Opinion
No. 99 Civ. 10876 (LAP)
September 30, 2002
MEMORANDUM AND ORDER
Plaintiff Nielsen Media Research, Inc. ("Nielsen") brings this action against defendant Microsystems Software, Inc. ("Microsystems"), alleging breach of contract, unjust enrichment, breach of implied warranty of merchantability, breach of implied warranty of fitness for particular purpose, negligence and negligent misrepresentation. Nielsen alleges that, pursuant to a contract between the parties, Microsystems agreed to deliver "Tracking Software" that would reside on end-user computer and perform a variety of functions relating to an Internet and computer ratings service. Nielsen alleges that, while it has fully satisfied all of its obligations under its agreement with Microsystems, Microsystems has breached that agreement. Nielsen seeks millions of dollars in compensatory and punitive damages.
Microsystems, in turn, brings a counterclaim against Nielsen for breach of contract, alleging that it performed all of its obligations required of it under the parties' agreement or otherwise was excused by Nielsen from such performance. Microsystems also brings a counterclaim against Nielsen for quantum meruit, alleging that Nielsen has failed and refused to compensate Microsystems fully for the software development and goods and services provided to Nielsen. Microsystems seeks, at minimum, $242,872.47 in damages.
Microsystems now moves for partial summary judgment on all of Nielsen's claims, except for the breach of contract claim, on the grounds that: (1) the unjust enrichment claim is barred by the existence of the agreement between the parties; (2) no implied warranties of merchantability or fitness for a particular purpose exist where the seller orders a known and described article from the manufacturer; (3) Microsystems cannot be negligent because it owed no legal duty to Nielsen independent of the parties' contract; (4) Microsystems made no misrepresentations to Nielsen during the contract negotiations and, even if it did, all such words were spoken by a seller to a buyer during commercial dealings and therefore cannot serve as the basis for such a claim; and (5) Nielsen is only entitled to "benefit of the bargain" damages.
Microsystems also moves to strike the report of Nielsen's expert, Karen G. Hurst ("Hurst"), which was submitted as an exhibit to the Declaration of Richard A. De Palma in Opposition to Defendant's Motion for Partial Summary Judgment. Microsystems argues that Hurst's statement in her report that Microsystems system delivered to Nielsen was "97% unusable" has no basis because Hurst never tested the computer software at issue or presented any methodology upon which the Court could determine the scientific and technical reliability and relevancy of her report.
For the foregoing reasons, Microsystems' motion for partial summary judgment is granted in part and denied in part, and Microsystems' motion to strike the expert report of Karen C. Hurst is denied as moot.
BACKGROUND
Nielsen is a television ratings service provider that has traditionally been in the business of preparing reports that estimate television audience viewing during a given period of time for a specific territory, which Nielsen sells to its customers for private use. (Corrected Notice of Removal, Ex. A ("Compl."), ¶ 5). At some point prior to 1995, Nielsen recognized that "a growing number of consumers were using computers and the Internet as both sources of information and as entertainment vehicles" and that advertisers might be interested in a "standardized and reputable measurement system" correlating demographic information with related consumer behavior in this area. (Id. ¶ 6). Therefore, Nielsen became interested in developing software to track and report on Internet usage through a panel of households similar to Nielsen's television ratings service. (Local Rule 56.1 Statement of Undisputed Material Facts in Support of Motion for Partial Summary Judgment ("Microsystems 56.1 Stmt.") ¶ 2; Plaintiff's Response to Defendant's Local Rule 56.1 Statement ("Nielsen 56.1 Stmt.") ¶ 2). Nielsen interviewed numerous companies with a goal of engaging one or more of them to: "(a) develop the software necessary to capture individual computer hardware and software configuration and activity (offline and online) from personal computers; (b) periodically transmit the data to a central site; and (c) produce a series of standard activity reports from which Nielsen could prepare its product (reports) for sale to and use by its computers." (Compl. ¶ 8).
Nielsen and Microsystems first met in 1995. (Microsystems 56.1 Stmt. ¶ 1; Nielsen 56.1 Stmt. ¶ 1). At that time, Microsystems was developing Internet monitoring software known as "Cyber Patrol." (Microsystems 56.1 Stmt. ¶ 2; Nielsen 56.1 Stmt. ¶ 2). On December 21, 1995, Microsystems submitted a proposal to Nielsen to develop "an enhanced and Nielsen branded version of Cyber Patrol as an Internet activity monitoring tool" and indicated to Nielsen that Microsystems had already created a "proof of concept" Nielsen version of Cyber Patrol. (Declaration of Richard A. De Palma in Opposition to Defendant's Motion for Partial Summary Judgment, sworn to on March 6, 2002 ("De Palma Decl."), Ex. F ("December 21 Proposal").
On May 20, 1996, Microsystems modified its December 21 Proposal to include additional services. (Transmittal Affirmation of Irwin B. Schwartz in Support of Motion for Partial Summary Judgment, sworn to on February 5, 2002 ("Schwartz Aff."), Ex. K-3 ("May 20 Proposal")). Further, Nielsen and Microsystems had discussions about Microsystems' developing the entire system, including the posting and reporting engines. (Microsystems 56.1 Stmt. ¶ 6; Nielsen 56.1 Stmt. ¶ 6). On August 5, 1996, Microsystems provided Nielsen with an addendum to its May 20 Proposal, which proposed a development fee of $282,800. (Schwartz Aff., Ex. K-4). Nielsen decided to work with Microsystems, based at least in part on Microsystems' experience with CyberPatrol and its price. (Microsystems 56.1 Stmt. ¶ 11; Nielsen 56.1 Stmt. ¶ 11).
