FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
GARY DAVIS, an individual on
behalf of himself, as Private
Attorney General and on behalf of
all others similarly,
Plaintiff-Appellant,
No. 10-56488
v.
D.C. No.
HSBC BANK NEVADA, N.A., a 2:08-cv-05692-
National Bank; BEST BUY CO., GHK-JC
INC., a Minnesota corporation;
OPINION
BEST BUY STORES, L.P., a Virginia
limited partnership; HSBC
FINANCE CORPORATION, a Delaware
corporation,
Defendants-Appellees.
Appeal from the United States District Court
for the Central District of California
George H. King, District Judge, Presiding
Argued and Submitted
February 6, 2012—Pasadena, California
Filed August 31, 2012
Before: Dorothy W. Nelson, Diarmuid F. O’Scannlain, and
N. Randy Smith, Circuit Judges.
Opinion by Judge Nelson
10365
DAVIS v. HSBC BANK NEVADA 10369
COUNSEL
Drew E. Pomerance (argued), Burton E. Falk, Roxborough,
Pomerance, Nye & Adreani, LLP, Woodland Hills, Califor-
nia, for the plaintiff-appellant.
Stuart M. Richter (argued), Gregory S. Korman, Katten
Muchin Rosenman LLP, Los Angeles, California, for the
defendants-appellees.
10370 DAVIS v. HSBC BANK NEVADA
OPINION
NELSON, Senior Circuit Judge:
Gary Davis appeals the district court’s dismissal of his First
Amended Complaint (“FAC”). In this putative class action,
Davis alleges that HSBC Bank Nevada, N.A. (“HSBC”) and
Best Buy Stores, L.P. (“Best Buy”) (collectively, “Defen-
dants”) defrauded California customers by offering credit
cards without adequately disclosing that cardholders would be
subject to an annual fee. We must decide whether the district
court erred when it considered extrinsic evidence in deciding
Defendants’ motion to dismiss, and whether dismissal was
proper under Federal Rule of Civil Procedure 12(b)(6). We
have jurisdiction pursuant to 28 U.S.C. § 1291, and we affirm.
I. BACKGROUND1
Best Buy operates a national chain of retail stores that sells
consumer electronics and related services. As part of its mar-
keting platform, Best Buy implements the “Reward Zone Pro-
gram,” which allows customers to earn “Reward Certificates”
for their purchases at Best Buy stores and redeem the certifi-
cates for discounts off future purchases at such stores. At the
same time, qualified consumers may also obtain a Reward
Zone Program MasterCard (“RZMC”), a credit card that is
issued by HSBC, a federally chartered bank regulated by the
Office of the Comptroller of the Currency (“OCC”). The
owner of an RZMC is automatically enrolled in the Reward
Zone Program, and may earn reward certificates by using the
card not only at Best Buy, but wherever MasterCard is
accepted. Accordingly, Defendants advertised the RZMC as
providing the cardholder, among other things, with the ability
to obtain reward certificates as well as exclusive bonus point
offers to earn rewards more rapidly.
1
Because this appeal is from an order granting dismissal, the facts are
taken from the First Amended Complaint.
DAVIS v. HSBC BANK NEVADA 10371
In or around April 2007, Davis read a newspaper advertise-
ment for the RZMC stating that applicants would receive $25
worth of reward certificates with their very first purchase
using the card. Davis applied online to become an RZMC
holder. Before applying, however, he read a webpage entitled
“Program Rules — Best Buy Reward Zone.” Further, while
applying, Davis viewed a webpage entitled “FAQ’s” (Fre-
quently Asked Questions). Neither webpage mentioned an
annual fee for using the RZMC.
At step two of the application process, Davis was directed
to Best Buy’s website labeled “Best Buy MBBC Consumer
— Review the Important Account Credit Terms.” In the
upper-left corner of the page, in boldface font at least twice
as large as the other text on the page, read the words “Terms
and Conditions.” Immediately below that, also in bold, was
the subheading, “Important Terms of Your Best Buy Credit
Account and Disclosure Statement” (“Important Terms &
Disclosure Statement”). Underneath stood a scrolling rectan-
gular text box, the contents of which were only partially visi-
ble because one would need to scroll down to view the whole
statement. The visible portion commenced with the instruc-
tion, “Read the notice below carefully and print and/or down-
load a copy for your records,” followed by the text:
The Reward Zone® program
MasterCard® Privacy Statement
HSBC BANK NEVADA, N.A.
Beneath the text box was a small check-box, which was
adjacent to the following affirmation: “I agree to the Impor-
tant Terms & Disclosure Statement of the Best Buy Reward
Zone® MasterCard®.” The FAC does not allege that Davis
read the contents of the Important Terms and Disclosure
Statement, but only alleges that he checked the box and com-
pleted his online application.
Davis’s application was approved and shortly thereafter he
received his new credit card in the mail. Also enclosed with
10372 DAVIS v. HSBC BANK NEVADA
the card were seven brochures, including a document entitled
“Cardholder Agreement and Disclosure Statement,” as well as
one entitled “Additional Disclosure Statement.” Upon reading
the latter, Davis was “surprised” to learn that there was a $59
annual fee for use of the card. At that point, Davis admits, he
revisited the terms and conditions website, scrolled down
toward the end of the Important Terms & Disclosure State-
ment, and discovered the disclosure of a possible annual fee.
Davis asked HSBC to waive the annual fee, but the bank
declined. Instead of canceling the card, Davis refused to acti-
vate it and continued to pay the annual fee for five years.
On July 28, 2008, Davis filed a class action complaint in
state court against Defendants2 on behalf of a putative class
including all California residents who applied for an RZMC
between 2004 and 2008, and were charged an annual fee. He
alleges that Defendants failed to disclose adequately the exis-
tence of the annual fee. The case was removed to federal court
and then remanded to state court, triggering an appeal to this
Court, which reversed the remand order. Davis v. HSBC Bank
Nevada, N.A., 557 F.3d 1026, 1030 (9th Cir. 2009). Upon
return to federal court, Defendants filed a motion to dismiss,
which the district court granted on federal preemption
grounds. Davis was given 30 days to amend the complaint.
