Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_07-cv-04178/USCOURTS-cand-3_07-cv-04178-4/pdf.json

Parties Involved:
Inter-Mark USA, Inc.
Plaintiff
Intuit, Inc.
Defendant

Document Text:

United States District Court

For the Northern District of California

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UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

INTER-MARK USA, INC.,

Plaintiff,

v.

INTUIT, INC.,

Defendant.

_________________________________/

No. C-07-04178 JCS

ORDER GRANTING INTUIT INC.’S

MOTION TO DISMISS PLAINTIFF’S

CLASS ACTION COMPLAINT PURSUANT

TO RULE 12(b)(6) [Docket No. 8]

I. INTRODUCTION

On August 15, 2007, Plaintiff Inter-Mark USA, Inc. (“Inter-Mark”) filed this purported classaction against Defendant Intuit, Inc. (“Intuit”) asserting claims for breach of contract, breach of

implied warranty of merchantability, violation of California Bus. & Prof. Code Sections 17500 and

17200, and negligence in connection with Inter-Mark’s purchase of Intuit’s “QuickBooks” software. 

Intuit brings a Motion to Dismiss Plaintiff’s Class Action Complaint Pursuant to Rule 12(b)(6) (“the

Motion”), which came on for hearing on Friday, February 8, 2008. The parties have consented to

the jurisdiction of a United States Magistrate Judge pursuant to 28 U.S.C. § 636(c). For the reasons

stated below, the Motion is GRANTED. Plaintiff’s Complaint is dismissed with leave to amend.

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 For the purposes of this Motion, the Court accepts Plaintiff’s allegations of fact as true.

Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir. 1990). 

2

II. BACKGROUND

A. The Complaint1

Inter-Mark brings this purported class action against Intuit on behalf of all present and

former customers of Intuit who purchased QuickBooks Enterprise Solutions Version 6.0 (the

“Software”) from 2005 to the present. Complaint ¶ 1. 

Defendant Intuit was founded in 1983. Complaint ¶ 10. It develops and sells software to

help small businesses and consumers manage their finances, including QuickBooks. Complaint ¶

10. QuickBooks is designed to make accounting easier for small businesses. Complaint ¶ 15. 

QuickBooks tracks sales and expenses, organizes finances, creates invoices and reports, monitors

business performance, manages customer, vendor and employee data, and performs advanced

accounting and inventory functions. Complaint ¶ 15. It is marketed as being easy to install and set

up and as being accessible to multiple users within a business. Complaint ¶ 16.

QuickBooks Enterprise Solutions is an advanced version of QuickBooks that is made

specifically for small businesses with advanced accounting needs. Complaint ¶ 17. “Intuit claims

that the benefits of Enterprise Solutions include tracking over 100,000 inventory items, customers or

vendors, instantly running financial reports, tracking income and expenses, creating financial

statements, sending estimates, invoices and sales orders, managing payroll and paying vendors.” 

Complaint ¶ 17. Intuit develops and markets updated versions of Enterprise Solutions each year. 

Complaint ¶ 19. Enterprise Solutions 6.0 became available to consumers in October 2005. 

Complaint ¶ 20. The cost of Enterprise Solutions ranges from $3,000 to $6,000, depending on the

number of users. Complaint ¶ 21.

 In a 2005 press release, Intuit stated, “[t]he new release of Enterprise Solutions [6.0] gives

mid-sized companies robust performance and increased functionality, but with the same easy-to-use

interface that has made QuickBooks the number one accounting solution in the small business

market.” Complaint ¶ 23. In another press release, Intuit stated that its “award-winning

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2

 This statement is taken verbatim from Plaintiff’s Complaint. It appears to be missing a number

between the words “to” and “simultaneous.”

3

QuickBooks 2006, the most significant update to the nation’s leading small business management

software, is now available online and at retail stores nationwide. In addition to new features and an

easier to use interface, QuickBooks 2006 includes new services that will help customers get the most

out of QuickBooks.” Complaint ¶ 24.

According to Inter-Mark, “Intuit also claims the Enterprise Solutions program included the

following improvements over previous versions:”

• new enhancements across most QuickBooks editions,

including a new SQL database, allow your clients with

larger, growing businesses to run their businesses more

efficiently and flexibly;

• improved speed and capacity allows growing

businesses to scale up to simultaneous users with 200%

faster performance;2

• improved advanced functionality for clients to manage their

growth with over 120 customizable reports and the ability to

perform in-depth financial analyses, track and view inventory

in greater detail, customize permissions for over 115 activities

for greater security and much more; and

• improved flexibility working with other software allows your

clients to access their QuickBooks data with ODBC compliant

applications such as Crystal Reports, Microsoft Excel and

Access.

