In re Apple iPhone 3G & 3GS “MMS” Mktg. & Sales Practices Litig.

Decision Date29 March 2012
Docket NumberMDL No. 2116.
Citation864 F.Supp.2d 451
PartiesIn re APPLE iPHONE 3G AND 3GS “MMS” MARKETING AND SALES PRACTICES LITIGATION. This Document Relates to All Cases.
CourtU.S. District Court — Eastern District of Louisiana

OPINION TEXT STARTS HERE

Scott R. Bickford, Martzell & Bickford, New Orleans, LA, for Plaintiff.

Gary Jude Russo, Jones Walker, Lafayette, LA, Quentin F. Urquhart, Jr., Irwin Fritchie Urquhart & Moore, LLC, New Orleans, LA, for Defendant.

ORDER AND REASONS

CARL BARBIER, District Judge.

Before the Court are Apple Inc.'s Motion to Compel Arbitration (Rec. Doc. 235; see also Rec. Docs. 267, 288) and Motion to Dismiss under Rule 12(b)(7) (Rec. Doc. 268; see also Rec. Doc. 275), as well as Plaintiffs' memoranda in opposition to same (Rec. Docs. 264 (re Motion to Compel Arbitration), 277 (same), 286 (same), 271 (re Motion to Dismiss)). Having considered the arguments of counsel, the record, and the applicable law, the Court finds as follows:

I. BACKGROUND AND PROCEDURAL HISTORY

This Multidistrict Litigation (“MDL”) consists of twenty-three putative class actions consolidated before this Court pursuant to 28 U.S.C. § 1407. Plaintiffs are purchasers of the iPhone 3G or 3GS cellular telephone and subscribers to wireless service from AT & T Mobility, L.L.C. (“AT & T”) between July 11, 2008 and September 25, 2009. Apple Inc. (“Apple”) is the manufacturer of the iPhone and Defendant/Mover herein. AT & T also was named as a defendant, but was voluntarily dismissed by Plaintiffs on November 21, 2011.

The iPhone combines a number of electronic devices—a telephone, a camera, an internet communication device, a digital music player, etc.—into a single handheld product. On July 11, 2008 (the start of the putative class period), Apple introduced the iPhone 3G, its second model iPhone (the first model iPhone, the iPhone 2G, was discontinued in June 2008). On June 19, 2009, Apple introduced its third model iPhone, the iPhone 3GS. At the end of the putative class period, September 25, 2009, both the 3G and 3GS models were available for purchase.

This dispute concerns Multimedia Messaging Service (“MMS”), one feature of the 3G and 3GS iPhones. MMS allows the user to quickly send pictures or videos from the phone without being connected to the Internet. This is in contrast to Short Messaging Service (“SMS”), which permits users to send text-only messages from one phone to another. SMS and MMS require a wireless network in order to function. Although SMS was always available on all model iPhones, MMS did not become a functional feature on the 3G and 3GS iPhones until September 25, 2009 (MMS was never available on the iPhone 2G).

Plaintiffs allege that, prior to and during the relevant time period, “Apple and AT & T co-marketed the iPhone with AT & T's wireless network service.” (Am. Compl. ¶¶ 2, 22, Rec. Doc. 71).1 That is, one could purchase an iPhone from either Apple or AT & T, but due to an “exclusivity agreement” between Apple and AT & T, the iPhone could only be used with AT & T's wireless service network. ( Id. ¶¶ 2, 53, 82). To gain access to AT & T's network (which was necessary to use the MMS feature), iPhone purchasers had to enter into AT & T's Wireless Services Agreement (“WSA”). ( Id. ¶¶ 2, 53, 82). The WSA contained a clause requiring disputes to be resolved by arbitration on an individual basis (i.e., class actions and class arbitration are prohibited). ( See Decl. of Richard Rives, Ex. 1, pp. 13–17, Rec. Doc. 117–1 at 16–20).

Plaintiffs claim that AT & T “promoted and sold unlimited texting plans to all [of] it[s] customers,” and represented that such plans ‘included text, picture, video and IM.’ ( Id. ¶ 7 (emphasis omitted)). Plaintiffs also allege that

as the Defendants were about to launch the 3G phone, a grave complication developed. Sending pictures by text took considerably more capacity than sending a written text message, and AT & T realized that its entire network would be overloaded if millions of new iPhone users began texting pictures on the 3G iPhone.

( Id. ¶ 4). “AT & T's network was unable to provide the service of texting pictures [i.e., MMS] until it upgraded its network....” ( Id. ¶ 6). Thus, Plaintiffs claim that “AT & T intentionally barred iPhone users from having [MMS], but continued to charge the consumers for that service and represented to the iPhone users that the service included pictures.” ( Id. ¶ 7; see also id. ¶ 58).

