FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

GARY DAVIS, an individual on 

behalf of himself, as Private

Attorney General and on behalf of

all others similarly,

Plaintiff-Appellant, No. 10-56488

v. D.C. No.

HSBC BANK NEVADA, N.A., a  2:08-cv-05692-

National Bank; BEST BUY CO., GHK-JC

INC., a Minnesota corporation; OPINION BEST BUY STORES, L.P., a Virginia

limited partnership; HSBC

FINANCE CORPORATION, a Delaware

corporation,

Defendants-Appellees. 

Appeal from the United States District Court

for the Central District of California

George H. King, District Judge, Presiding

Argued and Submitted

February 6, 2012—Pasadena, California

Filed August 31, 2012

Before: Dorothy W. Nelson, Diarmuid F. O’Scannlain, and

N. Randy Smith, Circuit Judges.

Opinion by Judge Nelson

10365
COUNSEL

Drew E. Pomerance (argued), Burton E. Falk, Roxborough,

Pomerance, Nye & Adreani, LLP, Woodland Hills, California, for the plaintiff-appellant.

Stuart M. Richter (argued), Gregory S. Korman, Katten

Muchin Rosenman LLP, Los Angeles, California, for the

defendants-appellees.

DAVIS v. HSBC BANK NEVADA 10369
OPINION

NELSON, Senior Circuit Judge:

Gary Davis appeals the district court’s dismissal of his First

Amended Complaint (“FAC”). In this putative class action,

Davis alleges that HSBC Bank Nevada, N.A. (“HSBC”) and

Best Buy Stores, L.P. (“Best Buy”) (collectively, “Defendants”) defrauded California customers by offering credit

cards without adequately disclosing that cardholders would be

subject to an annual fee. We must decide whether the district

court erred when it considered extrinsic evidence in deciding

Defendants’ motion to dismiss, and whether dismissal was

proper under Federal Rule of Civil Procedure 12(b)(6). We

have jurisdiction pursuant to 28 U.S.C. § 1291, and we affirm.

I. BACKGROUND1

Best Buy operates a national chain of retail stores that sells

consumer electronics and related services. As part of its marketing platform, Best Buy implements the “Reward Zone Program,” which allows customers to earn “Reward Certificates”

for their purchases at Best Buy stores and redeem the certificates for discounts off future purchases at such stores. At the

same time, qualified consumers may also obtain a Reward

Zone Program MasterCard (“RZMC”), a credit card that is

issued by HSBC, a federally chartered bank regulated by the

Office of the Comptroller of the Currency (“OCC”). The

owner of an RZMC is automatically enrolled in the Reward

Zone Program, and may earn reward certificates by using the

card not only at Best Buy, but wherever MasterCard is

accepted. Accordingly, Defendants advertised the RZMC as

providing the cardholder, among other things, with the ability

to obtain reward certificates as well as exclusive bonus point

offers to earn rewards more rapidly.

1Because this appeal is from an order granting dismissal, the facts are

taken from the First Amended Complaint. 

10370 DAVIS v. HSBC BANK NEVADA
In or around April 2007, Davis read a newspaper advertisement for the RZMC stating that applicants would receive $25

worth of reward certificates with their very first purchase

using the card. Davis applied online to become an RZMC

holder. Before applying, however, he read a webpage entitled

“Program Rules — Best Buy Reward Zone.” Further, while

applying, Davis viewed a webpage entitled “FAQ’s” (Frequently Asked Questions). Neither webpage mentioned an

annual fee for using the RZMC.

At step two of the application process, Davis was directed

to Best Buy’s website labeled “Best Buy MBBC Consumer

— Review the Important Account Credit Terms.” In the

upper-left corner of the page, in boldface font at least twice

as large as the other text on the page, read the words “Terms

and Conditions.” Immediately below that, also in bold, was

the subheading, “Important Terms of Your Best Buy Credit

Account and Disclosure Statement” (“Important Terms &

Disclosure Statement”). Underneath stood a scrolling rectangular text box, the contents of which were only partially visible because one would need to scroll down to view the whole

statement. The visible portion commenced with the instruction, “Read the notice below carefully and print and/or download a copy for your records,” followed by the text:

The Reward Zone® program

MasterCard® Privacy Statement

HSBC BANK NEVADA, N.A.

Beneath the text box was a small check-box, which was

adjacent to the following affirmation: “I agree to the Important Terms & Disclosure Statement of the Best Buy Reward

Zone® MasterCard®.” The FAC does not allege that Davis

read the contents of the Important Terms and Disclosure

Statement, but only alleges that he checked the box and completed his online application. 

Davis’s application was approved and shortly thereafter he

received his new credit card in the mail. Also enclosed with

DAVIS v. HSBC BANK NEVADA 10371
the card were seven brochures, including a document entitled

“Cardholder Agreement and Disclosure Statement,” as well as

one entitled “Additional Disclosure Statement.” Upon reading

the latter, Davis was “surprised” to learn that there was a $59

annual fee for use of the card. At that point, Davis admits, he

revisited the terms and conditions website, scrolled down

toward the end of the Important Terms & Disclosure Statement, and discovered the disclosure of a possible annual fee.

Davis asked HSBC to waive the annual fee, but the bank

declined. Instead of canceling the card, Davis refused to activate it and continued to pay the annual fee for five years. 

On July 28, 2008, Davis filed a class action complaint in

state court against Defendants2 on behalf of a putative class

including all California residents who applied for an RZMC

between 2004 and 2008, and were charged an annual fee. He

alleges that Defendants failed to disclose adequately the existence of the annual fee. The case was removed to federal court

and then remanded to state court, triggering an appeal to this

Court, which reversed the remand order. Davis v. HSBC Bank

Nevada, N.A., 557 F.3d 1026, 1030 (9th Cir. 2009). Upon

return to federal court, Defendants filed a motion to dismiss,

which the district court granted on federal preemption

grounds. Davis was given 30 days to amend the complaint. 

