Are you being served? Omission claim based on “virtualized” server survives

Schellenbach v.
LLC, 2017 WL 192920, No. CV-16-00746 (D. Ariz. Jan. 18, 2017)
In 2014, GoDaddy
issued a press release titled “GoDaddy Launches New Dedicated and VPS Servers
with Added Support for Designers and Developers.” Plaintiffs are website
designers based in Los Angeles. They bought a “Dedicated Server” hosting plan
maintained by Defendant. Plaintiffs allege that, after experiencing “crippling
performance issues relating to the server[,]” they hired an independent server
expert to diagnose and resolve those issues. They learned that they were
actually being provided with a virtualized server, and alleged that they were
deceived by GoDaddy’s failure to disclose this. 
They brought claims for fraudulent concealment under Arizona law,
negligent misrepresentation under California law, violations of the Arizona
Consumer Fraud Act (“ACFA”), and violations of California’s FAL and UCL.
The court considered
printouts from GoDaddy’s website that were incorporated in the complaint.  GoDaddy argued that one page’s identification
of the Dedicated Server as a “single-tenant VM” constituted a clear disclaimer
of the virtualized nature of the server. However, GoDaddy didn’t show that
plaintiffs or other members of the public understood “VM,” and also the page
was from a time after plaintiffs allegedly stopped using the service.
GoDaddy argued that
the ACFA claim was barred by a one-year statute of limitations, but the
discovery rule applied, and that couldn’t be sorted out on a motion to
GoDaddy then argued
that it didn’t have any duty to disclose. 
However, the ACFA itself imposes a duty “to refrain from an omission of
any material fact with intent that others rely thereon.”  The virtual nature of the “dedicated server”
was plausibly a material fact, and plaintiffs sufficiently alleged intentional
concealment and reliance.  This also
preserved the claim for fraudulent concealment under Arizona law.
However, the
California negligent misrepresentation claim was dismissed, because that
required a positive assertion; an implied assertion or omission wasn’t enough.

FAL and UCL: The
California courts have, though not with consistency, identified four
circumstances in which an omission may constitute actionable fraud: “(1) when
the defendant is in a fiduciary relationship with the plaintiff; (2) when the
defendant had exclusive knowledge of material facts not known to the plaintiff;
(3) when the defendant actively conceals a material fact from the plaintiff;
and (4) when the defendant makes partial representations but also suppresses
some material facts.”  The court found
that (2), GoDaddy’s exclusive knowledge, plausibly applied here. 

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