Opinion
No. CX-01-1641
Filed May 22, 2002.
Appeal from the District Court, Hennepin County, File No. MC00017876.
Eric J. Magnuson, Michael R. Docherty, (for appellants)
James K. Langdon, (for respondent)
This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (2000).
UNPUBLISHED OPINION
In this appeal from a judgment dismissing appellants' complaint for failure to state a claim upon which relief can be granted, appellants argue that in considering respondent's motion to dismiss, the district court improperly resolved a factual issue rather than limiting its analysis to determining whether the complaint set forth a legally sufficient claim for relief. We reverse and remand.
FACTS
The complaint alleged the following facts: Appellants Bonita I. Johnson, Marie E. Everson, and Patricia Duffy purchased inkjet printers manufactured by respondent Hewlett-Packard Company (HP). The printers use black and color ink cartridges. HP represents to consumers that ink cartridges are included with printers, but HP does not disclose that the cartridges included with a printer are only half full of ink. HP actively concealed material facts and mislead consumers because it failed to describe the ink cartridges as half full and, instead, identified each cartridge as an "economy cartridge" on various advertisements, marketing materials, and labeling, including HP's website, brochures, and the exterior of the package in which the cartridge is sold.
Consumers do not become aware, and are not expected to become aware that the cartridge they receive with the printer is something other than a full and complete ink cartridge. By including the half-full cartridges with printers, HP intends to force consumers to buy replacement ink cartridges sooner and more often than the consumer would have to if the cartridges included with printers were full cartridges. Because HP has a monopoly position in the market for replacement cartridges for HP printers, consumers are forced to purchase replacement cartridges from HP at exorbitant and marked-up prices made possible by HP's monopoly position.
Based on these factual allegations, appellants commenced a class action against HP asserting claims for violating the Minnesota Prevention of Consumer Fraud Act, Minn. Stat. § 325F.68-.70 (2000); the Minnesota False Statement in Advertisement Act, Minn. Stat. § 325F.67 (2000); the Minnesota Unlawful Trade Practices Act, Minn. Stat. § 325D.09-.16 (2000); and the Uniform Deceptive Trade Practices Act, Minn. Stat. § 325D.43-.48 (2000). The complaint also asserted claims for common-law fraud and negligent misrepresentation.
Pursuant to Minn.R.Civ.P. 12.02(e), HP moved to dismiss the complaint for failure to state a claim upon which relief can be granted. The district court granted the motion and dismissed the complaint.
DECISION
In reviewing cases that were dismissed for failure to state a claim on which relief can be granted, the only question before the reviewing court is whether the complaint sets forth a legally sufficient claim for relief. Barton v. Moore , 558 N.W.2d 746, 749 (Minn. 1997).
A claim is sufficient against a motion to dismiss based on Rule 12.02(5) if it is possible on any evidence which might be produced, consistent with the pleader's theory, to grant the relief demanded. To state it another way, under this rule a pleading will be dismissed only if it appears to a certainty that no facts, which could be introduced consistent with the pleading, exist which would support granting the relief demanded.
Minn.R.Civ.P. 12.02(e) was previously numbered as Minn.R.Civ.P. 12.02(5). The substance of the rule has not changed.
No. States Power Co. v. Franklin, 265 Minn. 391, 395, 122 N.W.2d 26, 29 (1963) (citation omitted). "[T]he allegations contained in the complaint must be accepted as true and viewed most favorably to plaintiff." Abbariao v. Hamline Univ. Sch. of Law, 258 N.W.2d 108, 111 (Minn. 1977) (citation omitted). "It is immaterial to [the reviewing court's] consideration here whether or not the plaintiff can prove the facts alleged." Royal Realty Co. v. Levin, 244 Minn. 288, 290, 69 N.W.2d 667, 670 (1955).
Appellants alleged a common-law fraud, or intentional misrepresentation, claim.
An intentional misrepresentation claim requires plaintiffs to allege that defendant (1) made a representation (2) that was false (3) having to do with a past or present fact (4) that is material (5) and susceptible of knowledge (6) that the representor knows to be false or is asserted without knowing whether the fact is true or false (7) with the intent to induce the other person to act (8) and the person in fact is induced to act (9) in reliance on the representation (10) that the plaintiff suffered damages (11) attributable to the misrepresentation.
M.H. v. Caritas Family Servs., 488 N.W.2d 282, 289 (Minn. 1992) (citation omitted).
A misrepresentation may be made either (1) by an affirmative statement that is itself false or (2) by concealing or not disclosing certain facts that render the facts that are disclosed misleading.
Id.
