Gomelsky v. Apple, Inc.

Filing 84

Transcript of Proceedings held on 02/05/2010, before Judge Jeremy Fogel. Court Reporter/Transcriber Summer Fisher, Telephone number 408-288-6150. Per General Order No. 59 and Judicial Conference policy, this transcript may be viewed only at the Clerks Office public terminal or may be purchased through the Court Reporter/Transcriber until the deadline for the Release of Transcript Restriction.After that date it may be obtained through PACER. Any Notice of Intent to Request Redaction, if required, is due no later than 5 business days from date of this filing. Release of Transcript Restriction set for 8/31/2010. (Fisher, Summer) (Filed on 6/2/2010)

G o m e l s k y v. Apple, Inc.

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IN T H E U N I T E D S T A T E S DISTRICT COURT FOR T H E N O R T H E R N D I S T R I C T O F CALIFORNIA SAN JOSE DIVISION GOMELSKY, ET AL , ) ) ) ) ) ) ) ) ) ) CV -08 -4969- JF SAN JOSE , CALIFORNIA FEBRUARY 5, 2010 PAGES 1- 39

5 PLAINTIFF, 6 VS . 7 APPLE, I N C. 8 DEFENDANT. 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 FOR THE DEFENDANT : FOR THE PLAINTIFF : A P P E A R A N C E S:

TRANSCRIPT O F PROCEEDINGS BEFORE THE HONORABLE JEREMY FOGEL UNITED STATES DISTRICT JUDGE

COHEN MILSTEIN BY : DOUGLAS M C N A M A R A 1100 NEW YORK AVENUE , S T E 500 WASHINGTON, DC 20005

MORRISON & FOERSTER BY : PENELOPE PREOVOLOS ANDREW MUHLBACH 425 MARKET STREET S A N FRANCISCO, CA 94105

(APPEARANCES CONTINUED O N T H E NEXT PAGE )

OFFICIAL COURT REPORTER : SUMMER FISHER , C S R, C R R CERTIFICATE NUMBER 13185
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Dockets.Justia.co

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FOR THE PLAINTIFF :

MEISELMAN DENLEA BY : MICHAEL BERG 1311 MAMARONECK AVENUE WHITE P L A I N S, NY 10605

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SAN JOSE , CALIFORNIA

FEBRUARY 5, 2010

PROCEEDINGS (WHEREUPON, COURT CONVENED A N D T H E FOLLOWING PROCEEDINGS WERE HELD: ) T H E C O U R T: BERENBLAT AND WAGNER . MR . BERG : YOUR H O N O R, THIS I S THEN WE HAVE T H E APPLE CASES.

M I CHAEL BERG O F MEISELMAN DENLEA ON COURT CALL FOR PLAINTIFFS. MR . M C N A M A R A: YOUR HONOR, THIS IS

DOUGLAS MCN AM A RA OF COHEN MILSTEIN ON BEHALF OF PLAINTIFF WAGNER. MS . PREOVOLOS: YOUR HONOR. I N C. MR . M U H L B A C H: GOOD MORNING, YOUR H O N O R. GOOD MORNING. PENELOPE PREOVOLOS, O N B E H A L F OF APPLE,

A N D R E W M U H L B A C H ALSO ON B E H A L F O F A P P L E. T H E C O U R T: OKAY. WELL , W E'V E BEEN HERE

BEFORE AND I THINK W E ARE GETTING T O THE POINT WHERE THE COURT NEEDS T O BITE THE BULLET. I GUESS THE -- IN MY MIND, A N D I WILL ADDRESS THIS T O DEFENSE COUNSEL SINCE THEY A R E THE M O V I N G P A R T Y, THE BEST ARGUMENT THAT T H E PLAINTIFF H A S O R T H E PLAINTIFFS HAVE , R A T H E R, SEEMS TO ME IS THAT THERE' S EVIDENCE THAT THERE WERE PROBLEMS WITH
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THE MEMORY SLOT PRIOR T O THE TIME THAT THE PLAINTIFFS BOUGHT THEIR POWERBOOKS AND THAT APPLE D I D N O T DIS CLOSE THOSE PROBLEMS -- ESSENTIALLY, IT ENDS UP BEING A C O M M O N LAW FRAUDULENT CONCEALMENT CLAIM . IN OTHER WORDS , THROUGH T H E I N T E R N E T POSTINGS A N D S O F O R T H T H E R E'S EVIDENCE THAT APPLE KNEW ABOUT THE PROBLEM AND NONETHELESS REPRESENTED TO T H E W O R L D THAT T H E C O M P U T E R W A S MER CHANTABLE . IT DIDN' T S A Y THERE WAS PROBLEM WITH T H E MEMORY SLOT EVEN T H O U G H THEY N E W THERE WAS A PROBLEM WITH T H E MEMORY SLOT. SO I THINK THAT'S T H E BEST

ARGUMENT THAT I C A N SEE FROM PLAINTIFFS. I THINK WITH R E G A R D TO THE IMPLIED WARRANTY A N D T H E UNCONSCIONABILITY AND SO FORTH , I HAVE SOME QUESTIONS FOR PLAINTIFFS COUNSEL A B O U T THAT BECAUSE I 'M STILL NOT SOLD ON THAT T H E O R Y. B U T O N T H E CONCEALMENT, IF I COULD GET SOME COMMENT FROM DEFENSE COUNSEL. IF THERE 'S

EVIDENCE THAT THE MANUFACTURER K N O W S THAT THERE 'S A PROBLEM AND THEN THEY D O N' T D O A N Y T H I N G A B O U T I T A N D THEY P U T O U T A W A R R A N T Y THAT 'S LIMITED I N A W A Y THAT THIS O N E IS, IS THERE N O T SOME TYPE OF CLAIM AT LEAST UNDER CALIFORNIA LAW F O R THAT ? MS . PREOVOLOS: YOUR HONOR , L E T ME
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ADDRESS THAT.

I THINK THAT T H E 10, 000 POUND

GORILLA IN THE ROOM, THAT WITH D U E RESPECT T H E COURT HASN' T ADDRESSED, IS THAT THAT'S A FRAUD CLAIM . SO THERE 'S NO QUESTION THAT RULE 9( B) APPLIES. A N D I D O N' T T H I N K W E'V E H A D A W H O, WHAT, THERE 'S NO

WHEN OR WHERE HERE PLED AT A L L.

EVIDENCE THAT APPLE HAD KNOWLEDGE O F A D E F E C T. A L L T H E R E A R E, A R E ALLEGATIONS THAT P E O P L E COMPLAINED ABOUT ALLEGED ISSUES ON T H E INTERNET . THE PROBLEM WITH M A K I N G THAT A N BECAUSE

EXCEPTION, BASICALLY , I S DAUGHERTY.

THERE 'S NO DISPUTE THIS PROBLEM PERFORMED PERFECTLY THROUGHOUT THE PLAINTIFF'S WARRANTY A N D B E Y O N D. THE PROBLEM WITH THAT I S THAT THERE ARE A L W A Y S SUCH COMPLAINTS ON THE INTERNET . SO IF

THAT' S E N O U G H TO GET Y O U PAST 9( B) WE ARE GOING TO BE LITIGATING THE M E R I T S O F A N Y CLAIM, FRANKLY, F O R A N Y PRODUCT MANUFACTURED B Y A N Y COMPUTER MAKER. T H E C O U R T: H O W MUCH DO Y O U NEED ? I

TOTALLY AGREE WITH Y O U, A N D I THINK THAT THE LAST ORDER T H E C O U R T ISSUED TALKED ABOUT RULE 9(B ) A T SOME LENGTH . SO I THINK THAT I S W H E R E W E A R E. S O,

SURE, I MEAN, THE W A Y Y O U' VE JUST P U T IT, Y O U A R E
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RIGHT .

