Free Range Content, Inc. v. Google Inc., No. 5:2014cv02329 - Document 116 (N.D. Cal. 2016)

Court Description: ORDER GRANTING IN PART AND DENYING IN PART 94 MOTION TO DISMISS. Signed by Judge Beth Labson Freeman.(blflc2S, COURT STAFF) (Filed on 5/13/2016)
Download PDF
1 2 3 4 5 6 UNITED STATES DISTRICT COURT 7 NORTHERN DISTRICT OF CALIFORNIA 8 SAN JOSE DIVISION 9 10 FREE RANGE CONTENT, INC., et al., Case No. 14-cv-02329-BLF Plaintiffs, 11 United States District Court Northern District of California v. 12 13 GOOGLE INC., Defendant. ORDER GRANTING IN PART AND DENYING IN PART MOTION TO DISMISS [Re: ECF 94] 14 15 16 Plaintiffs, former AdSense publishers, bring this purported class action to challenge 17 Google for allegedly terminating their accounts without cause and unlawfully withholding revenue 18 they had accrued over their last one to two months as publishers. The Court previously dismissed 19 the case with leave to amend. See First Dismissal Order, ECF 66. Defendant now asks the Court to 20 dismiss the action with prejudice. Mot., ECF 94. For the reasons stated below, the Court GRANTS 21 IN PART and DENIES IN PART the Motion to Dismiss without leave to amend. 22 23 I. BACKGROUND Through Google’s AdSense for Content program (“AdSense”), Google contracts with 24 website operators who publish ads on their websites in exchange for a percentage of the money 25 advertisers pay to place the ads. Third Am. Compl. (“TAC”) ¶ 23, ECF 92. Plaintiffs are former 26 AdSense publishers who allege that Google terminated each of them without cause and withheld 27 the entirety of the earnings they had accrued but had not yet been paid upon termination. Id. ¶¶ 14- 28 17, 50, 63, 73, 85, 134. Plaintiffs seek to represent a class of former publishers in 40 countries 1 whose balances Google withheld in their entirety upon termination. Id. ¶ 115.1 2 A. AdSense Terms 3 The AdSense Terms (“Terms”) constitute the contract between Google and U.S. 4 publishers. Id. ¶ 27. Plaintiffs allege that the Terms took numerous forms over the years that they 5 were publishers, id. n.27: 10 pages of “Terms and Conditions” until mid-2013, id. Exh. B 6 (“T&C”), ECF 92-2, when they were replaced by a 5-page “Terms of Service,” id. Exhs. A, C 7 (“TOS”), ECF 92-1, 92-3. Both were non-negotiable and linked to non-negotiable “Program 8 Policies” and “Branding Guidelines.” TAC ¶ 27. Plaintiffs allege that the Payment and 9 Termination Terms central to this litigation (“Challenged Terms”) remained substantially similar between the contracts. Id. ¶¶ 23-25, 29-31. The Court identifies the relevant portions of each 11 United States District Court Northern District of California 10 below. 1. Payment Term 12 The Payment Term states, “[Y]ou will receive a payment related to the number of valid 13 14 clicks . . . valid impressions . . . or other valid events performed in connection with the display of 15 Ads on your Properties, in each case as determined by Google.” TOS ¶ 5; see also T&C ¶ 11. 16 Plaintiffs allege that this constitutes a promise by Google to pay publishers for interactions with 17 the ads they publish. TAC ¶ 23. At the same time, Plaintiffs allege that the Payment Term purports to allow Google, in its 18 19 sole discretion, to withhold earnings from a publisher for invalid activity. TAC ¶ 25. The TOS 20 provide, “Payments will be calculated solely based on our accounting. Payments to you may be 21 withheld to reflect or adjusted to exclude . . . any amounts arising from invalid activity, as 22 determined by Google in its sole discretion.” TOS ¶ 5. The T&C stated, “Google shall not be 23 liable for any payment based on [invalid activity]” and that “Google reserves the right to withhold 24 payment . . . due to any [invalid activity or breach] by You, pending Google's reasonable 25 investigation. . .” T&C ¶ 11. 26 27 28 1 Plaintiffs seek to represent a worldwide class for the first time in their Third Amended Complaint. Because Defendant does not challenge this class definition, the Court does not reach the issue, but notes that the amendment exceeds the leave granted in the First Dismissal Order. 2 1 As defined in the Payment Term, “invalid activity” includes: (i) spam or invalid clicks “by 2 any person, bot, automated program or similar device;” (ii) clicks solicited by payment, false 3 representation, or request; (iii) ads served to users whose JavaScript is disabled; and (iv) clicks 4 “co-mingled with a significant amount of the activity described . . . above.” See, e.g., TOS ¶ 5. 5 Plaintiffs allege that any invalid activity they did not cause should be excused under the Terms’ 6 force majeure provision, see TAC ¶¶ 55, n.16, n.18, 92, which provides, “Neither party will be 7 liable for inadequate performance to the extent caused by a condition (for example, natural 8 disaster, act of war or terrorism, riot, labor condition, governmental action, and Internet 9 disturbance) that was beyond the party’s reasonable control.” TOS ¶ 14; see also T&C ¶ 10. Finally, the Payment Term also provides, “[i]f you dispute any payment made or withheld 11 United States District Court Northern District of California 10 relating to the Services, you must notify Google in writing within 30 days of any such payment. If 12 you do not, any claim relating to the disputed payment is waived.” TOS ¶ 5; see also T&C ¶ 11. 13 14 2. Termination Term The Termination Term provides, “Google may at any time terminate the Agreement, or 15 suspend or terminate the participation of any Property in the Services for any reason.” TOS ¶ 10; 16 T&C ¶ 6. The TOS also states, “If we terminate the Agreement due to your breach or due to 17 invalid activity, we may withhold unpaid amounts . . . .” TOS ¶ 10. 18 Plaintiffs allege that the Terms require Google to apply discretion when withholding funds 19 for invalid activity but that Google instead imposes a blanket policy of withholding all of a 20 publisher’s unpaid earnings upon termination for invalid activity. TAC ¶¶ 31-32. Plaintiffs 21 contend that this blanket withholding occurs regardless of how many ads a publisher legitimately 22 served and notwithstanding Google’s alleged ability to distinguish between valid and invalid 23 activity. Id. ¶¶ 32-33. Plaintiffs also allege that the withholding does not translate to refunds for 24 advertisers. Id. n.8, ¶¶ 46, 48. 25 In addition, Plaintiffs allege that the Challenged Terms are unenforceable because they 26 constitute an unreasonable liquidated damages provision and are unconscionable. Id. ¶¶ 139-142. 27 Regarding unconscionability, Plaintiffs allege that publishers are typically unrepresented 28 individuals or small businesses, who do not and cannot negotiate any of the Terms. Id. ¶ 28. 3 1 Plaintiffs allege that they nevertheless entered into the contract because they “were convinced that 2 there was no real alternative to AdSense for publication of ads on web properties” given 3 AdSense’s ability to target ads, leverage Google’s search technology, set up accounts quickly and 4 easily, and access the largest global advertiser pool on the web. Id. ¶ 20. 5 B. Plaintiffs 6 Plaintiffs illustrate Google’s alleged practices with their own experiences, as well as 7 online comments by purported former publishers, an anonymous report from a self-described 8 former Google employee, and pleadings in other lawsuits. Id. ¶¶ 50-113. The Court summarizes 9 each Plaintiff’s alleged experience below. 10 United States District Court Northern District of California 11 1. Free Range Content Free Range Content (“FRC”), a California corporation, was a publisher from 12 approximately July 2012 to March 2014. Id. ¶¶ 14, 51. FRC published ads on various websites, 13 which it monitored for compliance with the Terms. Id. ¶ 51. In February 2014, FRC’s earnings, as 14 estimated by Google, began to increase at a previously unseen rate; by the end of the month, the 15 earnings had surpassed $40,000. Id. ¶¶ 53, 57. FRC reported the increase to Google, asking for 16 help in ascertaining the source and correcting any problem. Id. ¶ 54. FRC set up a meeting with a 17 Google representative for March 6, 2014, but Google disabled FRC’s account on March 4, 2014 18 due to “invalid activity” and withheld the entirety of FRC’s unpaid earnings. Id. ¶ 58. The 19 termination notice identified an internal appeal process, which FRC timely used to seek 20 reinstatement of its account and the earnings Google withheld. Id. ¶ 59. On March 6, FRC had its 21 scheduled call and, on March 7, 2014, FRC’s appeal was denied. Id. ¶ 60. 22 FRC alleges that, if invalid activity occurred on its sites, FRC did not cause it. Id. ¶ 55. 23 FRC contends that any invalid activity should therefore be excused as a force majeure. Id. ¶ 55. 24 FRC additionally alleges that it was at least due the earnings from valid activity in its final pay 25 period—perhaps $8,000 to $11,000—but that Google withheld the entirety of its February 2014 26 earnings without any attempt to limit the withholding to invalid activity. TAC ¶¶ 57, 61. 27 28 2. Coconut Island Software CIS, a Hawaii corporation, was a publisher from March 2005 through November 2012. Id. 4 1 ¶¶ 15, 64. Like FRC, CIS alleges that it successfully served thousands of ads on sites that 2 complied with the Terms. Id. ¶¶ 66-68. CIS alleges that its owner spent thousands of dollars in 3 fees for programming, connectivity, and equipment to participate in AdSense, and that the revenue 4 from AdSense constituted a substantial portion of its owner’s family income. Id. ¶¶ 66, 69. 