Bagg v. HighBeam Research, Inc. et al

Filing 58

MEMORANDUM Opinion and Order Signed by the Honorable Harry D. Leinenweber on 7/10/2013:Mailed notice(wp, )

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

ROBERT BAGG, DAVID CROTTY,
KATHLEEN GEISSE, CRYSTAL DILLON
and LESLIE JOHNSTON,
Individually and on Behalf of
All Other Persons Similarly
Situated,

Case No. 12 C 9756

Plaintiffs,
Hon. Harry D. Leinenweber

v.
HIGHBEAM RESEARCH, INC., THE
GALE GROUP, INC., and CENGAGE
LEARNING, INC.,
Defendants.

MEMORANDUM OPINION AND ORDER
Before

the

Court

is

Defendants’

Plaintiffs’ First Amended Complaint.

Motion

to

Dismiss

For the reasons stated

herein, the Motion is granted in part and denied in part.
I.
Plaintiffs

Robert

FACTUAL BACKGROUND
Bagg,

David

Crotty,

Crystal

Dillon,

Kathleen Geisse and Leslie Johnston, (hereinafter, collectively,
the “Plaintiffs”), on behalf of themselves and others similarly
situated, brought the instant suit against Defendants HighBeam
Research, Inc., The Gale Group, Inc., and Cengage Learning, Inc.
(hereinafter, collectively, “HighBeam” or “Defendants”).

In

their Amended Complaint, Plaintiffs claim Defendants are liable
for violations of (1) the Massachusetts Consumer Protection Act

(the “MCPA”); (2) the Illinois Consumer Fraud and Deceptive
Practices Act (the “ICFA”); (3) the Illinois Automatic Contract
Renewal Act (the “IACRA”); and (4) unjust enrichment.
The crux of the case concerns HighBeam’s alleged use of
deceptive practices on its website www.highbeam.com.
to

Plaintiffs,

HighBeam

tricked

consumers

into

According
paying

for

subscriptions to its online research services by offering a free
seven-day trial and then after the trial ended, charged consumers
for

the

subscriptions

without

their

knowledge.

Plaintiffs

describe this practice as a “Free-To-Pay” conversion, and explain
that this occurs when “consumers are automatically billed for a
service or membership if consumers do not take affirmative steps
to cancel during the Free Trial period.”

Amend. Compl. at 1-2.

Plaintiffs filed this suit initially in the United States
District

Court

transferred

to

of

Massachusetts.

this

Court

after

However,
the

the

District

case

was

Court

in

Massachusetts determined that a forum-selection clause in the
User Agreement on HighBeam’s website (the “User Agreement”)
required the case to be heard in the Northern District of
Illinois.
Defendants

filed

the

instant

Motion

pursuant

to

Rule 12(b)(6). Attached to their Motion are two declarations and
a

handful

dismissal.

of

other

documents

which

they

contend

support

Plaintiffs have objected to these attachments and

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argue that the Court’s consideration of such would transform the
Motion to Dismiss to a motion for summary judgment pursuant to
Rule 12(d).

Plaintiffs argue, in the alternative, that if the

Court considers these documents, then it should also review the
documents Plaintiffs included with their response brief.
After reviewing the filings of both parties, the Court
declines to consider any of attachments at this stage in the
litigation.

None are dispositive in determining whether the

Plaintiffs’ claims should be dismissed, and do not fall under any
of the Seventh Circuit’s exceptions to Rule 12(d).

See Moore v.

Martin, No. 89-C-7473, 1990 WL 71029, at *1 (N.D. Ill. May 8,
1990) (the Court has discretion whether to consider extraneous
documents to a motion to dismiss and often rejects such evidence
if it is not “substantial or comprehensive enough to facilitate
disposition of the action.”); see also, Tierney v. Vahle, 304
F.3d 734, 738 (7th Cir. 2002) (explaining that if documents
outside the pleadings are (1) referred to in the complaint; (2)
concededly authentic; or (3) central to the plaintiff’s claim,
the Court may consider such documents without converting a
12(b)(6) motion to one for summary judgment). Thus, in ruling on
the instant Motion, the Court proceeds under Rule 12.
II.

LEGAL STANDARD

A motion to dismiss pursuant to Rule 12(b)(6) tests the
sufficiency of the complaint, not the merits of the suit.

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See

Gibson v. City of Chicago, 910 F.2d 1510, 1520 (7th Cir. 1990).
Accordingly, the Court takes all well-pled allegations of the
complaint as true, and views them in the light most favorable to
the plaintiff.

