Hauck v. Advanced Micro Devices, Inc.

Filing 88

Order by Judge Lucy H. Koh granting in part, denying in part, and denying in part as moot 64 Motion to Dismiss.(lhklc2, COURT STAFF) (Filed on 10/29/2018)

1
2
3
4
5
6
7
8

UNITED STATES DISTRICT COURT

9

NORTHERN DISTRICT OF CALIFORNIA

10
SAN JOSE DIVISION

United States District Court
Northern District of California

11
12

DIANA HAUCK, et al.,

13

Plaintiffs,

Case No. 18-CV-00447-LHK
ORDER GRANTING-IN-PART,
DENYING-IN-PART, AND DENYINGIN-PART AS MOOT DEFENDANT'S
MOTION TO DISMISS

v.

14
15

ADVANCED MICRO DEVICES, INC.,

16

Defendant.

Re: Dkt. No. 64

17
Plaintiffs Diana Hauck, Shon Elliott, Michael Garcia, JoAnn Martinelli, Benjamin Pollack,

18
19

Jonathan Caskey-Medina bring suit individually and on behalf of various putative classes

20

(collectively, “Plaintiffs”) against Defendant Advanced Micro Devices, Inc. (“AMD”). Plaintiffs

21

assert a multitude of claims relating to AMD’s manufacture and sale of central processing units

22

(“CPUs” or “processors”) that purportedly contain cybersecurity flaws exposing the processors to

23

attack. Before the Court is AMD’s motion to dismiss. Having considered the parties’ submissions,

24

the relevant law, and the record in this case, the Court GRANTS in part, DENIES in part, and

25

DENIES in part as moot AMD’s motion to dismiss.

26

I.

27
28

BACKGROUND
1

Case No. 18-CV-00447-LHK
ORDER GRANTING-IN-PART, DENYING-IN-PART, AND DENYING-IN-PART AS MOOT DEFENDANT'S
MOTION TO DISMISS

1
2
3
4
5
6
7
8
9
10

United States District Court
Northern District of California

11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

A. Factual Background
Defendant AMD designs, manufactures, sells, and distributes CPUs. See ECF No. 53
(Consolidated Amended Complaint, or “CAC”) at ¶ 27. AMD’s processors are incorporated into
end consumer products such as computers and servers, and are also sold as stand-alone items. Id.
at ¶ 32. CPU speed is an element of a consumer’s decision to purchase either the stand-alone item
or an end consumer product like a computer, as sufficient processing speed is necessary to
effectively operate a computer’s software programs and hardware. Id. at ¶ 39.
CPU speed is measured in terms of clock speed. Id. at ¶ 40. The greater the clock speed,
the greater the CPU’s processing speed. Id. Without needing to delve into too much technical
detail, in order to increase clock speed, modern processors usually implement two techniques
called branch prediction and speculative execution. Id. at ¶ 37. It is AMD’s implementation of
these two techniques in its products that expose users to a security risk called Spectre, which
currently has four known variants. Id. at ¶¶ 58, 67. A Spectre attack could result in sensitive data
falling into the wrong hands—for instance, passwords or sensitive information from computer
applications. Id. at ¶ 61. Plaintiffs allege that AMD became aware of Spectre on June 1, 2017 at
the latest when an outside group alerted AMD to the security risk. Id. at ¶ 84. Plaintiffs claim that
had they known about Spectre, they would not have purchased the computers or chips or would
have paid less for them. Id. at ¶¶ 21-26. However, with the exception of Massachusetts Plaintiff
Jonathan Caskey-Medina, who purchased his computer on January 6, 2018, the remaining named
Plaintiffs bought the AMD products before AMD allegedly became aware of Spectre on June 1,
2017. Id. Plaintiffs also claim that “patches” which provide fixes to Spectre significantly reduce
processing speed, and thus create “corresponding performance slowdowns.” Id. at ¶ 19.
B. Procedural History
On January 1, 2019, Plaintiffs filed this action in federal court. ECF No. 1. On April 9,
2018, this case was consolidated with and related to two later-filed related cases. ECF No. 37. The
Plaintiffs were then ordered to file a consolidated amended complaint, which they did on June 13,
2018. ECF No. 53.
2
Case No. 18-CV-00447-LHK
ORDER GRANTING-IN-PART, DENYING-IN-PART, AND DENYING-IN-PART AS MOOT DEFENDANT'S
MOTION TO DISMISS

1

In the CAC, Plaintiffs allege 25 causes of action, all relating to the alleged harm suffered

2

by the named Plaintiffs and the putative classes in purchasing AMD chips or products containing

3

them. Below is a chart summarizing the relevant details of each of the named Plaintiffs:

4

Name

State

Date of Purchase

5

Diana Hauck

Louisiana

November 4, 2016

6

Shon Elliott

California

April 21, 2016

7

Michael Garcia

California

April 21, 2016

8

JoAnn Martinelli

California

July 6, 2013

9

Benjamin Pollack

Florida

September 26, 2014

Jonathan Caskey-Medina

Massachusetts

January 6, 2018

10

United States District Court
Northern District of California

11

Plaintiffs seek to represent a Nationwide Class of “[a]ll persons that purchased or leased

12

one or more AMD processors, or one or more devices containing an AMD processor in the United

13

States within the applicable statute of limitations.” CAC at ¶ 120. Plaintiffs also seek to represent

14

various state classes. Id.

15

Given the extensiveness of the claims in the CAC, pursuant to the Court’s case

16

management order, ECF 50, Plaintiffs elected to proceed with four causes of action to litigate,

17

ECF No. 54: (1) Count III—violation of California’s Unfair Competition Law (“UCL”) for unfair

18

business practices, Cal. Bus. & Prof. Code § 17200 et seq., id., (2) Count V—fraud by omission,

19

id., (3) Count XI—violation of Florida Deceptive and Unfair Trade Practices Act (“FDUTPA”),

20

Fla. Stat. § 501.201, et seq., id., and (4) Count XIX—violation of the Massachusetts Consumer

21

Protection Act (“MCPA”), Mass. Gen. Laws ch. 93A § 1, et seq., id. Also pursuant to the Court’s

22

case management order, ECF 50, AMD identified four causes of action to litigate, ECF No. 61: (1)

23

Count VII—breach of express warranty based on representations, Cal. Comm. Code § 2313, id.,

24

(2) Count VIII—breach of implied warranty, Cal Comm. Code §§ 2314-15, id., (3) Count X—

25

negligence, id., and (4) Count XVII—warranty against redhibitory defects, La. Civ. Code Ann.

