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

Filing 63

ORDER by Judge Claudia Wilken GRANTING 15 MOTION TO DISMISS AND GRANTING LEAVE TO AMEND. (ndr, COURT STAFF) (Filed on 11/7/2014)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA

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HEARTLAND PAYMENT SYSTEMS, INC.,

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Plaintiff,

ORDER GRANTING
MOTION TO DISMISS
AND GRANTING LEAVE
TO AMEND

v.

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MERCURY PAYMENT SYSTEMS, LLC,

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Defendant.

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No. C 14-0437 CW

(Docket No. 15)

________________________________/

United States District Court
For the Northern District of California

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Plaintiff Heartland Payment Systems (Heartland) asserts

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various unfair business practice claims against Defendant Mercury

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Payment Systems (Mercury).

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complaint.

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Mercury has filed a reply.

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papers, the Court GRANTS the motion to dismiss and grants leave to

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amend.

(Docket No. 15.)

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19
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Mercury moves to dismiss the
Heartland has filed an opposition.
Having considered the motion on the

BACKGROUND
The following facts are alleged in the complaint and taken as
true for the purposes of this motion.

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Heartland and Mercury are competing electronic payment

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processors who provide to businesses, known as merchants, point-

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of-sale (POS) systems.

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merchants to accept credit cards and debit cards.

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Through POS systems, banks (e.g., Wells Fargo) and credit card

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brands (e.g., Visa or Mastercard) are able to receive their fees,

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merchants are able to receive the proceeds from the sale, and

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Compl. ¶¶ 7, 11.

POS systems enable
Id. ¶ 9.

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consumers have their accounts charged.

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Mercury serve small and medium-sized merchants.

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Id.

Both Heartland and
Id. ¶ 10.

Both companies use, although not exclusively, an

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“interchange-plus pricing model.”

Id.

According to this model,

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banks and credit card brands charge a fee, typically as a

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percentage of the transaction plus a per-transaction fee.

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¶ 16.

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“plus” fee) to the merchants as the cost for being the

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intermediary between the banks, credit card brands and the

Id.

POS systems providers then charge an additional fee (the

United States District Court
For the Northern District of California

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merchants.

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the banks and credit card brands, and is not controlled by the POS

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systems providers.

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system providers.

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combination of basis points and cents-per-transaction.”

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Network and interchange fees can be reset as often as twice per

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year.

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Id.

The interchange fee is that which is charged by

Id.
Id.

The “plus” fee is controlled by the POS
This fee is assessed “usually in some
Id.

Id.

In recent years, Heartland has produced and promulgated a

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document called the “Merchant Bill of Rights.”

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document discusses the issue of “undisclosed fee markups” by

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payment processors.

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that some processors, taking advantage of the bi-yearly

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interchange fee adjustment, “seize the opportunity to inflate” the

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interchange fees and “then deceptively blame the increase on the

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card brands.”

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processor that has engaged in this deception.

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Id.

Id. ¶ 17.

The

In this document, Heartland informs merchants

Heartland alleges that Mercury is a payment
Id.

Heartland alleges that Mercury deceives merchants by telling

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them that it will pass the interchange fees “at cost” (i.e., as

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charged by the banks and card brands, with no markup) and that its
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fee is a “mark-up on a per transaction basis in addition to other

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fees, such as monthly flat rate fees.”

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alleges that Mercury achieves this deception through its merchant

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application, the representations of third-party POS dealers who

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sell Mercury’s product, its website, and “other advertising and

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promotional materials distributed to merchants and potential

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merchants.”

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Guide,” which is published on its website, contains deceptive

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language that misrepresents how Mercury bills its merchants.

United States District Court
For the Northern District of California

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Id. ¶ 19.

Id. ¶ 18.

Heartland

It also alleges that Mercury’s “Operating

Id.

¶ 21.
Subsequent to its discovery of Mercury's alleged deception,

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Heartland reviewed nearly 300 of Mercury's monthly billing

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statements, including “a number of statements from merchants who

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are located in the San Francisco Bay Area.”

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alleges that in seventy-five percent of those statements, Mercury

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actually charged a fee that was higher than what it disclosed.

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Id. ¶ 22.

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they are “unaware of what the actual network fees are and cannot

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easily determine based on Mercury’s statements that those fees

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have been inflated.”

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began this widespread practice of deception in or around June

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2011.

