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AcBel Polytech, Inc. v. Fairchild Semiconductor International, Inc.

United States District Court, D. Massachusetts

December 27, 2017

ACBEL POLYTECH, INC., Plaintiff,
v.
FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. and FAIRCHILD SEMICONDUCTOR CORP., Defendants.

          MEMORANDUM OF DECISION

          DENISE J. CASPER UNITED STATES DISTRICT JUDGE

         I. INTRODUCTION

         Plaintiff AcBel Polytech, Inc. (“AcBel”), both individually and as assignee of EMC Corporation (“EMC”), alleges that Defendants Fairchild Semiconductor International, Inc. (“Fairchild International”) and Fairchild Semiconductor Corp. (“Fairchild US”) (collectively, “Defendants”) breached the implied warranties of merchantability, Mass. Gen. L. c. 106, § 2-314, and fitness for a particular use, Mass. Gen. L. c. 106, § 2-315, in the design and sale of voltage regulators to AcBel and EMC. After an eight-day bench trial, the Court now issues its findings of facts and conclusions of law on the remaining breach of implied warranty claims and enters judgment for the Defendants.

         II. PROCEDURAL HISTORY

         AcBel asserted claims of breach of warranty on its own behalf and on EMC's (Counts I, II, XII and XIII); claims for fraud and negligent misrepresentation on its own behalf (Counts III, IV and V); claims of “design defect - implied warranty/strict liability” on its own behalf and on EMC's (Counts VI and XIV); claims of “design defect - negligence” on its own behalf and on EMC's (Counts VII and XV); claims of “failure to warn - implied warranty/strict liability” on its own behalf and on EMC's (Counts VIII and XVI); claims of “failure to warn - negligence” on its own behalf and on EMC's (Counts IX and XVII); claims of a violation of Mass. Gen. L. c. 93A on its own behalf and on EMC's (Counts X and XVIII); and claims for punitive damages on its own behalf and on EMC's (Counts XI and XIX). On September 12, 2014, the Court denied Defendants' motion to dismiss as to all but the punitive damages claims. D. 43. On December 9, 2016, the Court allowed Defendants' motion for summary judgment as to all the remaining claims except for the breach of implied warranty claims (Counts I, II, XII and XIII). D. 280.

         The Court conducted a bench trial on June 19-28, 2017. AcBel called as witnesses Monica Tung (“Tung”), AcBel's supervisor for logistic purchase of electronic components; Tim Daun-Lindberg (“Daun-Lindberg”), AcBel's expert witness; Kirk Olund (“Olund”), Fairchild US's former director of Customer Quality Engineering; Robert Szymanski (“Szymanski”), EMC's engineering manager; Greg Lucini (“Lucini”), International Sourcing and Marketing (“ISMI”) president and chief executive officer; Gary Ma (“Ma”), AcBel's assistant plant manager at its headquarters in Taiwan; Jesse Wang (“Wang”), AcBel's director of the regional sales office; Eric Hertz (“Hertz”), a vice president of Fairchild US; David Kao (“Kao”), AcBel's president; and Tony Wan (“Wan”), AcBel's chief operating officer and general manager of AcBel's unit servicing business and enterprise customers. Defendants called Ma, Kao, Wan, Wang, Hertz, Dr. Richard Fair (“Fair”), Defendants' expert witness; Paul Delva (“Delva”), former senior vice president, general counsel, and corporate secretary of Fairchild US, and director of several FSC subsidiaries; and Phoebe Shum (“Shum”), FSC Hong Kong's former financial controller. Exhibits 1-353 were admitted in evidence at the beginning of trial and Exhibits 332A and 354-479 were admitted during the course of trial. Exhibits 480-550 were admitted de bene and the Court reserved their admission depending on the Court's findings of fact with respect to whether the FSC subsidiaries or Synnex were Defendants' agents, making statements by these entities attributable to Defendants as statements of a party opponent (which, for reasons discussed further below, the Court admits these documents and has considered them, along with the other evidence admitted, for the purpose of entering judgment in this case). Exhibits 551-558 were admitted in a final telephone status conference on June 29, 2017. The Court heard closing arguments from counsel on August 28, 2017.

