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Redzone Wireless, LLC v. Netgear, Inc.

United States District Court, D. Maine

September 20, 2019

REDZONE WIRELESS, LLC, Plaintiff,
v.
NETGEAR, INC., Defendant.

          ORDER ON MOTIONS FOR SUMMARY JUDGMENT [1]

          JON D. LEVY CHIEF U.S. DISTRICT JUDGE

         Redzone Wireless, LLC (“Redzone”), provides wireless broadband Internet services to residential and business customers in Maine. NETGEAR, Inc. (“NETGEAR”), is a global manufacturer of networking equipment including wireless routers and gateways. In this action, Redzone asserts that Internet routers it purchased from NETGEAR are defective. Redzone further asserts that NETGEAR sold the LTE Routers with knowledge of the defects, made misrepresentations during the negotiation of the sale to Redzone, and is in breach of their contract. NETGEAR moves for summary judgment on all counts (ECF No. 124).

         Redzone opposes NETGEAR's motion for summary judgment and also moves for partial summary judgment (ECF No. 121) on certain of the fifteen (15) affirmative defenses NETGEAR asserts in its Answer to the Second Amended Complaint (ECF No. 69). Specifically, Redzone argues that it is entitled to summary judgment on NETGEAR's Third (No Warranties) and Fourth (Purchase and Sale of Goods “As Is”) Affirmative Defenses in their entirety because the undisputed facts show that it did not disclaim all warranties in its contracts with NETGEAR. For the same reason, Redzone argues that it is entitled to summary judgment on NETGEAR's Second (Full Performance), Fifth (Unclean Hands / Failure to Do Equity), Sixth (Estoppel), Eighth (Waiver), Ninth (Bad Faith), and Tenth (Excuse) Affirmative Defenses to the extent they are based on NETGEAR's argument that Redzone disclaimed all warranties. Redzone also moves for summary judgment on NETGEAR's Seventh Affirmative Defense (Laches) on separate grounds.

         I grant Redzone's motion for summary judgment in favor of Redzone on NETGEAR's affirmative defense for laches. Because I conclude that there are genuine disputes of material fact as to all other issues, both motions are otherwise denied.

         I. FACTUAL BACKGROUND

         Sometime before 2014, Sprint Corporation (“Sprint”) commissioned NETGEAR to manufacture an Internet gateway router called the LG6100D LTE Gateway (the “LTE Router”) specifically for Sprint's network, and Sprint began selling the LTE Router in 2014.[2] In March 2015, Redzone contacted NETGEAR to inquire about testing the LTE Router on its network. At the time, NETGEAR had excess inventory of the LTE Routers. The excess LTE Routers had Sprint logos, were packaged in Sprint-branded boxes, contained a Sprint SIM (Subscriber Identification Module) card, had Sprint network settings, and had a Sprint user interface. The parties dispute the cause of NETGEAR's excess inventory. Redzone argues that a “data stall” problem with the LTE Routers caused Sprint's sales of the LTE Router to slow to a halt. While NETGEAR admits that Sprint experienced data stall issues with the LTE Routers, it contends that Sprint's sales forecasts overestimated Sprint's actual needs.

         The parties also dispute what NETGEAR communicated to Redzone as to the reason why Sprint did not purchase NETGEAR's remaining inventory of LTE Routers. Redzone asserts as fact that its CEO, Jim McKenna, asked Mike Wyckoff, a member of NETGEAR's marketing team, why Sprint had not purchased the LTE Routers that were in NETGEAR's inventory. ECF No. 142 ¶ 46. NETGEAR denies that McKenna asked Wyckoff the question. Redzone further asserts, but NETGEAR denies, that Wyckoff responded to McKenna that Sprint “had just decided to take a different direction in their business.” ECF No. 142 ¶ 47.

         Redzone was interested in NETGEAR's LTE Routers in part because Redzone had an immediate need for routers for its new LTE network, [3] and NETGEAR's LTE Routers were already manufactured and available to be shipped and deployed immediately. Negotiations focused, in part, on whether the LTE Routers, customized for Sprint, would work on Redzone's network. Wyckoff was one of NETGEAR's primary liaisons with Redzone during negotiations. At various times during the negotiations, Wyckoff referred to the LTE Routers as being sold “as is” both internally and in communications with Redzone. As explained below, the parties' disagreement as to the meaning of the term “as is” is central to this litigation. On March 27, Wyckoff sent McKenna an engineering support plan and a price quote for the LTE Routers which included the term “as is.”