5 Notwithstanding CIS’ alleged compliance, Google terminated CIS on November 16, 2012, 6 because its specialists had “found that [CIS] was not in compliance with [Google’s] policies,” 7 including webmaster guidelines and the “spirit” of AdSense policies. Id. ¶ 70. That same day, CIS 8 appealed using the same process FRC used, but the appeal was denied three days later. Id. ¶ 71. 9 CIS alleges that, at the time of termination, Google owed it earnings for the preceding 1.5 months, 10 United States District Court Northern District of California 11 which amounted to approximately $2,400. Id. ¶¶ 71, 72. 3. Taylor Chose 12 Ms. Chose, a resident of Minnesota, was a publisher from approximately September 2013 13 to November 2013. Id. ¶¶ 16, 74. Ms. Chose alleges that she complied with the Terms. Id. ¶¶ 76- 14 77. Like CIS, Ms. Chose paid hosting fees and for a domain name to participate in AdSense. Id. ¶ 15 78. On November 27, 2013, Google terminated Ms. Chose, stating that it is “important for sites 16 displaying AdSense ads to offer significant value to the user by providing unique and relevant 17 content, and not to place ads on auto-generated pages or pages with little to no content.” Id. ¶ 79. 18 Ms. Chose alleges that her site was composed of original content and that she did not intentionally 19 violate any Google policy. Id. ¶ 79. Ms. Chose estimates that, at the time of termination, she was 20 owed $25,000, which Google withheld in full. Id. ¶¶ 80-81. Ms. Chose alleges that she did not 21 appeal the termination because she was not aware that she could. Id. ¶ 82. Unlike the termination 22 notices sent to FRC and CIS, the notice sent to Ms. Chose did not mention the appeal process. Id. 23 ¶ 82 (citing Exh. 11 to Google’s First Motion to Dismiss, ECF 39-11). 24 25 4. Matthew Simpson Mr. Simpson, a resident of Canada, was a publisher from approximately February 2012 26 through mid-June 2013. Id. ¶¶ 17, 86. Mr. Simpson alleges that he successfully served thousands 27 of ads and complied with the Terms. Id. ¶¶ 88-89, 91. Nevertheless, in June 2013, Google 28 terminated Mr. Simpson’s account for invalid activity. Id. ¶ 91. At that time, his unpaid earnings 5 1 amounted to approximately $147, all of which was withheld. Id. ¶¶ 93-94. Like FRC, Mr. Simpson 2 contends that any invalid activity on his site should be excused as a force majeure because he did 3 not cause it. Id. ¶ 92. Mr. Simpson also alleges that he paid for hosting and domain registration to 4 participate in AdSense, as well as for the products he reviewed on his sites. Id. ¶ 90. Mr. Simpson 5 did not appeal his termination or dispute the withholding of his unpaid earnings. Id. ¶ 95. Based on these allegations, Plaintiffs seek to bring the following claims on behalf of a 6 class of former publishers from 40 countries not limited to any time frame, id. ¶ 115: (1) violation 8 of California Civil Code § 1671(b); (2) breach of contract; (3) breach of the implied covenant of 9 good faith and fair dealing, (4) unjust enrichment; (5) violation of the Unfair Competition Law 10 (“UCL”), Cal. Bus. & Prof. Code §§ 17200 et seq.; and two requests for declaratory relief, one 11 United States District Court Northern District of California 7 pursuant to the California Declaratory Judgment Act, Cal. Civ. Pro. Code § 1060, and one 12 pursuant to the Federal Declaratory Judgment Act, 28 U.S.C. § 2201(a), declaring the Challenged 13 Terms unenforceable as unconscionable and unreasonable liquidated damages provisions. 14 II. LEGAL STANDARD 15 To survive a Rule 12(b)(6) motion to dismiss, “a complaint must contain sufficient factual 16 matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 17 556 U.S. 662, 678 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). 18 When considering a motion to dismiss, the Court “accept[s] factual allegations in the complaint as 19 true and construe[s] the pleadings in the light most favorable to the nonmoving party.” Manzarek 20 v. St. Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1031 (9th Cir. 2008). The Court “need not, 21 however, accept as true allegations that contradict matters properly subject to judicial notice or by 22 exhibit.” Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001). 23 III. 24 25 DISCUSSION A. Breach of Contract Defendant argues that Plaintiffs’ breach of contract claim fails because, as in their first 26 pleading, they do not sufficiently allege performance or excuse. Mot. at 7-10. Defendant also 27 challenges Plaintiffs’ allegations that the Challenged Terms are unenforceable. Id. at 10-17. 28 Finally, Defendant seeks to dismiss Mr. Chose and Ms. Simpson’s claims, arguing that they 6 1 waived their right to assert any payment-related claim by failing to timely dispute the withholding 2 with Google. Id. at 18-19. The Court considers each argument in turn. 3 1. Performance or Excuse 4 “In order to plead and prove a successful claim for breach of contract in California, a 5 plaintiff must show: (1) the existence of a contract; (2) plaintiff's performance or excuse for non- 6 performance; (3) defendant's breach; and (4) damage to plaintiff resulting therefrom.” Google, Inc. 7 v. Jackman, No. 5:10-CV-04264 EJD, 2011 WL 3267907, at *4 (N.D. Cal. July 28, 2011) (citing 8 Careau & Co. v. Sec. Pac. Bus. Credit, Inc., 222 Cal. App. 3d 1371, 1388 (1990)). The Court previously dismissed Plaintiffs’ breach of contract claim for failure to 10 adequately allege performance or excuse. First Dismissal Order at 1. The Court granted leave to 11 United States District Court Northern District of California 9 amend and Plaintiffs now allege that they complied with the Terms. See TAC ¶¶ 51-52, 67-68, 76- 12 77, 79, 88-89, 91, 132; n.11, 15, 20, 22. Defendant argues that these additions do not suffice and 13 challenges each Plaintiff separately. Mot. at 7-10. a. FRC 14 15 First, Defendant contends that FRC admitted breach in the original complaint by alleging 16 that it “was due some substantial portion of [its estimated $40,000 earnings] . . . perhaps in the 17 $8,000 to $11,000 range[] for AdSense ads it had dutifully served during that final period . . .” 18 Mot. at 8 (citing Compl. ¶ 22, ECF 1). Defendant reads this as an admission that 75-80 percent of 19 FRC’s ad clicks in its final pay period were invalid. Id. In the TAC, Plaintiffs anticipate this 20 argument and allege that FRC made no such admission, but rather referred “in good faith to what 21 it recollected seeing on Google’s dashboard before Google terminated its account.” TAC ¶ 57. 22 The Court agrees with Plaintiffs. FRC did not admit breach; rather FRC alleged, and 23 continues to allege, that activity on its site had spiked and it could not discern why. See, e.g., 24 Compl. ¶ 20. Because FRC did not know what caused the spike, it could not have admitted that 25 invalid activity had occurred. Thus, the Court cannot find that FRC has failed to allege 26 performance. 27 28 Defendant additionally argues that FRC’s allegations of compliance are implausible because of its business model, which Defendant describes as “placing ads on thousands of third7 1 party websites,” including “over 100,000 domains.” Mot. at 8. The Terms permit publishers to 2 display ads on third-party sites only if the sites are “in compliance with [the AdSense] program 3 policies.” See Exh. 2 to Gray Decl. at 12, ECF 94-3. Defendant argues that FRC necessarily 4 breached because it could not possibly have continuously reviewed every site on which it 5 displayed ads, nor does the TAC allege that it did so. Mot. at 8. Plaintiffs respond that they have alleged that “FRC monitored participating sites for 6 7 compliance with AdSense policies.” TAC ¶ 51. In addition, Plaintiffs do not allege that FRC 8 served ads on 100,000 domains and they argue that Google cannot negate FRC’s allegations with 9 assertions of its own. Opp. at 4, ECF 103. Finally, Plaintiffs contend that this is not the proper time for factual determinations. Id. The Court agrees with Plaintiffs. Defendant’s arguments are 11 United States District Court Northern District of California 10 based on purported facts not before the Court and thus fail to override Plaintiffs’ allegations. b. CIS 12 With regard to CIS, Defendant argues that screenshots of its website, which the Court 13 14 previously judicially noticed, see First Dismissal Order at n.1, contradict its allegations of 15 performance because CIS’ ad placements were identical to examples of “unacceptable 16 implementations” included in a Google page that set forth the AdSense policies in more detail. 17 Mot. at 9 (citing Exhs. 25 and 26 to Wong Decl., ECF 95-13, 95-14; Exh. 2 to Gray Decl.). 18 Plaintiffs argue that this position is misleading for two reasons. First, they note that the 19 screenshots of CIS’ website were taken in 2014, see Wong Decl. ¶¶ 14-15, ECF 95, nearly two 20 years after Google terminated CIS, see TAC ¶ 70, and therefore cannot demonstrate how CIS 21 placed ads when it was an AdSense publisher. In addition, Google admits that the Program 22 Policies did not link to the detailed article when CIS was a Publisher, see Gray Decl. ¶ 5, ECF 94- 23 1, and so, Plaintiffs argue, Google has not established that the article was in effect then. Opp. at 4. 