Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_14-cv-00202/USCOURTS-casd-3_14-cv-00202-0/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1332oc Diversity-Other Contract

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UNITED STATES DISTRICT COURT 

SOUTHERN DISTRICT OF CALIFORNIA 

JASON DECARLO, individually and on 

behalf of others similarly situated, 

Plaintiff, 

v. 

COSTCO WHOLESALE 

CORPORATION, a Washington 

corporation, and Does 1 through 100, 

inclusive, 

Defendants. 

 Case No.: 14cv00202 JAH-BLM 

ORDER GRANTING DEFENDANT 

MBNR’S MOTION TO DISMISS 

AND GRANTING DEFENDANT 

COSTCO’S MOTION IN PART 

[Doc. Nos. 69, 71] 

 Pending before the Court are Defendant MBNR, Inc.’s motion to dismiss (Doc. No. 

69) and Costco Wholesale Corporation’s motion to dismiss (Doc. No. 71). Plaintiff 

opposes the motions. After a thorough review of the parties’ submissions and for the 

reasons discussed below, the Court GRANTS Defendant MBNR’s motions and GRANTS 

Defendant Costco’s motion in part. 

BACKGROUND

 Plaintiff, Jason Decarlo, originally filed a class action complaint in Superior Court 

of the State of California, County of San Diego on November 5, 2013 against Costco 

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Wholesale Corporation and Does 1 through 100 inclusive. Defendant Costco removed the 

action to federal court and moved to dismiss for lack of subject matter jurisdiction. The 

Court granted the motion, dismissed the action without prejudice and provided Plaintiff an 

opportunity to file an amended complaint that addressed the noted deficiencies. 

 On October 24, 2014, Plaintiff filed a First Amended Complaint (“FAC”) against 

Costco, MBNR, Inc. and Nancy K. Rhodes. Defendants Costco and MBNR moved to 

dismiss the FAC. Finding Plaintiff failed to allege particularized and concrete economic 

injury and, thereby, failed to establish subject matter jurisdiction, the Court granted the 

motions and dismissed the FAC. The Court provided Plaintiff another opportunity to 

amend. Plaintiff filed a Second Amended Complaint (“SAC”) against Costco and MBNR 

asserting claims for unlawful, fraudulent and unfair business practices in violation of 

California’s Business and Professions Code section 17200 (“UCL”); dissemination of false 

and misleading advertisements in violation of California Business and Professions Codes 

section 17500 (“FAL”); and unfair business practices in violation of California Civil Code 

section 1750, et. seq., (“CLRA”). Defendants moved to dismiss the SAC for failure to 

establish Article III standing and statutory standing, and failure to state a claim. Finding it 

lacked subject matter jurisdiction due to Plaintiff’s failure to sufficiently allege injury, the 

Court granted the motions and dismissed the SAC with prejudice. 

 Plaintiff appealed the order and the Ninth Circuit Court of Appeals reversed the order 

in part, vacated in part and remanded the action for further proceedings. Specifically, the 

court determined Plaintiff failed to establish injury in support of the unlawful prong of the 

UCL but this Court’s dismissal with prejudice was improper. The court vacated the 

dismissal with prejudice and remanded for dismissal without prejudice. The court 

determined Plaintiff alleged injury in support of his FAL, CLRA and UCL unfair and 

fraudulent claims based on the allegation that it was misleading to market Costco-based 

optometrists as independent. The court also found Plaintiff sufficiently alleged statutory 

standing under California law with respect to his misrepresentation claims and satisfied the 

UCL’s and FAL’s causation requirements. 

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 On November 20, 2018, Plaintiff filed a Third Amended Complaint (“TAC”) 

asserting claims for fraudulent and unfair business practices in violation of the UCL; 

violation of the FAL; and violation of the CLRA. 

 Defendants filed separate motions to dismiss the TAC for failure to sufficiently 

allege facts to state a claim. MBNR joins in Costco’s motion. Plaintiff filed separate 

oppositions to the motions and Defendants filed separate replies. The motions were set for 

hearing but were taken under submission without oral argument pursuant to Local Rule 

7.1. 

LEGAL STANDARDS 

 Defendants argue Plaintiff’s TAC fails to state a claim because Plaintiff fails to 

allege fraud with particularity as required by Federal Rule of Civil Procedure 9(b) and fails 

to allege entitlement to relief pursuant to Rule 8. 

I. Rule 12(b)(6) 

 Rule 12(b)(6) tests the sufficiency of the complaint. Navarro v. Block, 250 F.3d 

729, 732 (9th Cir. 2001). Dismissal is warranted under Rule 12(b)(6) where the complaint 

lacks a cognizable legal theory. Robertson v. Dean Witter Reynolds, Inc., 749 F.2d 530, 

534 (9th Cir. 1984); see Neitzke v. Williams, 490 U.S. 319, 326 (1989) (“Rule 12(b)(6) 

authorizes a court to dismiss a claim on the basis of a dispositive issue of law.”). 

