Heartland Payment Systems, Inc. v. Mercury Payments Systems LLC

Filing 108

ORDER GRANTING MOTION TO STRIKE AND GRANTING IN PART AND DENYING IN PART MOTION TO DISMISS MERCURYS COUNTERCLAIMS by Hon. Claudia Wilken Re: 94 Motion to Dismiss. (jebS, COURT STAFF) (Filed on 1/26/2016)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA

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HEARTLAND PAYMENT SYSTEMS, INC.,

No. C 14-0437 CW

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Plaintiff and CounterDefendant,

ORDER GRANTING
MOTION TO STRIKE
AND GRANTING IN
PART AND DENYING
IN PART MOTION TO
DISMISS MERCURY’S
COUNTERCLAIMS

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United States District Court
For the Northern District of California

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v.
MERCURY PAYMENT SYSTEMS, LLC,
Defendant and Counter-Claimant.
________________________________/

(Docket No. 94)

Plaintiff Heartland Payment Systems filed its original
complaint on January 29, 2014.

Defendant Mercury Payment Systems

moved to dismiss the complaint and, on November 7, 2014, the Court
granted Mercury’s motion and granted Heartland leave to amend.
Heartland filed an amended complaint, and Mercury moved to
dismiss.

On February 24, 2015, the Court granted Mercury’s motion

in part and denied it in part.
Mercury filed its answer to Heartland’s amended complaint on
March 23, 2015.

In its answer, it asserted various affirmative

defenses and counterclaims against Heartland.

Heartland now moves

to strike Mercury’s affirmative defense of unclean hands, and
moves to dismiss Mercury’s counterclaims in their entirety.
(Docket No. 94).
filed a reply.

Mercury has filed an opposition.

Heartland has

Having considered the motions on the papers, the

Court GRANTS in part the motion to dismiss, DENIES it in part,
GRANTS the motion to strike and GRANTS leave to amend.

BACKGROUND

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The following is a summary of facts alleged in the

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counterclaims and taken as true for purposes of this motion.
Heartland and Mercury are competitors in the payment

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processing industry.

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¶ 16.

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and medium-sized businesses.

Both companies offer payment processing services to smallId. ¶¶ 15-18.

Heartland advertises its services on its website.

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Docket No. 84, Mercury’s Counterclaims

Id. ¶ 20.

On the website, Heartland states that it provides “fair, honest

United States District Court
For the Northern District of California

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and fully disclosed payment solutions to help businesses prosper.”

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Id. ¶ 21.

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customers according to an “interchange-plus” pricing model.

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¶ 19.

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of art in the industry, which is well understood by small and

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medium-sized businesses.

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“interchange-plus” does not have a generally accepted meaning in

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the payment processing industry.

It purports to offer its services to all of its
Id.

Heartland claims that the term “interchange-plus” is a term

Id.

According to Mercury, however,

Id.

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Mercury alleges that, despite Heartland’s advertising that it

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offers “all” of its customers interchange-plus pricing, that offer

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extends only to customers who process $50,000 or more yearly.

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¶ 23.

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about Heartland’s advertising, several businesses complained that

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Heartland does not in fact offer “true” interchange-plus pricing,

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and that the pricing for businesses that process less than $50,000

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per year is “way higher than any sane interchange-plus plan.”

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¶ 24.

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Id.

Mercury alleges that, in response to an unidentified survey

Heartland also advertises that it offers “fair and upfront
pricing” to its customers.

Id. ¶ 32.
2

Mercury alleges that

Id.

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businesses understand that to mean that all fees and charges are

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disclosed in advance.

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alleges that Heartland charges “hidden early-termination fees.”

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Id. ¶ 33.

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customers were surprised when they were charged $295 for

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terminating their contract early.

Id.

Despite this guarantee, Mercury

Mercury alleges that three of Heartland’s former

Id. ¶ 34.

Mercury also alleges that Heartland “marks up certain fees

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that it claims to pass through at cost.”

Id. ¶ 33.

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include MasterCard and Visa settlement fees.

Id.

These fees
Mercury also

United States District Court
For the Northern District of California

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alleges that Heartland receives rebates from American Express, but

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fails to share those rebates with the businesses it serves.

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In addition to Heartland’s deceptive pricing, Mercury

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alleges that Heartland falsely promises to keep businesses’

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customer data “safe at every level.”

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website, it boasts that “Heartland Secure,” its data protection

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system, “is the most secure credit card processing method backed

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by the most comprehensive merchant warranty -– in the industry.”

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Id.

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[encryption and tokens] we are able to protect your customer

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credit card data from the moment you swipe their card.

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we use [another encryption] to make the data invisible to prying

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eyes.

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other.”

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the “Heartland Secure” system is not totally secure, as admitted

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by Heartland’s Chief Information Officer when he stated, “There is

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no such thing as totally secure software anymore, and there

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probably never will be.”

Id. ¶ 43.

Id.

On Heartland’s

It goes on to state: “Through our innovative use of

After that

And this means that your business is protected like no
Id.

Mercury alleges that this statement is false because

Id. ¶ 44.

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3

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Mercury also alleges that, “since at least 2011,” Heartland

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has engaged in “deceptive business practices” by charging a fee

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and describing it on merchant statements as a “Service &

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Regulatory Mandate.”

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“but one specific example of Heartland’s deceptive business

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practices”).

