Medimatch, Inc. v. Lucent Technologies Inc.

• Decision Date: 24 October 2000
• Docket Number: No. C-99-3198 TEH.,C-99-3198 TEH.
• Citation: 120 F.Supp.2d 842
• Court: U.S. District Court — Northern District of California
• Parties: MEDIMATCH, INC., and International Trading & Exchange, Inc., on behalf of themselves and on behalf of a class of other similarly situated, Plaintiffs, v. LUCENT TECHNOLOGIES INC., AT & T Corporation and AT & T Capital Corporation, Defendants.

120 F.Supp.2d 842

MEDIMATCH, INC., and International Trading & Exchange, Inc., on behalf of themselves and on behalf of a class of other similarly situated, Plaintiffs, v. LUCENT TECHNOLOGIES INC., AT & T Corporation and AT & T Capital Corporation, Defendants.

No. C-99-3198 TEH.

United States District Court, N.D. California.

October 24, 2000.

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Barry R. Himmelstein, Melanie M. Piech, Lieff Cabraser Heimann & Bernstein LLP, San Francisco, CA, for Plaintiff.

Timothy P. Crudo, Dana N. Linker, Latham & Watkins, San Francisco, CA, James E. Tyrell, Jr., Joseph E. Hopkins, Scott Louis Weber, Latham & Watkins, Newark, NJ, for Defendants.

ORDER GRANTING IN PART, DENYING IN PART, DEFENDANTS' MOTIONS TO DISMISS

HENDERSON, District Judge.

INTRODUCTION

This is a consumer fraud action brought by plaintiffs MediMatch Corporation and Intrax Corporation on behalf of themselves and a potential class. MediMatch and Intrax purchased and/or leased a modest volume of business telephone products from the manufacturer, Lucent, and its financing affiliate, Newcourt. Plaintiffs' suit boils down to the claim that defendants misrepresented or concealed Y2K defects in the equipment, and that Lucent refused to repair or replace the telephone equipment free of charge.

Plaintiff's Amended Complaint asserts three causes of action:

1. Violation of New Jersey's Consumer Fraud Act 2. Breach of Implied Warranties of Merchantability; and

3. Fraudulent and Unfair Business Practices in violation of California Business and Professions Code sec. 17200 et seq.

Defendants have moved for dismissal. The Court issued a comprehensive Tentative Order, and subsequently heard argument by counsel for all parties on September 25, 2000. Having fully considered the written and oral arguments of counsel, including counsel's responses to the Tentative Order, the Court hereby issues its final order on the motion.

I. FACTUAL BACKGROUND

A. The Parties

Plaintiff MediMatch, Inc. is a small California-based business that matches health care professionals with job openings in the health care field. Plaintiff International Trading & Exchange, Inc. ("Intrax") is a small California-based business that places foreign exchange students in the United States and teaches them English. The First Amended Complaint also seeks to convert the case to class action status.

Lucent and AT & T Corporation are the manufacturers of the telecommunications equipment at issue. In 1996, mid-way through the various sales at issue in this litigation, AT & T split into three standalone companies. The communications systems and technology branch of AT & T became Lucent Technologies, Inc. The information services branch of AT & T retained the AT & T name. Since defendants make no distinction between AT & T and Lucent for liability purposes at this stage, the two entities will be referred to herein as "Lucent" for the sake of simplicity and to avoid confusion regarding the various entities which at some time have carried the AT & T moniker.

Newcourt Communications Financing Corp., which is the legal successor to AT & T Credit Corp., is the leasing company which provided the financing for plaintiffs' acquisition of much of the Lucent equipment. These two companies will be referred to herein simply as "Newcourt." Plaintiffs allege that Newcourt "is the exclusive or preferred provider of financing services for equipment manufactured by Lucent," and that AT & T Credit "was established as a captive finance company of AT & T."

B. The Facts

Plaintiffs acquired business telephone products from Lucent at various times between 1993 and 1996. Plaintiffs did so either by purchasing the equipment directly from Lucent, or by leasing it through Newcourt. These products include telephone message systems, fax mailboxes, and interactive voice response systems.

During 1998 and 1999, Lucent informed plaintiffs that the equipment was not Y2K compliant. Lucent also informed plaintiffs that it would not remedy the problem without charge. Rather, Lucent informed plaintiffs that it would offer temporary alterations or upgrades for a fee, or that plaintiffs could purchase new systems. The essential problem here, as with all Y2K malfunctions, is that because the software was programmed to read only two-digit year dates, the devices would not be able to distinguish between centuries. Thus, at midnight on New Year's eve 2000, Y2K non-compliant devises would be unable to determine whether 01/01/00 means "1900" or "2000." The products' inability to make that distinction potentially could have impaired the products' operation.