Complaint ¶ 25.

Inter-Mark purchased Enterprise Solutions Manufacturing & Wholesale Edition 6.0 on

November 5, 2005. Complaint ¶ 26. It installed the software on January 1, 2006. Complaint ¶ 26. 

Inter-Mark was not aware of any problems with the software until it was installed. Complaint ¶ 26. 

Inter-Mark’s network system met the requirements set forth by Intuit for running Enterprise

Solutions 6.0. Complaint ¶ 29. Nonetheless, Inter-Mark had “numerous problems using and

implementing the Software.” Complaint ¶ 30. For example, in April or May of 2006, Inter-Mark

became aware that as data was added into the Software, the program could not process that data

without “inordinate delays.” Complaint ¶ 30. Further, Inter-Mark issues up to 100 invoices a day

and relied heavily on the Enterprises Solutions software to generate them, but it took an

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“unreasonable and inappropriate amount of time” to generate the invoices. Complaint ¶ 31. As a

result, it became evident to Inter-Mark that the Software did not function quickly and efficiently, as

represented by Intuit. Complaint ¶ 31. According to Inter-Mark, a related problem with the

Software, which was concealed by Intuit even though the problem was known to it, was that when

the Software was used to generate an invoice, it locked other employees out of the system. 

Complaint ¶ 32.

Although Intuit sent members of its Consultant Team to Inter-Mark to try to address the

problems Inter-Mark was experiencing, “they were unable to make the program work satisfactorily

and in accordance with [Intuit’s] representations and contractual obligations.” Complaint ¶ 39.

Based on these factual allegations, Plaintiff asserts the following claims:

Claim One: Breach of Contract based on the “the contract between Plaintiff and the Class

and Defendant contained in the implied Duty of Good Faith and Fair Dealing.” Complaint ¶ 53.

Claim Two: Violation of Implied Warranty of Merchantability, based on California

Commercial Code Section 2314 and the allegations that “the Software was not merchantable as

required by law in that it would not pass without objection in the trade under the contract

description, was not of fair average quality, was not fit for the ordinary purpose for which the

Software was used, did not conform with promises made on the label with respect to the Software’s

performance and the hardware and software needs of the computer systems to run the Software.” 

Complaint ¶ 58. This claim is based on the further allegation that to the extent Intuit sought to

exclude the implied warranty of merchantability, the exclusion was “not sufficiently ‘conspicuous’

as required by California Commercial Code Section 2316(2)” and the exclusion is unconscionable. 

Complaint ¶ 59. In addition, Plaintiff alleges that the express and limited remedy to customers who

are not 100% satisfied with the QuickBooks Software of returning the software for a full refund

within 60 days of purchase fails of its essential purpose because: 1) the 60-day time period is

unreasonably short; 2) defects in the software are not immediately apparent and only become

obvious with continued use; 3) Intuit’s customer service program “lulls the customer into the

expiration of the 60 day ‘window;’” and 4) the remedy of a refund is insufficient given the costs of

switching to a new software package. Complaint ¶¶ 61-64.

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Claim Three: Violation of California Business and Professions Code Section 17500 based

on the allegation that Intuit used false advertising to sell its QuickBooks Software.

Claim Four: Violation of California Business and Professions Section 17200 based on

alleged unfair, unlawful or fraudulent business practices.

Claim Five: Negligence, based on allegation that Intuit sold Enterprise Solutions “without

properly testing the product before making it available to the public.” 

Inter-Mark seeks direct an consequential damages on all five claims. Complaint at 16. In

addition, it seeks exemplary damages and restitution of “all amounts lost” on its Sections 17200 and

17500 claims and exemplary damages as to its negligence claim.

B. The Motion

Intuit argues that all of Plaintiff’s claims fail as a matter of law under Rule 12(b)(6) of the

Federal Rules of Civil Procedure and therefore, the Complaint should be dismissed. With respect to

Claim One, for breach of contract, Intuit argues that the claim fails because Inter-Mark has not

identified any particular contractual provision, or even any specific contract. To the extent that the

claim is based on the end-user license agreement (“the Software License Agreement”) that every

customer must accept before installation – of which Intuit requests judicial notice – Plaintiff has

not identified the specific obligation allegedly breached and therefore it is impossible to know how

Intuit is supposed to have breached any implied covenant of good faith and fair dealing that may

exist. 

