1
2
3
STANBURY FISHELMAN, INC.
9200 Sunset Boulevard, Penthouse 30
Los Angeles, CA 90069-3601
Tel: (310) 278-1800
Fax: (310) 278-1802
5
GEORGE S TANBURY , S TATE BAR NO. 60048
BRUCE C. FISHELMAN, S TATE BAR NO. 117945
H. SCOTT LEVIANT, S TATE BAR NO. 200834
6
Attorneys for Plaintiffs
4
7
8
SUPERIOR COURT OF THE STATE OF CALIFORNIA
9
FOR THE COUNTY OF LOS ANGELES
10
9200 SUNSET BOULEVARD, PENTHOUSE 30
LOS ANGELES, CA 90069-3601
STANBURY FISHELMAN, INC.
11
LEONARD KNABLE, et al.,
Plaintiffs,
12
13
14
15
Case No.: BC 290840
Hon. Charles W. McCoy
vs.
PLAINTIFFS’ OPPOSITION TO
DEFENDANT’S DEMURRER TO
PLAINTIFFS’ SECOND AMENDED
COMPLAINT; MEMORANDUM OF
POINTS AND AUTHORITIES
INTUIT INC., et al.,
Defendants.
16
Date:
Time:
Dept.:
17
18
January 14, 2004
1:45 p.m.
323
19
Action Filed:
Trial Date:
20
February 24, 2003
None
21
22
TO THE COURT, TO ALL PARTIES AND TO THEIR COUNSEL OF RECORD:
23
Plaintiffs submit the following Memorandum of Points and Authorities in Opposition
24
25
26
27
to Defendant INTUIT INC.’s Demurrer to Plaintiffs’ Second Amended Complaint. Plaintiffs’
Opposition is based upon this Memorandum of Points and Authorities, Plaintiffs’
Compendium Of Extra-Jurisdictional Authorities Cited By Plaintiffs In Plaintiffs’
Memorandums Of Points And Authorities In Opposition To Defendant’s Demurrer To
28
1
Case No.: BC290840
PLAINTIFFS’ OPPOSITION TO DEFENDANT ’S DEMURRER TO PLAINTIFFS’
SECOND AMENDED COMPLAINT ; M EMORANDUM O F POINTS AND
AUTHORITIES
1
Plaintiffs’ Second Amended Complaint, and any further oral argument received by this Court
2
at the hearing of this matter.
3
Dated this 22 nd day of December 2003.
Respectfully submitted,
STANBURY FISHELMAN, INC.
9200 Sunset Boulevard, Penthouse 30
Los Angeles, CA 90069-3601
4
5
6
By:
7
George Stanbury
H. Scott Leviant,
Attorneys for Plaintiffs
8
9
10
9200 SUNSET BOULEVARD, PENTHOUSE 30
LOS ANGELES, CA 90069-3601
STANBURY FISHELMAN, INC.
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
2
Case No.: BC290840
PLAINTIFFS’ OPPOSITION TO DEFENDANT ’S DEMURRER TO PLAINTIFFS’
SECOND AMENDED COMPLAINT ; M EMORANDUM O F POINTS AND
AUTHORITIES
1
TABLE OF CONTENTS
2
3
I.
INTRODUCTION. ....................................................................................................................1
4
II.
SUMMARY OF ARGUMENT .................................................................................................2
5
III. PLEADINGS ARE TO BE LIBERALLY CONSTRUED. .......................................................3
6
A.
7
B.
When Evaluating A Demurrer, All Facts Alleged Must Be Presumed True. ...................4
9
C.
Plaintiffs Have Fully Apprised Defendant Of All Claims Asserted. ................................4
11
9200 SUNSET BOULEVARD, PENTHOUSE 30
LOS ANGELES, CA 90069-3601
Claims Asserted. ...............................................................................................................4
8
10
STANBURY FISHELMAN, INC.
Notice Pleading Requires Only That A Complaint Apprise The Defendant Of The
IV. THE ECONOMIC LOSS DOCTRINE DOES NOT APPLY. ................................................15
A.
The License Agreement Presented By Defendant Reveals Fraud In The
12
Inducement, Vitiating Arguments Presuming The Existence Of A Contract. ................16
13
1.
14
The Terms Of The License Agreement And The Allegations Of The FAC
Demonstrate Clear Fraud By Defendant. ...............................................................17
15
2.
The License Agreement, Induced Through Fraud, Is Voidable.............................17
16
3.
The UCC Recognizes A Fraud Exception To The Economic Loss Rule. .............18
17
4.
On A Suit Sounding In Fraud And Deceit, Such As That Brought By
18
Plaintiffs, Tort Remedies Are Available Even On Sales Transactions. .................19
5.
19
20
B.
21
22
Because the License Agreement Violates California Law, It Is Void. ..................21
The Economic Loss Doctrine Does Not Apply To The Facts As Pleaded Because
Defendant Misconstrues And Misstates Plaintiffs Allegations. .....................................22
C.
Defendant’s Egregious Conduct Permits Tort Recovery Even If Plaintiffs’ Only
23
Losses Were Economic Losses. ......................................................................................24
24
1.
Class Plaintiffs Were Targeted By Defendant’s Deceitful Conduct. .....................25
25
2.
The Harm Was Foreseeable. ..................................................................................25
26
3.
It Is Likely That Plaintiffs Suffered Injury. ...........................................................26
27
4.
Defendant’s Wrongful Conduct Is The Direct Cause Of Plaintiff’s Injuries;
28
There Is No Intervening Event Between Wrong And Injury. ................................26
i
Case No.: BC290840
PLAINTIFFS’ OPPOSITION TO DEFENDANT ’S DEMURRER TO PLAINTIFFS’
SECOND AMENDED COMPLAINT ; M EMORANDUM O F POINTS AND
AUTHORITIES
1
5.
Substantial Moral Blame Attaches To Defendant’s Deceit. ..................................26
2
6.
It Is Important To Prevent Similar Future Harms. .................................................26
3
4
9200 SUNSET BOULEVARD, PENTHOUSE 30
LOS ANGELES, CA 90069-3601
STANBURY FISHELMAN, INC.
5
V.
PLAINTIFF’S ALLEGATIONS SUPPORT ADDITIONAL CAUSES OF ACTION,
GIVING FURTHER BASES FOR DENYING DEFENDANT’S DEMURER. ....................13
VI. CLASS PLAINTIFFS HAVE PROPERLY PLEADED A CAUSE OF ACTION
6
UNDER THE CALIFORNIA UNFAIR COMPETITION LAW. ...........................................27
7
A.
California’s Unfair Competition Law Provides A Powerful Mechanism For
8
Private Plaintiffs To Correct Unfair Business Practices. ................................................27
9
1.
Elements Of The UCL – Definitions. ....................................................................29
10
a)
“Unlawful” Under The UCL.........................................................................29
11
b)
“Unfair” Under The UCL .............................................................................29
12
c)
“Fraudulent” Under The UCL ......................................................................29
13
2.
Even One Instance Of Wrongful Conduct Is Sufficient To Invoke Act. ...............30
14
3.
Who May Sue Under The UCL .............................................................................30
15
B.
Defendant Engaged In Unfair Business Practices. .........................................................30
16
1.
Unlawful Conduct – Defendants Have Violated State Law. .................................30
17
2.
The Wide Array Of Unfair Business Practices Related To Fraudulent
18
Concealment Of Secondary Spy Software. ............................................................31
3.
19
20
False Contract – Routinely Breaching Contracts ...................................................31
VII. CLASS PLAINTIFFS HAVE PROPERLY PLEADED A CAUSE OF ACTION
21
UNDER THE CONSUMER LEGAL REMEDIES ACT (Civ. Code §§ 1750, et seq.) .........32
22
A.
Class Plaintiffs Have Properly Pleaded A Statutory Violation Of This Act. ..................32
23
B.
Class Plaintiffs Have Properly Pleaded Specific Violations Of This Act. .....................32
24
C.
Notice Pleading Requirements Have Been Satisfied. .....................................................33
25
D.
California Has Long Recognized That Implied Representations Bear The Same
26
27
28
Legal Significance As Affirmative Representations.......................................................33
VIII. PLAINTIFFS’ PROPERLY PLEADED CAUSE OF ACTION FOR NEGLIGENCE IS
NOT PRECLUDED BY THE UNIFORM COMMERCIAL CODE. .....................................34
ii
Case No.: BC290840
PLAINTIFFS’ OPPOSITION TO DEFENDANT ’S DEMURRER TO PLAINTIFFS’
SECOND AMENDED COMPLAINT ; M EMORANDUM O F POINTS AND
AUTHORITIES
1
A.
California Recognizes The Existence Of A Common Law Duty Of Care. ....................34
2
B.
Plaintiffs’ Negligence Cause Of Action Is Properly Construed As A Claim,
3
4
Pleaded In The Alternative, For Negligent Misrepresentation. ......................................34
IX. PLAINTIFFS HAVE PROPERLY PLEADED SUFFICIENT FACTS, ACTS AND/OR
5
DERELICTIONS TO SUPPORT A FRAUD CAUSE OF ACTION. ....................................10
6
A.
Actual Fraud....................................................................................................................10
7
B.
Deceit ..............................................................................................................................11
1.
8
9
Concealment Cause Of Action...............................................................................11
2.
10
9200 SUNSET BOULEVARD, PENTHOUSE 30
LOS ANGELES, CA 90069-3601
STANBURY FISHELMAN, INC.
11
Plaintiffs’ “Reliance” Is Properly Pleaded As Lack Of Knowledge And
Inaction Resulting From Lack Of Knowledge. ......................................................12
3.
12
13
14
Plaintiffs Have Properly Pleaded Necessary Allegations For A Fraudulent
Plaintiffs’ Fraud And Deceit Claim Is Applicable To The Class Of Affected
Consumers..............................................................................................................12
X.
CONCLUSION ........................................................................................................................35
15
16
17
18
19
20
21
22
23
24
25
26
27
28
iii
Case No.: BC290840
PLAINTIFFS’ OPPOSITION TO DEFENDANT ’S DEMURRER TO PLAINTIFFS’
SECOND AMENDED COMPLAINT ; M EMORANDUM O F POINTS AND
AUTHORITIES
1
TABLE OF AUTHORITIES
9200 SUNSET BOULEVARD, PENTHOUSE 30
LOS ANGELES, CA 90069-3601
STANBURY FISHELMAN, INC.
2
3
CALIFORNIA CITATIONS
4
Aas v. Superior Court (2000) 24 Cal.4th 627 ............................................................... 7, 13, 14
5
Adelman v. Associated Int'l Ins. Co. (2001) 90 Cal.App.4th 352 ........................................... 18
6
Allen v. Jones (1980) 104 Cal.App.3d 207 ............................................................................ 11
7
Allied Grape Growers v. Bronco Wine Co. (1988) 203 Cal.App.3d 432 ................................ 24
8
Andrepont v. Meeker (1984) 158 Cal.App.3d 878 ................................................................. 27
9
Application Group, Inc. v. Hunter Group, Inc. (1998) 61 Cal.App.4th 881 ........................... 21
10
Aragon-Haas v. Family Security Ins. Services, Inc. (1991) 231 Cal.App.3d 232 ..................... 8
11
Barquis v. Merchants Collection Assn. (1972) 7 Cal.3d 94 ................................................... 20
12
Cel-Tech Communications, Inc. v. L.A. Cellular Tel. Co. (1999) 20 Cal.4th 163 ....... 20, 21, 22
13
Colby v. Title Ins. & Trust Co. (1911) 160 Cal. 632 .............................................................. 13
14
Continental Airlines, Inc. v. McDonnell Douglas Corp. (1989) 216 Cal.App.3d 388 .......10, 27
15
Cooper v. Jevne (1976) 56 Cal.App.3d 860 ........................................................................... 29
16
Daar v. Yellow Cab Company (1967) 67 Cal.2d 695 ............................................................... 4
17
Eads v. Marks (1952) 39 Cal.2d 807 ................................................................................11, 16
18
Geernaert v. Mitchell (1995) 31 Cal.App.4th 601 ................................................................. 28
19
Goodman v. Kennedy (1976) 18 Cal.3d 335 .......................................................................... 29
20
Gould v. Maryland Sound Industries, Inc. (1995) 31 Cal.App.4th 1137 .................................. 8
21
Grieves v. Sup.Ct. (Fox) (1984) 157 Cal.App.3d 159 ............................................................ 18
22
Grimes v. Allen (1949) 93 Cal.App.2d 653 ........................................................................... 12
23
Grinnell v. Charles Pfizer & Co. (1969) 274 Cal.App.2d 424 ............................................... 28
24
Heliotis v. Schuman (1986) 181 Cal.App.3d 646 ................................................................... 29
25
In re Cheryl E. (1984) 161 Cal.App.3d 587 ........................................................................... 27
26
Intel Corp. v. Hamidi (2003) 1 Cal.Rptr.3d 32, 39 [30 Cal.4th 1342] ................................... 19
27
J'Aire Corp. v. Gregory (1979) 24 Cal.3d 799 .................................................................16, 17
28
Kiseskey v. Carpenters’ Trust For Southern California (1983) 144 Cal.App.3d 222 ........ 4, 26
iv
Case No.: BC290840
PLAINTIFFS’ OPPOSITION TO DEFENDANT ’S DEMURRER TO PLAINTIFFS’
SECOND AMENDED COMPLAINT ; M EMORANDUM O F POINTS AND
AUTHORITIES
9200 SUNSET BOULEVARD, PENTHOUSE 30
LOS ANGELES, CA 90069-3601
STANBURY FISHELMAN, INC.
