Letizia v. Facebook Inc.

• Decision Date: 14 July 2017
• Docket Number: Case No. 16–cv–06232–TEH
• Citation: 267 F.Supp.3d 1235
• Court: U.S. District Court — Northern District of California
• Parties: Thomas LETIZIA, et al., Plaintiffs, v. FACEBOOK INC., Defendant.

267 F.Supp.3d 1235

Thomas LETIZIA, et al., Plaintiffs,

v.FACEBOOK INC., Defendant.

Case No. 16–cv–06232–TEH

United States District Court, N.D. California.

Signed July 14, 2017

Gregory David Rueb, Joseph Anthony Motta, Rueb & Motta, A Professional Law Corporation, Concord, CA, Artemus W. Ham, Erica D. Entsminger, Robert M. Adams, Robert T. Eglet, Eglet Prince, Las Vegas, NV, for Plaintiffs.

Ashok Ramani, Briggs James Matheson, Elizabeth Katharine McCloskey, Ian Asher Kanig, Michelle Sabrina Ybarra, Paven Malhotra, Keker Van Nest & Peters LLP, San Francisco, CA, for Defendant.

ORDER GRANTING IN PART AND DENYING IN PART FACEBOOK'S MOTION TO DISMISS

THELTON E. HENDERSON, United States District Judge

Presently before the Court is Defendant Facebook, Inc.'s ("Facebook") motion to dismiss Plaintiffs' consolidated class action complaint. ECF No. 46 ("Mot."). Plaintiffs timely opposed the motion, ECF No. 54 ("Opp'n"), and Facebook timely replied, ECF No. 56 ("Reply"). Facebook also filed a request for judicial notice in support of its motion to dismiss. See ECF No. 47. The Court heard oral arguments on Facebook's motion and request on June 19, 2017. See ECF No. 61. After carefully considering the parties' written and oral arguments, the Court hereby GRANTS IN PART and DENIES IN PART Facebook's motion and request for judicial notice for the reasons set forth below.

I. BACKGROUND

The following factual allegations are taken from Plaintiffs' Consolidated Amended Class Action Complaint, ECF No. 34 ("Compl."), unless otherwise stated, and are therefore accepted as true for the purposes of this motion. See Bell Atlantic Corp. v. Twombly , 550 U.S. 544, 555–56, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007).

Facebook, Inc. operates Facebook.com, a social media service with 1.79 billion monthly active users. Compl. ¶¶ 13–14. Users are not charged to create a Facebook.com account. Once an account is made, users can, among other things, create a profile page, post content, make friends with other users, and view content posted by other users. Id. ¶ 14. Instead of charging account holders to access Facebook.com, Facebook makes more than 95% of its revenue by selling advertising services. Id. ¶ 15.

One type of advertising that Facebook sells is video advertisements, where advertisers can pay money to have video displayed to Facebook users. These video advertisements autoplay by default when Facebook users engage with the platform, but users are allowed to scroll past autoplaying videos (including paid advertisements) without ever watching more than a few seconds of the video. Id. at 16. Facebook's video advertisements are provided with accompanying advertising metrics, which enable purchasers to monitor and evaluate their video advertisements' performance. Id. ¶ 18. These metrics are a main selling point of online advertising because they offer more detailed and closer to real-time marketing analytics than other traditional advertising mediums like television or radio. Id. Online advertisers use these analytics to determine where to spend advertising dollars and the effectiveness of their dollars spent. Id. Plaintiffs allege advertising metrics have "become a standard practice in the industry for online advertisers," which is evidenced by companies like YouTube, LinkedIn, Twitter, and Facebook all providing video advertisements with advertising metrics. Id. ¶¶ 18–19.

In May 2014, Facebook rolled out new advertising metrics, which included "Average Duration of Video Viewed" ("ADVV") and "Average Percentage of Video Viewed" ("APVV"). Id. ¶¶ 20–21, 25. The ADVV metric is viewed by many advertisers as one of the most important analytics used in evaluating video advertisement performance. This is because "the longer people watch an advertisement, the greater the advertisement's impact on the viewer." Id. ¶ 21. After Facebook's announcement, Plaintiffs, who consist mostly of advertising and marketing professionals and entities, purchased Facebook's video advertising services with the understanding that these advertising metrics were included in the purchased video advertising services. Id. ¶¶ 6–11, 23. Facebook never disclosed that these new metrics were not audited or accredited by the Media Rating Council, the marketing industry's "standard-bearer" for accurate measurements. Id. ¶ 23.

