GIFTCASH INC. v. The Gap, Inc.

1

2

3

4 UNITED STATES DISTRICT COURT

5 NORTHERN DISTRICT OF CALIFORNIA

6

7 GIFTCASH INC., Case No. 3:23-cv-02146-WHO

8 Plaintiff,

ORDER GRANTING IN PART AND

9 v. DENYING IN PART MOTION TO

DISMISS

10 THE GAP, INC., et al.,

Re: Dkt. No. 50

Defendants.

11

12

13 Plaintiff GiftCash, Inc., filed an amended complaint concerning its allegations that

14 defendants The Gap, Inc., Banana Republic, LLC, Old Navy, LLC, and Direct Consumer Services,

15 LLC, (collectively, “the defendants”) acted unlawfully and unfairly when they devalued thousands

16 of dollars in gift cards purchased by GiftCash on the secondary market. The defendants now

17 move to dismiss all but the conversion claim, which I previously found was sufficiently pleaded.

18 GiftCash sufficiently alleges standing for injunctive relief, though it should amend its request for

19 equitable restitution to be pleaded in the alternative to money damages. It also sufficiently states a

20 claim under the UCL but fails to state a claim under the FAL. For those and the following

21 reasons, the motion is GRANTED in part and DENIED in part.

22 BACKGROUND

23 I. FACTUAL BACKGROUND

24 This Order assumes familiarity with the factual background outlined in my prior order

25 dismissing the complaint with leave to amend. (“Prior Order”) [Dkt. No. 46]. Pertinent factual

26 allegations made in the operative First Amended Complaint (“FAC”) are taken as true and are as

27 follows. [Dkt. No. 47].

1 FAC ¶ 20. Approximately one third of its inventory consists of gift cards for the defendants’

2 companies and stores and so revenue from these cards “is a significant component” of GiftCash’s

3 income and business. Id. ¶¶ 33, 35. As of April 18, 2023, GiftCash owned over $440,000 worth

4 of the defendants’ gift cards, which were still in its possession as of the filing of the FAC. Id.

5 ¶¶ 21-22. In the two weeks before April 18, GiftCash also sold 146 of the defendants’ gift cards to

6 third party buyers. Id. ¶ 23.

7 GiftCash says that the defendants’ websites provide that their gift cards are redeemable “at

8 any of our brands online and in stores.” Id. ¶ 16. It includes hyperlinks1 to the defendants’ gift

9 card policies and says that the websites “materially omit” the defendants’ “authority” to devalue

10 their gift cards. Id. ¶ 17 & nn. 4-6.

11 On April 19, 2023, GiftCash discovered that many of its gift cards had been “devalued,”

12 and it subsequently learned that the total devaluation affected 3,025 gift cards, amounting to

13 $482,498. Id. ¶¶ 25, 29. The defendants informed GiftCash that the cards were “associated with

14 suspended accounts that were served trespass letters,” meaning that they were linked with fraud.

15 Id. ¶ 27. GiftCash says it never received a trespass letter. Id. ¶¶ 27-28.

16 GiftCash alleges that the defendants knew its business model was based on buying and

17 selling gift cards on the secondary market. Id. ¶¶ 31-32. It asserts that the defendants made

18 unlawful, unfair, or fraudulent misrepresentations and omissions in “an anticompetitive scheme”

19 to engage in unfair competition, “devalue a competitor’s product[,] and receive an illegal

20 windfall.” Id. ¶¶ 69-70.

21 Now GiftCash brings four cases of action grounded in its allegations about the defendants’

22 conduct: (1) conversion under California Civil Code section 1749.6, id. ¶¶ 48-59; (2) “Unjust

23 Enrichment/Restitution,” id. ¶¶ 60-67; (3) violation of California’s Unfair Competition Law

24 (“UCL”), Cal. Bus. & Prof. Code §§ 17200, et seq., id. ¶¶ 68-76; and (4) violation of California’s

25 False Advertising Law (“FAL”), Cal. Bus. & Prof. Code §§ 17500, et seq., id. ¶¶ 77-89.

26

27

1 II. PROCEDURAL BACKGROUND

2 I previously granted in part and denied in part the defendants’ first motion to dismiss,

3 finding that GiftCash’s conversion claim survived and dismissing the remaining claims with leave

4 to amend. See Prior Order.

5 Now the defendants have filed a motion to dismiss the claims for unjust enrichment and

6 restitution and for violations of the UCL and FAL. (“Mot.”) [Dkt. No. 50]. GiftCash opposed.

7 (“Oppo.”) [Dkt. No. 51]. The defendants replied. (“Repl.”) [Dkt. No. 52]. Under Civil Local

8 Rule 7-1(b), I find this matter appropriate for resolution without oral argument and so VACATE

9 the hearing scheduled for November 29, 2023.