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believes it will continue to lose business as a result of

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Mercury’s misrepresentations and deceitful conduct.

Id.

Id. ¶ 22.

Heartland

Heartland alleges that merchants are deceived because

Id. ¶ 25.

Heartland alleges that Mercury

Heartland alleges that it has lost business and

Id.

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Heartland has identified thirty merchants who have cancelled

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their POS contract with Heartland and entered into a POS contract

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with Mercury.

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2008, it lost a bid to Mercury to supply payment processing

Id.

As an example, Heartland alleges that, in

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services to a California restaurant chain.

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that, based on a discussion with an operator of one of these

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restaurants and an examination of a monthly statement, its bid was

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deceptively undercut by Mercury.

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that, while the statement showed the bid-upon amount as the “plus”

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fee, it also revealed that Mercury had “falsely inflated network

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charges to impose an additional four cent fee per card

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transaction.”

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Id.

Id. ¶¶ 26-27.

It now believes

Heartland alleges

Id. ¶ 28.

Heartland asserts five causes of action against Mercury:

United States District Court
For the Northern District of California

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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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17000 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) intentional interference with contractual relations;

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and (5) intentional interference with prospective economic

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advantage.
LEGAL STANDARD

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A complaint must contain a “short and plain statement of the

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claim showing that the pleader is entitled to relief.”

Fed. R.

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Civ. P. 8(a).

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claim to relief that is plausible on its face.”

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Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v.

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Twombly, 550 U.S. 544, 570 (2007)).

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“when the plaintiff pleads factual content that allows the court

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to draw the reasonable inference that the defendant is liable for

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the misconduct alleged.”

The plaintiff must proffer “enough facts to state a

Id.

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4

Ashcroft v.

A claim is facially plausible

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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 plaintiff.

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Metzler Inv. GMBH v. Corinthian Colls., Inc., 540 F.3d 1049, 1061

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(9th Cir. 2008).

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complaint, materials incorporated into the complaint by reference,

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and facts of which the court may take judicial notice.

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However, the court need not accept legal conclusions, including

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“threadbare recitals of the elements of a cause of action,

The court’s review is limited to the face of the

United States District Court
For the Northern District of California

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supported by mere conclusory statements.”

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Id.

Iqbal, 556 U.S. at 678

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

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When granting a motion to dismiss, the court is generally

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required to grant the plaintiff leave to amend, even if no request

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to amend the pleading was made, unless amendment would be futile.

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Cook, Perkiss & Liehe, Inc. v. N. Cal. Collection Serv. Inc., 911

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

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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.”

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Cir. 1990).

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In determining whether

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

DISCUSSION
I. Mercury’s Request for Judicial Notice (RFJN)
Although courts generally cannot consider documentary

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evidence on a motion to dismiss, doing so is appropriate when the

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pleadings refer to the documents, their authenticity is not in

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question and there are no disputes over their relevance.

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Settlement v. Eisenberg, 593 F.3d 1031, 1038 (9th Cir. 2010); see
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Coto

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also Branch v. Tunnell, 14 F.3d 449, 454 (9th Cir. 1994),

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overruled on other grounds by Galbraith v. County of Santa Clara,

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307 F.3d 1119 (9th Cir. 2002) (holding that courts may properly

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consider documents “whose contents are alleged in a complaint and

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whose authenticity no party questions, but which are not

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physically attached to the [plaintiff's] pleading”).

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includes “internet pages as it does . . . printed material.”

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Knievel v. ESPN, 393 F.3d 1068, 1076 (9th Cir. 2005).

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This

Mercury asks, and there is no record of Heartland opposing,

United States District Court
For the Northern District of California

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that the Court take judicial notice of various documents

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associated with Mercury’s contracts, applications, marketing and

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advertising materials.

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judicial notice of the following: (1) Mercury’s Merchant

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Application; (2) Mercury’s “Operating Guide”; (3) Heartland’s

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“Merchant Bill of Rights” homepage; (4) the “Know Your Rights”

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webpage; (5) and a PDF version of the “Merchants Bill of Rights.”

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Request for Judicial Notice (RFJN), Docket Nos. 18 and 35.

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Heartland explicitly refers to Mercury’s Merchant

Specifically, it requests that Court take

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Application, Compl. ¶ 19; Mercury’s “Operating Guide,” id. ¶ 21;

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and Heartland’s “Merchant Bill of Rights” (both website and

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document), id. ¶ 17.

