Circle Click Media LLC v. Regus Management Group LLC et al

Filing 166

ORDER by Judge Samuel Conti denying #130 Motion for Leave to File Amended Complaint and for Reconsideration of a Prior Order; denying #155 Motion to file Surreply (sclc1, COURT STAFF) (Filed on 3/19/2014)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA

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CIRCLE CLICK MEDIA LLC, et al.,

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Plaintiffs,

For the Northern District of California

United States District Court

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v.

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REGUS MANAGEMENT GROUP LLC, et
al.,

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Defendants.

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Case No. 12-04000 SC
ORDER DENYING MOTION FOR
LEAVE TO FILE AN AMENDED
COMPLAINT AND FOR
RECONSIDERATION

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I.

INTRODUCTION
Now pending before the Court is Plaintiffs Circle Click Media

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LLC ("Circle Click") and CTNY Insurance Group LLC's ("CTNY")

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(collectively, "Plaintiffs") motion for leave to file a third

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amended complaint ("3AC") and for reconsideration of a prior order.

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ECF No. 130 ("Mot.").

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("Opp'n"), 152 ("Reply"), 1 and appropriate for resolution without

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oral argument per Civil Local Rule 7-1(b).

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forth below, the Motion is DENIED.

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///

The Motion is fully briefed.

ECF Nos. 139

For the reasons set

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Also pending before the Court is Defendants' administrative
motion to file a surreply brief. ECF No. 155. The motion is
DENIED as moot.

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II.

BACKGROUND

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A.

Factual Background

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As the Court has previously ruled on four motions to dismiss

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in this matter, all parties are familiar with the facts.

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Nos. 59 ("Jan. 2013 Order"), 77 ("Apr. 2013 Order"), 90 ("Aug. 2013

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Order"), 117 ("Dec. 2013 Order").

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business of renting short-term commercial office space throughout

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California and New York.

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Plaintiffs entered identical Office Service Agreements with

To review, Defendants are in the

Apr. 2013 Order at 2.

United States District Court

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For the Northern District of California

See ECF

Defendant Regus Management Group LLP ("RMG").

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In 2011,

Aug. 2013 Order at

2-3.
The Office Service Agreement is one page and merely sets forth

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the location of the office space, the monthly office fee, the term

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of the agreement, and the parties to it.

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Office Service Agreement, Plaintiffs acknowledged that they had

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"read and understood" another document called the "Terms and

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Conditions."

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only one page, but it is printed in five-point font, making it

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exceedingly difficult to read. 2

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reference another document, the "House Rules," which discloses a

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number of fees, including a mandatory, "Kitchen Amenities /

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Beverage Fee"; a "[s]tandard services" fee, including a fee "billed

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upon service activation for applicable telecom and internet

Apr. 22 Order at 3.

Id. at 3.

In signing the

The Terms and Conditions is also

Id.

The Terms and Conditions

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The Court granted Defendants' administrative motion to lodge with
the Court originals of certain documents, including the Terms and
Conditions. ECF No. 46. The purported original of the Terms and
Conditions is more legible than versions previously filed with the
Court. Plaintiffs dispute that the documents Defendants lodged
with the Court are actually originals. ECF No. 147. This dispute
has no bearing on the disposition of the instant motion for leave
to file an amended complaint. Accordingly, the Court declines to
rule on what is and is not an original document at this time.

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services"; an "Office Set Up Fee"; and a "Business Continuity Fee."

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Id.

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Price Guide, which lists the prices for a variety of services.

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The House Rules reference yet another document, the Service
Id.

The gravamen of Plaintiffs' case is that they were assessed

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for charges that were not disclosed in the one-page Office

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Agreement.

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Office Service Agreement is $2,461, but Circle Click allegedly

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received monthly invoices ranging from $2,559.67 to $6,653.79.

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Aug. 2013 Order at 3.

For example, the monthly fee listed in Circle Click's

Plaintiffs allege that Circle Click was

United States District Court

For the Northern District of California

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assessed additional charges for kitchen amenities (regardless of

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whether these amenities were used), telephone lines, telecom,

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handsets, office restoration, and business continuity services,

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among other things.

