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Galitski v. Samsung Telecommunications America, LLC

United States District Court, Fifth Circuit

December 5, 2013

SHANE GALITSKI, et al., Plaintiffs,
v.
SAMSUNG TELECOMMUNICATIONS AMERICA, LLC, Defendant.

MEMORANDUM OPINION AND ORDER

SIDNEY A. FITZWATER, Chief District Judge.

In this putative class action arising from allegedly defective Galaxy S mobile phones manufactured by defendant Samsung Telecommunications America, LLC ("Samsung") and sold to plaintiffs by non-parties Sprint and Verizon Wireless ("Verizon"), Samsung moves under the doctrine of arbitration by estoppel as a third-party nonsignatory to plaintiffs' contracts with Sprint and Verizon to compel plaintiffs to arbitrate their claims. Alternatively, Samsung moves for partial dismissal of plaintiffs' claims under Fed.R.Civ.P. 12(b)(6). For the reasons that follow, the court denies the motion to compel arbitration and grants in part and denies in part the motion for partial dismissal.

I

Plaintiffs Shane Galitski ("Galitski"), Richard Taliaferro ("Taliaferro"), and Brian Newbold ("Newbold") bring this putative class action against Samsung on behalf of a class of California residents who purchased allegedly defective Galaxy S mobile phones. Plaintiffs allege that Galaxy S phones-smartphones using the Google Android operating system that are marketed, distributed, and warranted by Samsung-frequently freeze, shutdown, and power-off randomly while in standby mode, rendering the phones inoperable.[1] The complaint refers to these problems collectively as "[t]he defect." E.g., Compl. ¶ 17.[2] Plaintiffs allege that, although Galaxy S phones are sold under different names by various wireless carriers, they are essentially the same phones with different names and experience the defect regardless which carrier distributes the phone.

The complaint alleges that Galitski and Newbold purchased their Galaxy S phones from Sprint, their wireless carrier. When making the purchase, each entered into a Sprint Service Agreement that contains a clause requiring binding arbitration.[3] According to the complaint, Galitski began experiencing the defect within a few months of purchasing a Galaxy S phone from Sprint; and after he experienced a problem with the headphone jack as well, he contacted Samsung for assistance with the headphone jack problem and also informed Samsung of the defect, but he was not given any assistance regarding the defect. Although Sprint provided Galitski a replacement Galaxy S phone due to the headphone jack problem, that phone experienced the defect more frequently than did his original phone. Galitski's replacement phone later suffered from a significant screen burn-in, resulting in his obtaining a second replacement Galaxy S phone from Sprint. When contacting Sprint regarding this problem, he informed Sprint about the defect, but again received no assistance. Galitski continues to use the second replacement phone, but plaintiffs allege that it, too, experiences the defect. Galitski has attempted unsuccessfully to resolve the defect by changing the operating system.

Newbold also purchased his Galaxy S phone from Sprint. Shortly after the purchase, his phone experienced the defect. Newbold attempted to resolve the problem by changing the operating system and installing the newest version of Android. When these changes failed to repair his phone, Newbold returned it to the factory settings and installed a software update that Samsung provided. After the update was installed, his phone experienced the defect more frequently. Although Newbold contacted Sprint customer service several times about the defect, Sprint refused to offer a replacement; instead, it attempted on multiple occasions to repair the phone by asking Newbold to reset the device. Although Newbold followed this direction, he continued to experience the same defect. After contacting Sprint several times in unsuccessful attempts to repair or replace his phone, he finally purchased a new phone, receiving no credit for his initial purchase of Galaxy S.

Taliaferro purchased his Galaxy S phone at an electronics store that is an authorized Samsung agent and reseller, and his wireless carrier is Verizon. When making the purchase, he entered into a Verizon Wireless Customer Agreement ("Verizon Customer Agreement") that provided for binding arbitration of claims arising out of or relating to the agreement.[4] Shortly after Taliaferro purchased his Galaxy S phone, he began experiencing the defect. After he contacted Verizon several times, Verizon replaced his phone with another Samsung Galaxy S, but he continued to experience the same defect with the replacement phone. When Taliaferro contacted Verizon again, it recommended that he install a software update intended to fix the defect. But the new software update instead exacerbated the problem, causing the phone to experience the defect more often. After contacting Verizon several more times and continuing to experience the defect with his replacement phone, Taliaferro finally discontinued using the phone and purchased a new phone, receiving no credit for the purchase of his Samsung phone.