On September 25, 2009, Davis filed the FAC on the same

theory that Defendants failed to disclose adequately whether

RZMC owners would be charged an annual fee. The operative

complaint alleges four causes of action for (1) false advertising in violation of the California Business & Professions

Code § 17500, et seq. (“False Advertising Law” or “FAL”),

as to Best Buy; (2) fraudulent concealment as to both Defendants; (3) “unlawful” business practices in violation of the

California Business & Professions Code § 17200, et seq.

2The original complaint also brought claims against Defendants’ affiliates, HSBC Finance Corporation and Best Buy Co., Inc. However, Davis

has since voluntarily dismissed these affiliates from the case. 

10372 DAVIS v. HSBC BANK NEVADA
(“Unfair Competition Law” or “UCL”) as to HSBC; and (4)

“unfair” and “fraudulent” business practices in violation of

the UCL as to Best Buy.

Defendants filed a Rule 12(b)(6) motion to dismiss the

FAC, along with a motion requesting judicial notice of three

disclosure documents that were referenced in, but not attached

to the FAC: (1) a copy of the complete Important Terms &

Disclosure Statement contained in the scrolling box from the

online application; (2) a copy of the Additional Disclosure

Statement received in the mail; (3) a copy of the Cardmember

Agreement and Disclosure Statement received in the mail

(collectively, “disclosure documents”). 

The district court dismissed all four claims with prejudice

on the ground that they fail to state claims entitling Davis to

relief. 

Davis timely appealed the dismissal of his claims.

II. STANDARD OF REVIEW

We review de novo a district court’s order granting a

motion to dismiss pursuant to Rule 12(b)(6). Stearns v.

Ticketmaster Corp., 655 F.3d 1013, 1018 (9th Cir. 2011). To

survive dismissal, the complaint must allege “enough facts to

state a claim to relief that is plausible on its face.” Bell Atl.

Corp. v. Twombly, 550 U.S. 544, 570 (2007). “ ‘Factual allegations must be enough to raise a right to relief above the

speculative level.’ ” Williams v. Gerber Prods. Co., 552 F.3d

934, 938 (9th Cir. 2008) (quoting Bell Atl. Corp., 550 U.S. at

555). We must accept “all factual allegations in the complaint

as true and construe the pleadings in the light most favorable

to the nonmoving party.” Rowe v. Educ. Credit Mgmt. Corp.,

559 F.3d 1028, 1029-30 (9th Cir. 2009) (quoting Knievel v.

ESPN, 393 F.3d 1068, 1072 (9th Cir. 2005)). At the same

time, “we can affirm a 12(b)(6) dismissal on any ground supported by the record, even if the district court did not rely on

DAVIS v. HSBC BANK NEVADA 10373
the ground.” United States v. Corinthian Colls., 655 F.3d 984,

992 (9th Cir. 2011) (internal citation and quotation marks

omitted). As we sit in diversity, California law governs our

analysis of the state law claims. See, e.g., Cahill v. Liberty

Mut. Ins. Co., 80 F.3d 336, 338 (9th Cir. 1996).

We take this opportunity to clarify what standard of review

applies to a district court’s decision to incorporate by reference documents outside the pleadings. Our relevant case law

has recognized consistently that the district court may, but is

not required to incorporate documents by reference. See, e.g.,

Marder v. Lopez, 450 F.3d 445, 448 (9th Cir. 2006) (observing that a court “may consider” evidence that is incorporated

by reference); Knievel, 393 F.3d at 1076 (noting that the

incorporation doctrine “permits” the court to consider extrinsic documents); United States v. Ritchie, 342 F.3d 903, 908

(9th Cir. 2003) (explaining that a document “may be incorporated by reference into a complaint if the plaintiff refers

extensively to the document or the document forms the basis

of the plaintiff ’s claim”). Additionally, in Hamilton Materials, Inc. v. Dow Chemical Corp., 494 F.3d 1203, 1207 (9th

Cir. 2007), we explained that “Federal Rule of Civil Procedure 12(b)(6) specifically gives courts the discretion to accept

and consider extrinsic materials offered in connection with

these motions, and to convert the motion to one for summary

judgment when a party has notice that the district court may

look beyond the pleadings.” Thus, we have held, for example,

that a district court’s decision to take judicial notice of extrinsic evidence shall be reviewed for abuse of discretion. Skilstaf, Inc. v. CVS Caremark Corp., 669 F.3d 1005, 1016 n.9

(9th Cir. 2012). The foregoing leads us to conclude that the

district court’s decision to incorporate by reference documents into the complaint shall be reviewed for an abuse of

discretion. 

III. DISCUSSION

On appeal, Davis argues preliminarily that the district court

erred when it considered three disclosure documents that were

10374 DAVIS v. HSBC BANK NEVADA
not attached to the FAC, and which were introduced by

Defendants in support of their motion to dismiss the FAC.

Davis next argues the district court’s conclusion that none of

the four claims plausibly suggested a right to relief was error.

We address each argument in turn.

A. Disclosure Documents

[1] The district court expressly incorporated by reference

three disclosure documents for which Defendants sought judicial notice in support of their motion to dismiss. Under the

“incorporation by reference” doctrine in this Circuit, “a court

may look beyond the pleadings without converting the Rule

12(b)(6) motion into one for summary judgment.” Van

Buskirk v. Cable News Network, Inc., 284 F.3d 977, 980 (9th

Cir. 2002). Specifically, courts may take into account “documents whose contents are alleged in a complaint and whose

authenticity no party questions, but which are not physically

attached to the [plaintiff ’s] pleading.” Knievel, 393 F.3d at

1076 (alteration in original) (internal citation and quotation

marks omitted). A court “may treat such a document as part

of the complaint, and thus may assume that its contents are

true for purposes of a motion to dismiss under Rule 12(b)(6).”

Ritchie, 342 F.3d at 908. 

[2] In this case, it is beyond dispute that the FAC alleges

the contents of the disclosure documents. The complaint

emphasizes that only part of the contents of the Important

Terms & Disclosure Statement were visible without scrolling

down, and that the portion which was visible concerned only

the Privacy Statement. Davis also alleges in detail that the

Cardmember Agreement and Disclosure Statement did not

mention the annual fee, whereas the Additional Disclosure

Statement did. Davis does not dispute these references.

