Patterson Oil Co. v. Verifone, Inc.
| Decision Date | 19 October 2015 |
| Docket Number | No. 2:15-cv-4089,2:15-cv-4089 |
| Court | U.S. District Court — Western District of Missouri |
| Parties | PATTERSON OIL CO., INC, Plaintiff, v. VERIFONE, INC., et. al., Defendants. |
Plaintiff Patterson Oil Co, Inc., a convenience store operator, alleges that Defendant Verifone, Inc. defectively designed and manufactured its V910 electronic payment servers, causing Patterson to suffer damages and lost revenue when Verifone breached its warranty obligations. Seeking damages on behalf of a similarly situated class, Patterson's complaint sets forth five claims: breach of express warranty, breach of the implied warranty of merchantability, failure of essential purpose and unconscionability, fraud, and unjust enrichment. [Doc. 1.] Before the Court is Verifone's motion for dismissal of these claims under Fed. R. Civ. Pro. 12(b)(6). [Doc. 11.] For the reasons discussed below, Verifone's motion to dismiss is granted in part and denied in part.
Verifone manufactures software and hardware used in electronic payment systems. One of the company's product lines, marketed as "Petroleum and Convenience Retail Solutions," consists of point-of-sale systems and related hardware that Verifone sells to gas stations and convenience stores. The line is then used by those businesses to process consumer payments.
Verifone regularly releases upgrades to its Petroleum and Convenience Retail Solutions line. In the 1990s, one of the line's primary products was the Ruby POS system, a modular payment device. In the mid-2000s, the company encouraged its customers to upgrade to the Ruby PLUS POS, a new system that included a Sapphire site controller, an electronic box that connects to the original Ruby POS and provides owners added data and features. To ensure its customers would comply with Payment Card Industry Data Security Standards (PCI DSS), Verifone then introduced electronic payment servers to connect to the Sapphire site controller and separate out credit card processing from other functions. The first such server, the V900, was released around 2007.
In 2010, to assist customer compliance with PCI DSS 2.0, Verifone introduced the V910 and V920, its second-generation electronic payment servers. The V910 is an electronic board designed to insert into the Sapphire site controller. Verifone marketed the V910 "directly to gas station and [convenience] store owners." [Doc. 1, p. 7, ¶ 27.] It also "worked with major oil companies . . . to promote the V910 to their branded retailers." [Id., p. 7, ¶ 26.]
Verifone advertised the V910 as a "convenient" and "[l]ower cost alternative" to the V920, which, unlike the V910, operates as a standalone hardware product. [Id., p. 8 ¶ 32-33.] A Verifone brochure stated that the V910 "delivers the same benefits as the V920 solution, without the additional hardware component." [Id., p. 8, ¶ 34.] V910 software could also be updated remotely, saving customers "both time and money." [Id., p. 8, ¶ 32.] The company furtherprovided a technical specification sheet that claimed the V910 is "Highly Reliable" and "designed to withstand even the harshest environments." [Id., p. 7, ¶ 28.]
Contrary to Verifone's representations, Patterson Oil alleges, Verifone knew or should have known that the V910 device was defectively designed and manufactured. The company "failed to adequately test the V910 inside the Sapphire site controller for any significant period of time," [Id., p. 13-14, ¶ 62-63], even though the V900 product line "was unreliable and prone to failure when exposed to elevated temperatures or lack of air circulation." [Id., p. 14, ¶ 65.] Verifone knew or should have known about this problem. A 2011 analysis by British Petroleum warned of overheating issues, and Verifone designed the V920 model with an active cooling system and front-facing ventilation holes. Yet Verifone designed the V910 to sit within the Sapphire site controller box with minimal air circulation. As a consequence of this defect, customers have complained on an Internet forum of high V910 failure rates. [See id., pp. 10-13, ¶ 41-59.] Verifone knew or should have known about these failure rates because it has a customer service line to process reports, it sells its products through approved distributors, many of whom are also service technicians, it actively monitors the Internet forums, it learns about defects when customers invoke a product warranty, and because it has access to real-time data through the V910 system.