On October 31, 1996, Nielsen transmitted by e-mail to Microsystems a memorandum of understanding (the "October 31 MOU") for Microsystems' signature. (Microsystems 56.1 Stmt. ¶ 13; Nielsen 56.1 Stmt. ¶ 13; Schwartz Decl., Ex. K-2). Microsystems executed the October 31 MOU and returned it by facsimile to Nielsen, which also executed the October 31 MOU. (Microsystems 56.1 Stmt. ¶ 14; Nielsen 56.1 Stmt. ¶ 14). The first paragraph of the October 31 MOU provides:
Scope
This document outlines the present understanding of the proposed working relationship between Nielsen Media Research and Microsystems, Inc. This is subject to the drafting and execution of a formal agreement between the two parties.
(Schwartz Decl., Ex. K-2, at 1).
On November 1, 1996, Nielsen asked Microsystems to execute a different version of the October 31 MOU (the "November 1 MOU") (Microsystems 56.1 Stmt. ¶ 15; Nielsen 56.1 Stmt. ¶ 15). That same day, the parties executed the November 1 MOU. (Microsystems 56.1 Stmt. ¶ 17; Nielsen 56.1 Stmt. ¶ 17). The last paragraph in the November 1 MOU, which Microsystems characterizes as "anti-contractual language," provides:
The foregoing represents the respective understanding of Nielsen Media Research and [Microsystems] regarding the proposed relationship between them. Nothing in the foregoing, however, shall be construed as a binding agreement unless and until [the parties] execute a contract containing all the terms and conditions of such agreement as the parties may reach.
(Compl., Ex. A, at 9).
The parties conducted meetings separately and together to further understand the project. (Microsystems 56.1 Stmt. ¶ 22; Nielsen 56.1 Stmt. ¶ 22). In early 1997, Nielsen reviewed versions of the PC tracking software provided by Microsystems and reported back to Microsystems as to problems encountered with the PC tracking software. (Microsystems 56.1 Stmt. ¶ 25; Nielsen 56.1 Stmt. ¶ 25). Microsystems asserts that, by June 1997, it provided Nielsen with data generated by the client software as well as the access to the database for Nielsen's testing, but Nielsen denies this. (Microsystems 56.1 Stmt. ¶ 29; Nielsen 56.1 Stmt. ¶ 29). Nielsen also denies Microsystems' assertion that, by June 1997, Microsystems had delivered copies of reports generated with the Microsystems software to Nielsen for its review. (Microsystems 56.1 Stmt. ¶ 30; Nielsen 56.1 Stmt. ¶ 30).
In the fall and winter of 1997, Microsystems experienced performance problems in the posting engine and reporting functions of its systems. (Microsystems 56.1 Stmt. ¶ 34; Nielsen 56.1 Stmt. ¶ 34). By March 1998, Nielsen contemplated bringing the further development of the posting and reporting functions "in-house." (Microsystems 56.1 Stmt. ¶ 35; Nielsen 56.1 Stmt. ¶ 35). In April 1998, Nielsen purported to exercise its contractual right to bring the Reporting Software phase of the project "in-house." (Microsystems 56.1 Stmt. ¶ 36; Nielsen 56.1 Stmt. ¶ 36). Microsystems asserted that Nielsen had some "limited success" in getting the Microsystems software to work and that, "[w]hen Nielsen took over the reporting system development, Microsystems' posting software worked as well as some of the reporting software"; Nielsen denies this assertion. (Microsystems 56.1 Stmt. ¶ 37; Nielsen 56.1 Stmt. ¶ 37). Nielsen did not use Microsystems' posting and reporting software in Nielsen's further development efforts, (Microsystems 56.1 Stmt. ¶ 38; Nielsen 56.1 Stmt. ¶ 38), but Microsystems continued to work on the client software, (Microsystems 56.1 Stmt. ¶ 39; Nielsen 56.1 Stmt. ¶ 39).
By the fall of 1998, Microsystems had delivered client software to Nielsen. (Microsystems 56.1 Stmt. ¶ 40; Nielsen 56.1 Stmt. ¶ 40). While Microsystems asserts that the software was "working," Nielsen claims that the system delivered by Microsystems did not function and that by the time it received the software, Nielsen had already suffered substantial damages as a result of Microsystems' delay in providing such software and from Microsystems' failure to deliver the reporting software. (Microsystems 56.1 Stmt. ¶ 40; Nielsen 56.1 Stmt. ¶ 40).
In October 1998, Nielsen entered into a joint venture with NetRatings. (Microsystems 56.1 Stmt. ¶ 42; Nielsen 56.1 Stmt. ¶ 42). On or about July 1, 1999, Nielsen filed a complaint against Microsystems in the Supreme Court of the State of New York, County of New York, Index No. 99603177 (the "State Court Action"). Microsystems then removed the case to this Court.