IT CAN 'T BE ENOUGH THAT ONE P E R S O N W H O SITS

IN FRONT OF H I S O R H E R COMPUTER ALL D A Y A N D COMPLAINS A B O U T P R O D U C T S, THAT'S ENOUGH T O CREATE A FRAUDULENT CONCEALMENT CLAIM. LINE? B U T WHERE IS THAT

WHAT DOES THE PLAINTIFF NEED TO SHOW AT THE

PLEADING STAGE ? MS . PREOVOLOS: WELL , I THINK THERE HAS

TO BE SOME INDICATION THAT MORE IS GOING ON THAN I S S U E S ARISING WITH SOME N U M B E R OF PRODUCTS AFTER THE WARRANTY PERIOD. A N D I THINK -- THERE 'S SO MANY T H I N G S HERE THAT I C A N S A Y THAT I 'M NOT SURE WHICH OF THEM TO PICK -- NO, I UNDERSTAND. COUPLE O F THINGS. PROBLEM NUMBER O N E, FRANKLY T H E R E WILL ALWAYS B E A NUMBER, HUNDREDS, THOUSANDS O F COMPLAINTS ON THE INTERNET ABOUT ANYTHING , G O O N A N D LOOK AT PETITIONS A S T O A P P L E, HP OR WHOMEVER A N D Y O U WILL S E E THAT. THAT' S BECAUSE WE SELL HERE' S A PROBLEM. A

MILLIONS OF PRODUCTS A N D T H E R E WERE LITERALLY SEVERAL MILLIONS OF THESE COMPUTERS SOLD. A N D T H E INTERNET IS A VERY FERTILE SOURCE FOR ISSUES. I THINK WHERE Y O U HAVE TO DRAW THE

LINE, T H O U G H, IS THERE HAS TO BE SOME REPRESENTATION BY T H E DEFENDANT THAT SAYS THERE 'S
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N O T A PROBLEM OR THAT AMOUNTS TO CONCEALMENT , BECAUSE YOUR HONOR I S TALKING ABOUT FRAUDULENT CONCEALMENT . WE D O N'T HAVE THAT HERE . WE DON 'T HAVE

A N Y W H O, WHAT, WHEN, WHERE , W H E R E A P P L E SAID THERE 'S NO PROBLEM. A N D T H E PROBLEM ALSO IS

TALKING ABOUT WHEN THESE PEOPLE' S COMPUTERS WERE SHIPPED, STEP BACK FOR A MOMENT BECAUSE THAT REALLY UN DOES A N A W F U L L O T. A MANUFACTURER , I N GOOD FAITH , DOES ALL T H E PRETESTING IT C A N D O, PUTS T H E PRODUCT O N T H E M A R K E T A N D THE PRODUCT IS FINE, FUNCTIONS FINE UNDER WARRANTY . OVER TIME WHAT DAUGHERTY TELLS THIS COURT A N D T E L L S DEFENDANTS IS THAT SOME P R O D U C T S FAIL . A N D SOME SIGNIFICANT -- N O T SIGNIFICANT - - SOME NOTICEABLE PERCENTAGE O F PEOPLE WILL HAVE FAILURES NO M A T T E R WHAT WHEN YOU HAVE TWO OR THREE MILLION UNITS OF A PRODUCT. AND WHEN NOTHING MANIFESTS EXCEPT THAT THE PRODUCTS FAIL OUTSIDE WARRANTY, I THINK UNLESS THERE IS SOME AFFIRMATIVE MIS REPRESENTATION OR ACTIVE CONCEALMENT B Y THE DEFENDANT , AND YOUR HONOR T A L K E D A B O U T THAT IN HOVSEPIAN I I I N PARTICULAR , A N D W E D O N' T HAVE THAT HERE.
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THEN I JUST THINK UNLESS YOU DRAW A LINE ASKING F O R SOMETHING MORE THAN A L O T O F O NLINE COMPLAINTS -T H E C O U R T: THAT' S WHAT I' M GRAPPLING

WITH, A N D I D O N'T WANT TO REPRESENT T H E MANUFACTURING INDUSTRY AS A W H O L E BECAUSE WE G O T A L O T O F T H E S E C A S E S. WITH THE INTERNET BEING WHAT

IT IS A N D Y O U GET A LOT OF INTERNET COMPLAINTS AND THEN WE GET AN ARGUMENT WELL, T H E MANUFACTURER HAD TO KNOW THAT T H E R E W A S A PROBLEM BECAUSE WE LOOK A T A L L T H E S E I N T E R N E T COMPLAINTS A N D THEN THEY DIDN'T SAY ANYTHING. THEY DIDN'T S A Y T H E MEMORY SLOT

DOESN 'T ACCOMMODATE TWO G I GA B Y T E S O R SOMETHING FAILS . I' M JUST TRYING T O FIGURE THIS O U T, N O T ONLY FOR THIS CASE B U T FOR O T H E R S. HAVE TO SHOW? WHAT DO YOU

OBVIOUSLY, IF THERE IS AN

AFFIRMATIVE M I SREPRESENTATION THEN YOU 'VE G O T F R A U D A N D Y O U ARE N O T DEALING WITH THAT. FRAUDULENT CONCEALMENT? MS . PREOVOLOS: I THINK THERE HAS T O B E BUT FOR

SOMETHING MORE , THOUGH, THAN COMPLAINTS O N THE INTERNET . T H E C O U R T: SOMETHING MORE ?
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OKAY.

S O WHAT IS T H E

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MS . PREOVOLOS:

I T C O U L D B E A N Y NUMBER OF

B U T I T C O U L D B E, YOU KNOW, T H E DEFENDANT

BEING ASKED A N D B E I N G S I L E N T, WE D O N'T HAVE ALLEGATIONS LIKE THAT HERE . WE DON 'T HAVE A N Y, I

HAVE TO KEEP S A Y I N G, WE D O N'T HAVE WHO , WHAT , WHEN , WHERE . T H E C O U R T: WRONG ATTORNEY . Y O U'R E SAYING I'M ASKING T H E

I S H O U L D BE ASKING PLAINTIFF'S

COUNSEL, WHERE IS T H E PARTICULARITY WHERE APPLE IS CONFRONTED WITH NUMEROUS COMPLAINTS ? YOUR TWO

GIGABYTE M E M O R Y SLOT DOESN 'T ACCOMMODATE TWO GIGABYTES, WHAT D O Y O U HAVE T O S A Y ABOUT THAT? APPLE SAYS NOTHING. MS . PREOVOLOS: I THINK T H E PROBLEM IS , AND

Y E S, BECAUSE T H E DEFENDANT DOESN 'T ADMIT A PROBLEM . B U T Y O U KNOW WHAT THAT MEANS IS, I THINK MY CORE PROBLEM, EVEN WITH PHRASING T H E QUESTION THAT W A Y, IS IT 'S SUCH A HUGE END R U N A R O U N D AUTHORITY BECAUSE I HAVE TO KEEP COMING BACK TO THE FACT THAT THESE PLAINTIFFS ADMIT THEIR COMPUTERS WORKED FINE F O R T W O YEARS, THREE YEARS , T H R E E A N D A HALF YEARS , A N D B E Y O N D THE TIME THEY INSTALLED ADDITIONAL MEMORY. SO IT 'S NOT ABOUT T H E INSTALLATION OF

ADDITIONAL MEMORY . T H E C O U R T: DOES DAUGHERTY S A Y - - A N D YOU
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KNOW DAUGHERTY IS A CASE THAT T H E C O U R T R E L I E D ON HEAVILY IN THE LAST RULING -- DOES DAUGHERTY S A Y THAT IF A MANUFACTURER KNOWS THAT A YEAR AND A DAY AFTER MANUFACTURE , THAT T H E PRODUCT IS GOING TO FAIL MISERABLY , AND THEN I T ISSUES A ONE YEAR EXPRESS WARRANTY WHICH SAYS AFTER THIS ALL WARRANTIES ARE O F F, THERE AREN'T A N Y IMPLIED WARRANTIES. GUARANTEED. I T SAYS , Y O U' VE GOT A YEAR O F THIS IS A HYPOTHETICAL CASE, B U T DOES

DAUGHERTY S A Y TOO B A D T O T H E CONSUMER? MS . PREOVOLOS: OBVIOUSLY. THAT 'S NOT THIS CASE,

BUT I F YOU LOOK A T OESTREICHER AND

DAUGHERTY, I T H I N K THEY WOULD HAVE TO SAY T H E ANSWER I S S T I L L THAT T H E PLAINTIFF' S D O N' T PREVAIL . OBVIOUSLY, YOU C R E A T E THIS HORRENDOUS SLIPPERY SLOPE . HERE' S T H E PROBLEM. EVENTUAL LY. IN HOVSEPIAN. PARTS DO FAIL

Y O U TALKED ABOUT THIS IN THIS CASE A N D SO T H E MANUFACTURER, IN ORDERING

PARTS A N D O R D E R I N G R E P L A C E M E N T P A R T S, HAS TO HAVE AN IDEA, H A S T O HAVE SOME KNOWLEDGE ABOUT WHEN THING S A R E GOING TO FAIL. A N D I THINK THERE 'S AN ASSUMPTION THAT THEY WILL L A W F U L L Y FAIL OUTSIDE THE WARRANTY OR WE WOULDN'T S A Y KEEP PARTS F O R S E V E N Y E A R S I N
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CALIFORNIA. B U T Y O U ARE S A Y I N G I F T H E DEFENDANT H A S SOME ESTIMATE THAT THE PRODUCT I S GOING T O FAIL , L E T'S S A Y T H R E E Y E A R S BECAUSE THAT' S WHAT HAPPENED HERE. I 'M NOT S A Y I N G A P P L E KNEW THAT, B U T A S S U M E

THAT FOR A SECOND , T H E MANUFACTURER KNOWS T W O Y E A R S O U T O F W A R R A N T Y SOME N U M B E R O F M E M O R Y SLOTS ARE GOING TO NEED REPLACEMENT. DOES THAT MEAN THE I

DEFENDANT I S ENGAGED IN FRAUDULENT CONCEALMENT? S U B M I T THAT 'S THE E N D O F DAUGHERTY. I REALLY D O. I DON 'T

A N D THAT 'S THE PROBLEM HERE. CONCEDE APPLE HAD THAT KNOWLEDGE .

