Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—EDCal: California Consumer Protection Law Claims Proceed Against Best Buy and Toshiba Over Laptop Battery Life, (Feb 15, 2013)

By Tobias J. Gillett, J.D., LLM.

A laptop purchaser can proceed with certain claims under California’s Unfair Competition Law (UCL) and Consumers Legal Remedies Act (CLRA) against electronics retailer Best Buy and laptop manufacturer Toshiba over their alleged misrepresentations regarding the battery life of a Toshiba laptop and their allegedly misleading failure to disclose pertinent information regarding the conditions under which the laptop’s battery was tested, the federal district court in Sacramento has ruled (Herron v. Best Buy Co. Inc., February 13, 2013, Burrell, G.).

The purchaser stated claims under the “fraudulent” and “unfair” prongs of the UCL and affirmative misrepresentation and fraudulent omission claims under the CLRA against Best Buy, as well as an affirmative misrepresentation claim under the CLRA against Toshiba, but did not adequately allege a UCL claim under the “unfair” prong of the UCL against Best Buy, or any UCL claims or a fraudulent omission claim under the CLRA against Toshiba.

The purchaser alleged that Best Buy and Toshiba misrepresented the battery life in a model of laptop produced by Toshiba. According to the purchaser, Toshiba measured the battery life of its laptop through the Mobile Mark 2007 (“MM07”) test, which allegedly bore “no resemblance to the real-life and everyday uses of laptop computers,” and rated the battery life as much longer than the actual battery life consumers would achieve. Toshiba then provided the results of the test to retailers such as Best Buy with the intention that the retailers would convey them to consumers.

Best Buy listed the laptop on its website with the statement that its battery life was “up to 3.32 hours.” The website revealed that the battery life was tested using the MM07 test, but did not disclose how the test was conducted.

The purchaser alleged, on behalf of a putative class of such purchasers, that he “paid more for his laptop than he would have paid” had the conditions under which the test was conducted been revealed. He asserted that the misrepresentations by Best Buy and Toshiba constituted violations of the CLRA and the UCL. Best Buy and Toshiba moved to dismiss the claims.

Participation and control. Toshiba first argued that the purchaser had not demonstrated its “personal participation in,” or “unbridled control over,” the practices alleged to have violated the UCL, as required by UCL case precedent. The court agreed, concluding that Toshiba had “merely conveyed” the results of its test to Best Buy. Toshiba’s alleged failure “to police Best Buy’s representations concerning the laptop’s battery test results” was not sufficient to impose liability on it under the UCL. However, Toshiba did not provide sufficient authority to support its further argument that the purchaser would have to demonstrate “personal participation” and “unbridled control” to bring a claim under the CLRA.

Rule 9(b). Toshiba and Best Buy contended that the purchaser’s CLRA and UCL fraud allegations did not satisfy Federal Rule of Civil Procedure 9(b)’s heightened pleading standard. The purchaser alleged that Toshiba had conveyed the results of its testing to retailers with the intention that they would provide them to consumers, while failing to disclose that the test occurred “with the laptop’s monitor set to the brightness of 20% to 30% of the normal level, the Wi-Fi, Bluetooth, and other wireless functions disabled, and the main processor chip set to 5% to 7.5% of its normal capacity.” The purchaser also alleged that Best Buy claimed the life of the battery was “up to 3.32 hours,” without revealing how that number was determined, and despite the conditions under which the test was conducted. The court considered these allegations to be sufficient to satisfy Rule 9(b)’s standard.

Fraudulent affirmative misrepresentations. Toshiba and Best Buy argued that the purchaser could not reasonably have been deceived by the representation that the laptop had a battery life of “up to 3.32 hours.” The court explained that a “reasonable consumer standard applies when determining whether a given claim is misleading or deceptive,” and that the same “reasonable consumer” standard applied to both the UCL claim and the CLRA claim.

The court observed that “multiple courts have found that ‘up to’ representations may materially mislead reasonable consumers.” The court concluded that Toshiba and Best Buy had not shown that the purchaser’s “alleged belief was unreasonable as a matter of law or was predicated on a strained and unjustified interpretation” of the representations regarding battery life. Moreover, Best Buy did not include any disclosures with its representation. Therefore, “reasonable minds could differ as to whether the words ‘up to,’ without more, put [the purchaser] on notice that his laptop would never achieve close to the represented 3.32 hours of battery life.”

