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In Re Google Phone Litigation

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA SAN JOSE DIVISION


August 2, 2012

IN RE GOOGLE PHONE LITIGATION

United States District Court For the Northern District of California

ORDER GRANTING MOTION TO DISMISS WITH LEAVE TO AMEND

(Re: Docket No. 113)

Pending before the court is Defendant Google Inc.'s ("Google") and Defendant HTC Corp.'s 18 ("HTC") motion to dismiss Plaintiff Mary McKinney's ("McKinney") and Plaintiff Nathan 19 Nabors' ("Nabors") Consolidated Amended Complaint ("CAC"). The court previously found it 20 appropriate to take the motion under submission without oral argument. See Civil L.R. 7-1(b). 21 Based on the papers submitted, the court GRANTS Defendants' motion to dismiss with leave to 22 amend. 23

I.BACKGROUND

On September 30, 2011, Plaintiffs brought a class action against Defendants on behalf of 25 themselves and a class of all consumers (the "Class") who purchased the Nexus One mobile device 26 (the "Google Phone") manufactured and marketed by Google and HTC, alleging the failure of the 27 Google Phone to maintain connectivity to a wireless network. CAC ¶ 1, Docket No. 110. 28

The Google Phone was an advanced mobile cellular phone that operated using the Android 2 Mobile Technology Platform and included various features, such as a video and audio player, and 3 an Internet device which provided email and Internet access on the 3G network. Id. ¶ 23. The "3G" 4 technology features faster peak data transfer rates over previous networks of up to 7.2 megabytes 5 per second, which, according to Plaintiffs, is especially important to "smart phone" users who 6 employ their devices to run and store applications, send and receive email, download and play 7 media, and share pictures and information via social networking systems. Id. ¶ 36. 8

Google is a Delaware corporation that develops, brands, promotes, markets, distributes and/or 9 sells the Google Phone throughout the United States. Id. ¶ 18. HTC is a Taiwanese corporation that 10 designed and manufactured the Google Phone. Id. ¶ 19. Non-Defendant T-Mobile, a third party that 11 served as Plaintiffs' wireless carrier, is an American subsidiary of Germany-based Deutsche 12 Telekom, and provides wireless voice and data communications services to subscribers in the U.S. 13 Id. ¶ 20. 14

McKinney, a Pennsylvania resident, purchased her Google Phone on or about January 9, 2010, 15 through the Google website. Id. ¶ 6. Specifically, McKinney alleges that 3G service on her phone is 16 "sporadic and inconsistent." Id. ¶ 478. McKinney further alleges that a T-Mobile sales 17 representative explicitly told her that the Google Phone had 3G speed, and that the phone was 18 "essential for web surfing and email." Id. ¶ 33. 19

Nabors, a Florida resident, purchased his Google Phone through the Google website, 20 google.com/phone. Id. ¶ 14. Nabors alleges he missed numerous calls, experienced a high volume 21 of "dropped" calls and the Google phone did not function properly. Id. ¶ 61. 22

Plaintiffs contend that Google made representations regarding the Google Phone's capabilities 23 to the public through multiple points of contact, including internet, print, television and radio 24 advertising. Id. ¶ 30. According to Plaintiffs, this included the information Defendants presented to 25 Plaintiffs and the Class on the website Google set up to sell its phone Id. However, also according 26 to Plaintiffs, Google's promotional materials have been removed from that address and HTC has 27 allegedly done the same. Id. ¶ 31. 28

Plaintiffs contend that these alleged representations by T-Mobile and Google consistently 2 presented the Google Phone as a true "3G" device that would offer superior upload and download 3 speeds, and a device that would be worth the premium Plaintiffs and the Class would pay both for 4 their devices, and the more expensive service plans that would be needed to support their devices. 5

Id. ¶ 34. 6

Plaintiffs also contend that Defendants consistently advertised the Google Phone, working in 7 tandem with a mobile network, as providing 3G transfer rates. Id. ¶ 43. If, however, 3G 8 connectivity was unavailable, the phone and data operations could still be used, but at what 9