1
Klein v. Earth Elements, Inc. (1997) 59 Cal.App.4th 965 ..................................................... 23
2
Kraus v. Trinity Management Services, Inc. (2000) 23 Cal.4th 116 .................................21, 23
3
Mohlmann v. City of Burbank (1986) 179 Cal.App.3d 1037 .................................................... 8
4
Morris v. Harbor Boat Building Co. (1952) 112 Cal.App.2d 882............................................ 9
5
North American Chemical Co. v. Superior Court (1997) 59 Cal.App.4th 764 ....................... 17
6
Outboard Marine Corp. v. Superior Court (1975) 52 Cal.App.3d 30 .................................... 29
7
Pacific State Bank v. Greene (Filed August 7, 2003) 2003 WL 21804987 (Cal.App. 3 Dist.) . 9
8
People v. Thomas Shelton Powers, M.D., Inc. (1992) 2 Cal.App.4th 330 .............................. 23
9
Perkins v. Superior Court of Los Angeles County (1981) 171 Cal.App.3d 1 ........................... 4
10
Podolsky v. First Healthcare Corp. (1996) 50 Cal.App.4th 632 .......................................22, 23
11
Quelimane Co. v. Stewart Title Guaranty Co., 19 Cal.4th 26 (1998) ..................................... 23
12
Quelimane Co., Inc. v. Stewart Title Guar. Co. (1998) 19 Cal.4th 26 ........................ 18, 21, 23
13
Ron Greenspan Volkswagen, Inc. v. Ford Motor Land Development Corp. (1995) 32
14
Cal.App.4th 985 .................................................................................................................. 9
15
Rothstein v. Janss Inv. Corp. (1941) Cal.App.2d 64 .............................................................. 29
16
Saunders v. Superior Court (1994) 27 Cal.App.4th 832 ........................................................ 22
17
Schroeder v. Auto Driveaway Co. (1974) 11 Cal.3d 908 ....................................................... 11
18
Seeger v. Odell (1941) 18 Cal.2d 409 ................................................................................... 28
19
Seely v. White Motor Co. (1965) 63 Cal.2d 9 ........................................................................ 14
20
Software Design & Application, Ltd. v. Hoefer & Arnett, Inc. (1996) 49 Cal.App.4th 472 .... 27
21
Spangenberg v. Spangenberg (1912) 19 Cal.App. 439 .......................................................... 12
22
Spector v. Pete (1958) 157 Cal.App.2d 432 .......................................................................... 13
23
Sprague v. Frank J. Sanders Lincoln Mercury, Inc. (1981) 120 Cal.App.3d 412 .................. 11
24
State Farm & Cas. Co. v. Superior Court (1996) 45 Cal.App.4th 1093...................... 21, 22, 24
25
Stop Youth Addiction v. Lucky Stores, Inc. (1998) 17 Cal.4th 553....................................21, 23
26
Sun 'n Sand, Inc. v. United California Bank (1978) 21 Cal.3d 671 ........................................ 27
27
Thrifty-Tel, Inc. v. Bezenek (1996) 46 Cal.App.4th 1559 ..................................... 19, 20, 26, 28
28
Universal By-Products, Inc. v. City of Modesto (1974) 43 Cal.App.3d 145 .....................26, 28
v
Case No.: BC290840
PLAINTIFFS’ OPPOSITION TO DEFENDANT ’S DEMURRER TO PLAINTIFFS’
SECOND AMENDED COMPLAINT ; M EMORANDUM O F POINTS AND
AUTHORITIES
1
Vasquez v. Superior Court (1971) 4 Cal.3d 800 .................................................................... 26
2
Venice Town Council, Inc. v. City of Los Angeles (1996) 47 Cal.App.4th 1547 .................... 18
3
Williams v. Graham (1948) 83 Cal.App.2d 649 ......................................................... 10, 17, 29
4
Wilner v. Sunset Life Ins. Co. (2000) 78 Cal.App.4th 952 ..................................................... 22
5
Zamora v. Shell Oil Co. (1997) 55 Cal.App.4th 204 ............................................................. 16
9200 SUNSET BOULEVARD, PENTHOUSE 30
LOS ANGELES, CA 90069-3601
STANBURY FISHELMAN, INC.
6
7
FEDERAL CITATIONS
8
BMW of North America, Inc. v. Gore (1996) 517 U.S. 559, 116 S.Ct. 1589 ...................... 1, 17
9
CompuServe Inc. v. Cyber Promotions, Inc. (S.D.Ohio 1997) 962 F.Supp. 1015 .................. 19
10
eBay, Inc. v. Bidder’s Edge, Inc. (N.D. Cal. 2000) 100 F.Supp.2d 1058 ............................... 20
11
Orkin Exterminating Co., Inc. v. F.T.C. (11th Cir. 1988) 849 F.2d 1354 .............................. 24
12
Standard Platforms, Ltd. v. Document Imaging Systems Corp. (N.D.Cal. 1995) 1995 WL
13
691868 .............................................................................................................................. 15
14
15
OTHER AUTHORITIES
16
BAJI No. 12.31 (9 th ed. 2002) ............................................................................................... 28
17
State v. Corcoran (1994) 186 Wis.2d 616, 522 N.W.2d 226 ................................................... 2
18
19
STATUTES
20
BUSINESS & PROFESSIONS CODE SECTION 17200, ET SEQ. ("UCL") .................................. PASSIM
21
BUSINESS & PROFESSIONS CODE SECTION 17201 .................................................................... 23
22
CAL C IV CODE § 1710 ............................................................................................................ 28
23
CAL. BUS. & PROF. CODE § 17201 ......................................................................................... 23
24
CAL. C IV. CODE § 1711 .......................................................................................................... 30
25
CIVIL CODE SECTION 1550 ..................................................................................................... 12
26
CIVIL CODE SECTION 1572 ..................................................................................................... 28
27
CIVIL CODE SECTION 1667 ..................................................................................................... 12
28
CIVIL CODE SECTION 1709 ................................................................................................ 12, 28
vi
Case No.: BC290840
PLAINTIFFS’ OPPOSITION TO DEFENDANT ’S DEMURRER TO PLAINTIFFS’
SECOND AMENDED COMPLAINT ; M EMORANDUM O F POINTS AND
AUTHORITIES
1
CIVIL CODE SECTION 1710 ..................................................................................................... 28
2
CIVIL CODE SECTION 1751 .................................................................................................. 3, 26
3
CIVIL CODE SECTION 1770 ..................................................................................................... 23
4
CIVIL CODE SECTION 3333 ..................................................................................................... 12
5
CIVIL CODE SECTION 3342 ..................................................................................................... 12
6
CIVIL CODE SECTION 3343 .......................................................................................... 10, 11, 12
7
CODE OF C IVIL PROCEDURE SECTION 452 ................................................................................. 4
8
COMMERCIAL CODE SECTION 2721 ......................................................................................... 10
9
CONSUMER LEGAL REMEDIES ACT, C IVIL C ODE SECTION 1750, ET SEQ. ....................... 12, 25, 26
9200 SUNSET BOULEVARD, PENTHOUSE 30
LOS ANGELES, CA 90069-3601
STANBURY FISHELMAN, INC.
10
11
TREATISES
12
1 Witkin, Summary of Cal. Law, (9th ed. 1987) Contracts, § 403 ........................................... 9
13
1 Witkin, Summary of Cal. Law, (9th ed. 1987) Contracts, § 430 ......................................... 12
14
3 Witkin, Summary of Cal. Law (9 th ed. 1987) Sales, § 171 .................................................. 10
15
5 Witkin, Summary of Cal. Law, (9th ed. 1987) Torts, § 676 ................................................ 28
16
5 Witkin, Summary of Cal. Law, (9th ed. 1987) Torts, § 676-677 ......................................... 28
17
5 Witkin, Summary of Cal. Law, (9th ed. 1987) Torts, § 697 ................................................ 29
18
5 Witkin, Summary of Cal. Law, (9th ed. 1987) Torts, § 702 ...........................................17, 29
19
REST 2d TORTS § 217 ......................................................................................................... 19
20
REST.2D TORTS, § 525 ....................................................................................................... 28
21
REST.2D TORTS, § 551 ....................................................................................................... 29
22
23
24
25
26
27
28
vii
Case No.: BC290840
PLAINTIFFS’ OPPOSITION TO DEFENDANT ’S DEMURRER TO PLAINTIFFS’
SECOND AMENDED COMPLAINT ; M EMORANDUM O F POINTS AND
AUTHORITIES
1
MEMORANDUM OF POINTS AND AUTHORITIES
I.
2
3
4
5
6
9200 SUNSET BOULEVARD, PENTHOUSE 30
LOS ANGELES, CA 90069-3601
STANBURY FISHELMAN, INC.
7
INTRODUCTION.
“In January 1990, Dr. Ira Gore, Jr. (respondent), purchased a black
BMW sports sedan for $40,750.88 from an authorized BMW dealer in
Birmingham, Alabama. After driving the car for approximately nine months,
and without noticing any flaws in its appearance, Dr. Gore took the car to
‘Slick Finish,’ an independent detailer, to make it look ‘ “snazzier than it
normally would appear.” ‘ 646 So.2d 619, 621 (Ala.1994). Mr. Slick, the
proprietor, detected evidence that the car had been repainted. . . . Dr. Gore
alleged, inter alia, that the failure to disclose that the car had been repainted
constituted suppression of a material fact.”
8
(BMW of North America, Inc. v. Gore (1996) 517 U.S. 559, 563, 116 S.Ct. 1589, 1593-1593,
9
footnotes omitted.) The jury in that action was so offended by the willful nond isclosure of
10
information that it “assessed $4 million in punitive damages, based on a determination that
11
the nondisclosure policy constituted ‘gross, oppressive or malicious’ fraud. ( Id., at 1594.)
12
Here, consumers of Defendant’s TurboTax® product were likewise deceived by
13
Defendant when they purchased tax preparation software but were not told that along with it
14
came a spying mechanism that intermeddled with their computers and exposed their private
15
affairs to INTUIT INC. or anyone else to whom Defendant disclosed that information.
16
It may be helpful to analyze the consumers in this case to car owners purchasing a
17
new-fangled car stereo that receives perfect digital music signals without any commercials
18
from some satellite. The sound is more pure than even CD recordings. But what the car
19
owner isn’t told, is that when the radio is installed, a secret black box, from another company,
20
is also installed with the radio. That black box is connected to every electrical component in
21
the car, and takes control of the car’s own computer. The black box watches the electrical
22
flow to every component of the car, just to be sure that the car owner doesn’t connect his MP3
23
player to the car radio to record those acoustically flawless songs. However, one of the
24
downsides to this little black box is that it retards the car’s performance, making it harder to
25
accelerate. Car owner then learns about this insidious little tag-along in his car. What are car
26
owner’s damages? Car owner’s damages are multi-fold. First the deceitful addition and
27
unknown installations of the black box was a tortuous act that caused a direct emotional
28
insult, harm and personal injury to the car owner. Further, the car owner’s vehicle suffered a
1
Case No.: BC290840
PLAINTIFFS’ OPPOSITION TO DEFENDANT ’S DEMURRER TO PLAINTIFFS’
SECOND AMENDED COMPLAINT ; M EMORANDUM O F POINTS AND
AUTHORITIES
1
direct loss and harm that included damage to its performance and function. Here, consumers
2
were stunned and emotionally upset to learn that Defendant had installed Macrovision’s
3
SafeCast software, without consent or disclosure, on their computers. This direct physical
4
injury was increased when consumers learned that their property i.e. their computers were
5
also damaged by the undisclosed software. And finally, consumers were directly harmed by
6
learning that this “spy” software enabled Intuit to obtain and disclose private information of
7
the consumers without their knowledge or consent.
Often mislabeled as “viruses”, programs that appear to be designed for one purpose,
8
9200 SUNSET BOULEVARD, PENTHOUSE 30
LOS ANGELES, CA 90069-3601
STANBURY FISHELMAN, INC.
9
but actually do something different are more correctly labeled “Trojan horses” (or simply
10
“Trojans” from the famous “gift” horse in history).1 Trojan horses are often designed to do
11
something improper or damaging to a computer system. TurboTax® is appropriately
12
characterized as a “Trojan horse” due to the fraudulently hidden installation of Macrovision’s
13
SafeCast software. While TurboTax® is sold as consumer tax software, the “gift” program
14
accompanying TurboTax® inserts hidden files, consumes computer resources without
15
consent, and monitors activity on consumers’ computers, among other improper activities.
16
Plaintiffs have been victimized by a cynical, willful plan by Defendant to defraud
17
consumers for commercial gain. That injury to Plaintiffs should not be compounded by
18
allowing Defendant to evade accountability for improper, unlawful and fraudulent conduct.
19
II.
20
SUMMARY OF ARGUMENT
By erroneously applying the “economic loss doctrine”, Defendant’s seek to deprive
21
22
Plaintiffs of their “day in court”. To further this deceit, the Defendant relies upon a facially
23
fraudulent License Agreement and/or resorts to “re-writing” the complaint as follows:

24
Defendant asserts that the “economic loss doctrine” precludes Plaintiffs’ claims
25
“A ‘Trojan horse’ is ‘[a] desirable program which performs some useful function, such as
logic, but which contains a parasite or viral infection within its logic which is undetectable
upon casual review.’ Anne W. Branscomb, Rogue Computer Programs and Computer
Rogues: Tailoring the Punishment to Fit the Crime, 16 RUTGERS COMPUTER & TECH.
L.J. 1, 4 n. 15 (1990).” (State v. Corcoran (1994) 186 Wis.2d 616, 620, 522 N.W.2d 226,
228.)
1
26
27
28
2
Case No.: BC290840
PLAINTIFFS’ OPPOSITION TO DEFENDANT ’S DEMURRER TO PLAINTIFFS’
SECOND AMENDED COMPLAINT ; M EMORANDUM O F POINTS AND
AUTHORITIES
1
(Demurrer P1:9-10). This ignores the allegations that Defendant lied and deceived
2
Plaintiffs and consumers by failing to disclose that “spy” software was also being
3
installed along with the disclosed tax preparation software (FAC, ¶ 43);
4

5
economic loss rule (Demurrer P1:22-25). No cited case supports this statement and
6
the public policy behind these consumer protection statutes would be undermined
7
by such an application (See, e.g., Civ. Code, § 1751);
8

9200 SUNSET BOULEVARD, PENTHOUSE 30
LOS ANGELES, CA 90069-3601
9
STANBURY FISHELMAN, INC.
Asserting that the CLRA and unfair business practices claims are “barred” by the
Asserting that Plaintiffs were “dissatisfied with how” TurboTax® performed
(Demurrer P2:16-17). In truth, Plaintiffs allege that they and others were lied to
10
when they purchased TurboTax® because they were not told that a separate
11
program made by a different company was also being installed to “spy” on
12
physically “take-over” portions of their computers’ operating system;
13

Misleading this Court by stating that Plaintiffs do not allege they were “unaware”
14
of the spy software (Demurrer P.3:13). In fact, Plaintiffs repeatedly allege that
15
they purchased TurboTax® without any knowledge or consent that the spy
16
software would be included and/or installed (FAC, ¶¶ 4-6, 43);
17

Asserting that the License Agreement by its terms limited consumer “warranties”
18
so that these claims for fraud, deceit and misrepresentation can only be remedied
19
by a 60 day unconditional refund (Demurrer P.3:23-26)
20
With the “economic loss doctrine” vitiated by Defendant’s affirmative fraud, the majority of
21
Defendant’s Demurrer is irrelevant. The remainder is an unsupportable attempt to circumvent
22
the Legislature’s will by de-clawing consumer remdial statutes with anti-waiver provisions
23
and disregard the longstanding policy in California of upholding Notice Pleading.
