APPLE v. S.C. (KRESCENT)

Petitioner's Petition for Review

Cal.January 13, 2012

O LiU,J. ( No. S 1 y Y O & 4 SUPREMECOURT JAN 1 3 2012 Frederick K. Ohirich Clerk Baputy IN THE SUPREME COURT OF CALIFORNIA APPLEINC., a California corporation, Petitioner, VS. SUPERIOR COURT OF THE COUNTY OF LOS ANGELES, Respondent. DAVID KRESCENT, individually and on behalf of a class of persons similarly situated, Real Parties in Interest. Court of Appeal Case No. B238097 Los Angeles Superior Court Civil Case No. BC463305 (Related to Case Nos. BC462492 and BC462494) PETITION FOR REVIEW OF A DECISION IN THE COURT OF APPEAL, SECONDDISTRICT, DIVISION EIGHT PAUL HASTINGS LLP DAVID M. WALSH (SB# 120761) PAUL W.CANE, JR. (SB# 100458) ADAM M.SEVELL (SB# 266428) | 515 South Flower Street, Twenty-Fifth Floor Los Angeles, California 90071-2228 Telephone: (213) 683-6000; Facsimile: (213) 627-0705 Attorneys for Petitioner APPLE INC. No. IN THE SUPREME COURT OF CALIFORNIA APPLEINC., a California corporation, Petitioner, VS. SUPERIOR COURT OF THE COUNTY OF LOS ANGELES, Respondent. DAVID KRESCENT, individually and on behalf of a class of persons similarly situated, Real Parties in Interest. Court of Appeal Case No. B238097 Los Angeles Superior Court Civil Case No. BC463305 (Related to Case Nos. BC462492 and BC462494) PETITION FOR REVIEW OF A DECISION IN THE COURT OF APPEAL, SECOND DISTRICT, DIVISION EIGHT PAUL HASTINGS LLP DAVID M. WALSH (SB# 120761) PAUL W.CANE,JR. (SB# 100458) ADAM M.SEVELL(SB# 266428) | 515 South Flower Street, Twenty-Fifth Floor Los Angeles, California 90071-2228 Telephone: (213) 683-6000; Facsimile: (213) 627-0705 Attorneys for Petitioner APPLE INC. CERTIFICATE OF INTERESTED ENTITIES OR PERSONS Defendant and Petitioner Apple Inc. has no parent corporation, and (to the best of its knowledge) there is no publicly held company that owns 10% or more of Apple Inc.’s outstanding stock. Apple Inc. is aware of no entity or person thathas a financial or other interest in the outcome of this proceeding that the justices should consider in determining whetherto disqualify themselves. Respectfully submitted, DATED: January 13, 2012 PAUL HASTINGS LLP Yok W Comedy By: Paul W. Cane, Jr. Attorneys for Petitioner APPLEINC. TABLE OF CONTENTS Page STATEMENT OF ISSUES PRESENTED FOR REVIEW.........cee 1 FACTUAL AND PROCEDURAL BACKGROUND. .......... ccc ccccessneeeeees 3 REASONS FOR GRANTING REVIEW .......cccccecssssssccceseeeseesseceeeeseeeererses 6 A. The Trial Court’s Decision Conflicts With Gonor, Saulic, (And Now) Salmonson and Mehrenss ......ccscccceeeenees 8 B. Extending The Credit Card Act To Online Transactions Would Undermine ConsumerProtection And Foster Fraud .........ccccsessccsssecccessssnnenscesseeseeesceeeeeeeaeeeeeeens 9 C, The Language Of The Credit Card Act Reveals ThatIt Does Not Cover Online Retailers ..........ccccccesseseeeeeeeeeeeeerees 12 CONCLUSIONuicecccccesssssscccsssseesseceesecsesensasseeeecsnaeeevsnanaaaeessnaaeaeeseenones 14 CERTIFICATE OF COMPLIANCE PURSUANT TO CALIFORNIA RULE OF COURT 8.504(D)0.eeceeesstereereesens 15 “ii- TABLE OF AUTHORITIES Page(s) CASES Absher v. AutoZone, Inc. (2008) 164 Cal.App.4th 332 occeceessseeserecesseeesesssessecsessresieeeaeenesersseeenteens 2, 10, 11 Berry v. American Express Publishing, Inc. (2007) 147 Cal.App.4th 224 oc iccscesesctscesserseesessesseesssessessessesssssssesnsosseessenreseeseeseeays 9 Ewert v. eBay, Inc, (N.D. Cal. March 21, 2008), 2008 WL 906162 oo.eeereeeee teeter teereeeeneeesseneens 13 Mehrensv. Redbox Automated Retail LLC, (C.D. Cal. Jan. 6, 2012, No. 2:11-cv-02936-JHIN-E).0... ec eeceeeeneneeereeereeenerenens passim Mejia v. Reed (2003) 31 Cal.4th 657 ic cececccssenseceetscressensesecsssesneesssssseesessecsscseecsessesereessesnserenass 10 Pineda v. Williams-SonomaStores, Inc. (2001) 51 Cal.4th 524iccececeseersceseeesseneeesecssessssessescessessecaseassassesssasssesseneessegeas 1,11 Salmonson v. Microsoft Corp. (C.D. Cal. Jan. 6, 2012, No. 2:1 1-cv-05449-JHIN-JC) ...cccccceeesseseeteeseteessenenee passim Saulic v. Symantec Corp. (C.D.Cal. 2009) 596 F.Supp.2d 1323 oo. ccscsseeeeceeseesseseeesecsesserseneeseeseeseeneesees passim TJX Cos. v. Super. Ct. (2008) 163 Cal.App.4th 80 oo... eeceseesseeeesecesssssevssneecersecsesscsessrssessssseseenecasenseneeesaeys 10 Wang v. Wal-Mart Real Estate Bus. Trust (2007) 153 Cal.App.4th 790 .cceceececesesesseserscnesecsessesessessesesscsessscnserenesesecsenecsssessseass 10 STATUTES California Auction Act, Civil Code section 1812.60] ef SOQ... eeeseenteeeeseseeeenneeeensesees 13 Civ. Code, § 1747.08, subd. (A) oo.eecteseeessessecnsersceessessieesesesessseenescsaesenteseseareatente 13 Song-Beverly Credit Card Act, Civil Code section 1747.08 .....cccccccseeeserereeeeees 1,3, 13 OTHER AUTHORITIES California Rule of Court 8.500(b)(1) .ccsceesessssssssesscesssesssessseesseeseessecsecsseceseessecsseesneessenecs secsesaneceeveeene 6 -1l1- STATEMENT OF ISSUES PRESENTED FOR REVIEW This petition presents a legal question that affects millions of California consumers and implicates hundredsof millions of online transactions: Does the Song-Beverly Credit Card Act, Civil Code section 1747.08 — enacted in 1971, and amendedin relevant part more than 20 years ago — apply to 21st Century online retailers? Althoughthetrial court correctly observed that the question deserves interlocutory review, the Court of Appeal for the Second Appellate District summarily denied Apple Inc.’s petition for writ review. Apple respectfully requests that this Court grantthis petition for review and resolve the open and important question oflaw it raises. Alternatively, based on new authorities issued in the last few days following the Court of Appeal’s order, the Court should issue a grant-and-transfer order directing the Court of Appeal to grant Apple’s petition, issue an alternative writ, and decide on the merits the issues