Cisco Sys., Inc. v. STMicroelectronics, Inc.

• Decision Date: 29 December 2014
• Docket Number: Case No. C–14–03236–RMW
• Citation: 77 F.Supp.3d 887
• Court: U.S. District Court — Northern District of California
• Parties: Cisco Systems, Inc., Plaintiff, v. STMicroelectronics, Inc., Defendant.

77 F.Supp.3d 887

Cisco Systems, Inc., Plaintiff

v.STMicroelectronics, Inc., Defendant.

Case No. C–14–03236–RMW

United States District Court, N.D. California, San Jose Division.

Signed December 29, 2014

Dan Keith Webb, Joel Erik Connolly, Winston and Strawn LLP, Chicago, IL, Krista M. Enns, Winston & Strawn LLP, San Francisco, CA, for Plaintiff.

Sara B. Brody, Nicole Marie Ryan, Ryan Gregory Fant, Sidley Austin LLP, San Francisco, CA, for Defendant.

ORDER GRANTING IN PART DEFENDANT'S MOTION TO DISMISS AND DENYING DEFENDANT'S MOTION TO STRIKE

[Re Docket Nos. 37, 38]

Ronald M. Whyte, United States District Judge

Plaintiff Cisco Systems Inc.'s (“Cisco”) first amended complaint (“FAC”) against defendant STMicroelectronics, Inc. (“ST Micro US”) alleges claims of negligence, negligent and intentional misrepresentations, and negligent and intentional interference with business relations. Dkt. No. 21(FAC). Defendant filed a motion to dismiss (“MTD”) the FAC under Federal Rules of Civil Procedure 8(a), 9(b), and 12(b)(6) on the grounds that it fails to state a claim upon which relief can be granted. Dkt. No. 37 (MTD). Defendant also filed a motion to strike in part. Dkt. No. 38. For the reasons stated below, the court GRANTS IN PART defendant's motion to dismiss and DENIES the motion to strike.

I. Background

This dispute centers on the unusually high failure rates of cable set-top boxes sold by Cisco to cable companies in India. Cisco is a major supplier of set-top boxes in India. FAC ¶ 20. By mid–2013, the Indian set-top market had become an important source of revenue for Cisco and Cisco anticipated continued growth in the market. FAC ¶ 1. Cisco used the Viper17LN chip in the power supply units of its set-top boxes. FAC ¶ 2. The Viper chip was manufactured by various subsidiaries of STMicroelectronics, N.V. Defendant ST Micro U.S. is also a subsidiary of ST Microelectronics, N.V., but is not the manufacturer of the Viper chip. The court refers to the parent together with its various subsidiaries collectively as “ST Micro”, except as otherwise specified.

In 2012 ST Micro changed its process for manufacturing the Viper chip. FAC ¶ 25. ST Micro did not inform Cisco of these changes when they were made. FAC ¶ 25. These changes led the Viper chips to experience excessive leakage of current (referred to as IDSS leakage), which in turn led to overheating of the chip and shut-down of the set-top box. FAC ¶ 26.

In May 2013, one of Cisco's set-top box manufacturers observed failures with the Viper chip. FAC ¶ 29. Cisco then reported the potential problem to ST Micro and sent the chip in for failure analysis. FAC ¶ 29. ST Micro generated a Customer Complaint Report which concluded that the defect was random in nature, and that the Viper chip was not defective. FAC ¶ 29. Nonetheless, ST Micro decided to make further changes in its manufacturing processes. Dkt. No. 44–1, Ex–1 to FAC. Cisco alleges that ST Micro would not have made these changes unless it knew that the Viper chips had a “significant latent defect escape problem or, at least, the potential for a latent defect.” FAC ¶ 31. According to Cisco, the changes did not solve the IDSS leakage problem. FAC ¶ 31.

Indeed, through further communications involving employees of ST Micro U.S. and other ST Micro subsidiaries, Cisco reported that Viper chips continued to fail. On June 10 and 12, 2013, Cisco communicated to ST Micro U.S. its preliminary analysis indicating that ST Micro's chip was defective and causing set-top failures, and sought ST Micro's assistance with addressing and remedying the set-top failures. FAC ¶¶ 44, 45. ST Micro promised to provide Cisco its full assistance, including complete and accurate information regarding its chip and the measures it was making to identify and solve the leakage issue. FAC ¶ 4. ST Micro U.S. provided Cisco with a list of employees from different ST Micro offices or subsidiaries, including subsidiaries located in U.S.A., Italy, China, and Hong Kong. FAC ¶ 38. ST Micro represented to Cisco that these employees were knowledgeable about the Viper chip defect and could help analyze the set-top box failures. FAC ¶¶ 38, 47. Cisco frequently communicated with this “core group” from ST Micro while it investigated the issue. FAC ¶ 47.

From June 2013 to September 2013, ST Micro assured Cisco that its manufacturing changes had solved the leakage problem. However, Cisco continued to observe abnormal failure rates, even with chips from manufacturing lots that ST Micro assured Cisco were fixed. FAC ¶¶ 50–104. Throughout this process, Cisco communicated with ST Micro's “core team” in charge of the Viper chip issue, including employees of ST Micro US. FAC ¶¶ 95.

