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upholding disclaimer of the implied warranty of merchantability found within "shrinkwrap" agreement
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CA. No. 98C-09-064 RRC
Submitted: June 4, 1999
Decided: September 3, 1999
UPON DEFENDANT'S MOTION TO DISMISS. GRANTED IN PART; DENIED IN PART; DEFERRED IN PART.
Jeffrey S. Goddess, Esquire, Rosenthal, Monhait, Gross Goddess, P.A., Wilmington, Delaware; Sanford P. Dumain, Esquire and Lee A. Weiss, Esquire (argued), Milberg, Weiss, Bershad, Hynes Lerach, LLP, New York, New York; Michael C. Dodge, Esquire and Frank P. Skipper, Esquire, Dodge, Fazio, Anderson Jones, P.C., Dallas, Texas; Robert I. Lax, Esquire and Jerome Noll, Esquire, Lax Noll, New York, New York, Attorneys for Plaintiffs.
Jesse A. Finkelstein, Esquire, Srinivas M. Raju, Esquire and Holly June Steifel, Esquire, Richards, Layton Finger, Wilmington, Delaware; Jeffrey B. Rudman, Esquire, James W. Prendergast, Esquire (argued) and Gabrielle Wolohojian, Esquire, Hale Doff, LLP, Boston Massachusetts, Attorneys for Defendant.
MEMORANDUM OPINION
I. INTRODUCTION: FACTUAL AND PROCEDURAL HISTORY
This proposed class action was commenced in September 1998 on behalf of all persons who have purchased purportedly defective "Zip drives" from January 1, 1995 to the present. The Zip drives are manufactured by defendant Iomega Corporation, a computer storage device maker incorporated in Delaware and based in Utah. A Zip drive is a large capacity personal computer data storage drive. The complaint alleges inter alia that the alleged defect, said by Plaintiffs to be commonly known as the "Click of Death," causes irreparable damage to the removable magnetic media storage disks on which the drives store data. Plaintiffs also allege that the defect renders the data on the disks unreadable and that when another drive attempts to read the data from a disk that has been infected, the defect transfers to the second drive, causing further damage.
Super. Ct. Civ. R. 23.
Complaint at ¶ 1.
Id.
Plaintiffs' complaint has four counts. Count I alleges that Defendant breached the implied warranty of merchantability by manufacturing a product that was not fit for the ordinary purpose for which such products are used and that Defendant's disclaimer of the implied warranty of merchantability contained in the packaging of the product was ineffective because it was not sufficiently "conspicuous" as required by 6 Del. C. § 2-316(2). Count II alleges that Defendant was negligent in manufacturing and designing the Zip drive without using the reasonable care, skill, and diligence required when placing such a product into the stream of commerce. Count III alleges that Defendant committed consumer fraud in violation of the Delaware Consumer Fraud Act by falsely misrepresenting through advertising to the consuming public that the Zip drives were suitable for their intended purpose. Count IV alleges that Defendant was negligent in failing to warn the consuming public about the risks of its product when it knew or should have known that the product could cause damage when used for its intended purpose.
Del. C. ch. 25, subchapter II, Consumer Fraud §§ 2511-2527.
Before this Court is Defendant's Motion to Dismiss the complaint in its entirety based on (1) Plaintiffs' alleged failure in Count I to state a claim for breach of the implied warranty of merchantability, (2) Plaintiff's alleged failure in Count II to state a claim that Defendant negligently designed and manufactured its Zip drives in that Plaintiffs have not pled allegations of negligence with sufficient "particularity" pursuant to Superior Court Civil Rule 9(b), (3) Plaintiffs' alleged failure in Count III to state a claim that Defendant violated the Delaware Consumer Fraud Act in that they have not pled fraud with sufficient "particularity" pursuant to Superior Court Civil Rule 9(b) and (4) Plaintiffs alleged failure to state a claim that Defendant negligently failed to warn users of its Zip drives about the claimed potential problems in that they have not pled negligence with sufficient "particularity" pursuant to Superior Court Civil Rule 9(b).
