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concluding that Rule 12(f) is not the proper procedural vehicle for challenging class claims
Summary of this case from Delux Cab, LLC v. Uber Techs., Inc.Opinion
No. C-13-1803 EMC
03-14-2014
TASION COMMUNICATIONS, INC., et al., Plaintiffs, v. UBIQUITI NETWORKS, INC., et al., Defendants.
ORDER DENYING DEFENDANTS'
MOTION TO STRIKE; AND
GRANTING DEFENDANTS' MOTION
TO DISMISS
(Docket Nos. 56, 57)
I. INTRODUCTION
Before the Court are the motions to dismiss filed by Defendants Ubiquiti Networks, Inc. ("Ubiquiti") and Streakwave Wireless, Inc. ("Streakwave"). In these motions, the Defendants seek to dismiss various warranty-based causes of action brought by Plaintiffs Tasion Communications Inc. ("Tasion"), International Power Systems, LLC (d/b/a Freeway Networks) ("Freeway Networks"), and Fundamental Holdings, Corp. (d/b/a Peak Internet) ("Peak Internet") in their First Amended Complaint. Defendants have also moved to strike various allegations contained in Plaintiffs' First Amended Complaint. For the following reason, the motion to strike is DENIED as procedurally improper and the motion to dismiss is GRANTED.
II. PROCEDURAL BACKGROUND
On August 26, 2013, this Court granted in part and denied in part Ubiquiti's motion to dismiss Tasion's original complaint. See Tasion Commc'ns, Inc. v. Ubiquiti Networks, Inc., No. C -13-1803 EMC, 2013 WL 4530470 (N.D. Cal. Aug. 26, 2013). The original complaint asserted only causes of action for negligence and negligent misrepresentation, and the Court dismissed the complaint to the extent Tasion sought economic losses. Id. at *12.l . In December 2013, the Court granted Tasion leave to file an amended complaint. The amended complaint alleges as follows.
Tasion is a Canadian corporation which offers high speed internet connectivity for business and residential subscribers in locations around the world. First Amended Complaint ("FAC") ¶ 26. International Power Systems is an Arizona limited liability company which provides installation services for wireless internet systems. Id. ¶ 27. Fundamental Holdings Corp. is a Delaware corporation that does business in Colorado as "Peak Internet" and provides internet and telephone connectivity for both home and business customers. Id. ¶ 28.
Defendant Ubiquiti Networks is a communications technology company that "designs, manufactures, and sells broadband wireless products including high performance radios, antennas, software, and programming tools to manage the hardware." Id. ¶ 29. Ubiquiti's products permit companies to provide high speed wireless connections to customers in a variety of locations -including markets that are difficult to service (such as mountainous, rural, or island regions). Id. Defendant Streakwave Wireless is a seller and distributor of wireless products, including Ubiquiti's products. Id. ¶ 30.
In late 2010, Ubiquiti announced a new shielded ethernet cable product - named TOUGHCable - which was designed to provide the wire connections necessary for the installation of Ubiquiti radio transceiver equipment. Id. ¶ 3. Ubiquiti heavily promoted this cable to its customers, and represented that it was an "[o]utdoor carrier class shielded Ethernet cable" that was "built to perform even in the harshest weather and environments" and would protect networks "from the most brutal environments." Id. ¶ 5. Plaintiffs allege that these representations were false, and that the TOUGHCable product was "entirely unsuited for any outdoor use whatsoever." Id. ¶¶ 6-7. Rather, within a year of installation, TOUGHCable would begin to corrode, crack, and split. Id. ¶ 8. Plaintiffs allege, on information and belief, that this was caused by a "complete lack of UV (ultraviolet) protection." Id. ¶ 44. Once the outer shielding failed in this way, "the cable . . . became a sponge, wicking up water from the outside, drawing it inside the cable, and, like a straw, providing a channel for the water to flow down directly into sensitive and delicate radio equipment, often destroying the equipment." Id. ¶ 8, 44-47. As a result of TOUGHCable's flaws, Plaintiffs allege that numerous customers lost their internet connection. Id. ¶ 51. Replacing the TOUGHCable product required each customer's location to be completely rewired in order to protect the sensitive radio equipment at each location. Id. ¶ 52.
Around 2011, Ubiquiti began notifying its customers (including the Plaintiffs in this action) that in order for Plaintiffs' Ubiquiti broadcast and receiving equipment to be covered under warranty, they would need to use shielded ethernet cables and earth grounding. Id. ¶ 56. Contemporaneous with this announcement, Ubiquiti introduced TOUGHCable as a product which would satisfy Ubiquiti's new warranty conditions. Id. ¶ 57.
Tasion, doing business as Planet Telecom, placed its first order of TOUGHCable in March 2011, ordering four boxes of TOUGHCable at 1,000 feet per box. Id. ¶ 58. Over the next year, Tasion purchased a total of 22 boxes, paying $109 to $119 per box. Id. ¶ 59. The President of Tasion made these purchases over the phone by contacting Defendant Streakwave. Id. ¶ 60. From March 2011 on, Tasion began using TOUGHCable in all of its outdoor installations. Id. ¶ 64. Less than a year later, Tasion first received word that one of its customers in a remote location had lost its internet connection. Id. ¶ 65. Investigation revealed that the customers' radio receive had shorted out and that the TOUGHCable had become brittle, cracked, and discolored and allowed water to drain into the radio, shorting it out. Id. ¶ 67. Ultimately, between May 2012 and March 2013, 48 Tasion customers lost internet service due to TOUGHCable corrosion. Id. ¶ 70.
