Watson v. Crumbl LLC

Opinion

LISA WATSON and ANGELA KEERS, No. 2:23-cv-01770-DJC-CKD individually and on behalf of all those similarly situated,

Plaintiffs, ORDER

v.

FRANCHISING, LLC, and CRUMBL

Defendants.

California law generally prohibits businesses from misrepresenting the costs of

their products. Here, Crumbl, which sells a variety of gourmet cookies, added a 2.95%

service fee to each order. While not disclosed in Crumbl’s app used to purchase cookies, during checkout users could click a question mark icon on a line reading “Taxes and Fees” which would send the user to a different screen that would breakout the applicable taxes as well as the 2.95% Service Fee. The principal issue before the Court is whether a reasonable customer would be misled by the advertised prices for the cookies, which did not include the service fee. Concluding that Plaintiffs have adequately alleged they would be, the Court denies Defendants’ pending Motion to Dismiss (ECF No. 4) in part, but grants the Motion with respect to Plaintiffs’

inadequately pled claims for equitable relief.

Defendants Crumbl LLC, Crumbl IP, LLC, Crumbl Franchising, LLC, and Crumbl

Enterprises, LLC (collectively, “Defendants” or “Crumbl”) sell gourmet cookies and

beverages which customers can purchase for takeout or delivery at more than 890

locations throughout all fifty states. (First Am. Compl. (“FAC”) (ECF No. 17) ¶¶ 1, 20,

24.) Crumbl offers a weekly rotating menu of cookie flavors, and advertises their

menu on the Crumbl App,1 a mobile application which is available for download on a

customer’s individual mobile device and is also accessible on Crumbl’s website. (Id.

¶¶ 3–4, 21, 25.) Customers can use the App to purchase items for pickup or delivery

at their local Crumbl location. (Id. ¶ 25.) Customers also use the App to complete in-

store purchases. (Id. ¶ 6.) Thus, all Crumbl sales are performed using the App.

Beginning in 2018, Crumbl began charging a 2.95% Service Fee on all

purchases. (Id. ¶ 7.) This Service Fee was automatically applied to every order,

whether the order was placed in-store or online. (Id. ¶¶ 26, 37.) When placing an

order in the App, customers were presented with a payment screen which displayed

the following line items: “Subtotal,” “Taxes & Fees,” “Tip,” and finally “TOTAL.” (Id.

¶ 30.) Next to the line item “Taxes & Fees” was a small “?” icon. (Id. ¶ 31.) Only if a

customer clicked on the “?” icon did they see a price breakdown showing the ”Sales

Tax” and “Service Fee.” (Id. ¶ 32.) Customers were able to confirm their purchase on

the payment screen by clicking a “PAY” or “PLACE ORDER” button beneath the

“TOTAL.” (Id. ¶¶ 30, 35.)

The Service Fee was not disclosed in any signage in retail stores, nor was it

disclosed in any of Crumbl’s other marketing or advertising materials. (Id. ¶¶ 39–40.)

1 Crumbl designs, maintains, operates, and owns the App, along with all of its integrated software and intellectual property. (FAC ¶ 29.) Crumbl has not explained what service the fee pays for. (Id. ¶ 36.) However, Crumbl

ceased charging the Service Fee in May 2023. (Mot. Dismiss (ECF No. 24) at 9 n.1.)

Plaintiffs Lisa Watson and Angela Keers, who are California residents, allege

they purchased Crumbl’s products numerous times using the App on their phones,

with their most recent purchases occurring in March and April of 2023. (FAC ¶¶ 47,

48, 57, 58.) Plaintiffs allege they relied on the retail prices listed in the App and,

despite reviewing the menu and other information displayed, did not see any

disclosure of the Service Fee prior to completing their purchases. (Id. ¶¶ 50–51, 60–

61.) Plaintiffs further allege they believed the “Taxes & Fees” charged were local

and/or state sales tax. (Id. ¶¶ 52, 62.) It was only recently that Plaintiffs discovered

they had been charged the Service Fee on each of their purchases over the course of

many years. (Id. ¶¶ 52, 62.) Despite reviewing the App, Plaintiffs were unable to

determine why they were charged the Service Fee. (Id. ¶¶ 53, 54, 63, 64.)

Accordingly, Plaintiffs allege that the Service Fee was deceptive and that they were

harmed because there was no way for them to know about the Service Fee until after

they completed their purchases. (Id. ¶¶ 38, 45.)

Based on these allegations, Plaintiffs brought this class action under the Class

Action Fairness Act on August 21, 2023, asserting claims against Crumbl for

(1) violations of the California Consumer Law Remedies Act (“CLRA”), Cal. Civ. Code

§§ 1750–1784, (2) violations of California False Advertising Law (“FAL”), Cal. Bus. &

Prof. Code §§ 17500–17509, (3) violations of the California Unfair Competition Law

(“UCL”), Cal. Bus. & Prof. Code §§ 17200–17210, (4) fraudulent misrepresentation, and

(5) unjust enrichment/quasi-contract. (FAC ¶¶ 86–148.) Plaintiffs bring claims one

through three on behalf of a proposed California Class2 and claims four through five

on behalf of a proposed Nationwide Class,3 or alternatively, the California Class. (Id.

¶¶ 75–76.) Plaintiffs seek damages, injunctive relief, and other equitable remedies.

2 As defined in the First Amended Complaint. (See FAC ¶ 76.) 3 As defined in the First Amended Complaint. (See FAC ¶ 75.) Defendants brought the pending Motion to Dismiss on April 15, 2024, under

Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6), arguing (1) Plaintiffs lack

standing to seek injunctive relief because they fail to allege a risk of future harm;

(2) Plaintiffs are not entitled to equitable relief because they have an adequate remedy

at law; (3) Plaintiffs fail to state CLRA, FAL, or UCL claims because a reasonable

consumer would not be misled by the Service Fee and the way in which it was

disclosed; (4) Plaintiffs fail to adequately plead the elements of a fraudulent

misrepresentation claim; (5) Plaintiffs fail to state an unjust enrichment/quasi-contract

claim because there is no stand-alone cause of action for unjust enrichment under

California law and Plaintiffs fail to allege fail to allege the elements of quasi-contract;

and (6) Plaintiffs cannot bring claims on behalf of the Nationwide Class under

California law or under the laws of states other than California. (Mot. Dismiss at 2.)

