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

Filing 90

ORDER by Judge Samuel Conti granting in part and denying in part #81 Motion to Dismiss for Lack of Jurisdiction; granting in part and denying in part #82 Motion to Dismiss (sclc1, COURT STAFF) (Filed on 8/13/2013)

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

Doc. 90

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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA

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For the Northern District of California

United States District Court

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CIRCLE CLICK MEDIA LLC, METRO
TALENT, LLC, CTNY INSURANCE GROUP
LLC, on behalf of themselves and
all others similarly situated,

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Plaintiffs,
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v.
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REGUS MANAGEMENT GROUP LLC, REGUS )
BUSINESS CENTRE LLC, REGUS PLC, HQ )
GLOBAL WORKPLACES LLC, and DOES 1 )
through 50,
)
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Defendants.
)
)

Case No. 12-04000 SC
ORDER RE: RULE 12(b)(1),
12(b)(6), AND 12(f) MOTIONS
TO DISMISS COUNTERCLAIMS

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I.

INTRODUCTION

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Plaintiffs Circle Click Media LLC ("Circle Click"), Metro

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Talent, LLC ("Metro Talent"), and CTNY Insurance Group LLC ("CTNY")

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(collectively, "Plaintiffs") bring this putative class action

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against Regus Management Group LLC ("RMG"), Regus Business Centre

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LLC, Regus plc, and HQ Global Workplaces LLC (collectively

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"Defendants").

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answer, RMG asserts counterclaims against each of the named

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Plaintiffs, as well as against members of the absent class.

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No. 78 ("Answer") at 17-26 ("Countercl.").

Plaintiffs have filed

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two motions to dismiss the counterclaims.

The first motion, which

Defendants filed an answer, and, as part of that

ECF

Dockets.Justia.com

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is brought under Federal Rule of Civil Procedure 12(b)(1), asserts

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that the Court lacks subject matter jurisdiction.

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("12(b)(1) MTD").1

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12(b)(6) and 12(f), asserts that the counterclaims should be

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dismissed for failure to state a claim and struck because they are

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redundant.

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fully briefed.

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Opp'n"), 87 ("12(b)(1) Reply"), 88 ("12(b)(6)/12(f) Reply").

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Civil Local Rule 7-1(b), the matters are appropriate for

ECF No. 81

The second motion, which is brought under Rules

ECF No. 82 ("12(b)(6)/12(f) Mot.").

All motions are

ECF Nos. 84 ("12(b)(1) Opp'n"), 85 ("12(b)(6)/12(f)
Per

United States District Court

For the Northern District of California

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determination without oral argument.

For the reasons set forth

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below, the motion to dismiss for lack of subject matter

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jurisdiction is GRANTED in part and DENIED in part, the motion to

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dismiss for failure to state a claim is GRANTED, and the motion to

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strike is DENIED.

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II.

BACKGROUND
RMG is in the business of leasing commercial office space

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throughout California and New York.

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advertisements, RMG represents that it provides customers with

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fully equipped offices for one low monthly price.

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("Apr. 22 Order") at 3-4.

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services are "simple, easy, and flexible," and that its one-page

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contract -- the Office Service Agreement -- "takes just 10 minutes

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to complete."

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Through its

ECF No. 77

RMG has also represented that its

Id. at 4.

Each of the named Plaintiffs in this action executed an Office

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Countercl. ¶ 1.

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Plaintiffs state that they are moving under Rule 12(b)(2), which
pertains to personal jurisdiction, but they argue that the court
lacks subject matter jurisdiction, a matter governed by Rule
12(b)(1). The Court disregards the label, and treats Plaintiffs'
motion as a Rule 12(b)(1) motion for lack of subject matter
jurisdiction.

2

1

Service Agreement with RMG.

Countercl. ¶ 1.

The Office Service

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Agreement is in fact one page, and it merely identifies the

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

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the agreement, and the parties to it.

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Office Service Agreement incorporates by reference another document

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called the "Terms and Conditions."

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and Conditions is also only one page, but it is printed in five-

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point font, which is almost illegible.

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Conditions reference another document, the "House Rules," which

Apr. 22 Order at 2.

Apr. 22 Order at 3.

Id.

The

The Terms

The Terms and

United States District Court

For the Northern District of California

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discloses a number of fees, including a mandatory, "Kitchen

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

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fee "billed upon service activation for applicable telecom and

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internet services"; an "Office Set Up Fee"; and a "Business

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Continuity Fee."

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document, the Service Price Guide, which lists the prices for a

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variety of services.

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Id.

The House Rules reference yet another

Id.

In July 2012, Plaintiffs filed this action against Defendants

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in California state court.

ECF No. 1.

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removed, and several rounds of pleading followed.

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Plaintiffs' Second Amended Complaint ("2AC"), Plaintiffs' operative

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pleading, is that RMG and the other Defendants routinely assessed

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Plaintiffs for charges that were not disclosed in the Office

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Service Agreement.

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fee listed in Circle Click's Office Service Agreement is $2,461,

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but Circle Click allegedly received monthly invoices ranging from

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$2,559.67 to $6,653.79.

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Click was assessed charges for kitchen amenities (regardless of

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whether these amenities were used), telephone lines, telecom

ECF No. 65 ("2AC").

Id. ¶ 49.

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The action was subsequently
The gravamen of

For example, the monthly

Plaintiffs allege that Circle

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handsets, office restoration, and business continuity services,

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among other things.