For the reasons set forth below, Defendant's Motion to Dismiss is GRANTED in part, DENIED in part and DEFERRED in part. Defendant's Motion to Dismiss Count I on the grounds that Plaintiffs have failed to state a claim for breach of the implied warranty of merchantability is GRANTED since the Court finds that the disclaimer is "conspicuous." Defendant's Motion to Dismiss Count II on the grounds that Plaintiffs have failed to state a claim for negligent design and manufacture is DENIED. Defendant's Motion to Dismiss Count III on the grounds that Plaintiffs have failed to plead fraud with sufficient particularity under the Delaware Consumer Fraud Act is GRANTED, but dismissal now is DEFERRED because Plaintiffs are granted potential leave to amend Count III pursuant to Superior Court Civil Rule 15(a) on or before a date that will be established at a later time. Defendant's Motion to Dismiss Count IV on the grounds that Plaintiffs have failed to state a claim for negligent failure to warn is DENIED.
This Court therefore does not reach the additional issues raised by Defendant pertaining to Count I of (1) whether any or all of the six plaintiffs provided Defendant with sufficient notice of the purported breach of the implied warranty of merchantability as required by 6 Del. C. § 2-607 and (2) whether any implied warranty of merchantability, even if not effectively disclaimed by Defendant, nevertheless expired one year after each of the Plaintiffs purchases as per the "Limited Warranty" which provides that Iomega "shall . . . either repair or replace [the Zip drive] with new and reconditioned [Zip drives] and parts . . . [if the products] are returned . . . to Iomega . . . within [1 year]."
This Court therefore does not reach the additional issues raised by Defendant pertaining to Count III of whether that count should be dismissed because Plaintiffs failed to allege (1) that any of the Plaintiffs reside in Delaware and (2) that any of Defendant's purportedly unlawful conduct occurred in Delaware; the Court will defer consideration of these two issues a later time if Plaintiffs shall have amended Count III to conform with Super. Ct. Civ. R. 9(b).
II STANDARD OF REVIEW
A motion to dismiss for failure to state a claim upon which relief may be granted, made pursuant to Superior Court Civil Rule 12(b)(6), will not be granted if the plaintiff may recover under any conceivable set of circumstances susceptible to proof under the complaint. No 12(b)(6) motion can be granted unless it appears to a certainty that, under no set of facts which could be proved to support a claim, the plaintiff would be entitled to relief, although vagueness and lack of detail in the claim itself are not sufficient grounds to dismiss. In assessing the complaint, the court is to draw "all reasonable inferences in favor of the non-movant." The Court will accept all facts alleged in the complaint as true.
Finkbiner v. Mullins, Del. Super., 532 A.2d 609, 617 (1987).
Towe v. Justis Bros., Inc., Del. Super. 290 A.2d 657 (1972).
Ramunno v. Cawley, Del. Supr., 705 A.2d 1029, 1034 (1998).
Id.
III DISCUSSION
A. Count I of the Complaint is Dismissed Because Defendant's Disclaimer of the Implied Warranty of Merchantability Has Satisfied the Conspicuousness Requirement Despite The Disclaimer's Location Within the Zip Drive Package.
Defendant contends that Plaintiffs' claim for breach of the implied warranty of merchantability has failed to state a claim because Defendant's disclaimer of the implied warranty of merchantability, contained within the packaging of the Zip drive, effectively disclaimed all liability. The sole issue to be resolved here is whether Count I of the complaint should be dismissed because Defendant's disclaimer of the implied warranty of merchantability was not "conspicuous," as required by 6 Del.C. § 2-316, because the disclaimer was contained within the packaging of the Zip drive product itself and therefore not "discovered" by the purchaser prior to the purchaser's purchase of the product.
Complaint at ¶ 16.
Defendant's disclaimer inside the Zip drive package provides:
EXCEPT AS STATED ABOVE IN THIS PARAGRAPH, THE FOREGOING WARRANTIES ARE IN LIEU OF ALL OTHER CONDITIONS OR WARRANTIES, EXPRESS, IMPLIED, OR STATUTORY, INCLUDING, WITHOUT LIMITATION, ANY IMPLIED CONDITION OR WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE AM) OF ANY OTHER WARRANTY OBLIGATION ON THE PART OF IOMEGA (capitals in original).
The above disclaimer appears near the bottom of a document labeled "IOMEGA LIMITED WARRANTY" located inside the packaging.
6 Del. C. § 2-316(2) provides, in pertinent part, ". . . to exclude or modify the implied warranty of merchantability or any part of it the language must mention merchantability and in the case of a wilting must be conspicuous. . . ." 6 Del. C. § 2-316(2) is identical to § 2-316(2) of the Uniform Commercial Code.
