Maestas v. Wal-Mart Stores, Inc.

Filing 37

ORDER signed by District Judge Kimberly J. Mueller on 3/28/2018 DENYING Wal-Mart's 31 Motion to Dismiss. Wal-Mart shall file its answer within fourteen (14) days. (Zignago, K.)

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UNITED STATES DISTRICT COURT

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FOR THE EASTERN DISTRICT OF CALIFORNIA

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LARRY MAESTAS,

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No. 2:16-cv-02597-KJM-KJN

Plaintiff,
v.

ORDER

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WAL-MART STORES, INC.,

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Defendant.

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This case involves plaintiff’s purchase from Wal-Mart of a car battery that purportedly

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came with a replacement and refund warranty. When the battery malfunctioned and plaintiff tried to

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return it, Wal-Mart refused to give plaintiff a replacement or refund because his name appeared on an

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internal fraud database. Because plaintiff was not warned before buying the battery that he was

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ineligible for the promised warranty and refund, he now sues Wal-Mart for violating California’s

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consumer protection laws. Plaintiff proposes bringing his claims on behalf of two classes of

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California consumers whose names also appear in Wal-Mart’s fraud database. Wal-Mart’s

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motion to dismiss one of plaintiff’s claims and to strike both proposed class allegations is before

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the court. Mot., ECF No. 31. Plaintiff opposes. ECF No. 32. Wal-Mart filed a reply. ECF No.

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33. The motion was submitted without a hearing in September 2017. ECF No. 34. As explained

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below, the court DENIES Wal-Mart’s motion.
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I.

BACKGROUND

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Plaintiff purchased his EverStart Maxx car battery (“Battery”) from a California

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Wal-Mart store in late 2013. Third Am. Compl. (“TAC”), ECF No. 27, ¶ 22. Although the

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Battery came with a three-year replacement warranty and the option of a “core deposit” refund,

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Wal-Mart refused to honor either benefit because plaintiff’s name appeared in an internal fraud

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database. Id. ¶¶ 23-25, 36-37. Plaintiff was included on this fraud list based on allegations that

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he tried to use a bad check at a Colorado Wal-Mart store in 2000, thirteen years before he bought

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the Battery. Id. ¶ 27. When plaintiff attempted to obtain his refund or replacement, a Wal-Mart

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employee told him the store’s rules barring him from obtaining refunds or warranties apply not

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just to the Battery, but to “any” Wal-Mart products plaintiff buys while his name remains on the

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fraud list. Id. ¶ 38. Wal-Mart never warned plaintiff before he bought the Battery that he was

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ineligible for advertised refunds and warranties. Id. ¶¶ 33, 39.

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Plaintiff makes four claims, alleging violations of California’s False Advertising

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Law, Unfair Competition Law, and Consumer Legal Remedies Act. Id. ¶¶ 74-119. Plaintiff

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asserts his claims on behalf of two proposed consumer classes: A “Refund Class” which consists

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of all consumers who purchased a Wal-Mart product in California and were on Wal-Mart’s

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internal fraud database, id. ¶ 59; and a narrower “Warranty Class,” which mirrors the Refund

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Class but is limited to include only those who purchased EverStart Maxx car batteries. Id. ¶ 58.

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Wal-Mart seeks to dismiss plaintiff’s third claim, an unlawful competition claim pled on behalf of

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the Refund Class, and seeks to strike both class allegations.

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II.

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MOTION TO DISMISS
A.

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Legal Standards
Wal-Mart moves to dismiss plaintiff’s unlawful competition claim as pled on

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behalf of the Refund Class, arguing (1) plaintiff has not sufficiently shown Wal-Mart’s refund

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and return policies are unfair or fraudulent, and (2) plaintiff lacks standing to represent the class.

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Mot. at 12-14.

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A party may move to dismiss for “failure to state a claim upon which relief can be

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granted.” Fed. R. Civ. P. 12(b)(6). In evaluating a motion to dismiss, the court accepts well-pled
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factual allegations as true and construes the complaint in plaintiff’s favor to assess if he is entitled

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to relief. Erickson v. Pardus, 551 U.S. 89, 93-94 (2007). Because plaintiff’s claim here contains

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a mix of allegations, some of which sound in fraud, the dismissal analysis involves two standards.

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Allegations that do not pertain to fraud need only satisfy Rule 8(a)(2), which requires “a short and

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plain statement of the claim showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2).

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Although the pleading need not include “detailed factual allegations,” Bell Atl. Corp. v. Twombly,

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550 U.S. 544, 555 (2007), “sufficient factual matter” must make the claim at least plausible.