Plaintiff Freeway Networks purchased three boxes of TOUGHCable over the phone. Id. ¶¶ 81-82. Freeway Networks installed TOUGHCable in locations within the State of Arizona. Id. ¶ 84. Fundamental Holdings, doing business as Peak Internet, purchased 15 boxes of TOUGHCable and installed the product in locations in the State of Colorado and the country of Costa Rica. Id. ¶¶ 89, 92. Both Plaintiffs allege, like Tasion, that the shielding on the TOUGHCable products they installed disintegrated, resulting in damage and requiring replacement. Id. ¶¶ 85, 93.
Ubiquiti stopped shipping the TOUGHCable products at issue in this case sometime in 2012. Id. ¶ 77. Notably, even when the manufacturer is aware of the defect, notice must be given. See, e.g., Vinson v. J.M. Smucker Co., No. CV 12-4936, 2013 WL 6987087 (C.D. Cal. Mar. 25, 2013) ("[T]he filing of a complaint may not provide sufficient notice even if the defendant had 'actual notice' of the alleged breach."); Metowski v. Traid Corp., 28 Cal. App. 3d 332 (1972) ("Where the merchandise was sold under circumstances which indicate the seller acted in bad faith and was aware of the breach at the time of the sale, demand for notice of the breach from each and every member of the class may be a meaningless ritual. Nevertheless, the statutory demand for notice applies . . . ."). These products were replaced with new products called TOUGHCablePro and TOUGHCable Carrier. Id. Plaintiffs allege that Ubiquiti has "authorized previous purchasers of TOUGHCable . . . to obtain its new cable products without charge, box for box, to replace the defective TOUGHCable products." Id. ¶ 78. Nonetheless, Plaintiffs allege a number of economic and consequential damages resulting from the TOUGHCable defect.
Plaintiffs seek to assert their claims on behalf of themselves as well as on behalf of class members scattered throughout the world. Id. ¶ 22.
The amended complaint alleges twelve causes of action: (1) Negligence; (2) Negligent Misrepresentation; (3) Breach of Express Warranty; (4) Breach of Implied Warranty; (5) Breach of Express Warranty (against Streakwave); (6) Breach of Implied Warranty (against Streakwave); (7) Breach of Written Warranty under the Magnuson-Moss Warranty Act; (8) Breach of Express Warranty (asserted by Plaintiff Fundamental Holdings on behalf of Colorado class members); (9) Breach of Implied Warranty (asserted by Plaintiff Fundamental Holdings on behalf of Colorado class members); (10) Breach of Express Warranty (asserted by Plaintiff Freeway Networks on behalf of Arizona class members); (11) Breach of Implied Warranty (asserted by Plaintiff Freeway Networks on behalf of Arizona class members); and (12) Violation of Colorado's Consumer Protection Act. Defendants have moved to dismiss the third, fourth, seventh, eighth, ninth, tenth, and eleventh causes of action. In addition, Defendants have moved to strike certain allegations from the amended complaint.
III. DEFENDANTS' MOTION TO STRIKE
In their motion to strike, Defendants seek to strike the class allegations in Count Twelve - violation of Colorado's Consumer Protection Act - and class allegations to the extent the Plaintiffs are seeking to assert a claim for implied warranty of fitness for a particular purpose.
Defendants have failed to cite even a single case interpreting Federal Rule of Civil Procedure 12(f) or even stating the applicable legal standard. Under Federal Rule of Civil Procedure 12(f), the Court may "strike from a pleading an insufficient defense or any redundant, immaterial, impertinent, or scandalous matter." Courts have held previously that, in rare circumstances, class allegations may be struck where "the complaint demonstrates that a class action cannot be maintained on the facts alleged, a defendant may move to strike class allegations prior to discovery." Sanders v. Apple Inc., 672 F. Supp. 2d 978, 990 (N.D. Cal. 2009); see also Kiliuk v. ADT Sec. Servs., Inc., 263 F.R.D. 544, 547 (C.D. Cal. 2008).
However, the Court finds that the viability of this case law is questionable in light of the Ninth Circuit's decision in Whittlestone, Inc. v. Handi-Craft Co., 618 F.3d 970 (9th Cir. 2010). In that case, the defendant brought a motion to strike under Rule 12(f) arguing that "Whittlestone's claim for lost profits and consequential damages should be stricken from the complaint, because such damages are precluded as a matter of law." Id. at 974. The Ninth Circuit reversed the district court's grant of the motion to strike. The Court noted under the plain text of the rule, a motion to strike may only be granted where the allegations in question are "(1) an insufficient defense; (2) redundant; (3) immaterial; (4) impertinent; or (5) scandalous." Id. at 973-74. Significantly, the Court found that the defendant's argument - that the substantive law barred the damages - did not fit into any of these categories. Rather, the Ninth Circuit stated:
Handi-Craft's 12(f) motion was really an attempt to have certain portions of Whittlestone's complaint dismissed or to obtain summary judgment against Whittlestone as to those portions of the suit - actions better suited for a Rule 12(b)(6) motion or a Rule 56 motion, not a Rule 12(f) motion. . . . Were we to read Rule 12(f) in a manner that allowed litigants to use it as a means to dismiss some or all of a pleading (as Handi-Craft would have us do here), we would be creating redundancies within the Federal Rules of Civil Procedure, because a Rule 12(b)(6) motion . . . already serves such a purpose.Id. at 974. Relying on Whittlestone, more recent district courts have stated that Rule 12(f) motions to strike are not the proper vehicle for seeking dismissal of class allegations. See Astiana v. Ben & Jerry's Homemade, Inc., C10-4387 PJH, 2011 WL 2111796, at *15 (N.D. Cal. May 26, 2011); Swift v. Zynga Game Network, Inc., C09-05443SBA, 2010 WL 4569889, at *10 (N.D. Cal. Nov. 3, 2010).
