Facebook, Inc. v. MaxBounty, Inc

Filing 11

MOTION to Dismiss Counts I-III of the Complaint filed by MaxBounty, Inc. Motion Hearing set for 2/11/2011 09:00 AM in Courtroom 3, 5th Floor, San Jose. (Attachments: # 1 Supplement, # 2 Proposed Order)(Mizrahi, Mark) (Filed on 11/30/2010)

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Facebook, Inc. v. MaxBounty, Inc Doc. 11 Att. 1 1 2 3 4 5 Mark B. Mizrahi CA179384 mmizrahi@brookskushman.com BROOKS KUSHMAN P.C. Howard Hughes Center 6701 Center Drive, Ste. 610 Los Angeles, CA 90045 Tel.: 310-348-8200 Fax: 310-846-4799 Attorneys for Defendant MaxBounty, Inc. 6 7 8 9 10 11 12 13 14 v. 15 16 17 Defendant. 18 19 Hearing 20 21 22 Time: 9:00 A.M. 23 24 25 26 27 28 MAXBOUNTY'S MEMORANDUM IN SUPPORT OF MOTION TO DISMISS Case No. 5:10-cv-4712-JF UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA SAN JOSE DIVISION FACEBOOK, INC., a Delaware corporation, Plaintiff, Case No. 5:10-cv-4712-JF (HRL) MAXBOUNTY, INC., a Canadian corporation, DEFENDANT MAXBOUNTY, INC.'S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF ITS MOTION TO DISMISS COUNTS I, II AND III OF FACEBOOK'S COMPLAINT PURSUANT TO FED.R.CIV.P. 12(b)(6) Date: February 11, 2011 Dockets.Justia.com 1 2 TABLE OF CONTENTS TABLE OF AUTHORITIES ........................................................................................................ ii 3 I. 4 II. 5 A. 6 7 B. 8 9 10 11 12 3. 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 MAXBOUNTY'S MEMORANDUM IN SUPPORT OF MOTION TO DISMISS Case No. 5:10-cv-4712-JF INTRODUCTION ............................................................................................................ 1 ANALYSIS.......................................................................................................................2 Facebook Has Failed To State a Claim under the CAN-SPAM Act Because the Alleged Misconduct Does Not Involve False or Misleading E-Mail .................................................................................. 3 Facebook Has Failed to State a Claim For Violation of the Computer Fraud and Abuse Act And Common Law Fraud Because It Has Not Pled the Circumstances of MaxBounty's Alleged "Inducement" And "Conspiracy" To Commit Fraud with Particularity ...................................... 5 1. 2. Legal Standards For Pleading Fraud Generally ............................................ 5 Facebook Has Not Met The Standards For Pleading The Fraud Provisions Of The Computer Fraud And Abuse Act...........................6 Facebook Has Not Met The Standards For Pleading Common Law Fraud ..................................................................................... 8 III. CONCLUSION.................................................................................................................9 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 TABLE OF AUTHORITIES Cases Ashcroft v. Iqbal, __ U.S. __, 129 S.Ct. 1937 (2009)......................................................................................................... 7 Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007)............................................................................................................ 7 Comwest, Inc. v. American Operator Services, Inc., 765 F.Supp. 1467 (C.D.Cal.,1991) ............................................................................. ...5, 7 Falkowski v. Imation Corp., 309 F.3d 1123 (9th Cir.2002) ............................................................................................. 2 Hokama v. E.F. Hutton & Co., Inc., 566 F.Supp. 636 (C.D.Cal.1983) ........................................................................................ 5 In re Worlds of Wonder Securities Litigation, 694 F.Supp. 1427 (N.D.Cal.1988) ...................................................................................... 6 McFarland v. Memorex Corp., 493 F.Supp. 631 (N.D.Cal.1980). ....................................................................................... 5 Motorola, Inc. v. Lemko Corp., 609 F.Supp.2d 760 (N.D. Ill. 2009) .................................................................................... 6 NL Indus., Inc. v. Kaplan, 792 F.2d 896 (9th Cir.1986) ............................................................................................... 2 Schreiber Distributing Co. v. Serv-Well Furniture Co., Inc., 806 F.2d 1393 (9th Cir.1986) ......................................................................................... 5, 7 Wasco Prods., Inc., v. Southwall Techs., Inc., 435 F.3d 989 (9th Cir.2006) ....................................................................................... 5, 7, 8 Statutes 20 21 22 23 24 25 26 27 28 MAXBOUNTY'S MEMORANDUM IN SUPPORT OF MOTION TO DISMISS Case No. 5:10-cv-4712-JF 15 U.S.C. §7701 et seq.................................................................................................................... 1 15 U.S.C. §7702(17) ....................................................................................................................... 