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‘mandate’ exists in the industry,” id. ¶ 75, and using that

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terminology suggests that Heartland must charge the fee when, in

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fact, it charges the fee and keeps the proceeds without providing

United States District Court
For the Northern District of California

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Id. ¶¶ 3, 75 (describing the “mandate” as

According to Mercury, “[n]o such regulatory

them to any regulatory entity, id.
In addition to its allegedly deceptive practices, Heartland

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has created a website that allegedly includes disparaging remarks

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about Mercury.

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Mercury has overcharged and defrauded businesses in the amount of

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$68,400,000 and has inflated Visa and MasterCard fees.

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Heartland also published a press release on the website that

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refers to this litigation.

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suffered damages due to Heartland’s conduct.

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Id. ¶ 52.

On the site, Heartland states that

Id.

Id. ¶ 53.

Mercury alleges that it has
Id. ¶ 60.

Mercury asserts five causes of action against Heartland:

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(1) false advertising in violation of 15 U.S.C. § 1125(a)(1)(B)

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(Lanham Act); (2) unfair competition in violation of California’s

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Unfair Competition Law, Business and Professions Code section

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17200 et seq. (UCL); (3) false advertising in violation of

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California Business and Professions Code section 17500 et seq.

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(FAL); (4) defamation; and (5) trade libel.

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this motion, Mercury also asserts an unclean hands affirmative

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defense.

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4

As is relevant to

LEGAL STANDARD

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The standards that apply to the complaint apply to the

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counterclaims as well.

See Charles Allen Wright & Arthur R.

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Miller, 5 Fed. Prac. & Proc. Civ. § 1407 (3d ed.) (noting that the

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“pleading of counterclaims and crossclaims is subject to the same

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Rule 8 standards that apply to the statement of any claim for

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relief” and that “an attempt to invoke Rule 13 must state a claim

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upon which relief can be granted . . .”).

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contain a “short and plain statement of the claim showing that the

A complaint must

United States District Court
For the Northern District of California

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pleader is entitled to relief.”

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plaintiff must proffer “enough facts to state a claim to relief

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that is plausible on its face.”

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678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570

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(2007)).

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factual content that allows the court to draw the reasonable

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inference that the defendant is liable for the misconduct

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alleged.”

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Fed. R. Civ. P. 8(a).

The

Ashcroft v. Iqbal, 556 U.S. 662,

A claim is facially plausible “when the plaintiff pleads

Id.

In considering whether the complaint is sufficient to state a

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claim, the court will take all material allegations as true and

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construe them in the light most favorable to the complaining

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party.

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1049, 1061 (9th Cir. 2008).

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face of the complaint, materials incorporated into the complaint

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by reference, and facts of which the court may take judicial

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notice.

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conclusions, including “threadbare recitals of the elements of a

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cause of action, supported by mere conclusory statements.”

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556 U.S. at 678 (citing Twombly, 550 U.S. at 555).

Metzler Inv. GMBH v. Corinthian Colls., Inc., 540 F.3d

Id.

The court’s review is limited to the

However, the court need not accept legal

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Iqbal,

When granting a motion to dismiss, the court is generally

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required to grant the complaining party leave to amend, even if no

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request to amend the pleading was made, unless amendment would be

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futile.

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Inc., 911 F.2d 242, 246-47 (9th Cir. 1990).

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whether amendment would be futile, the court examines whether the

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complaint could be amended to cure the defect requiring dismissal

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“without contradicting any of the allegations of [the] original

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complaint.”

10
United States District Court
For the Northern District of California

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Cir. 1990).

Cook, Perkiss & Liehe, Inc. v. N. Cal. Collection Serv.

Reddy v. Litton Indus., Inc., 912 F.2d 291, 296 (9th

DISCUSSION

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In determining

I.

Rule 9(b)
As a threshold matter, Heartland argues that Mercury’s false

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advertising, FAL and UCL causes of action fail because they do not

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satisfy the heightened pleading requirements of Rule 9(b).

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“In all averments of fraud or mistake, the circumstances

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constituting fraud or mistake shall be stated with particularity.”

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

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law, while a district court will rely on state law to ascertain

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the elements of fraud that a party must plead, it will also follow

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Rule 9(b) in requiring that the circumstances of the fraud be

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pleaded with particularity.”

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Supp. 2d 992, 996 (N.D. Cal. 2009); see also Kearns v. Ford Motor

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Co., 567 F.3d 1120, 1125 (9th Cir. 2009).

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‘grounded in fraud,’ the pleading of that claim as a whole is

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subject to Rule 9(b)’s particularity requirement.”

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F. Supp. 2d at 997 (citing Vess v. Ciba-Geigy Corp. USA, 317 F.3d

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1097, 1104 (9th Cir. 2003)).

“Therefore, in an action based on state

Marolda v. Symantec Corp., 672 F.

“[W]hen the claim is

Marolda, 672

A plaintiff must describe the
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alleged fraud in specific enough terms “to give defendants notice

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of the particular misconduct so that they can defend against the

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charge.”

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plaintiff to allege “the who, what, when, where, and how” of the

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alleged fraudulent conduct.

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(9th Cir. 1997).

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action against a corporation requires the plaintiff to allege the

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names of the persons who made the allegedly fraudulent

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representations, their authority to speak, to whom they spoke,

Kearns, 567 F.3d at 1124.