In 2011 Taliaferro and Barbara McKinney ("McKinney"), a Georgia resident, filed in this court a putative nationwide class action against Samsung asserting claims arising from their purchases of allegedly defective Galaxy S phones. See Taliaferro v. Samsung Telecomms. Am., LLC, 2012 WL 169704 (N.D. Tex. Jan. 19, 2012) (Fitzwater, C.J.).[5] They alleged claims under federal, California, and Georgia law for breach of express warranty, breach of implied warranty, money had and received, and violations of the Magnuson-Moss Warranty Act ("MMWA"), 15 U.S.C. § 2301 et seq. Taliaferro, 2012 WL 169704, at *1. Samsung filed a motion to dismiss under Rule 12(b)(6), which the court granted as to all but one of plaintiffs' claims (Taliaferro's claim for breach of implied warranty under the Song-Beverly Consumer Warranty Act ("SBA"), Cal. Civ. Code § 1792 (West 2009)). Taliaferro, 2012 WL 169704, at *12. In dismissing the breach of express warranty claims, the court held that, because plaintiffs did not allege that they returned their phones to a Samsung "authorized phone service facility, " as required by the Samsung warranty, they did not satisfy a contractual precondition to recovery under the express warranty. Id. at *3, *6. The court granted Taliaferro and McKinney leave to replead. Id. at *12.

Taliaferro and McKinney filed a second amended class action complaint in which they re-pleaded their dismissed claims, added Newbold as a plaintiff, and asserted two new claims under California law. Samsung filed a motion to compel arbitration, but plaintiffs voluntarily dismissed the suit without prejudice before the court ruled on the motion.

In June 2012 Taliaferro and Newbold, joined by Galitski, sued Samsung in the Central District of California alleging claims under federal and California law for breach of express warranty, breach of implied warranty, violations of the SBA, violations of the MMWA, violations of the Consumers Legal Remedies Act ("CLRA"), Cal. Civ. Code §§ 1750 et seq. (West 2009), violations of the California Unfair Competition Law ("UCL"), Cal. Bus. & Prof. Code § 17200 et seq. (West 2008), and common law claims for assumpsit and quasicontract. Samsung filed a motion to transfer to this court, which the Central District of California granted. Samsung now moves as a third-party nonsignatory to compel arbitration pursuant to the arbitration agreements signed between plaintiffs and their wireless carriers.[6] If the court denies the motion to compel arbitration, Samsung moves in the alternative to dismiss all of plaintiffs' claims other than the SBA implied warranty claims of plaintiffs Taliaferro and McKinney.

II

The court turns first to Samsung's motion to compel arbitration.

A

Samsung is not a signatory either to the Sprint Service Agreement or the Verizon Customer Agreement. It argues, however, that it is entitled as a third-party nonsignatory under principles of equitable estoppel to compel arbitration pursuant to the arbitration provisions contained in these agreements because plaintiffs' complaint raises allegations of substantially interdependent and concerted misconduct by Samsung, Sprint, and Verizon.

Samsung maintains that, although plaintiffs are suing Samsung, they are complaining of the failure of Sprint and Verizon to repair or replace their Samsung phones; that is, they are seeking to hold Samsung responsible for the conduct of Sprint and Verizon, and it is impossible to consider their claims against Samsung without considering the alleged failures of Sprint and Verizon to repair their phones. Samsung contends that, after the court dismissed plaintiffs' warranty claims in Taliaferro (in part based on their failure to plead that they had satisfied the condition precedent of the Samsung warranty that they attempt to service their phones at an authorized phone service facility), plaintiffs revised their claims to allege that they attempted to service their phones through Sprint and Verizon, Samsung's authorized agents. Citing various allegations of the complaint, including some that group Samsung, Verizon, and Sprint as "Defendants, " Samsung posits that plaintiffs' claims are wholly dependent on the conduct of Sprint and Verizon, acting as Samsung's alleged agents, in failing to perform Samsung's contractual duties. Samsung reasons that plaintiffs' claims involve substantially interdependent and concerted misconduct among Sprint, Verizon, and Samsung because the claims not only implicate the alleged conduct of these entities, they wholly depend on allegations that Verizon and Sprint acted as Samsung's agents when they breached the Samsung warranty by failing to repair plaintiffs' phones. According to Samsung, plaintiffs' claims are founded in the contractual relationship between Verizon and Sprint and plaintiffs because plaintiffs attempted to service their phones at their wireless carriers based on their contractual relationships with the carriers. Samsung argues that it is especially inequitable not to compel arbitration in this case, because plaintiffs are seeking to avoid the binding arbitration provisions in their agreements with Verizon and Sprint by suing Samsung alone, despite the fact that their claims fall squarely within the scope of their wireless service contracts.

