No. C 07-03967 MHP.
March 3, 2008
MEMORANDUM ORDER Re: Defendants' Motions to Stay, Defendant eBay's Motion to Dismiss and Plaintiff's Motion to Strike
On August 2, 2007 plaintiff Michele Mazur ("Mazur" or "plaintiff"), on behalf of herself and others similarly situated, brought suit against eBay Inc. ("eBay") and Hot Jewelry Auctions.com ("HJA") accusing the latter of shill bidding and the former of acquiescing in the same. Now before the court are both defendants' motions to stay pending arbitration, eBay's motion to dismiss and plaintiff's motion to strike a declaration submitted by HJA. The court has considered the parties' arguments fully, and for the reasons set forth below, the court rules as follows.
eBay is the world's largest online auction hosting service. It strictly prohibits shill bidding — the practice of entering fake bids — on its website. Amongst the many services it provides, eBay also provides the Live Auction service, which allows eBay users to place bids on live auctions being held by auction houses and compete with floor bidders. The offline bids made by the floor bidders are reflected online, but eBay users are not provided any details regarding the bidder.
Mazur is an eBay user. In order to become a user, she had to accept and agree to eBay's Terms and Conditions. See Somvichian Dec., Exh. A. Further, in order to use the Live Auction service, Mazur had to agree to eBay's Live Auction User Agreement. See id., Exh. B.
The court hereby takes judicial notice of the following under Federal Rule of Evidence 201(b): 1) eBay's User Agreement; 2) eBay's Live Auction User Agreement; 3) eBay's "Are Live Auctions Safe?" webpage; 4) eBay's "How Live Auctions Work" webpage; and 5) Butler v. eBay, Inc., 06-02704 JW (N. D. Cal. Dec. 13, 2006) (Ware, J.) (order granting defendant eBay's motion to dismiss the third cause of action). See generally Somvichian Dec.
Defendant HJA holds auctions via eBay's live auction service using the monikers "Jewelry Overstock Auctions" and "Paramount Auctions." Molayem Dec., ¶ 2. If an eBay user wants to bid in one of HJA's auctions, the user is automatically presented with a copy of HJA's Terms and Conditions to read and review. Id., ¶ 3. eBay users are able to read these Terms and Conditions online by scrolling through the text of the terms. Hongola Dec., Exh. A. Alternatively, an eBay user can also print the text of these Terms and Conditions. Id., Exh. B. eBay requires that HJA upload a copy of its Terms and Conditions for every auction. Mazur was presented with HJA's Terms and Conditions prior to bidding and she agreed to those Terms and Conditions, including the Dispute Resolution provision. See Molayem Dec., ¶ 5.
The Dispute Resolution provision contained in the Terms and Conditions provides that if a dispute between HJA and the plaintiff arises and cannot be resolved informally, the parties agree to submit the dispute to In-House Attorneys, P.C. in Los Angeles, who will render a final and binding decision. Specifically, the agreement states:
Should a dispute occur between JOA and Buyer (the parties) that cannot be resolved, then the parties agree to the rules, regulations and procedures of the dispute resolution described below and agree to the following procedures for Resolution of the Dispute: If either party alleges that the other party is in default under this agreement, then the dispute or allegation shall be submitted for Binding resolution to In House Attorneys, P.C. in the City of Los Angeles, California. Each party shall simply present their own case (limited to a maximum of one hour for each party) to In House Attorneys, P.C., excluding witnesses, expert witnesses and attorneys. The parties agree and acknowledge that they are completely waiving their rights to have the dispute heard in a conventional manner including use of attorneys, arbitration, mediation and any civil court in California having jurisdiction over the dispute. Any award determined by In-House Attorneys, P.C. shall be binding and the prevailing party shall be awarded full reimbursement of its actual paid fees in connection with the dispute remedy listed herein.
Hongola Dec., Exh. B. This purported Dispute Resolution provision shall hereinafter be referred to as the "contested provision." Mazur agreed to HJA's Terms and Conditions, which included the contested provision, and bid during a HJA live auction. She won the auction and directly paid HJA $4,602.90 for several pieces of HJA's jewelry that were then directly shipped to her.
In her complaint, Mazur claims that HJA made misrepresentations regarding the nature of its auction services and engaged in shill bidding practices. She also complains that eBay falsely claimed the live auctions were safe and involved carefully screened reputable international auction houses with floor bidders. Thus, she alleges a number of contract, tort and statutory claims against both defendants.
LEGAL STANDARD I. Arbitration
The Federal Arbitration Act ("FAA"), 9 U.S.C. sections 1 — 16, requires federal courts to enforce arbitration agreements and to stay any litigation that contravenes such agreements. The court's role under the FAA is limited to (1) determining whether a valid agreement to arbitrate exists and, if it does, (2) deciding whether the agreement encompasses the dispute at issue. 9 U.S.C. § 4; Simula, Inc. v. Autoliv, Inc., 175 F.3d 716, 719 — 20 (9th Cir. 1999).
