Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_07-cv-04599/USCOURTS-cand-3_07-cv-04599-1/pdf.json

Nature of Suit Code: 890
Nature of Suit: Other Statutory Actions
Cause of Action: 28:1331 Fed. Question

---

United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

DAVID J. LEE, an individual and, on behalf of

others similarly situated,

Plaintiff,

v.

CAPITAL ONE BANK and CAPITAL ONE

SERVICES, INC., Virginia corporations, DOES

1 through 100, inclusive,

Defendants.

 /

No. C 07-4599 MHP

MEMORANDUM & ORDER

Re: Defendants’ Motion to Dismiss

Named plaintiff David J. Lee (“Lee”) brings this class action against defendants Capital One

Bank, Inc. (“Capital One Bank”) and Capital One Services, Inc. (“Capital One Services”) for

violations of California consumer protection statutes and fraudulent inducement. Plaintiff alleges

that defendants’ credit card-member agreements contain unconscionable provisions in violation of

the California Unfair Competition Law (“UCL”), Cal. Bus. & Prof. Code §§ 17200-17209, and the

California Consumer Legal Remedies Act (“CLRA”), Cal. Civ. Code §§ 1750-1780, and that

defendants fraudulently induced plaintiff to enter into a card-member agreement. Defendants now

move to dismiss plaintiff’s complaint for, among other reasons, lack of Article III standing. Having

considered the arguments and submissions of the parties, and for the reasons stated below, the court

enters the following memorandum and order. 

Case 3:07-cv-04599-MHP Document 42 Filed 03/05/08 Page 1 of 8
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

2

BACKGROUND

In March 2007, plaintiff obtained a Capital One “No Hassle Miles Visa Signature” credit

card. Complaint ¶ 20. To obtain the card, plaintiff signed a card-member agreement (“Agreement”)

and paid a $39.00 annual fee. Id., ¶ 20. Within approximately three weeks of obtaining the card,

plaintiff sent a letter to Capital One Bank alleging that the arbitration provision in the Agreement

contained unconscionable terms and demanding that Capital One Bank remove or revise it. Pls.’

Exh. 10. Capital One Services responded with a letter informing plaintiff that it disagreed with his

position and would not remove or revise the arbitration provision. Id., Exh. 11. On September 5,

2007, plaintiff filed this action. Represented by the same attorney, plaintiff subsequently filed

materially identical actions against two other credit card companies, American Express Travel

Related Services and Chase Manhattan Bank USA, N.A. Plaintiff’s suit against American Express

was dismissed without leave to amend. Lee v. American Express Travel Related Services, Inc., No.

C 07-4765, 2007 U.S. Dist. WL 4287557, at *1-2 (N.D. Cal. Dec. 6, 2007) (Breyer, J.). Plaintiff’s

suit against Chase Manhattan Bank is pending. Lee v. Chase Manhattan Bank USA, N.A., et al., No.

C 07-4732 (N.D. Cal. September 14, 2007) (Jenkins, J.). 

The heart of plaintiff’s complaint is that the Agreement contains an unconscionable

arbitration provision in violation of his rights under the UCL and the CLRA. Plaintiff alleges that

the arbitration provision is unconscionable because it contains, inter alia, a class action waiver and

an injunctive relief waiver. Complaint ¶ 3. Plaintiff also alleges that other provisions are

unconscionable, including a choice of law provision and a provision that gives defendants the right

to amend the Agreement. Id. According to plaintiff, the inclusion of these provisions violates the

CLRA, which plaintiff contends makes it unlawful to include an unconscionable provision in a

contract, and violates the UCL because the provisions are “unlawful and unfair.” Id., ¶ 4. Plaintiff

argues that because the arbitration provision and other challenged provisions are unlawful, he did

Case 3:07-cv-04599-MHP Document 42 Filed 03/05/08 Page 2 of 8
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

3

not receive the “full value” of his contract, which amounts to a “loss of money.” Id. This loss of

money, plaintiff argues, entitles him under the UCL and the CLRA to restitutionary and injunctive

relief. Id. Plaintiff also seeks a declaratory judgment, punitive damages, and attorneys’ fees for his

statutory claims. Id. 

In addition to his statutory claims, plaintiff alleges that defendants fraudulently induced him

to enter into the Agreement by representing that it was legal and conscionable. Id., ¶ 5. For his

fraud claim, plaintiff seeks rescission of his contract and restitution of fees paid. Id.