The district court concluded that appellants failed to sufficiently plead that HP made a false representation. In reaching this conclusion, the district court initially observed that the representation that cartridges are included with printers is not false because the printers do come with cartridges. The district court also acknowledged, however, that this observation does not end the inquiry because nondisclosure of a material fact may constitute fraud if special circumstances create a duty to disclose.
Citing Klein v. First Edina Nat'l Bank, 293 Minn. 418, 421, 196 N.W.2d 619, 622 (1972), the court explained that one example of special circumstances that create a duty to disclose is that one who speaks must say enough to prevent his words from misleading the other party. The court then explained that appellants argued to the district court that these special circumstances apply to HP's representation that ink cartridges are included with printers and that by not disclosing that the included cartridges are only half full of ink, HP did not say enough to prevent its words from misleading appellants.
The district court rejected this argument based on its reading of Simonsen v. BTH Props., 410 N.W.2d 458 (Minn.App. 1987), review denied (Minn. Oct. 26, 1987). In Simonsen, an apartment building was advertised for sale as a six-unit building even though the sellers knew that the building was zoned for only five units and registered with the city as a five-unit building. Id. at 458-59. The buyers did not discover until after they purchased the building that it was zoned and registered as a five-unit building. Id. at 459. The buyers stopped making payments, and the sellers commenced an action seeking foreclosure or a money judgment. Id. The buyers counterclaimed alleging fraud and misrepresentation. Id. In granting the sellers' motion for summary judgment, the district court found that the elements of fraud were not present because there had been no representation with respect to zoning, and there were no special circumstances that imposed a duty to inform the buyers about the property's zoning status. Id.
On appeal, this court determined that there was a material fact issue as to whether the sellers' nondisclosure of the property's zoning status constituted a misrepresentation, which precluded the summary judgment. Id. 461-62. In reaching this conclusion, this court noted that although the sellers knew that the building was zoned and registered for five units, they advertised it as a six-unit building and repeatedly told the buyers it was a six-unit building, and discussions about expected income from the property assumed that there were six rental units. Id. at 461. This court then said, "These representations demanded qualification, since the natural conclusion by [the buyers] was that there were six legally rentable units." Id.
In the present case, the district court focused on this statement to conclude that this court held in Simonsen that the sellers' concealment of the zoning restriction may have constituted a misrepresentation because the "natural conclusion" regarding the representation that the building contained six units was that the building contained six rentable units. The district court determined that the key language in Simonsen is "natural conclusion," and based on this determination, the court reasoned that there cannot be a natural conclusion about a representation unless the representation has a generally accepted meaning. Therefore, the district court concluded, because neither the term "cartridge" or "economy cartridge" leads to a natural conclusion about the amount of ink in the cartridge, HP's representation that cartridges are included with its printers could not be a misrepresentation.
The district court's analysis misconstrues Simonsen and misstates the manner of proving a misrepresentation based on a failure to disclose a material fact. This court's statement in Simonsen that the sellers' representation that the building contained six units demanded qualification, since the buyers' natural conclusion was that the representation meant that there were six legal units in the building, does not mean that a party who makes a representation has a duty to say enough to prevent the representation from misleading the other party only when the representation that is made has a commonly accepted meaning. Instead, the statement was a response to the district court's conclusion that there were no special circumstances that imposed a duty to inform the buyers about the property zoning status.
It is important to recognize that Simonsen was an appeal from a summary judgment that was based in part on the district court's conclusion that the sellers had no duty to disclose the zoning information, which led the district court to conclude that there was not a material fact issue as to whether the nondisclosure constituted misrepresentation. This court reversed because the district court failed to recognize that there was a fact issue whether the six-unit representation (which was not false, the building had six rental units) was rendered misleading by the undisclosed zoning information. And although this court's emphatic statement that the six-unit representation "demanded qualification" unnecessarily suggested how this fact issue should be resolved, the express holding in Simonsen was that summary judgment was precluded by the existence of a material fact issue.
In the present case, the district court's conclusion that HP did not make a false representation because the terms "cartridge" and "economy cartridge" do not have generally accepted meanings improperly resolved the same sort of factual issue that this court found existed in Simonsen. In Simonsen, the sellers represented that the building had six units. Here, HP represented that its printers include cartridges. In Simonsen, the sellers knew that it was not legal for the building to have more than five units. Here, HP knew that the included cartridges were only half full of ink. In Simonsen, this court concluded that because the sellers had a duty to say enough to prevent their words from misleading the buyers, there was a fact issue whether they had said enough to meet this duty when they did not disclose the zoning status of the building. Similarly, when HP represented that its printers include cartridges, it had a duty to say enough to prevent its words from misleading appellants, and there is a fact issue whether HP met its duty when it said nothing about the amount of ink in the included cartridges. The district court resolved this fact issue by concluding that the undisclosed information about the amount of ink in the cartridges could not render the statement that cartridges are included misleading because the statement that cartridges are included says nothing about how much ink is in the cartridges.
