Davidson v. Apple, Inc.

          ORDER DENYING DEFENDANT'S MOTION TO DENY CLASS CERTIFICATION RE: DKT. NO. 409

          LUCY H. KOH, UNITED STATES DISTRICT JUDGE.

         Plaintiffs bring this putative class action against Defendant Apple, Inc. based on Defendant's alleged failure to disclose an alleged defect in the iPhone 6 and the iPhone 6 Plus. Before the Court is Defendant's motion to deny class certification. ECF No. 409. Having considered the submissions of the parties, the relevant law, and the record in this case, the Court DENIES Defendant's motion to deny class certification.

         I. BACKGROUND

         A. Factual Background

         Defendant is the designer, manufacturer, marketer, and seller of the iPhone smartphone. ECF No. 172 ¶ 25 (Fourth Amended Class Action Complaint, or “FACC”). The iPhone utilizes a touchscreen for users to interact with the device, and use of the touchscreen is required to send text messages, capture video, browse the internet, and access applications, among other functions. Id. ¶¶ 26, 28. Defendant released the iPhone 6 and iPhone 6 Plus on September 19, 2014. Id. ¶ 25. The iPhone 6 and 6 Plus both have a larger touchscreen than Defendant's prior iPhone models. Id. ¶ 30. Purchasers of the iPhone 6 and 6 Plus had 14 days after purchase to return their iPhones for a full refund. ECF No. 54-2.

         According to Plaintiffs, the iPhone 6 and 6 Plus “suffer from a material manufacturing defect that causes the touchscreen to become unresponsive to users' touch inputs” (hereinafter, the “touchscreen defect”). Id. ¶ 43. Plaintiffs allege that the touchscreen defect is caused by a defect in the iPhone's external casing. Id. ¶ 45. Specifically, “the touchscreen function fails because the phones' external aluminum casing, whose primary purpose is to protect the sensitive internal components from strain, is insufficient to prevent the phones from bending during normal use.” ECF No. 174 at 4. This bending causes two main forms of damage to the iPhone's circuits: “trace cracks . . . and/or solder ball cracks, both of which negatively affect the flow of electricity.” Id. at 6. Specifically, the damage interrupts the flow of electricity within circuits, thereby preventing the iPhone from recognizing when a user is touching the screen. Id. The problem is at first intermittent, but becomes permanent as time passes and the trace and solder ball cracks worsen. Eventually, the touchscreen defect “causes the touchscreen to completely fail to respond to user inputs.” Id. at 7.

         Plaintiffs allege that Defendant knew about the touchscreen defect before releasing the iPhone 6 and 6 Plus on September 19, 2014. A consumer posted on Defendant's website about “iPhone 6 touchscreen problems” on September 18, 2014, the day before the iPhone 6 and 6 Plus were released to the public. FACC ¶ 54; see also Id. ¶¶ 66-69 (other consumer complaints from shortly after the release date). Moreover, Defendant's internal testing “determined that the iPhone 6 was 3.3 times more likely to bend than the iPhone 5s (the model immediately prior to the subject iPhones) and that the iPhone 6 Plus was 7.2 times more likely to bend than the iPhone 5s.” ECF No. 174 at 8. Underscoring the point, one of the major concerns Defendant identified prior to launching the iPhones was that they were “likely to bend more easily when compared to previous generations, ” something that Defendant described as “expected behavior.” ECF No. 173-18 at 15.

         Plaintiffs allege that within days of the iPhones' release on September 19, 2014, “there were widespread consumer complaints about the iPhones bending.” ECF No. 174 at 8. Plaintiffs state that Defendant then publicly denied that there was a bending problem, an incident the media termed “BendGate.” FACC ¶ 54; ECF No. 174 at 8. Specifically, Defendant stated:

Our iPhones are designed, engineered, and manufactured to be both beautiful and sturdy. iPhone 6 and iPhone 6 Plus feature a precision engineered unibody enclosure constructed from machining a custom grade of 6000 series anodized aluminum, which is tempered for extra strength. They also feature stainless steel and titanium inserts to reinforce high stress locations and use the strongest glass in the smartphone industry. We chose these high-quality materials and construction very carefully for their strength and durability. We also perform rigorous tests throughout the entire development cycle including 3-point bending, pressure point cycling, sit, torsion, and user studies. iPhone 6 and 6 Plus meet or exceed all of our high quality standards to endure everyday, real life use.