26

Art. 2520, 2524, id.

27
28

3
Case No. 18-CV-00447-LHK
ORDER GRANTING-IN-PART, DENYING-IN-PART, AND DENYING-IN-PART AS MOOT DEFENDANT'S
MOTION TO DISMISS

On July 13, 2018, AMD filed a motion to dismiss. ECF No. 64 (“Mot.”). AMD seeks to

1
2

dismiss Plaintiffs’ claims under: (1) Count IV—violation of California’s UCL for fraud,1 Mot. at

3

1, (2) Count XI (FDUTPA), id., (3) Count XIX (MCPA), id., (4) Count V (fraud by omission), id.,

4

(5) Count VII (breach of express warranty based on representation), id., (6) Count VIII (breach of

5

implied warranty), id., (7) Count XVII (Louisiana redhibition claim), id., and (8) Count X

6

(negligence), id. Plaintiffs’ opposition was filed on September 4, 2018. ECF No. 73 (“Opp.”).

7

AMD replied on September 25, 2018. ECF No. 75 (“Reply”). On September 4, 2018, Plaintiff

8

Jonathan Caskey-Medina voluntarily dismissed without prejudice Count XIX, the MCPA claim.

9

ECF No. 72. No other named Plaintiff asserts a MCPA claim. Id.
Relatedly, AMD requests that the Court take judicial notice of two documents: a website

11

United States District Court
Northern District of California

10

showing that AMD has an office in Massachusetts and another website displaying the text of the

12

limited warranty of AMD’s stand-alone processors. ECF No. 65 at 1. This request is opposed by

13

the Plaintiffs. See generally ECF No. 74. In its ruling on the motion to dismiss, the Court has not

14

relied upon any of the documents in AMD’s request for judicial notice. Therefore, the Court

15

denies as moot AMD’s Request for Judicial Notice in Support of Motion to Dismiss.

16

II.

LEGAL STANDARD
A. Motion to Dismiss Under Federal Rule of Civil Procedure 12(b)(6)

17

Rule 8(a)(2) of the Federal Rules of Civil Procedure requires a complaint to include “a

18
19

short and plain statement of the claim showing that the pleader is entitled to relief.” A complaint

20

that fails to meet this standard may be dismissed pursuant to Federal Rule of Civil Procedure

21

12(b)(6). The U.S. Supreme Court has held that Rule 8(a) requires a plaintiff to plead “enough

22

facts to state a claim to relief that is plausible on its face.” Bell Atlantic Corp. v. Twombly, 550

23

U.S. 544, 570 (2007). “A claim has facial plausibility when the plaintiff pleads factual content that

24

allows the court to draw the reasonable inference that the defendant is liable for the misconduct

25

alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). “The plausibility standard is not akin to a

26
27

1

28

Case No. 18-CV-00447-LHK
ORDER GRANTING-IN-PART, DENYING-IN-PART, AND DENYING-IN-PART AS MOOT DEFENDANT'S
MOTION TO DISMISS

Neither party elected to litigate this claim at this stage. See ECF Nos. 54, 61.
4

1

probability requirement, but it asks for more than a sheer possibility that a defendant has acted

2

unlawfully.” Id. (internal quotation marks omitted). For purposes of ruling on a Rule 12(b)(6)

3

motion, the Court “accept[s] factual allegations in the complaint as true and construe[s] the

4

pleadings in the light most favorable to the nonmoving party.” Manzarek v. St. Paul Fire &

5

Marine Ins. Co., 519 F.3d 1025, 1031 (9th Cir. 2008).

6

The Court, however, need not accept as true allegations contradicted by judicially

7

noticeable facts, see Schwarz v. United States, 234 F.3d 428, 435 (9th Cir. 2000), and it “may look

8

beyond the plaintiff’s complaint to matters of public record” without converting the Rule 12(b)(6)

9

motion into a motion for summary judgment, Shaw v. Hahn, 56 F.3d 1128, 1129 n.1 (9th Cir.
1995). Nor must the Court “assume the truth of legal conclusions merely because they are cast in

11

United States District Court
Northern District of California

10

the form of factual allegations.” Fayer v. Vaughn, 649 F.3d 1061, 1064 (9th Cir. 2011) (per

12

curiam) (internal quotation marks omitted). Mere “conclusory allegations of law and unwarranted

13

inferences are insufficient to defeat a motion to dismiss.” Adams v. Johnson, 355 F.3d 1179, 1183

14

(9th Cir. 2004).

15
16

B. Motion to Dismiss Under Federal Rule of Civil Procedure 9(b)
Claims sounding in fraud are subject to the heightened pleading requirements of Federal

17

Rule of Civil Procedure 9(b). Bly-Magee v. California, 236 F.3d 1014, 1018 (9th Cir. 2001).

18

Under the federal rules, a plaintiff alleging fraud “must state with particularity the circumstances

19

constituting fraud.” Fed. R. Civ. P. 9(b). To satisfy this standard, the allegations must be “specific

20

enough to give defendants notice of the particular misconduct which is alleged to constitute the

21

fraud charged so that they can defend against the charge and not just deny that they have done

22

anything wrong.” Semegen v. Weidner, 780 F.2d 727, 731 (9th Cir. 1985). Thus, claims sounding

23

in fraud must allege “an account of the time, place, and specific content of the false

24

representations as well as the identities of the parties to the misrepresentations.” Swartz v. KPMG

25

LLP, 476 F.3d 756, 764 (9th Cir. 2007). In other words, “[a]verments of fraud must be

26

accompanied by ‘the who, what, when, where, and how’ of the misconduct charged.” Vess v.

27
28

5
Case No. 18-CV-00447-LHK
ORDER GRANTING-IN-PART, DENYING-IN-PART, AND DENYING-IN-PART AS MOOT DEFENDANT'S
MOTION TO DISMISS

1

Ciba-Geigy Corp. USA, 317 F.3d 1097, 1106 (9th Cir. 2003) (citation omitted). The plaintiff must

2

also plead facts explaining why the statement was false when it was made. See In re GlenFed, Inc.