The Court held a hearing on May 23, 2024, with Erin Ruben appearing for

Plaintiffs, and Jaikaran Singh and Jordan Bledsoe appearing for Defendants. The

matter was submitted.

A party may move to dismiss a complaint for “lack of subject matter jurisdiction”

under Federal Rule of Civil Procedure 12(b)(1). “The party asserting federal subject

matter jurisdiction bears the burden of proving its existence.” Chandler v. State Farm

Mut. Auto. Ins. Co., 598 F.3d 1115, 1122 (9th Cir. 2010). In a “facial attack” under Rule

12(b)(1), “the challenger asserts that the allegations contained in a complaint are

insufficient on their face to invoke federal jurisdiction.” Safe Air for Everyone v. Meyer,

373 F.3d 1035, 1039 (9th Cir. 2004). “The district court resolves a facial attack as it

would a motion to dismiss under Rule 12(b)(6): [a]ccepting the plaintiff's allegations as

true and drawing all reasonable inferences in the plaintiff's favor, the court determines

whether the allegations are sufficient as a legal matter to invoke the court's

jurisdiction.” Leite v. Crane Co., 749 F.3d 1117, 1121 (9th Cir. 2014). “By contrast, in a

factual attack, the challenger disputes the truth of the allegations that, by themselves, would otherwise invoke federal jurisdiction.” Meyer, 373 F.3d at 1039. In resolving a

factual attack on jurisdiction, the district court may review evidence beyond the

complaint without converting the motion to dismiss into a motion for summary

judgment, and the court need not presume the truthfulness of the plaintiff’s

allegations. White v. Lee, 227 F.3d 1214, 1242 (9th Cir. 2000).

A party may also move to dismiss for “failure to state a claim upon which relief

can be granted.” Fed. R. Civ. P. 12(b)(6). The motion may be granted only if the

complaint lacks a “cognizable legal theory or sufficient facts to support a cognizable

legal theory.” Mendiondo v. Centinela Hosp. Med. Ctr., 521 F.3d 1097, 1104 (9th Cir.

2008). The court assumes all factual allegations are true and construes “them in the

light most favorable to the nonmoving party.” Steinle v. City & County of San

Francisco, 919 F.3d 1154, 1160 (9th Cir. 2019). However, if the complaint's

allegations do not “plausibly give rise to an entitlement to relief” the motion must be

granted. Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009). A complaint need contain only a

“short and plain statement of the claim showing that the pleader is entitled to relief,”

Fed. R. Civ. P. 8(a)(2), not “detailed factual allegations,” Bell Atl. Corp. v. Twombly, 550

U.S. 544, 555 (2007). However, this rule demands more than unadorned accusations;

“sufficient factual matter” must make the claim at least plausible. Iqbal, 556 U.S. at

678. In the same vein, conclusory or formulaic recitations of elements do not alone

suffice. Id. “A claim has facial plausibility when the plaintiff pleads factual content that

allows the court to draw the reasonable inference that the defendant is liable for the

misconduct alleged.” Id.

I. Request for Judicial Notice

Plaintiffs request the Court take judicial notice of (1) a news article entitled

Crumbl Cookies started as a ‘fun side hustle’—now it brings in $1 billion a year: It’s

‘something that anyone can do,’ by Tom Huddleston Jr., published on CNBC on

Saturday, February 17, 2024, at 10:00 am EST (“Exhibit 1”), and (2) California Senate

Bill No. 478 (“Exhibit 2”). (Pls.’ Req. Judicial Notice (“Pls.’ RJN”) (ECF No. 28) at 2.)

Defendants oppose Plaintiffs’ request as to Exhibit 1, arguing the facts in the

article are not relevant to any issue raised in their Motion to Dismiss. (Opp’n Pls.’ RJN

(ECF No. 32) at 2–3.) Defendants also argue that Plaintiffs wish to introduce the article

to “establish the truth of the number of cookies Crumbl sold in 2022,” but courts may

not take judicial notice of an article for the truth of its contents. (Id. at 3–4.)

The Court agrees that “[t]o the extent the court can take judicial notice of . . .

news articles, it can do so only to indicate what was in the public realm at the time, not

whether the contents of those articles were in fact true.” EVO Brands, LLC v. Al Khalifa

Grp. LLC, 657 F. Supp. 3d 1312, 1323 (C.D. Cal. 2023). Accordingly, the Court takes

judicial notice of Exhibit 1, but declines to notice that the article’s contents are true.

Further, courts may take judicial notice of legislative bills. California v. Infineon Techs.

AG, 531 F. Supp. 2d 1124, 1172 (N.D. Cal. 2007). Accordingly, the Court grants

Plaintiffs’ request as to Exhibit 2.

II. Plaintiff’s Entitlement to Equitable Relief

Plaintiffs only seek injunctive or other equitable relief for their UCL, FAL, and

unjust enrichment claims. (See FAC ¶¶ 116, 132, 148.) Plaintiffs also seek injunctive

or other equitable relief for their CLRA claim. (Id. ¶¶ 101–3.) Defendants argue

(1) Plaintiffs lack standing to seek injunctive relief because there is no risk of future

harm, and (2) Plaintiffs cannot bring claims for equitable relief because they have not

alleged an inadequate remedy at law. (Mot. Dismiss at 21–23.)

For the reasons set forth below, the Court will dismiss Plaintiffs’ FAL, UCL, and

unjust enrichment claims in their entirety with leave to amend. The Court will also

dismiss Plaintiffs’ CLRA claim to the extent it seeks equitable remedies with leave to

amend.

////

//// A. Standing for Injunctive Relief

Defendants argue that Plaintiffs lack standing to pursue injunctive relief as to

the Service Fee because Crumbl no longer charges the fee. (Mot. Dismiss at 22.)

Defendants also argue that even if Crumbl charges a Service Fee in future, Plaintiffs

are now on notice about the fee, and so cannot be misled by the menu pricing. (Id.)

Therefore, Defendants argue Plaintiffs cannot demonstrate any impending injury, and

lack standing to obtain injunctive relief. (Id.)