Nielsen's complaint contains six causes of action. The first cause of action alleges breach of Nielsen's and Microsystem's agreement. (Compl. ¶¶ 36-40). The second cause of action alleges unjust enrichment based upon Nielsen's payment to Microsystems in excess of $800,000 in exchange for Microsystems' promise "to deliver the PC Tracking Software, the Mac Tracking Software and the Reporting Software and to provide adequate Support Services." (Id. ¶ 42). The third cause of action alleges breach of implied warranty of merchantability, based on the facts that "Microsystems regularly deals in the sale of software products" and that the software products delivered to Nielsen by Microsystems were "unusable and unmerchantable." Id. ¶¶ 46-47). The fourth cause of action alleges breach of implied warranty of fitness for particular purpose based on the facts that Microsystems "knew the particular purposes to which Nielsen would put the Software Products" and that Nielsen "reasonably relied on Microsystems' skill, knowledge, and expertise to provide Software Products which were suitable to fulfill these explicitly identified purposes." (Id. ¶¶ 51-53). The fifth cause of action alleges negligence. According to Nielsen, Microsystems owed it "the duty to exercise reasonable care in the creation and delivery of the Software Products to Nielsen and in providing the Support Services to Nielsen Panel Members," and Nielsen breached that duty. (Id. ¶¶ 57, 60). The sixth cause of action alleges negligent misrepresentation, based on Microsystems' assertions during the contract negotiations — and subsequent delivery of the software products — that it would create, design and deliver software products fit for the particular purpose for which Nielsen would use them. Id. ¶¶ 65-66).
On October 28, 1999, Microsystems filed a Notice of Removal and a Corrective Notice of Removal with the United States District Court for the Southern District of New York with respect to the State Court Action, based on the parties' diversity. On or about November 15, 1999, Microsystems filed an answer and counterclaim, alleging breach of contract and quantum meruit.
DISCUSSION
I. Microsystems' Motion for Partial Summary Judgment
Microsystems seeks partial summary judgment on Nielsen's claims of unjust enrichment, breach of implied warranty of merchantability, breach of implied warranty of fitness for particular purpose, negligence and negligent misrepresentation.
A. Summary Judgment Standard
Under Rule 56, summary judgment shall be rendered if the pleadings, depositions, answers, interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law. See Fed.R.Civ.Proc. 56(c); Anderson v. Liberty Lobby, 477 U.S. 242, 250 (1986). An issue of fact is genuine when "a reasonable jury could return a verdict for the nonmoving party," and facts are material to the outcome of the litigation if application of the relevant substantive law requires their determination. Anderson, 477 U.S. at 248.
The moving party has the initial burden of "informing the district court of the basis for its motion" and identifying the matter that "it believes demonstrate [5] the absence of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986).
The substantive law determines the facts which are material to the outcome of a particular litigation. Anderson, 477 U.S. at 250; Heyman v. Commerce Indus. Ins. Co., 524 F.2d 1317, 1320 (2d Cir. 1975). In determining whether summary judgment is appropriate, a court must resolve all ambiguities, and draw all reasonable inferences against the moving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587-88 (1986) (citing United States v. Diebold, Inc., 369 U.S. 654, 655 (1962).
If the moving party meets its burden, the burden then shifts to the non-moving party to come forward with "specific facts showing that there is a genuine issue for trial." Fed.R.Civ.Proc. 56(e). The non-moving party must "do more than simply show there is some metaphysical doubt as to the material facts." Matsushita, 475 U.S. at 586. Only when it is apparent, however, that no rational finder of fact "could find in favor of the non-moving party because the evidence to support its case is so slight" should summary judgment be granted. Gallo v. Prudential Residential Servs. Ltd. Partnership, 22 F.3d 1219, 1223 (2d Cir. 1994).
B. Nielsen's Claims
1. Unjust Enrichment
Nielsen asserts that Microsystems's unjust enrichment claim "is barred by the existence of an agreement between the parties in the form of the October 31 MOU." (Mem. Supp. Mot. Partial Summ. J. at 9). Nielsen asserts that the October 31 MOU is "valid and binding" and that the "anti-contractual" language contained in the last paragraph of the November 1 MOU does not change this result because this language: (1) was never discussed with Microsystems; and (2) did not change the terms of the October 31 MOU. (Id. at 8-9)
Under New York law, "[a] claim for unjust enrichment cannot be predicated on conduct that is governed by a contractual relationship between the parties." Boule v. Hutton, 138 F. Supp.2d 491, 510 (S.D.N.Y. 2001); see also Maryland Cas. Co. v. W.R. Grace Co., 218 F.3d 204, 212 (2d Cir. 2000) ("The notion of unjust enrichment applies where there is no contract between the parties."). "Because a covenant of good faith is implied in every contract, if a contract exists, the equitable remedy for unjust enrichment is not needed." Boule, 138 F. Supp.2d at 510. Therefore, I must determine if there are genuine issues of material fact as to whether the October 31 MOU or the November 1 MOU are binding agreements.
"Parties to proposed commercial transactions often enter into preliminary agreements, which may provide for the execution of more formal agreements." Adjustrite Sys. v. GAB Bus. Servs., 145 F.3d 543, 547 (2d Cir. 1998). "When they do so and the parties fail to execute a more formal agreement, the issue arises as to whether the preliminary agreement is a binding contract or an unenforceable agreement to agree."Id.
"Ordinarily, where the parties contemplate further negotiations and the execution of a formal instrument, a preliminary agreement does not create a binding contract." Id. at 548. "In some circumstances, however, preliminary agreements can create binding obligations." Id. Binding preliminary agreements usually fall into one of two categories. Id. The first is a "fully binding preliminary agreement," which is fully binding; the second is a "binding preliminary commitment," which is binding only to a certain degree. Id.