On September 25, 2009, Davis filed the FAC on the same
theory that Defendants failed to disclose adequately whether
RZMC owners would be charged an annual fee. The operative
complaint alleges four causes of action for (1) false advertis-
ing in violation of the California Business & Professions
Code § 17500, et seq. (“False Advertising Law” or “FAL”),
as to Best Buy; (2) fraudulent concealment as to both Defen-
dants; (3) “unlawful” business practices in violation of the
California Business & Professions Code § 17200, et seq.
2
The original complaint also brought claims against Defendants’ affili-
ates, HSBC Finance Corporation and Best Buy Co., Inc. However, Davis
has since voluntarily dismissed these affiliates from the case.
DAVIS v. HSBC BANK NEVADA 10373
(“Unfair Competition Law” or “UCL”) as to HSBC; and (4)
“unfair” and “fraudulent” business practices in violation of
the UCL as to Best Buy.
Defendants filed a Rule 12(b)(6) motion to dismiss the
FAC, along with a motion requesting judicial notice of three
disclosure documents that were referenced in, but not attached
to the FAC: (1) a copy of the complete Important Terms &
Disclosure Statement contained in the scrolling box from the
online application; (2) a copy of the Additional Disclosure
Statement received in the mail; (3) a copy of the Cardmember
Agreement and Disclosure Statement received in the mail
(collectively, “disclosure documents”).
The district court dismissed all four claims with prejudice
on the ground that they fail to state claims entitling Davis to
relief.
Davis timely appealed the dismissal of his claims.
II. STANDARD OF REVIEW
We review de novo a district court’s order granting a
motion to dismiss pursuant to Rule 12(b)(6). Stearns v.
Ticketmaster Corp., 655 F.3d 1013, 1018 (9th Cir. 2011). To
survive dismissal, the complaint must allege “enough facts to
state a claim to relief that is plausible on its face.” Bell Atl.
Corp. v. Twombly, 550 U.S. 544, 570 (2007). “ ‘Factual alle-
gations must be enough to raise a right to relief above the
speculative level.’ ” Williams v. Gerber Prods. Co., 552 F.3d
934, 938 (9th Cir. 2008) (quoting Bell Atl. Corp., 550 U.S. at
555). We must accept “all factual allegations in the complaint
as true and construe the pleadings in the light most favorable
to the nonmoving party.” Rowe v. Educ. Credit Mgmt. Corp.,
559 F.3d 1028, 1029-30 (9th Cir. 2009) (quoting Knievel v.
ESPN, 393 F.3d 1068, 1072 (9th Cir. 2005)). At the same
time, “we can affirm a 12(b)(6) dismissal on any ground sup-
ported by the record, even if the district court did not rely on
10374 DAVIS v. HSBC BANK NEVADA
the ground.” United States v. Corinthian Colls., 655 F.3d 984,
992 (9th Cir. 2011) (internal citation and quotation marks
omitted). As we sit in diversity, California law governs our
analysis of the state law claims. See, e.g., Cahill v. Liberty
Mut. Ins. Co., 80 F.3d 336, 338 (9th Cir. 1996).
We take this opportunity to clarify what standard of review
applies to a district court’s decision to incorporate by refer-
ence documents outside the pleadings. Our relevant case law
has recognized consistently that the district court may, but is
not required to incorporate documents by reference. See, e.g.,
Marder v. Lopez, 450 F.3d 445, 448 (9th Cir. 2006) (observ-
ing that a court “may consider” evidence that is incorporated
by reference); Knievel, 393 F.3d at 1076 (noting that the
incorporation doctrine “permits” the court to consider extrin-
sic documents); United States v. Ritchie, 342 F.3d 903, 908
(9th Cir. 2003) (explaining that a document “may be incorpo-
rated by reference into a complaint if the plaintiff refers
extensively to the document or the document forms the basis
of the plaintiff ’s claim”). Additionally, in Hamilton Materi-
als, Inc. v. Dow Chemical Corp., 494 F.3d 1203, 1207 (9th
Cir. 2007), we explained that “Federal Rule of Civil Proce-
dure 12(b)(6) specifically gives courts the discretion to accept
and consider extrinsic materials offered in connection with
these motions, and to convert the motion to one for summary
judgment when a party has notice that the district court may
look beyond the pleadings.” Thus, we have held, for example,
that a district court’s decision to take judicial notice of extrin-
sic evidence shall be reviewed for abuse of discretion. Skil-
staf, Inc. v. CVS Caremark Corp., 669 F.3d 1005, 1016 n.9
(9th Cir. 2012). The foregoing leads us to conclude that the
district court’s decision to incorporate by reference docu-
ments into the complaint shall be reviewed for an abuse of
discretion.
III. DISCUSSION
On appeal, Davis argues preliminarily that the district court
erred when it considered three disclosure documents that were
DAVIS v. HSBC BANK NEVADA 10375
not attached to the FAC, and which were introduced by
Defendants in support of their motion to dismiss the FAC.
Davis next argues the district court’s conclusion that none of
the four claims plausibly suggested a right to relief was error.
We address each argument in turn.
A. Disclosure Documents
[1] The district court expressly incorporated by reference
three disclosure documents for which Defendants sought judi-
cial notice in support of their motion to dismiss. Under the
“incorporation by reference” doctrine in this Circuit, “a court
may look beyond the pleadings without converting the Rule
12(b)(6) motion into one for summary judgment.” Van
Buskirk v. Cable News Network, Inc., 284 F.3d 977, 980 (9th
Cir. 2002). Specifically, courts may take into account “docu-
ments whose contents are alleged in a complaint and whose
authenticity no party questions, but which are not physically
attached to the [plaintiff ’s] pleading.” Knievel, 393 F.3d at
1076 (alteration in original) (internal citation and quotation
marks omitted). A court “may treat such a document as part
of the complaint, and thus may assume that its contents are
true for purposes of a motion to dismiss under Rule 12(b)(6).”
Ritchie, 342 F.3d at 908.
[2] In this case, it is beyond dispute that the FAC alleges
the contents of the disclosure documents. The complaint
emphasizes that only part of the contents of the Important
Terms & Disclosure Statement were visible without scrolling
down, and that the portion which was visible concerned only
the Privacy Statement. Davis also alleges in detail that the
Cardmember Agreement and Disclosure Statement did not
mention the annual fee, whereas the Additional Disclosure
Statement did. Davis does not dispute these references.