24
25
26
III.
PLEADINGS ARE TO BE LIBERALLY CONSTRUED.
It is the well-established law in, and policy of, the State of California that Motions
27
attacking pleadings will not be sustained unless the objections to the pleading are well taken.
28
A complaint will be construed “liberally . . . with a view to substantial justice between the
3
Case No.: BC290840
PLAINTIFFS’ OPPOSITION TO DEFENDANT ’S DEMURRER TO PLAINTIFFS’
SECOND AMENDED COMPLAINT ; M EMORANDUM O F POINTS AND
AUTHORITIES
1
parties.” (Code Civ. Proc. § 452.) Defendant’s Demurrer is inconsistent with, and does not
2
acknowledge, this position.
3
A. Notice Pleading Requires Only That A Complaint Apprise The Defendant Of
4
The Claims Asserted.
5
In Perkins v. Superior Court of Los Angeles County (1981) 171 Cal.App.3d 1, 6, the
6
Court explained the purpose of a complaint, observing, “What is important is that the
7
complaint as a whole contain sufficient facts to appraise the defendant of the basis upon
8
which the plaintiff is seeking relief.” (Accord, Kiseskey v. Carpenters’ Trust For Southern
9
California (1983) 144 Cal.App.3d 222, 234, stating “[T]he question is whether the pleading
9200 SUNSET BOULEVARD, PENTHOUSE 30
LOS ANGELES, CA 90069-3601
STANBURY FISHELMAN, INC.
10
as a whole apprises the adversary of the factual basis of the claim.”)
11
B. When Evaluating A Demurrer, All Facts Alleged Must Be Presumed True.
12
In Daar v. Yellow Cab Company (1967) 67 Cal.2d 695, the Supreme Court of
13
California summarized the presumptions raised in favor of the Plaintiff when testing the
14
sufficiency of Plaintiff’s complaint by a demurrer:
16
“In our examination of the complaint we are guided by the well settled
principles governing the testing of its sufficiency by demurrer: A demurrer
admits all material and issuable facts properly pleaded.”
17
(Darr, 67 Cal.2d at 713.) Much of Defendant’s Memorandum discards this precept, ignoring
18
the detailed allegations contained with Plaintiffs’ First Amended Complaint (hereinafter
19
sometimes referred to as “FAC”) at paragraphs 5-7 and 3-51.
15
20
C. Plaintiffs Have Fully Apprised Defendant Of All Claims Asserted.
21
Plaintiffs have filed a FAC that sets forth Plaintiffs’ claims in detail. These allegations
22
include the following: (1) the Turbo Tax product included “detrimental security software from
23
Macrovision” that damaged the computers of consumers (FAC ¶4); (2) the “destructive nature
24
of the Macrovision” software was not disclosed to purchasers and was intentionally hidden by
25
Intuit (FAC ¶5); (3) that “private information” of consumers is obtained by Intuit without the
26
knowledge or consent of consumers and then transmitted over the Internet (FAC ¶5); (4) that
27
by design the Macrovision spy software “did not include any ability to uninstall” the spy
28
software (FAC ¶5); (5) the TurboTax® product with the undisclosed spy software “constitute
4
Case No.: BC290840
PLAINTIFFS’ OPPOSITION TO DEFENDANT ’S DEMURRER TO PLAINTIFFS’
SECOND AMENDED COMPLAINT ; M EMORANDUM O F POINTS AND
AUTHORITIES
9200 SUNSET BOULEVARD, PENTHOUSE 30
LOS ANGELES, CA 90069-3601
STANBURY FISHELMAN, INC.
1
deficient products that have been unfairly, unlawfully, improperly and fraudulently offered,
2
through uniform commercial solicitations to “elderly and disabled individuals” and to the
3
general consumer population (FAC ¶6, 7); (6) that Intuit “acted in furtherance of a consp iracy
4
to disadvantage, damage, defraud and injure Plaintiffs, and to improperly and illegally profit
5
at Plaintiffs’ expense (FAC ¶17); (7) that “Plaintiffs bring this action individually, as private
6
attorneys-general, pursuant to the California Business & Professions and Civil Codes, and on
7
behalf of themselves and as representatives of all similarly situated persons” (FAC ¶24); (8)
8
that each Plaintiff “purchased and installed” the TurboTax® product (FAC ¶32); (9) that the
9
TurboTax® product with the undisclosed spy software “makes a large number of alterations
10
and additions to the consumer’s computer” without the consumers knowledge or consent
11
(FAC ¶35); (10) the undisclosed spy software “interferes with the ability of consumers to
12
backup and restore their [computer] systems” (FAC ¶38); (11) the hidden spy software used
13
by TurboTax also interferes with the ability of consumers to modify hardware on their
14
computer systems” (FAC ¶39); (12) the deceptively concealed spy software interferes with
15
computers using RAID or that are connected with network printers (FAC ¶ 40, 41); (13) the
16
undisclosed spy software steals “roughly 1.4 Megabytes (“MB”) of memory or more at all
17
times, even when TurboTax® is not running” (FAC ¶42); (14) “Consumers are not advised at
18
any time that the Macrovision DRM software is installed separately on their computer” (FAC
19
¶43); (15) that Defendant INTUIT, INC. does not warn consumers that TurboTax  has the
20
ability to violate their right of privacy” (FAC ¶47); (16) that Defendant INTUIT, IN C. has
21
implemented its onerous activation scheme [and included the hidden spy software] in an
22
attempt to harvest [private consumer information including] customer contact information.
23
With this information, Defendant INTUIT, INC. is intent upon shifting towards a direct sales
24
business model. The Macrovision DRM software was intentionally included with TurboTax 
25
software for the commercial purpose of forcing all customers to disclose their complete
26
location information” (FAC ¶50); (17) the “TurboTax products cause dangerous and
27
destructive changes to a customer’s computer caused by the inclusion of the Macrovision
28
security product” (FAC ¶55); (18) the hidden spy software can access and transmit “private
5
Case No.: BC290840
PLAINTIFFS’ OPPOSITION TO DEFENDANT ’S DEMURRER TO PLAINTIFFS’
SECOND AMENDED COMPLAINT ; M EMORANDUM O F POINTS AND
AUTHORITIES
9200 SUNSET BOULEVARD, PENTHOUSE 30
LOS ANGELES, CA 90069-3601
STANBURY FISHELMAN, INC.
1
information” of consumers “over the Internet” (FAC ¶55); (19) that “INTUIT, INC. made rote
2
and repetitive material and intentional misrepresentations and false promises to Plaintiffs,
3
while fraudulently concealing other material facts from Plaintiffs. The material, fraudulent
4
misrepresentations, false promises, and fraudulent omissions are set forth herein, and include,
5
without limitation, the following examples: (a) Uniform, written solicitations to consumers,
6
which solicitations uniformly promised that purchasers would have access to various features
7
in the TurboTax products without the need to disclose personal information to Defendant
8
INTUIT, INC.; (b) Uniform failure to disclose in Defendants’ written product literature,
9
packaging, and solicitations to consumers that Defendant INTUIT, INC.’s TurboTax 
10
products used undisclosed security software that would dangerously modify computer
11
systems, all while failing to provide the promised product access and benefits” (FAC ¶84);
12
(20) that “INTUIT, INC. made its material fraudulent misrepresentations and fraudul ently
13
concealed material information for the primary purposes of inducing Plaintiffs to purchase
14
TurboTax products without knowledge of the dangerous and destructive security software
15
included therewith” (FAC ¶ 87); (21) that “INTUIT, INC. made its materi al fraudulent
16
misrepresentations and fraudulently concealed material information through uniform, written
17
product literature, product packaging and advertisements” (FAC ¶88); and (22) that “millions
18
of individuals” have purchased and installed the deceptively concealed spy software and have
19
been physically, emotionally, and economically damaged by it, including actual damage to
20
their own personal computers, a request for punitive damages, and a request for disgorgement
21
of ill-gotten gains and an accounting of profits (FAC ¶8, 57, 58, 59, 81, 91, 92, 99, 100, 101).
22
23
IV.
DEFENDANT BREACHED DUTIES THAT IT OWED TO PLAINTIFFS
24
25
26
27
28
6
Case No.: BC290840
PLAINTIFFS’ OPPOSITION TO DEFENDANT ’S DEMURRER TO PLAINTIFFS’
SECOND AMENDED COMPLAINT ; M EMORANDUM O F POINTS AND
AUTHORITIES
1
2
3
4
“ ‘There are “four circumstances in which nondisclosure or concealment
may constitute actionable fraud: (1) when the defendant is in a fiduciary
relationship with the plaintiff; (2) when the defendant had exclusive knowledge
of material facts not known to the plaintiff; (3) when the defendant actively
conceals a material fact from the plaintiff; and (4) when the defendant makes
partial representations but also suppresses some material facts. [Citation.]” ‘
Putting aside a fiduciary relationship, ‘[e]ach of the other three circumstances
in which nondisclosure may be actionable presupposes the existence of some
other relationship between the plaintiff and defendant in which a duty to
disclose can arise.... [¶] ... [S]uch a relationship can only come into being as a
result of some sort of transaction between the parties.... Thus, a duty to disclose
may arise from the relationship between seller and buyer, employer and
prospective employee, doctor and patient, or parties entering into any kind of
contractual agreement. [Citation.] All of these relationships are created by
transactions between parties from which a duty to disclose facts material to the
transaction arises under certain circumstances.’ (LiMandri v. Judkins (1997) 52
Cal.App.4th 326, 336-337, 60 Cal.Rptr.2d 539, italics & fn. omitted.)”
5
6
7
8
9
10
9200 SUNSET BOULEVARD, PENTHOUSE 30
LOS ANGELES, CA 90069-3601
STANBURY FISHELMAN, INC.
11
12
13
14
(Wilkins v. National Broadcasting Co., Inc. (Cal.App. 2 Dist., 1999) 71 Cal.App.4th 1066,
15
1082.)
16
17
18
19
20
21
22
23
“A duty to disclose facts arises only when the parties are in a relationship that gives rise to the
duty, such as ‘seller and buyer, employer and prospective employee, doctor and patient, or
parties entering into any kind of contractual agreement.’ (Wilkins v. National Broadcasting
Co. (1999) 71 Cal.App.4th 1066, 1082, 84 Cal.Rptr.2d 329.)”
24
(Shin v. Kong (2000) 80 Cal.App.4th 498, 509.)
25
26
27
28
7
Case No.: BC290840
PLAINTIFFS’ OPPOSITION TO DEFENDANT ’S DEMURRER TO PLAINTIFFS’
SECOND AMENDED COMPLAINT ; M EMORANDUM O F POINTS AND
AUTHORITIES
1
2
“Although mere nondisclosure is not ordinarily actionable unless the defendant is a
3
fiduciary with a duty to disclose, active concealment or suppression of facts by a nonfiduciary
4
is the equivalent of a false representation, i. e., actual fraud. (3 Witkin, Cal. Procedure (2d ed.
5
1971) Pleading, s 582, p. 2220.)”
6
(Younan v. Equifax Inc. (Cal.App. 2 Dist., 1980) 111 Cal.App.3d 498, 512.)
7
9200 SUNSET BOULEVARD, PENTHOUSE 30
LOS ANGELES, CA 90069-3601
STANBURY FISHELMAN, INC.
8
9
“A party seeking rescission based on fraudulent nondisclosure must show (1) the defendant
10
failed to disclose a material fact which he knew or believed to be true; and (2) the defendant
11
had a duty to disclose that fact. (Welch v. State of California (1983) 139 Cal.App.3d 546, 556,
12
188 Cal.Rptr. 726.) The duty to disclose arises when two elements are present: (1) the
13
material fact is known to (or accessible only to) the defendant; and (2) the defendant knows
14
the plaintiff is unaware of the fact and cannot reasonably discover the undisclosed fact.
15
[FN4] (Reed v. King (1983) 145 Cal.App.3d 261, 265, 193 Cal.Rptr. 130; Karoutas v.
16
HomeFed Bank (1991) 232 Cal.App.3d 767, 771, 283 Cal.Rptr. 809.)”
17
(San Diego Hospice v. County of San Diego (1995) 31 Cal.App.4th 1048, 1055, emphasis in
18
original.)
19
20
21
“In the absence of a fiduciary or confidential relationship, a duty to disclose arises at common
22
law if material facts are known only to the defendant and the defendant knows that the
23
plaintiff does not know or cannot reasonably discover the undisclosed facts. (Buist v. C.
24
Dudley DeVelbiss Corp. (1960) 182 Cal.App.2d 325, 331, 332, 6 Cal.Rptr. 259.)”
25
(Karoutas v. HomeFed Bank (1991) 232 Cal.App.3d 767, 771.)
26
27
28
8
Case No.: BC290840
PLAINTIFFS’ OPPOSITION TO DEFENDANT ’S DEMURRER TO PLAINTIFFS’
SECOND AMENDED COMPLAINT ; M EMORANDUM O F POINTS AND
AUTHORITIES
1
2
3
“ ‘Deceit may be negative as well as affirmative; it may consist in suppression of that which it
4
is one's duty to declare, as well as in the declaration of that which is false.’ (12 Cal.Jur., 770.)
5
Thus, it is a rule of general application, in dealing with the question of false representation s,
6
that one who speaks is not only obligated to tell the truth but he is equally bound not to
7
suppress or conceal any facts within his knowledge which materially qualify those stated.
8
[Citations omitted]. If he speaks at all, he must make a full and fair disclosure. [Citations
9
omitted].”
10
(Gillespie v. Ormsby (Cal.App. 2 Dist.1954) 126 Cal.App.2d 513, 527-528.)
9200 SUNSET BOULEVARD, PENTHOUSE 30
LOS ANGELES, CA 90069-3601
STANBURY FISHELMAN, INC.
11
12
13
14
“Regardless of whether one is under a duty to speak or disclose facts, one who does speak
15
must speak the whole truth, and not by partial suppression or concealment make the utterance
16
untruthful and misleading. This doctrine is declared by our Civil Code (sec. 1710, subd. 3),
17
and is everywhere recognized as a sound rule of law. See Harper on Torts, § 219; Sullivan v.
18
Helbing, 66 Cal.App. 478, 226 P. 803.”
19
(American Trust Co. v. California Western States Life Ins. Co. (1940) 15 Cal.2d 42, 65.)
