Free Order - District Court of California - California

Case 3:07-cv-02209-L-WMC

Document 21

Filed 08/22/2008

Page 1 of 7

1 2 3 4 5 6 UNITED STATES DISTRICT COURT 7 SOUTHERN DISTRICT OF CALIFORNIA 8 9 RANDY NUNEZ, 10 11 12 13 14 15 16 In this diversity action, Plaintiff alleges causes of action for breach of the implied ) ) Plaintiff, ) ) v. ) ) MICROSOFT CORPORATION, a ) Washington corporation, et al., ) ) Defendants. ) __________________________________ ) Civil No. 07cv2209-L(WMC) ORDER (1) GRANTING PLAINTIFF'S EX PARTE APPLICATION FOR LEAVE TO FILE SURREPLY; AND (2) GRANTING IN PART DENYING IN PART DEFENDANTS' MOTION TO DISMISS WITH LEAVE TO AMEND

17 warranty of merchantability and fitness under the California Song-Beverly Consumer Warranty 18 Act, Cal. Civ. Code § 1790 et seq., and violation of the California Unfair Competition Law, Cal. 19 Bus. & Prof. Code § 17200 et seq. Defendants filed a motion to dismiss all causes of action 20 pursuant to Federal Rule of Civil Procedure 12(b)(6). Plaintiff opposed the motion and 21 Defendants replied. Plaintiff filed an ex parte application for leave to file a surreply. For good 22 cause shown, the ex parte application is granted. For the reasons which follow, Defendants' 23 motion to dismiss is granted in part and denied in part. Plaintiff is granted leave to amend. 24 Plaintiff alleges he purchased a Halo 3 video game, which is manufactured by

25 Defendants. The game can be operated only on the Microsoft Xbox 360 video game console. 26 / / / / / 27 / / / / / 28 / / / / /
07cv2209

Case 3:07-cv-02209-L-WMC

Document 21

Filed 08/22/2008

Page 2 of 7

1 When Plaintiff attempted to play the game on the Xbox 360 console, the game repeatedly locked 2 up, froze and/or crashed.1 3 A Rule 12(b)(6) motion to dismiss tests the sufficiency of the complaint. Navarro v.

4 Block, 250 F.3d 729, 732 (9th Cir. 2001). Dismissal is warranted under Rule 12(b)(6) where the 5 complaint lacks a cognizable legal theory. Robertson v. Dean Witter Reynolds, Inc.,749 F.2d 6 530, 534 (9th Cir. 1984); see Neitzke v. Williams, 490 U.S. 319, 326 (1989) ("Rule 12(b)(6) 7 authorizes a court to dismiss a claim on the basis of a dispositive issue of law"). Alternatively, a 8 complaint may be dismissed where it presents a cognizable legal theory yet fails to plead 9 essential facts under that theory. Robertson, 749 F.2d at 534. "[A] plaintiff's obligation to 10 provide the grounds for his entitlement to relief requires more than labels and conclusions, and 11 formulaic recitation of the elements of a cause of action will not do. Factual allegations must be 12 enough to raise a right to relief above the speculative level . . .." Bell Atl. Corp. v. Twombly, 127 13 S. Ct. 1955, 1964-65 (2007) (internal quotation marks and citations omitted). 14 In reviewing a motion to dismiss under Rule 12(b)(6), the court must assume the truth of

15 all factual allegations and must construe them in the light most favorable to the nonmoving 16 party. Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 337-38 (9th Cir. 1996). However, legal 17 conclusions need not be taken as true merely because they are cast in the form of factual 18 allegations. Roberts v. Corrothers, 812 F.2d 1173, 1177 (9th Cir. 1987); W. Mining Council v. 19 Watt, 643 F.2d 618, 624 (9th Cir. 1981). Similarly, "conclusory allegations of law and 20 unwarranted inferences are not sufficient to defeat a motion to dismiss." Pareto v. Fed. Deposit 21 Ins. Corp., 139 F.3d 696, 699 (9th Cir. 1998.) 22 Defendants maintain that Plaintiff cannot state a claim for any of his causes of action.

