Court Opinion

ID: 4155347
Source: CourtListenerOpinion
Date Created: 2017-03-24 17:00:57.646188+00
Date Added: 2024-06-11T14:04:55.285629
License: Public Domain

FOR PUBLICATION

 UNITED STATES COURT OF APPEALS
      FOR THE NINTH CIRCUIT

GEORGE WILLIAMS; LORENDA                   No. 15-55924
OVERMAN; GERALD CHIARIELLO, II;
STEVE OETEGENN; CHARLES                       D.C. No.
PENCINGER; BRIAN GILDERMAN;
                                           2:13-cv-05066-
JOSEPH RAMOS; ADAM DANIEL
JACKS; PHILIP KIRSOPP; WILLIAM               BRO-VBK
KRATZ; WILLIAM NEFF; JAMES R.
KRAPF, on behalf of themselves and
all others similarly situated,               OPINION
                  Plaintiffs-Appellants,

                  and

MARK D. COOPERMAN; GERALD L.
WASHINGTON; ERNEST PAUL
CAMILLERI, JR.; SCOTT MARKOWITZ;
JOE DIORIO; THOMAS BLATT;
MATTHEW J. BONZELLA; JOE
GARSETTI,
                         Plaintiffs,

                  v.

YAMAHA MOTOR CO. LTD.;
YAMAHA MOTOR CORPORATION,
U.S.A.,
           Defendants-Appellees.
2            WILLIAMS V. YAMAHA MOTOR CORP.

         Appeal from the United States District Court
             For the Central District of California
       Beverly Reid O’Connell, District Judge, Presiding

           Argued and Submitted February 16, 2017
                    Pasadena, California

                      Filed March 24, 2017

    Before: MILAN D. SMITH, JR. and JOHN B. OWENS,
    Circuit Judges, and ALVIN K. HELLERSTEIN, District
                           Judge. *

             Opinion by Judge Milan D. Smith, Jr.

    *
      The Honorable Alvin K. Hellerstein, United States Senior District
Judge for the Southern District of New York, sitting by designation.
             WILLIAMS V. YAMAHA MOTOR CORP.                          3

                          SUMMARY **

      Personal Jurisdiction / Consumer Fraud Law

    The panel affirmed the district court’s dismissal of
Yamaha Motor Co. Ltd. (YMC) for lack of personal
jurisdiction, and Fed. R. Civ. P. 12(b)(6) dismissal of
plaintiffs-appellants’ claims against Yamaha Motor
Corporation, U.S.A. (YMUS), in an action alleging
violations of federal and state warranty law and other claims,
brought by appellants who purchased allegedly defective
outboard motors that YMC designed and manufactured in
Japan and that YMUS imported and marketed in California.

    The panel held that the district court lacked general
jurisdiction over YMC. Specifically, the panel held that
YMC itself did not have sufficient contacts with California
for the exercise of general jurisdiction. The panel also held
that appellants failed to plead sufficient facts to make out a
prima facie case that YMC and YMUS were “alter egos.”
The panel noted that even assuming that YMUS’s contacts
could be imputed to YMC, that did not, on its own, suffice
to establish general jurisdiction.

    The panel held that the district court lacked specific
jurisdiction over non-resident YMC. Specifically, the panel
held that appellants did not allege any action that YMC
“purposefully directed” at California. Assuming that some
standard of agency continued to be relevant to specific
jurisdiction after Daimler AG v. Bauman, 134 S. Ct. 746, 759

    **
       This summary constitutes no part of the opinion of the court. It
has been prepared by court staff for the convenience of the reader.
4          WILLIAMS V. YAMAHA MOTOR CORP.

n.13 (2014), the panel held that appellants failed to make out
a prima facie case for any such agency relationship between
YMC and YMUS and its in-state connections.

    The panel held that appellants failed to plead a prima
facie case of consumer fraud. The panel held that contrary
to the district court, appellants adequately pleaded YMC and
YMUS’s presale knowledge of the alleged defect. The panel
also held, however, that appellants failed to plausibly plead
that the alleged defect caused an unreasonable safety hazard.

                        COUNSEL

Van Bunch (argued), Bonnett Fairbourn Friedman & Balint
P.C., Phoenix, Arizona; Charles Clinton Hunter and Debra
Brewer Hayes, The Hayes Law Firm PC, Houston, Texas;
for Plaintiffs-Appellants.

Theane Evangelis Kapur (argued), Michael Holocek, and
Timothy W. Loose, Gibson Dunn & Crutcher LLP, Los
Angeles, California, for Defendant-Appellee.
           WILLIAMS V. YAMAHA MOTOR CORP.                   5

                         OPINION

M. SMITH, Circuit Judge:

    This appeal challenges two separate rulings by the
district court: the dismissal of Defendant-Appellee Yamaha
Motor Co. Ltd. (YMC) for lack of personal jurisdiction, and
the dismissal of Plaintiffs-Appellants’ claims against
Defendant-Appellee Yamaha Motor Corporation, U.S.A.
(YMUS) pursuant to Federal Rule of Civil Procedure
12(b)(6). For the reasons set forth in this opinion, we affirm
the district court on both accounts.