Fraudulent omissions. Toshiba and Best Buy initially sought dismissal of the purchaser’s fraudulent omission claims on the ground that consumers did not have “expectations about the ‘nit’ levels, wireless functions, processor chip capacity, or PDF read-rate used to calculate a maximum potential battery life,” and therefore the omission of the battery testing information was not material.

The court disagreed. The purchaser had alleged that Best Buy’s unqualified statement regarding the life of the laptop’s battery had induced him to purchase the laptop and to pay more for it than he otherwise would have paid, and that battery life was “one of the primary factors consumers consider when determining which laptop to purchase.” Therefore, Toshiba and Best Buy had not shown that the battery life representations were unimportant to the purchaser in making his purchasing decision.

Toshiba and Best Buy also contended that they had no duty to disclose the testing information. The purchaser had alleged that Toshiba and Best Buy had a duty to disclose under the theories that they had “exclusive knowledge” of the information, that they “actively conceal[ed]” it from the purchaser, and that they had “ma[de] partial representations but also suppresse[d] some material facts.”

The court concluded that Toshiba and Best Buy had no duty to disclose on an “exclusive knowledge” theory. Best Buy’s website had disclosed the use of MM07 testing, and Newsweek magazine had published an article criticizing the test for the reasons asserted by the purchaser. Since the purchaser “could have readily recognized any deficiencies in his laptop’s battery life,” and since the purchaser bought the laptop more than nine months after the article was disseminated, he had not shown that Toshiba and Best Buy had “exclusive knowledge” of the information and that he “could not have reasonably discovered such facts.” Moreover, the concealment by Best Buy and Toshiba of the MM07 test results did not give rise to a duty to disclose, because the purchaser alleged that he was misled by the failure to disclose how the battery life was calculated, rather than by the failure to disclose the testing results.

The purchaser also failed to allege a claim under an “active concealment” theory, because his “only active concealment allegation [was] the conclusory assertion that Defendants ‘actively concealed material facts from Plaintiff and the Class.’” Since the purchaser did not allege any “specific facts demonstrating” that Toshiba and Best Buy had “actively tried to conceal the existence of the MM07 testing or test conditions,” his allegations were insufficient.

However, the court did conclude that the purchaser had stated a fraudulent omission claim against Best Buy based on a “partial representation” theory. Such a claim “may arise when the defendant makes representations but does not disclose facts which materially qualify the facts disclosed, or which render his disclosure likely to mislead.” Here, Best Buy had represented that the laptop’s battery would last “up to 3.32 hours,” but did not disclose how that number was calculated. As the purchaser had alleged that a consumer could not expect to achieve “even close” to this lifespan, the court found he had satisfied the requirements for a “partial representation” claim. Since the purchaser did not allege that Toshiba made any representations to him, however, the court dismissed his fraudulent omission claim against Toshiba.

Unlawful or unfair acts or practices. In addition to his fraud claims under the UCL, the purchaser also asserted claims based on the UCL’s prohibitions on “unlawful” and “unfair” business practices against Best Buy. The court concluded that, since he had adequately pled a CLRA claim against Best Buy, he had also pled a claim under the “unlawful prong.”

However, the court held that he had not stated a claim under the “unfair” prong. The court noted a split in authority regarding the appropriate standard for consumer claims under the “unfair” prong between courts that limited those claims to those “tethered to some legislatively declared policy or proof of some actual or threatened impact on competition,” and courts that balanced “the utility of the defendant’s conduct against the gravity of the harm to the alleged victim.”

The court concluded that he had not pled a claim under either standard. As the purchaser had “refused to return his laptop for a full refund, his harm was avoidable, and likely any harm he suffered was the result of his own behavior.” This harm was offset by “Best Buy’s strong justification for relying on the MM07 test,” since the MM07 test was the industry standard, and failing to use it would have impaired the ability of purchasers to compare laptops. Moreover, these considerations meant the purchaser did not satisfy the “tethering” test, because he had not shown “that Best Buy’s conduct was contrary to the spirit of the CLRA’s legislatively declared policy of consumer protection.”

The case is No. 2:12-cv-02103-GEB-JFM.

Attorneys: Gene Joseph Stonebarger (Stonebarger Law) for Chad Herron. Andrew D. Muhlbach (Morrison & Foerster LLP) for Best Buy Co. Inc.

Companies: Best Buy Co. Inc.; Toshiba America Information Systems, Inc.

Cases: StateUnfairTradePractices CaliforniaNews