JOHN R. TUNHEIM, District Judge.
Plaintiffs Devi Khoday ("Khoday") and Danise Townsend ("Townsend") seek to bring this action on behalf of a class against Symantec Corp. ("Symantec") and Digital River, Inc. ("Digital River"). Plaintiffs accuse Symantec and Digital River of selling an unnecessary product
Symantec is among the world's largest dedicated security technology companies. Symantec owns the Norton franchise; it sells Norton security software products and services ("Norton") on its websites, www.symantec.com and www.norton.com. (Am. Compl. ¶ 2, April 14, 2011, Docket No. 40.) Symantec sold Norton directly to customers from its own e-commerce internet platform in 2009 and 2010. (Id. ¶ 6.) Prior to that time, Symantec contracted with Digital River to run its e-commerce internet platform. (Id. ¶ 6.)
Customers who purchased Norton were granted a license to use the software for a period of a year or more, and they could load or re-load the software onto up to three computers while the license was current. (Id. ¶ 5.) Neither Symantec nor Digital River contained information about this license on their websites or in any other publications. (Id. ¶ 5.)
When consumers purchased Norton online, their shopping cart automatically included "Norton Download Insurance," as it was called on Symantec's website, or "Extended Download Services," as it was called on Digital River's website ("the Download Product"). (Id. ¶¶ 4, 20-21.) If the consumer wanted to determine the purpose of the Download Product, the consumer could click on a link labeled "What's this?" (Id. ¶ 20.) On Digital River's website, consumers saw the following message after clicking this link:
(Id. ¶ 21.)
When consumer followed this link on July 1, 2010 on Symantec's website, they saw the following pop-up:
(Id. ¶ 20.)
Customers were required to affirmatively remove the Download Product from their shopping cart prior to purchase if they did not want it. (Id. ¶ 5.) The price for the Download Product was between $5.99 and $10.99. (Id. ¶ 19.) After Plaintiffs filed their Complaint, Symantec stopped promoting and selling the Download Product. (Id. ¶ 8.)
Plaintiffs seek a class of "all persons in the United States who purchased Extended Download Service or Norton Download Service," with a few exceptions. (Id. ¶¶ 10, 31-32.) The two named Plaintiffs, Khoday and Townsend, each purchased the Download Product. (Id. ¶¶ 11-12, 27-30.)
Khoday is a citizen of California who purchased the Download Product directly from Symantec without the knowledge that she could re-download Norton during her license period without it. (Id. ¶ 11.) She clicked on the "What's this?" link and read the text that appeared on Symantec's website. (Id. ¶ 27.) Khoday claims that she would not have purchased the Download Product if she knew that she could download the software for a year without it. (Id. ¶ 28.)
Townsend is a citizen of Florida who purchased the Download Product from Digital River without the knowledge that she could re-download Norton during her license period without it. (Id. ¶ 12.) Before purchasing the Download Product, Townsend called the sales support number listed on Digital River's website and spoke to a sales representative. (Id. ¶ 29.) The sales representative used a script and verbally confirmed the substance of the "What's this?" link on Digital River's website. (Id. ¶ 30.) The sales representative told Townsend that purchasing the software and the Download Product, unlike purchasing a CD, would allow her to re-download Norton for free. (Id. ¶ 30.) Townsend was not told that she could re-download the software without purchasing the Download Product. If she had been told this information, she claims that she would not have purchased the Download Product. (Id. ¶ 30.)
Symantec claims the Download Product has two main benefits. First, Symantec contends that customers gained the legal and contractual right to download their software more than sixty days after purchase. (Def. Symantec, Corp.'s Mem. Supp. Mot. to Dismiss at 7, 12, May 16, 2011, Docket No. 57.) According to Symantec, this benefit was genuine because Symantec was not otherwise required to allow such downloads, even if they were offered as a matter of course. (Id. at 12.) Second, Symantec claims that the Download Product made it easier to download Norton. (Id.) Similarly, Digital River maintains that the Download Product benefited its customers because it allowed them to return to Digital River to re-download Norton, rather than "casting about the Internet and digging through email archives to try to find all the pieces necessary to reinstall Norton." (Def. Digital River, Inc.'s Mem. Supp. Mot. to Dismiss at 2, May 16, 2011, Docket No. 52.)
