Summary
involving four contracts governing a consulting relationship relating to selection of enterprise resource planning software between Bridgestone/Firestone and Gemini
Summary of this case from Knutkowski v. CrossOpinion
C.A. No. 00C-10-058 HDR
Submitted: April 5, 2002
Decided: May 23, 2002
Upon Defendant's Motion for Summary Judgment. DENIED.
Robert K. Payson, Esq. and Philip A. Rovner, Esq. of Potter Anderson Coroon LLP, Wilmington, Delaware and Steven E. Sigalow, Esq., David F. Adler, Esq. and Mark J. Andreini, Esq. of Jones, Day, Reavis Pogue, Cleveland, Ohio, for Plaintiff.
Gregory P. Williams, Esq. and Chad M. Shandler, Esq. of Richards, Layton Finger, Wilmington, Delaware and James P. Tallon, Esq., Margaret A. Helen Macfarlane, Esq., Michael J. Osnato, Jr., Esq. and Kito K. Huggins, Esq. of Shearman Sterling, New York, New York, for Defendant.
ORDER
This 23rd day of May, 2002, upon consideration of defendant's motion for summary judgment, the arguments of counsel, and the record in this case, it appears that:
(1) The Plaintiff, Bridgestone/Firestone, Inc. ("BFS"), has brought this civil action seeking millions of dollars in restitution damages from Defendant Cap Gemini America, Inc. BFS is an Ohio corporation with more than 40,000 employees in the business of manufacturing, distributing, and selling tires throughout North America. The Defendant, Cap Gemini America, Inc. is a New Jersey corporation and the successor corporation to two corporations with whom BFS had service contracts. BFS had four contracts with Gemini Consulting, Inc. ("Gemini"). Gemini, formerly a New Jersey corporation was in the business of providing business process reengineering and information technology consulting services. BFS then entered into a separate contract with Cap Gemini America, Inc. ("Cap Gemini"), formerly a Delaware corporation, in the business of installing information technology systems.
(2) In this civil action BFS avers: (I) negligent misrepresentation against Gemini; (II) professional negligence against Gemini; (III) breach of contract against Gemini; and (VI) breach of contract against Cap Gemini. Counts IV and V were dismissed by stipulation of the parties. Presently before the Court is the Defendant's motion seeking summary judgment on several grounds. First, whether Count II, professional negligence, should be dismissed because such a cause does not exist in Tennessee or because it seeks duplicative damages as the breach of contract claim. Second, whether Count I, negligent misrepresentation, should be dismissed as puffing, prediction of future events or because it seeks duplicative damages as the breach of contract claim. Third, Gemini seeks dismissal of Counts I, II and III as time barred. For the reasons which follow, Defendant's motion is denied.
(3) During 1995, BFS unveiled what became the B2000 project, a multi-year effort to improve its information technology systems in light of competitive factors in the marketplace and the Year 2000 issues. BFS formed a committee to assess whether enterprise resource planning ("ERP") software could improve its existing business processes. At the close of its study, the committee concluded that ERP software held significant potential for BFS and that it is should be studied in greater depth. BFS also concluded that before it could actually implement an ERP package, it needed to overhaul and redesign its business processes. BFS interviewed several consulting firms to assist with this process and selected Gemini.
The relationship between BFS and Gemini is governed by four contracts between them, dated August 16, 1995; October 31, 1995; July 2, 1996; and December 23, 1996. The first contract detailed Phase 1, Analysis and Design, expected to last 8 weeks. The second contract predicted that it would take 35 weeks to complete Phase 2 and produce the new vision for BFS. Phase 3A, governed by the third contract, was described as comprising those activities that were not dependent on BFS's selection of new software, and by the express terms of the contract, was to begin on July 8, 1996 and to continue through May 1997. The final contract envisioned BFS's complete transformation over the next two years from the current "as is" business to the future "to be" vision.
During July 1996 a "software selection team" consisting of BFS employees and Gemini consultants was formed to select an ERP software package. The selection team received proposals from several ERP vendors, including Oracle, BaaN and SAP. In October 1996 the selection team recommended that BFS purchase SAP's R/3 software package. At this point it was noted that no package would seamlessly support BFS's operations without corresponding changes to its business practices; i.e. there were known gaps between SAP's capabilities and BFS's business process, and those gaps would be addressed during the implementation and configuration of the software.
During the software selection process, BFS also turned to the process of selecting an "integration partner" to install whatever software it selected. In October of 1996, BFS received proposals from potential firms including IBM, Ernst Young, Deloitte Consulting, and Cap Gemini. BFS asserts that IBM was originally selected, however Gemini using its position as a "trusted advisor" persuaded BFS to retain its sister company, Cap Gemini.
Cap Gemini and BFS entered into a Consulting Service Agreement on May 8, 1997, effective as of January 1, 1997. This contract set forth Cap Gemini's obligations with respect to a "conference room pilot" phase, "training" phase, and a "roll-out" phase. During the conference room pilots, which were scheduled to run from April 1997 through July 1997, BFS's redesigned business processes were to be demonstrated using SAP R/3's functionality. In the roll out phase, Cap Gemini was to implement several of SAP R/3's modules at multiple locations. The roll out was to commence in September 1997 and be finished by December 1998.
(4) BFS has asserted that several problems arose leading to the dismissal of Gemini and the failure of B2000. BFS alleges that Gemini had failed to plan appropriately for the implementation of SAP R/3, mainly Gemini had never performed the design work for reengineering BFS's business processes, nor had it performed a detailed "gap/fit" analysis comparing BFS's business requirements with SAP R/3's capabilities. In late 1998, BFS retained an additional consultant to assess B2000 and cure the problems caused by Gemini and Cap Gemini.
