Case Name:   Peter Ogtanyan v. Google Inc., et al.

Case No.:       1-14-CV-259301

 

Plaintiff Peter Ogtanyan (“Plaintiff”) alleges that defendant Google Inc. (“Defendant” or “Google”) improperly terminated his account with Defendant’s AdSense program, ostensibly for encouraging accidental clicks on ads displayed on Plaintiff’s web site, and refused to pay him nearly a million dollars in advertising revenue owed under the parties’ agreement.  (Complaint, ¶¶ 1, 2, and 26.)  He filed this action on January 17, 2014, asserting claims for: (1) breach of contract; (2) breach of duty of good faith and fair dealing; (3) promissory estoppel; and (4) violation of Business and Professions Code section 17200, et seq.

 

Currently before the Court are (1) Defendant’s demurrer on the ground that each cause of action in Plaintiff’s complaint fails to state a claim (Code Civ. Proc., § 430.10, subd. (e)) and (2) Defendant’s motion to disqualify Gutride Safier LLP as Plaintiff’s counsel.

 

Demurrer

 

The demurrer to the first cause of action for breach of contract and the second cause of action for breach of the duty of good faith and fair dealing is OVERRULED.  Defendant initially argues that the parties’ contract provides that it may terminate Plaintiff’s account for any reason.  However, as Defendant admits, the complaint also alleges that the payments owed to Plaintiff under the contract will only be discontinued under specified circumstances that were not present here.  (Complaint, ¶¶ 12 [plaintiff “will receive a payment related to the number of valid clicks … or other valid events performed in connection with the display of Ads on [his] Properties, in each case as determined by Google”], 13 [“If we terminate the Agreement due to your breach or due to invalid activity, we may withhold unpaid amounts or charge back your account …”], and 20 [Plaintiff complied with Defendant’s requirements].)  Defendant contends that it had discretion to determine whether Plaintiff was owed any payments under the parties’ contract; however, its discretion was not unlimited, but was required to be exercised either in good faith or in an objectively reasonable fashion.  (See Storek & Storek, Inc. v. Citicorp Real Estate, Inc. (2002) 100 Cal. App. 4th 44, 58-59 [rejecting argument that defendant had “absolute discretion” under a contract “condition[ed] upon the fulfillment of a condition precedent, namely, [defendant’s] satisfaction that the project budget was in balance”; “When, as here, a contract provides that the satisfaction of one of the parties is a condition precedent to that party’s performance, two different  tests are recognized: (1) the party may make a purely subjective decision but it must be made in good faith; or (2) the party must make the decision in accordance with an objective standard of reasonableness.”]; cf. Carma Developers (Cal.), Inc. v. Marathon Development California, Inc. (1992) 2 Cal. 4th 342, 353-354, 376 [no breach of the duty of good faith where contract expressly provided that if lessee requested to sublease, lessor could terminate the lease and enter into a new lease with the proposed transferee or another party, in which event the lessee would receive none of the profit but would be relieved of further obligation to the lessor].)

 

In addition, Defendant contends that the complaint acknowledges that Defendant did not retain advertiser payments associated with Plaintiff’s account, which Defendant argues is a condition to its obligation to pay Plaintiff under the parties’ contract.  As an initial matter, as urged by Plaintiff, the complaint states only that Defendant informed Plaintiff that it would return payments to affected advertisers, not that Defendant actually did so.  (Complaint, ¶ 27.)  Further, Defendant’s retention of advertiser payments is not an absolute condition to Plainitff’s right to payment under the parties’ contract.  (See Complaint, ¶ 12 [“Payments to you may be withheld to reflect or adjusted to exclude any amounts refunded or credited to advertisers …”].)  Finally, Plaintiff alleges that Defendant’s determination that he breached the parties’ contract, which Defendant cited as the reason for its decision to return affected advertiser payments, was made in violation of its duty of good faith and fair dealing under the contract.  Thus, even if Defendant’s retention of payments were a condition to Plaintiff’s right to payment, Defendant cannot rely on it to defeat Plaintiff’s breach of contract claim on demurrer.  (See Rest.2d Contracts, § 230(2)(a) [where contract provides that the occurrence of an event will terminate an obligator’s duty, such duty is not discharged if the occurrence of the event is the result of a breach by the obligor of his duty of good faith and fair dealing].)