Despite the "liberal federal policy favoring arbitration agreements," Green Tree Fin. Corp. v. Randolph, 531 U.S. 79, 81 (2000), state law still has a role to play. In interpreting 9 U.S.C. section 2, the Supreme Court has held that "state law, whether of legis lative or judicial origin, is applicable if that law arose to govern issues concerning the validity, revocability, and enforceability of contracts generally." Perry v. Thomas, 482 U.S. 483, 492 n. 9 (1987). Therefore, "generally applicable contract defenses, such as fraud, duress or unconscionability, may be applied to invalidate arbitration agreements without contravening Section 2." Doctor's Assocs., Inc. v. Casarotto, 517 U.S. 681, 687 (1996). "In making this determination, federal courts may not address the validity or enforceability of the contract as a whole." Ticknor v. Choice Hotels Int'l, Inc., 265 F.3d 931, 937 (9th Cir. 2001) (citing Prima Paint Corp. v. Flood Conklin Mfg. Co., 388 U.S. 395, 401 (1967)).
II. Rule 12(b)(6)
A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) "tests the legal sufficiency of a claim." Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). Because Rule 12(b)(6) focuses on the "sufficiency" of a claim — and not the claim's substantive merits — "a court may [typically] look only at the face of the complaint to decide a motion to dismiss." Van Buskirk v. Cable News Network, Inc., 284 F.3d 977, 980 (9th Cir. 2002). Although the court is generally confined to consideration of the allegations in the pleadings, when the complaint is accompanied by attached documents, such documents are deemed part of the complaint and may be considered in evaluating the merits of a Rule 12(b)(6) motion. Durning v. First Boston Corp., 815 F.2d 1265, 1267 (9th Cir. 1987).
A motion to dismiss should be granted if plaintiff fails to proffer "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 127 S. Ct. 1955, 1974 (2007). Dismissal can be based on the lack of a cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal theory. Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1990).
Allegations of material fact are taken as true and construed in the light most favorable to the nonmoving party. Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 337 — 38 (9th Cir. 1996). The court need not, however, accept as true allegations that are conclusory, legal conclusions, unwarranted deductions of fact or unreasonable inferences. See Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001); Clegg v. Cult Awareness Network, 18 F.3d 752, 754 — 55 (9th Cir. 1994).
III. Fraud-based claims
A plaintiff alleging fraud must satisfy a heightened pleading standard that requires circumstances constituting fraud be pled with particularity. Fed.R.Civ.P. 9(b). Specifically, "[t]he pleadings must state precisely the time, place, and nature of the misleading statements, misrepresentations, and specific acts of fraud." Kaplan v. Rose, 49 F.3d 1363, 1370 (9th Cir. 1994), cert. denied, 516 U.S. 810 (1995). In addition, plaintiffs seeking to satisfy Rule 9(b) must "set forth an explanation as to why the statement or omission complained of was false and misleading." In re GlenFed, Inc. Sec. Litig., 42 F.3d 1541, 1548 (9th Cir. 1994) (en banc); see Fecht v. Price Co., 70 F.3d 1078, 1082 (9th Cir. 1995), cert. denied, 517 U.S. 1136 (1996). The pleading must be "specific enough to give defendants notice of the particular misconduct . . . so that they can defend against the charge and not just deny that they have done anything wrong." Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1106 (9th Cir. 2003) (internal quotation omitted).
It is well established that Rule 9(b)'s requirement that allegations of fraud be pled with particularity applies to state-law causes of action before a federal court: "`[W]hile a federal court will examine state law to determine whether the elements of fraud have been pled sufficiently to state a cause of action, the Rule 9(b) requirement that the circumstances of the fraud must be stated with particularity is a federally imposed rule.'" Vess, 317 F.3d at 1103 (quoting Hayduk v. Lanna, 775 F.2d 441, 443 (1st Cir. 1985)); see also Jenkins v. Commonwealth Land Title Ins. Co., 95 F.3d 791, 796 (9th Cir. 1996).
This heightened pleading standard applies to allegations of fraud and allegations that sound in fraud, including false misrepresentations. Vess, 317 F.3d at 1106 — 07; see also Meridian Project Sys., Inc. v. Hardin Constr. Co., LLC, 404 F. Supp. 2d 1214, 1219 (E.D. Cal. 2005) ("It is well settled in the Ninth Circuit that misrepresentation claims are a species of fraud, which must meet Rule 9(b)'s particularity requirement.");Neilson v. Union Bank of Cal., N.A., 290 F. Supp. 2d 1101, 1141 (C.D. Cal. 2003) (same).
DISCUSSION I. The Contested Provision
HJA claims that the contested provision in its Terms and Conditions is binding and enforceable and amounts to arbitration under the FAA. On this basis, HJA requests the court stay this action pending the outcome of arbitration. There is no argument that if the contested provision is valid, this court must stay the instant proceedings with respect to the causes of action covered by the provision. Plaintiff, however, contends the provision is unconscionable and therefore unenforceable. Alternatively, plaintiff argues that her claims are not encompassed by the terms of the provision. The two-pronged Simula test requires the court to determine, first, if the contested provision is valid, and second, if the instant dispute falls within the scope of the provision.
There is no argument amongst the parties that California law applies. Under California law, an arbitration agreement must be both procedurally and substantively unconscionable to be invalid.Armendariz v. Found. Health Psychcare Servs., Inc., 24 Cal. 4th 83, 114 (2000); see also Circuit City Stores, Inc. v. Mantor, 335 F.3d 1101, 1105 (9th Cir. 2003). Procedural unconscionability exists when there is oppression or surprise in an agreement because of unequal bargaining power. Armendariz, 24 Cal. 4th at 114. Substantive unconscionability exists when there are overly-harsh or one-sided results. Id. The court applies a sliding scale that assesses procedural unconscionability in proportion to substantive unconscionability: "The more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to come to the conclusion that the term is unenforceable, and vice versa." Id.