With respect to Claim Two, for breach of the implied warranty of merchantability, Intuit

asserts that this claim fails because there is a conspicuous and valid disclaimer in the Software

License Agreement that satisfies the requirements of California Commercial Code Section 2316. In

particular, the Software License Agreement contains the following disclaimer:

DISCLAIMER OF WARRANTIES: EXCEPT AS PROVIDED

ABOVE, THIS SOFTWARE AND ANY RELATED SERVICES OR

CONTENT ACCESSIBLE THROUGH THE SOFTWARE ARE

PROVIDED “AS-IS,” AND TO THE MAXIMUM PERMITTED BY

APPLICABLE LAW, INTUIT DISCLAIMS ALL OTHER

REPRESENTATIONS AND WARRANTIES, EXPRESS OR

IMPLIED, REGARDING THIS SOFTWARE, DISKS, RELATED

MATERIALS AND ANY SERVICES OR CONTENT, INCLUDING

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THEIR FITNESS FOR A PARTICULAR PURPOSE, SECURITY,

THEIR MERCHANTABILITY, OR THEIR NONINFRINGEMENT.

 INTUIT DOES NOT WARRANT THAT THE SOFTWARE OR

ANY RELATED SERVICES OR CONTENT IS FREE FROM

BUGS, VIRUSES, ERRORS, OR OTHER PROGRAM

LIMITATIONS OR CONTENT OR DATA THROUGH THE

SOFTWARE OR CONTINUED ACCESS TO THE TRIAL

VERSION OF THE SOFTWARE OR TO THE DATA ENTERED

INTO THE TRIAL VERSION OF THE SOFTWARE AFTER THE

SPECIFIED PERIOD OF TIME ALLOWED USE. SOME STATE

DO NOT ALLOW THE EXCLUSION OF IMPLIED

WARRANTIES, SO THE ABOVE EXCLUSIONS MAY NOT

APPLY TO YOU. IN THAT EVENT ANY IMPLIED

WARRANTIES ARE LIMITED IN DURATION TO SIXTY (60)

DAYS FROM THE DATE OF PURCHASE OF THE SOFTWARE. . .

. Declaration of Angus Thomson in Support of Defendant Intuit Inc.’s Motion to Dismiss and Request

for Judicial Notice (“Thomson Decl.”), Ex. A (Software Licensing Agreement) at 4-5.

Further, to the extent Claim Two is based on the allegation that the full refund remedy fails

of its essential purpose, Intuit argues that this claim is deficient because Inter-Mark did not exercise

its rights under the warranty provision by requesting a refund and there is no allegation that Intuit

would have refused to give one. In addition, Intuit points to a provision in the Software License

Agreement that limits its liability where a remedy set forth in that agreement is “found to have failed

of its essential purpose.” In particular, in a section entitled “LIMITATION OF LIABILITIES AND

DAMAGES,” it is stated as follows:

THE ENTIRE LIABILITY OF INTUIT AND ITS

REPRESENTATIVES (AS DEFINED BELOW) FOR ANY REASON

SHALL BE LIMITED TO THE AMOUNT PAID BY THE

CUSTOMER FOR THE SOFTWARE AND, IF YOU HAVE A

SUBSCRIPTION TO AN INTUIT PAYROLL SERVICE, UP TO

THREE (3) MONTHS OF ANY INTUIT PAYROLL SERVICE

UNLESS OTHERWISE SEPARATELY AGREED. TO THE

MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW,

INTUIT . . . [IS] NOT LIABLE FOR ANY INDIRECT, SPECIAL,

INCIDENTAL, OR CONSEQUENTIAL DAMAGES . . . ,

WHETHER BASED ON BREACH OF CONTRACT, BREACH OF

WARRANTY, TORT (INCLUDING NEGLIGENCE0, PRODUCT

LIABILITY OR OTHERWISE . . . EVEN IF A REMEDY SET

FORTH HEREIN IS FOUND TO HAVE FAILED OF ITS

ESSENTIAL PURPOSE. . . . 

Id. at 5.

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Intuit argues that both Claims Three and Four, for false advertising and unfair competition,

are deficient because Inter-Mark has not alleged sufficient facts to support them. In particular, as to

the false advertising claim, Intuit asserts that Inter-Mark has failed to identify any specific untrue or

misleading statements. Further, the only statements that are identified in the Complaint, Intuit

asserts, are mere “puffing,” which is not actionable under Section 17500. Nor does the Complaint

include allegations that show Intuit had any knowledge that the identified statements were untrue. 

Similarly, as to the false advertising claim, Intuit argues, Inter-Mark has not alleged a violation of

Section 17200 because it has not identified any business practice that is unfair under Camacho v.