Alternatively, a complaint may be dismissed where it presents a cognizable legal theory 

yet fails to plead essential facts under that theory. Robertson, 749 F.2d at 534. While a 

plaintiff need not give “detailed factual allegations,” he must plead sufficient facts that, if 

true, “raise a right to relief above the speculative level.” Bell Atlantic Corp. v. Twombly, 

550 U.S. 544, 545 (2007). 

 “To survive a motion to dismiss, a complaint must contain sufficient factual matter, 

accepted as true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 

556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 547). A claim is facially 

plausible when the factual allegations permit “the court to draw the reasonable inference 

that the defendant is liable for the misconduct alleged.” Id. In other words, “the nonCase 3:14-cv-00202-JAH-BLM Document 78 Filed 03/23/20 PageID.<pageID> Page 3 of 19
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conclusory ‘factual content,’ and reasonable inferences from that content, must be 

plausibly suggestive of a claim entitling the plaintiff to relief. Moss v. U.S. Secret Service, 

572 F.3d 962, 969 (9th Cir. 2009). “Determining whether a complaint states a plausible 

claim for relief will ... be a context-specific task that requires the reviewing court to draw 

on its judicial experience and common sense.” Iqbal, 556 U.S. at 679. 

 In reviewing a motion to dismiss under Rule 12(b)(6), the court must assume the 

truth of all factual allegations and must construe all inferences from them in the light most 

favorable to the nonmoving party. Thompson v. Davis, 295 F.3d 890, 895 (9th Cir. 2002); 

Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 337-38 (9th Cir. 1996). However, legal 

conclusions need not be taken as true merely because they are cast in the form of factual 

allegations. Ileto v. Glock, Inc., 349 F.3d 1191, 1200 (9th Cir. 2003); Western Mining 

Council v. Watt, 643 F.2d 618, 624 (9th Cir. 1981). When ruling on a motion to dismiss, 

the Court may consider the facts alleged in the complaint, documents attached to the 

complaint, documents relied upon but not attached to the complaint when authenticity is 

not contested, and matters of which the Court takes judicial notice. Lee v. City of Los 

Angeles, 250 F.3d 668, 688-89 (9th Cir. 2001). If a court determines that a complaint fails 

to state a claim, the court should grant leave to amend unless it determines that the pleading 

could not possibly be cured by the allegation of other facts. See Doe v. United States, 58 

F.3d 494, 497 (9th Cir. 1995). 

II. Rule 9(b)

 Under Rule 9(b) of the Federal Rules of Civil Procedure, “[i]n alleging fraud or 

mistake, a party must state with particularity the circumstances constituting fraud or 

mistake.” Under Ninth Circuit case law, Rule 9(b) imposes two distinct requirements on 

complaints alleging fraud. First, the basic notice requirements of Rule 9(b) require 

complaints pleading fraud to set forth “the who, what, when, where, and how” of the 

misconduct charged.” Vess v. Ciba-Geigy Corp., U.S.A., 317 F.3d 1097, 1106 (9th Cir. 

2003); Cooper v. Pickett, 137 F.3d 616, 627 (9th Cir.1997). Second, the Rule requires that 

the complaint “set forth an explanation as to why the statement or omission complained of 

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was false and misleading.” Yourish v. California Amplifier, 191 F.3d 983, 993 (9th Cir. 

1999). 

III. Rule 8

 Under Rule 8, a complaint “must contain (1) a short plain statement of the grounds 

for the court’s jurisdiction. . .(2) a short and plain statement of the claim showing the 

pleader is entitled to relief; and (3) a demand for the relief sought.” Rule 8 is designed to 

provide defendants with fair notice of the claims against them and the grounds on which 

those claims rest. McKeever v. Block, 932 F.2d 795, 798 (9th Cir. 1991). 

DISCUSSION 

I. Defendant MBNR 

 Defendant MBNR contends the Ninth Circuit limited Plaintiff’s claims to those 

based upon the allegation it was misleading to market the optometrists as independent. 

MBNR also argues Plaintiff fails to plead facts with particularity as to MBNR and his 

allegation that MBNR aided and abetted Costco fails to state a claim under the UCL or 

FAL. 

A. Effect of Ninth Circuit Decision 

 MBNR maintains the Ninth Circuit’s decision narrowed Plaintiff’s standing to 

claims he was misled. Plaintiff contends the Ninth Circuit did not foreclose his ability to 

allege that MBNR violated its duty to disclose that the exams it offered were not performed 

in conformity with California law as an additional basis for his claims under the 

“fraudulent” and “unfair” prongs of the UCL. Plaintiff maintains his current claim differs 

from the former “unlawful” claim because his harm is traceable to MBNR’s omission. In 

reply, MBNR contends Plaintiff cannot rely on the allegation that the landlord-tenant 

relationship was illegal as a basis for extending liability to MBNR for Costco’s advertising 

conduct because such a claim is a mere extension of Plaintiff’s allegations the landlordtenant relationship was illegal which was dismissed for lack of standing. 