Rule 9(b) requires the

Cooper v. Pickett, 137 F.3d 616, 627

“The requirement of specificity in a fraud

United States District Court
For the Northern District of California

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what they said or wrote, and when it was said or written.”

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Tarmann v. State Farm Mut. Auto. Ins. Co., 2 Cal. App. 4th 153,

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157 (1991).

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While Mercury may not use the word “fraud” in its false

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advertising, UCL and FAL causes of action, it has alleged “a

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unified course of fraudulent conduct and rel[ies] entirely on that

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course of conduct as the basis of [its] claim[s].”

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567 F.3d at 1125.

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that Heartland has “intentionally set out to deceive the relevant

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consuming public.”

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claims that Heartland’s advertisements are “literally false or

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misleading.”

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damages under California law “in view of Heartland’s willful and

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malicious conduct.”

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See Kearns,

Throughout these counterclaims, Mercury alleges

Mercury’s Counterclaims ¶¶ 27, 38, 47.

Id. ¶¶ 30, 41, 45.

It

Mercury also seeks punitive

Docket No. 84 at 40.

Accordingly, the Court finds that Mercury must plead each of

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its false advertising, UCL and FAL claims with the particularity

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required by Rule 9(b).

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claims relate to Heartland’s statements on a website about Mercury

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and this litigation, and Heartland does not respond specifically

Mercury’s defamation and trade libel

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to Mercury’s argument that Rule 9(b) does not apply to these

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claims.

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II.

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The Court assumes that it does not.

First Cause of Action: False Advertising in Violation of 15
U.S.C. § 1125(a)(1)(B) (Lanham Act)
Mercury alleges that Heartland falsely advertises its

“Interchange-Plus” pricing model, its “Fair and Upfront” pricing
guarantee and its data security system.

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United States District Court
For the Northern District of California

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The elements of a Lanham Act . . . false advertising claim
are: (1) a false statement of fact by the defendant in a
commercial advertisement about its own or another’s product;
(2) the statement actually deceived or has the tendency to
deceive a substantial segment of its audience; (3) the
deception is material, in that it is likely to influence the
purchasing decision; (4) the defendant caused its false
statement to enter interstate commerce; and (5) the plaintiff
has been or is likely to be injured as a result of the false
statement, either by direct diversion of sales from itself to
defendant or by a lessening of the goodwill associated with
its products.

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Southland Sod Farms v. Stover Seed Co., 108 F.3d 1134, 1139 (9th

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Cir. 1997) (citing 15 U.S.C. § 1125(a)(1)(B)).

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Accordingly,

to succeed on an Internet false advertising claim, a
plaintiff must show that a statement made in a commercial
advertisement or promotion is false or misleading, that it
actually deceives or has the tendency to deceive a
substantial segment of its audience, that it’s likely to
influence purchasing decisions and that the plaintiff has
been or is likely to be injured by the false advertisement.

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TrafficSchool.com, Inc. v. Edriver Inc., 653 F.3d 820, 828 (9th

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Cir. 2011).

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As discussed below, Mercury fails to state a claim under Rule
9(b) and the Lanham Act.
1.

“Interchange-Plus” pricing

It appears that Mercury’s sole allegation on this point is

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that Heartland’s website falsely states that “all” merchants are

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offered “interchange-plus” pricing.

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provides in support of that allegation suggest that the real issue
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However, the facts Mercury

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is not that “all” merchants do not receive “interchange-plus”

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pricing, but that the pricing offered to businesses with less than

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$50,000 yearly processing is not “true” or “sane” “interchange-

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plus” pricing.

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See Mercury’s Counterclaims ¶ 24.

Heartland argues, “Mercury fails to plead any explanation of

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how Heartland’s plan offered to merchants who process less than

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$50,000 per year is inconsistent with interchange-plus pricing.”

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Heartland’s Mot. to Dismiss, Docket No. 94 at 11.

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agrees.

The Court

Other than the alleged statements of two anonymous

United States District Court
For the Northern District of California

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merchants commenting on an unidentified survey, Mercury states no

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facts to support the allegation that Heartland’s customers that

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process less than $50,000 a year are not receiving “interchange-

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plus” pricing.

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these merchants’ alleged dissatisfaction with Heartland’s

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services, or provide any facts to support the inference that the

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survey exists or that the merchants’ claims are credible.

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Mercury does not identify the survey that reported

Thus, Mercury fails to state facts sufficient to support its

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allegation that Heartland’s “interchange-plus” pricing claim is

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false or misleading.

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based on the allegedly false “interchange-plus” pricing guarantee.

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2.

Accordingly, this cause of action cannot be

“Fair and Upfront” pricing

Mercury claims that Heartland’s guarantee of “fair and

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upfront pricing” is false because Heartland: (1) fails to pass

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through at cost MasterCard and Visa settlement fees; (2) fails to

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share an American Express rebate with businesses; and (3) fails to

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disclose an early termination fee.

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for Mercury’s Lanham Act claim should be dismissed because Mercury

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“never provides an explanation or support for its allegation that
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Heartland argues this basis

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Heartland falsely advertises these fees or pricing.”

2

Docket No.

94 at 12.

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Mercury does not state any facts to support its allegation

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that the MasterCard and Visa settlement fees are not disclosed.

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It does not state what the settlement fees are or how they should

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be disclosed in order to support the inference that those fees are

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not disclosed “upfront.”

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support the inference that those fees are marked-up and, thus, are

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not “passed through at cost.”