3 15 U.S.C. §7704(a)(1)..................................................................................................................... 3 18 U.S.C. §1030, et seq............................................................................................................... 2, 6 Rules Fed.R.Civ.P. 12(b)(6).............................................................................................................. 2, 4, 8 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 I. INTRODUCTION Defendant MaxBounty, Inc. ("MaxBounty") moves the Court for an order dismissing Counts I-III of the complaint, pursuant to Fed.R.Civ.P. 12(b)(6), for the following reasons. Plaintiff Facebook, Inc. ("Facebook") alleges that customers of MaxBounty engaged in deceptive advertising on the Facebook.com social network. Facebook does not allege that MaxBounty engages in any deceptive advertising on Facebook.com. In paragraph 1 of its Complaint, Facebook contends that MaxBounty is the "mastermind" behind deceptive advertising. Yet, in the body of its Complaint, Facebook cites the actions of MaxBounty customers as the cause of the alleged harm. (E.g., Complaint ¶¶ 46-47.) Facebook makes unsupported allegations against MaxBounty solely "on information and belief." (Complaint, ¶¶ 43-45, 49, 55-56, 62, 67-70, 77-79.) Facebook has no basis to say that MaxBounty is the "mastermind" behind alleged wrongdoing by its customers. Some of MaxBounty's customers create advertisements on Facebook.com, an activity expressly permitted by Facebook. These ads include links to sellers of products and services on the Internet. This is common practice on Facebook, and Facebook authorizes such advertising on its web site. (Complaint ¶ 37.) In Count I, Facebook alleges that MaxBounty has violated the "CAN-SPAM" Act (15 U.S.C. §7701 et seq.). Even if all of its allegations were true, and they are not, Facebook cannot prevail on this claim as a matter of law. The CAN-SPAM Act prohibits fraudulent e-mail. The term "e-mail" is expressly defined in the Act, and it does not include the activities Facebook cites as the basis for its complaint. Facebook makes no allegation (nor can it) that MaxBounty or its customers send deceptive e-mail, or that MaxBounty induces its customers to send deceptive e-mail. The customer advertisements Facebook complains about are not e-mail and therefore cannot give rise to a claim under the CAN-SPAM Act. Accordingly, Facebook has failed to state a claim on which relief can be granted. MAXBOUNTY'S MEMORANDUM IN SUPPORT OF MOTION TO DISMISS 1 Case No.10-cv-04712-JF 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 In Count II, Facebook alleges that MaxBounty has violated the Computer Fraud and Abuse Act (18 U.S.C. §1030, et seq.). The relevant provision of the Act prohibits improperly using another's computer to commit fraud. Facebook alleges, on "information and belief" that MaxBounty "induces" and "conspires" with its customers to violate the Act. However, no instance of any actual inducement or conspiracy by MaxBounty is pled. Rule 9(b) requires that circumstances surrounding an alleged fraud be pled with particularity. The Ninth Circuit requires pleading the time, place, and specific content of the false representations as well as the identities of the parties to the misrepresentation. Bald allegations of wrongdoing that are based solely "on information and belief" are insufficient to plead fraud as a matter of law. In Count III, Facebook alleges common law fraud. Similar to its unexplained allegations with respect to the Computer Fraud and Abuse Act, Facebook alleges that MaxBounty "induces" and "conspires" with its customers to make fraudulent representations. Facebook fails to plead any particular instance of inducement or conspiracy to commit fraud by MaxBounty. Facebook's claims for common law fraud fail for the same reasons as Facebook's claim under the Computer Fraud and Abuse Act fails. For these reasons, Counts I-III of the complaint should be dismissed pursuant to Fed.R.Civ.P. 12(b)(6). II. ANALYSIS A motion to dismiss for failure to state a claim may be granted where it is "clear that no relief could be granted under any set of facts that could be proved consistent with the allegations." Falkowski v. Imation Corp., 309 F.3d 1123, 1132 (9th Cir.2002). All material allegations in the complaint are to be taken as true and construed in the light most favorable to the plaintiff. NL Indus., Inc. v. Kaplan, 792 F.2d 896, 898 (9th Cir.1986). As detailed below, Facebook has not alleged a set of facts on which relief for Counts I, II and III of the Complaint can be granted. MAXBOUNTY'S MEMORANDUM IN SUPPORT OF MOTION TO DISMISS 2 Case No.10-cv-04712-JF 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 A. Facebook Has Failed To State a Claim under the CAN-SPAM Act Because the Alleged Misconduct Does Not Involve False or Misleading E-Mail The CAN-SPAM Act prohibits the following activity: It is unlawful for any person to initiate the transmission, to a protected computer, of a commercial electronic mail message, or a transactional or relationship message, that contains, or is accompanied by, header information that is materially false or materially misleading. 