 

The demurrer to the third cause of action for promissory estoppel is SUSTAINED WITH 10 DAYS’ LEAVE TO AMEND.  This claim relies on the same promise that supports Plaintiff’s breach of contract claim: Defendant’s promise “to pay [Plaintiff] for valid activity in connection with [his web site’s] display of AdSense advertisements.”  (Complaint, ¶ 40.)  The parties do not dispute that promissory estoppel ultimately would not apply to a promise made as part of a valid contract supported by consideration.  (See Youngman v. Nevada Irrigation Dist. (1969) 70 Cal.2d 240, 249 [doctrine inapplicable where “the promisee’s performance was requested at the time the promisor” made a promise of its own, “and that performance was bargained for”].)  Nevertheless, Plaintiff contends that he is entitled to plead promissory estoppel as an alternate theory in case his breach of contract claim ultimately fails.  Plaintiff’s contention, however, is incorrect, and it is appropriate to sustain a demurrer to a claim for promissory estoppel where it is clear the promise alleged was made as part of a bargained-for agreement.  (See id. at pp. 249-251 [trial court properly sustained demurrer to promissory estoppel claim where promise upon which it was based was part of alleged employment contract]; San Diego City Firefighters, Local 145 v. Bd. of Admin. of San Diego City Emples. Ret. Sys. (2012) 206 Cal.App.4th 594, 619 [demurrer to promissory estoppel claim  appropriately sustained where promise alleged was made pursuant to a written instrument supported by consideration]; Fontenot v. Wells Fargo Bank, N.A. (2011) 198 Cal.App.4th 256, 275 [affirming order sustaining demurrer to claim for promissory estoppel where promise alleged was made as part of a written forbearance agreement; “[A] plaintiff cannot state a claim for promissory estoppel when the promise was given in return for proper consideration. The claim instead must be pleaded as one for breach of the bargained-for contract.”].)  The cases cited by Plaintiff, which, with one exception (see Swinerton & Walberg Co. v. City of Inglewood-L.A. County Civic Center Authority (1974) 40 Cal.App.3d 98, 103-105 [holding complaint, which did not assert a separate claim for breach of contract, adequately stated a claim for promissory estoppel]), do not arise in the context of a demurrer, are not to the contrary.  Here, Plaintiff’s allegation that Defendant promised to pay him in exchange for his display of advertisements demonstrates that Defendant’s promise was made in the context of a bargained-for exchange, which forms the basis for Plaintiff’s breach of contract claim.

 

The demurrer to the fourth cause of action for violation of Business and Professions Code section 17200, et seq. is OVERRULED.  Defendant contends that such a cause of action is not supported by allegations amounting merely to claims that it breached the parties’ contract and corresponding implied covenant of good faith and fair dealing.  However, a breach of contract may form the predicate for section 17200 claims where it also constitutes conduct that is unlawful, unfair, or fraudulent.  (Puentes v. Wells Fargo Home Mortgage, Inc. (2008) 160 Cal.App.4th 638, 645; see also Allied Grape Growers v. Bronco Wine Co. (1988) 203 Cal. App. 3d 432, 452 [rejecting defendant’s contention that “because [plaintiff] was a single entity operating under a single contract with [defendant], it is impossible as a matter of law for [plaintiff] to show that [defendant’s] … policies constituted a ‘business practice’ as required by section 17200”].)  Here, Plaintiff alleges that Defendant violated California law by breaching the parties’ agreement and associated covenant of good faith and fair dealing (Complaint, ¶ 44(a), (b), (d), and (e)) and “unfairly appl[ied] its policies … selectively against Plaintiff (while permitting other publishers to display advertisements in the same manner [as Plaintiff])” (Complaint, ¶ 44(c); see also Complaint, ¶¶ 21-24 [alleging additional facts and providing screenshot comparisons in support of this theory]).

