Murray, Stok v. Recall Secure Destruction

Filed 1/19/10 Murray, Stok v. Recall Secure Destruction CA1/3

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FIRST APPELLATE DISTRICT

DIVISION THREE

Plaintiff Murray, Stok & Company (Murray) appeals from a judgment entered in favor of defendant Recall Secure Destruction Services, Inc. (Recall) on its complaint for restitution and injunctive relief under the unfair competition law (Bus. & Prof. Code,[1]  17200 et seq.) and the false advertising law ( 17500 et seq.). Murray contends that the trial court erred in concluding that Recalls addition of a security administration fee on its invoices was not a deceptive business practice. We shall affirm.

Factual and Procedural Background

Murray is a certified public accounting firm located in San Francisco. Recall is a national document and data storage and destruction company. In June 2001, Murray entered into a service agreement with Recall for the secure destruction of its documents and data. Under the terms of the agreement, Recall placed a 64-gallon bin at Murrays office and returned to pick up and destroy its contents on a regular basis. Recall sent Murray an invoice following each collection or bin tip certifying that the contents had been destroyed under strict security conditions. Between July 2001 and March 2003, the invoices received and paid by Murray indicated that Murray had been charged $45 per bin tip. Beginning in March 2003, Recall began adding to each invoice a $15 security administration fee in addition to the $45 bin tip charge. The $15 was a flat fee applied per invoice. Until March 2007, without making any objection or raising any questions concerning the additional fee, Murray paid the invoices in full, including the security fee.

On November 3, 2007, Murray filed a complaint against Recall alleging causes of action under sections 17200 and 17500. Murray purported to represent a class of consumers who obtained document and data destruction services from Recall and who were deceived into paying the security administration fee in connection with those services. The complaint alleges that The inclusion of the security fee on the invoices and service agreements was and is fraudulent, unfair and deceptive because, among other things: (a) it expressly or impliedly represents that the security fee bears a direct relationship to defendants costs for security, when it does not; (b) it expressly or impliedly represents that the amount charged to each customer was and is based on defendants actual security costs for that customers service, when it bears no rational relationship to said costs; (c) it expressly or impliedly represents that defendants are providing security services above and beyond the security services included within the service charge the customer has agreed to pay; (d) it expressly or impliedly represents that the revenue from the security fee pays and paid only for security costs rather than for defendants general overhead costs or profit; (e) it expressly or impliedly represents that the security fee was proportionate to defendants actual security costs, when in fact, it was not; and (f) it expressly or impliedly represents that the security fee is authorized, imposed or somehow required by local, state or federal law, when in fact, it is not.

In the first phase of a bifurcated court trial, the court was asked to decide the following threshold question[] of law . . . : [] (a) Can the placement by Recall of a charge labeled security administration fee on Murrays invoices be a deceptive practice in violation of [sections 17200 and 17500]? The parties stipulated to certain facts and to the authenticity of certain documents and agreed that the parties do not intend that the first-phase bifurcated trial will involve any disputed fact questions . . . , but rather questions of law only.

The stipulated exhibits include numerous invoices submitted by Recall to Murray. The December 2002 invoice shows that Murray was charged $45 for one bin tip that occurred on December 20. The March 2003 invoice shows that Murray was charged $45 for one bin tip that occurred on March 14 and an additional $15 for the security administration fee. The fee appears on the invoice as a line item, directly below the charge for the bin tip, in the same typeface and font as the charge for the bin tip. The November 2003 invoice shows that Murray was charged $45 each for bin tips on November 5 and November 19, $25 for an additional bin tip on November 5, and a single $15 security administration fee. Each of the charges is separately itemized on the invoice for a total due of $130. The stipulated facts include the following: (1) At all relevant times, Murray Stok continued to use the same bin provided by Recall, with the same padlock. Recall continued to pick up the contents of the bin on the regular basis, and take them away for destruction. Recall continued to provide a certificate, with every invoice, stating that Recall had destroyed all materials received, and that these materials were destroyed pursuant to Recalls standard security and operating proceedings. (2) The security administration fee listed on the invoices does not change with the number of visits, the volume of material destroyed, or the cost or amount of fuel used to transport the materials to be destroyed. (3) Add-on fees and surcharges have become a common fact of consumer transactions in the United States. Consumers routinely see government mandated fees, such as the September 11th Security Fee. Consumers also see convenience fees added on to concert ticket prices such as Ticketmaster. Consumers see fuel surcharges attached to package shipments by Federal Express.