24 The Court agrees with Plaintiffs. While the Court need not accept as true allegations that 25 are contradicted by judicially-noticed documents, Defendant fails to establish such contradiction 26 here. 27 28 c. Taylor Chose The parties’ arguments with regard to Ms. Chose are similar to those regarding CIS. 8 1 Defendant argues that Ms. Chose’s allegations regarding compliance, see, e.g., TAC ¶ 74, are 2 contradicted by a cached screenshot of her now inactive website, which Defendant contends is 3 largely composed of scraped content. Mot. at 9, see also Wong Decl. Exh. 27, ECF 95-15. 4 Plaintiffs respond, again, that Defendant’s assertions are misleading—this time because Defendant 5 compares a November 2013 screenshot, see Wong Decl. ¶ 16, with a help page that was not only 6 published in October 2014, see Gray Decl. ¶ 9, but was also too many clicks away from the 7 Program Policies to be deemed part of the contract. The Court again agrees with Plaintiffs; the 8 screenshot does not suffice to contradict Ms. Chose’s allegations of performance. d. Matthew Simpson 9 Finally, Defendant argues that Mr. Simpson’s allegations of performance are insufficient 10 United States District Court Northern District of California 11 because he alleges only that he neither conducted nor is aware of any invalid activity on his 12 websites—not that it did not occur. Mot. at 9 (citing TAC ¶ 91). Plaintiffs argue that this reads the 13 TAC too narrowly, focusing on one paragraph when numerous paragraphs allege performance. 14 Opp. at 5. The Court agrees with Plaintiffs. See, e.g., TAC ¶ 88 (Mr. Simpson “complied with all 15 terms set forth in Google’s AdSense terms and conditions . . . .”). Thus, the Court finds that each 16 Plaintiff has sufficiently alleged performance.2 e. Excuse by Force Majeure 17 Defendant additionally challenges Plaintiffs’ allegations that any invalid activity on their 18 19 sites must be excused as a force majeure because it was outside of their control. Mot. at 10; see 20 also TAC ¶¶ 55, n.16, n.18, 92. The Court has reviewed Plaintiffs’ theory and finds that, while 21 creative, it is not sound. 22 Under California law, unless a contract explicitly identifies an event as a force majeure, the 23 event must be unforeseeable at the time of contracting to qualify as such. See Watson Laboratories 24 Inc. v. Rhone-Poulenc Rorer, Inc., 178 F. Supp. 2d 1099, 1111 (C.D. Cal. 2001).3 Applying that 25 2 26 27 28 In addition, having determined that Plaintiffs have sufficiently alleged performance, the Court does not reach Plaintiffs’ two alternative arguments—that, even if Google can establish that Plaintiffs breached, it may only withhold payment for invalid activity because the Terms are a divisible contract, see Opp. at 6, and that, even if the Court finds the allegations of performance insufficient, Plaintiffs have sufficiently pled a “common count” of breach of contract, id at 2. 3 Plaintiffs argue that Watson misstates California law and offer Eastern Air Lines, Inc. for the 9 1 rule here, the Court finds that invalid activity cannot be excused as a force majeure because, while 2 the Terms foresaw the risk, they explicitly placed the burden on Plaintiffs and did not identify 3 invalid activity as a qualifying force majeure. See Exhs. A, C ¶¶ 5, 14. Accordingly, the Court 4 GRANTS Defendant’s Motion to Dismiss this theory of excuse. 5 2. Termination for “No Reason” 6 Defendant also challenges Plaintiffs’ allegations that Google breached by terminating them 7 for “no reason.” Mot. at 17-18. The Court agrees that each Plaintiff’s termination notice identified 8 a reason. See TAC ¶¶ 58, 70, 79, 91. However, because Plaintiffs’ breach of contract claim is 9 based on other alleged misconduct, the Court cannot dismiss the claim on this basis. 3. Unconscionability 11 United States District Court Northern District of California 10 Defendant next argues that Plaintiffs have failed to sufficiently allege the third element of 12 breach of contract—defendant’s breach—because Google acted in accordance with the Terms 13 when it terminated Plaintiffs and withheld their payments. Mot. at 10-17. Google first argues that 14 the Challenged Terms are not unenforceable as unconscionable. Id. at 10-13. 15 “[U]nconscionability has both a procedural and a substantive element . . . .” Armendariz v. 16 Found. Health Psychcare Servs., Inc., 24 Cal. 4th 83, 114 (2000) (internal citations omitted). “The 17 prevailing view is that procedural and substantive unconscionability must both be present in order 18 for a court to exercise its discretion to refuse to enforce a contract or clause under the doctrine of 19 unconscionability.” Id. (internal citations omitted). “But they need not be present in the same 20 degree . . . the more substantively oppressive the contract term, the less evidence of procedural 21 unconscionability is required to come to the conclusion that the term is unenforceable, and vice 22 versa.” Id. (internal citations omitted). Defendant argues that neither element is present here, and 23 the Court considers each in turn. 24 a. Procedural 25 26 27 proper statement. However, Eastern Airlines’ statement of the law is identical to that set forth in Watson: a foreseeable event can qualify as a force majeure if the contract explicitly identifies it as such. See Eastern Airlines v. McDonnell Douglas Corp., 532 F.2d 957, 991 (5th Cir. 1976). 28 10 1 Procedural unconscionability exists where a contract imposes “oppression or surprise due 2 to unequal bargaining power.” Id. Here, Plaintiffs allege that the Challenged Terms are oppressive 3 because they are non-negotiable, see TAC ¶¶ 62, 65, 75, 87, 140; see also Opp. at 7. Defendant 4 responds that this, by itself, is insufficient because Plaintiffs had other options for website 5 monetization and because monetization is not essential. Mot at 11-12. 6 Defendant offers two cases that reach this result. First, Belton v. Comcast Cable Holdings, 7 LLC, 151 Cal. App. 4th 1224, 1246 (2007) found an adhesive contract for cable services not 8 oppressive because customers could obtain the desired service, which was “a nonessential 9 recreational activity,” from alternative sources. Similarly, Morris v. Redwood Empire Bancor, 128 Cal. App. 4th 1305, 1320 (2005) found a contract of adhesion not oppressive where “the 11 United States District Court Northern District of California 10 complaining party has a meaningful choice of reasonably available alternative sources of supply 12 from which to obtain the desired goods and services free of the terms claimed to be 13 unconscionable.” Defendant argues that the same result is proper here because Plaintiffs had other 14 choices for the non-essential service of website monetization. 15 Plaintiffs respond with several cases from this district and the Ninth Circuit that find 16 allegations of an adhesive contract sufficient to establish procedural unconscionability because 17 “California law treats contracts of adhesion, or at least terms over which a party of lesser 18 bargaining power had no opportunity to negotiate, as procedurally unconscionable to at least some 19 degree.” Bridge Fund Capital Corp. v. Fastbucks Franchise Corp., 622 F.3d 996, 1004 (9th Cir. 20 2010), (citing Armendariz, 24 Cal. 4th at 114). For example, Plaintiffs offer Newton v. Am. Debt 21 Servs., Inc., 854 F. Supp. 2d 712, 723 (N.D. Cal. 2012), aff'd, 549 F. App'x 692 (9th Cir. 2013), 22 which considered an adhesive debt-settlement contract. Newton expressly rejected the arguments 23 Defendant makes here, finding that the “other choices” argument “ignores California case law 24 finding that ‘use of a contract of adhesion establishes a minimal degree of procedural 25 unconscionability notwithstanding the availability of market alternatives.’” Id.at 723 (emphasis in 26 original) (quoting Sanchez v. Valencia Holding Co., LLC, 201 Cal. App. 4th 74, 91 (2011)). The 27 court similarly found the defendants’ argument that unconscionability is not present where the 28 good at issue is non-essential to contradict a string of California cases. Id. at 723. 11 1 In addition to offering cases that challenge Defendant’s reading of California law, 2 Plaintiffs argue that, under California Civil Code § 1670.5, it is too early to dismiss the 3 unconscionability claims. Opp. at 7. Section 1670.5 provides, “When it is claimed . . . that the 4 contract or any clause thereof may be unconscionable the parties shall be afforded a reasonable 5 opportunity to present evidence as to its commercial setting, purpose, and effect to aid the court in 6 making the determination.” Plaintiffs contend that they have not had such an opportunity here. 7 Defendant responds that § 1670.5 is satisfied because Defendant has provided exhibits 8 showing that CIS and Mr. Simpson display ads from other networks on their sites and therefore 9 have other alternatives. Mot. at 12 (citing Wong Decl. Exhs. 25, 26, 28-30, ECF 95-13, 95-14, 9516 to 18). Plaintiffs argue that this is insufficient to overcome their allegation that “Google touts 11 United States District Court Northern District of California 10 AdSense as sui generis” with “the largest global advertiser pool on the web.” TAC ¶ 20. 