Plaintiff argues that the standard from Shroyer v. New Cingular Wireless Servs., Inc., 498 F.3d 976, 982 (9th Cir. 2007), be used here. The Shroyer court held that procedural unconscionability is determined by "focusing on oppression or surprise due to unequal bargaining power" in order to set out a three-part standard. 498 F.3d at 982 — 83. Specifically, a contract was procedurally unconscionable if: 1) the contract was a "a consumer contract of adhesion" drafted by a party with superior bargaining power; 2) the agreement occurred "in a setting in which disputes between the contracting parties predictably involve small amounts of damages"; and 3) "it is alleged that the party with the superior bargaining power has carried out a scheme to deliberately cheat large numbers of consumers out of individually small sums of money." Id. at 983 (quoting Cohen v. DirecTV, Inc., 142 Cal. App. 4th 1442, 1451 — 53 (2006)). This three-part standard, however, is specific to class action waivers in consumer contracts and is therefore inapplicable here. Id. at 983. The broader oppression and surprise standard, however, is applicable.
1. Procedural Unconscionability
As an initial matter, plaintiff argues that the version of the Terms and Conditions submitted by HJA in the Walters declaration is not the version that users actually see. The court agrees. The Walters declaration contains formatting and is much easier to read than the version actually seen by users when they click to signify agreement. The Hongola declaration contains the same agreement in the manner in which it is presented to the user.Compare Hongola Dec., Exh's. A B with Walters Dec., Exh. A. In both instances, the contents of the agreement are identical. Id. Thus, the court will consider Hongola's declaration and ignore Walters' declaration. In essence then, plaintiff's motion to strike Walters' declaration is granted.
The court considers substance over form. Plaintiff's characterization of her motion as a motion to strike — which is only applicable to pleadings — is not fatal. The court will use the version of the agreement most reflective of reality when making its decision.
The court examines two factors when analyzing the procedural unconscionability of a contract: oppression and surprise. Mantor, 335 F.3d at 1106. Oppression arises when there is an unequal balance of bargaining power between the parties to a contract that precludes the weaker party from enjoying a meaningful opportunity to negotiate the terms of the contract. Id. Surprise arises when the terms to which the parties allegedly agreed are "hidden in the prolix printed form drafted by the party seeking to enforce the disputed terms." Id. (quoting Stirlen v. Supercuts, Inc., 51 Cal. App. 4th 1519, 1532 (1997)).
Oppression analysis first asks whether the contract is one of adhesion. Nagrampa v. Mailcoups, Inc., 469 F.3d 1257, 1281 (9th Cir. 2006) (citing Flores v. Transamerica HomeFirst, Inc., 93 Cal. App. 4th 846, 853 (2001)). A contract of adhesion is "a standardized contract, which, imposed and drafted by the party of superior bargaining strength, relegates to the subscribing party only the opportunity to adhere to the contract or reject it."Ting v. AT T, 319 F.3d 1126, 1148 (9th Cir. 2003). Here, it is uncontested that the Terms and Conditions were drafted by HJA and plaintiff had no opportunity to negotiate any of the provisions, including the contested provision. Though plaintiff may be a business owner herself, her interaction with Live Auctions was in the capacity of an ordinary consumer — she did not have a relationship with HJA that allowed her to negotiate the Terms and Conditions. Thus, this agreement was unquestionably an oppressive contract of adhesion.
This oppression was coupled with surprise. The format in which the Terms and Conditions were presented to the plaintiff only allowed for a few single-spaced lines of block text to be visible at any given time. Furthermore, there were no paragraph, section or heading breaks that would aid in reading comprehension or allow the user to navigate to a particular section. This single-spaced massive block of impenetrable text looked the same when printed out. The section headings in the agreement, which were in all-caps, did not aid comprehension either since they were embedded in the text and could not be easily ascertained. Thus, case law that accords weight to section headings is inapposite. Accordingly, since both oppression and surprise were present, the court is satisfied that the agreement was procedurally unconscionable.
HJA argues that it submitted the Terms and Conditions to eBay with section breaks and that eBay must have removed the section breaks before posting the document. Who removed the section breaks, however, is irrelevant because the issue is what plaintiff saw when she accepted the Terms and Conditions. There is no dispute that plaintiff saw the Terms and Conditions without section breaks. Similarly, the assertion that the Terms and Conditions may sometimes fail to fully load is irrelevant because there has been no contention by plaintiff that the entire text was not available to her when she signified assent.
HJA's three arguments in opposition are easily disposed. First, the procedural unconscionability is not reduced by the fact that HJA's Terms and Conditions were available elsewhere on eBay's and HJA's websites. Since plaintiff was not directed to these locations, the presence of the Terms and Conditions at these locations is irrelevant. Second, the fact that plaintiff could return her purchase within seven days also has no bearing upon the validity of the arbitration clause. Oestreicher v. Alienware Corp., 502 F. Supp. 2d 1061, 1070 (N. D. Cal. 2007) (Patel, J.), is inapposite because this court did not base its holding upon the return policy, but declined to establish a rule whereby "companies are required to ensure that customers actually read contracts before agreeing to them." Id. Third, plaintiff's failure to allege that she could not have purchased her goods elsewhere does not save the contested provision from being procedurally unconscionable. This court will not require plaintiff to scour eBay's website to determine the least oppressive terms and conditions before bidding. Indeed, all terms and conditions on eBay's website seem to be presented in a similar fashion, though in most instances they are more readably formatted, thereby removing the surprise element found here.