15 U.S.C. §7704(a)(1)(underlining added). The Act defines the term "transactional or relationship message" as a particular type of "electronic mail message." 15 U.S.C. §7702(17). Accordingly, all liability under the Act turns on the transmission of false or misleading "electronic mail messages." The Act defines the term "electronic mail message" as "a message sent to a unique electronic mail address." 15 U.S.C. §7702(6). The term "electronic mail address" is defined as: a destination, commonly expressed as a string of characters, consisting of a unique user name or mailbox (commonly referred to as the "local part") and a reference to an Internet domain (commonly referred to as the "domain part"), whether or not displayed, to which an electronic mail message can be sent or delivered. 15 U.S.C. §7702(5). Liability under the Act therefore requires the transmission of an "electronic mail message," sent to a "unique electronic mail address" that includes a "unique user name or mailbox" and an "Internet domain." An example of such an e-mail address is username@domain.com. Facebook makes no allegation that MaxBounty, or its customers, send fraudulent or deceptive e-mail as that term is defined under the Act. In its allegations supporting its CANSPAM claim, Facebook drops the Act's "mail" requirement altogether, revealing its inability to state a proper claim, viz: 61. Upon information and belief, Defendant knowingly and willingly participates with Defendant's affiliates in procuring Facebook users to send, or take actions that cause commercial electronic messages to be sent, to all the Facebook users' friends on Facebook. The Facebook users takes [sic] such action because they were led to believe they would receive valuable consideration if they send commercial messages to their friends. The electronic messages initiated by Defendant's affiliates are "commercial" electronic messages because their MAXBOUNTY'S MEMORANDUM IN SUPPORT OF MOTION TO DISMISS 3 Case No.10-cv-04712-JF 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 primary purpose was the Commercial advertisement or promotion of a commercial product or service (including content on an Internet website operated for a commercial purpose) as provided in 15 U.S.C. § 7702(2)(A). 62. Upon information and belief, Defendant induces its affiliates to initiate commercial messages on Facebook and thereby procures the origination or transmission of such message as provided in 15 U.S.C. § 7702(9). 63. Defendant intentionally misleads Facebook users by inducing its affiliates to initiate the transmission of commercial electronic messages through Facebook's computers to Facebook users that contain header information that is materially false or misleading as to the true identity of the initiator of the messages in violation of 15 U.S.C. § 7704(a)(1). (Dkt. #1, Complaint, underlining added.) The CAN-SPAM Act does not prohibit "electronic messages." The Act prohibits "electronic mail messages." The complaint contains no allegation that MaxBounty or its customers transmit false or misleading electronic mail messages as that term is defined by the Act. Taking all of Facebook's allegations as true, Facebook has failed to state a claim under the CAN-SPAM Act for which relief can be granted. Accordingly, Facebook's claim under the CAN-SPAM Act should be dismissed pursuant to Fed.R.Civ.P. 12(b)(6). MAXBOUNTY'S MEMORANDUM IN SUPPORT OF MOTION TO DISMISS 4 Case No.10-cv-04712-JF 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 B. Facebook Has Failed to State a Claim For Violation of the Computer Fraud and Abuse Act And Common Law Fraud Because It Has Not Pled the Circumstances of MaxBounty's Alleged "Inducement" And "Conspiracy" To Commit Fraud with Particularity 1. Legal Standards For Pleading Fraud Generally Allegations of fraud must meet the heightened pleading standards of FRCP 9(b). The Ninth Circuit has interpreted this rule to require a statement of "the time, place, and specific content of the false representations as well as the identities of the parties to the misrepresentation." Schreiber Distributing Co. v. Serv-Well Furniture Co., Inc., 806 F.2d 1393, 1400-01 (9th Cir.1986); Comwest, Inc. v. American Operator Services, Inc., 765 F.Supp. 1467, 1470-1471 (C.D.Cal.,1991). [T]he requisite