Tuesday, April 01, 2014

It's an ex-competitor: plaintiff whose service shuffled off this mortal coil lacks standing

Think Computer Corp. v. Dwolla, Inc., No. 13–CV–02054, 2014 WL 1266213 (N.D. Cal. Mar. 24, 2014)

Think is a money service business (MSB) and developer of a mobile payment system platform called FaceCash, launched in April 2010.  Defendants were money transmitters (MSB defendants) and venture capital funds and individual investors (investor defendants). MSB defendants included Airbnb, ActBlue, Facebook, Square, and Stanford.  Think alleged that the MSB defendants hold and transmit funds on behalf of third parties and were its direct competitors.  Think alleged that they operated without required money transmitter licenses in violation of a California law that became effective in mid-2011 and that imposed various capital and other requirements on money transmitters. The investor defendants allegedly helped/directed the MSB defendants. 

Think didn’t acquire the necessary license and voluntarily stopped running FaceCash when the California law went into effect.  Think had no paying customers for payment services. It alleged violations of California Unfair Competition law, the Lanham Act, and unjust enrichment. The court only analyzed the federal claim, finding no Article III standing (this may be a misnomer, though the result seems foreordained to be the same under Lexmark).

Under now-probably-superseded 9th Circuit precedent, Lanham Act standing requires “(1) a commercial injury based upon a misrepresentation about a product; and (2) that the injury is ‘competitive,’ or harmful to the plaintiff’s ability to compete with the defendant.” This requires some kind of competition for the same dollars from the same consumer group.  Think shut down FaceCash, so it can’t have had diverted sales after the California law went into effect.  Plus, to the extent Think alleged that statements in certain defendants’ terms of service before mid-2011 were deceptive, Think didn’t allege that Think suffered commercial injury as a result. Once Think voluntarily shut down FaceCash, it couldn’t show that it competed or suffered commercial injury, so the complaint had to be dismissed.

A bit of a wrinkle: the UCL “unlawful” claims were based on both state and federal law. But the Ninth Circuit has held that, “where there is no federal private right of action, federal courts may not entertain a claim that depends on the presence of federal question jurisdiction under 28 U.S.C. § 1331.”  The alleged federal violations concerned laws criminalizing unlicensed money transmission businesses and mandating record-keeping, neither of which created a federal private right of action. As a result, the state law claims didn’t involve substantial questions of federal law, and the court declined to exercise supplemental jurisdiction.

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