Supreme Court has noted that “the fraudulent business practice prong of the UCL has been understood to be distinct from common law fraud,” the Ninth Circuit has held that a claim under the fraudlent prong of the UCL requires pleading with particularity under Fed. R. Civ. P 9(b). In re Tobacco II Cases, 46 Cal.4th 298, 312 (2009). See id. (“A [common law] fraudulent deception must be actually false, known to be false by the perpetrator and reasonably relied upon by a victim who incurs damages. None of these elements are required to state a claim for injunctive relief' under the UCL.”); but see Great Pacific Securities v. Barclays Capital, 743 Fed.Appx. 780, 784 (9th Cir. 2018) (holding that claims based on misrepresentation under the UCL are “subject to Rule 9(b)'s particularity standard”); Watkins v. MGA Entertainment, Inc., 550 F.Supp.3d 815, 833 (9th Cir. 2021) (noting that “the Ninth Circuit held that [a] plaintiff s claims were grounded in fraud and therefore the . . . UCL claims had to satisfy the heighted pleading requirements of Rule 9(b)”).
Accordingly, to plead a claim under the fraudulent prong of the UCL, a party must identify “the who, what, when where, and how of the misconduct charged.” Rothman v. Equinox Holdings, Inc., No. 220CV09760-CASMR-WX, 2021 WL 124682, at *4 (C.D. Cal. Jan. 13, 2021). Further, to establish standing under the fraudulent prong of the UCL-and to bring a claim for any violation of the UCL-a plaintiff must demonstrate that he “suffered injury in fact and has lost money or property as a result of the unfair competition.” Cal. Bus. & Prof. Code § 17204; Cal. Bus. & Prof. Code § 17535; see also Kwikset Corp, v. Superior Court, 51 Cal.4th 310, 321, 246 P.3d 877, 884 (2011). Specifically for UCL claims based on fraud, “California courts have held that when the ‘unfair competition' underlying a plaintiffs 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 Litis., 6 F.Supp.3d 1004, 1013 (N.D. Cal. 2013); see also In re Tobacco II Cases, 46 Cal.4th at 314 (“[A] class representative proceeding on a claim of misrepresentation as the basis of his or her UCL action must demonstrate actual reliance on the allegedly deceptive or misleading statements, in accordance with well-settled principles regarding the element of reliance in ordinary fraud actions.”). The actual reliance requirement “applies whenever the underlying misconduct in a UCL action is fraudulent conduct,” including when the claim arises under the UCL's unlawful or unfair prongs. Kane v, Chobani. Inc.. 973 F.Supp.2d 1120, 1129 (N.D. Cal. 2014), vacated on other grounds sub nom. Kane v. Chobani. LLC, 645 Fed.Appx. 593 (9th Cir. 2016).
ReadyRefresh argued that plaintiff s claim that ReadyRefresh's late fees constitute a fraudlent business practice fails because plaintiff does not identify a fraudlent statement. MTD at 10. In a 2018 online offer, ReadyRefresh's late-fee provision states that customers would be charged “the greater of (i) a late fee not to exceed $20 per month, or (ii) interest of 1.5% per month on any unpaid amount.... If the late fee or interest rate exceeds the maximum rate allowed by law, the late charge will be equal to such maximum rate.” TAC ¶ 57. ReadyRefresh argues that because there is no maximum rate for a late fee required under California law, there is no misrepresentation in defendants' statement. MTD at 11.
Further, ReadyRefresh argues that plaintiff s claim under the fraudulent prong fails. According to ReadyRefresh, plaintiff cannot satisfy the causation element of the UCL's standing requirement because the TAC does not allege “actual reliance.” MTD at 12. Instead, ReadyRefresh notes that the TAC alleges that “the first time [Kendall] read the specifics of the late-fee provision” was in 2018. Id. Because Kendall alleges that he did not see the late-fee contractual term until 2018, defendants argue he could not have relied on that term when enrolling in the services in 2015. MTD at 12.