3

Sec. Litig., 42 F.3d 1541, 1549 (9th Cir. 1994) (en banc), superseded by statute on other

4

grounds as stated in Marksman Partners, L.P. v. Chantal Pharm. Corp., 927 F. Supp. 1297 (C.D.

5

Cal. 1996).
“When an entire complaint … is grounded in fraud and its allegations fail to satisfy the

6
7

heightened pleading requirements of Rule 9(b), a district court may dismiss the complaint …

8

.” Vess, 317 F.3d at 1107. The Ninth Circuit has recognized that “it is established law in this and

9

other circuits that such dismissals are appropriate,” even though “there is no explicit basis in the
text of the federal rules for the dismissal of a complaint for failure to satisfy 9(b).” Id. A motion to

11

United States District Court
Northern District of California

10

dismiss a complaint “under Rule 9(b) for failure to plead with particularity is the functional

12

equivalent of a motion to dismiss under Rule 12(b)(6) for failure to state a claim.” Id.
C. Leave to Amend

13

If the Court determines that a complaint should be dismissed, it must then decide whether

14
15

to grant leave to amend. Under Rule 15(a) of the Federal Rules of Civil Procedure, leave to amend

16

“shall be freely given when justice so requires,” bearing in mind “the underlying purpose of Rule

17

15 to facilitate decisions on the merits, rather than on the pleadings or technicalities.” Lopez v.

18

Smith, 203 F.3d 1122, 1127 (9th Cir. 2000) (en banc) (alterations and internal quotation marks

19

omitted). When dismissing a complaint for failure to state a claim, “a district court should grant

20

leave to amend even if no request to amend the pleading was made, unless it determines that the

21

pleading could not possibly be cured by the allegation of other facts.” Id. at 1130 (internal

22

quotation marks omitted). Accordingly, leave to amend generally shall be denied only if allowing

23

amendment would unduly prejudice the opposing party, cause undue delay, or be futile, or if the

24

moving party has acted in bad faith. Leadsinger, Inc. v. BMG Music Publ’g, 512 F.3d 522, 532

25

(9th Cir. 2008).

26

III.

27
28

DISCUSSION
6

Case No. 18-CV-00447-LHK
ORDER GRANTING-IN-PART, DENYING-IN-PART, AND DENYING-IN-PART AS MOOT DEFENDANT'S
MOTION TO DISMISS

The Court addresses each of the counts in turn: (1) Count IV—violation of California’s

1
2

UCL for fraud, (2) Count XI (FDUTPA), (3) Count XIX (MCPA), (4) Count V (fraud by

3

omission), (5) Count VII (breach of express warranty based on representation), (6) Count VIII

4

(breach of implied warranty), (7) Count XVII (Louisiana redhibition claim), and (8) Count X

5

(California negligence claim). At a high level, the claims fall into 4 buckets: (1) fraud claims, (2)

6

warranty claims, (3) the Louisiana redhibition claim, and (4) the California negligence claim.
As a preliminary matter, Plaintiffs note that because neither party elected to litigate Count

7

IV, violation of California’s UCL for fraud, at this stage, AMD’s motion to dismiss this count is

9

not proper. Opp. at 5. The Court agrees. Litigating a count that neither party elected to dispute at

10

this point would violate the Court’s Case Management Order. See ECF No. 50 at 1 (“The Court

11

United States District Court
Northern District of California

8

will first adjudicate eight causes of action through summary judgment. Each side shall select four

12

causes of action to litigate.”). Moreover, AMD concedes in its reply that AMD’s belief that

13

Plaintiffs selected Count IV was an unintentional error. Reply at 2 n.1. Thus, the motion to dismiss

14

as to Count IV is DENIED without prejudice. Second, in light of Plaintiff Jonathan Caskey-

15

Medina’s voluntary dismissal of Count XIX, the MCPA claim, the motion to dismiss Count XIX

16

is DENIED as moot. ECF No. 72. Accordingly, six counts remain for resolution in the pending

17

motion.

18

A. Fraud Claims
The Court turns next to address Plaintiffs’ two remaining consumer fraud claims. As

19
20

relevant to the motion to dismiss, and ignoring the fraud claims the Court has already dealt with

21

above (the MCPA and the UCL claims), Plaintiffs assert a FDUTPA and a fraud by omission

22

claim.

23

1. Florida Deceptive and Unfair Trade Practices Act (FDUTPA)—
Misrepresentations

24
As an initial matter, the parties dispute whether the FDUTPA is subject to the heightened
25
Fed. Rule of Civ. Pro. 9(b) pleading standard. Opp. at 6; Reply at 2. A FDUTPA claim has three
26
27
28

elements: “(1) a deceptive act or unfair practice; (2) causation; and (3) actual damages.”
7
Case No. 18-CV-00447-LHK
ORDER GRANTING-IN-PART, DENYING-IN-PART, AND DENYING-IN-PART AS MOOT DEFENDANT'S
MOTION TO DISMISS

1

Caribbean Cruise Line, Inc. v. Better Business Bureau of Palm Beach Cnty., Inc., 169 So. 3d 164,

2

167 (Fla. Dist. Ct. App. 2015) (quoting Kertesz v. Net Transactions, Ltd., 635 F. Supp. 2d 1339,

3

1348 (S.D. Fla. 2009)). Plaintiffs argue that the FDUTPA is not subject to Rule 9(b) pleading

4

standards because the FDUTPA was enacted to remedy conduct “outside the reach of common law

5

torts like fraud[.]” Opp. at 6 (quoting Toback v. GNC Holdings, Inc., 2013 WL 5206103, at *2

6

(S.D. Fla. Sept. 13, 2013)). AMD disagrees because Plaintiffs’ claim sounds in fraud, and Rule

7

9(b) is the pleading standard for claims that do so. Mot. at 7, 7 n.5.

8
9

Courts have acknowledged that there is a split of authority among the Florida courts as to
whether Rule 9(b) applies to FDUTPA claims. See, e.g., Harris v. Nordyne, LLC, 2014 WL
12516076, at *4 (S.D. Fla. Nov. 14, 2014) (“Indeed, courts within this District are split on the

11

United States District Court
Northern District of California

10

issue.”). Nevertheless, this Court applies Ninth Circuit law, which requires Rule 9(b)’s heightened

12

pleading standards be applied to entire claims that sound in fraud even if fraud is not an element of

13

the claim. Vess, 317 F.3d at 1103-04. Thus, this Court finds that the heightened pleading standards

14

of Rule 9(b) apply to Plaintiffs’ FDUTPA claim because the FDUTPA claim alleges that AMD

15

engaged in fraud. CAC at ¶ 295 (“Defendant violated FDUPTA by . . . fraudulently concealing the

16

existence of the Defect in its processors.”).