factual allegations established by the Ninth Circuit in Schreiber are required for a purpose. Given that allegations of fraud are particularly injurious to business and professional reputations, a fraud claim may withstand a Rule 9(b) challenge only if it states "the manner in which [the alleged misrepresentations] are false, and the facts that support an inference of fraud by each defendant." Comwest, Inc., 765 F.Supp. at 1471, quoting McFarland v. Memorex Corp., 493 F.Supp. 631, 639 (N.D.Cal.1980). Rule 9(b) requires identification of the "source of the fraud" and specification of the "role of each defendant in the fraud." Id., quoting Hokama v. E.F. Hutton & Co., Inc., 566 F.Supp. 636, 645 (C.D.Cal.1983). In Comwest, the court held: "It is not enough for plaintiffs to make group allegations in such a situation because collective responsibility is not self-evident. Each defendant is entitled to know what misrepresentations are attributable to them and what fraudulent conduct they are charged with." In re Worlds of Wonder Securities Litigation, 694 F.Supp. at 1433. In order to satisfy Rule 9(b), fraud claims "must allege the roles of defendants in sufficient detail to permit each to assess and answer the various claims of ... liability asserted in the complaint." Hokama, 566 F.Supp. at 646. Hence, because plaintiff's First claim for relief fails to attribute any misrepresentation or act of fraud to any of the individual defendants, the defendants cannot properly be held to answer plaintiff's fraud claims. Comwest, Inc., 765 F.Supp. at 1471-1472. The Ninth Circuit also applies the heightened pleading standard to claims of civil conspiracy to commit fraud. See, e.g., Wasco Prods., Inc., v. Southwall Techs., Inc., 435 F.3d MAXBOUNTY'S MEMORANDUM IN SUPPORT OF MOTION TO DISMISS 5 Case No.10-cv-04712-JF 1 2 3 4 5 6 7 989, 990-91 (9th Cir.2006) (plaintiff must plead California civil conspiracy claim with particularity where object of agreement is fraudulent). Finally, "[i]t is well settled that fraud allegations based on information and belief do not satisfy the particularity requirement of Rule 9(b) unless the complaint sets forth the facts on which the belief is founded." Id., quoting In re Worlds of Wonder Securities Litigation, 694 F.Supp. 1427, 1432-33 (N.D.Cal.1988). 2. Facebook Has Not Met The Standards For Pleading The Fraud Provisions Of The Computer Fraud And Abuse Act 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Facebook alleges a violation of §§ 1030(a)(4) and (b) of the Computer Fraud and Abuse Act. (Dkt. #1, Complaint at ¶77-79.) Those provisions provide: (a) Whoever . . . (4) knowingly and with intent to defraud, accesses a protected computer without authorization, or exceeds authorized access, and by means of such conduct furthers the intended fraud and obtains anything of value, unless the object of the fraud and the thing obtained consists only of the use of the computer and the value of such use is not more than $5,000 in any 1-year period. *** (b) Whoever conspires to commit or attempts to commit an offense under subsection (a) of this section shall be punished as provided in subsection (c) of this section. 18 U.S.C. § 1030, underlining added. The heightened pleading requirement of Rule 9(b) applies to the "furthers the intended fraud" provision of the Act. Motorola, Inc. v. Lemko Corp., 609 F.Supp.2d 760, 765 (N.D. Ill. 2009) ("Rule 9(b)'s requirement that `[i]n alleging fraud . . ., a party must state with particularity the circumstances constituting fraud,' . . . quite plainly applies to section 1030(a)(4)'s requirement that the defendant's acts further the intended fraud."). Facebook does not allege that MaxBounty itself has committed fraud in violation of the Act. Instead, Facebook makes conclusory allegations "upon information and belief" that MaxBounty "induces" and "conspires" with its customers to violate the above provisions of the Computer Fraud and Abuse Act. (Dkt. #1, Complaint at ¶77-79.) Facebook does not identify any details of how MaxBounty allegedly induced or MAXBOUNTY'S MEMORANDUM IN SUPPORT OF MOTION TO DISMISS 6 Case No.10-cv-04712-JF 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 conspired to commit fraud. Facebook does not identify any particular individual at MaxBounty that induced or conspired with any particular customer to make any particular misrepresentation. Facebook does not identify a name, date, location or other particular detail concerning any actual instance of inducement or conspiracy to defraud. Facebook has not pled the required "time, place, and specific content of the false representations" or the "identities of the parties" at MaxBounty that give rise to Facebook's claims of MaxBounty's "conspiracy" and "inducement" to commit fraud. See, Schreiber Distributing Co. 806 F.2d at 1400-01. Facebook ignores the rule that bald