Id. ¶ 52.

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In their 2AC, Plaintiffs seek to represent a class of all

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persons who paid for Defendants' office space in California and New

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York and were assessed charges by Defendants over the monthly

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payments indicated in the Office Service Agreement or any similar

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agreement.

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violation of California's Unfair Competition Law ("UCL"), Cal. Bus.

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& Prof. Code § 17200, et seq.; violation of California's False

Plaintiffs assert the following causes of action:

United States District Court

For the Northern District of California

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Advertising Law ("FAL"), id. § 17509; intentional

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misrepresentation; unjust enrichment; and violations of the

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

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U.S.C. § 1961, et seq.

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Defendants previously moved to dismiss the 2AC, and that

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motion was granted in part and denied in part on April 22, 2013.

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The Court dismissed Plaintiffs' claim for intentional

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misrepresentation with prejudice, reasoning that Plaintiffs could

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not plausibly claim that Defendants had exclusive knowledge of

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various fees when those fees were disclosed in the documents

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referenced in the parties' agreements.

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Plaintiffs' RICO claim was dismissed because Plaintiffs could not

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state a claim for intentional misrepresentation.

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Plaintiffs' other causes of action remained largely undisturbed.

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Id. at 23-24.

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Apr. 22 Order at 11.

Id. at 16-17.

Defendants subsequently filed an Answer, in which RMG asserted

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several counterclaims.

The "Counterclaim-Defendants" identified in

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the Answer are Circle Click, Metro Talent, CTNY, and "Unnamed

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Counterclaim-Defendants."

Countercl. ¶¶ 11-14.

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The Unnamed

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Counterclaim-Defendants are essentially the absent members of the

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classes proposed by Plaintiffs.

See id. ¶ 14.

RMG asserts counterclaims for breach of contract against

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Circle Click and CTNY.

RMG also asserts three "alternative"

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counterclaims against "all Counterclaim-Defendants": (1) breach of

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contract, (2) quantum meruit, and (3) unjust enrichment.2

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Countercl. ¶¶ 21-49.

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bones.

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required payments under the Office Service Agreement.

The facts alleged in Counterclaim are bare

RMG alleges that Circle Click and CTNY failed to make
Id. ¶¶ 21-

United States District Court

For the Northern District of California

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32.

Specifically, RMG alleges that Circle Click failed to pay

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$1,047 in business continuity fees and that CTNY failed to pay

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$13,640.38 in monthly payments and "applicable taxes and fees."

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Id. ¶¶ 26, 32.

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regarding wrongdoing on the part of Metro Talent or the absent

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class members.

The counterclaim contains no factual allegations

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III. DISCUSSION

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A.

Plaintiffs' Rule 12(b)(1) Motion to Dismiss

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The thrust of Plaintiffs' Rule 12(b)(1) motion is that RMG

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cannot state a claim against the absent class members since they

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are not opposing parties for the purposes of Rule 13.

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further argue that the court lacks subject matter jurisdiction over

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the counterclaims without the absent class members, since with

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respect to the individual Plaintiffs, Defendant has alleged an

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amount in controversy of only $14,687.38, well below the $75,000

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jurisdictional minimum.

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2

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Plaintiffs

RMG misnumbered its alternative counterclaims. For the sake of
clarity, the Court refers to RMG's alternative counterclaims for
breach of contract, quantum meruit, and unjust enrichment as the
first, second, and third alternative counterclaims, respectively.

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1.

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2

RMG's Counterclaims against the Absent Class Members

Rule 13 allows a defendant to assert a compulsory or

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permissive counterclaim against an "opposing party."

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P. 13(a)-(b).

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not opposing parties within the meaning of Rule 13 since they are

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not named parties.

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members who join this action should be prepared to accept the legal

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consequences and risks of litigation, and that RMG should be able

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to strike back against any party that sues it.

United States District Court

For the Northern District of California

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Fed. R. Civ.

Plaintiffs argue that the absent class members are

Mot. at 3.

RMG disagrees, arguing that class

Opp'n at 2.

RMG primarily relies on a 1977 decision out of the Southern

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District of New York, National Super Spuds, Inc. v. New York

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Mercantile Exchange, 75 F.R.D. 40 (S.D.N.Y. 1977).

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The plaintiffs in that case sought to represent a class of persons

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who held net long positions on potato futures contracts.

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Super Spuds, 75 F.R.D. at 41.

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concert with a number of brokers, manipulated the trading price of

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the futures contracts.

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asserted a counterclaim, alleging that various members of the class

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engaged in a counter-conspiracy to squeeze the futures market.

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Some of the counter-defendants were identified by name, while

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others were not.

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Id. at 2-4.

Nat'l

They alleged that short sellers, in

Id. at 42.

One of the broker defendants

Id.

Id.

The court held that certain absent class members were opposing

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parties within the meaning of Rule 13 "within the context of th[e]

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case."

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consolidation of any or all common issues related to the case, as

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well as orders to avoid unnecessary cost or delay.

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court found that "this is a particularly apt case for exercising

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. . . discretion under Rule 42 to consolidate . . . the various

Id.

The court reasoned that Rule 42 authorized the

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Id. at 44.

The

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issues," since, if the counterclaims were dismissed and asserted

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again in a related action, the related claims would be reassigned

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to the court under the local rules.