17

Having determined that Rule 9(b) is applicable here, the Court will next consider the

18

substance of the motion to dismiss the FDUTPA claim. AMD argues that Plaintiffs fail to identify

19

any of AMD’s statements that Plaintiffs allege were false other than generally alleging that the

20

purchasers relied upon AMD’s advertised clock speed. Mot. at 8; see also CAC at ¶¶ 21-26.

21

Plaintiffs claim the advertised clock speed is misleading because the fix for the Defect results in an

22

alleged slowdown in processor performance. Id. Plaintiffs also argue that “a reasonable consumer

23

would not purchase (or would pay a substantially lesser amount for) a processor that can only

24

reach its advertised clock speed by rendering the consumer’s sensitive data vulnerable to

25

attackers.” Opp. at 9. Furthermore, Plaintiffs state that AMD should have taken steps to prevent

26

the processors from being vulnerable to attack at the advertised clock speeds. Id.

27
28

8
Case No. 18-CV-00447-LHK
ORDER GRANTING-IN-PART, DENYING-IN-PART, AND DENYING-IN-PART AS MOOT DEFENDANT'S
MOTION TO DISMISS

1

AMD has the better argument for two reasons. First, Plaintiffs fail to plead with sufficient

2

particularity what exactly constitutes the Defect. Second, Plaintiffs fail to plead facts explaining

3

why the representations of clock speed were false.

4

First, “[a]llegations of fraud must be specific enough to give defendants notice of the

5

particular misconduct which is alleged to constitute the fraud charged . . . .” Bly-Magee v.

6

California, 236 F.3d 1014, 1019 (9th Cir. 2001). Claims sounding in fraud must allege “an

7

account of the time, place, and specific content of the false representations as well as the identities

8

of the parties to the misrepresentations.” Swartz, 476 F.3d at 764 (emphasis added). Here,

9

Plaintiffs fail to define with particularity what the Defect is. Thus, the CAC is unclear as to the
specific content of the alleged misrepresentations. For example, the CAC defines “Defect” as “20

11

United States District Court
Northern District of California

10

years” of “serious security vulnerabilities . . . which allows hackers to steal sensitive data.” CAC

12

at ¶ 1. Subsequently, Plaintiffs allege that “Defendant knowingly sold or leased a defective

13

product without informing customers about the Spectre Defect.” Id. at ¶ 484 (emphasis added).

14

Then, Plaintiffs claim that “the Defect is not the security attack (Spectre); the Defect is the

15

security vulnerabilities created by AMD’s design.” Opp. at 1 (emphasis in original). However,

16

Plaintiffs fail to identify what security vulnerabilities affected AMD’s processors for the last 20

17

years other than Spectre and fail to explain how AMD’s design created those vulnerabilities.

18

Given Plaintiffs’ vague and inconsistent definitions of Defect, AMD can hardly be expected to

19

know exactly what the contents of its alleged misrepresentations are. Thus, Plaintiffs’ definition of

20

Defect fails to meet the requirement that the specific content of the false representation be

21

identified, per Swartz. Additionally, because Plaintiffs’ pleadings are unclear, AMD cannot

22

meaningfully respond to the allegations because AMD was not given clear notice of its alleged

23

fraudulent conduct. Thus, the FDUTPA claim fails to meet Rule 9(b)’s heightened pleading

24

standard.

25
26
27
28

Second, Plaintiffs also fail to plead facts explaining why the statements about clock speed
were false when they were made. See In re GlenFed, Inc. Sec. Litig., 42 F.3d at 1549 (“[A]
9
Case No. 18-CV-00447-LHK
ORDER GRANTING-IN-PART, DENYING-IN-PART, AND DENYING-IN-PART AS MOOT DEFENDANT'S
MOTION TO DISMISS

1

plaintiff must set forth, as part of the circumstances constituting fraud, an explanation as to why

2

the disputed statement was untrue or misleading when made” (emphasis in original).). After all, no

3

Plaintiff disputes the fact that the AMD processors could reach their advertised clock speeds.

4

Also, “Plaintiffs never identify any basis (reasonable or otherwise) for their supposed

5

understanding that the clock speed also constituted a ‘promise’ that processors would be immune

6

to security threats.” Reply at 5. Consequently, Plaintiffs’ FDUTPA claim for fraudulent

7

misrepresentation fails to meet Rule 9(b)’s heightened pleading standards. Therefore, the Court

8

grants AMD’s motion to dismiss the FDUTPA claim. Because granting Plaintiffs an additional

9

opportunity to amend the complaint would not be futile, cause undue delay, or unduly prejudice
AMD, and Plaintiffs have not acted in bad faith, the Court grants leave to amend. See Leadsinger,

11

United States District Court
Northern District of California

10

Inc., 512 F.3d at 532.

12

2. California Fraud by Omission

13

The Court now turns to Count V, fraud by omission. Under California law, a manufacturer

14

must have known of the defect at the time of sale for a plaintiff to state a claim for fraud by

15

omission against the manufacturer. Williams v. Yamaha Motor Co., 851 F.3d 1015, 1025 (9th Cir.

16

2017) (“[A] party must allege . . . that the manufacturer knew of the defect at the time a sale was

17

made.”) (citing Apodaca v. Whirlpool Corp., 2013 WL 6477821, at *9 (C.D. Cal. Nov. 8, 2013)).
AMD argues that it did not know about the Defect until after the California Plaintiffs’

18
19

purchases. Mot. at 2, 9. Thus as a matter of law, AMD cannot be expected to disclose what AMD

20

did not know at the time of sale. Id. at 9. Plaintiffs respond with two arguments. First, Plaintiffs

21

argue that Rule 9(b) does not apply to allegations about a defendant’s state of mind. Opp. at 14.