10 LEGAL STANDARD

11 I. RULE 12(B)(1)

12 A motion to dismiss filed pursuant to Federal Rule of Civil Procedure (“FRCP”) 12(b)(1)

13 is a challenge to the court’s subject matter jurisdiction. See Fed. R. Civ. Proc. 12(b)(1). “Federal

14 courts are courts of limited jurisdiction,” and it is “presumed that a cause lies outside this limited

15 jurisdiction.” Kokkonen v. Guardian Life Ins. of Am., 511 U.S. 375, 377 (1994) (citations

16 omitted). The party invoking the jurisdiction of the federal court bears the burden of establishing

17 that the court has the requisite subject matter jurisdiction to grant the relief requested. Id.

18 A challenge pursuant to Rule 12(b)(1) may be facial or factual. See White v. Lee, 227 F.3d

19 1214, 1242 (9th Cir. 2000). In a facial attack, the jurisdictional challenge is confined to the

20 allegations pled in the complaint. See Wolfe v. Strankman, 392 F.3d 358, 362 (9th Cir. 2004).

21 The challenger asserts that the allegations in the complaint are insufficient “on their face” to

22 invoke federal jurisdiction. See Safe Air Safe Air for Everyone v. Meyer, 373 F.3d 1035, 1039 (9th

23 Cir. 2004). To resolve this challenge, the court assumes that the allegations in the complaint are

24 true and draws all reasonable inference in favor of the party opposing dismissal. See Wolfe, 392

25 F.3d at 362.

26 “By contrast, in a factual attack, the challenger disputes the truth of the allegations that, by

27 themselves, would otherwise invoke federal jurisdiction.” Safe Air, 373 F.3d at 1039. To resolve

1 (citation omitted). Instead, the court “may review evidence beyond the complaint without

2 converting the motion to dismiss into a motion for summary judgment.” Id. (citations omitted).

3 Once the moving party has made a factual challenge by offering affidavits or other evidence to

4 dispute the allegations in the complaint, the party opposing the motion must “present affidavits or

5 any other evidence necessary to satisfy its burden of establishing that the court, in fact, possesses

6 subject matter jurisdiction.” St. Clair v. City of Chico, 880 F.2d 199, 201 (9th Cir. 1989); see also

7 Savage v. Glendale Union High Sch. Dist. No. 205, 343 F.3d 1036, 1040 n.2 (9th Cir. 2003).

8 II. RULE 12(B)(6)

9 Under FRCP 12(b)(6), a district court must dismiss a complaint if it fails to state a claim

10 upon which relief can be granted. To survive a Rule 12(b)(6) motion to dismiss, the plaintiff must

11 allege “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v.

12 Twombly, 550 U.S. 544, 570 (2007). A claim is facially plausible when the plaintiff pleads facts

13 that “allow the court to draw the reasonable inference that the defendant is liable for the

14 misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citation omitted). There must

15 be “more than a sheer possibility that a defendant has acted unlawfully.” Id. While courts do not

16 require “heightened fact pleading of specifics,” a plaintiff must allege facts sufficient to “raise a

17 right to relief above the speculative level.” Twombly, 550 U.S. at 555, 570.

18 In deciding whether the plaintiff has stated a claim upon which relief can be granted, the

19 Court accepts the plaintiff’s allegations as true and draws all reasonable inferences in favor of the

20 plaintiff. See Usher v. City of Los Angeles, 828 F.2d 556, 561 (9th Cir. 1987). However, the court

21 is not required to accept as true “allegations that are merely conclusory, unwarranted deductions of

22 fact, or unreasonable inferences.” In re Gilead Scis. Sec. Litig., 536 F.3d 1049, 1055 (9th Cir.

23 2008).

24 If the court dismisses the complaint, it “should grant leave to amend even if no request to

25 amend the pleading was made, unless it determines that the pleading could not possibly be cured

26 by the allegation of other facts.” Lopez v. Smith, 203 F.3d 1122, 1127 (9th Cir. 2000). In making

27 this determination, the court should consider factors such as “the presence or absence of undue

1 undue prejudice to the opposing party and futility of the proposed amendment.” Moore v. Kayport

2 Package Express, 885 F.2d 531, 538 (9th Cir. 1989).

3 III. RULE 9(B)

4 FRCP 9(b) imposes a heightened pleading standard where a complaint alleges fraud or

5 mistake. Under FRCP 9(b), to state a claim for fraud, “a party must state with particularity the

6 circumstances constituting fraud,” and the allegations must be “specific enough to give defendants

7 notice of the particular misconduct . . . so that they can defend against the charge and not just deny

8 that they have done anything wrong.” Kearns v. Ford Motor Co., 567 F.3d 1120, 1124, 1126 (9th

9 Cir. 2009) (citations omitted). Averments of fraud must be accompanied by ‘the who, what,

10 when, where, and how’ of the misconduct charged.” Vess v. Ciba-Geigy Corp., 317 F.3d 1097,

11 1106 (9th Cir. 2003) (citation omitted). However, “Rule 9(b) requires only that the circumstances

12 of fraud be stated with particularity; other facts may be plead[ed] generally, or in accordance with

13 Rule 8.” United States ex rel. Lee v. Corinthian Colls., 655 F.3d 984, 992 (9th Cir. 2011)

14 (emphasis omitted).

