a rare freestanding UCL unfairness claim re: service termination that rendered cameras nonfunctional

Soo v. Lorex Corp., 2020 WL 5408117, No. 20-cv-01437-JSC (N.D Cal. Sept. 9, 2020)

Plaintiffs brought California and New York consumer protection claims based on what happened to their home security Flir cameras; defendants moved to compel arbitration, which was denied because defendants failed to prove by a preponderance of the evidence that plaintiffs agreed to arbitrate. Defendants’ motion to dismiss was partly granted and partly denied.

Lorex made Flir cameras, which had the ability to upload security footage into cloud storage and a “Rapid Recap” feature, with which users could see a condensed, time-stamped video of activity observed by the camera. Cloud storage and Rapid Recap were made possible by applications managed by Lorex. After selling Flir cameras since 2015, in mid-2019 Lorex announced it was changing technology providers for the apps, rendering the cameras unable to connect to the apps and thus nonfunctional. Lorex then offered consumers a “Lorex Active Deterrence Wi-Fi replacement camera” or a Lorex.com store discount of US $120.00, which plaintiffs alleged were inadequate substitutes.

Defendants contended that the Warranty inside the box that plaintiffs’ cameras came in contained a binding arbitration provision. For purposes of this motion, it was undisputed that Lorex provides a hard copy of the Warranty in the box of every Flir camera it sells. The Warranty in the box advised plaintiffs that if they kept the cameras they were agreeing to the Warranty as well as to binding arbitration.

This was a “shrinkwrap” license [I can hear Eric Goldman sighing from 3000 miles away]. But Lorex’s warranty, unlike that in previous cases, didn’t give consumers any amount of time to examine the product and return it instead of accepting the arbitration agreement, and the included written materials did give the consumer the right to return the camera. “At a minimum, without evidence that Mr. Lauinger had the right to return the camera and thus reject the arbitration provision there can be no agreement to arbitrate formed by ‘keeping the [camera.]’”

Another plaintiff, Soo, “activated” his warranty online. Was that enough? Under California law, “silence or inaction cannot constitute acceptance of an offer,” unless an exception applies, such as “when the offeree has a duty to respond to an offer and fails to act in the face of this duty.” However, even then, a contract offeree’s silence cannot constitute consent to a contract “when the offeree reasonably did not know that an offer had been made.” California courts have held that “even if a customer may be bound by an in-the-box contract under certain circumstances, such a contract is ineffective where the customer does not receive adequate notice of its existence.” Previous case shad held that titles like “Product Safety & Warranty Information” aren’t enough to provide notice of “a freestanding obligation outside the scope of the warranty.” So too here. His online activation doesn’t support a finding that had to or should have been aware of the arbitration agreement. He “could have registered for warranty protection without ever seeing the in-the-box Warranty that contained the arbitration provision in the section entitled ‘State/Provincial Law.’”

Unfairness under the UCL: Courts are divided on how to assess unfairness, but plaintiffs invoked the balancing test: it asks whether the alleged business practice “is immoral, unethical, oppressive, unscrupulous or substantially injurious to consumers and requires the court to weigh the utility of the defendant’s conduct against the gravity of the harm to the alleged victim.”

Defendants argued that it wasn’t right to impute an underlying P2P service provider’s cessation of service to them. But plaintiffs alleged that “Defendants changed technology providers knowing that such a decision would cause the Flir Cameras to cease functioning.” And, after changing providers, defendants “have not created their own P2P software to replace OzVision that would continue to provide support for Flir Cameras, or otherwise partnered with another third-party vendor.” The harm could plausibly outweigh the utility of the conduct to defendants.  The cost-benefit analysis of unfairness was “not properly suited for resolution at the pleading stage.”

Fraudulent omission under the UCL: This was predicated on defendants’ failure to disclose that app support for the Flir cameras was contingent on Defendants’ contract with OzVision, and that there was no guarantee OzVision would continue to provide service. Plaintiffs alleged that had defendants disclosed such a fact, they would not have purchased their Flir cameras at all or on the same terms. However, the complaint didn’t plausibly support an inference that, at the time they sold the cameras, defendants knew that the functionality issue existed. This also disposed of the NY consumer protection claims.

California unjust enrichment: It was plausible that the failure of defendants’ replacement program to properly compensate Plaintiffs for the lost value of their cameras with adequate replacement cameras or a comparable store credit may sustain a claim for unjust enrichment at the motion to dismiss stage.

Trespass to chattels: perhaps surprisingly, also survives.  Defendants argued that OzVision, not they, rendered the cameras nonfunctional. But plaintiffs sufficiently pled that it was defendants’ acts that “substantially harmed the functioning” of their devices, which “significantly impaired the devices’ condition, quality, and value.”