Notwithstanding Defendants' procedural misstep, the Court will consider Defendants' arguments regarding the class action allegations under Count 12 in connection with their pending motion to dismiss, infra. The Court does this solely because combining the argument section of Defendants' motion to strike and the argument section of their motion to dismiss results in a total argument length that would be under the 25 page limit for motions under this Court's local rules. See Local Civ. R. 7-2(b). The Court, however, discourages needless filings which serve no purpose but to waste paper and clog the Court's docket. Accordingly, the Court advises the parties to be more cognizant of the Federal Rules of Civil Procedure in the future and to avoid the filing of redundant or procedurally improper motions.
In addition to seeking to strike the class action allegations as to Count Twelve, Defendants seek to strike various allegations in light of Plaintiffs' concession that it is not seeking to assert a claim for "breach of implied warranty for fitness for a particular purpose. Specifically, Defendants argue that the Court should strike Plaintiffs' allegations that they "relied on Defendant Ubiquiti's reputation and brand name in selecting Ubiquiti TOUGHCable" and that they believed Ubiquiti "would exercise skill and judgment to design, manufacture and place in the stream of commerce cable suitable for the purposes for which they were advertised." FAC ¶ 186.
Defendants' motion to strike is DENIED. These allegations are not redundant, immaterial, impertinent, or scandalous even if legally insufficient to state a claim. Whittlestone, 618 F.3d at 973-74. Further, as Plaintiffs state in their opposition, the allegations in question may be relevant to Plaintiffs' claim for breach of implied warranty of merchantability.
IV. DEFENDANTS' MOTION TO DISMISS
Rule 12(b)(6) allows for dismissal based on a failure to state a claim for relief. A motion to dismiss based on Rule 12(b)(6) challenges the legal sufficiency of the claims alleged. See Parks Sch. of Bus. v. Symington, 51 F.3d 1480, 1484 (9th Cir.1995). In considering such a motion, a court must take all allegations of material fact as true and construe them in the light most favorable to the nonmoving party, although "conclusory allegations of law and unwarranted inferences are insufficient to avoid a Rule 12(b)(6) dismissal." Cousins v. Lockyer, 568 F.3d 1063, 1067 (9th Cir.2009). While "a complaint need not contain detailed factual allegations . . . it must plead 'enough facts to state a claim to relief that is plausible on its face.' " Id. "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, 129 S.Ct. 1937, 1949 (2009); see also Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556 (2007). "The plausibility standard is not akin to a 'probability requirement,' but it asks for more than sheer possibility that a defendant acted unlawfully." Iqbal, 129 S.Ct. at 1949. A. Plaintiffs Concede the Fourth Cause of Action for Breach of Implied Warranty Under California Law (Against Defendant Ubiquiti) Fails
Under California law, privity is required in order to pursue a claim for breach of the implied warranty of merchantability. See, e.g., Paramount Farms, Int'l LLC v. Ventilex B.V., 500 F. App'x 586 (9th Cir. 2012) ("Vertical privity, or in other words, privity of contract, is required to sustain an implied warranty claim in California."). Plaintiffs have conceded that they are not in vertical privity with Ubiquiti, that they do not fit into any recognized exception, and that they therefore cannot pursue a cause of action against Ubiquiti. See Pl. Opp. at 14-15 ("Plaintiffs concede that their claim for breach of implied warranty against defendant Ubiquiti (only) cannot be sustained."). Accordingly, the fourth cause of action is DISMISSED with prejudice. B. Plaintiffs' Third and Fifth Causes of Action for Breach of Express Warranty Against Defendants Under California Law Fail
1. Plaintiffs Failed to Provide Adequate Notice to Either of the Defendants
Under the California Commercial Code, a buyer must, "within a reasonable time after he or she discovers or should have discovered any breach, notify the seller of breach or be barred from any remedy." Cal. Comm. Code § 2607(3)(A). Courts have interpreted this provision as requiring a plaintiff asserting warranty claims to have provided the seller with pre-suit notice before instituting a lawsuit. See, e.g., Alvarez v. Chevron Corp., 656 F.3d 925, 932 (9th Cir. 2011) ("To avoid dismissal of a breach of contract or breach of warranty claim in California, '[a] buyer must plead that notice of the alleged breach was provided to the seller within a reasonable time after discovery of the breach.'" (citation omitted)). The purpose of this rule is to "allow the seller the opportunity to repair the defective item, reduce damages, avoid defective products in the future, and negotiate settlements." Cardinal Health 301 v. Tyco Electronics Corp., 169 Cal. App. 4th 116, 135 (2008). Given the purpose of the rule, courts have expressly held that the notice must be provided before the lawsuit - notice that is after, or contemporaneous with, the filing of the lawsuit is insufficient. See Alvarez, 656 F.3d at 932.