15 DISCUSSION

16 I. STANDING FOR INJUNCTIVE RELIEF

17 The defendants first move to dismiss GiftCash’s claims seeking injunctive relief, arguing

18 that GiftCash lacks standing because it fails to plausibly allege an actual and imminent threat of

19 future injury. See Mot. 11:22-14:17. In opposition, GiftCash says that it plausibly alleges

20 standing for injunctive relief by pleading that its business depends on buying and selling the

21 defendants’ gift cards so it wants to continue doing so in the future, but it faces an actual,

22 imminent threat of harm from the defendants’ policy of indiscriminately devaluing those gift

23 cards. See Oppo. 4:22-9:8. GiftCash’s complaint seeks an injunction to prohibit the defendants

24 from ever devaluing the cards GiftCash purchases, though the opposition disclaims that request

25 and instead seeks an injunction against the defendants’ alleged practice of indiscriminately

26 devaluing GiftCash’s cards rather than limiting devaluation to those linked to fraud. Compare

27 FAC ¶¶ 2, 35, with Oppo. 6:12-19.

1 “actual and imminent, not conjectural or hypothetical.” Davidson v. Kimberly-Clark Corp., 889

2 F.3d 956, 967 (9th Cir. 2018) (quoting Summers v. Earth Island Inst., 555 U.S. 488, 493 (2009)).

3 Once plaintiffs have been wronged, they are entitled to injunctive relief only if they can show that

4 they face a “real or immediate threat that [they] will again be wronged in a similar way.” Mayfield

5 v. United States, 599 F.3d 964, 970 (9th Cir. 2010) (citations and internal punctuation omitted).

6 “Where standing is premised entirely on the threat of repeated injury, a plaintiff must show ‘a

7 sufficient likelihood that [it] will again be wronged in a similar way.’” Davidson, 889 F.3d at 967

8 (quoting City of Los Angeles v. Lyons, 461 U.S. 95, 111 (1983)). It may do so by alleging it

9 “would like to purchase the [product] in the future but cannot rely on” the existing label or

10 advertising. Gagetta v. Walmart, Inc., 646 F. Supp. 3d 1164, 1176-77 (N.D. Cal. 2022); see also

11 Davidson, 889 F.3d at 967, 969; Brown v. Van’s Int’l Foods, Inc., No. 22-CV-00001-WHO, 2022

12 WL 1471454, at *11 (N.D. Cal. May 10, 2022) (“Brown II”) (finding standing for injunctive relief

13 where plaintiff alleged she “continues to desire to purchase [defendant’s] products,” “would likely

14 purchase the products again in the future,” and “regularly visits stores where [defendant’s]

15 products are sold”).

16 GiftCash’s standing argument is premised on the threat of repeated injury—devaluation of

17 gift cards—and it can establish standing by plausibly alleging that it wants to purchase the cards in

18 the future but cannot rely on the existing product advertising. See Gagetta, 646 F. Supp. 3d at

19 1176-77. GiftCash meets the first part of this standard by plausibly alleging that it would purchase

20 the cards in the future because it asserts that it is still in the business of buying and selling gift

21 cards and that a significant portion of its business relies on the defendants’ cards. Cf. Brown II,

22 2022 WL 1471454, at *11.

23 Whether GiftCash plausibly alleges the second part of the standard, inability to rely on the

24 existing advertising in the future, depends somewhat on the relief its seeking. Assuming GiftCash

25 seeks the narrower, more nuanced injunction it proposes in its opposition, which would enjoin the

26 defendants’ practice of indiscriminately devaluing GiftCash’s gift cards regardless of their

27 connection to fraud, then it sufficiently pleads threat of future injury and establishes standing for

1 injunctive relief.2 Its allegations are similar to those in Chaplin v. Walmart, Inc., No. 3:23-CV-

2 00878-WHO, 2023 WL 4843956, at *5-6 (N.D. Cal. May 25, 2023), where the plaintiff alleged

3 that he wanted to buy a safe and effective product and that the defendant marketed the product as

4 safe and effective when it was not, so without injunctive relief he could not rely on the marketing

5 in the future to know whether the product he bought was safe and effective. I found that was

6 sufficient to plead threat of future harm for standing for injunctive relief, not because the plaintiff

7 sought reformulation of the product—he did not—but because he risked being “wronged again in

8 a similar way as in the past” when he previously purchased an unsafe and ineffective product. Id.