Plaintiffs believed to be a "substantially lower" data transfer rate than the 3G level that was 10 allegedly advertised. Id. ¶ 46. Plaintiffs claim that, contrary to Defendants' assertions, Plaintiffs and other members of the Class experience connectivity on the 3G wireless network only a fraction of the time they are connected to the T-Mobile 3G wireless network, or receive no 3G connectivity 13 at all for a significant portion of the time. Id. ¶ 47. Further, according to Plaintiffs, the alleged lack 14 of 3G connectivity caused Plaintiffs and other members of the Class to experience a significant 15 number of dropped calls when the Google Phone cannot locate an available 3G network 16 connection. Id. Finally, Plaintiffs allege Defendants failed to warn Plaintiffs and Class members of 17 the limitations associated with using the Google Phone to its internal understanding that the T-18 Mobile 3G network was not designed to provide consistent connectivity to its 3G network for 19 Google Phone users. Id. ¶ 52. 20

As a result, Plaintiffs contend that they were injured in response to representations, advertising 21 or other promotional materials that were prepared and approved by Defendants and disseminated 22 on the face of the product or through assertions that contained the representations regarding the 23 Google Phone. Id. ¶ 65. Had the true facts been disclosed, Plaintiffs claim they would not have 24 purchased the Google Phone at the prices and under the terms and conditions to which they were 25 and are subjected. Id. 26

On August 31, 2010, Nabors filed an action in this court, Case No. 10-3897. See Class Action 27 Compl., Case No. 10-3897, Docket No. 1. On January 10, 2011, Nabors filed his First Amended 28 Complaint. See Am. Compl., Case No. 10-3897, Docket No. 21. On August 30, 2011, the court granted Defendants' motion to dismiss Nabors' First Amended Complaint. See Order, Case No. 2 10-3897, Docket No. 48. 3

On January 29, 2010, McKinney filed an action in state court. See Notice of Removal, Docket 4 No. 1, ¶ 1. On March 22, 2010, Defendants removed that action to this court, Case No. 10-1177. 5

See Notice of Removal. On June 11, 2010, McKinney filed her First Amended Complaint. See 6 First Am. Compl., Docket No. 26. On November 16, 2010, Judge Ware granted Google and HTC's 7 motion to dismiss McKinney's First Amended Complaint. See Order, Docket No. 73. On 8 December 3, 2010, McKinney filed her Second Amended Complaint. See Second Am. Compl., 9 Docket No. 75. On August 30, 2011, this court granted Defendants' motion to dismiss McKinney's 10 Second Amended Complaint. See Order, Docket No. 106.

On September 15, 2011, the court consolidated Nabors' and McKinney's cases. See Order, Docket No. 108. On September 30, 2011, Plaintiffs filed the CAC alleging three causes of action: 13 (1) Breach of Implied Warranty; (2) Violation of Consumers Legal Remedies Act, California Civil 14 Code § 1760, et seq.; and (3) Unlawful and Unfair Business Practices in Violation of California 15 Business & Professions Code § 17200, et seq. See CAC. 16

II.LEGAL STANDARDS

"Dismissal under Rule 12(b)(6) is appropriate only where the complaint lacks a cognizable 18 legal theory or sufficient facts to support a cognizable legal theory." Mendiondo v. Centinela Hosp. 19 Center, 521 F.3d 1097, 1104 (9th Cir. 2008). For purposes of a motion to dismiss, "all allegations 20 of material fact are taken as true and construed in the light most favorable to the nonmoving party." 21 Cahill v. Liberty Mutual Ins. Co., 80 F.3d 336, 337-338 (9th Cir. 1996). The court, however, is not 22 required to accept as true allegations that are merely conclusory, unwarranted deductions of fact, or 23 unreasonable inferences. See Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 24 2001). A formulaic recitation of a cause of action with conclusory allegations is not sufficient; a 25 plaintiff must plead facts showing that a violation is plausible, not just possible. Ashcroft v. Iqbal, 26 129 S.Ct. 1937, 1949 (2009) (internal citations omitted).