Hence, if a preliminary agreement is of the first type, the parties are fully bound to carry out the terms of the agreement even if the formal instrument is never executed. If a preliminary agreement is of the second type, the parties are bound only to make a good faith effort to negotiate and agree upon the open terms and a final agreement; if they fail to reach such a final agreement after making a good faith effort to do so, there is no further obligation. Finally, however, if the preliminary writing was not intended to be binding on the parties at all, the writing is a mere proposal, and neither party has an obligation to negotiate further.Id.
"The key, of course, is the intent of the parties: whether the parties intended to be bound, and if so, to what extent." Id. "Generally, courts look solely at objective signs of intent, and do not consider subjective evidence of intent." Phansalkar v. Andersen Weinroth Co., No. 00 Civ. 7872 (SAS), 2001 WL 1524479, at *25 (S.D.N.Y. Nov. 29, 2001). To determine whether the parties intended to be bound, a court must consider the following factors:
(1) whether there has been an express reservation of the right not to be bound in the absence of a final writing; (2) whether there has been partial performance of the alleged contract; (3) whether all of the terms of the alleged contract have been agreed upon; and (4) whether the agreement at issue is the type of contract that is usually committed to a final writing.Id. The first factor, the language of the agreement, is "the most important." Arcadian Phosphates, Inc. v. Arcadian Corp., 884 F.2d 69, 72 (2d Cir. 1989). Indeed, if the language of the agreement is clear that the parties did not intend to be bound, the Court need look no further.See, e.g., id. (finding that there was no binding agreement because "[t]he language of the November memorandum — two references to the possibility that negotiations might fail and the reference to a binding sales agreement to be completed at some future date — shows that Arcadian did not intend to be bound"); Cohen v. Singer, 4 Fed. Appx. 38, 39 (2d Cir. 2001) (finding no binding agreement based solely on the first factor).
Here, it is plain that there are genuine disputes of material fact as to whether Nielsen and Microsystems agreed to be bound by either the October 31 MOU or the November 1 MOU. Both of these written instruments provide at the outset that they represent merely "the present understanding of the proposed working relationship" between the parties, "subject to the drafting and execution of a formal agreement." (Schwartz Decl., Ex. K-2, at 1; Compl., Ex. A, at 1). Further, the November 1 MOU provided that nothing in that agreement "shall be construed as a binding agreement unless and until [the parties] execute a contract containing all the terms and conditions of such agreement as the parties may reach." (Compl., Ex. A, at 9) See, e.g., Cohen, 4 Fed. Appx. at 39 (finding that the parties' "contract" was "no more than an `agreement to agree,' and does not bear the indicia of a binding preliminary agreement," based on the fact that the agreement's language "explicitly makes binding agreement subject to and contingent upon formal agreement between the parties" on certain other terms and conditions); Bor Corp. v. ADT Auto. Inc., No. 96 Civ. 1019 (JFK), 1996 WL 689364, at *9 (S.D.N.Y. Nov. 27, 1996) (finding the following written language to be a non-binding agreement: "Nothing in this letter . . . shall be construed as . . . an agreement binding upon either party unless such waiver or agreement is made in writing, signed by all parties and expressly states that it is to be binding." (emphasis omitted)).
In its opening brief, Microsystems asserts that it understood "that the November 1 MOU did not change the terms in the October 31 MOU and, therefore, executed the November 1 MOU as well." (Mem. Supp. Mot. Partial Summ. J. at 9 (citing Spicer Dep. 102:3-9)). But this citation not only fails to support Microsystems' position, it is actually harmful. Mr. Spicer, the president of Microsystems, testified that the November 1 MOU "was just different language, and it was explained to me that this wasn't the final version of the agreement, and don't worry about it, we've got to get going, and let's sign it." (Schwartz Aff., Ex. A., Deposition of Nigel R. Spicer, at 102:3-9 (emphasis added)).
Microsystems argues that Nielsen cannot rely on the "anti-contractual language" in the last paragraph of the November 1 MOU to evade the parties' contractual obligations because that language "was never discussed with Microsystems." (Mem. Supp. Mot. Partial Summ. J. at 8). This argument is meritless. First, as noted above, the October 31 MOU already contained "anti-contractual" language, even before additional "anti-contractual" language was added as the last paragraph of the November 1 MOU. Second, the circumstantial evidence raises an issue of fact as to whether the last paragraph of the November 1 MOU was discussed: the October 31 MOU and the November 1 MOU are practically the same — the paragraph containing that language was one of only a few additions of any significance that were included in the November 1 MOU. But even if it is true that the parties did not discuss that language and Microsystems was otherwise unaware of it, Microsystems nonetheless executed the November 1 MOU and is therefore bound by its anti-contractual terms. Moorning-Brown v. Baer, Sterns Co., No. 99 Civ. 4130 (JSR) (HBP), 1999 WL 1063233, at *4 (S.D.N.Y. Nov. 23, 1999). ("Plaintiff's third argument — that she did not read the arbitration agreement before she signed it — is insufficient as a matter of law. Plaintiff is conclusively presumed to be familiar with the terms of an agreement that she signed.").
Because I find that genuine issues of material fact exist as to whether the October 31 MOU and/or the November 1 MOU are binding agreements, Microsystems' motion for summary judgment on Nielsen's unjust enrichment claim is denied.
