Court Opinion

ID: 6800836
Source: CourtListenerOpinion
Date Created: 2022-07-22 17:03:30.912636+00
Date Added: 2024-06-11T08:36:26.128335
License: Public Domain

Filed 7/22/22 White v. Block CA1/5

       NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on
opinions not certified for publication or ordered published, except as specified by rule
8.1115(b). This opinion has not been certified for publication or ordered published for pur-
poses of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                         FIRST APPELLATE DISTRICT

                                    DIVISION FIVE

 ROBERT E. WHITE,
            Plaintiff and Appellant,
 v.                                                               A161481
 BLOCK, INC.,
            Defendant and Respondent.
                                                                  (San Francisco City and County
                                                                  Super. Ct. No. CGC-19-580267)

       Attorney Robert E. White sued Square, Inc. (now Block,
Inc.), alleging that Block’s terms of service discriminate against
bankruptcy attorneys in violation of the Unruh Civil Rights Act
(Civ. Code, § 51 et seq.; the Act).1 The trial court sustained
Block’s demurrer without leave to amend and White appeals. We
agree with the trial court that White cannot state a cause of
action under the Act and affirm.

                                      BACKGROUND

                                                 A.

       The Act provides: “All persons within the jurisdiction of
this state are free and equal, and no matter what their sex, race,
color, religion, ancestry, national origin, disability, medical
condition, genetic information, marital status, sexual orientation,

        1   Undesignated statutory references are to the Civil Code.
                                                1
citizenship, primary language, or immigration status are entitled
to the full and equal accommodations, advantages, facilities,
privileges, or services in all business establishments.” (§ 51,
subd. (b).) Our Supreme Court has held that the explicitly
identified bases of discrimination—sex, race, religion, etc.—are
merely illustrative, not exclusive. (Koebke v. Bernardo Heights
Country Club (2005) 36 Cal.4th 824, 839 (Koebke).)

                                   B.

        Block offers an internet service that allows individuals and
businesses to accept credit card payments without directly
opening their own merchant account with a Visa or MasterCard
member bank. Block’s terms of service state that when a user
creates an account, the user agrees to “ ‘not accept payments in
connection with the following businesses or business activities:
(1) any illegal activity or goods, . . . (3) credit counseling or credit
repair agencies, . . . (14) betting, including lottery tickets, casino
gaming chips, off-track betting, and wagers at races, . . . (19)
high-risk products and services, including telemarketing sales,
. . . (21) adult entertainment oriented products or services . . . ,
(22) sales of . . . firearms . . . , (27) escort services, or (28)
bankruptcy attorneys or collection agencies engaged in the
collection of debt.’ ” (Italics added.)

      White’s operative complaint alleges that he intended to
sign up for and use Block’s service. Every day for several years,
White visited Block’s website and carefully reviewed its terms of
service. White acknowledges that there is no standard definition
of “bankruptcy attorney” and that many who might be considered
bankruptcy attorneys (under a broad definition) can use Block to
process payments for business activities (including legal services)
that are not bankruptcy- or debt-related. However, because
White intended to use Block’s services for his bankruptcy
practice, he believed he could not sign the registration agreement
in good faith and declined to proceed. He seeks injunctive relief

                                   2
and statutory penalties (based on more than 1,200 daily visits to
Block’s website), alleging that Block’s terms of service constitute
intentional and arbitrary occupational discrimination—against
bankruptcy attorneys—in violation of the Act.

      Block filed a demurrer, arguing, among other things, that
White failed to plead facts stating a cause of action under the Act.
The trial court agreed, explaining that Block’s policy is based on
the nature of the transactions engaged in by bankruptcy
attorneys and debt collectors rather than any intent to
discriminate against bankruptcy attorneys because of their
“personal characteristics.” The court sustained Block’s demurrer
without leave to amend, and entered judgment against White.

                            DISCUSSION

      White argues that Block’s terms of service constitute
arbitrary occupational discrimination, in violation of the Act,
because there is no rational reason for Block to exclude all
bankruptcy attorneys. After independently reviewing White’s
complaint (Lazar v. Hertz Corp. (1999) 69 Cal.App.4th 1494,
1501), we agree that he does not plead facts sufficient to state a
cause of action under the Act. (Semler v. General Electric Capital
Corp. (2011) 196 Cal.App.4th 1380, 1386 (Semler).)

                                  1.