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authenticity of these documents nor their relevance.

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the Court takes judicial notice of the aforementioned documents.

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Furthermore, Heartland does not question the
Accordingly,

Heartland does not, however, explicitly refer to its own

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“Know Your Rights” webpage.

Mercury includes this webpage because

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it is “a complete interactive version of Heartland’s Merchant Bill

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of Rights and a link to a standalone PDF version of the Merchant

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Bill of Rights.”

RFJN, Docket No. 18 ¶ 3.
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Mercury has not

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stated, however, how this webpage is relevant in the light of the

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Merchant Bill of Rights document itself.

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declines to take judicial notice of the “Know Your Rights”

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webpage.

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II. Mercury’s Motion to Dismiss

Accordingly, the Court

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Mercury seeks to dismiss all claims against it.

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A. Federal Rule of Civil Procedure 9(b)

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As a threshold matter, Mercury argues that all of Heartland’s

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United States District Court
For the Northern District of California

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causes of action fail because they do not 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)).

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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.

“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

Kearns, 567 F.3d at 1124.

Rule 9(b) requires the

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

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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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“The requirement of specificity in a fraud

Heartland responds that (1) the Lanham Act cause of action
does not require scienter, hence, it is not “grounded in fraud”;

United States District Court
For the Northern District of California

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(2) even if Rule 9(b) applies to the other claims, they are stated

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with the required particularity; or, in the alternative, (3) Rule

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9(b) should be applied less stringently because the factual

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details underpinning the causes of action are uniquely known to

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Mercury.

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While Heartland may not use the word “fraud” in all of its

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causes of action, it has alleged “a unified course of fraudulent

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conduct and rel[ies] entirely on that course of conduct as the

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basis of [its] claim[s].”

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Throughout the complaint, Heartland alleges that Mercury has

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engaged in “deceptive” and “false” conduct in how it bills and

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charges merchants.

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also alleges that Mercury, “intentionally and willfully” or

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fraudulently, violated false advertising and false

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misrepresentation laws.

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also seeks punitive damages “sufficient to punish and make an

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example” of Mercury.

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fraud’ or . . . ‘sound[s] in fraud,’ . . . the pleading . . . as a

See Kearns, 567 F.3d at 1125.

See, e.g., Compl. ¶¶ 17, 25, 30-38.

See, e.g., id. ¶¶ 44, 49, 64.

Heartland

Heartland

When a complaint as a whole is “‘grounded in

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whole must satisfy the particularity requirement of Rule 9(b).”

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Kearns, 567 F.3d at 1125.

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Accordingly, the Court finds that Heartland must plead each

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

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Court now turns to each cause of action.

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United States District Court
For the Northern District of California

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The

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

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“has made and will continue to make, in commercial advertising or

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promotion throughout the United States including in California,

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false and/or misleading statements of fact that misrepresent the

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nature, characteristics and/or qualities of Defendant’s and

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Plaintiff’s services” in violation of the Lanham Act.

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¶ 41.

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Compl.

The first element of a Lanham Act false advertisement cause

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of action requires a plaintiff to allege “a false statement of

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fact by the defendant in a commercial advertisement about its own

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or another’s product.”

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Thus, Heartland needs to allege both that Mercury made a false

Southland Sod Farms, 108 F.3d at 1139.

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statement and that the statement was made in a commercial

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advertisement.

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“To constitute ‘commercial advertising or promotion’ under

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the Lanham Act, a statement must be: (1) commercial speech, (2) by

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a defendant who is a commercial competitor of the plaintiff,

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(3) for the purpose of inducing customers to buy defendant’s goods

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or services, and (4) disseminated sufficiently to the relevant

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purchasing public to constitute ‘advertising’ or ‘promotion’

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within the industry.”

Bernard v. Donat, 2012 WL 525533, at *2

United States District Court
For the Northern District of California

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(N.D. Cal.) (citing Coastal Abstract Serv., Inc. v. First Am.

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Title Ins. Co., 173 F.3d 725, 735 (9th Cir. 1999)).

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Heartland alleges that because neither it nor Mercury engages

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in “traditional” advertising, “individual representations made to

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individual merchants” constitute “commercial advertising or

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promotion.”

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advertising takes two forms: (1) oral statements to merchants; and

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(2) written documents, including monthly billing statements, the

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Merchant Application, and the Operating Guide.