  FACTUAL AND PROCEDURAL BACKGROUND

    Appellants are a group of twenty named plaintiffs who
purchased “first-generation . . . four stroke outboard motors”
(the Class Motors) manufactured by YMC from 2000 to
2004. Appellants brought suit against YMC, which designed
and manufactured the Class Motors in Japan, and YMC’s
wholly-owned subsidiary, YMUS, which imported and
marketed them in California. Appellants allege that the
Class Motors contained an inherent design defect that caused
severe, premature corrosion in the motors’ dry exhaust
system. Appellants assert that this defect caused the motors
to fail after between 500 to 700 hours of use, even when
properly serviced and maintained, when absent this defect an
outboard motor would have an expected useful life of at least
2000 hours. Although the alleged defect manifests early in
an engine’s expected lifespan, the average recreational
boater only uses her engine an average of 100 hours per year.
Accordingly, the defect typically will not manifest until the
three-year warranty period has expired. Appellants assert on
appeal that Appellees knew of the dry exhaust defect prior
to the sales of the Class Motors to Appellants, and that the
defect poses an unreasonable safety hazard.
6          WILLIAMS V. YAMAHA MOTOR CORP.

    Appellant Williams filed the initial complaint on behalf
of himself and all others similarly situated on July 15, 2013,
naming YMC and YMUS as defendants. The complaint
asserted claims for violations of federal and state warranty
law; California’s Consumer Legal Remedies Act, California
Civil Code § 1750; and California’s Unfair Competition
Law, California Business and Professions Code § 17200.

     Appellees filed a motion to dismiss, in response to which
Appellants filed an amended complaint. YMUS then filed a
second motion to dismiss for failure to state a claim, and
YMC filed a motion to dismiss for lack of personal
jurisdiction. While these motions were pending, the district
court consolidated this matter with two similar cases and
vacated all pending motions, after which Appellants filed a
consolidated class action complaint. The consolidated
complaint contained, in addition to the claims asserted in the
initial complaint, ten new statutory claims from five
different states, as well as claims for negligence and unjust
enrichment.

    YMUS subsequently filed a third motion to dismiss for
failure to state a claim, and YMC filed a second motion to
dismiss for lack of personal jurisdiction. On August 19,
2014, the district court granted in part YMUS’s motion,
dismissing Appellants’ warranty and consumer fraud claims,
and granting YMC’s motion in its entirety. Appellants then
filed their first amended complaint, to which YMUS
responded with a fourth motion to dismiss. The district court
granted YMUS’s motion entirely, but granted Appellants
leave to replead their consumer fraud claims.

    Finally, on February 2, 2015, Appellants filed their
second amended complaint (SAC), to which YMUS
responded with its fifth motion to dismiss for failure to state
a claim. On April 29, 2015, the district court granted
           WILLIAMS V. YAMAHA MOTOR CORP.                    7

YMUS’s motion and dismissed Appellants’ only remaining
claims with prejudice. Appellants now appeal the district
court’s grant of YMC’s motion to dismiss for lack of
personal jurisdiction, and its grant of YMUS’s fifth motion
to dismiss Appellants’ consumer fraud claims.

   JURISDICTION AND STANDARD OF REVIEW

    We exercise jurisdiction over appeals from final
decisions of the district court pursuant to 28 U.S.C. § 1291.
We review de novo a district court’s dismissal of a party for
lack of personal jurisdiction pursuant to Federal Rule of
Civil Procedure 12(b)(2). Mavrix Photo, Inc. v. Brand
Techs., Inc., 647 F.3d 1218, 1223 (9th Cir. 2011). We
similarly conduct de novo review of “a district court’s
dismissal for failure to state a claim pursuant to Federal Rule
of Civil Procedure 12(b)(6).” Walker v. Beard, 789 F.3d
1125, 1131 (9th Cir. 2015).

                        ANALYSIS

I. The District Court Lacked General Jurisdiction Over
   YMC

    Federal courts apply state law to determine the bounds
of their jurisdiction over a party. See Fed. R. Civ. P.
4(k)(1)(A). California’s long-arm statute permits the
exercise of jurisdiction to the full extent that such exercise
comports with due process. Cal. Code Civ. P. § 410.10.

    Under Goodyear Dunlop Tires Operations, S.A. v.
Brown, 564 U.S. 915 (2011), courts have general jurisdiction
over a foreign corporation only if the corporation’s
connections to the forum state “are so ‘continuous and
systematic’ as to render [it] essentially at home in the forum
State.” Id. at 919. A corporation’s “continuous activity of
8           WILLIAMS V. YAMAHA MOTOR CORP.

some sorts within a state is [generally] not enough to support
the demand that the corporation be amenable to suits
unrelated to that activity.” Int’l Shoe Co. v. Washington,
326 U.S. 310, 318 (1945). Rather, in the paradigmatic
circumstance for exercising general jurisdiction, the
corporate defendant is incorporated or has its principal place
of business in the forum state. Goodyear, 564 U.S. at 924.

