Opinion
Case No. 19-cv-02626-NC
07-17-2020
RINGCENTRAL, INC., Plaintiff, v. NEXTIVA, INC., et al., Defendants.
ORDER GRANTING IN PART MOTION TO DISMISS AND STRIKE COUNTERCLAIMS
Re: Dkt. No. 72
Before the Court is plaintiff RingCentral, Inc.'s motion to dismiss and strike Nextiva, Inc.'s counterclaims. Dkt. No. 72. RingCentral argues that Nextiva's counterclaims contain the same errors that led to the dismissal of RingCentral's original complaint. The Court finds that Nextiva has sufficiently alleged its false advertising claims and its unfair competition claim, but fails to state sufficient facts to allege trade libel and intentional interference with prospective economic advantage.
Accordingly, the Court GRANTS IN PART and DENIES IN PART RingCentral's motion to dismiss Nextiva's counterclaims.
I. Background
A. Factual Allegations
The facts alleged in the counterclaims are considered true for purposes of the motion to dismiss. Nextiva provides cloud-based unified communication services. See Dkt. No. 67 ¶ 8. RingCentral provides similar services and competes against Nextiva. Id. ¶ 10.
RingCentral has carried out a wide-ranging and persistent scheme to disseminate false and derogatory reviews on the internet about Nextiva and other competitors, as well as posting false reviews about its own performance. Id. ¶¶ 13-17. RingCentral carries out its scheme by allegedly creating and maintaining its own comparison webpage and uses third-party sponsored websites where RingCentral or the sponsor purport to compare the services offered and prices charged by RingCentral and Nextiva. Id. ¶¶ 26-29. On its Comparison Page, RingCentral falsely claimed that: Nextiva's lowest-tier business phone service plan is priced at $22.95 per month, when in fact it is priced at $19.95 per month; and RingCentral's own low-tier business phone service plan, which costs $19.99 per month, included unlimited conferencing but did not actually include such services. Id. ¶ 27. Nextiva alleges that it has lost over two hundred prospective customers, "including the Diamond Chain Company, Washington Environmental Council, Anago of Orange County, and Gold Eagle Services LLC, as a result of RingCentral's disparagement and false representations made about Nextiva on its comparative webpage." Id. ¶ 95.
B. Procedural History
On May 14, 2019, RingCentral filed its initial complaint, alleging claims against unnamed defendants for tortious interference, trade libel, unfair competition, and trademark infringement. Dkt. No. 1. After two rounds of dismissal (see Dkt. Nos. 53, 65), Nextiva filed its answer and raised five counterclaims against RingCentral: (1) unfair competition under Cal. Bus. & Prof. Code § 17200; (2) false advertising under Cal. Bus. & Prof. Code § 17500; (3) false advertising under the Lanham Act, 15 U.S.C. § 1125(a); (4) trade libel; and (5) intentional interference with prospective economic advantage. Dkt. No. 67.
RingCentral now moves to dismiss and strike the counterclaims. Dkt. No. 72. All parties have consented to the jurisdiction of a magistrate judge under 28 U.S.C. § 636(c). See Dkt. Nos. 9, 51.
II. Legal Standard
A. Motion to Dismiss
A motion to dismiss for failure to state a claim under Rule 12(b)(6) tests the legal sufficiency of a complaint. Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). On a motion to dismiss, all allegations of material fact are taken as true and construed in the light most favorable to the plaintiff. Cahill v. Liberty Mutual Ins. Co., 80 F.3d at 336, 337- 38 (9th Cir. 1996). The Court, however, need not accept as true "allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable inferences." In re Gilead Scis. Secs. Litig., 536 F.3d 1049, 1055 (9th Cir. 2008). Although a complaint need not allege detailed factual allegations, it must contain sufficient factual matter, accepted as true, to "state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). A claim is facially plausible when it "allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).