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some of the issues raised by the counterclaims could be raised as

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affirmative defenses.

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Id.

The court also noted that

Id.

The decision in National Super Spuds is not binding on this

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court.

In any event, the case is distinguishable.

The

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counterclaim in National Super Spuds targeted particular

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individuals who were allegedly engaged in a common conspiracy to

United States District Court

For the Northern District of California

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manipulate prices.

The breach of contract, quantum meruit, and

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unjust enrichment counterclaims in the instant action target the

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entire class, and there is no indication that these counterclaims

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raise common issues of fact or law.

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Super Spuds, taking up RMG's counterclaims against the class makes

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little sense from a case management perspective.

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essentially have the Court assume jurisdiction over any number of

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distinct breach of contract claims that would otherwise be resolved

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in state court.

Further, unlike in National

Defendants would

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The other cases cited by RMG -- which were also decided

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decades ago by out-of-circuit courts -- are equally unpersuasive.

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In Wolfson v. Artisans Savings Bank, plaintiffs asserted antitrust

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claims against banks that required escrow accounts for the payment

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of taxes and insurance in connection with mortgages, but then

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failed to pay interest on the escrowed funds.

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(D. Del. 1979).

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counterclaim against the absent class members for expenses incurred

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in maintaining the escrow accounts, reasoning that the counterclaim

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bore a "logical relationship" to the plaintiffs' claim.

83 F.R.D. 552, 554

The court allowed the defendants to assert a

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Id.

But

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the Court dismissed the defendants' counterclaim for unjust

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enrichment, reasoning that "it concern[ed] individual and distinct

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loan transactions as to which no agreement or parallel conduct is

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claimed and would require examination of payments collected and

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disbursed in the individual escrow accounts of individual class

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members against whom this claim is asserted."

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counterclaims for breach of contract, quauntum meruit, and unjust

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enrichment resemble the unjust enrichment counterclaim that was

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dismissed in Wolfson, not the counterclaim for expenses incurred.

United States District Court

For the Northern District of California

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Id. at 555.

RMG's

Herrmann v. Atlantic Richfield Co., 72 F.R.D. 182 (W.D. Pa.

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1976) also does not help RMG.

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defendant sought leave to assert two types of counterclaims: (1)

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debt collection claims that sought affirmative judgment against

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certain individual class members, and (2) set-offs against various

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class members for "outstanding balances of previously-filed

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unsatisfied judgments against individual members of the plaintiff

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class."

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the latter to proceed.

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the set-off claims at issue in Hermann.

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to previously filed unsatisfied judgments.

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expect the Court to render independent judgments with respect to

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each individual class member.

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counterclaims are distinct from its affirmative defense of set-off

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because the counterclaims seek damages and other affirmative

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relief.

Id. at 185-86.

In that antitrust action, the

The court dismissed the former but allowed
Id.

None of RMG's counterclaims resemble
RMG has made no reference
Rather, RMG appears to

Further, RMG represents that its

See 12(b)(6)/12(f) Opp'n at 11.

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In sum, the case law cited by RMG does not support the

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contention that RMG may assert counterclaims against the absent

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class members in this context.

Even if it does, Plaintiffs have

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cited contrary authority that is more persuasive and more recent,

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including Allapattah Services., Inc. v. Exxon Corp., 333 F.3d 1248

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(11th Cir. 2003).

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action defendant had a right to assert set-off claims against class

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members, even though it had not asserted those set-off claims in

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its answer.

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13 normally requires a party to assert a counterclaim in its

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pleadings, "Rule 13 . . . is inapplicable in class action suits,

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because absent class members are not opposing or litigating

In that case, the Court found that a class

Id. at 1259.

The Court explained that, although Rule

United States District Court

For the Northern District of California

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adversaries for purposes of Rule 13."

Id. at 1259 n.14 (quotations

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omitted).

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not opposing parties within the meaning of the rule, it follows

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that any counterclaims that may be permitted in a class action are

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not governed by Rule 13 and are purely discretionary with the

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court."

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Class Actions § 4:34, at 299–300 (4th ed.2002)).

The court further stated: "[I]f absent class members are

Id. (quoting 2 Alba Conte & Herbert B. Newberg, Newberg on

This Court reached a similar conclusion in Roberts v. Heim, C

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84-8069 TEH, 1994 WL 675261 (N.D. Cal. Sept. 16, 1994).

Roberts

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involved a class action for securities fraud.

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defendant sought to assert breach of contract counterclaims against

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the limited partners of various partnerships involved in the case.

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Id.

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qualify as parties to the litigation within the meaning of Rule 13.

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Id.

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supported this conclusion, since the absent class members had not

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been provided with notice that failure to opt out of the class

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would render them vulnerable to counterclaims, waiving any personal

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jurisdiction objections they might have.

Id. at *1.

The

The court held that such absent class members could not

The court also found that policy and due process concerns

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Id.

RMG argues that

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there is still time to provide notice to the absent class members

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here.

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the court's decision was not based solely on concerns about notice

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and opt-out opportunities.

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However, the language of the Roberts opinion suggests that

See id.

The Court's conclusion is further supported by the Supreme

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Court's decision in Phillips Petroleum Co. v. Shutts, 472 U.S. 797

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(1985), which post-dates all of RMG's authority.