    In Daimler AG v. Bauman, 134 S. Ct. 746 (2014), the
Supreme Court considered for the first time “whether a
foreign corporation may be subjected to a court’s general
jurisdiction based on the contacts of its in-state subsidiary.”
Id. at 759. The plaintiffs sought to sue Daimler, a German
corporation, in California on the basis that Daimler’s
subsidiary’s contacts could be attributed to Daimler under an
agency theory, thereby establishing Daimler’s “continuous
and systematic” presence within California. Id. at 752.
Daimler’s subsidiary, MBUSA, served as Daimler’s
exclusive U.S. importer and distributor and had multiple
California facilities. Id. We found general jurisdiction over
Daimler under an agency theory, applying a test that asked
whether MBUSA’s services were “sufficiently important to
the foreign corporation that if it did not have a representative
to perform them, the corporation’s own officials would
undertake to perform substantially similar services.”
Bauman v. DaimlerChrysler Corp., 644 F.3d 909, 921 (9th
Cir. 2011) (quoting Doe v. Unocal Corp., 248 F.3d 915, 928
(9th Cir. 2001) (emphasis omitted)).

    The Supreme Court reversed our finding of general
jurisdiction, emphasizing that the test for general jurisdiction
asks whether a corporation is essentially “at home” in the
forum state. Daimler, 134 S. Ct. at 754, 757. The Supreme
Court assumed that MBUSA could be considered “at home”
in California, and that its in-state contacts could be attributed
            WILLIAMS V. YAMAHA MOTOR CORP.                    9

to Daimler, but it rejected a theory that would permit “the
exercise of general jurisdiction in every State in which a
corporation ‘engages in a substantial, continuous, and
systematic course of business.’” Id. at 760–61. In so doing,
the Court noted that while general jurisdiction is not strictly
limited to a corporation’s place of incorporation or principal
place of business, those exemplars illustrate the need for
predictability in jurisdiction and “afford plaintiffs recourse
to at least one clear and certain forum in which a corporate
defendant may be sued on any and all claims.” Id. at 760.

    Subsequently, in Ranza v. Nike, Inc., 793 F.3d 1059 (9th
Cir. 2015), we considered whether an in-state corporation’s
contacts could be attributed to its foreign subsidiary to
establish general jurisdiction over the subsidiary. See id. at
1065. We stated that while Daimler invalidated our previous
“agency” test, it “left intact” the alternative “alter ego test
for ‘imputed’ general jurisdiction.” Id. at 1071. We made
clear, however, that the parent-subsidiary relationship does
not on its own establish two entities as “alter egos,” and thus
does not indicate that general jurisdiction over one gives rise
to general jurisdiction over the other. Id. at 1070 (citing Dole
Food Co. v. Patrickson, 538 U.S. 468, 474 (2003); United
States v. Bestfoods, 524 U.S. 51, 61 (1998)). Rather, we held
that “the alter ego test may be used to extend personal
jurisdiction to a foreign parent or subsidiary when, in
actuality, the foreign entity is not really separate from its
domestic affiliate.” Id. at 1073 (emphasis omitted). To
satisfy this test, “a plaintiff must make out a prima facie case
(1) that there is such unity of interest and ownership that the
separate personalities of the two entities no longer exist and
(2) that failure to disregard their separate identities would
result in fraud or injustice.” Id. (quotation marks and
alterations omitted).
10           WILLIAMS V. YAMAHA MOTOR CORP.

    We first consider whether YMC itself has sufficient
contacts with California for the exercise of general
jurisdiction. We conclude that it does not.

    YMC is incorporated and has its principal place of
business in Japan, and has no offices or employees in
California. Considering YMC’s California sales, “the
general jurisdiction inquiry examines a corporation’s
activities worldwide—not just the extent of its contacts in
the forum state—to determine where it can be rightly
considered at home.” Ranza, 793 F.3d at 1071 (citing
Daimler, 134 S. Ct. at 762 n.20). Appellants’ own evidence
indicates that YMC has 109 consolidated subsidiaries
located in at least 26 different countries and spanning five
continents. It further shows that in 2012, net sales in North
America—a figure that includes sales in all 50 states and
Canada, not merely in California—accounted for
approximately 17% of YMC’s total net sales. While the
California market may be important for YMC, Appellants
failed to submit evidence to support a finding that YMC is
“at home” in California. 1

    Nevertheless, Appellants argue that YMUS’s California
contacts may be imputed to YMC for the purpose of
establishing jurisdiction. Appellants fail, however, to plead
facts sufficient to make out a prima facie case that YMC and
YMUS are “alter egos.” Appellants’ complaint makes
almost no factual allegations regarding the nature of the
parent-subsidiary relationship, and the evidence Appellants

    1
      This is particularly so in light of the Supreme Court’s rejection of
the “stream of commerce” theory for general jurisdiction. Goodyear,
564 U.S. at 927–29.
             WILLIAMS V. YAMAHA MOTOR CORP.                           11

submitted in opposition to YMC’s motion to dismiss did not
provide any additional clarity.

    Moreover, even assuming that YMUS’s contacts could
be imputed to YMC, this does not, on its own, suffice to
establish general jurisdiction. In Daimler, the Court
assumed that the subsidiary’s in-state contacts could be
imputed to the foreign parent, but nevertheless found the
exercise of general jurisdiction inappropriate. 2 134 S. Ct. at
760.

