Thursday, July 23, 2015

Claims about computer expertise aren't puffery to ordinary consumers

Burton v. iYogi, Inc., 2015 WL 4385665, No. 13–CV–6926 (S.D.N.Y. Mar. 16, 2015)
iYogi provides computer diagnostics and repair, general troubleshooting, updates to computer drivers, security protection, and PC speed and performance optimization. To market itself, iYogi offers “Free PC Diagnostics,” involving a brief phone consultation between a “Technician” and potential customer. Through remote diagnosis, a “Tech Expert” “[i]dentifies the problem” and “[r]ecommends a solution.” Burton sought technical support for her “poorly performing” HP computer because it was “running slowly, freezing and locking-up.” She found an ad that said something like: “iYogi provides wide scope HP support online for users to resolve all HP computer related issues through the assistance of iYogi Certified Technicians,” and “[t]he experts can help troubleshoot several HP errors like overheating issues, registry conflicts, etc.”
When Burton called, the iYogi technician remotely accessed Burton’s computer, browsed through various computer files, and stated that they were contributing to the computer’s problems. The technician her Burton to download iYogi’s “diagnostic software,” which displayed a “Dashboard” indicating Burton’s computer “possessed a large amount of ‘junk files’ and ‘Registry errors,’” along with a warning in red typeface that her computer’s “System State” was “Critical.” The technician informed Burton that her computer was at serious risk, damaged, and would likely crash if she did not purchase iYogi’s services to repair her computer.
Burton alleged that iYogi technicians operate using scripts intended to trick customers with little technical expertise, like her, into believing that iYogi technicians are performing assessments and identifying problems. In fact, she alleged, no credible diagnostic testing of her, or any other customer’s, computer was actually conducted. Virtually every potential customer will receive a warning that “junk files” are harming their computers. The same “errors” were allegedly found on a brand new computer.
But for these misrepresentations, Burton alleged, she wouldn’t have bought a one-year “iYogi Gold Subscription” for $99.99. Even after subscribing, her computer allegedly continued to malfunction as it had before iYogi performed services. She sued for fraudulent inducement and unjust enrichment.
The court refused to dismiss the complaint based on a claim that the contract limited plaintiff’s time to sue to one year and precluded an unjust enrichment claim, even though the court found it implausible that she wasn’t required to accept terms of use before receiving iYogi’s services, because “‘click-wrap” contracts are standard in Internet-based sales and service provision.”
She also stated a claim for fraudulent inducement.  She adequately alleged false representations by the technician: the software is allegedly not capable of accurately diagnosing her or other customers’ computer problems, and iYogi services did not in fact fix her computer, which continued to malfunction. She specifically alleged that the “junk files” and “Registry errors” that the iYogi technician and software identified are found on virtually every computer, including a new computer, and are not necessarily harmful, and that no credible test was performed to determine whether they were actually causing the problems on her computer She further alleged that iYogi technicians follow a script that “invariably report[s] that potential customers’ computers are in dire condition” regardless of the actual condition of their computers. iYogi claimed that the statements couldn’t be false because she made similar statements.  But she admitted that there was a problem with her computer and alleged that iYogi misrepresented the source and severity of the problems and iYogi’s ability to fix them to induce her into buying iYogi’s services. “Just as a medical patient’s complaint of arm pain differs from a doctor’s x-ray analysis of a fractured limb, so too does a customer’s complaint of computer trouble differ from a technical ‘diagnosis’ of where and how there is a malfunction.”
Nor were the statements puffery.  Although opinions are generally not actionable, “[t]he expression of an opinion or prediction which the declarant does not himself believe is a false statement of fact.” Moreover, “where one party [has] superior knowledge, the expression of an opinion implies that the declarant knows facts which support that opinion and that he knows nothing which contradicts the statement.” Here, the court concluded, whether iYogi provided the services it claimed to and whether those accurately identify and fix customers’ problems could be proven true or false. Moreover, if the allegations were true, then iYogi was presenting statements about customers’ computers as fact based on expert assessment.
iYogi argued that Burton failed to allege that the technician didn’t actually believe the statements.  But she alleged that iYogi technicians are trained to use scripted dialogue. “Even if an individual iYogi representative believed the diagnostic testing was accurate, that would not absolve iYogi, the Defendant, of liability for designing the misleading software and scripts and training its employees to use them.”
Burton also alleged justifiable reliance by consumers of average technical knowledge. And she sufficiently alleged scienter, which can be done either “(a) by alleging facts to show defendants had both motive and opportunity to commit fraud, or (b) by alleging facts that constitute strong circumstantial evidence of conscious misbehavior or recklessness.” The allegations that iYogi designed its “diagnostic software” and scripts knowing and intending that virtually every customer, including Plaintiff, would believe they had serious computer problems and be induced into buying iYogi services constitued “sufficient circumstantial evidence to warrant a strong inference of fraudulent intent.”
Burton also stated a claim for unjust enrichment, even though iYogi argued that the claim was precluded because there was a valid and enforceable contract covering the subject matter of the claim.  But there was a dispute of fact as to whether there was a valid and enforceable contract here. And even if there were a contract, parties may plead in the alternative.

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