Bayol v. Zipcar, Inc., Case No. 14–cv–02483–TEH

• Decision Date: 29 January 2015
• Docket Number: Case No. 14–cv–02483–TEH
• Parties: Gabriela Bayol, Plaintiff, v. Zipcar, Inc., Defendant.
• Court: U.S. District Court — Northern District of California

78 F.Supp.3d 1252

Gabriela Bayol, Plaintiff

v.Zipcar, Inc., Defendant.

Case No. 14–cv–02483–TEH

United States District Court, N.D. California.

Signed January 29, 2015

Annick Marie Persinger, Lawrence Timothy Fisher, Yeremey O. Krivoshey, Bursor & Fisher, P.A., Walnut Creek, CA, Scott A. Bursor, Bursor & Fisher, P.A., New York, NY, for Plaintiff.

Patrick Edward Gibbs, Reuben J. Stob, Latham & Watkins LLP, Menlo Park, CA, William P. Donovan, Jr., Joseph Bernard Woodring, Cooley LLP, Santa Monica, CA, Matthew David Caplan, Cooley LLP, San Francisco, CA, for Defendant.

ORDER DENYING DEFENDANT'S MOTION TO DISMISS

THELTON E. HENDERSON, District Judge

This matter came before the Court on January 26, 2015, on Zipcar's motion to dismiss the complaint. The Court has carefully considered the parties' arguments, and now DENIES Zipcar's motion, for the reasons set forth below.

BACKGROUND

Plaintiff Gabriela Bayol is a resident of Daly City, California and a member of Zipcar, a short-term car rental service. In order to use Zipcar, Bayol entered into a standardized Membership Agreement setting out the terms of her rentals. Under the Agreement, members must pay a fee of $50 per hour, up to $150, for returning a car late, in addition to the normal rental rate. Membership Agreement, Ex. A to Mot., at Schedule 2, § 1. Bayol alleges that she has returned a Zipcar late, and has accordingly paid the late fees set out in the Membership Agreement.

Bayol brought this putative class action to challenge Zipcar's late fees under various California consumer protection statutes, including Civil Code section 1671(d), the Consumer Legal Remedies Act (“CLRA”), and the Unfair Competition Law (“UCL”). Bayol argues that Zipcar's late fee provision is presumptively illegal under section 1671(d) because it sets liquidated damages in a consumer contract. She alleges that it would not be impracticable to calculate Zipcar's actual damages when a car is returned late, that Zipcar did not conduct a reasonable endeavor to estimate its actual damages, and that the late fees imposed bear no reasonable relation to Zipcar's actual damages. She also alleges that such fees are unconscionable and unfair, because they are included in a contract of adhesion and are unreasonably favorable to Zipcar. Invoking these statutes, Bayol seeks a permanent injunction against Zipcar's late fee policy, restitution and damages.

Zipcar brought this motion to dismiss the complaint in its entirety. Zipcar argues that its late fees are not liquidated damages, because they vary based on how late a car is returned. Zipcar also argues that Bayol's factual claims are so conclusory that they must be rejected, even at the pleadings stage. Zipcar argues that no amendment could cure these defects, so the complaint should be dismissed with prejudice.

LEGAL STANDARD

Rule 12(b)(6) requires dismissal when a plaintiff's allegations fail “to state a claim upon which relief can be granted.” Fed.R.Civ.P. 12(b)(6). To survive a motion to dismiss under Rule 12(b)(6), a plaintiff must plead “enough facts to state a claim to relief that is plausible on its face.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). Plausibility does not equate to probability, but it requires “more than a sheer possibility that a defendant has acted unlawfully.” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (citation omitted). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id.

In ruling on a motion to dismiss, a court must “accept all material allegations of fact as true and construe the complaint in a light most favorable to the non-moving party.” Vasquez v. Los Angeles County, 487 F.3d 1246, 1249 (9th Cir.2007). Courts are not, however, “bound to accept as true a legal conclusion couched as a factual allegation.” Iqbal, 556 U.S. at 678, 129 S.Ct. 1937.

DISCUSSION

Zipcar makes two primary arguments as to why the complaint should be dismissed. First, it argues that its late fees are not “liquidated damages” under California law, so Plaintiff does not have a statutory basis for her claims. Second, Zipcar argues that Plaintiff's factual allegations are insufficient under the plausibility standard that is required at the pleadings stage.

Both of these arguments fail. Zipcar's late fees are liquidated damages, because they can readily be determined from the contract at the time of breach. And Plaintiff's complaint, though somewhat conclusory, nonetheless makes sufficient factual allegations at the pleadings stage.