Instead, he argues that the district court mistakenly determined that he did not challenge the documents’ authenticity.

He claims he raised this issue when he stated in his opposition

to the motion to dismiss: “There is no evidence that these docDAVIS v. HSBC BANK NEVADA 10375
uments were ever reviewed by Plaintiff or made available to

Plaintiff.” We disagree and conclude that Davis did not challenge the documents’ authenticity.

Whether or not Davis had access to and reviewed the proffered documents is a matter unrelated to their authenticity —

i.e., whether the documents are “what its proponent claims.”

Las Vegas Sands, LLC v. Nehme, 632 F.3d 526, 533 (9th Cir.

2011) (internal citation and quotation marks omitted); see also

Fed. R. Evid. 901 (noting that authentication concerns

whether “the item is what the proponent claims it is”). Here,

Defendants claimed that the documents are copies of the disclosure documents referenced in the FAC. Even assuming

these copies were not personally reviewed by Davis, that does

not address, much less cast doubt on, whether the copies are

accurate reproductions of the original disclosure documents.

Therefore, Davis’s objection was insufficient to challenge the

documents’ authenticity. 

Our conclusion is supported by the fact that Davis had

ample opportunity in district court to argue that the disclosure

documents were not authentic, yet failed to do so. Davis initially objected to the admission of the documents in his opposition to the motion to dismiss the original complaint, on the

ground that the documents were not reviewed by or made

available to him. In their reply brief, Defendants pointed out

that Davis “never questions the[ ] authenticity” of the proffered documents. If Davis had wished to contest this assertion, he could have done so in his subsequent opposition to

the motion to dismiss the FAC. Yet he merely repeated verbatim his prior protestation that the documents were not

reviewed by, or made available to him. 

Further, Davis’s “ongoing and substantial reliance on the

[documents] as a basis for [his] allegations substantially

weakens [his] position.” In re Silicon Graphics Inc. Securities

Litig., 183 F.3d 970, 986 (9th Cir. 1999), abrogated on other

grounds as recognized in South Ferry LP, No. 2 v. Killinger,

10376 DAVIS v. HSBC BANK NEVADA
542 F.3d 776, 784 (9th Cir. 2008). In particular, having based

his allegations on the contents and appearance of the Important Terms & Disclosure Statement, “[Davis] can hardly complain when [Defendants] refer to the same information in their

defense.” Id.

[3] We therefore hold that where the party opposing incorporation by reference argues only that he did not review or

have access to the proffered copies, this does not amount to

a challenge to those documents’ authenticity. Accordingly,

the district court properly incorporated the disclosure documents.

Further, we reject Davis’s attempt to challenge the documents’ authenticity for the first time on appeal. Because Davis

failed to assert an objection as to authenticity before the district court, he has waived this objection on appeal. See

McGonigle v. Combs, 968 F.2d 810, 825 (9th Cir. 1992). 

B. False Advertising Claim Against Best Buy

Turning to the claims in the FAC, Davis first alleges that

Best Buy’s advertising was misleading because it failed to

disclose the existence of an annual fee. We agree with the district court that no reasonable consumer would have been

deceived by these advertisements into thinking that no annual

fee would be imposed.

[4] California’s False Advertising Law makes it unlawful

for any person to “induce the public to enter into any obligation” based on a statement that is “untrue or misleading, and

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

should be known, to be untrue or misleading.” Cal. Bus. &

Prof. Code § 17500. Whether an advertisement is “misleading” must be judged by the effect it would have on a reasonable consumer. Williams, 552 F.3d at 938; see also Lavie v.

Procter & Gamble Co., 129 Cal. Rptr. 2d 486, 494 (Ct. App.

2003) (“[U]nless the advertisement targets a particular disadDAVIS v. HSBC BANK NEVADA 10377
vantaged or vulnerable group, it is judged by the effect it

would have on a reasonable consumer.”). A reasonable consumer is “the ordinary consumer acting reasonably under the

circumstances.” Colgan v. Leatherman Tool Group, Inc., 38

Cal. Rptr. 3d 36, 48 (Ct. App. 2006) (internal citation and

quotation marks omitted). To prevail under this standard,

Davis must “ ‘show that members of the public are likely to

be deceived’ ” by the advertisement. Williams, 552 F.3d at

938 (quoting Freeman v. Time, Inc., 68 F.3d 285, 289 (9th

Cir. 1995)). In applying this test, we are mindful that

“whether a business practice is deceptive will usually be a

question of fact not appropriate for decision on [a motion to

dismiss].” Id.

As an initial matter, we note that Davis does not allege that

Best Buy’s advertisement contained any statements that were

actually false. He does not suggest, for example, that the

advertisement stated that the RZMC would be free, or that it

would generate a profit. Nor can Davis be heard to argue that

the advertisement’s failure to mention the annual fee, standing

alone, supports a reasonable belief that there was no annual

fee. Given the advertisement’s legible disclaimer that “[o]ther

restrictions may apply,” no reasonable consumer could have

believed that if an annual fee was not mentioned, it must not

exist. 

This does not end our inquiry, however, because California

courts construe Section 17500 to extend beyond literal falsities. The statute has been interpreted broadly to encompass

“ ‘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.’ ” Williams, 552 F.3d at 938 (quoting Kasky v.

Nike, Inc., 45 P.3d 243, 250 (Cal. 2002)). Consequently, even

“[a] perfectly true statement couched in such a manner that it

is likely to mislead or deceive the consumer, such as by failure to disclose other relevant information, is actionable under

10378 DAVIS v. HSBC BANK NEVADA
th[is] section[ ].” Day v. AT&T Corp., 74 Cal. Rptr. 2d 55, 60

(Ct. App. 1998). 

[5] Davis contends that the omission of the annual fee was

misleading because the promise of reward certificates beginning with the first purchase implied that no offsetting charges

would operate to “nullify” those rewards. This argument fails.

