Thursday, July 21, 2011

iPad Data Plan Fraud Claims Proceed Against Apple and AT&T

This posting was written by William Zale, Editor of CCH Advertising Law Guide.

Purchasers of 3G-enabled iPads can pursue claims of common law fraud against Apple and AT&T Mobility, but the purchasers failed to state claims under California consumer protection statutes, the federal district court in San Jose has ruled.

Apple’s and AT&T’s advertising, including statements by Apple CEO Steve Jobs, allegedly led the purchasers to believe that they would have the flexibility of switching in and out of an unlimited data plan based upon their monthly needs.

Apple began selling 3G-enabled iPads on or around April 30, 2010, and the firms’ allegedly promoted the flexible and unlimited data plan options up to June 2, 2010, when they announced that as of June 7, 2010, they would no longer provide an unlimited data plan.

Consequently, purchasers who initially opted for the limited data plan no longer have the option to switch in and out of an unlimited plan. Purchasers who had signed up for the unlimited plan were allowed to maintain it, but if they discontinued it they would not be allowed to switch back.

Bait and Switch

The purchasers asserted a classic “bait and switch” fraud scheme and claimed that they would not have purchased 3G-enabled iPads had they known that the firms would pull the flexible unlimited data option.

Contrary to AT&T’s contention, the purchasers alleged the “who, what, when, where, and how” of the fraud with the particularity required by the Rule 9(b) of the Federal Rules of Civil Procedure. The court found that the complaint set forth specific information that AT&T allegedly concealed—that it would almost immediately be canceling the unlimited plan and denying customers flexible access to such a plan, and that this was its intention all along.

The purchasers pleaded the element of reliance by repeatedly alleging that both Apple's and AT&T's statements were material to them and had they known that there would be no flexible unlimited data plan, they would not have purchased their iPad 3Gs, according to the court. The purchasers claimed that AT&T was aware of Apple's alleged misrepresentations, but did nothing to counter the statements, and even endorsed them, the court added.

California Consumer Protection Laws

The purchasers failed to allege a proper basis for restitution under the California Unfair Competition Law and False Advertising Law with regard to excess data plan charges incurred after the unlimited data plan was replaced. A damages claim under the California Consumers Legal Remedies Act was rejected because a required 30-day advance notice of violation was sent to Apple but not to AT&T. In addition, non-California residents who purchased their iPads outside of California lacked standing to assert claims under the statutes.

The purchasers’ claims under the California consumer protection statutes were dismissed with leave to amend.

The July 18 opinion in In re Apple and AT&T iPad Unlimited Data Plan Litigation will be reported at CCH Advertising Law Guide ¶64,337.

Further information regarding CCH Advertising Law Guide appears here.

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