Instead, he argues that the district court mistakenly deter-
mined that he did not challenge the documents’ authenticity.
He claims he raised this issue when he stated in his opposition
to the motion to dismiss: “There is no evidence that these doc-
10376 DAVIS v. HSBC BANK NEVADA
uments were ever reviewed by Plaintiff or made available to
Plaintiff.” We disagree and conclude that Davis did not chal-
lenge the documents’ authenticity.
Whether or not Davis had access to and reviewed the prof-
fered documents is a matter unrelated to their authenticity —
i.e., whether the documents are “what its proponent claims.”
Las Vegas Sands, LLC v. Nehme, 632 F.3d 526, 533 (9th Cir.
2011) (internal citation and quotation marks omitted); see also
Fed. R. Evid. 901 (noting that authentication concerns
whether “the item is what the proponent claims it is”). Here,
Defendants claimed that the documents are copies of the dis-
closure documents referenced in the FAC. Even assuming
these copies were not personally reviewed by Davis, that does
not address, much less cast doubt on, whether the copies are
accurate reproductions of the original disclosure documents.
Therefore, Davis’s objection was insufficient to challenge the
documents’ authenticity.
Our conclusion is supported by the fact that Davis had
ample opportunity in district court to argue that the disclosure
documents were not authentic, yet failed to do so. Davis ini-
tially objected to the admission of the documents in his oppo-
sition to the motion to dismiss the original complaint, on the
ground that the documents were not reviewed by or made
available to him. In their reply brief, Defendants pointed out
that Davis “never questions the[ ] authenticity” of the prof-
fered documents. If Davis had wished to contest this asser-
tion, he could have done so in his subsequent opposition to
the motion to dismiss the FAC. Yet he merely repeated verba-
tim his prior protestation that the documents were not
reviewed by, or made available to him.
Further, Davis’s “ongoing and substantial reliance on the
[documents] as a basis for [his] allegations substantially
weakens [his] position.” In re Silicon Graphics Inc. Securities
Litig., 183 F.3d 970, 986 (9th Cir. 1999), abrogated on other
grounds as recognized in South Ferry LP, No. 2 v. Killinger,
DAVIS v. HSBC BANK NEVADA 10377
542 F.3d 776, 784 (9th Cir. 2008). In particular, having based
his allegations on the contents and appearance of the Impor-
tant Terms & Disclosure Statement, “[Davis] can hardly com-
plain when [Defendants] refer to the same information in their
defense.” Id.
[3] We therefore hold that where the party opposing incor-
poration by reference argues only that he did not review or
have access to the proffered copies, this does not amount to
a challenge to those documents’ authenticity. Accordingly,
the district court properly incorporated the disclosure docu-
ments.
Further, we reject Davis’s attempt to challenge the docu-
ments’ authenticity for the first time on appeal. Because Davis
failed to assert an objection as to authenticity before the dis-
trict court, he has waived this objection on appeal. See
McGonigle v. Combs, 968 F.2d 810, 825 (9th Cir. 1992).
B. False Advertising Claim Against Best Buy
Turning to the claims in the FAC, Davis first alleges that
Best Buy’s advertising was misleading because it failed to
disclose the existence of an annual fee. We agree with the dis-
trict court that no reasonable consumer would have been
deceived by these advertisements into thinking that no annual
fee would be imposed.
[4] California’s False Advertising Law makes it unlawful
for any person to “induce the public to enter into any obliga-
tion” based on a statement that is “untrue or misleading, and
which is known, or which by the exercise of reasonable care
should be known, to be untrue or misleading.” Cal. Bus. &
Prof. Code § 17500. Whether an advertisement is “mislead-
ing” must be judged by the effect it would have on a reason-
able consumer. Williams, 552 F.3d at 938; see also Lavie v.
Procter & Gamble Co., 129 Cal. Rptr. 2d 486, 494 (Ct. App.
2003) (“[U]nless the advertisement targets a particular disad-
10378 DAVIS v. HSBC BANK NEVADA
vantaged or vulnerable group, it is judged by the effect it
would have on a reasonable consumer.”). A reasonable con-
sumer is “the ordinary consumer acting reasonably under the
circumstances.” Colgan v. Leatherman Tool Group, Inc., 38
Cal. Rptr. 3d 36, 48 (Ct. App. 2006) (internal citation and
quotation marks omitted). To prevail under this standard,
Davis must “ ‘show that members of the public are likely to
be deceived’ ” by the advertisement. Williams, 552 F.3d at
938 (quoting Freeman v. Time, Inc., 68 F.3d 285, 289 (9th
Cir. 1995)). In applying this test, we are mindful that
“whether a business practice is deceptive will usually be a
question of fact not appropriate for decision on [a motion to
dismiss].” Id.
As an initial matter, we note that Davis does not allege that
Best Buy’s advertisement contained any statements that were
actually false. He does not suggest, for example, that the
advertisement stated that the RZMC would be free, or that it
would generate a profit. Nor can Davis be heard to argue that
the advertisement’s failure to mention the annual fee, standing
alone, supports a reasonable belief that there was no annual
fee. Given the advertisement’s legible disclaimer that “[o]ther
restrictions may apply,” no reasonable consumer could have
believed that if an annual fee was not mentioned, it must not
exist.
This does not end our inquiry, however, because California
courts construe Section 17500 to extend beyond literal falsi-
ties. The statute has been interpreted broadly to encompass
“ ‘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.’ ” Williams, 552 F.3d at 938 (quoting Kasky v.
Nike, Inc., 45 P.3d 243, 250 (Cal. 2002)). Consequently, even
“[a] perfectly true statement couched in such a manner that it
is likely to mislead or deceive the consumer, such as by fail-
ure to disclose other relevant information, is actionable under
DAVIS v. HSBC BANK NEVADA 10379
th[is] section[ ].” Day v. AT&T Corp., 74 Cal. Rptr. 2d 55, 60
(Ct. App. 1998).
[5] Davis contends that the omission of the annual fee was
misleading because the promise of reward certificates begin-
ning with the first purchase implied that no offsetting charges
would operate to “nullify” those rewards. This argument fails.