While it is true that an annual fee could offset the cash value

of any rewards, the same tradeoff exists with respect to

numerous other costs of owning a credit card, such as

monthly interest charges, late-payment fees, and over-thelimit fees. It defies common sense to claim that this tradeoff

would lead a rational consumer to conclude that any credit

card that offers rewards for spending must therefore not have

associated costs of ownership. 

[6] Of course, it is possible that some consumers might

hazard such an assumption. But “[a] representation does not

become ‘false and deceptive’ merely because it will be unreasonably misunderstood by an insignificant and unrepresentative segment of the class of persons to whom the

representation is addressed.” Lavie, 129 Cal. Rptr. 2d at 494

(internal citation and quotation marks omitted). We therefore

hold that Best Buy’s advertising was not likely to deceive a

reasonable consumer; the district court’s dismissal of the false

advertising claim was proper.

C. Fraudulent Concealment Claim Against Best Buy

and HSBC

Davis next alleges that Defendants fraudulently concealed

the existence of an annual fee in its advertising and marketing. “The elements of a cause of action for fraud in California

are: (a) misrepresentation (false representation, concealment,

or nondisclosure); (b) knowledge of falsity (or ‘scienter’ ); (c)

intent to defraud, i.e., to induce reliance; (d) justifiable reliance; and (e) resulting damage.” Kearns v. Ford Motor ComDAVIS v. HSBC BANK NEVADA 10379
pany, 567 F.3d 1120, 1126 (9th Cir. 2009) (emphasis in

original) (internal citation and quotation marks omitted). 

In particular, a claim for fraudulent concealment requires

that: “(1) the defendant must have concealed or suppressed a

material fact, (2) the defendant must have been under a duty

to disclose the fact to the plaintiff, (3) the defendant must

have intentionally concealed or suppressed the fact with the

intent to defraud the plaintiff, (4) the plaintiff must have been

unaware of the fact and would not have acted as he did if he

had known of the concealed or suppressed fact, and (5) as a

result of the concealment or suppression of the fact, the plaintiff must have sustained damage.” Marketing West, Inc. v.

Sanyo Fisher (USA) Corp., 7 Cal. Rptr. 2d 859, 864 (Ct. App.

1992). Without reaching the other factors, the district court

determined that Davis’s claim fails because he cannot demonstrate justifiable reliance on the purported failure to disclose

the annual fee. We agree.

[7] In an action for fraud under California law, recovery

shall be denied “[i]f the conduct of the plaintiff [in relying

upon a misrepresentation] in the light of his own intelligence

and information was manifestly unreasonable.” Broberg v.

Guardian Life Ins. Co. of Am., 90 Cal. Rptr. 3d 225, 232 (Ct.

App. 2009) (alterations in original) (internal citation and quotation marks omitted). To establish manifest unreasonableness, “[i]t must appear that [plaintiff] put faith in

representations that were preposterous or shown by facts

within his observation to be so patently and obviously false

that he must have closed his eyes to avoid discovery of the

truth.” Id. (internal quotation marks omitted). We bear in

mind, however, that “[w]hether reliance [on a misrepresentation] was reasonable is a question of fact for the jury, and may

be decided as a matter of law only if the facts permit reasonable minds to come to just one conclusion.” Id. (alterations in

original) (internal citation and quotation marks omitted). 

[8] Fatal to Davis’s claim is the undisputed fact that he

failed to read the Important Terms & Disclosure Statement

10380 DAVIS v. HSBC BANK NEVADA
before checking the box accepting these terms and conditions.

California courts have held that where, as here, the parties to

an agreement deal at arm’s length, it is not reasonable to fail

to read a contract before signing it. See, e.g., Desert Outdoor

Advertising v. Super. Ct., 127 Cal. Rptr. 3d 158, 163 (Ct. App.

2011); Brown v. Wells Fargo Bank, NA, 85 Cal. Rptr. 3d 817,

833-34 (Ct. App. 2008) (explaining that there can be no reasonable reliance where the plaintiff, dealing at arm’s length,

“had a reasonable opportunity to discover the true terms of the

contract” but simply failed to read the contract before signing

it). 

Moreover, the existence of the annual fee was “within

[Davis’s] observation” because he concedes that he was able

to discover the annual fee when he revisited Best Buy’s website and scrolled through the Important Terms & Disclosure

Statement. However, by refusing to read this document before

completing the application, and instead assuming the absence

of an annual fee, Davis “put faith” in a purported representation that was “shown by facts within his observation to be so

patently and obviously false that he must have closed his eyes

to avoid discovery of the truth.” Broberg, 90 Cal. Rptr. 3d at

232 (internal quotation marks omitted). The only conclusion

that reasonable minds may draw is that Davis’s reliance on

the purported misrepresentation was manifestly unreasonable.

[9] Davis’s reliance on Barrer v. Chase Bank USA, N.A.,

566 F.3d 883 (9th Cir. 2009), is misplaced. He argues that

Barrer leaves open the possibility that, where a disclaimer

concerning a particular term is buried in the fine print of an

agreement, a reasonable consumer may still be deceived by

advertising or marketing materials concerning that term. This

is not what Barrer says. Rather, we held in Barrer that

because a provision empowering the defendant to change the

cardholder’s annual percentage rate for any reason was “buried too deeply in the fine print,” the defendant could not

show, as a matter of law, that the credit card agreement made

“clear and conspicuous” disclosure of that provision, as

DAVIS v. HSBC BANK NEVADA 10381
required by Regulation Z and the Truth in Lending Act

(“TILA”). Barrer, 566 F.3d at 892. However, whether a disclosure satisfies the “clear and conspicuous” standard under

the federal regulatory framework, see Rubio v. Capital One

Bank, 613 F.3d 1195, 1199 (9th Cir. 2010) (noting that TILA

and its implementing regulations require “absolute compliance” by creditors), is inapposite to whether, in the common

law context, it was reasonable for Davis to rely on a purported

representation when he did not read the terms and conditions

to which he assented. Thus, we conclude that Davis cannot

demonstrate reasonable reliance and that the district court did

not err in dismissing his fraud claim.