Verifone sold the V910 with a 13-month express limited warranty. The warranty states in part:
The warranty further disclaims all other warranties and remedies:
THE ABOVE WARRANTIES . . . (III) ARE EXCLUSIVE AND NO OTHER WARRANTY, WHETHER WRITTEN OR ORAL, IS EXPRESSED OR IMPLIED. VERIFONE SPECIFICALLY DISCLAIMS THE IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND NON INFRINGEMENT OF THIRD PARTY RIGHTS.
Patterson Oil alleges that the express limited warranty offers no value to purchasers of defective V910s. While a device is being repaired, the purchaser cannot accept credit cards and thus loses money by forgoing potential transactions. After the device is repaired, the purchaser is still saddled with a defectively designed product that is likely to fail again. And in many cases, Verifone fails to honor its warranty terms and has refused even to repair a defective V910; according to posts on an Internet forum, Verifone has repeatedly returned defective products mailed-in by customers, claiming an NFT (No Trouble Found) repair. Patterson Oil alleges that Verifone has "systematically abused the NFT process by claiming products were not defective without conducting sufficient testing to make this determination." [Id., p. 19, ¶ 83.] On the Internet forum, a Verifone Product Support Engineer, Greg Taylor, has inquired into the issue, writing that "[t]here have been a lot of posts over the years about parts coming back from the Verifone repair center with No Problem Found as the result." [Id., p. 19, ¶ 85.]
Patterson Oil, an operator of gas stations and convenience stores in central and western Missouri, installed V910s in six of its "Rush Hour" branded stores in November and December of 2011. The V910s in each location have failed. When a V910 failure occurred, Patterson Oil alleges, it contacted Verifone through a Verifone help line. Verifone then referred Patterson Oilto its local distributor, Double Check, which then determined whether repair or replacement was covered by the Verifone express limited warranty. None of Patterson Oil's V910 failures have been covered by the limited warranty. At Patterson Oil's Pleasant Hill, Missouri location, a new V910 failed before installation was complete, and subsequently a replacement product failed four months later, in April 2012. Double Check serviced this failed V910 but Verifone did not repair or replace the device. As a result, Patterson Oil paid Double Check out-of-pocket to replace the V910. When the replacement failed in December 2013, Patterson Oil again paid Double Check out-of-pocket for the service visit and repair.
Patterson Oil therefore alleges that it suffered damages because it was forced to spend thousands of dollars on service visits and new devices and because it lost sales when its V910 devices were malfunctioning. Its Complaint contains five counts:
Verifone argues dismissal is appropriate under Fed. R. Civ. P. 12(b)(6) because Patterson Oil fails to state a claim upon which relief can be granted. Verifone further alleges that the fraudulent misrepresentation claim fails because Patterson Oil does not meet the Rule 9(b) heightened pleading standard.
Verifone warranted the V910 to be free from faulty workmanship and defective materials, yet Patteron Oil alleges numerous failures of the V910s, suggesting faulty workmanship or defective materials. Nonetheless, Verifone argues that the breach of expresswarranty count must be dismissed because Patterson Oil did not provide notice of the failed V910s and did not return the product for repair or replacement, as Verifone argues is required by the express limited warranty.
Under Missouri law, a buyer must show that he "notified the seller of the nonconformity" in order to assert an express warranty claim. Renaissance Leasing, LLC v. Vermeer Mfg. Co., 322 S.W.3d 112, 122 (Mo. 2010). If he does not notify "within a reasonable time after he discovers or should have discovered any breach," the buyer is "barred from any remedy." Mo. Rev. Stat. § 400.2-607(3)(a). See also Hope v. Nissan N.A., 353 S.W.3d 68, 91-92 (Mo. App. W.D. 2011) (). The bar for notification here is low. As contemplated by the Uniform Commercial Code and incorporated into Missouri law, notice "does not require any particular formality or detail as to the nature of the buyer's complaint." Kansas City v. Keene Corp., 855 S.W.2d 360, 369 (Mo. 1993). Rather, "[t]he content of the notification need merely be sufficient to let the seller know that the transaction is still...
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