Ventures Edge Legal PLLC v. GoDaddy.com LLC

Filing 150

ORDER - The 86 Motion to Certify Class of Plaintiff Ventures Edge Legal, PLLC is denied. IT IS FURTHER ORDERED that the 117 Motion to Seal of Plaintiff Ventures Edge Legal, PLLC is granted. The Clerk of Court is directed to file the lodged Exhibit (Doc. 118 ) under seal. IT IS FURTHER ORDERED finding the 123 Motion to Strike of Defendant GoDaddy.com, LLC. Signed by Judge G Murray Snow on 1/30/2018. (ATD)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE DISTRICT OF ARIZONA

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Ventures Edge Legal PLLC,
Plaintiff,

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ORDER

v.

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No. CV-15-02291-PHX-GMS

GoDaddy.com LLC,

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Defendant.

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Pending before the Court is the Motion to Certify Class of Plaintiff Ventures Edge
Legal PLLC (Doc. 86).1 For the following reasons, the motion is denied.
BACKGROUND

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Microsoft sells an office-services product known as Office 365. This product is a

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software system that provides its buyers with various computer programs and

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functionalities. Consumers may purchase Office 365 directly from Microsoft, but

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Microsoft also authorizes other retailers to sell the product. In 2014, Microsoft and

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GoDaddy entered into a partnership that allowed GoDaddy to sell Office 365. GoDaddy’s

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version of Office 365 aimed to serve the small business market. In its version of Office

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365, GoDaddy “consolidated setup, billing and support processes” to result in a

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Plaintiff seeks to seal Exhibit 15 to their Reply in Support of Plaintiff’s Motion
for Class Certification (Doc. 116). The Court entered a Stipulated Protective Order (Doc.
56) as discovery was likely to produce information and documents that are normally kept
confidential for competitive reasons. Defendant has stipulated to seal Exhibit 15. Because
both parties are in agreement and the Court finds that the contents of Exhibit 15 fall
within the ambit of the Stipulated Protective Order, the motion is granted.

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simplified user interface specifically intended for small business customers. This

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simplified user interface offers a different configuration of Office 365 than that offered

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by Microsoft. Despite bearing the same name, Plaintiff alleges that Microsoft and

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GoDaddy’s Office 365 Business Premium plans contain different functionalities. Some of

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the Microsoft functionalities are absent in GoDaddy’s plan, and some functionalities are

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added to GoDaddy’s plan that do not exist in the Microsoft version. For example, a

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GoDaddy purchaser of Business Premium received Microsoft Access––a Microsoft

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product not available for Microsoft Business Premium purchasers. On the other hand, a

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GoDaddy purchaser of Business Premium lacks access to Microsoft Sharepoint, Single

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Sign-In, among other capabilities—Microsoft functionalities that are available to

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Microsoft Business Premium purchasers.

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GoDaddy markets and sells its version of Office 365 Business Premium to

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prospective customers in different ways. GoDaddy’s marketing strategy focused on the

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accessibility of the Office 365 products and their use for small business owners.

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GoDaddy consumers can buy Office 365 products from the Office 365 landing page of

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GoDaddy’s website, from the consumer’s personal account, or by contacting GoDaddy

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customer support. GoDaddy supports an online chat function where customers can ask

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questions about products to company representatives. Customers can also make

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purchases of products through the assistance of the company representatives in the chat.

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GoDaddy’s chat employees are trained on the functionalities of the product, and

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GoDaddy asserts that the functionalities of GoDaddy’s Office 365 Business Premium

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including the differences in functionalities might be disclosed to customers during the

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chat. There is evidence that GoDaddy representatives do in fact disclose the different

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functionalities when asked. In Plaintiff’s own conversations with GoDaddy

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representatives through the chat feature, GoDaddy representatives told Plaintiff that there

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were differences between the Microsoft and GoDaddy product and discussed which

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functionalities were not supported by GoDaddy. (Doc. 103). In Plaintiff’s case, however,

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these conversations did not occur until after Plaintiff had already purchased GoDaddy’s

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product. Customers, however, may use the chat function prior to purchasing the product

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through the website or otherwise.

