GIFTCASH INC. v. The Gap, Inc.

Background

GiftCash filed a First Amended Complaint against The Gap, Inc., Banana Republic, LLC, Old Navy, LLC, and Direct Consumer Services, LLC. GiftCash alleged that the defendants devalued 3,025 gift cards worth $482,498. According to GiftCash, the cards were associated with suspended accounts that had received trespass letters because of alleged fraud, but GiftCash said it never received such a letter. GiftCash alleged that the defendants knew its business involved buying and selling gift cards on the secondary market and acted to devalue a competitor’s product and obtain an illegal windfall.

The amended complaint asserted claims for conversion, unjust enrichment and restitution, violation of California’s Unfair Competition Law (UCL), and violation of California’s False Advertising Law (FAL). The conversion claim had survived the defendants’ earlier motion to dismiss. The defendants’ motion addressed the other claims and requests for relief.

Standing for Injunctive Relief

The defendants argued that GiftCash lacked standing—the legal ability to ask the court for particular relief—to seek an injunction because it had not shown a real and immediate threat of future injury. The court rejected that argument. GiftCash plausibly alleged that it remained in the business of buying and selling the defendants’ gift cards, that the cards were important to its business, and that it faced a risk of suffering the same injury again if the defendants continued to devalue cards indiscriminately.

The court treated GiftCash’s opposition as seeking a narrower injunction against indiscriminate devaluation of cards not linked to fraud. On that theory, the court found that GiftCash sufficiently alleged standing for injunctive relief. The court gave GiftCash leave to amend to clarify the precise injunction it sought and denied the motion on this ground.

Equitable Restitution and Injunctive Relief

The defendants argued that GiftCash could not seek equitable restitution because it had an adequate remedy through money damages. The court held that GiftCash plausibly alleged that an injunction would provide relief different from damages: damages would address past purchases, while an injunction would address future devaluation. The court therefore denied the motion as to the request for injunctive relief.

The court also held that GiftCash could pursue equitable restitution for the 146 gift cards it had already sold to third-party customers. The court stated that GiftCash had alleged it lacked an adequate legal remedy for those cards and was not asserting a conversion claim for them in the amended complaint.

For the devalued cards still in GiftCash’s possession, however, the court concluded that GiftCash had not shown its legal remedy was inadequate under its current theory. The court reasoned that California conversion damages may be measured by the cards’ face value, rather than necessarily by their resale value, and that GiftCash could potentially recover the face value through its conversion claim. The court allowed GiftCash to amend its complaint to request equitable restitution in the alternative to money damages. If GiftCash did not amend, the equitable-restitution requests under its unjust-enrichment, UCL, and FAL claims would be dismissed without prejudice. On this issue, the motion was granted in part and denied in part.

UCL Claim

The court denied the motion as to the UCL claim. Under the unlawful prong, GiftCash relied on its conversion claim as the alleged unlawful act. Because that theory was not based on a misrepresentation or fraud, the court held that GiftCash did not need to plead reliance on an alleged misrepresentation to establish standing. The court also denied the defendants’ request to strike the UCL allegations based on the previously dismissed breach-of-contract theory, although the court granted in part and denied in part the request to strike allegations overall as described in the order.

The court found problems with the UCL’s unfair and fraudulent theories. To the extent those theories depended on misrepresentations or omissions, GiftCash had not adequately alleged that it relied on them. The court said GiftCash did not allege that it saw the defendants’ websites before buying the cards or that it would have acted differently if the alleged devaluation policy had been disclosed. The court also found that GiftCash failed to state a claim under the unfair prong because its allegations did not satisfy any of the applicable standards for showing harm to competition or an unfair business practice. The court nevertheless gave GiftCash leave to amend the unfair and fraudulent allegations, and stated that amendment was not necessary for the UCL claim to proceed under the unlawful prong.

FAL Claim

The court held that GiftCash’s FAL claim was based on alleged misrepresentations and omissions. GiftCash therefore had to plead actual reliance. For the same reasons discussed in connection with the UCL’s fraudulent theory, the court found that GiftCash had not done so. The FAL claim was dismissed with leave to amend to allege actual reliance.

Disposition

The court granted in part and denied in part the defendants’ motion to dismiss. It denied dismissal of the request for injunctive relief and the UCL claim, allowed equitable-restitution claims for the 146 sold cards to proceed, and allowed amendment concerning restitution for cards still held by GiftCash. It dismissed the FAL claim with leave to amend. GiftCash could file an amended complaint within 20 days of the order. Judge Hiam H. Orrick issued the order.