         On April 4, Redzone asked NETGEAR to unlock 50 LTE Routers and provide custom firmware so that Redzone could beta-test the LTE Routers prior to purchasing them in large quantities. On or about April 6, Redzone and NETGEAR entered into the “NETGEAR, Inc. Standard Terms and Conditions” agreement (the “Standard Agreement”) to “govern all purchase orders submitted by [Redzone] and accepted by NETGEAR.” ECF No. 1-1 at 1. The Standard Agreement contained a “Hardware Warranty” and a “Software Warranty.” Id. On April 15, Redzone purchased 50 LTE Routers that were customized by NETGEAR so that they would connect to Redzone's network for beta-testing. Redzone then engaged in beta-testing.

         The parties dispute the scope of the testing contemplated by the agreement. Redzone contends that it was only to test whether the LTE Routers would connect to its network, while NETGEAR contends that Redzone was to test a broader range of criteria, including the longevity of the LTE Routers' data connection.

         The parties also dispute the nature of the testing Redzone conducted and what that testing revealed. NETGEAR contends that ten Redzone customers used the LTE Routers in real-world conditions for over a month and that several of them experienced service interruptions referred to as “data stalls.” Redzone argues that only eight testers used the LTE Routers, that they were not Redzone customers, and that only one tester indicated that he or she experienced frequent service interruptions. Redzone further asserts that the service interruptions were not understood to be data stalls and that Redzone did not know whether the LTE Router was causing the problem.

         Redzone and NETGEAR concluded that the LTE Routers would not work for Redzone in their default Sprint configuration and agreed that NETGEAR would have to perform some limited non-recurring engineering for the LTE Routers to work for Redzone. On or about May 13, 2015, the parties entered into the Redzone Wireless Custom LG6100 SKU Side Letter Agreement (the “Side Letter Agreement”). ECF No. 1-2. The purpose of the Side Letter Agreement was to “document the parties' agreement to certain additional terms to the [Standard Agreement].” Id. at 1. In particular, the Side Letter Agreement memorialized that NETGEAR would assist in creating custom Redzone firmware for the LTE Router.

         Pursuant to the Side Letter Agreement, Redzone agreed to purchase and take delivery of 4000 LTE Routers at a cost of $115.00 per unit. The section of the Side Letter Agreement entitled “Logistics and Packaging” stated in pertinent part: “NETGEAR shall deliver the Product ‘as is' to [Redzone], and . . . [Redzone] will reconfigure and repackage the Product at [Redzone's] cost and at [Redzone's] own site for [Redzone's] specific needs.” ECF No. 1-2 at 1. In addition, Redzone agreed to pay NETGEAR a non-recurring engineering fee of $50, 000 for the creation of the custom Redzone firmware, and NETGEAR agreed to provide the custom firmware and other deliverables identified in the Side Letter Agreement to Redzone.

         Redzone took delivery of the LTE Routers in mid-June 2015. Pursuant to the “Draft Schedule” in the Side Letter Agreement, Redzone had seven weeks from the execution of the Side Letter Agreement to provide its final acceptance of the LTE Routers. Redzone gave final and formal written acceptance of the LTE Routers pursuant to the Side Letter Agreement on June 16, 2015.

         One month later, on July 16, 2015, Redzone reported to NETGEAR by e-mail: “[W]e seem to be having some random/intermittent LTE disconnects with the LTE Routers. Customers report loss of IP connectivity, and we need to walk them through a reboot in order to get the device back online. Have Sprint customers experienced this issue, and if so did Netgear implement a fix?” ECF No. 143 ¶ 65. After receiving Redzone's e-mail, one of NETGEAR's engineers forwarded it to another NETGEAR engineer, writing: “FYI, I gave the latest test build to Sprint and they are experiencing the same thing with random disconnects even with the work around [frown face emoji].” Id. ¶ 67. NETGEAR did not respond to Redzone's question about whether Sprint had experienced similar problems, but NETGEAR did begin to troubleshoot Redzone's reports of the LTE Router's internet disconnections.