AND FRANKLY, TO

G E T INTO T H E F A C T S O F THIS CASE, T H E FAILURE RATES WERE LOW A N D A P P L E H A S NO KNOWLEDGE . D O N'T G E T T O D O THAT . BUT I SAY THAT BECAUSE I D O THINK YOU HAVE TO HAVE THAT PERSPECTIVE . LET 'S ASSUME F O R A WELL, WE

S E C O N D T H E R E'S NO D E F E C T HERE , THAT T H E FAILURE RATES A R E L O W AND SOME NUMBER OF P E O P L E A R E GOING TO HAVE A M E M O R Y ISSUE. SOME N U M B E R O F P E O P L E ARE

GOING TO HAVE A HARD DRIVE ISSUE , I 'LL TELL YOU THAT RIGHT NOW . SOME P E O P L E ARE GOING TO HAVE A

GAME CHIP I S S U E, IT' S JUST GOING TO H A P P E N. T H E C O U R T: OR A VERTICAL LINE I S S U E. O R A VERTICAL LINE ISSUE,
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MS . PREOVOLOS:

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PRECISELY. BUT I F THEY HAVE THAT PROBLEM TWO YEARS OUTSIDE WARRANTY, DO I REALLY HAVE TO GO THROUGH A FULL EVIDENTIARY SHOWING T O DEMONSTRATE THAT THE FAILURE RATES ARE L O W - T H E C O U R T: SO BASICALLY - - A N D WE WILL

G E T T O T H E NOTICE ISSUE A N D S O F O R T H BECAUSE THAT' S T H E O T H E R T H I N G W E NEED TO TALK ABOUT. BUT ASSUMING THAT YOU HAVE NOTICE AND ASSUMING THAT THE CONSUMER KNOWS THIS PRODUCT I S WARRANTED F O R A YEAR A N D THAT 'S IT, THAT IT DOESN' T R E A L L Y M A T T E R WHAT T H E MANUFACTURER KNOWS AS LONG AS T H E MANUFACTURER DOES N O T WILLFULLY CONCEAL SOMETHING I N R E S P O N S E T O A N INQUIRY OR IT DOESN 'T WILLFULLY M I SREPRESENT SOMETHING . MS . PREOVOLOS: I 'M NOT SURE WHERE ELSE

TO DRAW THE LINE, I' M R E A L L Y NOT . BECAUSE, I MEAN, MUCH LESS THAN THAT HAPPENED HERE. I F W E H A D TO GO TO SUMMARY

JUDGEMENT I THINK WE WOULD SHOW APPLE DIDN'T KNOW A DARN THING AND TO THIS DAY MAINTAINS T H E S E PRODUCT S ARE FINE . AND ONE THING I CAN TELL YOU THAT I S I N T H E R E C O R D IS THAT A P P L E D I D DO AN EXTENDED WARRANTY REPLACEMENT F O R THIS PART ON SOME
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COMPUTERS W H I C H INDICATES TO YOU IF APPLE T H I N K S THERE 'S AN ISSUE IT' S G O I N G T O D O SOMETHING ABOUT IT . AND THAT' S I N T H E COMPLAINT . T H E C O U R T: SO R E A L L Y YOUR RESPONSE IS

THERE MIGHT BE A HYPOTHETICAL CASE WHERE THE ANALYSIS IN DAUGHERTY D O E S N'T APPLY TO THIS CASE. MS . PREOVOLOS: WELL , T H E WHO , WHAT ,

WHEN, WHERE H A S N O T BEEN ALLEGED . T H E C O U R T: WE HAVE COMPLAINTS O N T H E

INTERNET A N D THAT 'S ALL WE 'VE G O T. MS . PREOVOLOS: Y O U' VE PROBABLY GOT

THOUSANDS O F COMPLAINTS ON T H E I N T E R N E T B U T YOU ALWAYS WILL . AND HONESTLY , I THINK YOUR HONOR CAN

GO ON T H E I N T E R N E T A N D LOOK A T T H E FORUMS A N D Y O U WILL FIND LOTS . T H E C O U R T: I STOPPED READING THE FORUMS

N O T ONLY F O R C O N S U M E R C A S E S B U T BECAUSE I HAVEN 'T DONE ANY INDEPENDENT RE SEARCH IN THIS CASE, I WANT TO MAKE THAT C L E A R. BUT I STOPPED READING THAT

KIND OF THING A LONG TIME AGO BECAUSE FORUMS SEEM TO ATTRACT PEOPLE W H O LIKE TO C O MPLAIN ABOUT THINGS. B U T T H E POINT IS THAT D O E S N'T MEAN AT SOME POINT A MANUFACTURER DOESN' T HAVE KNOWLEDGE THAT CREATES A DUTY. T H E QUESTION IS WHETHER
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THEY' VE PLED THAT HERE. MS . PREOVOLOS: R I G H T.

I THINK THE OTHER PROBLEM, T H O U G H, IS IF THAT KNOWLEDGE HAPPENS AFTER THE WARRANTY , I F T H E MANUFACTURER H A D NO WAY TO KNOW AND IF T H E PRODUCT -- I S T I L L T H I N K THAT IF Y O U C R E A T E A FRAUDULENT CON CEALMENT EXCEPTION TO DAUGHERTY, AS A PLEADING M A T T E R Y O U SORT O F READ O U T O F T H E LAW . T H E C O U R T: AS LONG AS YOU 'RE UP L E T M E

A S K Y O U ABOUT THE N O T I C E I S S U E BECAUSE THAT' S T H E ARGUMENT THAT THE PLAINTIFFS ARE M A K I N G THAT I THINK I' M G O I N G T O NEED TO TALK TO THEM A B O U T. THEY ARE S A Y I N G BECAUSE OF T H E W A Y THAT T H E POWERBOOKS WERE PACKAGED THE B U YE R S C O U L D N O T HAVE HAD P R E P U R C H A S E N O T I C E THAT T H E R E W A S A LIMITED WARRANTY. MS . PREOVOLOS: A L L RIGHT. L E T ME GO

AHEAD A N D RESPOND TO THAT BECAUSE T H E R E A R E NUMEROUS RESPONSES. THE FIRST RESPONSE I S THE FACT THAT THE WARRANTY IS IN T H E PACKAGING TO MAKE SURE THAT EVERYONE H A S I T I S N' T E V I D E N C E THAT IT 'S NOT AVAILABLE P R ESALE AT A L L, AND T H E PLAINTIFFS D O N'T REALLY PLEAD THAT . I MEAN I T'S -- THAT IS YOUR G E N E R A L I Z E D,
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DOESN 'T COMPLY WITH ANY KIND OF PLEADING STANDARD RULE 9 O R RULE 8, KIND OF ALLEGATION. Y O U KNOW , THEY D O N'T DENY THAT T H E WARRANTY W A S AVAILABLE ON THE W E B A N D THEY D O N' T DENY THAT I T W A S AVAILABLE IN T H E S T O R E S, BECAUSE IT W A S. I THINK AN ADDITIONAL P O I N T W O R T H N O T I N G IS YOUR HONOR' S D E C I S I O N I N T H E TIETSWORTH CASE . A N D I N THAT CASE, I WANT T O EMPHASIZE HERE THAT T H E WARRANTY W A S AVAILABLE PRE SALE, THAT'S PROBABLY APPARENT FROM THE COMPLAINT I F Y O U LOOK A T I T CLOSELY. BUT JUST ASSUME FOR A MINUTE THAT I T WASN' T. THEN TIETSWORTH SAID WELL, A L L R I G H T,

MS . TIETSWORTH DIDN' T G E T THE WARRANTY AT T H E TIME S H E PURCHASED HER WASHING MACHINE, BUT S H E G O T IT WHEN SHE G O T H E R WASHI N G MACHINE A N D S H E COULD HAVE RETURNED IT . AND THAT' S PRECISELY THE CASE HERE.