D. UCL Claims Against HSBC and Best Buy

Davis’s third and fourth causes of action each allege that

Defendants made inadequate disclosure of the annual fee in

their advertising and marketing in violation of the UCL.

Defendants argue that because their annual fee disclosure

complied with, and was required by, TILA and Regulation Z,

their conduct falls within a “safe harbor” that is impervious to

the UCL. We agree in part and conclude that while the disclosures in the online application fall within the safe harbor, the

advertisements do not. 

[10] First, it is necessary to understand what constitutes a

safe harbor, and whether TILA and Regulation Z can meet

this test. The California Supreme Court has explained the

“safe harbor” doctrine in this way:

Although the unfair competition law’s scope is

sweeping, it is not unlimited. . . . Specific legislation

may limit the judiciary’s power to declare conduct

unfair. If the Legislature has permitted certain conduct or considered a situation and concluded no

action should lie, courts may not override that determination. When specific legislation provides a ‘safe

10382 DAVIS v. HSBC BANK NEVADA
harbor,’ plaintiffs may not use the general unfair

competition law to assault that harbor. 

Cel-Tech Comms. Inc. v. Los Angeles Cellular Telephone Co.,

973 P.2d 527, 541 (Cal. 1999). Under the safe harbor doctrine, “[t]o forestall an action under the unfair competition

law, another provision must actually ‘bar’ the action or clearly

permit the conduct.” Id.

[11] We conclude that TILA and Regulation Z provide

such a safe harbor with respect to Defendants’ disclosures in

the online application. TILA requires that applications for an

account under an open end consumer credit plan must include

certain disclosures. 15 U.S.C. § 1637(c). Where, as here, the

application is provided online and contains “specific information” about the terms and conditions, the application must disclose, among other things, “[a]ny annual fee, other periodic

fee, or membership fee imposed for the issuance or availability of a credit card, including any account maintenance fee or

other charge imposed based on activity or inactivity for the

account during the billing cycle.” 15 U.S.C.

§§ 1637(c)(1)(A)(ii)(I), (c)(3)(B)(i)(I). The disclosure must

appear “clearly and conspicuously” in the tabular format commonly referred to as the Schumer Box. 15 U.S.C. §§ 1632(a),

(c)(2).

[12] TILA delegates to the Board of Governors of the Federal Reserve Bank (“Board”) the duty to implement these disclosure requirements and to prescribe regulations governing

the “form and manner” of the disclosures. 15 U.S.C.

§ 1632(c)(1)(A). Accordingly, the Board has promulgated

“Regulation Z,” 12 C.F.R. § 226.1 et seq., which imposes

“even more precise” disclosure requirements. Virachack v.

Univ. Ford, 410 F.3d 579, 581 (9th Cir. 2005). Regulation Z

requires lenders to provide specific disclosures “on or with a

solicitation or an application to open a credit or charge card

account.” 12 C.F.R. §§ 226.5a(a), (b). In pertinent part, the

lender must disclose “[a]ny annual or other periodic fee that

DAVIS v. HSBC BANK NEVADA 10383
may be imposed for the issuance or availability of a credit or

charge card, including any fee based on account activity or

inactivity; how frequently it will be imposed; and the annualized amount of the fee.” 12 C.F.R. § 226.5a(b)(2)(i). Further,

the disclosure “shall be in the form of a table with headings,

content, and format substantially similar to any of the applicable tables found in G-10 in appendix G to this part.” 12 C.F.R.

§ 226.5a(a)(2)(i).

[13] We have no trouble concluding that TILA and Regulation Z create a safe harbor for Defendants’ disclosure in the

online application. Both the statute and the regulations clearly

permit, and indeed require with equal force, the disclosure of

any annual fee in an application for a credit card such as the

RZMC. Our comparison of the online application’s disclosure

with the sample Schumer table in Appendix G demonstrates

that Defendants’ disclosure complied with these federal

requirements. Indeed, Davis has not and cannot allege any

violation under these provisions. Because the disclosure in the

application clearly was permitted by federal law, it cannot

serve as the basis for UCL liability. 

Davis relies on Krumme v. Mercury Ins. Co., 20 Cal. Rptr.

3d 485, 497 n.5 (Ct. App. 2004), for the contention that only

statutes, not regulations, can create “safe harbors.” In

Krumme, the state intermediate court rejected an insurance

company’s argument that California insurance regulations

provided a safe harbor against UCL liability. Id. It reasoned

that such materials “are not germane to our analysis” because

the California Supreme Court in Cel-Tech “held that only statutes can create a safe harbor.” Id. (citing Cel-Tech, 973 P.2d

at 541-42).

[14] We are not persuaded that Cel-Tech stands for this

rule. See Kairy v. SuperShuttle Intern., 660 F.3d 1146, 1150

(9th Cir. 2011) (“In a case requiring a federal court to apply

California law, the court must apply the law as it believes the

California Supreme Court would apply it.”) (internal quota10384 DAVIS v. HSBC BANK NEVADA
tion marks omitted). Cel-Tech involved whether the Unfair

Practices Act provided a safe harbor to shield certain business

conduct from liability under the UCL. The court explained

that while an express statutory provision permitting specific

conduct would be sufficient to create a safe harbor, “the Legislature’s mere failure to prohibit an activity does not prevent

a court from finding it unfair.” Cel-Tech, 973 P.2d at 542. The

court then stated that “[i]f no statute provides a safe harbor,”

the court must decide whether the alleged misconduct violates

the UCL. Id.

We reject the notion that this last passing reference established a bright-line rule that only statutes can create safe harbors. Instead, we understand the court to be outlining its

analysis in the context of the case before it, which concerned

only a potential statutory safe harbor. Furthermore, even if

“the Legislature’s mere failure to prohibit an activity” does

not create a safe harbor, id. at 542, this does not preclude the

possibility that one might arise where an implementing regulation clearly permits that activity. At bottom, the question of

whether regulations can create safe harbors simply was not

before the Cel-Tech Court, and therefore any intimation on

this point was non-essential dicta.3 Rather, we follow our previous decision in Webb v. Smart Document Solutions, LLC,

where we observed that if HIPAA regulations “intended to

permit [the defendant’s] conduct, it cannot be ‘unfair’ under

Section 17200.” 499 F.3d 1078, 1082 (9th Cir. 2007). We

therefore recognize that Regulation Z does provide a safe harbor for Defendants’ disclosures in the online application.

