Barbara's Sales, Inc. v. Intel Corp.

• Decision Date: 25 July 2006
• Docket Number: No. 5-05-0078.,5-05-0078.
• Citation: 857 N.E.2d 717
• Court: United States Appellate Court of Illinois
• Parties: BARBARA'S SALES, INC., Donald Braddy, Michael Bundy, Bundy & Associates, Inc., Rhonda Byington, Rebecca S. Chandler, Vernon Anthony Duenas, Christopher R. Grout, Deanna L. Neubauer, Sandra Pyle, and Richard Rodriguez, Individually and on Behalf of All Others Similarly Situated, Plaintiffs-Appellants and Appellees, v. INTEL CORPORATION, Defendant-Appellant and Appellee (Hewlett-Packard Company and HP Direct, Inc., Defendants).

857 N.E.2d 717

BARBARA'S SALES, INC., Donald Braddy, Michael Bundy, Bundy & Associates, Inc., Rhonda Byington, Rebecca S. Chandler, Vernon Anthony Duenas, Christopher R. Grout, Deanna L. Neubauer, Sandra Pyle, and Richard Rodriguez, Individually and on Behalf of All Others Similarly Situated, Plaintiffs-Appellants and Appellees, v. INTEL CORPORATION, Defendant-Appellant and Appellee (Hewlett-Packard Company and HP Direct, Inc., Defendants).

No. 5-05-0078.

Appellate Court of Illinois, Fifth District.

July 25, 2006.

Stephen M. Tillery, Aaron M. Zigler, Korein Tillery, Saint Louis, MO; Stephen A. Swedlow, Robert L. King, Swedlow & King, LLC, Chicago, for Barbara's Sales, Inc., etc.

Edward M. Crane, R. Ryan Stoll, Gregory S. Bailey, Skadden, Arps, Slate, Meagher & Flom, LLP, Chicago; Gordon R. Broom, Troy A. Bozarth, Wayne D. Skigen, Burroughs, Hepler, Broom, MacDonald, Hebrank & True, LLP, Edwardsville; Terry E. Fenzl, Anthony L. Marks, Timothy J. Franks, Dan L. Bagatell, Perkins Coie Brown & Bain, P.A., Phoeniz, AZ, for Intel Corporation.

Russell K. Scott, Greensfelder, Hemker & Gale, Swansea; John Schultz, Morgan, Lewis & Bockius, L.L.P., Philadelphia, PA, for Hewlett-Packard Co. and HP Direct, Inc.; not a party to appeal; no brief filed.

Robert J. Sprague, Sprague & Urban, Belleville; Stephen C. Mudge, Reed, Armstrong, Gorman, Mudge & Morrissey, P.C., Edwardsville, for Amicus Curiae.

Justice GOLDENHERSH delivered the opinion of the court:

Plaintiffs, Barbara's Sales, Inc., Donald Braddy, Michael Bundy, Bundy & Associates, Inc., Rhonda Byington, Rebecca S. Chandler, Vernon Anthony Duenas, Christopher R. Grout, Deanna L. Neubauer, Sandra Pyle, and Richard Rodriguez, individually and on behalf of all others similarly situated, filed a class action lawsuit in the circuit court of Madison County against Intel Corp. (Intel). Plaintiffs are purchasers of computers containing Intel Pentium 4 computer processors. In their nationwide class action suit, plaintiffs alleged that Intel engaged in unfair business practices through "the omission, suppression[,] and concealment from the public of the material fact that the Pentium 4 processor does not perform to the expectations of a reasonable consumer (i.e., is no faster than the Pentium III, Celeron[,] and AMD Athlon processors)." The circuit court entered a class certification order granting in part and denying in part plaintiffs' motion for class certification. Plaintiffs and Intel filed a joint motion for an interlocutory appeal pursuant to Supreme Court Rule 308 (155 Ill.2d R. 308). Hewlett-Packard Company and HP Direct, Inc., take no part in this appeal. The questions certified for appeal are (1) whether the circuit court erred in certifying a class of Illinois consumers under Illinois law rather than certifying a nationwide or Illinois class under California law as plaintiffs requested and (2) whether the circuit court erred in holding that the action should not proceed as a nationwide class action. We answer both questions in the affirmative, reverse the circuit court's decision on the choice-of-law issue, vacate the class certification, and remand with directions.

BACKGROUND

The named plaintiffs reside in Illinois or Missouri, and most purchased their computers from either Illinois or Missouri retailers. Some of the named plaintiffs purchased their computers over the telephone from Dell, which is located in Texas. However, due to the nationwide sales of computers with Pentium 4 processors, all 50 states potentially have a relationship to this litigation.

Intel is the world's largest manufacturer of microprocessors. Intel began manufacturing them in 1971, starting with the 80286 microprocessor. Since that time, Intel has manufactured the following processors, inter alia: 80386, i486, Pentium, Pentium Pro, Pentium II, Pentium III, and Pentium 4. The title changes for the microprocessors represent advances over the previous microprocessor.