The parties do not dispute that Tasion did not provide Ubiquiti with pre-suit notice. Plaintiffs argue, however, that because Ubiquiti is the manufacturer of the TOUGHCable product and Plaintiffs did not deal directly with Ubiquiti, notice is not required. Further, Plaintiffs argue that Tasion provided adequate pre-suit notice to Defendant Streakwave before the complaint was amended to add Streakwave as a defendant to this action. Finally, Plaintiffs argue that Freeway Networks and Peak Internet have sufficiently provided pre-suit notice to both Defendants. The Court disagrees.
a. Tasion Did Not Provide Required Notice to Ubiquiti
As to Defendant Ubiquiti, the Court finds that Tasion's failure to provide notice requires dismissal of its express warranty claims. In Greenman v. Yuba Power Products, Inc., 59 Cal.2d 57 (1963) (in bank), the California Supreme Court, interpreting a prior notice provision, found that "[t]he notice requirement . . . is not an appropriate one for the court to adopt in actions by injured consumers against manufacturers with whom they have not dealt." Id. at 61. The Court noted that the purpose of the notice requirement would not be served in such circumstances:
"As between the immediate parties to the sale (the notice requirement) is a sound commercial rule, designed to protect the seller against unduly delayed claims for damages. As applied to personal injuries, and notice to a remote seller, it becomes a booby-trap for the unwary. The injured consumer is seldom steeped in the business practice which justifies the rule, and at least until he has had legal advice it will not occur to him to give notice to one with whom he has had no dealings."Id. at 61 (quoting William L. Prosser, The Assault Upon the Citadel (Strict Liability to the Consumer), 69 Yale L.J. 1099, 1130 (1960)). On the basis of this case, the federal district courts in California have routinely held that plaintiffs are not required to provide pre-suit notice to a remote seller/manufacturer with whom they have not dealt. See, e.g., Rosales v. FitFlop USA, LLC, 882 F. Supp. 2d 1168 (S.D. Cal. 2012) ("However, when claims are against a defendant in its capacity as a manufacturer, not as a seller, plaintiff is not required to give notice."); Sanders v. Apple Inc., 672 F. Supp. 2d 978 (N.D. Cal. 2009) ("However, timely notice of a breach of an express warranty is not required where the action is against a manufacturer and is brought by injured consumers against manufacturers with whom they have not dealt." (citation omitted)).
Ubiquiti argues, however, that this exception to the notice requirement is not applicable because the concerns underlying the rule - ensuring that unwary consumers do not have their rights foreclosed - do not apply in this action, because the Plaintiffs are not consumers but rather business entities. There is support for this position in California law. See Fieldstone Co. v. Briggs Plumbing Products, Inc., 54 Cal. App. 4th 357 (1997), superseded by statute on other grounds as recognized by Greystone Homes, Inc. v. Midtec, Inc., 168 Cal. App. 4th 1194 (2008). In Fieldstone, plaintiff - a home builder - sued the manufacturer of bathroom sinks that were installed in homes plaintiff built. Plaintiff did not deal directly with the manufacturer, but rather purchased the sinks through a third party. See id. at 369. The Court rejected plaintiff's argument that notice was not required. After citing Greenman's discussion of the risks the notice requirement would present to unwary consumers, the court stated, "[t]hat is hardly the situation where, as here, plaintiff is a sophisticated development company which has built many thousands of homes over the last two decades." Id. The few courts that have cited Fieldstone for this proposition have noted that its holding appears to have turned on the "sophistication" of the plaintiff. See In re HP Inkjet Printer Litigation, No. C05-3580JF, 2006 WL 563048, at *5 n.4 (N.D. Cal. Mar. 7, 2006). Cf. In re Ford Motor Co. E-350 Van Prods. Liability Litigation (No. II), No. C03-4558 (HAA), 2008 WL 4126264, at *11 (Sept. 2, 2008) (finding that a not-for-profit religious organization that purchased one Ford van to transport church members to community functions was more like a consumer in Greenman than a "sophisticated" business entity in Fieldstone).
Plaintiffs argue, however, that the facts in this case are closer to Corp. of Presiding Bishop of Church of Jesus Christ of Latter-Day Saints v. Cavanaugh, 217 Cal. App. 2d 492 (1963), than they are to Fieldstone. There, plaintiff, a Mormon bishop, had a heating system installed by a contractor. The system, however, "would not pass the pressure test or hold any pressure or heat the building . . . because the materials used and which had been purchased by the defendant Cavanaugh from the [contractor] were unsuited for radiant heating when embodied in concrete." Id. at 497. The California Court of Appeal stated that the notice requirement did not apply because the plaintiff had not dealt directly with the manufacturer and would not have been aware of the manufacturer's participation in the chain of events which caused him damage. Id. at 515. The Fieldstone decision came out subsequent to that case and expressly distinguished that Presiding Bishop by noting the different levels of sophistication between a bishop and a commercial entity:
Presiding Bishop v. Cavanaugh upon which Fieldstone also relies . . . is factually dissimilar, as there, a "person in the position of the [Bishop] ordinarily would not be aware of his rights as against the manufacturer until he had received legal advice predicated upon an adequate investigation of the facts as to the manufacturer's participation in the chain of events culminating in damage to the plaintiff." Again, such is not the situation here, and we accordingly conclude the notice provision applies.Fieldstone, 168 Cal. App. 4th at 370 (quoting Cavanaugh, 217 Cal. App. 2d at 515).