12 Given the early stage of this case, the Court agrees with Plaintiffs. The parties have not had 13 a “reasonable opportunity to present evidence as to [the contract’s] commercial setting, purpose, 14 and effect.” See Cal. Civ. Code § 1670.5. Thus, the Court finds that Plaintiffs have sufficiently 15 alleged at least a degree of procedural unconscionability. See Bridge Fund, 622 F.3d at 1004. 16 b. Substantive 17 “[E]ven if the evidence of procedural unconscionability is slight, strong evidence of 18 substantive unconscionability will tip the scale and render the [ ] provision unconscionable.” 19 Nagrampa v. MailCoups, Inc., 469 F.3d 1257, 1281 (9th Cir. 2006) (citing Armendariz, 24 Cal. 20 4th at 113). Substantive unconscionability exists where a term is “so one-sided as to shock the 21 conscience, or [ ] impose harsh or oppressive terms.” Walnut Producers, 187 Cal. App. 4th at 648. 22 Defendant argues that, far from being shocking, oppressive, or overly harsh, the 23 Challenged Terms are justified by Google’s need to improve AdSense’s integrity, which in turn 24 helps publishers because they benefit from the success of the platform. Mot. at 12-13. Defendant 25 explains that Google’s discretion in termination is justified by the need to prevent fraudulent 26 clicks and undesirable content and to compensate advertisers, and that Google’s ability to 27 withhold earnings is limited to a short, finite period that is proportional to the harm invalid activity 28 causes to AdSense’s integrity. Id. at 13. In support of its position, Defendant offers two cases it 12 1 distinguishes as considering far harsher terms, Hahn and Pardee, and two cases that uphold terms 2 that Defendant contends are similar to those at issue here, Am. Software and Schuman. 3 In Hahn, the plaintiff challenged a term in a massage-services membership agreement that 4 forfeited any pre-purchased massages upon cancellation of the membership. Hahn v. Massage 5 Envy Franchising, LLC, No. 12-CV-153 DMS BGS, 2014 WL 5100220 (S.D. Cal. Sept. 25, 6 2014). The court found the term substantively unconscionable, in part because no legitimate 7 business reason supported the term, which was “[a]t bottom . . . a deceptive way for a business to 8 extract relatively small monthly sums from thousands of consumers (generating large sums over 9 time) in exchange for an illusory service.” Id. at *9, 11. 10 Defendant asserts that the Challenged Terms do not resemble the clause in Hahn, but United States District Court Northern District of California 11 offers no explanation. Mot. at 13. On the other hand Plaintiffs, who also rely on Hahn, contend 12 that, just as the forfeiture clause in Hahn “negate[d] the reasonable expectation” that consumers 13 will receive pre-purchased services, 2014 WL 5100220, at *9, the Challenged Terms negate the 14 reasonable expectation that a party will be paid for services it rendered. Opp. at 9. 15 Defendant next offers Pardee as a distinguishing case. Mot. at 13. In Pardee, the court 16 found terms waiving the parties’ rights to punitive damages and a jury trial in a real estate contract 17 “so one-sided as to be substantively unconscionable.” Pardee Constr. Co. v. Superior Court, 100 18 Cal. App. 4th 1081, 1092 (2002). The court explained that the waiver of punitive damages was “in 19 practical reality, only for Pardee’s benefit” and that nothing in the record showed that waiver of a 20 jury trial “would in fact result in any significant saving of time or costs” or any other gain for the 21 buyers. Id. at 1091-92. Defendant argues that these terms constituted hidden and complex waivers, 22 unlike the terms at issue here. Mot. at 13. 23 In contrast, Defendant contends that the Challenged Terms are similar to the terms 24 considered in Am. Software and Schuman. In Am. Software, the court found a term in a software 25 salesperson’s employment contract that terminated her right to receive commissions on payments 26 received 30 days after her severance enforceable. Am. Software, Inc. v. Ali, 46 Cal. App. 4th 1386 27 (1996). The court found that the term was not substantively unconscionable because the contract 28 “was the result of an arm's-length negotiation between two sophisticated and experienced parties 13 1 of comparable bargaining power and is fairly reflective of prevailing practices in employing 2 commissioned sales representatives.” Id. at 1394-95. The court recognized the company’s need to 3 compensate the individual who services the account after the seller leaves. Id. at 1393. In addition, 4 the court noted that the relevant terms “involved certain risks to both parties.” Id. at 1393. Schuman similarly found a term deferring commissions until payment is received or 5 6 reasonably certain to be enforceable. Schuman v. Ikon, 232 Fed. App’x 659, 663 (9th Cir. 2007). 7 In this unpublished opinion, the Ninth Circuit was persuaded by the fact that the commissions 8 were paid to the plaintiff’s successor, rather than the employer, and noted that the plaintiff had not 9 actually forfeited any commissions as he had not executed any sales pursuant to the contract. Id. 10 Defendant contends that the Challenged Terms similarly authorize withholding payments United States District Court Northern District of California 11 during a short, finite period. Mot. at 13. Plaintiffs argue that the Terms are not similar because the 12 contracts in both Am. Software and Schuman provided for other compensation—a base salary in 13 Am. Software and 30 percent commissions for six months in Schuman—and withheld payments to 14 compensate the plaintiff’s successor, not employer. Opp. at 9. In addition, Plaintiffs note that the 15 parties shared risks regarding compensation in Am. Software and argue that the Schuman plaintiff 16 was not terminated arbitrarily. Id. Having reviewed the cases offered by the parties,4 most of which considered 17 18 unconscionability at summary judgment, the Court finds that Plaintiffs have sufficiently alleged 19 substantive unconscionability. Taking the allegations are true, the Challenged Terms are one-sided 20 because they let Google withhold funds for up to two months regardless of the severity of the 21 purported breach and even if the funds are earned through valid activity, notwithstanding Google’s 22 supposed ability to distinguish between valid and invalid ad serves. TAC ¶ 32. In addition, 23 Plaintiffs allege that Google, unlike the defendants in Am. Software and Schuman, withholds 24 payments not to compensate other publishers or even advertisers, but solely for its own profit. Id. ¶ 25 46. While a more developed record may reveal that Google is justified in withholding the entirety 26 27 28 4 Plaintiffs also rely on Dean Witter Reynolds, Inc. v. Superior Court, 211 Cal. App. 3d 758 (1989), see Opp. at 9, but the defendant in that case conceded that “some measure of substantive unconscionability might be present” and the parties disputed only procedural unconscionability. 14 1 of unpaid earnings, Plaintiffs offer sufficient allegations to survive the pleading stage on this issue. 2 4. Liquidated Damages 3 Defendant next challenges Plaintiffs’ allegations that the Terms contain an unenforceable 4 liquidated damages provision. Mot. at 14-15, 25. The parties agree that this concerns the 5 Termination Term and Plaintiffs allege that the Payment Term is also implicated to the extent that 6 Google uses it to withhold 100 percent of a publisher’s reported earnings upon termination for 7 supposed breach. Opp. at 9 (citing TAC ¶ 36). Having found that Plaintiffs sufficiently allege that 8 the terms are unenforceable as unconscionable, the Court nevertheless considers this argument 9 because it determines whether or not Plaintiffs’ §1671(b) claim survives. 10 The Court most recently considered Plaintiffs’ liquidated damages theory in the Order United States District Court Northern District of California 11 Granting Plaintiffs’ Motion for Reconsideration. ECF 91 (“Recon. Order”). The Court explained 12 that, under California law, liquidated damages are defined as “an amount of compensation to be 13 paid in the event of a breach of contract, the sum of which is fixed and certain by agreement . . . .” 14 Chodos v. W. Publ’g Co., 292 F.3d 992, 1002 (9th Cir. 2002) (quoting Kelly v. McDonald, 98 Cal. 15 App. 121, 125 (1929)). “Thus, to constitute liquidated damages, the contractual provision must: 16 (1) arise from a breach, and (2) provide a fixed and certain sum.” Ruwe v. Cellco P’ship, 613 F. 17 Supp. 2d 1191, 1196 (N.D. Cal. 2009). 18 In the Reconsideration Order, the Court dismissed the allegations that Defendant withheld 19 earnings from FRC and Mr. Simpson pursuant to a liquidated damages provision because 20 Plaintiffs had alleged that Google terminated them due to invalid activity rather than breach based 21 on Plaintiffs’ own actions. Recon. Order at 5. The Court granted leave to amend and Plaintiffs 22 have cured the defect by alleging that invalid activity is a form of breach, see TAC ¶ 38, and 23 therefore any damages due as a result of invalid activity “arise from a breach.” See Ruwe, 613 F. 24 Supp. 2d at 1196. Defendant does not contest Plaintiffs’ allegation that invalid activity constitutes 25 breach of the Terms. 