ACBEL POLYTECH, INC., individually and as assignee of EMC CORPORATION, Plaintiff-Appellant/Cross-Appellee,
FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC., FAIRCHILD SEMICONDUCTOR CORPORATION, Defendants-Third Party Plaintiffs-Appellees/Cross-Appellants, SYNNEX ELECTRONICS HONG KONG LTD., SYNNEX TECHNOLOGY INTERNATIONAL CORP., Third Party Defendants.
APPEALS FROM THE UNITED STATES DISTRICT COURT FOR THE
DISTRICT OF MASSACHUSETTS [Hon. Denise J. Casper, U.S.
Landsman, with whom Richard Chassin, Jesse Travis Conan, and
Becker Glynn Muffly Chassin & Hosinski LLP were on brief,
Matthew Iverson, with whom Daniel E. Rosenfeld, Stephen W.
Hassink, Yasmin Ghassab, DLA Piper LLP, Jeffrey A. Rosenfeld,
and Alston & Bird LLP were on brief, for defendants-third
Torruella, Kayatta, and Barron, Circuit Judges.
TORRUELLA, CIRCUIT JUDGE.
often fail to notice the complex interplay between the
numerous components that make up electronic equipment. This
is a case about one of these components -- a miniscule
microcircuit that serves as a voltage regulator, the
Fairchild Semiconductor Corporation's ("Fairchild
US") subsidiaries manufactured the KA7805.
Plaintiff-Appellant AcBel Polytech, Inc. ("AcBel")
purchased KA7805s from Fairchild's agent and installed
them into power supply units ("PSUs") it then sold
to EMC Corporation ("EMC"). EMC used the PSUs for
its data storage devices. In 2010, one of Fairchild US's
subsidiaries began to manufacture a new
"shrunk-die" version of the KA7805 ("shrunk-die
KA7805"). After Fairchild transitioned to the shrunk-die
KA7805, EMC began to experience problems with AcBel's
PSUs. The shrunk-die KA7805s were failing.
attributed EMC's problems with its PSUs to the design of
Fairchild's shrunk-die K8705. As a result, it filed a
diversity suit against Fairchild U.S. and its holding
company, Fairchild Semiconductor International, Inc.
("Fairchild International") (collectively,
"Fairchild"), asserting claims of breach of
warranty (Counts I, II, XII and XIII); fraud and negligent
misrepresentation (Counts III, IV and V); "design defect
-- implied warranty/strict liability" (Counts VI and
XIV); "design defect -- negligence" (Counts VII and
XV); "failure to warn --implied warranty/strict
liability" (Counts VIII and XVI); "failure to warn
-- negligence" (Counts IX and XVII); and violation of
Mass. Gen. Laws ch. 93A (Counts X and XVIII). AcBel asserted
all claims on its own behalf and on behalf of EMC, as its
assignee, except for its fraud and misrepresentation claims
(Counts III, IV, and V).
summary judgment stage, the district court dismissed all
claims except those involving breach of implied warranty
(Counts I, II, XII, and XIII). After a nine-day bench trial,
the district court dismissed AcBel's remaining breach of
implied warranty claims. AcBel appeals from the dismissal of
its implied warranty of merchantability (Count I), fraud
(Counts III and IV) and negligent misrepresentation (Count V)
claims. Fairchild cross-appeals, contending that, even if the
district court's grounds for dismissal were improper, it
is still not liable to AcBel because the district court erred
in determining that Fairchild's subsidiaries were its
agents for liability purposes. Additionally, Fairchild avers
in its cross-appeal that, in the event of reversal, this
court should order discovery regarding certain documents
produced by AcBel after discovery had closed (the
careful review, we affirm the district court's finding of
Fairchild's liability for the actions of its
subsidiaries, vacate the district court's judgment
dismissing AcBel's implied warranty of merchantability,
fraud, fraud by omission, and negligent misrepresentation
claims, and remand for further proceedings consistent with
this opinion. Because it will likely help develop the record
for trial on the remanded claims, we also grant
Fairchild's request for additional discovery in relation
to the late-produced documents.
is a Taiwanese company that manufactures and sells PSUs,
including Katina, a second-generation PSU used by its
customer, EMC, in its data storage devices. The Katina PSU
was custom-made for EMC and specifically required the KA7805
voltage regulator, which was designed to emit a constant
output of voltage, as one of its approximately 400
U.S. is a Delaware corporation. Its wholly-owned
international subsidiaries (the "Asian
subsidiaries") manufactured, assembled, and distributed
the KA7805s. Specifically, the KA7805s were manufactured by
Fairchild Korea Semiconductor Ltd. ("FSC Korea"),
assembled by Fairchild Semiconductor Shuzhou Company, Ltd.