 The Ninth Circuit determined this Court properly found Plaintiff lacked standing to 

assert claims under the “unlawful” prong of the UCL because the alleged harm was not 

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“fairly traceable to the mere fact that Costco and MBNR allegedly violated certain 

provisions of California law regulating their business relationships.” Memorandum at 2. 

The court remanded the matter with instruction that the claim is dismissed without 

prejudice because without jurisdiction to reach the merits there was no power to dismiss 

with prejudice. Plaintiff contends his current allegations that Defendants violated the 

“fraudulent” and “unfair” prongs of the UCL by failing to disclose the exams were not 

provided in conformity with California law differ from the “unlawful” prong claim of his 

previous complaint because he now alleges harm traceable to Defendants’ failure to 

disclose the exams were illegal. However, the allegations regarding harm in the TAC are 

nearly identical to the allegations of harm alleged in support of his claim under the 

“unlawful” prong in the SAC which the Ninth Circuit rejected. Compare TAC ¶¶ 75, 79, 

85, 104 to SAC ¶¶ 76, 78, 79, 83. The Court finds Plaintiff fails to sufficiently allege harm 

to support his claims based upon Defendants’ failure to disclose the exam did not conform 

with California law. Accordingly, the claims asserting violations based upon the illegal 

business structure are subject to dismissal.1

B. Failure to State a Claim

1. Parties’ Arguments 

 MBNR argues Plaintiff fails to plead any facts with particularity as to MBNR and, 

therefore, his TAC fails under the heightened standard of Rule 9(b), as well as the 

‘‘reasonable particularity’’ standard of Rule 8. Defendant argues the TAC lacks any 

allegations that it personally participated in the allegedly misleading advertising and 

Plaintiff cannot assert claims based on vicarious liability. Specifically, Defendant MBNR 

maintains Plaintiff does not allege that MBNR made a single statement upon which he 

relied in deciding to obtain an eye examination. MBNR contends the allegations 

surrounding the misrepresentation do not mention MBNR, and instead concedes that any 

                                               

1

 Because the claims are subject to dismissal, Plaintiff’s arguments in support of the claims based upon 

allegations of an illegal business structure will not be addressed in this order. 

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marketing or advertising materials viewed by Plaintiff were directed by Costco. Defendant 

argues this falls short of the heightened pleading standard set forth in Rule 9(b), as well as 

the pleading standards of Rule 8. 

MBNR also argues to the extent Plaintiff alleges it aided and abetted Costco, the 

claims fails as a matter of law because California law prohibits claims of vicariously 

liability. 

 In response, Plaintiff argues MBNR is liable under the UCL and FAL for aiding and 

abetting Costco’s misrepresentations and omissions. He maintains MBNR’s argument 

rests on the false premise that vicarious liability and aiding and abetting are the same thing 

and the cases cited by MBNR recognize that a defendant will be held liable for another’s 

misstatements or omissions if the defendant knowingly aided and abetted in the wrongful 

conduct. He further maintains he does not seek to hold MBNR vicariously liable for 

Costco’s misrepresentations and omission of which MBNR was ignorant but rather, the 

complaint alleges that Costco and MBNR entered into a scheme in which MBNR played a 

role in controlling the material aspects of the optometrists’ practices in order to benefit 

Defendants. The scheme put the lie to Costco’s representation that the optometrists were 

independent. Plaintiff argues this control also imposed on Costco a duty to disclose that 

the exams were being performed by optometrists under its and MBNR’s control. Because 

MBNR aided and abetted Costco in this scheme, Plaintiff argues, MBNR can be held liable 

under the UCL and FAL for Costco’s misstatements and omissions. 

Plaintiff further argues MBNR is directly liable for failing to disclose that the 

optometrists were under its and Costco’s control and influence regarding fundamental 

aspects of the optometrists’ practices because it had an affirmative duty to do so. In 

support, Plaintiff argues MBNR had an affirmative duty because the fact of the control 

exerted was material and only it, Costco and the optometrists knew the degree to which 

Defendants asserted control and influence over the optometrists. In addition, Plaintiff 

argues MBNR had a duty to affirmatively disclose its and Costco’s relationship with the 

optometrists and the degree of control and influence Defendants exerted over them to cure 

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the false perception presented by the signs in or near the leased space which proclaimed 

the optometrists independent. Plaintiff maintains he alleges MBNR knew the optometrists 

were operating under its and Costco’s control and influence and Plaintiff alleges that 

MBNR and Costco intentionally omitted any disclosure of the fact. Plaintiff also maintains 

he alleges he would not have undergone his exam had he known the truth about the 

optometrist and reliance is presumed here because the information is material. Plaintiff 

maintains he sufficiently alleged economic injury caused by the misrepresentations by 

alleging that he would not have purchased an eye exam from the optometrist had he been 

advised that the exam would be provided by an optometrist who was subject to MBNR and 

Costco’s control and influence regarding significant aspects of the optometrist’s practice. 