If a court grants a motion to dismiss, leave to amend should be granted unless the pleading could not possibly be cured by the allegation of other facts. Lopez v. Smith, 203 F.3d 1122, 1127 (9th Cir. 2000). However, a court "may exercise its discretion to deny leave to amend due to 'repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party . . ., [and] futility of amendment.'" Carvalho v. Equifax Info. Servs., LLC, 629 F.3d 876, 892-93 (9th Cir. 2010).
B. Motion to Strike
The Court "may strike from a pleading an insufficient defense or any redundant, immaterial, impertinent, or scandalous matter." Fed. R. Civ. P. 12(f). A Rule 12(f) motion to strike serves "to avoid the expenditure of time and money that must arise from litigating spurious issues by dispensing with those issues prior to trial." SidneyVinstein v. A.H. Robins Co., 697 F.2d 880, 885 (9th Cir. 1983); see also Fantasy, Inc. v. Fogerty, 984 F.2d 1524, 1527 (9th Cir. 1993), rev'd on other grounds, 510 U.S. 517 (1994). A defense may be stricken as insufficient if it fails to give plaintiff "fair notice" of the defense. Wyshak v. City Nat'l Bank, 607 F.2d 824, 827 (9th Cir. 1979); see generally Fed. R. Civ. P. 8. A court may also strike from an answer matter that is immaterial, i.e., "that which has no essential or important relationship to the claim for relief or the defenses being plead," or matter that is impertinent, i.e., that which does not pertain, and is not necessary, to the issues in question. Fantasy, 984 F.2d at 1527. Motions to strike are generally disfavored and "should not be granted unless the matter to be stricken clearly could have no possible bearing on the subject of the litigation" or "unless prejudice would result to the moving party from denial of the motion." Platte Anchor Bolt, Inc. v. IHI, Inc., 352 F. Supp. 2d 1048, 1057 (N.D. Cal. 2004) (citations omitted). "If there is any doubt whether the portion to be stricken might bear on an issue in the litigation, the court should deny the motion." Id. (citations omitted). "With a motion to strike, just as with a motion to dismiss, the court should view the pleading in the light most favorable to the nonmoving party." Id. "Ultimately, whether to grant a motion to strike lies within the sound discretion of the district court." Cruz v. Bank of N.Y. Mellon, 2012 WL 2838957, at *2 (N.D. Cal. July 10, 2012) (citing Whittlestone, Inc. v. Handi-Craft Co., 618 F.3d 970, 973 (9th Cir. 2010)).
III. Discussion
A. False Advertising (Count II and III)
Claims of unfair competition and false advertising under California's False Advertising Law ("FAL") and California's Unfair Competition Law ("UCL") are "substantially congruent" to claims under the Lanham Act. Cytosport, Inc. v. Vital Pharms., Inc., 894 F.Supp.2d 1285, 1295 (E.D. Cal. 2012) (quoting Walker & Zanger, Inc. v. Paragon Indus., Inc., 549 F.Supp.2d 1168, 1182 (N.D. Cal. 2007)). Thus, the Court will consider both claims together.
A false advertising claim under the Lanham Act has five elements: "(1) a false statement of fact by the defendant in a commercial advertisement about its own or another's product; (2) the statement actually deceived or has the tendency to deceive a substantial segment of its audience; (3) the deception is material, in that it is likely to influence the purchasing decision; (4) the defendant caused the false statement to enter interstate commerce; and (5) the plaintiff has been or is likely to be injured as a result of the false statement, either by direct diversion of sales from itself to defendant or by a lessening of the goodwill associated with its products." Skydive Arizona, Inc. v. Quattrocchi, 673 F.3d 1105, 1110 (9th Cir. 2012) (citing 15 U.S.C. § 1125(a)(1)(B)).
