Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-4_14-cv-00437/USCOURTS-cand-4_14-cv-00437-7/pdf.json

Nature of Suit Code: 890
Nature of Suit: Other Statutory Actions
Cause of Action: 15:1125 Trademark Infringement (Lanham Act)

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United States District Court

For the Northern District of California

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IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

HEARTLAND PAYMENT SYSTEMS, INC.,

Plaintiff and CounterDefendant,

v.

MERCURY PAYMENT SYSTEMS, LLC,

Defendant and Counter-Claimant.

________________________________/

No. C 14-0437 CW

ORDER GRANTING 

MOTION TO STRIKE 

AND GRANTING IN 

PART AND DENYING 

IN PART MOTION TO 

DISMISS MERCURY’S 

COUNTERCLAIMS

(Docket No. 94)

Plaintiff Heartland Payment Systems filed its original 

complaint on January 29, 2014. Defendant Mercury Payment Systems 

moved to dismiss the complaint and, on November 7, 2014, the Court 

granted Mercury’s motion and granted Heartland leave to amend.

Heartland filed an amended complaint, and Mercury moved to 

dismiss. On February 24, 2015, the Court granted Mercury’s motion

in part and denied it in part. 

Mercury filed its answer to Heartland’s amended complaint on 

March 23, 2015. In its answer, it asserted various affirmative 

defenses and counterclaims against Heartland. Heartland now moves 

to strike Mercury’s affirmative defense of unclean hands, and 

moves to dismiss Mercury’s counterclaims in their entirety. 

(Docket No. 94). Mercury has filed an opposition. Heartland has 

filed a reply. Having considered the motions on the papers, the 

Court GRANTS in part the motion to dismiss, DENIES it in part,

GRANTS the motion to strike and GRANTS leave to amend. 

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BACKGROUND

The following is a summary of facts alleged in the 

counterclaims and taken as true for purposes of this motion. 

Heartland and Mercury are competitors in the payment 

processing industry. Docket No. 84, Mercury’s Counterclaims

¶ 16. Both companies offer payment processing services to smalland medium-sized businesses. Id. ¶¶ 15-18.

Heartland advertises its services on its website. Id. ¶ 20. 

On the website, Heartland states that it provides “fair, honest 

and fully disclosed payment solutions to help businesses prosper.” 

Id. ¶ 21. It purports to offer its services to all of its 

customers according to an “interchange-plus” pricing model. Id.

¶ 19. Heartland claims that the term “interchange-plus” is a term 

of art in the industry, which is well understood by small and 

medium-sized businesses. Id. According to Mercury, however, 

“interchange-plus” does not have a generally accepted meaning in 

the payment processing industry. Id.

Mercury alleges that, despite Heartland’s advertising that it 

offers “all” of its customers interchange-plus pricing, that offer 

extends only to customers who process $50,000 or more yearly. Id.

¶ 23. Mercury alleges that, in response to an unidentified survey 

about Heartland’s advertising, several businesses complained that 

Heartland does not in fact offer “true” interchange-plus pricing, 

and that the pricing for businesses that process less than $50,000 

per year is “way higher than any sane interchange-plus plan.” Id.

¶ 24. 

Heartland also advertises that it offers “fair and upfront 

pricing” to its customers. Id. ¶ 32. Mercury alleges that 

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businesses understand that to mean that all fees and charges are 

disclosed in advance. Id. Despite this guarantee, Mercury 

alleges that Heartland charges “hidden early-termination fees.” 

Id. ¶ 33. Mercury alleges that three of Heartland’s former 

customers were surprised when they were charged $295 for 

terminating their contract early. Id. ¶ 34.

Mercury also alleges that Heartland “marks up certain fees 

that it claims to pass through at cost.” Id. ¶ 33. These fees 

include MasterCard and Visa settlement fees. Id. Mercury also 

alleges that Heartland receives rebates from American Express, but 

fails to share those rebates with the businesses it serves. Id.

In addition to Heartland’s deceptive pricing, Mercury 

alleges that Heartland falsely promises to keep businesses’

customer data “safe at every level.” Id. ¶ 43. On Heartland’s 

website, it boasts that “Heartland Secure,” its data protection 

system, “is the most secure credit card processing method backed 

by the most comprehensive merchant warranty -– in the industry.” 

Id. It goes on to state: “Through our innovative use of 

[encryption and tokens] we are able to protect your customer 

credit card data from the moment you swipe their card. After that 

we use [another encryption] to make the data invisible to prying 

eyes. And this means that your business is protected like no 

other.” Id. Mercury alleges that this statement is false because 

the “Heartland Secure” system is not totally secure, as admitted 

by Heartland’s Chief Information Officer when he stated, “There is 

no such thing as totally secure software anymore, and there 

probably never will be.” Id. ¶ 44. 