26 The parties’ current disagreement focuses on the second requirement—that the provision 27 identify a fixed and certain sum. The Court previously found Plaintiffs’ allegations sufficient to 28 survive a motion to dismiss on this issue. Recon. Order at 6-8. The Court explained that “unpaid 15 1 amounts” could refer to the entirety of a terminated publisher’s unpaid but earned balance—a 2 fixed, ascertainable sum to which Plaintiffs were entitled. Defendant challenges this finding. 3 Defendant first contends that, rather than require Plaintiffs to forfeit a deposit or pay a fee, 4 as is common in liquidated damages provisions, Google simply exercised its right to not pay for 5 work done in violation of the Terms. Id. at 14-15. Plaintiffs respond that Google’s own word 6 choice, which refers to money generated by terminated publishers as “earnings,” reveals that 7 Google is withholding money Plaintiffs have already earned. Opp. at 11-12; see also TAC ¶¶ 32, 8 40-44, 83, 96. Plaintiffs also allege that Google tallies and reports each publisher’s earnings for 9 serving ads in the publisher’s account. Id. ¶ 44, 53, 57. As before, the Court finds Plaintiffs argument more persuasive. See Recon. Order at 7 (Because the Termination Term “also states 11 United States District Court Northern District of California 10 ‘[a]ny earned balance below the applicable threshold will remain unpaid,’” unpaid amounts could 12 refer to an earned balance). 13 Defendant next argues that the withheld sum is insufficiently certain for the Challenged 14 Terms to constitute a liquidated damages provision. Defendant bases this argument in large part on 15 Bayol, which found that Zipcar’s late fees constitute liquidated damages because the subscriber 16 agreement provides a high degree of certainty regarding the fee amount for a late return. Bayol v. 17 Zipcar, Inc., 78 F. Supp. 3d 1252, 1258 (N.D. Cal. 2015). Defendant highlights two portions of the 18 decision: that “courts will find fees that are not a single, fixed number to be liquidated damages 19 provisions where they can easily be determined from the contract at the time of breach” and that 20 “[t]o be sufficiently fixed and certain to qualify as liquidated damages, a provision must either set 21 the exact amount (i.e., a single number), or provide some formula by which the amount is certain 22 or readily ascertainable.” Mot. at 15 (quoting Bayol, 78 F. Supp. 3d at 1256) (internal citations 23 omitted) (emphasis in Motion). Defendant argues that the Terms fail to satisfy either requirement, 24 as they identify neither an amount nor a formula. Instead, Defendant argues, the Terms explicitly 25 build in discretion for the amount and they result in amounts that vary widely in terms of both 26 absolute number and percentage of a publisher’s previous earnings. Mot. at 15. 27 28 Plaintiffs respond that the Terms specify a formula: 1.00 x unpaid earnings at termination. Opp. at 13. In addition, as noted above, Plaintiffs allege that Google reports each publisher’s 16 1 2 earnings to the publisher. TAC ¶¶ 44, 53, 57. As before, the Court finds that the amount is “readily ascertainable.” While Defendant may 3 be correct that the Terms do not specify a formula or set amount, the Court finds Plaintiffs’ 4 allegations that, in practice, Google always withholds the entire sum sufficient to establish that the 5 parties “possess some degree of certainty regarding their liability in the event of a breach.” Ruwe, 6 613 F. Supp. 2d at 1198 (amount was sufficiently certain because same amount was charged to 7 each customer in practice). 8 Defendant next argues that, even if the Challenged Terms constitute a liquidated damages provision, it is not unreasonable and is therefore enforceable under § 1671(b), which presumes 10 enforceability “unless the party seeking to invalidate the provision establishes that the provision 11 United States District Court Northern District of California 9 was unreasonable under the circumstances existing at the time the contract was made.” Cal. Civ. 12 Code § 1671(b). The statute “casts the burden on the opposing party to prove unreasonableness 13 and requires only that the liquidated damages bear a reasonable relationship to the range of harm 14 that might reasonably be anticipated.” Weber, Lipshie & Co. v. Christian, 52 Cal. App. 4th 645, 15 656 (1997). 16 Defendant argues that Plaintiffs fail to meet this burden because the amount Google 17 withholds relates to the anticipated harm to AdSense’s integrity in two ways. Mot. at 16. First, the 18 amount is a reasonable estimate of damages at the time of contracting and, second, the penalty is 19 greater for sites with higher traffic, which cause greater harm than do less popular sites. Id. 20 Plaintiffs respond that they have adequately pled a lack of reasonable relationship by 21 alleging that Google withholds all earned but unpaid funds, regardless of the magnitude of the 22 breach and despite Google’s purported ability to separate valid from invalid activity. Opp. at 14- 23 15; see also TAC ¶¶ 6, 32, 132. In addition, Plaintiffs contend that Google does not refund the 24 money to advertisers and that it often terminates accounts without any prompting by an advertiser, 25 thus cutting any link to harm. Opp. at 14 (citing TAC ¶ 48). Finally, Plaintiffs argue that the 26 reasonableness of a liquidated damages provision is too fact-intensive to be determined at this 27 stage. Id. 28 The Court agrees with Plaintiffs. “[T]he validity of a liquidated damages provision is a 17 1 fact-based inquiry not appropriately determined on a motion to dismiss.” Bayol v. Zipcar, Inc., 78 2 F. Supp. 3d 1252, 1255 (N.D. Cal. 2015). Defendant argues that Bayol is different because factual 3 questions suggested a mismatch between the liquidated damages amount and the damage Zipcar 4 actually suffers, see Reply at 9 n.6, but the Court finds that the same is true here. As Defendant 5 admits, the harm caused by publishers’ invalid activity or other breaches is difficult to measure, 6 see Mot. at 16, and Plaintiffs have raised factual questions regarding the link to harm by alleging 7 that Google does not refund the withheld money to advertisers. Accordingly, the Court DENIES 8 Defendant’s Motion to Dismiss Plaintiffs’ breach of contract and §1671(b) claims. 5. Waiver 9 Defendant separately challenges Ms. Chose and Mr. Simpson’s breach of contract claims 11 United States District Court Northern District of California 10 on the basis that they waived any payment-related claim, including breach of contract, by failing 12 to timely dispute the withholding of their payments pursuant to the Terms. Mot. at 18-19. The Payment Term provides, “If you dispute any payment made or withheld relating to the 13 14 Services, you must notify Google in writing within 30 days of any such payment. If you do not, 15 any claim relating to the disputed payment is waived.” TOS ¶ 5. Plaintiffs do not argue that Ms. 16 Chose and Mr. Simpson timely challenged their payments, see TAC ¶¶ 82, 95, but they argue that 17 this should not translate into waiver for several reasons. The Court begins with the first four 18 arguments, which it finds entirely unpersuasive. First, Plaintiffs argue that Google failed to inform Ms. Chose and Mr. Simpson of the 19 20 dispute requirement. Plaintiffs argue that, because the language about dispute appears in the 21 Payment Term and not the Termination Term, it applies to active rather than terminated 22 publishers. Opp. at 15. The Court finds this argument unavailing because, as Defendant points out, 23 the term opens by explaining that payments are made “[s]ubject to this Section 5 [Payments] and 24 Section 10 [Termination].” Reply at 9 (citing TOS ¶ 5).5 Second, the Court agrees with Defendant 25 5 26 27 28 Plaintiffs additionally argue that the termination notices failed to offer sufficient notice because, while they inform terminated publishers that the termination can be appealed, they do not state that the withholding of earnings can be disputed. Id. at 16; see also Exh. 12 to Gray Decl, ECF 94-13. Defendant responds that Google was not under any obligation to remind publishers of the dispute requirement as it is clearly set forth in the Terms. The Court has previously considered this argument and, as before, agrees with Defendant. 18 1 that the Terms gave Ms. Chose and Mr. Simpson sufficient instruction on how to dispute a 2 payment, specifying that publishers should “notify Google in writing.” TOS ¶ 5. Third, the Court 3 agrees with Defendant that Plaintiffs’ allegations that Google’s support pages tell publishers that 4 they cannot appeal withholding are irrelevant because Plaintiffs do not allege that Ms. Chose or 5 Mr. Simpson read or relied on those pages. See Reply at 10; see also Opp. at 15-16; TAC ¶¶ 83, 6 96. Fourth, the Court also agrees with Defendants that, even if the condition is a forfeiture clause 7 that must be “strictly interpreted against the party for whose benefit it is created,” see Opp. at 16 8 (quoting Cal. Civ. Code § 1442), the result is the same: a publisher waives any payment-related 9 claim by failing to dispute the payment or withholding within 30 days. See Reply at 10, n.7. 10 Finally, Plaintiffs contend that the requirement is a private statute of limitations and that it United States District Court Northern District of California 11 is unenforceable because thirty days is not enough time for former publishers to consult with an 12 attorney or even identify the precise cause for their termination. Opp. at 17-18. Plaintiffs rely on 13 two cases employment cases, Ellis and Assaad, and one far more applicable case from the Eastern 14 District of Pennsylvania, which considers Google’s contract for its AdWords program. 