20
21
22
“But the rule has long been settled in this state that although one may be under no duty to
23
speak as to a matter, ‘if he undertakes to do so, either voluntarily or in response to inquiries,
24
he is bound not only to state truly what he tells, but also not to suppress or conceal any facts
25
within his knowledge which materially qualify those stated. If he speaks at all, he must make
26
a full and fair disclosure.’ Sullivan v. Helbing, 66 Cal.App. 478, 483, 226 P. 803, 805; Pohl
27
v. Mills, 218 Cal. 641, 654, 24 P.2d 476; American Trust Co. v. California Western States
28
Life Ins. Co., 15 Cal.2d 42, 65, 98 P.2d 497.”
9
Case No.: BC290840
PLAINTIFFS’ OPPOSITION TO DEFENDANT ’S DEMURRER TO PLAINTIFFS’
SECOND AMENDED COMPLAINT ; M EMORANDUM O F POINTS AND
AUTHORITIES
1
(Rogers v. Warden (1942) 20 Cal.2d 286, 289.)
2
3
4
5
“Generally, where one party to a transaction has sole knowledge or access to material
6
facts and knows that such facts are not known or reasonably discoverable by the other party,
7
then a duty to disclose exists. (Goodman v. Kennedy (1976) 18 Cal.3d 335, 347, 134 Cal.Rptr.
8
375, 556 P.2d 737.)”
9
(Shapiro v. Sutherland (Cal.App. 2 Dist.,1998) 64 Cal.App.4th 1534, 1544.)
10
9200 SUNSET BOULEVARD, PENTHOUSE 30
LOS ANGELES, CA 90069-3601
STANBURY FISHELMAN, INC.
11
12
13
14
15
16
17
V.
PLAINTIFFS HAVE PROPERLY PLEADED SUFFICIENT FACTS, ACTS
18
AND/OR DERELICTIONS TO SUPPORT A FRAUD CAUSE OF ACTION.
19
Defendant attacks Plaintiffs’ Fraud and Deceit Cause of Action by focusing solely
20
upon Plaintiffs’ “code” pleading of Fraud and Deceit, ignoring the adequate notice provided
21
by Plaintiffs’ detailed FAC. In addition, Defendant seeks refuge behind the inapplicable
22
“economic loss doctrine” (see, discussion, supra, at Part VII), hoping that the fraudulently
23
coerced License Agreement provided as Defendant’s Exhibit “5” will not be seen for what it
24
is, clear evidence of conscious, deliberate, willful fraud.
25
A. Actual Fraud
26
The elements of fraud giving rise to tort actions are: (a) misrepresentation (including
27
false representation, concealment or nondisclosure); (b) knowledge of falsity (or “scienter”);
28
(c) intent to induce reliance; (d) justifiable reliance; and (e) resulting damage. (See, e.g., Civ.
10
Case No.: BC290840
PLAINTIFFS’ OPPOSITION TO DEFENDANT ’S DEMURRER TO PLAINTIFFS’
SECOND AMENDED COMPLAINT ; M EMORANDUM O F POINTS AND
AUTHORITIES
9200 SUNSET BOULEVARD, PENTHOUSE 30
LOS ANGELES, CA 90069-3601
STANBURY FISHELMAN, INC.
1
Code, § 1572; Civ. Code, § 1709; Civ. Code, § 1710; 5 Witkin, Summary of Cal. Law, (9th
2
ed. 1987) Torts, § 676, p. 778; Rest.2d Torts, § 525; Seeger v. Odell (1941) 18 Cal.2d 409,
3
414; BAJI No. 12.31 (9 th ed. 2002), citing, in the “COMMENT”, to 5 Witkin, Summary of
4
Cal. Law, (9th ed. 1987) Torts, § 676-677, and other authority.) A misrepresentation need
5
not be oral; it may be implied by conduct. (See, e.g., Universal By-Products, Inc. v. City of
6
Modesto (1974) 43 Cal.App.3d 145, 151.) And California courts recognize indirect reliance
7
(Geernaert v. Mitchell (1995) 31 Cal.App.4th 601, 605-606), such as when an agent relies for
8
a principle. (See, e.g., Grinnell v. Charles Pfizer & Co. (1969) 274 Cal.App.2d 424, 441.)
9
Analogous to this matter, computer networks have been recognized as agents, and
10
“misstatements” to computer networks are recognized as implied misstatements to the owner
11
of the network. (Thrifty-Tel, Inc. v. Bezenek (1996) 46 Cal.App.4th 1559, 1567-1568
12
[identifying misuse of bank PIN number, misuse of computer networks and misuse of
13
telephone networks as misrepresentations to electronic “agents” of their respective owners].)
14
B. Deceit
15
Four types of “deceit” are defined by Civil Code section 1710, subdivisions 1-4 as: “1.
16
The suggestion, as a fact, of that which is not true, by one who does not believe it to be true;
17
[¶] 2. The assertion, as a fact, of that which is not true, by one who has no reasonable ground
18
for believing it to be true; [¶] 3. The suppression of a fact, by one who is bound to disclose it,
19
or who gives information of other facts which are likely to mislead for want of
20
communication of that fact; or, [¶] 4. A promise, made without any intention of performing
21
it.” (Italics added.)
22
1. Plaintiffs Have Properly Pleaded Necessary Allegations For A
23
Fraudulent Concealment Cause Of Action.
24
Active concealment of known facts is an actionable fraud, as is non -disclosure by one
25
with a duty to disclose. (5 Witkin, Summary of Cal. Law, (9th ed. 1987) Torts, § 697 ;
26
Goodman v. Kennedy (1976) 18 Cal.3d 335, 347-348; Cooper v. Jevne (1976) 56 Cal.App.3d
27
860 , 874; Heliotis v. Schuman (1986) 181 Cal.App.3d 646, 651.) Even without a confidential
28
relationship, a duty to disclose facts arises where the defendant alone has knowledge of facts
11
Case No.: BC290840
PLAINTIFFS’ OPPOSITION TO DEFENDANT ’S DEMURRER TO PLAINTIFFS’
SECOND AMENDED COMPLAINT ; M EMORANDUM O F POINTS AND
AUTHORITIES
9200 SUNSET BOULEVARD, PENTHOUSE 30
LOS ANGELES, CA 90069-3601
STANBURY FISHELMAN, INC.
1
which are not accessible to the plaintiff. (Rothstein v. Janss Inv. Corp. (1941) Cal.App.2d 64,
2
68 [vendor failed to disclose facts in its possession about land].) And active concealment is
3
viewed with the utmost disdain in the law, with one commentator noting, “Even more
4
obnoxious than failure to disclose is conduct seeking to conceal defects in property, or to
5
prevent investigation and discovery of material facts.” (5 Witkin, Summary of Cal. Law, (9th
6
ed. 1987) Torts, § 702, citing Williams v. Graham (1948) 83 Cal.App.2d 649, 652, and
7
others.) In fact, it has been held that active concealment is of the same legal effect as an
8
affirmative misrepresentation. (Outboard Marine Corp. v. Superior Court (1975) 52
9
Cal.App.3d 30, 37.) The facts alleged in this matter establish that: (1) Plaintiffs were
10
unaware that TurboTax® would secretly install another spy program that would insinuate its
11
tendrils into Plaintiffs’ computers; (2) Defendant prepared a License Agreement that actively
12
concealed this material information; and (3) Defendant prepared product packaging and
13
advertisements that actively concealed this material information. Thus, fraudulent
14
concealment is applicable to these facts.
15
2. Plaintiffs’ “Reliance” Is Properly Pleaded As Lack Of Knowledge And
16
Inaction Resulting From Lack Of Knowledge.
17
Plaintiffs’ Cause of Action for Fraud and Deceit specifically incorporates by reference
18
all allegations in the Complaint. (FAC, ¶ 83.) In their Complaint, Plaintiffs allege that they
19
had no knowledge about the installation of Macrovision’s SafeCast spy software. (FAC, ¶¶
20
31-43, 84.) That lack of disclosure induced Plaintiffs’ reliance on Defendant’s
21
misrepresentations through active concealment. (FAC, ¶ 89.)
22
3. Plaintiffs’ Fraud And Deceit Claim Is Applicable To The Class Of
23
Affected Consumers.
24
“One who practices a deceit with intent to defraud the public, or a particular class of
25
persons, is deemed to have intended to defraud every individual in that class, who is actually
26
misled by the deceit.” (Civ. Code § 1711.) Defendant issued uniform advertisements and
27
product packaging that was intended by Defendant to induce consumer reliance on
28
misinformation. (FAC, ¶¶ 6-8, 50-51, 84.) Because of the uniformity of Defendant’s deceit,
12
Case No.: BC290840
PLAINTIFFS’ OPPOSITION TO DEFENDANT ’S DEMURRER TO PLAINTIFFS’
SECOND AMENDED COMPLAINT ; M EMORANDUM O F POINTS AND
AUTHORITIES
1
targeted at all consumers of its product, this deceit claim is amenable to class treatment.
2
3
4
5
6
7
8
9
10
VI.
CLASS PLAINTIFFS HAVE PROPERLY PLEADED A CAUSE OF ACTION
9200 SUNSET BOULEVARD, PENTHOUSE 30
LOS ANGELES, CA 90069-3601
STANBURY FISHELMAN, INC.
11
12
FOR TRESPASS TO CHATTELS.
When reviewing a general demurrer, the test is whether the complaint states any valid
13
claim entitling plaintiff to relief. Plaintiffs may have mislabeled or be mistaken as to the
14
nature of the case, or the legal theory on which they can prevail. But if the essential facts of
15
some valid cause of action are alleged, the complaint is good against a general demurrer.
16
(Quelimane Co., Inc. v. Stewart Title Guar. Co. (1998) 19 Cal.4th 26, 28; Adelman v.
17
Associated Int'l Ins. Co. (2001) 90 Cal.App.4th 352, 359.) Moreover, since a general
18
demurrer challenges only the sufficiency of the cause of action pleaded, a demand for
19
improper relief does not vitiate an otherwise valid cause of action. (Venice Town Council, Inc.
20
v. City of Los Angeles (1996) 47 Cal.App.4th 1547, 1561- 1562; Grieves v. Sup.Ct. (Fox)
21
(1984) 157 Cal.App.3d 159, 164-165.) In this matter, not only do Plaintiffs overcome
22
Defendant’s asserted bases for Demurrer, the FAC alleges facts sufficient to constitute
23
additional causes of action, including, but not limited to Trespass to Chattels and Fraud in the
24
Inducement to Contract (discussed, supra, at Part VII.VII.A).
25
“Under California law, trespass to chattels ‘lies where an intentional interference with
26
the possession of personal property has proximately caused injury.’ (Thrifty-Tel, Inc. v.
27
Bezenek (1996) 46 Cal.App.4th 1559, 1566, 54 Cal.Rptr.2d 468, italics added.)” (Intel Corp.
28
v. Hamidi (2003) 1 Cal.Rptr.3d 32, 39 [30 Cal.4th 1342].)
13
Case No.: BC290840
PLAINTIFFS’ OPPOSITION TO DEFENDANT ’S DEMURRER TO PLAINTIFFS’
SECOND AMENDED COMPLAINT ; M EMORANDUM O F POINTS AND
AUTHORITIES
“A trespass to a chattel may be committed by intentionally
(a) dispossessing another of the chattel, or
(b) using or intermeddling with a chattel in the possession of another.”
1
2
3
(REST 2d TORTS § 217, emphasis added.)
4
the theory underlying “trespass to chattels”:
“Dubbed by Prosser the ‘little brother of conversion,’ the tort of trespass
to chattels allows recovery for interferences with possession of personal
property ‘not sufficiently important to be classed as conversion, and so to
compel the defendant to pay the full value of the thing with which he has
interfered.’ (Prosser & Keeton, Torts (5th ed.1984) § 14, pp. 85-86.)”
5
6
7
8
(Intel Corp. v. Hamidi, supra, 1 Cal.Rptr.3d at 39 [30 Cal.4th 1342].)
A plaintiff can sustain an action for trespass to chattels, as opposed to an action for
9200 SUNSET BOULEVARD, PENTHOUSE 30
LOS ANGELES, CA 90069-3601
9
STANBURY FISHELMAN, INC.
The Intel Corp. v. Hamidi Court summarized
10
conversion, without showing a substantial interference with its right to possession of that
11
chattel. (Thrifty-Tel, Inc. v. Bezenek (1996) 46 Cal.App.4th 1559, 1567, quoting Zaslow v.
12
Kroenert (1946) 29 Cal.2d 541; see also, CompuServe Inc. v. Cyber Promotions, Inc.
13
(S.D.Ohio 1997) 962 F.Supp. 1015, 1022.)
Here, the allegations of Plaintiffs’ FAC contain the essential allegations to support a
14
15
Cause of Action for Trespass to Chattels. Much like a hacker, Defendant, without Plaintiffs’
16
consent or knowledge, surreptitiously installed Macrovision’s SafeCast spy software on
17
Plaintiffs’ personal property (their personal computers). (FAC, ¶ 43.) 2 That secretly installed
18
software retards the operation of Plaintiffs’ computers. (FAC, ¶ 42.) Defendant actively
19
concealed its intermeddling. (Defendant’s Exhibit “5”.) Defendant’s intermeddling with
20
Plaintiffs’ computers caused injury to them. 3 (FAC, ¶¶ 4-5, 31-51, 78-82, 90-92, etc.)
21
22
23
24
25
26
27
28
2
The Court, in Thrifty-Tel, Inc. v. Bezenek (1996) 46 Cal.App.4th 1559, observed:
“Apparently no California decision has applied a trespass theory to computer hacking. But
the Indiana Supreme Court has recognized in dicta that a hacker’s unauthorized access to a
computer was more in the nature of trespass than criminal conversion. ( State v. McGraw
(Ind.1985) 480 N.E.2d 552, 554.) And the State of Washington, in an effort to curtail hacking,
has made unauthorized computer access a criminal offense under the rubric, ‘computer
trespass.’ (See, e.g., State v. Riley (1993) 121 Wash.2d 22, 846 P.2d 1365, 1373.)” (ThriftyTel, Inc. v. Bezenek, supra, at 1567 fn. 7.) That Court then held that “hacking” constitutes a
trespass to chattels.
