United States District Court, N.D. California, San Jose Division
ORDER GRANTING IN PART AND DENYING IN PART MOTION TO
DISMISS SIX OF EIGHT CLAIMS FOR RELIEF AND CERTAIN PRAYERS
FOR RELIEF RE: DKT. NO. 18
H. KOH UNITED STATES DISTRICT JUDGE
Qbex Computadoras S.A. (“Qbex”) sues Defendant
Intel Corporation (“Intel”) for claims arising
from Intel's provision of allegedly faulty smartphone
microprocessors, which Qbex alleges overheated and sometimes
caused the smartphones to catch fire or explode. Before the
Court is Intel's motion to dismiss six of Qbex's
eight claims for relief and certain of Qbex's prayers for
relief. ECF No. 18 (“Mot.”). Having considered
the submissions of the parties, the relevant law, the
parties' arguments at the November 16, 2017 hearing, and
the record in this case, the Court GRANTS IN PART and DENIES
IN PART Intel's motion to dismiss six of the eight claims
for relief and certain prayers for relief.
is a Delaware corporation based in California that
“designs, trademarks, manufactures, markets, and sells
microprocessors.” Complaint (“Compl.”), ECF
No. 1, ¶ 12.
a Brazilian company that sells consumer electronics.
Id. ¶¶ 11, 17-18. Qbex began selling
electronics in Brazil in 2003. Id. ¶ 18. In
2005, Qbex began selling desktop computers. Id.
¶ 20. In 2008, Qbex desktops were recognized among the
“most reliable” computers in Brazil. Id.
¶ 21. In 2012 and 2013, Qbex was listed among the top
ten desktop vendors in Brazil. Id. Qbex began
selling laptop computers in 2010. Id. ¶ 20. In
2013, Qbex began selling tablets. Id. By September
2015, Qbex's TX300 tablet was the second most sold tablet
in Brazil. Id. ¶ 24. Between 2005 and 2012,
Qbex's revenues increased from roughly $1, 300, 000 to
$85, 000, 000 per year. Id. ¶ 22.
Development of the Intel-Qbex Smartphone Deal
January 2015, Alessandra Souza, an Intel executive
representative in Brazil who was in charge of the Qbex
account, approached Joabe Fonseca, the president of Qbex,
about the possibility of launching Intel's line of
smartphones in Brazil under the Qbex brand. Id.
¶ 25. The smartphones would feature Intel's SoFIA
microprocessor and mobile platform. Id. ¶ 26.
February 27, 2015, Souza sent Fonseca catalogs of Intel's
original design manufacturers (“ODMs”) that would
provide the Intel smartphone hardware to Qbex. Id.
¶ 29. Qbex explains that U.S. technology companies
design products and then outsource the manufacturing of those
products to ODMs. Id. ¶ 30. Water World
Technology Co. Ltd. (“Water World”) in China
would be the ODM for the motherboard and internal systems of
the smartphones. Id. ¶ 31. Fuzhou Rockchip
Electronics Co. Ltd. (“Rockchip”) was the ODM for
the SoFIA microprocessors. Id. ¶ 32. Fortune
Ship Technology (HK) Limited (“Fortune Ship”),
I-Swim Technology Company Limited (“I-Swim”), and
HK Tianruixiang Communication Equipment Limited (“HK
Tianruixiang”), all based in China or Hong Kong, were
the system integrators for the smartphone parts. Id.
¶ 31. Souza told Fonseca that Intel was responsible for
the design and quality of the products and that Intel had
supervising technicians working at its ODM and system
integrator partners' factories to ensure compliance with
Intel's standards and designs. Id. ¶ 33.
attended Intel's Solutions Summit for Latin America (the
“ISS Conference”) on April 22, 2013. Id.
¶ 34. At the ISS Conference, Fonseca met with
Intel's vice president and sales and marketing group
general manager for Latin America, Steve Long. Id.
¶ 35. During the meeting with Long, Fonseca agreed on
behalf of Qbex to launch the Intel smartphones under the Qbex
5, 2015, Marcelo Pinheiro of Intel sent Fonseca a
presentation about the SoFIA microprocessor and Intel's
mobile platform. In this presentation, Intel represented that
its SoFIA microprocessor performed better than the
microprocessors produced by Intel's competitors MediaTek
and Qualcomm. Id. ¶ 37. Based on this
presentation, Fonseca confirmed Qbex's decision to launch
Intel's smartphones rather than Qualcomm's
smartphones. Id. ¶¶ 37-38.
contends that the contractual relationship between Intel and
Qbex was governed by a range of written agreements that Qbex
refers to as the “umbrella agreements.”
