Court Opinion

ID: 4163525
Source: CourtListenerOpinion
Date Created: 2017-04-26 20:04:06.530319+00
Date Added: 2024-06-11T14:37:55.693542
License: Public Domain

FILED
                            NOT FOR PUBLICATION
                                                                             APR 26 2017
                     UNITED STATES COURT OF APPEALS                      MOLLY C. DWYER, CLERK
                                                                           U.S. COURT OF APPEALS

                            FOR THE NINTH CIRCUIT

SCOTTY MAHLUM,                                    No. 15-15306

              Plaintiff-Appellant,                D.C. No. 5:14-cv-02988-LHK

 v.
                                                  MEMORANDUM*
ADOBE SYSTEMS, INC.,

              Defendant-Appellee.

                    Appeal from the United States District Court
                      for the Northern District of California
                      Lucy H. Koh, District Judge, Presiding

                      Argued and Submitted February 15, 2017
                             San Francisco, California

Before: W. FLETCHER and RAWLINSON, Circuit Judges, and PRATT,**
District Judge.

      Plaintiff-Appellant Scotty Mahlum appeals the district court’s dismissal of

his complaint upon the motion of Defendant-Appellee Adobe Systems, Inc.

Appellant asserts the district court erred in dismissing the case based on its

      *
             This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
      **
            The Honorable Robert W. Pratt, United States District Judge for the
Southern District of Iowa, sitting by designation.
determination that the early termination fee (ETF) assessed on his cancellation of a

service was an alternative method of performance rather than an impermissible

monetary penalty. We review the district court’s grant of a 12(b)(6) motion to

dismiss de novo. Skilstaf, Inc. v. CVS Caremark Corp., 669 F.3d 1005, 1014 (9th

Cir. 2012).

      The complaint alleges the ETF provision violates California’s proscription

on impermissible liquidated damages provisions. See Cal. Civ. Code § 1671(d).

However, California law is explicit: “Where a contract for a specified period of

time permits a party to terminate the agreement before its expiration in exchange

for a lump-sum monetary payment, the payment is considered merely an

alternative to performance, and not a penalty.” Morris v. Redwood Empire

Bancorp, 27 Cal. Rptr. 3d 797, 803 (Cal. Ct. App. 2005); see Blank v. Borden, 524

P.2d 127, 131–32 (Cal. 1974).

      Appellant asks this Court to look beyond the form of the provision and

evaluate its substance. See Grand Prospect Partners, L.P. v. Ross Dress for Less,

Inc., 182 Cal. Rptr. 3d 235, 254 (Cal. Ct. App. 2015). However, he alleges no facts

in his complaint to demonstrate that the ETF provision has been or may be applied

in such a way that it should be considered a penalty in substance. Cf., e.g., In re

DirecTV Early Cancellation Litigation, 738 F. Supp. 2d 1062, 1067–69, 1090

                                           2
(C.D. Cal. 2010) (delineating factual allegations sufficient to state a claim that a

termination fee functions as an impermissible penalty).

      Appellant advances two legal theories to support his allegation that his

complaint properly stated a claim. The first concerns alternative consideration, and

the other whether there exists a reasonable relation between the ETF and the

quantum of damages that could be expected to result from breach of the contract.

Neither argument affects our determination that the ETF, as pleaded in the

complaint, constitutes an alternative method of performance and not a penalty

under California law. See Morris, 27 Cal. Rptr. 3d at 803.

      Appellant argues in the alternative that the district court improperly disposed

of questions of fact in dismissing his complaint. However, the complaint does not

assert any facts that, if substantiated, would affect the ETF provision’s validity as

an alternative performance provision. The operative allegations in the complaint

upon which appellant now relies are merely legal conclusions. See Ashcroft v.

Iqbal, 556 U.S. 662, 678 (2009) (“Threadbare recitals of the elements of a cause of

action, supported by mere conclusory statements, do not suffice.”). Appellant

explicitly declined to amend his pleadings before the district court to allege

additional facts and remedy the complaint’s deficiencies. On the basis of the facts

                                           3
alleged in the complaint, the district court properly determined the ETF provision

contemplates a valid alternative method of performance.

      Appellant’s motion to take judicial notice of court filings in In re DirecTV

Early Cancellation Litigation, No. 8:09-ml-02093 (C.D. Cal. 2010) and

Hutchinson v. AT&T Internet Services, Inc., No. 2:07-cv-03674 (C.D. Cal. 2008) is

denied. Although the existence and content of these documents are proper subjects

of judicial notice, they are not relevant to resolving the appeal. Appellant’s Second

Motion to Take Judicial Notice, which impermissibly attempts to supplement the

factual allegations of the complaint at the reply stage on appeal, is denied.

      AFFIRMED.

                                           4