2. Substantive Unconscionability
Although "parties are generally free to structure arbitration agreements as they see fit," Volt Info. Sciences, Inc. v. Bd. of Trustees of the Leland Stanford Junior Univ., 489 U.S. 468, 478 — 79 (1989), a determination of substantive unconscionability turns on the existence of overly-harsh or one-sided results,Nagrampa, 469 F.3d at 1280. A contract may provide extra protection to the superior party without being unconscionable, but that party's need for the advantage must be explained in the contract or be factually established. Ingle v. Circuit City Stores, 328 F.3d 1165, 1173 (9th Cir. 2003). The key consideration in finding substantive unconscionability is a lack of mutuality. Nagrampa, 469 F.3d at 1281 (citing Abramson v. Jupiter Networks, Inc., 115 Cal. App. 4th 638, 651 (2004)). "Where an arbitration agreement is concerned, the agreement is unconscionable unless the arbitration remedy contains a `modicum of bilaterality.'" Ting, 319 F.3d at 1149 (citing Armendariz, 24 Cal. 4th at 117). "In determining whether an arbitration agreement is sufficiently bilateral, courts assessing California law look beyond facial neutrality and examine the actual effects of the challenged provision." Id. (citations omitted). In sum, arbitration is intended to be a "forum for neutral dispute resolution" and not a means of maximizing the advantage of the drafter in an adhesion contract. See Armendariz, 24 Cal. 4th at 117.
The contested provision calls for In-House Attorneys, P.C. in Los Angeles to be the decision makers. Plaintiff argues the would-be decision makers are not neutral because they claim to be a "virtual corporate legal department, offering [their] Small Business Clients a variety of services over the internet." Pl.'s Opp. to HJA's Motion to Stay at 6. Indeed, In-House's website states that it offers "corporate clients all of the services and expertise typically provided by law firms to corporate clients, eliminating the need for an in-house legal department." Inhouse Attorneys, P.C., http://www.in-house-lawyers.com (last visited March 3, 2008). The website continues, "Inhouse is a true alternative to in-house counsel." Id. This leaves little doubt as to In-House's duty of loyalty. Interestingly, the "firm" lists only two lawyers, one of whom according to California State Bar records has an address in Utah and shows no affiliation with In-House. The records also reflect that he has been disciplined "w/actual suspension" and was returned to active status in 2006. The State Bar of California, Attorney Search, http://members.calbar.ca.gov/search/member_detail.aspx?x=208563 (last visited March 3, 2008). Under all of these circumstances, In-House's ability to offer a neutral and fair resolution of the dispute is illusory.
Plaintiff claims that since In-House Attorneys makes no mention of arbitration services on its website, the contested provision must have been drafted by In-House. Drafting the provision, however, is insufficient to find substantive unconscionability as even reputable arbitration agencies such as the American Arbitration Association provide language that parties may use in their contracts. See Hongola Dec., Exh. C at 4.
The terms of the contested provision also provide that each party has one hour to present its case and that witnesses, including experts, and attorneys are not allowed. HJA claims the same applies to both parties and therefore mutuality exists. This argument proves too much because it also applies to a waiver of all litigation concerning the transaction. A complete waiver would be bilateral, but would allow HJA to sell fake jewelry without any repercussions. HJA's argument is therefore unpersuasive. As discussed below, this bilateral restriction has far greater adverse consequences for plaintiff than it does for HJA.
The court is concerned by the "no-witnesses" provision even though the same has been held valid in this district. See Kayne v. Thomas Kinkade Co., 2007 WL 4287364, at *5 n. 4 (N. D. Cal. Dec. 5, 2007) (Illston, J.) (order regarding motion to dismiss and motion to strike). The Kayne court, however, upheld the provision only because "plaintiff was permitted to submit documentary evidence, including declarations, in support of his arguments." Id. There is no such provision here. Since plaintiff has the burden of proof, this bilateral restriction banning witnesses has the effect of favoring HJA. The one hour bilateral time restriction, which disallows complex cases with multiple factual disputes to be adjudicated properly, also has the effect of favoring HJA. To this court, the envisioned proceedings seem indistinguishable from a small claims action being adjudicated by an attorney of dubious qualifications and loyalties serving pro-tem. The court is also concerned about whether discovery would be allowed. Since attorneys are banned, the scope, rules and procedures regarding discovery are unclear. Without discovery, it would likely be impossible for plaintiff to prove her case. In sum, the lopsided adverse consequences of the clause lead the court to find a high degree of substantive unconscionability. This coupled with the procedural unconscionability found above renders the contested provision invalid.
