Cheatham v. ADT Corp.

• Decision Date: 11 February 2016
• Docket Number: No. CV-15-02137-PHX-DGC,CV-15-02137-PHX-DGC
• Citation: 161 F.Supp.3d 815
• Parties: Janet Cheatham, Plaintiff, v. ADT Corporation, et al., Defendants.
• Court: U.S. District Court — District of Arizona

161 F.Supp.3d 815

Janet Cheatham, Plaintiff,

v.ADT Corporation, et al., Defendants.

No. CV-15-02137-PHX-DGC

United States District Court, D. Arizona.

Signed February 11, 2016

Francis Joseph Balint, Jr., William Fleming King, Bonnett Fairbourn, Friedman

& Balint PC, Phoenix, AZ, for Plaintiff.

J. Steven Sparks, Sanders & Parks PC, Phoenix, AZ, C. Sanders McNew, McNew PA, Boca Raton, FL, for Defendants.

ORDER

David G. Campbell

, United States District Judge

On September 9, 2015, Plaintiff Janet Cheatham initiated this action by filing a class action complaint against Defendants ADT Corporation (“ADT Corp.”) and ADT LLC in the Maricopa County Superior Court. Doc. 1-1 at 9-33. The complaint asserts claims against ADT LLC for consumer fraud and unjust enrichment, and claims against ADT Corp. for consumer fraud, unjust enrichment, and strict products liability. Id.

On October 23, 2015, Defendants removed the action to this Court pursuant to 28 U.S.C. § 1441(a)

, asserting federal jurisdiction under the Class Action Fairness Act of 2005, 28 U.S.C. § 1332(d)(2). Doc. 1-1 at 1-7. Each Defendant has filed its own motion to dismiss. ADT Corp. asks the Court to dismiss it from this case for lack of personal jurisdiction or, in the alternative, to dismiss the case for failure to state a claim. Doc. 9. ADT LLC asks the Court to dismiss the case for failure to state a claim or, in the event any of Plaintiff's claims survive, to strike Plaintiff's class allegations. Doc. 10.

The motions have been fully briefed (Docs. 17, 18, 19, 24) and no party has requested oral argument. For the reasons set forth below, ADT Corp.'s motion will be granted, and ADT LLC's motion will be granted in part and denied in part.

I. Background.

A. Parties.

Plaintiff is a resident and citizen of Maricopa County, Arizona. Complaint, ¶ 16. Defendant ADT Corp. is a Delaware corporation with its principal place of business in Boca Raton, Florida. Id. , ¶ 17. Defendant ADT LLC is a Florida limited liability corporation with its principal place of business in Boca Raton. Id. , ¶ 18. Defendants are in the business of selling home security equipment and monitoring services across the nation, including in Arizona. Id. , ¶ 20. This case concerns the company's wireless home security system.

B. ADT's Wireless Security System.

ADT's wireless security system uses a variety of devices—including wireless panels, sensors, detectors and cameras—to monitor a customer's home. See www.adt.com/wireless-security (accessed Jan. 18, 2016). If an unauthorized entry is detected, ADT alerts the user and offers to contact the police. See id.

In July 2014, Forbes published an article detailing vulnerabilities associated with this system. See Kashmir Hill, How Your Security System Could Be Used to Spy on You , Forbes (Jul. 23, 2014), www.forbes.com/sites/kashmirhill/2014/07/23/how-your-security-system-could-be-used-to-spy-on-you (accessed Jan. 18, 2016). The article explains that the system's components communicate with one another using unencrypted and unauthenticated signals. Id. An unauthorized third party can interfere with these signals, thereby gaining control of the system. Id. According to the article, one researcher found a way to hack into a research participant's security system using a readily available device called a “Software-Defined Radio.” Id. Using this device, the researcher could deactivate the participant's security system, trigger a false alarm, and spy on the participant using her system's video monitoring equipment. Id.

Plaintiff's allegations largely track the Forbes article. She alleges that “ADT's wireless systems are unencrypted and unauthenticated, and otherwise insecure,” that they are easily hacked by third parties, and that a hacker can deactivate a customer's system, trigger a false alarm, or use the customer's cameras to spy on her. Complaint, ¶¶ 30-33. She alleges that all of this can be done using a Software-Defined Radio, and that it is possible to purchase such a device on the open market with no restrictions for less than $10. Id. , ¶ 34. Finally, she alleges that ADT has been aware of these vulnerabilities at least since the Forbes article was published. Id. , ¶ 35.