A N D MORE OVER, I D O WANT TO DRAW ONE LINE BECAUSE THE PLAINTIFFS ARE P R E T T Y C L E A R A B O U T S A Y I N G " INSIDE T H E PACKAGING, " B U T IT' S N O T INSIDE T H E PACKAGING ON THE COMPUTER . SO WHAT THAT M E A N S I S I F Y O U OPEN A B O X, A N D I D O N'T THINK THEY ARE GOING TO DISAGREE WITH US , I F Y O U OPEN A B O X A N D THERE' S A COMPUTER IN
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PLASTIC WRAP A N D IT' S S E A L E D AND T H E W A R R A N T Y I S OUTSIDE THAT. IF Y O U D O N' T OPEN THAT SEAL A N D YOU

TAKE THE COMPUTER BACK THERE' S ABSOLUTELY NO RESTOCKING FEE SO Y O U C A N RETURN IT FREE OF CHARGE IF Y O U D O N' T LIKE T H E W A R R A N T Y. T H E F I N A L P O I N T I WOULD MAKE THOUGH IS THIS IS NOT A CASE A B O U T T H E CLASS OR ABOUT APPLE' S GENERAL PRACTICES , BUT ABOUT THESE PLAINTIFFS. THESE PLAINTIFFS HAVE N O W HAD THREE CHANCES TO RESPOND TO APPLE' S A R G U M E N T THAT Y O U DIDN 'T SEE IT P R ESALE, A N D THEY HAVEN 'T ALLEGED THAT THEY DIDN'T S E E I T P R ESALE . T H E C O U R T: THAT' S W H E R E I 'M STARTING AND

WITH PLAINTIFF 'S COUNSEL I S THAT NONE OF THE NAMED PLAINTIFFS CLAIM THAT THEY DIDN' T KNOW ABOUT IT . MS . PREOVOLOS: R I G H T. AND THE

ADDITIONAL FACT HERE IS THAT THE NAMED PLAINTIFFS TELL YOU THEY HAD EXTENDED WARRANTIES WHICH TYPICALLY A R E BOUGHT AT T H E TIME OF SALE. IF YOU

D O N'T KNOW YOUR W A R R A N T Y I S LIMITED , I T W O U L D B E F A I R L Y O D D FOR Y O U T O B U Y AN EXTENDED WARRANTY. I THINK AS TO SOME O F T H E S E PLAINTIFFS , T H E COMPLAINT M A K E S C L E A R THEY H A D A P R ESALE NOTICE . T H E C O U R T: THANK Y O U, COUNSEL. SO

L E T M E G E T PLAINTIFF 'S RESPONSE, IF I
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MIGHT . MR . BERG : FOR THE PLAINTIFFS. INITIALLY, I JUST THINK IT WOULD BE HELPFUL TO STEP BACK A N D APPRECIATE JUST HOW RADICAL APPLE' S VIEW IS HERE. THEY WOULD SAY THAT YES , YOUR HONOR . MICHAEL BERG

BECAUSE THEY'V E G O T AN EXPRESS W A R R A N T Y THAT 'S LIMITED TO ONE YEAR, THAT THE POLICIES OF T H E S T A T E OF CALIFORNIA IN ADOPTING A STATUTE THAT PROVIDES F O R A N IMPLIED WARRANTY OF M E RCHANT ABILITY I S COTERMINOUS WITH THAT O N E YEAR LIMITED EVEN IN CIRCUMSTANCES WHERE, AS OTHER CASES HAVE NOTED, EVEN IN CIRCUMSTANCES W H E R E A P P L E I S ALLEGED TO HAVE KNOWN OF THE D E F E C T W H E R E T H E DEFECT IS A LA TENT D E F E C T IN THE PRODUCT AT THE TIME OF SALE A N D I S SUBSTANTIALLY CERTAIN TO MANIFEST ITSELF A N D CAUSE A DETERIORATION O R INABILITY TO USE T H E PRODUCT DURING ITS EXPECTED - T H E C O U R T: WELL, I' M N O T SURE. IT M A Y I

BE APPLE 'S VIEW F O R PURPOSES OF LITIGATION. THINK T H E C O U R T H A S MADE C L E A R I N A L L OF ITS

RULINGS IN THIS CASE THAT THAT'S N O T T H E COURT' S VIEW. I THINK WHAT T H E COURT HAS BEEN AFTER IS T H E KIND OF PARTICULARITY THAT W O U L D SUPPORT T H E
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PREDICATE O F YOUR SENTENCE . IN OTHER WORDS , I T'S -- SURE, I MEAN T H E WHOLE BASIS OF THIS CASE I S Y O U HAVE F A I L U R E S THAT OCCUR OUTSIDE THE WARRANTY P E R I O D. B U T THEN IT

C A N'T BE THAT IF SOMETHING FAILS B E Y O N D T H E EXPRESS WARRANTY P E R I O D THAT IT 'S AUTOMATICALLY T H E FAULT OF T H E MANUFACTURER. SO THERE H A S T O B E SOME SHOWING OF FRAUD OR FRAUDULENT CONCEALMENT OR FRAUDULENTLY CONCEALED THE KNOWN DEFECT. THAT 'S WHAT I HAVE BEEN

GRAPPLING WITH N O T ONLY IN THIS CASE B U T IN A NUMBER O F OTHERS. WHAT IS THE B U R D E N THAT CALIFORNIA LAW DOES PLAY O N T H E MANUFACTURER , A N D THEN WHAT 'S THE PLEADING B U R D E N O N T H E PLAINTIFF TO G E T Y O U PAST T H E 1 2(B )(6 ) MOTION? MR . BERG : YOUR HONOR. THE SECOND AMENDED COMPLAINT ALLEGES THAT APPLE W A S A W A R E O F T H E DEFECT AS EARLY AS 2004. THAT APPLE REPRESENTED TO THE CONSUMER THAT THEY COULD A D D MORE M E M O R Y A F T E R P U R C H A S E T O G E T UP TO T W O GIGABYTES OF RAM . SO APPLE OBVIOUSLY S O THAT 'S WHERE WE ARE . LET ME ADDRESS THAT THEN ,

UNDERSTOOD THAT CONSUMERS WOULD BE ADDING M E M O R Y LATER USING T H E MEMORY SLOT.
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I UNDERSTAND THE ARGUMENT FROM APPLE THAT ESSENTIALLY DENIGRATES THE COMPLAINTS OF PEOPLE W H O U S E T H E INTERNET, Y O U KNOW , BECAUSE IT IS ENTIRELY TRUE THAT E V E R Y S O O F T E N, MAYBE EVERY DAY , P E O P L E C A N S A Y THINGS ON T H E I N T E R N E T THAT AREN' T TRUE . ON T H E O T H E R HAND , WHEN WE HAVE SPECIFIC ALLEGATIONS THAT HUNDREDS, THOUSANDS O F CONSUMERS WERE SAYING THINGS O N T H E INTERNET THAT WERE TRUE, THAT WERE RESPONSIVE TO T H E P R O B L E M S THEY WERE EXPERIENCING WITH THEIR G4 'S. WE FURTHER ALLEGE IN T H E S E C O N D AMENDED COMPLAINT THAT APPLE TALKS ABOUT FRAUDULENT CONCEALMENT , A P P L E R EMOVED A THREAD OF 3 5 0 E -MAILS OR MORE DISCUSSING THIS PRECISE ISSUE. N O W, YOU KNOW, APART FROM CONCEALMENT, IT 'S CLEARLY E V I D E N C E O F KNOWLEDGE ON THE PART OF APPLE THAT CONSUMERS WERE EXPERIENCING THESE PROBLEMS . TO DATE T H E R E I S A PETITION A N D I T'S

ALLEGED, IN I BELIEVE PARAGRAPH 33, THAT THERE' S A PETITION OF 5, 000 CONSUMERS C O M P L A I N I N G A B O U T THIS VERY ISSUE. AT T H E SAME TIME WE ALLEGE THAT APPLE, BEING AWARE OF T H E DIFFICULTIES AND T H E I NH E R E N T D E F E C T I N T H E MEMORY SLOT, DECIDED TO ABANDON THIS PRODUCT ENTIRELY AND TEAM WITH I N T E L T O DEVELOP T H E
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MACBOOK PRO A N D T O REPLACE T H E POWERBOOK AND IN T H E MEANTIME N O T T O R E P A I R THE DEFECTIVE POWERBOOKS . SO B E Y O N D THAT , YOUR HONOR , I 'M NOT SURE WHAT BURDEN YOU COULD PLACE O N - T H E C O U R T: L E T M E S E E IF I C A N

ARTICULATE IT, COUNSEL. T H E KNOWLEDGE OF COMPLAINTS I S N' T E N O U G H BECAUSE ANYBODY CAN MAKE A COMPLAINT. Y O U HAVE TO

HAVE A MENS R E A W H E R E Y O U BELIEVE O R S H O U L D -- YOU KNOW OR SHOULD KNOW THAT T H E COMPLAINTS HAVE MERIT A N D Y O U ARE CONCEALING OR FAILING T O D I SC L O S E O R M A K I N G M I SREPRESENTA T I O N S ABOUT THE TRUTH . I MEAN, OTHERWISE IT 'S AN IMP O S S I B L E STANDARD . OTHERWISE , HOW MANY COMPLAINTS AND HOW