22

Thus, the CAC’s allegations2 are sufficient to show that AMD knew or ought to have known about

23

the Defect before the Plaintiffs purchased the AMD products. Id. Second, Plaintiffs contend that

24

AMD set up a straw man to attack. Plaintiffs claim that AMD “responds to attacking the claim it

25
26
27
28

2

Other than an allegation that on June 1, 2017, security researchers informed AMD of the Defect,
CAC at ¶ 84, Plaintiffs’ other allegations broadly describe how industry researchers have been
discussing the potential processor security vulnerabilities since 2005, Opp. at 14.
10
Case No. 18-CV-00447-LHK
ORDER GRANTING-IN-PART, DENYING-IN-PART, AND DENYING-IN-PART AS MOOT DEFENDANT'S
MOTION TO DISMISS

1

wished Plaintiffs had asserted—namely that the Defect is the security attack (Spectre) and not the

2

security vulnerabilities inherent in AMD’s CPUs . . . .” Id. at 15.

3

Once again, AMD has the better argument. Plaintiffs do not actually allege actual

4

knowledge of the Defect prior to when Plaintiffs purchased the AMD processors or computers

5

(with the sole exception of the Massachusetts Plaintiff, Jonathan Caskey-Medina). Moreover,

6

Plaintiffs can only point to vague, sweeping statements about industry research and general

7

knowledge garnered from conferences and academic papers of the Defect’s potential to exploit

8

processors and gather confidential information. Opp. at 14.

9

The Ninth Circuit has held that “a party must allege . . . that the manufacturer knew of the
defect at the time a sale was made.” Williams, 851 F.3d at 1025. The Ninth Circuit has also held

11

United States District Court
Northern District of California

10

that even limited knowledge of a defect might not give rise to the actual knowledge required to

12

state a fraud by omission claim. In Wilson v. Hewlett-Packard Co., knowledge of customer

13

complaints and a separate lawsuit based on the same defect in a different product model were

14

insufficient to demonstrate the manufacturer’s knowledge of a defect. 668 F.3d 1136, 1146 (9th

15

Cir. 2012). Moreover, it is not enough to allege that a defendant should have known about a defect

16

from general knowledge. Morris v. BMW of N. Am., LLC, 2007 WL 3342612, at *6 (N.D. Cal.

17

Nov. 7, 2007) (holding that allegations that a car manufacturer “should have known” of certain

18

defects were insufficient to sustain a fraud by omission claim). Here, none of the allegations state

19

AMD knew of the Defect before the California Plaintiffs’ purchase dates, only that AMD ought to

20

have known of the Defect. Thus, under Williams, Wilson, and Morris, AMD does not have the

21

requisite knowledge of the defect for the CAC to state a claim for fraud by omission.

22

Furthermore, as discussed above, Plaintiffs give multiple definitions of what constitutes the

23

Defect. Thus, AMD cannot meaningfully respond to accusations that it omitted information about

24

the Defect because AMD does not know what the Defect is.

25
26
27
28

Because the CAC fails to allege AMD’s pre-purchase knowledge of the Defect, and fails
to identify the Defect and what information about the Defect was false and omitted, Plaintiffs have
11
Case No. 18-CV-00447-LHK
ORDER GRANTING-IN-PART, DENYING-IN-PART, AND DENYING-IN-PART AS MOOT DEFENDANT'S
MOTION TO DISMISS

1

failed to sufficiently allege fraud by omission. Therefore, the Court grants AMD’s motion to

2

dismiss the fraud by omission claim. Because granting Plaintiffs an additional opportunity to

3

amend the complaint would not be futile, cause undue delay, or unduly prejudice AMD, and

4

Plaintiffs have not acted in bad faith, the Court grants leave to amend. See Leadsinger, Inc., 512

5

F.3d at 532.

6
7
8
9
10

B. Warranty Claims
The Court now turns to the breach of express warranty and implied warranty claims. The
Court addresses each in turn.
1. California Breach of Express Warranty
To prevail on a breach of express warranty claim under California law, Plaintiffs must

United States District Court
Northern District of California

11

prove that Defendants made “affirmations of fact or promise” or a “description of the goods” that

12

became “part of the basis of the bargain.” Weinstat v. Dentsply Int'l, Inc., 180 Cal. App. 4th 1213,

13

1227 (2010); Cal. Com. Code § 2313 (defining express warranty). In particular, “a plaintiff must

14

allege: (1) the exact terms of the warranty, (2) reasonable reliance thereon, and (3) a breach of

15

warranty which proximately caused plaintiff’s injury.” Baltazar v. Apple, Inc., 2011 WL 588209,

16

at *2 (N.D. Cal. Feb. 10, 2011) (citing Williams v. Beechnut Nutrition Corp., 185 Cal. App. 3d

17

135, 142 (1986)). In order to plead the exact terms of the warranty, the plaintiff must “identify a

18

specific and unequivocal written statement about the product that constitutes an explicit

19

guarantee.” Hadley v. Kellogg Sales Co., 273 F. Supp. 3d 1052, 1092 (N.D. Cal. 2017) (internal

20

quotations omitted).

21

AMD prevails for two reasons. First, Plaintiffs fail to plead that a warranty was created

22

because the exact terms of the warranty are not identified. Second, even assuming a warranty was

23

breached, the Plaintiffs were not harmed by the breach.

24

First, the CAC fails to disclose the exact terms of the warranty Plaintiffs claim were

25

breached. Claims in products’ promotional materials do not necessarily create an express

26

warranty. In In re Sony PS3 Other OS Litig., the defendant stated in promotional materials that the

27
28

12
Case No. 18-CV-00447-LHK
ORDER GRANTING-IN-PART, DENYING-IN-PART, AND DENYING-IN-PART AS MOOT DEFENDANT'S
MOTION TO DISMISS

1

device, a PlayStation 3, would have a “ten year life cycle” and that it would “be a console that’s

2

going to be with you again for 10 years.” 828 F. Supp. 2d 1125, rev’d on other grounds by In re

3

Sony PS3 Other OS Litig., 551 Fed. App’x 916, 919 (9th Cir. 2014). The Ninth Circuit held that

4

the promotional materials did not include all the “exact terms” of a warranty and thus did not

5

constitute an express warranty. In re Sony PS3 Other OS Litig., 551 Fed. App’x at 919. Here,

6

Plaintiffs argue that “the processors Plaintiffs purchased, including their clock speed, were

7

prominently displayed either next to an in-store sample of the computer purchased, on the

8

product’s packaging, or on an on-line retailer’s webpage.” Opp. at 18. Plaintiffs believe that the

9

computer’s clock speed formed part of an express warranty. Plaintiffs also believe that part of that
warranty is a promise from the AMD website stating that AMD processors “help[] ensure the

11

United States District Court
Northern District of California

10

secure storage and processing of sensitive data and trusted applications.” Id. However, neither

12

statement rises to the level of an express warranty. Here, as in the Sony PS3 litigation, there is no

13

“specific and unequivocal written statement [in the pleadings] about the product that constitutes an

14

explicit guarantee.” Hadley v. Kellogg Sales Co., 273 F. Supp. 3d at 1092. Thus, the Court finds

15

that Plaintiffs have failed to plead the exact terms of the warranty. This defeats the breach of

16

express warranty claim.

