Hilton v. Apple Inc.

• Decision Date: 01 October 2013
• Docket Number: No. C-13-2167 EMC,C-13-2167 EMC
• Parties: DEBRA HILTON, on Behalf of Herself and All Others Similarly Situated, Plaintiff, v. APPLE INC., Defendant.
• Court: U.S. District Court — Northern District of California

DEBRA HILTON, on Behalf of Herself and All Others Similarly Situated, Plaintiff, v. APPLE INC., Defendant.

No. C-13-2167 EMC

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA

Dated: October 1, 2013

ORDER GRANTING IN PART

DEFENDANT'S MOTION TO DISMISS

OR STAY PROCEEDINGS; AND

DENYING AS MOOT DEFENDANT'S

(1) MOTION TO DISMISS AND/OR

STRIKE COMPLAINT; AND (2)

MOTION TO COMPEL ARBITRATION

(Docket Nos. 6, 7, 11)

I. INTRODUCTION

On May 10, 2013, Plaintiff Debra Hilton filed the instant putative class action against Apple Inc. alleging that Apple's iPhone 4 contains a latent defect which causes the power button on the phone to stop working. (Complaint, Dkt. No. 1). Before this Court are three motions: Defendant's Motion to Dismiss And/Or Strike Complaint (Dkt. No. 6), Defendant's Motion to Dismiss, or in the Alternative Stay Proceedings in Favor of First-Filed Action (Dkt. No. 7), and Defendant's Motion to Compel Arbitration of Claims and to Stay (Dkt. No. 11). Pursuant to Civil Local Rule 7-1(b), the Court determines that the matters are appropriate for resolution without oral argument.

The Court concludes that the first-to-file rule applies and that the case of Missaghi v. Apple, Inc., et al., No. 13-CV-2003-GAF, before the Central District of California is the earlier filed action. Although Apple has only moved to have the instant action dismissed or stayed in favor of the Missaghi action, the parties are ordered to show cause why this action should not be transferred to the Central District of California.

Because the Court finds that the first-to-file rule applies, Defendant's other motions are DENIED as moot.

II. FACTUAL & PROCEDURAL BACKGROUND

A. Factual Allegations Contained in the Instant Action

Plaintiff Debra Hilton filed the instant action as a putative class action on May 10, 2013. (Dkt. No. 1). Plaintiff alleges that she owns an iPhone 4 which she used on AT&T's mobile network. (Id. ¶ 30). Fifteen months after the phone had been purchased, and three months after its warranty expired, she claims that the power button on her iPhone 4 failed, keeping her from being able to turn on or off her phone. (Id.) Because her iPhone 4 was out of warranty, Plaintiff alleges that Apple refused to repair or replace her phone for free, but rather required her to pay $149.99 for a replacement phone. (Id. ¶ 32).

Plaintiff alleges that all iPhone 4s suffer a "latent defect" in their power button, affecting "thousands of consumers." (Id. ¶ 17). Specifically, she alleges that

each iPhone 4 contains a flex cable that connects the power button to the phone. Premature deterioration of the flex cable causes the power button to become harder and harder to depress until eventually it becomes entirely unresponsive requiring costly repair.

(Id. ¶ 13). This defect allegedly causes the iPhone 4 to "not work for the reasonably expected lifespan of the product." (Id. ¶ 23). Apple is alleged to have known about this defect and that the defect would "be substantially certain to exhibit itself within approximately 18 months of the phone's first use." (Id. ¶ 15). The complaint contains a sampling of complaints that consumers have posted on various forums, including Apple's support forums. (See id. ¶¶ 18-25).

The complaint alleges that Apple and AT&T formed a RICO enterprise through association-in-fact. This association-in-fact is alleged to be designed to further the sale of Apple iPhones serviced by AT&T. (Id. ¶¶ 34-36). In furtherance of this alleged RICO enterprise, Plaintiff claims that Apple

sent, received, and exchanged, through the use of interstate wires, numerous emails with personnel at AT&T during which Apple touted the superior attributes of the iPhone 4, but craftily and fraudulently omitted mentioning any disclosure of the material defect plaguing thephone's Power Button. Apple did the same in mailed communications with personnel at AT&T that were sent via the United States mail.

(Id. ¶ 43). Plaintiff, and the other members of the class, are alleged to have relied on this material omission regarding the suitability of the iPhone 4's power button. (Id. ¶ 45).

On the basis of these allegations, Plaintiff asserts three causes of action, one under RICO, 18 U.S.C. § 1962(c), one under RICO 18 U.S.C. § 1962(b), and one state law claim under California's UCL, Cal. Bus. & Prof. Code § 17200, et seq. (Id. ¶¶ 56-79).

Plaintiff seeks to represent a class defined as "all consumers who purchased an iPhone 4 for their own use . . . from either Apple or AT&T in the United States." (Dkt. No. 1, at 13).