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plaintiffs, who owned the rights to natural gas leases, brought a

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class action against a natural gas producer seeking to recover

In that case, the

United States District Court

For the Northern District of California

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interest on delayed royalty payments.

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and the class prevailed in Kansas state court.

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defendant contended that the state court erred in exerting

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jurisdiction over the class claims without first obtaining the

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class members' express consent, and that class members' failure to

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execute and return a request for exclusion could not constitute

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consent.

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process concerns prevented Kansas from exerting jurisdiction over

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the claims of the out-of-state class members unless those class

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members had sufficient minimum contacts with Kansas.

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Id. at 806.

Id. at 799.

The plaintiffs

On appeal, the

The defendant essentially argued that due

Id. at 808.

The Supreme Court disagreed, finding that the burdens placed

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on an out-of-state defendant are "not of the same order or

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magnitude" as those placed on an absent, out-of-state class member:

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An out-of-state defendant summoned by a plaintiff is
faced with the full powers of the forum State to
render judgment against it.
The defendant must
generally hire counsel and travel to the forum to
defend itself from the plaintiff's claim, or suffer a
default judgment. The defendant may be forced to
participate in extended and often costly discovery,
and will be forced to respond in damages or to comply
with some other form of remedy imposed by the court
should it lose the suit.

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2
3
4
5
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Id.

On the other hand:
Absent plaintiff class members are not subject to
other burdens imposed upon defendants. They need not
hire counsel or appear. They are almost never subject
to counterclaims or cross-claims, or liability for
fees or costs. Absent plaintiff class members are not
subject to coercive or punitive remedies. Nor will an
adverse judgment typically bind an absent plaintiff
for any damages, although a valid adverse judgment may
extinguish any of the plaintiff's claims which were
litigated.

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Id. at 810.

Thus, Shutts suggests that courts should have

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reservations about allowing defendants to assert counterclaims

United States District Court

For the Northern District of California

10

against absent class members, especially counterclaims which may

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bind absents plaintiffs for damages.

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Accordingly, RMG's counterclaims for breach of contract,

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quantum meruit, and unjust enrichment are DISMISSED with respect to

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the absent class members.

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2.

RMG's Counterclaims against the Named Plaintiffs

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Plaintiffs argue that, without the counterclaims against the

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absent class members, the Court lacks subject matter jurisdiction

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over RMG's counterclaims against the named plaintiffs.

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RMG alleges two bases for subject matter jurisdiction: diversity

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jurisdiction under 28 U.S.C. § 1332(a), and the Class Action

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Fairness Act ("CAFA"), 28 U.S.C. § 1453.

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Plaintiffs point out, under § 1332(a), the Court can only exercise

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diversity jurisdiction where the amount in controversy is more than

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$75,000, and RMG has only alleged $14,687.38 in damages with

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respect to the individual Plaintiffs.

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also argue that class action counterclaims are not the types of

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claims over which CAFA may confer subject matter jurisdiction.

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Mot. at 4 (citing Progressive W. Ins. Co. v. Preciado, 479 F.3d

11

Mot. at 4.

Countercl. ¶ 8.

Id. ¶¶ 26, 32.

As

Plaintiffs

1

1014, 1018 (9th Cir. 2007)).
In its opposition brief, RMG does not dispute that the Court

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3

may not exercise diversity or CAFA jurisdiction without the

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counterclaims against the absent class members.

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for the first time, that the court should exercise supplemental

6

jurisdiction pursuant to 28 U.S.C. § 1367(a).

7

Plaintiff responds that the Court should not consider exercising

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supplemental jurisdiction because RMG failed to plead it.

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6.

Instead it argues,

Opp'n at 6.

Reply at

Plaintiffs also argue that the exercise of supplemental

United States District Court

For the Northern District of California

10

jurisdiction is inappropriate since RMG's counterclaims are not

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compulsory, and discretionary supplemental jurisdiction should not

12

be exercised over RMG's permissive counterclaims.
Plaintiffs' argument that the Court must refuse to consider a

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14

basis for subject matter jurisdiction that is not expressly alleged

15

in the complaint is unavailing.

16

Civil Procedure 8(a)(1) requires that a pleading contain "a short

17

and plain statement of the grounds for the court's jurisdiction,"

18

and that the party invoking federal jurisdiction bears the burden

19

of establishing jurisdiction.

20

U.S. 555, 561 (1992).

21

dismiss for lack of jurisdiction, the court is not limited to the

22

allegations of the complaint.

23

Elections & Ethics, 104 F. Supp. 2d 18, 22 (D.D.C. 2000).

24

Accordingly, if the facts of the case, as pled, clearly bring this

25

case within the court's jurisdiction, a failure to expressly allege

26

a basis for jurisdiction is not necessarily fatal.3

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3

28

It is true that Federal Rule of

Lujan v. Defenders of Wildlife, 504

However, when considering a motion to

Scolaro v. Dist. of Columbia Bd. of

Moreover, dismissing the counterclaim for failure to expressly
allege a basis for subject matter jurisdiction would merely delay
determination of an issue that is presently suitable for
determination. The Court would need to dismiss with leave to

12

1

Turning to the merits of the parties' jurisdictional

2

arguments, 28 U.S.C. § 1367(a) provides for supplemental

3

jurisdiction over state law claims "that are so related to claims

4

in the action within [the district court's] original jurisdiction

5

that they form part of the same case or controversy under Article

6

III of the United States Constitution."