Because Nextiva alleges that "RingCentral's advertising, statements regarding Nextiva's products and services . . . are false, misleading, and/or have the capacity, likelihood, or tendency to deceive or confuse," its false advertising claim sounds in fraud and is subject to the heightened pleading requirements of Federal Rule of Civil Procedure 9(b). See TransFresh Corp. v. Ganzerla & Assoc., Inc., 862 F. Supp. 2d 1009, 1017-18 (N.D. Cal. 2012). Accordingly, the complaint must allege "the who, what, when, where, and how of the fraud." Id. at 1017 (quoting Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1106 (9th Cir. 2003)).
Nextiva's false advertising claim meets the Rule 9(b) pleading standard. The counterclaim adequately alleges "who" made the statements, "what" the content of the false statements were, and "how" they were false:
For example, RingCentral claims on that webpage the "$19.99 plan includes unlimited conferencing, SMS and toll-free/local number;" however, RingCentral's pricing webpage confirms that it does not include conferencing with its $19.99 plan. Rather, "unlimited audio conferencing" is only offered on its plans costing $24.99 per month and higher. Additionally, Nextiva's plans are priced at $19.95; not $22.95, as RingCentral states.Dkt. No. 67 ¶ 27. The counterclaim also satisfies the "when" and "where" by alleging that the web address "https://www.ringcentral.com/sem/compare/nextiva.html#ring-1" was accessed on May 11, 2020. Dkt. No. 67 at 8 n.12. This is enough because the Court could determine whether the alleged misconducts were sufficiently disseminated. Coastal Abstract Serv., Inc. v. First Am. Title Ins. Co., 173 F.3d 725, 734-75 (9th Cir. 1999).
Nextiva has sufficiently alleged its false advertising claims. First, Nextiva alleged that "[its] plans are priced at $19.94; not $22.95, as RingCentral states." Dkt. No. 67 ¶ 27. Assuming that these facts are true, as the Court must on a motion to dismiss, RingCentral plainly made false statements that could deceive the public as to Nextiva's prices. RingCentral contends that its statements were true when made because Nextiva later updated its pricing website. See Dkt. No. 72 at 18. But the Court may not consider facts outside the complaint. Thus, Nextiva has sufficiently alleged a false statement of fact that has a tendency to deceive the public.
Second, materiality and likelihood of injury are also sufficiently alleged because there could be plausible "lessening of goodwill associated with its products" when RingCentral misrepresented the price and quality of Nextiva's products. Skydive Arizona, Inc., 673 F.3d at 1110. Nextiva also alleged that RingCentral manipulated Glassdoor's employee reviews of Nextiva and artificially increased RingCentral's page ranking, which could plausibly influence Nextiva's current and future customers' purchasing decisions. Dkt. No. 67 ¶¶ 41-44.
RingCentral also argues that its statements merely contain exaggerated "puffery" as opposed to statements of facts, and are thus not actionable. Specific, quantifiable "statements of facts" that refer to a product's absolute characteristics may constitute false advertising, while general, subjective, unverifiable claims are "mere puffery" that cannot. Newcal Indus., Inc. v. Ikon Office Solution, 513 F.3d 1038, 1053 (9th Cir.2008). Here, even if RingCentral's statement that "[Nextiva products have] limited potential for integrations" can be considered "mere puffery," RingCentral's other statements on Nextiva's pricing are not. The statements on pricing are "statements of facts" because they describe an absolute characteristic of Nextiva's products and are factually different than Nextiva's actual pricing. Thus, Nextiva has stated an actionable false advertising claim.
Accordingly, RingCentral's motion to dismiss Nextiva's false advertisement claim is DENIED.
B. Trade Libel (Count IV)
Nextiva's trade libel claim is based on "RingCentral's disparagement and false representation made about Nextiva on its [Comparison Webpage]." Dkt. No. 67 ¶91.