Appert v. Morgan Stanley Dean Witter, Inc., 673

F.3d 609, 622 (7th Cir. 2012).

To satisfy the notice-pleading

standard of Rule 8, a complaint must provide a “short and plain
statement of the claim showing that the pleader is entitled to
relief,” and provide the defendant with fair notice of the claim
and its basis.

FED. R. CIV. P. 8(a)(2); Bell Atl. Corp. v.

Twombly, 550 U.S. 544, 545, 555 (2007).
When a plaintiff asserts claims of fraud, such allegations
must satisfy the heightened pleading requirements of Rule 9(b).
FED. R. CIV. P. 9(b); see also, Borsellino v. Goldman Sachs Group,
Inc., 477 F.3d 502, 507 (7th Cir. 2007).

A complaint satisfies

Rule 9(b) when it alleges “the who, what, when, where, and how”
of the fraud.

See Borsellino, 477 F.3d at 507.

Rule 9(b), read

in conjunction with Rule 8, requires plaintiffs to plead “the
time, place
evidence.

and

contents” of

the

purported fraud,

but not

Fujisawa Pharm. Co., Ltd. v. Kapoor, 814 F.Supp. 720,

726 (N.D. Ill. 1993).
III.
As

an

initial

matter,

ANALYSIS
Plaintiffs

have

indicated

that

Kathleen Geisse, one of the originally named Plaintiffs, seeks to
dismiss her claims voluntarily.

See Pls.’ Resp. at 2 n.1.

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The

Court grants this request and dismisses Geisse’s claims without
prejudice.

Thus, the Plaintiffs that remain are Bagg, Crotty,

Dillon, and Johnston.

These Plaintiffs contest Defendants’

Motion to Dismiss.
A.

Count I - Massachusetts General Laws, Chapter 93A

Count I of Plaintiffs’ Amended Complaint alleges a violation
of Chapter 93A under Massachusetts General Laws.

This chapter

makes it unlawful to use “[u]nfair methods of competition and
unfair or deceptive acts or practices in the conduct of any trade
or commerce. . . .”

Mass. Gen. Laws ch. 93A § 1 et seq.

Defendants contend the claim fails because it is precluded by the
User Agreement’s choice-of-law provision.

Plaintiffs respond

that their consumer fraud claims “derive from Defendants’ extracontractual representations about their services,” and thus are
not subject to the User Agreement’s choice-of-law provision.
Amend. Compl. at 16.
Even if the Court accepted Plaintiffs’ argument regarding
the inapplicability of the choice-of-law provision (which at this
stage, the Court declines to rule on), Count I still fails.

It

is well established that when a federal court exercises diversity
jurisdiction it must follow the forum state’s conflict of laws
principles.

Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S.

487, 496–97 (1941). Under Illinois law, the Court is required to
“select

the

law

of

the

jurisdiction

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that

has

the

‘most

significant relationship’ to the events of which the suit arose,
and to the parties.”

Carris v. Marriott Int’l, Inc., 466 F.3d

558, 560 (7th Cir. 2006) (citations omitted).

The Seventh

Circuit instructs that “the law of the place of injury controls
unless Illinois has a more significant relationship with the
occurrence and with the parties.”

Tanner v. Jupiter Realty

Corp., 433 F.3d 913, 915–26 (7th Cir. 2006).

In consumer fraud

cases,

the

located

“the
.

.

injury
.

[and

is

decidedly

not]

where

where
the

seller

consumer
maintains

is
its

headquarters.” In re Bridgestone/Firestone, Inc., 288 F.3d 1012,
1017 (7th Cir. 2002).
In

this

case,

Massachusetts is Bagg.

the

only

Plaintiff

that

resides

in

Plaintiffs’ Amended Complaint proposes a

class that includes “all persons [] in the United States who
signed up for highbeam.com’s free trial and were subsequently
charged for monthly and/or yearly membership(s) and/or monthly
and/or years’ membership renewals that they did not want and/or
did not authorize.”

Amend. Compl. at 22.

Assuming the Court

certified the proposed class, Plaintiffs could not (as a class)
pursue a claim under Massachusetts’ consumer fraud laws. This is
true because the place of injury for each individual class member
will vary.

See Siegel v. Shell Oil Co., 256 F.R.D. 580, 585-86

(N.D. Ill. 2008) (explaining that Illinois’ choice-of-law rules
pose problems in consumer fraud cases that attempt to certify

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nationwide classes because the injury is where the consumer is
located).
prejudice.