Facebook had previously told advertising purchasers that the ADVV would be calculated by dividing the total time spent watching the video by all users by the total number of users who spent any time watching the video. Id. ¶ 26. However, in August 2016, Facebook disclosed in its "Advertising Help Center" that this metric had been improperly calculated. Id. ¶ 27. Rather than calculating the ADVV by dividing the total time spent watching the video by all users by the total number of users who spent any time watching the video, Facebook had been dividing the total time spent watching the video by all users by only the total number of users who spent three or more seconds watching the video. Id. As a result, the APVV was also erroneously calculated because Facebook calculated this metric using the ADVV as a calculation input. Id. On or about September 23, 2016, David Fischer, Facebook's Vice President of Business and Marketing Partnerships, confirmed that, due to Facebook's miscalculation, Facebook had overstated this ADVV metric. Id. ¶ 28. Moreover, Facebook informed some of its advertisers that the ADVV metric was inflated between 60–80%, thus making Facebook's video advertisements appear as if they were performing better than they actually were. Id. ¶ 33.

Plaintiffs allege Facebook's misrepresentations induced them to purchase the video advertisement because they "wanted accurate video advertising metrics regarding [ADVV] and [APVV] so that they could monitor their video advertisements' performance." Id. ¶ 36. Plaintiffs also allege Facebook's misrepresentations induced them to "continue purchasing video advertisements," to "purchase additional video advertisements" and to "pay more for Facebook video advertising than they would otherwise have been willing to pay." Id. ¶¶ 37–38. Lastly, Plaintiffs allege Facebook's misrepresentations: artificially increased the price of Facebook video advertising, provided Facebook with an unfair competitive advantage over other online video advertising platforms, and interfered with Plaintiffs' attempts to utilize Facebook's video advertising analytics and to run effective video advertising campaigns. Id. ¶¶ 30–41. Plaintiffs seek to represent the following class: "All persons or entities who, from May 4, 2014 to Sept. 23, 2016 [the "Class Period"], had an account with Facebook, Inc., and who paid for placement of video advertisements on a Facebook-owned website."¹ Id. ¶ 43. Plaintiffs allege three causes of action: (1) a violation of California's Unfair Competition Law ( Cal. Bus. & Prof. Code § 17200 et seq. ); (2) a breach of an implied duty to perform with reasonable care; and (3) a quasi-contract claim for restitution. Compl. ¶¶ 54–77.

II. REQUEST FOR JUDICIAL NOTICE

As a preliminary matter, the Court first turns to address Facebook's request for judicial notice prior to addressing Facebook's motion to dismiss.

a. Legal Standards

In deciding a Rule 12(b)(6) motion, the court generally looks only to the face of the complaint and documents attached thereto. Van Buskirk v. Cable News Network, Inc., 284 F.3d 977, 980 (9th Cir. 2002). A court must normally convert a Rule 12(b)(6) motion into a Rule 56 motion for summary judgment if it "considers evidence outside the pleadings.... A court may, however, consider certain materials—documents attached to the complaint, documents incorporated by reference in the complaint, or matters of judicial notice—without converting the motion to dismiss into a motion for summary judgment." United States v. Ritchie, 342 F.3d 903, 907–08 (9th Cir. 2003). Stated differently, in ruling on a motion to dismiss, the Court can consider material that is subject to judicial notice under Rule 201 of the Federal Rules of Evidence. Under Rule 201, the Court may take judicial notice of a matter or fact when it is "not subject to reasonable dispute" because it is either "(1) generally known within the trial court's territorial jurisdiction; or (2) can be accurately and readily determined from sources whose accuracy cannot reasonably be questioned." Fed. R. Evid. 201(b). And under the incorporation by reference doctrine, a court may consider a document extrinsic to the complaint if the document's "authenticity is not contested and the plaintiff's complaint necessarily relies on [it]." Lee v. City of Los Angeles , 250 F.3d 668, 688 (9th Cir. 2001) (citation omitted). A plaintiff's complaint necessarily relies on an extrinsic document "if the plaintiff refers extensively to the document or the document forms the basis of the plaintiff's claim." Ritchie , 342 F.3d at 908 (citations omitted).

b. Discussion

Facebook requests judicial notice of five documents: (1) Facebook's Statement of Rights and Responsibilities ("SRR") in existence during the Class Period, ECF No. 47–2 ("Duffey Decl."); (2) Facebook's Self–Serve Ad Terms during the Class Period; (3) Facebook's Advertising Guidelines during the Class Period; (4) Facebook's Payment Terms during the Class Period; and (5) a Facebook Business Post made by David Fischer, Facebook's Vice President of Business and Marketing Partnerships, on September 23, 2016. ECF No. 47 at 1:11–2:3. Facebook suggests that Plaintiffs refer to these materials in their complaint and that they form the basis of Plaintiffs' misrepresentation and contract claims. Id. at 1:21–2:3. Facebook also states it "does not seek to judicially notice the truth of any of the statements contained in these documents, but merely their existence." Id. at 2:1–3. Because neither party disputes the existence and authenticity of Facebook's contracts and because Plaintiffs do not oppose the Court taking judicial notice of...