With normal use a bend in iPhone [sic] is extremely rare and through our first six days of sale, a total of nine customers have contacted Apple with a bent iPhone 6 Plus. As with any Apple product, if you have questions please contact Apple.

FACC ¶ 79.

         After internal investigation, Defendant determined that underfill was necessary to resolve the problems caused by the touchscreen defect. As Plaintiffs explain, “[u]nderfill is a bead of epoxy encapsulant that is placed on a circuit chip to reinforce its attachment to the board substrate and to stiffen the surrounding assembly. . . . Underfill is used to prevent the manifestation of chip defects induced by bending because it reinforces the connections and prevents them from bending away from the substrate.” ECF No. 174 at 11 (internal citations omitted). Defendant had used underfill on the preceding iPhone generation but did not start using it on the Meson (U2402) chip in the iPhone 6 and iPhone 6 Plus until May 2016. Id.

         On November 18, 2016, Defendant announced a customer service program related to the touchscreen defect called the “Multi-Touch Repair Program.” FACC ¶ 119. Prior to the Multi-Touch Repair Program, Defendant charged approximately $349 for a refurbished iPhone when a consumer complained of the touchscreen defect outside of Defendant's warranty. Id. Through the Repair Program, Defendant has offered to repair consumers' devices for $149 if the iPhone is otherwise working, and the screen is not broken. Id. Defendant also offers to reimburse consumers for amounts previously paid over $149. Id. ¶ 120.

         Plaintiffs allege that Defendant did not disclose the existence of the touchscreen defect despite having exposed consumers to materials in which Defendant could have disclosed the defect. Each new iPhone 6 and 6 Plus came in an identical box designed by Defendant that contained various disclosures and advertisements about the iPhones' capabilities. See ECF No. 173-22 at 4-7. Inside the iPhone box, Defendant included two documents that made additional representations about the iPhone. ECF No. 174 at 10. Defendant also requires users to navigate an iPhone setup process before the iPhone can be used, and periodically releases updates to the iPhones' software. ECF No. 174-4; ECF No. 174 at 10, 22. However, Defendant did not disclose the defect in any of these materials.

         B. Procedural History

         On August 27, 2016, Plaintiffs Thomas Davidson, Jun Bai, and Todd Cleary filed a putative class action complaint against Defendant that alleged claims under (1) California's Consumer Legal Remedies Act, Cal. Civ. Code § 1750; (2) Unfair Competition Law, Cal Bus. & Prof. Code § 17200; (3) False Advertisement Law, Cal. Bus. & Prof. Code § 17500; (4) common law fraud; (5) negligent misrepresentation; (6) unjust enrichment; (7) breach of implied warranty; (8) violation of the Magnuson-Moss Warranty Act, 15 U.S.C. § 2301; and (9) violation of the Song-Beverly Consumer Warranty Act, Cal. Civ. Code § 17290. ECF No. 1.

         On October 7, 2016, Plaintiffs filed a First Amended Class Action Complaint that added several Plaintiffs and added claims under the consumer fraud statutes of Illinois, New Jersey, Florida, Connecticut, Texas, Colorado, Michigan, New York, and Washington. ECF No. 20. On December 2, 2016, Plaintiffs filed a Second Amended Class Action Complaint (“SACC”), which added a Utah Plaintiff and a claim under Utah's consumer fraud statute. ECF No. 43. Plaintiffs therefore alleged twenty-two claims against Defendant in total. Id. Plaintiffs' references in their opposition to only twenty-one claims are therefore incorrect. ECF No. 413 at 2. Plaintiffs sought to represent a Nationwide Class of “[a]ll persons or entities in the United States that purchased an Apple iPhone 6 or 6 Plus.” ECF No. 43. Alternatively, Plaintiffs sought to represent state subclasses. Id.