“In order to prevail on a claim for trespass based on accessing a computer system, the
plaintiff must establish: (1) defendant intentionally and without authorization interfered with
plaintiff's possessory interest in the computer system; and (2) defendant's unauthorized use
proximately resulted in damage to plaintiff. See Thrifty-Tel, 46 Cal.App.4th at 1566, 54
3
14
Case No.: BC290840
PLAINTIFFS’ OPPOSITION TO DEFENDANT ’S DEMURRER TO PLAINTIFFS’
SECOND AMENDED COMPLAINT ; M EMORANDUM O F POINTS AND
AUTHORITIES
1
Defendant’s derelictions constitute Trespass to Chattels, for which Plaintiffs may pursue all
2
available tort remedies, including, but not limited to, exemplary damages.
3
4
5
6
7
8
9
10
9200 SUNSET BOULEVARD, PENTHOUSE 30
LOS ANGELES, CA 90069-3601
STANBURY FISHELMAN, INC.
11
12
13
14
15
16
17
VII.
THE ECONOMIC LOSS DOCTRINE DOES NOT APPLY.
Defendant has asserted a premise – to wit, that Plaintiffs’ claims are barred by the
18
“economic loss doctrine” – which rests upon a series of flawed syllogisms, thereby defeating
19
Defendant’s premise.
20
First, Defendant’s act of concealing the spy software is a tort, for which tort remedies
21
are available. Because Defendant fraudulently induced consumers to accept the terms of its
22
License Agreement, that License Agreement is voidable, eliminating the necessary
23
contractual underpinning on which to support the “economic loss doctrine” argument.
24
Defendant’s own License Agreement combined with the allegations from Plaintiffs’ FAC,
25
reveals that consumers were never told about the spy software or that it would be
26
27
28
Cal.Rptr.2d 468; see also Itano v. Colonial Yacht Anchorage, 267 Cal.App.2d 84, 90, 72
Cal.Rptr. 823 (1968).” (eBay, Inc. v. Bidder’s Edge, Inc. (N.D. Cal. 2000) 100 F.Supp.2d
1058, 1069 –1070.)
15
Case No.: BC290840
PLAINTIFFS’ OPPOSITION TO DEFENDANT ’S DEMURRER TO PLAINTIFFS’
SECOND AMENDED COMPLAINT ; M EMORANDUM O F POINTS AND
AUTHORITIES
1
2
9200 SUNSET BOULEVARD, PENTHOUSE 30
LOS ANGELES, CA 90069-3601
And Defendant’s premise is fallacious because it is predicated upon flawed categorical
3
syllogisms. Defendant uses multiple definitions of the terms “property” and “product” to
4
imply rules of law that do not exist in fact. For example, Defendant’s reliance upon Aas v.
5
Superior Court (2000) 24 Cal.4th 627 incorrectly equates Plaintiffs’ computers (their actual
6
“property”) with the TurboTax® software they installed thereon (the “product”). When
7
definitions are rectified, authority such as Aas v. Superior Court (2000) 24 Cal.4th 627 can be
8
seen to uphold Plaintiffs’ claims.
9
STANBURY FISHELMAN, INC.
automatically installed on their computers with physical and emotional consequences.
Next, Defendant relies upon the fallacy of equivocation, defining terms in a vague and
10
amorphous manner to impede careful analysis of Defendant’s propositions. One recurring
11
example is Defendant’s shifting use of the term “damage”. Plaintiffs have alleged that their
12
computers were “damaged” because undisclosed, spy software caused a loss of 1.4 megabytes
13
of memory and a retardation in the performance of Plaintiffs’ computers. (FAC, ¶¶ 5, 34, 38-
14
43.) Defendant, on the other hand, seeks to shift focus away from this very real injury by
15
suggesting that “damage” is limited to the physical destruction of Plaintiffs’ computers. This
16
diversionary construction of the term “damage” helps to conceal Defendant’s flawed
17
argument; when the nature of the alleged “damage” is confused, it is more difficult to detect
18
when Defendant improperly interchanges definitions of “product” and “property” in its
19
arguments. When applying the “economic loss doctrine,” it is imperative that “damage” to
20
Plaintiffs’ computers not be confused with the deficient operation of TurboTax® itself.
21
A. The License Agreement Presented By Defendant Reveals Fraud In The
22
Inducement, Vitiating Arguments Presuming The Existence Of A Contract.
23
Defendant incorrectly asserts, ipse dixit, that the License Agreement imposed by
24
Defendant upon its customers is enforceable. While the terms and/or effect of the License
25
Agreement are not properly before this Court on a Demurrer or Motion to Strike, if
26
Defendant’s improper argument is considered on the merits, it is evident that the primary
27
theme of Defendant’s Demurrer is unsupportable. Moreover, the License Agreement, which
28
actively conceals material information, violates California law, including the Consumer Legal
16
Case No.: BC290840
PLAINTIFFS’ OPPOSITION TO DEFENDANT ’S DEMURRER TO PLAINTIFFS’
SECOND AMENDED COMPLAINT ; M EMORANDUM O F POINTS AND
AUTHORITIES
1
Remedies Act, Civil Code section 1750, et seq., rendering it entirely void.
2
1. The Terms Of The License Agreement And The Allegations Of The
3
FAC Demonstrate Clear Fraud By Defendant.
9200 SUNSET BOULEVARD, PENTHOUSE 30
LOS ANGELES, CA 90069-3601
STANBURY FISHELMAN, INC.
4
While a discussion of extrinsic facts and evidence is misplaced in any discussion of
5
demurrers, the extrinsic evidence relied upon by Defendant confirms the merit of Plaintiffs’
6
allegations. Because all facts are construed in favor of Plaintiffs, even extrinsic evidence,
7
though improper, can be used to overrule a Demurrer. (Mohlmann v. City of Burbank (1986)
8
179 Cal.App.3d 1037, 1041.)
9
In this matter, while this Court is technically precluded from taking judicial no tice of
10
the existence of a contract between private parties (Gould v. Maryland Sound Industries, Inc.
11
(1995) 31 Cal.App.4th 1137, 1145), even a cursory review of Defendant’s License Agreement
12
shows that the License Agreement aids Plaintiffs because nowhere in that Agreement does
13
Defendant INUIT, INC. disclose that additional software will be installed on consumers’
14
computers, that its installation will be concealed, and what the consequences flowing from the
15
installation of that second, undisclosed software installation will be. ( See, generally,
16
Defendant’s Exhibit “5”.) In short, the License Agreement acts as a further deception rather
17
than an honest disclosure. 4
2. The License Agreement, Induced Through Fraud, Is Voidable.
18
“In the usual case of fraud, where the promisor knows what he is signing but his
19
20
consent was induced by fraud, mutual assent is present and a contract is formed, which, by
21
reason of the fraud, is voidable.” (1 Witkin, Summary of Cal. Law, (9th ed. 1987) Contracts,
22
§ 403, p. 363.) Further, “ ‘[a] party to a contract who has been guilty of fraud in its
23
inducement cannot absolve himself from the effects of his fraud by any stipulation in the
24
25
26
27
28
A “general demurrer to the complaint admits not only the contents of the instrument but also
any pleaded meaning to which the instrument is reasonably susceptible.” (Aragon-Haas v.
Family Security Ins. Services, Inc. (1991) 231 Cal.App.3d 232, 239, emphasis added.)
Because the face of Defendant’s Exhibit “5” is silent as to the installation or presence of
Macrovision’s SafeCast software, the reasonable construction is that the License Agreement
concealed those material facts, creating a fraudulently induced acceptance of Defendant’s
License Agreement.
4
17
Case No.: BC290840
PLAINTIFFS’ OPPOSITION TO DEFENDANT ’S DEMURRER TO PLAINTIFFS’
SECOND AMENDED COMPLAINT ; M EMORANDUM O F POINTS AND
AUTHORITIES
9200 SUNSET BOULEVARD, PENTHOUSE 30
LOS ANGELES, CA 90069-3601
STANBURY FISHELMAN, INC.
1
contract’ because the fraud renders the whole contract voidable, including the waiver
2
provision. (1 Witkin, Summary of Cal. Law (9th ed. 1987) Contracts, § 410, pp. 368-369; Ron
3
Greenspan Volkswagen, Inc. v. Ford Motor Land Development Corp. (1995) 32 Cal.App.4th
4
985, 996; Danzig v. Jack Grynberg & Associates (1984) 161 Cal.App.3d 1128, 1138.)”
5
(Pacific State Bank v. Greene (Filed August 7, 2003) 2003 WL 21804987 (Cal.App. 3 Dist.),
6
modifying opinion filed July 10, 2003.)
7
In California, fraudulently induced contracts are of such concern, that parol or
8
extrinsic evidence is admissible to prove fraud in the inducement notwithstanding a contract
9
provision that no representations have been made other than those stated in the agreement.
10
(Morris v. Harbor Boat Building Co. (1952) 112 Cal.App.2d 882, 888; Ron Greenspan
11
Volkswagen, Inc. v. Ford Motor Land Development Corp. (1995) 32 Cal.App.4th 985, 995.) 5
12
Here, the admitted allegations of Plaintiffs’ FAC, together with the License Agreement
13
provided by Defendant, confirm that Defendant INTUIT INC. falsely concealed its true intent,
14
to wit, the hidden installation of Macrovision’s spy software. With the License Agreement
15
voidable, Plaintiffs, at their election, are not bound by any disclaimers, refund provisions, or
16
other waivers of rights.
17
3. The UCC Recognizes A Fraud Exception To The Economic Loss Rule.
18
Because fraudulent conduct is detested above all other inappropriate activity, fraud is
19
regularly distinguished, and treated differently, from other forms of wrongful conduct. Such
20
is the case under California’s Uniform Commercial Code, which states:
“Remedies for material misrepresentation or fraud include all remedies
available under this division for nonfraudulent breach. Neither rescission or a
claim for rescission of the contract for sale nor rejection or return of the goods
shall bar or be deemed inconsistent with a claim for damages or other remedy.
21
22
23
24
(Comm. Code, § 2721.) Section 2721, entitled “Remedies for Fraud”, expands the remedies
25
available to Plaintiffs under the UCC where the claim is one of fraud. Witkin concurs in this
26
27
28
5
The singular California case apparently holding to the contrary, Fisher v. Pennsylvania Life
Co. (1977) 69 Cal.App.3d 506, has been discredited. (See, e.g., Ron Greenspan Volkswagen,
Inc. v. Ford Motor Land Development Corp. (1995) 32 Cal.App.4th 985, 989.)
18
Case No.: BC290840
PLAINTIFFS’ OPPOSITION TO DEFENDANT ’S DEMURRER TO PLAINTIFFS’
SECOND AMENDED COMPLAINT ; M EMORANDUM O F POINTS AND
AUTHORITIES
1
observation, succinctly stating, “This is contrary to the limited ‘out of pocket’ loss rule of
2
damages in other fraud actions.” (3 Witkin, Summary of Cal. Law (9 th ed. 1987) Sales, § 171,
3
p. 132.)6 California Courts agree with Witkin’s analysis, with one Court of the Second
4
Appellate District stating:
“Bernard E. Witkin, in his treatise on Torts (6 Witkin, Summary of Cal.Law
(9th ed. 1988) Torts, § 1441, p. 916), lists section 2721 as an exception to the
out-of-pocket rule of Civil Code section 3343, noting ‘the purpose of [section
2721] is to give the defrauded buyer of goods the same remedies as those
specified for breach of warranty, and therefore in a proper case to give him the
benefit of his bargain.’”
5
6
7
8
9
10
(Continental Airlines, Inc. v. McDonnell Douglas Corp. (1989) 216 Cal.App.3d 388, 431,
emphasis supplied.)
California has a long history as a leading proponent of consumer protection, and
9200 SUNSET BOULEVARD, PENTHOUSE 30
LOS ANGELES, CA 90069-3601
STANBURY FISHELMAN, INC.
11
12
section 2721 is squarely in accord. The official comment to section 2721, by John A. Bohn
13
and Charles J. Williams, underscores this unique statute, noting, “This section has no
14
statutory counterpart in the USA.” (Comm. Code, § 2721, West’s California Code
15
Comment.) It is the intention of the California Legislature that the widest array of remedies
16
should be available in actions for fraud arising from transactions governed by the UCC.
17
4. On A Suit Sounding In Fraud And Deceit, Such As That Brought By
18
Plaintiffs, Tort Remedies Are Available Even On Sales Transactions.
“It is well settled that the same act may constitute a breach of contract
and a tort and the plaintiff may make an election to sue in tort. In such case,
‘the contract as pleaded (has) nothing whatever to do with the liability other
than to create a duty on the part of respondent herein, and the action is
grounded not upon the contract, but upon the duty springing from the relation
created by it.’ (Automobile Ins. Co. v. Union Oil Co. (1948) 85 Cal.App.2d
302, 307, 193 P.2d 48; see also, Eads v. Marks (1952) 39 Cal.2d 807, 810, 249
P.2d 257.)”
19
20
21
22
23
24
25
26
27
28
6
The out-of-pocket loss rule followed in California was established in California in 1935 by
the enactment of Civil Code section 3343, which then stated: One defrauded in the purchase,
sale or exchange of property is entitled to recover the difference between the actual value of
that which the defrauded person parted and the actual value of that which he received,
together with any additional damage arising from the particular transaction. (See
Bagdasarian v. Gragnon (1948) 31 Cal.2d 744, 762; Oldenburg v. Brody (1956) 139
Cal.App.2d 543, 556; Peskin v. Phinney (1960) 182 Cal.App.2d 632, 635; McCue v. Bruce
Enterprises (1964) 228 Cal.App.2d 21, 30.) Commercial Code section 2721 expands the
available remedies for fraud.
19
Case No.: BC290840
PLAINTIFFS’ OPPOSITION TO DEFENDANT ’S DEMURRER TO PLAINTIFFS’
SECOND AMENDED COMPLAINT ; M EMORANDUM O F POINTS AND
AUTHORITIES
1
2
(Sprague v. Frank J. Sanders Lincoln Mercury, Inc. (1981) 120 Cal.App.3d 412, 418.) As
3
discussed herein, Plaintiffs were the victims of INTUIT, INC.’s active fraud. 7 Having been so
4
defrauded, Plaintiffs are entitled to pursue all remedies available under a tort th eory of
5
damages.
9200 SUNSET BOULEVARD, PENTHOUSE 30
LOS ANGELES, CA 90069-3601
STANBURY FISHELMAN, INC.
6
That general damages for mental pain and suffering are recoverable in a tort action of
7
deceit is established by the cases. (Sprague v. Frank J. Sanders Lincoln Mercury, Inc., supra,
8
120 Cal.App.3d at 417, citing Schroeder v. Auto Driveaway Co. (1974) 11 Cal.3d 908, 921-
9
923, Allen v. Jones (1980) 104 Cal.App.3d 207, 215, and others.) In Sprague, on facts
10
analogous to this action, the plaintiff asserted a cause of action for deceit on the ground that
11
false information had been provided to her about a car she purchased. The defendant sought
12
to limit recoverable damages to contractual damages. The Court of Appeal disagreed,
13
holding:
18
“[P]laintiff has taken the position that the action sounds in deceit, and it
appears to us that she is correct.