“In a class action, standing is satisfied if at least one named plaintiff meets the

requirements.” Bates v. United Parcel Serv., Inc., 511 F.3d 974, 985 (9th Cir. 2007).

Not only must at least one named plaintiff satisfy constitutional standing requirements,

but the plaintiff “bears the burden of showing that he has standing for each type of

relief sought.” Summers v. Earth Island Inst., 555 U.S. 488, 493 (2009). In the context

of injunctive relief, the standing inquiry requires a plaintiff to demonstrate that they

have suffered or are threatened with concrete and particularized legal harm, coupled

with a sufficient likelihood that they will be wronged again in a similar way. Bates, 511

F.3d at 985. This latter inquiry turns on whether the plaintiff has a “real and immediate

threat of repeated injury.” Id. The threat of future injury cannot be “conjectural or

hypothetical” but must be “certainly impending.” Davidson v. Kimberly-Clark Corp.,

889 F.3d 956, 967 (9th Cir. 2018).

Standing is determined as of the commencement of litigation. Biodiversity

Legal Found. v. Badgley, 309 F.3d 1166, 1170 (9th Cir. 2002). Defendants state that

they ceased charging the challenged Service Fee in May 2023, before this action was

filed, and Plaintiffs do not challenge this assertion. Thus, the harm that Plaintiffs seek

to enjoin, deceptive price advertising, no longer exists. Accordingly, the Court finds

that Plaintiffs have not demonstrated a “real and immediate threat of repeated injury”

entitling them to injunctive relief. Bates, 511 F.3d at 985.

Plaintiffs urge the Court to find they have standing because “there is a threat of

future injury to the general public by the business practice of charging an undisclosed Service Fee.” (Opp’n Mot. Dismiss (ECF No. 27) at 15–16.) While the Court does not

discount the possibility that Crumbl could charge a Service Fee again in future,

should his happen, Plaintiffs, like other plaintiffs dismissed for lack of standing to seek

injunctive relief, could sue Defendants for recommencing the allegedly harmful

conduct. Moreover, if Defendants recommence the objectionable conduct, and stop

again to defeat Plaintiff's standing, such conduct would likely fall within the

established exception to mootness for disputes that are “capable of repetition, yet

evading review.” Kingdomware Techs., Inc. v. United States, 579 U.S. 162, 170 (2016)

(quoting Spencer v. Kemna, 523 U.S. 1, 17 (1998)). At this stage, however, given that

Defendant voluntarily ceased the conduct at issue prior to the filing of this lawsuit, and

in light of the fact that the California Legislature has recently expressly prohibited the

conduct at issue,4 the Court does not find that this exception to mootness applies.

Accordingly, the Court dismisses Plaintiffs’ CLRA, FAL, and UCL claims to the

extent they seek injunctive relief without prejudice.

B. Availability of an Adequate Remedy at Law

Defendants argue Plaintiffs are not entitled to the other equitable relief they

seek (declaratory relief, restitution, and disgorgement of profits) because “[n]owhere

in their Complaint do Plaintiffs allege an inadequate remedy at law or facts that would

support such an assertion.” (Mot. Dismiss at 22–23.) They are correct. “[A] federal

court must apply traditional equitable principles before awarding restitution under the

UCL and CLRA.” Sonner v. Premier Nutrition Corp., 971 F.3d 834, 841 (9th Cir. 2020).

This includes the equitable principle that in order to obtain an equitable remedy, a

plaintiff must lack an “adequate remedy at law.” Mort v. United States, 86 F.3d 890,

892 (9th Cir. 1996). Accordingly, a federal plaintiff must “establish that she lacks an

4 See California Senate Bill No. 478, S.B. 478, 2023–2024 Leg., Reg. Sess. (Cal. 2023), which, as Plaintiffs recognize, is intended to curb the pricing practices challenged here. (See Opp’n Mot. Dismiss at 2 (“There can be little doubt that California citizens will not be subject to such fees going forward . . . .”).) adequate remedy at law before securing equitable restitution for past harm under the

UCL and CLRA.”5 Sonner, 971 F.3d at 844.

Courts have differed somewhat as to what Sonner mandates at the pleading

stage. Some courts have required plaintiffs to plead specific facts establishing a lack

of adequate remedy at law. See, e.g., Watkins v. MGA Entertainment, Inc., 550 F.

Supp. 3d 815, 837 (N.D. Cal. 2021) (dismissing UCL claim where plaintiffs had not

alleged any facts establishing that their remedies at law were inadequate). However,

Sonner arose after a plaintiff voluntarily dismissed her damages claim on the eve of

trial and proceeded only with her “claims for restitution and injunctive relief” to

guarantee a bench trial. Sonner, 971 F.3d at 837. Because of Sonner’s advanced

posture, some courts decline to read it as requiring specific facts at the pleadings

stage. See, e.g., In re JUUL Labs, Inc., Mktg., Sales Pracs., & Prod. Liab. Litig., 497 F.

Supp. 3d 552, 638 (N.D. Cal. 2020) (“[t]he facts of Sonner—where the plaintiff on the

eve of trial sought to secure a bench trial under the UCL by foregoing CLRA damages

claims that had to be tried to a jury—are inapposite considering the allegations and the

posture of” a complaint this early in the case). Most district courts applying Sonner in

the Ninth Circuit have “understood it to require that a plaintiff must, at a minimum,

plead that she lacks adequate remedies at law if she seeks equitable relief.” Guthrie v.

Transamerica Life Ins. Co., 561 F. Supp. 3d 869, 875 (N.D. Cal. Sept. 23, 2021)

(emphasis in original) (collecting cases).