7

claims brought by a plaintiff, as well as counterclaims brought by

8

a defendant.

9

defines two types of counterclaims, compulsory and permissive.

United States District Court

For the Northern District of California

10

Section 1367 applies to

As noted above, Federal Rule of Civil Procedure 13

Compulsory counterclaims are those that "arise[] out of the

11

transaction or occurrence that is the subject matter of the

12

opposing party's claim."

13

courts apply a liberal "logical relationship" test to determine

14

whether two claims arise out of the same transaction or occurrence.

15

Pochiro v. Prudential Ins. Co. of Am., 827 F.2d 1246, 1249 (9th

16

Cir. 1987).

17

to analyze whether the essential facts of the various claims are so

18

logically connected that considerations of judicial economy and

19

fairness dictate that all the issues be resolved in one lawsuit."

20

Id. (quotations omitted).

21

courts have supplemental jurisdiction over compulsory

22

counterclaims, since a plaintiff would otherwise lose his

23

opportunity to be heard on that claim."

24

Credit, 385 F. Supp. 2d 1063, 1066 (E.D. Cal. 2005).

25
26

Fed. R. Civ. P. 13(a)(1)(A).

Federal

"This flexible approach to Rule 13 problems attempts

"The traditional rule is that federal

Sparrow v. Mazda Am.

Permissive counterclaims are those that are not compulsory,
i.e., those that do not arise out of the transaction or occurrence

27
28

amend. Thus, RMG could amend its counterclaim to expressly allege
supplemental jurisdiction, and Plaintiffs could file yet another
motion to dismiss for lack of subject matter jurisdiction.

13

1

that is the subject matter of the opposing party's claim.

Fed. R.

2

Civ. P. 13(b).

3

permissive counterclaims so long as they "arise out of facts that

4

bear some relationship to the facts from which the federal claim

5

arises so that the state claim and the federal claim are considered

6

part of the same constitutional 'case.'"

7

at 1067.

8

counterclaim, a district court may decline to exercise jurisdiction

9

where:

Courts may exercise supplemental jurisdiction over

Sparrow, 385 F. Supp. 2d

However, even if supplemental jurisdiction exists over a

United States District Court

For the Northern District of California

10
(1) the claim raises a novel or complex issue of State
law,

11
12

(2) the claim substantially predominates over
claim or claims over which the district court
original jurisdiction,

13
14

the
has

(3) the district court has dismissed all claims over
which it has original jurisdiction, or

15
(4) in exceptional circumstances, there are
compelling reasons for declining jurisdiction.

16

other

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18

28 U.S.C. § 1367(c).
Where plaintiffs have brought claims under the Fair Debt

19
20

Collection Practices Act ("FDCPA"), other courts in this circuit

21

have found that counterclaims for underlying consumer debts are

22

permissive.

23

28773, at *4 (S.D. Cal. Jan. 2, 2013); Sparrow, 385 F. Supp. 2d at

24

1069.

25

supplemental jurisdiction exists under § 1367(a), but have

26

exercised their discretion to decline jurisdiction pursuant to §

27

1367(c).

28

Robles, the court reasoned that "exercising supplemental

See Robles v. Ally Bank, 12CV01013 AJB MDD, 2013 WL

Some of these courts have found that the potential for

See Robles, 2013 WL 28773, at *4-5.

14

For example, in

1

jurisdiction over counterclaims brought by debt collector

2

defendants, based on the underlying debt, might have a chilling

3

effect on plaintiffs who otherwise might and should bring suits

4

under the FDCPA."

5

Defendants' counterclaims involved questions of "no federal

6

significance," adjudicating those counterclaims would "increase

7

both the complexity and length of time necessary to resolve

8

Plaintiffs' FDCPA claim, and declining jurisdiction did not raise

9

the risk of inconsistent judgments.

United States District Court

The court also found that

Id. at *5.

The Court finds that RMG's counterclaims bear at least some

10
For the Northern District of California

Id. at *5.

11

relationship to the facts from which Plaintiffs' claims arise.

12

Both Plaintiffs' claims and RMG's counterclaims implicate the

13

Office Service Agreement.

14

assessed fees that were not disclosed in the Office Service

15

Agreement, and RMG alleges that the named Plaintiffs breached the

16

agreement by failing to pay some of the fees that Plaintiffs claim

17

were not disclosed.

18

exercise jurisdiction pursuant to § 1367(c) would be inappropriate.

19

RMG's counterclaims do not raise novel or complex issues of state

20

law.

21

Plaintiffs' claims.

22

in Robles are not present here, primarily because both Plaintiffs'

23

claims and RMG's counterclaims implicate whether RMG can lawfully

24

assess certain incidental fees.

25

issue in Robles did not implicate the underlying debt.

26

Plaintiffs allege that RMG unlawfully

The Court also finds that declining to

Nor do the counterclaims substantially predominate over
Moreover, the exceptional circumstances cited

In contrast, the FDCPA claims at

For these reasons, the Court declines to dismiss RMG's

27

counterclaims against the named Plaintiffs for lack of subject

28

matter jurisdiction.

15

1

B.

Plaintiffs' Rule 12(b)(6) Motion to Dismiss and Rule
12(f) Motion to Strike

2
3

As the Court chooses to exercise jurisdiction over RMG's

4

counterclaims against the named Plaintiffs, it now turns to

5

Plaintiffs' Rule 12(b)(6) motion to dismiss and Rule 12(f) motion

6

to strike.