Intel's principal place of business is in California. Its headquarters, executive offices, and legal department are all located in California. Intel is incorporated under Delaware law. Intel's press relations group is located in California, and Intel launched its billion-dollar advertising campaign for its new Pentium 4 processors from California. Likewise, the group responsible for testing the performance of the Pentium 4 processors is located in California. The groups responsible for the design of the Pentium 4 processor are based in California and in Oregon.

Intel's Pentium 4 advertising campaign was based on its claim that the Pentium 4 is the highest performance processor ever developed and vastly superior to its Pentium III processor. The "Intel Inside" campaign was communicated to consumers through both television and print ads, along with the "Intel Inside" sticker that accompanied virtually every computer sold with a Pentium 4 processor. Intel's decision to designate the "Willamette" generation of processors as the Pentium 4 was made by Intel's corporate marketing group and branding strategy group, both of which are located in California. Marketing activities relating to Pentium 4 processors, including presentations at trade shows and training at retail stores, took place at local stores throughout the country.

Intel's marketing strategy was based upon ensuring a consistent message about the Pentium 4 that would cross "all forms of communication and every point of customer contact." Intel taught computer manufacturers such as Dell and Gateway and retailers such as Best Buy and CompUSA how to advertise and market computers built with Pentium 4 processors, thereby ensuring consistency in its message to consumers. Intel also sought to control independent organizations responsible for testing microprocessors' performance.

The testing of computer processors is called "benchmarking." Intel sought to educate the press on benchmarking and to influence consumer and technology analysts in an attempt to get them to champion the Pentium 4 processor. Internal documents reveal that Intel specifically set out to show that the Pentium 4 was the best processor to date: "The most important thing is our Brand and what it stands for. We have taught the market that four is better than three."

After purchasing computers with Pentium 4 processors, the named plaintiffs were disappointed. Plaintiffs dispute Intel's claims about the Pentium 4 being vastly superior to the Pentium III. Plaintiffs' concerns are mainly with the early version of the Pentium 4, the "Willamette" generation. Intel's own documents reveal problems with the Pentium 4. For example, Intel revealed that most benchmarks showed a negative or zero performance gain for the Pentium 4 and that the performance of the Pentium 4 was not as high as expected. These low benchmark results were not disseminated to consumers.

Plaintiffs filed a nationwide, three-count, class action lawsuit against Intel. Count I of plaintiffs' third amended complaint was filed under the California Consumers Legal Remedies Act (Cal. Civ.Code § 1750 et seq. (West 2002)). Count II was filed under California's unfair competition law (Cal. Bus. & Prof.Code § 17200 et seq. (West 2002)). Count III was pled as an alternative count under the Illinois Consumer Fraud and Deceptive Business Practices Act (815 ILCS 505/1 et seq. (West 2002)).

On December 16, 2002, plaintiffs filed a motion for class certification. Intel opposed plaintiffs' motion. Plaintiffs and Intel submitted briefs, stipulations, affidavits, deposition testimony, and documentary evidence on behalf of their respective positions on the issue of class certification. On July 12, 2004, after a two-day hearing on plaintiffs' motion, the trial court entered a class certification order, granting in part and denying in part plaintiffs' motion.

First, the trial court held that California law was inapplicable. The trial court found that the question to be answered was, "Does Illinois have a legitimate interest in applying California law to adjudicate this dispute and to insure [sic] that California residents (Intel) comply with California consumer-protection laws while serving Illinois and out-of-state consumers?" The trial court found that Illinois does not have a legitimate interest in applying California law to adjudicate the dispute because California does not have the "most significant relationship" with this action. The trial court denied class certification for count I and count II of plaintiffs' third amended complaint. Those counts were based upon California statutes.

Second, the trial court found that Illinois law could not be applied to a nationwide class and that, thus, class certification extended only to consumers who lived in or purchased a computer with a Pentium 4 processor in Illinois. Plaintiffs and Intel both appeal from the trial court's order regarding class certification. Briefs, reply briefs, supplemental briefs, and amicus curiae briefs have been submitted by and in support of the parties.

ANALYSIS

We begin our analysis by first addressing plaintiffs' choice-of-law arguments. Plaintiffs assert the trial court misapplied Illinois choice-of-law principles when it held that Illinois has no interest in applying California law. According to plaintiffs, the standard is whether California has an interest in having California law applied to this dispute and whether California's interest is superior to Illinois's interest. Plaintiffs contend California law, rather than Illinois law, applies because Intel's conduct with regard to the Pentium 4 processor took place in California. Plaintiffs point out, for example, that Intel named, promoted, marketed, tested, and priced the Pentium 4 processor in California.

Intel replies that California law should not be applied because a state court's application of another state's law to the claims of a nationwide class would be both unconstitutional and a "novel expansion" of...