Plaintiff argues that he has pled factual allegations that allow the Court to infer that a reasonable consumer would find defendants' late-fee penalty charges and statements made by defendant with regards to those late-fees to be misleading and deceptive. See Chester v. TJX Cos.. Inc., 2016 WL 4414768, at *10 (C.D. Cal. Aug. 18, 2016); Horosny v. Burlington Coat Factory of CA, LLC, 2015 WL 12532178 at *4 (CD. Cal. Oct. 12, 2015). Plaintiff argues that the complaint alleges with specificity that consumers were deceived by signing up and believing they had 30 days to pay the bill, by never receiving formal written contracts, and then only later finding out that the billing day was only 20 days from the “pay by” date. Opp. at 21-22.
In reply, ReadyRefresh reiterates its argument that because plaintiff did not see the late-fee provision until 2018, Kendall cannot point to any deceptive or misleading statements by ReadyRefresh that caused him to form the belief that the fees were oppressive, much less plead with particularity what was said, or when. Id. Lastly, ReadyRefresh notes that Kendall does not allege that any of the late fees he was charged were actually imposed when he paid within 30 days. Id. at 6.
The Court is persuaded by ReadyRefresh's argument that Kendall could not have relied on any fraudulent statements when he signed up for defendants' service because Kendall admits that he did not see the policy until 2018. Regarding the fraudulent misrepresentation claim, the TAC states: “Kendall, Javier, and other class members agreed to [the water delivery] contracts based on defendant's deceptive sales practices and the verbal information given to them by the sales representatives. These misrepresentations played a substantial role in plaintiffs' decision to enter into an agreement with defendants for beverage delivery, and plaintiffs would not have purchased their products without these misrepresentations.” TAC at 19. However, plaintiff has not alleged what specific “verbal information,” or “deceptive sales practices,” or omissions, were made by ReadyRefresh when plaintiff entered into the contract in 2015. In its tentative order, the Court requested oral argument on the essence of plaintiff s fraudulent claim under the UCL. Plaintiff did not address this issue during oral argument, but rather submitted on the Court's tentative order.
Accordingly, the Court finds that plaintiff has failed to allege facts demonstrating a claim for fraud, because plaintiff does not specify what statements he relied on when entering into the contract. In re iPhone Application Litis., 6 F.Supp.3d 1004, 1013 (N.D. Cal. 2013) (holding that a plaintiff must have “actually relied on” the misrepresentation).
3. Unlawful Prong
ReadyRefresh next argues that the Court should dismiss plaintiff s' claim under the UCL's “unlawful” prong because the predicate violations of law are not adequately pled. MTD at 12-13 . Section 17200's “unlawful” prong “borrows violations of other laws . . . and makes those unlawful practices actionable under the UCL.” Klein v. Chevron U.S.A., Inc., 202 Cal.App.4th 1342, 1383 (2012). Because the Court finds that plaintiff has sufficiently pled claims under both the CLRA and Cal. Civ. Code § 1671, see supra Section IV.B, IV.C, plaintiff has met the standard for the “unlawful” prong.
Accordingly, the Court finds plaintiff has adequately stated a claim under the unlawful prong of the UCL.
B. Failure to State a Claim under the CLRA
ReadyRefresh further argues that plaintiff s claim that ReadyRefresh violated the Consumers Legal Remedy Act, Cal. Civ. Code §§ 1770(a)(14); (a)(19), should be dismissed. MTD at 18. Section 1770(a)(19) prohibits “inserting an unconscionable term provision in the contract.” Section 1770(a)(14) prohibits “representing] that a transaction confers or involves rights, remedies, or obligations that it does not have or involve, or that are prohibited by law.” First, ReadyRefresh argues that Kendall's CLRA claim is time barred because the statute of limitations under the CLRA is three years and it “begins to run on the date the improper consumer practice was committed.” Cal Civ. Code § 1783; Keegan v. Am Honda Motor Co., 284 F.R.D. 504, 543 (C.D. Cal. 2012). ReadyRefresh argues that because Kendall alleged that the CLRA violation was “[i]nserting an unconscionable provision in the contract,” which Kendall signed in 2015, Kendall had until 2018 to bring this claim, and as such his claim is time barred. MTD at 19.