23 They do not dispute that the Song-Beverly Consumer Warranty Act ("Act") applies to Plaintiff's 24 purchase of Halo 3. As to the implied warranty causes of action, they claim that Plaintiff was 25 required to allege that he timely gave notice of the alleged breach. Such notice is required under 26 / / / / / 27 28 Plaintiff further alleges that numerous other consumers had the same experience, and includes class action allegations. Those allegations are not the subject of this ruling.
2
07cv2209
1

Case 3:07-cv-02209-L-WMC

Document 21

Filed 08/22/2008

Page 3 of 7

1 California Commercial Code Section 2607(3)(A) and for common law breach of warranty 2 claims, see Pollard v. Saxe & Yolles Dev. Co., 12 Cal.3d 374, 380 (1974). 3 The Act "supplements, rather than supersedes, the provisions of the California Uniform

4 Commercial Code." Krieger v. Nick Alexander Imports, Inc., 234 Cal. App. 3d 205, 213 (1991). 5 It provides that it "shall not affect the rights and obligations of parties determined by reference to 6 the Commercial Code except that, where the provisions of the Commercial Code conflict with 7 the rights guaranteed to buyers of consumer goods under the provisions of this chapter, the 8 provisions of this chapter shall prevail." Cal. Civ. Code § 1790.3. 9 "Any buyer of consumer goods who is damaged by a failure to comply with any

10 obligation under . . . an implied warranty . . . may bring an action for the recovery of damages 11 and other legal and equitable relief." Cal. Civ. Code § 1794(a). 12 13 14 15 The measure of the buyer's damages in an action under this section shall include the rights of replacement or reimbursement as set forth in subdivision (d) of Section 1793.2, and the following: ... (2) Where the buyer has accepted the goods, Sections 2714 and 2715 of the Commercial Code shall apply, and the measure of damages shall include the cost of repairs necessary to make the goods conform.

16 Id. § 1794(b). Section 2714 of the Commercial Code defines the recoverable damages "[w]here 17 the buyer has accepted goods and given notification (subdivision (3) of Section 2607)." Cal. 18 Com. Code § 2714(1). Section 2607(3) provides in pertinent part that "[w]here a tender has 19 been accepted[, t]he buyer must, within a reasonable time after he or she discovers or should 20 have discovered any breach, notify the seller of breach or be barred from any remedy . . .." Id. 21 § 2607(3)(A). 22 Plaintiff relies on Mocek v. Alfa Leisure, Inc., 114 Cal. App. 4th 402 (2004), to argue that

23 the Commercial Code notice provision does not apply to his claims under the Act. Mocek 24 addressed the issue whether after breach of an implied warranty under the Act, consumers may 25 rescind the purchase without first affording the manufacturer an opportunity to repair. Id. at 405. 26 In Mocek, the buyer did not accept the goods, but rejected them. Id. at 405. Under this 27 circumstance, the Act provides that Section 2711 of the Commercial Code applies. Cal. Civ. 28 Code § 1794(b)(1); see also Mocek, 114 Cal. App. 4th at 406. Under section 2711, the buyer
3
07cv2209

Case 3:07-cv-02209-L-WMC

Document 21

Filed 08/22/2008

Page 4 of 7

1 may cancel and recover any price he had paid. Cal. Com. Code § 2711(1); see also Mocek, 114 2 Cal. App. 4th at 406. The defendant in Mocek sought to impose a requirement on the plaintiff to 3 give him an opportunity to repair before canceling and recovering damages, as provided in 4 section 1793.2 of the Act with regard to breaches of express warranties. Id. at 406-07. The 5 court held that the statutory language was clear and refused to impose the repair remedy when 6 none was provided in the statute. Id. at 407-08. 7 As in Mocek, in this case, the statutory language is clear. Section 1794(b) of the Act

8 expressly references Commercial Code Section 2714, which requires notice before damages can 9 be recovered. See also Judicial Council of California, Civil Jury Instructions § 3210, Directions 10 for Use (Feb. 2008). 11 Relying on section 1790.3 of the Act, Plaintiff argues in his surreply that the notice

12 provision of the Commercial Code conflicts with the rights guaranteed to buyers under the Act, 13 and that the provisions of the Act should therefore trump the Commercial Code provisions. 14 Plaintiff does not explain what conflict results from applying the notice requirement. The 15 argument is rejected because the notice requirement is referenced in Commercial Code Section 16 2714, which expressly applies though section 1794(b)(1) of the Act. 17 Last, Plaintiff relies on the policy purpose of the Act to broaden the remedies set out in

