928 F.3d 110
1st Cir.2019Background
- AcBel bought KA7805 voltage-regulator microcircuits manufactured by Fairchild subsidiaries, installed them in PSUs sold to EMC, and experienced mass failures after Fairchild shifted to a redesigned "shrunk-die" KA7805 in 2010.
- The shrunk-die design repositioned an internal zener diode; industry-standard JEDEC testing by Fairchild’s Korean unit showed no initial failures, but later quality incidents led Fairchild to revert to the larger-die design in mid-2010 without notifying customers or changing the part number.
- AcBel purchased ~195,000 shrunk-die parts; EMC reported thousands of PSU failures and ~26,000 PSUs were eventually replaced; Fairchild formed a task force and later guaranteed reversion to the large-die design.
- Experts disputed causation: Fairchild’s expert said failure required a specific sequence (moisture → hydrogen formation → penetration → atomic hydrogen) reproducible only by non-standard extreme HAST+LTOL testing; AcBel’s expert blamed design placement of the zener diode but did not identify the precise mechanism or run independent tests.
- Procedural posture: district court dismissed most claims on summary judgment but retained implied-warranty claims; after bench trial it dismissed the remaining implied-warranty claims; AcBel appealed dismissal of implied warranty of merchantability, fraud, fraud by omission, and negligent misrepresentation; Fairchild cross-appealed limited discovery issues and agency findings.
- First Circuit: affirmed that Fairchild is liable for acts of its Asian subsidiaries (agency), vacated dismissal of implied-warranty and fraud/misrepresentation claims, and remanded for further proceedings; it also allowed limited additional discovery tied to late-produced AcBel documents.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Fairchild is liable for its subsidiaries’ manufacture/sale (agency) | AcBel relied on district court findings that Fairchild controlled and intermingled with subsidiaries, creating agency liability | Fairchild conceded facts but argued pervasive control alone (without improper conduct) cannot impose liability; challenged agency as legal matter | Court affirmed agency: intermingling and control supported agency; no additional improper-conduct finding required |
| Whether implied warranty of merchantability claim survives | AcBel: parts were unmerchantable for ordinary use (soldering into PSUs) and Fairchild should have foreseen those uses; causation disputed but factual issues remain | Fairchild/district court: applied tort-like foreseeability/testing standard and found reasonable industry testing would not have revealed defect; no breach | Vacated dismissal: court held district court conflated tort (reasonable testing) with contract warranty; remanded to decide defect, foreseeability of use, and legal causation under contract law |
| Whether fraud / fraud by omission claims survive (reliance element) | AcBel: Fairchild’s failure to change part number or issue PCN when reverting to large-die was a misrepresentation/omission; it reasonably relied on part number and PCN practices in industry | Fairchild/district court: reliance unreasonable as matter of law because AcBel had PCN (2008) notifying redesign, creating conflicting information that imposed duty to inquire | Vacated dismissal: reasonable-reliance is fact-dependent here (timing and content of PCN vs. unchanged part number); issue for trial whether industry custom required part-number change and whether reliance was reasonable |
| Whether negligent misrepresentation survives | AcBel: Fairchild supplied false information or omitted required disclosures in course of business; reliance and industry custom support claim | Fairchild: no affirmative false statement, reliance unreasonable; no duty to disclose switch back to large-die | Vacated dismissal: same reliance/falsity and industry-custom factual disputes require trial; negligent-misrepresentation claim remanded |
Key Cases Cited
- Back v. Wickes Corp., 375 Mass. 633 (Mass. 1978) (merchantability warranty requires fitness for ordinary purposes)
- Cigna Ins. Co. v. Oy Saunatec, Ltd., 241 F.3d 1 (1st Cir. 2001) (foreseeable uses central to merchantability duty)
- East River Steamship Corp. v. Transamerica Delaval, Inc., 476 U.S. 858 (U.S. 1986) (damage to product itself is typically a contract/warranty issue, not tort)
- Vassallo v. Baxter Healthcare Corp., 428 Mass. 1 (Mass. 1998) (discussing reasonable testing/knowledge in products cases involving personal injury)
- Town of Westport v. Monsanto Co., 877 F.3d 58 (1st Cir. 2017) (tort case analyzing manufacturer duty to design against foreseeable risks)
- My Bread Baking Co. v. Cumberland Farms, Inc., 353 Mass. 614 (Mass. 1968) (agency/intermingling and when corporate separateness may be disregarded)