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that (1) monthly statements are not advertisement, because they

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“memorialize transactions that have already occurred;” (2) the

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Merchant Application is a contract, and not promotional; and

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(3) the Operating Guide, despite being on its website, is a mere

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“technical manual.”

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Docket No. 25 at 14.

It alleges that Mercury’s false

Mercury counters

Docket No. 15 at 12.

1. Rule 9(b)

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Heartland argues that the Lanham Act cause of action should

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not be subject to the heightened pleading standards of Rule 9(b)

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because “district courts are split on whether Rule 9(b) applies.”

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Pl.’s Opp’n Def.’s Mot. Dismiss, Docket No. 25 at 4.
10

This

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argument is unavailing; the heightened pleading is required for

2

every cause of action in the complaint because the entire

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complaint sounds in fraud.

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taken alone, may not be generally subject to Rule 9(b), they are

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within a complaint that “sounds in fraud.”

While each individual cause of action,

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The purpose of Rule 9(b) is “to give defendants notice of the

7

particular misconduct so that they can defend against the charge.”

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Kearns, 567 F.3d at 1124.

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particularity is required under Rule 9(b) when, as in this case,

Heartland argues that “less

United States District Court
For the Northern District of California

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such detailed facts are uniquely known to the defendant.”

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No. 25 at 8.

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Docket

With respect to alleged oral statements made by Mercury to

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merchants, Heartland fails to allege its Lanham Act cause of

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action with the particularity required under Rule 9(b).

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above, when a complaint sounding in fraud is against a corporate

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party “the plaintiff [must] allege the names of the persons who

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made the allegedly fraudulent representations, their authority to

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speak, to whom they spoke, what they said or wrote, and when it

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was said or written.”

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alleges that it has the name of at least one merchant it believes

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was a victim of Mercury’s deception.

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name of that merchant, or any other merchant who it claims was

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deceived.

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was a Mercury employee or representative who made false statements

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to current or potential merchants.

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Tarmann, 2 Cal. App. 4th at 157.

As stated

Heartland

Yet it fails to disclose the

It also fails to allege any facts to support that it

Accordingly, to the extent this cause of action relies on

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alleged oral statements from Mercury employees to merchants, the

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Court dismisses it for failure to comply with Rule 9(b) by failing
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to identify the details of the oral representations.

2

granted leave to amend to remedy this deficiency if it can do so

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truthfully and without contradicting the allegations in its prior

4

pleadings.

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Heartland is

However, it is true that Heartland cannot know the

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particularities of exactly which Mercury employee drafted the

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alleged advertisements.

8

cause of action relies on written documents of which the Court has

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taken judicial notice, the Court declines to dismiss it for

Accordingly, to the extent that this

United States District Court
For the Northern District of California

10

failure to identify who made statements and when.

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fails to state the alleged false statements with sufficient

12

particularity.

13

Nonetheless it

2. “Commercial advertising and promotion”

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Mercury argues that even if Heartland’s Lanham Act cause of

15

action did not fail due to Rule 9(b), it fails because Heartland

16

has not adequately alleged that its statements or documents

17

(1) are commercial advertising or promotion; or (2) contain false

18

statements of fact.

19

“The core notion of commercial speech is ‘speech which does

20

no more than propose a commercial transaction.’”

Rice v. Fox

21

Broad. Co., 330 F.3d 1170, 1181 (9th Cir. 2003).

As discussed

22

above, Heartland does not state any facts to support that Mercury

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employees made oral statements to merchants that could be

24

considered commercial speech.

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that Mercury employees engaged in commercial speech, and hence it

26

fails to state a claim under the Lanham Act with regard to oral

27

statements.

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relies on alleged oral statements from Mercury employees to

Thus, Heartland fails to allege

Accordingly, to the extent this cause of action

12

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merchants, the Court dismisses it for this reason also.

2

is granted leave to amend to remedy this deficiency if it can do

3

so truthfully and without contradicting the allegations in its

4

prior pleadings.

5

Heartland

On the other hand, the monthly statements could induce

6

merchants to continue using Mercury’s services, and hence could be

7

considered commercial speech designed to propose a continued

8

business relationship.

9

Mercury’s website could be seen to propose a commercial

Likewise, the Operating Guide posted on

United States District Court
For the Northern District of California

10

transaction by providing information to a potential merchant who

11

may be considering using Mercury’s services.