While it is true that an annual fee could offset the cash value
of any rewards, the same tradeoff exists with respect to
numerous other costs of owning a credit card, such as
monthly interest charges, late-payment fees, and over-the-
limit fees. It defies common sense to claim that this tradeoff
would lead a rational consumer to conclude that any credit
card that offers rewards for spending must therefore not have
associated costs of ownership.
[6] Of course, it is possible that some consumers might
hazard such an assumption. But “[a] representation does not
become ‘false and deceptive’ merely because it will be unrea-
sonably misunderstood by an insignificant and unrepresenta-
tive segment of the class of persons to whom the
representation is addressed.” Lavie, 129 Cal. Rptr. 2d at 494
(internal citation and quotation marks omitted). We therefore
hold that Best Buy’s advertising was not likely to deceive a
reasonable consumer; the district court’s dismissal of the false
advertising claim was proper.
C. Fraudulent Concealment Claim Against Best Buy
and HSBC
Davis next alleges that Defendants fraudulently concealed
the existence of an annual fee in its advertising and market-
ing. “The elements of a cause of action for fraud in California
are: (a) misrepresentation (false representation, concealment,
or nondisclosure); (b) knowledge of falsity (or ‘scienter’ ); (c)
intent to defraud, i.e., to induce reliance; (d) justifiable reli-
ance; and (e) resulting damage.” Kearns v. Ford Motor Com-
10380 DAVIS v. HSBC BANK NEVADA
pany, 567 F.3d 1120, 1126 (9th Cir. 2009) (emphasis in
original) (internal citation and quotation marks omitted).
In particular, a claim for fraudulent concealment requires
that: “(1) the defendant must have concealed or suppressed a
material fact, (2) the defendant must have been under a duty
to disclose the fact to the plaintiff, (3) the defendant must
have intentionally concealed or suppressed the fact with the
intent to defraud the plaintiff, (4) the plaintiff must have been
unaware of the fact and would not have acted as he did if he
had known of the concealed or suppressed fact, and (5) as a
result of the concealment or suppression of the fact, the plain-
tiff must have sustained damage.” Marketing West, Inc. v.
Sanyo Fisher (USA) Corp., 7 Cal. Rptr. 2d 859, 864 (Ct. App.
1992). Without reaching the other factors, the district court
determined that Davis’s claim fails because he cannot demon-
strate justifiable reliance on the purported failure to disclose
the annual fee. We agree.
[7] In an action for fraud under California law, recovery
shall be denied “[i]f the conduct of the plaintiff [in relying
upon a misrepresentation] in the light of his own intelligence
and information was manifestly unreasonable.” Broberg v.
Guardian Life Ins. Co. of Am., 90 Cal. Rptr. 3d 225, 232 (Ct.
App. 2009) (alterations in original) (internal citation and quo-
tation marks omitted). To establish manifest unreasonable-
ness, “[i]t must appear that [plaintiff] put faith in
representations that were preposterous or shown by facts
within his observation to be so patently and obviously false
that he must have closed his eyes to avoid discovery of the
truth.” Id. (internal quotation marks omitted). We bear in
mind, however, that “[w]hether reliance [on a misrepresenta-
tion] was reasonable is a question of fact for the jury, and may
be decided as a matter of law only if the facts permit reason-
able minds to come to just one conclusion.” Id. (alterations in
original) (internal citation and quotation marks omitted).
[8] Fatal to Davis’s claim is the undisputed fact that he
failed to read the Important Terms & Disclosure Statement
DAVIS v. HSBC BANK NEVADA 10381
before checking the box accepting these terms and conditions.
California courts have held that where, as here, the parties to
an agreement deal at arm’s length, it is not reasonable to fail
to read a contract before signing it. See, e.g., Desert Outdoor
Advertising v. Super. Ct., 127 Cal. Rptr. 3d 158, 163 (Ct. App.
2011); Brown v. Wells Fargo Bank, NA, 85 Cal. Rptr. 3d 817,
833-34 (Ct. App. 2008) (explaining that there can be no rea-
sonable reliance where the plaintiff, dealing at arm’s length,
“had a reasonable opportunity to discover the true terms of the
contract” but simply failed to read the contract before signing
it).
Moreover, the existence of the annual fee was “within
[Davis’s] observation” because he concedes that he was able
to discover the annual fee when he revisited Best Buy’s web-
site and scrolled through the Important Terms & Disclosure
Statement. However, by refusing to read this document before
completing the application, and instead assuming the absence
of an annual fee, Davis “put faith” in a purported representa-
tion that was “shown by facts within his observation to be so
patently and obviously false that he must have closed his eyes
to avoid discovery of the truth.” Broberg, 90 Cal. Rptr. 3d at
232 (internal quotation marks omitted). The only conclusion
that reasonable minds may draw is that Davis’s reliance on
the purported misrepresentation was manifestly unreasonable.
[9] Davis’s reliance on Barrer v. Chase Bank USA, N.A.,
566 F.3d 883 (9th Cir. 2009), is misplaced. He argues that
Barrer leaves open the possibility that, where a disclaimer
concerning a particular term is buried in the fine print of an
agreement, a reasonable consumer may still be deceived by
advertising or marketing materials concerning that term. This
is not what Barrer says. Rather, we held in Barrer that
because a provision empowering the defendant to change the
cardholder’s annual percentage rate for any reason was “bur-
ied too deeply in the fine print,” the defendant could not
show, as a matter of law, that the credit card agreement made
“clear and conspicuous” disclosure of that provision, as
10382 DAVIS v. HSBC BANK NEVADA
required by Regulation Z and the Truth in Lending Act
(“TILA”). Barrer, 566 F.3d at 892. However, whether a dis-
closure satisfies the “clear and conspicuous” standard under
the federal regulatory framework, see Rubio v. Capital One
Bank, 613 F.3d 1195, 1199 (9th Cir. 2010) (noting that TILA
and its implementing regulations require “absolute compli-
ance” by creditors), is inapposite to whether, in the common
law context, it was reasonable for Davis to rely on a purported
representation when he did not read the terms and conditions
to which he assented. Thus, we conclude that Davis cannot
demonstrate reasonable reliance and that the district court did
not err in dismissing his fraud claim.