The Court begins by noting the apparent incongruity between (1) imposing notice requirements on a plaintiff as to a manufacturer with whom it has not dealt and (2) the language of the statute which speaks of a "buyer" providing notice to a "seller" - language which facially appears to contemplate a direct commercial relationship between the parties. Nonetheless, the Court is bound by the California Court of Appeal's holding on this point in Fieldstone, absent a clear showing that the California Supreme Court would not follow it. See In re Cathode Ray Tube (CRT) Antitrust Litig., MDL No. 1917, 2013 WL 4505701, at *9 (N.D. Cal. Aug. 21, 2013) ("[F]ederal courts are bound by that state's highest court's decision, but if that court has not decided an issue, the federal court is to follow relevant intermediate appellate precedent unless the federal court finds convincing evidence that the state's supreme court would not follow it."). Plaintiffs have not made such a showing in this case.
Tasion argues, however, that it is not a "sophisticated" entity and thus Fieldstone does not apply. Pl. Opp. at 7. Specifically, it states that Tasion "is a small company with a single operations person, who manages a small workforce in the newly developing field of wireless telecommunications." Id. The Court disagrees. First, the amended complaint is completely devoid of any allegations regarding the size of Tasion's operations. Second, the allegations regarding Tasion in the complaint directly undermine an argument that Tasion is not "sophisticated." Plaintiffs allege that Tasion is a Canadian corporation which provides "high speed internet connectivity for business and residential subscribers in locations around the world, including Panama." FAC ¶ 26 (emphasis added). Their services include installation and servicing of equipment - including in remote locations. Id. ¶¶ 53, 54. Further, Plaintiffs allege interactions with Ubiquiti - for example, they allege that "Ubiquiti began to place customers (the purchasers of Ubiquiti's broadcast and receiving equipment) on notice that, in order for the Ubiquiti equipment to be covered under Ubiquiti's warranty" shielded ethernet cables would need to be used. Id. ¶ 56. Under these circumstances, the Court holds that Tasion is sufficiently "sophisticated" such that Fieldstone applies rather than In re Ford Motor Co. E-350 Van Prods. and Presiding Bishop. Thus, Tasion was required to provide Ubiquiti with notice prior to instituting this lawsuit.
Accordingly, the Court will dismiss Tasion's breach of express warranty claim against Ubiquiti. The question thus becomes whether this dismissal should be without prejudice and with leave to amend, or with prejudice. Leave to amend should be "freely given when justice so requires." Fed. R. Civ. P. 15(a). The Ninth Circuit has instructed that the same factors used to assess a motion for leave to amend apply in determining whether to dismiss a complaint without leave to amend: (1) bad faith; (2) undue delay; (3) prejudice to the opposing party; (4) futility of amendment; and (5) whether plaintiff has previously amended his complaint. See Schmier v. U.S. Court of Appeals for Ninth Circuit, 279 F.3d 817, 824 (9th Cir. 2002).
At the hearing on the instant motion, Plaintiffs claimed that Tasion had, in fact, provided Ubiquiti with oral notice at some point prior to institution of this suit by employing the return merchandise authorization ("RMA") process. The Court is deeply concerned that Plaintiffs waited until the eleventh hour before raising this fact. This fact is not alleged in either the original complaint nor the FAC. At no point in their opposition to Defendants' motion to dismiss - which squarely raised these notice questions - did Plaintiffs ever contend that pre-suit notice had been provided to Ubiquiti. Rather, they simply argued that notice was not required. In the FAC, besides a boilerplate assertion that "prior complaints by Plaintiffs and all other purchasers of TOUGHCable sufficed to give Defendant Ubiquiti notice and an opportunity to cure," the only reference to Ubiquiti being provided notice by Tasion is reference to letters sent in October 2013 - well after this suit was filed. Instead, it was not until the hearing on this motion, after the Court had indicated its belief that Tasion was, in fact, required to have provided notice to Ubiquiti, that Plaintiffs' counsel raised this new allegation. This is particularly troubling because the fact in question - Tasion's alleged notice to Ubiquiti - is one that has been in Tasion's possession since the institution of this suit.
While the Court finds that this conduct begins to raise the spectre of "bad faith," the Court is not willing on this record to ascribe unethical behavior on the part of Plaintiffs or their counsel. Rather, it appears that Plaintiffs have inexplicably, and unduly, delayed asserting this new fact. However, undue delay is itself an insufficient ground for denying leave to amend, and the Court finds that the simple fact that Defendants were required to file a motion to dismiss on notice grounds is insufficient "prejudice." See Home Savings of Am. v. Felipe, No. C12-01419LB, 2013 WL 1856502, at *5 (N.D. Cal. May 2, 2013) ("[D]elay alone is insufficient to justify denial of leave to amend."). Without Plaintiffs alleging in detail the putative notice Tasion allegedly provided Ubiquiti, the Court cannot assess whether Plaintiffs' amendment will be futile. Accordingly, the Court will not employ the harsh remedy of foreclosing a possibly meritorious claim based on this record.