      The Act’s purpose is to eradicate arbitrary, invidious
discrimination by California’s businesses. (White v. Square, Inc.
(2019) 7 Cal.5th 1019, 1025.) To that end, it prohibits businesses
from excluding people based on personal characteristics specified
in the Act, such as sex, race, and religion. (§ 51, subd. (b); Harris
v. Capital Growth Investors XIV (1991) 52 Cal.3d 1142, 1172
(Harris), superseded by statute on another ground as stated in
Munson v. Del Taco, Inc. (2009) 46 Cal.4th 661, 664-665.) The
Act exempts business policies that apply alike to all persons

                                  3
regardless of their personal characteristics. (§ 51, subd. (c);
Harris, supra, at p. 1172.)

       In Harris, supra, 52 Cal.3d 1142, our Supreme Court
reexamined earlier decisions that construed the Act expansively
to proscribe any “ ‘arbitrary’ ” discrimination and that added new
personal characteristics (physical appearance, age, and sexual
orientation) to the list in the statute. (Id. at pp. 1152, 1154-
1156.) While not overruling these cases, the court limited them
to their holdings; rejected the notion that the Act broadly
proscribes any classification simply because it could be viewed as
arbitrary, unreasonable, or based on a stereotype; and cautioned
against extending the Act further. (Id. at pp. 1156-1159, 1160.)
The Legislature intended the Act to apply to discrimination based
on a consumer’s personal characteristics, as opposed to financial
or economic distinctions. (Id. at p. 1161.) Harris clarified that
businesses retain the right to treat consumers differently when
the distinction is based on legitimate business interests and is
rationally related to the services offered. (Id. at pp. 1162-1163.)
Businesses have latitude to adopt policies to protect their
reputations, comply with legal requirements, and manage risks.
(Id. at pp. 1162, 1167.)

      “[W]riting on a clean slate,” Harris examined the scope of
the statute by considering three factors: (1) the language of the
statute; (2) the defendant’s legitimate business interests; and (3)
the consequences of allowing the claim to proceed. (Harris,
supra, 52 Cal.3d at pp. 1159-1169; Hessians Motorcycle Club v.
J.C. Flanagans (2001) 86 Cal.App.4th 833, 836 (Hessians).)

                                  2.

      We first consider the language of the statute—in
particular, the classifications explicitly listed in section 51,
subdivision (b), such as race and gender. (Harris, supra, 52
Cal.3d at pp. 1157-1161.) The Legislature limited the statute’s
prohibition to discrimination based on personal characteristics or
                                  4
traits fundamental to identity, as opposed to financial or
economic distinctions. (Ibid.; Koebke, supra, 36 Cal.4th at pp.
840-843.) Accordingly, to state a cause of action under the Act, a
plaintiff must plead that they were subject to discrimination
based on a personal characteristic that is either listed in the
statute or similar to those in the statute. (Semler, supra, 196
Cal.App.4th at p. 1392.)

       Here, we need not determine whether occupation generally
is a personal characteristic protected under the Act. A claim is
not actionable merely because a plaintiff says that it fits within a
cognizable form of discrimination. (See Cohn v. Corinthian
Colleges, Inc. (2008) 169 Cal.App.4th 523, 526-528 (Cohn);
Hessians, supra, 86 Cal.App.4th at pp. 837-838.) Rather, a
plaintiff must plead facts establishing that the specific business
classification at issue falls within the Act. (See Harris, supra, 52
Cal.3d at pp. 1165-1168; Cohn, supra, at pp. 527-529; Hessians,
supra, at pp. 837-838.)

       After independently scrutinizing the facts White pled, we
agree with the trial court that Block’s terms of service distinguish
permissible from impermissible uses based on the nature of
transactions, rather than on the basis of any personal
characteristic. As we noted above, White acknowledges (in his
operative complaint and in materials he asked the trial court to
judicially notice when opposing Block’s demurrer) that there is no
standard definition of “bankruptcy attorney” and that many who
might be considered bankruptcy attorneys (under a broad
definition) can use Block to process payments for business
activities (including legal services) that are not bankruptcy- or
debt-related. In fact, White concedes, in his opening brief on
appeal, that he was deterred from registering because he
understood that he must agree not to use Block’s services “in
connection with any bankruptcy-related transactions.”