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Plaintiff argues that GoDaddy’s alleged failure to disclose these different

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functionalities on its website is an omission of a material fact, and therefore a violation of

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the Arizona Consumer Fraud Act (ACFA). Plaintiff seeks to certify a class of “[a]ll

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individuals and entities who purchased the Office 365 Business Premium plan through

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GoDaddy’s website since November 13, 2014.” (Doc. 86, pg. 2).

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DISCUSSION
I.

Rule 23 Requirements

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A class may not be certified unless it meets each of the four requirements of Rule

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23(a), typically referred to as numerosity, commonality, typicality, and adequacy of

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representation. Fed. R. Civ. P. 23(a). In addition, a class action must satisfy at least one

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of the three requirements of Rule 23(b), one of which is “that the questions of law or fact

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common to class members predominate over any questions affecting only individual

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members, and that a class action is superior to other available methods for fairly and

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efficiently adjudicating the controversy.” Fed. R. Civ. P. 23(b)(3). The party seeking

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certification bears the burden of demonstrating that it has met all of these requirements,

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and “the trial court must conduct a ‘rigorous analysis’” to determine whether it had met

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that burden. Zinser v. Accufix Research Inst., 253 F.3d 1180, 1186 (9th Cir. 2001)

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(quoting Valentino v. Carter-Wallace, Inc., 97 F.3d 1227, 1233) (9th Cir. 1996)).

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II.

Analysis

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A.

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In Plaintiff’s Reply in Support of Plaintiff’s Motion for Class Certification (Doc.

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116), Plaintiff attaches three exhibits consisting of expert reports. Exhibit 3 of Dwight

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Duncan calculates damages. Exhibit 8 of Ilan Srendi sets forth the different

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functionalities of Microsoft and GoDaddy’s Office 365 Business Premium products.

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Exhibit 13 of Thomas Maronick discusses the monetary value consumers place on the

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Microsoft functionalities that are not present in the GoDaddy product. Plaintiff’s Motion

Motion to Strike

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for Class Certification (Doc. 86) contained declarations of all three experts, each

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asserting their qualifications and the work they sought to produce in their expert reports.

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Defendants move to strike the expert reports attached to Doc. 116 as consisting of new

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arguments and evidence, or for leave to file a surreply. In light of the Court’s denial of

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the Motion to Certify Class, the Motion to Strike is moot.

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B.

Individual Questions Predominate, Preventing Certification Under

Rule 23(b)(3)
Plaintiffs have not shown predominance––that questions common to the class
predominate over individual questions. Therefore, the Court declines to certify the Class.
1.

The Arizona Consumer Fraud Act

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The predominance inquiry necessarily requires an evaluation of the underlying

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cause of action. ACFA states that the “act, use or employment by any person of any

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deception, deceptive or unfair act or practice, fraud, false pretense, false promise,

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misrepresentation, or concealment, suppression or omission of any material fact with the

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intent that others rely on such concealment, suppression of omission, in connection with

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the sale or advertisement of any merchandise whether or not any person has in fact been

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misled, deceived or damaged thereby, is declared to be an unlawful practice.” Ariz. Rev.

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Stat. § 44-1522(A).

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ACFA itself only provides for enforcement by the Arizona Attorney General, but

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the Arizona Supreme Court held that the statute also creates an implied private right of

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action. Sellinger v. Freeway Mobile Home Sales, Inc., 521 P.2d 1119, 1122 (Ariz. 1974).

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(“Without effective private remedies the widespread economic losses that result from

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deceptive trade practices remain uncompensable and a private remedy is highly desirable

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in order to control fraud in the marketplace.”). A plaintiff must show that “(1) the

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defendant made a misrepresentation in violation of the Act, and (2) defendant’s conduct

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proximately caused plaintiff to suffer damages.” Cheatham v. ADT Corp., 161 F.Supp.3d

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815, 825 (D. Ariz. 2016) (citing Parks v. Macro-Dynamics, Inc., 591 P.2d 1005, 1008

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(Ariz. Ct. App. 1979)).

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2.