Id. ¶¶ 39, 48. The umbrella agreements
included a Technology Provider Program Agreement
(“Provider Agreement”), a Channel Trademark
License Agreement, and separate Price Matching Agreements.
Id. ¶¶ 40, 47. Qbex contends that the
umbrella agreements “were supplemented or expanded by
oral and written communications regarding the number of units
that Qbex agreed to purchase and that Intel agreed to provide
to Qbex from its ODMs.” Id. ¶ 48.
preparation for the launch of the smartphones, Qbex invested
more than $130, 000 and eventually shifted more than 90% of
its capacity to the assembly, marketing, and sale of the
Intel smartphones. Id. ¶ 53. Qbex also hired
more than 200 new employees for the Intel smartphone
business. Id. Qbex began to sell the Intel
smartphones in October 2015. Id. ¶ 55. Between
October 2015 and December 2016, Qbex sold (or distributed)
235, 074 units. Id. ¶ 57.
The Overheating Problems
contends that the Intel microprocessor “and/or mobile
system had a design defect that caused the [smartphone] to
overheat and even explode.” Id. ¶ 58. As
a result of the defect, there were 2 reported incidents of
malfunction in December 2015, 43 smartphone returns or
complaints in January 2016, 79 returns or complaints in
February 2016, and 219 returns or complaints in March 2016.
Id. ¶ 70. In April 2016, there were 401
complaints or returns; in May 2016, there were 915 complaints
or returns; and in June 2016 there were 1, 446 complaints or
returns. Id. ¶ 75. There were 9, 090 complaints
or returns in July 2016 and 5, 962 complaints or returns in
August 2016. Id. ¶ 86. In total, Qbex alleges
it received more than 35, 000 customer complaints related to
the alleged design defect in the SoFIA microprocessor.
Id. ¶ 91.
explains that as part of its quality control procedures, Qbex
tested the performance of smartphone samples it received from
the ODMs before beginning its own mass production of the
phones. Id. ¶ 64. “While performing these
tests, Qbex's engineering team noted that the temperature
of the Intel [s]martphones was higher than the temperature of
other comparable electronics.” Id. ¶ 65.
email dated December 12, 2015, Raul Miranda of Qbex's
engineering team reported the overheating problem to Fortune
Ship officials and attached a copy of a Qbex engineering
report showing a performance temperature of 44 degrees
Celsius. Id. ¶¶ 66-67; Exh. E. On December
14, 2015, Raymond Zou of Fortune Ship responded that
“the maximum temperature 44 degree[s] Celsius should be
accepted. For Intel SoFia 3G platform, the power consumption
is a little higher than other platform.” Compl. ¶
68; Exh. E. Qbex raised the overheating issue with Souza, who
represented to Qbex that Intel would review the issue with
Fortune Ship. Compl. ¶ 69. Qbex contends that
Souza's response was misleading because Intel and Fortune
Ship had already determined by October 2015 that the
smartphones tended to overheat. Id. ¶¶ 59,
alleges that between February and April 2016, Intel officials
conveyed satisfaction with the sales of the Intel phones in
the Brazilian market and optimism about the future of the
SoFIA platform. Id. ¶¶ 72-76. On April 29,
2016, however, Intel announced that it was canceling the
production of the SoFIA microprocessor. Id. ¶
77. Intel represented to Qbex that this decision was a result
of business restructuring, not because of any problem with
the microprocessor. Id.
May 2016 ISS Conference, Fonseca met with Souza, Long, and
Vice President and General Manager of Global Accounts CJ
Bruno. Id. ¶ 79. During that meeting, Bruno
“agreed on behalf of Intel to sell to Qbex through
Intel's ODMs 970, 000 smartphone units to cover the
market demand through the second quarter of 2017.”
Id. ¶ 81. Qbex contends that Intel
“further agreed to provide technical support to Qbex
and its customers through, at least, the second quarter of
2017.” Id. ¶ 83. This agreement was
memorialized in an email dated May 19, 2016. Id.
¶ 84; Exh. G.
point, Qbex heard rumors that Intel fired all the engineers
in charge of the SoFIA microprocessors and that the ODMs
could not solve the overheating problems without Intel's
engineers. Compl. ¶ 87. Qbex eventually “confirmed
through an independent study that a design defect in
Intel's SoFIA microprocessor” was indeed the cause
of the smartphones' overheating problems. Id.