Defendants now move to dismiss plaintiff’s complaint under Federal Rule of Civil Procedure

12(b)(1) for lack of subject matter jurisdiction or, in the alternative, under Federal Rule of Civil

Procedure 12(c) for judgment on the pleadings. In their motion to dismiss, defendants argue that

plaintiff has not satisfied the injury in fact requirement for Article III standing. In their motion for

judgment on the pleadings, defendants argue that plaintiff’s statutory claims fail as a matter of law

and that plaintiff’s fraud claim fails to state a legal claim. Defendants also contend that plaintiff’s

complaint is barred by collateral estoppel. Because the court finds that plaintiff has failed to satisfy

the injury in fact requirement, the following discussion is confined to Article III standing, and the

court does not reach defendants’ alternative arguments for dismissal. 

 

LEGAL STANDARD

Under Article III of the Constitution, federal judicial power extends only to “Cases” and

“Controversies.” U.S. Const., art. III, § 2, cl. 1. Article III standing is thus a threshold requirement

for federal court jurisdiction. Lujan v. Defenders of Wildlife, 504 U.S. 555, 559-60 (1992). At a

constitutional minimum, standing requires the party invoking federal jurisdiction to show that it has

“suffered some actual or threatened injury as a result of the putatively illegal conduct of the

defendant, and that the injury can be traced to the challenged action and is likely to be redressed by a

Case 3:07-cv-04599-MHP Document 42 Filed 03/05/08 Page 3 of 8
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

4

favorable decision.” Valley Forge Christian College v. Americans United for Separation of Church

and State, Inc., 454 U.S. 464, 472 (1982) (citations and internal quotations omitted). To satisfy the

injury in fact requirement, the alleged harm must be “an invasion of a legally protected interest

which is (a) concrete and particularized and (b) actual or imminent, not conjectural or hypothetical.” 

Lujan, 504 U.S. at 560 (citations and internal quotations omitted). On a motion to dismiss, “general

factual allegations of injury resulting from the defendant’s conduct may suffice.” Id.

DISCUSSION

Defendants argue that plaintiff’s alleged injury is merely conjectural because the challenged

provisions have not caused plaintiff actual harm. Defendants note that plaintiff has not attempted to

arbitrate or been forced to arbitrate any of his claims. They also dispute plaintiff’s allegation that he

did not receive the “full value” of his contract, arguing that plaintiff received exactly what

defendants promised him. As support for their argument, defendants cite American Express, 2007

U.S. Dist. WL 4287557, at *2-6, where a materially identical action against American Express

Travel Related Services was dismissed for lack of Article III standing. The plaintiffs in American

Express, one of whom is plaintiff in this action, argued that they suffered injury as a result of not

being able to arbitrate a fraudulent inducement claim against American Express. Id. According to

the plaintiffs, they could not arbitrate their claim because the arbitration provision was

unconscionable and attempting to invoke an unconscionable provision is illegal, against public

policy and futile. Id. The court rejected this theory, holding that it did not satisfy the Lujan standard

because the alleged injury was hypothetical, not actual or imminent. Id. The court also rejected the

plaintiffs’ argument that the presence of unconscionable terms in a contract, standing alone,

constitutes injury in fact. Id. at 5. 

In response to defendants’ arguments, plaintiff proposes three theories for injury in fact. 

Case 3:07-cv-04599-MHP Document 42 Filed 03/05/08 Page 4 of 8
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

5

First, plaintiff repeats the argument he made in American Express that he would like to arbitrate his

fraud claim but cannot because seeking to enforce an unconscionable provision is illegal, against

public policy, futile, and would require plaintiff to waive his legal challenges to the arbitration

provision. According to plaintiff, he has been injured by his inability to arbitrate his claims. 

Second, plaintiff argues that he does not need to invoke the arbitration provision or other challenged

provisions to establish injury in fact. Plaintiff asserts that he has already satisfied the injury

requirement on the basis that he suffered a “loss in value” as a result of receiving a contract with

unconscionable provisions. According to plaintiff, his Agreement is akin to a “defective” or “nonconforming” good because he paid for an agreement with conscionable and enforceable provisions,

but received one with unconscionable and unenforceable provisions. Third, plaintiff argues that the

violation of a state legal right—here, plaintiff’s rights under the UCL and the CLRA—establishes

injury in fact. 

Having considered the parties’ arguments, the court finds that plaintiff has failed to satisfy

the injury in fact requirement. Plaintiff’s first injury theory—that he would like to arbitrate his

claims against defendants but cannot—fails because it does not allege an injury that is “actual or

imminent.” See Lujan, 504 U.S. at 560. On this point, the court is persuaded by American Express,

which held that because such a “theory rests on hypothetical assumptions about what may or may

not transpire . . . it is impossible to conclude that plaintiffs have described an injury that is

‘imminent’ within the meaning of Lujan.” 2007 U.S. Dist. WL 4287557, at *3. The court agrees. 