B. Apple Moves to Dismiss or Stay Based on the First to File Rule

On July 8, 2013, Apple filed a motion to dismiss or stay proceedings in favor of a first-filed action. (Dkt. No. 7).¹ Apple bases this motion on the existence of a previously filed action currently pending before Judge Gary Feess in the Central District of California, Missaghi v. Apple, Inc., et al., No. 13-CV-2003-GAF. (Id. at 1). Apple alleges that the Missaghi case and the instant case "assert identical causes of action, are based on the same allegations, and seek the same relief on behalf of the same class of consumers." (Id.)

C. The Missaghi Proceedings

The Missaghi case was filed in Los Angeles County Superior Court on February 14, 2013 against Apple and 100 Doe defendants. (Dkt 7, Ex. A, at 2). This class action complaint alleged that the iPhone 4 and iPhone 4S "was defective and unsuitable for its intended use. Specifically, after a number of uses, the power button on the IPHONE 4 becomes stuck. Thereafter, the user is unable to power off or reboot the device." (Id. at 3). The complaint further alleged that Apple "had knowledge of the defect" and "failed to disclose the design defect" in the iPhone 4 and iPhone 4S. (Id. at 7). The complaint asserted five causes of action: (1) Breach of Warranty; (2) Breach of the Implied Warranty of Merchantability; (3) Unjust Enrichment; (4) Violation of the Magnuson-RossWarranty Act (15 U.S.C. § 2301); and (5) Violation of the California UCL. (Id. at 5-10).² Mr. Missaghi's state law complaint sought to represent a class of all purchasers of an iPhone 4 or iPhone 4S. (Id. at 2).

Apple removed the action to federal court under the Class Action Fairness Act on March 30, 2013. Apple then moved to dismiss and strike the complaint. On May 31, 2013, Judge Feess granted Apple's motion in part. (Dkt. No. 7, Exh. E). First, the court dismissed the first amended complaint with leave to amend on the basis that the Mr. Missaghi lacked standing as pleading because "Plaintiff has failed even to plead which product he purchased, and has neither explicitly nor implicitly alleged that he suffered any personal harm whatsoever." (Id. at 4). Second, the court dismissed the state law warranty claims with leave to amend because Missaghi had failed to allege that any defect "occurred within the warranty period" (Id. at 7). Third, the court dismissed the Magnuson-Ross Warranty Act with leave to amend because the failure to state a state law warranty claim doomed this count. (Id. at 8). Fourth, the court dismissed the unjust enrichment count with prejudice because Missaghi's allegations revealed the existence of an express contract. (Id. at 9). Finally, the court dismissed the California UCL claims with leave to amend because they were based in fraud and Missaghi failed to comply with the specificity requirements of Fed. R. Civ. P. 9(b). (Id. at 11). Finally, the court granted Apple's motion to strike, finding

Plaintiff purchased only one device and has not alleged that the devices are identical. Plaintiff cannot allege any injury stemming from the model he never purchased. Accordingly, the Court STRIKES all allegations stemming from the model he never purchased. In his amended pleading, Plaintiff may either add a named plaintiff who purchased the other product or set forth allegations and a class definition stemming only from the model Plaintiff purchased.

(Id. at 12).

Missaghi filed a Second Amended Complaint ("SAC") on June 18, 2013. (Dkt. 7, Exh. F). Like the previous complaint, the defendants in the Second Amended Complaint are Apple and 100 Doe Defendants. (Id. at 1). The named plaintiffs are Mr. Missaghi (who is alleged to have ownedan iPhone 4S) and Mr. Charles Thompson (who is alleged to have owned an iPhone 4). (Id. at 2). As with the prior complaints, the SAC generally alleges that the iPhone 4 contains a defect which causes the power button to become stuck, preventing the consumer from turning on or off the device. (Id. at 4). Unlike the previous complaints (and just like the Hilton complaint before this Court), the Missaghi plaintiffs now only alleged a cause of action under RICO, 18 U.S.C. §§ 1962(b) and (c), and the California UCL. (Id. at 10-13). As with the prior complaints, the Missaghi plaintiffs seek to represent a class of "All purchasers of the IPHONE4 or IPHONE 4S." (Id. at 2).

On August 28, 2013, Judge Feess granted the motion to dismiss the SAC. (Missaghi v. Apple, Inc., No. 13-cv-2003, Dkt. No. 33).³ The court found that the Missaghi plaintiffs could not state a RICO or UCL claim because under California law a "manufacturer's duty to consumers is limited to its warranty obligations absent either an affirmative misrepresentation or a safety issue." (Id. at 11 (quoting Oestreicher v. Alienware Corp., 322 F. App'x 489, 493 (9th Cir. 2009)). While the Missaghi plaintiffs had attempted to describe the alleged defect as a safety issue, the court found such allegations to be too speculative. (Id. at 12). More generally, the Court found that the SAC's RICO allegations failed to plead any predicate act with specificity as no specific communications were described. Similarly, the court found that the UCL allegations (which sounded in fraud) failed to meet Rule 9(b)'s heightened pleading standard. (Id. at 15). Judge Feess dismissed the SAC with leave to amend, stressing that the Missaghi plaintiffs would be given "one final opportunity to file an...