     2
       Appellants cite out-of-circuit district court cases, Barriere v.
Juluca, No. 12-23510-CIV, 2014 WL 652831 (S.D. Fla. Feb. 19, 2014),
and Associated Energy Group, LLC v. Air Cargo Germany GMBH, 24 F.
Supp. 3d 602, 607 (S.D. Tex. 2014), to argue that the district court had
general jurisdiction over YMC due to (1) YMUS’s status as a co-
defendant in this case, (2) the allegation of in-state harm, and (3) YMC’s
status as a foreign corporation. These arguments lack merit. Daimler’s
holding did not rest on whether the in-state entity was a party, and the
location of the alleged harm has no role in the general jurisdiction
analysis. Regarding YMC’s status as a foreign corporation, Daimler and
Ranza both also dealt with foreign corporations with no United States
principal place of business.

     Appellants further argue that YMUS’s contacts with California
render this case distinguishable from Daimler, because the subsidiary in
Daimler was not a California corporation. Again, this is a distinction
without a difference: The Supreme Court expressly assumed that the
subsidiary in that matter was properly subject to general jurisdiction in
California. Daimler, 134 S. Ct. at 760. Finally, Appellants point to
numerous other lawsuits YMC has litigated in the United States. See
Yamaha Motor Corp., U.S.A. v. Calhoun, 516 U.S. 199 (1996); Rissew
v. Yamaha Motor Co., 129 A.D.2d 94 (N.Y. App. Div. 1987); Stephens
v. Yamaha Motor Co., 627 P.2d 439 (Okla. 1981). But none of these
cases found that California courts may exercise general jurisdiction over
YMC. Accordingly, they have no relevance to the jurisdictional inquiry
in this matter.
12         WILLIAMS V. YAMAHA MOTOR CORP.

   In short, the district court correctly found that it lacked
general jurisdiction over YMC.

II. The District Court Lacked Specific Jurisdiction Over
    YMC

    The exercise of jurisdiction over a non-resident
defendant requires that the defendant “have certain
minimum contacts . . . such that the maintenance of the suit
does not offend traditional notions of fair play and
substantial justice.” Int’l Shoe, 326 U.S. at 316 (internal
quotation marks omitted). In order for a court to have
specific jurisdiction over a defendant, “the defendant’s suit-
related conduct must create a substantial connection with the
forum State.” Walden v. Fiore, 134 S. Ct. 1115, 1121
(2014). The relationship between the defendant and the
forum state “must arise out of contacts that the ‘defendant
[itself]’ creates with the forum State.” Id. at 1122 (quoting
Burger King Corp. v. Rudzewicz, 471 U.S. 462, 475 (1985)).
Additionally, the requisite “minimum contacts” must be
“with the forum State itself, not . . . with persons who reside
there.” Id.

    We will exercise specific jurisdiction over a non-resident
defendant only when three requirements are satisfied: (1) the
defendant either “purposefully direct[s]” its activities or
“purposefully avails” itself of the benefits afforded by the
forum’s laws; (2) the claim “arises out of or relates to the
defendant’s forum-related activities; and (3) the exercise of
jurisdiction [] comport[s] with fair play and substantial
justice, i.e., it [is] reasonable.” Dole Food Co. v. Watts,
303 F.3d 1104, 1111 (9th Cir. 2002).

   Addressing the first prong of the specific jurisdiction
analysis, Appellants do not allege any actions that YMC
              WILLIAMS V. YAMAHA MOTOR CORP.                           13

“purposefully directed” at California. 3 Appellees submitted
unrebutted evidence in support of their Rule 12(b)(2) motion
that YMC does not conduct any activities within the state of
California, nor does it target California via marketing or
advertising. The only connection Appellants identify
between YMC and California is via YMUS. Accordingly,
we must ask whether YMUS’s in-state connections may be
attributed to YMC under an agency theory for the purpose of
establishing specific jurisdiction. 4

    While Daimler voided our agency approach for imputing
contacts for the purpose of general jurisdiction, it left open
the question of whether an agency relationship might justify
the exercise of specific jurisdiction. Daimler, 134 S. Ct. at
759 n.13 (“Agency relationships, we have recognized, may

    3
      Appellants’ citation to Sinatra v. National Enquirer, Inc., 854 F.2d
1191, 1197 (9th Cir. 1988), for the proposition that “a nonresident
defendant may purposefully direct its conduct toward a forum state by
marketing the product through a distributor who has agreed to act as the
sales agent in the forum State” is unavailing. The Sinatra court
specifically found that the plaintiff actively directed the advertising and
sales efforts of its in-state agent, thereby justifying the exercise of
specific jurisdiction. Id. It contrasted this conduct with that found
insufficient to support specific jurisdiction in Asahi Metal Industry Co.
v. Superior Court of Solano County, 107 S. Ct. 1026 (1987). The Asahi
defendant knew that its products would be sold and used in California,
and benefited economically from those sales, but “[t]he Court relied on
the absence of any business solicitation or promotional conduct to
determine that . . . the exertion of personal jurisdiction was
unreasonable.” Sinatra, 854 F.2d at 1197 (citing Asahi, 107 S. Ct. at
1033). The facts of the present matter bear far more similarity to those
of Asahi than to those of Sinatra.