17

Regarding AMD’s statement that the processor “helps ensure the secure storage and

18

processing of sensitive data and trusted applications,” Opp. at 18, Plaintiffs can suffer no harm

19

from the statement because that statement is puffery. “Puffing has been described by most courts

20

as involving outrageous generalized statements, not making specific claims, that are so

21

exaggerated as to preclude reliance by consumers.” Cook, Perkiss & Liehe, Inc. v. N. Cal.

22

Collection Serv. Inc., 911 F.2d 242, 246 (9th Cir. 1990). One example of puffery is the following:

23

“We ask you: Would you prefer to do business with the phone company with the best technology,

24

lower rates, and better customer service?” Id. (internal quotation marks omitted). This example of

25

puffery is akin to AMD’s statement regarding the secure storage and processing of data. Both

26

statements are broad claims regarding product benefits, and give no specifics as to how they are

27
28

13
Case No. 18-CV-00447-LHK
ORDER GRANTING-IN-PART, DENYING-IN-PART, AND DENYING-IN-PART AS MOOT DEFENDANT'S
MOTION TO DISMISS

1

achieved. Both statements contain unsubstantiated promises without more detailed explanations.

2

See, e.g., Edmundson v. Procter & Gamble Co., 537 Fed. App’x 708, 709 (9th Cir. 2013) (holding

3

that product claims that are “general, subjective, and cannot be tested” constitute puffery).

4

Therefore, the Court grants AMD’s motion to dismiss the breach of express warranty claim.

5

Because granting Plaintiffs an additional opportunity to amend the complaint would not be futile,

6

cause undue delay, or unduly prejudice AMD, and Plaintiffs have not acted in bad faith, the Court

7

grants leave to amend. See Leadsinger, Inc., 512 F.3d at 532.

8

2. California Breach of Implied Warranties of Merchantability and Fitness for a
Particular Purpose

9

The Court now turns to Plaintiffs’ California claims of (1) breach of the implied warranty

10
of merchantability, and (2) breach of the implied warranty of fitness for a particular purpose. CAC
11

United States District Court
Northern District of California

at ¶¶ 247-48.
12
a. California Breach of Implied Warranty of Merchantability
13
Among other elements, the California implied warranty of merchantability requires that a
14
15
16

product is “fit for the ordinary purpose for which such goods are used.” Mocek v. Alfa Leisure,
Inc., 114 Cal. App. 4th 402, 406 (2003). “[A] breach of the implied warranty [of merchantability]
means the product did not possess even the most basic degree of fitness for ordinary use.” Id. at

17
406.
18
AMD has two arguments as to why the warranty of merchantability claim fails. First,
19

AMD argues that Plaintiffs’ claim fails because the Plaintiffs have not pled that the Defect

20
rendered their purchased products unfit for their ordinary purpose. Mot. at 18. Second, AMD
21
argues that the warranty of merchantability claim fails because there was no vertical contractual
22
privity between AMD and the Plaintiffs. Id. Plaintiffs respond by arguing that the Defect caused
23
24

the processors to be vulnerable to attack, which required fixes that degrade the processors’ clock
speed which interfered with the Plaintiffs’ abilities to use their computers for their ordinary

25
purpose. Opp. at 21.
26
27
28

The Court need only address AMD’s first argument, which the Court finds persuasive and
14
Case No. 18-CV-00447-LHK
ORDER GRANTING-IN-PART, DENYING-IN-PART, AND DENYING-IN-PART AS MOOT DEFENDANT'S
MOTION TO DISMISS

dispositive. Courts have held that to state a claim that a product is unfit to be used for its ordinary

2

purpose, a plaintiff must allege that the product’s operability be seriously impacted by the defect.

3

Troup v. Toyota Motor Corp., 545 Fed. App’x 668, 669 (9th Cir. 2013) (holding that a Prius

4

vehicle was fit for its ordinary purpose because a defect did not “compromise the vehicle’s safety,

5

render it inoperable, or drastically reduce its mileage range” (emphasis added)); see also Minkler

6

v. Apple, Inc., 65 F. Supp. 3d 810, 819 (N.D. Cal. 2014) (rejecting plaintiff’s implied warranty

7

claim because “[plaintiff] has not alleged that [the product] failed to work at all or even that it

8

failed to work a majority of the time” (emphasis added)). Similarly here, whether the Defect is

9

Spectre, security vulnerabilities created by AMD’s design, or “20 years” of “serious security

10

vulnerabilities,” CAC at ¶ 1, the CAC contains no allegation that the basic functionality of the

11

United States District Court
Northern District of California

1

processors has been compromised by the Defect. Plaintiffs do not allege that the Defect

12

compromises the AMD processors’ safety, renders them inoperable, or drastically reduces their

13

functionality as in Troup. Plaintiffs do not allege that the AMD processors fail to work at all, or

14

fail to work even a majority of the time as in Minkler. In fact, Plaintiffs make no allegations about

15

the performance of AMD’s processors at all, other than stating that patches to fix the Spectre

16

security risk decrease clock speed.