In reply, MBNR argues Plaintiff pleads no facts alleging that MBNR had any 

personal participation in Costco’s marketing or advertising conduct that forms the basis of 

his claim. MBNR maintains liability cannot be imposed because there are no allegations 

that it aided and abetted Costco’s marketing or advertising of the optometrist as 

independent which is the unlawful practice at issue here, not the allegedly illegal tenancy. 

Defendant contends Plaintiff’s argument that Costco and MBNR together created the 

allegedly illegal landlord-tenant scheme that gave the parties control over the optometrist 

rendering her less than independent fails because it is predicated on a claim that the Ninth 

Circuit eliminated from this case when it determined Plaintiff lacks standing to bring a 

claim based on the illegality of the alleged scheme. MBNR argues Plaintiff cannot rely on 

the allegation that the landlord-tenant relationship was illegal as a basis for extending 

liability to MBNR for Costco’s separate advertising and marketing conduct because it is a 

mere extension of Plaintiff’s allegations that the landlord-tenant relationship was illegal a 

claim for which Plaintiff lacks standing. 

 MBNR also argues it cannot be held liable for failure to disclose the optometrist was 

not independent because it had no legal duty to do so. Defendant contends Plaintiff pleads 

no facts establishing that he had any relationship whatsoever with MBNR and, absent 

allegations of a relationship or transaction with MBNR, he cannot maintain a claim for an 

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omission because there was no duty to disclose under California law. Even if Plaintiff 

alleged some sort of relationship, MBNR contends, Plaintiff pleads no facts to constitute 

actionable fraud by omission. Specifically, MBNR contends Plaintiff does not allege that 

MBNR has exclusive knowledge of material facts not known to Plaintiff as his allegations 

include knowledge by Costco and the optometrists. Additionally, MBNR contends 

Plaintiff fails to allege it actively concealed any material facts from Plaintiff, as he does 

not claim that he ever sought information from the optometrist, Costco or MBNR about 

the lease arrangement that resulted in the optometrist having an office located inside a 

Costco warehouse, or that MBNR took any steps to prevent the optometrist or Costco from 

answering any questions Plaintiff may have asked. MBNR also argues Plaintiff does not 

allege that MBNR made any partial representation to him that also suppressed material 

facts. Instead, Defendant maintains, Plaintiff argues that MBNR had a legal duty to cure 

any false perception that might have been created by signs allegedly posted by Costco near 

the leased space stating that an independent doctor of optometry worked there, but MBNR 

argues, this allegation does not fit within the partial representation circumstance as to 

MBNR and, therefore, cannot give rise to any legal duty for MBNR to disclose information 

to Plaintiff. 

2. Analysis

 Liability under the UCL cannot be predicated on vicarious liability but a defendant 

who participates in the unlawful practices, either directly or by aiding and abetting the 

principal, may be subject to liability. People v. Toomey, 157 Cal.App.3d 1, 14-15 (1984). 

Liability may be imposed on those who aid and abet another’s violation of the UCL if the 

individual knows the other’s conduct constitutes a violation and gives substantial assistance 

or encouragement to the other to so act. People v. Sarpas, 225 Cal.App.4th 1539, 1563 

(2014). 

 In the TAC, Plaintiff alleges Costco and MBNR executed an agreement under which 

Costco leases office spaces immediately adjacent to the optical department in Costco retail 

locations throughout California which enables MBNR to sublease the space to CaliforniaCase 3:14-cv-00202-JAH-BLM Document 78 Filed 03/23/20 PageID.<pageID> Page 9 of 19
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licensed optometrists and requires MBNR to charge optometrists rent equal to 15% of their 

gross revenues, a portion of which MBNR pays to Costco. TAC ¶¶ 45, 46. Plaintiff further 

alleges the leases with the optometrists are designed to provide Costco and MBNR control 

over the optometrists’ practices, including limiting the lease term to one year to be renewed 

upon MBNR’s discretion; providing MBNR the right to terminate the lease at any time 

with 30 days notice; requiring the optometrists to see patients at least forty-eight (48) hours 

per calendar week with a minimum of seven (7) hours on a Saturday which, in conjunction 

with denying the optometrists access to their office outside store hours, ensures the 

optometrists are seeing patients when the Costco optical department is open; and 

preventing them from placing signs without MBNR’s consent Id. ¶¶ 49, 51, 52, 54, 

78. He also alleges MBNR told the optometrists that they must charge $49 for an eye 

exam, the optometrists have limited control over therapies they provide, the optometrists 

are audited to ensure conformity with quotas and high-ranking Costco employees are 

consulted before MBNR renews any lease. Id. ¶¶ 53, 54, 55, 56, 57, 93. 

