Class Action Challenging Labeling PCs as “Windows Vista Capable” even if PCs could not Run Premium Vista Properly Certified as Nationwide Class Action and Washington State Law may be Applied to Claims of All Members of Class Action Washington Federal Court Holds
Plaintiffs filed a putative class action lawsuit against Microsoft challenging the marketing of its new “Windows Vista Capable” and “Express Upgrade” programs; specifically, the class action complaint alleged that almost a year before its release of the new Vista operating system, Microsoft “authorized original equipment manufacturers…to place a sticker on personal computers… indicating that the PCs had been certified by Microsoft as ‘Windows Vista Capable.’” Kelley v. Microsoft Corp., ___ F.Supp.2d ___ (W.D. Wash. February 22, 2008) [Slip Opn., at 1]. The class action alleged further that a substantial number of PCs that were advertised as “Windows Vista Capable” were limited to “Vista Home Basic” which, according to the complaint, “does not include any of the enhanced features unique to Vista and which make Vista attractive to customers.” Id., at 2. Some PCs were labeled as “Premium Ready” rather than “Windows Vista Capable,” id., but at that time consumers were unaware of the various Vista operating systems that would be available or the differences between them. The class action also alleged that Microsoft offered an “Express Upgrade Guarantee Program” to PC customers that would allow purchasers to “Windows Vista Capable” PCs to upgrade to Vista for little or no cost, but failed to disclose that the upgrade generally would be limited to Vista Home Basic. Id. Plaintiffs moved for the district court to certify the litigation as a nationwide class action and to apply Washington law to the class action. Id., at 1. Defense attorneys opposed both motions. The district court granted class action certification and agreed that Washington law governs the lawsuits.
The gravamen of the class action complaint was that “Microsoft eventually released four versions of Vista – Basic, Premium, Business, and Ultimate” – but that “the Premium version that is the ‘real’ Vista.” Kelley, at 2. Computers were advertised as “Windows Vista Capable,” the class action alleged, in order to “boost holiday sales of personal computers after delaying the release of Vista from March 2006 to early 2007” because Microsoft was “concerned that consumers looking to buy a new computer would delay their purchases until the release of Vista (and therefore after the holiday season).” Id. Thus, Microsoft allegedly engaged in the false and deceptive business practice of advertising PCs as “Windows Vista Capable” even if they could only run the Basic version “because Microsoft was concerned that few PCs on the market at the time could run the more premium versions of Vista” and so it “endeavored to assure consumers that their new computers would run the soon-to-be released Vista operating system.” Id. Microsoft countered that while Vista Home Basic “lack[ed] some of the capabilities of the premium versions of Vista, [it] still provides material improvements over Microsoft’s earlier operating system, Windows XP,” id., and pointed to various “marketing materials, sales aids, and training materials that described what features the different Windows Vista editions would provide and explained that not every ‘Windows Vista Capable’ computer would be able to provide every advanced feature available in every edition of Windows Vista,” id., at 3.
At the time plaintiffs sought class action treatment, the complaint sought relief for unjust enrichment and for violation of Washington’s Consumer Protection Act (CPA) or other state consumer protection acts. Kelley, at 4. Plaintiffs sought to certify a nationwide class action, and argued that Washington law applied to the claims of all class members. Id. The district court began its analysis by addressing the choice of law question, id. Defense attorneys argued that “the laws of all 50 states are relevant to Plaintiffs’ claims,” id., at 5. The federal court explained that it must first determine whether applying Washington law would be unconstitutional, and if not, whether applying Washington law would be “appropriate under Washington’s choice of law rules.” Id. (citing Phillips Petroleum Co. v. Shutts, 472 U.S. 797 (1985)). The district court easily concluded that applying Washington law would not violate the Constitution because “[a]lthough the injury to Plaintiffs and the potential class members may have occurred outside of Washington, application of Washington law is not arbitrary, unfair, or unforeseeable.” Id., at 5-6 (citation omitted). The court’s analysis of Washington’s choice of law rules was much more extensive, see id., at 6-11. Washington law requires a determination first of whether an actual conflict exists between the laws of Washington and other states, and if so, “the forum or fora that have the ‘most significant relationship’ to the action to determine the applicable law.” Id., at 6 (citation omitted).
