dotStrategy Co. v. Facebook Inc

Background

dotStrategy Co. brought a proposed class action under California’s Unfair Competition Law, California Business and Professions Code section 17200 and following sections. It alleged that Facebook made deceptive statements about its advertising platform, including a statement that advertisers would not be charged for clicks determined to be invalid. The complaint defined invalid clicks as clicks generated through prohibited means, such as fake accounts, bots, scrapers, browser add-ons, or other methods that violated Facebook’s terms.

The complaint alleged that dotStrategy placed 55 Facebook advertising campaigns from 2013 through 2018 and paid approximately $8,000 based on the clicks its ads received. After conducting a survey of some accounts that clicked its ads, dotStrategy alleged that Facebook charged it for clicks from 13 fake accounts and did not refund those charges. DotStrategy alleged violations of the unlawful, unfair, and fraudulent prongs of California’s Unfair Competition Law.

Facebook moved to dismiss based on four arguments: that dotStrategy failed to comply with a contractual duty-to-notify provision; failed to meet the heightened pleading standard for fraud-based claims; lacked statutory standing; and failed to state a plausible claim under section 17200.

Contractual Notice Provision

Facebook’s community payment terms required an advertiser to notify Facebook within 30 days of an unauthorized or otherwise problematic transaction or waive, to the fullest extent permitted by law, claims related to that transaction. The complaint did not allege that dotStrategy notified Facebook within 30 days, and dotStrategy did not argue that it was not bound by the agreement.

The court rejected Facebook’s argument that the provision barred dotStrategy’s claims. It held that the 30-day period was unenforceable, at least for claims involving charges for fake clicks, because identifying and investigating fake accounts required more time and effort than the provision allowed. The court distinguished cases involving simpler payment disputes or provisions requiring only that a payment be disputed within 30 days.

Reliance and Statutory Standing

The court held that dotStrategy failed to plead statutory standing under California’s Unfair Competition Law. Statutory standing here required dotStrategy to allege that it suffered an economic injury and lost money or property as a result of relying on Facebook’s alleged misrepresentation.

The complaint identified approximately 45 Facebook statements and alleged that dotStrategy had read and reviewed them. But its specific reliance allegation said only that dotStrategy relied on representations that Facebook would display its ads to real Facebook users. The court found that this allegation did not show reliance on the separate statement that advertisers would not be charged for clicks determined to be invalid—the statement central to dotStrategy’s theory.

Because the claims were grounded in alleged deception, the court required dotStrategy to plead actual reliance with the particularity required by Federal Rule of Civil Procedure 9(b). The court also rejected dotStrategy’s argument that a California exception for extensive advertising campaigns excused reliance on a specific statement, reasoning that dotStrategy had not pleaded reliance on the invalid-click statement in any form.

Disposition

The order states that Facebook’s motion to dismiss was granted “to the foregoing extent.” The court did not address Facebook’s remaining arguments because the reliance deficiency was dispositive. DotStrategy was invited to move for leave to amend by September 11, 2020, and was directed to explain how a proposed amended complaint would correct the deficiencies identified in the order and to provide a redlined copy.