The Court will permit Plaintiffs one final opportunity to assert a breach of express warranty claim against Tasion. Accordingly, Plaintiffs' breach of express warranty claim against Ubiquiti is DISMISSED with leave to amend. However, had Plaintiffs timely alleged the one fact on which its breach of express warranty claims now hang, the need for at least part of the prior motion practice may have been obviated. Accordingly, Plaintiffs' counsel is ORDERED to SHOW CAUSE why this Court should not order counsel and/or Plaintiffs to pay Defendants' attorneys fees incurred in drafting that portion of their prior motion to dismiss which addressed Tasion's breach of express warranty claim against Ubiquiti. Plaintiffs' response shall be filed within 7 days of this order, shall not exceed 5 pages in length. No response brief shall be filed unless and until ordered by the Court.
b. Tasion Did Not Provide Timely Notice to Defendant Streakwave
"To avoid dismissal of a breach of contract or breach of warranty claim in California, '[a] buyer must plead that notice of the alleged breach was provided to the seller within a reasonable time after discovery of the breach.'" Alvarez, 656 F.3d at 932 (emphasis added) (quoting Stearns v. Select Comfort Retail Corp., 763 F. Supp. 2d 1128, 1142 (N.D. Cal. 2010)). There is little authority interpreting what factors a court should consider in assessing whether notice was provided in a "reasonable time." However, under California Commercial Code § 1205, "[w]hether a time for taking an action required by this code is reasonable depends on the nature, purpose, and circumstances of the action." Cal. Comm. Code § 1205(a); see also Cal. Civil Jury Instructions (BAJI) 9.90 ("What amounts to a reasonable time depends on the circumstances and the kind of product involved."). "The question of whether notice was reasonable must be determined from the particular circumstances and, where but one inference can be drawn from undisputed facts, the issue may be determined as a matter of law." Fieldstone, 54 Cal. App. 4th at 370.
The attachments to the first amended complaint reveal that Tasion provided Streakwave notice of the alleged breach of warranty regarding the TOUGHCable products on October 3, 2013. See FAC, Ex. B. Thus, notice was provided to Streakwave after this action was filed (April 19, 2013) but before Tasion filed its proposed first amended complaint and motion for leave to file the amended complaint on October 28, 2013. According to the allegations in the Complaint, Tasion became aware of the facts underlying its breach of warranty claims, at the latest within a "couple of weeks" of May 2012. FAC ¶¶ 69, 70. However, it did not give notice to Streakwave for approximately 16 months - including six months after it filed the instant action against Ubiquiti.
Tasion argues that its customer's TOUGHCables failed continually from May 2012 through present. The Court finds this argument unpersuasive given the allegations in the Complaint. By mid-2012, Tasion knew sufficient information to pursue its breach of warranty claims.
As discussed above, the purpose of the notice requirement is to "allow the seller the opportunity to repair the defective item, reduce damages, avoid defective products in the future, and negotiate settlements." Cardinal Health., 169 Cal. App. 4th at 135. It is also designed to prevent claims from becoming stale. See id. None of these requirements is served by a party waiting over one year they become aware of the alleged breach of warranty to provide the seller notice. Such a delay limits the seller's ability to investigate and repair the defective item, reduce the buyer's damages, and prevent further defects in the future. Numerous courts have found shorter periods too long to satisfy the notice requirement. See, e.g., Davidson v. Herring-Hall-Marvin Safe Co., 131 Cal. App. 2d Supp. 874, 876 (Cal. Sup. Ct. App. Div. 1954) (finding 15 months between discovery of defect and notice unreasonable as a matter of law and suggesting delays of four to six months would be unreasonable); Ice Bowl v. Spalding Sales Corp., 56 Cal. App. 2d 918, 921 (1943) (finding delay of four months unreasonable as a matter of law); see also Fieldstone, 54 Cal. App. 4th at 370-71. Accordingly, on the facts of this case, the Court finds that Tasion's notice was untimely as a matter of law.
Accordingly, Tasion's breach of express warranty claim against Streakwave is DISMISSED with prejudice.
c. It Is Unclear Whether Freeway Networks and Peak Internet Provided Adequate Notice to Defendants
Freeway Networks provided notice to Ubiquiti and Streakwave by mailing letter to these entities on October 18, 2013. FAC Exs. A, B. Peak Internet provided notice by sending essentially the same letter to the Defendants on October 25, 2013. Id. Thus, these parties provided notice six business days and one business day, respectively, before they sought leave to file an amended complaint. However, the motion for leave to amend was not granted until December and, therefore, Streakwave was not a party to this action until that date. That is the date by which timeliness of the notice should be measured since that determines how much advance notice the plaintiff gave before the defendant became legally implicated in this suit. Accordingly, the Court finds that Freeway Networks and Peak Internet provided adequate "pre-suit" notice.
However, it is unclear when Freeway Networks and Peak Internet knew, or should have known, of the alleged defect and whether the notice was reasonably prompt after Freeway Networks and Peak Internet learned of the defect. In particular, it is unclear when these Plaintiffs' TOUGHCables began to fail. Accordingly, the Court cannot on these facts assess whether the pre-suit notice was provided within a reasonable timeframe. Although these Plaintiffs' claimed at the hearing that they purchased the cables in 2011, they failed to plead the date of purchase in the complaint and, regardless, the date of purchase is not the date in which they learned of the defect. Accordingly, Plaintiffs have not pled sufficient facts from which the Court can determine whether their notice was timely. Accordingly, Freeway Networks' and Peak Internets' breach of warranty claims, both express and implied, are DISMISSED with leave to amend. C. Peak Internet's Express and Implied Warranty Claims Under Colorado Law Fail (Counts Eight and Nine)
Breach of implied warranty claims are subjected to the reasonable pre-suit notice requirement. See, e.g., S. Cal. Stroke Rehab. Assocs., Inc. v. Nautilus, Inc., 09CV744-CAB MDD, 2012 WL 4364144 (S.D. Cal. Sept. 21, 2012).