Further, the clause is especially egregious because individual damages are likely to be small and class actions are thus the only effective way to litigate such disputes. HJA claims that since the contested provision does not explicitly prohibit class arbitration, this question would be a matter for the decision maker. See Ramirez v. Cintas Corp., 2005 WL 2894628, at *8 (N.D. Cal. Nov. 2, 2005) (White, J.) (motion to dismiss). However, this argument can cut both ways — since the provision does not explicitly require class arbitration, the present class action must therefore proceed. Ramirez is also distinguishable because the arbitration provision there incorporated the American Arbitration Association's rules. Id. at *2. In contrast, there are no rules here save plaintiff having one hour in which to personally make all arguments regarding the merits of her own claims and the claims of her class-members. This makes it de facto impossible to litigate a class action and thus case law that holds de jure class action waivers to be substantively unconscionable is instructive here.
The express terms of the provision state that parties are "completely waiving their rights to have the dispute heard in a conventional manner including use of attorneys, arbitration, mediation and any civil court in California having jurisdiction over the dispute." Hongola Dec., Exh. B. This clause not only disavows traditional mediation and arbitration — which HJA argues the provision provides — but also seems to be a blanket class action waiver. This class action waiver would be substantively unconscionable under the Shroyer standard. The first requirement is met. The contract was presented on a "take it or leave it" basis with no opportunity to negotiate. The second factor, regarding the amount of damages at issue, is also met because this court has held that individual damages of $4,000 can sustain class actions.Oestreicher, 502 F. Supp. 2d at 1067 — 68. Third, Mazur alleges HJA was aware of the shill bidding scheme and did so intentionally to defraud customers. If proven, this would constitute a deliberate scheme to cheat consumers. Accordingly, all Shroyer factors are satisfied. Finally, the adhesive nature of the contract provides the minimal level of procedural unconscionability to render a contract unenforceable if the contract also contains a substantively unconscionable class action waiver. See Gatton v. T-Mobile USA, Inc., 152 Cal. App. 4th 571, 586 — 88 (2007). The class action waiver, if any, is therefore unconscionable and unenforceable. Consequently, this class action may be brought under the circumstances here.
Plaintiff's argument that consent to the Terms and Conditions, including the contested provision, was induced by fraud is to no avail. Her entire argument to this effect is a recitation of the elements of fraud followed by blanket allegations of misrepresentation, knowledge, intent, reliance and damages. This is nowhere near the level of showing necessary for the court to find the entire contract void.
II. Motion to Dismiss
Defendant eBay moves to dismiss plaintiff's causes of action one through eleven and twenty-one. These causes of action allege that eBay made misrepresentations about Live Auctions in order to intentionally attract and defraud its customers. Specifically, eBay misstated that live auctions were "safe," involved "floor bidders" and were carried out by "carefully-screened, reputable international auction houses." See generally Complaint. On a webpage on its site entitled "Are Live Auctions Safe?," eBay states:
Plaintiff has withdrawn her fifth cause of action against eBay.
Bidding on eBay Live Auctions is very safe. All live auctions are run by reputable international auction houses, which are carefully screened by eBay before being authorized to sell to you. Many of them have hundreds of years of experience in the auction business and fully stand behind their merchandise.
Each lot on the Live Auctions site is offered under the auction house's terms and conditions of sale for that particular event. They usually include both satisfaction and authenticity guarantees. Check the auction overview page of any lot that you might be interested in for a full description of the terms and conditions of sale for that auction. If you have any questions, contact the auction house's administrative contact — you can also find that information on the auction overview page.
In addition, you can always use the Feedback Forum to instantly check the "reputation" or business practices of any eBay member. The Feedback Forum is a place where eBay users leave comments about each other's buying and selling experiences. If you're a bidder, check you're [sic] an auction house's Feedback Profile to learn about the way they do business before you place a bid.
Somvichian Dec., Exh. C.
Based upon the above assertions, plaintiff claims the following: 1) violations of the California Consumer Legal Remedies Act ("CLRA"), California Civil Code §§ 1750 et seq.; 2) violations of the California Unfair Competition Law ("UCL"), California Business Code §§ 17200 et seq., 17500 et seq.; 3) wilful deception and deceit, California Civil Code §§ 1709, 1710; 4) actual and constructive fraud, California Civil Code §§ 1572, 1573; 5) breach of contract; 6) unjust enrichment; 7) negligence and negligence per se; and 8) violations of the federal RICO statute, 18 U.S.C. § 1962(c). eBay, however, argues that is has no liability because: 1) it is immune from liability under section 230 of the Communication Decency Act ("CDA"); 2) its user agreements have a release of liability; 3) plaintiff's fraud contentions fail to meet heightened pleading requirements; and 4) plaintiff's unjust enrichment and negligence claims are improper. Each is discussed in turn.
Plaintiff appears to have withdrawn her breach of contract claim. See Pl.'s Opp. to Motion to Dismiss at 7 ("Defendant is being sued for fraud, not breach of contract.").