Initially, it is to be noted that Civil Code section 3343, subdivision (b)(2),
expressly reserves the right to a defrauded party to bring an action in deceit.
That subdivision states:
’(b) Nothing in this section shall do either of the following:
’¶
’(2) Deny to any person having a cause of action for fraud or deceit an y legal or
equitable remedies to which such person may be entitled.’”
19
(Sprague v. Frank J. Sanders Lincoln Mercury, Inc., supra, 120 Cal.App.3d at 417-418.) The
20
Sprague Court concluded that “the proper measure of damages in this case is the tort measure
21
set forth in Civil Code sections 1709 and 3333 and not that prescribed by Civil Code section
22
3343.”8 (Sprague v. Frank J. Sanders Lincoln Mercury, Inc., supra, 120 Cal.App.3d at 419.)
23
Likewise, Plaintiffs’ proper measure of damages against INTUIT, INC. is set forth in Civil
14
15
16
17
24
25
26
27
28
The FAC includes allegations of Defendant’s fraud, which are admitted as true for purposes
of reviewing Defendant’s Motion attacking the pleadings. (See, e.g., Complaint, ¶¶ 4-5, 3151, 55.)
7
8
Civil Code section 3342 concerns fraud in the purchase, sale or exchange of property. Of
note here, it expressly allows for any additional remedies available under a cause of action for
deceit.
20
Case No.: BC290840
PLAINTIFFS’ OPPOSITION TO DEFENDANT ’S DEMURRER TO PLAINTIFFS’
SECOND AMENDED COMPLAINT ; M EMORANDUM O F POINTS AND
AUTHORITIES
1
Code sections 1709 and 3333, the sections governing damages arising out of deceit and
2
general torts, respectively.
5. Because the License Agreement Violates California Law, It Is Void.
3
4
The object of a contract must be lawful (Civ. Code, § 1550), and it must not conflict
5
either with express statutes or public policy. (1 Witkin, Summary of Cal. Law, (9th ed. 1987)
6
Contracts, § 430, p. 386.) Civil Code section 1667 sets forth categories of unlawful contracts:
7
“That is not lawful which is:
1. Contrary to an express provision of law;
2. Contrary to the policy of express law, though not expressly prohibited; or,
3. Otherwise contrary to good morals.”
8
9200 SUNSET BOULEVARD, PENTHOUSE 30
LOS ANGELES, CA 90069-3601
STANBURY FISHELMAN, INC.
9
10
Contractual terms that would violate a clear and important expression of public policy are
11
properly classified as “illegal.” (Grimes v. Allen (1949) 93 Cal.App.2d 653.) Whether or not
12
a contract is contrary to public policy is a question of law to be determined from the
13
circumstances in each case. (Spangenberg v. Spangenberg (1912) 19 Cal.App. 439.)
Here, the clear policy of the State of California requires that where a seller seeks the
14
15
privilege of selling goods to consumers, that seller must first respect certain principles
16
enumerated in the Consumer Legal Remedies Act (“C.L.R.A.”), Civil Code section 1750, et
17
seq. 9 First Defendant’s License Agreement actively conceals that the installation of
18
TurboTax® contains the additional “ingredient” of the secretly installed SafeCast spy
19
software from Macrovision. (FAC, ¶¶ 43, 75.) Second, by actively concealing the presence
20
of Macrovision’s software, Defendant improperly elicited acceptance of the quality of its
21
software without disclosing the true nature of the product. (Defendant’s Exhibit “5”;
22
Complaint, ¶ 75.) Third, Defendant actively advertised TurboTax®, while concealing
23
Macrovision’s SafeCast software in a concerted plan to sell software that varied from what
24
was advertised. (FAC, ¶¶ 5, 31-51, 75.) Finally, Defendant, without consent of disclosure,
25
Defendant’s License Agreement violates the C.L.R.A., among other ways, where it: (1)
implicitly represents that its goods have characteristics, ingredients, or uses which they do not
have; (2) represents that goods are of a particular standard, quality or grade, if they are of
another; (3) advertised goods with intent not to sell them as advertised; and, (4) inserted an
unconscionable provision in agreements related to acceptance of inadequately disclosed
security software activities.
9
26
27
28
21
Case No.: BC290840
PLAINTIFFS’ OPPOSITION TO DEFENDANT ’S DEMURRER TO PLAINTIFFS’
SECOND AMENDED COMPLAINT ; M EMORANDUM O F POINTS AND
AUTHORITIES
9200 SUNSET BOULEVARD, PENTHOUSE 30
LOS ANGELES, CA 90069-3601
STANBURY FISHELMAN, INC.
1
inserted an implied, unconscionable provision in its Licensing Agreement to the effect that
2
Defendant had the right to secretly install additional monitoring software o n consumers’
3
computers. (Defendant’s Exhibit “5”; FAC, ¶¶ 5, 31-51, 75.) Because the very foundation of
4
the License Agreement is operatively illegal, and thus void, there can be no ratification,
5
waiver or estoppel. (Colby v. Title Ins. & Trust Co. (1911) 160 Cal. 632; Spector v. Pete
6
(1958) 157 Cal.App.2d 432.) With the License Agreement void, Plaintiffs are not bound by
7
any disclaimers, refund provisions, or other waivers of rights. Defendant should bear the
8
consequences of its deceitful concealment of material facts; the License Agreement foisted
9
upon consumers is void, and Defendant’s Demurrer and Motion to Strike both fall with it.
10
B. The Economic Loss Doctrine Does Not Apply To The Facts As Pleaded
11
Because Defendant Misconstrues And Misstates Plaintiffs Allegations.
12
Misconstruction of Plaintiffs’ FAC is the constant refrain from Defendants. While
13
Defendant devotes much of its efforts to arguing that the “economic loss doctrine” bars many
14
of Plaintiffs’ claims, that conclusion is only reached by playing a shell game with the
15
definitions of terms and Plaintiffs’ allegations. Defendant’s citation to Aas v. Superior
16
Court (2000) 24 Cal.4th 627 provides a clear example. The Court, in Aas, said:
17
18
19
20
21
22
23
“Viewing the home as a product, courts have also found a tort remedy in strict
products liability, [footnote] even when the property damage consists of harm
to a sound part of the home caused by another, defective part. [footnote] For
defective products and negligent services that have caused neither property
damage nor personal injury, however, tort remedies have been uncertain. Any
construction defect can diminish the value of a house. But the difference
between price paid and value received, and deviations from standards of quality
that have not resulted in property damage or personal injury, are primarily the
domain of contract and warranty law or the law of fraud, rather than of
negligence. In actions for negligence, a manufacturer’s liability is limited to
damages for physical injuries; no recovery is allowed for economic loss alone.
(Seely v. White Motor Co., supra, 63 Cal.2d 9, 18, 45 Cal.Rptr. 17, 403 P.2d
145.) This general principle, the so-called economic loss rule, is the primary
obstacle to plaintiffs’ claim.”
24
(Aas v. Superior Court, supra, 24 Cal.4th at 636, emphasis added.) Unlike Defendant, the
25
26
27
California Supreme Court was clear in its definition – the “product” and the “property” were
one and the same. Here, Defendant has collapsed the defective software “product” into
Plaintiffs’ impaired computer “property”, arriving at a false conclusion thereby.
28
22
Case No.: BC290840
PLAINTIFFS’ OPPOSITION TO DEFENDANT ’S DEMURRER TO PLAINTIFFS’
SECOND AMENDED COMPLAINT ; M EMORANDUM O F POINTS AND
AUTHORITIES
1
2
In its Aas opinion, the Supreme Court further clarified this point when it summarized
its prior holding from Seely v. White Motor Co. (1965) 63 Cal.2d 9, noting:
6
“[W]e concluded in Seely, supra, 63 Cal.2d 9, 45 Cal.Rptr. 17, 403 P.2d 145,
that the plaintiff could not recover in strict liability or negligence for the cost
of repairing a defective truck or for business income lost because the truck
could not make deliveries. ‘Even in actions for negligence,’ we wrote, ‘a
manufacturer’s liability is limited to damages for physical injuries and there is
no recovery for economic loss alone.’ (Id. at p. 18, 45 Cal.Rptr. 17, 403 P.2d
145.)”
7
(Aas v. Superior Court, supra, 24 Cal.4th at 640, emphasis added.) Hence, any discussion of
8
the “economic loss doctrine” must first correctly define the terms used, including, in
9
particular, the “product” at issue and any “property” damaged thereby. 10 Here, Defendant has
3
4
9200 SUNSET BOULEVARD, PENTHOUSE 30
LOS ANGELES, CA 90069-3601
STANBURY FISHELMAN, INC.
5
10
mangled Plaintiffs’ allegations with an argument that, if taken at face value, states that
11
TurboTax® software and Plaintiffs’ computers are equivalents, a logical absurdity on its face.
Defendant also selectively ignores instances where Plaintiffs incorporate allegations
12
13
by reference. In Plaintiffs Fraud cause of action, Plaintiffs utilize “code” pleading, but
14
incorporate the many specific allegations, stating, “Plaintiffs re-allege, and incorporate by
15
reference, each and every allegation contained in Paragraphs 1 through 82.” (FAC, ¶ 83.)
16
However, in Defendant’s Motion, at page 11, Defendant argues, “[T]he purported fraud
17
consists merely of failure to disclose the purported product defects.” This statement is false.
18
Plaintiffs allege that INTUIT, INC. concealed material information in a concerted effort to
19
fraudulently induce consumers to install TurboTax®. For example, Plaintiffs alleges:
20
21
22
23
24
25
26
27
28
10
Examples of other authority improperly utilized by Defendant to obfuscate definition s of
“good” and “property” for their deceptive “economic loss” analysis include: S.M. Wilson &
Co. v. Smith Int’l, Inc. (9th Cir. 1978) 587 F.2d 1363, 1376 (see, Defendant’s Motion, at 7,
confusing damage to “good” with damage to Plaintiffs’ computers), North American
Chemical v. Superior Court (1997) 59 Cal.App.4th 764, 777, n.8 (see, Defendant’s Motion, at
8, confusing loss of use of “good” with injury to Plaintiffs’ computers), Sacramento Regional
Transit Dist. v. Grumman Flxible (1984) 158 Cal.App.3d 289, 294 & n.4 (see, Defendant’s
Motion, at 8, confusing loss of use of “good” with injury to Plaintiffs’ computers), Anthony v.
Kelsey-Hayes Co. (1972) 25 Cal.App.3d 442, 446-47 (see, Defendant’s Motion, at 8,
confusing loss of use of “good” and damage to “good” with injury to Plaintiffs’ computers),
Seely v. White Motor Co. (1965) 63 Cal.2d 9, 12, 16-19 (see, Defendant’s Motion, at 8,
confusing lost profits on use of “good” with Plaintiffs’ injured propert y), and Rockport
Pharmacy v. Digital Simplistics (8th Cir. 1995) 53 F.3d 195, 198 (see, Defendant’s Motion, at
8, confusing that matter’s defective computer allegation with separate “good” and “property”
in this matter).
23
Case No.: BC290840
PLAINTIFFS’ OPPOSITION TO DEFENDANT ’S DEMURRER TO PLAINTIFFS’
SECOND AMENDED COMPLAINT ; M EMORANDUM O F POINTS AND
AUTHORITIES
“Consumers are not advised at any time that the Macrovision DRM software is
installed separately on their computer.”
1
2
3
(FAC, ¶ 43.) In addition, Plaintiffs have alleged that:
“The Macrovision DRM software was intentionally included with TurboTax®
software for the commercial purpose of forcing all customers to disclose their
complete location information.”
4
5
6
(FAC, ¶ 50.) Moreover, in the Fraud cause of action itself, Plaintiffs alleged a:
“Uniform failure to disclose in Defendants’ written product literature,
packaging, and solicitations to consumers that Defendant INTUIT, INC.’s
TurboTax products used undisclosed security software that would
dangerously modify computer systems, all while failing to provide the promised
product access and benefits.
7
8
9200 SUNSET BOULEVARD, PENTHOUSE 30
LOS ANGELES, CA 90069-3601
STANBURY FISHELMAN, INC.
9
10
(FAC, ¶ 84, subpart (b).) These allegations place Defendant on notice that Plaintiffs’ Fraud
11
cause of action identifies fraud and deceit relating to concealments regarding the fact that a
12
separate, undisclosed program (Macrovision’s SafeCast) is installed, without knowledge or
13
consent, on Plaintiffs’ computers. These allegations render many of Defendant’s citations
14
irrelevant. (See, e.g., Standard Platforms, Ltd. v. Document Imaging Systems Corp. (N.D.Cal.
15
1995) 1995 WL 691868.)11
16
C. Defendant’s Egregious Conduct Permits Tort Recovery Even If Plaintiffs’
17
Only Losses Were Economic Losses.
18
Assuming, arguendo, that Plaintiffs had not been victimized by a fraud in the
19
inducement, with subsequent harm to their personal property caused directly by Defe ndant’s
20
tax software product (and the payload of that Trojan horse), Plaintiffs, under California Law,
21
may still state a tort claim, for purely economic losses. 12 The test articulated by the
22
23
24
25
26
27
28
11
Strikingly, the Court, in Standard Platforms, addressed Document Imaging Systems Corp’s
fraud claim based upon Ricoh’s performance of the warranty provisions of its agreement with
Maxoptix, holding “It bears no relation to a fraudulent inducement claim.” (Standard
Platforms, Ltd. v. Document Imaging Systems Corp. (N.D.Cal. 1995) 1995 WL 691868, *3,
emphasis added.) Here, Plaintiffs’ claims bear every relation to a fraudulent inducement
claim, where they complain of “undisclosed security software” surreptitiously installed on
Plaintiffs’ computers but not disclosed in Defendant’s License Agreement. (FAC, ¶ 84,
subpart (b), DEFENDANT ’S EXHIBIT “5”.) Plaintiffs are, in fact, alleging fraudulent
inducement; liberal rules of pleading construction compel this inference in favor of Plaintiffs.