Here, Plaintiffs seek declaratory relief under the CLRA, restitution under the FAL

and UCL, and disgorgement of profits under the FAL and for unjust enrichment. (See

FAC ¶¶ 103, 116, 132, 148.) However, Plaintiffs do not allege that legal remedies are

inadequate. Instead, they argue that “Rule 8 allows Plaintiffs to plead in the

alternative, including alternative or different types of relief.” (Opp’n Mot. Dismiss at

16.) While this is true, under Sonner, Plaintiffs must at a minimum allege they have no

5 While Sonner’s holding was limited to restitution, district courts since have held that the inadequate remedy at law requirement applies to all forms of equitable relief. See Shay v. Apple Inc., No. 20-cv- 1629-GPC-BLM, 2021 WL 1733385, at *3 (S.D. Cal. May 3, 2021) (collecting cases). adequate remedy at law, even at the motion to dismiss stage. See Sonner, 971 F.3d at

844; see also Height St. Skilled Care, LLC v. Liberty Mut. Ins. Co., No. 1:21-cv-01247-

JLT-BAK-BAM, 2022 WL 1665220, at *7–9 (E.D. Cal. May 25, 2022) (“Because

[plaintiff]'s complaint contains no demonstration, explanation, or even allegation that

legal remedies would be inadequate as to its claim against [defendant], it cannot

survive dismissal.”); Lisner v. Sparc Grp. LLC, No. 2:21-CV-05713-AB-GJSx, 2021 WL

6284158, at *8 (C.D. Cal. Dec. 29, 2021) (“[T]he majority of district courts have held

that Sonner's reasoning applies at the pleading stage.”).

Because Plaintiffs fail to allege that they have no adequate remedy at law, the

Court dismisses Plaintiffs’ UCL, FAL, and unjust enrichment claims, and dismisses

Plaintiffs’ CLRA claim to the extent it seeks equitable remedies, with leave to amend.

III. Plaintiffs’ CLRA Claim

Plaintiffs claim Defendants violated California Civil Code §§ 1770(a)(9) and (20)

“when they represented, through their advertising and other express representations,

the price of the Crumbl Products with intent not to sell them at the advertised price

and without the legally required disclosures.” (FAC ¶¶ 92–93.) Plaintiffs allege that

Defendants’ actions were deceptive because they did not disclose the Service Fee to

consumers, bundled and hid the Service Fee within the “Taxes & Fees” line item in the

checkout page, and mislabeled the fee as a Service Fee when it is not connected to

any service provided by Crumbl. (Id. ¶¶ 28, 31–33, 36–40, 45–46.)

Defendants argue that, to state a claim under the CLRA, Plaintiffs must plausibly

allege that a reasonable consumer would be misled by the Service Fee. (Mot. Dismiss

at 15.) Defendants argue that Plaintiffs allegations do not meet this requirement

because they adequately disclosed the Service Fee during checkout, no reasonable

consumer would be misled by the inclusion of the Service Fee in the “Taxes & Fees”

line item, and they have no duty to disclose the reason for the fee. (Id. at 16–19.)

Defendants also argue sections 1770(a)(9) and (20) are inapplicable to Plaintiffs’ case.

(Id. at 19–21.) For the reasons discussed below, however, the Court declines to

dismiss Plaintiffs’ CLRA claim.

A. Reasonable Consumer Test

The CLRA prohibits “unfair or deceptive acts or practices.” Cal. Civ. Code

§ 1770. Together with the UCL and FAL, the CLRA prohibits “not only advertising

which is false, but also advertising which, although true, is either actually misleading

or which has a capacity, likelihood or tendency to deceive or confuse the public.”

Moore v. Mars Petcare US, Inc., 966 F.3d 1007, 1017 (9th Cir. 2020) (quoting Williams

v. Gerber Prods. Co., 552 F.3d 934, 938 (9th Cir. 2008)).

Violations of the CLRA are analyzed under the reasonable consumer test, which

requires a plaintiff to show “members of the public are likely to be deceived” by a

defendant's activity. Williams, 552 F.3d at 938 (citation omitted). The reasonable

consumer test requires more than a mere possibility that advertising “might

conceivably be misunderstood by some few consumers viewing it in an unreasonable

manner.” Ebner v. Fresh, Inc., 838 F.3d 958, 965 (9th Cir. 2016) (quoting Lavie v.

Procter & Gamble Co., 105 Cal. App. 4th 496, 508 (2003)). Rather, the reasonable

consumer test requires a probability “that a significant portion of the general

consuming public or of targeted consumers, acting reasonably in the circumstances,

could be misled.” Id. (citation omitted). The touchstone under this test is whether the

product labeling and ads promoting the product have a meaningful capacity to

deceive. McGinity v. Procter & Gamble Co., 69 F.4th 1093, 1097 (9th Cir. 2023).

Courts rarely grant a motion to dismiss for failure to satisfy this test in the initial

pleadings “[b]ecause what a reasonable person would believe is generally a question

of fact,” Rice-Sherman v. Big Heart Pet Brands, Inc., No. 19-03613, 2020 WL 1245130,

at *9 (N.D. Cal. Mar. 16, 2020), and at this stage, the court's focus is on the plausibility

of the legal theories, Iqbal, 556 U.S. at 679. However, “where plaintiffs base deceptive

advertising claims on unreasonable or fanciful interpretations of labels or other

advertising, dismissal on the pleadings may well be justified.” Moore v. Trader Joe's Co., 4 F.4th 874, 882–83 (9th Cir. 2021) (quoting Bell v. Publix Super Markets, Inc., 982

F.3d 468, 477 (7th Cir. 2020)). Taking Plaintiffs’ allegations as true and drawing all

reasonable inferences in their favor, as the Court must at this stage, the Court finds

Plaintiffs have satisfied the reasonable consumer test.

First, Plaintiffs allege that Defendants concealed the true price of their products

because they never disclosed the Service Fee in any signage, advertising, or

marketing materials, including their menu, official website, and App. (FAC ¶¶ 27, 37–

40, 71, 94.) Defendants argue they adequately disclosed the Service Fee because the

checkout screen showed the total amount the customer would be charged for the

transaction, including a breakdown of the product’s price, taxes, tips, and fees, and

the line item titled “Taxes & Fees” on the checkout screen included a “?” icon

customers could press to see the Service Fee’s percentage and precise amount. (Mot.

Dismiss at 16–17.)

The Court finds Crumbl’s failure to transparently disclose the Service Fee

concerning. Plaintiffs allege that Crumbl, which operates as a takeout restaurant

selling baked goods, does not provide services that would lead reasonable

consumers to expect the imposition of the Service Fee. (FAC ¶¶ 2, 20, 44.) Thus,

absent disclosure of the Service Fee before purchase, Plaintiffs allege consumers

could not reasonably be expected to anticipate the inclusion of a fee, supporting the

conclusion that “consumers are deceived into thinking their purchase will cost less at

the time they order it.” (Id. ¶¶ 44–46.)

