Smith v. Intel Corporation

Background

Darques Smith, Renee Waltrip, Brian Cameron, Elizabeth Cordova, and Michael Worley filed a proposed nationwide class action against Intel Corporation. They alleged that they purchased central processing units (CPUs), or computers containing Intel CPUs, with hardware vulnerabilities involving speculative execution and branch prediction. According to the complaint, those vulnerabilities allowed transient-execution attacks, including Spectre, Meltdown, and Downfall, and Intel’s software mitigations impaired CPU performance. The plaintiffs alleged that Intel knew about the vulnerabilities but continued selling affected products without adequate hardware fixes or disclosures.

The complaint asserted claims under California’s Unfair Competition Law, Consumer Legal Remedies Act, and False Advertising Law; common-law fraud by omission; quasi-contract or restitution; negligence; and breach of implied warranty under California law. It also pleaded alternative claims under Oregon, Kansas, Illinois, and Minnesota law if a nationwide class was not certified. Intel moved to dismiss the entire complaint under Federal Rule of Civil Procedure 12(b)(6), which allows dismissal when a complaint does not adequately state a claim for relief. Intel also moved to stay discovery while the dismissal motion was pending.

Judicial Notice

The court granted Intel’s request for judicial notice of seven exhibits, including government or government-affiliated webpages and filings from other litigation. The court stated that it would consider the materials’ contents but would not assume that disputed factual assertions in those materials were true.

Fraud-Based Claims

The court dismissed the fraud-based claims under the False Advertising Law, Unfair Competition Law, Consumer Legal Remedies Act, and common law. Because fraud was an essential part of these claims, Federal Rule of Civil Procedure 9(b) required the plaintiffs to describe the alleged misconduct with particularity.

The court accepted that the plaintiffs adequately alleged that the omission was material at the pleading stage. It also recognized that their theory focused on Intel’s alleged failure, after the 2018 public disclosures, to address or disclose continuing hardware defects, including defects involving Advanced Vector Extension instructions. But the court concluded that the plaintiffs had not adequately alleged that the security defect was central to the CPUs’ function. The allegations showed possible impairment of certain features, but did not plausibly show that the CPUs stopped operating as the “brains” of the computers or lost their core processing capabilities. The court therefore found no actionable omission under the applicable standard and granted dismissal of these claims.

Quasi-Contract and Restitution

The court granted dismissal of the quasi-contract or unjust-enrichment theory. California does not recognize unjust enrichment as a standalone cause of action, but courts may treat such a claim as one seeking restitution. Here, the restitution theory relied on the same alleged omissions as the fraud claims. Because the court found that the plaintiffs had not adequately pleaded an actionable omission, it also found that the alleged retention of the purchase price was not sufficiently shown to be unjust or inequitable.

Negligence

The court granted dismissal of the negligence claim under California’s economic-loss doctrine. That doctrine generally prevents recovery in negligence for purely economic losses not connected to physical injury or property damage. The plaintiffs argued that the CPUs caused damage to computers containing them, including reduced battery life and shorter expected life for the CPUs and nearby components.

The court concluded that the CPUs and the computers into which they were incorporated were too closely integrated to be treated as separate products for this purpose. It found that the alleged damage was essentially the same as the alleged defect and that the complaint sought recovery for economic losses barred by the doctrine. The court did not reach Intel’s separate argument concerning the required standard of care.

Breach of Implied Warranty

The court granted dismissal of the California implied-warranty claims. It did not decide whether the plaintiffs plausibly alleged that the CPUs lacked even the most basic fitness for ordinary use. Instead, it concluded that the allegations did not establish the required direct relationship, known as vertical privity, between the plaintiffs and Intel. Cameron and Waltrip alleged that they bought the products from third-party retailers rather than directly from Intel.

The court also found that the complaint did not plausibly allege that the transactions occurred in California, as required for the California Civil Code provision invoked by the plaintiffs. The complaint identified the retailers as Micro Center and Newegg.com but did not allege facts showing that the transactions occurred in California.

Unfair and Unlawful Competition Claims

The court granted dismissal of the claim under the unfair prong of California’s Unfair Competition Law. The plaintiffs argued that Intel unfairly sold CPUs without necessary protections against a known vulnerability and used performance-reducing patches. The court found little distinction between that theory and the fraud-based omission theory that it had already found inactionable. The complaint therefore did not adequately allege either a distinct unfair practice or an actionable omission.

The court also granted dismissal of the claim under the unlawful prong. Such a claim required the plaintiffs to plead sufficient facts supporting another cause of action. Because the other asserted claims did not survive the motion to dismiss, the unlawful-prong claim could not proceed.

Alternative State-Law Claims

The court declined at that stage to evaluate the viability of the alternative claims under Oregon, Kansas, Illinois, and Minnesota law.

Disposition

The court granted Intel’s motion to dismiss and dismissed the complaint in its entirety. It granted the plaintiffs leave to amend because amendment would not be futile, cause undue delay, or unfairly prejudice Intel, and the plaintiffs had not acted in bad faith. Any amended complaint was due within 28 days of the order.

The court terminated Intel’s motion to stay discovery as moot because the motion to dismiss had already been resolved. Separately, the court stayed discovery until it is clear whether the plaintiffs can amend the complaint to state viable claims.