B I G A PETITION A N D S O F O R T H. SO THERE H A S T O B E SOMETHING MORE THAN T H E COMPLAINTS , T H E R E H A S TO BE A S C I E N T E R A N D THAT' S THIS WHOLE AREA OF FRAUD. T H E R E H A S TO BE

SCIENTER THAT THE COMPLAINTS -- THERE' S T R U T H T O THE COMPLAINTS . THERE IS AN A C T U A L PROBLEM , I N THIS CASE T H E M E M O R Y CARD, AND THAT THEY KNOW THAT AND THEN THEY DON 'T TELL CONSUMERS THAT. A N D I KNOW THAT'S

WHAT YOU A R E T R Y I N G TO ALLEGE , T H E QUESTION IS WHETHER YOU 'VE ALLEGED THAT WITH E N O U G H
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PARTICULARITY. IN OTHER WORDS , A P P L E'S SCIENTER A N D THEIR KNOWLEDGE I S NOT ONLY ESTABLISHED B Y THE FACT THAT THERE WERE A LOT O F COMPLAINTS , BUT THEY KNEW THAT THOSE COMPLAINTS H A D MERIT, THOSE COMPLAINTS WERE TRUE, THAT T H E R E W A S A D E F E C T IN THE PART. THAT' S T H E KIND O F PARTICULARITY I HAVE BEEN HOPING TO G E T. A N D O F C O U R S E WE' RE AT THE PLEADING STAGE A N D Y O U DON 'T HAVE T O P R O V E I T, BUT Y O U HAVE TO S A Y WELL, SO -A N D-S O A T A P P L E O R T H E MANUFACTURING P E O P L E A T A P P L E KNEW THAT THE PRODUCT WAS DEFECTIVE A N D THAT 'S WHY THEY DECIDED T O G E T RID OF IT OR WHAT HAVE Y O U. A N D I KNOW YOU 'VE TRIED TO DO THAT, T H E QUESTION IS WHETHER YOU 'VE DONE THAT WITH E N O U G H PARTICULARITY THAT MEET T H E REQUIREMENTS OF 9(B ). A N D T H E FACT THAT THERE A R E COMPLAINTS , I D O N'T THINK -- THAT DOESN' T G E T YOU THERE . I THINK YOU

HAVE TO SHOW THAT THERE 'S ACTION OR IN ACTION ON T H E PART OF APPLE THAT I S H A S THE REQUISITE MENS R E A; THAT' S W H E R E I 'M STRUGGLING A T T H E MOMENT . MR . M C N A M A R A: BEHALF O F WAGNER. PLAINTIFFS JUST - - W E H A V E N'T JUST
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THIS IS DOUG M C N A M A R A O N

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ALLEGED COMPLAINTS P E R SE.

SPECIFICALLY, THE

NOVEMBER 2004 COMPLAINT THAT MR. BERG ALLEGED I N PARAGRAPH 3 1 THE SECOND AMENDED COMPLAINT , W E CARRY A CONVERSATION BETWEEN A C U S T O M E R A N D HIS EXPERIENCE WITH A P P L E W H E R E H E W A S TOLD Q U O T E, "ONLY T H E 1 5-INCH POWERBOOKS HAD T H E PROBLEM ." IT

W A S MORE THAN JUS T, HEY , I 'M HAVING A PROBLEM WITH THIS AND LETTING APPLE KNOW. THERE W A S A GIVE AND

TAKE, THERE W A S A RESPONSE , A N D HE WAS TOLD BY APPLE THAT DON 'T WORRY, IT 'S JUST T H E 15- INCH, NOT T H E 1 7-INCH . AMONG THESE COMPLAINTS WE CITED THERE IS DISCUSSION BETWEEN WHAT APPLE HAD TOLD THE CUSTOMER S A N D WHAT CUSTOMERS HEARD BACK. THERE WAS

DISCUSSION ABOUT CUSTOMERS TAKING THEIR MACHINES T O APPLE H A V I N G I T " REPAIRED" A N D H A V I N G THE PROBLEM REPEAT. APPLE 'S COUNSEL ALLUDED TO THIS WAS N'T JUST A COMPLAINT, THERE IS A PROBLEM, THERE IS A DEFECT. APPLE ADDRESSED I T B U T THEY ADDRESS ED IT

ON A VERY N A R R O W NUMBER OF MACHINES BUILT OVER A FOUR- MONTH PERIOD . AND THEY DIDN'T ADDRESS IT

UNTIL AFTER THE CLASS REPRESENTATIVES BOUGHT THEIR MACHINE, A N D THEY WERE NOT ELIGIBLE F O R THIS VERY NARROW WARRANTY EXTENSION PROGRAM.
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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 ENOUGH.

SO APPLE ADDRESSE D T H E DEFECT B U T N O T FAR N O T E N O U G H TO REACH THE NUMEROUS P E O P L E

AMONG THIS CLASS. SO THIS ISN 'T CUSTOMERS C R Y I N G WOLF ON T H E I N T E R N E T O R D I S P L E A SED WITH THE PRODUCT, THIS IS A VERY S P E C I F I C D E F E C T WHICH HAS C A U S E D P E O P L E A L O T O F M O N E Y A N D THEY HAVE GONE AND G O T T E N REPAIRED , SOMETIMES MULTIPLE TIMES, AN D A P P L E'S RESPONSE W A S I NADEQUATE . SO I BELIEVE W E HAVE M E T T H E CONCERNS YOUR HONOR HAS R A I S E D I N TERM S O F MENS R E A. MR . BERG : AS A M A T T E R OF FACT, BRIEFLY

TO F O L L O W U P O N M R. MCNAMARA' S COMMENT . A N D I AGREE COMPLETELY, THIS IS NOT A CASE OF PEOPLE GRIPING ON THE INTERNET ABOUT A LOUSY COMPUTER . THESE ARE FACTU A L L Y A C C U R A T E

STATEMENTS ABOUT A D E F E C T IN THE M E M O R Y SLOT . IN ADDITION , I THINK IT 'S IMPORTANT TO TAKE A STEP BACK, A N D M A Y B E THIS IS WHAT YOUR H O N O R IS IN PART ASKING US TO DO , I S T O LOOK AT SUBSTANTIVE REQUIREMENTS O F T H E CAUSE OF ACTION A N D TO ALSO LOOK A T T H E PLEADING STANDARD. N O W WITH RESPECT TO THE PLEADING STANDARD , I F I HEARD T H E C O U R T R I G H T, WE ARE BEING ASKED TO PROVIDE PARTICULARITY WITH RESPECT TO THE
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MENS REA THAT APPLE WAS LABORING UNDER WHEN IT FAILS TO D I SCLOSE T H E D E F E C T. T H E C O U R T: MR . BERG : I THINK YOU HAVE TO. YOUR H O N O R, WITH A L L DUE

RESPECT, MY READING OF RULE 9 (B) IS M A L I C E INTENDS KNOWLEDGE A N D OTHER CONDITIONS O F A PERSON'S MIND MAY B E ALLEGED . T H E C O U R T: I' M N O T -- WITH A L L DUE

RESPECT, I' M N O T TALKING A B O U T I T I N THAT SENSE . RULE 9(B ) DOES N O T REQUIRE Y O U T O P L E A D EVERYTHING WITH EXQUISITE PARTICULARITY BUT IT DOES REQUIRE Y O U, IN A CASE WHERE Y O U A R E PLEADING FRAUD OR SOMETHING THAT SOUND S I N F R A U D, YOU HAVE TO PROVIDE MORE DETAIL THAN IN A SITUATION WHERE YOU A R E N O T. A N D A L L I'M SAYING I S THIS CLAIM ONLY WORKS , YOU ONLY GET AROUND THE - - I N M Y OPINION , Y O U ONLY G E T A R O U N D THE EXPRESS WARRANTY IF YOU SHOW THAT T H E R E W A S A DUTY TO D I SCLOSE SOMETHING THAT WASN'T DISCLOSED O R T H E R E W A S A M I SREPRESENTATION , S O I T S O U N DS IN FRAUD. A N D THAT 'S TRUE F O R THE IMPLIED WARRANTY CLAIM TO SURVIVE IN THE FACE OF THE EXPRESS WARRANTY , A N D IT' S TRUE OF T H E U CL CLAIM. MY LEGAL OPINION. T H E PREVIOUS O R D E R.
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THAT 'S

A N D THAT'S N O T N E W, THAT WAS IN

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SO I THINK THE POINT IS Y O U NEED RULE 9 PARTICULARITY. Y O U DON 'T NEED T O SHOW THAT

MR . JOBS WOKE UP ONE MORNING AND SAID, L E T'S G E T THOSE CONSUMER S A N D PUT A BAD M E M O R Y SLOT ON T H E MARKET. I MEAN, THAT'S N O T WHAT I' M SAYING. B U T WHAT I AM SAY ING IS Y O U HAVE TO HAVE SOME EVIDENCE THAT A P P L E KNEW THAT IT HAD A BAD PRODUCT NOT JUST BECAUSE P E O P L E WERE C O M P L A I N I N G ABOUT IT B U T THAT SOMEONE THERE KNEW, HEY , T H E S E COMPLAINTS ARE TRUE, WE 'VE G O T A PROBLEM, A N D THEY DIDN' T D O ANYTHING A B O U T I T O R T H E I R RESPONSE W A S COMMERCIALLY UNREASONABLE OR SOMETHING SPECIFIC LIKE THAT. A N D I THINK THAT' S T H E KIND O F SPECIFICITY I' M LOOKING F O R. SO HOPEFULLY THAT

RESPONDS TO YOUR PROBLEM - - O R T O YOUR QUESTION , R A T H E R, EXCUSE ME . MR . BERG : OF COURSE , YOUR HONOR . B U T W E BELIEVE THAT THE

I APPRECIATE I T.