The Court is inclined to agree. It is unclear what, if any, service customers

accessing the App to purchase cookies or beverages would expect to pay for, and

Defendants do not contest that Crumbl does not disclose the Service Fee anywhere

besides the checkout screen. By way of contrast, in Charbonnet v. Omni Hotels &

Resorts, No. 20-cv-01777-CAB-DEB, 2020 WL 7385828 (S.D. Cal. Dec. 16, 2020), the

court considered whether defendant’s pricing disclosures for its hotel rooms were

misleading when defendant did not include a $25 property fee in the advertised price. The court dismissed plaintiff’s claim and held that reasonable consumers could not be

deceived by defendant’s representations because defendant explicitly disclosed that

the daily rate advertised did not equal the total cost of the room, and that the total

price for the room would include taxes and fees, which “put a reasonable consumer

on notice that they would be charged some taxes and fees in addition to the daily rate

for the total price . . . before they even click [sic] ‘Reserve’ to take the first step toward

booking a room . . . .” 2020 WL 7385828, at *3.

Here, on the other hand, Plaintiffs received no notice of the Service Fee before

they arrived at the checkout screen and had to press on the “?” icon to discover they

were being charged the Service Fee. Thus, the fee was not clearly disclosed. Cf.

Wayne v. Staples, 135 Cal. App. 4th 466, 483–84 (2006) (upholding judgment in

defendant’s favor on plaintiff’s claim for deceptive marketing of declared value

coverage for parcel shipping because the shipping order form disclosed that

defendant would “surcharge the cost of this product as an administrative expense,”

and defendant disclosed the price it charged for the coverage prior to any purchase).

Therefore, the Court finds Plaintiffs have adequately pled Crumbl’s failure to disclose

the Service Fee was deceptive.

Second, Plaintiffs allege Defendants concealed the the Service Fee by bundling

it into the “Taxes & Fees” line item because no “reasonable consumer would expect

the ‘Taxes & Fees’ charged by Defendants to include an unlawful Service Fee in

addition to lawful state and local sales tax.” (FAC ¶¶ 33, 95.) Defendants argue this

assumption is unreasonable because the line item is labelled “Taxes & Fees,” not

merely “Taxes,” which put Plaintiffs on notice that a fee was being charged. (Mot.

Dismiss at 16.) Defendants argue that, under the precedent set by McGinity, where a

label is ambiguous, as opposed to false or misleading, courts must consider what

other information was available to the consumer, such as a product’s back label, to

determine whether a reasonable consumer would be misled. (Reply Mot. Dismiss

(ECF No. 31) at 3–4.) Here, Defendants argue that the “Fees” portion of “Taxes & Fees” was ambiguous; thus, a reasonable consumer would have investigated the

nature of the fees by clicking on the “?” icon to clarify that the fee in question was a

Service Fee. (Id. at 4–5.)

In McGinty, the Ninth Circuit dismissed plaintiffs’ deceptive advertising claims

concerning a label containing the words “Nature Fusion” on the front of a shampoo

bottle. 69 F.4th at 1099. The panel held that the label was ambiguous because

“[u]nlike a label declaring that a product is ‘100% natural’ or ‘all natural,’ the front

‘Nature Fusion’ label does not promise that the product is wholly natural . . . [or] make

any affirmative promise about what proportion of the ingredients are natural.” Id. at

1098. The court held that, when a product’s front label is ambiguous, as opposed to

deceptive, a court must consider other information available to the consumer, such as

the product’s side and back labels, to determine whether a reasonable consumer

would be deceived. Id. at 1099.

McGinty clarified prior Ninth Circuit precedent set by Williams, in which the

court considered whether Gerber's Fruit Juice snacks — which had a front label

bearing the words “fruit juice snacks,” alongside pictures of fruits — was misleading.

Id. at 936. The court held that it was misleading because the product did not contain

juice from the fruits pictured on the front and the most prominent ingredients listed

on the back label were corn syrup and sugar, as opposed to real fruit juice. Id. The

court explained that the purpose of the ingredient list on a back label is to confirm

representations made on the front, not to allow contradictory statements to be made

on the front while using the back label to correct such falsities. Id. at 939–40. The

McGinity court endorsed Williams but distinguished it on the ground that in McGinity,

the back label served to confirm what might be confusing on the front, while in

Williams the additional information was contradictory to the statements made on the

front label. 69 F.4th at 1095–99.

Accordingly, the rule in the Ninth Circuit appears to be as follows: where the

label of a product is ambiguous, meaning a reasonable consumer would realize the label could have more than one meaning, the court should consider other information

available to the consumer such as information on the back label of the product,

common consumer knowledge, and price to determine if a reasonable consumer

would be misled. See McGinity, 69 F.4th at 1095–99; see also Trader Joe's Co., 4 F.4th

at 883. On the other hand, where the front of the product creates more than mere

ambiguity, but instead misleads a consumer into thinking one thing that, in fact, is not

true, the consumer is not required to dig through other information to dispel that

falsity. Williams, 552 F.3d at 939–40.

Under this standard, the Court finds a reasonable consumer could be misled by

the “Taxes & Fees” line item here. As discussed above, Crumbl did not clearly

disclose that it would be charging consumers a Service Fee, so consumers had no

reason to expect that the fee in “Taxes & Fees” referred to a non-government-

imposed fee. Therefore, consumers may have been unaware of the ambiguous nature

of the “Fees” because they reasonably believed the “bundled ‘Taxes & Fees’ [they]

paid in addition to the retail price were the local and/or state sales taxes assessed on

any sale of goods.” (FAC ¶¶ 52, 62.) By bundling fees with taxes, Crumbl chose to

encourage, or at least not dispel, Plaintiffs’ misapprehension. In addition, the small

amount of the Service Fee made it unlikely that a reasonable consumer would notice

the addition of the fee and be compelled to investigate further. Therefore,

Defendants cannot now argue that Plaintiffs’ belief was entirely unreasonable. Given

that the “Taxes & Fees” line item was not clearly ambiguous, the Court need not

consider the clarification offered by the “?” icon in its analysis.