 

These allegations do not state a claim under section 17200’s “unlawful” prong, because Plaintiff does not identify any manner in which Defendant’s actions violated California law other than through the underlying breach of contract.  (See Puentes v. Wells Fargo Home Mortgage, Inc., supra, 160 Cal.App.4th at p. 645 [breach of contract standing alone inadequate to support a section 17200 claim]; Khoury v. Maly’s of California, Inc. (1993) 14 Cal.App.4th 612, 619 [demurrer properly sustained where “[t]he complaint does not describe the manner in which respondent’s practice is ‘unlawful’”].)

 

However, Plaintiff’s second theory, that Defendant unfairly applied it policies selectively against Plainitff, supports a claim under section 17200’s “unfair” prong.  (See Linear Technology Corp. v. Applied Materials, Inc. (2007) 152 Cal.App.4th 115, 134-135 [“Whether a practice is deceptive, fraudulent, or unfair is generally a question of fact which requires consideration and weighing of evidence from both sides and which usually cannot be made on demurrer.”], internal quotation omitted.)  The courts are not in agreement as to what constitutes an “unfair” business practice generally, and have applied different standards in the context of “consumer” claims and claims brought by a “competitor” of the defendant.  (See generally Paulus v. Bob Lynch Ford, Inc. (2006) 139 Cal.App.4th 659, 679-680.)  However, even applying the strict “competitor” standard, the Court cannot say on demurrer that Defendant’s actions as alleged by Plaintiff do not “significantly threaten[] or harm[] competition” as required to state a claim for violation of section 17200.  (Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163, 186-187.)

 

Courts have held that claims alleging systemic breaches of consumer contracts state a claim under section 17200’s “unfair” prong.  (See Arce v. Kaiser Foundation Health Plan, Inc. (2010) 181 Cal.App.4th 471, 489-490 [allegations that Kaiser systematically breached its health plan contract by categorically denying coverage for behavioral and speech therapies for autistic patients without determining whether the services were medically necessary for individual plan members stated a section 17200 claim]; Marolda v. Symantec Corp. (N.D. Cal. 2009) 672 F.Supp.2d 992, 1005 [plaintiff stated a claim under section 17200 by alleging defendant systemically breached consumer contracts by delivering software upgrades with additional, redundant renewal features].)  On the other hand, the Sixth District has held, in a case involving a claim by a corporate contractual partner rather than a traditional “consumer” or “competitor” claim, that “where a [section 17200] UCL action is based on contracts not involving either the public in general or individual consumers who are parties to the contract, a corporate plaintiff may not rely on the UCL for the relief it seeks.”  (Linear Technology Corp. v. Applied Materials, Inc., supra,  152 Cal.App.4th at p. 135 (hereinafter, “Linear Technology”) [trial court properly sustained demurrer where semiconductor manufacturer alleged defendant equipment supplier failed to disclose that equipment sold to plaintiff was involved in a patent infringement action, and third party subsequently sued plaintiff for patent infringement].)  Plaintiff’s circumstances fall somewhere in between these scenarios: while he does not bring his claim as a traditional “consumer” or “competitor,” he also does not seek to act as a representative for other “sophisticated corporate customers” who have their own, potentially unique contracts with the defendant and who may wish to seek other forms of relief on their own, like the plaintiff in Linear Technology.  (See id. at p. 135; Complaint, ¶ 11 [“[Defendant] unilaterally drafts all contracts, polices, procedures, and guidelines governing the relationship between [it] and AdSense publishers” such as Plaintiff].)