12
In fact, California recognizes negligent performance of contractual duties. ( North
American Chemical Co. v. Superior Court (1997) 59 Cal.App.4th 764, 775, citing the seminal
24
Case No.: BC290840
PLAINTIFFS’ OPPOSITION TO DEFENDANT ’S DEMURRER TO PLAINTIFFS’
SECOND AMENDED COMPLAINT ; M EMORANDUM O F POINTS AND
AUTHORITIES
1
6
“The California Supreme Court adopted a six-part test for determining when a
‘special relationship’ exists between parties which would permit recovery in a
negligence action for economic losses alone.
“‘Those criteria are (1) the extent to which the transaction was intend ed
to affect the plaintiff, (2) the foreseeability of harm to the plaintiff, (3) the
degree of certainty that the plaintiff suffered injury, (4) the closeness of the
connection between the defendant’s conduct and the injury suffered, (5) the
moral blame attached to the defendant’s conduct and (6) the policy of
preventing future harm. [Citation.]’”
7
(Zamora v. Shell Oil Co. (1997) 55 Cal.App.4th 204, 211-212, citing J'Aire Corp. v. Gregory
8
(1979) 24 Cal.3d 799, 804.)
2
3
4
5
9
9200 SUNSET BOULEVARD, PENTHOUSE 30
LOS ANGELES, CA 90069-3601
10
STANBURY FISHELMAN, INC.
California Supreme Court, was summarized thusly:
1. Class Plaintiffs Were Targeted By Defendant’s Deceitful Conduct.
Defendant created, marketed, and sold its TurboTax® software to the well-defined
11
class of individuals comprising individual tax filers in the United States. Defendant intended,
12
through deceitful practices, to capture a direct sales base for its software. (FAC, ¶¶ 50 -51.)
13
14
2. The Harm Was Foreseeable.
All reasonable inferences must be drawn from the allegations of Plaintiffs’ FAC.
15
When Defendant contracts with Macrovision to use its SafeCast spy software, when
16
Defendant’s programmers create the installation software to install both TurboTax® and
17
SafeCast, and when Defendant undertakes a wide-ranging campaign to actively conceal the
18
installation of SafeCast, the reasonable inference is that Defendant was fully aware of what
19
would result from its deceitful conduct. The foreseeability prong is central to the imposition
20
of tort recovery for economic loss, with one Court explaining:
21
22
“As the California Supreme Court emphasized in J'Aire, the critical
issue to be determined before allowing recovery of an economic loss is the
foreseeability of the risk of that loss flowing from a defendant’s negligent
conduct.”
23
24
(North American Chemical Co. v. Superior Court (1997) 59 Cal.App.4th 764, 784.) In this
25
instance, with willful concealment, foreseeability is strongly present.
26
27
28
case of Eads v. Marks (1952) 39 Cal.2d 807.) A breach of any duty arising out of any
contract is ex delictu, and thus actionable, as opposed to ex contractu breaches.
25
Case No.: BC290840
PLAINTIFFS’ OPPOSITION TO DEFENDANT ’S DEMURRER TO PLAINTIFFS’
SECOND AMENDED COMPLAINT ; M EMORANDUM O F POINTS AND
AUTHORITIES
3. It Is Likely That Plaintiffs Suffered Injury.
9200 SUNSET BOULEVARD, PENTHOUSE 30
LOS ANGELES, CA 90069-3601
STANBURY FISHELMAN, INC.
1
2
For purposes of Demurrer, Plaintiffs’ allegations of harm are presumed true.
3
However, the very nature of the allegations, deceitful concealment of the fa ct that a hidden
4
spy program would ride along with TurboTax®, wrecking further havoc thereafter, suggest a
5
strong likelihood that Plaintiffs actually suffered direct injury from Defendant’s wrongful
6
conduct. Just like the car owner that discovered his “new” car had been secretly repainted
7
before purchase, the mere knowledge that you have been defrauded causes an injury. 13
8
4. Defendant’s Wrongful Conduct Is The Direct Cause Of Plaintiff’s
9
Injuries; There Is No Intervening Event Between Wrong And Injury.
10
In this matter, it was the fraudulently induced purchase and installation of Defendant’s
11
TurboTax® product that caused the varieties of harms encountered by Plaintiffs. Central to
12
those harms is the undisclosed installation of Macrovision’s SafeCast spy software .
5. Substantial Moral Blame Attaches To Defendant’s Deceit.
13
14
“Even more obnoxious than failure to disclose is conduct seeking to conceal defects in
15
property, or to prevent investigation and discovery of material facts.” (5 Witkin, Summary of
16
Cal. Law, (9th ed. 1987) Torts, § 702, citing Williams v. Graham (1948) 83 Cal.App.2d 649,
17
652, and others.) A concerted campaign to hide product information from consumers is
18
unconscionable. A high level of moral blame attaches to Defendant’s conduct.
6. It Is Important To Prevent Similar Future Harms.
19
20
Computers have moved from the realm of science projects for colleges and status
21
symbols for business into integral appliances for the daily conduct of commerce,
22
communication, information storage and leisure. Because of the complexity of computers and
23
software, it is essential that consumers have the ability to rely upon the expertise of software
24
vendors. Permitting deceits such as Defendant’s to go unpunished diminishes the confidence
25
26
27
28
“The jury returned a verdict finding BMW liable for compensatory damages of $4,000. In
addition, the jury assessed $4 million in punitive damages, based on a determination that the
nondisclosure policy constituted ‘gross, oppressive or malicious’ fraud. [footnote] See
Ala.Code §§ 6-11-20, 6-11-21 (1993).” (BMW of North America, Inc. v. Gore (1996) 517
U.S. 559, 565, 116 S.Ct. 1589, 1594.)
13
26
Case No.: BC290840
PLAINTIFFS’ OPPOSITION TO DEFENDANT ’S DEMURRER TO PLAINTIFFS’
SECOND AMENDED COMPLAINT ; M EMORANDUM O F POINTS AND
AUTHORITIES
1
that consumers will place in even the largest players in the software market. It is crucial that
2
an appropriate tort remedy be assessed against Defendant so that similar conduct is deterred
3
and truthful information is disclosed to consumers.
4
5
Sufficient factors are present to hold Defendant liable in tort to Plaintiffs for even
economic losses.
6
7
8
9
10
9200 SUNSET BOULEVARD, PENTHOUSE 30
LOS ANGELES, CA 90069-3601
STANBURY FISHELMAN, INC.
11
12
13
14
VIII. CLASS PLAINTIFFS HAVE PROPERLY PLEADED A CAUSE OF ACTION
15
UNDER THE CALIFORNIA UNFAIR COMPETITION LAW.
16
A. California’s Unfair Competition Law Provides A Powerful Mechanism For
17
Private Plaintiffs To Correct Unfair Business Practices.
18
The UCL’s (Bus. & Prof. Code § 17200, et seq.) coverage is “sweeping, embracing
19
‘anything that can properly be called a business practice and that at the same time is forbidden
20
by law.’ [Citation.] It governs ‘anti-competitive business practices’ as well as injuries to
21
consumers, and has as a major purpose ‘the preservation of fair business competition.’” (Cel-
22
Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163,
23
180 (footnote omitted, internal quotation marks omitted).) The UCL “was intentionally
24
framed in [a broad manner] precisely to enable judicial tribunals to deal with the innumerable
25
‘new schemes which the fertility of man’s invention would contrive. [Citation.]’” (Barquis
26
v. Merchants Collection Assn. (1972) 7 Cal.3d 94, 112 (footnotes, citations and internal
27
quotes omitted).) “‘In permitting the restraining of all “unfair” business practices, [former]
28
section 3369 [today section 17200] undeniably establishes only a wide standard to guide
27
Case No.: BC290840
PLAINTIFFS’ OPPOSITION TO DEFENDANT ’S DEMURRER TO PLAINTIFFS’
SECOND AMENDED COMPLAINT ; M EMORANDUM O F POINTS AND
AUTHORITIES
1
courts of equity; . . . the Legislature evidently concluded that a less inclusive standard would
2
not be adequate.’” (Cel-Tech, supra, 20 Cal.4th at 181.) Thus, the UCL “does not proscribe
3
specific practices. Rather, as relevant here, it defines ‘unfair competition’ to include ‘any
4
unlawful, unfair or fraudulent business act or practice.’ ([Bus. & Prof. Code,] § 17200.)” 14
5
Ibid. (italics added).
6
UCL actions for employment practices are well within the ambit of the law:
7
“California courts have recognized that an employer’s business practices
concerning its employees are within the scope of section 17200. [Citations.]
For example, where the employer’s policy or practice is forbidden by or found
to violate the Labor Code, it may also be held to constitute an ‘unlawful
business practice’ subject to redress under the UPA.”
8
9
10
(Application Group, Inc. v. Hunter Group, Inc. (1998) 61 Cal.App.4th 881, 907.)
UCL actions “supplement the efforts of law enforcement and regulatory agencies.
9200 SUNSET BOULEVARD, PENTHOUSE 30
LOS ANGELES, CA 90069-3601
STANBURY FISHELMAN, INC.
11
12
[The Supreme] court has repeatedly recognized the importance of these private enforcement
13
efforts.” (Kraus v. Trinity Management Services, Inc. (2000) 23 Cal.4th 116, 126.)
Though Defendant suggests a course contrary to the stated public policy surrounding
14
15
the UCL, any restrictions on the breadth of section 17200 must come from the Legislature.
16
(Stop Youth Addiction v. Lucky Stores, Inc. (1998) 17 Cal.4th 553, 578 [71 Cal.Rptr. 2d 731].)
17
Because the UCL provides remedies that are cumulative to those provided under other
18
statutes, without a clear legislative exemption, industries subject to other statutory regulation
19
are nonetheless subject to this Act as well. (Quelimane Co., Inc. v. Stewart Title Guar. Co.
20
(1998) 19 Cal.4th 26, 43-44 [77 Cal.Rptr. 2d 709].) The Unfair Business Practices Act makes
21
practices proscribed therein independently actionable. (Cel-Tech Communications, Inc. v.
22
L.A. Cellular Tel. Co. (1999) 20 Cal.4th 163, 180 [83 Cal.Rptr.2d 548].) Liability under
23
Section 17200 of the UCL is strict, rendering a defendant’s mental states irrelevant. (See,
24
State Farm & Cas. Co. v. Superior Court (1996) 45 Cal.App.4th 1093, 1102.)
25
26
27
28
Section 17200 states in full, “As used in this chapter, unfair competition shall mean and
include any unlawful, unfair or fraudulent business act or practice and unfair, deceptive,
untrue or misleading advertising and any act prohibited by Chapter 1 (commencing with
Section 17500) of Part 3 of Division 7 of the Business and Professions Code.”
14
28
Case No.: BC290840
PLAINTIFFS’ OPPOSITION TO DEFENDANT ’S DEMURRER TO PLAINTIFFS’
SECOND AMENDED COMPLAINT ; M EMORANDUM O F POINTS AND
AUTHORITIES
1
1. Elements Of The UCL – Definitions.
a) “Unlawful” Under The UCL
2
3
By proscribing ‘any unlawful’ business practice, ‘section 17200 “borrows” violations
4
of other laws and treats them as unlawful practices’ that the unfair competition law makes
5
independently actionable.” (Cel-Tech, supra, 20 Cal.4th at 180.)
6
7
8
“The ‘unlawful’ practices prohibited by section 17200 are any practices
forbidden by law, be it civil or criminal, federal, state, or municipal, statutory,
regulatory, or court-made. [Citation.] It is not necessary that the predicate law
provide for private civil enforcement. [Citation.] As our Supreme Court put it,
section 17200 ‘borrows’ violations of other laws and treats them as unlawful
practices independently actionable under section 17200 et seq.”
9200 SUNSET BOULEVARD, PENTHOUSE 30
LOS ANGELES, CA 90069-3601
STANBURY FISHELMAN, INC.
9
10
(Saunders v. Superior Court (1994) 27 Cal.App.4th 832, 838-839 (1994).) Defendant has
11
violated provisions of the Consumer Legal Remedies Act, a de facto violation of the UCL.
b) “Unfair” Under The UCL
12
13
14
15
16
17
“As stated in State Farm Fire & Casualty Co. v. Superior Court (1996)
45 Cal.App.4th 1093 [53 Cal.Rptr. 2d 229], ‘The test of whether a business
practice is unfair “involves an examination of [that practice’s] impact on its
alleged victim, balanced against the reasons, justifications and motives of the
alleged wrongdoer. In brief, the court must weigh the utility of the defendant’s
conduct against the gravity of the harm to the alleged victim . . .. [Citations.]”
[Citation.]’ [Citation.] Stated otherwise, a business practice is unfair when it
‘“offends an established public policy or when the practice is immoral,
unethical, oppressive, unscrupulous or substantially injurious to consumers.”
[Citation.]’ [Citation.].)”
18
19
(Wilner v. Sunset Life Ins. Co. (2000) 78 Cal.App.4th 952, 965.) “Unfair” has a stricter
20
meaning only where a direct competitor sues. (Cel-Tech, supra, 20 Cal.4th at p. 187
21
(footnote omitted) (italics added). Under the appropriate standard of Wilner, the unfairness
22
standard is met given Plaintiffs’ allegations.
c) “Fraudulent” Under The UCL
23
24
Under the UCL, “fraud” requires neither deception, nor reliance, nor damage:
25
27
“The ‘fraud’ prong of Business and Professions Code section 17200 is
unlike common law fraud or deception. A violation can be shown even if no
one was actually deceived, relied upon the fraudulent practice, or sustained any
damage. Instead, it is only necessary to show that members of the public are
likely to be deceived.”
28
(Podolsky v. First Healthcare Corp. (1996) 50 Cal.App.4th 632, 648 (1996).) Here, Plaintiffs
26
29
Case No.: BC290840
PLAINTIFFS’ OPPOSITION TO DEFENDANT ’S DEMURRER TO PLAINTIFFS’
SECOND AMENDED COMPLAINT ; M EMORANDUM O F POINTS AND
AUTHORITIES
1
have alleged, and it is admitted as true on Demurrer, that Defendant engaged in actual deceit
2
through both false representations and active concealment of material facts.
3
4
the fact that a single wrongful act is sufficient. This 1992 amendment of Business and
6
Professions Code section 17200 states that it “applies to any unlawful ‘act or practice,’
7
presumably permitting invocation of the UCA based on a single instance of unfair conduct.”
8
[Italics added in original] (Podolsky v. First Healthcare Corp. (1996) 50 Cal.App.4th 632,
9
653; See, also, Klein v. Earth Elements, Inc. (1997) 59 Cal.App.4th 965, 969 [“plain meaning
11
9200 SUNSET BOULEVARD, PENTHOUSE 30
LOS ANGELES, CA 90069-3601
The Legislature saw fit, in 1992, to amend the Unfair Business Practices Act to clarify
5
10
STANBURY FISHELMAN, INC.