         III. FINDINGS OF FACT

         A. The Parties and Their Products

         1. AcBel Polytech Inc. (“AcBel”) is an electronics company that manufactures and sells electronic components called power supply units (“PSUs”). 3:81:7-11; 3:215:12-13.[1]

         2. EMC Corporation (“EMC”) is an electronics company that manufactures data storage devices. 3:81:19-21.

         3. The second generation Katina (the “Katina”) is a PSU that AcBel sold to EMC for use in EMC's data storage devices (“DAEs”). 2:202:18-25; 3:82:18-22.

         4. AcBel and EMC jointly developed the Katina which required the KA7805ERTM voltage regulator. 1:170:17-171:2; 6:14:3-17:18; 2:205:14-206:18; 2:14:22-15:6.

         5. Fairchild Semiconductor (“FSC”), whether through Fairchild U.S. or a FSC subsidiary, marketed itself as a “global brand” and “global leader.” 8:65:17-24; Exh. 471.

         6. Fairchild International is a Delaware holding company. 5:17:8-12; 7:171:2-172:10; Exh. 234.

         7. Fairchild U.S. is a Delaware corporation that, in 2010, owned three manufacturing facilities in the United States, but no manufacturing facilities outside the United States. 5:15:1-6; 7:168:13-169:11; Exh. 236. Fairchild U.S. is in the business of manufacturing and selling semiconductor products. 7:169:12-20; 7:170:8-14; 8:22:6-17.

         B. Defendants' Relationship with the FSC Subsidiaries

         8. Fairchild U.S. is a parent company and sole shareholder of the FSC subsidiaries. 7:164:19-23; Exhs. 230-231; 235; 466-468.

         9. Fairchild U.S. and the FSC subsidiaries[2] share a common interest in “advancing the brand.” 8:22:3-17.

         10. Fairchild Semiconductor Hong Kong Ltd. (“FSC Hong Kong”) is a Hong Kong corporation that marketed and distributed FSC brand products in Asia and operated a Taiwan office. 5:8:12-21; 8:79:23-80:6; 8:80:20-21.

         11. Fairchild Korea Semiconductor Ltd. (“FSC Korea”) is a Korean corporation that manufactures FSC brand products. 5:8:22-9:3.

         12. Fairchild Semiconductor PTE, Ltd. (“FSC Singapore”) is a Singapore corporation that distributes and manages FSC brand products. 5:9:6-13; 7:173:2-5.

         13. Fairchild Semiconductor Suzhou Company, Ltd. (“FSC Suzhou”) is a company in China that owns finishing facilities. 7:173:6-174:1.

         14. FSC subsidiaries often referred to their products under the FSC name and logo. See, e.g., 4:126:11-24; 4:152:13-16; Exhs. 6; 228; 265; 271; 277; 298; 299; 366; 435; 436; 443; 503; 504; 505; 511; 512; 513; 515; 516; 525; 526; 527; 530; 531; 533.

         15. Delva, Fairchild US's former senior vice president, general counsel and corporate secretary, served on the board of directors of several of the FSC subsidiaries, including but not limited to FSC Korea, FSC Singapore, FSC Hong Kong, FSC Suzhou, FSC India, and FSC Beijing. 7:161:4-11; 7:162:24-163:6; 7:166:12-14; 8:56:12-16; Exh. 236.

         16. There are certain shared assets between Fairchild U.S. and the FSC subsidiaries, such as licenses, that are sold between entities. 8:21:6-16. The Defendants and the FSC subsidiaries also share a common domain name. 8:21:24-8:22:2.

         17. Fairchild U.S. also has some worldwide departments, such as sales and marketing, that aid and support the FSC subsidiaries. 8:23:10-13.

         18. Sometimes these departments were led or staffed by Fairchild U.S. employees and sometimes by FSC subsidiary employees. 8:23:14-19.

         19. Fairchild U.S. and the FSC subsidiaries have authorized certain employees to authorize actions taken by each company. 8:58:10-59:23; Exh. 470.

         20. Although each Fairchild subsidiary is organized as an independent corporation under local law, with its own organizational documents, board of directors, management, financial records, assets, and liabilities, 7-163:12-164:18, the financial affairs of Fairchild U.S. and the FSC subsidiaries were interdependent. 8:60:3-8:62:21; Exh. 470; see 8:126:11-127:1; 8:129:19-23; 5:22:5-10; Exh. 479.

         21. The FSC subsidiaries' profit and loss statements were wrapped up into the profit and loss statement for Fairchild US, for which Hertz, a vice president for Fairchild US, had reporting responsibilities. 5:22:5-10.