United States District Court
For the Northern District of California

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Likewise, it does not state any facts to

In addition, Mercury’s allegation with regard to the American

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Express rebate is insufficient to support its claim.

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alleges that the phrase “fair and upfront pricing” “necessarily

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implies that Heartland will not . . . siphon off rebates received

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from card networks.”

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not provide any facts to support the conclusion that telling

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businesses how they will be charged also implies that Heartland

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will share money that is returned to it by the card network.

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Mercury’s Counterclaims ¶ 36.

Mercury

Mercury does

Lastly, with regard to the early termination fees, Mercury

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again relies on the responses to an unidentified survey of

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anonymous businesses that formerly used Heartland’s services.

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Pleading that a termination fee was not disclosed until a merchant

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had signed a contract, and that nonetheless a termination fee was

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later charged, could constitute pleading that the “fair and

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upfront pricing” advertisement was false or misleading.

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Nonetheless, the Court agrees with Heartland that Mercury has

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failed to meet its Rule 9(b) requirements.

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first businessperson stated that he or she was told by a Heartland

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sales representative that there was no cancellation fee or
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Mercury alleges that a

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penalty, and that the fee does not appear “on any document you

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sign.”

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Yet when he or she cancelled the contract, a fee was charged.

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To the extent Mercury relies on a sales representative’s statement

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rather than Heartland’s website, it is insufficient under Rule

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9(b); for oral statements, the complainant must “allege the names

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of the persons who made the allegedly fraudulent representations,

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their authority to speak, to whom they spoke, what they said or

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wrote, and when it was said or written.”

Mercury’s Counterclaims ¶ 34 (quotation marks omitted).
Id.

Tarmann, 2 Cal. App. 4th

United States District Court
For the Northern District of California

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at 157.

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that two other business owners stated that the early termination

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fee was not disclosed in Heartland’s contract or any document they

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signed, the allegations do not support Mercury’s claim that the

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fee was not disclosed “upfront” elsewhere.

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unidentified merchants’ statement to the unidentified surveyor

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about an undisclosed termination fee is also insufficient under

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Rule 9(b) to allege how the “fair and upfront pricing”

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advertisement was false or misleading because he or she does not

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state that he or she was charged the fee.

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To the extent this allegation and Mercury’s allegation

And one of those

Thus, Mercury fails to state facts sufficient to support its

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allegation that Heartland’s “fair and upfront pricing” claim is

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false or misleading.

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based on the allegedly false “fair and upfront pricing” guarantee.

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3.

Accordingly, this cause of action cannot be

Data security

Mercury alleges that Heartland’s website contains a statement

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about how securely the “Heartland Secure” data protection system

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keeps businesses’ customer data.

Mercury’s Counterclaims ¶ 43.

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Mercury claims that the statement “necessarily implies” that

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Heartland’s security system is “totally secure.”

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Id. ¶ 45.

Mercury does not state any facts to support its conclusion

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that Heartland’s description of its data security system implies

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that the system is “totally secure.”

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statement does the phrase “totally secure” appear.

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Mercury does not state any facts to support the conclusion that

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Heartland does not provide the “most secure credit card processing

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methods backed by the most comprehensive merchant warranty . . .

United States District Court
For the Northern District of California

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Nowhere in Heartland’s
Furthermore,

in the industry.”
Thus, Mercury fails to state facts sufficient to support its

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allegation that Heartland’s data security claim is false or

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misleading.

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the allegedly false data security statements.

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4.

Accordingly, this cause of action cannot be based on

Conclusion

For all the reasons discussed above, Mercury has failed to

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plead its Lanham Act cause of action with the particularity

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required by Rule 9(b).

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motion to dismiss the Lanham Act cause of action.

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granted leave to amend to remedy these deficiencies if it can do

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so truthfully and without contradicting the allegations in its

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prior pleadings.

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III. Second Cause of Action: Unfair Competition in Violation of
California Business and Professions Code section 17200 et
seq. (UCL)

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25
26
27

Accordingly, the Court GRANTS Heartland’s
Mercury is

The UCL prohibits “any unlawful, unfair or fraudulent
business act . . . .”

Cal. Bus. & Prof. Code § 17200 et seq.

Because section 17200 is written in the disjunctive, it

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12

1

establishes three types of unfair competition.

2

Motor Credit Co., 179 Cal. App. 4th 581, 593 (2009).

3

practice may be prohibited as unfair or deceptive even if it is

4

not unlawful and vice versa.

5

50 Cal. App. 4th 632, 647 (1996).

6

all three prongs.

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Mercury must plead its UCL causes of action in accordance with

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Rule 9(b).

9

United States District Court
For the Northern District of California

10

A.

Davis v. Ford
Therefore, a

Podolsky v. First Healthcare Corp.,
Mercury alleges claims under

Because the counterclaims sound in fraud,

Unlawful business practices

An unlawful business practice includes anything that can be

11

called a business practice and that is forbidden by law.

12

v. Blue Shield of Cal. Life & Health Ins., 160 Cal. App. 4th 528,

13

539 (2008).

14

predicate for an unlawful business practice action.

15

State Farm Mut. Auto. Ins. Co., 93 Cal. App. 4th 700, 718 (2001).

16

Thus, the UCL incorporates violations of other laws and treats

17

them as unlawful practices independently actionable under the UCL.