On a motion to dismiss, the court's review is limited to the face of the complaint and matters 28 judicially noticeable. MGIC Indem. Corp. v. Weisman, 803 F.2d 500, 504 (9th Cir. 1986); N. Star Int'l v. Ariz. Corp. Comm'n, 720 F.2d 578, 581 (9th Cir. 1983). However, under the "incorporation 2 by reference" doctrine, the court also may consider documents whose contents are alleged in a 3 complaint and whose authenticity no party questions, but which are not physically attached to the 4 [plaintiff's] pleading. In re Silicon Graphics, Inc. Sec. Litig., 183 F.3d 970, 986 (9th Cir. 1999). 5

Leave to amend should be granted unless it is clear that the complaint's deficiencies cannot be 6 cured by amendment. Lucas v. Dep't of Corr., 66 F.3d 245, 248 (9th Cir. 1995). 7

III.DISCUSSION

A.Breach of Implied Warranty of Merchantability

Defendants contend that Plaintiffs' implied warranty of merchantability claim should be 10 dismissed on the grounds that: (1) The claim remains preempted under the Federal Communication Act ("FCA"); (2) Plaintiffs fail to plead facts showing the Nexus One is not merchantable and unfit for its ordinary purpose; (3) Defendant's lawful disclaimer of any implied warranty of 13 merchantability defeats the claim; and (4) Plaintiffs lack privity with HTC. 14

1. Preemption

Defendants argue that Plaintiffs' claims are preempted because they are inextricably tied to 16 preempted attacks on the sufficiency of T-Mobile's 3G wireless network infrastructure, and that 17 Plaintiffs fail to identify any actual defects in the Nexus One. 18

The state law warranty claims in McKinney's First and Second Amended Complaints were 19 dismissed because the court found that the claims were preempted by the FCA, which provides that 20 "no State or local government shall have any authority to regulate the entry of or the rates charged 21 by any commercial mobile service or any private mobile service." 47 U.S.C. § 332(c)(3)(A). A 22 complaint that service quality is poor is really an attack on the rates charged for the service. Bastien 23 v. AT&T Wireless Services, Inc., 205 F.3d 983, 988 (7th Cir. 2000). In dismissing McKinney's 24 earlier complaints, the court determined that her warranty claims-that Defendants knew T-25 Mobile's 3G network was not sufficiently developed, deceived McKinney into paying higher 26 prices for a service that Defendants could not deliver, and acted in concert with T-Mobile-were 27 attacks on T-Mobile's rates and market entry. The court granted McKinney leave to amend because 28 it determined she may be able to state claims against Google and HTC for actual defects of the 2 Google Phone or its applications. 3

Specifically, in dismissing McKinney's Second Amended Complaint, the court found that, 4 "McKinney claims that the ordinary purpose of the phone is to provide consistent connectivity to a supposedly faster 3G network, the phone fails to do so, and '[w]hether the problem is with the Google Phone itself or with [the] wireless carrier's network, or a combination of the two, is irrelevant.' McKinney also alleges that 'the combination of the phone and/or the network made it difficult . . . to receive reliable and sustained connectivity on the 3G wireless network,' that 'T-Mobile's network did not provide consistent 3G performance for Google Phone purchasers,' and that 'T-Mobile's 3G network was not designed to provide consistent connectivity to its 3G network for Google Phone users.'"

Order Granting Mot. Dismiss at 5:3-10 (internal citations omitted). 10 In the CAC, Plaintiffs again allege that "the combination of the phone and/or the network made it difficult . . . to receive reliable and sustained connectivity on the 3G wireless network as 12 compared to a slower network," "T-Mobile's network did not provide consistent 3G performance 13 for Google Phone purchasers," the "T-Mobile 3G network was not designed to provide consistent 14 connectivity to its 3G network for Google Phone users," and that T-Mobile's 3G network is 15 "inferior." CAC ¶¶ 58, 51, 52, 63. Any claims about the service quality of T-Mobile's 3G networks 16 are, again, preempted. 17 The CAC, however, also alleges that "the Google Phone itself suffered from defective 18 hardware and/or software" and "the Google Phone was sold with actual defects." Id. ¶¶ 64, 88. 19

Accepting the allegations as true and viewing them in the light most favorable to Plaintiffs, as the 20 court must on a motion to dismiss, Plaintiffs have pleaded that that phone's failure to connect to the 21 3G network was a result of defects with the phone itself. Accordingly, Plaintiffs' claim for breach 22 of implied warranty is not preempted. 23

2. Ordinary Purpose

Additionally, Defendants argue that Plaintiffs' allegations about the Google Phone's failure to 25 maintain consistent 3G connectivity does not support a claim for breach of implied warranty. 26 Cal. Civ. Code § 1792 provides that "every sale of consumer goods that are sold at retail in this 27 state shall be accompanied by the manufacturer's and the retail seller's implied warranty that the 28 goods be merchantable." Goods in conformity with the implied warranty of merchantability: "(1)