         22. Although Fairchild U.S. and Fairchild International did not exercise day-to-day control of operations of the FSC subsidiaries (which was done by local management), 7-164:19-165:5, Fairchild U.S. involved itself in failure analysis of a subsidiary's product when there was a large claim and it needed to protect the FSC brand. 5:20:8-19; 6:129:19-130:2.

         23. Fairchild International was the corporate entity that traded under the ticker symbol FCS. 8:66:3-8; Exh. 471.

         24. Fairchild U.S. and the FSC subsidiaries were organized into cross-entity divisions staffed with employees “around the world … work[ing] for multiple subsidiaries…to collaborate” to promote “the global business, the global brand.” 8:30:3-12; see 8:23:10-19; 4:156:11-157:17; 2:167:9-14; 8:42:9-43:5; 8:29:19-30:19; 8:32:13-33:9; 8:37:18-38:20; Exhs. 469; 471.

         25. Some employees of FSC subsidiaries reported directly to employees of Fairchild US, 2:148:7-149:6; 3:119:13-120:11; 3:120:17-25; 6:129:19-24 (Fairchild U.S. oversaw failure analysis); 4:142:21-4:143:9; 5:29:3-9 (Hertz tracking failure rates); 8:24:1-17; 8:31:1-4; Exhs. 261 at 1; 263 at 1; 264; 266 at 2; 267 at 1; 274 at 1; 275 at 1; 276; 278; 279; 281; 282 at 1; 289 at 1; 290 at 1; 444 at 1; 445; 469; 479 at 1; 517; 542 at 1, and, in regard to AcBel, that reporting structure included Fairchild International, 8:25:4-18; Exh. 469.

         C. The KA7805 or M7 Voltage Regulator

         26. The KA7805ERTM voltage regulator (“KA7805” or “M7”) is a consumer-grade part that costs about $0.13. 5:18:8-9; 6:115:18-116:7.

         27. A voltage regulator is aimed at producing a constant output of voltage. 7:44:3-6. The M7 receives a range of seven to twenty-five volts of input and then produces output of five volts. 2:17:18-22.

         28. The KA7805 is a “common material” not specifically made for AcBel. 4:55:16-56:2; Exh. 127 at 501626.

         29. The KA7805s were commodity products sold to many customers for many applications. 6:115:7-17.

         30. The KA7805s were manufactured by FSC Korea, assembled by FSC Suzhou, and distributed by FSC Singapore and FSC Hong Kong. 5-15:7-16:9; 7-172:18-173:20.

         31. The data sheet for the M7 identifies it as a FSC product. Exh. 2.

         D. Negotiations Regarding the KA7805 Voltage Regulator

         32. AcBel purchasing supervisor, Tung, negotiated prices for voltage regulators in 2010. 1:37:19-22, 1:38:2-6.

         33. Tung of AcBel negotiated primarily with Alan Lo of FSC Hong Kong, based in Taiwan. 1:38:2-17; 1:39:6-10; 1:98:7-21.

         34. This price negotiation for voltage regulators would occur annually. 1:46:4-6.

         35. These annual price negotiation meetings were attended by Tung from AcBel, Alan Lo of FSC Hong Kong, KK Lin of FSC Hong Kong, and representatives of Synnex. 1:46:1-24; 1:111:20-112:1.

         E. Problems with the Shrunk-Die Version of the KA7805 Voltage Regulator

         36. FSC Korea manufactured a new “shrunk-die” version of the KA7805 between January and July 2010. 2:161:1-11; 5:23:5-9; 6:25:12-17; Exhs. 54; 202 at 9; 439.

         37. The voltage regulator was changed by shrinking the die, which means that the voltage regulator's die was made smaller which required the movement of some components, including the zener diode. 2:18:4-19:18, 2:22:12-25.

         38. FSC Korea ceased manufacturing the shrunk-die KA7805 because, in May 2010, there was a reported quality incident with an unexplained root cause in a part called the LM7805. 5:23:10-13; 6:130:3-8.

         39. The LM7805 uses the same die as the KA7805, but in a different package. 6:130:9-19.

         40. Fairchild Korea investigated the May 2010 report, concluded the customer was overstressing the part, and recommended that the customer revert to the large-die version of the LM7805. 6:130:20-131:4.

         41. In or around July 2010, Eric Hertz of Fairchild U.S. recommended that FSC Korea cease producing the shrunk-die KA7805 and revert to the larger die KA7805 because the part volume was too small to justify ...


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