Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—NDCal: Office Space Rental Firm May Be Liable For Failing to Disclose Fees, Falsely Advertising Services , (Apr 24, 2013)

By Jody Coultas, J.D.

Circle Click Media LLC (CCM) stated California consumer protection law claims against office space rental company Regus Management Group LLC based on its allegedly false and deceptive business practices and advertising, the federal district court in San Francisco has held (Circle Click Media LLC v. Regus Management Group LLC, April 22, 2013, Conti, S.).

After renting office space from Regus in California, CCM filed California consumer protection law claims against Regus for allegedly imposing unauthorized and unreasonable charges on customers, employing unlawful and unfair practices to collect fees, and failing to disclose the charges and fees in the rental agreement. CCM also argued that Regus’ advertising was false and misleading in light of its billing practices.

Unfair Competition Law

Fraudulent Acts. To state a claim under the fraudulent prong of the California Unfair Competition Law (UCL), CCM had to show that the alleged misrepresentations were likely to deceive a reasonable consumer. CCM alleged that Regus intentionally misrepresented the monthly charges and failed to disclose a number of unauthorized charges. The terms and conditions section of the rental agreement was barely decipherable due to the font size and format, resulting in CCM being charged fees for which it had no prior knowledge. Therefore, the court held that CCM stated a UCL claim under the fraudulent prong.

Unfair Practices. CCM stated a UCL claim under the unfair practices prong, according to the court. Unfair acts are immoral, unethical, oppressive, unscrupulous, or substantially injurious to consumers, or those that violate the policy and spirit of the antitrust laws. The failure to adequately disclose the fees and charges could severely impact consumers.

Unlawful Acts. The court held that CCM stated a UCL claim under the unfair prong based on a predicate violation of the California Public Utilities Code, but failed to state a claim based on violation of the RICO statute.

RICO

To state a claim under the RICO statute, CCM needed to show conduct of an enterprise though a pattern of racketeering activity. Here, CCM based the claims on the predicate acts of wire fraud and financial institution fraud. However, CCM could not show that the unauthorized charges were technically disclosed in the rental agreement. There was no precedent that held that a violation of a consumer protection statute could serve as a predicate act under RICO.

False Advertising Law

CCM stated California False Advertising Law (FAL) and UCL claims against Regus based on a number of its advertisements, according to the court. Regus falsely advertised that its agreements were one page, their offices were fully equipped, and their bills were all-inclusive. The argument that CCM could not show reliance with specificity was denied because the exception concerning long-term advertising campaigns applied.

The court also declined to dismiss CCM’s FAL claim concerning the failure to disclose the price of all the products and services offered in the advertisements. CCM alleged that the advertisements failed to disclose that renters had to purchase kitchen amenities, office restoration, and business continuity service in connection with the office space. Regus argued that CCM failed to show that it relied on a particular advertisement as to price. However, the FAL does not require that the advertisement list the price of the product or service.

The court dismissed CCM’s false advertising claims that were based on Regus’ representations that their prices were "low," their service was "flexible," and their agreements were "simple." The statements were vague and mere puffery.

The case is No. 12-04000 SC.

Attorneys: Ali Ari Aalaei (Ari Law, P.C.) for Circle Click Media LLC. Bahareh Maryam Mostajelean (Bryan Cave LLP) for Regus Management Group LLC.

Companies: Circle Click Media LLC; Regus Management Group LLC

Cases: Advertising RICO StateUnfairTradePractices CaliforniaNews