("FSC Shuzhou"), and distributed by Fairchild
Semiconductor PTE, Ltd. ("FSC Singapore") and
Fairchild Semiconductor Hong Kong Ltd. ("FSC Hong
Kong"). Although the KA7805 voltage regulators were
ultimately utilized in the Katina PSU, Fairchild did not
manufacture them specifically for AcBel.
2008, AcBel received a process change notice
("PCN") from Synnex,  a company that had apparent
authority to act as Fairchild's agent, notifying it that
the KA7805 voltage regulator would be redesigned. The new
version required that some internal components be moved to
accommodate the smaller die, including a part known as the
zener diode. In January 2010, FSC Korea began to manufacture
the new shrunk-die version of the KA7805. At the end of the
design process, FSC Korea performed industry-standard testing
on the shrunk-die KA7805, and there were zero failures
reported. Fairchild did not assign a new part number
to the redesigned shrunk-die KA7805.
the shrunk-die KA7805's entry into the market in early
2010, its manufacture and shipment was halted sometime in
July 2010 when FSC Korea reported a quality incident
involving a product that used the same shrunk
die. The root cause of the reported quality
incident was not immediately known.
Fairchild U.S. recommended that FSC Korea permanently cease
production of the shrunk-die version KA7805 and revert to the
larger die, which was done by week 35 of 2010. No
notification of the switch from the shrunk-die KA7805 model
back to the large-die model was provided to AcBel and
Fairchild's other customers.
AcBel had purchased 195, 000 shrunk-die KA7805s, all of which
ended up in the second-generation Katina PSUs it manufactured
for EMC. On or about December 3, 2010, while FSC Korea was
still investigating the quality issue reported in July of
that year, AcBel received notice from EMC that thousands of
shrunk-die KA7805s had failed, causing the Katina PSUs in its
data storage devices to fail as well. Eventually, it was
determined that 26, 000 PSUs needed to be replaced for EMC
terms and conditions limiting liability in connection with
the KA7805 sales were provided to AcBel prior to December
2010. At AcBel's request, a representative from FSC Hong
Kong formed a task force to address the shrunk-die
KA7805's failure issue. On December 22, 2010, Fairchild
executed a letter guaranteeing AcBel that it would revert to
the non-shrunk or large-die design of the KA7805.
dispute over the cause of shrunk-die KA7805's failures
eventually led to the current litigation. AcBel attributed
the part's failures to the shrunk-die model's design,
which it claimed made the product defective. During trial,
Fairchild's expert testified that a certain sequence of
events must occur to trigger the shrunk-die KA7805's
failure: (1) moisture penetration; (2) a mechanism for the
generation of hydrogen from moisture on the die surface; (3)
a way for the hydrogen to get underneath the silicon nitride
at the edge of the die and find its way to the zener diode;
(4) a trigger for the molecular hydrogen to form atomic
hydrogen; and (5) that all of these occurrences happen at
relatively low temperatures. Evidence demonstrated that the
failure symptoms could only be duplicated by creating extreme
conditions designed to make devices fail, such as a Highly
Accelerated Stress Test ("HAST"), with bias,
followed by a Low Temperature Operating Life test
("LTOL"). HAST and LTOL testing are not part of the
JEDEC standards, so standard industry testing would not
uncover the shrunk-die KA7805's failure systems.
Additionally, evidence presented at trial suggested that
EMC's problems with the KA7805s may have resulted from
the extreme heat produced by AcBel's soldering of the
microcircuits to the PSU circuit boards.
expert, on the other hand, concluded the KA7805s had a
defective design, and claimed AcBel's soldering process
was within industry standards. AcBel's expert believed
the new placement of the zener diode in the shrunk-die KA7805
made it susceptible to moisture exposure, thereby impairing
the voltage regulator's electrical function. The expert,
however, could not identify the specific mechanism that
caused the KA7805s to fail and did not perform independent
AcBel's Implied Warranty of Merchantability Claim (Count
district court held that Fairchild did not breach the
KA7805's implied warranty of merchantability. It based
its holding on AcBel's failure to establish that the
design defect of Fairchild's shrunk-die KA7805 was
foreseeable. AcBel contends that the district court's
analysis was legally flawed, inasmuch as it held that AcBel
was required to establish that the design defect of
Fairchild's shrunk-die KA7805 was foreseeable in order to
prevail in its implied warranty of merchantability claim.