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Mercury also alleges that, “since at least 2011,” Heartland

has engaged in “deceptive business practices” by charging a fee 

and describing it on merchant statements as a “Service & 

Regulatory Mandate.” Id. ¶¶ 3, 75 (describing the “mandate” as 

“but one specific example of Heartland’s deceptive business 

practices”). According to Mercury, “[n]o such regulatory 

‘mandate’ exists in the industry,” id. ¶ 75, and using that 

terminology suggests that Heartland must charge the fee when, in 

fact, it charges the fee and keeps the proceeds without providing 

them to any regulatory entity, id. 

In addition to its allegedly deceptive practices, Heartland 

has created a website that allegedly includes disparaging remarks 

about Mercury. Id. ¶ 52. On the site, Heartland states that 

Mercury has overcharged and defrauded businesses in the amount of 

$68,400,000 and has inflated Visa and MasterCard fees. Id. ¶ 53. 

Heartland also published a press release on the website that 

refers to this litigation. Id. Mercury alleges that it has 

suffered damages due to Heartland’s conduct. Id. ¶ 60. 

Mercury asserts five causes of action against Heartland: 

(1) false advertising in violation of 15 U.S.C. § 1125(a)(1)(B) 

(Lanham Act); (2) unfair competition in violation of California’s 

Unfair Competition Law, Business and Professions Code section 

17200 et seq. (UCL); (3) false advertising in violation of 

California Business and Professions Code section 17500 et seq.

(FAL); (4) defamation; and (5) trade libel. As is relevant to 

this motion, Mercury also asserts an unclean hands affirmative 

defense.

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LEGAL STANDARD

The standards that apply to the complaint apply to the

counterclaims as well. See Charles Allen Wright & Arthur R. 

Miller, 5 Fed. Prac. & Proc. Civ. § 1407 (3d ed.) (noting that the 

“pleading of counterclaims and crossclaims is subject to the same 

Rule 8 standards that apply to the statement of any claim for 

relief” and that “an attempt to invoke Rule 13 must state a claim 

upon which relief can be granted . . .”). A complaint must 

contain a “short and plain statement of the claim showing that the 

pleader is entitled to relief.” Fed. R. Civ. P. 8(a). The 

plaintiff must proffer “enough facts to state a claim to relief 

that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 

678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 

(2007)). A claim is facially plausible “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 considering whether the complaint is sufficient to state a 

claim, the court will take all material allegations as true and 

construe them in the light most favorable to the complaining 

party. Metzler Inv. GMBH v. Corinthian Colls., Inc., 540 F.3d 

1049, 1061 (9th Cir. 2008). The court’s review is limited to the 

face of the complaint, materials incorporated into the complaint 

by reference, and facts of which the court may take judicial 

notice. Id. However, the court need not accept legal 

conclusions, including “threadbare recitals of the elements of a 

cause of action, supported by mere conclusory statements.” Iqbal, 

556 U.S. at 678 (citing Twombly, 550 U.S. at 555).

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When granting a motion to dismiss, the court is generally 

required to grant the complaining party leave to amend, even if no 

request to amend the pleading was made, unless amendment would be 

futile. Cook, Perkiss & Liehe, Inc. v. N. Cal. Collection Serv. 

Inc., 911 F.2d 242, 246-47 (9th Cir. 1990). In determining 

whether amendment would be futile, the court examines whether the 

complaint could be amended to cure the defect requiring dismissal 

“without contradicting any of the allegations of [the] original 

complaint.” Reddy v. Litton Indus., Inc., 912 F.2d 291, 296 (9th 

Cir. 1990).

DISCUSSION

I. Rule 9(b)

As a threshold matter, Heartland argues that Mercury’s false 

advertising, FAL and UCL causes of action fail because they do not 

satisfy the heightened pleading requirements of Rule 9(b). 

“In all averments of fraud or mistake, the circumstances 

constituting fraud or mistake shall be stated with particularity.” 

Fed. R. Civ. P. 9(b). “Therefore, in an action based on state 

law, while a district court will rely on state law to ascertain 

the elements of fraud that a party must plead, it will also follow 

Rule 9(b) in requiring that the circumstances of the fraud be 

pleaded with particularity.” Marolda v. Symantec Corp., 672 F. 

Supp. 2d 992, 996 (N.D. Cal. 2009); see also Kearns v. Ford Motor 

Co., 567 F.3d 1120, 1125 (9th Cir. 2009). “[W]hen the claim is 

‘grounded in fraud,’ the pleading of that claim as a whole is 

subject to Rule 9(b)’s particularity requirement.” Marolda, 672 

F. Supp. 2d at 997 (citing Vess v. Ciba-Geigy Corp. USA, 317 F.3d 

1097, 1104 (9th Cir. 2003)). A plaintiff must describe the 

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alleged fraud in specific enough terms “to give defendants notice 

of the particular misconduct so that they can defend against the 

charge.” Kearns, 567 F.3d at 1124. Rule 9(b) requires the 

plaintiff to allege “the who, what, when, where, and how” of the 

alleged fraudulent conduct. Cooper v. Pickett, 137 F.3d 616, 627 

(9th Cir. 1997). “The requirement of specificity in a fraud 

action against a corporation requires the plaintiff to allege the 

names of the persons who made the allegedly fraudulent 

representations, their authority to speak, to whom they spoke, 

what they said or wrote, and when it was said or written.” 

