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Microsoft WGA Class Action Defense Cases–Johnson v. Microsoft: Washington Federal Court Dismisses All Class Action Allegations In Class Action Complaint And Requires Plaintiffs Pay Defense Fees Incurred Opposing Withdrawn Class Certification Motion

Class Action Complaint Challenging Microsoft’s “Windows Genuine Advantage” Software could be Amended to Withdraw Class Action Allegations Provided Plaintiffs Dismiss All Class Claims and Provided Plaintiffs Reimburse Microsoft the Attorney Fees Reasonably Incurred in Opposing Plaintiffs’ Class Action Certification Motion before Plaintiffs Voluntarily Withdrew that Motion Washington Federal Court Holds

In April 2009, plaintiffs filed a putative class action against Microsoft in Washington federal court alleging, in the second amended class action complaint, “claims for unjust enrichment, breach of End User License Agreement (‘EULA’) contracts, violation of Washington’s Consumer Protection Act, and trespass to chattels, nuisance and interference with property” arising out of “Microsoft’s distribution of Windows Genuine Advantage (‘WGA’) software.” Johnson v. Microsoft Corp., ___ F.Supp. 2d ___ (W.D.Wash. January 15, 2010) [Slip Opn., at 1-2.] In September 2008, plaintiffs filed a motion requesting that the district court certify the litigation as a class action; however, in November 2009, plaintiffs withdrew their class action certification motion and “indicated an intent to withdraw class allegations.” Id., at 2. Plaintiffs thereafter moved to file a third amended class action complaint “that would eliminate most (but not all) class allegations, add a new cause of action and related allegations, and specify injunctive relief sought.” Id. Defense attorneys opposed the motion with one exception: Microsoft did not oppose the motion to the extent it sought to withdraw class action claims, provided that plaintiffs did not seek to “re-inject them at a later point in the proceeding.” Id. In addition, defense attorneys requested permission “to file a fee petition for the expenses incurred as a result of defending against Plaintiffs’ class-certification motion,” id. The district court granted the motion in part and denied the motion in part.

The district court began by noting the well-settled rule that leave to amend is “generally allowed absent bad faith, undue delay, futility, or prejudice to the opposing party.” Johnson, at 2 (citing Eminence Capital, L.L.C. v. Aspeon, Inc., 316 F.3d 1048, 1051-52 (9th Cir. 2003)). Nonetheless, the federal court denied plaintiffs’ request to add claims (and allegations in support of claims) for fraudulent misrepresentation, negligent misrepresentation and fraudulent concealment because defense attorneys opposed these amendments and plaintiffs agreed to withdraw them. Id., at 2-3. Similarly, Microsoft opposed plaintiffs’ request to seek additional forms of injunctive relief, and plaintiffs agreed to withdraw those proposed amendments. Id., at 3. Accordingly, the district court denied that portion of plaintiffs’ motion, id. For our purposes, the most important aspect of the district court’s order concerns the class action allegations, to which we now turn.

Plaintiffs’ proposed to “eliminate[] most of the class allegations, but include[] class claims with respect to the breach-of-contract claim previously dismissed on summary judgment and appealed,” arguing “that they must include these claims in an amended complaint to preserve appellate rights, but did not any authority on point to support that proposition.” Johnson, at 3. Defense attorneys countered that class claims need not be included to preserve plaintiffs’ appellate rights. Id., at 3-4. The federal court agreed with Microsoft, noting that including the claims “would create unnecessary confusion.” Id., at 4. Accordingly, the court allowed plaintiffs to withdraw their class action allegations, “but clarifies that all class claims should be withdrawn.” Id. (italics added). The district court also granted Microsoft’s request to seek, attorney fees incurred in opposing plaintiffs’ class action certification motion, finding that it “has broad authority to impose reasonable conditions upon amendment” and that conditioning plaintiffs’ amendments on payment of those fees was appropriate “because of the Plaintiffs’ delay in withdrawing the class-certification motion and seeking amendment.” Id. While it was true that plaintiffs withdrew their motion prior to oral argument and a ruling on the certification motion, Microsoft was required to prepare an opposition to the motion and thus suffered “harm”; in essence, plaintiffs’ “no harm, no foul” argument would have applied had they withdrawn the class certification motion before Microsoft prepared and filed its opposition, but it was now “too late for that argument.” Id., at 4-5. Accordingly, the district court allowed plaintiffs to withdraw all class allegations and required plaintiffs reimburse Microsoft for fees reasonably incurred in opposing class certification, id., at 5.

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