Scotty Mahlum v. Adobe Systems, Inc.

FILED
NOT FOR PUBLICATION
APR 26 2017
UNITED STATES COURT OF APPEALS MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
SCOTTY MAHLUM, No. 15-15306
Plaintiff-Appellant, D.C. No. 5:14-cv-02988-LHK
v.
MEMORANDUM*
ADOBE SYSTEMS, INC.,
Defendant-Appellee.
Appeal from the United States District Court
for the Northern District of California
Lucy H. Koh, District Judge, Presiding
Argued and Submitted February 15, 2017
San Francisco, California
Before: W. FLETCHER and RAWLINSON, Circuit Judges, and PRATT,**
District Judge.
Plaintiff-Appellant Scotty Mahlum appeals the district court’s dismissal of
his complaint upon the motion of Defendant-Appellee Adobe Systems, Inc.
Appellant asserts the district court erred in dismissing the case based on its
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
**
The Honorable Robert W. Pratt, United States District Judge for the
Southern District of Iowa, sitting by designation.
determination that the early termination fee (ETF) assessed on his cancellation of a
service was an alternative method of performance rather than an impermissible
monetary penalty. We review the district court’s grant of a 12(b)(6) motion to
dismiss de novo. Skilstaf, Inc. v. CVS Caremark Corp., 669 F.3d 1005, 1014 (9th
Cir. 2012).
The complaint alleges the ETF provision violates California’s proscription
on impermissible liquidated damages provisions. See Cal. Civ. Code § 1671(d).
However, California law is explicit: “Where a contract for a specified period of
time permits a party to terminate the agreement before its expiration in exchange
for a lump-sum monetary payment, the payment is considered merely an
alternative to performance, and not a penalty.” Morris v. Redwood Empire
Bancorp, 27 Cal. Rptr. 3d 797, 803 (Cal. Ct. App. 2005); see Blank v. Borden, 524
P.2d 127, 131–32 (Cal. 1974).
Appellant asks this Court to look beyond the form of the provision and
evaluate its substance. See Grand Prospect Partners, L.P. v. Ross Dress for Less,
Inc., 182 Cal. Rptr. 3d 235, 254 (Cal. Ct. App. 2015). However, he alleges no facts
in his complaint to demonstrate that the ETF provision has been or may be applied
in such a way that it should be considered a penalty in substance. Cf., e.g., In re
DirecTV Early Cancellation Litigation, 738 F. Supp. 2d 1062, 1067–69, 1090
2
(C.D. Cal. 2010) (delineating factual allegations sufficient to state a claim that a
termination fee functions as an impermissible penalty).
Appellant advances two legal theories to support his allegation that his
complaint properly stated a claim. The first concerns alternative consideration, and
the other whether there exists a reasonable relation between the ETF and the
quantum of damages that could be expected to result from breach of the contract.
Neither argument affects our determination that the ETF, as pleaded in the
complaint, constitutes an alternative method of performance and not a penalty
under California law. See Morris, 27 Cal. Rptr. 3d at 803.
Appellant argues in the alternative that the district court improperly disposed
of questions of fact in dismissing his complaint. However, the complaint does not
assert any facts that, if substantiated, would affect the ETF provision’s validity as
an alternative performance provision. The operative allegations in the complaint
upon which appellant now relies are merely legal conclusions. See Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009) (“Threadbare recitals of the elements of a cause of
action, supported by mere conclusory statements, do not suffice.”). Appellant
explicitly declined to amend his pleadings before the district court to allege
additional facts and remedy the complaint’s deficiencies. On the basis of the facts
3
alleged in the complaint, the district court properly determined the ETF provision
contemplates a valid alternative method of performance.
Appellant’s motion to take judicial notice of court filings in In re DirecTV
Early Cancellation Litigation, No. 8:09-ml-02093 (C.D. Cal. 2010) and
Hutchinson v. AT&T Internet Services, Inc., No. 2:07-cv-03674 (C.D. Cal. 2008) is
denied. Although the existence and content of these documents are proper subjects
of judicial notice, they are not relevant to resolving the appeal. Appellant’s Second
Motion to Take Judicial Notice, which impermissibly attempts to supplement the
factual allegations of the complaint at the reply stage on appeal, is denied.
AFFIRMED.
4