Having considered the parties trial briefs and the stipulated facts and exhibits, the court concluded that [t]he placement by Recall of a charge labeled security administration fee on Murray Stoks invoices, as a matter of law, cannot be deceptive under [sections 17200 and 17500]. The court explained, Where a buyer is not a member of a vulnerable subgroup of consumers and there is freedom of choice for the buyer to shop elsewhere, a seller does not commit a deceptive business practice by charging an amount that is disclosed to the buyer. The court rejected Murrays claim that the term security administration fee falsely represents that Recall provides security services in addition to the services for which the parties originally contracted. The court explained, The words security administration fee are vague and do not reasonably convey any specific meaning. It cannot be ascertained what the security is that is being administered (indeed, the entire contract is solely about the secure destruction of paper), nor is there any clue as to what administrative activities are being performed. There was no evidence to establish that the new charge could have had an accepted meaning in any relevant community that would lead a reasonable customer to believe that it is paying for an ascertainable specific service. The court entered judgment in favor of Recall and Murray filed a timely notice of appeal.

Discussion

1.      Standard of Review

In general, what constitutes unfair competition or unfair or fraudulent business practice under any given set of circumstances is a question of fact. (Californians for Population Stabilization v. Hewlett-Packard Co. (1997) 58 Cal.App.4th 273, 286, overruled on another ground in Cortez v. Purolator Air Filtration Products Co. (2000) 23 Cal.4th 163, 175; McKell v. Washington Mutual, Inc. (2006) 142 Cal.App.4th 1457, 1472, but see Lavie v. Procter & Gamble Co. (2003) 105 Cal.App.4th 496, 503 [The standard to be used in evaluating whether an advertisement is deceptive under the [unfair competition law] is purely a question of law].) However, where . . . there is no dispute or conflict in the evidence, the finding of the trial court that the defendants conduct is not in violation of section 17200 amounts to a conclusion of law. [Citation.] Such conclusions of law are reviewed de novo. (Californians for Population Stabilization v. Hewlett-Packard Co., supra, at p. 286; see also Chern v. Bank of America (1976) 15 Cal.3d 866, 872 [Where no material dispute exists concerning the relevant facts, the principal issue is essentially a legal one, namely, whether defendants alleged practice constitutes false or misleading advertising under California law].) In this case, the issue was decided on stipulated facts and the trial court found that Recalls use of the security fee was not deceptive as a matter of law. Accordingly, we review the courts conclusion de novo.

2.      Recalls use of the security fee was not a deceptive business practice.

The purpose of the unfair competition law is to protect both consumers and competitors by promoting fair competition in commercial markets for goods and services. (Kasky v. Nike, Inc. (2002) 27 Cal.4th 939, 949.) The statute defines unfair competition to mean and include any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising and any act prohibited by [the false advertising law].  (Ibid.) The scope of that law is quite broad. [Citations.] Because the statute is framed in the disjunctive, a business practice need only meet one of the three criteria to be considered unfair competition. (McKell v. Washington Mutual, Inc., supra,142 Cal.App.4th at p. 1471.) In this case, Murray claims that the use of the security fee was a fraudulent or deceptive business practice.

A fraudulent business practice is one which is likely to deceive the public. [Citations.] It may be based on representations to the public which are untrue, and also those which may be accurate on some level, but will nonetheless tend to mislead or deceive . . . . A perfectly true statement couched in such a manner that it is likely to mislead or deceive the consumer, such as by failure to disclose other relevant information, is actionable under the [unfair competition law]. [Citations.] The determination as to whether a business practice is deceptive is based on the likely effect such practice would have on a reasonable consumer. (McKell v. Washington Mutual, Inc., supra,142 Cal.App.4th at p. 1471.)

Murray argues that Recalls use of the security administration fee was deceptive and misleading because a consumer is likely to believe that the charges are for something they are not. Murray suggests that the fee was intentionally given a name that was simultaneously both official-sounding and vague, noting that the name is reminiscent of other, legitimate, add-on fees regularly encountered by consumers, such as the September 11 Security Fee.  In addition, Murray argues that the placement of the fee as a separate line item on the invoice gives the misleading impression that the fee is being charged for something separate from the bin tip and secure destruction set out in another line item. Murray acknowledges that in certain circumstances it may be permissible for a company to unbundle a specific charge, pass-through an identifiable charge, or impose a fee for an ancillary service, but argues that it is a deceptive business practice to pretend, or to give the false impression, that the fee falls into one of those categories when in fact, it is merely a means of increasing the price for the same services and inflating its profits.