7

respect to the absent class members, since it has already dismissed

8

RMG's counterclaims against the class because they are not opposing

9

parties for the purposes of Rule 13.
1.

United States District Court

For the Northern District of California

10
11

The Court does not address Plaintiffs' arguments with

See Section III.A.1 supra.

Legal Standard

A Rule 12(b)(6) motion to dismiss "tests the legal sufficiency

12

of a claim."

Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001).

13

"Dismissal can be based on the lack of a cognizable legal theory or

14

the absence of sufficient facts alleged under a cognizable legal

15

theory."

16

(9th Cir. 1988).

17

a court should assume their veracity and then determine whether

18

they plausibly give rise to an entitlement to relief."

19

Iqbal, 556 U.S. 662, 664 (2009).

20

must accept as true all of the allegations contained in a complaint

21

is inapplicable to legal conclusions.

22

elements of a cause of action, supported by mere conclusory

23

statements, do not suffice."

24

Twombly, 550 U.S. 544, 555 (2007)).

25

complaint must be both "sufficiently detailed to give fair notice

26

to the opposing party of the nature of the claim so that the party

27

may effectively defend against it" and "sufficiently plausible"

28

such that "it is not unfair to require the opposing party to be

Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699
"When there are well-pleaded factual allegations,

Ashcroft v.

However, "the tenet that a court

Threadbare recitals of the

Id. at 663 (citing Bell Atl. Corp. v.

16

The allegations made in a

1

subjected to the expense of discovery."

2

1191, 1204 (9th Cir. 2011).

3

Starr v. Baca, 633 F.3d

Federal Rule of Civil Procedure 12(f) provides that a court

4

may, on its own or on a motion, "strike from a pleading an

5

insufficient defense or any redundant, immaterial, impertinent, or

6

scandalous matter."

7

because they are often used as delaying tactics and because of the

8

limited importance of pleadings in federal practice."

Rosales v.

9

Citibank, 133 F. Supp.2d 1177, 1180 (N.D. Cal. 2001).

In most

Motions to strike "are generally disfavored

United States District Court

For the Northern District of California

10

cases, a motion to strike should not be granted unless "the matter

11

to be stricken clearly could have no possible bearing on the

12

subject of the litigation."

13

352 F. Supp. 2d 1048, 1057 (N.D. Cal. 2004).
2.

14

Breach of Contract Counterclaims against Circle
Click and CTNY

15
16

Platte Anchor Bolt, Inc. v. IHI, Inc.,

RMG asserts breach of contract counterclaims against Circle

17

Click and CTNY.

18

$1,047.00 business continuity services fee pursuant to Paragraph

19

1.7 of the Terms and Conditions and Paragraph 38 of the House

20

Rules.

21

breached the terms of its agreement by "by failing to make its

22

monthly payments plus applicable taxes and fees for services, such

23

as for kitchen amenities, internet activation and access, and

24

business continuity," and alleges damages in "an amount no less

25

than $13,640.38."

26

RMG alleges that Circle Click failed to pay a

Countercl. ¶ 23-24.

As to CTNY, RMG alleges the company

Id. ¶¶ 30, 32.

Plaintiffs argue that these counterclaims fail as a matter of

27

law since neither the House Rules nor the Service Price Guide --

28

which set forth the business continuity and kitchen amenities fees,

17

1

among other things -- are part of the parties' agreements.

2

12(b)(6)/12(f) Mot. at 10.

3

of another document to be incorporated into the document executed

4

by the parties the reference must be clear and unequivocal, the

5

reference must be called to the attention of the other party and he

6

must consent thereto, and the terms of the incorporated document

7

must be known or easily available to the contracting parties."

8

Chan v. Drexel Burnham Lambert, Inc., 178 Cal. App. 3d 632, 641

9

(Cal. Ct. App. 1986) (quotations omitted).

Under California law, "[f]or the terms

Likewise, New York law

United States District Court

For the Northern District of California

10

requires that: (1) the agreement "specifically reference and

11

sufficiently describe the document to be incorporated, such that

12

the latter may be identified beyond all reasonable doubt"; and (2)

13

"it must be clear that the parties to the agreement had knowledge

14

of and assented to the incorporated terms."

15

v. Fakih, 268 F. Supp. 2d 210, 223 (E.D.N.Y. 2003) (internal

16

quotations omitted).

17

satisfied here because Defendant has not alleged that the House

18

Rules and Service Price Guide were provided to Circle Click or

19

CTNY.

20

because the Terms and Conditions are practically illegible, the

21

reference to the House Rules contained in the Terms and Conditions

22

is neither clear nor unequivocal.

23

Ryan, Beck & Co., LLC.

Plaintiffs argue that these factors are not

12(b)(6)/12(f) Mot. at 11.

Plaintiffs further argue that

Id.

RMG responds that the Court's April 22 Order already found

24

that the House Rules and Services Price Guide are expressly

25

incorporated into the Office Service Agreement.

26

Opp'n at

27

state a plausible claim for intentional misrepresentation based on

28

a theory of non-disclosure, because RMG's fees were disclosed in

7.

12(b)(6)/12(f)

The April 22 Order held that Plaintiffs could not

18

1

the Terms and Conditions, House Rules, and Service Price Guide.