ALLEGATIONS OF T H E COMPLAINT PROVIDE EVERYTHING THAT CAN BE REASONABLY EXPECTED OF A PLAINTIFF TO A L L E G E KNOWLEDGE OF A S P E C I F I C D E F E C T AND APPLE 'S ACKNOWLEDGEMENT O F THE DEFECT AND ITS CONTINUING T O MARKET THE PRODUCT. T H E C O U R T: OKAY. COULD YOU ADDRESS THE
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N O T I C E I S S U E THAT W A S R A I S E D IN THE M O T I O N? MR . BERG : YES , YOUR HONOR .

T H E - - U N D E R SECTION 2316 OF THE CALIFORNIA COMMERCIAL CODE, A WRITTEN D I SCLAIMER OF WARRANTY, INCLUDING O N E THAT'S LIMITED DURATION, MUST BE C O NSPICUOUS . O U R COMPLAINT ALLEGES THAT APPLE 'S REPORTED D I SCLAIMER WAS PROVIDED IN T H E PACKAGING, W A S N O T PROVIDED AND IS N O T GENERALLY PROVIDED TO CONSUMERS U N T I L A F T E R THEY PURCHASE A N D P A Y FOR THEIR POWERBOOKS AND BRING THEM HOME. SIMPLY NOT A CONSPICUOUS DISCLOSURE . WE ALSO WOULD SUBMIT THAT THE ARGUMENT OF APPLE JUST FAILS TO DEAL WITH WHAT, H O W CONSUMERS ACTUALLY BEHAVE I N T H E REAL W O R L D. YOU KNOW , I T THAT' S

IS -- WE A R E A L L E G I N G A PATTERN AND PRACTICE WHEREBY THE WARRANTY IS N O T MADE AVAILABLE T O T H E CONSUMER . IT IS PUT IN T H E PACKAGING AND THEY

G E T - - THEY A R E ABLE TO S E E I T WHEN THEY GET THEIR COMPUTER HOME AND READ IT. IT IS UN REALISTIC TO THINK THAT CONSUMERS ARE REQUIRED O N THE PAIN O F LOSING THEIR LEGAL RIGHTS T O BRING A WARRANTY CLAIM UNDER THE STATUTORILY IN ACTIVE IMPLIED WARRANTY OF M E RCHANTABILITY I F THEY FAIL TO RES E A R C H THE TERMS
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OF -T H E C O U R T: HAVE TWO -MR . BERG : RETURN I T. T H E C O U R T: ARE SAYING. RIGHT . I UNDERSTAND WHAT YOU -- ONLINE , O R I F THEY D O N'T A L L R I G H T. SO WHAT IS -- I

BUT WHAT I S - - WHAT SHOULD A

MANUFACTURER D O I F I T W I S H E S ITS EXTENDED WARRANTY -- E X C U S E M E, ITS EXPRESS WARRANTY TO BE THE ONLY WARRANTY ? WHAT DOES I T HAVE TO DO THEN? DOES IT

HAVE TO SAY , B E F O R E YOU B U Y THIS COMPUTER L E T M E TELL YOU THERE 'S ONLY A O N E-YEAR LIMITED EXPRESS WARRANTY A N D THAT 'S IT. THEY HAVE T O TELL Y O U THAT B E F O R E Y O U BUY A N D THEY HAVE TO HAVE A PATTERN AND PRACTICE IN PLACE BEFORE DOING THAT , CORRECT ? MR . BERG : THEY HAVE TO MAKE YOU AWARE OF

IT B E F O R E Y O U BUY A N D T H E R E A R E -- I C A N' T S A Y THE MANY DIFFERENT WAYS THAT THEY CAN D O THAT , BUT THEY COULD P U T T H E WARRANTY ON THE OUTSIDE OF THE B O X. THE SALESMAN COULD HAND YOU A STATEMENT WITH A DESCRIPTION OF T H E PRODUCT A N D T H E WARRANTY TERMS. Y O U KNOW , T H E R E'S A N Y N U M B E R OF WAYS THEY C A N D O I T B U T, Y O U KNOW , I N THIS INSTANCE A N D I N
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T H E ALLEGATION OF O U R COMPLAINT IS THAT A P P L E DOES N O T D O ANYTHING LIKE THAT. THEY EFFECTIVELY

INSTILL THE TERM BY PLACING I T I N S I D E THE PACKAGING A N D LETTING Y O U READ IT WHEN YOU G E T HOME T H E C O U R T: FOLLOWUPS O N THAT . D O N'T THEY ALSO - - JUST T W O SOME O F THE NAMED PLAINTIFFS APPLE CARE O R

BOUGHT EXTENDED WARRANTIES , CORRECT ?

WHATEVER THE EXTENDED WARRANTY I S CALLED. MR . BERG : T H E C O U R T: RIGHT, YOUR HONOR. A L L R I G H T. SO IN ORDER TO

BUY THE EXTENDED WARRANTY, PRESUMABLY THEY KNEW THERE WAS A LIMITED EXPRESS WARRANTY? MR . BERG : PRESUMABLY THOSE INDIVIDUALS

M A Y HAVE KNOWN THAT BUT WHAT THEY D I D NOT KNOW ABOUT -- T H E C O N C E A L M E N T HERE I S N'T T H E TERM OF T H E WARRANTY IT 'S THE LA TENT D E F E C T IN THE PRODUCT. THEY MAY HAVE BOUGHT THAT EXTENDED WARRANTY F O R A N Y NUMBER OF REASONS, Y O U KNOW , M A Y B E THEY LIKE THAT -T H E C O U R T: QUESTION N O W. WHAT YOU A R E S A Y I N G IS EVEN I F THEY KNEW, BECAUSE ONE OF T H E ARGUMENTS APPLE MAKES IS THAT YOUR CLIENTS D O NOT ALLEGE AFFIRMATIVELY THAT THEY DIDN' T KNOW THAT THERE WAS A LIMITED W A R R A N T Y.
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THIS LEADS TO A DIFFERENT

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 QUESTION .

SO Y O U A R E SAYING IT DOESN 'T MATTER THAT IF THEY BUY A LIMITED EXPRESS WARRANTY A N D A T T H E TIME IF THEY D O THAT APPLE KNOWS THAT THERE' S A D E F E C T A N D THEY D O N' T TELL P E O P L E, SO IT' S A L M O S T CIRCULAR . IT GOES BACK TO T H E I S S U E O F WHETHER BECAUSE YOU

Y O U'V E ADEQUATELY ALLEGED CONCEALMENT. A R E S A Y I N G IT DOESN' T M A T T E R.