Injury in fact is an Article III requirement, not an equitable consideration that can be put aside for

convenience. Although plaintiff may find it a waste of time and money to attempt to arbitrate his

claims, it is certainly not illegal or against public policy for him to do so, and he must do so if he

wishes to pursue his claims. Accordingly, the court finds no merit to plaintiff’s first injury theory. 

Plaintiff’s second theory—that he suffered a “loss in value” because his contract contains

Case 3:07-cv-04599-MHP Document 42 Filed 03/05/08 Page 5 of 8
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

6

unconscionable terms—fails on two grounds. First, contrary to his argument, plaintiff did not

receive a “defective” or “non-conforming” contract. The contents of the arbitration provision and

other challenged provisions were plainly visible to plaintiff when he signed the Agreement. Thus,

plaintiff received exactly what defendants promised him. Second, plaintiff’s theory wrongly

assumes that the mere presence of purported, but unproven, unconscionable provisions in the

Agreement has caused plaintiff a loss in value. By plaintiff’s logic, every party to a card-member

agreement with defendants—or any other credit card company, for that matter—has incurred a “loss

in value,” even those who have not sought and will not seek to arbitrate a claim. Needless to say, no

federal court has held that injury in fact exists under such circumstances. To establish injury in fact

in this case, plaintiff must do more than allege that the provisions are unconscionable—he must

show that they have caused or will cause him concrete harm. Because he has not done so, plaintiff’s

second injury theory fails. 

Plaintiff attempts to salvage his “loss in value” theory by arguing that it is supported by the

Ninth Circuit’s decision in Lozano v. AT&T Wireless Services. Inc., 504 F.3d 718 (9th Cir. 2007). 

Lozano held, inter alia, that the plaintiff, a cell phone customer, satisfied the injury requirement

after he lost a certain number of “anytime” call minutes as a result of illegal billing practices by the

defendant, a cell phone company. Id. at 733. Because the plaintiff did not receive the full number

of minutes that he purchased, he did “not receive the full benefit of his contract.” Id. Here, plaintiff

seizes this language to argue that he has not received the “full value of his contract” because it

contains unconscionable provisions. But plaintiff misses the obvious point that he, unlike the

plaintiff in Lozano, has not lost anything. Plaintiff does not allege that defendants deprived him of

use of any of the agreed upon features of his credit card. Hence, Lozano does not support plaintiff’s

assertion that he did not receive the “full value of his contract.” 

Plaintiff’s third injury theory—that defendants injured him by violating his statutory rights

Case 3:07-cv-04599-MHP Document 42 Filed 03/05/08 Page 6 of 8
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

7

under the CLRA and the UCL—also fails to allege actual or imminent harm. To be sure, “state law

can create interests that support standing in federal courts.” Cantrell v. City of Long Beach, 241

F.3d 674, 684 (9th Cir. 2001). But that does not mean that the violation of a state law, standing

alone, supports standing. The person invoking federal jurisdiction must allege some actual or

imminent injury as a result of the violation. See Lujan, 504 U.S. at 560-61 (“the injury must affect

the plaintiff in a personal and individual way”). Because plaintiff has not alleged facts indicating

that he was personally harmed by defendants’ alleged statutory violations, he has not suffered injury

in fact.1

///

///

///

///

///

///

///

///

///

///

CONCLUSION

Plaintiff’s claim does not present a “Case” or “Controversy” because the allegedly

unconscionable provisions in the Agreement have not been implicated in an actual dispute. The

obvious architect of this ill-conceived suit is plaintiff’s attorney, who, not incidentally, also

represented plaintiff in his materially identical claims against American Express and Chase

Case 3:07-cv-04599-MHP Document 42 Filed 03/05/08 Page 7 of 8
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

8

1. Plaintiff also filed a statement of recent decision in support of his opposition to defendants’ motion

to dismiss, citing Cartwright v. Viking Industries, Inc., No.07-02159, 2008 U.S. Dist. LEXIS 10240

(E.D. Cal. February 12, 2008). Cartwright, however, does not support any of plaintiffs’ theories for

injury in fact. 

Manhattan Bank. Although plaintiff’s attorney characterizes this suit as an attempt to advance

consumers’ legal rights, it is apparent to the court that it is instead an attempt to manufacture a

lawsuit for financial gain. The timing says it all—plaintiff obtains the credit card in March 2007,

sends a letter complaining of the Agreement he just signed on March 23, 2007, and files this lawsuit

on September 5, 2007. Needless to say, this suit borders on frivolous and has no place in federal

court. 

For the foregoing reasons, defendants’ motion to dismiss is GRANTED. 

IT IS SO ORDERED.

Dated: March 4, 2008 

MARILYN HALL PATEL

United States District Court Judge

Northern District of California

ENDNOTES

Case 3:07-cv-04599-MHP Document 42 Filed 03/05/08 Page 8 of 8