In opposition, plaintiff states that the CLRA claim is not time barred because the discovery rule tolls the statute of limitations for CLRA claims. Yumul v. Smart Balance, Inc., 733 F.Supp.2d 1134, 1141 (C.D. Cal. 2010). “In order to invoke [the delayed discovery exception] to the statute of limitations, the plaintiff must specifically plead acts which show (1) the time and manner of discovery and (2) the inability to have made CV-90 (10/18) earlier discovery despite reasonable diligence.” In re Conseco Insurance Co. Annuity Marketing & Sales Pracs. Litig., 2008 WL 4544441, *8 (N.D. Cal. Sept. 30, 2008). Here, plaintiff argues that because 2018 was the first time Kendall read the specifics of the late fee provision, plaintiff was unable to discover these terms earlier because “he was never provided a formal written contract from Defendant Nestle, and was only told when he signed up for the service by telephone that “he had 30 days to pay his bill.” Opp. at 27.
In reply, ReadyRefresh points out again that the CLRA claim is barred by the statute of limitations and the discovery rule does not apply here. Reply at 7. Under California law, “[a] plaintiff seeking to utilize the discovery rule must plead facts to show his or her inability to have discovered the necessary information earlier despite reasonable diligence.” Fox v. Ethicon Endo-Surgerv. Inc., 35 Cal.4th 797, 815 (2005). According to ReadyRefresh, Kendall's pleading is insufficient to invoke the discovery rule. Reply at 7. Kendall had been told to pay within 30 days, knew that he was being charged a $20 late fee as early as “summer of 2015,” and believed at the time that the practice was improper. TAC at 4:9-23.4. If he wanted to sue to stop the “unconscionable” business practice of $20 late fees, ReadyRefresh argues Kendall should have done so within three years. Reply at 7-8. Moreover, even if Kendall could not have discovered the claim without seeing the online Terms and Conditions-which he claims he had not agreed to-he alleges no reason why he could not have, with reasonable diligence, looked on the company's website before 2018. Id.
Here, the Court finds that under the first prong of the discovery rule, Kendall has sufficiently pled the time and manner of his discovery by alleging he read the relevant provisions of the Terms and Conditions when he came across them on ReadyRefresh's website in 2018. Further, Kendall's allegations that he was consistently refunded the late fee charge when he called ReadyRefresh's service team creates a question of fact as to whether he exercised reasonable diligence in not looking up the terms sooner. See Corbrus, LLC v. 8th Bridge Capital, Inc., 2021 WL 281811 (C.D. Cal. July 1, 2021) (noting that “under California law, ¶t]he question when a plaintiff actually discovered or reasonably should have discovered the facts for purposes of the delayed discovery rule is a question of fact unless the evidence can support only one reasonable conclusion. ”')(citmg Ovando v. Cty. Of Los Angeles, 159 Cal.App.4th 42, 61 (2008)).
Accordingly, the Court does not find it appropriate to dismiss the CLRA claim on the grounds that it is time-barred at this stage in the litigation.
During oral argument, ReadyRefresh reiterated its argument that the CLRA claim should be dismissed because it is barred by the statute of limitations since Kendall was on notice of the $20 late fee since 2015. The Court is unpersuaded. At this stage in the litigation, the Court finds that plaintiff has sufficiently raised a question of fact as to whether the delayed discovery rule applies. Therefore, this issue is better addressed in a motion for summary judgment.
Additionally, ReadyRefresh contends that plaintiff fails to allege facts to support the claim that ReadyRefresh's late fee is unconscionable under the CLRA Section 1770(a)(19), which prohibits “inserting an unconscionable term provision in the contract.” MTD at 19. Under California law, “a contractual provision is unenforceable if it is both procedurally and substantively unconscionable.” Kilgore v. KeyBank, Nat'l Ass'n, 718 F.3d 1052, 1058 (9th Cir. 2013) (citing Armendariz v. Found. Health Psychare Servs., Inc., 24 Cal.4th 83, 89 (2000)). Procedural unconscionability concerns the manner in which the contract was negotiated and the circumstances of the parties at that time, focusing on the level of oppression and surprise involved in the agreement. Ferguson v. Countrywide Credit Indus., Inc.. 298 F.3d 778, 783 (9th Cir. 2002); A&M Produce Co. v. FMC Corp., 135 Cal.App.3d 473, 484 (1982). “Oppression” addresses the weaker party's absence of choice and unequal bargaining power that results in “no real negotiation” and an absence of “meaningful choice.” A&M Produce. 135 Cal.App.3d at 486. “Surprise” concerns the extent to which the contract clearly discloses its terms as well as the reasonable expectations of the weaker party. Parada v. Superior Court. 176 Cal.App.4th 1554, 1568 (2009). “Substantive unconscionability focuses on the onesidedness or overly harsh effect of the contract term or clause.” Samaniego v. Empire Today LLC, 205 Cal.App.4th 1138, 1147 (2012) (internal citations omitted).