But resolving this fact issue was improper when considering a motion to dismiss for failure to state a claim upon which relief can be granted. The district court was to grant the motion only if it appeared certain that appellants could not produce any evidence consistent with their theory that would entitle them to the relief they demanded. It does not appear certain to us that appellants could not produce any evidence that the statement that cartridges are included says something about how much ink is in the cartridges and, therefore, that failing to disclose information about how much ink is in the cartridges renders the statement misleading. Consequently, we conclude that the district court erred when it dismissed appellants' fraud claim.
Using the same reasoning that it applied to appellants' fraud claim, the district court dismissed appellants' negligent-misrepresentation and unlawful-trade-practices claims because the pleadings did not establish that HP made a misrepresentation. As with the fraud claim, however, the court's conclusion rested upon its improper resolution of the fact issue of whether HP made a misrepresentation. Consequently, the district court erred when it dismissed appellants' negligent-misrepresentation and unlawful-trade-practices claims for failing to state a claim on which relief can be granted.
The district court indirectly applied the reasoning that it applied to appellants' fraud claim to appellants' claims under the Prevention of Consumer Fraud Act, False Statement in Advertisement Act, and Uniform Deceptive Trade Practices Act. The court applied the reasoning indirectly because it found that rather than prohibiting misrepresentation, these three statutes apply to a representation that is deceptive or misleading or that creates a likelihood of confusion or misunderstanding.
We first note that the Prevention of Consumer Fraud Act expressly applies to misrepresentations. See Minn. Stat. § 325F.69, subd. 1 (2000) (permitting injunction against "use * * * by any person of * * * misrepresentation * * * with the intent that others rely thereon in connection with the sale of any merchandise"). But, as the district court found, the other two statutes do not expressly prohibit misrepresentations. See Minn. Stat. §§ 325D.44, subd. 1(4), (13) (deceptive trade practice to use deceptive representations in connection with goods or services or to engage in conduct that similarly creates likelihood of confusion or misunderstanding), 325F.67 (2000) (prohibiting representation that is untrue, deceptive, or misleading).
In addressing the claims under the three consumer-protection statutes, the district court applied what it referred to as a "modified version of the `natural conclusion' standard" and concluded that to be actionable under any of the statutes, a truthful representation must describe the good or service in a manner which fairly implies to the ordinary consumer that the good or service possesses a characteristic which it does not possess.
And then, to apply this test, the court did what it did with appellants' fraud claim, and asked itself,
Does [HP's] representation that an economy cartridge was included with the purchase of a printer fairly imply to the ordinary consumer that the included ink cartridge contains as much ink as a standard ink cartridge?
The court answered its own question as follows:
If the included ink cartridge were not described as an economy cartridge and were instead described simply as an ink cartridge, the question is not readily answered, because describing the ink cartridge without qualification may fairly imply to the ordinary consumer that the ink cartridge contains as much ink as a standard ink cartridge. However, since [HP] qualified its representation that an ink cartridge was included with the purchase of a printer by describing the included cartridge as an economy cartridge, the question is readily answered, because economy, as a qualifying adjective, explicitly distinguishes the included cartridge from a standard ink cartridge. This explicit distinction precludes the implication that an economy cartridge contains the same quantity of ink as a standard ink cartridge.
In reaching this conclusion, the district court resolved the same fact issue that it resolved with respect to appellants' fraud claim, which is whether HP's failure to say how much ink is in the included cartridge makes the representation that a cartridge is included misleading. The court's answer to its own question recognizes that whether it is misleading to say that an ink cartridge is included without saying how much ink is in the cartridge is a fact issue because referring to an ink cartridge may fairly imply to a consumer that the cartridge contains a certain amount of ink. But the court nevertheless concludes that calling the included cartridge an economy cartridge cannot be misleading because it could not be implied that an economy cartridge is the same as a standard cartridge. However, even if it could not be implied that an economy cartridge is the same as a standard cartridge, there is still a fact issue because referring to an economy cartridge could fairly imply to a consumer that the cartridge contains more ink for the same price as a standard cartridge rather than that the cartridge contains less ink.
As we concluded with respect to appellants' fraud claim, it does not appear certain that appellants could not produce any evidence that the statement that economy cartridges are included says something about how much ink is in the cartridges and, therefore, that failing to disclose information about how much ink is in the cartridges renders the statement misleading. Consequently, we conclude that the district court erred when it dismissed appellants' claims under the Prevention of Consumer Fraud Act, False Statement in Advertisement Act, and Uniform Deceptive Trade Practices Act.