Class Action Failed to Allege Violation of California’s Unfair Competition Law (UCL) based on Merchant’s Refusal to Redeem Gift Card for Cash because California Law gives Merchant Option Whether to Redeem (So Long as Gift Card Value Less than $10) California Federal Court Holds
Plaintiff filed a putative class action in California state court against McDonald’s alleging violations of California’s Unfair Competition Law (UCL) and unjust enrichment. Marilao v. McDonald’s CORP., 632 F.Supp.2d 1008, 1009-10 (S.D. Cal. 2009). According to the allegations underlying the class action complaint, plaintiff sought “to redeem a gift card he received for cash instead of dining at McDonald’s, but was told…that he could not receive cash for his gift card.” Id., at 1010. The class action complaint further alleged that “McDonald’s gift cards provide…‘[t]he value on this card may not be redeemed for cash … unless required by law.’” Id. Defense attorneys removed the class action to federal court under the Class Action Fairness Act of 2005 (CAFA), id., at 1009-10. McDonald’s then moved to dismiss the class action for failure to state a claim, id., at 1010. The district court granted the motion and dismissed the class action with leave to amend.
With respect to the class action’s UCL claim, plaintiff alleged that McDonald’s conduct violated California Civil Code § 1749.5(b)(1), which provides that “[a]ny gift certificate sold after January 1, 1997, is redeemable in cash for its cash value, or subject to replacement with a new gift certificate at no cost to the purchaser or holder.” Marilao, at 1011. However, California Civil Code § 1448 provides, “If an obligation requires the performance of one of two acts, in the alternative, the party required to perform has the right of selection, unless it is otherwise provided by the terms of the obligation.” In this case, then, the district court reasoned, McDonald’s had the option of “either redeeming a gift card in cash for its cash value or by replacing a gift card with a new card at no cost to the purchaser or holder.” Marilao, at 1011. The statute relied upon by plaintiff does not compel a contrary finding, so McDonald’s did not violate § 1749.5(b)(1) by refusing to redeem plaintiff’s gift card for cash. Id., at 1011-12. The court stressed that the class action did not implicate § 1749.5(b)(2), added in 2007, which requires merchants to redeem gift certificates with a cash value of less than $10, id., at 1012. The federal court also agreed with defense attorneys that plaintiff lacked standing to assert the class action’s UCL claim because he had not suffered injury in fact, or lost money or property, as a result of the allegedly unfair act. Id., at 1012. The court explained at page 1013, “Plaintiff did not expend money on his gift card, as he alleges that he received it as a gift…. Plaintiff does not allege that he lost money or property, as his gift card still retains its value to redeem it for McDonald’s products. Plaintiff also does not sufficiently allege that he has been denied money to which he has a cognizable claim, as Plaintiff is not entitled to redeem his McDonald’s gift card for cash whenever presented to McDonald’s under § 1749.5(b)(1). Accordingly, the Court concludes that Plaintiff fails to sufficiently allege his standing to bring a claim under the UCL.”
With respect to the class action’s unjust enrichment claim, plaintiff argued that McDonald’s nationwide policy of barring gift card users from redeeming balances for cash “has dramatically increased the probability that card users will end up with partial and essentially unusable balances, which funds all revert to McDonald’s.” Marilao, at 1013. The federal court rejected the argument because that the unjust enrichment claim was founded on the assumption “that McDonald’s unfairly and unlawfully refuses to give cash refunds on unused gift card balances in violation of § 1749.5(b)(1).” Id. Because the court had rejected that argument, the unjust enrichment claim also failed. Id. Accordingly, the district court granted McDonald’s motion to dismiss, but granted plaintiff 30 days leave to amend his class action complaint.
NOTE: Plaintiff’s amended class action complaint alleged that he had attempted to redeem $5 in gift cards yet McDonald’s refused. The district court found that this adequately pleaded a UCL claim under § 1749.5(b)(2), which requires merchants to redeem gift certificates with a cash value of less than $10, and that plaintiff had standing to assert the UCL class action claim because he adequately alleged that he lost money or property to which he was lawfully entitled. Moreover, as amended, the class action complaint adequately alleged a claim for unjust enrichment. The court order on McDonald’s motion to dismiss the amended class action complaint may be found here.