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In re Seagate Technology LLC Litigation
Citations: 233 F. Supp. 3d 776; 91 U.C.C. Rep. Serv. 2d (West) 985; 2017 U.S. Dist. LEXIS 18745; 2017 WL 528398Docket: Case No. 16-cv-00523-JCS
Court: District Court, N.D. California; February 8, 2017; Federal District Court
The order partially grants and partially denies Seagate Technology LLC's motion to dismiss a putative class action lawsuit filed by plaintiffs who allege that Seagate misrepresented and delivered defective hard drives. The case, originally presided over by Judge Ronald Whyte, was reassigned to Chief Magistrate Judge Joseph C. Spero. The plaintiffs claim that Seagate marketed the Barracuda 3TB internal hard drives (model ST3000DM001) as reliable but that these drives had a significant latent defect, resulting in failure rates of up to 47.2%. The nine named plaintiffs, from different states, allege reliance on Seagate's misleading advertising and that each experienced hard drive failures under warranty. They seek to represent either a nationwide class or state-specific subclasses, asserting claims for breach of warranty, violation of consumer protection laws, and unjust enrichment. The court allows the plaintiffs until March 3, 2017, to amend their complaint to address identified deficiencies. The legal standard for dismissal under Rule 12(b)(6) is outlined, emphasizing the relatively low burden on plaintiffs at the pleading stage. In a motion to dismiss under Rule 12(b)(6), courts evaluate the complaint by accepting all material fact allegations as true and viewing them favorably to the non-moving party. Dismissal may occur if there is no viable legal theory or insufficient factual support for a valid theory. A complaint must contain direct or inferential allegations about all material elements needed for recovery under a legal theory. General assertions or mere recitations of legal elements are inadequate; courts will not accept legal conclusions disguised as factual allegations. For claims to be plausible, they must include sufficient factual detail to allow reasonable inferences of the defendant’s liability. Claims involving false advertising are governed by Rule 9(b), which requires a higher standard of specificity when alleging fraud, detailing the circumstances such as times, dates, and locations. This rule ensures defendants receive adequate notice to defend against claims. While the heightened pleading standard does not apply to state-of-mind allegations, Seagate contends that the plaintiffs’ warranty claims also fall under Rule 9(b) due to claims of a unified course of fraudulent conduct. However, the plaintiffs' warranty claims are based on Seagate’s alleged failure to provide non-defective drives rather than fraudulent advertising. Seagate argues that allegations of providing knowingly defective replacement drives imply fraud, but since fraud is not a core element of the warranty claims, only the specific fraud allegations must meet the heightened standard. Under Rule 9(b), allegations regarding malice, intent, and knowledge can be generally stated. Seagate argues that Plaintiffs fail to show a violation of its express warranty, as they acknowledge the company provided replacement drives per warranty terms. Plaintiffs counter that their claim should proceed under the “essential purpose” doctrine and California’s Song-Beverly Consumer Warranty Act. Seagate’s limited warranty covers defects in material or workmanship and includes a promise to replace defective products with functionally equivalent replacements, provided consumers follow return procedures. Plaintiffs claim Seagate breached the warranty by replacing defective drives with other defective drives. They assert that five named plaintiffs received replacement drives that failed during the warranty period, while two others received drives that malfunctioned. However, the warranty only requires that replacement drives be functionally equivalent, and Plaintiffs do not convincingly argue that the replacements failed more frequently than retail drives. The warranty also allows for remedies for defective replacements, mandating Seagate to provide another replacement upon request if within warranty. Plaintiffs allege Seagate failed to deliver non-defective drives despite sending replacements. However, the Second Consolidated Amended Complaint lacks clarity regarding claims for failure to send replacements. While Plaintiffs mention Seagate’s refusal for second replacements for two plaintiffs, it is unclear if the drives failed under warranty. Notably, the complaint suggests that one plaintiff's warranty had expired before a second replacement request, and another purchased their original drive from eBay, which is not an authorized reseller, thus not covered under the warranty. The Court finds insufficient evidence to support the claim that eBay was an authorized reseller based on Seagate's initial replacement of a drive, nor does it accept that the failed replacement drive was covered under warranty. Consequently, the Plaintiffs have not adequately alleged a breach of express warranty. They may amend their complaint if they possess facts indicating that the original drive was purchased from an authorized retailer and that service was denied when the replacement drive failed. The Plaintiffs also invoke the essential purpose doctrine from the Uniform Commercial Code, applicable in all nine relevant states, which allows for alternative remedies when a limited remedy fails its essential purpose. However, this doctrine requires that a party be deprived of its contractual remedy and must provide the other party a reasonable opportunity to fulfill the remedy before claiming failure. The Court emphasizes that