EVEN IF THEY KNEW THAT THERE WAS A WARRANTY , THIS ISSUE OF WHETHER THE WARRANTY IS IN T H E B O X OR WHETHER I T'S ON A BIG SIGN IN THE APPLE STORE IS , I N A W A Y, KIND O F A R E D HERRING BECAUSE T H E U L T I M A T E Q U E S T I O N I S EVEN IF THEY KNEW, WAS T H E DEFECT CONCEALED, RIGHT ? MR . BERG : I T H I N K THAT IS T H E U L T I M A T E

I THINK ONE W A Y - - I HOPE THIS I S HELPFUL -- ONE W A Y T O P U T THIS I N P E R S P E C T I V E M A Y BE TO S A Y THAT WE 'RE TALKING ABOUT OBVIOUSLY T H E EXPRESS WARRANTY, T H E PROMISE OF T H E MANUFACTURER, THAT RUNS O N A PARALLEL TRACK WITH THE IMPLIED WARRANTY ADOPTED BY THE LEGISLATURE . N O W, WE DON 'T DENY THAT A MANUFACTURER , UPON PROPER NOTICE T O THE CONSUMER, CAN LIMIT THE TERM OF THE IMPLIED WARRANTY TO THE TERM OF THE EXPRESS WARRANTY. WHAT WE S A Y I S THAT THERE 'S A
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N A R R O W EXCEPTION TO THAT, THERE MAY BE MORE THAN O N E, BUT T H E R E L E V A N T PART IS THERE 'S AN EXCEPTION F O R A LA TENT D E F E C T KNOWN TO THE MANUFACTURER A N D SUBSTANTIALLY CERTAIN T O C A U S E DIFFICULTIES AND IM PAIR T H E USE OF T H E PRODUCT ; A N D OBVIOUSLY IT H A S TO BE MATERIAL , A N D THIS I S, WITHIN I T S E X P E C T E D USEFUL LIFE . SO WE D O N'T -- WE THINK THAT EXCEPTION APPLIES HERE A S A MATTER O F PUBLIC POLICY . T H E C O U R T: OKAY. S O I T REALLY GOES BACK

TO T H E Q U E S T I O N O F WHETHER THAT' S WHAT APPLE D I D A N D WHETHER Y O U'V E ALLEGED THAT ADEQUATELY. MR . BERG : T H E C O U R T: I A G R E E, YOUR H O N O R. THANK Y O U, COUNSEL.

BRIEF REPLY FOR APPLE AND THEN I WILL WRAP IT UP. MS . PREOVOLOS: I T'S A L M O S T HARD TO KNOW

WHERE TO START , PARTICULARLY GIVEN THE CHALLENGE T O BE BRIEF . BUT I THINK I WANT T O START WITH THE IMPLIED WARRANTY ISSUE AND T H E N O T I C E ISSUE AND P U T IT TO B E D BECAUSE I THINK WHAT YOUR HONOR H A S H E A R D HERE IS THAT PLAINTIFFS D O N'T R E A L L Y CONTEND THAT APPLE DIDN' T D I S C L O S E T H E WARRANTY PRE SALE, AT LEAST NOT T O THEM . AND PLAINTIFFS DON 'T REALLY
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CONTEND THAT THEY C O U L D N'T HAVE RETURNED THE COMPUTERS, THEY D O N' T EVEN ADDRESS THAT ARGUMENT. PLAINTIFFS REALLY A R E JUST BACK TO WHAT YOUR HONOR HAS DESCRIBED A S C O M M O N LAW FRAUD . BECAUSE, I MEAN MAGNUSON - - THE PLAINTIFFS ARE SEEKING TO IMPOSE A WARRANTY STANDARD BEYOND MAGNUSON -MOSS IN TERMS OF DISCLOSURE, BEYOND SONG- BEVERLY A N D BEYOND T H E CASE L A W. T H E C O U R T: THEY ARE THROWING A LOT OF ,

TO U S E A VERY POOR M E T A P H O R, THEY A R E THROWI N G A L O T O F CAKE AT T H E WALL . BUT I THINK WHAT THEY 'RE

H O P I N G WILL STICK IS T H E IDEA THAT IT' S S I M P L Y NOT CONSCIONABLE F O R A MANUFACTURER TO KNOW THAT I T S PRODUCT IS DEFECTIVE , THAT IT 'S GOING TO FAIL SOMETIME OUTSIDE THE WARRANTY P E R I O D A N D THEN T R Y TO LIMIT I T S D U T I E S UNDER MAGNUSON- MOSS, THE IMPLIED WARRANTY OF MERCHANTABILITY . SO I THINK THAT'S C O NTRARY TO T H E CALIFORNIA PUBLIC P O L I C Y, AND FEDERAL POLICY IS EXPRESSED I N M A G N U S O N-MOSS . IT 'S ALMOST LIKE A C O M M O N SENSE SHADY DEALING KIND O F ARGUMENT. AND S O THEN THE FOCUS

IS , WELL , HAVE THEY ALLEGED THAT WITH ENOUGH PARTICULARITY TO SATISFY RULE 9? I THINK THAT' S

WHAT THIS C O M E S DOWN TO AT THIS POINT.
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MS . PREOVOLOS: CAREFUL, THOUGH.

I THINK Y O U NEED TO BE

I THINK COMMON L A W F R A U D, WHICH

IS WHAT YOUR H O N O R SAID THIS COMES DOWN T O, IS A DIFFERENT ARGUMENT THAN BREACH O F IMPLIED WARRANTY A N D I THINK IT 'S A MISTAKE TO CONFLATE T H E T W O. T H E C O U R T: CONFLATING THEM. RIGHT . BUT I' M N O T

I' M S A Y I N G THE W A Y Y O U GET A R O U N D

T H E L I MI T A T I O N S I N DAUGHERTY AND T H E L I M I T A T I O N S I N CALIFORNIA LAW WHERE Y O U HAVE AN EXPRESS WARRANTY THAT LIMITS ANY IMPLIED WARRANTIES, YOU SHOW THAT IT WOULD BE UN CONSCIONABLE TO DO THAT. AND

UNCONSCIONABILITY I S N'T T H E SAME THING AS FRAUD , BUT THE FACTS THAT ARE BEING RELIED UPON HERE ARE VERY SIMILAR. MS . PREOVOLOS: B U T THOSE FACTS DO NOT ,

IN T H E COMPLAINT OR IN PLAINTIFF 'S OPPOSITION O R ANYWHERE ELSE, THEY' RE NOT DIRECTED TO T H E W A R R A N T Y ARGUMENT , THEY 'RE DIRECTED TO A DIFFERENT ARGUMENT . THEY ARE DIRECTED TO -- A N D YOUR HONOR , I THINK WE NEED TO BE A L I T T L E CAREFUL HERE BECAUSE I THINK LEGAL THEORIES DO M A T T E R. AND I THINK THE

PLAINTIFFS DID N O T A L L E G E THAT A P P L E'S ALLEGED KNOWLEDGE AND CONCEALMENT GETS THEM AROUND THE WARRANTY , R I G H T? THAT' S N O T SOMETHING THEY ARGUED .

IT 'S NOT IN T H E PLEADINGS, THEY DON 'T ALLEGE IT
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IT 'S NOT IN THEIR P A P E R S. T H E C O U R T: THEY' RE ARGUING N O T I C E AND

CONTRACT OF ADHESION A N D T H I N G S LIKE THAT . MS . PREOVOLOS: THOSE ARGUMENTS HOLD UP . R I G H T. A N D I D O N'T THINK

I THINK YOUR HONOR

REJECTED THOSE ARGUMENTS O N T H E FIRST GO AROUND HERE AND T H E PLAINTIFFS BASICALLY TOLD Y O U THEY HAVE NOTHING T O A D D TO THOSE ARGUMENTS . A N D THEY D O N'T DENY AND THEY CAN 'T DENY THAT THE PLAINTIFFS WERE A W A R E O F T H E WARRANTIES P R ESALE. IN TERMS OF PROMINENCE OF THE DISCLOSURE, I THINK THAT M A Y HAVE GONE AWAY. BUT I JUST WANT

TO BE CLEAR , A , THAT 'S NOT A REQUIREMENT OF MAGNUSON -MOSS, IT JUST HAS TO BE AVAILABLE. IF Y O U LOOK AT T H E W A R R A N T Y, NOBODY IS ARGUING THAT T H E LIM ITATION I S H I D D E N. I T'S IN

BOLD TYPE THAT COMPLIES WITH THE FEDERAL TRADE COMMISSION AND REGS, A N D THAT 'S JUST C L E A R. SO I JUST WANT TO MAKE SURE THAT I DON 'T THINK IT 'S A S L I P P E R Y S L O P E A N D I D O N' T T H I N K I T'S CIRCULAR . I T H I N K YOUR HONOR H A S T O RULE ON

UNCONSCIONABILITY ARGUMENTS A S THEY 'VE BEEN DEVELOPED I N T H E COURTS AS TO IMPLIED AND EXPRESS WARRANTIES, A N D I D O N'T THINK THOSE A R E CHALLENGED
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EFFECTIVELY . T H E C O U R T: SO R E A L L Y WHAT Y O U A R E SAYING

IS WHAT' S LEFT , A N D THIS I S WHAT E N DED UP H A P P E NI N G IN TIETSWORTH WHICH YOU ALLUDED TO IS A FRAUDULENT CONCEALMENT CASE. MS . PREOVOLOS: WELL , I THINK WHAT' S

LEFT, AS YOUR HONOR SAID, IS COMMON L A W F R A U D. BECAUSE I D O N' T T H I N K THEY 'VE ALLEGED THE W H O, WHAT, WHEN, SUFFICIENT FOR T H E S T A N D A R DS YOUR H O N O R S E T O U T IN HOVSEPIAN OR , Y O U KNOW J U D G E P AT E L S E T O U T O R J U D G E WARE S E T O U T OR WHOMEVER. I DON 'T MEAN T O PICK ON YOUR HONOR, B U T I THINK T H E 9 (B) STANDARDS A S T O T H E UCL A N D T H E CLR A A R E C L E A R U N D E R 9 (B) . YOUR HONOR FOUND THEY THERE 'S ABSOLUTELY

WEREN 'T MET IN HOVSEPIAN.