9 Here, as in Chaplin, GiftCash alleges that it was harmed in the past when a product it

10 purchased was indiscriminately devalued and that it wants to purchase the product in the future but

11 risks the same injury of indiscriminate devaluation. It says it cannot rely on the defendants’

12 websites because they omit any warning of indiscriminate devaluation. Cf. id. Without injunctive

13 relief to prohibit indiscriminate devaluation, GiftCash risks relying on those same posted policies

14 to purchase gift cards not linked to fraud, and again being harmed by indiscriminate devaluation of

15 non-fraudulent cards. Taking these allegations as true, this is sufficient to show that GiftCash

16 cannot rely on existing advertising with existing omissions to avoid future harm. See id.; see also

17 Davidson, 889 F.3d at 967. Therefore, under the rule from Davidson and as explained in many

18 other cases, GiftCash sufficiently alleges likelihood of wrong in a similar way, and so establishes

19 standing for injunctive relief.

20 Accordingly, proceeding on the theory that the defendants have no right to unilaterally and

21 indiscriminately devalue all gift cards associated with GiftCash that are not linked to fraudulent

22 activity, GiftCash’s case may move forward and seek injunctive relief. However, because the

23 FAC is not entirely clear that this is the injunctive relief that GiftCash is seeking, GiftCash has

24 leave to amend to clarify its request. Assuming it does so, its allegations are sufficiently pleaded

25

26

2 It makes sense that GiftCash is seeking the narrower form of injunctive relief detailed in the

opposition because that best aligns with its theory of the case, as presented to me thus far.

27

GiftCash is arguing that the defendants have no right to unilaterally and indiscriminately devalue

1 and will move forward. The defendants’ motion is therefore DENIED on this basis.

2 II. EQUITABLE CLAIMS

3 Next, the defendants argue for dismissal of GiftCash’s requests for equitable restitution

4 through its unjust enrichment, UCL, and FAL claims, and for injunctive relief through its UCL

5 and FAL claims. The defendants challenge whether GiftCash’s requested equitable relief survives

6 the standard from Sonner v. Premier Nutrition Corp., 971 F.3d 834 (9th Cir. 2020).

7 Under Sonner, for claims for equitable restitution to survive a motion to dismiss, “plaintiffs

8 are required, at a minimum, to plead that they lack an adequate remedy at law.” Anderson v.

9 Apple Inc., 500 F. Supp. 3d 993, 1009 (N.D. Cal. 2020). For example, plaintiffs may assert “that

10 the equitable restitution they request would go beyond the damages available to them” or that

11 “restitution . . . would be more certain, prompt, or efficient than the legal remedies they request.”

12 Id. (citing Am Life Ins. Co. v. Stewart, 300 U.S. 203, 214 (1937)).

13 GiftCash plausibly alleges its requests for injunctive relief go beyond the damages

14 available via its conversion claim. See id. As I have previously explained, a remedy at law of

15 damages “is retrospective” and compensates plaintiffs for “past purchases,” while an equitable

16 injunction “is prospective” and ensures that consumers can rely on the defendant’s advertising “in

17 the future.” Zeiger v. WellPet LLC, 526 F. Supp. 3d 652, 687 (N.D. Cal. 2021); see also Chaplin,

18 2023 WL 4843956, at *6. GiftCash’s request for an injunction to stop the defendants from

19 indiscriminately devaluing their gift cards is different from its request for monetary damages via

20 its conversion claim. This is sufficient under Sonner. See Zeiger, 526 F. Supp. 3d at 687;

21 Chaplin, 2023 WL 4843956, at *6. The motion is DENIED on this basis.

22 GiftCash may seek equitable restitution as the remedy for the 146 gift cards it already sold

23 to customers because GiftCash alleged it lacked an adequate legal remedy and in fact does not

24 bring claims for a legal remedy related to those cards. My Prior Order dismissed the conversion

25 claim as to those gift cards, Prior Order 12:14-18, and despite the defendants’ contentions to the

26 contrary, GiftCash does not re-include those 146 cards within the purview of the conversion claim

27 in the amended complaint. See FAC ¶¶ 48-67. Even if GiftCash intended to reassert them as part

1 time of the conversion, nor does it seem plausible that GiftCash could make such allegations. See

2 Prior Order 12:14-18 (first citing Beluca Ventures LLC v. Aktiebolag, 622 F. Supp. 3d 806, 814

3 (N.D. Cal. 2022); and then citing Avidor v. Sutter’s Place, Inc., 212 Cal. App. 4th 1439, 1453

4 (2013)). Accordingly, the FAC sufficiently pleads that there is no adequate legal remedy for the

5 injury GiftCash incurred via the 146 cards it already sold. GiftCash may pursue its equitable

6 restitution claims for these cards, and the motion is DENIED on this basis.