Crumbl argued vigorously at the hearing that no reasonable consumer would

believe that the “Fees” could be government-imposed fees in this context, contrasting

this matter to cases involving hotel bookings in which there often are government-

imposed fees. Defendants’ argument may ultimately prove correct. However, at this

early stage, the Court cannot say with certainty that a reasonable consumer would not

be misled because they would understand that “Fees” here would not include government-imposed fees. Defendants are free to revisit this argument following

discovery.

In sum, the Court concludes that Plaintiffs have adequately pled a reasonable

consumer could be misled by Defendants’ inclusion of the Service Fee under the

heading of “Taxes & Fees.” See Hall v. Marriott Int’l, No. 19-CV-1715-JLS-AHG, 2020

WL 4727069, at *9 (S.D. Cal. Aug. 14, 2020) (declining to dismiss plaintiff’s claim that

defendant misleadingly lumped a resort fee into the category of “Taxes and Fees,”

thereby suggesting the fee was government-imposed, because the court could not

conclude “as a matter of law that no reasonable consumer would be misled”).

Third, Plaintiffs allege that the label Service Fee is misleading because Crumbl

did not explain the nature of the fee being charged, did not identify what service the

fee was tied to, and allegedly used the fee to cover the costs of its operations. (FAC

¶¶ 26–28, 36, 43–46.) Defendants argue that Crumbl has no obligation to disclose or

explain what the profit generated by the Service Fee was used for. (Mot. Dismiss at

18.) Defendants point to Searle v. Wyndham International, Inc., 102 Cal. App. 4th

1327 (2002), wherein the court considered claims that a hotel's practice of adding a

17% service charge to all room service orders which was used to pay servers, in

conjunction with giving the guest a bill that included a blank line for a tip, was a

deceptive practice that induced patrons to pay gratuities they would not otherwise

feel obligated to provide. Id. at 1334. The court held that the practice was not

deceptive because the hotel had “no obligation to advise consumers about what it

does with the revenue it receives from them,” and the hotel's decision to compensate

its room service servers by way of the 17% service charge in no way interfered with the

patron's reasonable expectations with respect to tipping. Id. at 1335.

The Court agrees that the label Service Fee is not necessarily misleading. While

the label is somewhat ambiguous, as it is unclear what services the fee pays for,

Crumbl is not required to disclose those details consumers. As Defendants argue,

Crumbl has not made any representations regarding the nature of the Service Fee that can be construed as misrepresentations. (Reply Mot. Dismiss at 8.) This distinguishes

this case from Ehret v. Uber Technologies, Inc., 68 F. Supp. 1121 (N.D. Cal. 2014), in

which the court held that a fee charged to ride share passengers was misleading

because the fee was represented as a “gratuity” that was “automatically added for the

driver” when in reality a significant portion of the fee was retained by defendant as

profit. Id. at 1137. Here, as discussed above, Defendants have been largely silent

about the fee, failing to disclose the fee on their App and website, or in any signage or

advertising materials. Thus, they have not made misrepresentations about the nature

of the fee.

Accordingly, the Court finds the label Service Fee is not misleading. However,

given Defendants’ failure to disclose the fee, as well as their concealment of fee, the

Court holds that Plaintiffs have satisfied the reasonable consumer test.

B. Applicability of Statutory Provisions

Having concluded a reasonable consumer would be misled by the failure to

disclose and concealment of the Service Fee, the Court turns to application of the

specific statutory provisions at issue in this case. The CLRA prohibits a host of “unfair

methods of competition and unfair or deceptive acts or practices” involved in “the sale

or lease of goods or services to any consumer.” Cal. Civ. Code § 1770(a). Of note

here, the CLRA prohibits “[a]dvertising goods or services with intent not to sell them

as advertised.” Id. § 1770(a)(9). The CLRA also prohibits:

Advertising that a product is being offered at a specific price plus a specific percentage of that price unless (A) the total price is set forth in the advertisement, which may include, but

is not limited to, shelf tags, displays, and media advertising, in a size larger than any other price in that advertisement, and (B) the specific price plus a specific percentage of that

price r epresents a markup from the seller’s costs or from the wholesale price of the product.

////

//// Id. § 1770(a)(20). Plaintiffs argue Defendants’ advertising of their products’ prices

violates both these provisions. Defendants argue, however, that these provisions are

plainly inapplicable to Plaintiffs’ claims.

First, Defendants argue section 1770(a)(20) is inapplicable because the Service

Fee is not an addition to the price of the “product” as the statute prohibits but is rather

a separate charge for a service. (Mot. Dismiss at 20.) Defendants also argue that the

section is only applicable to advertising, which under Holt v. Noble House Hotels &

Resort, Ltd, 370 F. Supp. 3d 1158 (S.D. Cal. 2019), does not include restaurant menus.

(Mot. Dismiss at 20.) Thus, Defendants argue that Crumbl’s menu pricing, which does

not include the Service Fee, is not a violation of the CLRA. (Id.)

The Court finds that section 1770(a)(20) is applicable. Plaintiffs have alleged

that the Service Fee is not a true service charge but is rather a surcharge intended to

surreptitiously increase the price of Crumbl’s products by 2.95%. (See FAC ¶¶ 43–46.)

Taking Plaintiffs’ allegations as true, the Court finds that Plaintiffs have sufficiently

alleged the Service Fee is an addition to the price of Crumbl cookies and beverages.

Further, the Court finds that Plaintiffs are challenging the prices listed in the App and

on Crumbl’s official website. Unlike restaurant menus, which “are not public

announcements which are published or disseminated to the general public in an effort

to arouse a desire to buy or patronize,” Holt, 370 F. Supp. 3d at 1166, the App and

website are widely viewed by consumers and are the primary way Crumbl announces

its weekly rotating menu of specialty flavors to the public, a strategy designed to draw

in consumers and encourage frequent purchases. (See FAC ¶¶ 2, 21, 23.) Thus,

Plaintiffs have sufficiently alleged a claim against Crumbl’s advertising practices.