As to Apple, Plaintiffs do not allege that the unavailability of MMS was due to any defect in the iPhone. ( See id. ¶¶ 4, 5, 6, 7, 51, 75, 78, 86, 88, 112 (claiming that AT & T's network initially could not accommodate MMS)). Instead, Plaintiffs allege that Apple “never disclosed to consumers that they had to pay for. picture messaging under the unlimited plans for their exclusive provider, AT & T, even though they would not have that service.” ( Id. ¶ 8). Also, “Apple made affirmative representations that such a service was available, including large in-store videos showing people texting pictures with small, fine print disclosures about when the service was available, intentionally designed so that consumers would not see or understand them.” ( Id.).

In December of 2009, the Judicial Panel on Multidistrict Litigation transferred the first wave of cases comprising this MDL. In August of 2010, after amended complaints were filed in sixteen of the then-existing cases, AT & T moved to compel Plaintiffs to arbitration based on the arbitration clause and class action waiver found in its WSA (Rec. Docs. 95–111). AT & T alternatively moved at that time to dismiss the claims under Rule 12(b)(6) (Rec. Docs. 138–154). Concurrently, Apple moved to dismiss under Rule 12(b)(6), arguing that it never represented that MMS was available on the iPhone 3G, and all advertisements for the 3GS contained disclaimers stating that MMS would not be available until late summer 2009. (Rec. Docs. 120–135). In November of 2010, before briefing on these motions was complete,the Court stayed proceedings pending the Supreme Court's resolution of AT & T Mobility LLC v. Concepcion, ––– U.S. ––––, 131 S.Ct. 1740, 1746, 179 L.Ed.2d 742 (2011). At issue in Concepcion was whether the Federal Arbitration Act (“FAA”) preempted the Discover Bank rule,” a judicially-created state law that classified most class action waivers in consumer arbitration agreements as unconscionable. Notably, the arbitration clause in Concepcion was nearly identical to those found in AT & T's WSAs. Compare Decl. of Richard Rives, Ex. 1, pp. 13–17, Rec. Doc. 117–1 at 16–20, with Concepcion, 131 S.Ct. at 1744.

Concepcion was decided in April of 2011 and held that the Discover Bank rule was preempted by the FAA. In October of 2011, after the stay was lifted in this MDL and pursuant to a revised briefing schedule, both AT & T and Apple moved to compel arbitration. (Rec. Docs. 235–259). In November of 2011, Plaintiffs voluntarily dismissed their claims against AT & T, tacitly acknowledging that their opposition to AT & T's Motion to Compel Arbitration could not succeed after Concepcion.2 (Rec. Doc. 262). However, Plaintiffs did not dismiss their claims against Apple, and opposed Apple's Motion to Compel Arbitration. (Rec. Docs. 264, 277, 286). Apple subsequently filed a Motion to Dismiss under Rule 12(b)(7), arguing that the case could not proceed without AT & T. (Rec. Doc. 268). Another round of briefing ensued (Rec. Docs. 271, 275), oral argument was held, and now both Apple's Motion to Compel Arbitration and Motion to Dismiss are ripe for resolution.

II. DISCUSSION

A. Dismissal under Rule 12(b)(7) and Rule 19

Apple argues in its Motion to Dismiss that this case cannot proceed without AT & T, because Plaintiffs' claims require litigating the meaning of AT & T's WSA and determining whether AT & T breached the terms of that agreement. Plaintiffs counter that their theories of liability are not predicated on the WSA's contents, nor do they require interpretation of the WAS or proving breach by AT & T.

These issues overlap considerably, if not entirely, with the issues surrounding Apple's Motion to Compel Arbitration, discussed below. Because resolution of the Motion to Compel is dispositive of the Motion to Dismiss, the Motion to Dismiss is discussed only briefly.

The Fifth Circuit has explained:

Rule 12(b)(7) allows dismissal for “failure to join a party under Rule 19.” Rule 19 provides for the joinder of all parties whose presence in a lawsuit is required for the fair and complete resolution of the dispute at issue. It further provides for the dismissal of litigation that should not proceed in the absence of parties that cannot be joined.HS Resources v. Wingate, 327 F.3d 432, 438 (5th Cir.2003) (footnotes omitted).

Analysis under Rule 19 involves multiple steps. First, a court must determine whether a party is “required” or “necessary” under Rule 19(a). A party is necessary if:

(A) in that person's absence, the court cannot accord complete relief among existing parties; or

(B) that person claims an interest relating to the subject of the action and is so situated that disposing of the action in the person's absence may:

(i) as a practical matter impair or impede the person's ability to protect the interest; or

(ii) leave an existing party subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations because of the interest.

Fed. R. Civ. Proc. 19(a). Necessary parties must be joined in the action unless joinder is not feasible; i.e., the party is not subject to service of process, joinder would deprive the court of subject matter jurisdiction, or joinder would make venue improper. Fed. R. Civ. Proc. 19(a)(1),(2); 7 Charles Alan Wright, et al., Federal Practice and Procedure § 1604, at 40 (3d ed. 2001). If joinder is not feasible, then under Rule 19(b), it must be determined whether, “in equity and good conscience, the action should proceed among the existing parties or should be dismissed.” Rule 19(b)...

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