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Like California law, Colorado law requires that plaintiffs provide adequate notice before they may assert express or implied warranty claims. Colorado's notice provision is identical to California's. Compare Cal. Comm. Code § 2607, with Colo. Rev. Stat. § 4-2-607(3)(a). Colorado law, however, does not require a purchaser "to give notice of such injury to a remote manufacturer prior to initiating litigation against such manufacturer. See Cooley v. Big Horn Harvestore Sys., Inc., 813 P.2d 736, 742 (Colo. 1991) (en banc). At the same time, the Colorado Supreme Court has noted that a "remote manufacturer may raise as its own defense the buyer's failure to give timely notice to the immediate seller." Id. Thus, because the Court has concluded that Plaintiff failed to allege that Peak Internet provided adequate notice to Streakwave - the immediate seller - the Court concludes that Plaintiffs' Colorado based claims must be DISMISSED with leave to amend. D. Networks' Express and Implied Warranty Claims Fail (Counts Ten and Eleven)
Like California law, Arizona law requires that plaintiffs provide adequate notice before they may assert express or implied warranty claims. Arizona's notice provision is identical to California's Compare Cal. Comm. Code § 2607, with Ariz. Rev. Stat. § 47-2607. Significantly, however, Arizona courts have expressly held that the Complaint itself may constitute notice. See Davidson v. Wee, 379 P.2d 744, 749 (Ariz. 1963) (in banc); see also Yee v. Nat'l Gypsum Co., No. CV-09-8189-PHX, 2010 WL 2572976 (D.Ariz. June 22, 2010) ("The notice 'need take no special form,' and the complaint itself may provide adequate notice."). At the same time, like California law, Arizona law requires that the notice in question be provided within a reasonable time. See, e.g., Burge v. Freelife Intern., Inc., No. CV 09-1159-PHX, 2009 WL 3872343, at *5-6 (D. Ariz. Nov. 18, 2009). For the reasons Freeway Networks' California claims against Ubiquiti and Streakwave fail, its Arizona claims are likewise DISMISSED with leave to amend.
However, in order to recover economic damages under a theory of implied warranty of merchantability, a plaintiff must be in privity with the defendant. See Florey v. Sivlercrest Indus., Inc., 633 P.2d 383, 388 (Ariz. 1981) ("Although we allow recovery for 'breach of implied warranty' without privity under the theory of strict liability, plaintiffs cannot recover purely economic damages under that theory. And although we allow recovery for purely economic damages for breach of U.C.C. warranties, plaintiffs cannot recover under that theory . . . due to their lack of privity with that defendant.") Here, the only damages alleged under Count 11 are economic damages. See FAC ¶ 264. Accordingly, to the extent Freeway Networks seeks to assert an implied warranty claim against Ubiquiti, it may not base such a claim on economic damages. E. Count Twelve Is Dismissed to the Extent It Seeks Monetary Relief on Behalf of a Class
In Count Twelve, Peak Internet asserts a claim under the Colorado Consumer Protection Act ("CCPA") against all Defendants on behalf of a class. The damages provision of the CCPA provides:
Except in a class action or a case brought for a violation of section 6-1-709, any person who, in a private civil action, is found to have engaged in or caused another to engage in any deceptive trade practice listed in this article shall be liable [for actual or statutory damages].Colo. Rev. Stat. § 6-1-113(2) (emphasis added). The District Court of Colorado has interpreted this provision as expressly excluding class actions seeking monetary relief from the CCPA. See Martinez v. Nash Finch Co., 886 F. Supp. 2d 1212 (D. Colo. 2012). The court noted that § 6-1-113(2) "limits such liability [under the CCPA] to specified remedies, and expressly states that such remedies are not applicable in class actions. By logical extension, the CCPA creates no statutory liability for a defendant in a private class action." Id. at 1220. The Court agrees. Accordingly, Peak Internet's CCPA claim is DISMISSED to the extent it seeks to assert a class action for monetary relief. F. Plaintiffs' Claim Under the Magnuson Moss Warranty Act Is Dismissed With Prejudice
The Magnuson-Moss Warranty Act ("MMWA") creates a federal, private cause of action to enforce the terms of express or implied warranties. Apodaca, 2013 WL 6477821, at *11; see also 15 U.S.C. § 2310(d)(1) ("[A] consumer who is damaged by the failure of a supplier, warrantor, or service contractor to comply with any obligation under this chapter, or under a written warranty, implied warranty, or service contract, may bring a suit for damages and other legal and equitable relief . . . ."). Because Plaintiffs in this action base their MMWA claim based on the failure of Defendants to comply with various state law warranty laws, their MMWA claim necessarily hinges on those state law warranty claims. See Clemens v. DaimlerChrysler Corp., 534 F.3d 1017, 1022 n.3 (9th Cir. 2008); see also Apodaca, 2013 WL 6477821, at *11 ("Because Magnuson-Moss applies state warranty law, a plaintiff bringing a claim under Magnuson-Moss must adequately plead a warranty claim under state law."). Accordingly, Plaintiffs' MMWA claim fails insofar as all remaining state law warranty claims have been dismissed.