Automobile Club of Southern California, 142 Cal. App. 4th 1394, 1403 (2006). Further, Intuit

argues, Inter-Mark has not identified any unlawful business practice or any fraudulent, deceptive or

misleading business practice. Also, to the extent the Sections 17200 and 17500 claims are based on

the claims for breach of contract and breach of implied warranty of merchantability, Defendants

argue, these claims fail for the same reason those claims fail.

Finally, Intuit argues that Plaintiff’s Third, Fourth, and Fifth Causes of actions fail because

all of these tort claims are barred under the economic loss doctrine. Under that doctrine, tort law

does not give rise to liability where a product causes only economic loss and does not give rise to

any bodily injury or physical damage to other property.

In its Opposition, Inter-Mark makes the following arguments. With respect to Claim One,

Inter-Mark argues that the contract – which it agrees is the Software License Agreement provided by

Intuit in support of its Motion – is sufficient to support an implied duty of good faith and fair dealing

because “[i]f the implied duty of good faith means anything at all, then in this context it clearly

means that the Plaintiff and the Class are entitled to get the benefit of their bargain with a product

that works as represented and is sold with a ‘satisfaction guarantee.’” Opposition at 6. Inter-Mark

asserts that the cases requiring identification of a specific contractual provision in support of a

breach of contract claim that Intuit cited, such are Love v. The Mail on Sunday, 2006 WL 4046180

(C.D. Cal. August 15, 2006), are not on point because the nature of the alleged breach is obvious

here.

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 Because Inter-Mark does not oppose the Motion as to Claim Five, or offer any theory under

which Claim Five might be viable, the Court dismisses that claim with prejudice. 

8

Inter-Mark argues as to Claim Two, for violation of the implied warranty of merchantability,

that the adequacy of this claim cannot be decided on a motion to dismiss because the enforceability

of the disclaimers of warranties in the Software License Agreement turns on questions of fact. In

particular, Inter-Mark argues, there are questions of fact as to whether the disclaimers were

sufficiently conspicuous because Inter-Mark contends the disclaimers were on a “submerged page”

and moreover, it may not have even seen the Software License Agreement. Inter-Mark further

asserts that there are factual questions regarding the adequacy of the remedy contained in the

contract. 

With respect to Claims Three and Four, for violations of Sections 17200 and 17500, Plaintiff

asserts that these claims are pled with “reasonable” particularity, as required under Rule 8 of the

Federal Rules of Civil Procedure, and therefore, these claims are sufficient. Inter-Mark points to

statements alleged in the Complaint regarding system requirements and representations regarding

customer service, arguing that these statements were not mere puffery but rather, objective and

specific statements.

Finally, Inter-Mark argues that the economic loss doctrine does not apply to its claims under

Sections 17200 and 17500 of the California Business and Professions Code. Inter-Mark does not

dispute that the doctrine bars its negligence claim (Claim Five).3

III. ANALYSIS 

A. Legal Standard Applicable to Rule 12(b)(6) Motions

A complaint may be dismissed for failure to state a claim for which relief can be granted

under Rule 12(b)(6) of the Federal Rules of Civil Procedure. Fed. R. Civ. P. 12(b)(6). “The purpose

of a motion to dismiss under Rule 12(b)(6) is to test the legal sufficiency of the complaint.” N. Star

Int’l v. Ariz. Corp. Comm’n, 720 F.2d 578, 581 (9th Cir. 1983). Generally, a plaintiff’s burden at the

pleading stage is relatively light. Rule 8(a) of the Federal Rules of Civil Procedure states that “[a]

pleading which sets forth a claim for relief . . . shall contain . . . a short and plain statement of the

claim showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a). 

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 In ruling on a motion to dismiss under Rule 12, the court analyzes the complaint and takes

“all allegations of material fact as true and construe(s) them in the lights most favorable to the nonmoving party.” Parks Sch. of Bus. v. Symington, 51 F.3d 1480, 1484 (9th Cir. 1995). Dismissal may

be based on a lack of a cognizable legal theory or on the absence of facts that would support a valid

theory. Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1990). A complaint must

“contain either direct or inferential allegations respecting all the material elements necessary to

sustain recovery under some viable legal theory.” Bell Atl. Corp. v. Twombley, 127 S. Ct. 1955,

1969 (2007) (citing Car Carriers, Inc. v. Ford Motor Co., 745 F.2d 1101, 1106 (7th Cir. 1984)). 