 The TAC also alleges Costco lures customers into their stores by advertising, on the 

Costco website, in print media, and on prominent signs and displays in its stores, the 

availability of eye examinations from “Independent Doctors of Optometry” but fail to 

disclose that the optometrists are subject to Costco and MBNR’s control and influence. Id. 

¶¶ 61, 66. 

 Plaintiff specifically alleges he visited the optical department at the Costco store at 

12155 Tech Center Drive in Poway, California on June 23, 2012, after having seen 

Defendants’ advertising both online and on prior trips to the store regarding the availability 

of onsite eye exams from an independent doctor and he purchased an eye exam from the 

optometrist for $49. Id. ¶¶ 69, 70. He further alleges the optometrist was a tenant of 

MBNR and was operating under the same lease described above and was, therefore, subject 

to Defendants’ control and influence regarding material aspects of her day-to-day practice, 

including, at a minimum, her hours of operation, fees she charged, services she advertised, 

therapies she offered, the length of her exams, the scope of her exams, and the equipment 

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she used to conduct the exams. Id. ¶ 72. Plaintiff alleges Defendants misrepresented the 

doctors practicing out of Costco locations were independent when they were actually under 

Defendants’ control and influence. Id. ¶¶ 81, 101, 114. 

 Plaintiff seeks relief under section 17200 for the misrepresentation that the 

optometrist was independent and the failure to disclose the optometrist was not 

independent but under the influence and control of Defendants. Under California law, a 

cause of action for fraudulent concealment requires an allegation that the defendant owed 

a duty to disclose the concealed fact. See Levine v. Blue Shield of California, 189 

Cal.App.4th 1117, 1126–1127, 117 Cal.Rptr.3d 262 (2010). “There are four circumstances 

in which a duty to disclose may arise such that nondisclosure or concealment constitutes 

actionable fraud: (1) when a fiduciary relationship exists between the parties; (2) when the 

defendant has exclusive knowledge of material facts not known to the plaintiff; (3) when 

the defendant actively conceals a material fact from the plaintiff; and (4) when the 

defendant makes a partial representation to the plaintiff while suppressing other material 

facts.” LiMandri v. Judkins, 52 Cal.App.4th 326, 336 (1997) (citations omitted). “The 

first circumstance requires a fiduciary relationship; each of the other three ‘presupposes 

the existence of some other relationship between the plaintiff and defendant in which a 

duty to disclose can arise.’” Deteresa v. Am. Broad. Cos., 121 F.3d 460, 467 (9th Cir. 1997) 

(quoting LiMandri, 52 Cal.App.4th at 3363-7). “Such relationships ‘are created by 

transactions between parties from which a duty to disclose facts material to the transaction 

arises under certain circumstances.’ Examples are ‘seller and buyer, employer and 

prospective employee, doctor and patient, or parties entering into any kind of contractual 

agreement.’” Id. (quoting LiMandri, 52 Cal.App.4th at 337). Plaintiff fails to allege facts 

demonstrating a relationship or transaction with Defendant MBNR to support the failure 

to disclose theory. 

 Additionally, the Court finds Plaintiff’s allegations do not support his assertion that 

MBNR aided and abetted Costco’s misrepresentations. Plaintiff alleges that MBNR aided 

and abetted by entering subleases with the optometrists which gave Costco and MBNR 

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influence and control over the optometrists’ practices and made Costco’s representation 

that the doctors were independent false. The wrongful conduct alleged is the 

misrepresentation of the doctors as independent, not the business structure that allowed the 

influence and control. In Toomey, a case cited by both parties, the court found the 

president of a corporation that sold discount coupons could be held personally liable for 

misleading representations made during telephone solicitations by employees because of 

his control over the solicitation practices and his participation. 157 Cal.App.3d at 15. 

There are no allegations here of MBNR having any control, influence or involvement in 

Costco’s advertising. Therefore, the claims against MBNR are insufficiently pled. 

II. Costco’s Motion

 Defendant Costco argues Plaintiff fails to satisfy the heightened pleading standard 

for fraud allegations and fails to plausibly allege entitlement to relief. 

A. Heightened Pleading Standard 

 Defendant argues Plaintiff does not plausibly allege that misrepresentations or 

omissions by Costco about his optometrist misled him into purchasing an eye exam. 

1. Misrepresentations 

Defendant Costco argues Plaintiff fails to identify, with particularity, what 

statements he relied on, when he saw them, where they were located, and why they were 

misleading. Defendant contends Plaintiff only generally states he saw Defendants’ 

advertising about the availability of onsite eye exams by independent doctors of optometry 

both online and on prior trips to the store. Costco argues Plaintiff fails to identify the 

advertising with particularity in that he does not allege what else this advertising said, 

precisely when he saw it, or precisely where online and on prior trips it was located. 