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and Conditions disclosed that additional charges would be assessed,

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and that the House Rules and the Service Price Guide disclosed what

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those charges would be.

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Conditions, House Rules, and Service Price Guide are incorporated

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by reference into the Office Agreement.

Id. at 3-4.

Defendants contend that the Terms

Defendants also contend that the Terms and

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B.

Procedural History

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Circle Click filed this putative class action in California

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state court on May 8, 2012.

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federal court in July 2012 and subsequently filed a motion to

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dismiss.

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complaint, mooting the motion.

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ECF Nos. 1, 7.

ECF No. 1.

RMG removed the action to

Plaintiffs then filed a first amended
ECF No. 24 ("1AC").

The 1AC added two new named plaintiffs: Metro Talent, LLC

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("Metro Talent") and CTNY.

It asserted claims for violation of the

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Unfair Competition Law ("UCL"), Cal. Bus. & Prof. Code § 17200 et

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seq.; the False Advertising Law ("FAL"), id. § 17500;

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concealment/suppression and intentional misrepresentation (i.e.,

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fraud); negligent misrepresentation; unjust enrichment; and

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violation of New York State General Business Law ("GBL") sections

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349 and 359.

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the Court granted in part and denied in part.

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28.

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misrepresentation claims on the ground that the additional charges

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targeted by Plaintiffs were disclosed in the relevant agreements.

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The Court granted Plaintiffs leave to amend to "specifically allege

Defendants filed a motion to dismiss the 1AC, which
Jan. 2013 Order at

The Court dismissed Plaintiffs' fraud and negligent

United States District Court

For the Northern District of California

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what was not disclosed in the agreements they signed with

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Defendants and/or what Defendants misrepresented to them about

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their monthly fees and why it was reasonable for Plaintiffs to rely

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on those misrepresentations despite the language of the

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agreements."

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and FAL claims with leave to amend.

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Id. at 22.

The Court also dismissed Plaintiffs' UCL
Id. at 28.

Plaintiffs subsequently filed a second amended complaint.

ECF

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No. 65 ("2AC").

Like the 1AC, the 2AC asserted claims for

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violations of the UCL and FAL, fraud, negligent misrepresentation,

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and unjust enrichment, though it asserted new predicate violations

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of the UCL.

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Racketeer Influenced & Corrupt Organizations Act ("RICO"), 18

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U.S.C. § 1961 et seq.

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ECF No. 69, which the Court granted in part and denied in part,

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Apr. 2013 Order.

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prejudice.

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theory that Defendants had exclusive knowledge of the fees that

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would be assessed, but judicially noticeable documents showed that

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Plaintiffs had constructive notice of these fees.

It also asserted new claims for violations of the

Defendants filed another motion to dismiss,

The Court dismissed Plaintiffs' fraud claim with

The Court reasoned that the claim was predicated on the

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Id. at 9.

The

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Court also dismissed Plaintiffs' RICO claims with prejudice, but

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left Plaintiffs' UCL and FAL claims largely undisturbed.

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Following the April 2013 Order, Defendants filed an answer

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asserting a number of counterclaims.

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2013, after the Court resolved two rounds of motions to dismiss the

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counterclaims, the parties finally moved beyond the pleading stage.

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See Aug. 2013 Order, ECF No. 101 ("Amended Countercl."), Dec. 2013

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Order.

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ECF No. 78.

In December

On November 1, 2013, Metro Talent and Defendants stipulated to

United States District Court

For the Northern District of California

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dismiss with prejudice the claims and counterclaims they had

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asserted against each other.

ECF No. 111.

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C.

Proposed Third Amended Complaint

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Plaintiffs now seek to reopen the pleadings by filing an

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amended complaint, the 3AC.

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plaintiff, Sacramento Transitions Group ("STG"), to replace Metro

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Talent.

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STG rented office space from Defendants in California.

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Mot. Ex. 1 ("3AC").

The 3AC would add a new named

Like Metro Talent and Circle Click,

The 3AC would also reassert the fraud claim the Court

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previously dismissed with prejudice.

Plaintiffs contend that new

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evidence produced through discovery warrants reconsideration of the

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dismissal of the fraud claim.