It is axiomatic that, under New York law, a plaintiff may plead quasi-contract claims in the alternative to a contract claim. See, e.g.,Chrysler Capital Corp. v. Century Power Corp., 778 F. Supp. 1260, 1272 (S.D.N.Y. 1991) (plaintiff permitted to seek relief under several different theories, including breach of warranty, breach of contract, fraud and unjust enrichment) (citing Clark-Fitzpatrick, Inc. v. Long Island R.R. Co., 70 N.Y.2d 382 (1987)).
2. Negligence
Microsystems moves to dismiss Nielsen's negligence claim on the ground that Nielsen cannot recover for negligence arising out of the breach of the parties' contractual relationship. Specifically, Microsystems asserts that there is no extra-contractual duty of care for computer consultants. (Men. Supp. Mot. Partial Summ. J. at 12). Nielsen responds that, "[j]ust as Nielsen is entitled to seek recovery for unjust enrichment, Nielsen is entitled to seek recovery under an alternate theory of negligence, notwithstanding its separate breach of contract claim." (Pl.'s Mem. Law Opp. Def.'s Mot. Partial Summ. J. at 13).
Under New York law, "[i]t is a well-established principle that a simple breach of contract is not to be considered a tort unless a legal duty independent of the contract itself has been violated."Clark-Fitzpatrick, 70 N.Y.2d at 389. As noted above, there are genuine issues of material fact as to whether a contract between the parties exists at all. Further, as with Nielsen's unjust enrichment claim, it is not inconsistent for Nielsen to plead both breach of contract and negligence. See, e.g., Dorking, 76 F.3d at 1269 ("Negligent performance of a contract may give rise to a claim sounding in tort as well as one for breach of contract. The two claims may be submitted as alternatives to the jury, as a matter of both New York substantive law and federal procedural law.").
Nonetheless, Nielsen's negligence claim must be dismissed. With respect to that claim, the complaint alleges, inter alia, that: (1) "Nielsen negotiated the terms of the agreement and agreed to the final payment price in reasonable reliance upon Microsystems exercising reasonable care and observing applicable professional standards in the creation of the Software Products. . . ." (Compl. ¶ 58 (emphasis added)); and (2) "Nielsen would not have agreed to the terms of the agreement with Microsystens, nor paid any sums to Microsystems, if Microsystems had not promised to exercise reasonable care and produce conforming and usable Software Products in accordance with applicable professional standards, and Microsystems was aware of such reliance by Nielsen." (Id. ¶ 59 ((emphasis added)). While Nielsen categorized this claim as a negligence claim, in actuality it sounds in professional negligence, i.e., professional malpractice. See, e.g., LNC Invs., Inc. Charter Nat'l Life Ins. Co. v. First Fid. Bank, No. 92 Civ. 7584 (CSH), 2000 WL 1024717, at *2 (S.D.N.Y. July 25, 2000) ("As in all cases of malpractice, a plaintiff must show that (1) the defendant's conduct failed to measure up to the applicable professional standard of care owed to the plaintiff and (2) such conduct injured the plaintiff."); Kidder Peabody Co. v. IAG Int'l Acceptance Group N.V., 14 F. Supp.2d 391, 404 (S.D.N.Y. 1998) ("A malpractice plaintiff must prove that the defendant failed to act in conformity with accepted professional standards prevailing at the place and time the services were rendered."); Dispenzieri v. Hillside Psychiatric Hosp., 724 N.Y.S.2d 203, 204 (App.Div.2d Dep't 2001) (nothing that allegation that defendants breached their duty to exercise due care in efforts to prevent plaintiff from attempting suicide "sounds in negligence," but allegation challenging conduct that constitutes medical treatment or bears a substantial relationship to medical treatment rendered by a licensed physician "sounds in malpractice"). And, as Microsystems correctly points out, "the courts of this State do not recognize a cause of action for professional malpractice by computer consultants." Richard A. Rosenblatt Co. v. Davidge Data Sys. Corp., 743 N.Y.S.2d 471, 472 (App.Div. 1st Dept. 2002); see also, e.g., Columbus McKinnon Corp. v. China Semiconductor Co., 867 F. Supp. 1173, 1182 (W.D.N.Y. 1994) ("There is no basis in law for extending the doctrine of professional malpractice to cover independent computer consultants."); RKB Enters. Inc v. Ernst Young, 582 N.Y.S.2d 814, 816 (App.Div.3d Dep't 1992) ("Initially, it should be noted that there is no cause of action for professional malpractice in the field of computer consulting. While computers are relatively new equipment of a complex technical nature critically important to business, we decline to create a new tort applicable to the computer industry." (citation omitted)). Therefore, Nielsen's "negligence" claim is dismissed.
The words used to describe a claim in a complaint do not necessarily dictate how that claim is to be construed. See, e.g.,Dorking, 76 F.3d at 1269 ("Although Dorking captions Count III as `breach of contract' and in places uses language that would suggest a contractual theory of recovery, we, like the district court, construe the complaint as stating a claim of negligence.").
Nielsen argues that its negligence claim should stand because computer consultants are potentially liable for ordinary negligence. (See Pl.'s Mem. Law Opp. Def.'s Mot. Partial Summ. J. at 14 (citingHosp. Comp. Sys., Inc. v. Staten Island Hosp., 788 F. Supp. 1351, 1362 (D.N.J. 1992) ("[N]o duties independent of those created by contract or under ordinary tort principles are imposed on them." (applying New York law)). But, as noted above, Nielsen does not, despite the label it applies, plead ordinary negligence. Rather, Nielsen pleads professional malpractice.