7 GiftCash also pleads that there is no adequate remedy at law for the devalued gift cards

8 that remain in its possession. FAC ¶ 47. Ordinarily that would be sufficient to meet the standard

9 under Sonner and survive the defendants’ motion. See Johnson v. Trumpet Behav. Health, LLC,

10 No. 3:21-CV-03221-WHO, 2022 WL 74163, at *3 (N.D. Cal. Jan. 7, 2022) (“[I]f a plaintiff pleads

11 that she lacks an adequate legal remedy, Sonner will rarely (if ever) require more this early in the

12 case.”). Here, though, GiftCash says that monetary damages from the conversion claim are

13 inadequate because they will not permit GiftCash to recover the face value of the gift cards, but

14 rather only the value it bought or sold the cards for. See FAC ¶¶ 41-45; Oppo. 9:9-11:4. But that

15 does not seem to be what the law provides.

16 Under California law, a plaintiff suing for conversion may recover

17 [t]he value of the property at the time of the conversion, with the interest from that

time, or, an amount sufficient to indemnify the party injured for the loss . . . ; and

18 . . . [a] fair compensation for the time and money properly expended in pursuit of

the property.

19

Cal. Civ. Code § 3336; see also Salvador v. Live At Home Care Connection, Inc., No. 18-CV-

20

07159-EJD, 2021 WL 3373592, at *5 (N.D. Cal. Aug. 3, 2021) (citing Myers v. Stephens, 233 Cal.

21

App. 2d 104, 116 (1965)) (same). Though GiftCash apparently believes that the “value of the

22

property at the time of the conversion” is measured by potential resale value rather than the face

23

value of the gift card, it does not cite any law supporting this method for calculating damages. See

24

also Lueter v. State of Cal., 94 Cal. App. 4th 1285, 1302 (2002) (providing that damages in a

25

conversion action may not be “speculative, remote, imaginary, contingent, or merely possible”).

26

Some California caselaw provides for the recovery of the “market value” of property in a

27

conversion action. See, e.g., Stroman v. Lynch, 91 Cal. App. 2d 406, 408, 205 P.2d 409, 410

1 (1949). But other cases provide that recovery can be different from the value at the time of

2 conversion, including in “special circumstances,” Betzer v. Olney, 14 Cal. App. 2d 53, 61, 57 P.2d

3 1376, 1380 (1936) (citation omitted), or when disgorging the converter’s profits, Stroman, 205

4 P.2d at 410; Crofoot Lumber, Inc. v. Ford, 191 Cal. App. 2d 238, 248 (1961), or “to avoid

5 injustice,” Newhart v. Pierce, 254 Cal. App. 2d 783, 794 (1967) (citation omitted). And neither

6 cost nor resale price are conclusive evidence of “value” for conversion damages. See Stroman,

7 205 P.2d at 408-10; Lonergan v. Monroe, 77 Cal. App. 2d 223, 225, 175 P.2d 42, 43 (1946).

8 Taken together, it seems likely that California law permits recovery of the face value of the cards.

9 And while there are apparently no California cases that address damages for conversion of

10 gift cards, in Meyer v. Thomas, 18 Cal. App. 2d 299, 63 P.2d 1176, 1177 (1936), the Court of

11 Appeal discussed damages for conversion of a $6,500 promissory note, which was secured by a

12 deed of trust for property worth $2,500. The court found that the defendants would be liable for

13 the value of the note, regardless of the value of the property described in the deed of trust, and that

14 under California law, “presumably the note would be worth its face value.” Id. at 1179. Though

15 not directly analogous to the present case, it is more on point than any of the (very sparse) case

16 law provided by the parties or cases that I could find. The value of any particular gift card

17 parallels the value of the promissory note in Meyer and is measured by its face value, not

18 necessarily the value that would be realized by a subsequent sale. This interpretation is also

19 supported by the underlying gift card statute, which provides that “[t]he value represented by [a]

20 gift certificate belongs to the beneficiary . . . and not to the issuer.” Cal. Civ. Code § 1746.9(a).

21 That further suggests that the “value” of a gift card is measured by the face value, not the resale

22 value, meaning GiftCash would be entitled to recover the face value through its conversion claim.

23 GiftCash does not address these cases or statutory language and so its arguments are

24 unconvincing. Assuming that GiftCash can recover the face value of the gift cards, the monetary

25 damages it would receive from its legal claim are identical to those it seeks via equitable

26 restitution. Therefore, it does not plead that its legal remedies are inadequate, given its current

27 legal theory.

1 money damages. See, e.g., McKay v. Sazerac Co., Inc., No. 23-CV-00522-EMC, 2023 WL

2 3549515, at *8 (N.D. Cal. May 17, 2023); Brown II, 2022 WL 1471454, at *13; Jeong v. Nexo

3 Fin. LLC, No. 21-CV-02392-BLF, 2022 WL 174236, at *27 (N.D. Cal. Jan. 19, 2022); Freeman v.

4 Indochino Apparel, Inc., 443 F. Supp. 3d 1107, 1114 (N.D. Cal. 2020). Though the FAC does not

5 seek these as alternatives, GiftCash has leave to file an amended complaint clarifying that is what

6 it seeks. If it does so, its claims will survive.

