928 F.3d 110
1st Cir.2019Background
- AcBel purchased KA7805 voltage-regulator microcircuits (manufactured by Fairchild’s Asian subsidiaries) and used them in PSUs sold to EMC; a redesigned "shrunk-die" KA7805 began shipping in 2010 and later experienced widespread failures.
- Fairchild Korea manufactured the shrunk-die KA7805; Synnex (a distributor/agent) issued a 2008 PCN notifying customers of a redesign; Fairchild reverted production to the larger-die version in 2010 without notifying AcBel.
- AcBel claimed the shrunk-die design was defective and sued Fairchild (parent and U.S. subsidiary) asserting implied warranty of merchantability, fraud, fraud by omission, negligent misrepresentation, and other claims; many claims were dismissed below.
- The district court found Fairchild liable for its subsidiaries’ conduct (agency/alter-ego style analysis) but dismissed AcBel’s implied-warranty and fraud/misrepresentation claims at summary judgment and after bench trial.
- On appeal the First Circuit: affirmed parent liability for subsidiaries; vacated dismissal of implied-warranty (merchantability), fraud, fraud by omission, and negligent-misrepresentation claims; remanded for further proceedings; and allowed limited additional discovery tied to late-produced documents.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Parent liability for subsidiaries (agency/veil) | Fairchild should be liable because it exercised pervasive control and intermingled operations with its Asian subsidiaries | Fairchild argued pervasive control without improper conduct is insufficient and that agency findings were legally erroneous | Court affirmed district court: factual findings support agency/agency-like liability; no additional improper-conduct finding required |
| Implied warranty of merchantability (Count I) | KA7805 shrunk-die was defective and unfit for ordinary use; AcBel/EMC used it in a foreseeable way (soldering into PSUs) | Fairchild argued no breach because failures occurred only under extreme, nonstandard testing and were not foreseeable via reasonable testing; district court applied tort-based foreseeability/test-reasonableness standard | Vacated dismissal. Court held warranty claim is contract-based (not tort) focused on foreseeability of ordinary use (e.g., soldering); remanded for trial on defect, foreseeability of use, and legal causation |
| Fraud, fraud by omission, negligent misrepresentation (Counts III–V) | Failure to change part number / failure to notify reversion to large-die was (under industry custom) a material misrepresentation/omission on which AcBel reasonably relied | Fairchild argued reliance was unreasonable as a matter of law because the 2008 PCN put AcBel on notice of a redesign and the unchanged part number created a conflicting statement that triggered inquiry | Vacated summary judgment dismissing these claims. Court held reasonableness of reliance and whether industry custom required part-number change are disputed fact issues for trial |
| Discovery re: late-produced documents (Fairchild cross-appeal) | Fairchild sought limited discovery into documents AcBel produced after discovery deadline | AcBel opposed reopening discovery | Court authorized limited reopening: Fairchild may pursue discovery strictly related to the late-produced documents to develop the record on remanded claims |
Key Cases Cited
- East River Steamship Corp. v. Transamerica Delaval, Inc., 476 U.S. 858 (1986) (economic-loss rule: product damage to itself sounds in contract/warranty, not tort)
- Vassallo v. Baxter Healthcare Corp., 696 N.E.2d 909 (Mass. 1998) (tort-based reasonable-testing/knowledge standard applied in failure-to-warn/design tort context)
- Town of Westport v. Monsanto Co., 877 F.3d 58 (1st Cir. 2017) (analysis of tort liability for dangerous products and foreseeability)
- My Bread Baking Co. v. Cumberland Farms, Inc., 233 N.E.2d 748 (Mass. 1968) (factors allowing agency or disregard of corporate separateness where entities’ activities are intermingled)
- Cumis Ins. Soc'y, Inc. v. BJ's Wholesale Club, Inc., 918 N.E.2d 36 (Mass. 2009) (elements of fraudulent misrepresentation under Massachusetts law)