Saturday, February 13, 2010

Claims of typical results not puffery

Walter v. Hughes Communications, Inc., -- F.Supp.2d ----, 2010 WL 366639 (N.D.Cal.)

Plaintiffs sued on behalf of a putative class of 80,000 California consumers who bought satellite internet services from Hughes that were allegedly significantly slower than advertised. Despite specific representations of speeds consumers could expect “up to,” which varied between peak and off-peak times, and despite having different pricing plans for different speeds, Hughes allegedly didn’t deliver the “up to” speeds or even close. Its ads touted the speed of its services, for example claiming that its connections were “up to 30x faster than dial-up,” and allowed users to “[f]lip through Web pages like turning the pages of a book” and “[d]ownload large files in minutes, not hours.” The website also stated that speed would depend on a variety of factors and was not guaranteed. Its service plan described “up to” and “typical” times, but plaintiffs alleged that Hughes instead delivered consistently slow and spotty service falling “woefully” short of the typicality claims.

Moreover, Hughes allegedly capped data transfers from heavy users and blocked P2P connections; though it said that a small percentage of subscribers who exceeded the threshold would suffer a temporary speed reduction, in fact, a large percentage of subscribers allegedly experienced lengthy shutdowns, sometimes days long, if they exceeded the threshold. Plaintiffs also complained about the termination fees imposed when, disgusted, they gave up on Hughes.

Initially, the court found that California law applied despite the contract’s Maryland choice of law provision, based on California’s public policy of affording extra remedies, including punitive damages and injunctive relief, to consumers in consumer protection cases. Intriguingly, the court reasoned that “[t]he fact that Maryland law, by and large, forbids the same conduct as California’s consumer protection laws actually undermines Hughes’ argument, because Maryland companies would presumably not be required to alter their behavior to conform to both sets of laws.” No Holmesian bad men need apply!

The next issue was whether plaintiffs stated a claim under the UCL, FAL, and CLRA, which the court found they did sufficiently to satisfy the heightened pleading requirement of Rule 9(b). Even with a number of vague and conclusory statements, there were also detailed, mutually supportive allegations plausible enough to survive a motion to dismiss. Hughes argued that its claims were mere puffery. Though the presence of clear and unambiguous language making it unlikely that a reasonable person would be deceived can justify dismissal, the general rule is that whether claims are deceptive is a question of fact that can’t be decided on a motion to dismiss.

Here, the allegations called into question Hughes’ representations, considered in light of representations about “typical” speeds. Hughes offered “hard, measurable quantities” that couldn’t be characterized as mere puffery, and plaintiffs alleged that they were often unable to reach even the “typical” speeds, and that off-peak speeds were as slow as the advertised “typical” speeds. Even with Hughes’ disclosures that it didn’t guarantee any particular or average speed, a jury could find that its representations were deceptive.

Hughes also argued that plaintiffs failed to plead actual reliance, because they cited recent representations and ads but they’d signed up years ago. But plaintiffs met their burden for pleading reliance even without identifying the particular ads or representations on which they relied. Each plaintiff alleged reliance on Hughes’ representations, which, roughly described, were comparable to the more recent representations, which were alleged with greater particularity. The court was willing to infer that Hughes’ representations have been consistent in certain material respects for the last several years. This was sufficient to provide Hughes adequate notice of the claims against it. The court dropped a cf. to the Tobacco II Cases, 207 P.3d 20 (Cal. 2009) (“[W]here, as here, a plaintiff alleges exposure to a long-term advertising campaign, the plaintiff is not required to plead with an unrealistic degree of specificity that the plaintiff relied on particular advertisements or statements.”). Though plaintiffs’ pleadings were less particular about Hughes’ allegedly illegitimate use of its data transfer cap, and about allegations that Hughes intentionally oversold its services by signing up more clients than it had the bandwidth to support, the court saw no harm in permitting plaintiffs to proceed with those arguments as potential explanations for plaintiffs’ experiences; they weren’t independent causes of action.

The court did, however, dismiss the allegations related to the termination fees because they didn’t sufficiently detail how the fees are applied in practice. The only specific allegation—about one customer subject to a $300 fee—didn’t support the general allegation that Hughes imposed a $400 termination fee regardless of the damages it actually suffered, which would constitute impermissible liquidated damages. Nor did plaintiffs sufficiently explain why the fee was procedurally (hidden or unexpected) or substantively unconscionable (shocking the conscience or harsh and oppressive). A $300 fee was less than two months’ worth of service, and plaintiffs didn’t allege that providing the service was costless. However, the court reserved the question of whether the termination fees might also be cognizable as damages.

No comments: