Antitrust Law Daily Wrap Up, ADVERTISING—N.D. Cal.: Payment processor’s false ad claims dropped for lack of particularity, (Nov 12, 2014)

By Greg Hammond, J.D.

An electronic payment processor did not state fraud-based false advertising and unfair competition claims against its competitor with sufficient particularity, the federal district court in Oakland, California decided. The payment processor’s claims were therefore dismissed (Heartland Payment Systems, Inc. v. Mercury Payment Systems, LLC, November 7, 2014, Wilken, C.).

Background. Mercury Payment Systems, LLC and Heartland Payment Systems, Inc. are competing electronic payment processors. Heartland alleged that Mercury deceived merchants by informing them that it would pass interchange fees “at cost” and that the fee is a “mark-up on a per transaction basis in addition to other fees, such as monthly flat rate fees.” However, after reviewing almost 300 of Mercury’s monthly billing statements, Heartland asserted that Mercury actually charged a higher fee than what it disclosed. Heartland brought claims for unfair competition under California’s Unfair Competition Law (UCL) and for false advertising under both the Lanham Act and California’s False Advertising Law (FAL). Mercury moved to dismiss.

Particularity. In support of its motion to dismiss, Mercury argued that Heartland failed to satisfy the heightened pleading requirements of Fed. R. Civ. P. 9(b). Heartland contended that (1) the Lanham Act cause of action did not require scienter, and was therefore not “grounded in fraud” and (2) even if Rule 9(b) applied to the other claims, the claims were stated with the required particularity.

Preliminarily, the court determined that Heartland alleged a unified course of fraudulent conduct and relied entirely on that course of conduct as the basis of its claims. Consequently, Heartland was required to plead all of its unfair competition and false advertising claims with particularity, as required under Rule 9(b).

False advertising. In its complaint, Heartland alleged that Mercury’s false advertising took two forms: (1) oral statements made to merchants and (2) written documents, including monthly billing statements, a Merchant Application, and an Operating Guide. With regard to the oral statements, the court found that Heartland failed to allege its Lanham Act and FAL claims with particularity, because it failed to identify the names of the persons who made the allegedly fraudulent representations, their authority to speak, to whom they spoke, what they said, and when it was said. Consequently, the false advertising cause of action, to the extent that it relied on oral statements made by Mercury employees to merchants, was dismissed.

The false advertising claims, as they related to the written documents, were also dismissed. The court found that Heartland failed to allege any facts—such as specific language or terms in the written documents—to support the inference that the documents do not contain truthful, detailed terms and conditions that make clear disclosures about Mercury’s pricing and fees.

Unfair competition. Because the unfair competition claims relied on the same set of facts that supported its false advertising claims, the court dismissed Heartland’s UCL causes of action for failure to comply with Rule 9(b). In addition, the court found that Heartland failed to state a claim for unfair business practices, because it did not allege facts to support the allegation that Mercury’s conduct violated or threatened to violate Section 5 of the FTC Act or any other antitrust law. Nevertheless, Heartland was granted leave to amend its complaint.

The case number is C 14-0437 CW.

Attorneys: Frank A. Cialone (Shartsis Friese LLP) for Heartland Payment Systems, Inc. Daniel Murray Wall (Latham & Watkins LLP) for Mercury Payments Systems, LLC.

Companies: Heartland Payment Systems, Inc.; Mercury Payment Systems, LLC

Cases: Advertising Antitrust StateUnfairTradePractices CaliforniaNews