The factual allegations must be definite enough to “raise a right to relief above the speculative

level.” Id. at 1965. However, a complaint does not need detailed factual allegations to survive

dismissal. Id. at 1964. Rather, a complaint need only include enough facts to state a claim that is

“plausible on its face.” Id. at 1974. That is, the pleadings must contain factual allegations

“plausibly suggesting (not merely consistent with)” a right to relief. Id. at 1965 (noting that this

requirement is consistent with Fed. R. Civ. P. 8(a)(2), which requires that the pleadings demonstrate

that “the pleader is entitled to relief”). 

The Court “may consider material which is properly submitted as part of the complaint on a

motion to dismiss without converting the motion to dismiss into a motion for summary judgment.”

Gordon v. Impulse Mktg. Group, Inc., 375 F. Supp. 2d 1040, 1044 (E.D. Wash. 2005) (citing Lee v.

City of Los Angeles, 250 F.3d 668, 688 (9th Cir. 2001)). If the documents are not physically

attached to the complaint, they may be considered if the documents’ authenticity is not contested and

the plaintiff’s complaint necessarily relies on them. Id. at 1044. The Court may also consider

documents of which it has taken judicial notice pursuant to Rule 201 of the Federal Rules of

Evidence. Mir v. Little Co. of Mary Hosp., 844 F.2d 646, 649 (9th Cir. 1988). Inter-Mark has not

objected to Intuit’s request for judicial notice of the Software License Agreement. Therefore, the

Court grants Intuit’s request and finds that it may consider the Software License Agreement on this

Rule 12(b)(6) motion even though it was neither cited in nor attached to the Complaint.

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B. Claim One (Breach of Contract)

Intuit asserts that Plaintiff’s breach of contract fails because Inter-Mark has not identified the

specific contractual provision from which the duty of good faith and fair dealing that was allegedly

breached arose. The Court agrees.

To state a claim for breach of contract, a plaintiff must allege the existence of a valid

contract, performance of that contract by the plaintiff, defendant’s breach and damages. In re

Leisure Corp., 2007 WL 607696 (N.D. Cal. Feb. 23, 2007) (citing First Commercial Mortgage Co.

v. Reece, 89 Cal. App. 4th 731, 745 (2001)). In order to state a claim for breach of an implied

covenant of good faith and fair dealing, the specific contractual obligation from which the implied

covenant of good faith and fair dealing arose must be alleged. Love v. The Mail on Sunday, 2006

WL 4046180 *7 (C.D. Cal. Aug. 2006) (dismissing breach of contract claim on motion to dismiss

where complaint did not identify any specific contractual provision from which the implied

convenant of good faith and fair dealing arose). As the court explained in Love,

“The obligations imposed by the covenant of good faith and fair

dealing are not those set out in the term of the contract itself, but rather

are obligations imposed by law governing the manner in which the

contractual obligations must be discharged-fairly and in good faith.”

Koehrer v. Sup. Ct., 181 Cal. App.3d 1155, 1169, 226 Cal. Rptr. 820

(4th Dist., 1986). “However, what that duty embraces is dependent

upon the nature of the bargain struck between the [parties] and the

legitimate expectations of the parties which arise from the contract.” 

Commercial Union Assurance Cos. v. Safeway Stores, Inc., 26 Cal.3d

912, 918, 164 Cal. Rptr. 709, 610 P.2d 1038 (1980). Further, “[i]t is

universally recognized [that] the scope of conduct prohibited by the

covenant of good faith is circumscribed by the purposes and express

terms of the contract.” Carma Developers, Inc. v. Marathon

Development California, Inc., 2 Cal. 4th 342, 373, 6 Cal. Rptr. 2d 467,

826 P.2d 710 (1992).

2006 WL 4046180 *7 (C.D. Cal. Aug. 2006). 

Here, Inter-Mark has not identified any specific contractual provision in support of its breach

of contract claim. As a result, its allegation that Intuit breached an implied covenant of good faith

and fair dealing is nothing more than a bare legal assertion, supported by no factual allegations. 

This is insufficient to meet even the liberal pleading requirements of Rule 8 of the Federal Rules of

Civil Procedure. Accordingly, the Court concludes that Inter-Mark has failed to state a claim for

breach of contract in its Complaint.