Plaintiffs dispute that the right to download Norton for a year was of value, alleging that Symantec never intended to stop offering its customers free downloads for one year after purchase. (Pl.'s Mem. Opp. Mot. to Dismiss at 1, 3-4, June 6, 2011, Docket No. 60.) Plaintiffs allege that Defendants intentionally led customers to believe that they needed to purchase the Download Product to re-download their software beyond sixty days through pop-up descriptions or advertisements, scripted sales communications, and the auto-population of the "Check Out screen" with the Download Product. (Am. Compl. ¶ 24.) According to Plaintiffs, class members were deceived and would not have purchased the Download Product if they knew that it was optional and provided no benefit. (Id. ¶¶ 5, 25-26.)
Reviewing a complaint under a Rule 12(b)(6) motion to dismiss, the Court considers all facts alleged in the complaint as true, and construes the pleadings in a light most favorable to the non-moving party. See, e.g., Turner v. Holbrook, 278 F.3d 754, 757 (8th Cir.2002). To survive a motion to dismiss, however, a complaint must provide more than "`labels and conclusions' or `a formulaic recitation of the elements of a cause of action ...'" Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). In short, a plaintiff must state "a claim to relief that is plausible on its face." Id. (internal quotation marks omitted).
The claims alleged in this case sound in fraud and are thus subject to the height-ened pleading standard of Federal Rule of Civil Procedure 9(b).
The Court will first discuss Symantec's motion to dismiss. The Court finds that Plaintiffs have alleged sufficient misrepresentations to sustain their Consumers Legal Remedies Act, Unfair Competition Law, and unjust enrichment claims under California law. The Court will dismiss Plaintiffs' declaratory judgment claim against Symantec, however, because Plaintiffs have not provided a sufficient justification for this claim in light of their other theories of recovery.
Symantec seeks dismissal of Plaintiffs' Consumers Legal Remedies Act ("CLRA") claims. See Cal. Civ.Code §§ 1770(a)(5), 1770(a)(9), 1770(a)(15). The CLRA prohibits certain "unfair methods of competition" and "unfair or deceptive acts or practices" that are intended to or do result in "the sale or lease of goods or services to any consumer." Id. § 1770(a). "Goods" are "tangible chattels bought or leased for use primarily for personal, family, or household purposes...." Id. § 1761(a). "Services" are "work, labor, and services for other than a commercial or business use, including services furnished in connection with the sale or repair of goods." Id. § 1761(b). The CLRA is to be "liberally construed and applied to promote its underlying purposes, which are to protect consumers against unfair and deceptive business practices and to provide efficient and economical procedures to secure such protection." Id. § 1760.
It is premature to determine that the Download Product is not a "service" falling under the CLRA. Plaintiffs have alleged sufficient facts to suggest that (1) the Download Product may be a "service" within the statutory definition of the CLRA; and (2) the Download Product may not be excluded from coverage under the CLRA as an "ancillary service."
The Download Product will fall under the CLRA if it qualifies as a "service."
The Court finds that, applying the plain meaning of the term "services," the Download Product may qualify as a "service" under the CLRA. The ability to re-download Norton could be understood as a delivery service that Symantec provides for an additional price. (See Am. Compl. ¶ 4.) Indeed, Digital River described the Download Product as "a service that made retrieval of Norton software simpler and more convenient for its customers." (Def. Digital River, Inc.'s Mem. Supp. Mot. to Dismiss at 2, May 16, 2011, Docket No. 53.) Particularly because the Court must construe the CLRA broadly, the Court finds that the Download Product may provide the kind of service intended to fall within the statute's parameters. This issue can be better addressed after the parties have presented additional information to the Court about the nature of the Download Product.
The Download Product will not fall under the CLRA if it is "ancillary" to a product that is neither a good nor a service. Fairbanks v. Superior Court, 46 Cal.4th 56, 92 Cal.Rptr.3d 279, 205 P.3d 201, 206 (2009). The California Supreme Court expressed concern that extending coverage to ancillary services would "defeat the apparent legislative intent in limiting the definition `goods' to include only `tangible chattels.'" Id. Ancillary products include "additional customer services related to the maintenance, value, use, redemption, resale, or repayment of" products not covered under the CLRA. Id. Thus, the Download Product is excluded from coverage under the CLRA if it is ancillary to Norton and if Norton does not fall under the CLRA.