17

In the instant case, the Plaintiffs’ “ballpark figure of five to 30 per cent slow down” after

18

patching the computer, CAC at ¶ 93, does not rise to the level of a serious enough defect to render

19

the processors unfit for their ordinary purpose. This is because patching the Defect does not

20

implicate the AMD processors’ operability as computer processors, much like how the Prius’

21

reduced mileage in the Troup case did not render the Prius unfit for its ordinary purpose. The

22

AMD processors are certainly still operable even assuming they are patched, though the

23

processors may be a little less efficient, much like the Priuses in Troup. Plaintiffs have made no

24

allegations suggesting otherwise. As such, Plaintiffs here have failed to allege that the AMD

25

processors did not have a basic degree of fitness for ordinary use. Thus, Plaintiffs fail to state a

26

claim for breach of implied warranty of merchantability. Because granting Plaintiffs an additional

27
28

15
Case No. 18-CV-00447-LHK
ORDER GRANTING-IN-PART, DENYING-IN-PART, AND DENYING-IN-PART AS MOOT DEFENDANT'S
MOTION TO DISMISS

1

opportunity to amend the complaint would not be futile, cause undue delay, or unduly prejudice

2

AMD, and Plaintiffs have not acted in bad faith, the Court grants leave to amend. See Leadsinger,

3

Inc., 512 F.3d at 532.

4
5

b. California Breach of Implied Warranty of Fitness for a Particular Purpose
Turning to the implied warranty for a particular purpose, Plaintiffs claim that “AMD

6

impliedly warranted to customers that its CPUs were fit for a particular standard of security that

7

would protect users’ confidential information.” Opp. at 23. AMD asserts that Plaintiffs have failed

8

to show how the particular purpose differs from the ordinary purpose for which the Plaintiffs

9

bought the products in question. Mot. at 19.

10

AMD has the better argument. To state a claim for a breach of the implied warranty of

United States District Court
Northern District of California

11

fitness for a particular purpose, a plaintiff must allege “(1) the purchaser at the time of contracting

12

intends to use the goods for a particular purpose, (2) the seller at the time of contracting has reason

13

to know of this particular purpose, (3) the buyer relies on the seller’s skill or judgment to select or

14

furnish goods suitable for the particular purpose, and (4) the seller at the time of contracting has

15

reason to know that the buyer is relying on such skill and judgment.” Punian v. Gillette Co., 2016

16

WL 1029607, at *18 (N.D. Cal. Mar. 15, 2016) (quoting Frenzel v. AliphCom, 76 F. Supp. 3d 999,

17

1021 (N.D. Cal. 2014)). “A ‘particular purpose’ differs from ‘the ordinary purpose for which the

18

goods are used’ in that it ‘envisages a specific use by the buyer which is peculiar to the nature of

19

his business, whereas the ordinary purposes for which goods are used are those envisaged in the

20

concept of merchantability . . . .’” Smith v. LG Elecs. U.S.A., Inc., 2014 WL 989742, at *7 (N.D.

21

Cal. Mar. 11, 2014) (quoting Am. Suzuki Motor Corp. v. Superior Ct., 37 Cal. App. 4th 1291, 1295

22

n.2 (1995)).

23

Here, Plaintiffs allege that they “intended to use those processors in a manner requiring a

24

particular standard of security and performance . . . .” CAC at ¶ 248. However, this is no different

25

from Plaintiffs’ expectations regarding the ordinary purpose of the purchased computers or chips

26

because Plaintiffs’ basic accusation in the instant case is that the Defect could result in security

27
28

16
Case No. 18-CV-00447-LHK
ORDER GRANTING-IN-PART, DENYING-IN-PART, AND DENYING-IN-PART AS MOOT DEFENDANT'S
MOTION TO DISMISS

1

breaches. It is not as though Plaintiffs lacked the expectation of computer security under the

2

ordinary purpose in which the processors were used. See, e.g., CAC at ¶ 250 (“AMD processors . .

3

. are not fit for the ordinary purpose due to the Defect, and the associated problems and failures by

4

the Defect.”). Thus, Plaintiffs’ ordinary purpose of use of the processors does not differ from their

5

particular purpose of use because under both, Plaintiffs claim to expect a standard of security and

6

performance. Furthermore, Plaintiffs fail to allege that the Plaintiffs relied upon the seller’s skill or

7

judgment to select the processors suitable for this purchase, or that the seller knew the buyer was

8

relying on the seller’s skill and judgment. These are some of the other required factors to state a

9

claim for a breach of the implied warranty of fitness for a particular purpose. See Punian, 2016

10

WL 1029607, at *18.

United States District Court
Northern District of California

11

Therefore, the Court grants AMD’s motion to dismiss the breach of the implied warranty

12

of fitness for a particular purpose claim. Because granting Plaintiffs an additional opportunity to

13

amend the complaint would not be futile, cause undue delay, or unduly prejudice AMD, and

14

Plaintiffs have not acted in bad faith, the Court grants leave to amend. See Leadsinger, Inc., 512

15

F.3d at 532.

16
17

C. Louisiana Redhibition Claim
The Court now turns to Plaintiffs’ redhibition claim under Louisiana law. A redhibitory

18

defect is one in which the defect “renders the thing useless, or its use so inconvenient that it must

19

be presumed that a buyer would not have bought the thing had he known of the defect.” La. Civ.

20

Code Ann. Art. 2520. Furthermore, a defect is redhibitory when the defect diminishes a product’s

21

usefulness or value so that a buyer would have bought it at a reduced price, or not at all. Chevron

22

USA, Inc. v. Aker Mar., Inc., 604 F.3d 888, 899 (5th Cir. 2010).

23

Plaintiff Diana Hauck is the only Louisiana Plaintiff. AMD argues that Ms. Hauck has

24

failed to allege a redhibitory defect because she fails to allege that the Defect diminished the

25

usefulness of her computer or rendered it inconvenient. Likewise, Ms. Hauck fails to allege that

26

her computer fails to achieve the advertised clock speed, or that fixes to the Defect resulted in a

27
28

17
Case No. 18-CV-00447-LHK
ORDER GRANTING-IN-PART, DENYING-IN-PART, AND DENYING-IN-PART AS MOOT DEFENDANT'S
MOTION TO DISMISS

1

diminished clock speed. Plaintiffs’ response is that the redhibition claim is well pled because the

2

CAC alleges that Ms. Hauck would not have purchased the computer at all, or would have done so

3

at a reduced price, had she known of the Defect. CAC at ¶ 21.

4

Here, AMD has the better argument. Ms. Hauck alleged that “she would not have

5

purchased the computer, or paid substantially less for her computer” had she known of the Defect.