D. UCL Claims Against HSBC and Best Buy
Davis’s third and fourth causes of action each allege that
Defendants made inadequate disclosure of the annual fee in
their advertising and marketing in violation of the UCL.
Defendants argue that because their annual fee disclosure
complied with, and was required by, TILA and Regulation Z,
their conduct falls within a “safe harbor” that is impervious to
the UCL. We agree in part and conclude that while the disclo-
sures in the online application fall within the safe harbor, the
advertisements do not.
[10] First, it is necessary to understand what constitutes a
safe harbor, and whether TILA and Regulation Z can meet
this test. The California Supreme Court has explained the
“safe harbor” doctrine in this way:
Although the unfair competition law’s scope is
sweeping, it is not unlimited. . . . Specific legislation
may limit the judiciary’s power to declare conduct
unfair. If the Legislature has permitted certain con-
duct or considered a situation and concluded no
action should lie, courts may not override that deter-
mination. When specific legislation provides a ‘safe
DAVIS v. HSBC BANK NEVADA 10383
harbor,’ plaintiffs may not use the general unfair
competition law to assault that harbor.
Cel-Tech Comms. Inc. v. Los Angeles Cellular Telephone Co.,
973 P.2d 527, 541 (Cal. 1999). Under the safe harbor doc-
trine, “[t]o forestall an action under the unfair competition
law, another provision must actually ‘bar’ the action or clearly
permit the conduct.” Id.
[11] We conclude that TILA and Regulation Z provide
such a safe harbor with respect to Defendants’ disclosures in
the online application. TILA requires that applications for an
account under an open end consumer credit plan must include
certain disclosures. 15 U.S.C. § 1637(c). Where, as here, the
application is provided online and contains “specific informa-
tion” about the terms and conditions, the application must dis-
close, among other things, “[a]ny annual fee, other periodic
fee, or membership fee imposed for the issuance or availabil-
ity of a credit card, including any account maintenance fee or
other charge imposed based on activity or inactivity for the
account during the billing cycle.” 15 U.S.C.
§§ 1637(c)(1)(A)(ii)(I), (c)(3)(B)(i)(I). The disclosure must
appear “clearly and conspicuously” in the tabular format com-
monly referred to as the Schumer Box. 15 U.S.C. §§ 1632(a),
(c)(2).
[12] TILA delegates to the Board of Governors of the Fed-
eral Reserve Bank (“Board”) the duty to implement these dis-
closure requirements and to prescribe regulations governing
the “form and manner” of the disclosures. 15 U.S.C.
§ 1632(c)(1)(A). Accordingly, the Board has promulgated
“Regulation Z,” 12 C.F.R. § 226.1 et seq., which imposes
“even more precise” disclosure requirements. Virachack v.
Univ. Ford, 410 F.3d 579, 581 (9th Cir. 2005). Regulation Z
requires lenders to provide specific disclosures “on or with a
solicitation or an application to open a credit or charge card
account.” 12 C.F.R. §§ 226.5a(a), (b). In pertinent part, the
lender must disclose “[a]ny annual or other periodic fee that
10384 DAVIS v. HSBC BANK NEVADA
may be imposed for the issuance or availability of a credit or
charge card, including any fee based on account activity or
inactivity; how frequently it will be imposed; and the annual-
ized amount of the fee.” 12 C.F.R. § 226.5a(b)(2)(i). Further,
the disclosure “shall be in the form of a table with headings,
content, and format substantially similar to any of the applica-
ble tables found in G-10 in appendix G to this part.” 12 C.F.R.
§ 226.5a(a)(2)(i).
[13] We have no trouble concluding that TILA and Regu-
lation Z create a safe harbor for Defendants’ disclosure in the
online application. Both the statute and the regulations clearly
permit, and indeed require with equal force, the disclosure of
any annual fee in an application for a credit card such as the
RZMC. Our comparison of the online application’s disclosure
with the sample Schumer table in Appendix G demonstrates
that Defendants’ disclosure complied with these federal
requirements. Indeed, Davis has not and cannot allege any
violation under these provisions. Because the disclosure in the
application clearly was permitted by federal law, it cannot
serve as the basis for UCL liability.
Davis relies on Krumme v. Mercury Ins. Co., 20 Cal. Rptr.
3d 485, 497 n.5 (Ct. App. 2004), for the contention that only
statutes, not regulations, can create “safe harbors.” In
Krumme, the state intermediate court rejected an insurance
company’s argument that California insurance regulations
provided a safe harbor against UCL liability. Id. It reasoned
that such materials “are not germane to our analysis” because
the California Supreme Court in Cel-Tech “held that only stat-
utes can create a safe harbor.” Id. (citing Cel-Tech, 973 P.2d
at 541-42).
[14] We are not persuaded that Cel-Tech stands for this
rule. See Kairy v. SuperShuttle Intern., 660 F.3d 1146, 1150
(9th Cir. 2011) (“In a case requiring a federal court to apply
California law, the court must apply the law as it believes the
California Supreme Court would apply it.”) (internal quota-
DAVIS v. HSBC BANK NEVADA 10385
tion marks omitted). Cel-Tech involved whether the Unfair
Practices Act provided a safe harbor to shield certain business
conduct from liability under the UCL. The court explained
that while an express statutory provision permitting specific
conduct would be sufficient to create a safe harbor, “the Leg-
islature’s mere failure to prohibit an activity does not prevent
a court from finding it unfair.” Cel-Tech, 973 P.2d at 542. The
court then stated that “[i]f no statute provides a safe harbor,”
the court must decide whether the alleged misconduct violates
the UCL. Id.
We reject the notion that this last passing reference estab-
lished a bright-line rule that only statutes can create safe har-
bors. Instead, we understand the court to be outlining its
analysis in the context of the case before it, which concerned
only a potential statutory safe harbor. Furthermore, even if
“the Legislature’s mere failure to prohibit an activity” does
not create a safe harbor, id. at 542, this does not preclude the
possibility that one might arise where an implementing regu-
lation clearly permits that activity. At bottom, the question of
whether regulations can create safe harbors simply was not
before the Cel-Tech Court, and therefore any intimation on
this point was non-essential dicta.3 Rather, we follow our pre-
vious decision in Webb v. Smart Document Solutions, LLC,
where we observed that if HIPAA regulations “intended to
permit [the defendant’s] conduct, it cannot be ‘unfair’ under
Section 17200.” 499 F.3d 1078, 1082 (9th Cir. 2007). We
therefore recognize that Regulation Z does provide a safe har-
bor for Defendants’ disclosures in the online application.