An actual conflict exists if application of the laws of different states would produce different outcomes on the same legal issues. Kelley, at 6. The federal court agreed that such a conflict exists in this case, pointing specifically to the differences between Washington’s CPA and Illinois’ Consumer Fraud Act, and between Washington law on unjust enrichment and the law of Rhode Island to such claims. Id., at 7. The court concluded, however, that Washington has “the most significant relationship to this action,” see id., at 7-11, and accordingly agreed with plaintiffs that Washington law would govern the claims of all class members, id., at 11.
Turning to the standard for class action certification under Rule 23, see Kelley, at 11, the federal court first addressed whether it was limited to the pleadings in determining whether to grant class action treatment, id., at 12. The court rejected plaintiffs’ argument that it must “rely solely on the substantive allegations in the complaint,” and held that it “may consider other evidence presented by the parties in determining whether Plaintiffs have satisfied the elements of Rule 23.” Id., at 13 (citations omitted). The district court then noted that defense attorneys did not contest numerosity under Rule 23(a)(1), commonality under Rule 23(a)(2) or adequacy of representation under Rule 23(a)(4). Id., at 13-14. The defense focused its opposition to class action treatment to typicality, predominance, and superiority. Id., at 14.
With respect to typicality, Microsoft argued that plaintiffs’ claims are not typical of the putative class because neither of them participated in the “Express Upgrade” program. Kelley, at 14. The district court agreed, holding that in essence the named plaintiffs lacked standing to prosecute claims related to the “Express Upgrade” program, see id., at 15-16. The court explained at page 16, “Here, the named plaintiffs have not suffered any injury resulting from the ‘Express Upgrade’ program, and therefore do not have standing to bring a claim based on that program.” However, the federal court concluded that plaintiffs’ claims were typical of other individuals who purchased “Windows Vista Capable” PCs, so instead of dismissing the class action it created a subclass of individuals who purchased PCs marked “Windows Vista Capable” and enrolled in the “Express Upgrade” program, provided that within 30 days plaintiffs amended the class action complaint to add a named plaintiff who had participated in the “Express Upgrade” program, id., at 16. Otherwise, the “Express Upgrade” program claims would be dismissed, id.
With respect to the predominance test of Rule 23(b)(3), defense attorneys argued that individual issues of law and fact predominate over common issues, particularly based on Washington Supreme Court authority that plaintiffs cannot establish causation under Washington’s CPA through individualized inquiries. Kelley, at 16-17. Microsoft also argued that individual inquiries would be essential to proof of the unjust enrichment claims, id., at 17. The district court disagreed, but limited the scope of the class action holding at page 17, “Plaintiffs may not maintain either cause of action on a deception theory, but may maintain both on a ‘price inflation’ theory.” The court limited the class based on its recognition that “Many courts have denied class certification where plaintiffs alleged a deception-based theory of consumer fraud,” id., at 19, and in this case “a deception-based theory of causation would necessarily require the trier of fact here to determine whether individual class members were actually deceived and whether they would have purchased their PCs but for Microsoft’s marketing of them as ‘Windows Vista Capable,’” id., at 20. The federal court’s analysis of the predominance issue may be found at pages 17-23.
Finally, with respect to the superiority requirement of Rule 23(b)(3), the district court agreed with plaintiffs that individual interest in litigating the claims at issue would be low, and concluded that litigating the claims as a class action would be manageable. Kelley, at 23-24. Accordingly, the court certified a nationwide class action to be governed by Washington law, id., at 24-25.
NOTE: As noted above, the district court limited the scope of the class action, holding that the class would not include individuals who seek damages in connection with the “Express Upgrade” program unless plaintiffs amend the class action complaint to add a named plaintiff who actually participated in that program, as the named plaintiffs had not. Kelley, at 24. The court also held that plaintiffs could not seek damages “on the theory that Microsoft’s deceptive advertising induced consumers to purchase PCs that they would not have otherwise purchased,” as that was not true of the named plaintiffs, but that plaintiffs could “bring their class claims on a ‘price inflation’ theory, i.e. that Plaintiffs paid more than they would have for their PCs had Microsoft’s ‘Windows Vista Capable’ marketing campaign not created artificial demand for and/or increased prices of PCs only capable of running Vista Home Basic.” Id.