B

Although Samsung relies on federal law, the court will apply California law, which plaintiffs contend controls, [7] and which Samsung acknowledges does not conflict with California law.[8] Under the California law of equitable estoppel, "a nonsignatory defendant may invoke an arbitration clause to compel a signatory plaintiff to arbitrate its claims when the causes of action against the nonsignatory are intimately founded in and intertwined with the underlying contract obligations." Jones v. Jacobson, 125 Cal.Rptr.3d 522, 538 (Cal.Ct.App. 2011) (citations and internal quotation marks omitted).

This requirement comports with, and indeed derives from, the very purposes of the doctrine: to prevent a party from using the terms or obligations of an agreement as the basis for his claims against a nonsignatory, while at the same time refusing to arbitrate with the nonsignatory under another clause of that same agreement.

Id. (quoting Goldman v. KPMG LLP, 92 Cal.Rptr.3d 534, 543-44 (Cal.Ct.App. 2009)). When a nonsignatory seeks to enforce an arbitration clause, the doctrine of equitable estoppel applies in two circumstances: (1) "when the signatory to a written agreement containing an arbitration clause must rely on the terms of the written agreement in asserting [its] claims against the nonsignatory, " and (2) when the signatory alleges interdependent and concerted misconduct by the nonsignatory and another signatory and "the allegations of interdependent misconduct [are] founded in or intimately connected with the obligations of the underlying agreement." Goldman, 92 Cal.Rptr.3d at 541 (citations and internal quotation marks omitted). "[E]quitable estoppel applies only if the plaintiffs' claims against the nonsignatory are dependent upon, or inextricably bound up with, the obligations imposed by the contract plaintiff has signed with the signatory defendant." Id. at 550. "[M]erely mak[ing] reference to' an agreement with an arbitration clause is not enough. Equitable estoppel applies when the signatory to a written agreement containing an arbitration clause "must rely on the terms of the written agreement in asserting [its] claims" against the nonsignatory.'" Id. at 541 (quoting MS Dealer Serv. Corp. v. Franklin, 177 F.3d 942, 947 (11th Cir. 1999)).

C

The court holds that Samsung cannot rely on the doctrine of equitable estoppel to compel plaintiffs to arbitrate their claims.[9] It is not necessary for plaintiffs to rely on the terms of their service agreements with Sprint and Verizon to assert their claims against Samsung, and plaintiffs' claims are not intimately founded in and intertwined with these contracts. Further, assuming that plaintiffs allege substantially interdependent and concerted misconduct by Samsung, Sprint, and Verizon, the allegations of interdependent misconduct are not founded in or intimately connected with the obligations of the service agreements.

The complaint does not rely on any of the terms of the Verizon and Sprint agreements as a foundation for any claim. As in Goldman, 92 Cal.Rptr.3d at 540-41, the complaint does not even mention these agreements. By their terms, the Verizon and Sprint agreements govern the wireless carriers' relationships with plaintiffs. Plaintiffs do not rely on these agreements to establish Samsung's liability under any alleged cause of action. To the extent the complaint contains allegations about the conduct of Sprint and Verizon, the assertions do not function as predicates for alleging claims against them (neither is a party to this lawsuit). Instead, it is apparent that these allegations are included so that plaintiffs can satisfy their obligation to plead plausible claims against Samsung, such as by showing that they complied with the precondition of the Samsung warranty that they return their phones to an "authorized phone service facility." Taliaferro, 2012 WL 169704, at *2. "In California, equitable estoppel is inapplicable where a plaintiff's allegations reveal no claim of any violation of any duty, obligation, term or condition imposed by the' [agreement containing the arbitration provision]." Murphy v. DirecTV, Inc., 724 F.3d 1218, 1230 (9th Cir. 2013) (quoting Goldman, 92 Cal.Rptr.3d at 551). Plaintiffs' complaint contains no such allegation.