                                 5
       Accordingly, although Block’s terms of service specify that
its service may not be used for payments connected to
“bankruptcy attorneys,” the exclusion is aimed at bankruptcy-
and debt-related transactions, not bankruptcy attorneys’ personal
characteristics. (See Hessians, supra, 86 Cal.App.4th at pp. 837-
838 [refusal to admit bar patrons wearing patches signifying
allegiance to a particular motorcycle club was intended to avoid
fights, not discriminate based on unconventional appearance];
Cohn, supra, 169 Cal.App.4th at pp. 527-529 [baseball team’s
giveaway of tote bags to women was intended to celebrate
Mother’s Day, not discriminate based on gender].)

       We also consider whether Block has a legitimate business
interest in preventing consumers from using their service in
bankruptcy and debt collection transactions. Under Harris, the
critical issue is whether the challenged policy “bears a reasonable
relation to commercial objectives appropriate to an enterprise
serving the public.” (Harris, supra, 52 Cal.3d at p. 1165.)

       Here, it is undisputed that Block has a legitimate interest
in avoiding the legal and financial risks associated with
facilitating bankruptcy-related payments. Congress has imposed
significant controls on professionals involved in bankruptcy
cases. (In re Walker Land & Cattle, LLC (Bankr. D. Idaho 2015)
535 B.R. 348, 351.) For instance, if an attorney (representing a
debtor) is paid compensation for services exceeding their
reasonable value, the court may order the excessive payment
returned to the estate or the entity that made the payment. (11
U.S.C. § 329(b).) Attorneys representing bankruptcy debtors are
also forbidden from advising their clients to incur additional debt,
such as through a credit transaction, to pay fees. (11 U.S.C. §
526(a)(4); Cadwell v. Kaufman (11th Cir. 2018) 886 F.3d 1153,
1159, 1161.) Thus, Block’s policy bears a reasonable relation to a
legitimate business interest in avoiding the potential financial

                                 6
and legal risks, including payment disputes and chargebacks,
related to fees paid by debtors to bankruptcy counsel.

       This brings us to the essence of White’s claim. White does
not question the legitimacy of these risks—in fact, he concedes
that Block’s purported business reasons of “avoiding bankruptcy-
related transactions . . . are [not] themselves unreasonable.” 2
(See Harris, supra, 52 Cal.3d at p. 1162 [recognizing a business’s
interests in facilitating legal compliance are proper and sufficient
to justify distinctions among its customers].) He even
acknowledges—in his opposition brief before the trial court and
in the operative complaint itself—that the Federal Deposit
Insurance Corporation imposes similar requirements on banks
when they open merchant accounts.

      White instead argues that Block’s terms are “arbitrary”
because they are both under- and over-inclusive—for example,
because they preclude a bankruptcy attorney from using Block’s
service to obtain fees from a creditor client. He also alleges that
Block misidentifies high-risk bankruptcy transactions because it
uses faulty algorithms, which Block could avoid by adopting more
accurate methods used by conventional banks. Thus, White
believes a trial is necessary to determine whether Block

      2   Although the argument was not raised in White’s briefs,
he asserted at oral argument that Block’s purported business
interests are not part of the record on demurrer. The argument
is forfeited. (PGA West Residential Assn., Inc. v. Hulven
Internat., Inc. (2017) 14 Cal.App.5th 156, 188-189.) In any event,
the argument is unpersuasive. First, White himself
acknowledges, in his operative complaint, that Block’s interest in
avoiding high risk transactions underlies its policy. Second, in
analyzing legitimate business interests, courts routinely consider
relevant statutes and common sense justifications. (See Harris,
supra, 52 Cal.3d at p. 1164 & fn. 11; King v. Hofer (1996) 42
Cal.App.4th 678, 683–684; but see Sisemore v. Master Financial,
Inc. (2007) 151 Cal.App.4th 1386, 1408 (Sisemore).)
                                 7
arbitrarily discriminates against some bankruptcy attorneys
whose transactions do not, in fact, present significant risk.

      We disagree. Harris rejected the idea that courts must
scrutinize facially legitimate business policies to assess whether
they may have “arbitrary” effects on individuals that other, more
narrowly tailored policies would avoid. (Harris, supra, 52 Cal.3d
at pp. 1165-1167; accord, Roth v. Rhodes (1994) 25 Cal.App.4th
530, 538 (Roth).) The Harris court examined, on review from a
demurrer ruling, a landlord’s policy of renting only to tenants
that met a minimum income requirement. (Harris, supra, at p.
1149.) The court upheld the policy, in part, because it was
reasonably related to the landlord’s interest in ensuring tenants
could afford the rent. (Id. at p. 1164.)