3. Implied Warranties
Microsystems argues that Nielsen's claims for breach of implied warranty of merchantability and breach of implied warranty of fitness for a particular purpose should be dismissed because Nielsen, a "sophisticated buyer," "not only specified the product it wanted Microsystems to create, but remained involved in Microsystem's [sic] development of the product." (Mem. Supp. Mot. Partial Summ. J. at 10). Nielsen disputes Microsystems' assertion that Nielsen "tested" Microsystems' software and knew "its limitations." (Pl.'s Mem. Law Opp. Def.'s Mot. Partial Summ. J. at 15).
A threshold question with respect to this issue — which neither party addresses — is whether the parties' agreement, to whatever extent it exists, is one for goods, services or a combination of the two. If the agreement was to provide services only, Nielsen cannot recover on its implied warranty claims.
See, e.g., Fireman's Fund Ins. Co. v. New York Gen. Mech., Inc., No. 88 Civ. 268E, 1992 WL 119162, at *4 (W.D.N.Y. May 22, 1992) ("New York does not recognize a cause of action based upon implied warranty where the warranty arises from a contract for services and only economic loss is claimed."); Dobisky v. Rand, 670 N.Y.S.2d 606, 608 (App.Div.3d Dept. 1998) ("[T]his State does not recognize a cause of action in breach of warranty for the performance of services."); Aegis Prods., Inc. v. Arriflex Corp., 268 N.Y.S.2d 185, 187 (App.Div. 1st Dep't 1966) ("Warranties are limited to sales of goods. No warranty attaches to the performance of a service. . . . No such right has ever been extended to include the consequence of a performance of a service." (citations omitted)).
Here, genuine issues of material fact exist as to whether the agreement between Nielsen and Microsystems is one for goods or services. Both the October 31 MOU and the November 1 MOU provide that the "project requirement" at issue is to "capture individual computer hardware and software configuration and activity (off-line and online) from PCs," to "periodically transmit the data to a Central site maintained at [Microsystems] and/or Nielsen" and to "produce a series of standard activity reports." (Compl., Ex. A, at 1; Schwartz Aff., Ex. K-2, at 1). The MOUs further provide that details of the component system include the provision of "PC and Mac tracking software and data collection systems" and "statistical processing software." (Compl., Ex. A, at 2, 4; Schwartz Aff., Ex. K-2, at 2, 4). Therefore, the parties' agreement is not necessarily limited to an exchange services but may actually be for goods. See, e.g., Schroders, Inc. v. Hogan Sys., Inc., 522 N.Y.S.2d 404, 406 (Sup.Ct. 1987) ("[D]efendants argue that plaintiffs cannot maintain a cause of action sounding in breach of an implied warranty of merchantability, since the parties' agreement is one for the purchase of services, rather than goods. (UCC § 2-314) However, recent case law demonstrates a willingness of the courts to construe hybrid agreements for the sale of software-hardware packages as falling within the purview of Article 2 of the Uniform Commercial Code."); PC Com, Inc. v. Proteon, Inc., 946 F. Supp. 1125, 1130 n. 7 (S.D.N.Y. 1996) ("Consistent with the majority rule, a contract for the development and sale of computer software is a contract for the sale of goods under the U.C.C.").
The MOUs also provided for the purchase of services. (See, e.g., Compl, Ex. A, at 3; Schwartz Aff., Ex. K-2, at 3 (Microsystems will provide "a customer support training session for Nielsen Media trainers" and "active second tier support to Nielsen Media staff . . . including] product support from [Microsystems]"; Microsystems is "responsible for providing upgrades to the end user computer tracking software for a period of 3 years").
Further, assuming that the parties' agreement covers goods rather than services, genuine issues of material fact exist as to Nielsen can recover for Microsystems' alleged breach of implied warranties. While the parties acknowledge that there was at least some involvement from Microsystems with respect to the client software at issue, (Microsystems 56.1 Stmt. ¶¶ 25-26; Nielsen 56.1 Stmt. ¶¶ 25-26), they vigorously dispute the amount of that involvement. Microsystems asserts that "Nielsen developed an extensive understanding of the Microsystems software, how it worked and its limitations." (Mem. Supp. Mot. Partial Summ. J. at 11 (citing deposition testimony)). Nielsen, however, asserts that "Nielsen only `tested' the Tracking Software to the extent of assuring that it did not `crash' the computers on which it was loaded and for `correspondence between observed behavior . . . and logged activity.'" (Pl.'s Mem. Law Opp. Def.'s Mot. Partial Summ. J. at 15-16 (citing two e-mails from VP of Nielsen to President of Microsystems)).
4. Negligent Misrepresentation
In its negligent misrepresentation claim, Nielsen alleges that Microsystems "made representations that it could and would create, design and deliver Software Products fit for the particular purpose for which Nielsen would use them" and that Nielsen "justifiably relied on such representations and, as a result, entered into the agreement with Microsystems, and paid to Microsystems certain fees." (Compl. ¶¶ 65, 70). But, according to Nielsen, "[a]t the time that Microsystems made the representations, Microsystems was not able to create, design and deliver the Software Products." (Id. ¶ 67).