the essential purpose of Seagate's warranty is to ensure functional drives during the warranty period, which can be achieved through functioning drives or replacements. The Plaintiffs have not alleged that Seagate failed to provide a replacement after being given a chance to do so. While Plaintiffs claim emotional and financial distress from drive failures, they provide no legal basis to excuse their failure to seek a remedy under the warranty terms. The Court reiterates that before a repair or replace remedy is deemed to have failed, the seller must be given an opportunity to address the issue. The Plaintiffs argue that the reasonableness of repair attempts is a factual question, but cite cases that do not apply directly to the essential purpose doctrine. Plaintiffs failed to adequately allege that Seagate did not provide a functional drive after multiple opportunities to fix nonconformities. The only plaintiff, David Scheduler, who had his drive replaced twice, has not utilized the second replacement and therefore cannot claim any deficiency. Although multiple failures could eventually deprive consumers of the warranty's essential purpose, merely two failures do not suffice to meet this criterion, especially since the warranty allows for replacements and covers replacement drives similarly. Under California's Song-Beverly Consumer Warranty Act, the statute pertains to failures to repair after a reasonable number of attempts, not failures to replace. Seagate's warranty explicitly permits product returns for replacement, not repair, and Plaintiffs did not allege any requests for repair services nor failures by Seagate to replace defective drives. Furthermore, the Act is limited to products sold in California, and only one plaintiff, Joshuah Enders, claims to have purchased drives in California but does not assert he sought repair or replacement from Seagate. Determining the reasonableness of repair attempts is a factual question requiring more than one opportunity to address a nonconformity, which Plaintiffs did not provide. Thus, the Plaintiffs' claims for breach of express warranty under the warranty terms, essential purpose doctrine, or Song-Beverly Act are insufficiently stated. Seagate's motion is granted, leading to the dismissal of these claims with leave for Plaintiffs to amend if they can present adequate facts to address the identified deficiencies. Plaintiffs assert breach of implied warranty under the California Commercial Code, the Song-Beverly Act, and similar statutes from eight other states where the plaintiffs reside. The Song-Beverly Act allows for implied warranty claims without requiring privity. Under California law, every retail sale of consumer goods includes an implied warranty that the goods are merchantable unless disclaimed. Seagate has not addressed the Song-Beverly Act claim or the implied warranty claims under the other states' laws; thus, its motion to dismiss these claims is denied. The California Commercial Code Section 2314 implies a warranty of merchantability in sales contracts, ensuring goods are fit for ordinary use. Seagate contests the claim based on lack of privity, without disputing the allegations regarding the goods' merchantability. Generally, privity is required for breach of warranty claims, and there is no privity between the original seller and a subsequent purchaser. Nevertheless, Plaintiffs argue for a third-party beneficiary exception to this requirement. Seagate contends that no California court has recognized this exception for consumer products, while Plaintiffs cite federal cases that have found the exception applicable in similar contexts, challenging the validity of Seagate's assertion. The excerpt evaluates the third-party beneficiary exception related to implied warranty claims under California law, notably tracing its origins to the case of Gilbert, where a building owner was allowed to sue a subcontractor for a leaky roof despite the absence of privity because the owner was deemed an intended beneficiary of the subcontract. However, no California court has applied this doctrine in the context of consumer claims against product manufacturers. The Ninth Circuit's decision in Clemens is pivotal, as it rejected a consumer's attempt to establish an implied warranty claim against a manufacturer based on similar equities, affirming that California courts have established a strict privity requirement under Commercial Code section 2314. The court emphasized that a federal court cannot create exceptions to this requirement. While some district court rulings have allowed consumers to invoke the third-party beneficiary exception, the court contends that this conflicts with Clemens, which firmly stated that end consumers purchasing from retailers are not in privity with manufacturers. Consequently, the court concludes it must dismiss the plaintiffs' claim based on section 2314, granting Seagate's motion regarding that claim. Consumer protection claims are governed by various California statutes: the FAL (False Advertising Law), CLRA (Consumer Legal Remedies Act), and UCL (Unfair Competition Law). The FAL prohibits misleading advertising (Cal. Bus. Prof. Code § 17500), the CLRA bans unfair competition and deceptive practices in consumer transactions (Cal. Civ. Code § 1770), and the UCL prohibits unlawful, unfair, or fraudulent business acts and misleading advertising (Cal. Bus. Prof. Code § 17200). To establish claims of false advertising, it suffices to demonstrate that the public is likely to be deceived, as supported by California case law. Seagate seeks to dismiss the plaintiffs’ claims under these statutes, particularly the "fraudulent" prong, arguing that the plaintiffs have not adequately alleged actionable