Costco also contends Plaintiff does not allege any facts showing that the optometrist 

he saw, Dr. Rhodes, was not independent, and argues he, thus, fails to explain with 

particularity why Costco’s alleged representations of an “Independent Doctor of 

Optometry” or purported failures to disclose control over the optometrists were fraudulent. 

Costco maintains missing from the TAC is any allegation regarding Dr. Rhodes’ practice 

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and the anecdotes from another lawsuit and the rental agreements between MBNR and the 

optometrists on which he relies are unavailing. Costco argues the examples fail to 

demonstrate Dr. Rhodes was not independent and her lease demonstrates her independence 

as it protects her right to control her practice and determine the prices she charges. Further, 

Costco argues Plaintiff fails to allege, that MBNR or Costco, ever precluded Dr. Rhodes 

from installing any signs or advertisements and he also fails to show how that would have 

caused him an injury. Costco argues Plaintiff does not allege that Dr. Rhodes ever had her 

lease threatened for falling below the alleged acceptable threshold and he does not explain 

how MBNR’s request for input from Costco supervisors on renewing the optometrists’ 

leases endangers an optometrist’s independence. 

In opposition, Plaintiff argues he sufficiently alleges that Costco engaged in fraud 

by affirmatively misrepresenting that the optometrists practicing in its stores were 

independent. Plaintiff maintains he alleges Costco exerted control and influence over the 

tenant-optometrists practicing out of its stores and the language in the leases purporting to 

grant optometrists the right “to exercise free and independent and unlimited professional 

judgment” and to conduct their practices free of MBNR’s control is contradicted by section 

3.4 of the lease which required the optometrists to work for at least forty-eight (48) hours 

per calendar week with a minimum of seven (7) hours on Saturday and by section 12.2 

which prevents the optometrists from placing any signs or advertisements without the 

express consent of MBNR. He further contends the TAC includes numerous allegations 

that, contrary to the express terms of the lease, Costco and MBNR uniformly conducted 

themselves in ways that contradicted the lease language, including: threatening to terminate 

the lease if the optometrist did not charge $49 for an exam, although the lease states 

optometrists have the right to determine prices; setting rent as a percentage of their gross 

revenue which gave Defendants access to the optometrists’ office data such as the number 

of hours they worked, the number of eye exams performed and their gross receipts to allow 

Defendants to assess each optometrist’s performance; MBNR confronting optometrists 

who advertised or offered therapies such as Lasik that would allow patients to permanently 

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correct their vision without having to rely on the corrective lenses Costco sells; and 

Defendants dictated the number of patients they must see per day and thus how long the 

optometrists could spend with each patient. 

Plaintiff further argues the Ninth Circuit already determined he sufficiently alleged 

Dr. Rhodes was subject to the same control and influence of other optometrists. 

Furthermore, he maintains he expressly alleges Rhodes was subject to Defendants’ control 

and influence and she was subject to the same lease used for all optometrists throughout 

Costco’ s California locations. Additionally, Plaintiff contends his allegations of how 

MBNR and Costco exerted control over their tenant-optometrists implies a uniform scheme 

by Defendants regarding the treatment of optometrists throughout its California locations 

and the TAC ties Rhodes to the uniform policies dictated by Defendant including how 

much they must charge for an eye exam. 

 Plaintiff also argues he sufficiently alleges Costco’s fraud. He maintains he 

identifies the misrepresentation as “Independent Doctor of Optometry,” he identifies 

Costco as the party who posted signs and displays in the Costco store, he alleges the signs 

were in optical departments in June 2012 and puts Defendant on notice of his intent to 

show the misrepresentations began November 2009, and the allegations surrounding the 

control Costco had over the optometrist allege why the statements were misleading. 

In reply, Costco argues Plaintiff’s position regarding the optometrist's independence 

runs counter to the express language of the lease agreement. Additionally, Costco argues 

it could not know precisely when Plaintiff allegedly observed the advertisement better than 

Plaintiff himself. 

 Plaintiff sufficiently alleges Dr. Rhodes was not independent when he alleges Dr. 

Rhodes operated under the same lease which allegedly provided Defendants control and 

influence over material aspects of the optometrist’s practice. However, he fails to allege 

facts surrounding the advertisements he saw with the required specificity. Rule 9(b) 

requires a plaintiff’s allegations of fraud “be specific enough to give defendants notice of 

the particular misconduct which is alleged to constitute the fraud charged so that they can 

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defend against the charge and not just deny that they have done anything wrong.” BlyMagee v. California, 236 F.3d 1014, 1019 (9th Cir. 2001) (quoting Neubronner v. Milken, 

6 F.3d 666, 672 (9th Cir.1993)). This may not require exact dates but Plaintiff should 

narrow the range of dates to a reasonable period of time. Plaintiff’s allegations that he saw 

Defendants’ advertising sometime before his visit to the store for his eye exam in June 

2012 is too imprecise. Additionally, Plaintiff’s allegations of seeing the ads “in various 

forms in the public domain” do not allow Defendants to prepare an adequate defense 

against the allegations. 