7 If it chooses to not file an amended complaint, its equitable restitution requests for its

8 unjust enrichment, UCL, and FAL claims are DISMISSED without prejudice. “If, later in the

9 case, the plaintiffs conclude that they do lack adequate remedies at law,” including if they

10 determine that their conversion claims are not viable or will not yield the face value of the gift

11 cards, “they should move for leave to amend to re-plead” the claims for equitable restitution.

12 Johnson, 2022 WL 74163, at *4.

13 Therefore, the defendants’ motion on this basis is GRANTED in part and DENIED in

14 part.

15 III. UCL CLAIM

16 Next, the defendants argue that even if GiftCash’s UCL claim survives the above

17 challenges, it fails to assert standing to bring the claim and fails to state a claim for relief.

18 “The UCL prohibits ‘unfair competition,’ which is broadly defined to include ‘three

19 varieties of unfair competition—acts or practices which are unlawful, or unfair, or fraudulent.’”

20 Davis v. HSBC Bank Nev., N.A., 691 F.3d 1152, 1168 (9th Cir. 2012) (quoting Cel-Tech

21 Commc’ns, Inc. v. Los Angeles Cellular Tel. Co., 20 Cal. 4th 163, 180, 973 P.2d 527, 540 (1999)).

22 The unlawful, unfair, and fraudulent prongs each “capture[] a separate and distinct theory of

23 liability.” Rubio v. Cap. One Bank, 613 F.3d 1195, 1203 (9th Cir. 2010) (quoting Kearns, 567

24 F.3d at 1127). Different tests apply to determine whether a plaintiff stated a claim under each

25 prong. See id. at 1204-05.

26 “To establish standing under the UCL, . . . or FAL” for claims based on misrepresentations

27 or omissions, “a plaintiff must allege reliance on the purported misrepresentations at issue and

1 Cal. 2022) (“Brown I”) (first citing Kwikset Corp. v. Superior Ct., 51 Cal. 4th 310, 326-27, 246

2 P.3d 877, 887 (2011)); and then citing Brown v. Natures Path Foods, Inc., No. 21-cv-05132-HSG,

3 2022 WL 717816, at *4 (N.D. Cal. Mar. 10, 2022)). A plaintiff “may demonstrate actual reliance”

4 on an omission “by pleading that ‘had the omitted information been disclosed, [she] would have

5 been aware of it and behaved differently.’” Id. at 826 (quoting Daniel v. Ford Motor Co., 806

6 F.3d 1217, 1225 (9th Cir. 2015)).

7 A. Unlawful Prong

8 The defendants argue that GiftCash failed to plead reliance on any misrepresentations such

9 that it failed to show it has standing under the UCL, and they move to strike the allegations in the

10 complaint that assert the unlawful prong relies on the breach of contract claim.

11 As a preliminary matter, the defendants do not contest that “[v]irtually any state, federal or

12 local law can serve as the predicate for an action under” the unlawful prong of the UCL. Davis,

13 691 F.3d at 1168 (citations omitted). Nor do they contest that GiftCash’s UCL claim under the

14 unlawful prong relies on its conversion claim, which was sufficiently pleaded. See Repl. 8 n.5.

15 With respect to the standing argument, GiftCash is not required to allege reliance on a

16 misrepresentation to the extent that its claim under the unlawful prong is not based on a

17 misrepresentation. “A plaintiff bringing a claim under the ‘unlawful’ prong of the UCL must . . .

18 plead actual reliance to establish standing if the predicate unlawful act is based on

19 misrepresentation or fraud.” Brown I, 622 F. Supp. 3d at 824 (quoting Victor v. R.C. Bigelow,

20 Inc., No. 13-cv-02976-WHO, 2014 WL 1028881, at *5 (N.D. Cal. Mar. 14, 2014)) (collecting

21 cases confirming that pleading reliance is necessary where the unlawful claim is based on

22 misrepresentations). But the predicate unlawful act here is the alleged conversion, and so

23 GiftCash did not need to allege reliance. The defendants’ argument is unpersuasive and the

24 motion is DENIED on this basis.

25 Finally, the defendants’ request to strike GiftCash’s allegations is GRANTED in part and

26 DENIED in part. See Repl. 8:19-20:3. GiftCash’s breach of contract claim was previously

27 dismissed and not reasserted in the FAC, so it is not clear why it is still included as a predicate for

1 the allegation about unlawful business practices meets the standard for striking. See Fed. R. Civ.

2 Proc. 12(f) (“The court may strike from a pleading . . . any redundant, immaterial, impertinent, or

3 scandalous material.”); see also Doe 1 v. Univ. of San Francisco, No. 22-CV-01559-LB, 2023 WL

4 5021811, at *5 (N.D. Cal. Aug. 4, 2023) (“The function of a [Rule 12(f)] motion to strike is to

5 avoid the unnecessary expenditures that arise throughout litigation by dispensing of any spurious

6 issues prior to trial.” (citation omitted)). The motion is DENIED on that basis.