         On October 16, 2015, Redzone informed NETGEAR that it had experienced a “significant increase in customer reported disconnects” across all of its sites, and that “[u]sers generally report having LTE Signal and the Internet indicator LED is lit, but they are unable to get online and we cannot remotely communicate with the modem.” ECF No. 133-2 ¶ 59. In December, NETGEAR provided a software update to Redzone to address the disconnect issues, though the parties dispute its efficacy. Despite the update, Redzone continued to report customer connectivity problems with the LTE Routers, and NETGEAR continued to provide troubleshooting support. NETGEAR's support ended on September 9, 2016, when NETGEAR informed Redzone that no root cause had been detected despite months of troubleshooting and that it would not provide further support to Redzone for the apparent data stall issues.

         Redzone notified NETGEAR that it was revoking its acceptance of the LTE Routers on September 27, 2016. On October 3, 2016, NETGEAR filed a declaratory judgment action against Redzone in California state court-later removed to the United States District Court for the Northern District of California-seeking a judicial declaration that NETGEAR was “no longer obligated to devote further time and resources to the connectivity issues being experienced by Redzone's customers.” ECF No. 136 ¶ 65. That action was subsequently dismissed for lack of personal jurisdiction by an order dated May 31, 2017. Redzone filed its complaint in this Court on December 2, 2016.

         II. LEGAL ANALYSIS

         Summary judgment is granted when “the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). A fact is material if “its existence or nonexistence has the potential to change the outcome of the suit.” Rando v. Leonard, 826 F.3d 553, 556 (1st Cir. 2016) (quoting Borges ex rel. S.M.B.W. v. Serrano-Isern, 605 F.3d 1, 5 (1st Cir. 2010)). Issues are considered genuine “if the evidence of record permits a rational factfinder to resolve [the issue] in favor of either party . . . .” Id. (quoting Borges, 605 F.3d at 4). The facts in the record are construed in the light most favorable to the nonmoving party and all reasonable inferences are resolved in the nonmoving party's favor. See Braga v. Genlyte Group, Inc., 420 F.3d 35, 38 (1st Cir. 2005).

         Although NETGEAR moves for summary judgment on all of Redzone's claims, two issues predominate: First, NETGEAR argues that the “as is” language in the Side Letter Agreement precludes Redzone's claims for both revocation of acceptance and breach of warranty. Redzone, conversely, argues that the “as is” language does not disclaim the express warranties in the Standard Agreement. Accordingly, Redzone argues that it is entitled to summary judgment in its favor on that issue, which in turn warrants summary judgment in its favor on the majority of NETGEAR's affirmative defenses. Second, NETGEAR argues that Redzone's claims for fraudulent misrepresentation, fraudulent inducement, and negligent misrepresentation fail as a matter of law because Redzone could not have justifiably relied on any alleged misrepresentations and because the claims are barred by the economic loss doctrine. I address these issues, in order, before addressing NETGEAR's arguments concerning Redzone's other claims and Redzone's argument for summary judgment on NETGEAR's affirmative defense for laches.

         A. Revocation of Acceptance and Breach of Warranty

         NETGEAR argues that Redzone's claims for revocation of acceptance (Count I) and breach of warranty (Count II) fail because Redzone purchased the LTE Routers “as is.” NETGEAR further argues that even if the warranty claims were not disclaimed by the “as is” contractual language, the hardware warranty is inapplicable and NETGEAR satisfied the requirements of the software warranty.

         1. The “As Is” Disclaimer

         The Side Letter Agreement states that “NETGEAR shall deliver the Product ‘as is' to [Redzone], and, other than the specific exceptions described below, [Redzone] will reconfigure and repackage the Product at [Redzone's] cost and at [Redzone's] own site for [Redzone's] specific needs.” ECF No. 1-2 at 1. NETGEAR argues that this “as is” language constitutes a disclaimer, precluding Redzone's claims for revocation of acceptance and breach of warranty. Redzone, on the other hand, argues that the undisputed facts demonstrate that the parties understood the “as is” language only to mean that NETGEAR initially expected the LTE Routers would work for Redzone without modification and as configured, branded, and packaged for Sprint, but not to disclaim contractual warranties. ...


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