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Further, the Court is not persuaded by Inter-Mark’s conclusory assertion that Love is not on

point. Inter-Mark suggest that in this case, in contrast to Love, it is somehow obvious that the

Software License Agreement gives rise to an implied covenant of good faith and fair dealing

whereby Inter-Mark is entitled to the benefit of its bargain with Intuit. As the California Supreme

Court explained in Carma Developers (California), Inc. v. Marathon Dev. California, Inc., “the

scope of conduct prohibited by the covenant of good faith is circumscribed by the purposes and

express terms of the contract.” 2 Cal. 4th 342, 373 (1992) (citations omitted). The implied covenant

of good faith and fair dealing is intended to “protect the express covenants or promises of the

contract, not to protect some general public policy interest not directly tied to the contract’s

purpose.” Id. (quoting Foley v. Interactive Data Corp., 47 Cal. 3d 654, 690 (1988). Inter-Mark has

failed to include any allegations in its Complaint that show that its breach of contract claim is based

on anything more than a general public policy interest. As such, the claim fails as a matter of law. 

Inter-Mark shall be given leave to amend Claim One.

C. Claim Two (Breach of Implied Warranty of Merchantability)

1. Disclaimer of Implied Warranty of Merchantability

Defendants assert that to the extent Claim Two is based on an alleged breach of an implied

warranty of merchantability, the claim fails because the Software License Agreement contains a

valid disclaimer of any implied warranties. The Court agrees.

Under California Commercial Code Section 2316(2), an implied warranty of merchantability

may be excluded in a written document in which the disclaimer is conspicuous and mentions

merchantability. Further, California Commercial Code Section 2316(3)(a) provides that “all implied

warranties are excluded by expressions like ‘as is,’ . . . or other language which in common

understanding calls the buyer's attention to the exclusion of warranties and makes plain that there is

no implied warranty.” Whether a provision is conspicuous is a question for the court. Cal.

Commercial Code Section 1201(1). The California Commercial Code provides the following

definition of “conspicuous”:

(10) “Conspicuous,” with reference to a term, means so written,

displayed, or presented that a reasonable person against whom it is to

operate ought to have noticed it. Whether a term is “ conspicuous” or

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not is a decision for the court. Conspicuous terms include the following:

(A) a heading in capitals equal to or greater in size than the

surrounding text, or in contrasting type, font, or color to the

surrounding text of the same or lesser size; and

(B) language in the body of a record or display in larger type than the

surrounding text, or in contrasting type, font, or color to the

surrounding text of the same size, or set off from surrounding text of

the same size by symbols or other marks that call attention to the

language.

Cal. Comm. Code Section 1201(10). In making the determination as to whether a provision is

conspicuous, the court must “review the conspicuousness of the disclaimer in the context of the

entire contract, and in light of the sophistication of the parties.” Medimatch, Inc. v. Lucent Techs.,

Inc., 120 F. Supp. 2d 842, 860 (N.D. Cal. 2000) (citing Sierra Diesel Injection Serv., Inc. v.

Burroughs Corp., Inc., 890 F.2d 108, 114 (9th Cir. 1989).

Here, the disclaimer in the Software License Agreement is printed in all capital letters, with

the title “DISCLAIM OF WARRANTIES” in bold-face type. It is found on the fourth and fifth

pages of a ten-page contract. Only two other provisions in the contract are in all capital letters and

therefore, the disclaimer stands out visually. In addition, nothing in the allegations of the Complaint

suggests that Inter-Mark – a business customer rather than an individual purchaser – is so

unsophisticated that it would not have noticed this disclaimer or appreciated its significance. 

Therefore, the Court concludes, as a matter of law, that the disclaimer meets the requirement that it

must be conspicuous. Further, the disclaimer uses the “as is” language that the California legislature

has indicated disclaims implied warranties. Thus, assuming the contract as a whole is enforceable,

the Court concludes that the disclaimer bars Inter-Mark’s claim for breach of implied warranty of

merchantability.

A separate question, however, is whether Inter-Mark is bound by the Software License

Agreement in the first instance. Inter-Mark argues that this a factual question that cannot be

resolved on summary judgment, citing Specht v. Netscape Communications Corp., 306 F.3d 17 (2d

Cir. 2002). In Specht, the Court held that an arbitration clause in an on-line license agreement was

unenforceable because the license agreement was located on the defendant’s web-page below the

button provided for users to down-load software and would have required users to scroll down the

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page to find the license agreement. Id. at 20. As a result, the court concluded, a reasonably prudent

Internet user would not have seen the license agreement before downloading the defendant’s

software. Id. Therefore, the plaintiff did not, by downloading the defendant’s software, manifest

assent to the terms of the license agreement in that case and was not contractually bound to arbitrate

its dispute with the defendant. Id.; see also Feldman v. Google, Inc., 513 F. Supp. 2d 229, 236 (E.D.

Pa.) (holding on summary judgment that “clickwrap” agreement was enforceable and noting that in

addressing this question courts apply “traditional principles of contract law and focus on whether the

plaintiff had reasonable notice of an manifested assent to the clickwrap agreement”). 