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portion of an internal RMG training document from April 2004, which

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states:

Specifically, Plaintiffs point to a

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Avoiding
objections:
By
eliminating
all
of
the
recurring costs from the [Office] Service Agreement,
we will be able to avoid any potential objections
about the overall monthly cost by those people that
have to sign-off on the deal but are removed from the
original sales process.

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3AC ¶ 31; ECF No. 131 ("Apr. 2004 Memo").

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this language shows that Defendants actively concealed the

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additional fees at the time of contract formation.

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Plaintiffs assert that

To support their fraud claim, Plaintiffs also include a new

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section in 3AC entitled "Predatory Sales Practices."

3AC ¶¶ 39-44.

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In this section, Plaintiffs allege that Defendants have promulgated

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uniform sales policies and procedures, instructing their employees

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to communicate the following to prospective clients: "[w]e work

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with a one page service agreement"; Defendants offer free domestic

United States District Court

For the Northern District of California

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phone calls and internet access; everything is included in one

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monthly bill; and common areas include a fully-equipped kitchen,

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business lounge, restrooms, and a welcoming reception.

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Plaintiffs also allege, for the first time, that Circle Click did

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not receive the House Rules or the Services Price Guide before it

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executed the Office Services Agreement with RMG.

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Id. ¶ 41.

Id. ¶ 68.

Though Plaintiffs do not mention it in their Motion, the 3AC

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also asserts a new predicate UCL violation.

Specifically, the 3AC

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asserts that Defendants violated California Business and

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Professions Code section 10130 by acting as unlicensed real estate

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agents or brokers that lease real property in exchange for fees.

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Id. ¶ 109.

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III. LEGAL STANDARD

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A.

Motion for Leave to Amend

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Federal Rule of Civil Procedure 15(a)(1) allows a plaintiff to

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amend as a matter of course in a number of circumstances, none of

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which are relevant here.

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cases, a party may amend its pleading only with the opposing

Pursuant to Rule 15(a)(2), in all other

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party's written consent or with leave of the court.

"The court

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should freely give leave when justice so requires."

Fed. R. Civ.

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P. 15(a)(2).

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In determining whether to grant leave to amend, "a court must

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be guided by the underlying purpose of Rule 15 to facilitate

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decision on the merits, rather than on the pleadings or

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technicalities."

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Cir. 1981).

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pleadings should be applied with extreme liberality."

United States v. Webb, 655 F.2d 977, 979 (9th

"Accordingly, Rule 15's policy favoring amendments to
Id.

United States District Court

For the Northern District of California

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(internal quotations omitted).

Five factors are taken into account

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to assess the propriety of a motion for leave to amend: "bad faith,

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undue delay, prejudice to the opposing party, futility of

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amendment, and whether the plaintiff has previously amended the

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complaint."

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2004).

Johnson v. Buckley, 356 F.3d 1067, 1077 (9th Cir.

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B.

Motion for Reconsideration

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Since Plaintiffs seek to reassert the fraud claim that was

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previously dismissed with prejudice, they are also moving for

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reconsideration.

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Local Rule 7-9, which requires the moving party to show: (1) a

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material difference in fact or law that was not previously known

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and could not have been discovered in the exercise of reasonable

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diligence; (2) the emergence of new material facts or a change of

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law; or (3) a manifest failure by the Court to consider material

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facts or dispositive legal arguments.

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"[A]bsent highly unusual circumstances," a motion for

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reconsideration should be denied.

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Arnold, 179 F.3d 656, 665 (9th Cir. 1999).

Motions for reconsideration are governed by Civil

Civ. L. R. 7-9(b).

389 Orange St. Partners v.

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IV.

DISCUSSION
For the purposes of the instant motion, the Court must

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determine whether to allow Plaintiffs to (1) reassert their fraud

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claim, (2) add STG as an additional named plaintiff, and (3) assert

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new predicate violations of the UCL.

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A.

Fraud

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The Court previously dismissed Plaintiffs' fraud claim with

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prejudice.

Thus, Plaintiffs cannot reassert the claim absent (1)

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newly discovered evidence, (2) an intervening change in the

United States District Court

For the Northern District of California

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controlling law, or (3) a showing that the Court's committed clear

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error in rendering its prior decision.