Pass without objection in the trade under the contract description[;] (2) Are fit for the ordinary 2 purposes for which such goods are used[;] (3) Are adequately contained, packaged, and labeled[;] 3 and (4) Conform to the promises or affirmations of fact made on the container or label." Cal. Civ. 4 Code § 1791.1(a). 5

The implied warranty of merchantability "does not impose a general requirement that goods 6 precisely fulfill the expectation of the buyer." Am. Suzuki Motor Corp. v. Superior Court, 37 Cal. 7 App. 4th 1291, 1296 (1995). Rather, the implied warranty of merchantability guarantees that a 8 product has only "a minimum level of quality" and is free of adefect that is "so basic that it renders 9 the [product] unfit for its ordinary purpose."Id. at 1295-96; see alsoTietsworth v. Sears, Roebuck 10 & Co., 720 F. Supp. 2d 1123, 1142 (N.D. Cal. 2010) ("The mere manifestation of a defect by itself does not constitute a breach of the implied warranty of merchantability. Instead, there must be a fundamental defect that renders the product unfit for its ordinary purpose.") (internal citation 13 omitted). 14

Here, Plaintiffs allege that they "purchased Google Phones for the phone's ordinary and 15 intended purpose of calling, receiving and sustaining telephone calls on the phone and to use the 16 Android Mobile Technology Platform's features, which were represented by Defendants as 17 accessible, or optimal, using the 3G network." CAC ¶ 84. Plaintiffs further allege that "[t]he 18 Google Phone cannot perform its ordinary and represented purpose because it does not provide 19 consistent connection to a 3G wireless network" and "Plaintiffs experienced a number of missed 20 and dropped phone calls." Id. ¶¶ 86-87. 21

Although Plaintiffs allege that the Google Phone provides inconsistent 3G connectivity, they 22 also allege that the Google Phone's phone and data functions operatewhen 3G connectivity is 23 unavailable and the device switches to a 2G network. Id. ¶¶ 46, 57. Thus, allegations that the 3G 24 connectivity is inconsistent are insufficient to support a claim that the phone fails to call, receive, 25 and sustain telephone calls. Furthermore, Plaintiffs' allegations that the phone drops or misses calls 26 are insufficient to demonstrate that this alleged defect is more than inconvenience or that the 27 Plaintiffs cannot re-initiate these calls such that the phone is unfit for its ordinary purpose. See 28 Baltazar v. Apple, Inc., No. CV--10--3231--JF, 2011 WL 3795013, at *3 (N.D. Cal. Aug. 26, 2011) (inconvenience insufficient); Tietsworth, 720 F. Supp. 2d at 1142-43 (inconvenience in having to 2 "restart" allegedly defective washing machine does not support claim for breach of the implied 3 warranty of merchantability). 4

Plaintiffs, however, argue that the heart of this case is that the Google Phone does not work at 5 all. The CAC alleges that "McKinney never had 3G service on her first Google Phone, and has had 6 3G service on later Google Phones that can best be described as sporadic and inconsistent. These 7 defects caused McKinney to be unable to use her phone for any purpose for a significant portion of 8 the time she has owned the Google Phone." CAC ¶ 48. 9 message regarding the phone's hardware that directed her to contact her mobile service provider. . . . McKinney was unable to obtain phone service or use any of the features of the Google Phone during this time . . . ." "[McKinney's Google Phone] never had 3G service at any point, and showed an error Id. ¶ 8 (emphasis added). 13

Thus, McKinney has alleged that her Google Phone had fundamental defects that made it unfit 14 for its ordinary purpose of calling, receiving and sustaining telephone calls on the phone and using 15 the Android Mobile Technology Platform's features. Although this allegation does not demonstrate 16 that inconsistent 3G connectivity makes all Google Phones unmerchantable, it does demonstrate 17 that for a period of time, McKinney's phone was unmerchantable because it was unable to obtain 18 phone service or use any of the features of the Google Phone. 19

Defendants also argue that Plaintiffs' implied warranty claim fails as a matter of law due 21 to Google's disclaimer in the Terms of Sale for the Google Phone of any implied warranty of 22 merchantability. See Request for Judicial Notice ("RJN") Ex. 1, Docket No. 115-1. Plaintiffs argue 23 that (1) the court should not consider the Google Phone Terms of Sale in this motion to dismiss; (2) *fn1 the disclaimer in the Terms of Sale is not conspicuous ; (3) Defendants provide no evidence that 25 the Terms of Sale were presented prior to Plaintiffs' purchase; and (4) there is no indication that 26 27 the HTC Limited Warranty was made available to Plaintiffs. The court addresses each of these 2 arguments in order. 3

