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Trujillo v. Apple Computer

September 22, 2008

JOSE TRUJILLO, ON BEHALF OF HIMSELF AND ALL OTHERS SIMILARLY SITUATED, PLAINTIFF,
v.
APPLE COMPUTER, INC. AND AT&T MOBILITY LLC, DEFENDANTS.



The opinion of the court was delivered by: Matthew F. Kennelly, District Judge

MEMORANDUM OPINION AND ORDER

Jose Trujillo has sued AT&T Mobility LLC (ATTM)*fn1 and Apple Computer, Inc. (Apple). His lawsuit concerns an iPhone that he purchased at an Apple retail store in Oak Brook, Illinois in early July 2007 and then gave to Dawn Trujillo as a gift.

ATTM is the exclusive provider of wireless service for the iPhone. A person who signs up with ATTM for iPhone service must do so for a minimum of two years. The iPhone's battery, however, may not last that long; even though it is rechargeable, it must be replaced after about 300 charges. To replace the battery, the iPhone user must send the device to Apple, incurring a $79 service fee plus shipping charges and an additional fee for the use of a loaner iPhone in the interim. The only alternative for the user is to cancel his service with ATTM before the end of the two year term, which results in a significant early termination fee.

Trujillo contends that in marketing and promoting the iPhone before it was launched for sale, both Apple and ATTM hid information about the limited life of the battery and what is required to replace it, thus misleading consumers about the true cost of the iPhone. He has sued both companies for fraud, breach of contract, breach of implied warranty, unjust enrichment, and violation of the Illinois Consumer Fraud Act.

ATTM has moved to compel arbitration; it argues that pursuant to its service contract with Trujillo, his claims against ATTM must be submitted to arbitration on an individual basis. The Court denies ATTM's motion. The agreement that ATTM contends requires arbitration of Trujillo's claims was not available to Trujillo before or when he purchased the iPhone -- a factor that, under Illinois law, is critical to enforceability.

Facts

1. Outline of Trujillo's Claims

The iPhone is a combined wireless telephone and internet access device, manufactured by Apple. Both Apple and ATTM (known until January 2007 as Cingular Wireless) sold the iPhone at their respective retail stores at the relevant time. ATTM is the sole licensed provider of wireless service for the iPhone. When a prospective iPhone user contracts for service with ATTM, he must sign up for a minimum of two years.

Trujillo's lawsuit concerns the durability of the iPhone's battery. After recharging the battery about 300 times, a user must send his iPhone to Apple for battery replacement. This typically occurs, Trujillo alleges, inside of two years after purchase. When the user send in the device for battery replacement, he incurs a $79 service fee plus shipping charges and an additional fee for the use of a loaner iPhone in the interim.

Trujillo alleges that given ATTM's two year minimum service term, the charges connected with battery replacement amount to "a de facto annual maintenance and/or service charge" worth nearly one-fifth of the iPhone's purchase price. Am. Compl. ¶ 22. He alleges that in marketing and promoting the iPhone, both Apple and ATTM hid information about the iPhone battery's limited life and the details of Apple's battery replacement program until after the device was launched for sale to the public. This, Trujillo alleges, misled consumers about the "true nature of the iPhone and its actual expense." Am. Compl. ¶ 31. Trujillo asserts claims of common law fraud, breach of contract, implied warranty, and unjust enrichment, and violation of the Illinois Consumer Fraud Act.

The facts relevant to ATTM's motion to compel arbitration have emerged slowly. After the Court questioned the foundation for certain of ATTM's contentions, ATTM submitted supplemental materials. Those materials revealed that ATTM's initial factual submission had been false in several material respects. The Court will lay out these circumstances in some detail as it reviews the relevant facts.

2. Trujillo's Purchase of an iPhone

As noted at the outset of this decision, Trujillo's claims concern an iPhone that he purchased. See Am. Compl. ¶ 8. Trujillo purchased an iPhone from an Apple retail store in Oak Brook, Illinois on July 2, 2007. He paid $533.93 -- $499.00 plus sales tax of $34.93. The sales receipt from the Apple store, which Trujillo provided as part of a supplement to his response to ATTM's motion to compel arbitration, stated that he could return the iPhone by July 16, 2007 but would be charged a "$49.90 fee if opened," i.e., if the box in which the device was sold had already been opened. Pl. Suppl. Resp. to Def. Mot. to Compel Arb., Ex. B.