1. Applicability and Scope
The CDA establishes immunity for providers of interactive computer services that provide an online platform allegedly used by third-parties to facilitate wrongful conduct. Specifically, section 230 provides that "[n]o provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider." 47 U.S.C. § 230(c)(1). The provider of an interactive computer service is broadly defined to encompass "any information service, system, or access software provider that provides or enables computer access by multiple users to a computer server." Id. § 230(f)(2). An information content provider is "any person or entity that is responsible, in whole or in part, for the creation or development of information provided through the Internet or any other interactive computer service." Id. § 230(f)(3). Here, eBay qualifies as the provider of an interactive computer service. See Genry v. eBay, 99 Cal. App. 4th 816, 834 (2002) (holding eBay to be a provider of interactive computer services). Similarly, HJA is an information content provider with respect to information about its wares. Thus, to the extent plaintiff seeks to hold eBay liable for information provided by HJA, eBay is immune from liability. See 47 U.S.C. § 230(e)(3) ("No cause of action may be brought and no liability may be imposed under any State or local law that is inconsistent with this section.").
eBay, however, may be both an interactive computer service as well as an information content provider. See Anthony v. Yahoo! Inc., 421 F. Supp. 2d 1257, 1263 (N.D. Cal. 2006) (Whyte, J.) ("It is not inconsistent for eBay to be an interactive service provider and also an information content provider; the categories are usually not mutually exclusive. The critical issue is whether eBay acted as an information content provider with respect to the information that [plaintiff] claim[s] is false or misleading."). Plaintiff seeks to hold eBay liable for misconduct with respect to eBay's own statements regarding the safety, circumstances and caliber of its live auctions. The CDA does not immunize eBay for its own fraudulent misconduct.
However, plaintiff's assertion that eBay knew of the seller's illegal conduct and failed to prevent it is nevertheless under the ambit of section 230. Specifically:
Regarding the allegation that eBay knew or should have known about the sellers' illegal conduct but failed to prevent it by withdrawing or altering the fraudulent content, the Gentry court stated: `This is the classic kind of claim that Zeran found to be preempted by section 230, . . . one that seeks to hold eBay liable for its exercise of a publisher's traditional editorial functions.'Barrett v. Rosenthal, 40 Cal. 4th 33, 47 (2006) (citing Gentry, 99 Cal. App. 4th at 835). Similarly, eBay's assertion that the auction houses were screened is not actionable because "`lawsuits seeking to hold a service provider liable for its exercise of a publisher's traditional editorial functions — such as deciding whether to publish . . . — are barred.'" Gentry, 99 Cal. App. 4th at 828 — 29 (quoting Zeran v. Am. Online, Inc., 129 F.3d 327, 330 (4th Cir. 1997)). Screening a potential auction house when deciding whether to include it in Live Auctions is akin to deciding whether to publish and therefore eBay is immune under section 230 for its screening decisions. eBay represents that it "carefully screens" for "reputable" auction houses, but the modifier "carefully" with respect to "screened" and the adjective "reputable" both indicate opinion and are therefore not actionable.
2. Affirmative Representations
Independent of the above immunity, eBay's assertions that the live auctions were "safe" and involved "floor bidders" involved with "international" auction houses may still be actionable as affirmative misrepresentations. Gentry is distinguishable in this respect because the assertions of safety there were made upon the basis of user feedback. 99 Cal. App. 4th at 833 — 34. Specifically, the indicators of safety — the color-coded star symbol, the Power Sellers endorsement and the Feedback Forum — were all driven by eBay users. The Feedback Forum was populated by eBay users and the star symbol and Power Sellers endorsement were merely short-hand representations based upon an aggregation of information in the Feedback Forum. Id. There is no such parallel here. eBay unequivocally stated, of its own volition, that live auctions were "safe" and involved "floor bidders" and "international" auction houses.
eBay argues that it makes clear in its Live Auction User Agreement that it: 1) only provides a venue; 2) is not involved in the actual transaction between buyer and seller; and 3) does not guarantee any of the goods offered in any auction. Specifically, eBay is "solely a passive conduit" and "not an auction house," it is "not conducting the live auctions" and it does not have control over the "quality, safety or legality of the items advertised." Somvichian Dec., Exh. B. None of these statements, save possibly the last one, have any bearing upon the credibility of the auction houses that hold auctions on the Live Auctions site. Specifically, these statements, except possibly the last one, do not negate either the fact that eBay vouched for the safety of live auctions or the implicit suggestion that they have investigated the auction houses. Though eBay is correct in asserting that the full contents of the agreement must be scrutinized, see Twombly, 127 S. Ct. at 1972 n. 13, these statements, as a whole, do not undermine eBay's representation that Live Auctions are safe.
The eBay Live Auction User Agreement states, in relevant part:
3. eBay is Only a Venue.
1. Services. We are not an auction house and are not conducting the live auctions. Our service allows you to participate in live auctions conducted by the AHs. We are solely a passive conduit to facilitate communication between you and the AH. We reserve the right in our sole discretion to change some or all of our services at any time.
2. Control. We have no control over the quality, safety or legality of the items advertised, the truth or accuracy of the listings, the ability of AHs to sell or the ability of buyers to buy items. We do not ensure that a buyer or seller will actually complete a transaction.
3. Release. Because we are not involved in the actual transaction between buyers and AHs, in the event that you have a dispute with an AH, you release eBay (and our officers, directors, agents, parent, subsidiaries, joint ventures, and employees) from claims, demands and damages (actual and consequential) of every kind and nature, known and unknown, suspected and unsuspected, disclosed and undisclosed, arising out of or in any way connected with such disputes. If you are a California resident, you waive California Civil Code § 1542, which says: "A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor."
4. Auction Houses. AHs will list items up for auction for you to bid on. Auction dates and times, as well as the number, character, and order and schedule of the items to be auctioned are set by the AH and are subject to change without notice. Individual lots and items may be modified or changed at any time. Some lots and items that are made available on the auction floor will not be included in the online live auction services. We do not control the information that is provided by AH's and which is made available through our system. We do not guarantee that the AH's maintain proper auctioneer's licenses or comply with all laws.