3. Disclaimer of Implied Warranty

First, in determining a motion to dismiss, the court may consider documents attached to the 4 complaint, as well as documents to which the complaint specifically refers and whose authenticity 5 is not questioned, even if they are not physically attached to the complaint. See Branch v. Tunnell, 6 14 F.3d 449, 454 (9th Cir. 1994) ("[W]e hold that documents whose contents are alleged in a 7 complaint and whose authenticity no party questions, but which are not physically attached to the 8 pleading, may be considered in ruling on a Rule 12(b)(6) motion to dismiss. Such consideration 9 does not convert the motion to dismiss into a motion for summary judgment.") (internal citations 10 and quotation marks omitted), overruled on other grounds as recognized in Galbraith v. County of Santa Clara, 307 F.3d 1119, 1126 (9th Cir. 2002); Inlandboatmens Union of the Pac. v. Dutra Group, 279 F.3d 1075, 1083 (9th Cir. 2002). 13

Here, the Google Phone Terms of Sale are not attached to the CAC, but the CAC alleges that 14 Plaintiffs "entered into agreements with Google . . . in connection with the purchase of [the] 15 phones." CAC ¶ 85. On June 29, 2010, McKinney attached the Google Phone Terms of Sale to her 16 original state-court complaint and alleged that it was the "Terms of the Sale agreement between 17 Google Phone customers, including Plaintiff." See Pl.'s Class Action Complaint ¶ 11, Ex. A, 18 Docket No. 2-1. 19

Plaintiffs do not dispute that Google's Terms of Sale is an agreement they made with Google in 20 connection with the Google Phone. Plaintiffs, however, argue that Google provided "no 21 indisputable evidence that the Terms of Sale attached to Plaintiff McKinney's original complaint is 22 the Terms of Sale Google attaches to its Request for Judicial Notice." Opp'n at 3. A comparison of 23 the two documents, however, confirms that the Terms of Sale attached to Defendants' Request for 24

Judicial Notice is the same as the Terms of Sale in the court's docket. Thus, there is no dispute as 25 to the authenticity of Google's Terms of Sale, and the document can properly be considered in 26 conjunction with Defendants' motion to dismiss.*fn2 See Long v. Hewlett-Packard, No. C 06-02816 27 Agreement. See Docket No. 115. Because the court finds that Google's Terms of Sale is JW, 2007 WL 2994812, at *6 n.3 (N.D. Cal. Jul. 27, 2007) (finding that although Plaintiffs did not 2 attach the warranty to the complaint, it was repeatedly referenced throughout the pleading, and 3 therefore the court considered it in its analysis of the motion to dismiss). 4

Second, Plaintiffs argue that the disclaimer in the Terms of Sale is not conspicuous. Under 5 California Commercial Code § 2316(2), an implied warranty of merchantability may be excluded 6 in a written document in which the disclaimer is conspicuous and mentions merchantability. 7 "Whether a provision is conspicuous is a question for the court." Inter-Mark USA v. Intuit, No. C-8 07-04178 JCS, 2008 WL 552482, at *8 (N.D. Cal. Feb. 27, 2008). The California Commercial 9 Code provides the following definition of "conspicuous": 10 that a reasonable person against whom it is to operate ought to have noticed it. Whether a term is "conspicuous" or not is a decision for the court. Conspicuous terms include the following:

(10) "Conspicuous," with reference to a term, means so written, displayed, or presented

(A) a heading in capitals equal to or greater in size than the surrounding text, or in contrasting type, font, or color to the surrounding text of the same or lesser size; and

(B) language in the body of a record or display in larger type than the surrounding text, or in contrasting type, font, or color to the surrounding text of the same size, or set off from surrounding text of the same size by symbols or other marks that call attention to the language.