12

Merchant Application could be viewed as proposing a commercial

13

transaction, not as a contract, as Mercury purports, but rather as

14

an offer to enter into a contract.

15

this Merchant Application is accepted for card services. . .”).

16

As such, the Application’s “Card Services Terms & Conditions”

17

section arguably constitutes commercial speech.

18

the extent that the cause of action relies on Mercury’s written

19

documents, the Court declines to dismiss it for failure adequately

20

to allege commercial speech.

21
22
23

Likewise, the

See, e.g., RFJN, Ex. 1 (“If

Accordingly, to

3. “False statement of fact”
Even if the oral statements and written documents are
commercial speech, and satisfy the other requirements for

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25
26
27
28
13

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commercial advertising or promotion,1 Mercury argues that neither

2

the oral statements nor the written documents contain any false

3

statements of fact.
Heartland alleges that, both in the oral statements and

4
5

written documents, “Mercury represents to . . . merchants that

6

Mercury will pass interchange fees through at cost, and will

7

charge an additional, disclosed, mark-up on a per transaction

8

basis (in addition to other fees, such as monthly flat rate fees).

9

In fact, however, . . . Mercury is significantly inflating the

United States District Court
For the Northern District of California

10

interchange fees over cost.”

Compl. ¶ 18.

Heartland alleges that

11

Mercury “misrepresents” its pricing, but it has not stated facts

12

sufficient to support the inference that 1) Mercury discloses its

13

pricing in the way Heartland alleges, or that 2) Mercury has

14

actually charged something other than what it discloses.

15

to allege any facts -- such as specific language or terms in the

16

monthly statements, Operating Guide or Merchant Application -- to

17

support the inference that the documents do not contain truthful

18

“detailed terms and conditions . . . that make clear disclosures

19

about Mercury’s pricing and fees.”

20

Dismiss, Docket No. 33 at 4.

21

specific applications, but alleges that it did not have them at

22

the time the complaint was filed.

23

specific allegation as to what statements in the documents are

It fails

Def.’s Reply Supp. Mot.

Heartland claims to have copies of

Be that as it may, without some

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25
26
27
28

The other elements require a defendant who is a commercial
competitor of the plaintiff, commercial speech made for the
purpose of inducing customers to buy defendant’s goods or
services, and disseminated sufficiently to the relevant purchasing
public to constitute “advertising” or “promotion” within the
industry. These elements are not in dispute.
1

14

1

false and why, Heartland fails to state a claim under Rule 9(b)

2

and the Lanham Act.

3

Accordingly, to the extent it is based on the written

4

documents, this cause of action is dismissed for failure to state

5

a claim on this ground.

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statements, this cause of action is dismissed for this reason as

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well, in addition to the reasons discussed above.

8

granted leave to amend to remedy the deficiencies noted above if

9

it can do so truthfully and without contradicting the allegations

United States District Court
For the Northern District of California

10
11

To the extent it is based on the oral

Heartland is

in its prior pleadings.

12

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

13

The UCL prohibits “any unlawful, unfair or fraudulent

14

business act.”

15

section 17200 is written in the disjunctive, it establishes three

16

types of unfair competition.

17

Cal. App. 4th 581, 593 (2009).

18

prohibited as unfair or deceptive even if it is not unlawful and

19

vice versa.

20

632, 647 (1996).

21
22

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

Because

Davis v. Ford Motor Credit Co., 179
Therefore, a practice may be

Podolsky v. First Healthcare Corp., 50 Cal. App. 4th
Heartland alleges claims under all three prongs.

1. Rule 9(b)
Heartland relies on the same set of facts to support its UCL

23

claims as it does for its Lanham Act claims.

Accordingly, the

24

Court dismisses Heartland’s UCL causes of action for failure to

25

comply with Rule 9(b).

26

remedy this deficiency if it can do so truthfully and without

27

contradicting the allegations in its prior pleadings.

Heartland is granted leave to amend to

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15

1

In addition to moving for dismissal based on Rule 9(b),

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Mercury moves to dismiss Heartland’s UCL causes of action for

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failure to state a claim.

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United States District Court
For the Northern District of California

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2. Failure to state a claim: Unlawful business
practices
An unlawful business practice includes anything that can be
called a business practice and that is forbidden by law.

Ticconi

v. Blue Shield of Cal. Life & Health Ins., 160 Cal. App. 4th 528,
539 (2008).