2. Omissions 

a. Sufficiency of Allegations 

Defendant argues Plaintiff fails to allege Dr. Rhodes was not independent to support 

his claim based on omission. 

Plaintiff contends he sufficiently alleges Costco engaged in a fraudulent business 

practice by omission for failing to disclose that the optometrists practicing out of its stores 

were subject to its control. He maintains Costco had an affirmative duty to inform 

customers that the optometrist practicing inside its stores were not independent because the 

independence of the optometrist was a material part of the bargain, only Costco, MBNR, 

and the optometrists knew the degree to which Costco asserted control and influence over 

the optometrists, and Costco was required to cure the false perception the optometrists were 

independent. He further maintains Costco knew the optometrists were operating under its 

indirect control and influence. Plaintiff contends he also alleges Costco’s intent to offer 

on-site exams to boost eyewear sales while knowing consumers prefer healthcare 

professionals who are free from conflicts of interest and intentionally omitting any 

disclosure of the fact the optometrists were subject to its control and influence regarding 

material aspects of their practices. He also contends the Ninth Circuit held, in this case, 

that Plaintiff sufficiently alleged that he would not have undergone his exam had he known 

the truth about the optometrist providing them and reliance is presumed here where the 

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information at issue was material. Further, he maintains the Ninth Circuit held in this case, 

that he sufficiently alleges economic injury 

As discussed above, the Court finds Plaintiff sufficiently alleges Dr. Rhodes was not 

independent. Therefore, Plaintiff plausibly alleges the omission that Dr. Rhodes was not 

independent misled him into purchasing the eye exam. 

b. Omissions Under the FAL 

Costco argues FAL claims based on omissions are impermissible. Plaintiff 

maintains a plaintiff may state a claim under the FAL if the defendant made a statement, 

but omitted information that undercuts the veracity of the statement. Because Costco made 

the representation that its optometrists were independent, Plaintiff argues, Costco can be 

held liable under the FAL for failing to disclose that the optometrists working in its stores 

were under its control and influence. 

The FAL prohibits the dissemination of untrue or misleading statements which are 

known or should be known to be untrue or misleading. Cal. Bus. & Prof. Code § 

17500. Most courts addressing the issue, recognize a requirement that there be at least 

some affirmative misrepresentation to support a claim under the FAL. See McCoy v. 

Nestle USA, Inc.,173 F.Supp.3d 954, 970 (2016) (discussing district court and California 

appellate court cases addressing the issue). This Court agrees. In the TAC, Plaintiff 

alleges Defendants advertised “Independent Doctors of Optometry” while failing to 

disclose the doctors performing exams were subject to Defendants’ control and influence 

regarding material aspects of their practices. TAC ¶ 100. Plaintiff alleges an affirmative 

misrepresentation to support his FAL claim. 

B. Entitlement to Relief 

 Defendant argues Plaintiff does not demonstrate a cognizable injury under California 

law. Costco also argues Plaintiff fails to demonstrate he is entitled to restitution and fails 

to allege relief under CLRA. 

// 

// 

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1. Cognizable Injury 

 Costco argues Plaintiff fails to allege cognizable injury under California law. 

Defendant maintains Plaintiff must allege facts regarding where he would have gone for 

his eye exam and whether he could have obtained the same eye exam for less and fails to 

do so. 

 Plaintiff argues, in opposition, the Ninth Circuit examined Plaintiff’s injury 

allegations and determined Plaintiff sufficiently alleges Article III and statutory 

standing. Plaintiff maintains this is law of the case. 

 The Court agrees. Plaintiff sufficiently alleges injury under California law. 

2. Restitution

 Costco argues Plaintiff fails to sufficiently allege entitlement to restitution. For 

restitution to be available, Costco maintains, the offending party must have obtained 

something from the plaintiff to which it was not entitled and Plaintiff alleges he paid $49 

to Dr. Rhodes, not Costco or MBNR. 

 Plaintiff argues courts regularly award restitution where a defendant obtains money 

from the plaintiff through intermediaries. Here, he argues, he alleges he paid money to Dr. 

Rhodes for the exam and Rhodes paid 15% of the fee to MBNR which, in turn, paid a 

portion to Costco. 