It appears Trujillo bought the iPhone as a gift for Dawn Trujillo, a non-party to this lawsuit. Their exact relationship has not been addressed but is of no consequence to the current dispute. ATTM's records show that Dawn Trujillo later activated that iPhone on her pre-existing account with ATTM.

3. Availability of ATTM Service Terms to Trujillo in Connection With His iPhone Purchase

In its opening and reply briefs, ATTM argued that before Trujillo bought the iPhone, he had access, by two separate means, to ATTM's terms of service, which contains the arbitration provision that serves as the basis for its motion to compel Trujillo to arbitrate his claims. ATTM also argued that Trujillo had the opportunity to read the terms of service in full when he initiated service for the iPhone with ATTM. Thus, ATTM argued, Trujillo could not contend that ATTM's service agreement, including its arbitration requirement, was hidden or that he was unaware of it.

To support its argument, ATTM submitted with its opening brief an affidavit from an ATTM in-house attorney named Neal Berinhout. Berinhout swore that he had personal knowledge of the facts stated in his affidavit. Berinhout Affid. ¶ 2. In his affidavit, Berinhout stated that ATTM's records reflected that Trujillo had purchased an iPhone at a retail store on an unspecified date and then activated wireless service online on July 5, 2007. Id. ¶ 7.

Berinhout stated that in the course of purchasing an iPhone from a retail store, "customers also receive an iPhone rate plan and a separate document summarizing the activation process, available rate plans, and the return policy." Id. ¶ 8. Berinhout included copies of these documents with his affidavit. The document concerning the iPhone activation process states that wireless service for the device can be obtained only from ATTM and that a two-year service agreement is required. Id., Ex. B. This same document also states that one activates the device online, via the Internet. Id. It also states, in bold print, that "You can return your iPhone within 14 days for a full refund, but there is a 10% restocking fee if the box has been opened." Id. The other document, identifying the rate plan, states that "[a]n early termination fee of $175 applies if service is terminated before the end of the contract term," which as noted earlier is two years. Id., Ex. A. It states that this fee will be waived "[i]f [the] phone is returned within 14 days in like-new condition with all components" and that the "activation fee" of $36 would be refunded if the phone is returned within three days. Id. The rate plan states, however, that "[a]ll other charges apply" and that "[s]ome dealers impose additional fees." Id. The documents make no reference to the requirement of arbitration.

In his affidavit, Berinhout stated that "[t]he ATTM Terms of Service booklet, which contains the terms and conditions of wireless service" -- including the arbitration provision at issue in this case -- is "available in the store and online by going to http://www.wireless.att.com and clicking on 'Wireless Service Agreement' at the bottom of the web page." Id. ¶ 9. Berinhout included with his affidavit a copy of the terms of service that he said were in effect "at the time that Mr. Trujillo purchased his iPhone . . . ." Id. ¶ 9 & Ex. C.

In his response to ATTM's motion, Trujillo raised no issue regarding the accuracy of Berinhout's affidavit. In reviewing the briefs, however, the Court became concerned about the evidentiary foundation for Berinhout's statements regarding Trujillo's claimed access to the ATTM terms of service before or when he purchased the iPhone. Those statements bore directly on the issue of procedural unconscionability, a centerpiece of Trujillo's attempt to avoid arbitration. The Court entered an order in which it said that it "[could not] imagine how [Berinhout,] an in-house lawyer from AT&T Mobility[,] possibly could have personal knowledge regarding whether a copy of [the] agreement was available in any given Apple store at a particular point in time" or even whether Apple had a habit or practice of keeping such documents in its stores. Trujillo v. Apple Computer, Inc., No. 07 C 4946, 2008 WL 2787711, at *3 (N.D. Ill. Apr. 18, 2008). The Court's order also addressed other issues, including the accessibility and availability of the purported online version of ATTM's terms of service -- which ATTM contended Trujillo could have found and examined before or contemporaneously with his iPhone purchase. The Court directed the parties to file supplemental submissions.