         Given the breadth of the Plaintiffs' action, the Court ordered the parties at the November 30, 2016 initial case management conference to each select five claims-for a total of ten claims-to litigate through trial. ECF No. 44. The Court initially scheduled trial on October 12, 2018.^[1] ECF No. 57. On December 5, 2016, the parties selected (1) New Jersey Consumer Fraud Act, N.J. Stat. Ann. § 56:8-1; (2) Florida Deceptive and Unfair Trade Practices Act, Fla. Stat. § 501.201; (3) Washington Consumer Protection Act, Wash. Rev. Code § 19.86.010; (4) Illinois Consumer Fraud and Deceptive Trade Practices Act, Ill. Comp. Stat ¶ 505; (5) Texas Deceptive Trade Practices Act, Tex. Bus. & Com. Code ¶ 17.41; (6) Colorado Consumer Protection Act, Colo. Rev. Stat. § 6-1-105; (7) common law fraud; (8) breach of express warranty; (9) breach of implied warranty; and (10) Magnuson-Moss Act. ECF No. 44 at 1-2.

         In the instant order, the Court will refer to the foregoing claims as the “Selected Claims.” By contrast, the Court will refer to the other claims alleged in the Fourth Amended Class Action Complaint (“FACC”) as the “Parked Claims.”

         1. Labeling of Groups of Plaintiffs

         For the purposes of ruling on the instant motion, the Court also finds it necessary to discuss the labeling of the various groups of Plaintiffs in the instant case. The parties attempt to distinguish between the “Selected Claims Plaintiffs” and the “Parked Claims Plaintiffs.” However, this distinction is unhelpful. There is overlap between the Plaintiffs who alleged the Selected Claims and the Plaintiffs who alleged the Parked Claims. Indeed, pursuant to the pleadings, “[a]ll Plaintiffs” alleged three of the Selected Claims: common law fraud, breach of express warranty, and violation of the Magnuson-Moss Warranty Act. ECF No. 43 ¶¶ 211-214, 226-236, 242-252; FACC ¶¶ 268-272, 284-294, 300-310. “All Plaintiffs” also allege two of the Parked Claims: negligent misrepresentation and unjust enrichment. ECF No. 43 ¶¶ 220-236; FACC ¶¶ 273-283. Accordingly, to the extent Plaintiffs assert that “the Parked Claims Plaintiffs” are “individuals who did not bring any of the Selected Claims, ” and that there is “zero overlap between the two groups, ” these assertions are incorrect. ECF No. 413 at 1, 2.

         By contrast, as outlined below, only a small subset of Plaintiffs filed the third motion for class certification as to the Selected Claims. These Plaintiffs were John Borzymowski of Florida, William Bon of Washington, and Matt Muilenburg of Washington. ECF No. 341. These Plaintiffs have since voluntarily dismissed all of their claims with prejudice. ECF No. 412. Accordingly, in the instant order, the Court will refer to John Borzymowski of Florida, William Bon of Washington, and Matt Muilenburg of Washington as the “Former Plaintiffs.” The instant motion focuses on the impact of the Court's ruling on the third motion for class certification as to the Selected Claims. ECF No. 409. Thus, the Court believes the distinction between the Former Plaintiffs and the current Plaintiffs to be a more helpful categorization than the one deployed by the parties.

         2. Discovery Structure and Defendant's Motions to Dismiss as to the Selected Claims

         In their November 23, 2016 joint case management statement, the parties expressed an “agreement not to propound discovery until after a ruling on [Defendant's] motion to dismiss.” ECF No. 35 at 15. The Court then confirmed that the parties “agreed to stay discovery until the ruling on the motion to dismiss” at the November 30, 2016 case management conference. ECF No. 47 at 31:5-7.

         Upon adopting the Parked Claims structure, at the January 12, 2017 case management conference, the Court specifically asked whether the parties wanted to proceed with discovery on all twenty-two claims alleged in the SACC when the stay was lifted. ECF No. 69 at 27:13-15. Both parties agreed that discovery should indeed proceed across all twenty-two claims at once. Id. at 27:13-25, 28:1-18 (The Court: “Are we anticipating that if and when the discovery stay is lifted, is that on all 22 claims, or is it only on this narrow set of ten claims?” // Mr. Singh: “I think everything.” // Mr. Wright: “I agree that we don't want to bifurcate discovery so we're in agreement with that.”). In the Court's January 12, 2017 case management order, the Court memorialized this agreement and held that “there will be no bifurcation of discovery” in the instant case. ECF No. 57. The sole exception that the Court contemplated was for “transactional discovery, such as sales information and customer names, ” in states that correspond to the Parked Claims. Id. at 1. The Court instructed the parties to “meet and confer” regarding that discovery, and the parties agreed that Defendant would not be required to produce that discovery by the fact discovery deadline. Id.; ECF No. 406 at 5:4 - 16. Aside from this exception, discovery in the instant case therefore proceeded simultaneously across all twenty-two claims. Consistent with this decision, the Court scheduled the close of fact and expert discovery with no distinction between any of the Plaintiffs, and with no distinction between the Selected Claims and the Parked Claims. ECF Nos. 57, 109, 145, 268.