misrepresentations. The court decides not to dismiss claims related to Seagate’s statements on the drives' annualized failure rate (AFR) and suitability for RAID configurations but dismisses other claims regarding the drives' read error rate and suitability for NAS, considering them non-actionable puffery. Seagate published an AFR of less than 1% for its ST3000DM001 drives beginning in 2011, which the court finds could potentially deceive reasonable consumers if proven inaccurate. Seagate contends that the AFR is merely statistical and does not guarantee individual drive performance. However, the court maintains that if the plaintiffs can show the AFR is false, it may substantiate their claims. The plaintiffs assert that Seagate's representation about the AFR is false and misleading, supported by independent testing results from Backblaze, which indicate a significantly higher failure rate for the drives than disclosed. In 2012, Backblaze reported a drive failure rate of 2.7%, which increased to 5.4% in 2013 and escalated dramatically to 47.2% in 2014. By March 31, 2015, 29.5% of 4,829 Seagate 3TB drives had failed. Backblaze later reported a 30.94% annual failure rate (AFR) for the first three quarters of 2015 and an overall failure rate of 28.46% since 2013. Seagate challenged the reliability of Backblaze's findings, arguing that the drives were used inappropriately for commercial purposes and were "shucked" from their protective casings. However, Plaintiffs contend that Backblaze accounted for these factors and attributed the high failure rates directly to the drives. The court determined that Plaintiffs sufficiently alleged that Seagate's published AFR was misleading, rejecting Seagate's argument that no consumer relied on this information prior to purchase; several named plaintiffs asserted they did rely on the AFR when making their purchases. The court also noted that a reasonable consumer would consider these reliability statistics material. Seagate's claim that the AFR did not account for misuse was dismissed since Plaintiffs alleged they used the drives as intended. Consequently, the court denied Seagate's motion regarding the Plaintiffs’ misrepresentation claims based on the published AFR. Additionally, Seagate's published read error rate statistics were also challenged by Plaintiffs, who claimed they were false and misleading. Under Rule 9(b), Plaintiffs are required to specifically plead the falsity of affirmative representations, which they fail to do regarding the read error rate. The complaint does not assert that Backblaze reports analyze anything other than the annual failure rate (AFR) and lacks alternative sources for the "true" read error rate. While some individual plaintiffs mention issues with their drives, such as sudden failures or bad sectors, these anecdotes do not provide sufficient clarity on how these incidents correlate to the read error rate or the validity of Seagate's claims. As a result, the misrepresentation claims related to the read error rate are dismissed but may be amended. Seagate's marketing materials, including the Barracuda Data Sheet, describe the Barracuda drives as suitable for Network Attached Storage (NAS) and RAID configurations. A NAS device comprises hardware components for file storage and sharing within a network, while RAID is a data storage technology that combines multiple hard drives for redundancy or performance. Common RAID configurations include RAID 0 (increased speed without redundancy), RAID 1 (data duplication for redundancy), and RAID 5 (requiring three or more drives with some space reserved for redundancy). The complaint references Seagate's 2011 press release and 2012 website claims that the drives are designed for various computer and storage applications, including NAS and RAID solutions. Plaintiffs assert that Seagate's representations are false, citing an email from a customer support representative indicating that the drives are unsuitable for RAID configurations beyond basic setups. Using 'desktop class drives' in a RAID 5 configuration is likely to lead to RAID failures. Plaintiffs argue that Internal Barracuda drives have a high failure rate, making them unsuitable for data backup systems relying on redundancy, as this would involve defective drives backing up other defective drives. Seagate asserts that its RAID statements are not misleading since it has not claimed that Barracuda drives are suitable for all RAID configurations. However, California consumer protection laws prohibit advertising that, while true, is misleading or has the potential to deceive consumers. The determination of whether a business practice is deceptive is typically a factual question rather than one appropriate for dismissal at this stage. Even if Seagate’s drives are suitable for some RAID configurations, plaintiffs can argue that reasonable consumers might be misled regarding their suitability for others, particularly since RAID 5 is commonly used in home units. Seagate also contends that the claims fail because not all plaintiffs allege harm from these representations. However, several plaintiffs specifically assert that they relied on Seagate's RAID statements and would not have purchased the drives if they had known the truth, thus adequately alleging injury. The court declines to dismiss these claims regarding RAID representations. In contrast, the plaintiffs lack specific factual allegations demonstrating that the drives are unsuitable for NAS applications, apart from the connection with RAID 5. Although NAS systems can employ RAID configurations, plaintiffs have not shown that Seagate's claims about NAS suitability imply compatibility with RAID 5. Consequently, claims about NAS misrepresentations are dismissed but may be