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first ground.

Plaintiffs move under the

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As the Court previously held, there are at least four

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circumstances in which nondisclosure may constitute actionable

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fraud: "(1) when the defendant is in a fiduciary relationship with

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the plaintiff; (2) when the defendant had exclusive knowledge of

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material facts not known to the plaintiff; (3) when the defendant

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actively conceals a material fact from the plaintiff; and (4) when

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the defendant makes partial representations but also suppresses

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some material facts."

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Opportunities Fund v. CIBC World Markets Corp., 157 Cal. App. 4th

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835, 859 (Cal. Ct. App. 2007)).

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Apr. 2013 Order at 9 (quoting OCM Principal

In the April 2013 Order, the Court dismissed the fraud claim

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pleaded in the 2AC because Plaintiffs had failed to allege that

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Defendants had exclusive knowledge of the relevant facts.

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Court reasoned that "Plaintiffs had at least constructive knowledge

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of [Defendants' allegedly illicit] fees."

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disclosed in the House Rules and the Service Price Guide.

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Id.

Id.

The

The fees were
Id. at

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9-11.

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document, they had failed to make such an allegation in their 2AC.

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Id. at 11.

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Plaintiffs acknowledged that they had "read and understood" the

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Terms and Conditions, which disclosed that the parties' agreements

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included the House Rules.

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that the House Rules expressly referenced the Service Price Guide.

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Id. at 9-11.

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While Plaintiffs argued that they had received neither

Moreover, by signing the Office Service Agreement,

Id. at 10-11.

The Court also reasoned

The new evidence offered by Plaintiffs does not change this

United States District Court

For the Northern District of California

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analysis.

The April 2004 Memo states that RMG removed references

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to additional fees from the Office Service Agreement "to avoid any

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potential objections about the overall monthly costs."

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Plaintiffs argue that this shows that Defendants suppressed or

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actively concealed a material fact.

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the Office Service Agreement no longer expressly discloses the

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additional fees, it does reference the Terms and Conditions.

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the Court has repeatedly held, this is sufficient to defeat a fraud

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claim, since the Terms and Conditions, as well as the documents it

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references, put Plaintiffs on notice that additional fees might be

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assessed.

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they turned a blind eye to information available to them.

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Moreover, the April 2004 Memo does in fact instruct sales

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representatives to discuss additional fees in certain situations:

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"If the prospect asks for additional information for additional

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services, present the Service[] [Price] Guide[,] including our

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Monthly Package pricing.

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monthly number (which typically includes office fees, phone[,] and

3AC ¶ 31.

The Court disagrees.

While

As

Plaintiffs cannot state a claim for fraud merely because

If the prospect requests an 'all-in'

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connectivity), provide them with that information."

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Apr. 2014 Mem.

at 1.

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Nor do Plaintiffs' new allegations of predatory sales

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practices warrant reconsideration of the Court's prior orders.

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These allegations are not specific enough to support a claim for

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fraud.

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uniform practice of making certain statements to prospective

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renters and that these statements give the false impression that

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renters will not be assessed additional monthly fees for services

Plaintiffs essentially allege that Defendants have a

United States District Court

For the Northern District of California

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such as internet, telephone, and kitchen amenities.

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be pleaded with particularity.

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Plaintiffs cannot merely point to a general policy and ask the

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Court to assume that the policy was implemented in a deceptive

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manner.

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when, where, and how of the misconduct charged."

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rel Cafasso v. Gen. Dynamics C4 Sys., Inc., 637 F.3d 1047, 1055

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(9th Cir. 2011).

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determine whether the challenged statements were in fact made to

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Plaintiffs, whether the statements were actually false, or whether

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Plaintiffs reasonably relied on them. 3

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above (and at length in the Court's prior Orders), Plaintiffs'

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fraud claims are barred because the documents referenced by the

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Office Service Agreement disclose the additional fees.

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But fraud must

See Fed. R. Civ. P. 9(b).