    4
      As discussed supra, Appellants have failed to make a prima facie
showing that YMC and YMUS are alter egos. YMUS’s contacts can
thus only be attributed to YMC if we find that the agency theory of
imputed contacts applies.
14         WILLIAMS V. YAMAHA MOTOR CORP.

be relevant to the existence of specific jurisdiction”).
Appellees point to Walden’s emphasis on the necessity of a
relationship between the defendant itself and the forum state
to suggest that YMUS’s relationship to California cannot
support specific jurisdiction over YMC. But Walden did not
address an agency theory of jurisdiction. Rather, that case
dealt with the scenario in which the connection between the
defendant and the forum was provided only by the plaintiff,
and could aptly be described as “random, fortuitous, or
attenuated.” 134 S. Ct. at 1123 (citation omitted). This
contrasts sharply with the circumstance at hand, in which the
relationship between the in-state entity and the defendant is
that of a parent and a subsidiary purportedly acting as that
parent’s agent. If an agency theory of imputable contacts
survives Daimler in the context of specific jurisdiction, then
Walden’s directive that contacts must be directly between
the defendant and the forum is inapposite, because imputing
an in-state entity’s contacts to the defendant would
necessarily establish that direct connection.

    Notwithstanding Daimler’s express reservation on the
question of agency theory’s application to specific
jurisdiction, more than one district court within our circuit
has expressed some uncertainty on that point post-Daimler,
as “the rationale set forth in Daimler . . . would seem to
undermine application of [our agency test] even in specific
jurisdiction cases.” Corcoran v. CVS Health Corp., 169 F.
Supp. 3d 970, 982 (N.D. Cal. 2016) (quoting Los Gatos
Mercantile, Inc. v. E.I. DuPont De Nemours & Co., No. 13-
cv-01180-BLF, 2015 WL 4755335, at *5 (N.D. Cal. Aug.
11, 2015)).

   As noted supra, our agency analysis asks whether the
subsidiary “performs services that are sufficiently important
to the foreign corporation that if it did not have a
           WILLIAMS V. YAMAHA MOTOR CORP.                   15

representative to perform them, the corporation’s own
officials would undertake to perform substantially similar
services.” Unocal, 248 F.3d at 928 (internal quotation marks
omitted). The Supreme Court found in Daimler that,
“[f]ormulated this way, the inquiry into importance stacks
the deck, for it will always yield a pro-jurisdiction answer:
Anything a corporation does through an independent
contractor, subsidiary, or distributor is presumably
something that the corporation would do ‘by other means’ if
the independent contractor, subsidiary, or distributor did not
exist.” 134 S. Ct. at 759 (internal quotation marks omitted).
This criticism applies no less in the context of specific
jurisdiction than in that of general jurisdiction. Accordingly,
Daimler’s reasoning is clearly irreconcilable with the agency
test set forth in Unocal. See Miller v. Gammie, 335 F.3d 889,
892–93 (9th Cir. 2003) (holding that where a prior decision
in our circuit “is clearly irreconcilable with the reasoning or
theory of intervening higher authority, a three-judge panel
should consider itself bound by the later and controlling
authority, and should reject the prior circuit opinion as
having been effectively overruled.”). The Daimler Court’s
express recognition of the potential viability of agency
relationships for establishing specific jurisdiction does not
alter our holding. While the Court reserved judgment on the
viability of agency theory as a general concept, it did not
suggest that our particular formulation for finding an agency
relationship should survive in the context of specific
jurisdiction. To the contrary, the Daimler Court’s criticism
of the Unocal standard found fault with the standard’s own
internal logic, and therefore applies with equal force
regardless of whether the standard is used to establish
general or specific jurisdiction.

   Assuming, however, that some standard of agency
continues to be “relevant to the existence of specific
16            WILLIAMS V. YAMAHA MOTOR CORP.

jurisdiction,” Daimler, 134 S. Ct. at 759 n.13, Appellants fail
to make out a prima facie case for any such agency
relationship. Fundamental tenets of agency theory require
that an agent “act on the principal’s behalf and subject to the
principal’s control.” Restatement (Third) Of Agency § 1.01
(2006); see also Batzel v. Smith, 333 F.3d 1018, 1035 (9th
Cir. 2003) (“Agency requires that the principal maintain
control over the agent’s actions”). Accordingly, under any
standard for finding an agency relationship, the parent
company must have the right to substantially control its
subsidiary’s activities. See, e.g., Unocal, 248 F.3d at 926;
Murphy v. DirecTV, Inc., 724 F.3d 1218, 1232 (9th Cir.
2013). Appellants neither allege nor otherwise show that
YMC had the right to control YMUS’s activities in any
manner at all. 5 Consequently, even assuming the validity of
some formulation of agency analysis such that a subsidiary’s
contacts could be attributed to its parent, Appellants failed
to establish specific jurisdiction over YMC.