amended. The complaint also details Seagate's representations about its AcuTrac technology, which enhances read/write performance by enabling storage densities with precise reading and writing to very narrow tracks. Seagate engineers have achieved a significant technological advancement by fitting 340,000 hard drive tracks into a single inch, with each track measuring just 75 nanometers wide—500 times smaller than a period. The Seagate AcuTrac™ servo technology ensures reliable and accurate tracking of these nano-tracks, even in challenging environments, thus maintaining dependable read/write performance. However, the plaintiffs did not provide specific allegations to substantiate claims against these representations, failing to demonstrate that the read-write head does not accurately follow the nano-tracks or that AcuTrac technology is unreliable. Consequently, the court granted Seagate's motion to dismiss claims related to these representations, allowing for a possible amendment. The plaintiffs also referenced Seagate's claims about the reliability and performance of their Barracuda hard drives, which are touted for their quality and innovative features. Nevertheless, the court noted that generalized assertions about "quality," "reliability," and "performance" amounted to mere puffery, which is not actionable. The term "reliable" was deemed vague and not sufficient to establish a legal claim against Seagate. Misdescriptions of product characteristics can lead to actionable claims, as established in Southland Sod Farms v. Stover Seed Co., where the court differentiated between nonactionable puffery and specific claims. A claim like “50% Less Mowing” was deemed actionable due to its measurable nature, while vague assertions, such as those made by Seagate regarding the reliability of its hard drives, were classified as mere puffery. The Pozar v. Seagate Tech. LLC case found Seagate’s statements sufficiently specific to support a claim under the Consumer Legal Remedies Act (CLRA), indicating that reasonable consumers might rely on particular claims about product reliability. The court discussed similar rulings, such as Lima v. Gateway, which found that seemingly subjective statements could be actionable when context suggested they misled consumers regarding product capabilities. However, plaintiffs in the current case did not establish that Seagate’s statements were made in a context providing verifiable reliability or performance metrics, nor did they connect the statements to specific reliability data like Seagate's annual failure rates (AFR). Consequently, the court concluded that Seagate's claims were too vague and subjective to warrant action, aligning with the findings in Punian v. Gillette Co., where general assurances of product reliability were also deemed non-actionable. The phrase "perfectly reliable" in the advertisement lacks independent verifiability, leading to the dismissal of claims related to broad representations of reliability against Seagate, with permission for Plaintiffs to amend if they can connect to specific misrepresentations. Under California law, a fraudulent omission is actionable only if it contradicts a representation made by the defendant or involves a fact the defendant was required to disclose. A broad disclosure obligation is generally rejected by California courts, which assert that the obligation extends only to matters of product safety in cases where there are no affirmative misrepresentations. Specific circumstances may create a duty to disclose, such as a fiduciary relationship, exclusive knowledge of material facts, active concealment of facts, or partial representations that suppress material facts. Plaintiffs claim Seagate failed to disclose several key issues regarding the reliability and suitability of its Drives, including latent defects, inaccuracies in published error rates, and their unsuitability for RAID configurations. In opposition, Plaintiffs argue that their omission claims stem from Seagate’s affirmative misrepresentations. The allegations suggest that Seagate may have known of and failed to disclose information that contradicted its representations about the Drives’ reliability and functionality, making the claims plausible at the pleading stage. The Court holds that the publication of a potentially false AFR by Seagate created a duty to disclose information regarding the drives' alleged unreliability. Plaintiffs allege that a Seagate representative stated the drives were unsuitable for RAID configurations beyond Desktop RAID 0 or 1, which the Court finds sufficient at the pleading stage to demonstrate Seagate's knowledge of this limitation. This representation triggered a duty for Seagate to disclose the drives' limitations for RAID use. However, the Court determines that Plaintiffs failed to plausibly allege that Seagate's representations about the drives' NAS capabilities or error read rates were false or misleading, leading to the dismissal of those wrongful omission claims with leave to amend. The Court also notes that it does not need to establish an independent duty to disclose beyond the duty arising from alleged misrepresentations, as this does not affect the claims related to RAID capabilities, which will proceed, or the claims regarding NAS capabilities and error read rates, which are dismissed for lack of plausible allegations. Regarding the CLRA claims, Seagate argues for dismissal based on the failure to file venue affidavits and the claims being time-barred. Although two plaintiffs submitted affidavits with amended complaints before consolidation, Seagate contends that the absence of these affidavits in the original complaints justifies dismissal. The Court finds that since the purpose of the rule is