Here, plaintiff has sufficiently pled unconscionability under the CLRA. As to procedural unconscionability, “the analysis begins with an inquiry into whether the contract is one of adhesion.” Barrett v. Apple Inc., 2022 WL 2119131 (N.D. Cal June 13, 2022) (citing OTO. L.L.C, v. Kho. 8 Cal. 5th 111, 126 (2019)). Plaintiff has pled, and ReadyRefresh does not dispute, that the contract is one of adhesion, as it is a “standardized” “preprinted” form, “offered by the party with superior bargaining power on a take-it-or-leave-it basis”). Id. (internal citations omitted). Further, plaintiff has raised a question of fact as to whether the circumstances surrounding the contract's formation created such oppression that the contract created a “lack of meaningful choice,” by alleging that the contract was one of adhesion. Id. Regarding substantive unconscionability, the Court finds plaintiff has raised a question of fact as to whether the late fee provision of the contract is overly harsh because it “bears no reasonable relationship to the actual costs incurred by the provider,” by alleging that the fee was over 70 percent of Kendall's monthly subscription rate. In re DirecTV Early Cancellation Litig., 738 F.Supp.2d 1062, 1087 (2010).
In Brown v. Blackband, Inc., 2018 WL 9619430 (C.D. Cal. Nov. 6, 2018), the court noted that “allegations that a price is ‘unreasonable' or ‘that the price exceeds costs or fair value, standing alone, do not state a cause of action' for unconscionability.” Id. (“Rather, the plaintiff has to plead facts showing that the price is grossly out of line with fees charged by others.”) (internal quotation marks omitted). In Brown, the Court found that the plaintiff could not show that the late fee was unconscionable, in part, because the plaintiff could not show it was a liquidated damages provision under Cal. Civ. Code § 1671, since the contract provision at issue was between plaintiff and a third-party, not plaintiff and defendant. However, the facts before the Court are distinguishable. Here, plaintiff alleges the late fee is a liquidated damages provision in violation of § 1671, and this violation of law by defendant supports plaintiff s claim of unconscionability. Moreover, here plaintiff specifically alleges that the late-fee, in proportion to Kendall's subscription fee, is excessive and unconscionable.
The Court is not persuaded by defendants' argument that because defendants had a reasonable alternative source of supply to obtain the desired goods and service, plaintiff cannot establish the late-fee provision was “oppressive” under Darnaa. LLC v. Google LLC, 756 Fed.Appx. 674, 676 (9th Cir. 2018). As the Court stated in its order granting defendants' motion to compel arbitration, the Court does not understand Darnaa to stand for the proposition that no procedural unconscionability exists when alternative sources are available. Darnaa, LLC. 756 Fed.Appx. at 676. Moreover, the court in Darnaa found that because plaintiff did not have the “opportunity to negotiate the terms of the agreement,” there was a “degree of procedural unconscionability,” even if the amount of unconscionability was “low.” Id. Further, “California law treats contracts of adhesion, or at least terms over which a party of lesser bargaining power had no opportunity to negotiate, as procedurally unconscionable to at least some degree.” Bridge Fund Cap. Corp, v. Fastbucks Franchise Corp., 622 F.3d 996, 1004 (9th Cir. 2010).
Furthermore, because plaintiff has stated a claim under Cal. Civ. Code § 1671, see infra Section III.C, the Court finds that plaintiffs have stated a claim under the CLRA § 1770(a)(14), which prohibits “representing that a transaction confers or involves rights, remedies, or obligations that it does not have or involve, or that are prohibited by law.”
C. Failure to State A Claim under § 1671
Cal. Civ. Code Section 1671 states: “[A] provision in a contract liquidating damages for the breach of the contract is void except that the parties to such a contract may agree therein upon an amount which shall be presumed to be the amount of damage sustained by a breach thereof, when, from the nature of the case, it would be impracticable or extremely difficult to fix the actual damage.”