2

Apr. 22 Order at 10-11.

3

confirmed that they had "read and understood" the Terms and

4

Conditions when they signed the Office Service Agreement, the Terms

5

Conditions expressly referred to the House Rules, and the House

6

Rules expressly referred to the Service Price Guide.

7

Court agrees with the Plaintiffs, that its April 22 holding was

8

limited to Plaintiffs' fraud claim.

9

10.

The Court reasoned that Plaintiffs

Id.

The

See 12(b)(6)/12(f) Reply at 9-

However, the reasoning of the April 22 Order applies with

United States District Court

For the Northern District of California

10

equal force here.

Plaintiffs cannot claim ignorance of the Terms

11

and Conditions or the documents referenced therein if they

12

expressly confirmed that they had read and understood the Terms and

13

Conditions.

14

Terms and Conditions provided to Plaintiffs at the time of contract

15

formation was as illegible as the copy before the Court.4

Further, it remains unclear whether the copy of the

16

Plaintiffs also argue that the allegations in RMG's

17

counterclaim against Circle Click are contradicted by an RMG

18

invoice.

19

Court may take judicial notice of the invoice because it is

20

referenced in the Terms and Conditions.

21

Conditions § 8.5).

22

8.5 of the Terms and Conditions provides: "If the Client disputes

23

any part of an Invoice, the Client must pay the amount not in

24

dispute by the due date or be subject to late fees."

25

Conditions do not specifically refer to the particular invoice

26

4

27
28

12(b)(6)/12(f) Mot. at 9.

Plaintiffs argue that the

The Court disagrees.

Id. (citing Terms and
In relevant part, Section

The Terms and

The Court has yet to make a determination about whether the
Office Service Agreement and the referenced documents constitute
valid and enforceable agreements. Nothing in this Order precludes
Plaintiffs from asserting that the agreements are unconscionable
and therefore unenforceable.

19

1

proffered by Plaintiffs.

As such, that invoice constitutes

2

extrinsic evidence -- not a written instrument incorporated by

3

reference into the pleadings -- and is not appropriate for

4

consideration on a Rule 12(b)(6) motion to dismiss.5
Nevertheless, RMG's breach of contract counterclaims against

5
6

Circle Click and CTNY suffer from a number of significant pleading

7

defects.

8

Service Price Agreement were in fact made available to Plaintiffs.

9

Second, RMG has not alleged what provisions of the relevant

First, RMG has not alleged that the House Rules and the

United States District Court

For the Northern District of California

10

agreements were breached.

As to CTNY, RMG's pleading does not

11

refer to a particular provision of the Office Service Agreement,

12

the Terms and Conditions, or the House Rules.

13

not allege what portion of the allegedly unpaid $13,640.38 in fees

14

constitutes monthly payments and what portion is for taxes and

15

services.

16

more detail.

17

of the Terms and Conditions and Paragraph 38 of the House Rules.

18

However, the Counterclaim does not set forth the language of these

19

provisions, and, due to miniscule font size and poor image quality,

20

the Court cannot clearly make out certain terms in the copy of the

21

Terms and Conditions previously filed, even with magnification.

Further, RMG does

RMG's allegations with respect to Circle Click offer
RMG alleges that Circle Click breached Paragraph 1.7

Accordingly, RMG's breach of contract counterclaims against

22
23

Circle Click and CTNY are DISMISSED with leave to amend.

24

5

25
26
27
28

If RMG

The invoice proffered by Plaintiffs suggests that RMG waived the
$1,047.00 business continuity fee that Circle Click allegedly
failed to pay. ECF No. 83 Ex. A. RMG disputed the authenticity of
the invoice in its opposition brief, 12(b)(6)/12(f) Opp'n at 2, but
subsequently withdrew this contention, ECF No. 86. While the Court
may not take judicial notice of the invoice, it reminds RMG of its
Rule 11 obligations. If the factual allegations underlying the
breach of contract counterclaim against Circle Click have no
evidentiary support, then that counterclaim should be withdrawn.
See Fed. R. Civ. P. 11(b)(3).

20

1

elects to amend these counterclaims, its pleading should set forth

2

the relevant provisions of the agreements verbatim, specify how

3

Plaintiffs breached those provisions, and allege whether the House

4

Rules and Service Price Guide were made available to Plaintiffs.
3.

5
6

"Alternative" Counterclaim for Breach of Contract

RMG also asserts "alternative" counterclaims against "all

7

Counterclaim-Defendants," which presumably includes the named

8

Plaintiffs, Circle Click, CTNY, and Metro Talent.

9

alternative counterclaims are entitled: (1) breach of contract, (2)

These

United States District Court

For the Northern District of California

10

quantum meruit, and (3) unjust enrichment.

As to the first

11

alternative counterclaim for breach of contract, RMG alleges: "In

12

the event the Court determines that the late payment penalty

13

provisions set forth in [the Office Service Agreement] is invalid,

14

or is otherwise unenforceable, and that the [Office Service

15

Agreement] did not allow Counterclaim-Defendants to make past-due

16

payments, then Counterclaim-Defendants damaged RMG by failing to

17

timely pay all amounts due to RMG."

18

opposition brief, RMG clarifies that it is merely alleging that

19

Plaintiffs breached their contractual obligations with RMG by

20

failing to make timely payments.

Countercl. ¶ 35.

In its

12(b)(6)/12(f) Opp'n at 9.