ATTM's supplemental submission filed pursuant to the Court's order established that Berinhout, contrary to his sworn statement, lacked personal knowledge regarding the availability of the terms of service to Trujillo before he bought the iPhone at issue in this case. ATTM's supplemental submission also established the falsity of Berinhout's earlier sworn statements that the terms of service booklet with the relevant arbitration provision was available in the store where Trujillo bought the iPhone and was also available online.

With its supplemental submission, ATTM submitted a new affidavit from Berinhout. In that affidavit, Berinhout stated that contrary to his earlier sworn statement, he had "since been informed that the Apple store in Oak Brook, Illinois where plaintiff Jose Trujillo purchased his iPhone does not keep ATTM's Terms of Service Booklet in stock." Berinhout 2d Suppl. Affid. ¶ 3. Berinhout thereby conceded that his initial affidavit was false in two significant respects. First, Trujillo did not, in fact, have access to a paper copy of the agreement before or when he bought the iPhone. Second, contrary to Berinhout's earlier sworn statement, he actually had lacked personal knowledge of what was and was not available at retail stores -- in particular at Apple retail stores.

ATTM also included in its supplemental submission a footnote (!!) in which it stated, contrary to the clear import of Berinhout's initial affidavit, that a person who searched online for its terms of service as of July 2007 would not have found the version of those terms of service upon which ATTM premised its motion to compel arbitration. See ATTM 2d Suppl. Brief (filed May 5, 2008) at 2 n.2, citing Harry Bennett Affid. ¶ 6. This statement established the falsity of Berinhout's sworn statement that the agreement with the relevant arbitration provision had been available online. ATTM attempted to dismiss this as inconsequential, on the ground that the obsolete terms of service that a searcher could have found still "would have placed the prospective consumer on notice" of an arbitration requirement. Id. It is abundantly clear from ATTM's supplemental submissions, however, that contrary to its earlier statements to the Court, Trujillo had no access -- none -- to the purported contract upon which the obligation to arbitrate the dispute in this case is claimed to rest, either before or at the time he purchased the iPhone from the Apple store.

With its supplemental submission, ATTM also provided an affidavit from Harry Bennett, who is responsible for overseeing the business group that maintains ATTM's website. Bennett gave no indication that the web site contained any information that would direct a visitor to the terms of service. Rather, he stated that to find the terms of service on the website, one would have to use the "search" tool and type in an appropriate query, such as "terms of service," "agreement," or "conditions." Harry Bennett Affid. ¶ 6. Even then, as noted above, a visitor would have found terms of service that were already obsolete. Bennett's affidavit suggested that yet another statement in Berinhout's initial affidavit was false -- namely his contention that as of the date Trujillo purchased his iPhone, ATTM's terms of service were readily available via a single click on a link clearly marked on the company's website.

4. Dawn Trujillo's Purchase of an iPhone and Its Activation by Jose Trujillo

Due to Berinhout's apparent 180-degree turn from the sworn statements in his original affidavit, the Court (at a hearing on May 8, 2008) directed ATTM to file additional papers explaining why Berinhout's story had changed. In response, ATTM made a further supplemental submission in which it contended that in making his first affidavit, Berinhout assumed Trujillo had bought his phone at an ATTM store because the company's records reflected that he received service on an iPhone purchase at an ATTM store. ATTM gave no real explanation for how it or Berinhout had managed, up until that point, to miss the fact that Trujillo had specifically stated in his complaint that he had purchased the iPhone from an Apple retail store and that the purchase receipt he had submitted in opposition to the motion to compel arbitration was from an Apple store.

ATTM stated in its new submission that it had investigated further and determined that the Apple store receipt that Trujillo had submitted "actually corresponds to an iPhone that was activated by . . . Dawn Marie Trujillo." ATTM 3d Suppl. Brief at 3. It now appears, based on the more complete and accurate factual record currently before the Court, that Trujillo gave the iPhone that he purchased from the Apple store to Dawn Trujillo as a gift. Dawn Trujillo then activated service for that iPhone online, via her preexisting ATTM account. Diane Bonina, another ATTM in-house attorney, states in an affidavit attached to one of ATTM's supplemental submissions that Dawn Trujillo has been an ATTM customer since November 2005 and that with her December 2006 bill she ...


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