Tarmann v. State Farm Mut. Auto. Ins. Co., 2 Cal. App. 4th 153, 

157 (1991).

While Mercury may not use the word “fraud” in its false 

advertising, UCL and FAL causes of action, it has alleged “a 

unified course of fraudulent conduct and rel[ies] entirely on that 

course of conduct as the basis of [its] claim[s].” See Kearns, 

567 F.3d at 1125. Throughout these counterclaims, Mercury alleges 

that Heartland has “intentionally set out to deceive the relevant 

consuming public.” Mercury’s Counterclaims ¶¶ 27, 38, 47. It 

claims that Heartland’s advertisements are “literally false or 

misleading.” Id. ¶¶ 30, 41, 45. Mercury also seeks punitive 

damages under California law “in view of Heartland’s willful and 

malicious conduct.” Docket No. 84 at 40. 

Accordingly, the Court finds that Mercury must plead each of 

its false advertising, UCL and FAL claims with the particularity 

required by Rule 9(b). Mercury’s defamation and trade libel 

claims relate to Heartland’s statements on a website about Mercury 

and this litigation, and Heartland does not respond specifically 

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to Mercury’s argument that Rule 9(b) does not apply to these

claims. The Court assumes that it does not.

II. First Cause of Action: False Advertising in Violation of 15 

U.S.C. § 1125(a)(1)(B) (Lanham Act)

Mercury alleges that Heartland falsely advertises its 

“Interchange-Plus” pricing model, its “Fair and Upfront” pricing

guarantee and its data security system.

The elements of a Lanham Act . . . false advertising claim 

are: (1) a false statement of fact by the defendant in a 

commercial advertisement about its own or another’s product; 

(2) the statement actually deceived or has the tendency to 

deceive a substantial segment of its audience; (3) the 

deception is material, in that it is likely to influence the 

purchasing decision; (4) the defendant caused its false 

statement to enter interstate commerce; and (5) the plaintiff 

has been or is likely to be injured as a result of the false 

statement, either by direct diversion of sales from itself to 

defendant or by a lessening of the goodwill associated with 

its products. 

Southland Sod Farms v. Stover Seed Co., 108 F.3d 1134, 1139 (9th 

Cir. 1997) (citing 15 U.S.C. § 1125(a)(1)(B)). Accordingly, 

to succeed on an Internet false advertising claim, a 

plaintiff must show that a statement made in a commercial 

advertisement or promotion is false or misleading, that it 

actually deceives or has the tendency to deceive a 

substantial segment of its audience, that it’s likely to 

influence purchasing decisions and that the plaintiff has 

been or is likely to be injured by the false advertisement. 

TrafficSchool.com, Inc. v. Edriver Inc., 653 F.3d 820, 828 (9th 

Cir. 2011).

As discussed below, Mercury fails to state a claim under Rule 

9(b) and the Lanham Act. 

1. “Interchange-Plus” pricing 

It appears that Mercury’s sole allegation on this point is 

that Heartland’s website falsely states that “all” merchants are 

offered “interchange-plus” pricing. However, the facts Mercury 

provides in support of that allegation suggest that the real issue 

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is not that “all” merchants do not receive “interchange-plus”

pricing, but that the pricing offered to businesses with less than 

$50,000 yearly processing is not “true” or “sane” “interchangeplus” pricing. See Mercury’s Counterclaims ¶ 24. 

Heartland argues, “Mercury fails to plead any explanation of 

how Heartland’s plan offered to merchants who process less than 

$50,000 per year is inconsistent with interchange-plus pricing.” 

Heartland’s Mot. to Dismiss, Docket No. 94 at 11. The Court 

agrees. Other than the alleged statements of two anonymous 

merchants commenting on an unidentified survey, Mercury states no 

facts to support the allegation that Heartland’s customers that 

process less than $50,000 a year are not receiving “interchangeplus” pricing. Mercury does not identify the survey that reported 

these merchants’ alleged dissatisfaction with Heartland’s 

services, or provide any facts to support the inference that the 

survey exists or that the merchants’ claims are credible. 

Thus, Mercury fails to state facts sufficient to support its 

allegation that Heartland’s “interchange-plus” pricing claim is 

false or misleading. Accordingly, this cause of action cannot be 

based on the allegedly false “interchange-plus” pricing guarantee.

2. “Fair and Upfront” pricing

Mercury claims that Heartland’s guarantee of “fair and

upfront pricing” is false because Heartland: (1) fails to pass 

through at cost MasterCard and Visa settlement fees; (2) fails to 

share an American Express rebate with businesses; and (3) fails to 

disclose an early termination fee. Heartland argues this basis 

for Mercury’s Lanham Act claim should be dismissed because Mercury 

“never provides an explanation or support for its allegation that 

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Heartland falsely advertises these fees or pricing.” Docket No. 

94 at 12.

Mercury does not state any facts to support its allegation 

that the MasterCard and Visa settlement fees are not disclosed.