In December 1999, MediMatch removed the Lucent systems from operation and leased replacement equipment with fewer functions from another vendor. Intrax, which had a lease agreement with Newcourt that extended into 2001, returned its equipment to Newcourt and leased replacement equipment from another vendor as well. Newcourt then demanded payment for the unexpired term of Intrax's leases, and filed suit against Intrax in New Jersey state court in August 1999 to recover the balance of its lease payments and liquidated damages.

Plaintiffs essentially claim that defendants knew that their products were not Y2K compliant and that they would cease to function properly after December 31, 1999. Plaintiffs further claim that defendants misrepresented or concealed the Y2K defect, that defendants sold or leased the products with promises that they would last well into the future, and that defendants refused to repair or replace the telephone systems without additional charge.

C. Procedural Background

MediMatch filed the initial Individual and Class Action Complaint on June 30, 1999. Defendant Lucent answered on July 28, 1999. Lucent moved for judgment on the pleadings under FRCP 12(c) on September 17, 1999. Defendant AT & T Capital Corporation (erroneously named instead of Newcourt) filed a motion to dismiss, and both motions were consolidated for hearing. The case was subsequently reassigned, and the hearing date was postponed. After MediMatch filed its opposition to both motions, the Court entered a stipulated order taking the motions off calendar and allowing MediMatch to file an amended complaint. MediMatch did so, and in the First Amended Complaint it named Newcourt as the lessor of the equipment, added Intrax as a second named plaintiff, and retained the same three causes of action as in the original complaint.

Defendants now seek dismissal of all three causes of action, and a protective order to stay discovery.

II. LEGAL STANDARD

Dismissal is appropriate under Rule 12(b)(6) when a plaintiff's allegations fail to state a claim upon which relief can be granted. FED. R. CIV. P. 12(b)(6). The Court must accept as true the factual allegations of the complaint and indulge all reasonable inferences to be drawn from them, construing the complaint in the light most favorable to the plaintiff. Westlands Water Dist. v. Firebaugh Canal, 10 F.3d 667, 670 (9th Cir.1993); NL Indus., Inc. v. Kaplan, 792 F.2d 896, 898 (9th Cir.1986). Unless the Court converts the Rule 12(b)(6) motion into a summary judgment motion, the court may not consider material outside of the complaint. Lucas v. Department of Corrections, 66 F.3d 245, 248 (9th Cir.1995); Branch v. Tunnell, 14 F.3d 449, 453 (9th Cir.1994). Documents attached to the complaint and incorporated therein by reference, however, are treated as part of the complaint for purposes of Rule 12(b)(6). Parks Sch. of Bus., Inc. v. Symington, 51 F.3d 1480, 1484 (9th Cir. 1995). In addition, "documents whose contents are alleged in a complaint and whose authenticity no party questions, but which are not physically attached to the pleading, may be considered in ruling on a Rule 12(b)(6) motion to dismiss" without converting it into one for summary judgment. Branch, 14 F.3d at 454; see Parrino v. FHP, Inc., 146 F.3d 699, 705-06 (9th Cir. 1998)

The Court must construe the complaint liberally, and dismissal should not be granted unless "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Steckman v. Hart Brewing, Inc., 143 F.3d 1293, 1295 (9th Cir. 1998); Johnson v. Knowles, 113 F.3d 1114, 1117 (9th Cir.1997); 5A CHARLES A. WRIGHT & ARTHUR R. MILLER, FEDERAL PRACTICE AND PROCEDURE § 1357 (2d ed.1990), quoting Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957). Dismissal without leave to amend is appropriate only where a court is satisfied that the deficiencies of the complaint could not possibly be cured by amendment. Chang v. Chen, 80 F.3d 1293, 1296 (9th Cir.1996); Noll v. Carlson, 809 F.2d 1446, 1448 (9th Cir.1987).

III. DISCUSSION

A. Preliminary Considerations

1. The Pleading Requirements of the Y2K Act

On July 20, 1999, Congress enacted the Y2K Act, 15 U.S.C. § 6601, et seq. The Act provides specific notice and pleading requirements for "any Y2K action brought after January 1, 1999, for a Y2K failure occurring before January 1, 2003, [or] for a potential Y2K failure that could occur or has allegedly caused harm or injury before January 1, 2003." 15 U.S.C. § 6603(a). If an action falls within that time frame, the Act requires, in relevant part, a specific statement of the nature and amount of damages, a specific description of the manifestations of material defects in the products, and a statement of facts giving rise to a strong inference that the defendants acted with the required state of mind. 15 U.S.C. § 6607. The parties here do not contest that this is a "Y2K action" within the meaning of the Act.

a. The Action Falls Within the Time Frame Established by the Y2K Act

Plaintiff MediMatch's original complaint was filed on June 30, 1999. This was prior to enactment of the Act, but subsequent to the date of the Act's retroactivity provision. Plaintiff Intrax joined this litigation by filing the Amended...