A plaintiff alleging fraud must plead "the who, what,
United States ex

Absent more specificity, the Court cannot

In any event, as discussed

In their reply brief, Plaintiffs argue that they specifically
allege "that each of the Plaintiffs saw one or more of the
advertisements that this Court has held may proceed." Reply at 9.
The Court previously found that these advertisements could support
Plaintiffs' false advertising claims under the UCL and FAL, Apr.
2013 Order at 17-21, but never opined on whether they could support
a claim for fraud. Moreover, as the Court has discussed in prior
orders, the pleading standards for fraud are higher than those for
UCL and FAL violations, especially with respect to reliance. See
id. at 11-12, 19. Plaintiffs conflate the two standards here.

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The Court also declines to reverse its prior orders because

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Plaintiffs now plead -- for the first time -- that they did not

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receive the House Rules or the Service Price Guide.

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why Plaintiffs did not plead this in their 2AC.

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Plaintiffs do not allege that Defendants actively concealed the

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House Rules or the Service Price Guide.

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expressly referenced in the Terms and Conditions, and Plaintiffs

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acknowledged that they read and understood the Terms and Conditions

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when they signed the Office Service Agreement.

It is unclear

More importantly,

The House Rules are

Plaintiffs argue

United States District Court

For the Northern District of California

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that the Terms and Conditions were not incorporated by reference

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into the Office Service Agreement merely because the Office Service

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Agreement contains a disclaimer that they read and understood the

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Terms and Conditions.

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is not whether the Terms and Conditions are enforceable, but

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whether Plaintiffs can state a claim for fraud.

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concludes that they cannot.

Reply at 9.

But the pertinent question here

The Court

Accordingly, the Court declines to allow Plaintiffs to

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reassert their fraud claim.

Whether or not the conduct discussed

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above constitutes unfair competition actionable under the UCL is a

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separate question that the Court has addressed in prior orders.

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B.

STG

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Defendants argue that Plaintiffs' request to add STG as a new

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putative class representative can only serve to delay this action.

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Opp'n at 15.

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executed an Office Agreement for a RMG location in California and

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who paid one or more of the allegedly unauthorized changes.

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91.

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putative class is already represented by Circle Click.

STG would bring claims on behalf of all persons who

3AC ¶

Defendants contend that adding STG is unnecessary since the

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Opp'n at

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15.

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Metro Talent, which recently settled with Defendants.

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Plaintiffs respond that they should be permitted to replace

The Court agrees with Defendants.

Adding STG as a new

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plaintiff might have been warranted had both Metro Talent and

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Circle Click chosen to withdraw from this litigation.

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Click remains in the case, and there is no indication that it is

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unable to adequately represent the interests of the putative class,

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including STG.

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Plaintiffs' claims or the relief to which the class is entitled.

But Circle

Thus, at this point, adding STG would not alter

United States District Court

For the Northern District of California

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However, it would further delay this litigation, which has been

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pending for almost two years now.

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the interests of the putative class.

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Such a delay would not advance

Accordingly, the Court declines to allow Plaintiffs to add a

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new class representative at this time.

The Court may revisit this

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issue if Circle Click settles, its claim is mooted, or if the Court

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finds that it has engaged in conduct inconsistent with the

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interests of the class.

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C.

UCL

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Finally, the 3AC would add a new UCL claim.

The UCL

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prohibits, among other things, "unlawful practices."

Cal. Bus. &

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Prof. Code § 17200.

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other laws, when committed pursuant to business activity, are

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independently actionable under the UCL.

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Super. Ct., 2 Cal. 4th 377, 383 (Cal. 1992).

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already asserting a predicate violation of California Public

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Utilities Code section 2890.

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predicate violation of California Business and Professions Code

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section 10130.

Under this prong of the UCL, violations of

Farmers Ins. Exch. v.
Plaintiffs are

In the 3AC, they assert a new

3AC ¶ 109.

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Section 10130 provides that "[i]t is unlawful for any person

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to engage in the business of, act in the capacity of, advertise as,

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or assume to act as a real estate broker or a real estate

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salesperson within this state without first obtaining a real estate

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license . . . ."

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Professions Code defines the term "real estate broker" to mean one

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who "[l]eases or rents or offers to lease or rent, or places for

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rent, or solicits listings of places for rent, or solicits for

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prospective tenants . . . ."