It does not state what the settlement fees are or how they should 

be disclosed in order to support the inference that those fees are 

not disclosed “upfront.” Likewise, it does not state any facts to 

support the inference that those fees are marked-up and, thus, are 

not “passed through at cost.” 

In addition, Mercury’s allegation with regard to the American 

Express rebate is insufficient to support its claim. Mercury 

alleges that the phrase “fair and upfront pricing” “necessarily 

implies that Heartland will not . . . siphon off rebates received 

from card networks.” Mercury’s Counterclaims ¶ 36. Mercury does 

not provide any facts to support the conclusion that telling 

businesses how they will be charged also implies that Heartland 

will share money that is returned to it by the card network. 

Lastly, with regard to the early termination fees, Mercury 

again relies on the responses to an unidentified survey of 

anonymous businesses that formerly used Heartland’s services. 

Pleading that a termination fee was not disclosed until a merchant 

had signed a contract, and that nonetheless a termination fee was 

later charged, could constitute pleading that the “fair and 

upfront pricing” advertisement was false or misleading. 

Nonetheless, the Court agrees with Heartland that Mercury has 

failed to meet its Rule 9(b) requirements. Mercury alleges that a 

first businessperson stated that he or she was told by a Heartland 

sales representative that there was no cancellation fee or 

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penalty, and that the fee does not appear “on any document you 

sign.” Mercury’s Counterclaims ¶ 34 (quotation marks omitted). 

Yet when he or she cancelled the contract, a fee was charged. Id. 

To the extent Mercury relies on a sales representative’s statement

rather than Heartland’s website, it is insufficient under Rule 

9(b); for oral statements, the complainant must “allege the names 

of the persons who made the allegedly fraudulent representations, 

their authority to speak, to whom they spoke, what they said or 

wrote, and when it was said or written.” Tarmann, 2 Cal. App. 4th 

at 157. To the extent this allegation and Mercury’s allegation 

that two other business owners stated that the early termination 

fee was not disclosed in Heartland’s contract or any document they 

signed, the allegations do not support Mercury’s claim that the

fee was not disclosed “upfront” elsewhere. And one of those

unidentified merchants’ statement to the unidentified surveyor 

about an undisclosed termination fee is also insufficient under 

Rule 9(b) to allege how the “fair and upfront pricing” 

advertisement was false or misleading because he or she does not 

state that he or she was charged the fee. 

Thus, Mercury fails to state facts sufficient to support its 

allegation that Heartland’s “fair and upfront pricing” claim is 

false or misleading. Accordingly, this cause of action cannot be 

based on the allegedly false “fair and upfront pricing” guarantee. 

3. Data security

Mercury alleges that Heartland’s website contains a statement

about how securely the “Heartland Secure” data protection system 

keeps businesses’ customer data. Mercury’s Counterclaims ¶ 43. 

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Mercury claims that the statement “necessarily implies” that 

Heartland’s security system is “totally secure.” Id. ¶ 45.

Mercury does not state any facts to support its conclusion 

that Heartland’s description of its data security system implies 

that the system is “totally secure.” Nowhere in Heartland’s

statement does the phrase “totally secure” appear. Furthermore, 

Mercury does not state any facts to support the conclusion that

Heartland does not provide the “most secure credit card processing 

methods backed by the most comprehensive merchant warranty . . . 

in the industry.” 

Thus, Mercury fails to state facts sufficient to support its 

allegation that Heartland’s data security claim is false or 

misleading. Accordingly, this cause of action cannot be based on 

the allegedly false data security statements.

4. Conclusion

For all the reasons discussed above, Mercury has failed to

plead its Lanham Act cause of action with the particularity 

required by Rule 9(b). Accordingly, the Court GRANTS Heartland’s 

motion to dismiss the Lanham Act cause of action. Mercury is 

granted leave to amend to remedy these deficiencies if it can do 

so truthfully and without contradicting the allegations in its 

prior pleadings.

III. Second Cause of Action: Unfair Competition in Violation of 

California Business and Professions Code section 17200 et

seq. (UCL)

The UCL prohibits “any unlawful, unfair or fraudulent 

business act . . . .” Cal. Bus. & Prof. Code § 17200 et seq.

Because section 17200 is written in the disjunctive, it 

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establishes three types of unfair competition. Davis v. Ford 

Motor Credit Co., 179 Cal. App. 4th 581, 593 (2009). Therefore, a 

practice may be prohibited as unfair or deceptive even if it is 

not unlawful and vice versa. Podolsky v. First Healthcare Corp., 

50 Cal. App. 4th 632, 647 (1996). Mercury alleges claims under 

all three prongs. Because the counterclaims sound in fraud, 

Mercury must plead its UCL causes of action in accordance with 

Rule 9(b). 

A. Unlawful business practices

An unlawful business practice includes anything that can be 

called a business practice and that is forbidden by law. Ticconi 

v. Blue Shield of Cal. Life & Health Ins., 160 Cal. App. 4th 528, 

539 (2008). Any federal, state or local law can serve as a 

predicate for an unlawful business practice action. Smith v. 