Microsystems argues that Nielsen's negligent misrepresentation claim should be dismissed because "[t]here is no claim for negligent misrepresentation where there are words `negligently spoken' by a seller to a buyer during commercial dealings." (Mem. Supp. Mot. Partial Summ. J. at 13-14). Further, Microsystems asserts that the parties "entered into their relationship as a result of arm's length negotiations" and lacked the requisite "special relationship" required for this type of claim. (Id. at 14). Nielsen responds by arguing that the parties had actual privity of contract or, at the very least, a relationship close enough as to approach that of privity. (Pl.'s Mem. Law Opp. Def.'s Mot. Partial Summ. J. at 17-18).
"A cause of action for negligent misrepresentation has been recognized in New York for many years." Mathis v. Yondata, 480 N.Y.S.2d 173 (Sup.Ct. 1984). To state a claim for negligent misrepresentation, Nielsen must establish that: (1) Microsystems "had a duty to use reasonable care to impart correct information due to a special relationship existing between the parties"; (2) the information provided by Microsystems was "incorrect or false"; and (3) Nielsen "reasonably relied upon the information provided." Fleet Bank v. Pine Knoll Corp., 736 N.Y.S.2d 737, 741 (App.Div.3d Dep't 2002). "New York law generally does not recognize liability for words `negligently spoken' during commercial dealings."Sanitoy, Inc. v. Shapiro, 705 F. Supp. 152, 154 (S.D.N.Y. 1989). "The exception is `when the parties' relationship suggests a closer degree of trust and reliance than that of the ordinary buyer and seller." Id. (quoting Am. Protein Corp. v. AB Volvo, 844 F.2d 56, 63 (2d Cir.), cert. denied, 488 U.S. 852 (1988)); see also Stafkings Health Care Sys., Inc. v. Blue Cross Blue Shield, 635 N.Y.S.2d 387, 388 (App.Div. 4th Dep't 1995) (to "recover in tort for pecuniary loss sustained as a result of another's negligent misrepresentations there must be a showing that there was either actual privity of contract between the parties or a relationship so close as to approach that of privity" (citations omitted)). As the New York Court of Appeals has explained:
Whether the nature and caliber of the relationship between the parties is such that the injured party's reliance on a negligent misrepresentation is justified generally raises an issue of fact. In determining whether justifiable reliance exists in a particular case, a fact finder should consider whether the person making the representation held or appeared to hold unique or special expertise; whether a special relationship of trust or confidence existed between the parties; and whether the speaker was aware of the use to which the information would be put and supplied it for that purpose.Kimmel v. Schaefer, 89 N.Y.2d 257, 264 (1996).
Genuine issues of material fact preclude summary judgment with respect to Nielsen's negligent misrepresentation claim. First, as noted above, it is unclear whether the parties have a binding agreement, and neither party moved for summary judgment on Nielsen's breach of contract claim. Nielsen's negligent misrepresentation claim, therefore, may be based on privity of contract. See, e.g., Schroders, 522 N.Y.S.2d at 406 ("Defendants contend that plaintiffs cannot maintain a cause of action for negligent misrepresentation because plaintiffs have failed to establish the existence of a special relationship among the parties. However, this cause of action has been held to exist as between parties to contracts." (citations omitted)); Mathis v. Yondata Corp., 480 N.Y.S.2d 173, 177 (Sup.Ct. 1984) (finding that negligent misrepresentation cause of action "has been held to exist as between parties to contracts" (citations omitted)) Second, even if the parties do not share actual privity of contract, there exists a dispute as to whether the parties' relationship is such that Nielsen's reliance on Microsystems' alleged negligent misrepresentations was justified. In connection with its interest in developing software to track and report on Internet usage through a panel of households, Nielsen alleges that "Microsystems represented to Nielsen that it possessed expertise in the Internet software field, that it kept abreast of the very cutting edge of Internet technology, and that its existing product, CyberPatrol, would require only a simple modification in order to create a software product suitable for Nielsen's needs." (Compl. ¶ 9). Further, as both the October 31 MOU and November 1 MOU suggest, the evidence demonstrates that Microsystems possessed more knowledge than Nielsen with respect to Internet tracking software, and Microsystems was well aware of the extent to which Nielsen would rely on Microsystems representations. (Schwartz Decl, Ex. K-2, at 1; Compl., Ex. A, at 1; see also Microsystems 56.1 Stmt. ¶ 1, Nielsen 56.1 Stmt. ¶ 1 (Nielsen chose Microsystems based in part in Microsystems' experience with Internet monitoring software)).See, e.g., Mathis, 480 N.Y.S.2d at 178 (finding genuine issue of material fact on negligent misrepresentation claim, where complaint alleged that the defendants "failed and neglected to exercise due care and competency in communicating said promises, representations and warranties to Plaintiffs," and, that such promises, representations and warranties "were made to Plaintiffs for the purpose of guiding Plaintiffs in certain aspects of Plaintiffs' business and in an area in which Plaintiffs possessed less knowledge than Defendants").