         On January 6, 2017, Defendant filed a motion to dismiss the SACC as to the Selected Claims. ECF No. 54. On March 14, 2017, the Court dismissed all ten of the Selected Claims with leave to amend. See ECF No. 84; Davidson v. Apple, Inc., 2017 WL 976048 (N.D. Cal. Mar. 14, 2017) (“Davidson I”). The Court noted that “neither party specified which state's common law applied to the[] selected common law claims, ” id. at 8, but that the parties generally cited California law in their briefing, id. at 19. In its order, the Court therefore also directed the parties to “select one state's common law for purposes of litigating Plaintiffs' selected breach of express and implied warranty claims, ” and to “select one state's common law for purposes of litigating Defendant's selected common law fraud claim.” ECF No. 84 at 8. On March 21, 2017, the parties selected Illinois law for the purposes of the breach of express and implied warranty claims, and Pennsylvania law for the purposes of the common law fraud claim. ECF No. 85.

         On April 4, 2017, Plaintiffs filed the Third Amended Class Action Complaint (“TACC”). ECF No. 86. On April 18, 2017, Defendant moved to dismiss the TACC as to the Selected Claims. See ECF No. 87.

         On July 25, 2017, the Court granted in part and denied in part Defendant's motion to dismiss the TACC as to the Selected Claims. See ECF No. 103; Davidson v. Apple, Inc., 2017 WL 3149305 (N.D. Cal. July 25, 2017) (“Davidson II”). To start, the Court found that some Plaintiffs lacked standing to seek injunctive relief enjoining Defendant's allegedly fraudulent misrepresentations and omissions about the iPhones because they did not intend to buy a new phone or participate in Defendant's Multi-Touch Repair Program. Id. at *7-8. Conversely, other Plaintiffs did have standing to seek injunctive relief because they intended to participate in the Multi-Touch Repair Program, or were at least willing to consider doing so. Id. at *8-9.

         The Court then turned to Plaintiffs' fraud claims. First, the Court dismissed Plaintiffs' fraud claims based on affirmative misrepresentations “because Plaintiffs have failed to identify an actionable misrepresentation in the September 25, 2014 statement-and because this statement is the only statement that forms the basis of Plaintiffs' affirmative misrepresentation claims.” Id. at *13. Second, the Court declined to dismiss Plaintiffs' fraud claims based on an omission theory because “Plaintiffs have sufficiently alleged the information about the iPhone to which Plaintiffs were exposed either prior to their purchase or immediately after their purchase and within the time window in which they could have returned their iPhone for a full refund.” Id. at *14. The Court also found that Plaintiffs had adequately alleged that Defendant knew of the touchscreen defect at the time of the Plaintiffs' purchases. See Id. at *14-15.

         The Court next dismissed Plaintiffs' claims under the NJCFA and Pennsylvania common law fraud with prejudice. Plaintiffs' NJCFA claim failed because the only New Jersey Plaintiff experienced the touchscreen defect after the expiration of Defendant's one-year limited warranty period, and New Jersey law provides that “[a] defendant cannot be found to have violated the CFA when it provided a part-alleged to be substandard-that outperforms the warranty provided.” Perkins v. DaimlerChrysler Corp., 890 A.2d 997, 1004 (N.J. App. Div. 2006). The Court dismissed Plaintiffs' claim for Pennsylvania common law fraud as barred by the economic loss doctrine, which bars a plaintiff “from recovering in tort economic losses to which their entitlement flows only from a contract.” Werwinski v. Ford Motor Co., 286 F.3d 661, 670 (3d Cir. 2002).