3
California intermediate courts agree with our conclusion that regula-
tions can create safe harbors. Most recently, in Lopez v. Nissan North
America, Inc., 135 Cal. Rptr. 3d 116, 132 (Ct. App. 2011), the state appel-
late court discussed approvingly our decision in Alvarez v. Chevron Corp.,
656 F.3d 925, 933 (9th Cir. 2011), where we held that California gasoline
regulations created a safe harbor against the UCL. See also Byars v. SCME
Mortgage Bankers, Inc., 135 Cal. Rptr. 2d 796, 805-806 (Ct. App. 2003)
(noting that HUD policy statement created safe harbor for mortgage lend-
er’s conduct).
10386 DAVIS v. HSBC BANK NEVADA
We would add that even if regulations could not create safe
harbors, Davis does not deny that federal statutes can. Indeed,
we have held as much. See Hauk v. JP Morgan Chase Bank
USA, 552 F.3d 1114, 1122 (9th Cir. 2009) (holding that a
credit card issuer’s “compliance with TILA’s disclosure
requirements provides a safe harbor with respect to [the plain-
tiff ’s] UCL claims based only on the sufficiency of [the issu-
er’s] disclosures”). In this case, to reiterate, TILA not only
clearly permits the annual fee disclosure in the online applica-
tion, it mandates it. See 15 U.S.C. §§ 1632(a), (c)(2); 15
U.S.C. §§ 1637(c)(1)(A)(ii)(I), (c)(3)(B)(i)(I). At a minimum,
therefore, Defendants’ disclosure draws protection from a safe
harbor under TILA.
Davis next objects that any safe harbor under TILA could
not protect Best Buy because TILA does not govern retailers
such as Best Buy. Even if TILA does not govern Best Buy,
which we need not decide, Davis’s argument misses the mark
because the safe harbor doctrine immunizes conduct, not enti-
ties. In Cel-Tech, the California Supreme Court explained that
when specific legislation affirmatively permits conduct,
“[c]ourts may not simply impose their own notions of the day
as to what is fair or unfair.” 973 P.2d at 541. In other words,
the safe harbor doctrine protects specific conduct not because
of its provenance, but because the content of the conduct itself
is deemed “fair” as a matter of law.4 Here, TILA and Regula-
tion Z expressly permit and require that online credit card
applications disclose the annual fee in a prescribed manner.
4
Consistent with this view, Cel-Tech repeatedly explains that it is the
conduct, not the actor, that the safe harbor embraces. See also 973 P.2d
at 541 (“If the Legislature has permitted certain conduct or considered a
situation and concluded no action should lie, courts may not override that
determination.”); id. (“To forestall an action under the unfair competition
law, another provision must actually ‘bar’ the action or clearly permit the
conduct.”); id. at 541-42 (“Acts that the Legislature has determined to be
lawful may not form the basis for an action under the unfair competition
law . . . .”); id. at 542 (“[C]ourts may not use the unfair competition law
to condemn actions the Legislature permits.”).
DAVIS v. HSBC BANK NEVADA 10387
Best Buy operated the online application process in compli-
ance with these rules, and therefore its conduct cannot give
rise to UCL liability.
[15] We are not convinced, however, that Defendants’
advertisements may be swept into the ambit of this safe har-
bor. Unlike the online application, it is undisputed that the
advertisements lacked any disclosure of the annual fee. Thus,
to qualify for a safe harbor, we must be satisfied that the
omission of the annual fee is permitted by some statute or reg-
ulation.
[16] Taking the contrary view, Davis contends that the
advertisements were “solicitations” that violated TILA and
Regulation Z because they failed to disclose the annual fee.
However, this argument rests on a misunderstanding of the
definition of “solicitation.” Under Regulation Z, a “solicita-
tion” is defined as “an offer by the card issuer to open a credit
or charge card account that does not require the consumer to
complete an application.” 12 C.F.R. § 226.5a(a)(1). In other
words, a solicitation is an offer made to a consumer who is
pre-approved to be a cardholder and therefore need not
undergo the credit approval process to acquire the card.
[17] This reading comports with the agency’s official staff
interpretation, which explains that where a card issuer merely
“contact[s] a consumer who has not been preapproved for a
card account about opening an account . . . and invite[s] the
consumer to complete an application[, s]uch a contact does
not meet the definition of solicitation, . . . unless the contact
itself includes an application form in a direct mailing, elec-
tronic communication or ‘take-one’; an oral application in a
telephone contact initiated by the card issuer; or an applica-
tion in an in-person contact initiated by the card issuer.” Div.
of Consumer and Cmty. Affairs of the Fed. Reserve Bd., Offi-
cial Staff Comm., 12 C.F.R. Pt. 226, Supp. I, § 226.5a cmt.
5a(a)(1); see Johnson v. Wells Fargo Home Mortg., Inc., 635
F.3d 401, 417 (9th Cir. 2011) (“We have been directed to treat
10388 DAVIS v. HSBC BANK NEVADA
these official staff interpretations of Regulation Z as control-
ling unless demonstrably irrational.”) (internal quotation
marks and alteration omitted). Here, Davis does not allege
that he viewed any advertisement offering to extend him
credit without requiring an application. In fact, he concedes
that he was required to and did submit an application before
he was approved for the RZMC. Thus, the advertisements
were not solicitations lacking the requisite disclosure.
Nevertheless, to fall under a safe harbor, the omission of
the annual disclosure from Defendants’ advertisements must
be expressly permitted by some other provision. It is not
enough if TILA and Regulation Z merely fail to prohibit such
an omission. Cel-Tech, 973 P.2d at 542. However, the parties
have not provided, and we have not located, any provision in
TILA, Regulation Z, or elsewhere that clearly permits the
omission of the annual fee disclosure from such advertise-
ments. Instead, Regulation Z only specifies that if the adver-
tisement sets forth a specific credit term that “triggers”
additional disclosure, such as a finance charge, then the
advertisement “shall also clearly and conspicuously set forth,”
among other items, the annual membership fee. See 12 C.F.R.