Second, Defendants argue section 1770(a)(9) is inapplicable because Crumbl

intends to sell its “goods” and separate “services” exactly as advertised, with prices

listed for each food and drink item, and the price of the separate service determined

by a fixed percentage of the customer’s total order. (Mot. Dismiss at 21.) However, as

the Court indicated above, Plaintiffs have sufficiently alleged Crumbl advertises one price for its products while also surreptitiously charging a higher price by adding the

Service Fee. Thus, Plaintiffs have sufficiently alleged Crumbl advertises their goods

with the intent not to sell them as advertised.

In sum, the Court will not dismiss Plaintiffs’ CLRA claim for damages.

IV. Plaintiffs’ Fraudulent Misrepresentation Claim

Under California law, to succeed on a claim for fraudulent misrepresentation, a

plaintiff must show: “(1) misrepresentation; (2) knowledge of falsity; (3) intent to

defraud, i.e., to induce reliance; (4) justifiable reliance; and (5) resulting damage.”

UMG Recording, Inc. v. Bertelsmann AG, 479 F.3d 1078, 1096 (9th Cir. 2007). Fraud-

based claims are subject to Rule 9(b)’s heightened pleading standard. See Fed. R.

Civ. P. 9(b). “In alleging fraud or mistake, a party must state with particularity the

circumstances constituting fraud or mistake.” Id. However, “[m]alice, intent,

knowledge, and other conditions of a person's mind may be alleged generally.” Id.

Plaintiffs allege Defendants fraudulently represented that they charged the

posted retail price for their products while actually charging a uniformly higher price

due to the Service Fee. (FAC ¶¶ 134–40.) Defendants argue that this claim must be

dismissed because Plaintiffs have failed to adequately plead misrepresentation,

knowledge of falsity, intent, or reliance. (Mot. Dismiss at 23–26.)

The Court finds that Plaintiffs have sufficiently alleged misrepresentation.

Plaintiffs allege that the Service Fee is a hidden surcharge on Crumbl’s products.

(FAC ¶¶ 26, 28, 43–46.) Accordingly, Plaintiffs allege Defendants fraudulently

represented to consumers that they would be charged one price for Crumbl’s

products while uniformly charging them a higher price. (Id. ¶ 43.) As part of this

misrepresentation, Plaintiffs also allege that Crumbl failed to disclose the Service Fee

on any signage, advertising materials, etc., before consumers reached the checkout

screen, and concealed the Service Fee by bundling it into the “Taxes & Fees” line item

at checkout where consumers would need to click the “?” icon to discover the

existence of the Service Fee (as opposed to other possible fees) and amount of the fee.6 (Id. ¶¶ 27–28, 30–40.) The Court finds, based on these allegations, that Plaintiffs

have sufficiently alleged an affirmative misrepresentation.

The Court also finds that the scienter requirement is met because Plaintiffs

allege that Crumbl, as designer and operator of the App, had knowledge that a

Service Fee was imposed on all purchases (FAC ¶¶ 29, 41, 42), and knew that this

meant each product was charged at a higher rate than its advertised menu prices (id.

¶ 69). The intent requirement is also met because Plaintiffs allege that Defendants hid

the Service Fee in order to convince consumers that the price of the product had not

changed and induce them to buy the products at the lower price while still increasing

Crumbl’s revenues. (Id. ¶ 46.)

Finally, the Court also finds Plaintiffs have adequately pled justifiable reliance.

A plaintiff suing for fraudulent misrepresentation must show both (1) actual reliance,

i.e., the matter was material in the sense that a reasonable person would find it

important in determining how he or she would act; and (2) reasonable reliance, i.e., it

was reasonable for the plaintiff to have relied on the misrepresentation. Hoffman v.

162 North Wolfe LLC, 228 Cal. App. 4th 1178, 1194 (2014).

Actual reliance. A plaintiff suing for fraudulent misrepresentation “must

demonstrate actual reliance on the allegedly deceptive or misleading statements” and

“that the misrepresentation was an immediate cause of the injury-producing conduct.”

In re Tobacco II Cases, 46 Cal. 4th 298, 306, 326 (2009); see also Mirkin v. Wasserman,

5 Cal. 4th 1082, 1097 (1993) (actual reliance on a misrepresentation is an element of a

common law cause of action for fraud or misrepresentation).

Actual reliance occurs when a misrepresentation is an immediate cause of [a plaintiff's] conduct, which alters his legal relations, and when, absent such representation, he

6 Defendants argue that Plaintiffs must allege a duty to disclose in order to claim to fraudulent misrepresentation based on either concealment or nondisclosure. (Mot. Dismiss at 24.) However, as Plaintiffs correctly point out, “[w]hile a claim for fraudulent concealment requires a duty to disclose, a claim for affirmative misrepresentation does not.” Immobiliare, LLC v. Westcor Land Title Ins. Co., 424 F. Supp. 3d 882, 889–90 (E.D. Cal. 2019). As Plaintiffs allege an affirmative misrepresentation, they need not allege a duty to disclose. would not, in all reasonable probability, have entered into the contract or other transaction. It is not . . . necessary that [a plaintiff's] reliance upon the truth of the fraudulent

misrepresentation be the sole or even the predominant or decisive factor in influencing his conduct . . . . It is enough that the representation has played a substantial part, and so has been a substantial factor, in influencing his decision.

Engalla v. Permanente Medical Group, Inc., 15 Cal. 4th 951, 976–77 (1997) (quotations

and citations omitted).

A presumption, or at least an inference, of reliance arises wherever there is a

showing that a misrepresentation was material. Id. at 977. A misrepresentation is

judged to be material if a reasonable person would attach importance to its existence

or nonexistence in determining his choice of action in the transaction in question. Id.

Materiality is generally a question of fact unless the fact misrepresented is so

obviously unimportant that the jury could not reasonably find that a reasonable man

would have been influenced by it. Id.

Here, the alleged misrepresentation was that Crumbl’s products were priced as

shown on Crumbl’s menu, while in actuality Crumbl tacked on a 2.95% surcharge.

Defendants argue that Plaintiffs have not pled materiality because a purchaser of a

gourmet cookie would be unlikely to find an extra 2.95% fee important in determining

whether to purchase the cookie. (Mot. Dismiss at 25–26.) The Court cannot say, at this

early stage, whether such a price differential would be material to a purchaser or not.

Plaintiffs allege that they “purchased Crumbl’s products in reliance on the menu’s

pricing as set out on the Crumbl App.” (FAC ¶¶ 55, 65.) Plaintiffs have sufficiently

pled actual reliance.