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Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). Conclusory or formulaic recitations of elements do

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not alone suffice. Id. (citing Twombly, 550 U.S. at 555).

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For allegations sounding in fraud, however, Rule 9(b) imposes a heightened

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pleading standard that requires a party to “state with particularity the circumstances constituting

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fraud[.]” Fed. R. Civ. P. 9(b). A party alleging fraud must “set forth more than the neutral facts

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necessary to identify the transaction.” In re GlenFed, Inc. Sec. Litig., 42 F.3d 1541, 1548 (9th

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Cir. 1994), superseded by statute on other grounds. The circumstances constituting the alleged

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fraud must “be specific enough to give defendants notice of the particular misconduct . . . so that

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they can defend against the charge and not just deny that they have done anything wrong.” Bly–

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Magee v. California, 236 F.3d 1014, 1019 (9th Cir. 2001) (citation and quotation marks omitted).

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Stated differently, “[a]verments of fraud must be accompanied by ‘the who, what, when, where,

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and how’ of the misconduct charged.” Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1106 (9th

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Cir. 2003) (quoting Cooper v. Pickett, 137 F.3d 616, 627 (9th Cir. 1997)).

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As explained below, plaintiff has satisfied both Rule 8 and Rule 9.
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ANALYSIS

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1.

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To the extent plaintiff’s third claim derives from an allegedly unfair business

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Unfair Practice

practice, Rule 8(a) governs and plaintiff has pled sufficient details to withstand dismissal.
A plaintiff alleging an unfair business practice need only state “with reasonable

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particularity” the facts supporting the claim. Khoury v. Maly’s of Cal, Inc., 14 Cal. App. 4th 612,

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619 (1993). Plaintiff must, at minimum, explain how the alleged unlawful business act or
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conduct is “immoral, unethical, oppressive, unscrupulous, or substantially injurious to

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consumers.” S. Bay Chevrolet v. Gen. Motors Acceptance Corp., 72 Cal. App. 4th 861, 886-87

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(1999) (citation omitted). The applicable test asks whether “the consumer injury is substantial, is

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not outweighed by any countervailing benefits to consumers or to competition, and is not an

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injury the consumers themselves could reasonably have avoided.” Daugherty v. Am. Honda

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Motor Co., 144 Cal. App. 4th 824, 839 (2006), as modified (Nov. 8, 2006); see also Hadley v.

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Kellogg Sales Co., 243 F. Supp. 3d 1074, 1104 (N.D. Cal. 2017) (noting different test applies to

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claims brought by competitors, not consumers).

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Here, plaintiff has sufficiently made out a claim based on an unfair business

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practice. Plaintiff clearly identifies the practice at issue: Consumers listed on Wal-Mart’s fraud

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database purchase Wal-Mart products in reliance on express replacement and refund warranties

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without any warning that the policies do not apply to them, then Wal-Mart refuses to honor the

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agreements when the consumers try to return malfunctioning products within the warranty period.

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See TAC ¶¶ 23-27, 33, 37-39, 41-42. Plaintiff alleges the practice injures consumers by enticing

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them to purchase products they may otherwise reject, by falsely promising replacements or

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refunds. Id. ¶¶ 41-42, 46, 109. He alleges this practice of profiting from false promises does not

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benefit consumers, and is designed purely to benefit Wal-Mart. Id. ¶ 108. Plaintiff also explains

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that consumers cannot reasonably discover and avoid the injury because at the time of a purchase

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only Wal-Mart is privy to the information that renders its action a misstatement or omission, and

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only Wal-Mart is privy to the names included in the fraud database. Id.

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In short, plaintiff has alleged an unfair business practice “with reasonable

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particularity” sufficient to withstand dismissal. See Khoury, 14 Cal. App. 4th at 619. Whether

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the identified practice is actually unfair is a “question of fact which requires ‘consideration and

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weighing of evidence from both sides’ and which usually cannot be [decided at pleading].”

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Linear Tech. Corp. v. Applied Materials, Inc., 152 Cal. App. 4th 115, 134-35 (2007) (quoting

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McKell v. Wash. Mutual, Inc., 142 Cal. App. 4th 1457, 1472 (2006)).

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Wal-Mart’s motion to dismiss plaintiff’s unfair competition allegations from the
third claim is DENIED.
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2.

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To the extent plaintiff’s third claim derives from an allegedly fraudulent business

Fraudulent Prong

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practice, Rule 9(b)’s heightened pleading standard applies, but plaintiff nonetheless meets it. See

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Kearns v. Ford Motor Co., 567 F.3d 1120, 1125 (9th Cir. 2009) (explaining Rule 9(b) applies to

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claims brought under the “fraudulent” prong of California’s unlawful competition law).

