Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—NDCal: Fraud-Based Claims Against eBay for Failing to Adequately Disclose Fees Dismissed, (Jun 3, 2013)

By Peter Reap, J.D., LL.M.

Class action claims brought by two eBay sellers on behalf of a putative class that were based on eBay’s alleged fraud in failing to disclose that it would charge Listing Fees to sellers every 30 days for “Good ‘Til Canceled (GTC) Listings” during the No Recurring Charge Period and/or improperly charged all Listing Fees every 30 days for GTC Listings during the Insertion Fee Only period failed to plead fraud with the requisite particularity, the federal district court in San Jose, California, has determined (Noll v. eBay, Inc., May 30, 2013, Davila, E.).

Thus, eBay was granted dismissal of the sellers’ fraud based claims, i.e., Plaintiffs’ Second (violation of California’s Unfair Competition Law (UCL), Cal. Bus. & Prof. Code § 17200 et seq.); Third (violation of California’s False Advertising Law (FAL), Cal. Bus. & Prof. Code § 17500 et seq.); Fifth (violation of California’s Consumer Legal Remedies Act (CLRA), Cal. Civ. Code § 1750 et seq.); and Seventh (common law fraud) causes of action.

In addition, the sellers’ Fourth cause of action (violation of Cal. Bus & Prof. Code § 17600 et seq.) was dismissed without leave to amend because the Plaintiffs were not California residents and that statute limited recovery to California consumers.

Background. Plaintiff Richard Noll is a resident of Florida who has been an eBay seller since approximately September 2010. Plaintiff Rhythm Motor Sports LLC is an Arizona limited liability company that has been an eBay seller since approximately 2008.

On September 16, 2008, eBay introduced the GTC Listing option for Fixed Price Listings. Under this option, sellers’ listings automatically renew every 30 days until the item is sold or the listing is cancelled. Since the introduction of GTC listings, eBay has charged sellers recurring Listing Fees every 30 days for their GTC listings that were not sold or cancelled. This automatic fee charge for GTC Listings is the subject of this case, the court noted. The Plaintiffs allege that eBay misled them into thinking that their GTC Listings and any optional upgrades they applied to them would be renewed for free indefinitely.

eBay first gave sellers information regarding GTC Listings through a Seller Update in August 2008—the month before GTC Listings went live. That Seller Update stated that the GTC feature would be available at “no extra cost,” but also specified, in response to the question “What is a GTC listing duration?” found in the FAQ section, that “[a] listing with GTC duration will renew every 30 days until the item sells successfully. Insertion fees and all Feature Fees will be charged every 30 days at the time the listing is renewed.”

In addition to its Seller Updates, eBay regularly sets forth its fees in the Fees Schedule, which is part of the User Agreement. On December 16, 2008 eBay revised its Fees Schedule to include a disclosure about recurring charges for GTC listings, which was located in the Fees Schedule under the heading entitled “A note about eBay fees.” The disclosure stated: “Good ‘Til Cancelled renews automatically every 30 days until the item sells or you end the listing. Insertion fees are charged every 30 day period.”

Two years later, on October 10, 2012, eBay again revised its User Agreement and Fees Schedule, and provided the following disclosure: “Good ‘Til Cancelled listings renew automatically every 30 days unless all of the items sell, you end the listing, or the listing violates an eBay policy. Insertion fees and optional feature fees are charged every 30-day period. Fee amounts are based on the terms in effect when the listing goes live, and when it renews.”

The Plaintiffs refer to the time period from September 16, 2008 until the effective dates of the relevant changes to the Fees Schedules as the “No Recurring Charge Period” and refer to the period following eBay’s addition of the Insertion Fees language until the October 10, 2012 revision as the “Insertion Fee Only Period.” During all relevant periods in which they were eBay sellers, the Plaintiffs placed GTC Listings that included optional features and were charged recurring fees on these listings.

On October 17, 2012, eBay filed the instant Motion to Dismiss the Plaintiffs’ fraud-based claims.

Analysis. Federal Rule of Civil Procedure 8(a) requires a plaintiff to plead each claim in the complaint with sufficient specificity to give the defendant fair notice of what the claim is and the grounds upon which it rests.

As an initial matter, the Plaintiffs failed to satisfy Rule 8(a) because they did not clearly delineate exactly what class periods they are alleging, which Plaintiff purports to represent the class for each class period, which eBay entity is at issue in each period, and what fees were improperly charged during each period, according to the court. The lack of clarity on these basic points alone was sufficient ground on which to grant eBay’s Motion to Dismiss. However, because the court dismissed several causes of action with leave to amend, it addressed additional deficiencies in Plaintiffs’ claims below, the court explained.