18

Id.; Chabner v. United of Omaha Life Ins. Co., 225 F.3d 1042, 1048

19

(9th Cir. 2000); Cel-Tech Commc’ns., Inc. v. L.A. Cellular Tel.

20

Co., 20 Cal. 4th 163, 180 (1999).

21

Ticconi

Any federal, state or local law can serve as a
Smith v.

Because Mercury relies on the same allegations to support

22

this claim as it does to support its Lanham Act claim and its

23

California False Advertising claim, Mercury’s allegations fail

24

under Rule 9(b) and are insufficient to state a claim under either

25

statute, as discussed elsewhere in this order.

26
27

Accordingly, Mercury’s unlawful business practice claim
fails.

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13

1

B.

Unfair business practices

2

“When a plaintiff who claims to have suffered injury from a

3

direct competitor’s ‘unfair’ act or practice invokes section

4

17200,” the Court considers “‘unfair’ in that section [to] mean[]

5

conduct that threatens an incipient violation of an antitrust law,

6

or violates the policy or spirit of one of those laws because its

7

effects are comparable to or the same as a violation of the law,

8

or otherwise significantly threatens or harms competition.”

9

Tech Commc’ns, Inc., 20 Cal. 4th at 187 (footnote omitted)).

United States District Court
For the Northern District of California

10

Cel-

Mercury alleges that Heartland’s actions “constitute unfair

11

competition” because they, in part, “threaten an incipient

12

violation of a consumer law, including but not limited to Section

13

5 of the Federal Trade Commission Act, violate the policy or

14

spirit of such law, and/or otherwise threaten or harm

15

competition.”

16

Mercury’s Counterclaims ¶ 73.

Because Mercury relies on the same allegations to support

17

this claim as it does to support its Lanham Act claim and its

18

California False Advertising claim, Mercury’s allegations fail

19

under Rule 9(b), as discussed elsewhere in this order.

20

addition, although the Court allowed Heartland’s allegations of

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Mercury’s deceptive practices to proceed under the “unfair” prong

22

of the UCL, the Court notes that Cel-Tech indicates that only

23

incipient violations of antitrust laws satisfy this prong.

24

be that further proceedings will show that neither party may

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proceed under this prong, even if it plead its fraud allegations

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with sufficient particularity.

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In

It may

Accordingly, Mercury’s unfair business practice claim fails.

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14

1

C.

Fraudulent business practices

2

“A fraudulent business practice is one in which members of

3

the public are likely to be deceived.”

4

Servs., Inc., 177 Cal. App. 4th 1235, 1254 (2009).

5

Morgan v. AT&T Wireless

Mercury alleges that Heartland’s actions “are fraudulent in

6

that they are likely to mislead the public; or [that] [t]hey

7

constitute acts of untrue and misleading advertising.”

8

Counterclaims ¶ 73.

9

fail under Rule 9(b).

Mercury’s

As discussed above, Mercury’s allegations
Mercury fails to state any facts to support

United States District Court
For the Northern District of California

10

the allegation that statements on Heartland’s website or in

11

merchant statements are deceptive or misleading.

12

In addition, to the extent Mercury relies on its allegation

13

that Heartland engaged in “deceptive business practices” by

14

charging a fee it described on merchant statements as a “Service &

15

Regulatory Mandate,” the Court agrees with Heartland that Mercury

16

fails to meet Rule 9(b)’s requirements.

17

using the words “Service & Regulatory Mandate” on merchant

18

statements “since at least 2001,” by itself—rather than using such

19

terminology alongside any other disclosures—is deceptive because

20

no such regulatory mandate exists.

21

Mercury does not plead an instance in which Heartland charged the

22

fee or how Heartland presented the fee to merchants on a billing

23

statement, Merchant Application or other document.

24
25

Mercury explains that

Yet, as Heartland argues,

Accordingly, Mercury’s fraudulent business practice claim
fails.

26

D.

27

For all the reasons discussed above, Mercury has failed to

28

Conclusion

plead its UCL cause of action with the particularity required by
15

1

Rule 9(b).

2

dismiss this cause of action.

3

to remedy these deficiencies if it can do so truthfully and

4

without contradicting the allegations in its prior pleadings.

5

IV.

6
7

Mercury is granted leave to amend

Third Cause of Action: False Advertising in Violation of
California Business and Professions Code section 17500 et
seq. (FAL)

12

California’s False Advertising Law makes it unlawful for any
person to induce the public to enter into any obligation
based on a statement that is untrue or misleading, and which
is known, or which by the exercise of reasonable care should
be known, to be untrue or misleading. Whether an
advertisement is misleading must be judged by the effect it
would have on a reasonable consumer. . . . A reasonable
consumer is the ordinary consumer acting reasonably under the
circumstances. To prevail under this standard, [Plaintiff]
must show that members of the public are likely to be
deceived by the advertisement.

13

Davis v. HSBC Bank Nev., N.A., 691 F.3d 1152, 1162 (9th Cir. 2012)

14

(citations omitted).

8
9
10
United States District Court
For the Northern District of California

Accordingly, the Court GRANTS Heartland’s motion to

11

Mercury relies on the same set of facts to support its FAL

15
16

claims as it does to support its Lanham Act claim.

Thus, for the

17

reasons discussed above, Mercury has failed to plead its FAL cause

18

of action with the particularity required by Rule 9(b).

19

fails to state any facts to support the allegation that statements

20

on Heartland’s website are deceptive or misleading.