For two reasons, Plaintiffs have sufficiently alleged that the Download Product is not an "ancillary service" excluded from coverage. First, Norton may be a "service" under the CLRA. Second, Plaintiffs allege the Download Product is sufficiently distinct from Norton such that it is not "ancillary."
First, Norton may qualify as a "service" under the CLRA.
Second, even if Norton is not a service, the fact that the Download Product was purchased separately and was apparently not necessary for Norton's functionality weighs in favor of finding that it is not ancillary to Norton. Cf. Young v. Wells Fargo & Co., 671 F.Supp.2d 1006, 1026 (S.D.Iowa) (noting the importance of whether the product was purchased independently when deciding whether a service was ancillary). The Download Product was not included in the purchase of Norton; rather, the customer was required to independently purchase the Download Product. In addition, the Download Product may not be the type of service that a consumer would need to realize the benefits of Norton or expect to accompany Norton. Cf. Fairbanks, 92 Cal.Rptr.3d 279, 205 P.3d at 206 (holding that the labor of insurance agents is an ancillary service to insurance policies). Because the Court must liberally construe the CLRA, the Court finds that the Download Product could be the type of service that was intended to be covered by the statute.
Symantec also seeks dismissal of Plaintiffs' claims under the California Business and Professions Code, also referred to as the California Unfair Competition Law ("UCL"). The UCL prohibits "any unlawful, unfair,
The UCL prohibits fraudulent business practices, which are practices "that [are] likely to deceive members of the public." Morgan, 99 Cal.Rptr.3d at 785. "Deceit" is defined under California law as "[t]he suppression of a fact, by one who is bound to disclose it, or who gives information of other facts which are likely to mislead for want of communication of that fact." Cal. Civ. Code § 1710(3). "California has adopted a reasonable consumer standard for evaluating UCL claims." Ferrington, 2010 WL 3910169, at *9.
Second, even if Symantec's statements were true, they may have been misleading, creating a duty to disclose. See id. ("A perfectly true statement couched in such a manner that it is likely to mislead or deceive the consumer, such as by failure to disclose other relevant information, is actionable under" the UCL); see Randi W. v. Muroc Joint Unified Sch. Dist., 14 Cal.4th 1066, 60 Cal.Rptr.2d 263, 929 P.2d 582, 592 (1997) (holding that a party is "obliged to disclose all other facts which `materially qualify' the limited facts disclosed."). The facts suggest that Symantec may have deceived members of the public into believing that the Download Product was necessary to re-download Norton after sixty days.
Symantec analogizes this case to Buller v. Sutter Health, where the court held that it was legal under the UCL for a hospital to offer discretionary discounts to its customers without disclosing the availability of such discounts. 160 Cal.App.4th 981, 991-92, 74 Cal.Rptr.3d 47 (Cal.Ct.App. 2008). Plaintiffs do not allege, however, that Symantec gave a discount to some customers. Rather, Plaintiffs allege that Symantec deceived consumers into affirmatively purchasing a separate product that they did not want or need. (Am. Compl. ¶ 34(a).) Prohibiting the sale of a product through misrepresentations is at the heart of consumer protection laws, unlike ensuring that companies offer the same discounts to all customers.
There are two tests that California courts use to analyze the "unfair business practice" prong of the UCL. Lozano, 504 F.3d at 736. Plaintiffs have alleged sufficient facts to establish a claim under either test.
The first line of authority requires a "balancing" test, whereby the harm to the consumer is balanced against the utility of the defendant's practices. South Bay Chevrolet v. GM Acceptance Corp., 72 Cal.App.4th 861, 886, 85 Cal.Rptr.2d 301 (1999). Under this test, a business practice is unfair if it "offends an established public policy or when the practice is immoral, unethical, oppressive, unscrupulous or substantially injurious to consumers." Id. Plaintiffs met this test by alleging misstatements, or at least misrepresentations, that injured consumers by coercing them into buying an unnecessary product. (See Am. Compl. ¶ 40.)
The other line of authority requires that the unfair business practice be "tethered to a legislatively declared policy or has some actual or threatened impact on competition."