It is not, however, a fraudulent business practice to impose an ancillary fee in a commercial transaction for the sole purpose of raising revenue without increasing baseline costs, so long as the amount of the fee is clearly noted and the fee is not collected in a manner that is deceptive or misleading. In Wayne v. Staples, Inc. (2006) 135 Cal.App.4th 466, 483-484, the court held that it was not a deceptive business practice for defendant to impose a surcharge on third-party insurance products purchased at its stores as an administrative expense, for services such as processing of potential claims and related services, even though the surcharge was automatically applied without regard to actual administrative expense. The court explained, In light of Stapless clear disclosure of the actual price it would charge its customers for declared value coverage prior to any purchase, . . . any ambiguity in the order form as to whether the amount charged includes a surcharge or profit for Staples was not misleading or deceptive. (Id. at p. 484.) Likewise, in Searle v. Wyndham Internat., Inc. (2002) 102 Cal.App.4th 1327, the court held that defendants failure to disclose that a 17 percent service charge on hotel room service was remitted to the hotels employees was not unfair or deceptive. In that case, plaintiff argued that in failing to expressly advise patrons about this aspect of the servers compensation, the hotel is engaging in a deceptive practice which induces patrons to pay gratuities patrons would not otherwise feel obligated to provide. (Id. at p. 1330.) The court rejected this argument primarily on the ground that in failing to advise its guests as to how it compensates its employees, the hotel is not guilty of any deceit even under the broad provisions of the [unfair competition law]. (Id. at p. 1335.) The court explained, Anyone who has debated with a small child about the temptations presented by an in-room minibar stocked with $3 candy bars and $2 sodas will recognize that a hotel has many means of generating revenue from its guests. What a hotel does with the revenue it earnsfrom either the minibar, in-room movies or its room service chargesis of no direct concern to hotel guests. The minibar patron, like the room service patron, is given both clear notice the service being offered comes at a hefty premium and the freedom to decline the service. Just as the hotel patron has no legitimate interest in what the hotel does with the large premium it earns from its minibar snacks, the patron has no legitimate interest in what the hotel does with the service charge. (Id. at p. 1334.) Because there is no allegation the hotel deceives its guests about the costs of its room service meals and because patrons are free to both obtain meals outside their rooms and to provide as small or as large a gratuity as they wish, the hotels billing practice is not actionable. (Id. at p. 1330.)

In this case, the total amount of the security administration fee was clearly delineated on Recalls invoices. We agree with the trial courts assessment that the name of the fee was not misleading because it is too vague to convey any accepted meaning in any relevant community that would lead a reasonable consumer to believe that it is paying for an ascertainable specific service. Moreover, as the trial court noted, had Murray been confused or concerned about the nature or purpose of that fee, it was free to question Recall.

Murrays reliance on People v. Dollar Rent-A-Car Systems, Inc. (1989) 211 Cal.App.3d 119 and McKell v. Washington Mutual, Inc. , supra, 142 Cal.App.4th 1457 is misplaced. In Dollar Rent-A-Car Systems, the defendants prepared invoices for customers whose rental cars were damaged while in their possession, showing the retail cost for the repairs to the cars. The defendants, however, paid a discounted wholesale price for parts and repairs. The defendants did not inform the customers that they were charging them more than the actual cost of the repairs. This practice left customers with the erroneous impression that defendants are passing on only the actual repair charges. (211 Cal.App.3d at p. 125.) The court concluded that the defendants practice of charging its customers a higher retail repair rate without explanation or substantiation is a deceptive business practice which falls within the protection of [the unfair competition law] (id. at p. 129) because the customers would not reasonably understand that they were being charged a sum considerably in excess of defendants actual repair costs (id. at p. 130). In contrast, in this case plaintiffs assert only that the fee sounds as if it is imposed for an ancillary service but fail to suggest what possible service that could be. It is not reasonable to conclude that the public is likely to be misled by the inclusion of the fee.

In McKell, the plaintiff alleged that the defendants practice of charging more for underwriting, tax services, and wire transfer fees than the bank actually paid its service providers for those services violated the fraudulent conduct prong of the unfair competition law. (McKell v. Washington Mutual, Inc., supra, 142 Cal.App.4th at p. 1465.) The court agreed, reasoning that [l]ooking at these documents, plaintiffs reasonably would conclude that the fees charged were the costs [the bank] incurred in providing these services. (Id. at p. 1472.) Again, however, in the present case Murray is unable to identify what specific charge Recall appears to be passing through in the new fee. The suggestion that the fee sounds vaguely officialwhatever that might meanis insufficient to support the conclusion that a reasonable consumer of data destruction services will be misled.

Disposition

The judgment is affirmed. Recall Secure Destruction Services, Inc. is to recover its costs on appeal.

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Pollak, J.

We concur:

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McGuiness, P. J.

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Jenkins, J.

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[1] All statutory references are to the Business and Professions Code unless otherwise noted.