The usual arguments concerning the conspicuousness requirement of U.C.C. § 2-316(2) have been based on issues such as the size of the type set and the location of the disclaimer in the warranty itself Defendant contends that the conspicuousness requirement has been met regardless of the location of the disclaimer inside the Zip drive package so long as the disclaimer is "noticeable and easily readable." Defendant asserts that "modern commercial realities of how contracts are formed with consumers of prepackaged products necessitates that the terms of [its] warranty disclaimer be given effect."
Defendant's Opening Brief at 3.
Id. at 4.
Plaintiffs do not claim that the disclaimer was improperly worded, that the text of the disclaimer was improperly placed in the rest of the warranty or that the typeface of the disclaimer was too small, but instead argue that the disclaimer, located in the packaging of the product, could not realistically be called to the attention of the consumer until after the sale had been consummated, thus rendering the disclaimer not "conspicuous" as a matter or law and therefore ineffective.
Although similar issues of additional terms to a contact such as a shrinkwrap license, an arbitration clause and a license agreement, each physically located within the packaging of the product, has been litigated in other jurisdictions, the parties have cited no case directly addressing the effectiveness, under U.C.C. § 2-316(2), of a disclaimer of the implied warranty of merchantability by virtue of its location within the packaging of a product itself, nor has the Court found any such case.
ProCd, Inc. v. Zeidenberg, 7th Cir., 86 F.3d 1447 (1996).
Hill v. Gateway 2000, Inc., 7th Cir., 105 F.3d 1147 (1997), cert. denied, 118 S.Ct. 47 (1997).
M.A. Mortenson Co. v. Timberline Software Corp., Wash. App., 970 P.2d 803 (1999).
The issue of conspicuousness, generally, under § 2-316 has been the topic of various law review articles, periodicals and texts, and has been the subject of much litigation. As stated, however, no authorities have been located that squarely addressed the issue in this case. The traditional focus has been on the "mention" of merchantability and the visible characteristics of the disclaimer, such as type set and location within the warranty document itself. In determining if a disclaimer of the implied warranty of merchantability is effective as being "conspicuous," the secondary authorities and courts have often looked to the purpose of § 2-316. The purpose of that section is to "protect a buyer from unexpected and unbargained for language of disclaimer." That purpose is the real backbone in determining if a disclaimer is conspicuous when looking at factors beyond the mentioning of merchantability and type set.
See, e.g., Bernard F. Kistler, Jr., U.C.C. Article Two Warranty Disclaimers and the "Conspicuousness" Requirement of Section 2-316, 43 Mercer L.Rev. 943, 945-953 (1992); Jeffrey C. Selman and Christopher S. Chen, Steering the Titanic Clear of the Iceberg: Saving the Sale of Software From the Perils of Warranties, 31 U.S.F. L.Rev. 531, 533-536 (1997); William H. Danne, Jr., Construction and Effect of UCC § 2-316(2) Providing That Implied Warranty Disclaimer Must Be "Conspicuous," 73 A.L.R.3d 248, Vol. 73 (1976).
Ronald A. Anderson, Anderson on the Uniform Commercial Code, §§ 2-316:144-153 (3rd ed. 1983); Debra L. Goetz, Special Project: Article Two Warranties in Commercial Transactions, An Update, 72 Cornell L.Rev. 1159, 1264-1275 (1978).
U.C.C. § 2-316 cmt. 1 (1962).
Analogous support for this Court's conclusion that the physical location of the disclaimer of the implied warranty of merchantability inside the Zip drive packaging does not make the disclaimer inconspicuous can be found in some cases from other jurisdictions. In ProCD, Inc. v. Zeidenberg, the Seventh Circuit held that a shrinkwrap license located inside the packaging of the computer program was enforceable as an additional term of the contract, and stated that the commercial practicalities of modern retail purchasing dictate where terms such as a shrinkwrap license should be located. The ProCD court held that it would be otherwise impractical for these additional terms to be located on the outside of the box in "microscopic" type. The ProCd court stated, "[t]ransactions in which the exchange of money precedes the communication of detailed terms are common." The ProCd court then looked to other sections of the U.C.C. that dealt with the issue in terms of acceptance and rejection of goods: "A buyer accepts goods under § 2-606(1)(b) when, after an opportunity to inspect, [the buyer] fails to make an effective rejection under § 2-602(1). [The seller] extended an opportunity to reject if a buyer should find the license unsatisfactory." The ProCD court continued its analysis and observed that
7th Cir., 86 F.3d at 1447.