Trade libel is the intentional disparagement of property that results in pecuniary damage. Aetna Cas. & Sur. Co., Inc. v. Centennial Ins. Co., 838 F.2d 346, 351 (9th Cir. 1988). A trade libel claim requires: (1) a publication, (2) which induces other not to deal with plaintiff, and (3) special damages. Id. Under California law, a trade libel plaintiff must allege special damages, i.e., specifically itemized pecuniary harm that was proximately caused by the libelous statements. Piping Rock Partners, Inc. v. David Lerner Assocs., 946 F. Supp. 2d 957, 981 (N.D. Cal. 2013), aff'd, 609 F. App'x 497 (9th Cir. 2015).
RingCentral argues that Nextiva fails to identify any specific pecuniary harm and Nextiva only alleges conclusively that it has "sustained financial loss." Id. at 17. The Court agrees. Trade libel plaintiffs must "identify particular customers and transactions of which it was deprived as a result of the libel." Piping Rock Partners, 946 F. Supp. 2d at 981. Nextiva identifies "over two hundred prospective customers," but fails to allege how these prospective customers in the aggregate were associated with any ongoing or future sales as a result of RingCentral's alleged trade libel, nor does it mention any lost transactions attributable to the alleged trade libel claim.
Although Nextiva identified four specific prospective clients that it allegedly lost as a result of RingCentral's false statements, Nextiva's allegations as to those prospective clients are conclusory. As the Court previously explained, a trade libel plaintiff must also allege and eventually "prove that the statement played 'a material and substantial part in inducing others not to deal with [the plaintiff].'" Id. Nextiva's allegations merely conclude that it lost those four named clients "as a result" of RingCentral's disparagement. Nextiva fails to allege any facts suggesting that those clients were aware of RingCentral's false statements or that they intended to deal with Nextiva.
Accordingly, the Court GRANTS RingCentral's motion to dismiss Nextiva's trade libel claim with leave to amend.
C. Intentional Inference with Prospective Economic Advantage (Count V)
Intentional interference with prospective economic advantage requires "(1) an economic relationship between the plaintiff and some third party, with the probability of future economic benefit to the plaintiff; (2) the defendant's knowledge of the relationship; (3) intentional acts on the part of the defendant designed to disrupt the relationship; (4) actual disruption of the relationship; and (5) economic harm to the plaintiff proximately caused by the acts of the defendant." Korea Supply Co. v. Lockheed Martin Corp., 29 Cal. 4th 1134, 1153 (2003) (quoting Westside Ctr. Assocs. v. Safeway Stores 23, Inc., 42 Cal. App. 4th 507, 521-22 (1996)). Interference with prospective economic advantage is actionable only if the underlying conduct is independently wrongful of the interference itself. Korea Supply, 29 Cal. 4th at 1153.
To adequately allege "an economic relationship between the plaintiff and some third party," courts in this district have held that the plaintiff must identify in some manner an economic relationship with a specific individual. See R. Power Biofuels, LLC v. Chemex LLC, No. 16-cv-00716-LHK, 2016 WL 6663002, at *16 (N.D. Cal. Nov. 11, 2016) (citing Ramona Manor Convalescent Hosp. v. Care Enterps., 177 Cal. App. 3d 1120, 1133 (1986)). General allegations regarding prospective or future customers are insufficient because they fail to adequately suggest that those relationships contain a probability of future economic benefits. See AlterG, Inc. v. Boost Treadmills LLC, 388 F. Supp. 1133, 1152 (N.D. Cal. 2019); see also Korea Supply Co., 29 Cal. 4th at 1164 ("This tort therefore protects the expectation that the relationship eventually will yield the desired benefit, not necessarily the more speculative expectation that a potentially beneficial relationship will arise.").
RingCentral argues that Nextiva did not allege with specificity any disrupted economic relationship. Nextiva counters in its opposition that there was an economic relationship because prospective customers "ultimately closed their inquiries into Nextiva's services as a consequence of having viewed [RingCentral's] Comparison Page." Dkt. No. 74 at 21.