raised by the petition. The Credit Card Act prohibits retailers from requesting from consumerscertain personalidentification information (“PII”) in accepting credit card payments. In Pineda v. Williams-SonomaStores, Inc. (2001) 51 Cal.4th 524, this Court held that ZIP codes are PII. Pineda spawned hundredsofclass actions alleging Credit Card Act violations in traditional brick-and-mortarretail stores. ‘Thetrial court’s order overruling Apple’s demurrer, entered on December 7, 2011, is attached hereto as Exhibit “A.” The Court of Appeal’s Order Summarily Denying Apple’s Petition for Writ of Mandate, Prohibition or Other Appropriate Relief, entered on January 5, 2012,is attached hereto as Exhibit “B.” Online transactions are different. An online retailer sells goods to someoneit cannot see. Online retailers therefore must take steps ~ to prevent identity theft and fraud by confirming that purchasers are who they say they are. The Credit Card Act, enacted long before the phenomenonofonline sales, cannot reasonably be stretched to cover online transactions without subverting the Act’s consumer-protection purposes. In the action below,real party in interest David Krescent sued Apple, purporting to represent a class of similarly situated individuals. Krescent alleged that Apple violated the Credit Card Act by requesting his address and telephone number before accepting a proffered credit card to pay for Krescent’s online purchases. Apple demurred to the Complaint, demonstrating: 1. The plain language of the Credit Card Act — supported by bothits legislative history and intent — limits the Act’s scope to transactions consummatedin traditional brick-and-mortarstores. 2. The only opinion then published on the subject found that the Credit Card Act did not apply to onlineretailers, (Saulic v. Symantec Corp. (C.D.Cal. 2009) 596 F.Supp.2d 1323.) 3. The Credit Card Act should be narrowly construed where, as here, fraud-prevention concernsprovide a “legitimate justification” to collect PII. (Absher v. AutoZone, Inc. (2008) 164 Cal.App.4th 332, 346.) Thetrial court acknowledged the “definite appeal” of Apple’s arguments but overruled Apple’s demurrer. Those arguments are now even more appealing. Following the Court of Appeal’s summary denial of Apple’s writ petition, two additional district courts have held that the Credit Card Act does not apply to online transactions and havespecifically addressed the questionsraised in the trial court’s order overruling Apple’s demurrer. Five state and federal courts have now considered whether the Credit Card Act applies to online transactions; all but one have foundthat it does not. This Court’s immediate review is necessary to provide guidance and decide a legal issue that affects millions of California consumers and online businesses every day. FACTUAL AND PROCEDURAL BACKGROUND Apple is the defendant in Krescent v. Apple Inc., Los Angeles Superior Court Case BC 463305 (the “Apple Action”). Ticketmaster LLC is the defendant in Luko v. Ticketmaster, Los Angeles Superior Court Case BC 462492(the “Ticketmaster Action”). eHarmony,Inc. is the defendant in Luko v. eHarmony, Inc., Los Angeles Superior Court Case BC462494 (the “eHarmony Action”). On May 27, 2011, Brian Luko (on behalf of himself and a putative class of similarly situated individuals) filed the Ticketmaster Action and the eHarmony Action. On June 10, 2011, David Krescent (on behalf of himself and a putative class of similarly situated individuals) filed the Apple Action. All three cases allege one cause of action: violation of the Credit Card Act. The Credit Card Act, Civil Code section 1747.08, provides: (a) Except as provided in subdivision (c), no person, firm, partnership, association, or corporation that accepts credit cards for the transaction of business shall do any of the -3- following: (1) Request, or require as a condition to accepting the credit card as paymentin full or in part for goodsor services, the cardholder to write any personalidentification information upon the credit card transaction form or otherwise. (2) Request, or require as a condition to accepting the credit card as paymentin full or in part for goodsor services, the cardholder to provide personalidentification information, whichthe person,firm, partnership, association, or corporation accepting the credit card writes, causes to be written, or otherwise records upon the credit card transaction form or otherwise. (3) Utilize, in any credit card transaction, a credit card form which contains preprinted spaces specifically designated for filling in any personal identification information of the cardholder. On June 30, 2011, the trial court related the Apple, Ticketmaster, and eHarmony Actions. On September 9, 2011, Apple, _ Ticketmaster and eHarmony separately demurred. The demurrers each demonstrated that the Credit Card Act does not apply to online transactions. On November7, 2011, the trial court held a consolidated hearing on the demurrers. The court noted the absence of any controlling appellate authority and stated on the record the desirability of appellate review. On December7, 2011, the court issued an omnibus Order overruling the three demurrers. The court, however, restated that “appellate resolution of the[] [issues presentedin this Petition] may materially assist in the resolution of the litigation.” (Ex. “A.”) On December27, 2011, Apple petitioned the Court of Appeal -4- for interlocutory review ofthe trial court’s order. Ticketmaster and eHarmonyseparately petitioned for the same relief on December 29, 2011. On January 5, 2012, the Court of Appeal summarily denied all three petitions. (Ex. “B.”) . Thereafter, two new on-point opinions issued in unrelated cases. See Salmonson v. Microsoft Corp. (C.D. Cal. Jan. 6, 2012, No. 2:11- cv-05449-JHIN-JC) [‘“[OJnline transactions .. . present unique fraud concerns, and nothing in the legislative history indicates that the Act was intended to cover online transactions. Noris there any hint that the Legislature considered the fraud concerns raised in the context of online transactions.”]; Mehrens v. Redbox Automated Retail LLC, (C.D. Cal. Jan. 6, 2012, No. 2:11-cv-02936-JHN-E) [“[C]ollection of personal information in an online or unattended kiosk transaction may be the only means of verifying a customer’s identity in order to prevent credit card fraud. Given the Act’s focus on preventing unnecessary use of personal identification information, the language cannot reasonably be read to encompass online transactions, where recording such information is necessary for a legitimate purpose.” 