18 the Commercial Code to include costs, attorneys' fees and civil penalties. Mocek, 114 Cal. App. 19 4th at 407-08; Krieger, 234 Cal. App. 4th at 213. Plaintiff argues that the Act is intended for 20 consumer protection and should be given a construction calculated to bring its benefits into 21 action. Robertson v. Fleetwood Travel Trailers of Cal., Inc., 144 Cal. App. 4th 785, 809 (2007). 22 The benefits of the Act are reflected in the plain meaning of its provisions. As discussed above, 23 the Act expressly applies a remedy provision from the Commercial Code which requires notice. 24 Because Plaintiff does not allege notice, Defendants' motion to dismiss the implied warranty 25 causes of action is granted. 26 Defendants also moved to dismiss Plaintiff's unfair competition claim. The UCL

27 prohibits unlawful, unfair or fraudulent business acts or practices. Cal. Bus. & Prof. Code 28 § 17200. "Because Business and Professions Code section 17200 is written in the disjunctive, it
4
07cv2209

Case 3:07-cv-02209-L-WMC

Document 21

Filed 08/22/2008

Page 5 of 7

1 establishes three varieties of unfair competition - acts or practices which are unlawful, or unfair, 2 or fraudulent." Cal-Tech. Commc'ns, Inc. v. Los Angeles Cellular Tel. Co., 20 Cal.4th 163, 180 3 (1999). The complaint alleges the UCL claim under each of its three prongs. (Compl. ¶¶ 644 68.) 5 "An unlawful business practice under section 17200 is an act or practice, committed

6 pursuant to a business activity, that is at the same time forbidden by law." Progressive W. Ins. 7 Co. v. Yolo County Super. Ct. (Preciado), 135 Cal. App. 4th 263, 287 (2006) (emphasis in 8 original). Plaintiff alleges that Defendants' practices or acts were "unlawful" because they 9 violated the Act. As discussed above, Plaintiff has not sufficiently alleged a violation of the 10 implied warranty provisions of the Act. Accordingly, his UCL allegations fail to the extent they 11 rely on implied warranty violations. 12 The complaint also alleges fraudulent acts or practices. Plaintiff alleges that Defendants

13 advertised Halo 3 for use exclusively with the Xbox 360 console, but when the game was played 14 on the Xbox 360 console, it routinely froze, crashed or locked up. (Compl. ¶¶ 25-27.) Plaintiff 15 alleges that this constitutes "`fraudulent business acts or practices within the meaning of Cal. 16 Bus. & Prof. Code § 17200" because "Defendants' misrepresentations, non-disclosures and 17 concealments were false, misleading, untrue, deceptive and likely to deceive and in fact did 18 deceive . . .." (Id. ¶ 67.) 19 Defendants' argue that this allegation is not pleaded with the particularity required by

20 Rule 9(b). Plaintiff contends that Rule 9(b) does not apply in the context of his claim. "Rule 21 9(b)'s particularity requirement applies to state-law causes of action." Vess v. Ciba-Geigy Corp. 22 USA, 317 F.3d 1097, 1103 (9th Cir. 2003). In cases such as this, where fraud is not a necessary 23 element of a claim, a plaintiff may choose nonetheless to allege in the complaint that the 24 defendant has engaged in fraudulent conduct." Id. at 1103. The extent to which Rule 9(b) 25 applies in such cases depends on whether the plaintiff alleged a unified course of fraudulent 26 conduct or some fraudulent and some non-fraudulent conduct. Id. at 1103-04. In this case, 27 Plaintiff alleged some fraudulent and some non-fraudulent conduct. In such cases, Rule 9(b)'s 28 heightened pleading requirements apply only to the "averments" of fraud supporting a claim
5
07cv2209

Case 3:07-cv-02209-L-WMC

Document 21

Filed 08/22/2008

Page 6 of 7

1 rather than to the claim as a whole. Id. at 1104. Accordingly, "where fraud is not an essential 2 element of a claim, only allegations (`averments') of fraudulent conduct must satisfy the 3 heightened pleading requirements of Rule 9(b). Allegations of non-fraudulent conduct need 4 satisfy only the ordinary notice pleading standards of Rule 8(a)." Id. at 1105. 5 Plaintiff must comply with Rule 9(b) to the extent he alleges that Defendants' acts or