3California intermediate courts agree with our conclusion that regulations can create safe harbors. Most recently, in Lopez v. Nissan North

America, Inc., 135 Cal. Rptr. 3d 116, 132 (Ct. App. 2011), the state appellate court discussed approvingly our decision in Alvarez v. Chevron Corp.,

656 F.3d 925, 933 (9th Cir. 2011), where we held that California gasoline

regulations created a safe harbor against the UCL. See also Byars v. SCME

Mortgage Bankers, Inc., 135 Cal. Rptr. 2d 796, 805-806 (Ct. App. 2003)

(noting that HUD policy statement created safe harbor for mortgage lender’s conduct). 

DAVIS v. HSBC BANK NEVADA 10385
We would add that even if regulations could not create safe

harbors, Davis does not deny that federal statutes can. Indeed,

we have held as much. See Hauk v. JP Morgan Chase Bank

USA, 552 F.3d 1114, 1122 (9th Cir. 2009) (holding that a

credit card issuer’s “compliance with TILA’s disclosure

requirements provides a safe harbor with respect to [the plaintiff ’s] UCL claims based only on the sufficiency of [the issuer’s] disclosures”). In this case, to reiterate, TILA not only

clearly permits the annual fee disclosure in the online application, it mandates it. See 15 U.S.C. §§ 1632(a), (c)(2); 15

U.S.C. §§ 1637(c)(1)(A)(ii)(I), (c)(3)(B)(i)(I). At a minimum,

therefore, Defendants’ disclosure draws protection from a safe

harbor under TILA. 

Davis next objects that any safe harbor under TILA could

not protect Best Buy because TILA does not govern retailers

such as Best Buy. Even if TILA does not govern Best Buy,

which we need not decide, Davis’s argument misses the mark

because the safe harbor doctrine immunizes conduct, not entities. In Cel-Tech, the California Supreme Court explained that

when specific legislation affirmatively permits conduct,

“[c]ourts may not simply impose their own notions of the day

as to what is fair or unfair.” 973 P.2d at 541. In other words,

the safe harbor doctrine protects specific conduct not because

of its provenance, but because the content of the conduct itself

is deemed “fair” as a matter of law.4 Here, TILA and Regulation Z expressly permit and require that online credit card

applications disclose the annual fee in a prescribed manner.

4Consistent with this view, Cel-Tech repeatedly explains that it is the

conduct, not the actor, that the safe harbor embraces. See also 973 P.2d

at 541 (“If the Legislature has permitted certain conduct or considered a

situation and concluded no action should lie, courts may not override that

determination.”); id. (“To forestall an action under the unfair competition

law, another provision must actually ‘bar’ the action or clearly permit the

conduct.”); id. at 541-42 (“Acts that the Legislature has determined to be

lawful may not form the basis for an action under the unfair competition

law . . . .”); id. at 542 (“[C]ourts may not use the unfair competition law

to condemn actions the Legislature permits.”). 

10386 DAVIS v. HSBC BANK NEVADA
Best Buy operated the online application process in compliance with these rules, and therefore its conduct cannot give

rise to UCL liability. 

[15] We are not convinced, however, that Defendants’

advertisements may be swept into the ambit of this safe harbor. Unlike the online application, it is undisputed that the

advertisements lacked any disclosure of the annual fee. Thus,

to qualify for a safe harbor, we must be satisfied that the

omission of the annual fee is permitted by some statute or regulation.

[16] Taking the contrary view, Davis contends that the

advertisements were “solicitations” that violated TILA and

Regulation Z because they failed to disclose the annual fee.

However, this argument rests on a misunderstanding of the

definition of “solicitation.” Under Regulation Z, a “solicitation” is defined as “an offer by the card issuer to open a credit

or charge card account that does not require the consumer to

complete an application.” 12 C.F.R. § 226.5a(a)(1). In other

words, a solicitation is an offer made to a consumer who is

pre-approved to be a cardholder and therefore need not

undergo the credit approval process to acquire the card. 

[17] This reading comports with the agency’s official staff

interpretation, which explains that where a card issuer merely

“contact[s] a consumer who has not been preapproved for a

card account about opening an account . . . and invite[s] the

consumer to complete an application[, s]uch a contact does

not meet the definition of solicitation, . . . unless the contact

itself includes an application form in a direct mailing, electronic communication or ‘take-one’; an oral application in a

telephone contact initiated by the card issuer; or an application in an in-person contact initiated by the card issuer.” Div.

of Consumer and Cmty. Affairs of the Fed. Reserve Bd., Official Staff Comm., 12 C.F.R. Pt. 226, Supp. I, § 226.5a cmt.

5a(a)(1); see Johnson v. Wells Fargo Home Mortg., Inc., 635

F.3d 401, 417 (9th Cir. 2011) (“We have been directed to treat

DAVIS v. HSBC BANK NEVADA 10387
these official staff interpretations of Regulation Z as controlling unless demonstrably irrational.”) (internal quotation

marks and alteration omitted). Here, Davis does not allege

that he viewed any advertisement offering to extend him

credit without requiring an application. In fact, he concedes

that he was required to and did submit an application before

he was approved for the RZMC. Thus, the advertisements

were not solicitations lacking the requisite disclosure.

Nevertheless, to fall under a safe harbor, the omission of

the annual disclosure from Defendants’ advertisements must

be expressly permitted by some other provision. It is not

enough if TILA and Regulation Z merely fail to prohibit such

an omission. Cel-Tech, 973 P.2d at 542. However, the parties

have not provided, and we have not located, any provision in

TILA, Regulation Z, or elsewhere that clearly permits the

omission of the annual fee disclosure from such advertisements. Instead, Regulation Z only specifies that if the advertisement sets forth a specific credit term that “triggers”

additional disclosure, such as a finance charge, then the

advertisement “shall also clearly and conspicuously set forth,”

among other items, the annual membership fee. See 12 C.F.R.