¶ 88. In December 2016, Qbex terminated its relationship
with Intel and stopped selling the Intel smartphones.
Id. ¶ 89.
Qbex's Damages Contentions
contends that it has suffered damages as a result of the
defective SoFIA microprocessors including but not limited to
the loss of its investment in the smartphone expansion, the
loss of goodwill and reputation, and the loss of expected
profits on the sale of the smartphones that Intel agreed to
supply through the second quarter of 2017. Id.
¶ 90. In addition, Qbex alleges that it hired 216
additional employees to manage customer complaints and
related lawsuits. Id. ¶ 91. Moreover, Qbex has
agreed to exchange more than 18, 000 defective smartphones
and has resolved or settled numerous administrative and
judicial complaints. Id. Finally, Qbex is currently
storing 13, 518 smartphones that it cannot sell, in addition
to 20, 000 units held in customs in Brazil and 10, 000 units
in storage at the ODM factories in Hong Kong. Id.
filed the instant complaint on June 12, 2017. Compl. The
complaint alleges eight causes of action under Delaware law:
(1) common law fraud; (2) violation of the Delaware Consumer
Fraud Act, 6 Del. Code § 2513; (3) common law negligent
misrepresentation; (4) breach of the implied warranty of
merchantability, 6 Del. Code § 2-314; (5) common law
breach of the covenant of good faith and fair dealing; (6)
common law unjust enrichment; (7) common law civil
conspiracy; and (8) breach of contract. Compl. ¶¶
August 3, 2017, Intel filed an administrative motion stating
its intention to move to dismiss six of Qbex's eight
causes of action and seeking an order that the deadline for
Intel to respond to the other two causes of action would be
fourteen days after the Court's ruling on its motion to
dismiss. ECF No. 17. On August 4, 2017, Intel filed the
instant motion to dismiss Qbex's first, second, third,
fifth, sixth, and seventh causes of action, as well as
Qbex's prayers for treble damages, punitive damages, and
attorneys' fees. ECF No. 18.
August 7, 2017, Qbex opposed Intel's administrative
motion to set the deadline for Intel's response to the
other two causes of action not subject to the motion to
dismiss. ECF No. 19. On August 15, 2017, the Court granted
Intel's administrative motion. ECF No. 20. The Court
ruled that if the Court denies Intel's motion to dismiss,
Intel must answer the complaint within fourteen days of the
Court's resolution of the motion to dismiss. If the Court
grants Intel's motion to dismiss, Intel must file a
responsive pleading within twenty-one days after service of
the amended complaint. Id. at 2.
August 18, 2017, Qbex filed an opposition to the motion to
dismiss. ECF No. 21 (“Opp.”). On August 25, Intel
filed a reply. ECF No. 31 (“Reply”). The Court
held a hearing on the motion to dismiss on November 16, 2017.
Motion to Dismiss Pursuant to Federal Rule of Civil Procedure
to Federal Rule of Civil Procedure 12(b)(6), a defendant may
move to dismiss an action for failure to allege “enough
facts to state a claim to relief that is plausible on its
face.” Bell Atl. Corp. v. Twombly, 550 U.S.
544, 570 (2007). “A claim has facial plausibility when
the plaintiff pleads factual content that allows the court to
draw the reasonable inference that the defendant is liable
for the misconduct alleged. The plausibility standard is not
akin to a ‘probability requirement, ' but it asks
for more than a sheer possibility that a defendant has acted
unlawfully.” Ashcroft v. Iqbal, 556 U.S. 662,
678 (2009) (internal citations omitted). For purposes of
ruling on a Rule 12(b)(6) motion, the Court “accept[s]
factual allegations in the complaint as true and construe[s]
the pleadings in the light most favorable to the nonmoving
party.” Manzarek v. St. Paul Fire & Marine Ins.
Co., 519 F.3d 1025, 1031 (9th Cir. 2008).
a court need not accept as true allegations contradicted by
judicially noticeable facts, Shwarz v. United
States, 234 F.3d 428, 435 (9th Cir. 2000), and the
“[C]ourt may look beyond the plaintiff's complaint
to matters of public record” without converting the
Rule 12(b)(6) motion into one for summary judgment, Shaw
v. Hahn, 56 F.3d 1128, 1129 n.1 (9th Cir. 1995). Nor is
the Court required to assume the truth of legal conclusions
merely because they are cast in the form of factual
allegations.” Fayer v. Vaughn, 649 F.3d 1061,
1064 (9th Cir. 2011) (per curiam) (quoting W. Mining
Council v. Watt, 643 F.2d 618, 624 (9th Cir. 1981)).
