Barrett v. Apple Inc.

• Citation: 523 F.Supp.3d 1132
• Decision Date: 04 March 2021
• Docket Number: Case No. 5:20-cv-04812-EJD
• Parties: Carl BARRETT, et al., Plaintiffs, v. APPLE INC. and Apple Value Services, LLC, Defendants.
• Court: U.S. District Court — Northern District of California

523 F.Supp.3d 1132

Carl BARRETT, et al., Plaintiffs,

v.APPLE INC. and Apple Value Services, LLC, Defendants.

Case No. 5:20-cv-04812-EJD

United States District Court, N.D. California, San Jose Division.

Signed March 4, 2021

Christopher M. Burke, ScottScott Attorneys at Law LLP, San Diego, CA, Anthony Fata, Cafferty Clobes Meriwether & Sprengel LLP, Chicago, IL, Joseph P. Guglielmo, ScottScott, Attorneys at Law, LLP, New York, NY, for Plaintiffs Carl Barrett, Michel Polston, Nancy Martin, Douglas Watson, Eric Marinbach, Michael Rodriguez, Maria Rodriguez.

Alex Martin Outwater, ScottScott Attorneys at Law LLP, San Diego, CA, for Plaintiffs.

Kate Tainsky Spelman, Alexander Michael Smith, Madeline Paige Skitzki, Jenner and Block LLP, Los Angeles, CA, for Defendants.

ORDER GRANTING DEFENDANTS’ MOTION TO DISMISS

Re: Dkt. Nos. 33, 34

EDWARD J. DAVILA, United States District Judge

This class action suit is brought by Plaintiffs Carl Barrett, Michel Polston, Nancy Martin, Douglas Watson, Eric Marinbach, Michael Rodriguez, and Maria Rodriguez, individually, and on behalf of others similarly situated ("Plaintiffs"). Plaintiffs recently filed a Class Action Complaint (Dkt. No. 1, "CAC") in this matter against Apple Inc., Apple Value Services, LLC, and Does 1–10 (unknown individuals legally responsible for unlawful acts alleged by Plaintiffs), inclusive. Pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, Apple Inc. and Apple Value Services, LLC, (hereinafter, collectively "Apple" or "Defendants") seek to dismiss all causes of action in the CAC. Dkt. No. 33 ("Motion to Dismiss," "MTD"). The Court took the motion under submission for decision without oral argument pursuant to Civil Local Rule 7-1(b). For the reasons below, the Court GRANTS the motion to dismiss.

I. Background

The Federal Trade Commission has reported that, between 2015 and 2019, scammers stole more than $93.5 million by carrying out a formulaic gift card scam. CAC ¶ 52; see e.g., Emma Fletcher, Scammers Increasingly Demand Payment by Gift Card , FEDERAL TRADE COMMISSION (Oct. 16, 2018), https://www.ftc.gov/news-events/blogs/dataspotlight/2018/10/scammers-increasingly-demand-payment-gift-card. FTC data indicates that gift card scammers steal more and more money with each passing year. Id. Gift card scammers stole approximately $24.4 million in 2019 alone, and approximately $30 million in 2020 alone. Id. These figures may indicate only a fraction of the theft occurring each year, as many scam victims may not file a report. Id.

Apple Inc. is a California corporation with its principal place of business in Cupertino, California.¹ Apple Value Services, LLC, is a Virginia Corporation with its principal place of business in Cupertino, California. Id. ¶ 24. About a quarter of all reported gift card scams involve Apple's App Store & iTunes Gift Cards ("iTunes gift cards" or "gift cards"). Id. ¶ 52.

According to Plaintiffs’ CAC, the iTunes gift card scam works as follows: The scammer contacts an individual. Id. ¶¶ 56–65. The scammer induces panic or urgency in the individual or otherwise induces the individual to give money to the scammer. Id. The scammer may, for example, tell the individual that the individual has a time-sensitive opportunity to receive a vaccine for Covid-19. Id. The scammer tells the individual that the individual can transfer money to the scammer by using iTunes gift cards. Id. The scammer tells the individual to go to a nearby retailer to buy one or more gift cards. Id. The scammer tells the individual to give to the scammer the unique code(s) located on the back of the gift card(s). Id. If the individual complies, the scammer may ask the individual to purchase more gift cards and share their codes as well. Id.

Once the scammer is in possession of a gift card code, the scammer is in possession of the value associated with the gift card—at least until the individual who was the victim of the scam or someone else with access to the code uses up that value. Id. At this point, the scammer does one of two things. Id. The scammer may sell the code to a third party in exchange for money. Id. Alternatively, the scammer may input the code into an Apple ID account controlled by the scammer. Id. If the scammer inputs the code into his or her Apple ID account, the scammer can use the value of the gift card as if it were his or her own, and can carry out transactions on either the iTunes Store or the App Store. Id. For example, the scammer may purchase songs or movies on iTunes, or they may spend the money on or within applications ("apps") controlled by a third party. Id. Some apps are free but some cost money to download; moreover, some apps allow or induce users to pay money within the app itself—for example, to get access to special features of the app. Id.