Finally, in November 2013 ST Micro provided Cisco with an official communication acknowledging the Viper chip problems.

FAC ¶ 119, 122. Up to that point in their communications with Cisco, ST Micro had continued to refuse to acknowledge that the Viper chip was the sole root cause of the set-top failures. In December the two companies met to conduct tests on 155 set-top boxes that had Viper chips. FAC ¶ 123–26. Following these tests, an ST Micro employee represented on behalf of ST Micro that the “Viper chip did have a problem, and any statement by any ST Micro representative to the contrary was incorrect.” FAC ¶ 127–28.

On December 19, 2013, ST Micro sent Cisco a final PowerPoint presentation acknowledging responsibility for the Viper chip issue, its improper reaction to the situation, and summarizing its responsibility. FAC ¶ 129–30.

II. Analysis

A. Standard for Motion to Dismiss

To survive a motion to dismiss, a plaintiff must allege “enough facts to state a claim to relief that is plausible on its face.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ; Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1949–50, 173 L.Ed.2d 868 (2009). “The plausibility standard is not akin to a ‘probability requirement,’ but it asks for more than a sheer possibility that a defendant has acted unlawfully. Where a complaint pleads facts that are ‘merely consistent with’ a defendant's liability, it stops short of the line between possibility and plausibility of ‘entitlement to relief.’ ” Iqbal, 129 S.Ct. at 1949 (quoting Twombly, 550 U.S. at 556, 127 S.Ct. 1955 ). The Ninth Circuit has clarified that (1) a complaint must “contain sufficient allegations of underlying facts to give fair notice and to enable the opposing party to defend itself effectively,” and (2) “the factual allegations that are taken as true must plausibly suggest an entitlement to relief, such that it is not unfair to require the opposing party to be subjected to the expense of discovery and continued litigation.” Starr v. Baca, 652 F.3d 1202, 1216 (9th Cir.2011) ; Contreras v. JPMorgan Chase, 2014 WL 4247732 (C.D.Cal. Aug. 28, 2014).

Although the scope of review is limited to the contents of the complaint, the court may also consider exhibits submitted with the complaint. Hal Roach Studios, Inc. v. Richard Feiner & Co., 896 F.2d 1542, 1555 n. 19 (9th Cir.1990).

Defendant moves to dismiss each of plaintiff's claims because (1) plaintiff failed to make allegations against ST Micro US, rather than against ST Micro generally, and (2) plaintiff fails to allege each element of the claims asserted.

B. The Complaint Contains Specific Allegations Against ST Micro US

Defendant's first argument is that plaintiff's complaint only alleges facts against ST Micro generally, and does not allege facts specific to ST Micro US. MTD at 8. This is not persuasive because the FAC names individual employees, their specific statements or acts, and specifies which subsidiary they are employed by. FAC ¶¶ 11–16. The FAC therefore contains allegations which would be sufficient to show primary liability by ST Micro US, through acts of ST Micro U.S. employees, as further explained below. Cisco further explains that the reason it makes allegations as to “ST Micro” generally is that the ST Micro U.S. employees and officers are responsible for the actions of the employees in the other offices, on the theory that ST Micro U.S. employees endorsed and ratified the actions of the employees in the other offices and conspired with them. FAC ¶ 16. The FAC alleges that ST Micro U.S. is secondarily liable for the actions of ST Micro generally through a civil conspiracy theory. The court finds that the FAC does not allege sufficient facts to support secondary liability of ST Micro U.S. under a theory of civil conspiracy. Conspiracy is not a cause of action, but a legal doctrine that imposes liability on persons who, although not actually committing a tort themselves, share with the immediate tortfeasors a common plan or design in its perpetration. Applied Equip. Corp. v. Litton Saudi Arabia Ltd., 7 Cal.4th 503, 510–11, 28 Cal.Rptr.2d 475, 869 P.2d 454 (1994). The elements of an action for civil conspiracy are the formation and operation of the conspiracy and damage resulting to plaintiff from an act or acts done in furtherance of the common design. Applied Equip. Corp., 7 Cal.4th at 511, 28 Cal.Rptr.2d 475, 869 P.2d 454. To allege the formation and operation of the conspiracy, plaintiff must allege an agreement to commit the wrongful acts. Wasco Products, Inc. v. Southwall Tech., Inc., 435 F.3d 989, 992 (9th Cir.2006). The conspiracy “may be inferred from the nature of the acts done, the relations of the parties, the interests of the alleged conspirators, and other circumstances.” 117 Sales Corp. v. Olsen, 80 Cal.App.3d 645, 649, 145 Cal.Rptr. 778 (1978). But when a plaintiff alleges that a defendant is liable for intentional misrepresentations under a civil conspiracy theory, Rule 9(b) requires that the plaintiff allege with particularity facts that support the existence of a civil conspiracy. Palomares v. Bear Stearns Residential Mortg. Corp., No. 07cv01899, 2008 WL 686683, at *4–5, 2008 U.S. Dist. LEXIS 19407, at *12 (S.D.Cal. Mar. 13, 2008).

The FAC fails...