Id. at 1453.
Id. at 1451.
Id.
Id. at 1452-1453.
Consumer goods work the same way. Someone who wants to buy a radio set visits a store, pays and walks out with a box. Inside the box is a leaflet containing some terms, the most important of which usually is the warranty, read for the first time in the comfort of home. By [the buyer's] lights, the warranty in the box is irrelevant; every consumer gets the standard warranty implied by the UCC in the event the contract is silent; yet so far as we are aware no state disregards warranties furnished with consumer products.
Id. at 1452.
Plaintiffs argue that ProCd is inapposite because it specifically concerned the validity of a shrinkwrap license which is not governed by U.C.C. § 2-316(2). Although that is correct, ProCd stressed that "the U.C.C. . . . permits parties to structure their relations so that the buyer has a chance to make a final decision after a detailed review" of the contract terms. All of the additional terms, which included the shrinkwrap license, became part of the contract in ProCd.
Id. At 1453.
In Hill v. Gateway 2000, Inc., the Seventh Circuit relied on ProCd in holding that an arbitration clause located inside the packaging of a computer was enforceable as an additional term to the contract, and stated, "[p]ractical considerations support allowing vendors to enclose the fill legal terms with their products . . . [C]ustomers as a group are better off when vendors skip costly and ineffectual steps such as telephonic recitation, and use instead a simple approve-or-return device." In holding that the arbitration clause was effective, the Hill court concluded that an additional term physically located outside of the contract was nevertheless an enforceable term of the contract.
7th Cir., 105 F.3d at 1147
Id. at 1149.
In M.A. Mortenson Co. v. Timberline Software Corp., the Washington Court of Appeals relied on ProCd and Hill and held that a licensing agreement located inside the packaging of a software program was enforceable as an additional term to the contract. In Mortenson the court stated, ". . . the terms of the present license agreement are part of the contract as formed between parties. We find that [the purchaser's] installation and use of the software manifested its assent to the terms of the license. . . ." As in ProCD and Hill, the Mortenson court held that a licensing agreement located within the packaging of the product, not in the contract itself, was an enforceable additional term of the contract.
Id. at 831.
Other courts have also addressed the issue of the physical location of the disclaimer of the implied warranty of merchantability from different perspectives. Thus in Step-Saver Data Systems., Inc. v. Wyse Technology, the United States District Court for the Eastern District of Pennsylvania discussed the location of a disclaimer of the implied warranty of merchantability inside computer software packaging and held the location of an additional term (in Step-Saver, a disclaimer) is to be considered independently of conspicuousness. The Step-Saver court held that "[t]here is no question that pursuant to the U.C.C., limitation of warranty and remedies are valid when packaged with the product so long as the limitation is clear, conspicuous and one that a reasonable person would have noticed and understood." The holding in Step-Saver that conspicuousness and location are to be considered independently is not directly on point with the issue at bar. However, the Step-Saver court relied on the purpose behind § 2-316 in finding that so long as a disclaimer of the implied warranty of merchantability is one that could be noticed and understood, the disclaimer is conspicuous.
E.D. Pa., CA. No. 89-7203, 1990 WL 87334, Broderick, J. (June 21, 1990).
Id. at *7.
This Court has addressed the issue of conspicuousness under § 2-316(2) in Lecates v. Hertrick Pontiac Buick Co. In Lecates, a case on which Plaintiffs rely, the issue was whether the implied warranties were effectively disclaimed by an automobile dealer when the car that was sold malfunctioned, causing physical injuries. The court held that the seller's disclaimer of the implied warranty of merchantability located in a sales invoice satisfied the conspicuous requirement of § 2-316(2). In Lecates, the specific question was whether or not the disclaimer had been delivered by the seller to the buyer only after the sale had already been consummated. The Lecates court addressed this narrow issue in light of the specific facts in that case and observed that disclaimer clauses have been held ineffective "if it appeared that the documents in which such clauses appeared were given to the buyer after the sale had been consummated." Lecates addressed the issue of what terms and conditions were a part of the contract at the point of contract consummation, but here, Defendant's disclaimer of the implied warranty of merchantability was an additional term of each contract between each plaintiff and Defendant to purchase the Zip drives. Defendant's sales of the Zip drives to the six plaintiffs were each not "consummated" until after each plaintiff had had an opportunity to inspect and then to reject or to accept the product with the additional terms that were enclosed within the packaging of the Zip drive.