Mere “conclusory allegations of law and unwarranted
inferences are insufficient to defeat a motion to
dismiss.” Adams v. Johnson, 355 F.3d 1179,
1183 (9th Cir. 2004); accord Iqbal, 556 U.S. at 678.
Furthermore, “‘a plaintiff may plead [him]self
out of court'” if he “plead[s] facts which
establish that he cannot prevail on his . . . claim.”
Weisbuch v. County of Los Angeles, 119 F.3d 778, 783
n.1 (9th Cir. 1997) (quoting Warzon v. Drew, 60 F.3d
1234, 1239 (7th Cir. 1995)).
Motion to Dismiss Pursuant to Federal Rule of Civil Procedure
Rule of Civil Procedure 9(b) requires that allegations of
fraud be stated with particularity. Specifically, the Ninth
Circuit has held that averments of fraud “be
accompanied by ‘the who, what, when, where, and
how' of the misconduct charged.” Vess v.
Ciba-Geigy Corp. USA, 317 F.3d 1097, 1106 (9th Cir.
2003) (quoting Cooper v. Pickett, 137 F.3d 616, 627
(9th Cir. 1997)). When an “entire claim within a
complaint is grounded in fraud and its allegations fail to
satisfy the heightened pleading requirements of Rule 9(b), a
district court may dismiss the . . . claim.”
Id. at 1107. The Ninth Circuit has recognized that
“it is established law in this and other circuits that
such dismissals are appropriate, ” even though
“there is no explicit basis in the text of the federal
rules for the dismissal of a complaint for failure to satisfy
9(b).” Id. A motion to dismiss a complaint
“under Rule 9(b) for failure to plead with
particularity is the functional equivalent of a motion to
dismiss under Rule 12(b)(6) for failure to state a
Leave to Amend
Rule 15(a) of the Federal Rules of Civil Procedure, leave to
amend “shall be freely granted when justice so
requires, ” bearing in mind “the underlying
purpose of Rule 15 to facilitate decision on the merits,
rather than on the pleadings or technicalities.”
Lopez v. Smith, 203 F.3d 1122, 1127 (9th Cir. 2000)
(en banc) (ellipses omitted). However, a court “may
exercise its discretion to deny leave to amend due to
‘undue delay, bad faith or dilatory motive on part of
the movant, repeated failure to cure deficiencies by
amendments previously allowed, undue prejudice to the
opposing party . . ., [and] futility of
amendment.'” Carvalho v. Equifax Info. Servs.,
LLC, 629 F.3d 876, 892-93 (9th Cir. 2010) (alterations
in original) (quoting Foman v. Davis, 371 U.S. 178,
argues that six of Qbex's causes of action should be
dismissed either for failure to comply with Federal Rule of
Civil Procedure 9(b) or because they fail as a matter of
Delaware law. The Court addresses Intel's arguments in
Qbex's First Cause of Action for Common Law Fraud Fails
to Satisfy Rule 9(b)
The Parties' Arguments
first cause of action is for common law fraud under Delaware
law. Qbex alleges that Intel represented that its SoFIA
microprocessors were high quality microprocessors that would
function not only for their intended purpose, but better than
Intel's competitors' microprocessors. Compl. ¶
96. Qbex contends that it relied on these representations in
agreeing to sell the Intel smartphones under the Qbex brand.
Id. ¶¶ 99-100. Qbex alleges that these
representations were false because Intel knew or should have
known that the SoFIA microprocessors were defective.
Id. ¶ 98. Qbex alleges that it suffered more
than $100 million in damages as a result of Intel's
fraudulent misrepresentations. Id. ¶ 101.
argues that Qbex's common law fraud cause of action fails
because it does not plead with sufficient particularity what
damages are attributable to the alleged fraud. Mot. at 8.
Specifically, Intel argues that Qbex fails to distinguish
between damages attributable to fraud and damages
attributable to breach of contract. Id. at 8-9. Qbex
counters that its fraud claims arise from Intel's
fraudulent inducement of Qbex at the outset of their
smartphone partnership, whereas its contract claims arise
from the May 2016 agreement for Intel to provide additional
smartphones and technical support. Opp. at 4-5. As such, Qbex
argues that the fraud-related damages it seeks are
out-of-pocket expenses preparing for the launch of the
smartphone business, lost goodwill, lost profits, and lost
customers. Id. at 5. Qbex states that its
contract-related damages are expectation damages resulting
from Intel's ...