15 The plaintiffs in both Ellis v. U.S. Security Associates and Assaad v. Am. Nat. Ins. Co. 16 sought to sue their former employers after signing employment agreements that barred them from 17 bringing employment claims after a certain time—more than six months after any incident in Ellis, 18 224 Cal. App. 4th 1213, 1217 (2010), and if the employee failed to timely request arbitration 19 within 30 days of termination in Assaad, No. C 10-03712, 2010 WL 5416841, at *7 (N.D. Cal. 20 Dec. 23, 2010). Both plaintiffs filed their claims within the statutory time but outside of the 21 contractual terms. Id. at *7; Ellis, 224 Cal. App. 4th at 1222. Both courts held that the provisions 22 functioned as a private statute of limitations. Id. at 1222-23; Assaad, 2010 WL 5416841, at *7. 23 The Ellis court explained that a private period of limitation is enforceable if it is reasonable, and 24 that it is reasonable “if the plaintiff has a sufficient opportunity to investigate and file an action, 25 the time is not so short as to work a practical abrogation of the right of action, and the action is not 26 barred before the loss or damage can be ascertained.” Ellis, 224 Cal. App. 4th at 1223. 27 28 Applying that standard, Ellis found six months insufficient to bring an employment claim, noting that “most reported decisions upholding shortened periods involve straightforward 19 1 commercial contracts plus the unambiguous breaches or accrual of rights under those contracts.” 2 Id. (quoting Moreno, 106 Cal.App.4th at p. 1430, 131 Cal.Rptr.2d 684). Assaad found 30 days to 3 be an unreasonable, “vastly shortened statute of limitations.” Assaad, 2010 WL 5416841, at *7-8. 4 Much more applicable to the case at hand, Plaintiffs also offer Feldman, which considered the following provision in Google’s AdWords terms: “You waive all claims relating to charges 6 unless claimed within 60 days after the charge . . .” Feldman v. Google, Inc., 513 F. Supp. 2d 229, 7 243 n.7 (E.D. Pa. 2007). The court found that the provision constituted a contractual limitations 8 period, but determined that it was enforceable because it was reasonable. Id. at 243. “Contractual 9 limitations periods are valid and can be shorter than limitations periods prescribed by statute so 10 long as the period for bringing claims is reasonable.” Id. (citing Han v. Mobil Oil Corp., 73 F.3d 11 United States District Court Northern District of California 5 872, 877 (9th Cir. 1995)). The Feldman court enforced the provision because 60 days provided the 12 plaintiff, an attorney, “sufficient time to identify, investigate, and report billing errors.” Id. at 243. 13 Defendant responds that those cases do not apply, as each required a party to file suit 14 within a shortened period of time, but that here the notice is simply a condition precedent to filing 15 suit. In support of its position, Defendant offers Brosnan, which found that “[f]ailure to mediate a 16 dispute pursuant to a contract that makes mediation a condition precedent to filing a lawsuit 17 warrants dismissal.” Brosnan v. Dry Cleaning Station Inc., No. C-08-02028 EDL, 2008 WL 18 2388392, at *1 (N.D. Cal. June 6, 2008). However, the contract placed no time limit on when such 19 mediation could be initiated and therefore did not bar later suit. 20 Defendant also points to a decision finding that a purchase agreement barring attorney fees 21 for a party who commences litigation without first attempting to mediate the dispute “means what 22 it says: plaintiff’s failure to seek mediation precludes an award of attorney fees.” Lange v. 23 Schilling, 163 Cal. App. 4th 1412, 1414. Finally, Defendant offers a case that finds a term barring 24 a plaintiff from compelling arbitration after a contractually-set time to be an enforceable condition 25 precedent to arbitration. Platt Pacific, Inc. v. Anderson 6 Cal. 4th 307, 313 (1993). 26 Having reviewed these cases, the Court finds that the Payment Dispute Term constitutes a 27 private statute of limitations. As in the cases offered by Plaintiffs, failure to comply with the term 28 bars claims in their entirety, rather than only alternative dispute resolution or recovery of 20 1 attorneys’ fees. Thus, as in those cases, the Court next considers whether the 30-day period is 2 reasonable. See Han, 73 F.3d at 877 (“California permits contracting parties to agree upon a 3 shorter limitations period for bringing an action than that prescribed by statute, so long as the time 4 allowed is reasonable.”). 5 Though Plaintiffs argue in their Opposition that 30 days was an insufficient amount of time in which to raise a payment-related dispute, they do not allege the same. To the contrary, they 7 plead that both CIS and FRC succeeded in disputing their payments within that time, TAC ¶¶ 59, 8 71, and explain that Ms. Chose and Mr. Simpson failed to do the same based on the four reasons 9 the Court rejected above, id. ¶ 82, 95. Accordingly, the Court GRANTS Defendant’s Motion to 10 Dismiss to the extent that it seeks to dismiss all payment-related claims by Ms. Chose and Mr. 11 United States District Court Northern District of California 6 Simpson. 12 In addition, the Court finds that amendment would be futile because 30 days is a 13 reasonable amount of time in which to notify Google of a dispute. The Court finds a comparison 14 to Feldman instructive. There, the court found 60 days sufficient for the plaintiff to make any 15 charge-related “claim.” Here, publishers have less time (30 days), but they need only “dispute” a 16 payment or withholding, not file a full claim. Moreover, the adequacy of the time period is 17 demonstrated by FRC and CIS’ admitted compliance. The Court finds 30 days sufficient for this 18 task, particularly as publishers regularly receive payments and earnings estimates from Google 19 and, as discussed above, the Terms identify how to communicate the dispute. Thus, the Court does 20 not grant Ms. Chose and Mr. Simpson leave to amend their payment-related claims. 21 B. Implied Covenant of Good Faith and Fair Dealing 22 Defendant next challenges Plaintiffs’ breach of covenant claim. Mot. at 20-21. “Under 23 California law, a claim for breach of the covenant of good faith and fair dealing requires that a 24 contract exists between the parties, that the plaintiff performed his contractual duties or was 25 excused from nonperformance, that the defendant deprived the plaintiff of a benefit conferred by 26 the contract in violation of the parties' expectations at the time of contracting, and that the 27 plaintiff's damages resulted from the defendant's actions.” Avila v. Countrywide Home Loans, No. 28 10-CV-05485-LHK, 2010 WL 5071714, at *5 (N.D. Cal. Dec. 7, 2010). 21 Defendant’s first two challenges to the breach of covenant claim are identical to arguments 1 2 the Court considered and rejected above: that Plaintiffs failed to plead performance or excuse and 3 that Defendant cannot be held liable for acting in accordance with an express contractual 4 provision. As above, the Court rejects these arguments. Defendant next argues that Plaintiffs’ breach of covenant claim should be dismissed as 5 6 duplicative of their breach of contract claim. Mot. at 20. Defendant relies on Careau & Co. v. Sec. 7 Pac. Bus. Credit, Inc., 222 Cal. App. 3d 1371 (1990), as modified on denial of reh'g (Oct. 31, 8 2001), which dismissed as duplicative a breach of covenant claim brought against a defendant that 9 had refused to provide a $13 million loan after the plaintiff had allegedly completed the conditions precedent to disbursement. The court explained that “[i]f the allegations do not go beyond the 11 United States District Court Northern District of California 10 statement of a mere contract breach and, relying on the same alleged acts, simply seek the same 12 damages or other relief already claimed in a companion contract cause of action, they may be 13 disregarded as superfluous.” Id. at 1395. To plead a separate breach of covenant claim, the 14 plaintiff must offer allegations “demonstrat[ing] a failure or refusal to discharge contractual 15 responsibilities, prompted not by an honest mistake, bad judgment or negligence but rather by a 16 conscious and deliberate act, which unfairly frustrates the agreed common purposes and 17 disappoints the reasonable expectations of the other party.” Id. at 1395. Applying that rule to the 18 facts before it, the court upheld the trial court’s summary adjudication of the breach of covenant 19 claim because it “alleged nothing more than a duplicative claim for contract damages.” Id. at 1401. Defendant also offers Bionghi v. Metro. Water Dist. of S. Cal., 70 Cal. App. 4th 1358, 20 21 (1999), which reached the same result. In Bionghi, the owner of a temporary employment agency 22 sued the defendant for breach of contract and breach of covenant for allegedly terminating the 23 agency due to office politics and racial prejudice. Id. at 1361-63. Relying on Careau, the appellate 24 court upheld the trial court’s summary adjudication of the breach of covenant claim because it 25 “relies on the same acts, and seeks the same damages, as its claim for breach of contract.” Id. at 26 1370. 