Del. Super., 515 A.2d 163 (1986).
Id. at 170.
The commercial practicalities of modern retail purchasing make it eminently reasonable for a seller of a product such as a Zip drive to place a disclaimer of the implied warranty of merchantability within the plastic packaging. The buyer can read the disclaimer after payment for the Zip drive and then later have the opportunity to reject the contract terms (i.e., the disclaimer) if the buyer so chooses. This Court concludes that Defendant's disclaimer of the implied warranty of merchantability was effective despite its physical placement inside the packaging of the Zip drive and has satisfied the conspicuousness requirement of 6 Del. C. § 2-316(2).
Defendant's Motion to Dismiss Count I on the grounds that Plaintiffs have failed to state a claim for breach of the implied warranty of merchantability is granted.
B. Plaintiffs Have Satisfied the Requirements of Superior Court Civil Rule 9(b) in Pleading Negligent Manufacture and Design in Count II of the Complaint.
The issue here to be resolved is whether the Plaintiffs have satisfied the particularity requirements of Superior Court Civil Rule 9(b) with respect to pleading negligent manufacture and design in Count II of the complaint.
Defendant contends that Plaintiffs have not satisfied the particularity requirements of Rule 9(b). Although Defendant concedes that Plaintiffs have identified in their complaint a duty to use reasonable care, skill and diligence, Defendant argues that Plaintiffs' complaint nevertheless provides insufficient indication of what particular acts of negligence, or what failure to act, by Defendant breached that duty.
Plaintiffs assert that their Complaint has met the particularity requirements of Rule 9(b), pointing out that the specific facts and details of the manufacture and design of the Zip drive are solely within the knowledge of Defendant and it would be impossible for Plaintiffs to plead negligence with any more specificity at this stage.
In the present case, the Court finds that negligence has been pled with sufficient particularity to survive a motion to dismiss. The complaint alleges in pertinent part:
¶ 2. Plaintiffs allege that the Defect is caused by, inter alia, neodymium/iron magnetic particles which corrupt the ability to store and retrieve data on a disk. These particles also render any disks utilized in such Drives unusable. Further, the lubricant in disks can also decompose, forming a solid matter which can accumulate on the heads of the Drive and prevent them from reading information, meanwhile corrupting the source disk. The mechanism for the Drive heads can also slip on the edge of a disk, tearing the storage media, rendering the disk useless, and dislodging the Drive heads. . . .
¶ 12. Iomega marketed the Drives as a medium for sage and effective storage, archiving, transportation and subsequent retrieval of electronically stored data. The Defect, however, manifests itself without warning and renders the affected Drive incapable of performing any of these tasks. Moreover, when the Defect becomes manifest, all data stored on the Drive become irretrievable and are lost for perpetuity unless previously stored elsewhere. The Defect thus renders the Drives unreliable as a medium for the storage, archiving, transportation and retrieval of electronically stored data. As a result, the Drives have little, if any value. . . .
¶ 20. Users of the Drives often use disks other than the original disk provided with the Drive when purchased. When the Defect becomes manifest, these additional disks are irreparably damaged, causing a total loss in their value. Moreover, if the user transfers the damaged disk to another Drive in an attempt to retrieve the data stored on it, this second Drive often becomes irreparably damaged. As a result, the Defect has proximately caused damages to users of the Drives that experience the Defect by the loss of value of disks and secondary Drives.
¶ 21. A manufacturer owes to the consuming public a duty to use reasonable care, skill and diligence in designing its product to minimize all foreseeable risks, and in manufacturing the product so that it does not contain a manufacturing defect when placed into the stream of commerce.
¶ 22. Shipped in their sealed packages, the Drives reached the consumers without substantial change from the time they left Iomega's control at the point of manufacture.
¶ 23. The Defect constitutes a defect in the design and/or manufacture of the Drives. It causes an unreasonable risk of damaging the personal property of Plaintiffs and members of the Class, in addition to the Drives themselves.