III.       Plaintiffs Failed to Plead a Prima Facie Case of
           Consumer Fraud

    Federal Rule of Civil Procedure 8(a)(2) requires only
that a plaintiff provide “a short and plain statement of the
claim showing that the pleader is entitled to relief,” such that
the defendant receives “fair notice” of the claims against it.
Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)

       5
       Appellants do allege that “Defendants . . . were the agents or
employees of each other and were acting at all times within the course
and scope of such agency and employment . . . and are legally
responsible because of their relationship with their co-Defendants.” This
is, however, a conclusory legal statement unsupported by any factual
assertion regarding YMC’s control over YMUS (or regarding any other
aspect of the parent-subsidiary relationship), and we accordingly do not
credit it. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).
             WILLIAMS V. YAMAHA MOTOR CORP.                           17

(citation omitted). A sufficiently pleaded cause of action
“requires more than labels and conclusions, and a formulaic
recitation of the elements of a cause of action will not do.”
Id. Rather, “[f]actual allegations must be enough to raise a
right to relief above the speculative level.” Id.; see also
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). The
requirement that a plaintiff provide “plausible grounds” for
her claim does not, however, “impose a probability
requirement at the pleading stage.” Twombly, 550 U.S. at
556. On the contrary, “a well-pleaded complaint may
proceed even if it strikes a savvy judge that actual proof of
those facts is improbable, and that a recovery is very remote
and unlikely.” Id. (internal quotation marks omitted).

    Appellants’ SAC asserts claims under a number of state
consumer fraud statutes, each of which requires either an
affirmative misrepresentation or an omission of material
fact. 6 Appellants allege no affirmative misrepresentation.
Rather, they rely entirely on YMUS’s failure to notify
consumers of the alleged dry exhaust defect. To state a claim
for failing to disclose a defect, a party must allege “(1) the

    6
      Appellants have asserted claims under the California Consumers
Legal Remedies Act, Cal. Civ. Code §§ 1750, et seq.; California Unfair
Competition Law, Cal. Bus. & Prof. Code §§ 17200, et seq.;
Massachusetts Consumer Protection Act, Mass. Gen. L., Ch. 93A, § 2;
N.Y. Gen. Bus. L. § 349; North Carolina Unfair and Deceptive Trade
Practices Act, N.C. Gen. Stat. §§ 75-1.1, et seq.; Washington Consumer
Protection Act, Wash. Rev. Code §§ 19.86.010, et seq.; Florida
Deceptive and Unfair Trade Practices Act, Fla. Stat. §§ 501.201, et seq.;
Texas Deceptive Trade Practices Act, Tex. Bus. & Com. Code §§ 17.12,
et seq.; Rhode Island Unfair Trade Practice and Consumer Protection
Act, R.G.G.L. §§ 6-13.1.1, et seq.; Virginia Consumer Protection Act,
Va. Code. Ann. §§ 59.1-200, et seq.; Maryland Consumer Protection
Act, Md. Code, Com. L. §§ 13-301, et seq.; New Jersey Consumer Fraud
Act, N.J. Stat. §§ 56:8-1, et seq.; and Connecticut Unfair Trade Practices
Act, Conn. Gen. Stat. §§ 42-110a, et seq.
18         WILLIAMS V. YAMAHA MOTOR CORP.

existence of a design defect; (2) the existence of an
unreasonable safety hazard; (3) a causal connection between
the alleged defect and the alleged safety hazard; and that the
manufacturer knew of the defect at the time a sale was
made.” Apodaca v. Whirlpool Corp., No. 13-00725 JVS
(ANx), 2013 WL 6477821, at *9 (C.D. Cal. Nov. 8, 2013);
see also Wilson v. Hewlett-Packard Co., 668 F.3d 1136,
1142–43 (9th Cir. 2012) (holding that where a defendant has
not made an affirmative misrepresentation, a plaintiff must
allege the existence of an unreasonable safety hazard and a
causal connection between the defect and the hazard).

    Contrary to the district court, we find that Appellants
adequately pleaded Appellees’ presale knowledge of the
alleged dry exhaust defect. However, we also find that
Appellants failed to plausibly plead that the alleged defect
constituted an unreasonable safety hazard. We therefore
affirm the district court’s dismissal of Appellants’ consumer
fraud claims pursuant to Rule 12(b)(6).

     A. Appellants Adequately Pleaded Appellees’
        Presale Knowledge of the Alleged Dry Exhaust
        Defect

     The SAC alleges that YMUS began receiving consumer
complaints regarding dry exhaust corrosion as early as 2001.
It states that “the complaints from owners regarding the dry
exhaust corrosion in the First Generation Outboards were so
frequent that individual Customer Relations supervisors
personally handled as many as 40 or 50 different consumer
complaints, or more, regarding the issue,” which was an
unusually high number of complaints for Yamaha to receive
regarding corrosion “this soon in the life of the engines.”
The SAC goes on to explain that the high volume of calls led
to the creation of “a marine-only customer relations service
department in Kennesaw, Georgia, with approximately two
           WILLIAMS V. YAMAHA MOTOR CORP.                   19

dozen customer service employees to assist in handling the
complaints,” and identifies Lindsey Foster as the Manager
of Customer Relations who reviewed the complaints handled
by the Kennesaw facility. Finally, the SAC explains how
consumer complaints were recorded and transmitted by the
Kennesaw facility so as to make YMUS management aware
of the number and substance of the complaints, and states
that Ms. Foster specifically reviewed the submitted
complaints through YMUS’s private Customer Relations
Management (CRM) database.