The Court is not persuaded by Inter-Mark’s position because the complaint contains no

allegations – either factual or legal – suggesting that the Software License Agreement is

unenforceable. Instead, Inter-Mark has conceded that the Software License Agreement is valid and

has not objected to the Court taking judicial notice of the copy of the agreement that is attached to

Plaintiff’s request for judicial notice. Plaintiff also conceded at oral argument that it has no evidence

that the disclaimer that Inter-Mark saw on-line was any different from the one that has been

provided to the Court. In the face of an enforceable contract that contains a valid and conspicuous

disclaimer of all implied warranties of merchantability, dismissal of the this claim is appropriate. 

See Dart Enery Corp., Inc. v. Vogel, 1999 WL 11010342 (W.D. Mich. July 18, 1991) (dismissing

claim for breach of implied warranty of merchantability despite plaintiff’s assertion that the

underlying contract was fraudulently induced and therefore unenforceable on grounds that plaintiffs

had not alleged a claim for negligent or fraudulent misrepresentation). Further, Inter-Mark has

offered no evidence or argument that persuades the Court the claim can be saved by amendment. 

Accordingly, this claim is dismissed with prejudice.4

D. Claim Three (Violation of Cal. Bus. & Prof. Code § 17500)

Intuit argues that Defendant’s false advertising claim fails because no specific statements are

identified in the claim and the marketing statements quoted in the factual allegations of the

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Complaint are non-actionable puffery. The Court agrees.

Section 17500 of California’s Business and Professions Code makes it unlawful for a

business to disseminate any statement “which is untrue or misleading, and which is known, or which

by the exercise of reasonable care should be known, to be untrue or misleading . . . .” Cal. Bus. &

Prof. Code Section 17500. This provision has been “interpreted broadly to embrace not only

advertising which is false, but also advertising which although true, is either actually misleading or

which has a capacity, likelihood or tendency to deceive or confuse the public.” Leoni v. State Bar,

39 Cal. 3d 609, 626 (1985). Whether the public actually has been or will be misled for purposes of a

claim under the false advertising law is, in general, a factual question that cannot be resolved on a

motion to dismiss. Cairns v. Franklin Mint Co., 24 F. Supp. 2d 1013, 1037 (C.D. Cal. 1998). 

However, “[g]eneralized, vague, and unspecified assertions constitute ‘mere puffery’ upon which a

reasonable consumer could not rely, and hence are not actionable.” Anunziato v. eMachines Inc.,

402 F. Supp. 2d 1133, 1139 (C.D. Cal. 2005) (citing Glen Holly Entm’t, Inc. v. Tektronix Inc., 343

F.3d 1000, 1005 (9th Cir. 2003)).

The degree of particularity required in pleading a Section 17500 claim depends on the nature

of the allegations in the claim. In particular, although fraud is not an essential element of a Section

17500 claim, where a plaintiff alleges fraud as the basis for a violation of that provision, the

particularity requirement of Rule 9(b) of the Federal Rules of Civil Procedure applies to the fraud

allegations. Vess v. Ciba-Geigy Corp., 317 F.3d 1097, 1105 (9th Cir. 2003). If that requirement is

not met, the court must disregard the fraud allegations to determine whether a claim has been stated

under the notice pleading standards of Rule 8(a). Under that standard, a Section 17500 claim need

be alleged only with “reasonable particularity.” See Khoury v. Maly’s of California, Inc., 14 Cal.

App. 4th 612, 619 (1993).

Defendant argues that Plaintiff’s Section17500 claim is based on alleged fraud, pointing to

the allegation of a “scheme” in paragraph 68 of the Complaint and the allegation that Defendant

acted “knowingly, willfully, and maliciously” in paragraph 72 of the Complaint. On this basis, 

Defendant asserts that the heightened pleading standard of Rule 9(b) should be applied to this claim. 

While the Court is doubtful that these allegations amount to fraud allegations, it need not resolve the

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question of whether a heightened standard applies because Plaintiff has not met the more liberal

requirements of Rule 8. In the claim, Plaintiff refers only to unspecified “commercial

advertisements” and “a variety of promotional materials.” Because Plaintiff does not identify any

specific statements, this claim does not provide adequate notice to Defendant of the alleged

wrongful conduct.