The requirement of pleading negligence in accordance with Rule 9(b) must be applied in the light of the particular situation presented. When pleading negligence, plaintiffs have to meet the heightened standard of Rule 9(b), and must specify a duty, a breach of the duty, who breached the duty, what act or failure to act caused the breach, and the party who acted. The underlying purpose of the particularity requirement is to afford the defendant an ability to prepare a defense. This Court in Phillips v. Delaware Power Light Co. held, "[l]ess particularity is required when the facts lie more in the knowledge of the opposite party pleading."
Phillips v. Delaware Power Light Co., Del. Super., 194 A.2d 690 (1963); Gunzl v. Osteopathic Hosp. Ass'n., Del. Super., C.A. No. 81C-FE-6, Martin J. (Jan. 19 1983) (Mem. Op.).
Myer v. Dryer, Del. Super., 542 A.2d 802, 805 (1987).
Sprout v. Ellenburg Cap. Corp., Del. Super., C.A. No. 95C-05-025, slip op. at 17, Graves, J. (Aug. 26, 1997).
Phillips at 697.
The cases cited by Defendant holding that the particularity requirement of Rule 9(b) had not been satisfied are distinguishable from the case presented here.
Boyer v. Sullivan, Del. Super., C. A. No. 87C-JA-157, Del Pesco, J. (Aug. 9, 1988) (holding that plaintiff did not allege gross or wanton negligence when such requirement was required by the Delaware Sovereign Immunity Statute); Sprout, supra note 38 (holding that one conclusory sentence alleging negligence did not satisfy the particularity requirement).
Plaintiffs have at this juncture sufficiently specified the nature of the defect, the specific cause of the defect, the duty owed by Defendant to its customers, the breach of the duty by Defendant and the damages resulting from that breach. Furthermore, this court agrees with Plaintiffs that more of the information regarding the particularities of the design and manufacture of the Zip drives lie with Defendant.
Defendants' Motion to Dismiss Count II for failure to state a claim of negligent manufacture and design is denied.
C. Plaintiffs Have Not Pleaded Fraud Under the Delaware Consumer Fraud Act With the Sufficient Particularity Required by Superior Court Civil Rule 9(b).
The issue here to be resolved is whether the plaintiffs have satisfied the requirement of Superior Court Civil Rule 9(b) that allegations of fraud be pleaded with "particularity" in Count III which alleges a violation of the Delaware Consumer Fraud Act ("the Act").
6 Del. C. Ch 25, subchapter II, Consumer Fraud §§ 2511-2527.
Defendant contends that Plaintiffs have failed to state a claim for a violation of the Act by not pleading fraud with "particularity" because Plaintiffs have only "summarily" alleged in Count III that Defendant has made unspecified false representations. Defendant claims that Plaintiffs' complaint is not sufficiently particular in what those false representations were and how they were made.
Plaintiffs respond that their complaint satisfies the particularity requirements of Rule 9(b) and that they have sufficiently pleaded a statutory violation of the Act. Their operative paragraphs of their complaint alleges in toto:
¶ 26. Iomega represented through advertising to the purchasing public that the Drives were a suitable, reliable medium for the storage, archiving, transportation and retrieval of electronically stored data.
¶ 27. Iomega made this representation through its advertising, with the intention that the consuming public would rely on it in purchasing the Drives.
¶ 28. The representation was false, in violation of 6 Del. C. § 2513.
¶ 29. As a result of the representation, the Plaintiffs and members of the Class purchased the Drives and experienced Drive failure, Drive self-destruction, loss of data and damage to other personal property.
Superior Court Civil Rule 9(b) provides, in pertinent part, "[i] all averments of fraud . . . the circumstances constituting fraud . . . shall be stated with particularity." 6 Del. C. § 2513 provides, in pertinent part,
The act, use or employment by any person of any deception, fraud, false pretense, false promise, misrepresentation, or the concealment, suppression or omission of any material fact with the intent that others rely upon such concealment, suppression or omission, in connection with the sale or advertisement of any merchandise, whether or not any person has in fact been misled, deceived or damaged thereby is unlawful practice.
To satisfy the particularity requirements of 9(b) governing allegations of fraud, a plaintiff must specify the time, place, and contents of the false representations, as well as the identity of the person or persons making those representations. When pleading fraud, a plaintiff has to meet the heightened standard of Rule 9(b). A plaintiff must state the precise theory of fraud with specifics in the complaint.
Nutt v. A. C. and S, Inc., Del. Super., 466 A.2d 18, 23 (1983), aff'd sub nom. Mergenthaler v. Asbestos Corp. of Am., Del. Supr., 480 A.2d 647 (1984).