In light of this, the Court dismisses Count I without
If Plaintiffs wish to amend their Complaint and

propose to include a subclass that includes only consumers who
resided in Massachusetts at the relevant time period, Plaintiffs
can re-file their claim under Massachusetts General Laws.

See,

generally, Saltzman v. Pella Corp., 257 F.R.D. 471, 477 (N.D.
Ill. 2009) (creating subclasses of consumers with respect to
statutory consumer fraud claims).
B.

Count II - Illinois Statutory Consumer Fraud Claim

Count II alleges Defendants violated the Illinois Consumer
Fraud and Deceptive Business Practices Act (the “ICFA”). See 815
ILCS 505/1 et seq.

The ICFA makes it “unlawful to use deception

or fraud in the conduct of trade or commerce.” Pirelli Armstrong
Tire Corp. Retiree Med. Benefits Trust v. Walgreen Co., 631 F.3d
436, 441 (7th Cir. 2011).
Defendants argue Plaintiffs’ ICFA claim fails because the
connection between the alleged wrongful conduct and Illinois is
insufficient.

They rely upon the Illinois Supreme Court’s

decision in Avery v. State Farm Mutual Automobile Insurance
Company, 835 N.E.2d 801, 854 (Ill. 2005) which held that the ICFA
only applies to nonresident claimants if the circumstances of the
disputed transaction occurred “primarily and substantially” in
Illinois.
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Plaintiffs respond that the transactions occurred primarily
in Illinois.
Illinois

and

They argue that since HighBeam is headquartered in
the

User

Agreement

includes

a

choice-of-law

provision specifying Illinois, the transactions at issue occurred
in Illinois.

The Court disagrees.

Determining whether a putative nonresident plaintiff may
bring an ICFA claim is a fact specific inquiry.

See Crichton v.

Golden Rule Ins. Co., 576 F.3d 392, 396 (7th Cir. 2009).

The

courts

the

consider

a

number

of

factors

including:

(1)

claimant’s residence; (2) the defendant’s place of business; (3)
the location of the relevant item that was the subject of the
disputed transaction; (4) the location of the claimant’s contacts
with the

defendant;

(5)

where

the

contracts

at

issue

were

executed; (6) the contract’s choice-of-law provisions; (7) where
the allegedly deceptive statements were made; (8) where payments
for services were to be sent; and (9) where complaints were to be
directed.

See Haught v. Motorola Mobility, Inc., No. 12-C-2515,

2012 WL 3643831, at *3 (N.D. Ill. Aug. 23, 2012) (citing Avery,
835 N.E.2d at 854–855).
In Haught, the plaintiff, an Ohio resident, brought a class
action suit and asserted an ICFA claim based upon the defendant’s
alleged misleading representations.

Id. at *1.

In dismissing

the ICFA claim, the court found the transaction too tenuously
connected

to

Illinois

to

have

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occurred

“primarily

and

substantially in Illinois.”

Id. at *4.

There, the plaintiff

argued the transaction occurred in Illinois because the alleged
misrepresentations were disseminated on the defendant’s website
which was designed in Illinois and argued that the relevant
agreement included a choice-of-law provision that designated
Illinois as controlling.

Id.

While the court in Haught noted

that these were factors to consider in determining where the
transaction occurred, it found dismissal appropriate.

The court

reasoned that since the plaintiff’s injury occurred in Ohio, the
transaction could not have occurred primarily in Illinois.

Id.

at *5.
The facts here are similar to Haught.
Plaintiffs

are

nonresidents

of

Here, the individual

Illinois.

Bagg

is

from

Massachusetts, Crotty is from Maryland, Dillon is from Maryland,
and Johnston is from Washington.

See Amend. Comp. ¶¶ 4-8.

Thus,

each suffered an injury in their respective home state. Pursuant
to

Haught,

it

is

the

Plaintiff’s

home

transactions at issue occurred, not Illinois.
WL 3643831, at *5.

state

where

the

See Haught, 2012

While Plaintiffs claim the Court should find

the ICFA claim appropriate because the User Agreement includes a
choice-of-law provision designating Illinois, an Illinois choiceof-law provision “is not dispositive of the effect of the ICFA on
nonresident claimants.”

Id.

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Plaintiffs’ arguments regarding HighBeam’s headquarters are
equally

unavailing.

While

the

Court

acknowledges

that

a

defendant’s headquarters is a factor that weighs in Plaintiffs’
favor, courts in this district have held this is “far from
dispositive”

in

determining

whether

a

primarily and substantially in Illinois.

transaction

occurs

Van Tassell v. United

Mktg. Group, LLC, 795 F.Supp.2d 770, 782 (N.D. Ill. 2011).
Indeed, in Van Tassell, (a case factually similar to the one
at bar), two named plaintiffs brought a putative class action
suit

against

four

businesses

claiming

that

the

businesses

violated the ICFA through alleged deceptive practices.