State Farm Mut. Auto. Ins. Co., 93 Cal. App. 4th 700, 718 (2001). 

Thus, the UCL incorporates violations of other laws and treats 

them as unlawful practices independently actionable under the UCL. 

Id.; Chabner v. United of Omaha Life Ins. Co., 225 F.3d 1042, 1048 

(9th Cir. 2000); Cel-Tech Commc’ns., Inc. v. L.A. Cellular Tel. 

Co., 20 Cal. 4th 163, 180 (1999).

Because Mercury relies on the same allegations to support

this claim as it does to support its Lanham Act claim and its 

California False Advertising claim, Mercury’s allegations fail 

under Rule 9(b) and are insufficient to state a claim under either 

statute, as discussed elsewhere in this order. 

Accordingly, Mercury’s unlawful business practice claim 

fails. 

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B. Unfair business practices

“When a plaintiff who claims to have suffered injury from a 

direct competitor’s ‘unfair’ act or practice invokes section 

17200,” the Court considers “‘unfair’ in that section [to] mean[]

conduct that threatens an incipient violation of an antitrust law, 

or violates the policy or spirit of one of those laws because its 

effects are comparable to or the same as a violation of the law, 

or otherwise significantly threatens or harms competition.” CelTech Commc’ns, Inc., 20 Cal. 4th at 187 (footnote omitted)). 

Mercury alleges that Heartland’s actions “constitute unfair 

competition” because they, in part, “threaten an incipient 

violation of a consumer law, including but not limited to Section 

5 of the Federal Trade Commission Act, violate the policy or 

spirit of such law, and/or otherwise threaten or harm 

competition.” Mercury’s Counterclaims ¶ 73. 

Because Mercury relies on the same allegations to support 

this claim as it does to support its Lanham Act claim and its 

California False Advertising claim, Mercury’s allegations fail 

under Rule 9(b), as discussed elsewhere in this order. In 

addition, although the Court allowed Heartland’s allegations of 

Mercury’s deceptive practices to proceed under the “unfair” prong 

of the UCL, the Court notes that Cel-Tech indicates that only 

incipient violations of antitrust laws satisfy this prong. It may 

be that further proceedings will show that neither party may 

proceed under this prong, even if it plead its fraud allegations 

with sufficient particularity. 

Accordingly, Mercury’s unfair business practice claim fails. 

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C. Fraudulent business practices

“A fraudulent business practice is one in which members of 

the public are likely to be deceived.” Morgan v. AT&T Wireless 

Servs., Inc., 177 Cal. App. 4th 1235, 1254 (2009). 

Mercury alleges that Heartland’s actions “are fraudulent in 

that they are likely to mislead the public; or [that] [t]hey 

constitute acts of untrue and misleading advertising.” Mercury’s 

Counterclaims ¶ 73. As discussed above, Mercury’s allegations 

fail under Rule 9(b). Mercury fails to state any facts to support 

the allegation that statements on Heartland’s website or in 

merchant statements are deceptive or misleading. 

In addition, to the extent Mercury relies on its allegation 

that Heartland engaged in “deceptive business practices” by 

charging a fee it described on merchant statements as a “Service & 

Regulatory Mandate,” the Court agrees with Heartland that Mercury 

fails to meet Rule 9(b)’s requirements. Mercury explains that 

using the words “Service & Regulatory Mandate” on merchant 

statements “since at least 2001,” by itself—rather than using such 

terminology alongside any other disclosures—is deceptive because 

no such regulatory mandate exists. Yet, as Heartland argues, 

Mercury does not plead an instance in which Heartland charged the 

fee or how Heartland presented the fee to merchants on a billing 

statement, Merchant Application or other document. 

Accordingly, Mercury’s fraudulent business practice claim 

fails. 

D. Conclusion

For all the reasons discussed above, Mercury has failed to 

plead its UCL cause of action with the particularity required by 

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Rule 9(b). Accordingly, the Court GRANTS Heartland’s motion to 

dismiss this cause of action. Mercury is granted leave to amend 

to remedy these deficiencies if it can do so truthfully and 

without contradicting the allegations in its prior pleadings.

IV. Third Cause of Action: False Advertising in Violation of 

California Business and Professions Code section 17500 et

seq. (FAL)

California’s False Advertising Law makes it unlawful for any 

person to induce the public to enter into any obligation 

based on a statement that is untrue or misleading, and which 

is known, or which by the exercise of reasonable care should 

be known, to be untrue or misleading. Whether an 

advertisement is misleading must be judged by the effect it 

would have on a reasonable consumer. . . . A reasonable 

consumer is the ordinary consumer acting reasonably under the 

circumstances. To prevail under this standard, [Plaintiff] 

must show that members of the public are likely to be 

deceived by the advertisement.

Davis v. HSBC Bank Nev., N.A., 691 F.3d 1152, 1162 (9th Cir. 2012)

(citations omitted). 

