Federal Court in Seattle Refuses to Certify 50-State Consumer Fraud Action Against Microsoft over Xbox 360
How many litigators -- after having served that killer set of interrogatories, cross-examined that prevaricating expert, or filed that surgical strike of a dispositive motion -- have returned home to secretly slay the "evildoers" (as #43 used to call them) in a game of Halo 3? Apparently one too many. Since 2005, Microsoft has been defending cases alleging a defect in its Xbox 360 video gaming system. The central allegation is that the Xbox loading tray allows the video game disc to load in such a way that it can be thrown or "chucked" from its spindle, and that the disc is then moving at such force that deep groves are gouged into the disc as it rattles around the inside of the machine, making the disc inoperable.
Loyal reader Fred Burnside of Davis Wright Tremaine LLP forwarded for our benefit yesterday's decision from Judge John C. Coughenour denying certification of a nationwide class in the litigation. See In re Microsoft Xbox 360 Scratched Disc Litigation, No. C07-1121-JCC, Slip op. (W.D. Wash. Oct. 5, 2009). The decision is important because it rejects the notion of applying the law of the defendants' residence to all members of the class, and because it recognizes that in a case where most class members have not experienced the problem, causation and damages are issues that require individualized proof.
Shortly before the release of the product, Microsoft had observed the issue of scratched discs. Because its engineers determined that the problem occurred only if the machine was moved during game play (as the disc was spinning), the company put a warning sticker over the disc tray mechanism that read "Do not move console with disc in tray" and included an instruction in the user manual. Microsoft had received roughly 55,000 complaints about scratched game disks, but this represented less than 1% of product owners.
Plaintiffs were residents of Pennsylvania, Washington, and California. They sought certification of a class applying the law of Washington, Microsoft's residence. The court analyzed choice of law first.
Microsoft had an interesting choice of law clause in its Xbox 360 warranty:
If you acquired the Xbox Product in the United States, the laws of the State of Washington, U.S.A., will apply to this Limited Warranty. The laws of your state of residence will apply to any tort claims and/or any claims under any consumer protection statutes.
Slip op. at 5 (emphasis in original).
The court determined that the forum, Washington, would apply a contractual choice of law clause unless: (1) without the provision, Washington law would apply; (2) the chosen state's law violates a fundamental public policy of Washington; and (3) Washington's interests in the outcome outweighs the chosen state's interests. Id. (citation omitted).
The court proceeded to analyze two Washington Supreme Court decisions in which the court refused to apply forum selection clauses because they were violative of Washington's public policy: Dix v. ICT Group, 161 P.3d 1016 (Wash. 2007), and McKee v. AT&T Corp., 191 P.3d 845 (Wash. 2008). Although the court conceded that, at first glance, the cases seemed to support plaintiffs' position, it reasoned that, on closer scrutiny, they did not:
In Dix, AOL's provision would have required Washington residents to litigate in courtrooms on the other side of the country. Microsoft's provision requires no such thing, and in fact subjects Microsoft to liability in the plaintiff's most convenient forum, his or her home state. In McKee, AT&T's choice-of-law provision would have required that Washington residents hire an attorney familiar with New York law. Microsoft's provision imposes no such burden, and in fact obligates Microsoft to familiarize itself with the consumer-protection laws of fifty different states. . . . Microsoft's choice-of-forum provision . . . is enforceable, because it leaves open a "feasible alternative for seeking relief." See McKee, 191 P.3d at 852. Aggrieved Xbox customers have the option of filing statewide class-action suits in their home states. Plaintiffs fail to point to a Washington case holding that the State's public policy is to guarantee nationwide class-action resolution of small claims, and this court does not read Dix and McKee as stating that much.
Slip op. at 7-8.
The court held that Washington law did not apply to the claims of all class members, but rather the consumer protection laws of each plaintiff's home state should be applied. The court held that this alone would defeat predominance because "[s]tate consumer protection law varies considerably across the fifty states" and applying fifty states' consumer protection laws would "create innumerable difficulties." Id. at 9.
But the court also held that individual issues of fact predominate over the common issues. The court observed that fewer than one percent of Xbox owners had experienced the alleged defect, and recognized that most owners would use the consoles throughout their useful life without experiencing the problem. Such class members, the court held, would have suffered no damages, and thus determining the issue of damages required an individualized injury. Id. at 10-11. Moreover, because the scratched discs may arise from what Microsoft characterized as product misuse, the cause of any damages also was an individualized fact issue that precluded class certification. Id. at 11.
The decision in the Xbox Scratched Disc Litigation is an important reminder that even where a considerable number of people may have experienced a problem with a product, individual issues of fact and law may still make a class resolution of their claims unmanageable.