Plaintiff contends that ADT has engaged in unlawful deception since discovering these security vulnerabilities. She alleges that ADT does not warn its customers to take precautions against hacking, and does not inform them that its system uses unencrypted and unauthenticated signals. Id. , ¶¶ 38, 42. She further alleges that ADT deliberately refuses to disclose this information because it knows that consumers would not purchase an ADT wireless security system if they knew about these vulnerabilities. Id. , ¶ 45. According to Plaintiff, “customers are much less safe than they think that they are when ADT's wireless systems are activated.” Id. , ¶ 44.

C. Marketing Statements.

Plaintiff also contends that ADT produces advertisements for its wireless security system that are misleading in light of the system's vulnerabilities. Complaint, ¶¶ 24-29. She points to a number of statements on the company's website. Id. For example, the website encourages consumers to “get security you can count on every day of the year” and to “live worry-free with ADT Security for less than $1 a Day.” Id. , ¶ 25(a), (c) (punctuation and capitalization modified). It states that ADT can provide the customer with a “haven...armed with 24-hour-a-day protection, 365 days a year.” Id. , ¶ 25(b). And it promises “fast, reliable security protection,” explaining:

ADT stays constantly alert with six Customer Monitoring Centers operating day and night across the country. Our Customer Monitoring Centers are nationally connected, equipped with secure communication links and backed by the latest technology so that our security team is always ready to act the moment an incident occurs.

Id. , ¶ 25 (punctuation and capitalization modified).

ADT's website makes a number of additional claims about the reliability and efficacy of its wireless security system. For example:

• “When you want to do everything you can to safeguard your loved ones, your home and your treasured possessions, you owe it to yourself and your family to talk to us about our continuous 24/7 protection.”

• “When it comes to you and your family's safety, we let nothing stand in the way of our professionally trained team immediately working to help ensure your safety.”

• “Only home security monitoring provides you and your family with the reassurance that even when no one's home, you're protected against unwanted entry and property loss.”

• “When the alarm is triggered, every second counts.”

• “When security counts, count on the company with a fast response time.”

Id. , ¶ 26.

ADT's website also emphasizes the technological sophistication of ADT and its products. For example:

• “ADT takes pride in using the most advanced technology.”

• “Only ADT has the most security industry experience, is the leader in innovative security technology, and can provide you with the fastest response times.”

• “Our experience, technology and people make the difference in your security protection.”

• “You invest in ADT home security and automation systems to help protect your loved ones. Your satisfaction is important to us, and is the reason we are committed to providing you with state-of-the-art equipment and service.”

Id ., ¶ 28.

D. Facts Specific to Plaintiff.

Plaintiff alleges that she decided to purchase an ADT wireless security system after seeing the web advertisements discussed above. Id. , ¶ 47. On May 29, 2013, she signed a contract under which Defender Security Company—an authorized ADT dealer—agreed to sell and install the system components in her home, and ADT LLC agreed to provide monitoring services using this equipment. Id. , ¶ 48. Plaintiff asserts that ADT Corp. provided Defender Security Company with the equipment it sold to her, but she acknowledges that she had no direct interaction with ADT Corp. Id. , ¶ 50.

In November 2014, Plaintiff noticed items moved in her residence on several occasions. Id. , ¶¶ 54-55. These incidents—which Plaintiff characterizes as “security breaches”—were not detected by her wireless security system. Id. Plaintiff began to research her security system after these incidents, which is when she discovered that the system used unencrypted and unauthenticated signals. Id. , ¶ 56. Plaintiff contends that she would not have purchased her security system or entered into a monitoring contract with ADT LLC if she had known about the system's lack of encryption and authentication at the time of these transactions. Id. , ¶ 57. Notwithstanding her dissatisfaction, Plaintiff remains bound to her contract with ADT LLC and will have to pay a penalty to cancel it. Id. , ¶ 58.

E. This Action.

Plaintiff asserts claims against ADT LLC and ADT Corp. for consumer fraud and unjust enrichment, and an additional claim against ADT Corp. for strict products liability. Plaintiff purports to bring this action on behalf of herself and a putative class that includes “[a]ll Arizona residents and entities who entered into an ADT Alarm Services Contract and purchased ADT Corp. wireless security equipment.” Id. , ¶ 59. She requests several forms of relief, including actual and punitive damages, an injunction requiring ADT to “secure its wireless systems,” and an injunction requiring ADT to warn class members about the vulnerability of its system. Id. , ¶¶ 85, 96, 104.

Plaintiff contends that her putative class likely consists of thousands of individuals and entities in Arizona. Id. , ¶ 60. She contends that her claims are typical of those possessed by members of the class because (1) all of ADT's wireless security systems have the same defect (i.e., the lack of encryption or authentication), (2) anyone who purchases monitoring services from ADT LLC must enter the same contract, and (3) ADT's misrepresentations and omissions “were uniformly made to Plaintiff and all Class members.” Id. , ¶ 62. Fin...