7 B. Unfair and Fraudulent Prongs

8 1. Standing Under the UCL

9 The defendants also argue that GiftCash failed to establish standing under the UCL by

10 failing to allege reliance given its allegations about the unfair and fraudulent prongs. See Mot.

11 19:14-20:10. GiftCash clarifies in its opposition that its fraudulent prong is predicated on

12 misrepresentations and omissions, see Oppo. 13:20-14:3, but it is not clear whether the unfair

13 prong also relies on misrepresentations and omissions or whether it is predicated on the allegedly

14 unfair devaluation of the gift cards, see, e.g., FAC ¶ 69 (“Defendants have committed unfair

15 competition . . . by engaging in an anticompetitive scheme to devalue a competitor’s product and

16 receive an illegal windfall.”), ¶ 70 (“The acts, omissions, misrepresentations, practices, and non-

17 disclosures of Defendants . . . constitute a common and continuing course of conduct of unfair

18 competition employing unfair, unlawful, and/or fraudulent business acts or practices . . . including,

19 but not limited to . . . conversion.”), etc. And the allegations related to omissions or

20 misrepresentations in the FAC are sparse. GiftCash includes hyperlinks to the defendants’

21 websites and gift card policies in footnotes, see id. at 4 nn. 4-6; asserts that the cards are advertised

22 as “redeemable ‘at any of our brands online and in stores’” but the websites “materially omit [the

23 defendants’] ‘authority’ to devalue gift cards in this manner,” id. ¶¶ 16-17; and asserts that it

24 “relied to [its] detriment on Defendants’ false, misleading, and deceptive advertising and

25 marketing practices, including the misrepresentations and omissions set forth above,” id. ¶ 82.

26 To the extent that these prongs rely on misrepresentations or omissions, GiftCash does not

27 plead reliance. See Brown I, 622 F. Supp. 3d at 824. First, it is not clear how the fact that the

1 not stem from trying and failing to redeem a card at one of the defendants’ locations, but rather

2 from the devaluation of the cards. Even if GiftCash could amend to say it relied on this

3 redeemability statement, it is not clear how that would have anything to do with its claims and so

4 would not be sufficient to show it relied on any misrepresentations or omissions.

5 Second, GiftCash may be able to plead that it relied on the defendants’ omission of its

6 ability to indiscriminately devalue gift cards, but it does not do so. GiftCash’s single allegation

7 that it “relied” on the defendants’ misrepresentations and omissions “set forth above”—which

8 seems to refer to the hyperlinks, though it is not clear—are a far cry from those in Brown I, where

9 I found that the plaintiff pleaded actual reliance for her UCL and FAL claims by alleging that she

10 looked at and read the product label before purchase, that she regularly looks at and reads product

11 labels so would have seen the omitted information had it been disclosed, and that she would have

12 behaved differently had the label disclosed the truth. 622 F. Supp. 3d at 826. The allegations in

13 Brown I were admittedly far more detailed than necessary to plausibly allege reliance, but

14 GiftCash’s allegations are also unlike the sparser allegations I found sufficient in Gagetta, where

15 the plaintiff pleaded that he saw, read, and understood the product label before purchase and

16 would have behaved differently had the omitted information been disclosed. 646 F. Supp. 3d at

17 1175. Here, GiftCash does not say it saw the defendants’ website before making its purchases

18 from third party gift card sellers. It does not say that, had the truth of the indiscriminate

19 devaluation policy been disclosed before purchase, it would not have purchased the gift cards.

20 Accordingly, it does not plausibly allege reliance, and at least for the fraudulent prong it fails to

21 plead standing under the UCL.

22 To the extent that the unfair prong relies on the devaluation itself, GiftCash was not

23 required to plead reliance on any misrepresentation or omission. California law requires pleading

24 reliance for standing to show that the plaintiff’s injury was caused by the defendant’s conduct.

25 See Brown I, 622 F. Supp. 3d at 824 (explaining that reliance is related to causation and injury

26 (citations omitted)). If GiftCash’s injuries were caused by the sudden devaluation, as it seems to

27 assert in the complaint, it does not need to plead that any misrepresentations or omissions caused

1 defendants’ assertions that GiftCash failed to state a claim.

2 2. Unfair Prong – Failure to State a Claim

3 To state a UCL claim under the unfair prong, the plaintiff must plead that the defendant’s

4 conduct (1) “threatens an incipient violation of an antitrust law”; (2) “violates the policy or spirit

5 of one of those laws because its effects are comparable to or the same as a violation of the law”; or

6 (3) “otherwise significantly threatens or harms competition.” Nationwide Biweekly Admin., Inc. v.