         Finally, the Court dismissed Plaintiffs' breach of express and implied warranty claims under Illinois law with prejudice. After finding that the limited warranty was not unconscionable, the Court dismissed the breach of express warranty claim because the limited warranty excluded design defects, and Plaintiffs alleged only a design defect. Davidson II, 2017 WL 3149305, at *24. Similarly, the Court dismissed the breach of implied warranty claim because the limited warranty was not unconscionable and expressly disclaimed an implied warranty. Id. at *26. The Court also dismissed Plaintiffs' Magnuson-Moss Act claim because the parties did not dispute that the claim rose or fell with Plaintiffs' express and implied warranty claims under state law. Id.

         Thus, of the Selected Claims, five claims (all premised on a fraudulent omissions theory) survived Defendant's motion to dismiss the TACC: (1) a Colorado Consumer Protection Act claim; (2) a Florida Deceptive and Unfair Trade Practices Act claim; (3) an Illinois Consumer Fraud and Deceptive Trade Practices Act claim; (4) a Texas Deceptive Trade Practices Act claim; and (5) a Washington Consumer Protection Act claim. Upon resolving Defendant's motion to dismiss the TACC, the Court lifted the stay of discovery on August 2, 2017. ECF No. 109.

         On December 21, 2017, the Court granted the parties' stipulation to file a Fourth Amended Class Action Complaint (“FACC”). ECF No. 169. The FACC was materially identical to the TACC save for the substitution of Plaintiff Eric Siegal, an Illinois resident, for Adam Benelhachem, the previous Illinois Plaintiff. See FACC. On January 3, 2018, Plaintiffs filed the FACC. ECF No. 172. On January 17, 2018, Defendant filed its Answer to the FACC. ECF No. 177.

         3. The Court Denies Plaintiffs' First Motion for Class Certification as to the Selected Claims Because Plaintiffs' First Damages Expert Report Failed to Satisfy Comcast

         On January 5, 2018, Plaintiffs filed their first motion for class certification as to the Selected Claims. ECF No. 174. The Plaintiffs who filed the first motion for class certification as to the Selected Claims were Justin Bauer of Colorado, John Borzymowski of Florida, Eric Siegal of Illinois, Taylor Brown of Texas, William Bon of Washington, and Matt Muilenburg of Washington. Id. at 1. Plaintiffs sought to certify the following proposed class under Rule 23(b)(3) or Rule 23(c)(4): “Any person residing in Colorado, Florida, Illinois, Washington, or Texas who purchased an Apple iPhone 6 or iPhone 6 Plus from Apple or an Apple Authorized Service Provider (listed on https://locate.apple.com/) that was manufactured without underfill under the U2402 (Meson) integrated circuit chip.” Id. at 3. Plaintiffs argued in the alternative that the Court should certify subclasses to account for differences among the states' laws. Id. at 23 n.13; TACC ¶ 129 (“In the alternative, Plaintiffs seek to represent the following state sub-classes.”). On February 10, 2018, Defendant filed its opposition, ECF No. 183, and on March 2, 2018, Plaintiffs filed their reply. ECF No. 199.

         On May 8, 2018, the Court denied Plaintiffs' first motion for class certification as to the Selected Claims. ECF No. 225; Davidson v. Apple, 2018 WL 2325426 (N.D. Cal. May 8, 2018) (“Davidson III”). The Court rejected Defendant's arguments that Plaintiffs lacked standing, id. at *7-10, and explained that Plaintiffs' Colorado claim was categorically barred because the applicable Colorado law bars class actions for damages. Id. at *10-11.

         As relevant to this motion, the Court addressed whether the remaining state law Selected Claims satisfied Rule 23(a) and Rule 23(b)(3). The Court determined that the remaining Selected Claims under Florida, Illinois, Washington, and Texas law satisfied Rule 23(a). Id. at *11-13. The Court concluded that predominance was met for Illinois, Florida, and Washington Selected Claims because those statutes permit inferring reliance on a classwide basis, but denied certification of the Texas Selected Claim because Texas law does not permit inferring reliance and individualized inquiries would predominate on Plaintiffs' Texas claim. Id. at *15-16. The Court also rejected Defendant's arguments that Plaintiffs could not prove exposure and manifestation on a classwide basis for the Selected Claims. Id. at *17-20.