2 This petition for review followed. ? Copies of the Salmonson and Mehrens decisions are attached as Exhibits “1” and “2” to the concurrently-filed Appendix of Unpublished Authorities. REASONS FOR GRANTING REVIEW California Rule of Court 8.500(b)(1) provides that the Supreme Court may grant review of a Court of Appeal decision “[w]hen necessary to secure uniformity of decision or to settle an important question of law.” Review of the Court of Appeal’s order below summarily denying Apple’s writ petition is “necessary to secure uniformity of decision” becauseof conflicting opinions about the application of the Credit Card Act to online transactions, as shown bythe following: 1. Thetrial court’s ruling contradicts the ruling of the San Francisco Superior Court in Gonorv. craigslist, Inc. (Super. Ct. S.F. County, Aug. 24, 2011, No. CGC-11-51 1332)° [order sustaining demurrer to complaint]) [the Credit Card Act “on its face does not apply to online transactions”; “applicable case law, legislative intent, and public policy indicate that [online] transactions are not, and should notbe, encompassed by [the Credit Card Act]],” and Saulic, 596 F. Supp. 2d at 1333-34 [“[N]either the language of the Actnorits legislative history suggests the Act includes online transactions.”J. 2. Aspreviously noted, the trial court’s ruling also conflicts with two very recently announced opinions, both of which dismissed class action complaints with prejudice, based on legal determination that the Credit Card Act does not apply to online transactions. * The Gonor decision is attached as Exhibit “3” to the concurrently-filed Appendix of Unpublished Authorities. Thetrial court correctly took judicial notice of Gonor but did not follow it or even discussit. 3. Salmonson and Mehrensalso resolve concerns noted by the trial court in its order overruling Apple’s demurrer. First, the trial court haddistinguished Saulic because it was decided on a motion for class certification as opposed to a motion to dismiss or demurrer. Salmonson found this procedural distinction to be “immaterial” because “[t]he holding in Saulic is based on the court’s interpretation of the statute and a review of its legislative history. It does not hinge on evidence outside the pleadings.” (Appx. Tab “1” at 6 n.3.) Second,the trial court had invited the Legislature to consider conferring an exemption on online retailers, muchasit did in the context of gasoline retailers. Mehrens explained that gasoline transactions differed from online transactions because “pay-at-the-pump transactions involve onsite attendants, who are available to monitor and investigate suspicious credit card use. By contrast, there is no attendant monitoring credit card use and identifying suspicious activity at an unmanned Redbox kiosk.” (Appx. Tab “2” at 6 n.3.) The Legislature need not “exempt” online retailers in whole or in part from the Credit Card Act becausethe statute simply does not apply to them. 4, Neither the trial court nor the Court of Appeal had the benefit of Salmonson and Mehrens. Apple wasunable to present the new authorities to the Court of Appeal by way of a rehearing petition because that court lost jurisdiction as soon as it issued its order denying Apple’s wit petition. Review is further warranted because it would settle a discrete and important issue. This petition presents to the Court a pure question of law for which there is no appellate precedent and which potentially disposes, not just of this case, but also tworelated class actions (against -7- Ticketmaster and eHarmony), now before the sametrial court. (Apple is informed that Ticketmaster and eHarmony separately will petition for review.) The underlying issue is one of recurring and increasing significance as online sales grow. It implicates the rights of millions of California consumersand the potential obligations of online retailers across the State. Whatever may be the right legal answer, this Court should provide that answer(orinstruct the Court of Appeal to do the same). California consumers and retailers need guidance on the law that applies to hundreds of millions of onlinetransactions. A. The Trial Court’s Decision Conflicts With Gonor, Saulic, (And Now) Salmonson and Mehrens. Thetrial court overruled Apple’s demurrer and held that the Credit Card Act applies to online transactions. That decision conflicts with four others. In Gonor, the San Francisco Superior Court considered whether the Credit Card Act applies to online purchasesofclassified ads. Plaintiff alleged that defendant’s online system required him to provide certain PII, including his telephone numberand address, to pay by credit card. The San Francisco court held that defendant’s collection of PII in connection with internet commercedid not violate the Credit Card Act because the statute does not cover online transactions. The court sustained without leave defendant’s demurrer. (Appx. Tab “3.”) In Saulic, the plaintiff purchased from defendant’s website anti-virus software. The online retailer “required that [plaintiff] disclose both his address and telephone number.” (Saulic, supra, 596 F.Supp.2d