I. Zipcar's Late Fees are Liquidated Damages

California law places significant restrictions on a party's ability to use a consumer contract to set what damages it will be entitled to in the event of a breach. California statute provides that, for a contract for the rental of personal goods or services for personal, family, or household purposes, “a provision in a contract liquidating damages for the breach of the contract is void except [when] it would be impracticable or extremely difficult to fix the actual damage.” Cal. Civil Code § 1671(d). Although the validity of a liquidated damages provision is a fact-based inquiry not appropriately determined on a motion to dismiss, whether a provision is a liquidated damages provision is a question of law for the court to decide. Ruwe v. Cellco P'ship, 613 F.Supp.2d 1191, 1196 (N.D.Cal.2009) ; see also Berkeley Unified Sch. Dist. of Alameda Cnty. v. James I Barnes Constr. Co., 112 F.Supp. 396, 400–01 (N.D.Cal.1953).

“California courts have defined [liquidated damages] as ‘an amount of compensation to be paid in the event of a breach of contract, the sum of which is fixed and certain by agreement....’ ” Chodos v. West Publ'g Co., 292 F.3d 992, 1002 (9th Cir.2002) (quoting Kelly v. McDonald, 98 Cal.App. 121, 125, 276 P. 404 (1929) ). To be sufficiently fixed and certain to qualify as “liquidated damages,” a provision must either set the exact amount (i.e., a single number), or provide some formula by which the amount is “certain or readily ascertainable.” See Chodos, 292 F.3d at 1002.

In Chodos, the Ninth Circuit held that an author's entitlement to 15% of revenues from the sales of a book that was never published was not a “liquidated debt,” because “the revenues to which that percentage figure is to be applied cannot be calculated with reasonable certainty.” Id. Since the book was never published, there were no revenue figures on which to base the calculation, and the damages could not be ascertained. Id.

A court in this district, applying Chodos, has held that a cable company's termination fees were not liquidated damages, where customers “ ‘may be subject [to] a termination fee of up to $700,’ but that the ‘exact amount ... is a function of when your account is terminated and the type of Service Plan you are on.’ ” Walter v. Hughes Commc'ns, Inc., 682 F.Supp.2d 1031, 1046 (N.D.Cal.2010) (quoting the Subscriber Agreement). The plaintiffs in that case also alleged that the cable company routinely imposed a fee of $400, but the complaint actually included only one example, and it was for a fee of $300. Id. This uncertainty in the amount of the fee, from $300 to $400 to some other number up to $700, led the court to conclude that the plaintiffs “failed to allege that the Subscriber Agreement included a fixed fee that constituted impermissible liquidated damages under § 1671.” Id.

However, courts will find fees that are not a single, fixed number to be liquidated damages provisions where they can easily be determined from the contract at the time of breach. For example, a court in the Southern District of California found that membership fees of $59 per month for prepaid massage services were liquidated damages, even though the amount of fees that each member paid varied based on how many months he or she had been a member, because the total amount was readily discernible at the time of breach, i.e., cancellation of the contract. Hahn v. Massage Envy Franchising, LLC, No. 12–cv–153 DMS, 2014 WL 5100220, at *12 (S.D.Cal. Sept. 25, 2014). The court held that “[w]hen a contract provides a formula to calculate liquidated damages based on profits, and damages can be calculated after breach when the profits had been earned, the provision is for liquidated damages, even if the actual amount cannot be calculated at the time of contract formation.” Id. (citing Higgins v. Desert Braemar, Inc., 219 Cal.App.2d 744, 752, 33 Cal.Rptr. 527 (1963) (“The obligation to pay the amount agreed upon for the services rendered becomes a liquidated debt ... when that amount has been ascertained or is ascertainable by reference to a formula prescribed by the agreement.”)). As a result, “[t]he membership agreement [was] sufficiently certain to support liquidated damages.” Hahn, 2014 WL 5100220, at *12.

In many cases, the parties do not dispute whether a damages provision based on a formula falls within the liquidated damages statute. See, e.g., Ubaldi v. SLM Corp., 852 F.Supp.2d 1190, 1192, 1203 (N.D.Cal.2012) ($5 fee or 5% of unpaid loan amount); Gellis v. Verizon Commc'ns, Inc., No. 07–cv–3679 JSW, 2007 WL 7044762, at *1 (N.D.Cal. Nov. 5, 2007) ($5 fee or 1.5% of unpaid balance each month); Ridgley v. Topa Thrift & Loan Ass'n, 17 Cal.4th 970, 974, 73 Cal.Rptr.2d 378, 953 P.2d 484 (1998) (prepayment charge of six month's interest at the rate in effect at the time of prepayment); Garrett v. Coast & S. Fed. Sav. & Loan–Ass'n, 9 Cal.3d 731, 740, 108 Cal.Rptr. 845, 511 P.2d 1197 (1973) (2% of unpaid loan balance); Hitz v. First Interstate Bank, 38 Cal.App.4th 274, 279, 44 Cal.Rptr.2d 890 (1995) (late fee of 5% of amount due, between $3 and $5). Although these cases do not hold that formula-based fees are liquidated damages, because the parties did not dispute the issue, they nonetheless show that such fees are...