The opinion of the court was delivered by: Honorable Ronald E. Bush U. S. Magistrate Judge
ORDER RE: DEFENDANTS' MOTIONS MEMORANDUM DECISION AND (Docket No. 24 & 53)
Currently pending before the Court is Defendants' Motion to Dismiss First Amended Complaint (Docket No. 24) and Motion for Leave to File Supplemental Authority in support of the Motion to Dismiss (Docket No. 53). Having carefully reviewed the record, considered oral arguments, and otherwise being fully advised, the Court enters the following Order:
In September of 2005, Plaintiff Robert J. Seraphin ("Seraphin") subscribed to an internet service plan with Defendants, agreeing to pay $14.95 a month for a 12-month term. First Am. Compl. ("Compl."), at ¶ 13 (Docket No. 19). Ten months later, Seraphin moved from California to Idaho, where Defendants do not offer internet service. Id. at ¶¶ 14-16. Seraphin contacted Defendants to notify them of his move and was informed that "if he moved, he would be charged a $200 [early termination fee ("ETF")] for terminating his service before the expiration of 12 months." Id. at ¶ 15. Defendants charged, and Seraphin paid, a $200 ETF. Id. at ¶ 17. The total cost for 12 months of service without early termination would have been $179.40.
Seraphin brings this action on behalf of himself, and all others similarly situated,*fn1 claiming that the $200 ETF charge to subscribers who cancel a term service contract amounts to an unenforceable penalty under California law (count one), violates California's consumer protection law (count two), and unjustly enriches Defendants (count five). As part of Seraphin's class action allegations, he requests declaratory relief for all class members concerning their respective rights and duties under the service agreement (count three) and raises claims for violation of 15 state consumer protection laws (count four). Defendants move to dismiss each of Seraphin's claims with prejudice under Federal Rule of Civil Procedure ("FRCP") 12(b)(6) for failure to state a claim.
A. Preliminary Matter - Consideration of Frias Declaration
Defendants submitted the Declaration of Michael Frias in support of their Motion to Dismiss. (Docket No. 24-1). Mr. Frias states that he is a Senior Marketing Manger with AT&T Internet Services and when a customer initiated a contract with AT&T at the time Seraphin did--September 2005-- each was required to accept the Terms of Service ("TOS") in effect at that time, a copy of which Mr. Frias attached to his declaration. Frias Decl., ¶¶ 3-4 (Docket No. 24-1).
Although Seraphin does not dispute he agreed to a "term commitment" pursuant to some version of Defendants' TOS he "cannot confirm or deny" that the TOS attached to Mr. Frias's Declaration is the TOS that applies to him and, therefore, argues it should not be considered in support of Defendants' motion. Pl.'s Mem., p. 3 (Docket No. 37). At the hearing, Seraphin's counsel reiterated that without further discovery Seraphin cannot concede that the Frias Declaration contains the TOS the parties entered, with all of the terms to which the parties agreed.
"When ruling on a Rule 12(b)(6) motion to dismiss, if a district court considers evidence outside the pleadings, it must normally convert the 12(b)(6) motion into a Rule 56 motion for summary judgment, and it must give the nonmoving party an opportunity to respond." U.S. v. Ritchie, 342 F.3d 903, 907 (9th Cir. 2003). Although the court may consider documents incorporated by reference in the First Amended Complaint without converting the motion to dismiss into one for summary judgment, see id.,*fn2 where a factual dispute exists a Rule 12(b)(6) motion should be converted to a motion for summary judgment, U.S. v. Ibrahim, 522 F.3d 1003, 1006 (9th Cir. 2008).
Although a factual dispute exists regarding what version of Defendants' TOS governs the parties' contractual relationship, the Court will assume, for purposes of the present Motion only, that the TOS attached to the Frias Declaration governs the parties' relationship.As explained in more detail below, however, even under those terms Seraphin may proceed at this stage of the proceedings.
B. Standard of Review for FRCP 12(b)(6) Motions
FRCP 8(a)(2) requires only "a short and plain statement of the claim showing that the pleader is entitled to relief," in order to "give the defendant fair notice of what the . . . claim is and the grounds upon which it rests." See Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 554 (2007). While a complaint attacked by an FRCP 12(b)(6) motion to dismiss "does not need detailed factual allegations," it must set forth "more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Id. at 555. To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to "state a claim to relief that is plausible on its face." Id. at 570.
A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. Id. at 556. The plausibility standard is not akin to a "probability requirement," but it asks for more than a sheer possibility that a defendant has acted unlawfully. Id. Where a complaint pleads facts that are "merely consistent with" a defendant's liability, it "stops short of the line between possibility and plausibility of entitlement to relief." Id. at 557 (internal quotation marks omitted).
In a more recent case, the Supreme Court identified two "working principles" that underlie Twombly. See Ashcroft v. Iqbal, ___ U.S. ___, 129 S.Ct. 1937, 1949 (2009). First, the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions. Id. "[FRCP] 8 marks a notable and generous departure from the hyper-technical, code-pleading regime of a prior era, but it does not unlock the doors of discovery for a plaintiff armed with nothing more than conclusions." Id. at 1950. Second, only a complaint that states a plausible claim for relief survives a motion to dismiss. Id. "Determining whether a complaint states a plausible claim for relief will . . . be a context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Id.
A dismissal without leave to amend is improper unless it is beyond doubt that the complaint "could not be saved by any amendment." Simpson, 452 F.3d at 1046. The Ninth Circuit has held that "in dismissals for failure to state a claim, a district court should grant leave to amend even if no request to amend the pleading was made, unless it determines that the pleading could not possibly be cured by the allegation of other facts." Cook, Perkiss and Liehe, Inc. v. Northern Cal. Collection Serv., Inc., 911 F.2d 242, 247 (9th Cir. 1990). "'The issue is not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims.'" See Hydrick v. Hunter, 466 F.3d 676, 685 (9th Cir. 2006) (quoting Scheuer v. Rhodes, 416 U.S. 232, 236 (1974)).
C. Count One: Violation of Cal. Civil Code § 1671
Seraphin alleges Defendants' $200 ETF is an unenforceable liquidated damages clause under California law*fn3 because it penalizes consumers and attempts to coerce them into maintaining their internet service with Defendants rather than compensating Defendants for actual damages incurred by the customer failing to complete their term commitment. Compl. at ¶¶ 19, 34-35. Defendants argue that the ETF provision is not a liquidated damages clause, but rather a lawful alternative performance provision, that is, it "permits customers to voluntarily choose to pay the ETF in lieu of further performance of their contractual obligations." Defs.' Mem., p. 6.
California Civil Code Section 1671(d) voids contract provisions liquidating damages for breach of contract, except in circumstances not at issue here, i.e., if the contracting parties agree upon a presumed amount of damages sustained by a breach when "from the nature of the case, it would be impracticable or extremely difficult to fix the actual damage." To constitute liquidated damages under California law, a contract provision must "arise from a breach" and "provide a fixed and certain sum." Ruwe v. Cellco Partnership, 613 F. Supp. 2d 1191, 1196 (N.D. Cal. 2009) (citing Chodos v. West Publ'g Co., 292 F.3d 992, 1002 (9th Cir. 2002)). "The question whether a contractual provision is an unenforceable liquidated damages provision is one for the court. . . . [A] reviewing court ordinarily assumes as true the facts alleged in the ...