27 28 Defendant argues that the Court should reach the same result because Plaintiffs’ breach of contract and covenant claims rest on the same allegations: that Plaintiffs entered into and 22 1 performed under a contract yet were denied payment by Google. Mot. at 20. Plaintiffs respond that 2 they have additionally alleged bad faith on Google’s part. Plaintiffs allege that Google showed its 3 bad faith when it terminated Ms. Chose and CIS while leaving other publishers with the same 4 types of displays active, and by withholding all unpaid earnings notwithstanding the agreement’s 5 language that Google “may” withhold unpaid amounts. TAC ¶¶ 70, 79, 137. 6 Plaintiffs rely on Celador Int'l Ltd. v. Walt Disney Co., 347 F. Supp. 2d 846 (C.D. Cal. 7 2004), which denied dismissal of a breach of covenant claim as duplicative. Celador considered 8 breach of contract and covenant claims brought by the creators of a television show against the 9 parent company of their production and distribution partners for allegedly causing those partners not to seek competitive deals and failing to renegotiate a higher licensing fee when custom and 11 United States District Court Northern District of California 10 practice dictated that it should. Id. at 850-851. The court explained that, because breach of contract 12 and covenant claims “will always be based on the same facts [since] a certain set of circumstance 13 gives rise to a lawsuit” and “will always seek the same remedy [since] the same remedies are 14 available for both claims . . . the challenge brought by Careau and its progeny is to distinguish two 15 claims based on the same facts.” Reviewing the allegations before it, the court found that the 16 plaintiff had pled two claims—they “allege that Defendants' actions breached the contract. If not, 17 the actions, allegedly taken in bad faith, frustrated the actual benefits of the contract.” Id. at 853. 18 Plaintiffs contend that the same is true here: they allege that Google breached the Terms by 19 terminating Publishers arbitrarily and withholding all unpaid earnings. If not, they allege that those 20 actions, taken in bad faith, removed any consideration for Plaintiffs serving ads. TAC ¶ 154. 21 In support of their argument that the withholding breached the covenant, Plaintiffs offer 22 Storek & Storek, Inc. v. Citicorp Real Estate, Inc., 100 Cal. App. 4th 44 (2002), which considered 23 whether a bank breached the covenant by refusing to disburse a loan after determining, allegedly 24 in bad faith, that the plaintiff failed to complete a condition precedent—specifically, to satisfy the 25 bank that the loan amount would cover the costs of the project. The court explained that, when a 26 party’s satisfaction is a condition precedent, that party must either make a purely subjective 27 decision in good faith or an objectively reasonable decision. The choice depends on the parties’ 28 intent as expressed in the contract or defaults to the reasonableness standard. Id. at 59. The court 23 1 found that, because the loan contract was for a commercial transaction and the decision to be made 2 by the bank was a matter entirely of financial concern, with no implication for aesthetics or 3 personal taste, the bank was required to make an objectively reasonable decision. Id. at 60, 64. 4 Plaintiffs argue that, here, Google’s satisfaction with their websites and ad serves was a 5 condition precedent to payment and that they have pled that Google neither exercised its discretion 6 in an objectively reasonable manner nor in good faith. Opp. at 20-21. The Court first reviews the 7 Terms to determine whether they include a condition precedent and finds that Plaintiffs are 8 correct. Under the Payment Term, Publishers “will receive a payment related to the number of . . . 9 valid events performed in connection with the display of Ads on [their] Properties, in each case as determined by Google.” TOS ¶ 5; see also T&C ¶ 11 (emphasis added). Thus, Google’s 11 United States District Court Northern District of California 10 determination of valid activity is a condition precedent to it paying publishers. 12 Under Storek, only one test can apply to any given contract. In this one regard, the Court 13 finds that the express language of the TOS and T&C differ in a material way. The TOS provide, 14 “Payments to you may be withheld to reflect . . . any amounts arising from invalid activity, as 15 determined by Google in its sole discretion,” while the T&C stated, “Google reserves the right to 16 withhold payment . . . due to [invalid activity or breach] by You, pending Google's reasonable 17 investigation.” TOS ¶ 5; T&C ¶ 11 (emphasis added). Thus, the Court finds that the TOS require 18 Google to make a purely subjective determination in good faith, see TOS ¶ 5, while the T&C 19 require Google to make an objectively reasonable determination without an accompanying good 20 faith requirement, see T&C ¶ 11. As a result, Plaintiffs’ claims regarding withholding under the 21 T&C are subsumed by their breach of contract claim,6 while their claims that Google withheld 22 payments under the TOS without exercising discretion in good faith suffice to go forward. With regard to Plaintiffs’ allegations that Defendant exercised bad faith when terminating 23 24 Ms. Chose and CIS by allowing similar websites to remain active, Defendant argues that the 25 websites are not similar and that, even if they were, Google’s failure to terminate other violators is 26 27 28 6 As the court in Storek explained, a challenge to a party’s reasonableness under a contract is a claim of nonperformance of the express terms of the contract, not a claim for breach of the implied covenant. Storek, 100 Cal. App. 4th at 62. 24 1 not enough to establish bad faith. The Court agrees that allegations of selective enforcement are 2 not enough to plead bad faith. 3 Thus, the Court GRANTS Defendant’s Motion to Dismiss Plaintiffs’ breach of the implied 4 covenant claim to the extent that it relies on allegations of termination and payments withheld 5 under the T&C and DENIES the motion to the extent that the claim relies on allegations of 6 payments withheld under the TOS. 7 8 C. Unjust Enrichment In the First Dismissal Order, the Court dismissed Plaintiffs’ unjust enrichment claim for failing to comply with Klein v. Chevron, which held that a plaintiff could plead claims based both 10 on the existence and the absence of an agreement if the plaintiff “was uncertain as to whether the 11 United States District Court Northern District of California 9 parties had entered into an enforceable agreement.” Klein v. Chevron U.S.A. Inc., 202 Cal. App. 12 4th 1342, 1388. “A plaintiff may not, however, pursue or recover on a quasi-contract claim if the 13 parties have an enforceable agreement regarding a particular subject matter.” Id. at 1388. The 14 Court granted leave to amend to allege uncertainty regarding the existence of a contract here. 15 Plaintiffs now allege that “[f]or purposes of this cause of action, plaintiffs deny the 16 enforceability of the terms at issue, and, as needed to enable the recovery of the earnings due them 17 for serving AdSense program ads, the enforceability of the entire AdSense contracts with Google.” 18 TAC ¶ 159. Defendant argues that this conclusory allegation fails to cure the deficiency because 19 the parties do not dispute that the Terms exist and are, as a whole, enforceable. Mot. at 21-22. 20 Plaintiffs respond that they satisfy Klein by alleging that the Challenged Terms are 21 unenforceable. Opp. at 21-22. Plaintiffs rely on Bear, LLC v. Marine Grp. Boat Works, LLC, No. 22 3:14-CV-02960-BTM, 2015 WL 4255061 (S.D. Cal. July 14, 2015) to argue that contesting only 23 some of a contract’s terms suffices. However, in Bear, the defendant conceded that the complaint 24 “contests the validity of . . . the amendments pursuant to which [the defendant] performed its 25 work, labor and services . . . .” Id. at *5. In other words, in Bear, the heart of the contract was in 26 dispute. In contrast, here, Plaintiffs allege that “[s]ave for certain terms alleged to be invalid and 27 unenforceable, the [Terms] are valid.” TAC ¶ 130. 28 Thus, the Court agrees with Defendant. Because the parties agree that there is an 25 1 enforceable contract here, Plaintiffs cannot bring a claim for unjust enrichment. Accordingly, the 2 Court GRANTS Defendant’s Motion to Dismiss Plaintiffs’ unjust enrichment claim. 3 4 D. UCL Claim Defendant next challenges the UCL Claim, arguing that Plaintiffs lack standing to bring it 5 and that they fail to state that Defendant engaged in “any unlawful, unfair or fraudulent business 6 act or practice.” Mot. at 22-25; see also Cal. Bus. & Prof. Code § 17200. 7 8 i. Standing Defendant contends that Plaintiffs lack standing under § 17200 because they are businesses, not the consumers or competitors the law was written to protect. Mot. at 22-23. 10 Defendant relies on Linear Tech Corp, which upheld dismissal of a UCL claim brought by 11 United States District Court Northern District of California 9 “sophisticated corporate customers who have entered or will enter their own contracts with 12 respondents” because “where a UCL action is based on contracts not involving either the public in 13 general or individual consumers who are parties to the contract, a corporate plaintiff may not rely 14 on the UCL.” Linear Tech Corp. v. Applied Materials, Inc., 152 Cal. App. 4th 115, 135 (2007). 