6 practices were fraudulent. Those 7 8 9 10 Id. at 1106 (internal quotation marks, brackets and citations omitted, emphasis in original). 11 Plaintiff's fraud allegations do not meet this standard. 12 "[I]f particular averments of fraud are insufficiently pled under Rule 9(b), a district court [a]verments of fraud must be accompanied by the who, what, when, where and how of the misconduct charged. A plaintiff must set forth more than the neutral facts necessary to identify the transaction. The plaintiff must set forth what is false or misleading about a statement, and why it is false.

13 should `disregard' those averments, or `strip' them from the claim. The court should then 14 examine the allegations that remain to determine whether they state a claim." Id. at 1105. 15 Plaintiff's UCL allegations fail to the extent they rely on the "fraudulent" prong of the statute. 16 Last, Plaintiff alleges that Defendants' acts or practices were "unfair" under the UCL. "A

17 business practice is unfair within the meaning of the UCL if it violates established public policy 18 or if it is immoral, unethical, oppressive or unscrupulous and causes injury to consumers which 19 outweighs its benefits." McKell v. Wash. Mut., Inc., 142 Cal. App. 4th 1457, 1473 (2006). The 20 alleged unfairness need not be tethered to some legislatively declared policy. Knevelbaard 21 Dairies v. Kraft Foods, Inc., 232 F.3d 979, 994 (9th Cir. 2000); see also Progressive W. Ins. Co., 22 135 Cal. App. 4th at 285-87. 23 "In general the `unfairness' prong has been used to enjoin deceptive or sharp practices."

24 Klein v. Earth Elements, 59 Cal. App. 4th 965, 970 (1997). Plaintiff alleges that Defendants' 25 practices or acts were unfair because they represented that Halo 3 was for use exclusively on 26 Xbox 360, but when it was played on Xbox 360, it repeatedly and consistently froze, locked up 27 or crashed, disrupting the game and rendering it inoperable. (Compl. ¶¶ 25-27.) Allegedly, 28 many consumers had complained about this problem to Defendants, but Defendants failed to
6
07cv2209

Case 3:07-cv-02209-L-WMC

Document 21

Filed 08/22/2008

Page 7 of 7

1 acknowledge Halo 3's problems. (Id. ¶¶ 28-29.) 2 Defendants rely on Klein, where the plaintiff's UCL claim was denied on summary

3 judgment based on evidence of the defendants' exemplary response to customer complaints 4 about product defects. 59 Cal. App. 4th at 968, 969-70. Accordingly, Klein does not support the 5 proposition that Plaintiff failed to properly allege the claim. Defendants' arguments in this 6 regard are rejected. 7 8 9 10 For the foregoing reasons, IT IS HEREBY ORDERED: 1. Plaintiff's ex parte application for leave to file a surreply is GRANTED. 2. Defendants' motion to dismiss is DENIED IN PART AND GRANTED IN PART. 3. The first cause of action for breach of implied warranty of merchantability under the

11 Song-Beverly Consumer Warranty Act is DISMISSED. 12 4. The second cause of action for breach of implied warranty of fitness under the Song-

13 Beverly Consumer Warranty Act is DISMISSED. 14 5. The third cause of action under the Unfair Competition Law is DISMISSED, but only

15 to the extent it is based on unlawful and fraudulent acts or practices. 16 6. Plaintiff is granted LEAVE TO AMEND. Should Plaintiff decide to amend, the first

17 amended complaint must be filed no later than twenty-one (21) calendar days after this order is 18 stamped "Filed." Any response to the first amended complaint must be filed no later than ten 19 (10) calendar days after service. 20 21 22 DATED: August 22, 2008 23 24 COPY TO: 25 HON. WILLIAM McCURINE, Jr. 26 UNITED STATES MAGISTRATE JUDGE 27 ALL PARTIES/COUNSEL 28
7
07cv2209

IT IS SO ORDERED.

M. James Lorenz United States District Court Judge