Think Computer Corporation v. Dwolla, Inc. et al

Filing 158

ORDER granting #91 , #99 , #128 Motions to Dismiss for Lack of Jurisdiction; denying #132 Motion for Sanctions. The clerk shall close this file. Signed by Judge Edward J. Davila on 3/24/2014. (ejdlc3, COURT STAFF) (Filed on 3/24/2014)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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SAN JOSE DIVISION

United States District Court
For the Northern District of California

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THINK COMPUTER CORPORATION,
Plaintiff,

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v.
DWOLLA, INC., ET AL.

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Defendants.

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Case No.: 5:13-CV-02054-EJD
ORDER GRANTING DEFENDANTS’
MOTIONS TO DISMISS

[Re: Docket Item Nos. 91, 99, 128, 132]

Presently before the Court are three Motions to Dismiss Plaintiff’s First Amended

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Complaint (“FAC”) filed by Defendants. The first is a Motion to Dismiss Plaintiff’s first and

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second claims filed by the majority of the Defendants. See Motion to Dismiss (“primary Motion to

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Dismiss”), Docket Item No. 91. The second is a Motion to Dismiss Plaintiff’s third claim and

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joinder in the primary Motion to Dismiss brought by Coinbase, Inc. (“Coinbase”), Dwolla, Inc.

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(“Dwolla”), and Stripe, Inc. (“Stripe”). See Joinder and Motion to Dismiss (“MTD 2”), Docket

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Item No. 99. The third is a Motion to Dismiss and joinder in the primary Motion to Dismiss filed

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by ActBlue, LLC (“ActBlue”). See Motion to Dismiss Plaintiff’s FAC and Joinder (“MTD 3”),

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Docket Item No. 128. Additionally, Defendants have filed a Motion for Sanctions against Plaintiff.

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This case is presently before this Court based on federal question jurisdiction, 28 U.S.C. §
1331.
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Case No. 5:13-CV-02054-EJD
ORDER GRANTING DEFENDANTS’ MOTIONS TO DISMISS

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I. BACKGROUND
Plaintiff is a Palo Alto-based money service business (“MSB”) and developer of a mobile
payment system platform called FaceCash, which was launched in April 2010. Defendants fall into

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two groups: companies that Plaintiff claims are money transmitters (“MSB Defendants”) and

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venture capital funds and individual investors (“Investor Defendants”). The MSB Defendants

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include Airbnb, Inc.; ActBlue, LLC; Balanced, Inc.; Clinkle Corp.; Coinbase, Inc.; CoinLab, Inc.;

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Dwolla, Inc.; Facebook, Inc.; Facebook Payments, Inc.; GoPago, Inc.; Gumroad, Inc.; Square, Inc.;

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Stripe, Inc.; and The Board of Trustees of the Leland Stanford Junior University. Investor

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Defendants include A-Grade Investments LLC (and an A-Grade fund); Andreessen Horowitz, LLC

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United States District Court
For the Northern District of California

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(and a number of Andreesseen Horowitz funds); Digital Sky Technologies, Limited (and a number

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of DST funds); Kleiner Perkins Caufield & Byers, LLC (and a number of KPCB funds); Sequoia

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Capital, LLC (and other Sequoia funds); Union Square Ventures, LLC (and Union Square funds);

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Y Combinator, LLC (and Y Combinator Funds); Brian Chesky; Max Levchin; Yuri Milner; and

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Yishan Wong.

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Plaintiff contends that MSB Defendants are organizations that hold and transmit funds on

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behalf of third parties and, by virtue of their direct involvement in the payment industry, are direct

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competitors of Plaintiff. Plaintiff states that MSB Defendants operated without the requisite money

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transmitter licenses after July 1, 2011, in violation of the California Money Transmitter Act

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(“MTA”), Cal. Fin. Code §§ 2000 et seq. The MTA, which imposes certain licensing,

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capitalization, and insurance requirements on money transmitting businesses, became enforceable

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on July 1, 2011. Plaintiff contends that Investor Defendants invested their money in, supervised,

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directed, participated in the business activities of, and controlled the business operations of MSB

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Defendants with the intent of helping them to violate state and federal law.

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Plaintiff did not acquire the necessary license required under the MTA and voluntarily

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pulled its FaceCash service from all its customers as of June 30, 2011, the day before the MTA

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went into effect. Although it continues to operate its FaceCash platform, Plaintiff has no paying

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customers for payment services.

