Reilly v. Apple Inc.

Background

Thomas M. Reilly alleged that he developed Konverti, an application that facilitates in-person exchanges of small amounts of currency. According to the first amended complaint, Apple representatives told him during Apple’s Developer Program that the app complied with Apple Store policies. Reilly alleged that he continued developing and marketing Konverti based on those assurances. Apple later approved and placed the app in the Apple Store, but removed it weeks later, stating that it was unsafe or inappropriate and violated Apple’s policy requiring apps to comply with applicable legal requirements.

Reilly’s initial complaint asserted antitrust claims and a claim under California Business and Professions Code section 17200, known as the Unfair Competition Law (UCL). The court previously dismissed that complaint and allowed amendment. The first amended complaint dropped the antitrust claims and asserted only a UCL claim, seeking restitution and an injunction restoring Konverti to the Apple Store.

Legal standard

The court evaluated Apple’s motion under Federal Rule of Civil Procedure 12(b)(6), which allows dismissal when a complaint does not state a legally sufficient claim. The complaint needed to include enough factual allegations to make liability reasonably plausible. Because Reilly’s theory involved fraud, Federal Rule of Civil Procedure 9(b) also required him to plead the circumstances of the alleged fraud with particularity, including the time, place, and specific content of the alleged representations.

UCL unlawful-practices theory

The court understood Reilly’s UCL claim to rely on the unlawful and unfairness prongs. For the unlawful-practices theory, Reilly alleged that Apple violated California Civil Code section 1709, which concerns fraudulent inducement. He argued that Apple first represented that Konverti complied with Apple’s policies, causing him to continue developing the app, and later removed it after determining that it did not comply with those policies. He also argued in opposition that the allegations could support negligent misrepresentation.

The court held that the first amended complaint did not satisfy Rule 9(b). It did not identify when the alleged representations were made, whether they were communicated by phone, email, or another method, the specific statements made, or enough information about the Apple representatives’ roles. The court also concluded that the complaint did not allege all required elements of fraud or negligent misrepresentation. In particular, it did not adequately allege that Apple intended to induce Reilly’s reliance on statements made before the app’s placement in the Apple Store, or that Reilly reasonably relied on those statements. The court noted that Apple’s guidelines placed responsibility on the developer to determine whether an app complied with local law. As to Apple’s later statements that the app was out of compliance, Reilly did not allege that he made any decisions in reliance on those statements. The court therefore concluded that the amended complaint failed to state a UCL claim under the unlawful-practices prong.

UCL unfairness theory

Reilly also alleged that Apple acted arbitrarily and unfairly by allowing other applications involving in-person exchanges of payment while removing Konverti. The court applied the standard from Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. because the main interest Reilly claimed was harm to his business, not harm as a consumer. Under that standard, an unfairness theory must be tied to a legislatively declared policy or show an actual or threatened effect on competition.

The court concluded that Reilly had not alleged that Apple’s removal of Konverti harmed competition. The allegations focused on the effect on Reilly’s individual business interests, including lost market opportunity, market share, revenue, and reputation. The court rejected Reilly’s argument for applying the broader consumer-focused standard because he alleged that he was a business owner seeking access to Apple’s platform, not a consumer purchasing Apple products or services. The amended complaint therefore failed to state a UCL claim under the unfairness prong as well.

Disposition

The court found that amendment would be futile because Reilly had not corrected the deficiencies identified in the earlier dismissal order and had not identified additional facts that would cure the problems. The court granted Apple’s motion to dismiss, denied leave to amend, and dismissed the first amended complaint with prejudice. It directed the clerk to enter judgment for Apple and close the case.