Cheatham v. ADT Corp.
161 F. Supp. 3d 815
D. Ariz.2016Background
- Plaintiff Janet Cheatham, an Arizona resident, sued ADT LLC and ADT Corporation (ADT Corp.) in state court (removed to federal court) alleging ADT wireless home security systems use unencrypted/unauthenticated signals that can be hacked, causing failures and enabling spying.
- Plaintiff purchased an ADT wireless system and monitoring from an authorized dealer in 2013; after unexplained incidents in 2014 she discovered system vulnerabilities and filed this putative class action in 2015 asserting ACFA (consumer fraud), unjust enrichment against ADT LLC, and additional claims (including strict products liability) against ADT Corp.
- ADT Corp. moved to dismiss for lack of personal jurisdiction (and alternatively for failure to state a claim); ADT LLC moved to dismiss under Rule 12(b)(6) and to strike class allegations.
- ADT Corp. submitted declarations asserting it is a holding company with no operations, sales, employees, property, or advertising in Arizona; plaintiff relied on SEC filings and other materials to argue contacts existed but failed to overcome ADT Corp.’s evidence.
- Plaintiff alleged affirmative misrepresentations (website claims about reliability, 24/7 protection, ‘‘secure communication links,’’ and state-of-the-art technology) and omissions (failure to disclose that home systems use unencrypted/unauthenticated signals); she sought damages and injunctive relief.
- Court dismissed ADT Corp. for lack of personal jurisdiction; denied ADT LLC’s motion as to most ACFA and unjust enrichment claims but granted dismissal as to certain puffery/technology-sophistication statements and denied motion to strike class allegations.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Personal jurisdiction over ADT Corp. | ADT Corp.’s SEC filings and prior consent in other cases show sufficient contacts with Arizona to assert jurisdiction. | ADT Corp. is a holding company with no Arizona contacts; declarations show no business, employees, property, sales, or advertising in Arizona. | Dismissed ADT Corp. for lack of personal jurisdiction; jurisdictional discovery denied. |
| ACFA statute of limitations | Discovered vulnerabilities in Nov 2014; suit filed Sept 2015 within one-year ACFA limitations. | Plaintiff should have discovered vulnerabilities when Forbes article published July 2014; claim untimely. | Claim not dismissed on limitations at 12(b)(6); date of discovery is a factual question for the jury. |
| ACFA affirmative misrepresentations (reliability / secure links / tech claims) | Website assurances about reliability, protection, and secure communication links are misleading given alleged vulnerabilities; least-sophisticated-consumer standard applies. | Many statements are non-actionable puffery or refer to monitoring centers not in-home communication; some statements are general marketing. | Dismissed ACFA claims based on puffery/technology-superlatives (e.g., "worry-free", "state-of-the-art"); claims survive as to representations about reliability/protection and the "secure communication links" statement (needs further context). |
| ACFA omissions (failure to disclose unencrypted/unathenticated protocol) | ADT LLC omitted material information about in-home wireless insecurity and intended consumers to rely on that omission. | No duty to disclose communications protocol; omissions claim requires independent duty. | Omissions actionable under ACFA itself (per Arizona Supreme Court precedent); plaintiff pleaded materiality, intent, and reliance sufficiently for 12(b)(6). |
| Unjust enrichment & class-strike motion | Plaintiff seeks equitable relief alternatively; class certification may be appropriate given common omissions/representations. | Unjust enrichment barred by existence of contract and fraud remedy; class allegations should be stricken because individualized reliance will predominate under ACFA. | Unjust enrichment claim survives at pleading stage (contract does not clearly preclude it); motion to strike class allegations denied because class issues are fact-intensive and not clearly unsupportable on the face of the complaint. |
Key Cases Cited
- Mavrix Photo, Inc. v. Brand Techs., Inc., 647 F.3d 1218 (9th Cir. 2011) (prima facie showing of jurisdiction on submitted written materials standard)
- Bancroft & Masters, Inc. v. Augusta Nat’l, Inc., 223 F.3d 1082 (9th Cir. 2000) (specific jurisdiction purposeful direction/availment test)
- Newcal Indus., Inc. v. Ikon Office Solutions, 513 F.3d 1038 (9th Cir. 2008) (distinguishing puffery from actionable statements by specificity)
- Ashcroft v. Iqbal, 556 U.S. 662 (U.S. 2009) (plausibility standard for federal pleading)
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (U.S. 2007) (Twombly plausibility standard and limits on speculative claims)
- Haisten v. Grass Valley Med. Reimbursement Fund, Ltd., 784 F.2d 1392 (9th Cir. 1986) (general jurisdiction continuous and systematic contacts test)
- State ex rel. Horne v. AutoZone, Inc., 229 Ariz. 358 (Ariz. 2012) (ACFA omission clause imposes actionable duty independent of common-law duty)
- Walk v. Ring, 202 Ariz. 310 (Ariz. 2002) (time of discovery for accrual of claims is factual for the jury)