In a typical version of the scam, however, the scammer will not spend the gift card value in the iTunes Store or on or within third-party apps. Id. Instead, scammers spend the value on or within an app that the scammer himself or herself controls. Id. This means that, prior to contacting the individual and inducing the individual to buy a gift card, the scammer has often already created his or her own app or otherwise obtained control over an app someone else created. Id. In order to create an app offered in Apple's App Store, one must become an Apple Developer. Id. ¶¶ 39–42. To become an Apple Developer, one must create an Apple ID, enroll in the Apple Developer Program, enter into the Apple Developer Program License Agreement, and pay a fee of $99 per year. Id. Whenever a purchase is made on or within an app (either with gift card value or with other loaded monetary value), Apple retains 100 percent of the value of that purchase until approximately 45 days after the end of the fiscal month, at which point Apple pays 70 percent of the value to the Apple Developer controlling the app. Id. ¶ 64. Apple retains a 30 percent commission on all app or in-app purchases in its App Store. Id. The scam, or at least one cycle of the scam, is complete when the Apple Developer-scammer receives his or her payment from Apple. The scammer has at this point effectively converted gift card codes into money.

Plaintiffs bring this action individually and also on behalf of a proposed nationwide class of persons in the United States who were victims of the iTunes gift card scam and who did not receive a refund from Apple. Id. ¶¶ 116–75. There are two proposed subclasses: one includes scam victims who contacted Apple following the scam; the other includes scam victims 65 years of age and older at the time of scam. Id. There are seven named Plaintiffs, all of whom fell victim to a typical version of the scam as described above. Id. ¶¶ 88–112. Two of the named Plaintiffs contacted Apple after being scammed, one contacted the police, and two contacted both the police and a district attorney. Id. Two named Plaintiffs apparently sought no remedy. Id. According to the CAC, the five individual Plaintiffs who did not contact Apple "[were] informed that once the scammers redeemed the iTunes gift card there [was] nothing that Apple would do for them." Id. Two of the named Plaintiffs are 65 years of age or older. Id. ¶¶ 16–22. Named Plaintiffs are residents of Maryland, Oregon, Florida, California, and New York. Id.

Plaintiffs allege that Apple has control of its iTunes Store and its App Store such that it knew or should have known about specific iTunes gift card scams as they were occurring or soon after they occurred. See, e.g. , id. ¶ 8. Plaintiffs allege that Apple knew or should have known: which Apple IDs had uploaded the codes of stolen gift cards; which iTunes Store or App Store purchases had been made with the value uploaded from stolen gift cards; and which Apple Developer accounts were associated with purchases made with the value uploaded from stolen gift cards. See, e.g. , id. ¶ 73. Plaintiffs further allege that "Apple is able to identify the Apple IDs that participate in scams ... without [Apple's having received] phone calls from victimized consumers." Dkt. No. 39, Opposition at 4 (emphasis preserved). More generally, Plaintiffs allege that Apple knew or should have known how the iTunes gift card scam works, and that it is a widespread and impactful phenomenon. See, e.g. , CAC ¶ 56. Plaintiffs allege that Apple could have used its knowledge and control of its online stores to suspend Apple ID accounts and Apple Developer accounts associated with suspicious activity, to refuse to pay Apple Developer accounts that seemed to be involved with scams, and to refund to scam victims Apple's 30 percent commission on purchases associated with scams (if not the full 100 percent loss of the stolen gift card value). Id. ¶¶ 74–75. Plaintiffs point out that in 2012 Apple started producing gift cards in $500 denominations, potentially increasing the impact of individual scams. Id. ¶ 83. Plaintiffs allege that Apple's actions or failures to act indicate that Apple is aiding and abetting the scams, or is otherwise violating California fair competition statutes by knowingly paying scammers and keeping funds received because of the scams. See, e.g. , id. ¶ 86.

Apple provides warning language in bold red lettering on the backs of iTunes gift cards. Id. Request for Judicial Notice ("RJN"), Dkt. No. 34 ("RJN"), Exhibit 1.² This warning language reads as follows: "Do not share your code with anyone you do not know." Id. Apple has created a webpage on which it shares information regarding gift card scams, including information about how to avoid scams and what to do in case a scam has occurred. RJN, Exhibit 3. This webpage is titled "About Gift Card Scams." Id. The language on the website states, among other things: "If you believe you're the victim of a scam involving Apple Gift Cards, App Store & iTunes Gift Cards, or Apple Store Gift Cards, you can call Apple at 800-275-2273 (U.S.) and say ‘gift cards’ when prompted." Id. The website...