Reasonable Reliance. Besides actual reliance, a plaintiff must also show

reasonable reliance, i.e., circumstances were such to make it reasonable for the

plaintiff to accept the defendant's statements without an independent inquiry or

investigation. OCM Principal Opportunities Fund, L.P. v. CIBC World Markets Corp.,

157 Cal. App. 4th 835, 864 (2007). The reasonableness of the plaintiff's reliance is judged by the plaintiff's knowledge and experience and is typically a question of fact.

Id. at 864–65.

Plaintiffs have alleged that, prior to making their purchases, they reviewed the

menu and other information displayed in the App but did not see any disclosure of

the Service Fee. (FAC ¶¶ 50, 60.) Further, Plaintiffs allege they reviewed their order in

the App before making their purchase but did not see the Service Fee. (Id. ¶¶ 51, 61.)

Finally, in making their purchases, Plaintiffs alleged they “reasonably believed the

bundled ‘Taxes & Fees’ [they] paid in addition to the retail price were the local and/or

state sales taxes assessed on any sale of goods.” (Id. ¶¶ 52, 62.) Taking these

allegations as true, the Court finds that Plaintiffs have adequately pled they

reasonable relied on the prices listed in Crumbl’s menu when making their purchases.

Accordingly, the Court finds that Plaintiffs have adequately alleged their

fraudulent misrepresentation claim and will deny dismissal as to this claim.

V. Claims on Behalf of a Nationwide Class

Plaintiffs seek to bring their fraudulent misrepresentation and unjust

enrichment/quasi-contract claims on behalf of a Nationwide Class. (FAC ¶¶ 133–48.)

Plaintiffs do not specify which state’s laws apply to these two common law claims. Id.

Defendants argue that Plaintiffs cannot pursue these claims on behalf of class

members nationwide, however, because Defendants are Utah limited liabilities

companies and California law “cannot apply where the claims of absent class

members and the defendant have no connection to the state.” (Mot. Dismiss at 27.)

Additionally, Defendants argue Plaintiffs lack standing to assert these claims under the

laws of other states. (Id. at 28–29.)

The Court concludes that dismissing Plaintiffs’ nationwide class claims at this

stage would be premature. Although Defendants may ultimately prove correct in

their argument that California law cannot be applied to out-of-state purchases made

by out-of-state consumers, whether this is so depends, in substantial part, on a case-

specific choice-of-law analysis that the Parties and the Court have yet to undertake. See Mazza v. Am. Honda Motor Co., 666 F.3d 581, 589–94 (9th Cir. 2012), overruled

on other grounds by Olean Wholesale Grocery Coop., Inc. v. Bumble Bee Foods LLC,

31 F.4th 651 (9th Cir. 2022) (whether out-of-state class members must pursue claims

under their own states’ consumer protection statutes and unjust enrichment laws

instead of California’s depends on a multi-stage choice-of-law analysis specific to the

“facts and circumstances” of the particular case); see also Figy v. Lifeway Foods, Inc.,

No. 13-cv-04828-THE, 2016 WL 4364225, at *6–7 (N.D. Cal. Aug. 16, 2016) (declining

to strike nationwide class allegations at the pleading stage in light of parties’ failure to

conduct choice-of-law analysis); Werdebaugh v. Blue Diamond Growers, No. 12–CV–

02724–LHK, 2013 WL 5487236, at *16 (N.D. Cal. Oct. 2, 2013) (same). Accordingly,

the Court will reserve judgment on this issue for the class certification stage.

The Court will also reserve judgment as to whether Plaintiffs have standing to

assert claims under the laws of other states. District courts in this circuit are split on

“whether a named plaintiff in a putative class action has standing to assert claims

under the laws of states where the named plaintiff does not reside or was injured.”

Sultanis v. Champion Petfoods United States Inc., No. 21-cv-00162-EMC, 2021 WL

3373934, at *5 (N.D. Cal. Aug. 3, 2021). “On the one hand, most courts have held that

plaintiffs can only bring claims on behalf of other consumers in states where they

‘were injured or had any pertinent connection.’” Id. (collecting cases). “A growing

minority of courts in this circuit have held, conversely, that whether a named plaintiff

can represent class members whose claims arise under the laws of different states is

not a standing question that needs to be decided at the motion to dismiss stage.” Id.

(collecting cases). Ultimately, the decision to address this issue on a motion to dismiss

or defer until a motion for class certification “is left to the district court's discretion.”

Effinger v. Ancient Organics LLC, No. 22-cv-03596-RS, 2023 WL 2214168, at *6 (N.D.

Cal. Feb. 24, 2023); see also McKinney v. Corsair Gaming, Inc., No. 22-cv-00312-CRB,

2022 WL 2820097, at *12 (N.D. Cal. July 19, 2022) (collecting cases). Given that it is

unclear what law the Court must apply, the Court finds that the question of whether Plaintiffs can bring claims under the laws of non-California states is better suited for a motion for class certification. Accordingly, the Court will not dismiss the nationwide claims at this juncture. In accordance with the above, it is hereby ORDERED that Defendants’ Motion to Dismiss (ECF No. 24) is GRANTED in part and DENIED in part as follows: 1. Plaintiffs’ first cause of action under the CLRA is DISMISSED to the extent it seeks equitable remedies, with leave to amend; 2. Plaintiffs’ second cause of action under the FAL is DISMISSED in its entirety with leave to amend; 3. Plaintiffs’ third cause of action under the UCL is DISMISSED in its entirety with leave to amend; 4. Plaintiffs’ fifth cause of action for unjust enrichment/quasi-contract is DISMISSED in its entirety with leave to amend; 5. The Court declines to dismiss Plaintiffs’ first cause of action under the CLRA to the extent it seeks damages; 6. The Court declines to dismiss Plaintiffs’ fourth cause of action for fraudulent misrepresentation; and 7. Plaintiffs are granted thirty (30) days to file an amended complaint. IT IS SO ORDERED. Dated: _June 7, 2024 “Darel A Ch brett Hon. Daniel alabretta UNITED STATES DISTRICT JUDGE DJC4- Watson23-cv-1770.MTD IA