21

As to Circle Click and CTNY, the alternative breach of

22

contract counterclaim fails for the same reasons as RMG's other

23

counterclaims for breach of contract.

24

It is entirely unclear from the pleading what payments Circle Click

25

or CTNY failed to make or what provisions of the agreements they

26

breached.

27

plausible.

28

the Counterclaim states that Metro Talent is a limited liability

See Section III.B.2 supra.

RMG's counterclaim against Metro Talent is even less
The only factual allegation specific to Metro Talent in

21

1

company organized and existing under the laws of California.

2

Countercl. ¶ 12.

3

pleading defects in the counterclaim and focus on Plaintiffs' 2AC.

4

12(b)(6)/12(f) Opp'n at 4.

5

the 2AC does not establish that Metro Talent failed to timely pay

6

its bills.

7

Metro Talent was assessed fees that were not disclosed in the

8

Office Service Agreement, that Metro Talent questioned these fees,

9

and that RMG threatened to evict Metro Talent if it failed to pay

RMG essentially urges the Court to ignore the

However, contrary to RMG's argument,

The 2AC paragraphs cited by RMG merely allege that

United States District Court

For the Northern District of California

10

the fees within in a certain time period.

11

The 2AC does not suggest that Metro Talent failed to pay the

12

challenged fees or that its payments were late.

13

See 2AC ¶¶ 62(c)-69.

RMG's alternative counterclaim for breach of contract is

14

DISMISSED with leave to amend as to the named Plaintiffs.

15

RMG choose to amend this counterclaim, it should allege specific

16

facts as to each Plaintiff supporting each element of a claim for

17

breach of contract.
4.

18

RMG's Alternative Counterclaims for Quantum Meruit
and Unjust Enrichment

19
20

Should

Plaintiffs also move to strike RMG's second and third

21

alternative counterclaims for quantum meruit and unjust enrichment.

22

Both claims essentially assert that if the Court finds that RMG

23

imposed unauthorized charges, then RMG is entitled to recover

24

damages because Plaintiffs received the benefit of their contracts

25

with RMG.

26

these counterclaims pursuant to Rule 12(f) on the grounds that (1)

27

the counterclaims are mirror images of the claims asserted in the

28

2AC, and (2) the counterclaims are redundant of affirmative

See Countercl. ¶¶ 39, 46.

22

Plaintiff moves to strike

1

defenses already asserted by Defendants in their Answer.6

2

12(b)(6)/12(f) Mot. at 13.
Plaintiffs appear to abandon the first argument in their reply

3
4

brief.

In any event, the argument is unpersuasive.

Plaintiffs

5

rely on Daily v. Fed. Ins. Co., C 04-3791 PJH, 2005 WL 14734, at *6

6

(N.D. Cal. Jan. 3, 2005), in which this court struck the

7

defendant's counterclaim for declaratory relief because it was

8

redundant of the plaintiff's claim for declaratory relief.

9

the claim and the counterclaim asked the court to determine whether

Both

United States District Court

For the Northern District of California

10

the plaintiff was entitled to insurance coverage from defendant.

11

Id.

12

relief in this action, and RMG's counterclaims raise new issues

13

that are not contemplated in Plaintiffs' 2AC.

In contrast, none of the parties have sought declaratory

Plaintiffs' second argument is also unavailing.

14

RMG's

15

counterclaims for unjust enrichment and quantum meruit are not

16

merely repackaged affirmative defenses, because they are different

17

in scope and seek a different remedy.

18

also asserts affirmative defenses for "benefits realized,"

19

"setoff," and "unjust enrichment."

20

defenses merely assert that Plaintiffs' claims are barred.

21

contrast, RMG's counterclaims seek to recover damages.

As Plaintiffs point out, RMG

However, these affirmative
In

Accordingly, Plaintiffs' motion to strike is DENIED and RMG's

22
23

counterclaims for unjust enrichment and quantum meruit remain

24

undisturbed.

25

///

26

///

27

6

28

Plaintiffs move to strike RMG's first alternative counterclaim
for breach of contract on these same grounds. In light of the
Court's findings in Sections III.A.1 and III.B.3 supra, it need not
address this issue.

23

1
2

IV.

CONCLUSION
For the foregoing reasons, Plaintiffs' Rule 12(b)(1) motion to

3

dismiss is GRANTED in part and DENIED in part.

RMG's counterclaims

4

are DISMISSED with respect to the putative class.

5

12(b)(6) motion to dismiss is GRANTED.

6

counterclaims for breach of contract against Circle Click and CTNY

7

are DISMISSED with leave to amend, as is RMG's first alternative

8

counterclaim for breach of contract against Circle Click, CTNY, and

9

Metro Talent.

Plaintiffs' Rule

RMG's first and second

Plaintiffs' motion to strike the second and third

United States District Court

For the Northern District of California

10

alternative counterclaims for unjust enrichment and quantum meruit

11

is DENIED.

12

RMG shall file an amended counterclaim within thirty (30) days

13

of the signature date of this order.

Failure to do so will result

14

in dismissal with prejudice of its first and second counterclaims

15

for breach of contract, as well as its first alternative

16

counterclaim for breach of contract.

17
18

IT IS SO ORDERED.

19
20
21

Dated: August 13, 2013
UNITED STATES DISTRICT JUDGE

22
23
24
25
26
27
28

24