15 See also Dollar Tree Stores Inc. v. Toyama Partners LLC, 875 F. Supp. 2d 1058, 1083 (N.D. Cal. 16 2012) (dismissing corporation’s UCL claim because the “claim is based on a breach of a contract 17 that does not implicate the public in general or individual consumers.”). 18 Defendant misreads Linear Tech to suggest that a business can never bring a UCL claim. 19 Linear Tech instead states that a business cannot bring such a claim when the contract does not 20 involve “the public in general or individual consumers. . . .” See also In re Webkinz Antitrust 21 Litig., 695 F. Supp. 2d 987, 999 (N.D. Cal. 2010) (finding that the “UCL grants standing to 22 companies of varying size” as long as they “state a connection to the protection of the general 23 public” or “to individual consumer’s interest”). Thus, the Court considers whether Plaintiffs have 24 stated a connection to the interests of the public or individual consumers. 25 Plaintiffs argue that their allegations implicate the public and individual consumers 26 because of AdSense’s size and consumers’ interactions with Plaintiffs’ pages. Plaintiffs argue that 27 this case is like Ewert, which allowed corporate and individual sellers to bring a UCL claim 28 against eBay for preventing them from listing their products for the full contractual period. Ewert 26 1 v. eBay, Inc., No. C-07-02198 RMW, 2010 WL 4269259, at *1, 8-9 (N.D. Cal. Oct. 25, 2010). 2 Applying Linear Tech, the court found that this group of sellers could bring a UCL claim because 3 it dealt “exclusively with form contracts . . . and involve[d] individual consumers.” Id. at *9. 4 Plaintiffs argue that the same is true here: the Terms are form contracts and consumers 5 who click on AdSense ads are involved. Mot. at 23. Defendant argues that users who click on ads 6 are different than users who buy products. The Court agrees with Plaintiffs. Plaintiffs allege that 7 publishers use their content “as the driving force for attracting legitimate ad consumers to their 8 sites.” TAC ¶ 32. Thus, as in Ewert, the interests of individual consumers are implicated because 9 consumers may be harmed if a Publisher who caters to their interests is terminated. Thus, the 10 United States District Court Northern District of California 11 12 Court finds that Plaintiffs have sufficiently alleged their standing under the UCL. ii. Fraudulent Prong Defendant next argues that Plaintiffs fail to allege that Google engaged in a fraudulent act 13 or practice, to plead reliance on any alleged omission, and to satisfy the pleading standards for 14 fraud. Mot. at 23-24; see also Fed. R. Civ. P. 9(b) (plaintiff must “state with particularity the 15 circumstances constituting fraud”). Plaintiffs respond that Google’s policy of withholding all of a 16 publisher’s unpaid earnings at termination while stating only that it “may” withhold unpaid 17 amounts constitutes a material misrepresentation. Opp. at 24 (citing TAC ¶ 171). In addition, they 18 contend that they have pled reliance by alleging that they would not have expended time, energy, 19 and money in serving AdSense ads had they known that Google would withhold all of their unpaid 20 earnings upon termination. Opp. at 24 (citing TAC ¶ 171). 21 “Generally, to be actionable under the UCL, a concealed fact must be material in the sense 22 that it is likely to deceive a reasonable consumer.” Clemens v. DaimlerChrysler Corp., 534 F.3d 23 1017, 1025-26 (9th Cir. 2008) (citing Aron v. U–Haul Co. of Cal., 143 Cal. App. 4th 796, 806 24 (2006)). “[T]he plaintiff must produce evidence showing ‘a likelihood of confounding an 25 appreciable number of reasonably prudent purchasers exercising ordinary care.’” Id. (quoting 26 Brockey v. Moore, 107 Cal. App. 4th 86, 99 (2003)). In addition, “a class representative 27 proceeding on a claim of misrepresentation as the basis of his or her UCL action must demonstrate 28 actual reliance on the allegedly deceptive or misleading statements.” In re Tobacco II Cases, 46 27 1 Cal. 4th 298, 306 (2009). “Reliance is proved by showing that the defendant's misrepresentation or 2 nondisclosure was an immediate cause of the plaintiff's injury-producing conduct. A plaintiff may 3 establish that the defendant's misrepresentation is an immediate cause of the plaintiff's conduct by 4 showing that in its absence the plaintiff in all reasonable probability would not have engaged in 5 the injury-producing conduct.” Id. at 326 (internal citations omitted). The Court agrees with Defendant that Plaintiffs have failed to plausibly allege reliance. 6 Instead, CIS and FRC allege that they received AdSense payments for more than seven and nearly 8 two years, respectively, before their final payments were withheld. In addition, CIS alleges that “a 9 substantial portion of the family income” of its owner came from AdSense. TAC ¶ 66. Based on 10 these allegations, the Court finds it entirely implausible that Plaintiffs would not have invested in 11 United States District Court Northern District of California 7 their work as publishers if they knew Google would withhold earnings from up to two pay periods 12 upon termination.7 In addition, Plaintiffs have not met Rule 9(b) because they failed to plead 13 Google’s intent to withhold and its knowledge of withholding the entirety of every publisher’s 14 unpaid earnings at termination. Thus, the Court GRANTS Defendant’s Motion to Dismiss 15 Plaintiffs’ fraudulent UCL claim without leave to amend. iii. Unlawful Prong 16 Defendant argues that Plaintiffs have failed to allege any unlawful activity because the 17 18 Terms are not unconscionable and contain no liquidated damages provision. See Mot. at 24-25. As 19 above, the Court finds that Plaintiffs have sufficiently alleged unlawful conduct. Thus, the Court 20 DENIES Defendant’s Motion to Dismiss Plaintiffs’ unlawful UCL claim. iv. Unfair Prong 21 22 Defendant’s challenge to Plaintiffs’ claim under the UCL’s unfair prong fares no better. 23 Again, Defendant argues that Plaintiffs do not explain how Google’s alleged conduct violates a 24 legislative public policy that is “tethered to specific constitutional, statutory, or regulatory 25 provisions.” Mot. at 25 (quoting Drum v. San Fernando Valley Bar Ass’n, 182 Cal. App. 4th 247, 26 27 28 7 The only Plaintiff for whom reliance may have been plausible is Ms. Chose, who alleges that she was a publisher for only 2 months and lost $25,000 in unpaid earnings. TAC ¶¶ 74, 80-81. However, her payment-related claims were dismissed above. 28 1 257 (2010).8 As discussed above, the Court finds that Plaintiffs’ sufficiently allege a claim under § 2 1671(b). Thus, the Court DENIES Defendant’s Motion to Dismiss Plaintiffs’ unfair UCL claim. E. Declaratory Relief – Counts Six and Seven 3 Defendant finally seeks to dismiss Plaintiffs’ declaratory relief claims, which ask for a 4 5 declaration that certain terms are unconscionable and improper liquidated damages. Mot. at 25. 6 Defendant argues that the declaratory relief claims fail because the underlying claims fail. As 7 discussed above, the Court disagrees with Defendant about the underlying claims. Accordingly, 8 the Court DENIES Defendant’s Motion to Dismiss Plaintiffs’ claims for declaratory relief. IV. ORDER 9 For the foregoing reasons, IT IS HEREBY ORDERED that Defendant’s Motion to 11 United States District Court Northern District of California 10 Dismiss is GRANTED IN PART and DENIED IN PART as follows. The Motion is GRANTED 12 without leave to amend with regard to: 13 1. Plaintiffs’ force majeure theory of excuse; 14 2. any payment-related claims by Ms. Chose and Mr. Simpson; 15 3. Plaintiffs’ claim of breach of the implied covenant of good faith and fair dealing to the 16 extent that it relies on allegations of termination or payments withheld under the T&C; 17 4. Plaintiffs’ unjust enrichment claim; and 18 5. Plaintiffs’ fraudulent UCL claim. 19 The Motion is DENIED with regard to: 20 1. Plaintiffs’ §1671(b) claim; 21 2. Plaintiffs’ breach of contract claim, except as outlined above regarding payment- 22 related claims by Ms. Chose and Mr. Simpson and Plaintiffs’ force majeure theory; 23 3. Plaintiffs’ breach of the implied covenant of good faith and fair dealing claim to the extent that it relies on allegations of payments withheld under the TOS; 24 25 8 26 27 28 The Court notes that the precise test for the UCL’s unfair prong has not been definitively established. Other formulations include whether the conduct was “immoral, unethical, oppressive, unscrupulous or substantially injurious to consumers,” Drum, 182 Cal. App. 4th at 257; see also In re Google, Inc. Privacy Policy Litig., 58 F. Supp. 3d 968, 984 (N.D. Cal. 2014) (citation omitted). As noted above, while a more-developed record may prove otherwise, the Court finds that Plaintiffs have sufficiently alleged harm to consumers to satisfy this test as well. 29 1 4. Plaintiffs’ unlawful and unfair UCL claims; and 2 5. Plaintiffs’ claims for declaratory relief. 3 IT IS SO ORDERED. 4 5 6 Dated: May 13, 2016 ______________________________________ BETH LABSON FREEMAN United States District Judge 7 8 9 10 United States District Court Northern District of California 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 30