Id.

The

plaintiffs alleged that defendants were liable because they
offered a one dollar trial membership program on a website and
after the trial membership ended began charging each plaintiff a
monthly fee without their knowledge.

Id. at 774.

In dismissing

the plaintiffs’ ICFA claim, the court found the plaintiffs’
connection to Illinois insufficient. The court acknowledged that
one of the defendants was headquartered in Illinois and noted
that the alleged deceptive conduct was disseminated from a
website

designed

in

Illinois,

but

determined

this

to

be

insufficient for the purposes of the plaintiffs’ ICFA claim. Id.
at 782.
Similarly, in this case, Plaintiffs are all nonresidents of
Illinois and only Defendant HighBeam is headquartered here.

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Thus, even if the Court assumes HighBeam’s website is designed in
Illinois and the alleged deceptive conduct was disseminated to
Plaintiffs from Illinois, this is insufficient for the purposes
of ICFA.
Accordingly, Plaintiffs do not have a cognizable cause of
action under the ICFA.
C.

As such, Count II is dismissed.

Count III - Automatic Contract Renewal Claim

Plaintiffs also allege a violation of the Illinois Automatic
Contract Renewal Act (the “IACRA”).
business

or corporation

“that

The IACRA provides that any

sells

or

offers

to

sell

any

products or services to a consumer pursuant to a contract, where
such contract automatically renews unless the consumer cancels
the contract, shall disclose the automatic renewal clause clearly
and conspicuously in the contract, including the cancellation
procedure.”
that

when

815 Ill. Comp. Stat. Ann. 601/10.
a

contract

is

for

a

minimum

It also states

twelve

months

and

automatically renews for more than one month unless the consumer
cancels, businesses must provide written notification of the
automatic renewal and detail the cancellation procedure.

815

Ill. Comp. Stat. Ann. 601/10(b).
Defendants argue Count III should be dismissed because the
User Agreement discloses the automatic renewal clause clearly and
conspicuously.

They claim that the phrase:

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“IMPORTANT – AUTO-

RENEWING CONTRACT – READ CAREFULLY BEFORE USING THIS SERVICE”
constitutes a clear disclosure under the IACRA.
Plaintiffs disagree.

They point out that the above phrase

is only accessible to consumers through a hyperlink and not
included in the body of the free trial webpage.

Plaintiffs also

claim that Defendants violated the IACRA by failing to provide
written notification of the automatic renewal.
After reviewing Plaintiffs’ Amended Complaint, the Court
finds Plaintiffs’ allegations sufficient.

Plaintiffs allege

Defendants’ contract “failed to disclose the automatic renewal
clause clearly and conspicuously in the contract, including the
cancellation procedure.”

Amend. Comp. ¶ 86.

They also claim

that any written notice Defendants may have provided “did not
disclose

clearly

and

conspicuously

that

unless

consumer . . . cancel[led] the contract it w[ould] automatically
renew.”

Id. ¶ 91.

At this stage in the litigation, the Court

accepts these allegations as true and finds them sufficient to
state a claim under the IACRA.

See Ford v. Pacific WebWorks,

Inc., No. 09-C-7867, 2011 WL 529265, at *4 (N.D. Ill. Feb. 4,
2011)

(finding

plaintiffs’

allegations

that

“the

real

price . . . was hidden in small print or not disclosed at all,”
sufficient to avoid dismissal of an IACRA claim).

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Defendants also argue dismissal is appropriate because they
qualify for the IACRA’s safe harbor provision.

However, to take

advantage of this provision, a business must demonstrate that,
as part of its routine business practice: (I) it has
established and implemented written procedures to
comply with this Act and enforces compliance with the
procedures; (ii) any failure to comply with this Act is
the result of error; and (iii) where an error has
caused a failure to comply with this Act, it provides
a full refund or credit for all amounts billed to or
paid by the consumer from the date of the renewal until
the date of the termination of the account, or the date
of the subsequent notice of renewal, whichever occurs
first.
815 Ill. Comp. Stat. Ann. 601/10(c).
After reviewing the briefs and pleadings, the Court does not
find Defendants can establish all of the required elements under
the safe harbor provision.

First, Defendants cannot prove (at

this juncture) that they have policies and procedures that are
established to ensure compliance with IACRA.