21

the Court GRANTS Heartland’s motion to dismiss the FAL cause of

22

action.

23

deficiencies if it can do so truthfully and without contradicting

24

the allegations in its prior pleadings.

25

V.

Mercury

Accordingly,

Mercury is granted leave to amend to remedy these

Fourth Cause of Action: Defamation

26

Mercury argues that statements on Heartland’s “Merchant

27

Services Defense” website, specifically that Heartland has “found

28

direct evidence of Mercury’s deceptive practices,” were made with
16

1

the intent to defame Mercury.

Mercury alleges that Heartland

2

published these statements on a webpage titled “Pennies Add Up,”

3

which Mercury downloaded on March 20, 2015.

4

Counterclaims ¶ 53.

5

[it] in other direct or indirect communications with other members

6

of the payment processing industry[.]”

7

¶ 56.

8

of limitations and that, with regard to the “direct or indirect

9

communications,” Mercury fails to state a claim.

Mercury’s

It also claims that Heartland has “disparaged

Mercury’s Counterclaims

Heartland argues that this claim is barred by the statute

United States District Court
For the Northern District of California

10

A.

Statute of Limitations

11

Under California law, the statute of limitations for

12

defamation is one year.

13

courts follow the “single publication” rule for statements made in

14

mass communications:

15
16
17
18
19

Cal. Civ. Proc. Code § 340.

California

No person shall have more than one cause of action for
damages for libel or slander or invasion of privacy or any
other tort founded upon any single publication or exhibition
or utterance, such as any one issue of a newspaper or book or
magazine or any one presentation to an audience or any one
broadcast over radio or television or any one exhibition of a
motion picture. Recovery in any action shall include all
damages for any such tort suffered by the plaintiff in all
jurisdictions.

20

Cal. Civ. Code § 3425.3.

The Ninth Circuit has held that

21

California Courts of Appeal have uniformly applied this rule to

22

websites.

23

Cir. 2011).

24

publication date of webpages, for the purposes of the statute of

25

limitations, is the date the allegedly defamatory statements were

26

first posted on the website.

27

considered ‘published’ within the meaning of the single-

28

publication rule when it is first made available to the

See Roberts v. McAfee, Inc., 660 F.3d 1156, 1167 (9th
Furthermore, the Ninth Circuit has held that the

See id. (“Information is generally

17

1

public[.]”).

2

initial publication on a website are time-barred.

3

1169.

4

Thus, claims brought more than one year from an
See id. at

Mercury states in its opposition that its “[c]ounterclaims

5

allege that the Defamatory Statements were published on March 20,

6

2015 – well within the one-year statute of limitations for

7

defamation claims.”

8

Docket No. 98 at 20.

However, as Heartland points out, Mercury’s argument in its
opposition, that the webpage was published on March 20, 2015, see

10
United States District Court
For the Northern District of California

9

id., is different from its allegation in its counterclaims, that

11

it downloaded the webpage on March 20, 2015.

12

Counterclaims ¶ 53.

13

claim begins to run as of the date the information was “first made

14

available to the public.”

15

counterclaims, Mercury does not allege when the information was

16

first published, only that it downloaded the information on March

17

20, 2015.

18

See Mercury’s

The statute of limitations for a defamation

Roberts, 660 F.3d at 1167.

In its

Heartland argues that Mercury must concede that the allegedly

19

defamatory statements were made on January 30, 2014, because

20

Mercury’s counterclaim alleges that, on that date, Heartland

21

published a press release announcing this litigation with a link

22

to a “Merchant Services Defense” website containing the webpage at

23

issue.

24

that content was added to it since it was first published.

25

Mercury’s defamation claim would be time-barred as of January 30,

26

2015.

27
28

Mercury does not allege that the webpage was changed or
Thus,

Heartland’s argument is well-taken.

Regardless, Mercury argues that its defamation claim is a
compulsory counterclaim.

Thus, the statute of limitations was
18

1

tolled by the filing of Heartland’s complaint on January 29, 2014,

2

and the claim was not time-barred when the counterclaims were

3

filed on March 23, 2015.

4

Court, 198 Cal. App. 3d 710 (1988), which explained:

5
6
7
8
9

United States District Court
For the Northern District of California

10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27

Mercury relies on Sidney v. Superior

Although ordinarily the statute of limitations will bar
a cross-complaint in the same fashion as if the
defendant had brought an independent action, the rule is
different when the original complaint was filed before
the statute of limitations on the cross-complaint had
elapsed . . . . Such a cross-complaint need only be
subject-matter related to the plaintiff’s complaint -—
i.e. arise out of the same occurrence —- to relate back
to the date of filing the complaint for statute of
limitation purposes.
Id. at 714 (citations, quotation marks and brackets omitted).

For

the purpose of the statute of limitations, if the defamation cause
of action is a compulsory counterclaim, the claim is tolled as of
the date of the complaint.

See Burger v. Kuimelis, 325 F. Supp.

2d 1026, 1045 (N.D. Cal. 2004) (“Under Sidney, the commencement of
an action by a plaintiff tolls the statute of limitations for any
counterclaims that ‘arise out of the same occurrence’ as the
allegations of the complaint.”

(citation omitted)).

Heartland

argues that this rule does not apply here because “Mercury’s
defamation claim is based entirely on alleged conduct that took
place after Heartland filed its Complaint, and therefore does not
arise from the same transactions or occurrences that are at issue
in the Complaint.”