allegations of fraud based on "information and belief" do not satisfy the particularity requirement of Rule 9(b). Comwest, Inc., 765 F.Supp. at 1471. Facebook's allegation of "conspiracy" to violate the Act fails because Facebook has not pled the particular circumstances giving rise to a "conspiracy" between MaxBounty and any of its customers to commit fraud. Wasco Prods., 435 F.3d at 990-991. Facebook's conclusory allegations of intent (Complaint at ¶77-78) also fall short of the pleading standards. In Ashcroft v. Iqbal, __ U.S. __, 129 S.Ct. 1937 (2009), the respondent argued that "the Federal Rules expressly allow him to allege petitioners' discriminatory intent `generally,' which he equates with a conclusory allegation." Id. at 1954. The Supreme Court rejected that argument, stating "the Federal Rules do not require courts to credit a complaint's conclusory statements without reference to its factual context." Id. Facebook does not plead any "factual context" surrounding its allegation that MaxBounty intended to induce fraud or conspire with its customers to commit fraud. Facebook is using its Computer Fraud and Abuse Act claim to engage in a fishing expedition, with no actual evidence, and no particular pleading, of MaxBounty's conduct ­ inducement, conspiracy or otherwise ­ that furthered any intended fraud in violation of the Act. Such improper fishing expeditions were one basis for the Supreme Court's ruling in Bell Atlantic that pleadings must comply with the pleading standards set forth in the Federal Rules. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 559 (2007) ("It is no answer to say that a claim just MAXBOUNTY'S MEMORANDUM IN SUPPORT OF MOTION TO DISMISS 7 Case No.10-cv-04712-JF 1 2 3 4 5 6 7 shy of a plausible entitlement to relief can, if groundless, be weeded out early in the discovery process through `careful case management,' . . . given the common lament that the success of judicial supervision in checking discovery abuse has been on the modest side."). Facebook's claim against MaxBounty fails to comply with Rule 9(b), and Facebook has failed to state a claim under the Computer Fraud and Abuse Act on which relief can be granted. Accordingly, Count II should be dismissed under Fed.R.Civ.P. 12(b)(6). 3. Facebook Has Not Met The Standards For Pleading Common Law Fraud 8 Count III alleges common law fraud. Facebook's conclusory allegations in Count III are 9 deficient for the same reasons as Count II discussed above. Upon "information and belief," 10 Facebook alleges that MaxBounty "induces" its customers to make "false representations." 11 (Complaint at ¶85-86.) Facebook fails to plead any circumstances concerning MaxBounty's 12 alleged wrongdoing, such as the actor(s) at MaxBounty that allegedly induced the fraud, or the 13 nature of MaxBounty's alleged inducement. 14 As explained above, such allegations fail to meet the heightened pleading requirements of 15 Rule 9(b), and other controlling authority. In addition, Facebook's allegation of "conspiracy" to 16 commit fraud is deficient because Facebook has failed to plead the particular circumstances 17 giving rise to a "conspiracy" between MaxBounty and any of its customers to commit fraud. 18 Wasco Prods., 435 F.3d at 990-991. 19 20 21 22 23 24 25 26 27 28 MAXBOUNTY'S MEMORANDUM IN SUPPORT OF MOTION TO DISMISS 8 Case No.10-cv-04712-JF 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Date: November 30, 2010 III. CONCLUSION For the above reasons, Counts I-III of the complaint should be dismissed for failure to state a claim on which relief can be granted pursuant to Rule 12(b)(6). By:_/s/ Mark B. Mizrahi Mark B. Mizrahi CA179384 mmizrahi@brookskushman.com BROOKS KUSHMAN P.C. Howard Hughes Center 6701 Center Drive, Ste. 610 Los Angeles, CA 90045 Tel.: 310-348-8200_ Fax: 310-846-4799 Counsel for Defendant MaxBounty, Inc. MAXBOUNTY'S MEMORANDUM IN SUPPORT OF MOTION TO DISMISS 9 Case No.10-cv-04712-JF 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 CERTIFICATE OF ELECTRONIC SERVICE I hereby certify that on November 30, 2010, I electronically filed the foregoing document with the Clerk of the Court for the Northern District of California using the ECF System which will send notification to the following registered participants of the ECF System as listed on the Court's Notice of Electronic Filing: Joseph Perry Cutler and Brian Patrick Hennessy. I also certify that I have mailed by United States Postal Service the paper to the following non-participants in the ECF System: James M. McCullagh Perkins Cole LLP 1201 Third Avenue Suite 4800 Seattle, WA 98101 By: /s/ Mark B. Mizrahi Mark B. Mizrahi mmizrahi@brookskushman.com BROOKS KUSHMAN P.C. Attorneys for Defendant, MaxBountry, Inc. MAXBOUNTY'S MEMORANDUM IN SUPPORT OF MOTION TO DISMISS 10 Case No.10-cv-04712-JF

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