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Case No. 5:13-CV-02054-EJD
ORDER GRANTING DEFENDANTS’ MOTIONS TO DISMISS

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Plaintiff filed a complaint on May 6, 2013. See Docket Item No. 1. Plaintiff’s FAC, filed

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on June 21, 2013, alleges the following causes of action: violation of the California Unfair

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Competition Law (“UCL”), Cal. Bus. & Prof. Code § 17200, against all Defendants, unjust

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enrichment against all Defendants, and violation of the Lanham Act, 15 U.S.C. §§ 1051 et seq.,

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against Defendants Dwolla, Stripe, and Coinbase. Dkt. No. 76. The primary Motion to Dismiss

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was filed on August 8, 2013 by Defendants Airbnb, Balanced, CoinLab, Facebook, Facebook

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Payments, Gumroad, Square, The Board of Trustees of the Leland Stanford Junior University, A-

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Grade Investments, Andreessen Horowitz, Digital Sky Technologies, Kleiner Perkins Caufield &

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Byers, Sequoia Capital, Union Square Ventures, Y Combinator, Brian Chesky; Max Levchin, Yuri

United States District Court
For the Northern District of California

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Milner, and Yishan Wong. Dkt. No. 91. Defendants Dwolla, Stripe, and Coinbase joined the

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primary Motion to Dismiss and filed their own Motion to Dismiss. Dkt. No. 99. Defendant

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ActBlue filed a separate Motion to Dismiss and joined the primary Motion to Dismiss on August

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26, 2013. Dkt. No. 128. Defendant GoPago filed a Joinder in Defendants’ motion on September

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26, 2013. See Docket Item No. 148. The Investor Defendants filed a Motion for Sanctions on

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September 5, 2013. See Docket Item No. 132.

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II. LEGAL STANDARD

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An Article III federal court must first ask whether a plaintiff has suffered sufficient injury

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to satisfy the “case or controversy” requirement of Article III of the U.S. Constitution. To satisfy

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Article III standing, a plaintiff must allege: (1) an injury in fact that is concrete and particularized,

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as well as actual and imminent; (2) that the injury is fairly traceable to the challenged action of the

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defendant; and (3) that it is likely (not merely speculative) that injury will be redressed by a

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favorable decision. Friends of the Earth, Inc. v. Laidlaw Envtl. Servs., Inc., 528 U.S. 167, 180-81

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(2000); Lujan v. Defenders of Wildlife, 504 U.S. 555, 561-62 (1992). A suit brought by a plaintiff

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without Article III standing is not a “case or controversy,” and an Article III federal court therefore

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lacks subject matter jurisdiction over the suit. “A party invoking the federal court’s jurisdiction has

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the burden of proving the actual existence of subject matter jurisdiction.” Thompson v. McCombe,

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99 F.3d 352, 353 (9th Cir. 1996). Federal courts are courts of limited jurisdiction, adjudicating

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only cases which the Constitution and Congress authorize. Kokkonen v. Guardian Life Ins. Co. of
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Case No. 5:13-CV-02054-EJD
ORDER GRANTING DEFENDANTS’ MOTIONS TO DISMISS

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America, 511 U.S. 375, 377 (1994). If a court determines that it lacks subject matter jurisdiction,

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the court must dismiss the action. Fed. R. Civ. P. 12(h)(3).

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III. DISCUSSION

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Defendants contend that Plaintiff’s claims must be dismissed because Plaintiff does not

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have standing to pursue its federal law claim, this Court does not have subject matter jurisdiction

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over Plaintiff’s state law claims, and Plaintiff fails to state a claim both in its federal and state law

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causes of action.

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A. Federal Law Claim

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The Court begins by analyzing Plaintiff’s third claim for violations of the Lanham Act, 15

United States District Court
For the Northern District of California

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U.S.C. §§ 1051 et seq., as this is Plaintiff’s only claim based on federal law. The “false

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advertising” prong of the Lanham Act provides: “[a]ny person who, on or in connection with any

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goods or services . . . uses in commerce any . . . false or misleading description of fact, or false or

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misleading representation of fact . . . shall be liable in a civil action by any person who believes

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that he or she is likely to be damaged by such act.” 15 U.S.C. §1125(a). Plaintiff alleges that

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statements made by Dwolla in three publications and statements made by Stripe and Coinbase in

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their terms of service were false and caused injury to Plaintiff. Defendants Coinbase, Dwolla, and

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Stripe argue that Plaintiff lacks Article III standing to sue under the Lanham Act and the claim

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must be dismissed. This Court agrees.

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As noted, Article III standing requires an injury in fact, causation, and redressability.

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Lujan, 504 U.S. at 560-61. Specifically, to establish standing under the Lanham Act, “a plaintiff

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must show: (1) a commercial injury based upon a misrepresentation about a product; and (2) that

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the injury is ‘competitive,’ or harmful to the plaintiff’s ability to compete with the defendant.”

