Freund v. HP, Inc.

Background

Gary Freund and Wayne McMath sued HP, Inc. in a proposed class action. They alleged that certain HP all-in-one printers are marketed as providing printing, copying, scanning, and, for some models, faxing. According to the First Amended Complaint, HP designed software that places the printers in an error state when ink is low or depleted, preventing scanning and faxing until a new ink cartridge is installed. The plaintiffs alleged that HP did not disclose this limitation.

Freund purchased an HP Envy 6455e All-in-One Wireless Color Printer, and McMath purchased an HP Deskjet 2655 All-in-One Compact Printer. They alleged that they would not have bought the printers, or would not have paid as much for them, if they had known they needed to maintain ink to scan documents.

The First Amended Complaint asserted claims for fraudulent omission, violation of California’s Consumer Legal Remedies Act, California’s Unfair Competition Law, California’s False Advertising Law, Minnesota’s Deceptive Trade Practices Act, and Minnesota’s False Advertising Law. HP moved to dismiss all claims.

Pleading sufficiency

The court applied Federal Rule of Civil Procedure 12(b)(6), which asks whether the complaint states a legally sufficient claim, and Rule 9(b), which requires fraud-based allegations to describe the alleged misconduct in particular detail. The court held that the plaintiffs adequately identified the alleged defect: HP allegedly programmed the printers to disable scanning and faxing when ink levels were low, causing the printers to enter an error state.

The court also held that the plaintiffs plausibly alleged HP’s knowledge of the defect. Their allegations that HP intentionally designed the software to disable these functions, together with allegations concerning an HP community message board and HP’s alleged motivation to increase ink sales, were sufficient at the pleading stage. HP’s arguments about the message board’s reliability and whether statements could be attributed to HP raised factual issues that were not properly resolved on a motion to dismiss.

The court further held that the plaintiffs plausibly alleged HP had a duty to disclose the limitation because HP allegedly had superior knowledge of a defect that consumers learned about only after experiencing it. The court did not reach the plaintiffs’ alternative theory that HP had a duty to disclose because it made partial representations. The court also found that the complaint adequately alleged that the defect occurred during the warranty period.

Claim-specific rulings

The court denied HP’s argument that the fraudulent-omission claim was barred by California’s economic-loss rule. That rule generally limits recovery for purely economic losses arising from disappointed contractual expectations, but the court predicted that the California Supreme Court would not apply the rule to bar the alleged intentional fraudulent omission.

The court denied HP’s motion to dismiss the California Unfair Competition Law claim. It found that the plaintiffs adequately alleged unlawful, unfair, and fraudulent conduct. In particular, the court concluded that representing that the printers were “all-in-one” devices while omitting that they would not scan or fax when low on ink plausibly could deceive a reasonable consumer.

The court denied HP’s motion to dismiss the Minnesota claims as inadequately pleaded. The plaintiffs plausibly alleged that the omitted information was material, that HP had a duty to disclose it, and that HP knew of the alleged defect.

Restitution and standing

The plaintiffs sought equitable restitution under the California Unfair Competition Law, California False Advertising Law, Minnesota Deceptive Trade Practices Act, and Minnesota False Statement in Advertising Act. The court treated HP’s challenge to those requests as a motion to strike. It denied the motion to strike the restitution requests under the California Unfair Competition Law, California False Advertising Law, and Minnesota False Statement in Advertising Act because the plaintiffs sought prospective injunctive relief and had shown a basis for the court’s equitable jurisdiction.

The plaintiffs conceded that they were not entitled to equitable restitution or money damages under the Minnesota Deceptive Trade Practices Act. The court therefore granted HP’s motion to strike those requests under that Act.

HP also argued that the plaintiffs lacked standing to assert claims involving HP products they did not purchase. Applying its “substantially similar” approach, the court held that the plaintiffs had adequately alleged standing at this stage because the purchased and non-purchased products allegedly used the same software and were subject to similar representations and omissions.

Disposition

The order’s heading states that HP’s motion to dismiss was granted in part and denied in part. The final order states that HP’s motion to dismiss the plaintiffs’ claims was denied, while HP’s motion to strike the plaintiffs’ requests for equitable restitution or money damages under the Minnesota Deceptive Trade Practices Act was granted. The motion to strike the restitution requests under the California Unfair Competition Law, California False Advertising Law, and Minnesota False Statement in Advertising Act was denied. Judge Beth Labson Freeman signed the order.