But as the Court explains above, Nextiva fails to allege sufficient facts supporting its allegations. Comparing the Court's prior order on Nextiva's own motion to dismiss RingCentral's amended complaint is helpful. In the Court's previous order, an economic relationship existed between RingCentral and its named prospective clients there because "at least one of [existing clients] canceled its account due to negative online reviews" and those prospective customers actually cited the negative online reviews as the reason for not purchasing its services. Dkt. No. 65 at 6. Here, Nextiva only alleged that "on information and belief . . . Nextiva has lost over two hundred prospective customers . . . as a result of RingCentral's [statements] on its comparative webpage." This is insufficient. Without specific facts, the Court cannot plausibly infer that those prospective customers would have dealt with Nextiva absent RingCentral's interference.
Accordingly, RingCentral's motion to dismiss Nextiva's interference with prospective economic advantage claim is GRANTED with leave for Nextiva to amend.
D. Unfair Competition Claim (Count I)
The UCL prohibits any "unlawful, unfair, or fraudulent business act or practice." Cal. Bus. & Prof. Code § 17200; see also Cel-Tech Commc'ns, Inc. v. Los Angeles Cellular Tel. Co., 20 Cal. 4th 163, 180 (1999). "Because Business and Professions Code section 17200 is written in the disjunctive, it establishes three varieties of unfair competition—acts or practices which are unlawful, or unfair, or fraudulent." Cel-Tech, 20 Cal. 4th at 180. "Each prong of the UCL is a separate and distinct theory of liability." Kearns v. Ford Motor Co., 567 F.3d 1120, 1127 (9th Cir. 2009).
Here, Nextiva has stated a claim for false advertising. Thus, its UCL claim based upon the unlawful prong survives as well. Accordingly, the Court DENIES RingCentral's motion to dismiss Nextiva's unfair competition claim.
E. Motion to Strike
Motions to strike are generally disfavored and "should not be granted unless the matter to be stricken clearly could have no possible bearing on the subject of the litigation" or "unless prejudice would result to the moving party from denial of the motion." Platte Anchor Bolt, Inc. v. IHI, Inc., 352 F. Supp. 2d 1048, 1057 (N.D. Cal. 2004) (citations omitted). "If there is any doubt whether the portion to be stricken might bear on an issue in the litigation, the court should deny the motion." Id. (citations omitted). "With a motion to strike, just as with a motion to dismiss, the court should view the pleading in the light most favorable to the nonmoving party." Id. Ultimately, whether to grant a motion to strike lies within the sound discretion of the district court. Cruz v. Bank of New York Mellon, No. 12-00846, 2012 WL 2838957, at *2 (N.D.Cal. July 10, 2012); see Whittlestone, Inc. v. Handi-Craft Co., 618 F.3d 970, 973 (9th Cir. 2010).
RingCentral moves to strike ¶¶ 13-20, 24-25, 32, 36-62 from Nextiva's counterclaim. Dkt. No. 72 at 6-7. Contrary to what RingCentral argues, these allegations bear upon the subject matter of the litigation and provides background information on the dispute. For example, the allegation on manipulating employee review on Glassdoor could serve to establish Nextiva's false advertising or intentional interference claims. Dkt. No. 67 ¶ 41. Moreover, RingCentral has not shown that prejudice would result if the challenged portions are not stricken. Accordingly, the Court finds that RingCentral has not demonstrated that these allegations are entirely unrelated to the claims. Because motions to strike are generally disfavored and the challenged portions are relevant to the claims, the Court DENIES RingCentral's motion to strike.
IV. Conclusion
For the reasons discussed above, the Court GRANTS RingCentral's motion to dismiss the trade libel and intentional interference claims; and DENIES RingCentral's motion to dismiss the false advertising and unfair competition claims. The Court also DENIES RingCentral's motion to strike. If Nextiva chooses to amend, it must file its amended counterclaims by August 3, 2020. The amended counterclaims may not add additional claims or parties without further leave of Court.
IT IS SO ORDERED. Dated: July 17, 2020
/s/_________
NATHANAEL M. COUSINS
United States Magistrate Judge