Any federal, state or local law can serve as a

predicate for an unlawful business practice action.

Smith v.

State Farm Mut. Auto. Ins. Co., 93 Cal. App. 4th 700, 718 (2001).
Thus, the UCL incorporates violations of other laws and treats
them as unlawful practices independently actionable under the UCL.
Id.; Chabner v. United of Omaha Life Ins. Co., 225 F.3d 1042, 1048
(9th Cir. 2000); Cel-Tech Communs., Inc. v. L.A. Cellular Tel.
Co., 20 Cal. 4th 163, 180 (1999).
Heartland alleges that Mercury’s false statements, as found
in its written materials, are unlawful because they violate the
Lanham Act and California’s False Advertising Law (FAL).

As

discussed elsewhere in this order, Heartland fails to state a
claim under Rule 9(b), the Lanham Act and the FAL because it does
not state facts sufficient to support the allegation that Mercury
has made false statements, either in its oral statements or
written documents.
3. Failure to state a claim: Unfair business practices
“When a plaintiff who claims to have suffered injury from a
direct competitor’s ‘unfair’ act or practice invokes section
17200, the word ‘unfair’ in that section means conduct that

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threatens an incipient violation of an antitrust law, or violates

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the policy or spirit of one of those laws because its effects are

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comparable to or the same as a violation of the law, or otherwise

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significantly threatens or harms competition.”

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Inc., 20 Cal. 4th at 187.

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Cel-Tech Commc'ns,

Heartland alleges that Mercury’s actions threaten a violation

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of antitrust law, “including but not limited to Section 5 of the

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Federal Trade Commission Act, violate the policy or spirit of such

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law, and/or otherwise significantly threaten or harm competition.”

United States District Court
For the Northern District of California

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Compl. ¶ 48.

Heartland fails to state facts to support the

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allegation that Mercury’s conduct violates or threatens to violate

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§ 5 of the Federal Trade Commission Act, or any anti-trust law.

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Accordingly, Heartland’s cause of action for unfair business

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practices is dismissed for failure to state a claim, and for lack

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of particularity under Rule 9(b).

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4. Failure to state a claim: Fraudulent business
practices
“A fraudulent business practice is one in which members of
the public are likely to be deceived.”

Morgan v. AT&T Wireless

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

As discussed

above, Heartland’s cause of action for fraudulent business
practices relies on the same allegations as its other causes of
action, and is dismissed under Rule 9(b).

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D. Third Cause of Action: False Advertising in Violation of
California Business and Professions Code section 17500 et
seq. (FAL)
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
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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.
Davis v. HSBC Bank Nev., N.A., 691 F.3d 1152, 1162 (9th Cir. 2012)
(citations omitted).

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1. Rule 9(b)
Again, Heartland relies on the same set of facts to support
its FAL claim as it does for its other claims.

discussed above, the Court dismisses this cause of action for
failure to comply with Rule 9(b).

United States District Court
For the Northern District of California

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Accordingly, as

2. Failure to state a claim
Even if Heartland’s FAL cause of action did not fail due to
Rule 9(b), Mercury argues that Heartland fails to state a FAL
claim.

Mercury argues that the FAL requires that the “alleged

false advertising ‘be made or disseminated before the public in
California or emanate from California.’”

Docket No. 15 at 20.

Hence, Mercury argues that the “Complaint does not allege that any
of Mercury’s advertising emanates from California.”
Mercury’s argument is unpersuasive.

Id.

The complaint alleges

that Mercury’s written representations, with regard to its
pricing, are disseminated to all California merchants with whom it
contracts.
The Court declines to dismiss Heartland’s FAL cause of action
based on this argument.

However, as discussed above, it is

dismissed for failure to comport with the requirements of Rule
9(b).

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E. Fourth Cause of Action: Intentional Interference with
Contractual Relations (IICR)

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Heartland alleges that Mercury, with knowledge of Heartland’s

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contractual relationships, “engaged in intentional actions to

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interfere with them by inducing merchants to terminate their

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contracts with Heartland and instead engage the services of

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Defendant.”

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Compl. ¶ 59.

1. Rule 9(b)
Heartland fails to allege this cause of action with the
particularity required by Rule 9(b).

It does not allege any

United States District Court
For the Northern District of California

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particular contractual relationship, nor the “who, what, when,

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where, and how” the interference occurred.