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TrafficSchool.com v. Edriver Inc., 653 F.3d 820, 826 (9th Cir. 2011). A plaintiff can establish that

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“some consumers who bought the defendant’s product under a mistaken belief fostered by the

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defendant would have otherwise bought the plaintiff’s product.” Id. at 825. To show that an injury

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is competitive, a plaintiff must “compete” with defendants, or “vie for the same dollars from the

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same consumer group” as the defendants. Id. at 827. This District has held that “competitors are

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persons endeavoring to do the same thing and each offering to perform the act, furnish the
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Case No. 5:13-CV-02054-EJD
ORDER GRANTING DEFENDANTS’ MOTIONS TO DISMISS

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merchandise, or render the service better or cheaper than his rival.” Brosnan v. Tradeline

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Solutions, Inc., 681 F. Supp. 2d 1094, 1101 (N.D. Cal. 2010).
Here, Defendants argue that Plaintiff lacks standing under the Lanham Act because it is not

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a competitor and therefore cannot claim any competitive injury. First, all the actions by Dwolla

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that allegedly violated the Act occurred after Plaintiff voluntarily shut down its FaceCash operation

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on June 30, 2011 and it was no longer competing with Defendants in the sense that it was no longer

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vying for the same dollars from the same consumer group, because it was no longer selling a

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similar product or services. The first alleged violation by Dwolla took place in November 2011,

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which is more than four months after Plaintiff had stopped operating FaceCash. So, although

United States District Court
For the Northern District of California

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Plaintiff alleges that its sales and customers were directly diverted to Dwolla as a result of

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Dwolla’s statements, all contested statements were made after Plaintiff already shut down its

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allegedly competing business and no longer had any sales or paying customers. Therefore,

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Plaintiff could not have suffered a competitive injury regarding its FaceCash payment services

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after June 30, 2011.
Further, the statements by Stripe and Coinbase that allegedly violate the Act were made as

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part of each company’s terms of service, and it is unclear from the FAC when those statements

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were made.1 If the statements were made after June 30, 2011, as indicated in Defendants’ Motion,

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then Plaintiff was no longer a competitor. However, even if those statements were made before

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Plaintiff shut down its payment services, Plaintiff does not allege that it suffered any commercial

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injury as a result of the statements contained in Stripe and Coinbase’s terms of service, only that

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they actually did and/or had the tendency to deceive Stripe’s and Coinbase’s customers and

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investors.

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For these reasons, the Court finds that Plaintiff cannot show that it competed in the market

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with Defendants Dwolla, Stripe, or Coinbase once it voluntarily shut down its FaceCash payment

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services on June 30, 2011, nor can Plaintiff allege a commercial injury to meet the standing

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requirements of the Lanham Act. As such, Plaintiff’s third claim is dismissed without leave to

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As noted in declarations submitted by Defendants, the version of Stripe’s terms of service cited in the FAC is dated
May 22, 2013 (Dkt. No. 99-1, at 1) and the version of Coinbase’s terms of services cited in the FAC is dated August 1,
2012 (Dkt. No. 99-2, at 1). These dates are both more than a year after Plaintiff shut down its FaceCash operation.

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Case No. 5:13-CV-02054-EJD
ORDER GRANTING DEFENDANTS’ MOTIONS TO DISMISS

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amend, because allowing for further amendment would be futile. Polich v. Burlington N., Inc., 942

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F.2d 1467, 1472 (9th Cir. 1991).

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B. State Law Claims

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After determining that Plaintiff’s one federal claim should be dismissed, the Court must
determine whether Plaintiff’s state law claims may properly remain in federal court. In the FAC,

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Plaintiff asserts that the federal question statute, 28 U.S.C. § 1331, applies to its UCL and unjust

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enrichment claims, which are based on violations of state and federal law, giving this Court subject

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matter jurisdiction over those claims. Plaintiff incorporates alleged violations of 18 U.S.C. § 1960

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against Investor Defendants and violations of 18 U.S.C. § 1960 and 31 U.S.C. §§ 5316, 5318

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United States District Court
For the Northern District of California

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against MSB Defendants. Defendants argue that the UCL and unjust enrichment claims arise

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under California law and Plaintiff does not identify any substantial federal question that must be

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resolved.

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Although California’s UCL allows for remedies based on violations of state and federal

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laws, the Ninth Circuit has determined that, “where there is no federal private right of action,

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federal courts may not entertain a claim that depends on the presence of federal question

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jurisdiction under 28 U.S.C. § 1331.” Webb v. Smart Documents Solutions, LLC, 499 F.3d 1078,

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1083 (9th Cir. 2007); see also Merrell Dow Pharm. Inc. v. Thompson, 478 U.S. 804, 814 (1986)

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(holding that the congressional determination not to provide a private cause of action under the

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federal statute constitutes “a congressional conclusion that the presence of a claimed violation of

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the statute as an element of a state cause of action is insufficiently ‘substantial’ to confer federal-

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question jurisdiction”); Utley v. Varian Assoc., Inc., 811 F.2d 1279, 1283 (9th Cir. 1987) (holding,

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in a case involving California state law claims including UCL, that “if a federal law does not

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provide a private right of action, then a state law action based on its violation perforce does not

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raise a ‘substantial’ federal question”).

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To determine whether a private right of action exists under a particular statute, the court
must discern congressional intent by examining the language of the statute or the circumstances of

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Case No. 5:13-CV-02054-EJD
ORDER GRANTING DEFENDANTS’ MOTIONS TO DISMISS