6

Id. But, such a pleading is entirely conclusory because Ms. Hauck merely parrots the elements of

7

the redhibition cause of action. Under Iqbal, “[t]hreadbare recitals of the elements of a cause of

8

action, supported by mere conclusory statements, do not suffice.” 556 U.S. at 678. Ms. Hauck

9

does not allege anything other than the elements of a redhibition claim. Therefore, the Court grants
AMD’s motion to dismiss the redhibition claim. Because granting Plaintiffs an additional

11

United States District Court
Northern District of California

10

opportunity to amend the complaint would not be futile, cause undue delay, or unduly prejudice

12

AMD, and Plaintiffs have not acted in bad faith, the Court grants leave to amend. See Leadsinger,

13

Inc., 512 F.3d at 532.

14
15

D. California Negligence Claim
To state a negligence claim under California law, a plaintiff must establish (1) duty, (2)

16

breach of duty, (3) causation, and (4) damages. Merill v. Navegar, Inc., 26 Cal. 4th 465, 500 (Cal.

17

2001). However, “[p]laintiffs asserting negligence claims ordinarily may not recover purely

18

economic damages unconnected to physical injury or property damage. . . . Economic losses

19

include damages for inadequate value, costs of repair, loss of expected proceeds, loss of use, loss

20

of goodwill, and damages paid to third parties.” Castillo v. Seagate Tech., LLC, 2016 WL

21

9280242, at *5 (N.D. Cal. Sept. 14, 2016). This is the economic loss doctrine. But “California

22

decisional law has long recognized that the economic loss rule does not necessarily bar recovery in

23

tort for damage that a defective product . . . causes to other portions of a larger product . . . into

24

which the former has been incorporated.” In re Sony Vaio Computer Notebook Trackpad Litig.,

25

2010 WL 4262191, at *6 (S.D. Cal. Oct. 28, 2010) (quoting Jimenez v. Superior Ct., 29 Cal. 4th

26

473, 483 (2002)). Nonetheless, if the damage to the larger product were “closely related” to the

27
28

18
Case No. 18-CV-00447-LHK
ORDER GRANTING-IN-PART, DENYING-IN-PART, AND DENYING-IN-PART AS MOOT DEFENDANT'S
MOTION TO DISMISS

1

nature of the defect, then the economic loss doctrine still prevents recovery. Id. In other words,

2

“[w]hen the defect and the damage are one and the same, the defect may not be considered to have

3

caused physical injury.” KB Home v. Superior Ct., 112 Cal. App. 4th 1076, 1085 (2003) (internal

4

quotations omitted) (citing Sacramental Regional Transit Dist. v. Grumman Flxible, 158 Cal. App.

5

3d 289, 294 (1984)).

6

AMD argues that the economic loss doctrine bars Plaintiffs’ claims because Plaintiffs have

7

not alleged physical injury or property damage. Mot. at 23. Plaintiffs respond by saying that they

8

have alleged property damage to the computers that contained the processors. Opp. at 24.

9

AMD prevails here. Plaintiffs fail to direct the Court to any allegation of damage to the
computers. Id. at 24. Additionally, the processor is integrally tied to the computer. See, e.g., CAC

11

United States District Court
Northern District of California

10

at ¶ 3 (“CPUs are the ‘brains’ of the devices they power. Processors fetch, decode, and execute

12

instructions from software programs or applications . . . .”). Thus, any damage a computer might

13

have suffered from an attack is closely related to Spectre (or whatever Plaintiffs claim the Defect

14

is), so close that they are inherently one and the same. A Spectre attack on the processor is what

15

causes damage to the computer. A degradation in clock speed after patching the computer with a

16

Spectre fix is the same as the degradation of the computer’s processing speed. As such, it makes

17

no sense to analytically separate the processors here from the computers they are in. Moreover, a

18

reduction in performance of the processor is not necessarily damage to the computer itself because

19

the patches do not damage the computer; a slowdown in processing speed can hardly be compared

20

to actual property damage to the computer as required by law. See KB Home, 112 Cal. App. 4th at

21

1085 (“For example, in Sacramento Regional Transit Dist. v. Grumman Flxible . . . the court

22

rejected any products liability recovery because the plaintiff had failed to allege physical injury to

23

its property apart from the manifestation of the defect itself” (internal quotation and citation

24

omitted).). Therefore, the Court grants AMD’s motion to dismiss the negligence claim. Because

25

granting Plaintiffs an additional opportunity to amend the complaint would not be futile, cause

26

undue delay, or unduly prejudice AMD, and Plaintiffs have not acted in bad faith, the Court grants

27
28

19
Case No. 18-CV-00447-LHK
ORDER GRANTING-IN-PART, DENYING-IN-PART, AND DENYING-IN-PART AS MOOT DEFENDANT'S
MOTION TO DISMISS

1

leave to amend. See Leadsinger, Inc., 512 F.3d at 532.

2

IV.

CONCLUSION

3

For the foregoing reasons, the Court GRANTS the motion to dismiss with leave to amend

4

as to (1) Count XI (FDUTPA), (2) Count V (fraud by omission), (3) Count VII (breach of express

5

warranty based on representation), (4) Count VIII (breach of implied warranty), (5) Count XVII

6

(Louisiana redhibition claim) and (6) Count X (California negligence claim). The Court DENIES

7

without prejudice the motion to dismiss as to (7) Count IV (violation of California’s UCL for

8

fraud) because neither party elected to litigate this count at this point in time. The Court DENIES

9

as moot the motion to dismiss as to (8) Count XIX (MCPA) because Massachusetts Plaintiff

10

United States District Court
Northern District of California

11

Jonathan Caskey-Medina voluntarily withdrew the MCPA claim.
Should Plaintiffs elect to file an amended complaint curing the deficiencies identified

12

herein, Plaintiffs shall do so within 30 days. Failure to file an amended complaint within 30 days

13

or failure to cure the deficiencies identified in this Order will result in dismissal with prejudice of

14

the claims dismissed in this Order. Plaintiffs may not add new causes of actions or parties without

15

leave of the Court or stipulation of the parties pursuant to Federal Rule of Civil Procedure 15.

16

IT IS SO ORDERED.

17
18
19
20

Dated: October 29, 2018
______________________________________
LUCY H. KOH
United States District Judge

21
22
23
24
25
26
27
28

20
Case No. 18-CV-00447-LHK
ORDER GRANTING-IN-PART, DENYING-IN-PART, AND DENYING-IN-PART AS MOOT DEFENDANT'S
MOTION TO DISMISS