 In reply, Defendant argues the money that the optometrist receives for eye exams is 

not funneled directly or indirectly to Costco, as Costco makes its money, according to the 

allegations of the TAC through sales of eyeglasses. Defendant contends because Plaintiff 

does not allege that the $49 he paid to Dr. Rhodes for the eye exam traces through to a 

Costco account, nor does he allege that he personally contributed to Costco’s “increased 

eyewear sales, Costco never acquired Plaintiff’s money or property, 

Plaintiff alleges he lost money as a result of Defendants’ fraudulent and unfair 

business activity by paying for the eye exam and he seeks restitution of the exam fees they 

paid. TAC ¶¶ 79, 88, 98, 107, 116. He further alleges Defendants entered an agreement 

whereby MBNR would charge the tenant–optometrists rent equal to 15% of the 

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optometrists’ gross revenues, which consists of fees collected for exams, and MBNR pays 

a portion of the profits it receives from the tenants to Costco. Id. ¶ 46. 

Pursuant to the statute, remedies for violations of the UCL are limited. Korea 

Supply Co. v. Lockheed Martin Corp., 29 Cal.4th 1134 (2003). Under the UCL, 

“[p]revailing plaintiffs are generally limited to injunctive relief and restitution.” Cel–Tech 

Communications, Inc. v. Los Angeles Cellular Telephone Co., 20 Cal.4th 163, 179 (1999). 

“Restitution is broadly designed ‘to restore the status quo by returning to the plaintiff funds 

in which he or she has an ownership interest.’” Ewert v. eBay, Inc., 602 F. App’x 357, 359 

(9th Cir. 2015) (citing Korea Supply Co., 29 Cal.4th at 1149, 131 Cal.Rptr.2d 29, 63 P.3d 

937). California courts have recognized that “in appropriate circumstances, the plaintiff in 

a UCL action may obtain restitution from a defendant with whom the plaintiff did not deal 

directly.” Shersher v. Superior Court, 154 Cal.App.4th 634, 640 (2007) (citing Hirsch v. 

Bank of America, 107 Cal.App.4th 708 (2003)). Courts have found restitution appropriate 

if the plaintiff claims an ownership interest in the monies sought and the defendant received 

benefit from the monies. See People ex rel. Harris v. Sarpas, 225 Cal.App.4th 1539, 1558-

1562 (2014); Troyk v. Farmers Group, Inc., 171 Cal.App.4th 1305, 1338-1341 (2009); 

Shersher, 154 Cal.App.4th 638-641. Plaintiffs sufficiently allege an ownership interest in 

the money paid for the exam and the benefit Defendants received, and therefore, properly 

seek restitution. 

3. CLRA Claim 

 Costco argues Plaintiff’s CLRA claim fails because he does not allege the required 

transaction. Defendant maintains the CLRA requires a consumer transaction between a 

plaintiff and a defendant to establish liability and Plaintiff alleges he purchased his eye 

exam from Dr. Rhodes. not Costco. 

 In opposition, Plaintiff argues courts hold CLRA liability is not limited to the party 

who accepts money in exchange and a defendant who personally participates in a scheme 

is subject to liability. Plaintiff maintains he alleges Costco personally participated in the 

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scheme. Additionally, Plaintiff argues, Costco’s argument involves a strict interpretation 

of a transaction but the CLRA defines transaction broadly. 

In reply, Defendant argues Plaintiff’s attempt to broaden the meaning of 

“transaction” to cover the “scheme” alleged in the complaint stretches the term beyond its 

common sense meaning and CLRA’s context. 

 The CLRA prohibits certain “unfair methods of competition and unfair or deceptive 

acts or practices undertaken by any person in a transaction intended to result or that results 

in the sale or lease of goods or services to any consumer.” Cal. Civ. Code § 1770(a). The 

CLRA defines a “transaction” as “an agreement between a consumer and another person, 

whether or not the agreement is a contract enforceable by action, and includes the making 

of, and the performance pursuant to, that agreement.” Cal. Civ. Code § 1761. The CLR 

must be “liberally construed and applied to promote its underlying purposes.” Cal. Civ. 

Code § 1760. Plaintiff’s allegations that Costco entered into an agreement with MBNR 

whereby MBNR would lease space fully equipped office space to optometrists which 

required the optometrist to pay a portion of their exam fees to MBNR who provided a 

portion to Costco sufficiently allege a transaction under the CLRA. Accordingly, 

Defendant’s motion to dismiss the CLRA claim is for failure to allege a transaction is 

denied. 

CONCLUSION AND ORDER

 Based on the foregoing, IT IS HEREBY ORDERED: 

 1. Defendant MBNR’s motion to dismiss is GRANTED; 

 2. Defendant Costco’s motion to dismiss is GRANTED IN PART; 

 4. Plaintiff may file an amended complaint addressing the deficiencies on or 

before April 24, 2020. 

DATED: March 23, 2020 

 _________________________________ 

 JOHN A. HOUSTON 

 United States District Judge 

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