 

While the Court is unaware of any case where a claim alleging “selective” breach of contract against one of many similar contractual partners was discussed, this is not a basis to reject such a claim (see Allied Grape Growers v. Bronco Wine Co., supra, 203 Cal.App.3d at p. 450 [contention that activity is not unfair because no reported case has so found “borders on the frivolous”]), which does implicate an “unfairness” beyond a mere breach of contract.  Here, Plaintiff alleges conduct that would impact his ability to compete with other publishers and that amounts to an egregious rather than a technical breach of contract.  He consequently states a claim for unfair business practices.  (See id. at pp. 438, 453 [affirming judgment for cooperative of grape sellers and holding that grape crusher’s breach of contract was an unfair business practice where evidence showed that grape crusher initiated policy of “downgrading” certain grapes in order to avoid purchasing the amount it had agreed to under the parties’ contract]; see also Cabo Brands, Inc. v. MAS Beverages, Inc. (C.D. Cal., June 5, 2012, No. 8:11–cv–1911–ODW(ANx)) [2012 WL 2054923, *5] [allegations that defendant business partner enjoyed the benefits of the parties’ contract without carrying out its obligations thereinunder stated a claim under section 17200].)

 

Motion to Disqualify

 

Defendant moves to disqualify Plaintiff’s counsel Gutride Safier LLP (“GS”) on the independent grounds that (1) GS has a disqualifying conflict of interest because through prior representations its attorneys gained confidential information material to this litigation and (2) the prior representations are substantially related to this case.  Plaintiff argues that GS’s current representation is unrelated to its attorneys’ prior representations of Defendant, either factually or legally; that the nature of its attorneys’ prior representations of Defendant were limited in nature; and that GS adopted an “ethical screen” to adequately protect Defendant’s interests.

 

Here, Plaintiff is represented by GS, a seven-attorney law firm.  Two of GS’s attorneys—Todd Kennedy, Esq. (“Kennedy”), and Marie McCrary, Esq. (“McCrary”), were formerly attorneys at the law firm of Quinn Emanuel Urquhart & Sullivan, LLP (“QEUS”).  McCrary is one of the attorneys of record in the present case.  Defendant asserts that while Kennedy was an attorney at QEUS he worked extensively on matters for Google, billing more that 3000 hours over three years for this representation—approximately one-half of which was devoted to the AdSense program which is the subject of Plaintiff’s current contract dispute.  Defendant also asserts that McCrary also represented Google in an AdSense case.

 

Defendant and Plaintiff have submitted factual declarations in support of their respective motion and opposition.  Defendant asserts that Kennedy and McCrary were exposed to Google’s confidential information in their prior capacity as attorneys for QEUS and that even if this were not the case there is a presumption that confidential information was disclosed in light of the substantial relationship between the prior representations and the current action.  Defendants argue that the substantial relationship is borne of the fact that the prior representations involved exposure to and knowledge of Google’s confidential AdSense technology, operating system, and financial data.  Defendant points out that protective orders were entered in the prior matters, with documents being produced for “attorneys eyes only.”  Plaintiff counters that GS has erected an “ethical wall” to avoid any conflict of interest, and points out that Kennedy is not is not working on the present case.

 

Defendant contends that Plaintiff has violated its ethical duties by taking on the representation of Google in violation of California Rules of Professional Conduct,
rule 3-310(E) (“Avoiding the Representation of Adverse Interests”).  In a situation of successive representations such as that presented herein, if the attorney without informed written consent “undertakes to represent the adversary, the former client may disqualify the attorney by showing a ‘substantial relationship’ between the subjects of the prior and the current representations.”  (See City and County of San Francisco v. Cobra Solutions, Inc. (2006) 38 Cal.4th 839, 847; internal quotations and citation omitted.)  Here, it is undisputed that Kennedy and McCrary previously provided legal services on behalf of Google—the defending in this action.  Defendant has persuasively established through its evidentiary submissions that Kennedy and McCrary were exposed to confidential information concerning the AdSense program that is material to the current litigation. Defendant has also established that the professional services that each provided to Google concerned legal matters that are closely related to those presented in GS’s current representation, to wit: the internal systemic workings and administration handling of the AdSense program.  Plaintiff’s argument that any such conflict should not disqualify the entire GS law firm is unavailing.  (Ibid, see also People ex rel. Department of Corrections v. SpeeDee Oil Change Systems, Inc. (1999) 20 Cal.4th 1135, 1153.)  Under these circumstances, a “substantial relationship” exists between the prior and current representations; accordingly, Defendant’s motion to disqualify is GRANTED.