Cal. Bus & Prof. Code § 10130.

Id. § 10131(b).

The Business and

Section 10131.01

United States District Court

For the Northern District of California

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exempts from these restrictions: (1) the manager of a hotel [or]

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motel, or (2) any person or entity . . . who . . . solicits or

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arranges, or accepts reservations or money, or both, for transient

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occupancies described in [California Civil Code § 1940(b)(1)-(2)]."

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Id. § 10131.01.

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transient occupancies in a hotel, motel, residence club, or other

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facility that is subject to certain taxes, as well as occupancies

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at a hotel or motel where the innkeeper retains a right of access.

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Cal. Civ. Code § 1940(b).

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Section 1940(b) describes such occupancies as

Defendants argue that Plaintiffs fail to explain why this

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alleged violation was not raised in any of the prior three

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iterations of the complaint.

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exempt from section 10130 because the Terms and Conditions

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expressly provides that the agreement "is the commercial equivalent

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of an agreement for accommodation(s) in a hotel" and that "the

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client accepts that this agreement creates no tenancy interest,

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leasehold estate or other real property interest in the client's

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favour with respect to the accommodations."

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ECF No. 32 Ex. B).

Next, Defendants argue that they are

Opp'n at 19-20 (citing

Defendants further argue that Plaintiffs lack

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standing to bring a UCL claim predicated on a violation of section

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10130 because Plaintiffs have failed to allege how the use of a

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licensed real estate broker would have prevented the harm they

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suffered as a result of the allegedly unauthorized charges.

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20.

Id. at

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Plaintiffs respond that they only recently learned of the

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violation through documents produced by Defendants, Reply at 14-15,

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though it appears that Plaintiffs should have been able to

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determine whether Defendants were acting as realtors long before

United States District Court

For the Northern District of California

10

these documents were produced.

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Defendants are not exempt from section 10130, reasoning that the

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section 10131.01 exemption is limited to hotels and transient

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occupancies of dwelling units and that the Court previously held

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that Defendants' services were different than those provided by

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hotels and motels.

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Finally, Plaintiffs argue that there is a sufficient nexus between

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the alleged violation of section 10130 and the alleged harm because

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"[t]he purpose of the licensing requirement is to protect the

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public from the perils incident to dealing with incompetent or

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untrustworthy real estate practitioners."

21

Capital, LLC v. Bingo Investments, LLC, 185 Cal. App. 4th 731, 736

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(Cal. Ct. App. 2010)).

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Plaintiffs further argue that

Id. at 15 (citing April 2013 Order at 15).

Id. (quoting GreenLake

The Court agrees with Defendants, at least with respect to

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their argument concerning standing.

The UCL only provides a

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private right of action for persons who have "suffered injury in

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fact and ha[ve] lost money or property as a result of the unfair

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competition."

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action is based on an unlawful business practice, "there must be a

Cal. Bus. & Prof. Code § 17204.

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Thus, where a UCL

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causal connection between the harm suffered and the unlawful

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business activity."

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1099 (Cal. Ct. App. 2007).

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a complaining party would suffer the same harm whether or not a

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defendant complied with the law."

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have failed to establish a direct causal connection between the

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alleged harm -- the assessment of additional, undisclosed fees --

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and the alleged statutory violation -- failure to obtain a

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realtor's license.

Daro v. Super. Ct., 151 Cal. App. 4th 1079,
"That causal connection is broken when

Id.

In this case, Plaintiffs

While section 10130 may have been enacted to

United States District Court

For the Northern District of California

10

protect the public against unscrupulous real estate practitioners,

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it does not directly address the deceptive conduct alleged here.

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Whether or not Defendants were required to obtain a license has no

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bearing on whether their practice of assessing additional fees was

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unfair or unlawful.
Accordingly, the Court finds that the proposed amendment

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regarding section 10130 is futile and, therefore, denies Plaintiffs

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leave to make such an amendment.

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V.

CONCLUSION
For the foregoing reasons, Plaintiffs motion for leave to file

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a third amended complaint and for reconsideration of a prior order

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is DENIED.

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IT IS SO ORDERED.

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March 19, 2014
UNITED STATES DISTRICT JUDGE

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