Cal. Comm. Code § 1201(10). In making the determination as to whether a provision is 18 conspicuous, the court must "review the conspicuousness of the disclaimer in the context of the 19 entire contract, and in light of the sophistication of the parties." Medimatch, Inc. v. Lucent Techs., 20 Inc., 120 F. Supp. 2d 842, 860 (N.D. Cal. 2000) (citing Sierra Diesel Injection Serv., Inc. v. 21 Burroughs Corp., Inc., 890 F.2d 108, 115 (9th Cir. 1989). 22

Here, the heading at issue reads, "Warranties; Disclaimer of Warranties," while the warranty 23 itself reads, in relevant part: 24

"OTHER THAN THE ABOVE AND TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, GOOGLE EXPRESSELY DISCLAIMS ALL

WARRANTIES AND CONDITIONS OF ANY KIND, WHETHER EXPRESS OR IMPLIED, REGARDING ANY DEVICES, INCLUDING ANY IMPLIED

WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR NON-INFRINGMENT."

RJN Ex. 1 at 4-5. The heading is in boldface type and larger than the surrounding text, which is not 2 bolded, and the disclaimer is in all capital letters while the surrounding texts is in lower case font 3 of the same size and specifically mentions "merchantability." The disclaimer is located at the 4 bottom of page four and continues at the top of page five within the six-page document. Only two 5 other provisions within the Terms of Sale are bolded, therefore making the disclaimer of warranties 6 stand out visually. 7

Plaintiffs argue that the disclaimer is not conspicuous because it is in the middle of a 8 paragraph on the fourth page of a six-page document. In light of the contrasting type, size, and font 9 of the heading and the body text of the disclaimer, however, a reasonable person purchasing the 10 Google Phone ought to have noticed it. See Inter-Mark, 2008 WL 552482, at *8-9 (holding a disclaimer conspicuous and enforceable that was located on the fourth and fifth pages of a ten-page contract and "[o]nly two other provisions in the contract [were] in all capital letters and therefore, 13 the disclaimer st[ood] out visually"). Thus, the disclaimer is conspicuous and complies with 14 Section 2316. 15

Third, Plaintiffs argue that there is no evidence that the Terms of Sale were presented to 16 Plaintiffs prior to purchasing their phones, if at all. As discussed above, McKinney attached these 17 Terms of Sale to her original state-court complaint and alleged that it was the agreement between 18 Google and Plaintiffs. See Pl.'s Class Action Complaint ¶ 11, Ex. A, Docket No. 2-1. Additionally, 19 there are no allegations in the CAC stating that this agreement, and the disclaimer it contains, is 20 unenforceable. 21

Finally, Plaintiffs argue that there is no indication that the HTC Limited Warranty was made 22 available to them, but Plaintiffs have not demonstrated that Defendants' argument regarding 23 Google's disclaimer in Google's Terms of Sale depends on whether Plaintiffs received the HTC 24 Limited Warranty. 25

Defendants' motion to dismiss the breach of implied warranty claim therefore is GRANTED 26 with leave to amend. 27

4. Privity with HTC

Lastly, Defendants argue that Plaintiffs' claim fails due to lack of privity with HTC because vertical privity is a prerequisite to recovery in the State of California. 2

Under California law, a plaintiff asserting breach of warranty claims must stand in vertical 3 contractual privity with the defendant. Anunziato v. eMachines, Inc., 402 F. Supp. 2d 1133, 1141 4 (C.D. Cal. 2005). A buyer and seller stand in privity if they are in adjoining links of the distribution 5 chain. Osborne v. Subaru of Am. Inc., 198 Cal. App. 3d 646, 656 n. 6 (1988). Thus, an end 6 consumer who buys from a retailer is not in privity with a manufacturer. Id. 7

Courts, however, have recognized an exception to the privity requirement-when a plaintiff 8 pleads that he or she is a third party beneficiary to a contract that gives rise to the implied warranty 9 of merchantability, he or she may assert a claim for the implied warranty's breach. See In re Totoya 10 Motor Corp., 754 F. Supp. 2d 1145, 1185 (C.D. Cal. 2005). California has codified third party beneficiary liability as follows: "A contract, made expressly for the benefit of a third person, may be enforced by him at any time before the parties thereto rescind it." Cal. Civ. Code § 1559. 13

"Because third party beneficiary status is a matter of contract interpretation, a person seeking to 14 enforce a contract as a third party beneficiary 'must plead a contract which was made expressly for 15 his or her benefit and one in which it clearly appears that he or she was a beneficiary.'" Schauer v. 16 Mandarin Gems of California, Inc., 125 Cal. App. 4th 949, 957 (2005).17