§ 226.16(b); Official Staff Comm., 12 C.F.R. Pt. 226, Supp.

I, § 226.16(b)(1) cmt. 6. Thus, we cannot conclude that some

provision affirmatively permits the absence of the annual fee

disclosure from the advertisements. 

Because no authority provides a safe harbor, we must

decide whether Davis adequately has alleged that Defendants’

advertisements violate the UCL. Cel-Tech, 973 P.2d at

542-43. The UCL prohibits “unfair competition,” which is

broadly defined to include “three varieties of unfair competition — acts or practices which are unlawful, or unfair, or

fraudulent.” Id. at 540. Because the statute is written in the

disjunctive, it is violated where a defendant’s act or practice

violates any of the foregoing prongs. See Lozano v. AT&T

Wireless Servs., Inc., 504 F.3d 718, 731 (9th Cir. 2007). Davis

claims that HSBC violated the “unlawful” prong, and that

10388 DAVIS v. HSBC BANK NEVADA
Best Buy violated the “fraudulent” and “unfair” prongs of the

UCL. We address each contention in turn. 

1. “Unlawful” Business Practices Claim Against

HSBC

To be “unlawful” under the UCL, the advertisements must

violate another “borrowed” law. Cel-Tech, 973 P.2d at 539-40

(“[S]ection 17200 borrows violations of other laws and treats

them as unlawful practices that the unfair competition law

makes independently actionable.”) (internal quotation marks

omitted). “[V]irtually any state, federal or local law can serve

as the predicate for an action under section 17200.” People ex

rel. Bill Lockyer v. Fremont Life Ins. Co., 128 Cal. Rptr. 2d

463, 469 (Ct. App. 2002) (internal citation and quotation

marks omitted). In this case, Davis alleges that the advertisements violated OCC regulation 12 C.F.R. § 7.4008(c), which

states that “[a] national bank shall not engage in unfair or

deceptive practices within the meaning of section 5 of the

Federal Trade Commission Act, 15 U.S.C. [§ ] 45(a)(1), and

regulations promulgated thereunder in connection with loans

made under this § 7.4008.” Defendants admit that the RZMC

credit card loan was made pursuant to 12 C.F.R. § 7.4008, so

the question is whether their conduct was unfair or deceptive.5

[18] A practice is deceptive under section 5 “(1) if it is

likely to mislead consumers acting reasonably under the circumstances (2) in a way that is material.” F.T.C. v. Cyberspace.com LLC, 453 F.3d 1196, 1199 (9th Cir. 2006). For the

5Davis also argues that the disclosure of the annual fee in the online

application was “unfair and deceptive” in violation of the OCC regulation

and was therefore “unlawful” under the UCL. However, because the safe

harbor protects the application, this basis for the UCL claim must fail.

While we are sensitive that there may be some facial tension between the

TILA safe harbor and the OCC regulation in this situation, we need not

address it here because (1) the California Supreme Court has not indicated

that such a tension thwarts the safe harbor, and (2) in any event, the parties

have not raised this issue. 

DAVIS v. HSBC BANK NEVADA 10389
same reasons discussed above with respect to the FAL claim,

we reject the argument that the advertisements were deceptive

under section 5. No reasonable consumer would have been

deceived by these advertisements into thinking that no annual

fee would be imposed. 

Nor were the advertisements unfair. A practice is “unfair”

under section 5 only if it “causes or is likely to cause substantial injury to consumers which is not reasonably avoidable by

consumers themselves and not outweighed by countervailing

benefits to consumers or to competition.” 15 U.S.C. § 45(n).

“In determining whether consumers’ injuries were reasonably

avoidable, courts look to whether the consumers had a free

and informed choice.” F.T.C. v. Neovi, Inc., 604 F.3d 1150,

1158 (9th Cir. 2010). An injury is reasonably avoidable if

consumers “have reason to anticipate the impending harm and

the means to avoid it,” or if consumers are aware of, and are

reasonably capable of pursuing, potential avenues toward mitigating the injury after the fact. Orkin Exterminating Co., Inc.

v. F.T.C., 849 F.2d 1354, 1365-66 (11th Cir. 1988) (cited

approvingly in Neovi, 604 F.3d at 1158).

Davis’s alleged injury was certainly avoidable before he

completed the application for the RZMC. The advertisement

contained the disclaimer, “other restrictions may apply,”

which would have motivated a reasonable consumer to consult the terms and conditions. If that were not enough, the

online application used boldface and oversized font to alert

Davis to the Important Terms & Disclosure Statement,

instructing him to “read the notice below carefully.” The disclaimer and the terms and conditions were enough to give a

reasonable consumer “reason to anticipate” the possibility of

fees. Additionally, the fact that Davis was required to check

the box indicating his assent before completing the application meant that he could have aborted his application upon

reading the terms and conditions. This provided “the means

to avoid” the alleged harm.

10390 DAVIS v. HSBC BANK NEVADA
[19] The annual fee was also avoidable after the account

was opened. Pursuant to the Cardmember Agreement, which

Davis admits he received after completing the application, the

annual fee was completely refundable if Davis closed his

account within 90 days without using the card. Davis refused

to do so, citing the negative impact it would have on his credit

score. The question, however, is not whether subsequent mitigation was convenient or costless, but whether it was “reasonably possible.” Orkin, 849 F.2d at 1365. Under these

circumstances, we conclude that Davis reasonably could have

avoided the annual fee, and therefore that the advertisements

were not unfair under section 5. Accordingly, the advertisements were not “unlawful” under the UCL. 

2. “Fraudulent” and “Unfair” Business Practices

Claim Against Best Buy

[20] A business practice is fraudulent under the UCL if

members of the public are likely to be deceived. Puentes v.

Wells Fargo Home Mortg., Inc., 72 Cal. Rptr. 3d 903, 909

(Ct. App. 2008). The challenged conduct “is judged by the

effect it would have on a reasonable consumer.” Id. (internal

citation and quotation marks omitted). For the same reasons

that we rejected Davis’s FAL claim, we also conclude that the

advertisements were not fraudulent under the UCL.