    The district court found that the alleged consumer
complaints did not support a finding of YMUS’s presale
knowledge, and agreed with YMUS’s characterization of
Appellants’ allegations of 2001 customer complaints as
“inherently inconsistent with [their] overarching theory of
the defect” because Appellants had “consistently alleged that
the defect does not manifest until 500–700 hours of use,
‘which for a typical consumer using the boat 100 hours a
year would take five to seven years to achieve.’” Williams
v. Yamaha Motor Corp., U.S.A., 106 F. Supp. 3d 1101, 1114
(C.D. Cal. 2015) (emphasis added by district court)). The
district court ignored, however, Appellants’ allegation that
“the corrosion problem (which typically took 500 to 700
engine hours to manifest) had surfaced first primarily among
heavy users who used their engines much more than typical
recreational boat owners’ usage.” It was not “inherently
inconsistent” to allege that a subset of “heavy users”
encountered the defect much sooner than the typical user
otherwise would.

    The district court also cited multiple cases, from within
this circuit and elsewhere, to illustrate the disfavored nature
of customer complaints as a basis for establishing a party’s
presale knowledge.           These cases are, however,
20           WILLIAMS V. YAMAHA MOTOR CORP.

distinguishable. The district court particularly cited Wilson
v. Hewlett-Packard Co., 668 F.3d 1136 (9th Cir. 2012), for
its observation that “[s]ome courts have expressed doubt that
customer complaints in and of themselves adequately
support an inference that a manufacturer was aware of a
defect,” because “complaints posted on a manufacturer’s
webpage ‘merely establish the fact that some consumers
were complaining.’” Id. at 1147 (quoting Berenblat v.
Apple, Inc., Nos. 08-4969 JF (PVT), 09-1649 JF (PVT),
2010 WL 1460297, at *9 (N.D. Cal. Apr. 9, 2010)). The
facts of Wilson, however, differ significantly from those
alleged here: Wilson concerned fourteen complaints, and the
plaintiffs did not identify “where or how the complaints were
made” and did not provide dates for twelve of the
complaints. Id. at 1148. We found that absent dates to
indicate that the complaints were made pre-sale, and some
evidence that defendant actually received the complaints, it
would be speculative at best to find that the defendant knew
of the alleged defect. See id. at 1147. Here, by contrast,
Appellants gave at least approximate timing for the
complaints, and explained in detail how those complaints
were lodged, how YMUS responded, and the mechanism
through which information travelled from consumers to
YMUS management. 7

     7
       At oral argument, counsel for Appellees emphasized that while
YMUS may have known of the dry exhaust corrosion, it did not know of
an unreasonable safety hazard. This argument elides two separate
prongs of the test for consumer fraud: presale knowledge of a defect, and
the status of that defect as an unreasonable safety hazard. See Apodaca,
2013 WL 6477821, at *9. In other words, counsel argued that the defect
did not pose the safety risk necessary for a finding of consumer fraud.
As discussed infra, we agree. That does not negate, however, YMUS’s
alleged presale knowledge of the premature corrosion itself.
             WILLIAMS V. YAMAHA MOTOR CORP.                           21

    Wilson did not hold that consumer complaints may never
support an allegation of presale knowledge. On the contrary,
it cited to—and distinguished—Cirulli v. Hyundai Motor
Co., No. SACV 08-0854 AG (MLGx), 2009 WL 5788762
(C.D. Cal. June 12, 2009), in which the plaintiff successfully
alleged presale knowledge of a defect largely through its
allegation that,

         Since 1999, [Defendant] has . . . constantly
         tracked the National Highway Traffic Safety
         Administration . . . database to track reports
         of defective Sonata sub-frames. From this
         source, [Defendant] knew that its 1999–2004
         Sonatas were experiencing unusually high
         levels of sub-frame deterioration, steering
         control arm separation, steering loss, and
         highway accidents.

Wilson, 668 F.3d at 1146 (quoting Cirulli, 2009 WL
5788762, at *4). The facts alleged by the SAC are
remarkably similar to those alleged in Cirulli, and provide
an even stronger basis for finding presale knowledge
because rather than tracking an outside database, YMUS is
alleged to have set up its own proprietary complaint-tracking
system to account for a similarly “unusually high level[]” of
corrosion complaints. Id. 8

    8
       The district court cases cited by the court in this matter are
similarly distinguishable from the case at hand. Each of those cases dealt
with an insufficiently small number of complaints, complaints posted in
forums unrelated to the defendant, complaints made after the sale dates,
or some combination of these circumstances. See, e.g., Fisher v. Honda
North Am., Inc., No. LA CV13-09285 JAK (PLAx), 2014 WL 2808188,
at *5 (C.D. Cal. June 12, 2014) (finding a single consumer complaint
predating the sale date did not plausibly suggest that defendant was on
22            WILLIAMS V. YAMAHA MOTOR CORP.