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GRANTS Mercury’s motion to dismiss this cause of action for

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failure to comply with Rule 9(b).

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

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without contradicting the allegations in its prior pleadings.

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Accordingly, the Court

Heartland is granted leave to

2. Failure to State a Claim
Even if this cause of action did not fail under Rule 9(b),

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Mercury argues that Heartland fails to allege any “specific,

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intentional breaches of contract.”

Docket No. 15 at 22.

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“Under California law, the elements for the tort of

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intentional interference with contractual relations are (1) a

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valid contract between plaintiff and a third party;

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(2) defendant’s knowledge of this contract; (3) defendant’s

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intentional acts designed to induce a breach or disruption of the

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contractual relationship; (4) actual breach or disruption of the

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contractual relationship; and (5) resulting damage.”

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Maint., Inc. v. San Diego Convention Ctr., Inc., 766 F.3d 1002,

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United Nat.

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1006 (9th Cir. 2014) (citing Pac. Gas & Elec. Co. v. Bear Stearns

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& Co., 50 Cal. 3d 1118 (1990)).

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While Heartland asserts that it has “identified nearly thirty

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merchants who have left Heartland for Mercury within the last six

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months prior to filing the Complaint,” it admits it does not know

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“why every merchant who leaves Heartland has chosen to do so,” and

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cannot know without discovery.

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it may, Heartland does not allege that any of its contracts with

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any former merchant have actually been breached, much less

United States District Court
For the Northern District of California

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Docket No. 25 at 24.

Be that as

breached because of interference by Mercury.
Accordingly, the Court GRANTS Mercury’s motion to dismiss

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Heartland’s IICR cause of action.

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amend to remedy the deficiencies noted above if it can do so

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truthfully and without contradicting the allegations in its prior

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pleadings.

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Heartland is granted leave to

F. Fifth Cause of Action: Intentional Interference with
Prospective Economic Advantage (IIPEA)
Heartland alleges that it has “developed . . . prospective
opportunities which are likely to benefit [it] in the future,” but
that Mercury, “with knowledge of these . . . future economic
opportunities, engaged in wrongful and intentional actions to
interfere with them by inducing . . . prospective merchants to
sever their . . . prospective business relationships with
Heartland and instead engage the services of” Mercury.

Compl.

¶¶ 63-64.
1. Rule 9(b)
Heartland fails to allege this cause of action with the
particularity required by Rule 9(b).

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It does not allege any

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particular prospective economic relationship, nor the “who, what,

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when, where, and how” the interference occurred.

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Court GRANTS Mercury’s motion to dismiss this cause of action for

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failure to comply with Rule 9(b).

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

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without contradicting the allegations in its prior pleadings.

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Heartland is granted leave to

2. Failure to state a claim

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Accordingly, the

“[A] plaintiff seeking to recover for alleged interference
with prospective economic relations has the burden of pleading and

United States District Court
For the Northern District of California

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proving that the defendant’s interference was wrongful by some

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measure beyond the fact of the interference itself.”

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v. Toyota Motor Sales, USA, Inc., 11 Cal. 4th 376, 392-93 (1995).

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Della Penna

Heartland alleges that Mercury’s false advertising is the

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“wrong beyond measure of the interference itself.”

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above, Heartland’s FAL allegations are dismissed, and this cause

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of action too is dismissed for failure to state a claim, as well

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as for failure to comport with the pleading requirement of Rule

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9(b).
CONCLUSION

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As discussed

For the foregoing reasons, the Court GRANTS Mercury’s motion

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to dismiss (Docket No. 15), and the Court GRANTS Heartland leave

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to amend.

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Heartland may file an amended complaint to remedy the deficiencies

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identified above.

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not authorized by this order.

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support some of these claims despite due diligence, but later

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

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the future.

Within fourteen days of the date of this order,

It may not add further claims or allegations
If Heartland does not have facts to

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If Heartland files an amended complaint, Mercury shall

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respond to it within fourteen days after it is filed.

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files a motion to dismiss, Heartland shall respond to the motion

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within fourteen days after it is filed.

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necessary, shall be due seven days thereafter.

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dismiss will be decided on the papers.

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If Mercury

Mercury’s reply, if
Any motion to

IT IS SO ORDERED.

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United States District Court
For the Northern District of California

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Dated:

November 7, 2014
CLAUDIA WILKEN
United States District Judge

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