Reliance is an Element of an ACFA Claim

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Whether a party seeking class certification must prove individual reliance is a

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question of state law. Yokoyama v. Midland Nat. Life Ins. Co., 594 F.3d 1087, 1092 (9th

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Cir. 2010) (noting that the proper inquiry is “whether the law of [the state] requires a

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finding of individual reliance in the application of its consumer protection statutes”).

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ACFA states that an “omission of any material fact . . . whether or not any person has in

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fact been misled, deceived or damaged thereby, is declared to be an unlawful practice.”

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Ariz. Rev. Stat. § 44-1522(A). Plaintiff asserts that this statutory language demonstrates

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that individualized reliance inquiries are not required to bring a private right of action

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under ACFA. But, such an argument has been long and consistently rejected by Arizona

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courts. See, e.g., Peery v. Hansen, 585 P.2d 574, 577 (Ariz. Ct. App. 1978) (“It is clear

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that before a private party may exert a claim under the statute, he must have been

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damaged by the prohibited practice. A prerequisite to such damages is reliance on the

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unlawful acts.”); Parks, 591 P.2d at 1008 (“For false advertisement to cause the injury,

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the hearer must actually rely on the advertisement; unlike common law fraud, this

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reliance need not be reasonable.”); Kuehn v. Stanley, 91 P.3d 346, 351 (Ariz. Ct. App.

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2004) (noting that “reliance is a required element under Arizona’s consumer fraud

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statute” but it need not be reasonable). The Arizona Supreme Court has never taken up

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this precise question, but it has left the Court of Appeals’ requirement for individual

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reliance under a private right of action undisturbed for forty years. It was not improper

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for the Arizona courts in finding a private right of action in the statute to require as a

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condition of such an action that a Plaintiff rely on the misleading advertisement to her or

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his detriment before obtaining an individual recovery.

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3.

A Presumption of Reliance is Inappropriate

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To the extent that reliance is an element, it cannot be presumed on a class-wide

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basis––at least based on the facts of this case. Even assuming that there might be an

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omissions case in which it was appropriate to adopt a presumption of reliance, this is not

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such a case. This case does not involve a single product with set functionalities in which

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GoDaddy has marketed the product absent some of those functionalities without

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disclosing as much. It involves separate versions of a product with the same name that

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has been customized for different users and contains somewhat different functionalities.

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Plaintiff presumably purchased GoDaddy’s Office 365 Business Premium because of his

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prior experience with Microsoft’s Office 365 Business Premium.2 In essence, Plaintiff

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thought that when he purchased GoDaddy’s product he was purchasing the same

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Microsoft product he had used in the past. However, other purchasers may not have made

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the choice to buy GoDaddy’s product with the same knowledge. Some purchasers may

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have bought the GoDaddy Business Premium precisely because it offers a simplified user

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interface and/or Microsoft Access. Other purchasers may have had no knowledge of the

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differences

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advertisements and product and were motivated to purchase it on that information for the

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price set by GoDaddy.

between

GoDaddy

and

Microsoft;

rather,

they

saw

GoDaddy’s

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Presumably, in an attempt to alleviate this difficulty, Plaintiff proposes two

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methods of calculating damages. In the “consideration paid” model, Plaintiff proposes

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that that class members would recover all money paid to GoDaddy. In the “discount”

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model, Plaintiff proposes that class members would recover the consideration paid minus

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the actual value of the allegedly inferior product. Plaintiff retained an expert to calculate

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the value of the allegedly inferior GoDaddy Office 365 Business Premium. Both of

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Plaintiff’s models, however, are not sufficient to avoid individualized inquiries.

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A class member presumably could not qualify to be included in the “consideration

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paid” model, unless he or she could establish that in purchasing GoDaddy’s version of

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Office 365, she or he relied on the assumption that it included the missing functionalities

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Plaintiff states that he believed he was purchasing “Microsoft Office’s Business
Premium product—Office 365 Business Premium.” (Doc. 104-1, pg. 105). At the time of
purchasing, Plaintiff “knew what Microsoft Office Business did, and [ ] knew that
Microsoft Office Business Premium was a superset of Microsoft Business.” (Id. at pg.
109). Plaintiff had done trial runs with Microsoft Business Premium before purchasing
the GoDaddy version of Business Premium. (Id. at pg. 111). Plaintiff did not research the
GoDaddy product because he “thought they [GoDaddy and Microsoft] were the same
product.” (Id. at pg. 114).
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of Microsoft’s version of Office 365. This would involve an individualized inquiry that

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would predominate.