Mercury relies on the same set of facts to support its FAL

claims as it does to support its Lanham Act claim. Thus, for the 

reasons discussed above, Mercury has failed to plead its FAL cause 

of action with the particularity required by Rule 9(b). Mercury 

fails to state any facts to support the allegation that statements 

on Heartland’s website are deceptive or misleading. Accordingly, 

the Court GRANTS Heartland’s motion to dismiss the FAL cause of 

action. Mercury is granted leave to amend to remedy these 

deficiencies if it can do so truthfully and without contradicting 

the allegations in its prior pleadings.

V. Fourth Cause of Action: Defamation

Mercury argues that statements on Heartland’s “Merchant 

Services Defense” website, specifically that Heartland has “found 

direct evidence of Mercury’s deceptive practices,” were made with 

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the intent to defame Mercury. Mercury alleges that Heartland 

published these statements on a webpage titled “Pennies Add Up,”

which Mercury downloaded on March 20, 2015. Mercury’s 

Counterclaims ¶ 53. It also claims that Heartland has “disparaged 

[it] in other direct or indirect communications with other members 

of the payment processing industry[.]” Mercury’s Counterclaims

¶ 56. Heartland argues that this claim is barred by the statute 

of limitations and that, with regard to the “direct or indirect 

communications,” Mercury fails to state a claim.

A. Statute of Limitations

Under California law, the statute of limitations for 

defamation is one year. Cal. Civ. Proc. Code § 340. California 

courts follow the “single publication” rule for statements made in 

mass communications:

No person shall have more than one cause of action for 

damages for libel or slander or invasion of privacy or any 

other tort founded upon any single publication or exhibition 

or utterance, such as any one issue of a newspaper or book or 

magazine or any one presentation to an audience or any one 

broadcast over radio or television or any one exhibition of a 

motion picture. Recovery in any action shall include all 

damages for any such tort suffered by the plaintiff in all 

jurisdictions. 

Cal. Civ. Code § 3425.3. The Ninth Circuit has held that 

California Courts of Appeal have uniformly applied this rule to 

websites. See Roberts v. McAfee, Inc., 660 F.3d 1156, 1167 (9th 

Cir. 2011). Furthermore, the Ninth Circuit has held that the 

publication date of webpages, for the purposes of the statute of 

limitations, is the date the allegedly defamatory statements were 

first posted on the website. See id. (“Information is generally 

considered ‘published’ within the meaning of the singlepublication rule when it is first made available to the 

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public[.]”). Thus, claims brought more than one year from an

initial publication on a website are time-barred. See id. at 

1169. 

Mercury states in its opposition that its “[c]ounterclaims

allege that the Defamatory Statements were published on March 20, 

2015 – well within the one-year statute of limitations for 

defamation claims.” Docket No. 98 at 20. 

However, as Heartland points out, Mercury’s argument in its 

opposition, that the webpage was published on March 20, 2015, see

id., is different from its allegation in its counterclaims, that 

it downloaded the webpage on March 20, 2015. See Mercury’s 

Counterclaims ¶ 53. The statute of limitations for a defamation 

claim begins to run as of the date the information was “first made 

available to the public.” Roberts, 660 F.3d at 1167. In its 

counterclaims, Mercury does not allege when the information was 

first published, only that it downloaded the information on March 

20, 2015. 

Heartland argues that Mercury must concede that the allegedly

defamatory statements were made on January 30, 2014, because 

Mercury’s counterclaim alleges that, on that date, Heartland 

published a press release announcing this litigation with a link 

to a “Merchant Services Defense” website containing the webpage at 

issue. Mercury does not allege that the webpage was changed or 

that content was added to it since it was first published. Thus, 

Mercury’s defamation claim would be time-barred as of January 30, 

2015. Heartland’s argument is well-taken. 

Regardless, Mercury argues that its defamation claim is a 

compulsory counterclaim. Thus, the statute of limitations was 

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tolled by the filing of Heartland’s complaint on January 29, 2014, 

and the claim was not time-barred when the counterclaims were

filed on March 23, 2015. Mercury relies on Sidney v. Superior 

Court, 198 Cal. App. 3d 710 (1988), which explained:

Although ordinarily the statute of limitations will bar 

a cross-complaint in the same fashion as if the 

defendant had brought an independent action, the rule is 

different when the original complaint was filed before 

the statute of limitations on the cross-complaint had 

elapsed . . . . Such a cross-complaint need only be 

subject-matter related to the plaintiff’s complaint -—

i.e. arise out of the same occurrence —- to relate back 

to the date of filing the complaint for statute of 

limitation purposes.

Id. at 714 (citations, quotation marks and brackets omitted). For 

the purpose of the statute of limitations, if the defamation cause 

of action is a compulsory counterclaim, the claim is tolled as of 

the date of the complaint. See Burger v. Kuimelis, 325 F. Supp. 