Here, the CAC does not allege any contract involving HTC that would give rise to the implied 18 warranty of merchantability. The CAC only alleges that the Google Phone was "[d]eveloped in 19 partnership with hardware manufacturer HTC." CAC ¶ 25. Because the CAC fails to plead the 20 existence of a contract involving HTC for which Plaintiffs are third party beneficiaries, Plaintiffs 21 have failed to plead an exception to the vertical privity requirement to bring a claim for breach of 22 implied warranty against HTC. See In re NVIDIA GPU Litig., No. C 08--04312 JW, 2009 WL 23 4020104, *6-7 (N.D. Cal. Nov. 19, 2009). 24

Thus, Defendants' motion to dismiss Plaintiffs' breach of implied warranty claim against HTC 25 is GRANTED with leave to amend. 26

B.CLRA and UCL Claims

1. Rule 9(b) Pleading Standard

As a threshold matter, the parties disagree with respect to whether Plaintiffs' UCL and CLRA claims are subject to the heightened pleading requirements of Rule 9(b). "Rule 9(b)'s heightened 2 pleading standards apply to claims for violations of the CLRA and UCL" where such claims are 3 based on a fraudulent course of conduct. Kearns v. Ford Motor Co., 567 F.3d 1120, 1124 (9th Cir. 4 2009) (citing Vess v. Ciba--Geigy Corp. USA, 317 F.3d 1097, 1102--05 (9th Cir. 2003)). Under 5 Rule 9(b), "in alleging fraud or mistake, a party must state with particularity the circumstances 6 constituting fraud or mistake." Fed. R. Civ. P. 9(b). "Where fraud is not an essential element of a 7 claim, only those allegations of a complaint which aver fraud are subject to Rule 9(b)'s heightened 8 pleading standard. Any averments which do not meet that standard should be 'disregarded,' or 9 'stripped' from the claim for failure to satisfy Rule 9(b). Fraud can be averred by specifically 10 alleging fraud, or by alleging facts that necessarily constitute fraud (even if the word 'fraud' is not used)." Kearns, 567 F.3d at 1124 (internal citations and quotation marks omitted).

Although Plaintiffs argue that their CLRA and UCL allegations do not rely upon allegations of 13 fraudulent conduct, it appears that the CLRA claims and some of the UCL claims are dependent 14 upon allegations that Defendants made misrepresentations, failed to disclose material facts, and 15 concealed known information regarding the allegedly defective Google Phone. See Tietsworth, No. 16 5:09--CV--00288 JF (HRL), 2009 WL 3320486, at *6 (N.D. Cal. Oct. 13, 2009) (citing Kearns, 567 17 F.3d at 1126). The CAC also alleges that "Defendants planned and participated in and furthered a 18 common scheme by means of manufacturing, marketing and selling the Google Phone for access to 19 T-Mobile's 3G network, despite Google Phone's inability to maintain connectivity to the 3G 20 network." CAC ¶ 21. Thus, to the extent Plaintiffs' CRLA and UCL claims are predicated on 21 misrepresentations and omissions they aver fraud and those claims are subject to the heightened 22 pleading requirements of Rule 9(b). See Kearns, 567 F.3d at 1124; Vess, 317 F.3d at 1103--04. 23

2. CLRA Claim

Plaintiffs claim that Google and HTC violated several subsections of Cal. Civ. Code § 1770(a) 25 by making false representations or advertisements. The court dismissed McKinney's Second 26 Amended Complaint partly because: 27

"McKinney has not pled with specificity the content of the alleged misrepresentations made by Defendants in their commercials and advertisements, either with respect to 3G connectivity or customer service, nor has she alleged facts sufficient to show that she relied justifiably on those misrepresentations. See Glen Holly Entm't, Inc. v. Tektronix, Inc., 352 F.3d 367, 379 (9th Cir. 2003).