Next, Defendants

cannot satisfy the third element – that when an error causes a
failure of compliance, a refund is issued.
Plaintiffs’
refund,

point

Defendants

that

Plaintiff

state

this

Johnston

is

In response to
never

irrelevant

received

since

a

“[t]he

exception does make the rule . . . [and] the fact that Johnston
was not refunded does not speak to HighBeam’s general policy and
qualification for the IACRA’s safe harbor provision.”
Reply

Br.

at

14.

This

argument

is

unavailing.

Defs.’
Even

if

Defendants have policies and procedures in place for the purposes

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of

the

IACRA

and

administrative

Johnston

error,

was

the

charged

safe

harbor

as

a

result

provision

of

an

requires

Defendants to issue her a refund.

See 815 Ill. Comp. Stat. Ann.

601/10(c)(iii).

Defendants

The

fact

that

admit

she

never

received one is fatal to their argument concerning the safe
harbor provision.
Accordingly,
sufficient

to

the

state

Court
a

finds

claim

under

Plaintiffs’
the

allegations

IACRA.

As

such,

Defendants’ Motion to Dismiss Count III is denied.
D.

Count IV - Unjust Enrichment Claim

Plaintiffs’ final claim is for unjust enrichment.

“In

Illinois, a claim for unjust enrichment exists when a defendant:
(1) receives a benefit; (2) to the plaintiff’s detriment; and (3)
the defendant’s retention of that benefit would be unjust.”
Allant Grp., Inc. v. Ascendes Corp., 231 F.Supp.2d 772, 774 (N.D.
Ill. 2002).

Plaintiffs allege that because they purchased

subscriptions to Defendants’ website unknowingly, Defendants
received a benefit and their retention of such benefit is unjust.
See Amend. Compl. at 28-29.
dismissed

because

the

Defendants argue the claim must be

User

Agreement

governs

the

parties’

relationship.
A claim for unjust enrichment allows courts to imply the
existence of a contract where none exists.

Prudential Ins. Co.

of Am. v. Clark Consulting, Inc., 548 F.Supp.2d 619, 622 (N.D.
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Ill. 2008).

When a claim falls within an express contract, the

remedy of unjust enrichment is unavailable.

See Utility Audit,

Inc. v. Horace Mann Serv. Corp., 383 F.3d 683, 688–89 (7th Cir.
2004) (holding that “[w]hen two parties’ relationship is governed
by contract, they may not bring a claim of unjust enrichment
unless the claim falls outside the contract”).
Plaintiffs

assert

their

independent cause of action.

unjust

enrichment

claim

See Pl.’s Resp. at 23.

is

an

They argue

that the claim survives because the Seventh Circuit has held that
Illinois

recognizes unjust

causes of action.

enrichment

claims

as

independent

See, Cleary v. Philip Morris, Inc., 656 F.3d

511 (7th Cir. 2011).
However,
subsequent

to

Plaintiffs
Clearly

fail

makes

to

it

recognize

apparent

that

that

case

when

law

a party

incorporates allegations of a specific contract into its unjust
enrichment

claim,

dismissal

is

appropriate.

See,

Astor

Professional Search, LLC v. Megapath Corp., No. 12-C-2313, 2013
WL 1283810 (N.D. Ill. Mar. 27, 2013).
Plaintiffs’ Amended Complaint incorporates the allegations
from their IACRA claim.

See Amend. Compl. ¶ 97.

alleges the existence of a contract.

The IACRA claim

Id. ¶¶ 85-88.

this, the Court finds dismissal appropriate.

Because of

See, The Sharrow

Grp. v. Zausa Dev. Corp., No. 04 C 6379, 2004 WL 2806193, at *3
(N.D. Ill. Dec. 6, 2004).
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The Court also rejects Plaintiffs’ contention that the
unjust enrichment claim survives because it is pled in the
alternative.
alternative

While the Court acknowledges pleading in the
is

permissible

under

Rule

8(d),

dismissal

is

appropriate if Plaintiffs’ unjust enrichment claim “include[s]
allegations of a specific contract governing the parties[‘]
relationship.”

Canadian

Pac.

Ry.

Co.

v.

Williams–Hayward

Protective Coatings, Inc., No. 02 C 8800, 2003 WL 1907943, at *5
(N.D. Ill. Apr. 17, 2003).

This is the case here, and therefore

dismissal is warranted.
IV.

CONCLUSION

For the reasons stated herein, the Court grants in part and
denies in part Defendants’ Motion to Dismiss.
IT IS SO ORDERED.

Harry D. Leinenweber, Judge
United States District Court
Date:7/10/2013

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