- 1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA 8 9 CDK Global LLC, et al., No. CV-19-04849-PHX-GMS 10 Plaintiffs, ORDER 11 v. 12 Mark Brnovich, et al., 13 Defendants, 14 and 15 Arizona Automobile Dealers Association, 16 Intervenor Defendant. 17 18 19 Before the Court is Defendant Arizona Automobile Dealers Association’s and 20 Defendant Mark Brnovich et al.’s (collectively, “Defendants”) Joint Motion to Dismiss the 21 First Amended Complaint for Failure to State a Claim. (Doc. 126.) For the following 22 reasons, Defendants’ Motion is denied. 23 BACKGROUND 24 Plaintiffs CDK Global LLC and Reynolds and Reynolds Company (collectively, 25 “Plaintiffs”) develop, own, and operate proprietary computer systems known as dealer 26 management systems (“DMSs”) that process vast amounts of data sourced from various 27 parties. Automotive dealerships hold licenses to DMSs to help manage their business 28 operations, including handling confidential consumer and proprietary data, processing 1 transactions, and managing data communications between dealers, customers, car 2 manufacturers, credit bureaus, and other third parties. Plaintiffs employ multiple 3 technological measures—such as secure login credentials, CAPTCHA prompts, and 4 comprehensive cybersecurity infrastructure, hardware, and software—to safeguard their 5 DMS systems from unauthorized access or breach. Plaintiffs also contractually prohibit 6 dealers from granting third parties access to their DMSs without Plaintiffs’ authorization. 7 In March 2019, the Arizona Legislature passed the Dealer Data Security Law (“the 8 Dealer Law”). Ariz. Rev. Stat. Ann. §§ 28-4651–28-4655. The Dealer Law regulates the 9 relationship between DMS licensers like Plaintiffs and the dealerships they serve. Under 10 the Dealer Law, DMS providers may no longer “[p]rohibit[] a third party [that has been 11 authorized by the Dealer and] that has satisfied or is compliant with . . . current, applicable 12 security standards published by the standards for technology in automotive retail [(STAR 13 standards)] . . . from integrating into the dealer’s [DMS] or plac[e] an unreasonable 14 restriction on integration . . . .” Ariz. Rev. Stat. Ann. §§ 28-4653(A)(3)(b), 28-4651(9). The 15 Dealer Law also requires that DMS providers “[a]dopt and make available a standardized 16 framework for the exchange, integration and sharing of data from [a DMS]” that is 17 compatible with STAR standards and that they “[p]rovide access to open application 18 programming interfaces to authorized integrators.” Ariz. Rev. Stat. Ann. § 28-4654(A). 19 Finally, a DMS provider may only use data to the extent permitted in the DMS provider’s 20 agreement with the dealer, must permit dealer termination of such agreement, and “must 21 work to ensure a secure transition of all protected dealer data to a successor dealer data 22 vendor or authorized integrator” upon termination. Ariz. Rev. Stat. Ann. 23 §§ 28-4654(B)(1)-(3). 24 Plaintiffs filed their original complaint seeking declaratory and injunctive relief 25 from the Dealer Law on July 29, 2019. The Court subsequently granted Defendants’ 26 Motion to Dismiss Plaintiffs’ claim for violation of their freedom of speech with leave to 27 amend. (Doc. 91.) Plaintiffs filed the underlying amended complaint on June 19, 2020. 28 (Doc. 121.) The instant Motion to Dismiss followed on July 20, 2020. (Doc. 126.) 1 DISCUSSION 2 I. Legal Standard 3 To survive dismissal for failure to state a claim pursuant to Federal Rule of Civil 4 Procedure 12(b)(6), a complaint must contain more than a “formulaic recitation of the 5 elements of a cause of action”; it must contain factual allegations sufficient to “raise the 6 right of relief above the speculative level.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 7 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)). When analyzing a complaint 8 for failure to state a claim, “allegations of material fact are taken as true and construed in 9 the light most favorable to the non-moving party.” Smith v. Jackson, 84 F.3d 1213, 1217 10 (9th Cir. 1996). However, legal conclusions couched as factual allegations are not given a 11 presumption of truthfulness, and “conclusory allegations of law and unwarranted 12 inferences are not sufficient to defeat a motion to dismiss.” Pareto v. F.D.I.C., 139 F.3d 13 696, 699 (9th Cir. 1998). 