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The test for fraud as contemplated by California Business and Professions Code

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section 17200 is whether the public is likely to be deceived. Williams v. Gerber Prod. Co., 552

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F.3d 934, 938 (9th Cir. 2008) (explaining plaintiff must ultimately show “members of the public

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are likely to be deceived”) (citations omitted). California courts “have recognized that whether a

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business practice is deceptive will usually be a question of fact not appropriate for decision [at

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pleading].” Id. (citations omitted). Although allegations of actual deception, reliance or damage

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are not required, Rule 9(b)’s particularity requirement mandates pleading “the ‘who, what, when,

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where, and how” of the alleged misstatements. Vess, 317 F.3d at 1106 (quoting Cooper, 137 F.3d

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at 627). Stated differently, the plaintiff must identify what particular statements were false or

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misleading, how they were misleading, when and where they were made, and by whom. In re

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GlenFed, 42 F.3d at 1548 n.7.

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Plaintiff has pled his fraud-based claim with sufficient particularity. He highlights

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what specific misrepresentations and omissions allegedly deceived him. He alleges he purchased

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the Battery in late 2013 in reliance on express warranties, and that his ineligibility for these

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warranties was omitted from all receipts and contracts, yet when he tried to return the defective

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in-warranty product on November 26, 2015, Wal-Mart refused to honor either agreement. TAC

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¶¶ 36-39. The misrepresentation at the time of purchase and accompanying omission enticed him

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to buy the Battery when he otherwise would not have. Id. ¶¶ 41-44. Plaintiff further alleges that

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on November 26, 2015, a Wal-Mart employee told him his ineligibility was not limited to the

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benefits associated with purchase of the Battery; in addition, Wal-Mart would not accept returns

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or offer him refunds for “any products” purchased at Wal-Mart for as long as he remained in the

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fraud database. Id. ¶ 38. This information too was deceptively omitted from all receipts or

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purchase agreements. Id. ¶ 39. Plaintiff alleges he reasonably relied on the misrepresentations as
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to the warranty and refund policies and these misrepresentations would deceive a reasonable

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consumer. Id. ¶¶ 41-44, 45, 47.

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In sum, plaintiff has pled all required elements for a fraud-based unlawful

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competition claim and has included the “who, what, when where and how” Rule 9(b) requires:

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Wal-Mart (who) misrepresented that products came with a return or refund policy (what), on its

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contracts and receipts (where), when plaintiff tried to get a Battery refund in November 2015 and

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up until now (when), and Wal-Mart denied plaintiff’s right to the promised refund or replacement

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despite these representations because he appeared in the fraud database (how). Plaintiff has thus

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included allegations “specific enough to give defendants notice of the particular misconduct . . .

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so that they can defend against the charge and not just deny that they have done anything

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wrong.” Bly–Magee, 236 F.3d at 1019 (citation and quotation marks omitted).

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Wal-Mart’s motion to dismiss plaintiff’s fraudulent-practice allegations in the third
claim is DENIED.

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3.

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Wal-Mart contends even if the third claim is sufficiently pled, the court should

Standing

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dismiss it because plaintiff lacks standing to bring claims on behalf of the Refund Class. Mot. at

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14. Specifically, Wal-Mart contends that because the proposed Refund Class includes consumers

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who bought products other than the Battery plaintiff purchased, plaintiff has not suffered an

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injury similar enough to his proposed class members to confer class standing. Id.

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The court disagrees. Plaintiff alleges a Wal-Mart employee told him that based on

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his inclusion in the fraud database, Wal-Mart would deny him a refund or the ability to return

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“any” Wal-Mart products he buys. FAC ¶ 38. Even if Wal-Mart’s return and refund policy

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varies across product lines, the injury as pled is sufficiently uniform across class members to

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confer standing: All class members were allegedly exposed to a uniform policy that no matter

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what product they buy, Wal-Mart will not honor its Warranty or Refund guarantees because their

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names are included in an internal fraud database. Plaintiff’s alleged injury is sufficiently similar

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to those of other consumers within the Refund Class to confer class standing at this early stage.

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Cf. Clancy v. The Bromley Tea Co., 308 F.R.D. 564, 571 (N.D. Cal. 2013) (declining to decide
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“at the pleading stage that a plaintiff cannot represent a class who purchased any different

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products than the plaintiff”; reserving question for class certification stage); Cardenas v. NBTY,

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Inc., 870 F. Supp. 2d 984, 992 (E.D. Cal. 2012) (determining plaintiff had standing to bring UCL

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claims based on products she did not buy; reserving class-wide analysis for certification stage).