Id. at 23.
Here, Plaintiffs have failed to plead with particularity the time, place, and contents as required by Rule 9(b). Plaintiffs have only very generally alleged that Defendant made false representations through advertising and have failed to describe with the particularity required what that advertising was, where it was placed and what it actually stated. Furthermore, Plaintiffs have failed to identify a precise theory of fraud or false representation. Plaintiffs need to be more specific in alleging fraud by pleading with more particularity what the false advertising was, where it was located, the contents of the statements and the reliance that ensued from those statements which caused the damage.
This Court will, however, defer any dismissal of Count III at this time and will allow Plaintiffs potential leave to amend Count III under Superior Court Civil Rule 15(c) on or before a date to be established at a later time.
D. Plaintiffs Have Satisfied the Requirements of Superior Court Civil Rule 9(b) in Pleading Negligent Failure to Warn in Count IV of the Complaint.
The issue here to be resolved is whether the Plaintiffs have satisfied the particularity requirement as specified by Superior Court Civil Rule 9(b) in pleading Defendant's alleged negligent failure to warn.
Defendant contends that Plaintiffs have failed in Count IV to give a "precise allegation beyond empty conclusion as to how or when Iomega allegedly "knew or should have known' of the purported Zip drive defect" and that such an allegation is a conclusory statement not meeting the particularity requirements of Rule 9(b).
Defendant's Opening Brief at 20.
Plaintiffs claim that they have stated all the elements of a negligence claim based on Defendant's failure to warn and have satisfied the requirements of Rule 9(b). Plaintiffs have stated the following in Count IV of their complaint:
¶ 32. A manufacturer has a duty to the consuming public to warn about the risks of its product when it knows or should know that the product involves a risk of harm when used for its intended purpose.
¶ 33. Shipped in their sealed packages, the Drives reached the consumers without substantial change from the time they left Iomega's control.
¶ 34. Iomega knew or should have known about the Defect.
¶ 35. Despite such actual or constructive knowledge. Iomega failed to warn purchasers of the Drives about the potential risks associated with the Defect. This failure to warn caused an unreasonable risk of damage to the personal property of the Plaintiffs and that of the members of the Class.
¶ 36. The aforementioned failure to warn proximately caused damage to the personal property of Plaintiffs and the members of the Class.
See also, ¶¶ 2 and 12 of Complaint, supra, at 16.
In Phillips, this Court addressed what should be pleaded with particularity pursuant to Rule 9(b) when pleading negligence and when the knowledge lies more within the hands of the Defendant. The Phillips court said,
[W]here there is `active' or `positive' negligence charged, no great burden is required of a plaintiff to aver the `facts' or `particulars' of such `active' or `positive' action on the part of the party charged creating the duty and its breach, so the [the defendant] can prepare to meet the evidence which will be adduced to prove such `active' or `positive' action and to disprove them.
Phillips, at 698.
Plaintiffs have minimally, but sufficiently, specified the nature of the defect, the specific cause of the defect, the duty owed by defendant to its customers, the breach of the duty by defendant and the damages resulting from that breach. Plaintiffs have thus sufficiently pleaded negligent failure to warn sufficiently under the particularity requirement of Rule 9(b) and Defendant's Motion to Dismiss Count IV on the grounds that Plaintiffs have failed to state a claim for negligent duty to warn is denied.
IV CONCLUSION
For the reasons explained below, Defendant's to Dismiss is GRANTED in part, DENIED in part and DEFERRED in part. Defendant's Motion to Dismiss Count I on the grounds that Plaintiffs have failed to state a claim for breach of the implied warranty of merchantability is GRANTED since the Court finds that the disclaimer is "conspicuous." Defendant's Motion to Dismiss Count II on the grounds that Plaintiffs have failed to state a claim for negligent design and manufacture is DENIED. Defendant's Motion to Dismiss Count III on the grounds that Plaintiffs have failed to plead fraud with sufficient particularity under the Delaware Consumer Fraud Act is GRANTED, but dismissal now is DEFERRED Plaintiffs are granted leave to amend Count III pursuant to Superior Court Civil Rule 15(a) on or before a date that will be established at a later time. Defendant's Motion to Dismiss Count IV on grounds that Plaintiffs have failed to state a claim for negligent failure to warn is DENIED.
IT IS SO ORDERED.