Somvichian Dec., Exh. B.
Moreover, the assurance that live auctions are "very safe" is followed by statements that the auction house's terms and conditions "usually include both satisfaction and authenticity guarantees." Somvichian Dec., Exh. C. The webpage goes on to state that the user "can always use the Feedback Forum to instantly check the `reputation' or business practices of any eBay member. . . . If you're a bidder, check you're [sic] an auction house's Feedback Profile to learn about the way they do business before you place a bid." Id. These statements do not demonstrate that the initial safety assurances were not made by eBay. Indeed, they indicate that guarantees made by the auction house and the feedback of eBay users add to the safety, but do not demonstrate that eBay's assurances were premised upon the auction house's guarantee and the Feedback Forum. Similarly, the webpage entitled "Participating in Live Auctions using the Internet is safe, easy, and fun!" explains that, in order to participate, the buyer must: 1) agree to eBay's Live Auction terms and conditions; 2) sign up for each individual auction with the auction house; 3) agree to the auction house's terms and conditions; 4) deal with the auction house directly. See id, Exh. D. Again, these statements do not disavow eBay's prior assurances of safety or demonstrate that the safety is premised upon following the four outlined steps.
3. Falsity of the Representations
Plaintiff, as a registered member of the site, knew the membership-registration process did not involve an age-verification procedure. But more importantly, Plaintiff cannot claim he was misled or he reasonably relied on the representation that `all members are 18+' when the Terms and Conditions clearly state the website did not guarantee (and took no responsibility for verifying) members' ages.Id. at 729 — 30. Though eBay's Live Auctions User Agreement disavows any guarantee that participating auction houses maintain licenses or comply with applicable laws, nothing specifically states that eBay does not guarantee that bidding in Live Auctions is safe. Consequently, SexSearch, which had an explicit waiver, does not apply.
eBay claims Prickett v. InfoUSA, Inc., No. 4:05-CV-10, 2006 WL 887431, at *3 (E. D. Tex. Mar. 30, 2006) is applicable here. InPrickett, a directory listing service assured its customers of the following: "We deliver the utmost quality information, and this is one way we keep track of all the business changes that are happening. We also call every business to verify the information, so you can be assured of the most current and accurate listings." 2006 WL 887431, at *3. The Prickett court held, without any analysis:
Additionally, the Plaintiffs argue that the Defendant operated as an information content provider because the Defendant assures the accuracy of its listings via its verification process. The Plaintiffs are presumably alleging that they were harmed by third party content and that the Defendant is liable for failing to verify the accuracy of the content. See Barnes v. Yahoo!, Inc., 2005 WL 3005602, *4 (D.Or. 2005). `Any such claim by [the Plaintiffs] necessarily treats the [Defendant] as `publisher' of the content and is therefore barred by § 230.' Id. The Plaintiffs' argument that they seek to hold the Defendant liable for its alleged failure to verify the accuracy of the listing does not remove this case from the immunity provided by § 230. See id. `[The Plaintiffs'] claim remains an effort to hold the [Defendant] liable for failing to perform the duties of a publisher, . . .' Id.Id. at *5. The Barnes court, upon which Prickett relied, held:
Plaintiff's argument that she seeks to hold defendant liable only for its alleged `failure to fulfil its promise to remove the unauthorized profiles,' does not remove this case from the immunity provided by § 230. Plaintiff's claim remains an effort to hold the service provider liable for failing to perform the duties of a publisher, such as screening or removing third-party content. See also, Schneider v. Amazon.com, Inc., 108 Wash.App. 454, 31 P.3d 37, 41-43 (2001) (court rejected plaintiff's claim that defendant `promised to remove' allegedly tortuous reviews, but then `failed to do so, and reposted the reviews rather than deleting them.' Court held that § 230 barred plaintiff's claim because the `broken promise' claims were based on an alleged `failure to remove the posting,' and therefore based on defendant's `exercise of editorial discretion' subject to § 230's prohibition on publisher liability).Barnes v. Yahoo!, Inc., No. Civ. 05-926-AA, 2005 WL 3005602, at *4 (D. Or. Nov. 8, 2005). In Prickett and Barnes CDA immunity was established because of a failure to verify the accuracy of a listing or the failure to remove unauthorized profiles. Since both acts fell squarely within the publisher's editorial function, the CDA was implicated. The case at bar, however, is opposite. eBay did not make assurances of accuracy or promise to remove unauthorized auctioneers. Instead, eBay promised that Live Auctions were safe. Though eBay styles safety as a screening function whereby eBay is responsible for the screening of safe auctioneers, this court is unconvinced. eBay's statement regarding safety affects and creates an expectation regarding the procedures and manner in which the auction is conducted and consequently goes beyond traditional editorial discretion.
Finally, plaintiff's argument that eBay is improperly converting the CDA from a shield to a sword is without avail. Specifically, prior suits against eBay with respect to shill bidding practices by others does not put eBay on notice with respect to HJA's alleged shill bidding. Furthermore, it is unclear how eBay's current use of the CDA is as a sword and its prior use was a shield when in both instances eBay invoked the CDA in a motion to dismiss.