In its reply brief, Nielsen asserts that "[t]he mere existence of a contract between the parties does not make all misrepresentations between them actionable." (Reply Mem. Further Supp. Mot. Partial Summ. J. at 8 n. 7 (citing H R Project Assoc., Inc. v. City of Syracuse, 737 N.Y.S.2d 712 (2001)). According to Nielsen, H R stands for the proposition that no liability for negligent misrepresentation exists where "no relationship existed beyond an ordinary business, contractual relationship." Id. In H R, however, the court specifically found that the parties did not have a contract. See H R, 737 N.Y.S.2d at 967 ("Supreme Court properly granted those parts of the motions of the City and School District seeking dismissal of the causes of action alleging breach of contract, breach of implied contract and detrimental reliance against them.")
5. Damages
Microsystems' final argument is that, even assuming Nielsen demonstrates breach of contract, Nielsen is at most entitled to recover the "benefit of its bargain, not the full amount that it paid to Microsystems." (Mem. Supp. Mot. Partial Summ. J. at 16) Microsystems asserts that "there is no dispute that Microsystems provided software to Nielsen and at least some of it worked as specified." (Id.). Nielsen counters that, even if Microsystems is correct that "the proper measure of damages in a breach of contract action is limited to the value of the loss sustained at the time of the breach," Nielsen may still recover all funds paid to Microsystems because "Microsystems' failure to deliver a working System constitutes failure of consideration and the purchase price for the System is the value of the loss sustained by Nielsen at the time of the breach." (Pl.'s Mem. Law Opp. Def.'s Mot. Partial Summ. J. at 20).
Whether the parties' agreement is one for goods or services, the results are the same: genuine issue of material fact exist as to the amount of damages to which Nielsen may be entitled to recover. Pursuant to the Uniform Commercial Code, which is applicable to the sale of goods, "[u]nder New York law, a frustrated buyer is entitled to recover both the purchase price paid, and `the difference between the market price at the time when the buyer learned of the breach and the contract price together with any incidental and consequential damages provided in this Article (Section 2-715), but less expenses saved in consequence of the seller's breach.'" Kashi v. Gratsos, 790 F.2d 1050, 1056 (2d Cir. 1986) (citing N.Y.U.C.C. §§ 2-711(1), 2-713(1)). Similarly, under common law, "[i]t is well settled that if the plaintiff has made money payments to the defendant, and there is a failure of consideration . . . the plaintiff can maintain an action for restitution of the money so paid to the defendant." Men's Sportswear, Inc. v. Sasson Jeans, Inc. (In re Men's Sportswear, Inc.), 834 F.2d 1134, 1141 (2d Cir. 1987) (citing Mais v. Futuristic Foods, Inc., 394 N.Y.S.2d 359, 362 (Sup.Ct. 1977) ("The defendant had taken plaintiff's money for the service to be rendered. The consideration has failed, and it should pay the money back."), aff'd, 414 N.Y.S.2d 822 (1978). As noted above, the parties seriously dispute the extent to which the tracking software and other products at issue properly functioned, along with the damages that resulted. (Microsystems 56.1 Stmt. ¶¶ 36-38, 40; Nielsen 56.1 Stmt. ¶ 36-38, 40; De Palma Decl, Ex. C, Deposition Testimony of Francis Gavin McMillan, Mar. 26, 2001, at 158-59 ("Having the item in number 2 reported as if a person actually visited a site and a page when they did not, certainly that would lead me to believe that, yes, that [Microsystems] missed the mark in terms of delivering a system as specified by the agreement."). Therefore, at this stage of the proceedings, it cannot be said as a matter of law that Nielsen is not entitled to the full amount that it paid to Microsystems.
II. Microsystems' Motion to Strike the Expert Report of Karen G. Hurst
Microsystems moves to strike the expert report of Nielsen's expert Hurst, which is entitled "Technical Assessment for Coudert Brothers LLP And Nielsen Media Research, Inc." (De Palma Decl., Ex. Q). Specifically, Microsystems objects to Hurst's statement in her report that Microsystems' system delivered to Nielsen was "97% unusable." (Id. at 13). Microsystems asserts that the statement has no basis because Hurst "never even tested the computer software at issue and, instead, simply adopted Nielsen's biased conclusions." (Mem. Supp. Def.'s Mot Strike Expert Report of Pl.'s Expert Karen G. Hurst at 1). Further, Microsystems argues, "Hurst presented no methodology upon which the Court may determine the Hurst Report's scientific or technical reliability or relevancy and Hurst even admitted in deposition that she strayed from her own methodology in preparing the report." (Id.).
In ruling on Microsystems' motion for partial summary judgment, I did not consider Hurst's expert report or the statement contained in her report that 97% of Microsystems' system delivered to Nielsen was unusable. Therefore, Microsystems' motion to strike Hurst's report is denied as moot. See, e.g., Cross v. FFP Operating Partners, L.P. v. ___, No. Civ. A. 799CV160-R, 2001 WL 1143159, at *8 n. 4 (N.D. Tex. Sept. 25, 2001) ("The Court here notes that Defendant's Motion to Strike the Expert Report of Greg Baxter has been denied separately as moot, since the Court did not consider Mr. Baxter's expert report in rendering this [summary judgment] decision.").
CONCLUSION
Microsystems' motion for partial summary judgment is granted in part with respect to the third cause of action in the complaint and denied in part with respect to the second, fourth, fifth and sixth causes of action and Microsystems' assertion that Nielsen is only entitled to "benefit of the bargain" damages. Microsystems' motion to strike the expert report of Karen G. Hurst is denied as moot.
Counsel shall confer and appear for a conference in Courtroom 12A at 500 Pearl Street on November 4, 2002 at 9:00 a.m.
SO ORDERED.