However, Plaintiffs' MMWA claim suffers from a more fundamental defect. Under the plain terms of § 2310(d)(1), the private cause of action under the MMWA applies only to "consumers" who are damaged by a failure to comply with a written warranty. 15 U.S.C. § 2310(d)(1); see also IWOI, LLC v. Monaco Coach Corp., 581 F. Supp. 2d 994, 999 (N.D. Ill. 2008) ("Only a 'consumer' may recover under the MMWA."). "Consumer" is, in turn, defined as
a buyer (other than for purposes of resale) of any consumer product, any person to whom such product is transferred during the duration of an implied or written warranty (or service contract) applicable to the product, and any other person who is entitled by the terms of such warranty . . . or under applicable State law to enforce against the warrantor . . .the obligations of the warranty.15 U.S.C. § 2301(3). Key to this definition is the definition of "consumer product." Defendants argue that Plaintiffs' MMWA claim necessarily fails because the TOUGHCable product at issue is, by law, not a "consumer" product and, therefore, the MMWA is inapplicable. The MMWA defines "consumer product" as
any tangible personal property which is distributed in commerce and which is normally used for personal, family, or household purposes (including any such property intended to be attached to or installed inId. § 2301(1). Under this definition, "if a type of product is 'normally used' for consumer purposes, then that product in any given case is a consumer product within the meaning of the Act regardless of whether it was used for commercial purposes." Najran Co. for General Contracting & Trading v. Fleetwood Enters., Inc., 659 F. Supp. 1081, 1099 (S.D. Ga. 1986).
any real property without regard to whether it is so attached or installed).
The Court concludes that the TOUGHCables at issue in this case are not "consumer products" for purposes of the MMWA. Plaintiffs argue the TOUGHCables are "consumer products" because they are nothing more than a Cat5e cable - a common ethernet connection that most people will use in their homes to connect their computers to a network or the internet. However, as the Seventh Circuit has recognized, in evaluating the "type" of product for these purposes, the "[a]nalysis must be more fine-grained." Waypoint Aviation Servs. Inc. v. Sandel Avionics, Inc., 469 F.3d 1071, 1072 (7th Cir. 2006). In that case, the district court had dismissed a MMWA claim on the basis that a single engine airplane could not, as a matter of law, be a "consumer product," even if used for personal transportation or recreation. Id. The Seventh Circuit reversed, finding that "airplanes" was too large a category for analysis; instead, it found that "single-engine planes used for personal transport or recreation may be consumer products even though Antonov 225s and skycrane helicopters are not." Id.
Here, it cannot be reasonably disputed that a run-of-the-mill Cat5e cable constitutes a "consumer" product. But Plaintiffs' entire case is premised on the allegations that the TOUGHCables were designed and marketed to not be simple Cat5e cables. Rather, they are alleged to have been marketed as "Outdoor carrier class shielded Ethernet cable[s]," that they are "industrial-grade shielded Ethernet cable[s]," and are capable of performing in "the harshest weather and environments." FAC ¶ 5. The TOUGHCables were sold (and purchased by Plaintiffs) in boxes of 1,000 feet. Under these circumstances, the Court cannot conclude that it is "not uncommon" for an individual to need over three football fields of industrial-grade, shielded, ethernet cable for "personal, family, or household purposes."
Plaintiffs point to the FTC's interpretation of statutory language in support of their argument that TOUGHCables are consumer products. Specifically, the FTC has stated, in explaining revisions made to the 16 C.F.R. 700.1:
Additional text is added after the first sentence to eliminate the continued misunderstanding - evidenced by two of the comments - of the standard for determining whether a product is a "consumer product" under the Act. These comments indicated confusion as to whether a product used for both commercial and personal purposes, such as a passenger car used by a sales representative to make business calls, is covered by the Act. The additional text sets out the correct determining standard; namely, that it is the normal use of the category of products (e.g., sedans), not the use to which an individual product (e.g., a particular sales representative's sedan) is normally placed.42 Fed. Reg. 36,112 (July 13, 1977). The Court disagrees with Plaintiffs' reading of this interpretation. What this regulation stands for is the proposition that it does not matter why a given entity or individual used a product. Rather, one must look to the category of product and determine if it is "normally" used for personal, family, or household purposes. Where Plaintiffs go astray, however, is by viewing the interpretation's use of the word "category" far too broadly. For example, not all cars (armored military vehicles), planes (Boeing 747s), or computers (large institutional supercomputers), are consumer products just because or because they belong to a larger category some subset of which is for consumer use. As the Seventh Circuit has noted, the inquiry must be more "fine-grained" than broad, undifferentiated categories. Waypoint, 469 F.3d at 1072. Conducting this more fine-grained analysis, the Court finds that commercial-grade, shielded ethernet cables sold in 1000 ft long spools are not "consumer products" simply because, stripped of everything that made them distinctive (and attractive to Plaintiffs), they are nothing more than Cat5e ethernet cables.
Plaintiff's MMWA claim is DISMISSED with prejudice.
V. CONCLUSION
For the foregoing reasons, the Court GRANTS Defendants' motion to dismiss and DISMISSES Plaintiffs' FAC. This dismissal is with prejudice as to Tasion's warranty claims against Defendant Streakwave and as to all Plaintiffs' MMWA claims. Dismissal is without prejudice and with leave to amend as to all other claims. Plaintiffs shall file their Second Amended Complaint within 30 days of this order.
Further, Plaintiffs' counsel is ORDERED to SHOW CAUSE why they should not be required to pay Defendants' expenses incurred in drafting that portion of their motion to dismiss addressing Plaintiff Tasion's breach of warranty claims against Tasion. Plaintiffs' response shall be filed within 7 days of this order, shall not exceed 5 pages in length.
This order disposes of Docket Nos. 56 and 57.
IT IS SO ORDERED.
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EDWARD M. CHEN
United States District Judge