The UCL prohibits engaging in unlawful business practices. "The UCL permits injured consumers to `borrow' violations of other laws and treat them as unfair competition that is independently actionable." Ferrington, 2010 WL 3910169, at *14. A practice is unlawful under the UCL if it violates a statutory or judicially made civil or criminal law. Id. Plaintiffs have sufficiently alleged violations of the CLRA and unjust enrichment, thereby adequately alleging an unlawful business practice.
Symantec seeks dismissal of Plaintiffs' declaratory judgment claim. The Declaratory Judgment Act provides that in cases of "actual controversy," federal courts "may declare the rights and other legal relations" of "interested part[ies]." 28 U.S.C. § 2201. See also Fed.R.Civ.P. 57. Plaintiffs seek a declaration that Symantec's practices with respect to the Download Product were unlawful. (Am. Compl. ¶ 72.)
"Although the availability of alternative remedies is not a bar to declaratory relief, Fed.R.Civ.P. 57, the district court may in its discretion refuse declaratory relief if the alternative remedy is more appropriate." Smith v. Metro. Prop. and Liab. Ins. Co., 629 F.2d 757, 759 (2d Cir. 1980). The Court will dismiss Plaintiffs' request for declaratory relief because it is unnecessary; Plaintiffs have already asserted a claim for damages based on the same underlying dispute.
Symantec seeks dismissal of Plaintiffs' unjust enrichment claim. The Supreme Court of California has recognized a cause of action based on the theory of unjust enrichment. Ghirardo v. Antonioli, 14 Cal.4th 39, 57 Cal.Rptr.2d 687, 924 P.2d 996, 998 (1996) ("The seller in this matter pleaded and proved a cause of action based on a theory of unjust enrichment.").
The Court will now address Digital River's motion to dismiss. The Court finds that Plaintiffs have alleged sufficient misrepresentations to sustain their Consumer Fraud Act, False Statement in Advertising Act, and unjust enrichment claims under Minnesota law. As with Symantec, however, the Court will dismiss Plaintiffs' declaratory judgment claim because they have not provided a sufficient justification for this claim in light of their other theories of recovery.
Digital River first seeks to dismiss Plaintiffs' Consumer Fraud Act ("CFA") and False Statement in Advertising Act ("FSAA") claims. See Minn.Stat. §§ 325F.67, .69. The CFA provides:
Id. § 325F.69, subd. 1. The FSAA prohibits any "material assertion, representation, or statement of fact which is untrue, deceptive, or misleading" in advertisements. Id. § 325F.67.
The CFA and FSAA do not contain a private cause of action. Wehner v. Linvatech Corp., No. 06-CV-1709, 2008 WL 495525, at *3 (D.Minn. Feb. 20, 2008). Under Minnesota's Private Attorney General Statute ("Private AG Statute"), however, "any person injured by a violation" of the CFA and FAA may file suit and recover damages as well as costs and attorney fees. Minn. Stat. § 8.31, subd. 3a. By encouraging defrauded consumers to file suit, the Private AG Statute "advances the legislature's intent to prevent fraudulent representations and deceptive practices with regard to consumer products ...." Ly v. Nystrom, 615 N.W.2d 302, 311 (Minn.2000). "[T]he CFA is remedial and should be liberally construed in favor of protecting consumers." Id. at 308. To establish a cause of action under the CFA and FSAA, Plaintiffs must establish (1) a public benefit, and (2) a misrepresentation sufficient to violate the statutes. Plaintiffs have alleged facts sufficient to fulfill both of these elements.
To properly plead CFA and FSAA claims, Plaintiffs must have adequately alleged a public benefit. "Since the Private AG Statute grants private citizens the right to act as a `private' attorney general, the role and duties of the attorney general with respect to enforcing the fraudulent business practices laws must define the limits of the private claimant under the statute." Id. at 313. The attorney general is not responsible for protecting "private or individual interests independent of a
In deciding whether there is a public benefit, the following factors are relevant: the degree to which the defendants' alleged misrepresentations affected the public; the form of the alleged representation; the kind of relief sought; and whether the alleged misrepresentations are ongoing. See In re Levaquin Prods. Liab. Litig., 752 F.Supp.2d 1071, 1077-79 (D.Minn. 2010). Digital River argues that the public will not benefit from this action because Digital River stopped selling Norton prior to the initiation of the litigation and because Plaintiffs only seek monetary damages.