         The Court then determined that Plaintiffs' damages model failed to satisfy the requirements set forth in Comcast v. Behrend, 569 U.S. 27 (2013). The Court explained that in Comcast, the United States Supreme Court held that “a plaintiff bears the burden of providing a damages model showing that ‘damages are susceptible of measurement across the entire class for purposes of Rule 23(b)(3).'” Davidson III, 2018 WL 2325426, at *21 (quoting Comcast, 569 U.S. at 35). “The damages model ‘must measure only those damages attributable to' the plaintiff's theory of liability.” Id. (quoting Comcast, 569 U.S. at 35).

         The Court then turned to Plaintiffs' damages model. Plaintiffs' theory of liability was that Defendant's failure to disclose the touchscreen defect caused consumers “to pay more for those products than they otherwise would have.” ECF No. 174 at 26. Plaintiffs' damages expert, Dr. Stefan Boedeker, proposed a “Choice-Based Conjoint Analysis” damages model to analyze the value consumers attach to specific product attributes (“Boedeker 1”). Davidson III, 2018 WL 2325426, at *21. In a survey, Boedeker asked respondents to choose between phones differing in storage capacity, screen size, talk time, price, and defectiveness (no defect, defect costing $100 to repair or replace, or defect costing $200 to repair or replace). Id. Then, Boedeker “isolated the (negative) value associated with defectiveness, ” and determined that the economic loss was $323 or 51.7% of the phone's price for the $100 defect and $432 or 69.2% of the phone's price for the $200 defect. Id.

         Defendant argued, and the Court agreed, that Boedeker 1 failed to satisfy Comcast “because it assumes that the touchscreen defect will manifest in all iPhones.” Id. at *22. By contrast, Plaintiffs' theory of liability was that Defendant “failed to disclose the existence of a touchscreen defect that manifests in approximate 5.6 percent of the iPhone 6 Plus (after two years of use) and at a somewhat lower rate for the iPhone 6.” Id. (citing ECF No. 174, Plaintiffs' motion for class certification). Thus, the Court held that to correspond to Plaintiffs' theory of liability, Boedeker 1 should measure “how much consumers overpaid for iPhones assuming a roughly 5.6 percent or less chance that consumers would experience the touchscreen defect, ” rather than what Boedeker 1 actually measured: “how much consumers overpaid for a touchscreen defect that is certain to manifest in all iPhones.” Id. (emphasis in original). The options in the Boedeker 1 survey failed to convey that the touchscreen defect might not manifest. Id. at *23. This deficiency alone meant that Boedeker 1 failed to satisfy Comcast.

         The Court stated that Boedeker 1 failed to satisfy Comcast in other respects. For one, Boedeker 1 assumed that the touchscreen defect rendered iPhones “inoperable, ” but “none of the named Plaintiffs have experienced complete iPhone inoperability as a result of the touchscreen defect.” Id. at *23. In addition, Boedeker 1 asked consumers “about a generic defect instead of one specifically affecting a phone's touchscreen, ” and thus “necessarily assumed that respondents would value all defects equally.” Id. The Court held that this model was inconsistent with Plaintiffs' theory of liability “because it unmoors Plaintiffs' damages from the specific touchscreen defect alleged to have harmed them.” Id. Thus, the Court concluded that Plaintiffs failed to satisfy the Rule 23(b)(3) predominance requirement as to the Selected Claims because Boedeker 1 was inadequate under Comcast. Id. at *24.

         In addition, the Court denied Plaintiffs' request for injunctive relief as waived, id. at *25, and denied Plaintiffs' motion to certify a Rule 23(c)(4) issues class because Plaintiffs failed to show why an issues class “would materially advance the litigation as a whole.” Id. at *25-26.

         4. The Court Denies Plaintiffs' Second Motion for Class Certification as to the Selected Claims Because Plaintiffs' Motion Relied on a Hypothetical Expert Report

         On May 16, 2018, in the parties' joint case management statement, Plaintiffs stated that they intended to either file a motion for leave to file a motion for reconsideration of the Court's May 8, 2018 denial of class certification as to the Selected Claims or an appeal under Federal Rule of Civil Procedure 23(f), or both. ECF No. 232 at 1. Plaintiffs also asked the Court to stay the case. Id.

         On May 22, 2018, Plaintiffs declined to file a motion for reconsideration, and instead filed in the Ninth Circuit a petition for permission to appeal the Court's denial of class certification under Federal Rule of Civil Procedure 23(f). ECF No. 235. On May 23, 2018, the Court held a case management ...