The plaintiffs’ UCL, FAL, CLRA, and common law fraud claims were entirely based on allegations that eBay made misrepresentations and omissions that are grounded in fraud. As such, these claims were subject to the heightened pleading requirement of Federal Rule of Civil Procedure Rule 9(b). To satisfy Rule 9(b), Plaintiffs must allege the who, what, where, and how of the misconduct charged. In addition, Plaintiffs must plead reasonable reliance on alleged misstatements with particularity by alleging facts of sufficient specificity, allowing a court to infer that the misrepresentations caused injury to plaintiffs by inducing them to pay for products or services.

Plaintiffs allege that, in choosing to place GTC Listings, they relied on the User Agreement, the eBay Fees Schedule and fee tables therein, and the Sell-Your-Item form, each of which contained an omission regarding the recurring nature of Listing Fees for GTC Listings. Plaintiffs further allege that they relied on these omissions and would not have chosen to place GTC Listings had they known the Listing Fees, or alternatively, the Optional Features Fees, would recur. However, Plaintiffs do not allege that they cancelled their GTC Listings or otherwise ceased placing GTC Listings upon discovering that eBay charged recurring fees on such listings, the court noted. This omission was fatal to the plaintiffs’ fraud-based claims, the court ruled.

That the plaintiffs continued to keep and/or place GTC listings even after discovering the recurring fees belied their allegations that they would not have placed listings had they known these fees would recur. Plaintiffs thus failed to plead reliance on eBay’s alleged omissions. Accordingly, the plaintiffs’ Second (UCL), Third (FAL), Fifth (CLRA), and Seventh (common law fraud) claims were dismissed with leave to amend.

Additionally, the plaintiffs did not plead any facts sufficient to establish that, to the extent they relied on any omission regarding Insertion Fees during the Insertion Fee Only Period, their reliance was reasonable, the court explained. eBay pointed out, and Plaintiffs did not dispute, that several versions of the Fees Schedule contain the disclosure that “Insertion fees are charged every 30 day period.”

The disclosure appeared at the end of the Fee Schedules in a section entitled “The fine print.” The plaintiffs argued that they reasonably relied on eBay’s omissions despite the presence of the Insertion Fee disclosure because the plaintiffs would not expect to find information regarding fees in “The fine print” section. Such an allegation was insufficient to establish the reasonableness of Plaintiffs’ reliance, the court held. “The fine print” section follows the fee tables, appears in the same font as the rest of the fee schedule, bears a bolded title, and is relatively short. That the plaintiffs failed to read the section did not afford them the ability to claim reasonable reliance.

Common law fraud claim. The plaintiffs were barred from bringing their common law fraud claim because it was based on the same alleged omissions and sought to recover the same damages as the breach of contract claims, the court held. California’s economic loss rule required a purchaser to recover in contract for purely economic loss due to disappointed expectations, unless he can demonstrate harm above and beyond a broken contractual promise.

The plaintiffs’ common-law fraud claim was based on the exact conduct at issue in the breach of contract claim. Plaintiffs alleged that eBay made omissions regarding the fees for the GTC listings and sought damages covering the “improper fees” charged. Likewise, Plaintiffs’ breach of contract claim alleged that Plaintiffs and eBay entered into a contract setting forth the fees for GTC listing, but eBay breached that contract by charging GTC Listing Fees in a manner different than that set forth in the contract.

Because the common-law fraud claim mirrored the breach of contract claim, the plaintiffs had to properly plead intent in order for the common-law fraud claim to survive. The plaintiffs’ conclusory assertions that eBay acted “knowingly, willfully, and/or recklessly” and “without any intent to charge the fees as actually stated within the applicable Fees Schedules” were insufficient to save this claim from dismissal.

Section 17600 claim. The plaintiffs’ claim based on a violation of California Business & Professions Code Section 17600 et seq. had to be dismissed because Section 17600 did not provide a private right of action to non-California residents, according to the court. Section 17602(a) provided that it “shall be unlawful for any business making an automatic renewal or continuous service offer to a consumer in this state” to engage in certain conduct. Cal. Bus. & Prof. Code 17602(a).

The complaint specified that Noll was a resident of Florida and that Rhythm Motor Sports was a resident of Arizona. Taking these facts to be true, the court concluded that the plaintiffs were not “consumer[s] in this state.” The legislature employed specific language in Section 17602 limiting recovery under Section 17600 et seq. to California consumers. The court would not contravene the Legislature’s clear intention. Therefore, the plaintiffs’ Fourth cause of action was dismissed without leave to amend.

The case is No. 5:11-CV-04585-EJD.

Attorneys: Keith R Verges (Figari & Davenport, LLP) for Richard Noll. John C. Dwyer (Cooley LLP) for eBay, Inc.

Companies: eBay, Inc.; Rhythm Motor Sports LLC.

Cases: Advertising StateUnfairTradePractices CaliforniaNews