The Court finds that Plaintiffs have sufficiently alleged a public benefit because of the size of the audience that Digital River targeted to sell the Download Product.
Plaintiffs have alleged a public benefit even though this action seeks only money damages. See In re Nat'l Arbitration Forum Trade Practices Litig., 704 F.Supp.2d 832 (D.Minn.2010) ("Plaintiffs' continued pursuit of monetary damages for the class ... has a public benefit"); Curtis v. Altria Grp., Inc., 792 N.W.2d 836, 850 (Minn.Ct.App.2010) (finding public benefit in an action for money damages). Money damages may benefit consumers through providing compensation and a deterrent effect, and the plain language of the Private AG Statute allows for this type of recovery. See Minn.Stat. § 8.31, subd. 3a.
The Court's second consideration in deciding whether to dismiss Plaintiffs' CFA and FSAA claims is whether Plaintiffs
First, Plaintiffs have alleged that Digital River omitted material information that naturally affected consumers' conduct. (Id. at 63.) The CFA and FSAA are "broader than common law fraud and support omissions as violations" when they are material and naturally affect consumers' conduct.
Second, Plaintiffs have alleged that Digital River was required to "clarify [the] misleading information already disclosed" and did not do so. See Taylor Inv. Corp. v. Weil, 169 F.Supp.2d 1046, 1064 (D.Minn. 2001) (citing Am. Computer Trust Leasing v. Boerboom Int'l Inc., 967 F.2d 1208, 1211-12 (8th Cir.1992)). When a party provides misleading information, it may have the obligation to provide additional information to clarify that misrepresentation. See id. Plaintiffs have sufficiently alleged that Digital River was required but failed to clarify misleading information that led consumers to believe they could normally access Norton for only sixty days. (See Am. Compl. ¶¶ 22-26.)
Third, Plaintiffs have alleged that Digital River had "`special knowledge' of material facts to which [Plaintiffs did] not have access." See id. This type of special knowledge, if not disclosed, can support a claim under the CFA and FSAA. See id. Plaintiffs have adequately alleged that Digital River knew it misled consumers, and that clarifying information was not available on its website or in other written materials. (Id. ¶¶ 5, 24-26.) Because Plaintiffs have sufficiently alleged misrepresentations and a public benefit, the Court will not dismiss Plaintiffs' CFA or FSAA claims.
The Court will dismiss Plaintiffs' declaratory judgment claim against Digital River
Digital River further seeks a dismissal of Plaintiffs' unjust enrichment claim. To establish a claim for unjust enrichment under Minnesota law, a plaintiff must demonstrate "that another party knowingly received something of value to which he was not entitled, and that the circumstances are such that it would be unjust for that person to retain the benefit." Schumacher v. Schumacher, 627 N.W.2d 725, 729 (Minn.Ct.App.2001). "[T]o ensure that unjust enrichment is not used to reward a bad bargain, Minnesota courts require proof that `a benefit was conferred unknowingly or unwillingly.'" Holmes v. Torguson, 41 F.3d 1251, 1256 (8th Cir.1994) (quoting Galante v. Oz, Inc., 379 N.W.2d 723, 726 (Minn.Ct.App.1986)). Further, the benefit must be obtained unjustly — illegally or unlawfully — or in situations in which it would be "morally wrong" for one party to be enriched at the expense of another. Midwest Sports Mktg., Inc. v. Hillerich & Bradsby of Can., 552 N.W.2d 254, 269 (Minn.Ct.App.1996); see also Cady v. Bush, 283 Minn. 105, 166 N.W.2d 358, 362 (Minn.1969).
Plaintiffs have alleged that Digital River violated the CFA and FSAA by inducing them to purchase product that they did not want or need. At this stage in the litigation, Plaintiffs may pursue alternative theories at law and in equity. See Marty H. Segelbaum, Inc. v. MW Capital, LLC, 673 F.Supp.2d 875, 880 (D.Minn.2009). Because the Plaintiffs' alleged facts fulfill the elements of unjust enrichment, the Court will not dismiss this claim.
Based on the foregoing, and all the files, records, and proceedings herein,
1. Defendant Symantec's Motion to Dismiss [Docket No. 55] is
2. Defendant Digital River, Inc.'s Motion to Dismiss [Docket No. 50] is
