Wilson v. Hewlett–Packard Co.

• Decision Date: 16 February 2012
• Docket Number: No. 10–16249.,10–16249.
• Citation: 668 F.3d 1136,12 Cal. Daily Op. Serv. 1958,2012 Daily Journal D.A.R. 2143
• Parties: Cass WILSON and Douglas Kruschen, on behalf of themselves and all others similarly situated, Plaintiffs–Appellants, v. HEWLETT–PACKARD COMPANY, Defendants–Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

12 Cal. Daily Op. Serv. 1958

2012 Daily Journal D.A.R. 2143

668 F.3d 1136

Cass WILSON and Douglas Kruschen, on behalf of themselves and all others similarly situated, Plaintiffs–Appellants,

v.HEWLETT–PACKARD COMPANY, Defendants–Appellees.

No. 10–16249.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Nov. 15, 2011.Filed Feb. 16, 2012.

James C. Shah (argued), Shepherd, Finkelman, Miller & Shah, Media, PA, for the plaintiffs-appellants.

Theane Kapur (argued) and Samuel G. Liversidge, Gibson, Dunn & Crutcher, Los Angeles, CA, for the defendant-appellee.

Appeal from the United States District Court for the Northern District of California, Ronald M. Whyte, District Judge, Presiding. D.C. No. 5:09–cv–02253–RMW.Before MICHAEL DALY HAWKINS and MILAN D. SMITH, JR., Circuit Judges, and KEVIN THOMAS DUFFY, District Judge.^*

OPINION

DUFFY, District Judge:

Plaintiffs Cass Wilson and Douglas Kruschen (“Plaintiffs”) appeal the dismissal of their second amended complaint alleging that Hewlett–Packard (“HP”) concealed a design defect in its Pavilion Notebook computers (the “Laptops”) that manifested after the expiration of the warranty and created an unreasonable safety hazard in violation of California's Consumers Legal Remedies Act (“CLRA”), Cal. Civ.Code § 1750 et seq. , and Unfair Competition Law (“UCL”), Cal. Bus. & Prof.Code § 17200 et seq. The District Court dismissed the second amended complaint, holding that Plaintiffs failed to plausibly allege a defect in the Laptops that created a safety hazard or that HP had any knowledge of the alleged defect. We find that the District Court did not err in requiring Plaintiffs to allege the existence of an unreasonable safety defect. We also find that the District Court did not err in holding that Plaintiffs failed to plausibly allege the existence of an unreasonable safety defect or HP's knowledge of a defect. Accordingly, we AFFIRM the judgment of the District Court.

FACTUAL AND PROCEDURAL BACKGROUND

Plaintiff Cass Wilson purchased an HP Pavilion Notebook computer in the summer of 2004 for approximately $1,500. In the fall of 2006, over two years after its purchase and shortly after the limited warranty expired, Wilson's Laptop began to display “low power” warnings and would run on battery power even when plugged into an a/c adapter. Wilson alleges that the problem became worse until he “was unable to utilize the Laptop at all.” When Wilson contacted HP about his Laptop in or about December 2006, HP informed him that his warranty had expired on August 15, 2006, and that he could return the Laptop to HP and have his motherboard replaced for over $400, plus shipping and taxes.

Wilson then contacted a number of local repair facilities, which informed him that “there was a known problem with the power jack and the port for the power jack on a number of HP's computers.” Instead of returning the Laptop to HP, Wilson opted to have the power jack repaired at a local repair facility for $150. The Laptop and its battery, however, were still unable to receive power.

In 2007, prior to commencing this action, Wilson became aware of the pendency of a class action lawsuit (the “PPGC class action”) that purported to include his Laptop and which addressed the defect at issue. The lawsuit was ultimately settled, but Wilson's Laptop claim was not included in the settlement.

On January 5, 2009, Wilson filed a putative class action lawsuit against HP in California Superior Court, Santa Clara County, alleging that HP misrepresented and concealed a “common and uniform” design defect that causes HP's Pavilion dv, zd, ze, zt, zv and zx Notebooks' power jacks to fail at abnormally high rates and render the Laptops unusable, in breach of HP's express limited warranty and in violation of the UCL and CLRA. HP filed a demurrer to the initial complaint, which the Superior Court sustained with leave to amend the CLRA and breach of warranty claims and overruled with respect to the UCL claim.

Subsequently, Wilson filed a first amended complaint stating the same claims and adding an allegation that HP's Pavilion dv, zd, ze, zt, zv and zx Notebooks “all are substantially likely to fail during their useful life.” In May 2009, HP removed the action to the United States District Court for the Northern District of California. On September 17, 2009, the District Court granted HP's motion to dismiss with leave to amend and denied Wilson's motion to remand.