at -8- pp. 1325-26.) The district court found that “[n]either the language of the Act norits legislative history suggests the Act includes online transactions.” (/d. at pp. 1333-34.) Rather, the legislative history “suggests the Act was specifically passed with a brick-and-mortar merchant environmentin mind,” rather than any supposed “perils of misappropriation of consumercredit information in an online environment.” (dd. at p. 1333.) Indeed, it would foster identity theft and fraud to deprive onlineretailers of information to verify a purchaser’s identity. (Ud. at pp. 1335-36.) Now,in just the last few days, Salmonson and Mehrens have issued, joining Gonor and Saulic in an unbrokenline of authorities contradicting the trial court’s ruling here. The conflict in the lower court decisions alone provides good reasonto grantthis petition to announce a definitive rule of law.’ B. Extending The Credit Card Act To Online Transactions Would Undermine ConsumerProtection And Foster Fraud. The Credit Card Act is a consumer-protection statute. One cannot construe that Act without considering the public interest in preventing identity theft. As Saulic explained, “[R]ecent state and district * There is no benefit to waiting to review the issue until this case reaches a different procedural posture. Ifa statute simply does not apply, a demurrer is the proper time to say so. (See, e.g., Berry v. American Express Publishing, Inc, (2007) 147 Cal.App.4th 224, 233 [affirming order sustaining demurrer without leave to amend; the consumer-protection statute at issue did not coverthe disputed transactions].) That particularly is true here, because countless online transactions occur every day, without authoritative legal guidanceto retailers and consumers. court decisions give deference to a competinginterest: fraud prevention through PII collection.” (Saulic, supra, 596 F.Supp.2d at p. 1334.) A court construing a statute must consider the legislative intent and public policy underlying the statute. “Literal construction should not prevailif it is contrary to the legislative intent apparentin the statute. Theintent prevails over the letter, and the letter will, if possible, be so read as to conform to thespirit of the act.... [I|fa statute is amenable to two alternative interpretations, the one that leads to the more reasonable result will be followed.” (See Absher, supra, 164 Cal.App.4th at p. 340 [holding the Credit Card Act inapplicable to certain transactions] [citations omitted]; see also Mejia v. Reed (2003) 31 Cal.4th 657, 663 [“‘Where uncertainty exists consideration should be given to the consequencesthat will flow from particular interpretation.’”] [citation andalteration omitted]; Wang v. Wal-Mart Real Estate Bus. Trust (2007) 153 Cal.App.4th 790, 801 [a statute open to more thanoneinterpretation should be interpreted so as to “avoid anomalous or absurd results’’].) In two recentcases, plaintiffs contended that the Credit Card Act prohibited requests for PII when a purchaser sought a refund for returning merchandise previously purchased by credit card. Courts in both cases concluded that, whatever the Credit Card Act’s statutory language might suggest, the statute “does not apply to merchandise returns,” in part because “there are substantial opportunities for fraud and it behooves the merchant to identify the person whoreturns merchandise[.]” (7/X Cos. v. Super. Ct. (2008) 163 Cal.App.4th 80, 87-89; see also Absher, supra, 164 Cal.App.4th at p. 339 [“returns of merchandise are arguably different” from the original purchase transaction because, among other reasons, the -10- merchant has an interest in preventing fraud].) The threat of fraud is even more acute in the context of internet sales. The online retailer does not know and cannot see the purchasers, and therefore does not know if they are who they claim to be. Online merchants have fewertools to verify a purchaser’s identity than do their brick-and-mortar retail counterparts. In an in-person transaction, the merchant may ask for photo identification to verify that the customeris, in fact, the credit-card holder. That cannot occur online. If online customers cannot be asked for information beyond the numbersprinted on their credit cards, the retailer cannot verify customers’ identities and prevent fraud. Precluding online merchants from taking simple measuresto verify customeridentity would undermine the very policy of consumerprotection that the Credit Card Act was intended to foster. (See Absher, supra, 164 Cal.App.4th at p. 346 [the Credit Card Act cannot reasonably apply where “there appears to be somelegitimate justification for such access[to PII] other than marketing purposes”); Saulic, supra, 596 F.Supp.2d at p. 1335 (“As in refund transactions, an online transaction raises fraud concerns.”’].) Here, however,the trial court (while acknowledgingthat fraud and identity theft ‘is widespread . . . in online credit card transactions”), declined to construe the Credit Card Act to allow online retailers to guard against it.” > Thetrial court noted that this Court’s decision in Pineda v. Williams- SonomaStores, Inc. (2011) 51 Cal.4th 524, drew no “distinction between online credit transactions and ‘brick-and-mortar’ credit transactions.” But Pineda had no reason even to consider, let alone draw,this distinction. The defendant there, Williams-Sonoma, wasa brick-and-mortar retailer whose (continued...) -ll- C. The Language Of The Credit Card Act Reveals ThatIt Does Not Cover Online Retailers. Thetrial court here looked to see whether the Act contained an “exempti[on]” for online retailers. Obviously there is no such express exemption; online retail sales did not exist when the statute was enacted or amendedin relevant part, so there was nothing then to “exempt.” Finding no express “exemption,”the court found that the Credit Card Act applied.