§ 226.16(b); Official Staff Comm., 12 C.F.R. Pt. 226, Supp.
I, § 226.16(b)(1) cmt. 6. Thus, we cannot conclude that some
provision affirmatively permits the absence of the annual fee
disclosure from the advertisements.
Because no authority provides a safe harbor, we must
decide whether Davis adequately has alleged that Defendants’
advertisements violate the UCL. Cel-Tech, 973 P.2d at
542-43. The UCL prohibits “unfair competition,” which is
broadly defined to include “three varieties of unfair competi-
tion — acts or practices which are unlawful, or unfair, or
fraudulent.” Id. at 540. Because the statute is written in the
disjunctive, it is violated where a defendant’s act or practice
violates any of the foregoing prongs. See Lozano v. AT&T
Wireless Servs., Inc., 504 F.3d 718, 731 (9th Cir. 2007). Davis
claims that HSBC violated the “unlawful” prong, and that
DAVIS v. HSBC BANK NEVADA 10389
Best Buy violated the “fraudulent” and “unfair” prongs of the
UCL. We address each contention in turn.
1. “Unlawful” Business Practices Claim Against
HSBC
To be “unlawful” under the UCL, the advertisements must
violate another “borrowed” law. Cel-Tech, 973 P.2d at 539-40
(“[S]ection 17200 borrows violations of other laws and treats
them as unlawful practices that the unfair competition law
makes independently actionable.”) (internal quotation marks
omitted). “[V]irtually any state, federal or local law can serve
as the predicate for an action under section 17200.” People ex
rel. Bill Lockyer v. Fremont Life Ins. Co., 128 Cal. Rptr. 2d
463, 469 (Ct. App. 2002) (internal citation and quotation
marks omitted). In this case, Davis alleges that the advertise-
ments violated OCC regulation 12 C.F.R. § 7.4008(c), which
states that “[a] national bank shall not engage in unfair or
deceptive practices within the meaning of section 5 of the
Federal Trade Commission Act, 15 U.S.C. [§ ] 45(a)(1), and
regulations promulgated thereunder in connection with loans
made under this § 7.4008.” Defendants admit that the RZMC
credit card loan was made pursuant to 12 C.F.R. § 7.4008, so
the question is whether their conduct was unfair or deceptive.5
[18] A practice is deceptive under section 5 “(1) if it is
likely to mislead consumers acting reasonably under the cir-
cumstances (2) in a way that is material.” F.T.C. v. Cyber-
space.com LLC, 453 F.3d 1196, 1199 (9th Cir. 2006). For the
5
Davis also argues that the disclosure of the annual fee in the online
application was “unfair and deceptive” in violation of the OCC regulation
and was therefore “unlawful” under the UCL. However, because the safe
harbor protects the application, this basis for the UCL claim must fail.
While we are sensitive that there may be some facial tension between the
TILA safe harbor and the OCC regulation in this situation, we need not
address it here because (1) the California Supreme Court has not indicated
that such a tension thwarts the safe harbor, and (2) in any event, the parties
have not raised this issue.
10390 DAVIS v. HSBC BANK NEVADA
same reasons discussed above with respect to the FAL claim,
we reject the argument that the advertisements were deceptive
under section 5. No reasonable consumer would have been
deceived by these advertisements into thinking that no annual
fee would be imposed.
Nor were the advertisements unfair. A practice is “unfair”
under section 5 only if it “causes or is likely to cause substan-
tial injury to consumers which is not reasonably avoidable by
consumers themselves and not outweighed by countervailing
benefits to consumers or to competition.” 15 U.S.C. § 45(n).
“In determining whether consumers’ injuries were reasonably
avoidable, courts look to whether the consumers had a free
and informed choice.” F.T.C. v. Neovi, Inc., 604 F.3d 1150,
1158 (9th Cir. 2010). An injury is reasonably avoidable if
consumers “have reason to anticipate the impending harm and
the means to avoid it,” or if consumers are aware of, and are
reasonably capable of pursuing, potential avenues toward mit-
igating the injury after the fact. Orkin Exterminating Co., Inc.
v. F.T.C., 849 F.2d 1354, 1365-66 (11th Cir. 1988) (cited
approvingly in Neovi, 604 F.3d at 1158).
Davis’s alleged injury was certainly avoidable before he
completed the application for the RZMC. The advertisement
contained the disclaimer, “other restrictions may apply,”
which would have motivated a reasonable consumer to con-
sult the terms and conditions. If that were not enough, the
online application used boldface and oversized font to alert
Davis to the Important Terms & Disclosure Statement,
instructing him to “read the notice below carefully.” The dis-
claimer and the terms and conditions were enough to give a
reasonable consumer “reason to anticipate” the possibility of
fees. Additionally, the fact that Davis was required to check
the box indicating his assent before completing the applica-
tion meant that he could have aborted his application upon
reading the terms and conditions. This provided “the means
to avoid” the alleged harm.
DAVIS v. HSBC BANK NEVADA 10391
[19] The annual fee was also avoidable after the account
was opened. Pursuant to the Cardmember Agreement, which
Davis admits he received after completing the application, the
annual fee was completely refundable if Davis closed his
account within 90 days without using the card. Davis refused
to do so, citing the negative impact it would have on his credit
score. The question, however, is not whether subsequent miti-
gation was convenient or costless, but whether it was “reason-
ably possible.” Orkin, 849 F.2d at 1365. Under these
circumstances, we conclude that Davis reasonably could have
avoided the annual fee, and therefore that the advertisements
were not unfair under section 5. Accordingly, the advertise-
ments were not “unlawful” under the UCL.
2. “Fraudulent” and “Unfair” Business Practices
Claim Against Best Buy
[20] A business practice is fraudulent under the UCL if
members of the public are likely to be deceived. Puentes v.