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Nor does Plaintiff’s proposed “discount model” work to create a class-wide

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question. Plaintiffs’ discount model aligns with the presumptions of reliance utilized by

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courts in many securities law cases. In Affiliated Ute Citizens v. United States, the

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Supreme Court created a presumption of reliance when there were omissions connected

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the sale of securities. 406 U.S. 128, 153–54 (1972). Later, the Court allowed for the

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fraud-on-the-market presumption of reliance,3 available in both omissions and affirmative

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misrepresentations related to the sale of securities. Basic Inc. v. Levinson, 485 U.S. 224,

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241–49 (1988). See also Binder v. Gillespie, 184 F.3d 1059, 1064 (9th Cir. 1999) (“Thus,

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the presumption of reliance is available only when a plaintiff alleges that a defendant

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made material representations omissions concerning a security that is actively traded in

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an ‘efficient market.’”) (emphasis added). Of course, however, in such cases the Courts

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are dealing with the same security about which omissions were made. Here, however, as

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is detailed above, we do not have the same product; we have two different versions of a

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product bearing the same name.4 The set of functionalities belonging to one identically

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named product may or may not have been more valuable than the other, but unlike the

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This presumption “is based on the hypothesis that, in an open and developed
securities market, the price of a company’s stock is determined by the available material
information regarding the company and its business . . . Misleading statements will
therefore defraud purchasers of stock even if the purchasers do not directly rely on the
misstatement.” Basic Inc. v. Levinson, 485 U.S. 224, 241–42 (1988) (citations omitted).
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Additionally, the securities context is a unique one in which legislation has been
passed with a “fundamental purpose . . . to substitute a philosophy of full disclosure for
the philosophy of caveat emptor.” Affiliated Ute, 406 U.S. at 151 (quoting S.E.C. v.
Capital Gains Research Bureau, 375 U.S. 480, 186 (1963)). See also Stratton v.
American Medical Security, Inc., 266 F.R.D. 340, 349 (“Courts rarely presume reliance
outside of the securities fraud context.”). Plaintiffs cite to no Arizona cases suggesting
that such an approach has been extended to cases involving the purchase of consumer
goods. An Arizona court did recognize a fraud-on-the-market presumption under ACFA
in Persky v. Turley, Nos. CV 88-1830-PHX-SMM, CV 88-2089-PHX-SMM (D. Ariz.,
filed Dec. 19, 1991). But Persky is distinguishable: it was related to stock purchases,
where the fraud-on-the-market presumption of reliance is common.

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market-value presumption available in stock purchases, one cannot assume that the

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failure to disclose the difference in functionalities would affect the price at which one of

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the two differing products with the same name was sold. Different information about the

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two different products was already in the market. The presumptions of reliance available

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in the securities context are not suited to such facts as are present in this case.

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Further, as structured, Plaintiff’s discount model only attempts to measure the loss

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in value to GoDaddy’s product absent the functionality contained in the Microsoft

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product even if the consumer purchased the product for that separate functionality or was

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not aware of the difference. But, even assuming that the functionalities missing from

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GoDaddy’s product cause a decrease in the product’s value, the model makes no attempt

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to calculate the additions in value that may result to class members by GoDaddy’s

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simplified design functions or separate functionalities. Such a value could equal the lost

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value from the missing functionalities, resulting in no damage to consumers. Or, their

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value could lessen the delta between GoDaddy’s price and the alleged true value of the

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product. Plaintiff’s proposed models, therefore, fail to account for all the variations

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between the GoDaddy and Microsoft products. This is a particular problem given that

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there are some consumers who may have sought out GoDaddy’s product because of its

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simplicity and its inclusion of Microsoft Access. Determining who these consumers are

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and how their damages vary from other consumers would require individualized

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assessments.