° Other courts, by contrast, have analyzed the issue differently. They lookedto see if there was any indication, based on the entirety of the statute and its plain language, whether the statute reached onlinesales. That language demonstrates that the Act is not silent on the issue, and that Apple is correct. For example: The statute permits merchants to “requir[e] the cardholder,as (...continued) alleged violations occurred at the physical point of sale. Online transactions were notat issue. ° Thetrial court invited the Legislature to consider conferring an exemption on online retailers. (Ex. “A”: “Just as a gasoline retailer may request a customer’s zip code [pursuant to one of the Act’s exemptions] to verify the card being used, online retailers may be justified in requesting [PII] to verify the credit card purchase. The Legislature has specifically addressed the issue with respect to gasoline retailers, and may do the same with . respect to online retailers ....”). But there is no need to “exempt” transactions from a statute that does not cover them in thefirst place. Gasoline stations are brick-and-mortar establishments plainly subject to the Credit Card Act. Legislative action —- an express exemption — therefore wasnecessary to allow gasoline merchants to guard against fraud by asking for customer ZIP codes. The absence of a similar exemption for online retailers proves nothing, because the Legislature never would “exempt” those retailers in whole or in part from a statute that simply does not apply: to them. -12- a condition to accepting the credit card ..., to provide reasonable forms of positive identification, which may includea driver’s license or a California state identification card.” (Civ. Code, § 1747.08, subd. (d).) Online merchants by definition cannot request or inspect either of these tangible formsofidentification. And, even if they could, seeing a driver’s license photo —— proffered by a purchaserthat the online retailer cannot see — is useless to guard against identity theft. In addition, the Credit Card Act refers to a “credit card form whichcontains preprinted spaces.” (Ud. § 1747.08, subd.(a)(3) [emphasis added].) Website pagesare digitized displays. By their very nature they do not contain printed spaces. The Credit Card Act plainly was written to cover — andit still covers’ — only brick-and-mortarretailers. As the court in Ewertv. eBay, Inc, (N.D. Cal. March 21, 2008), 2008 WL 906162, recognized in holding that the California Auction Act, Civil Code section 1812.601 et seq. did not apply to online auctions, applying a statute written for in- person transactions to an online context “is like trying to put a round peg in a square hole.” Thetrial court’s holding in these cases, andits potentially devastating effect on fraud prevention, is the product of such a forced effort and should be reviewed andreversed. "Section 1747.08 has been amendedfour times since its enactment, most recently in 2005. (See Stats. 1990, ch. 999 (A.B. 2920), § 1, as amended by Stats. 1991, ch. 1089 (A.B. 1477), § 2, eff. Oct. 14, 1991; Stats. 1995, ch. 458 (A.B. 1316), § 2, renumbered § 1747.08 and as amendedbyStats. 2004, ch. 183 (A.B. 3082), § 29; amended by Stats. 2005, ch. 22 (S.B. 1108), § 14.) The Legislature had several opportunities to expand the scope of the Credit Card Act to cover online transactions, but it did not do so. -13- CONCLUSION For the reasonsset forth above, Apple respectfully requests that the Court grant the petition for review and resolve the pure question of law it raises. Alternatively, if the Court would prefer that the Court of Appealfirst decide the question raised by Apple’s petition, it should issue a grant-and-transferorder directing the Court of Appeal to grant Apple’s petition, issue an alternative writ, and decide Apple’s petition on the merits, with the benefit of the new authorities (Salmonson and Mehrens) that issued after the Court of Appeal’s order. Respectfully submitted, DATED: January 13, 2012 PAUL HASTINGS LLP Yom u Comedy By: Paul W. Cane,Jr. Attorneys for Petitioner APPLE INC. -14- CERTIFICATE OF COMPLIANCE PURSUANT TO CALIFORNIA RULE OF COURT8.504(D) In accordance with California Rule of Court 8.504(d), counsel for Petitioner hereby certifies that this PETITION FOR REVIEW (including footnotes) contains 3,520 words, as determined by our law firm’s word processing system. Respectfully submitted, DATED: January 13, 2012 PAUL HASTINGS LLP Vowet 2 Comal By: Paul W. Cane,Jr. Attorneys for Petitioner APPLEINC. LEGAL_US_W # 70090117.4 -15- EXHIBIT A 10 it 12 13 14 15 16 17 18 19 200 21 22 23 24 25 ORIGINAL FILED DEC 0 72011 ~ LiS ANGELES ~ SUPERIOR COURT OF CALIFORNIA _ COUNTY OF LOS ANGELES _ BRIAN LUKO,individually and on behalfof a LASC Case Nos: BC462492 class ofpersons similarly situated, BC462494 , BC463305 Plaintiff, . v. COURT’S RULING AND ORDER RE: DEFENDANTS’ DEMURRERS TO TICKETMASTER, a Delaware corporation; an d COMPLAINTS DOES1 to 100,inclusive, Hearing Date: November7, 2011 Defendants. ov, | EHARMONY,INC., a Delaware corporation; BRIAN LUKO,individually and on behalf of a class ofpersons similarly situated, Plaintiff, and DOES1 to 100, inclusive, Defendants. DAVID KRESCENT,individually and on behalf ofa class of persons similarly situated, Plaintiff, 1 Exhibit A, Page 1 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Vv. APPLE,INC., a California corporation; and DOES f to 100, inclusive, Defendants. L BACKGROUND In these related putative consumerclass cases, Plaintiffs allege that the Defendants, Ticketmaster, eHarmony, Inc. (“eHarmony”), and Apple, Inc. (“Apple”) unlawfully requested, as a condition ofpurchasingitems or services on the Defendants’ Internet websites, certain Personal Identification Information (“PII”), in violation ofthe Song-Beverly Credit Card Act of 1971 (the “Credit Card Act”). | | | Plaintiff