2d 1026, 1045 (N.D. Cal. 2004) (“Under Sidney, the commencement of 

an action by a plaintiff tolls the statute of limitations for any 

counterclaims that ‘arise out of the same occurrence’ as the 

allegations of the complaint.” (citation omitted)). Heartland 

argues that this rule does not apply here because “Mercury’s 

defamation claim is based entirely on alleged conduct that took 

place after Heartland filed its Complaint, and therefore does not 

arise from the same transactions or occurrences that are at issue 

in the Complaint.” Docket No. 94 at 20. Thus, the question is 

whether a defamation claim, with regard to statements made by 

Heartland after the complaint was filed, can be considered a 

compulsory counterclaim. 

As the parties agree, the Ninth Circuit has explicitly 

declined to decide this issue, but has discussed it. In Pochiro

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v. Prudential Ins. Co. of Am., 827 F.2d 1246 (9th Cir. 1987), the 

Ninth Circuit held, “As long as the allegedly defamatory 

statements are sufficiently related to [the] subject matter of the 

original action,” they must be considered compulsory 

counterclaims. Id. at 1251. In Pochiro, Prudential plead various

causes of action against a former employee and his wife, the

Pochiros, who it alleged had used confidential records against it. 

The Pochiros filed a defamation counterclaim, based on

Prudential’s informing the employee’s prospective employers about 

his allegedly dishonest actions. Many of the allegedly defamatory

statements were made after the complaint was filed. The Ninth 

Circuit found that even though a few of the Pochiros’ allegations 

“appear a bit removed from Prudential’s action to enjoin the 

Pochiros’ use of confidential records, it is undisputed that [the 

employee’s] use of Prudential’s customer records is inextricably 

intertwined with the facts as alleged in the Pochiros’ complaint.” 

Id. at 1250. The Ninth Circuit acknowledged that, in the Second 

Circuit, “a counterclaim which stems from the filing of the main 

action and subsequent alleged defamations is not a compulsory 

counterclaim.” 827 F.2d at 1251 n.9 (citing Harris v. Steinem, 

571 F.2d 119, 124 (2nd Cir. 1978)). The Ninth Circuit surmised,

The rationale for [the Second Circuit’s] rule seems to be

that statements made after the filing of the original 

complaint simply cannot be logically related to the 

“transaction” which gave rise to the original complaint. 

This creates an exception to the general rule that an 

otherwise logically related claim need only have accrued by 

the time a responsive pleading is filed in the first action, 

not by the time of the complaint. . . . Indeed, Harris and 

the cases it relies upon seem to view any alleged defamation 

as a separate transaction from the underlying claim. 

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Id. The Ninth Circuit then expressly declined to reach the 

“limited issue actually addressed by Harris” because the Pochiros 

also alleged that Prudential made some defamatory statements prior 

to filing its complaint. Id.

Thus, there is no Ninth Circuit precedent that resolves this 

issue. The Court is persuaded, however, that the general rule is 

that if “the allegedly defamatory statements are sufficiently 

related to subject matter of the original action” the defamation 

claim is a compulsory counterclaim even if the alleged statements 

were made after the complaint was filed. Here, the facts 

underlying Mercury’s defamation claim are sufficiently linked to 

the facts alleged in Heartland’s complaint because the defamation 

claim alleges that Heartland’s statements—that Mercury defrauded 

merchants—were false; if Heartland were to prevail on its fraud 

claims against Mercury, Mercury could be collaterally estopped 

from pursuing this defamation claim. Thus, even if the alleged 

defamatory statements were first published on January 30, 2014 at 

the time of Heartland’s press release, the defamation claim would 

not be time-barred. 

Accordingly, taking the facts as alleged in the counterclaims

as true, Mercury’s defamation cause of action is not time-barred.

The Court will now turn to the sufficiency of the allegations.

2. Failure to state a claim

As already noted, Mercury alleges that, on a webpage titled 

“Pennies Add Up,” Heartland has published disparaging statements 

that “Mercury has ‘deceiv[ed] merchants’ and ‘misrepresented 

pennies per transaction’ by ‘falsely inflat[ing] pass-through Visa 

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and MasterCard interchange fees of four (4) cents per 

transaction’[.]” Mercury’s Counterclaims ¶ 53. 

As stated above, under California law, a claim for defamation 

requires the intentional publication of a statement that is false, 

unprivileged, and has a tendency to injure. Cal. Civ. Code §§ 44-

46. There is little doubt that the “Pennies Add Up” webpage was 

an intentional publication. Mercury also alleges adequate facts 

with particularity to support the allegation that the webpage

contains false statements, and that such false statements have a 

tendency to injure Mercury. Thus, with regard to statements on 

the “Pennies Add Up” webpage that specifically state that Mercury 

has deceived or overcharged its customers, Mercury has alleged 

facts sufficient to support its defamation claim. Even if Rule 

9(b) applies, Mercury has stated those facts with the 

particularity required by Rule 9(b).

However, allegations relating to the January 30, 2014 press 

release itself are insufficient to state a claim for defamation. 