    Importantly, Appellees have filed a motion to dismiss,
not a motion for summary judgment. Discovery has not yet
occurred. The district court faulted Appellants for failing to
provide specific names and dates for consumer complaints,
but in doing so it ignored the context of the particular
consumer complaint system alleged by Appellants.
Appellants specifically allege a private internal complaint
system, and describe the manner in which it functions and
the individual supervisor responsible for its management. In
other words, Appellants do not know names and dates
precisely because these complaints are not the sort of public
internet posts that courts have previously found insufficient
for providing notice to a company. Pre-discovery, when the
court must take Appellants’ factual allegations as true,
Appellants’ description of a separate consumer response

notice of a defect); Grodzitsky v. Am. Honda Motor Co., No. 2:12-cv-
1142-SVW-PLA, 2013 WL 690822, at *7 (C.D. Cal. Feb. 19, 2013)
(finding insufficient ten complaints submitted after sale to plaintiffs or
posted to websites unrelated to defendant); Baba v. Hewlett-Packard
Co., No. C 09-05946 RS, 2011 WL 317650, at *3 (N.D. Cal. Jan. 28,
2011) (“Awareness of a few customer complaints . . . does not establish
knowledge of an alleged defect.”); Oestriecher v. Alienware Corp.,
544 F. Supp. 2d 964, 974 n.9 (N.D. Cal. 2008) (“Random anecdotal
examples of disgruntled customers posting their views on websites at an
unknown time is not enough to impute knowledge upon defendants.”).

     Here, by contrast, Appellants allege that individual supervisors dealt
with “40 or 50” consumer complaints, an “unusual volume,” as early as
2001. While the numbers “40 or 50” lack context from which the court
could determine whether or not that is truly a sizable volume, YMUS’s
alleged response to those complaints—the establishment of a dedicated
customer care center—suggests that YMUS itself saw this number as
significant and beyond the norm. Moreover, unlike cases in which
complaints were posted to online forums, here Appellants allege not only
that complaints were made directly with YMUS, but that YMUS
affirmatively responded to this unusual volume of complaints by
instituting a dedicated customer care center.
           WILLIAMS V. YAMAHA MOTOR CORP.                 23

system dedicated to handling an unusually high volume of
complaints specific to premature corrosion in F-Series
motors supports a claim of presale knowledge.

   B. Appellants Failed to Plead the Existence of an
      Unreasonable Safety Hazard

     Appellants proffer two theories of unreasonable hazard
resulting from the dry exhaust defect: (1) the potential for
onboard fires, and (2) the risk of accident and associated
injuries due to loss of steering power. However, Appellants’
claim that the dry exhaust defect poses an unreasonable
safety hazard fails due to Appellants’ own characterization
of the defect. According to Appellants’ allegations, the
purported defect merely accelerates the normal and expected
process of corrosion in outboard motors. In other words,
Appellants do not assert that the corrosion would not or
should not occur absent the defect, they merely contend that
the defect causes corrosion to occur earlier in a motor’s
lifetime than a consumer would otherwise expect. Were we
to conclude that Appellants’ allegations of premature but
otherwise normal wear and tear plausibly establish an
unreasonable safety hazard, we would effectively open the
door to claims that all of Yamaha’s outboard motors
eventually pose an unreasonable safety hazard. The factual
allegations here do not support either conclusion.

    Additionally, the alleged safety risk is speculative and
unsupported by factual allegations. Where a plaintiff alleges
a sufficiently close nexus between the claimed defect and the
alleged safety issue, the injury risk need not have come to
fruition. See Apodaca, 2013 WL 6477821, at *9; Ehrlich v.
BMW of. N. Am., LLC, 801 F. Supp. 2d 908, 918 (C.D. Cal.
2010).      Nevertheless, a party’s allegations of an
unreasonable safety hazard must describe more than merely
“conjectural and hypothetical” injuries. Birdsong v. Apple,
24          WILLIAMS V. YAMAHA MOTOR CORP.

Inc., 590 F.3d 955, 961 (9th Cir. 2009). Here, the SAC lacks
any allegations indicating that any customer, much less any
plaintiff, experienced such a fire—a notable omission if the
alleged unreasonable safety hazard arises in all Yamaha
outboard motors sooner or later.

    We further note that the standard is one of an
“unreasonable” safety risk. The loss of steering power,
while plausibly hazardous, is a potential boating condition
of which Yamaha expressly warns consumers. Moreover,
the nature of the alleged defect as being primarily one of
accelerated timing rather than the manifestation of a wholly
abnormal condition weighs against its characterization as
“unreasonable.”

     Finally, the fact that the alleged defect concerns
premature, but usually post-warranty, onset of a natural
condition raises concerns about the use of consumer fraud
statutes to impermissibly extend a product’s warranty
period. See Wilson, 668 F.3d at 1141–42 (acknowledging
that unless liability for failure to disclose a defect is limited
to unreasonable safety risks, “the failure of a product to last
forever would become a ‘defect,’ a manufacturer would no
longer be able to issue limited warranties, and product defect
litigation would become as widespread as manufacturing
itself” (internal quotation marks and alteration omitted)).

                       CONCLUSION

    The district court correctly found that it lacked either
general or specific jurisdiction over YMC. Additionally,
Appellants failed to state a claim for state-law consumer
fraud, as they failed to adequately plead that the alleged dry
exhaust defect constituted an unreasonable safety hazard.
We therefore AFFIRM the district court’s dismissal of YMC
          WILLIAMS V. YAMAHA MOTOR CORP.               25

as a party, and AFFIRM its dismissal of Appellants’ claims
against YMUS pursuant to Rule 12(b)(6).