2. Even One Instance Of Wrongful Conduct Is Sufficient To Invoke Act.
of the amendment, as enacted, is that the UCA now covers single acts of misconduct”].)
3. Who May Sue Under The UCL
12
The UCL “permits ‘any person acting for the interests of itself, its members or the
13
general public’ (§ 17204) to initiate an action for restitutionary and/or injunctive relief (§
14
17203) . . ..’” (Quelimane Co. v. Stewart Title Guaranty Co. (1998) 19 Cal.4th 26, 42 (italics
15
added).) Person is used broadly and inclusively in the UCL. Under the UCL, “the term
16
person shall mean and include natural persons, corporations, firms, partnerships, joint stock
17
companies, associations and other organizations of persons.” (Bus. & Prof. Code § 17201.)
18
“The term ‘person’ as defined by Bus. & Prof. Code § 17201, is sufficiently broad to cover a
19
group of natural persons, or even a city of natural persons.” (People v. Thomas Shelton
20
Powers, M.D., Inc. (1992) 2 Cal.App.4th 330, 341 (italics added) (disapproved by Kraus,
21
supra, 23 Cal.4th 116, insofar as it ordered fluid fund recovery without class certifi cation).)
22
Even, “‘a private plaintiff who has himself suffered no injury at all may sue to obtain relief
23
for others.’” (Stop Youth Addiction, Inc. v. Lucky Stores, Inc. (1998) 17 Cal.4th 553, 561.)
24
Plaintiffs are persons with standing to sue this Defendant.
25
26
27
28
B. Defendant Engaged In Unfair Business Practices.
1. Unlawful Conduct – Defendants Have Violated State Law.
Violation of the law is a per se unfair business practice. (See, supra, Part VIII.A.1.a)
Plaintiffs have alleged Defendant’s violation of proscribed practices as set forth in the
30
Case No.: BC290840
PLAINTIFFS’ OPPOSITION TO DEFENDANT ’S DEMURRER TO PLAINTIFFS’
SECOND AMENDED COMPLAINT ; M EMORANDUM O F POINTS AND
AUTHORITIES
1
California Consumer Legal Remedies Act, section § 1770. (FAC, ¶ 75.) The factual details
2
of Defendant’s violations are concisely and particularly pleaded in Plaintiffs’ FAC. ( See,
3
e.g., FAC, ¶¶ 4-6, 31-51.)
4
2. The Wide Array Of Unfair Business Practices Related To Fraudulent
5
Concealment Of Secondary Spy Software.
6
An extensive discussion of Defendant’s unfair business practice involving the
7
installation of Macrovision’s SafeCast spy software is discussed throughout this Opposition,
8
and will not be repeated again here. (See, e.g., Part VII.A, supra.) It is enough to repeat that
9
the detailed facts and controlling law establish beyond any reasonable argument that
10
Defendant’s practices in this regard were unlawful, unfair and fraudulent.
3. False Contract – Routinely Breaching Contracts
9200 SUNSET BOULEVARD, PENTHOUSE 30
LOS ANGELES, CA 90069-3601
STANBURY FISHELMAN, INC.
11
As set forth herein, Defendant’s engaged in a concerted scheme to induce acceptance
12
13
of its License Agreement and then breach its very terms by inserting an unconscionable term,
14
to wit, that Defendant was entitled to secretly install monitoring software from another
15
software manufacturer. 15 That practice constitutes unfair competition under the UCL. State
16
Farm Fire & Casualty Co. v. Superior Court, 45 Cal.App.4th 1093 (1996) characterizes as
17
unfair competition “systematically breaching a form contract affecting many consumers . . .
18
or many producers . . ..” (State Farm, 45 Cal.App.4th at 1104.) To support that conclusion,
19
State Farm cites Orkin Exterminating Co., Inc. v. F.T.C. (11th Cir. 1988) 849 F.2d 1354,
20
which upheld a “Federal Trade Commission [order] requir[ing] Orkin [to] cease and desist
21
from conduct which the Commission found to constitute unfair acts or practices within the
22
meaning of section 5 the Federal Trade Commission Act [citation]. The Commission found
23
that Orkin violated section 5 by unilaterally breaching over 200,000 contracts with its
24
customers.” Orkin, 849 F.2d at 1356-1357, fn. omitted. On the same point, State Farm also
25
cites Allied Grape Growers v. Bronco Wine Co. (1988) 203 Cal.App.3d 432, 452, where it
26
27
28
As alleged in Plaintiffs’ FAC (and presumed true for purposes of evaluating D efendant’s
Motions against Plaintiffs’ FAC), other TurboTax purchasers and users have been similarly
victimized by material misrepresentations contained in a false License Agreement.
15
31
Case No.: BC290840
PLAINTIFFS’ OPPOSITION TO DEFENDANT ’S DEMURRER TO PLAINTIFFS’
SECOND AMENDED COMPLAINT ; M EMORANDUM O F POINTS AND
AUTHORITIES
1
was held that a grape buyer’s routine breach of contract was “manifestly unfair.” With
2
perhaps 5 million injured victims, the surreptitious installation of spy software violates the
3
provisions of Defendant’s License Agreement, constitutes a fraud in the inducement,
4
rendering the License Agreement voidable and Defendant’s conduct unfair under the UCL.
5
6
9200 SUNSET BOULEVARD, PENTHOUSE 30
LOS ANGELES, CA 90069-3601
STANBURY FISHELMAN, INC.
7
IX.
CLASS PLAINTIFFS HAVE PROPERLY PLEADED A CAUSE OF ACTION
UNDER THE CONSUMER LEGAL REMEDIES ACT (Civ. Code §§ 1750, et seq.)
8
A. Class Plaintiffs Have Properly Pleaded A Statutory Violation Of This Act.
9
Plaintiffs have alleged all necessary factors to establish a statutory violation of the
10
C.L.R.A. Plaintiffs have alleged that they were “consumers” (FAC, ¶ 73) who purchased
11
“goods” (FAC, ¶¶ 73-74) from Defendant. Defendants sold, offered to sell, or abetted the
12
selling or offering of those “goods.” (FAC, ¶ 74.) Defendant conspired with its agents,
13
contractors, and employees to design and carry out a scheme TurboTax® would
14
surreptitiously install secondary software, while Defendant’s packaging, License Agreement
15
and other disclosures affirmatively concealed the installation of the SafeCast software
16
authored by Macrovision. (FAC, ¶ 14-19, 31-51.) In so doing, “Defendant engaged in
17
practices proscribed under the Consumer Legal Remedies Act by, amongst other things:
18
(1)
19
(2)
20
(3)
21
(4)
Representing that goods have characteristics, ingredients, or uses
which they do not have;
Representing that goods are of a particular standard, quality or grade,
if they are of another;
Advertising goods or services with intent not to sell them as
advertised; and,
Inserting an unconscionable provision in agreements related to
acceptance of inadequately disclosed security software activities.”
22
23
(FAC, ¶ 75.) These allegations set forth a prima facie violation of the Consumer Legal
24
Remedies Act.
25
B. Class Plaintiffs Have Properly Pleaded Specific Violations Of This Act.
26
Class Plaintiffs have invoked the C.L.R.A. by pleading the specific violations of the
27
Consumer Legal Remedies Act (See, e.g., Complaint ¶ 75). These violations are pleaded
28
distinctly and clearly. Plaintiffs have also pleaded that Defendant’s violation of the act
32
Case No.: BC290840
PLAINTIFFS’ OPPOSITION TO DEFENDANT ’S DEMURRER TO PLAINTIFFS’
SECOND AMENDED COMPLAINT ; M EMORANDUM O F POINTS AND
AUTHORITIES
1
caused damage to them, stating, “As a direct result of the TurboTax products sold by
2
Defendant INTUIT, INC., Plaintiffs have suffered actual damages. . . .” (FAC, ¶ 78.) The
3
Complaint obviously has placed Defendants on notice of their alleged misconduct. In so
4
doing, the cause of action has adequately invoked the jurisdiction of this Court in connection
5
with the C.L.R.A. claims.
6
7
remedies that are in addition to all other protective procedures or remedies provided for in
8
any other law. The C.L.R.A. does not limit any other statutory or common-law right to bring
9
class actions. (Vasquez v. Superior Court (1971) 4 Cal.3d 800, 818.) Further, the C.L.R.A.
9200 SUNSET BOULEVARD, PENTHOUSE 30
LOS ANGELES, CA 90069-3601
10
STANBURY FISHELMAN, INC.
The C.L.R.A., in a fashion parallel to the Unfair Business Practices Act, provides
precludes any waiver of its protections, rendering them void. (Civ. Code, § 1751 .)
11
C. Notice Pleading Requirements Have Been Satisfied.
12
California is a Notice Pleading jurisdiction. 16 Here, Defendant is well-advised of
13
Plaintiffs allegations and the alleged derelictions. Plaintiffs have alleged that they were
14
damaged as a result of Defendant’s violation of provisions of the C.L.R.A. No other pleading
15
requirement is set forth in that act, but Defendant nevertheless demurrers on the theory that
16
Plaintiffs did not use the phrase “caused by” in their pleading. Reading the FAC as a whole,
17
it is evident that Plaintiffs are alleging injury “caused by” Defendant’s derelictions.
18
D. California Has Long Recognized That Implied Representations Bear The
19
Same Legal Significance As Affirmative Representations.
20
A misrepresentation need not be oral; it may be implied by conduct. (See, e.g., Thrifty-
21
Tel, Inc. v. Bezenek (1996) 46 Cal.App.4th 1559, 1567-1568, citing Universal By-Products,
22
Inc. v. City of Modesto (1974) 43 Cal.App.3d 145, 151.) Here, the appropriate
23
characterization of Defendant’s conduct is that false representations were made through a
24
combination of misleading advertisements, misleading product packaging and an intentionally
25
deceitful License Agreement. To conclude otherwise would be to eviscerate the primary
26
27
28
Kiseskey v. Carpenters’ Trust For Southern California (1983) 144 Cal.App.3d 222, 234,
stating “[T]he question is whether the pleading as a whole apprises the adversary of the
factual basis of the claim.”
16
33
Case No.: BC290840
PLAINTIFFS’ OPPOSITION TO DEFENDANT ’S DEMURRER TO PLAINTIFFS’
SECOND AMENDED COMPLAINT ; M EMORANDUM O F POINTS AND
AUTHORITIES
1
purpose of the C.L.R.A., which is intended to protect consumers from unscrupulous sellers.
2
9200 SUNSET BOULEVARD, PENTHOUSE 30
LOS ANGELES, CA 90069-3601
STANBURY FISHELMAN, INC.
3
X.
PLAINTIFFS’ PROPERLY PLEADED CAUSE OF ACTION FOR
4
NEGLIGENCE IS NOT PRECLUDED BY THE UNIFORM COMMERCIAL CODE.
5
A. California Recognizes The Existence Of A Common Law Duty Of Care.
6
Defendant contends that, in California, the Uniform Commercial Code supercedes all
7
common law negligence theories for injuries relating to breaches of warranties. However,
8
Software Design & Application, Ltd. v. Hoefer & Arnett, Inc. (1996) 49 Cal.App.4th 472, 479,
9
holds that, while narrowly circumscribed, breaches of common law duties of care remain
10
enforceable as common law causes of action. (Cf., Sun 'n Sand, Inc. v. United California
11
Bank (1978) 21 Cal.3d 671, 695, [bank owes a some duty of inquiry when a check presented
12
for deposit bears some objective signs of fraud].
13
Here, Defendant’s License Agreement actively concealed the surreptitious installation
14
of the SafeCast spy software. (FAC, ¶¶ 3, 5, 43, 59.) When Defendant consciously chose to
15
hide a second piece of software that installed along with TurboTax®, it assumed a duty of
16
care towards all persons affected by that installation. Defendant’s fraud elevated its
17
responsibility to one of surety. Justice demands that Defendant accept (or be forced to
18
accept) responsibility for its deceitful activities.
19
B. Plaintiffs’ Negligence Cause Of Action Is Properly Construed As A Claim,
20
Pleaded In The Alternative, For Negligent Misrepresentation.
21
In California, negligent misrepresentation is a form of fraud and deceit under Civil
22
Code sections 1710 and 1572. The Court, in Andrepont v. Meeker (1984) 158 Cal.App.3d
23
878, 884, held: “Since Gagne v. Bertran (1954) 43 Cal.2d 481, 487-488 [275 P.2d 15], was
24
decided, California courts have recognized that a negligent misrepresentation is actionable as
25
a form of deceit. [Citing to and quoting §§ 1710, subd. 2, and 1572, subd. 2.]” “[N]o actual
26
intent to defraud ... need be shown, as fraud includes not only intentional misrepresentations
27
but also negligent misrepresentations. [Citation.] Thus, ‘scienter’ is not an element of every
28
cause of action for deceit. [Citation.]” (In re Cheryl E. (1984) 161 Cal.App.3d 587, 599.)
34
Case No.: BC290840
PLAINTIFFS’ OPPOSITION TO DEFENDANT ’S DEMURRER TO PLAINTIFFS’
SECOND AMENDED COMPLAINT ; M EMORANDUM O F POINTS AND
AUTHORITIES
1
Reckless misrepresentations will satisfy a cause of action for negligent misrepresentation.
2
(Continental Airlines, Inc. v. McDonnell Douglas Corp. (1989) 216 Cal.App.3d 388, 404.)
3
XI.
4
CONCLUSION
5
Based upon the foregoing, Plaintiffs request that this Court deny Defendant’s
6
Demurrer and Motion to Strike. If the Court grants Defendant’s Demurrer and/or Motion to
7
Strike in any part, Plaintiffs request leave of Court to Amend their First Amended Complaint.
8
Dated this 8 th day of August 2003.
Respectfully submitted,
STANBURY FISHELMAN, INC.
9200 Sunset Boulevard, Penthouse 30
Los Angeles, CA 90069-3601
9
10
9200 SUNSET BOULEVARD, PENTHOUSE 30
LOS ANGELES, CA 90069-3601
STANBURY FISHELMAN, INC.
11
By:
12
George Stanbury
H. Scott Leviant,
Attorneys for Plaintiffs
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
35
Case No.: BC290840
PLAINTIFFS’ OPPOSITION TO DEFENDANT ’S DEMURRER TO PLAINTIFFS’
SECOND AMENDED COMPLAINT ; M EMORANDUM O F POINTS AND
AUTHORITIES