NOTHING ALLEGED HERE THAT' S N O T ALLEGED T H E R E, UP TO A N D INCLUDING THIS S U P P O S E D STATEMENT IN 2004 THAT ONLY T H E 15- INCH C O M P U T E RS WERE A F F E C T E D. THERE ARE A FEW PROBLEMS WITH THAT ALLEGATION. T H E PLAINTIFFS HAVE 15 -INCH COMPUTERS

A N D A P P L E D I D DO A R E C A L L AS TO THE COMPUTERS I T FELT WERE AFFECTE D. SO I THINK SAYING THAT IS A

DENIAL I S A REAL STRETCH. B U T I WANT TO COME BACK TO O N E P O I N T I S T H E PLAINTIFFS HAVEN 'T PLED C O M M O N LAW FRAUDULENT
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CONCEALMENT . N O T PLED HERE.

IT WAS PLED IN HOVSEPIAN B U T I T W A S

A N D S O A T VERY LEAST I THINK WE WOULD NEED TO HAVE I T P L E A D. T H E C O U R T: WELL, THEY ARE PLEADING T H E

FRAUD PRONG OF T H E U CL. MS . PREOVOLOS: R I G H T.

B U T YOUR HONOR HELD IN HOVSEPIAN THAT THEY DIDN'T PLEAD ENOUGH F O R THAT, THAT ONLY THEIR COMMON LAW FRAUDULENT CONCEALMENT CLAIM SURVIVED. A N D I URGE THE COURT N O T T O C H A N G E THE L A W. WE HAVE ENOUGH PROBLEMS UNDER T H E U CL. T H E C O U R T: CAFA IS GIVING US A L L A GREAT

EDUCATION A B O U T CALIFORNIA L A W. MS . PREOVOLOS: WHICH CHANGES EVERYTHING.

BECAUSE WHEN I W A S HERE LAST TIME, YOUR H O N O R, I THOUGHT WE HAD A BIG ISSUE ABOUT MEXIA A N D N O W THE COURTS O F APPEALS HAVE TAKEN A DIFFERENT VIEW THERE . T H E LAST THING I DO WANT T O COME BACK TO T H O U G H BECAUSE I DON 'T WANT T O CONCEDE T H E C O M M O N L A W FRAUDULENT CONCEALMENT ISSUE BECAUSE I D O N' T THINK THAT' S A P P R O P R I A T E HERE , I WANT TO POINT TO A FEW THINGS THAT ARE IMPORTANT . T H E C O U R T: OKAY. I NEED TO ASK Y O U,
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COUNSEL, BECAUSE THIS HAS BEEN HELPFUL . MS . PREOVOLOS: QUICK . T H E C O U R T: THERE 'S A R E A S O N WHY T H E TREX I WANT T O GIVE I UNDERSTAND. I 'LL BE

CASE WAS T H E LAST ON T H E C A L E N D A R. THEM ADEQUATE TIME. MS . PREOVOLOS:

I UNDERSTAND.

BUT I THINK , YOUR HONOR , FRAUDULENT CONCEALMENT REQUIRES A FEW T H I N G S. I THINK IT AND

REQUIRES T H E ALLEGATIONS O F T H E DUTY.

DAUGHERTY A N D ITS PREDECESSORS S A Y THAT DUTY DOES N O T A R I S E JUST BECAUSE A MANUFACTURER CONTINUES TO SELL A PRODUCT IT KNOWS H A S A D E F E C T A S LONG AS T H E PRODUCT PERFORMS WITHIN WARRANTY . A N D I D O N'T THINK WE 'VE H A D A L L E G A T I O N S HERE ABOUT THE W H O, WHAT, WHEN O R W H E R E O F FRAUDULENT CONCEALMENT THAT W O U L D C R E A T E AN AFFIRMATIVE -- A C T I V E C O N C E A L M E N T, IF YOU WILL. D O N'T S E E THAT . IT' S N O T HERE. I

YOUR HONOR DIDN'T

FIND IT IN HOVSEPIAN .

THERE' S NOTHING MORE HERE.

A N D T H E LAST T H I N G I WANT TO SAY IS Y O U HAVE TO BE REALLY CAREFUL ABOUT THEIR ARGUMENT THAT THERE A R E A L O T O F COMPLAINTS ABOUT O N E PRODUCT OR O N E COMPONENT ISSUE ONLINE BECAUSE, Y O U KNOW , I F YOU SELL TWO MILLION PRODUCTS AND ONE PERCENT ARE
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DEFECTIVE, THAT'S 20 ,0 0 0 COMPLAINTS . THINK THAT IS TROUBLESOME. T H E C O U R T: MR . BERG : T H E C O U R T: TO E N D. OKAY.

AND SO I JUST

I G O T Y O U.

MAY I BRIEFLY - THIS ORAL ARGUMENT I S GOING

B U T COUNSEL , Y E S, IF COUNSEL RAISED

SOMETHING N E W YOU M A Y RESPOND TO IT . MR . BERG : FRAUD -T H E C O U R T: MR . BERG : Y E S, SIR . GO AHEAD. THANK YOU . ON THE C O M M O N L A W

WHICH IS THAT U N D E R T H E -- I'M

SURE YOUR H O N O R I S WELL AWARE , B U T UNDER THE CALIFORNIA LAW T H E U CL REQUIRES ACTUALLY LESS O F A SHOWING THAN C O M M O N LAW FRAUD . SO Y O U KNOW WE 'VE G O T THIS U P S I D E DOWN ARGUMENT THAT WE HAVE, YOU KNOW, SOME HEIGHTENED B U R D E N HERE TO SATISFY THE UC L. T H E C O U R T: YOUR HEIGHTENED B U R D E N IS A

PLEADING B U R D E N U N D E R RULE 9 AS FAR AS I' M CONCERNED, AND THAT' S I T. MR . BERG : YES . WE ACCEPT THAT WITH

RESPECT TO THE FRAUDULENT PRONG, ALTHOUGH AS WE S A Y IN O U R B R I E F N O T THE UNFAIRNESS PRONG OF THE UC L. B U T I T'S MY UNDERSTANDING, F O R EXAMPLE , THAT WE NEED T O SHOW -- WE NEED TO ALLEGE AT THIS
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STAGE THAT THE OMISSION OR N O NDISCLOSURE OF THE D E F E C T W A S REASONABLY L I K E L Y TO DECEIVE CONSUMERS AS OPPOSED TO PROVING THAT IN FACT EVERY CONSUMER WAS DECEIVED A S A RESULT. T H E C O U R T: I THINK THAT'S PROBABLY

RIGHT , B U T I'M GOING TO -- I' LL PUT THAT IN MY WRITTEN DECISION. POINT . OKAY. C A N. I WILL GET THIS OUT AS SOON AS I B U T I T H I N K Y O U' RE RIGHT ON THAT

I KNOW W E'V E BEEN SLOGG ING A LONG TIME WITH

THIS, B U T I THINK THIS ARGUMENT WAS HELPFUL AND I THINK IT WILL HELP M E N A R R O W AT LEAST WHAT'S IN DISPUTE. MR . BERG : THANK YOU , YOUR HONOR .

(WHEREUPON, T H E PROCEEDINGS I N THIS MATTER WERE CONCLUDED.)

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39

CERTIFICATE OF REPORTER

I, T H E UNDERSIGNED O F F I C I A L C O U R T REPORTER OF T H E U N I T E D STATES DISTRICT COURT F O R THE NORTHERN DISTRICT O F CALIFORNIA , 280 SOUTH FIRST S T R E E T, SAN JOSE, CALIFORNIA, DO H E R E B Y CERTIFY: THAT THE FOREGOING TRANSCRIPT , CERTIFICATE INCLUSIVE, CONSTITUTES A TRUE , FULL AND CORRECT TRANSCRIPT O F M Y SHORTHAND NOTES TAKEN AS SUCH OFFICIAL COURT REPORTER OF THE PROCEEDINGS HEREINBEFORE E N T I T L E D A N D REDUCED B Y C O M P U T E R-A I D E D TRANSCRIPTION TO THE BEST OF MY ABILITY.

__ ___ ___ ___ ___ ___ ___ ___ ___ S U M M E R A . F I S H E R, C S R, CRR CERTIFICATE NUMBER 13185