To the extent that Plaintiff seeks to rely on the statements contained in its press releases

quoted in paragraphs 23-25 of the Complaint (see above), these statements are mere puffery, touting

the “improvements” and “enhancements” in Intuit’s Software without making any verifiable factual

representations. It is possible that Plaintiff will be able to state a Section 17500 claim based on

statements regarding system requirements for running the Software or Intuit’s customer service. As

currently pled, however, these representation are not alleged to be false or misleading. The Court

dismisses this claim with leave to amend to clearly identify the specific statements on which the

claim is based, consistent with the discussion above.

E. Claim Four (Violation of Cal. Bus. & Prof. Code Sections 17200 et seq.)

Defendants argue that Plaintiff’s Section 17200 claim also fails as a matter of law because

Inter-Mark has not adequately alleged any “unfair,” “unlawful” or “fraudulent” business practice. 

The Court agrees.

California Business & Professions Code Sections 17200 et seq. prohibits “unfair

competition,” which is defined as any “unlawful, unfair or fraudulent business act or practice.” To

establish a violation of Section 17200, a plaintiff may establish a violation under any one of these

prongs. An unlawful business practice is one that is “prohibited by law, where possible sources of

law are defined broadly.” Multimedia Patent Trust v. Microsoft Corp., 2007 WL 2696675 (S.D. Cal.

September 10, 2007) (citation omitted). A business practice is unfair, where the plaintiff is a

consumer rather than a competitor, where the injury caused by the allegedly unfair business practice:

a) is substantial; b) is not outweighed by any countervailing benefits to consumers or to competitors;

and c) could not reasonably have been avoided. Camacho v. Auto. Club of S. Cal., 142 Cal. App. 4th

1394, 1403 (2006). Finally, “a ‘fraudulent’ practice is defined more broadly than common law fraud

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and only requires a showing that “members of the public are likely to be deceived.” Multimedia

Patent Trust v. Microsoft Corp., 2007 WL 2696675 at * 11 (citations omitted).

Here, Inter-Mark does not dispute that its allegations do not satisfy the requirements for

establishing an unfair or unlawful practice. Rather, it asserts that it satisfies the “fraudulent” prong

of Section 17200, essentially duplicating the Section 17500 claim. For the reasons that the Section

17500 claim fails, so does the Section 17200 claim. Plaintiff shall be granted leave to amend as to

this claim.

F. Economic Loss Rule

Finally, Defendant argues that Plaintiff’s Sections 17200 and 17500 claims fail for the

additional reason that these are essentially tort claims and under the economic loss doctrine, such

claims may not be asserted on the basis of pure economic loss without physical injury or property

damage. See Sacramento Reg’l Transit Dist. v. Grumman Flxible, 158 Cal. App. 3d 289, 294 (1984)

(holding that strict liability in tort did not apply where claim alleged only economic loss because

claim was governed by Uniform Commercial Code). Intuit does not cite to any California decision

in which a court has held as much but rather, to a decision in which the court held that an Arizona

unfair competition claim was barred because, under Arizona law, the unfair competition claim

sounded in tort. See QC Constr. Prods., LLC v. Cohill’s Bldg. Specialities, Inc., 423 F. Supp. 2d

1008, 1015-16 (D. Ariz. 2006); see also AOL v. St. Paul Mercury Ins. Co., 207 F. Supp. 2d 459

(E.D. Va. 2002) (dismissing tort claims as well as claims that defendants violated “various State

Consumer Protection Acts” under Virginia law based on economic loss rule without discussing

reasons for extending rule to consumer protection laws). 

The Court does not find any case law that suggests that the California Supreme Court would

extend the economic loss rule to Sections 17200 or 17500 claims. To the contrary, as Inter-Mark

has noted, the California Supreme Court has distinguished such claims from tort claims,

characterizing them as “an equitable action by means of which a plaintiff may recover money or

property obtained from the plaintiff . . . through unfair or unlawful business practices [and which] is

not an all-purpose substitute for a tort or contract action.” Cortez v. Purolator Air Filtration Prods.

Co., 23 Cal. 4th 163, 173 (2000). 

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 Inter-Mark has conceded, however, that its remedy under these sections is limited to

restitution of money lost – in this case, the money that was spent on the Intuit Software. Thus, to the

extent the Complaint seeks damages, such remedies are not available to Inter-Mark on these claims.

IV. CONCLUSION

For the reasons stated above, the Motion is GRANTED and the Complaint is DISMISSED

with leave to amend. Plaintiff shall be permitted to amend all of its claims except Claim Two, which

is dismissed with prejudice. Plaintiff’s amended Complaint shall be filed by February 29, 2008.

IT IS SO ORDERED.

Dated: February 27, 2008

 

JOSEPH C. SPERO

United States Magistrate Judge

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