14 II. Analysis 15 Plaintiffs have sufficiently alleged that the Dealer Law abridges their freedom of 16 speech. Plaintiffs claim that the law violates their free speech rights three ways: (1) by 17 abridging their protected interest in exercising editorial discretion in the content of their 18 computer systems; (2) by requiring that Plaintiffs draft code to facilitate disclosure; and 19 (3) by functionally mandating that Plaintiffs write documents explaining the new standards 20 they have adopted to comply with the Dealer Law. Because Plaintiffs’ second proposed 21 interest is sufficient to support its claim, the Court need not address the other assertions. 22 Plaintiffs’ complaint adequately alleged that the Dealer Law “abridges the freedom 23 of speech by compelling Plaintiffs to draft computer code.” (Doc. 121 at 51.) It is 24 well-established that “computer code, and computer programs constructed from code can 25 merit First Amendment protection.” Universal City Studios, Inc. v. Corley, 273 F.3d 429, 26 449 (2d Cir. 2001); see also United States v. Elcom Ltd., 203 F. Supp. 2d 1111, 1127 (N.D. 27 Cal. 2002) (“[c]omputer software is . . . speech that is protected at some level by the First 28 Amendment”). However, not all code rises to the level of protected speech under the First 1 Amendment. Corley, 273 F.3d at 449. Rather, there are “two ways in which a programmer 2 might be said to communicate through code: to the user of the program (not necessarily 3 protected) and to the computer (never protected).” Id. Further, even where code 4 communicates to the user of a program, it still may not constitute protected speech under 5 the First Amendment if it “commands ‘mechanically’ and ‘without the intercession of the 6 mind or the will of the recipient,’” Id. (describing the holding of Commodity Futures 7 Trading Comm’n v. Vartuli, 228 F.3d 94 (2d Cir. 2000)). 8 Plaintiffs have sufficiently alleged that the code they must draft to comply with the 9 Dealer Law communicates substantively with the user of the program. The Amended 10 Complaint alleges “Plaintiffs must draft code to receive and respond to requests from 11 ‘authorized integrators’ . . . who will interact with the code by commanding it to 12 communicate the information they choose to request.” (Doc. 121 at 51.) It also states that 13 the code will express the creative choices of the software developers and communicate 14 those choices “to those who would access the Plaintiff’s DMSs, as well as to other third- 15 party programmers.” Id. at 52. Taken as true, these allegations sufficiently allege a 16 protected interest in the content of the code. 17 Defendants argue the Dealer Law cannot compel speech because it does not dictate 18 what Plaintiffs’ code must say, only that dealers must adopt a framework to share data from 19 their DMSs. Ariz. Rev. Stat. Ann. § 28-4654 (requiring that Dealers “[a]dopt and make 20 available a standardized framework for the exchange, integration and sharing of data from 21 dealer data systems with authorized integrators and the retrieval of data by authorized 22 integrators using the star standards or a standard that is compatible with the star 23 standards.”). They contend that, by mandating only access, the Dealer Law regulates 24 Plaintiffs’ conduct, not speech. Corley acknowledged this possibility, clarifying that the 25 mere “functional capability” of a code did not implicate First Amendment Protection. 273 26 F.3d at 451. But Plaintiffs’ allegations go beyond the functional capability of their code 27 because they claim users will interact with their program in a substantive way. Defendants’ 28 arguments that the Dealer Law is more properly considered a regulation on conduct || therefore amount to disagreements about the factual consequences of the law and the 2|| drafted code. Such a contention cannot be resolved at the Motion to Dismiss stage.! 3 CONCLUSION 4 For the reasons stated above, Plaintiffs have adequately alleged that the Dealer Law 5 || abridges their freedom of speech. 6 IT IS THEREFORE ORDERED that Defendants’ Joint Motion to Dismiss for 7|| Failure to State a Claim (Doc. 126) is DENIED. 8 Dated this 26th day of October, 2020. 9 a *) 10 A Whacrsay Sooo) Whicren 11 Chief United states District Judge 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26|| 1 Moreover, the mere assertion that the law regulates conduct does not establish failure to state a claim under the First Amendment. Even where a law is aimed only at conduct, an 27 incidental burden on speech inggers scrutiny it must be “no greater than essential.” 28|| that a burden is no ereater than essential when “neutral regulation promotes a □□□□□□□□□□□ government interest that would be achieved less effectively absent the regulation.”). _5-
Document Info
Docket Number: 2:19-cv-04849
Filed Date: 10/27/2020
Precedential Status: Precedential
Modified Date: 6/19/2024