Luko alleges that when he purchased services on the eHarmony.com dating website using his credit card, eHarmony unlawfully required as a condition of his purchase that he provide his telephone number and address. Similarly, in his complaint against Ticketmaster, PlaintiffLuko alleges that Ticketmaster required him to provide his address and telephone numberas a condition to completing his online credit card purchaseof eventtickets. Finally, Plaintiff Krescentalleges that Apple requested,inter alia, his address and telephone number, in connection with his online purchasesfor digital media (music downloads) on the Apple website. The Plaintiffs in these cases allege that by asking for the PII, Defendants violated California’s Song-Beverly Credit Card Act (“the Act”), codified at Civil Code §1747.08. Plaintiffs seek statutory penalties for the alleged violations, as well as attorneys’ fees under CCP §1021.5 and costs. The Defendants have each demurredto the individual complaints. For the reasons discussed infra, the demurrersare all overruled. 2 Exhibit A, Page 2 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 i. REQUESTS FOR JUDICIAL NOTICE Defendant Ticketmaster has requested judicial notice of the following: A. FEDERAL TRADE COMMISSION, AVOIDING CREDIT AND CHARGE CARD FRAUD,FACTS FOR CONSUMERS,available at http://www.ftc.gov/bep/edu/pubs/consumer/credit/cre07.pdf: B. FEDERAL TRADE COMMISSION, CONSUMER SENTINEL NETWORK DATA BOOK(Mar. 2011),available at http://www.ftc.gov/sentinel/reports/sentinel-annual-reports/sentinel-cy2010.pdf: and C. LIEBERMAN RESEARCH GROUP,UNISYS SECURITY INDEX: UNITED STATES((Feb. 21, 2011), available at http://www.unisyssecurityindex.com/system/reports/uploads/101/original/Unisys %20Security%20Index%20-%20US%20-%20February%202011 pdf. The request is granted as to Exhibits A and B pursuant to Evidence Code §452(c) and/or §452(h). The Request is granted as to Exhibit C pursuant to Evidence Code §452(h). Defendant eHarmony requests judicial notice of the following: A. August 24, 2011 Order sustaining the demurrer without leave to amend in: Gonorv. craigslist, Inc., SFC Case No. CGC-11-511332; B. Complaint in Doe v. Match.com, LASC Case No. BC458927,filed April 13, 2011; and C. State Department, Bureau of Consular Affairs, pronouncemententitled, “Internet Dating and Romance Scams,” accessible at http://travel.state.gov/travel/cis pa tw/financial scams/financial scams 4554.htm 1. The request is granted as to Exhibits A and B pursuant to Evidence Code §452(d), as these are records of a state court. The Court does notjudicially notice the truth of Exhibits A and B. Further, the Court notes that the Gonor orderis not binding on this Court’s determination. The requestis granted as to Exhibit C pursuant to Evidence Code §§452(c) and(h). 3 Exhibit A, Page 3 10 il 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Finally, Plaintiffs request judicial notice of the following: 1. That a party cannot search the Dru Sjodin National Sex Offender Public Website by phone number; and 2. That a party cannot search the Megan’s Law Sex Offender Database by phone number. The request is denied as to both items. Neither fact is subject to judicial notice under Evidence Code §§452 or 453. Ht. . DEMURRERS Standards on Demurrer CCP § 430.10(e) is grounds for a demurrer when the complaintfails to state facts sufficient to constitute a cause of action. For purposesof ruling on a demwrer, material facts properly pleaded in the complaint must be taken as true. Serrano v. Priest (1971) 5 Cal.3d 584, 491. A demurrer may challengeonly defects that appear on the face of the pleading or from matters which are judicially noticeable. Blank v. Kirwan (1985) 39 Cal.3d 311, 31; Donabedian v. Mercury Ins. Co. (2004) 116 Cal.App.4” 968, 994; Weil & Brown, Civ. Pro. Before Trial (The Rutter Group 2010) §[7:8. The function of a demurreris to test the legal sufficiency of a complaint, but not the truthfulness of the allegations. Donabedian v. Mercury Ins. Co., supra, 116 Cal.App.4" at 994; Weil & Brown, Civ. Pro. Before Trial (The Rutter Group 2010 47:5). Demurrers are to be sustained where a pleading fails to plead adequately any essential element of the cause of action. Cantu v. Resolution Trust Corp. (1992) 4 Cal-App.4th 857, 879-80. “tA demurrer tests the pleadings alone and not the evidenceorother extrinsic matters. _ Therefore,it lies only where the defects appear on the face of the pleadingor are judicially noticed (Code Civ. Proc., §§ 430.30, 430.70). The only issue involved in a demurrer hearing is 4 Exhibit A, Page 4 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 whether the complaint, as it stands, unconnected with extraneous matters, states a cause of action.” Hahn v. Mirda (2007) 147 Cal.App.4th 740, 747. AccordMcKenney v. Purepac Pharmaceutical Co. (2008) 162 Cal.App.4th 72, 79. When considering demurrers, courts read the allegations liberally and in context. McKenney, supra, 167 Cal.App.4th at 77; Taylor v. City ofLos Angeles Dept. of Water and Power (2006) 144 Cal.App.4" 1216, 1228. Discussion The sole cause of action in each of the operative Complaintsis for violation of Civil Code §1747.08. Civil Code §1747.08 provides in pertinent part as follows: (a) Except as provided in subdivision (c), o person, firm, partnership, association, or corporation that accepts credit cards for the transaction of business shall do any of the following: (1) Request, or require as a condition to accepting the credit card as paymentin full or in part for goods or services, the cardholder to write any personal identification information upon the credit card transaction form or otherwise. (2) Request, or require as a condition to accepting the credit card as paymentin full or in part for goodsor services, the cardholder to provide personal identification information, which the