Wells Fargo Home Mortg., Inc., 72 Cal. Rptr. 3d 903, 909
(Ct. App. 2008). The challenged conduct “is judged by the
effect it would have on a reasonable consumer.” Id. (internal
citation and quotation marks omitted). For the same reasons
that we rejected Davis’s FAL claim, we also conclude that the
advertisements were not fraudulent under the UCL.
Last, we turn to Davis’s contention that Best Buy’s adver-
tisements were “unfair” under the UCL. The UCL does not
define the term “unfair.” In fact, the proper definition of “un-
fair” conduct against consumers “is currently in flux” among
California courts. Lozano, 504 F.3d at 735. Before Cel-Tech,
courts held that “unfair” conduct occurs when that practice
“offends an established public policy or when the practice is
immoral, unethical, oppressive, unscrupulous or substantially
injurious to consumers.” S. Bay Chevrolet v. Gen. Motors
Acceptance Corp., 85 Cal. Rptr. 2d 301, 316 (Ct. App. 1999)
(internal quotation marks omitted). Under this approach,
courts must examine the practice’s “impact on its alleged vic-
10392 DAVIS v. HSBC BANK NEVADA
tim, balanced against the reasons, justifications and motives
of the alleged wrongdoer.” Id. (internal quotation marks omit-
ted). In short, this balancing test must weigh “the utility of the
defendant’s conduct against the gravity of the harm to the
alleged victim.” Id. (internal quotation marks omitted).
Cel-Tech held that the balancing test was “too amorphous”
and “provide[d] too little guidance to courts and businesses.”
973 P.2d at 543. Instead, the court held that “unfair” means
“conduct that threatens an incipient violation of an antitrust
law, or violates the policy or spirit of one of those laws
because its effects are comparable to or the same as a viola-
tion of the law, or otherwise significantly threatens or harms
competition.” Id. at 544. It further required that “any finding
of unfairness to competitors under section 17200 be tethered
to some legislatively declared policy or proof of some actual
or threatened impact on competition.” Id. However, the court
expressly limited its new test to actions by competitors alleg-
ing anti-competitive practices, emphasizing that “[n]othing
we say relates to actions by consumers or by competitors
alleging other kinds of violations of the unfair competition
law such as ‘fraudulent’ or ‘unlawful’ business practices or
‘unfair, deceptive, untrue or misleading advertising.’ ” Id. at
544 n.12.
“Following Cel-Tech, appellate court opinions have been
divided over whether the definition of ‘unfair’ under the UCL
as stated in Cel-Tech should apply to UCL actions brought by
consumers.” Durell v. Sharp Healthcare, 108 Cal. Rptr. 3d
682, 695 (Ct. App. 2010) (internal citation and quotation
marks omitted); see also Lozano, 504 F.3d at 736 (“The Cali-
fornia courts have not yet determined how to define ‘unfair’
in the consumer action context after Cel-Tech.”). As we previ-
ously have summarized, some courts in California have
extended the Cel-Tech definition to consumer actions, while
others have applied the old balancing test, or borrowed the
three-pronged test set forth in the FTC Act. Lozano, 504 F.3d
DAVIS v. HSBC BANK NEVADA 10393
at 736; see also Durell, 108 Cal. Rptr. 3d at 695-96 (describ-
ing split of authority).
The question then is whether we are to apply the new defi-
nition in Cel-Tech, or to follow the former balancing test
under South Bay. 504 F.3d at 736. In this regard, the district
court erred when it held that Davis could not invoke the
unfairness prong at all. The proper inquiry is what definition
of “unfair” must apply to Davis’s claim.
We need not resolve that question here, however, because
Davis fails to state a claim under either definition. With
respect to Cel-Tech, Davis advances no factual allegations to
support the claim that the omission of the annual fee in Best
Buy’s advertisements threatens to violate the letter, policy, or
spirit of the antitrust laws, or that it harms competition. As for
the balancing test, we begin by noting that nothing in the FAC
supports the conclusion that the advertisements were against
public policy, immoral, unethical, oppressive, or unscrupu-
lous. Quite the opposite, the advertisements warned that
“other restrictions might apply,” and the subsequent applica-
tion process clearly disclosed the annual fee. More than this,
Davis had the opportunity to cancel the account for a full
refund within 90 days.
[21] Because Davis failed to read the terms and conditions
before agreeing to them, and because he refused to cancel his
card within 90 days, even when viewing the facts in Davis’s
favor, we must conclude that any harm he suffered was the
product of his own behavior, not the advertisements. As a
result, we cannot say that the FAC alleges “above the specula-
tive level” that the advertisements themselves caused any
harm. Bell Atl. Corp., 550 U.S. at 555. Meanwhile, any harm
is offset by Best Buy’s strong justification for publishing the
advertisement. Specifically, although Regulation Z does not
expressly permit the omission of the annual fee disclosure
from advertisements, it surely does not require such disclo-
sure where, as here, the advertisement does not include spe-
10394 DAVIS v. HSBC BANK NEVADA
cific terms that trigger additional disclosure. 12 C.F.R.
§ 226.16(b). Therefore, Best Buy justifiably relied on this fed-
eral guidance in circulating the advertisements. While we are
mindful that what is “unfair” is a question of fact, “which
involves an equitable weighing of all the circumstances, . . .
we will affirm a judgment of dismissal where the complaint
fails to allege facts showing that a business practice is unfair.”
Bardin v. Daimlerchrysler Corp., 39 Cal. Rptr. 3d 634, 644
(Ct. App. 2006). Davis fails to plead facts to show that Best
Buy engaged in an unfair business practice as defined in
South Bay.
In sum, Defendants’ online application is protected by the
safe harbor doctrine. As for Defendants’ advertisements,
Davis fails to allege that they were “unlawful” as they were
not deceptive and their alleged harm was reasonably avoid-
able. Davis also fails to allege that the advertisements were
“fraudulent” or “unfair.” Therefore, the district court properly
dismissed the UCL claims in their entirety.6
IV. CONCLUSION
The district court properly incorporated the disclosure doc-
uments, and we affirm its order dismissing Davis’s complaint
with prejudice.
AFFIRMED.
6
Although Defendants argue on appeal, as they did at the district court,
that Davis’s UCL claims are preempted by federal law, we need not reach
that issue because we conclude that Davis has failed to state a claim under
the UCL.