Docket No. 94 at 20.

Thus, the question is

whether a defamation claim, with regard to statements made by
Heartland after the complaint was filed, can be considered a
compulsory counterclaim.
As the parties agree, the Ninth Circuit has explicitly
declined to decide this issue, but has discussed it.

28
19

In Pochiro

1

v. Prudential Ins. Co. of Am., 827 F.2d 1246 (9th Cir. 1987), the

2

Ninth Circuit held, “As long as the allegedly defamatory

3

statements are sufficiently related to [the] subject matter of the

4

original action,” they must be considered compulsory

5

counterclaims.

6

causes of action against a former employee and his wife, the

7

Pochiros, who it alleged had used confidential records against it.

8

The Pochiros filed a defamation counterclaim, based on

9

Prudential’s informing the employee’s prospective employers about

Id. at 1251.

In Pochiro, Prudential plead various

United States District Court
For the Northern District of California

10

his allegedly dishonest actions.

11

statements were made after the complaint was filed.

12

Circuit found that even though a few of the Pochiros’ allegations

13

“appear a bit removed from Prudential’s action to enjoin the

14

Pochiros’ use of confidential records, it is undisputed that [the

15

employee’s] use of Prudential’s customer records is inextricably

16

intertwined with the facts as alleged in the Pochiros’ complaint.”

17

Id. at 1250.

18

Circuit, “a counterclaim which stems from the filing of the main

19

action and subsequent alleged defamations is not a compulsory

20

counterclaim.”

21

571 F.2d 119, 124 (2nd Cir. 1978)).

22
23
24
25
26
27

Many of the allegedly defamatory
The Ninth

The Ninth Circuit acknowledged that, in the Second

827 F.2d at 1251 n.9 (citing Harris v. Steinem,
The Ninth Circuit surmised,

The rationale for [the Second Circuit’s] rule seems to be
that statements made after the filing of the original
complaint simply cannot be logically related to the
“transaction” which gave rise to the original complaint.
This creates an exception to the general rule that an
otherwise logically related claim need only have accrued by
the time a responsive pleading is filed in the first action,
not by the time of the complaint. . . . Indeed, Harris and
the cases it relies upon seem to view any alleged defamation
as a separate transaction from the underlying claim.

28
20

1

Id.

2

“limited issue actually addressed by Harris” because the Pochiros

3

also alleged that Prudential made some defamatory statements prior

4

to filing its complaint.

5

The Ninth Circuit then expressly declined to reach the

Id.

Thus, there is no Ninth Circuit precedent that resolves this

6

issue.

The Court is persuaded, however, that the general rule is

7

that if “the allegedly defamatory statements are sufficiently

8

related to subject matter of the original action” the defamation

9

claim is a compulsory counterclaim even if the alleged statements

United States District Court
For the Northern District of California

10

were made after the complaint was filed.

11

underlying Mercury’s defamation claim are sufficiently linked to

12

the facts alleged in Heartland’s complaint because the defamation

13

claim alleges that Heartland’s statements—that Mercury defrauded

14

merchants—were false; if Heartland were to prevail on its fraud

15

claims against Mercury, Mercury could be collaterally estopped

16

from pursuing this defamation claim.

17

defamatory statements were first published on January 30, 2014 at

18

the time of Heartland’s press release, the defamation claim would

19

not be time-barred.

20

Here, the facts

Thus, even if the alleged

Accordingly, taking the facts as alleged in the counterclaims

21

as true, Mercury’s defamation cause of action is not time-barred.

22

The Court will now turn to the sufficiency of the allegations.

23

2.

Failure to state a claim

24

As already noted, Mercury alleges that, on a webpage titled

25

“Pennies Add Up,” Heartland has published disparaging statements

26

that “Mercury has ‘deceiv[ed] merchants’ and ‘misrepresented

27

pennies per transaction’ by ‘falsely inflat[ing] pass-through Visa

28
21

1

and MasterCard interchange fees of four (4) cents per

2

transaction’[.]”

Mercury’s Counterclaims ¶ 53.

3

As stated above, under California law, a claim for defamation

4

requires the intentional publication of a statement that is false,

5

unprivileged, and has a tendency to injure.

6

46.

7

an intentional publication.

8

with particularity to support the allegation that the webpage

9

contains false statements, and that such false statements have a

Cal. Civ. Code §§ 44-

There is little doubt that the “Pennies Add Up” webpage was
Mercury also alleges adequate facts

United States District Court
For the Northern District of California

10

tendency to injure Mercury.

Thus, with regard to statements on

11

the “Pennies Add Up” webpage that specifically state that Mercury

12

has deceived or overcharged its customers, Mercury has alleged

13

facts sufficient to support its defamation claim.

14

9(b) applies, Mercury has stated those facts with the

15

particularity required by Rule 9(b).

Even if Rule

16

However, allegations relating to the January 30, 2014 press

17

release itself are insufficient to state a claim for defamation.

18

Mercury does not state what defamatory information is included in

19

the press release.

20

Mercury’s reference to “other direct or indirect communications

21

with other members of the payment processing industry concerning

22

Heartland’s allegations in its Complaint and Amended Complaint,”

23

Mercury’s Counterclaims ¶ 56, is vague and fails to meet even Rule

24

8 pleading requirements.