person, firm, partnership, association, or corporation accepting the credit card writes, causes to be written, or otherwise records uponthe credit card transaction form or otherwise. (3) Utilize, in any credit card transaction, a credit card form which contains preprinted spaces specifically designated for filling in any personal identification information of the cardholder. (b) For purposesofthis section "personal identification information," means information concerning the cardholder, other than information set forth on the credit card,and including, but not limited to, the cardholder's address and telephone number. (c) Subdivision (a) does not apply in the following instances: (1) If the credit card is being used as a deposit to secure payment in the event of default, loss, damage, or other similar occurrence. (2) Cash advancetransactions. (3) If any ofthe following applies: 5 Exhibit A, Page 5 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (A) The person,firm, partnership, association, or corporation accepting the credit card is contractually obligated to provide personalidentification information in order to complete the credit card transaction . (B) Theperson,firm, partnership, association, or corporation accepting the credit card in a sales transaction at a retail motor fuel dispenseror retail motor fuel paymentisland automated cashier uses the Zip Code information solely for prevention of fraud, theft, or identity theft. (C) The person,firm, partnership, association, or corporation accepting the credit card is obligated to collect and record the personal identification information by federal or state law or regulation. (4) If personal identification information is required for a special purpose incidental but related to the individual credit card transaction, including, but not limited to, informationrelating to shipping, delivery, servicing, or installation of thepurchased merchandise,or for special orders. (d) This section does not prohibit any person, firm, partnership, association, or corporation from requiring the cardholder, as a condition to accepting the credit card as payment in full or in part for goodsor services, to provide reasonable forms of positive identification, which may include a driver's license or a California state identification card, or where oneofthese is not available, another form of photo identification, provided that noneofthe information contained thereon is written or recorded onthe credit card transaction form or otherwise. If the cardholder pays for the transaction with a credit card number and does not make the credit card available upon request to verify the number, the cardholder's driver's license numberor identification card number may be recorded on the credit card transaction form or otherwise. (Emphasis added.) While Defendants demur separately to the individual complaints, their position is largely the same. Defendants claim that in each of the online transactionsat issue, the PII requested from the Plaintiffs was required for special purposes incidental but related to the credit card transaction — to verify customers’ identities and to prevent fraudulent transactions for online purchases (and in the case of eHarmony,to potentially prevent sex offenders and scam artists from registering with the site). Defendants further claim that the Act does not apply to online credit card transactions. Saulic v. Symantec Corp. (C.D. Cal. 2009) 596 F.Supp. 1323, 1335- 1336. 6 Exhibit A, Page 6 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Statutory interpretation is a legal question. Creditors Collection Servicev. Hanzell Vineyards, Ltd. (1992) 5 Cal.App.4™ Supp. 1, 4; Spanish Speaking Citizens Found. v. Low (2000) 85 Cal.App.4" 1 179, 1214. It is long settled that courts read the statute as a whole to give the wordstheir proper context, meaning, and effect. Vasquez de Mercado v. Superior Court (McClung) (2007) 148 Cal.App.4" 711, 715 (“[t]he wordsofthe statute should be giventheir ordinary and usual meaning and should be construed in their statutory context. These canons generally preclude judicial construction that renderspart of the statute ‘meaningless’ or | “inoperative.’”) “In construing statutory language, [courts] must ‘apply reason, practicality, and common sense....If possible, the words should be interpreted to make them workable and reasonable...in accord with commonsenseandjustice...” Eckert v. Sup. Ct. (1999) 69 Cal.App.4™ 262,266. “Tn the construction of a statute...the office of the Judge is simply to ascertain and declare what is in termsor in substance contained therein, not to insert what has been omitted, or to omit what has been inserted; and where there are several provisions or particulars, such a constructionis, if possible, to be adoptedas will give effect to all.” CCP §1858 (emphasis added); Cal. Fed. Sav. & Loan Ass'n. v. City ofLos Angeles (1995) 11 Cal.4™ 342, 351; Mfrs. Life Ins. Co. v. Sup. Ct. (1995) 10 Cal.4™ 257, 274. See also CCP §1859 (Legislature’s intentis to be pursued, if possible; a particular intent will control a general one that is inconsistent with it). a With these standards in mind,the Actitself issilent on exempting online credit card transactions from its purview (and otherwise doesnot address online credit card transactions specifically). While Defendants’ assertions with respect to preventing fraud have definite appeal (a problem which the Court acknowledges is widespread in credit transactions generally, and in online credit card transactions specifically), the Court is not prepared, at the pleading stage, to read the Act as completely exempting online credit transactions from its reach. 