      The court also rejected the plaintiffs’ argument that they
should be permitted to demonstrate at trial that the policy
arbitrarily discriminated against some low-income tenants that
could afford the rent or that other policy options would avoid
these arbitrary effects. (Harris, supra, 52 Cal.3d at pp. 1165-
1168.) It reasoned: “In the absence of clear legislative direction,
which the general antidiscrimination provisions of the Unruh Act
do not provide, we are unwilling to engage in complex economic
regulation under the guise of judicial decisionmaking.” (Harris,
supra, at p. 1168.) Moreover, it made clear that a court may
uphold a business policy, on demurer, as a question of law “when
the policy or practice . . . is valid on its face because it bears a
reasonable relation to commercial objectives appropriate to an
enterprise serving the public.” (Id. at p. 1165.)

       Accordingly, the trial court in this case correctly declined to
second guess Block’s business judgment by adjudicating whether
its legitimate business concerns apply in all instances or appear
arbitrary at the margins. (Harris, supra, 52 Cal.3d at p. 1165;
Hessians, supra, 86 Cal.App.4th at p. 838.) Block’s policy bears a
reasonable relation to legitimate commercial objectives. White

                                  8
may be correct that the policy sweeps more broadly than
necessary, that other methods may more accurately identify high-
risk transactions, and that Block is neglecting a low-risk market.
Regardless, it is still a business decision, not invidious
discrimination based on personal characteristics. In the absence
of an indication that a policy is a subterfuge for discrimination
based on protected personal characteristics, courts should not
regulate a corporation’s risk management decisions or its
assessment of market opportunities. (See Harris, supra, at pp.
1167-1168; Roth, supra, 25 Cal.App.4th at pp. 537-538, 539.) And
even if the policy affects bankruptcy attorneys more than others,
the Act does not permit disparate impact claims. (Harris, supra,
at pp. 1171-1173.)

                                     3.

      White insists that the Harris test does not apply because
courts have already recognized occupational discrimination as a
protected classification under the Act. (See Koebke, supra, 36
Cal.4th at p. 840 [stating Harris test applies to new claims of
discrimination based on category not listed in the statute or
added by judicial construction]; Sisemore, supra, 151 Cal.App.4th
at pp. 1393-1394, 1405-1407; Long v. Valentino (1989) 216
Cal.App.3d 1287, 1297 (Long); but see Roth, supra, 25
Cal.App.4th at p. 539.) We are not persuaded.

       In dicta, in the pre-Harris case Marina Point, Ltd. v.
Wolfson (1982) 30 Cal.3d 721, 736, our Supreme Court suggested
occupational discrimination is cognizable. But neither Marina
Point, nor Sisemore, supra, 151 Cal.App.4th at pages 1405-1406
and Long, supra, 216 Cal.App.3d at page 1297, announce a
blanket rule to be applied in every case tangentially involving
occupation. As we stated above, courts must examine the specific
facts pled in a complaint to determine whether the Act applies to
a particular business classification. (See Harris, supra, 52 Cal.3d
at pp. 1165-1168; Sisemore, supra, at p. 1407 [“Sisemore contends

                                 9
that she was discriminated against [solely] because of her choice
of [occupation], not that she was denied a mortgage loan because
that choice resulted in her earning insufficient income to meet
the lender’s underwriting criteria”]; Long, supra, at p. 1298
[police officers “may not be refused service in a restaurant, denied
an apartment, or ejected from a public meeting merely because of
their occupation”], italics added.)

      Application of the Harris test is appropriate here because
the facts pled by White demonstrate that Block does not actually
discriminate on the basis of occupation and its policy is
reasonably related to legitimate business objectives. This means
White’s claim falls outside the Act, according to our Supreme
Court’s construction in Harris.

      In sum, discrimination against consumers that want to use
Block’s services to conduct bankruptcy and debt collection
transactions does not violate the Act as a matter of law. (See
Harris, supra, 52 Cal.3d at p. 1165.) The trial court did not err in
sustaining Block’s demurrer. We need not consider the parties’
additional arguments.

                           DISPOSITION

     The judgment is affirmed. Block is entitled to its costs on
appeal. (Cal. Rules of Court, rule 8.278(a)(2).)

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                                           ______________________
                                           BURNS, J.

We concur:

____________________________
JACKSON, P.J.

____________________________
WISEMAN, J.*

A161481

      * Retired Associate Justice of the Court of Appeal, Fifth
Appellate District, assigned by the Chief Justice pursuant to
article VI, section 6 of the California Constitution.

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