Furthermore, "[a]lthough a claim may be stated under CLRA in terms constituting fraudulent omissions, to be actionable the omission must be contrary to a representation actually made by the defendant, or an omission of a fact the defendant was obliged to disclose." Daugherty v. American Honda Motor Co. Inc., 144 Cal. App. 4th 824, 835 (Ct. App. 2006). Here, McKinney does not identify any affirmative representation concerning the subject of any alleged omissions, nor does she identify any legal obligation on the part of Google or HTC to disclose the material information it allegedly failed to disclose." Order Granting Mot. Dismiss at 8-9, Docket No. 106. 7 8

The CLRA claim in the CAC includes more detail regarding the misrepresentations than 9 McKinney's Second Amended Complaint. The CAC alleges that Defendants knowingly and falsely 10 represented the Google Phone as able to consistently sustain telephone calls, that its Android 11 operating platform would work properly, that it could maintain connectivity to a 3G network, and that the Google Phone could perform at a faster speed. CAC ¶¶ 99(a), (b). The CAC also alleges 13 that Defendants advertised the Google Phone with the intent not to sell it as advertised because 14 Defendants knew or should have known that the phone could not operate at 3G speed or maintain a 15 3G connection. Id. ¶ 99(c). 16

Again, however, Plaintiffs fail to allege the particular circumstances surrounding these 17 representations. Nowhere in the CAC do Plaintiffs specify what the advertisements or other sales 18 material actually stated. Nor do Plaintiffs specify when they were exposed to the statements, which 19 ones they found material, or which ones they relied upon in making their decisions to buy a Google 20 Phone. See Kearns, 567 F.3d at 1126. Because Plaintiffs do not identify specific statements made 21 by either Defendant, the CAC fails to give Defendants the opportunity to respond to the alleged 22 misconduct and to give the court the ability to assess whether the statements are actionable or non-23 actionable puffery. Accordingly, the CAC fails to sufficiently state a claim under the CLRA. 24

For the same reasons the court previously dismissed McKinney's Second Amended Complaint, 25 Defendants' motion to dismiss the CLRA claim in the CAC is GRANTED. 26

It is not yet apparent to the court that Plaintiffs' complaint cannot be saved by amendment. 27

Thus, the court grants Plaintiffs leave to amend. 28

2. UCL Claim

The UCL prohibits acts of unfair competition, including "any unlawful, unfair, or fraudulent 3 business act or practice and unfair, deceptive, untrue, or misleading advertising." Cal. Bus. & Prof. 4 Code § 17200. Plaintiffs allege that Defendants' conduct violated all three prongs-fraudulent, 5 unlawful, and unfair-of the UCL. 6

To state a claim under the "fraudulent" prong of the UCL, a plaintiff must allege that the 7 challenged practice is likely to deceive members of the public. Bardin v. Daimlerchrysler Corp.,136 8 Cal. App. 4th 1255, 1274 (2006). Plaintiffs fail to identify any statement made by Defendants that 9 is likely to deceive the public. Thus, for the same reasons that Plaintiffs' CLRA fails, Plaintiffs fail 10 to state a claim under the "fraudulent" prong of the UCL.

A violation of the "unlawful" prong of the UCL may be established by a variety of unlawful acts, including those practices prohibited by law, whether "civil or criminal, federal, state, [] 13 municipal, statutory, regulatory, or court-made." Saunders v. Superior Court, 27 Cal. App. 4th 832, 14 838--39 (1994). Plaintiffs allege that the acts and practices of Defendants constitute unlawful 15 business practices because they breach the implied warranty as well as the CLRA. Because 16 Plaintiffs' claims under the "unlawful" prong of the UCL are predicated upon violations of the 17 implied warranty of merchantability and the CLRA and Plaintiffs have not sufficiently pleaded 18 those claims, Plaintiffs also fail to state a claim under the unlawful prong of the UCL. 19

The UCL also creates a cause of action for a business practice that is "unfair" even if not 20 specifically proscribed by some other law. Korea Supply Co. v. Lockheed Martin Corp., 29 Cal. 21 4th 1134, 1143 (2003). To support liability under the "unfair" prong, the conduct must either 22 "weigh the utility of the defendant's conduct against the gravity of the harm to the alleged victim," 23 South Bay Chevrolet v. Gen. Motors Acceptance Corp., 72 Cal. App. 4th 861, 886 (1999), or 24 violate public policy as declared by "specific constitutional, statutory or regulatory provisions," 25 Bardin, 136 Cal. App. 4th at 1268, 1272. 26

Plaintiffs allege that, despite Defendants' implied warranties, the Google Phone does not 27 consistently sustain phone calls, does not consistently maintain connectivity to a 3G wireless 28 network and does not operate at speeds promised. CAC ¶ 106. Plaintiffs also allege that


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