7 Exhibit A, Page 7 10 11 12 3 14 15 16 17 18 19 20 21 22 23 24 25 Further, whether the information requested by onlineretailers is reasonably necessary to complete the transaction, whether for security purposes in the case of E-Harmony,or for purposesof fraud protection in the case of all three Defendants, or as a requirement ofthe credit card issuers, can only be determined on a factual record. Just as a gasoline retailer may request a customer’s zip code to verify the card being used, online retailers may have be justified in requesting personalidentifying information to verify the credit card purchase. The Legislature has specifically addressed the issue with respect to gasolineretailers, and may do the samewith respectto onlineretailers if determines that they should be exempted from the provisions of the statute. _ The Court finds that the fact that Saulic arose from an orderonclass certification distinguishes that case from the instantlitigation. While the Court recognizesthat the Saulic court conducted a thorough analysis of the statute, there was an opportunity to conduct class discovery in that case, and the issues in Saulic did not arise at the pleading stage. In any event, however, Saulic is not binding on this Court’s determination (nor is Gonor, trial court order sustaining a demurrer without leave to amend on groundsthat the Act doesnotapply to online transactions). | Defendants also rely in part on Pineda v. Williams-Sonoma Stores, Inc. (2011) 51 Cal.4" 524 for the notion that the Act only applies to traditional “brick-and-mortar” transactions rather than online transactions that did not exist when the Act was passed and that, the Defendants conted, the Legislature never considered.! However, the Supreme Court in Pineda notes that “the Legislature intended to provide robust consumerprotections by prohibiting retailers from soliciting and recording information about the cardholder that is unnecessary to the credit card ' See Defendant eHarmony’s Demurrerat 10, fn.6. 8 Exhibit A, Page 8 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 transaction.” Pineda, 51 Cal.4" at 536. In any event, Pineda did notitself make any such distinction between online credit transactions and “brick-and-mortar” credit transactions. In sum,until the legislature specifically exempts online credit card transactions from the purview of the Act, the Court will not (and cannot) read such a provision into the statute. For the reasons discussed supra, the demurrers are overruled. IV. RULING AND ORDER For the foregoing reasons, the demurrers of Defendants Ticketmaster, eHarmony, and Apple are overruled. Defendants shall have twenty (20) days from today to answerthe complaints in the individual cases. The Court sets a further status conference in these cases for January 25, 2012 at 9a.m. The parties are to file a joint statement by January 20, 2011, witha proposed discovery plan. Notwithstanding the Court’s view that the issues presented cannot be adjudicated on demurrer, the Court believes that upon developmentofa factual record, the issues can be adjudicated in advance of trial. Online retailers may be justified in requesting personal identifying information to verify credit card purchases as permitted by Section 1747.08(d), howeversuch a determination cannot be made without a factual record before the Court. The issues addressed in this Ruling and Orderpresent controlling questions of law as to which there are substantial groundsfor difference of opinion. Pursuant to Code of Civil Procedure § 166.1, the Court finds that appellate resolution ofthese issues may materially assist in the resolution ofthe litigation. Dated: December7, 2011 CARL J. WEST Carl J. West Judge of the Superior Court 9 Exhibit A, Page 9 EXHIBIT B IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA SECOND APPELLATEDISTRICT DIVISION EIGHT APPLEING., B238097 _” Petitioner, (Super, Ct. No. BC463305) Vv. SUPERIOR COURT OF THE STATE OF CALIFORNIA FOR THE COUNTY _ OF LOS ANGELES, Respondent. DAVID KRESCENTetal., Real Parties in Interest. ORDER COURT OF APPEAL - Sie JAN 05 2042 JOSEPH A.LANE Momeie: reset s We haveread and consideredthe petition for writ of mandate filed on December 27, 2011. The petition is denied. (an | BIGELOW,P. J. RUBIN,J. . FLIER,J. Exhibit B, Page 10 David Walsh Paul, Hastings, Janofsky & Walker 515 South Flower Street 25th Floor. Los Angeles, CA 90071-2371 Case Number B238097 Division 8 APPLEINC., Petitioner, v. SUPERIOR COURT OF LOS ANGELES COUNTY, ~ Respondent; DAVID KRESCENT, Real Party in Interest. Exhibit B, Page 11 PROOF OF SERVICE STATE OF CALIFORNIA ) ) ss: CITY OF LOS ANGELES AND COUNTY OF ) LOS ANGELES ) Tam employed in the City ofLos Angeles and County of Los Angeles, State of California. | am over the age of 18, and not a party to the within action. My business address is 515 S. Flower St., 25th Floor, Los Angeles, CA 90071-2228. On January 13, 2012, I served the foregoing document(s) described as: PETITION FOR REVIEW OF A DECISION IN THE COURT OF APPEAL, SECOND DISTRICT, DIVISION EIGHT on the interested parties by placing a true and correct copy thereof in a sealed envelope(s) addressed as follows: Edwin C. Schreiber, Esq. Superior Court of California, Eric A. Schreiber, Esq. County of Los Angeles Schreiber & Schreiber, Inc. Central Civil West Courthouse 16501 Ventura Blvd., Suite 401 Dept. 322 Encino, CA 91436-2068 600 S. Commonwealth Ave. Tel: 818-789-2577 Los Angeles, CA 90005 Fax: 818-789-3391 Attorneys for PlaintiffDavid Krescent Court of Appeal, 2nd Appellate District Ronald Reagan State Building 300 S. Spring Street 2nd Floor, North Tower Los Angeles, CA 90013 VIA PERSONAL DELIVERY; I caused such document(s) listed above to be personally delivered, by Nationwide Legal, “Inc., to the offices ofthe addressee(s) pursuant to CCP § 1011. I declare under penalty of perjury under the lawsofthe State of California that the aboveis true and correct. Executed on January 13, 2012, at Los Angeles, California. Linda Young anSee (Print Name) . (Signature) “ LEGAL_US_W # 70118797. 1