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Wal-Mart’s motion to dismiss is DENIED in full.
III.

MOTION TO STRIKE CLASS ALLEGATIONS
A.

Legal Standard

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Wal-Mart also moves to strike plaintiff’s class allegations under Rule 12(f). Rule

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12(f), which permits a court to strike from a pleading any “redundant, immaterial, impertinent, or

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scandalous material” is designed to avoid spending time and money litigating “spurious issues”

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by dispensing with those issues early in litigation. Sidney-Vinstein v. A.H. Robins Co., 697 F.2d

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880, 885 (9th Cir. 1983) (citations omitted); see also Fed. R. Civ. P. 12(f). Motions to strike

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generally are “regarded with disfavor[.]” Cal. Dept. of Toxic Substances Control v. Alco Pac.,

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217 F. Supp. 2d 1028, 1033 (C.D. Cal. 2002) (citations omitted); see also Neveu v. City of

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Fresno, 392 F. Supp. 2d 1159, 1170 (E.D. Cal. 2005) (motions to strike “should not be granted

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unless it is clear that the matter to be stricken could have no possible bearing on the subject

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matter of the litigation.”) (citation and quotation marks omitted).

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Because the class certification stage is the more appropriate time to strike a class

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allegation, motions to strike class allegations during the pleading stage are particularly

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disfavored. Thorpe v. Abbott Labs., Inc., 534 F. Supp. 2d 1120, 1125 (N.D. Cal. 2008); Kazemi v.

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Payless Shoesource Inc., No. C 09-5142 MHP, 2010 WL 963225, *2 (N.D. Cal. Mar. 16, 2010).

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The Ninth Circuit has warned “the pleadings alone will not resolve the question of class

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certification,” and that “the better and more advisable practice for a District Court to follow is to

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afford the litigants an opportunity to present evidence as to whether a class action [is]

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maintainable.” Vinole v. Countrywide Home Loans, Inc., 571 F.3d 935, 942 (9th Cir. 2009)

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(citation and quotation marks omitted); see also Pitts v. Terrible Herbst, Inc., 653 F.3d 1081,

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1094 n.5 (9th Cir. 2011) (holding a court abuses its discretion by dismissing a class action if the

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“propriety of a class action cannot be determined . . . without discovery”) (citations and quotation

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marks omitted).

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B.

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Analysis
Plaintiff’s class allegations are well-defined enough to proceed beyond the

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pleading stage and are not so “redundant, immaterial, impertinent, or scandalous” as to warrant

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striking before class certification proceedings. Unlike the nationwide class plaintiff initially

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proposed, see First Am. Compl., ECF No. 8, ¶¶ 47-48, his current proposed classes are

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geographically restricted to California, and are further restricted to only those California

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consumers whose names appear on a list of consumers that purportedly tried to defraud Wal-

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Mart. See TAC ¶ 58 (defining Warranty Class); id. ¶ 59 (defining Refund Class). Wal-Mart’s

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contention that plaintiff’s proposed class definitions are overbroad because they include

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consumers that never relied on a warranty, never invoked one and were never denied one, are all

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premature. Wal-Mart may raise these arguments at the class certification stage. See John v.

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Mazo, No. 2:16-CV-00239-APG-PAL, 2016 WL 4497755, at *2 (D. Nev. Aug. 25, 2016)

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(deciding the same); see also Slovin v. Sunrun, Inc., No. 15-CV-05340 YGR, 2016 WL 5930631,

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at *2 (N.D. Cal. Oct. 12, 2016) (same); In re Wal–Mart Stores, Inc. Wage and Hour Litig., 505 F.

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Supp. 2d 609, 615-16 (N.D. Cal. 2007) (same; explaining motion to strike class allegations is

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premature where no motion for class certification was yet filed). At this stage, plaintiff has

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satisfactorily outlined concerns common to all class members, and discovery remains open

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several more months during which evidence can be developed that may impact class certification

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proceedings. Order, ECF No. 26 (listing discovery cut-off as November 23, 2018).

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The court DENIES Wal-Mart’s motion to strike the class allegations.

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IV.

CONCLUSION
Wal-Mart’s motion is DENIED in full. This order resolves ECF No. 31. Wal-

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Mart shall file its answer within fourteen (14) days.

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IT IS SO ORDERED.

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DATED: March 28, 2018.

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UNITED STATES DISTRICT JUDGE