ReadyRefresh argues that plaintiff fails to state a claim under § 1671 that ReadyRefresh's late fee is an invalid liquidated damages clause. MTD at 22. First, ReadyRefresh argues that plaintiff does not sufficiently plead that the late fee provision is a penalty or invalid liquidated damages clause. MTD at 23. Further, ReadyRefresh argues that “plaintiff alleges only that the $20 was disproportionate to the size of the bill, . . . not specific facts showing the costs they imposed on the business by failing to pay it, and so fail to plead facts plausibly showing the late fee is unreasonable. MTD at 22 (citing Ciser v. Nestle Waters North America, 2013 WL 396139 at *4 (D.N.J. Jan. 31, 2013) affd, 596 Fed.Appx. at 163).
As a more general matter, defendants cite to Ciser, 2013 WL 396139, to argue that the crux of plaintiffs' allegations-that the late fee of $20 was in excess of 70% of the actual cost of the service and therefore that the late fee is invalid in comparison to the unpaid invoice-has been rejected in similar cases. MTD at 11-12. In Ciser. plaintiff sought to bring a consumer class action claiming that defendant. Nestle Waters' late fee, which was $ 15 at the time, was unlawful because it was “unreasonably large,” and therefore constituted a penalty instead of a valid liquidated-damages amount. Ciser, 2013 WL 396139 at *3. The federal district court dismissed the case, finding it “implausible” that Nestle Waters' $15 late fee was unreasonable, and the district court held that “in the context of the consumer contract in this case, a $ 15 late fee was not unreasonable, even if the late fee sometimes amounted to more than 100% of the underlying bill.” Id. at *4. The Third Circuit affirmed, holding that plaintiff failed to plausibly plead that the late fee was unreasonable. Ciser v. Nestle Waters North America. Inc, 596 Fed.Appx. 157 (3d Cir. 2015). The Court first notes that Ciser is distinguishable because the case relies on New Jersey law regarding commercial loan transactions. Further, in Ciser, the plaintiff did not allege facts showing any deception or misleading contractual provisions. Ciser, 596 Fed.Appx. at 161. Here, however, plaintiff has provided facts supporting its claim, including how the “pay-by” date varied on the invoice and the contract, and how the customer service representative constantly refunded the late charge fee and apologized. See generally TAC. Nonetheless, to the extent that the case applies to the facts before the Court, the Court notes that it does not find the Ciser court's reasoning to be persuasive.
Plaintiff responds that he has plausibility alleged that ReadyRefresh is liable for a violation of Cal. Civ. Code § 1671. First, plaintiff notes that the California legislature enacted Section 1671 because it was concerned that “a liquidated damages provision will be used oppressively by a party able to dictate the terms of the agreement.” In re DirecTV Early Cancellation Litig., 738 F.Supp.2d at 1087. Opp. at 29.
“California courts define liquidated damages as ‘an amount of compensation to be paid in the event of a breach of contract, the sum of which is fixed and certain.” Ruwe v. Cellco Partnership, 613 F.Supp.2d at 1196. Once a court is assured that the contractual provision constitutes liquidated damages, the provision is “presumed void, placing the burden on the proponent of the clause to rebut that presumption.” In re Cellphone Termination Fee Cases, 193 Cal.App.4th 298, 322 (2011). “Although the validity of a liquidated damages is a fact-based inquiry not appropriately determined on a motion to dismiss, whether a provision is a liquidated damages provision is a question of law for the court to decide.” Bayol v. Zipcar, Inc., 78 F.Supp.3d 1252, 1255 (N.D. Cal. 2015) (finding that because plaintiff showed that the agreement imposed liquidated damages, it “triggered the application of section 1671(d))”). A party seeking enforcement must satisfy this burden by showing that “(1) fixing the amount of actual damages [is] impracticable or extremely difficult, and (2) the amount selected must represent a reasonable endeavor to estimate fair compensation for the loss sustained.” In re Cellphone Termination Fee Cases. 193 Cal.App.4th at 322.