25

support the inference that Heartland’s “other direct or indirect

26

communications” were defamatory.

Likewise, the Court agrees with Heartland that

Mercury has not stated any facts to

27
28
22

3.

1

Conclusion

Accordingly, for the reasons discussed above, to the extent

2
3

Mercury’s defamation cause of action is based on the “Pennies Add

4

Up” webpage, the Court DENIES Heartland’s motion to dismiss.

5

for the reasons above, however, the cause of action cannot be

6

based on the January 30, 2014 press release or unspecified

7

communications with other businesses in the industry.

8

granted leave to amend to remedy these deficiencies if it can do

9

so truthfully and without contradicting the allegations in its

United States District Court
For the Northern District of California

10

VI.

Mercury is

prior pleadings.

11

Also

12
13

Fifth Cause of Action: Trade Libel
Mercury’s trade libel cause of action relies on the same

allegations that support its defamation cause of action.

14

“A cause of action for trade libel . . . requires (at a

15

minimum): (1) a publication; (2) which induces others not to deal

16

with plaintiff; and (3) special damages.”

17

Ins. Companies, 169 Cal. App. 3d 766, 773 (1985).

18

R. Civ. P. 9(g) the pleader must state special damages with

19

specificity.

20

customers and transactions of which it was deprived as a result of

21

the libel.’”

22

Associates, Inc., 946 F. Supp. 2d 957, 981 (N.D. Cal. 2013)(citing

23

Mann v. Quality Old Time Service, Inc., 120 Cal. App. 4th 90, 109

24

(2004)).

25

Nichols v. Great Am.
“[U]nder Fed.

Counterplaintiffs must ‘identify particular

Piping Rock Partners, Inc. v. David Lerner

Mercury does not identify any customer who refused to do

26

business with it as a result of Heartland’s allegedly libelous

27

statements.

28

dismiss the trade libel cause of action.

Accordingly, the Court GRANTS Heartland’s motion to

23

Mercury is granted leave

1

to amend to remedy this deficiency if it can do so truthfully and

2

without contradicting the allegations in its prior pleadings.

3

VII. Motion to Strike Unclean Hands Affirmative Defense

4
5
6

Heartland argues that Mercury’s unclean hands defense should
be stricken for failure to plead it with particularity.
Rule 8 requires that, when “responding to a pleading, a party

7

must . . . state in short and plain terms its defenses to each

8

claim asserted against it.”

9

provides that, on its own or on a motion by a party, a “court may

Fed. R. Civ. P. 8(b).

Rule 12(f)

United States District Court
For the Northern District of California

10

strike from a pleading an insufficient defense or any redundant,

11

immaterial, impertinent, or scandalous matter.”

12

12(f).

13

time and money litigating spurious issues.”

14

Pension Benefit Plan—Nonbargained Program, 718 F. Supp. 2d 1167,

15

1170 (N.D. Cal. 2010) (citing Fantasy, Inc. v. Fogerty, 984 F.2d

16

1524, 1527 (9th Cir. 1993)).

17

absence of prejudice to the opposing party, leave to amend should

18

be freely given.”

19

(9th Cir. 1979).

20

with Rule 8.

21

alleges fraud, it must also be plead with the particularity

22

required by Rule 9(b).

23

Fed. R. Civ. P.

“The purpose[] of a Rule 12(f) motion is to avoid spending
Barnes v. AT&T

If a defense is struck, “[i]n the

Wyshak v. City Nat’l Bank, 607 F.2d 824, 826
Thus Mercury’s unclean hands defense must comply

Furthermore, because Mercury’s unclean hands defense

Mercury’s unclean hands defense relies on the same

24

allegations Mercury uses unsuccessfully to support its Lanham Act

25

and FAL causes of action.

26
27

Likewise, they fail here.

Thus the Court GRANTS Heartland’s Rule 12(f) motion to strike
Mercury’s unclean hands defense.

Mercury is granted leave to

28
24

1

amend if it can do so truthfully and without contradicting its

2

previous pleadings.
CONCLUSION

3
4

For the reasons stated above, the Court GRANTS in part

5

Heartland’s motion to dismiss Mercury’s counterclaims (Docket No.

6

94) and DENIES it in part.

7

Heartland’s motion to strike Mercury’s unclean hands defense.

8

Within fourteen days of the date of this order, Mercury may file

9

an amended answer and counterclaims to remedy the deficiencies

In addition, the Court GRANTS

United States District Court
For the Northern District of California

10

identified above.

11

authorized by this order.

12

support some of these claims despite due diligence, but later

13

discovers them, it may timely move for leave to amend further in

14

the future.

15

counterclaims, Heartland may file a motion to strike or dismiss,

16

or both, within fourteen days of the date the amended answer is

17

filed.

18

It may not add further claims or defenses not
If Mercury does not have facts to

If Mercury files an amended answer with or without

As set in the Court’s April 1, 2015 Case Management Order,

19

the parties’ mediation deadline has passed.

20

not complied, they shall do so within twenty-eight days.

21

discovery deadline is July 1, 2016, and a further case management

22

conference and motion hearing is scheduled for March 2, 2017.

23

final pre-trial conference is scheduled for June 7, 2017, with

24

jury selection and trial to begin on June 19, 2017.

25
26
27

If the parties have
The

IT IS SO ORDERED.
Dated: January 26, 2016
CLAUDIA WILKEN
United States District Judge

28
25

The