7 Superior Ct. of Alameda Cnty., 9 Cal. 5th 279, 302, 462 P.3d 461, 471 (2020) (quoting Cel-Tech,

8 973 P.2d at 544) (emphasis omitted); see also Br. for State of Cal. as Amici Curiae In Support of

9 Neither Party, Epic Games, Inc., v. Apple, Inc., 67 F.4th 946 (9th Cir. 2023) (No. 118) at *9-16

10 (confirming the current state of California law and explaining that pleading violation of an

11 antitrust law is not mandatory because only one of these three elements is required to state a claim

12 under the unfairness prong). GiftCash does not appear to attempt to plead either of the first two

13 routes for an unfairness claim and instead attempts to plead the third route, that the defendants’

14 conduct significantly threatens or harms competition. See Oppo. 13:3-18.

15 Since Cel-Tech, California courts have split on how to define “unfairness.” See In re Ins.

16 Installment Fee Cases, 211 Cal. App. 4th 1395, 1417-19 (2012) (explaining split); see also

17 Graham v. Bank of Am., N.A., 226 Cal. App. 4th 594, 612-13 (2014) (same). One line of cases

18 defines an unfair business practice as one that “offends an established public policy or when the

19 practice is immoral, unethical, oppressive, unscrupulous or substantially injurious to consumers.”

20 In re Ins. Installment, 211 Cal. App. 4th at 1418 (quoting Smith v. State Farm Mut. Auto. Ins. Co.,

21 93 Cal. App. 4th 700, 718-19 (2001)). Another line requires three factors: “(1) [t]he consumer

22 injury must be substantial; (2) the injury must not be outweighed by any countervailing benefits to

23 consumers or competition; and (3) it must be an injury that consumers themselves could not

24 reasonably have avoided.” Id. (quoting Camacho v. Auto. Club of So. Cal., 142 Cal. App. 4th

25 1294, 1403 (2006)).3 The third “require[s] that the public policy which is a predicate to the action

26

27

3 The defendants cite Ray v. U.S. Bank Tr., N.A. as Tr. for LSF10 Master Participation Tr., No.

1 must be ‘tethered’ to specific constitutional, statutory or regulatory provisions.” Id. (citing

2 Gregory v. Albertson’s, Inc., 104 Cal. App. 4th 845, 854 (2002)).

3 GiftCash’s allegations are insufficient under any standard. It alleges that the defendants

4 knew about its existence and business model since at least January 2020, see FAC ¶¶ 30-32, that

5 the defendants unilaterally devalued GiftCash’s gift cards with no warning, id. ¶¶ 25, 37, and that

6 the defendants did so as part of an “anticompetitive scheme” to harm a known competitor and

7 “receive an illegal windfall,” id. ¶ 69. Those allegations do not assert that the defendants engaged

8 in conduct that offended public policy or was immoral, unethical, oppressive, unscrupulous, or

9 substantially injurious to consumers. See Smith, 93 Cal. App. 4th at 718-19. They also do not

10 allege any of the three requirements outlined by Camacho, 142 Cal. App. 4th at 1403. Nor do

11 they “tether[]” any underlying public policy to constitutional, statutory, or regulatory provisions.

12 See Gregory, 104 Cal. App. 4th at 854. Accordingly, GiftCash fails to state a claim under the

13 unfair prong of the UCL.

14 Because it seems possible that GiftCash could plausibly allege a claim under the unfair

15 prong, it has leave to amend to do so.

16 * * *

17 Accordingly, the motion is DENIED as to the UCL claim. GiftCash plausibly alleges a

18 claim under the unlawful prong. It may amend its allegations under the unfair and fraudulent

19 prong if it wishes, but it does not need do so to for the claim to go forward.

20 IV. FAL CLAIM

21 As with the UCL claim, to the extent that GiftCash’s FAL claim is predicated on

22 misrepresentations or omissions, it is required to plead actual reliance. See Brown I, 622 F. Supp.

23 3d at 824; see also Mot. 19:14-20:10; 22:12-15 (arguing that GiftCash failed to plead actual

24 reliance). And as with GiftCash’s claim under the fraudulent prong of the UCL, its FAL claim is

25 clearly predicated on misrepresentations and omissions: the FAC’s description of the FAL claim

26 alleges the defendants made “false, deceptive, and/or misleading omissions” and “representations

27 and statements (by omission and commission) that led reasonable consumers to believe that the

1 Therefore, GiftCash was required to plead actual reliance on the misrepresentations and omissions.

2 But for the same reasons addressed above, supra Part II.B.1, it failed to do so. The claim is

3 DISMISSED with leave to amend and plausibly allege actual reliance.

4 CONCLUSION

5 For those reasons, the motion is GRANTED in part and DENIED in part. GiftCash may

6 || file an amended complaint with 20 days of the date of this order.

7 IT IS SO ORDERED.

8 Dated: November 17, 2023

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10 ®

Hiam H. Orrick

United States District Judge

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