The Court finds that plaintiff has sufficiently alleged that the late-fee is a liquidated damages provision. Accordingly, plaintiff has stated a claim under Cal. Civ. Code Sec. § 1671, and there remains questions of fact as to the validity of a $20 late fee provision which is 70% of the customer's monthly subscription cost. Plaintiff has raised factual questions as to whether the $20 fee was a fair compensation for the loss sustained. Plaintiffs alleges in the TAC ¶ 99: “[T]he $20 late fee charged by Defendants was not intended to recoup damages suffered by late payments because Defendants did not actually incur costs in the amount of $20, as the only additional step they took once a customer was late in making a payment was to add an extra line on the customer's next bill indicating that a $20 penalty fee was added to the outstanding balance.” Opp. at 32 (quoting TAC, ¶ 101). At the pleading stage, plaintiff does not need to show, and cannot show, that the costs imposed on ReadyRefresh by plaintiff s failure to pay the fee, because plaintiffs cannot yet obtain information as to what the costs are, if any, related to a late payment by a customer. See Branca v. Nordstrom. Inc. 2015 WL 10436858, at *8 (S.D. Cal Oct. 9, 2015) (“Plaintiff cannot be expected to have detailed personal knowledge of [the defendant's] internal pricing policies and procedures at this [pleading] stage in the litigation.”).
ReadyRefresh's citation to Util. Consumers' Action Network. Inc, v. AT&T Broadband of S. Cal., Inc.. 135 Cal.App.4th 1023, 1039 (2006) for the proposition that courts have approved “flat or fixed late fees” as valid liquidated damages clauses, reply at 12, is not to the contrary. The court in Util. Consumers' Action Network. Inc, was reviewing a motion for summary judgment. However, at the pleading stage, plaintiff need only show that the fee is, in fact, a liquidated damages provision. See Bayol, 78 F.Supp.3d at 1255.
D. Failure to State a Claim for Injunctive Relief
Lastly, ReadyRefresh contends that the Court should dismissed plaintiff s claims for injunctive relief because Kendall lacks standing. MTD at 23. To have standing to seek injunctive relief, the plaintiff must allege that he faces an “actual or imminent” threat of “irreparable harm.” Cole v. Oroville Union High Sch. Dist., 228 F.3d 1092, 1100 (9th Cir. 2000). The plaintiff must also allege facts that would establish “a sufficient likelihood that [she] will again be wronged in a similar way.” City of Los Angeles v. Lyons, 461 U.S. 95, 111 (1983). ReadyRefresh contends that Kendall fails to allege that he will suffer an “actual or imminent” harm due to ReadyRefresh's policy of charging a late fee. Kendall has not purchased bottled water delivery from ReadyRefresh since 2018. MTD at 24. See, e.g., Castagnola v. HewlettPackard Co., 2012 WL 2159385 (N.D. Cal. June 13, 2012) (holding that plaintiffs did not have standing to pursue injunctive relief for violations of the CLRA and UCL where they did not allege that they intended to purchase products from the defendant in the future and, even if they had, they knew the “terms and conditions” of the program at issue). Further, even if plaintiff had alleged imminent harm, the “harm” of paying a late fee is not “irreparable.” MTD at 24.
Plaintiff responds that Kendall is not seeking injunctive relief as a remedy; however, Javier, on behalf of himself and the represented class, is pursuing injunctive relief under the CLRA because he has standing to do so. Opp. at 26.
The Court notes that since Javier's claims are being sent to arbitration, Kendall is the only remaining plaintiff. As such, all of Kendall's claims for injunctive relief will be dismissed.
E. Leave to Amend
“Generally, the Ninth Circuit has a liberal policy favoring amendments, and thus, leave to amend should be freely granted.” Winebarger v. Pennsylvania Higher Educ. Assistance Agency. 411 F.Supp.3d 1070, 1082 (C.D. Cal. 2019); see also Fed.R.Civ.P. 15(a). Accordingly, the Court grants plaintiff leave to amend his complaint.
V. CONCLUSION
In accordance with the foregoing, the Court:
(1) DENIES ReadyRefresh's motion to dismiss as to plaintiff s claims under the unfair and unlawful prongs of the UCL; and GRANTS ReadyRefresh's motion as to plaintiff s claim under the fraudulent prong of the UCL with leave to amend.
(2) DENIES ReadyRefresh's motion to dismiss as to plaintiff s claims under the CLRA;
(3) DENIES ReadyRefresh's motion to dismiss as to plaintiff s claims under Cal. Civ. Code § 1671; and
(4) GRANTS ReadyRefresh's motion to dismiss as to plaintiff s claims for injunctive relief with leave to amend.
IT IS SO ORDERED.