met, it declines to dismiss any CLRA claims on this basis, allowing the plaintiffs to amend their complaints as necessary. In the case referenced, the court found that the venue affidavit requirement was satisfied with only one named plaintiff filing the affidavit, as supported by previous cases. The court declined to dismiss the Consumer Legal Remedies Act (CLRA) claims as time-barred, except for Plaintiff John Smith's claim, which was conceded as barred. The discovery rule requires plaintiffs to conduct a reasonable investigation upon awareness of an injury, but in this instance, the plaintiffs were not expected to investigate until their hard drives failed. Seagate's argument that plaintiffs could have learned about potential drive failures from online reviews was rejected, as the court determined there was no reason for plaintiffs to suspect wrongdoing prior to their drives failing. Regarding the Unfair Competition Law (UCL) claims, the "unlawful" prong incorporates violations of other laws as independently actionable. Seagate's motion to dismiss these claims, based on alleged breach of express warranty, was denied because the claims were founded on violations of the CLRA, the False Advertising Law (FAL), and California's warranty statutes. Seagate's motion was granted to the extent that the underlying statutory claims were dismissed. For the "unfair" prong of the UCL, Seagate sought dismissal on the grounds of overlap with misrepresentation claims and the assertion that plaintiffs' demands for refunds contradicted warranty terms. Plaintiffs contended that replacing defective hard drives with similarly defective products while charging high fees for data recovery was unscrupulous, causing consumer injury that outweighed any benefits. The excerpt addresses the legal standards for determining "unfair" practices under California's Unfair Competition Law (UCL). The criteria for unfairness have evolved, with earlier case law suggesting practices could be deemed unfair if they violated public policy or were deemed immoral or injurious to consumers. The South Bay Chevrolet case established a balancing test between consumer harm and the utility of the defendant's conduct. However, the California Supreme Court in Cel-Tech Communications clarified that for cases between competitors, "unfair" refers to conduct that threatens antitrust violations or harms competition, while leaving unresolved the applicable standard for consumer cases. Since Cel-Tech, some courts have maintained the South Bay test for consumer cases, while others have required a connection to legislatively declared policies. This lack of consensus has led federal courts to apply both tests. The court indicates that plaintiffs may pursue UCL unfairness claims that align with legislative policies, but dismisses claims based on previously rejected theories, as plaintiffs failed to adequately demonstrate a violation of legislative policy or substantive unfairness. Specifically, claims regarding replacing defective hard drives were dismissed due to insufficient evidence of immorality or substantial injury. Plaintiffs assert that Seagate's practice of charging excessive fees for data recovery from failing drives constitutes unfair conduct under the Unfair Competition Law (UCL). The court finds no basis for dismissing these claims. Regarding unjust enrichment, Seagate contends that this claim is redundant, as it shares factual grounds with other claims under the UCL and the False Advertising Law (FAL). However, the Ninth Circuit allows alternative pleading, making dismissal inappropriate at this stage. The court grants Seagate's motion to dismiss claims related to express and implied warranties, affirmative misrepresentation regarding product performance, omissions regarding NAS capabilities, all Consumer Legal Remedies Act (CLRA) claims from Plaintiff John Smith, and UCL claims linked to dismissed theories. Remaining claims are preserved. Plaintiffs are permitted to file a third consolidated amended complaint by March 3, 2017. The order also clarifies terminology around Seagate products and notes that prior allegations regarding the quality of refurbished drives lack sufficient factual support to proceed under legal scrutiny. Additionally, it mentions Seagate's warranty provisions regarding the replacement of products. Ginsberg voluntarily dismissed his claims after filing the operative complaint, leading the Court to omit his allegations regarding his experience. The Court disagrees with the aggregate approach from Horvath v. LG Electronics, which allowed multiple plaintiffs' repair attempts to establish a breach of warranty. Instead, the Court holds that a limited warranty remedy does not fail at its essential purpose unless a specific plaintiff demonstrates they could not obtain a satisfactory product despite reasonable repair opportunities. Seagate contends that the plaintiffs' claims of false or misleading advertising under the consumer protection laws of eight states fail for similar reasons. While plaintiffs argue that Seagate's motion does not adequately address their other claims, they do not specify state law differences that could support a claim without a demonstrated misrepresentation or omission. The Court assumes the other states' consumer protection statutes are similar to California's. Additionally, the Court takes judicial notice of the Backblaze report referenced in the complaint, noting that some statements may include specific factual claims beyond mere puffery, particularly regarding the functionality of Seagate drives for automatic backups, which plaintiffs do not contest. The focus is on the plaintiffs' assertion that Seagate's marketing misrepresented the reliability and performance of its drives.