And even if the court assumes that plaintiffs allege substantially interdependent and concerted misconduct by Samsung, Sprint, and Verizon, these allegations are not founded in or intimately connected with the obligations of the service agreements. Samsung maintains that plaintiffs' claims depend on allegations that Verizon and Sprint acted as Samsung's agents when plaintiffs contacted them about repairing or replacing their phones, that the defect in their phones is only actionable because Verizon and Sprint failed to correct the defect, and that plaintiffs cannot bring an action against Samsung without considering the actions of Verizon and Sprint. Samsung also argues that, by alleging that Samsung and Verizon and Sprint are unified as principal and agent, plaintiffs implicitly seek to hold Samsung responsible for the conduct of Verizon and Sprint.[10] But plaintiffs' allegations are not founded in or intimately connected with the obligations of the underlying agreements. This is illustrated by the allegations of the complaint that Samsung cites in its brief. See D. Br. 17-18. None relies on an obligation that arose under the Sprint or Verizon service agreement. Instead, it is clear from the complaint that plaintiffs rely on these allegations to establish that they fulfilled a condition precedent of the Samsung warranty. See Compl. ¶¶ 58-62 (cited, in part, at D. Br. 17-18).[11]

Stated simply, even assuming that plaintiffs are relying on the conduct of Sprint and Verizon to establish Samsung's liability, they are doing so to establish Samsung's liability by contract, by statute, or under common law; they are not relying on the Sprint and Verizon agreements to establish that liability. As in Goldman, plaintiffs "are not relying in any way on the [Sprint and Verizon agreements] to make their claims against [Samsung], while at the same [time] avoiding the arbitration clauses of those agreements-and, at bottom, that is the only basis upon which they may be equitably stopped from refusing to arbitrate when they have not agreed to do so." Goldman, 92 Cal.Rptr.3d at 553.

Accordingly, Samsung's motion to compel arbitration is denied.

III

The court now turns to Samsung's motion for partial dismissal under Rule 12(b)(6).[12] Samsung maintains that plaintiffs' refusal to grant Samsung, as opposed to Sprint and Verizon, an opportunity to repair or replace their phones precludes all of their warranty claims except their SBA implied warranty claim. Samsung therefore maintains that plaintiffs' claims for breach of express and implied warranties under the Uniform Commercial Code ("UCC"), breach of express warranty under the SBA, violations of the MMWA, violations of the CLRA, violation of the UCL, and claim for common counts must all be dismissed. Samsung also contends that Galitsky's SBA implied warranty claim must be dismissed based on his failure to plead facts plausibly showing that his phone is not fit for its ordinary purpose.

"In deciding a Rule 12(b)(6) motion to dismiss, the court evaluates the sufficiency of plaintiffs' amended complaint by accepting all well-pleaded facts as true, viewing them in the light most favorable to the plaintiff.'" Bramlett v. Med. Protective Co. of Fort Wayne, Ind., 855 F.Supp.2d 615, 618 (N.D. Tex. 2012) (Fitzwater, C.J.) (quoting In re Katrina Canal Breaches Litig., 495 F.3d 191, 205 (5th Cir. 2007) (internal quotation marks and alteration omitted)). To survive Samsung's motion to dismiss under Rule 12(b)(6), plaintiffs must plead "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). "A claim has facial plausibility when the plaintiff[s] plead[ ] factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). "The plausibility standard is not akin to a probability requirement, ' but it asks for more than a sheer possibility that a defendant has acted unlawfully." Id.; see also Twombly, 550 U.S. at 555 ("Factual allegations must be enough to raise a right to relief above the speculative level[.]"). "[W]here the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged-but it has not shown'-that the pleader is entitled to relief.'" Iqbal, 556 U.S. at 679 (quoting Rule 8(a)(2)) (alteration omitted). "Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Id. at 678 (citation omitted).

IV

Samsung moves to dismiss plaintiffs' express warranty claims, contending that they have failed to plead satisfaction of the contractual precondition that they returned their phones to a ...


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