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Second Circuit Revives Staples Class Action

MANHATTAN (CN) - The Second Circuit on Wednesday revived a class action accusing Staples of failing to honor its "Protection Plan" warranty for customers who bought computers.

The three-judge panel vacated and remanded the dismissal, finding that Andrew Orlander adequately alleged breach of contract and violations of New York business law prohibiting deception and false advertising. It gave him leave to amend the breach of contract claim to seek further damages.

Orlander bought a Hewlett Packard computer at a Staples store in March 2012, and paid an extra $99.99 for Staples's two-year Protection Plan.

He claims a Staples sales rep told him the manufacturer's warranty would not be sufficient for his need, but that the Staples Protection Plan would provide complete coverage so he "would never need to contact the manufacturer for repairs or replacement."

He took the computer back to Staples in November 2012 because it had trouble connecting to the Internet, and asked for a new one. A Staples employee told him to take the problem to Hewlett Packard, because "there was no coverage from the Protection Plan until the manufacturer's warranty expired."

(The quotations are from Second Circuit Judge Pierre Laval's citations to the original complaint.)

Orlander said he received a follow-up letter from Staples in January 2013, telling him that "Staples Protection Plans does not [sic] cover the first year, Staples Protection Plans cover the 2nd year when the warranty expires from the manufacturer" and that "HP should cover the repair on the HP Desktop."

Staples cited a starred item under a "replacement" provision in the contract that referred to a paragraph in small type on the back page of the warranty. The small print stated, "the plan term is inclusive of manufacturer's warranty and store return policy and does not replace the manufacturer's warranty."

But the second page of the contract promised purchasers of Protection Plans that "we will refer you to the nearest authorized repair center for service."

Orlander sued for breach of contract, violations of New York General Business Law Sections 349 and 350, breach of express and implied warranties and unjust enrichment.

The District Court dismissed in June 2013 for failure to state a claim, finding that the Protection Plan contract "unambiguously provided that the Staples Protection Plan did not entitle plaintiff to any services during the one year that the manufacturer's warranty is in existence."

Orlander appealed, and the Second Circuit heard arguments on Jan. 22 this year.

Leval wrote for the panel on Sept. 16 that "the District Court's interpretation of the small-print paragraph on the back page as meaning that 'anything' covered by the manufacturer's warranty is not covered by the Staples Plan is far from the only reasonable interpretation."

In fact, Leval seemed to find the contract unintelligible.

"And as for the clause that reads, 'The plan term ... does not replace the manufacturer's warranty,' we have no idea what it meant," he wrote. "One permissible interpretation might be that the manufacturer's warranty offers dual, alternative coverage, alongside the protections offered by Staples. It certainly does not unambiguously communicate that Staples's plan gives no protection while the manufacturer's warranty is in effect, or even that, while the manufacturer's warranty is operative, the protection given by the Staples plan is limited to coverage not provided by the manufacturer's warranty."

He found "the ambiguities of the Staples Plan ... numerous and complex," and agreed with the District Court finding that "the scope of its coverage 'could certainly be clearer.'"

Leval concluded that Staples did breach one of the contract's provisions, which promised to refer warranty holders to the nearest authorized repair center for service.

"Neither the district court nor defendant have contended that this provision was negated by the manufacturer's warranty restriction on the back page of the contract. Yet when plaintiff brought in his malfunctioning computer, defendant did not refer him to the nearest authorized repair center for service," Leval wrote.

"Staples accordingly interpreted the plan differently from the district court. While the district court read it as not providing coverage that is provided by the manufacturer's warranty, Staples read its plan as providing no coverage whatsoever during the period when the manufacturer's warranty was in effect, regardless of whether the coverage ordinarily provided on the face of the plan was also provided by the manufacturer."

Therefore, even under the district court's interpretation of the contract, "Staples failed to provide plaintiff with the one service it owed him - referral to the nearest authorized repair center."

"The District Court improperly decided in the defendant's favor, concluding that defendant's failure to refer plaintiff to the nearest authorized repair center was immaterial since 'plaintiff could have contacted [the manufacturer directly] and obtained [the location of the nearest authorized repair center] - as well as the repairs he was entitled to.'" (Brackets in Second Circuit ruling.)

"(I)t is not the case that the contract unambiguously states that any coverage provided by the manufacturer's warranty would not be provided by defendant. ... Rather than merely confusing the consumer, as the district court found, defendant's representations would objectively incline a reasonable consumer to read the ambiguous contract as offering more services than defendant intended to provide."

In vacating and remanding, with leave to amend to particularize his damages, Leval concluded that Orlander "has sufficiently alleged a 'materially misleading' practice, one that could lead a reasonable consumer to expect much more service than Staples has provided."

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