Because AcBel challenges a legal determination made by the
district court during the course of the bench trial, our
review is de novo. United States v. 15 Bosworth
St., 236 F.3d 50, 53 (1st Cir. 2001).
Massachusetts law, with certain exceptions not applicable
here, "a warranty that the goods shall be merchantable
is implied in a contract for their sale if the seller is a
merchant with respect to goods of that kind." Mass. Gen.
Laws ch. 106, § 2-314(1) (adopted by Massachusetts from
the Uniform Commercial Code ("UCC") §
2-314(1)). Thus, manufacturers impliedly warrant that their
products will be "fit for the ordinary purposes for
which such goods are used." Back v. Wickes
Corp., 378 N.E.2d 964, 969 (Mass. 1978) (quoting Mass.
Gen. Laws ch. 106, § 2-314(2)(C)). The cornerstone of
the duty of warranty of merchantability "is the
anticipation of foreseeable uses." Cigna Ins. Co. v.
Oy Saunatec, Ltd., 241 F.3d 1, 16 (1st Cir. 2001).
complaint, AcBel alleged that Fairchild breached the implied
warranty of merchantability by selling to AcBel defective
shrunk-die KA7805s that were unfit for their ordinary
purpose. As correctly noted by the district court, for AcBel
to succeed on its breach of the implied warranty of
merchantability claim presented on its behalf and on behalf
of EMC, it must have demonstrated at trial that: (1)
Fairchild manufactured or sold the shrunk-die KA7805s; (2) a
defect or unreasonably dangerous condition existed that
rendered the shrunk-die KA7805s not suitable for the ordinary
uses for which voltage regulators were sold; (3) AcBel and
EMC were using the shrunk-die KA7805s in a manner that
Fairchild intended or could have reasonably foreseen; and (4)
the defect or unreasonably dangerous condition was a legal
cause of AcBel's and EMC's injuries. See
Provanzano v. MTD Prods. Co., 215 F.Supp.3d 134, 138 (D.
Mass. 2016) (citing Lally v. Volkswagen
Aktiengesellschaft, 698 N.E.2d 28, 43 (Mass. App. Ct.
the first prong, Fairchild challenges on appeal the district
court's determination that it is liable for the acts of
its subsidiaries. Specifically, the district court found
that, because Fairchild was so intermingled with the conduct
of its subsidiaries, they were its agents for liability
purposes. This is relevant for our implied warranty
of merchantability analysis because the shrunk-die KA7805s
were manufactured by FSC Korea and sold to AcBel by Synnex,
which acted as FSC Hong Kong's agent.Thus, if Fairchild
is not liable for its subsidiaries' actions, AcBel is
unable to meet the first element of this implied warranty of
merchantability inquiry. See Provanzano, 215
F.Supp.3d at 138.
accepts the district court's factual findings regarding
its relationship with its Asian subsidiaries, but on appeal
makes three strictly legal arguments in support of its
contention that the district court improperly held it liable
for its subsidiaries' conduct.
Fairchild sustains that the district court based its agency
determination on the "pervasive control" theory but
did not make the requisite finding that Fairchild also used
the corporate form to engage in improper conduct. Fairchild
contends that the absence of improper conduct is dispositive
because "control, even pervasive control, without more,
is not a sufficient basis for a court to ignore corporate
formalities . . . without a showing of improper
conduct." (quoting Scott v. NG U.S. 1, Inc.,
881 N.E.2d 1125, 1132 (Mass. 2008)).
Fairchild argues that, even in the absence of improper
conduct, the district court's agency determination was
erroneous because the facts it found do not establish its
pervasive control over its subsidiaries, as required to
third, Fairchild asserts it would not be liable for the Asian
subsidiaries' conduct under the apparent manufacturer
doctrine, as suggested by the district court in dicta,
because for the doctrine to apply, Fairchild must have
"participate[d] substantially in the design,
manufacture, or distribution of the [KA7805s]" and the
district court made no finding to ...