The court hereby takes judicial notice of the following pursuant to Federal Rule of Evidence 201: 1) Amended Class Action Complaint with Jury Demand, Farris v. GoAntiques, Inc., et al., 2:05-CV-00227 (S. D. Ohio, dismissed Feb. 6, 2006); and 2) eBay's Amended Motion to Dismiss Plaintiff's First Amended Complaint,Farris v. GoAntiques, Inc., et al., 2:05-CV-00227 (S. D. Ohio, dismissed Feb. 6, 2006). See generally Siroka Dec.
B. User Agreements
The eBay Live Auction User Agreement has a release of liability in favor of eBay for any disputes a user has with an auction house. Somvichian Dec., Exh. B, § 3(3). This provision is not applicable in the instant case because plaintiff has an independent dispute with eBay based on eBay's representations. This is true even though eBay's liability depends upon first establishing HJA's wrongdoings. In addition, the eBay User Agreement has a provision which provides that "[y]ou will not hold eBay responsible for other users' actions or inactions, including things they post." Id., Exh. A, Liability section. This provision suffers from the same ailment as above.
eBay's argument that its User Agreements fully disclaim any warranties by eBay regarding the auction houses' compliance with the law is also to no avail for the reasons stated above. Furthermore, eBay states very conspicuously that Live Auctions are safe and then buries this disclaimer in a User Agreement. These statements, if contradictory, require that this court deny the motion to dismiss. In fact, since eBay has far superior bargaining power and made both of these representations, any ambiguities ought to be construed against it.
Finally, plaintiff's argument regarding procurement of the agreements by fraud suffer from the same defects as those enumerated above. Specifically, relying on eBay's statements that the auctions were safe and run by carefully screened auctioneers to set aside the User Agreement puts the cart before the horse. Before any agreement between plaintiff and eBay can be set aside, plaintiff must first demonstrate that HJA's actions converted those statements into misrepresentations and that plaintiff relied upon those misrepresentations to her detriment.
eBay argues that plaintiff fails to allege that she ever read or relied on any eBay statements when deciding to purchase from HJA. This is correct. Plaintiff pleads reliance in a conclusory manner and merely regurgitates the statements that allegedly induced reliance. These allegations, which include eBay's assurances of "safety" and the participation of "carefully-screened, international auction houses" purportedly put eBay on notice of the alleged misrepresentations that form the basis of plaintiff's claims. Though "the court is not required to accept legal conclusions cast in the form of factual allegations," it may accept them if those conclusions can reasonably be drawn from the facts alleged. Clegg, 18 F.3d at 754 — 55. Here, however, plaintiff's contentions are vague and conclusory. Thus, the court holds that plaintiff's fraud based claims, including the CLRA, UCL, and RICO claims, are not properly pled.
The dictates of Federal Rule of Civil Procedure 9(b) require plaintiff to plead with specificity the facts, circumstances, statements and misrepresentations that constitute the fraud. As stated above, plaintiff must particularly set forth the time, place, and nature of the misleading statements, misrepresentations and specific acts of fraud. Plaintiff must explain why the statement or omission complained of was false and misleading. The same level of specificity is required with respect to reliance. Finally, regarding the RICO claim, plaintiff is to provide the details requested in the RICO standing order given to plaintiff's counsel during the hearing on January 14, 2008.
Due to a lack of particularity, the court dismisses plaintiff's fraud-based claims. However, in order to allow plaintiff to allege fraud with specificity, the court grants plaintiff leave to amend her complaint.
D. Unjust Enrichment
eBay also argues that unjust enrichment cannot be brought as a stand-alone claim if a legally enforceable contract between the parties exists. The section on unjust enrichment in the complaint asks for restitution as a remedy. Plaintiff's briefing also suggests that the claim was included for the remedy in case the User Agreement is unenforceable. Again, putting substance over form, this court holds that plaintiff may validly seek restitution damages independent of how it is labeled. See McBride v. Boughton, 123 Cal. App. 4th 379, 387 (2004). Furthermore, inconsistent theories of recovery may be alleged in a complaint. Steps may be taken at trial to prevent duplicative recovery.
Finally, eBay argues that plaintiff's negligence and negligence per se claims should be dismissed as an improper effort to manufacture a tort from a contract dispute. Here, however, plaintiff's allegations sound in fraud and not breach of contract. Therefore, Erlich v. Menezes, 21 Cal. 4th 543 (1999), does not apply. Plaintiff claims that since eBay guaranteed safety, they owed a duty of care and were consequently in breach of that duty when they allowed shill bidding practices to occur. This is sufficient to state a valid claim. eBay's argument that plaintiff's negligence claims run afoul of the economic loss rule applies to damages only and is therefore premature. Furthermore, the economic loss rule may apply to a manufacturer's liability only. See Aas v. Superior Court, 24 Cal. 4th 627, 636 (2000) (superceded on other grounds by Cal. Civ. Code §§ 895 — 945.5).
For the foregoing reasons, defendants' Motions to Stay are DENIED, eBay's Motion to Dismiss is GRANTED in part and DENIED in part and Plaintiff's Motion to Strike is GRANTED.
As to those claims dismissed with leave to amend, an amended complaint, if any, shall be filed within thirty (30) days of the date of this order. The answer shall be filed within thirty (30) days of the filing of the amended complaint.
IT IS SO ORDERED.