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To the extent that Plaintiffs have attempted to account for this by certifying a class

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of only those persons who have purchased from GoDaddy’s website (which appears to be

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an attempt to eliminate most purchasers who may have been given individual disclosures

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of the different functionalities), that limitation does nothing to identify whether the

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putative class member relied on the presence of the “Microsoft” functionality in question,

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nor does it evaluate the value to the purchaser of the separate GoDaddy functionalities.

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State courts have already extended the scope of the ACFA in recognizing a private

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right of action thereunder. In doing so, they have uniformly required a demonstration of

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actual reliance. This Court will not eliminate that state law requirement so as to facilitate

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class treatment of an omissions claim in this context. The facts of this case do not allow

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for effective class treatment due to the predominance of individualized inquiries.

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C.

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Rule 23(a)’s typicality requirement tests “whether other [class] members have the

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same or similar injury, whether the action is based on conduct which is not unique to the

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named plaintiffs, and whether other class members have been injured by the same course

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of conduct.” Ellis v. Costco Wholesale Corp., 657 F.3d 970, 984 (9th Cir. 2011) (quoting

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Hanon v. Dataproducts Corp., 976 F.2d 497, 508 (9th Cir. 1992)). As discussed above,

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Plaintiff appears to have purchased GoDaddy’s Office 365 Business Premium because of

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his prior experience with Microsoft’s Office 365 Business Premium. Other purchasers

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may not have made the choice to buy GoDaddy’s product with the same knowledge.

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Plaintiff’s grievance with GoDaddy’s package is not necessarily typical of the grievances

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of absent class members. Other class members may not have suffered the same injury as

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Plaintiff, and determining which class member did suffer a similar injury would require

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individualized determinations.

Plaintiff’s Grievances Are Not Common or Typical to the Class

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Further, plaintiffs seeking to certify a class must show that “there are questions of

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law or fact common to the class.” Fed. R. Civ. P. 23(a)(2). However, because “any

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competently crafted class complaint literally raises common questions,” it is not

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sufficient for a plaintiff to simply identify any question that pertains to the whole class.

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Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338, 349 (2011) (citations omitted). Instead,

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“[c]ommonality requires the plaintiff to demonstrate that the class members have suffered

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the same injury.” Id. at 349–50 (citations omitted). Claims must “depend on a common

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contention . . . that is capable of classwide resolution.” Id. at 350. More than presenting a

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common question, it is necessary to show that a “classwide proceeding [can] generate

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common answers apt to drive the resolution of the litigation.” Id. (citations omitted). In

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this case, Plaintiff asserts two common questions: (1) whether GoDaddy’s Office 365

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Business Premium fails to provide certain functionalities present in the Microsoft

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product; and (2) whether GoDaddy fails to disclose the lack of functionality. Answering

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these questions, however, does not drive resolution of the litigation. As discussed above,

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ACFA requires consumers to show reliance and injury. Plaintiff has identified questions

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common to the class. But given the underlying statute and cause of action, these

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questions are insufficient to resolve the question of whether GoDaddy violated ACFA.

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CONCLUSION

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Individual questions predominate in this putative class action. In Arizona, reliance

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is an element of an ACFA claim. A private litigant bringing an ACFA claim is not

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entitled to a presumption of reliance based on these facts. Therefore, questions of whether

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a particular class member relied on the omission are individualized questions that would

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predominate. Plaintiff’s motion to certify a class is denied.

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IT IS THEREFORE ORDERED that the Motion to Certify Class of Plaintiff
Ventures Edge Legal, PLLC (Doc. 86) is denied.

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IT IS FURTHER ORDERED that the Motion to Seal of Plaintiff Ventures Edge

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Legal, PLLC (Doc. 117) is granted. The Clerk of Court is directed to file the lodged

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Exhibit (Doc. 118) under seal.

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IT IS FURTHER ORDERED finding the Motion to Strike of Defendant
GoDaddy.com, LLC (Doc. 123) moot.
Dated this 30th day of January, 2018.

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Honorable G. Murray Snow
United States District Judge

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