Last, we turn to Davis’s contention that Best Buy’s advertisements were “unfair” under the UCL. The UCL does not

define the term “unfair.” In fact, the proper definition of “unfair” conduct against consumers “is currently in flux” among

California courts. Lozano, 504 F.3d at 735. Before Cel-Tech,

courts held that “unfair” conduct occurs when that practice

“offends an established public policy or when the practice is

immoral, unethical, oppressive, unscrupulous or substantially

injurious to consumers.” S. Bay Chevrolet v. Gen. Motors

Acceptance Corp., 85 Cal. Rptr. 2d 301, 316 (Ct. App. 1999)

(internal quotation marks omitted). Under this approach,

courts must examine the practice’s “impact on its alleged vicDAVIS v. HSBC BANK NEVADA 10391
tim, balanced against the reasons, justifications and motives

of the alleged wrongdoer.” Id. (internal quotation marks omitted). In short, this balancing test must weigh “the utility of the

defendant’s conduct against the gravity of the harm to the

alleged victim.” Id. (internal quotation marks omitted). 

Cel-Tech held that the balancing test was “too amorphous”

and “provide[d] too little guidance to courts and businesses.”

973 P.2d at 543. Instead, the court held that “unfair” means

“conduct that threatens an incipient violation of an antitrust

law, or violates the policy or spirit of one of those laws

because its effects are comparable to or the same as a violation of the law, or otherwise significantly threatens or harms

competition.” Id. at 544. It further required that “any finding

of unfairness to competitors under section 17200 be tethered

to some legislatively declared policy or proof of some actual

or threatened impact on competition.” Id. However, the court

expressly limited its new test to actions by competitors alleging anti-competitive practices, emphasizing that “[n]othing

we say relates to actions by consumers or by competitors

alleging other kinds of violations of the unfair competition

law such as ‘fraudulent’ or ‘unlawful’ business practices or

‘unfair, deceptive, untrue or misleading advertising.’ ” Id. at

544 n.12. 

“Following Cel-Tech, appellate court opinions have been

divided over whether the definition of ‘unfair’ under the UCL

as stated in Cel-Tech should apply to UCL actions brought by

consumers.” Durell v. Sharp Healthcare, 108 Cal. Rptr. 3d

682, 695 (Ct. App. 2010) (internal citation and quotation

marks omitted); see also Lozano, 504 F.3d at 736 (“The California courts have not yet determined how to define ‘unfair’

in the consumer action context after Cel-Tech.”). As we previously have summarized, some courts in California have

extended the Cel-Tech definition to consumer actions, while

others have applied the old balancing test, or borrowed the

three-pronged test set forth in the FTC Act. Lozano, 504 F.3d

10392 DAVIS v. HSBC BANK NEVADA
at 736; see also Durell, 108 Cal. Rptr. 3d at 695-96 (describing split of authority).

The question then is whether we are to apply the new definition in Cel-Tech, or to follow the former balancing test

under South Bay. 504 F.3d at 736. In this regard, the district

court erred when it held that Davis could not invoke the

unfairness prong at all. The proper inquiry is what definition

of “unfair” must apply to Davis’s claim.

We need not resolve that question here, however, because

Davis fails to state a claim under either definition. With

respect to Cel-Tech, Davis advances no factual allegations to

support the claim that the omission of the annual fee in Best

Buy’s advertisements threatens to violate the letter, policy, or

spirit of the antitrust laws, or that it harms competition. As for

the balancing test, we begin by noting that nothing in the FAC

supports the conclusion that the advertisements were against

public policy, immoral, unethical, oppressive, or unscrupulous. Quite the opposite, the advertisements warned that

“other restrictions might apply,” and the subsequent application process clearly disclosed the annual fee. More than this,

Davis had the opportunity to cancel the account for a full

refund within 90 days. 

[21] Because Davis failed to read the terms and conditions

before agreeing to them, and because he refused to cancel his

card within 90 days, even when viewing the facts in Davis’s

favor, we must conclude that any harm he suffered was the

product of his own behavior, not the advertisements. As a

result, we cannot say that the FAC alleges “above the speculative level” that the advertisements themselves caused any

harm. Bell Atl. Corp., 550 U.S. at 555. Meanwhile, any harm

is offset by Best Buy’s strong justification for publishing the

advertisement. Specifically, although Regulation Z does not

expressly permit the omission of the annual fee disclosure

from advertisements, it surely does not require such disclosure where, as here, the advertisement does not include speDAVIS v. HSBC BANK NEVADA 10393
cific terms that trigger additional disclosure. 12 C.F.R.

§ 226.16(b). Therefore, Best Buy justifiably relied on this federal guidance in circulating the advertisements. While we are

mindful that what is “unfair” is a question of fact, “which

involves an equitable weighing of all the circumstances, . . .

we will affirm a judgment of dismissal where the complaint

fails to allege facts showing that a business practice is unfair.”

Bardin v. Daimlerchrysler Corp., 39 Cal. Rptr. 3d 634, 644

(Ct. App. 2006). Davis fails to plead facts to show that Best

Buy engaged in an unfair business practice as defined in

South Bay. 

In sum, Defendants’ online application is protected by the

safe harbor doctrine. As for Defendants’ advertisements,

Davis fails to allege that they were “unlawful” as they were

not deceptive and their alleged harm was reasonably avoidable. Davis also fails to allege that the advertisements were

“fraudulent” or “unfair.” Therefore, the district court properly

dismissed the UCL claims in their entirety.6

IV. CONCLUSION

The district court properly incorporated the disclosure documents, and we affirm its order dismissing Davis’s complaint

with prejudice. 

AFFIRMED.

6Although Defendants argue on appeal, as they did at the district court,

that Davis’s UCL claims are preempted by federal law, we need not reach

that issue because we conclude that Davis has failed to state a claim under

the UCL. 

10394 DAVIS v. HSBC BANK NEVADA