Mercury does not state what defamatory information is included in 

the press release. Likewise, the Court agrees with Heartland that

Mercury’s reference to “other direct or indirect communications

with other members of the payment processing industry concerning 

Heartland’s allegations in its Complaint and Amended Complaint,” 

Mercury’s Counterclaims ¶ 56, is vague and fails to meet even Rule 

8 pleading requirements. Mercury has not stated any facts to 

support the inference that Heartland’s “other direct or indirect 

communications” were defamatory. 

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3. Conclusion

Accordingly, for the reasons discussed above, to the extent 

Mercury’s defamation cause of action is based on the “Pennies Add 

Up” webpage, the Court DENIES Heartland’s motion to dismiss. Also 

for the reasons above, however, the cause of action cannot be 

based on the January 30, 2014 press release or unspecified 

communications with other businesses in the industry. Mercury is 

granted leave to amend to remedy these deficiencies if it can do 

so truthfully and without contradicting the allegations in its 

prior pleadings.

VI. Fifth Cause of Action: Trade Libel

Mercury’s trade libel cause of action relies on the same 

allegations that support its defamation cause of action.

“A cause of action for trade libel . . . requires (at a 

minimum): (1) a publication; (2) which induces others not to deal 

with plaintiff; and (3) special damages.” Nichols v. Great Am. 

Ins. Companies, 169 Cal. App. 3d 766, 773 (1985). “[U]nder Fed.

R. Civ. P. 9(g) the pleader must state special damages with 

specificity. Counterplaintiffs must ‘identify particular 

customers and transactions of which it was deprived as a result of 

the libel.’” Piping Rock Partners, Inc. v. David Lerner 

Associates, Inc., 946 F. Supp. 2d 957, 981 (N.D. Cal. 2013)(citing 

Mann v. Quality Old Time Service, Inc., 120 Cal. App. 4th 90, 109

(2004)).

Mercury does not identify any customer who refused to do 

business with it as a result of Heartland’s allegedly libelous 

statements. Accordingly, the Court GRANTS Heartland’s motion to 

dismiss the trade libel cause of action. Mercury is granted leave 

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to amend to remedy this deficiency if it can do so truthfully and 

without contradicting the allegations in its prior pleadings.

VII. Motion to Strike Unclean Hands Affirmative Defense

Heartland argues that Mercury’s unclean hands defense should 

be stricken for failure to plead it with particularity.

Rule 8 requires that, when “responding to a pleading, a party 

must . . . state in short and plain terms its defenses to each 

claim asserted against it.” Fed. R. Civ. P. 8(b). Rule 12(f) 

provides that, on its own or on a motion by a party, a “court may 

strike from a pleading an insufficient defense or any redundant, 

immaterial, impertinent, or scandalous matter.” Fed. R. Civ. P.

12(f). “The purpose[] of a Rule 12(f) motion is to avoid spending 

time and money litigating spurious issues.” Barnes v. AT&T 

Pension Benefit Plan—Nonbargained Program, 718 F. Supp. 2d 1167, 

1170 (N.D. Cal. 2010) (citing Fantasy, Inc. v. Fogerty, 984 F.2d 

1524, 1527 (9th Cir. 1993)). If a defense is struck, “[i]n the 

absence of prejudice to the opposing party, leave to amend should 

be freely given.” Wyshak v. City Nat’l Bank, 607 F.2d 824, 826 

(9th Cir. 1979). Thus Mercury’s unclean hands defense must comply 

with Rule 8. Furthermore, because Mercury’s unclean hands defense 

alleges fraud, it must also be plead with the particularity 

required by Rule 9(b).

Mercury’s unclean hands defense relies on the same 

allegations Mercury uses unsuccessfully to support its Lanham Act 

and FAL causes of action. Likewise, they fail here. 

Thus the Court GRANTS Heartland’s Rule 12(f) motion to strike 

Mercury’s unclean hands defense. Mercury is granted leave to 

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amend if it can do so truthfully and without contradicting its 

previous pleadings.

CONCLUSION

For the reasons stated above, the Court GRANTS in part 

Heartland’s motion to dismiss Mercury’s counterclaims (Docket No. 

94) and DENIES it in part. In addition, the Court GRANTS 

Heartland’s motion to strike Mercury’s unclean hands defense. 

Within fourteen days of the date of this order, Mercury may file

an amended answer and counterclaims to remedy the deficiencies 

identified above. It may not add further claims or defenses not 

authorized by this order. If Mercury does not have facts to 

support some of these claims despite due diligence, but later 

discovers them, it may timely move for leave to amend further in 

the future. If Mercury files an amended answer with or without

counterclaims, Heartland may file a motion to strike or dismiss,

or both, within fourteen days of the date the amended answer is 

filed.

As set in the Court’s April 1, 2015 Case Management Order, 

the parties’ mediation deadline has passed. If the parties have 

not complied, they shall do so within twenty-eight days. The 

discovery deadline is July 1, 2016, and a further case management 

conference and motion hearing is scheduled for March 2, 2017. The 

final pre-trial conference is scheduled for June 7, 2017, with 

jury selection and trial to begin on June 19, 2017. 

IT IS SO ORDERED. 

Dated: 

CLAUDIA WILKEN

United States District Judge

January 26, 2016

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