The complaint we consider here pled the UCL and CLRA claims and alleged that HP was aware, prior to the marketing and selling of the Laptops, that the Laptops were inherently defective and “substantially likely to cease working and require expensive repair during their useful life with normal use and after the expiration of the warranty accompanying the Laptops.” The complaint further alleged that HP had a duty to disclose the defect to consumers, but misrepresented and concealed material information concerning the defect in its marketing, advertising, sale and servicing of the Laptops. In addition to the power connection problems stated in earlier versions of the complaint, the instant complaint also alleged that the design defect posed a safety risk as the extreme heat caused by the faulty power jack and port resulted in the Laptops' catching fire.

The second amended complaint also added Plaintiff Douglas Kruschen. Kruschen purchased his Laptop in 2004. In December 2008, after Kruschen plugged an a/c adapter into the Laptop and pressed the power button, his Laptop began emitting smoke, sparks and flames from the side of the computer near the power jack. Due to the flames, the Laptop became so hot that the power adapter welded itself to the Laptop, making it unusable. Kruschen sent his Laptop to HP for inspection, but HP refused to fix the Laptop or compensate Kruschen, assertedly since no one was injured by the Laptop.

On January 15, 2010, the District Court granted HP's second motion to dismiss with leave to amend. The Court found that the complaint's allegations were insufficient to “plausibly allege a defect in the HP laptop computers that creates an unreasonable safety risk.” Although the UCL and CLRA claims involve fraudulent intent, the District Court held that the complaint contains “few if any facts ... from which an inference of knowledge of the allegedly hazardous defect could be drawn.” While the pleading made reference to multiple anonymous consumer complaints, these complaints were either “undated or were made after the named plaintiffs had already purchased their laptops,” and thus the allegations did not demonstrate that HP had any knowledge of the defect prior to the sale of the Laptops to Plaintiffs and the putative class.

Although Plaintiffs were granted leave to amend, they chose not to file a third amended complaint and requested instead that the District Court enter judgment. On May 28, 2010, Plaintiffs filed a notice of appeal.

STANDARD OF REVIEW AND JURISDICTION

This Court reviews de novo a dismissal for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6). Coal. for ICANN Transparency, Inc. v. VeriSign, Inc., 611 F.3d 495, 501 (9th Cir.2010). On a motion to dismiss, all material facts are accepted as true and are construed in the light most favorable to the plaintiff. Id. A complaint need not state “detailed factual allegations,” but must contain sufficient factual matter to “state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009) (citing Twombly, 550 U.S. at 556, 127 S.Ct. 1955). We have jurisdiction under 28 U.S.C. § 1291.

DISCUSSION

I. The Unfair Competition Law

Under the UCL, any person or entity that has engaged, is engaging or threatens to engage “in unfair competition may be enjoined in any court of competent jurisdiction.” Cal. Bus. & Prof.Code §§ 17201, 17203. “Unfair competition” includes “any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising.” Cal. Bus. & Prof.Code § 17200. The California Supreme Court has held that the UCL's “coverage is sweeping, embracing anything that can properly be called a business practice and that at the same time is forbidden by law.” Cel–Tech Commc'ns, Inc. v. L.A. Cellular Tel. Co., 20 Cal.4th 163, 180, 83 Cal.Rptr.2d 548, 973 P.2d 527 (1999) (internal quotations and citation omitted). The UCL “borrows violations of other laws and treats them as unlawful practices that the unfair competition law makes independently actionable.” Id. (internal quotations and citation omitted). Further, the UCL creates “three varieties of unfair competition—acts or practices which are unlawful, or unfair, or fraudulent.” Id.

Plaintiffs allege that HP's omission violates the CLRA and California's common law fraud and deceit statutes. Cal. Civ.Code §§ 1572(3), 1709, 1710. While the complaint asserts a claim under the unlawful, unfair and fraudulent prongs of the UCL, Plaintiffs' opening brief only discusses the unlawful prong. Their allegations concerning the remaining prongs are thus waived, but we consider them for the sake of completeness. See Eberle v. Anaheim, 901 F.2d 814, 818 (9th Cir.1990) (holding that the court could not consider an issue that appellant failed to raise in his opening brief).

II. The Consumers Legal Remedies Act

The CLRA prohibits “unfair methods of competition and unfair or deceptive acts or practices undertaken by any person in a transaction intended to result or which results in the sale or lease of goods or services to any consumer.” Cal. Civ.Code § 1770(a). Conduct that is “likely to mislead a reasonable consumer” violates the...