BFS and Cap Gemini (as the successor to Gemini and Cap Gemini) entered into a Mediation and Standstill Agreement. Pursuant to the terms of that agreement, the parties waited until October 6, 2000 to file their lawsuits.
(5) Summary judgment is appropriate if the evidence in the record shows "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." However, if from the evidence produced, there is a reasonable indication that a material fact is in dispute or if it seems desirable to inquire more thoroughly into the facts in order to clarify the application of the law, summary judgment will not be granted. When the facts permit a reasonable person to draw but one inference, the question becomes one for decision on summary judgment. If an examination of the record reveals no genuine issue as to material facts, it is incumbent upon the court to grant summary judgment. If the basic facts are not in dispute and point to only one justifiable conclusion, summary judgment is appropriate. In discharging this function, the Court must view the evidence in the light most favorable to the non-moving party. In so doing, the Court will accept as established all undisputed factual assertions made by either party, and accept the non-movant's version of any disputed facts.
Super.Ct.Civ.R. 56(c); Borish v. Graham, 655 A.2d 831,833 (Del.Super.Ct. 1994).
Eversole v. Lowengrub, 180 A.2d 467, 470 (Del. 1962), rev'd in part and aff'd in part, 208 A.2d 495 (1965).
Frelick v. Homeopathic Hosp. Ass'n, 150 A.2d 17 (Del.Super.Ct. 1959); Wotten v. Kiger, 226 A.2d 238 (Del. 1967).
E.K. Geyser Co. v. Blue Rock Shopping Ctr., Inc., 229 A.2d 499 (Del.Super.Ct. 1967).
489.137 Square Feet of Land v. State ex rel. Price, 259 A.2d 378 (Del. 1969).
Allstate Auto Leasing Co. v. Caldwell, 394 A.2d 748, 752 (Del.Super.Ct. 1978).
Merrill v. Crothall-American, Inc., 606 A.2d 96, 99-100 (Del. 1992).
(6) The Cap Gemini-BFS Consulting Agreement contains a New York choice-of-law provision, which provides:
[The Contract's] administration and performance, and the rights, obligations, liabilities and responsibilities of the parties hereto, will be governed and interpreted in accordance with the laws of the State of New York, without application of its conflict of laws provisions.
Count VI alleges breach of contract against Cap Gemini and New York law will apply to that count.
With respect to the tort and contract claims against Gemini, the Gemini and BFS contracts do not contain a provision specifying the applicable law. Under Delaware law, the Court must apply the substantive law of the state with the most substantial relationship to the dispute. The Court should consider the following relevant contacts when applying the choice-of-law principles:
Travelers Indem. Co. v. Lake, 594 A.2d 38, 47 (Del. 1991).
(a) the place where the injury occurred,
(b) the place where the conduct causing the injury occurred,
(c) the domicile, residence, nationality, place of incorporation and place of business of the parties, and
(d) the place where the relationship, if any, between the parties is created.
Id.
In weighing the factors the court is not to simply add up the interests on both sides of the equation and automatically apply the law of the jurisdiction meeting the highest number of contacts. The contacts are to be evaluated according to their relative importance with respect to the particular issue.
Id. at n. 6.
Id.
Tennessee is where (1) the alleged cause of action arose, (2) the alleged injuries occurred, and (3) the parties' relationship was centered. The only contact with New Jersey is the fact that one entity is a New Jersey corporation. Additionally, Gemini has stated that the points of law at issue are settled to the point that Tennessee and New Jersey apply substantially the same rules. Therefore, this Court will apply Tennessee law to Counts I, II and III against Gemini.
(7) Gemini demands that summary judgment be ordered dismissing Count II alleging professional negligence against Gemini because Tennessee law does not provide for a claim of professional negligence against business consultants like Gemini. Alternatively, Gemini argues that the negligence claim is barred because it seeks precisely the same damages as the contract claim.
When a plaintiff files an action for professional negligence, it must prove the professional failed to possess and apply the knowledge, skill and ability that a reasonable careful professional in the field would exercise under the circumstances. Tennessee Courts have favorably quoted from the Restatement of Torts (Second) §§ 299A (1965) as follows:
Unless he represents that he has a greater or less skill or knowledge, one who undertakes to render services in the practice of a profession or trade is required to exercise the skill and knowledge normally possessed by members of that profession or trade in good standing in similar communities.
Dooley v. Everett, 805 S.W.2d 380, 385 (Tenn.Ct.App. 1990).
The Tennessee courts have yet to decide if computer consulting is a profession or trade. The term "trade" as used in the Restatement applies to "any person who undertakes to render services to others in the practice of a skilled trade, such as that of airplane pilot, precision machinist, electrician, carpenter, blacksmith, or plumber."
Compare Columbus McKinnon Corp. v. China Semiconductor Co., Ltd., 867 F. Supp. 1173 (W.D.N.Y. 1 994); Hospital Computer Systems, Inc., v. Staten Island Hosp., 788 F. Supp. 1351 (D.N.J. 1992) (stating that in New York there is no basis in law for extending the doctrine of professional negligence to cover independent computer consultants), and Arthur D. Little Intern., Inc. v. Dooyang Corp., 928 F. Supp. 1189 (D.Mass. 1996) (noting under Massachusetts law, the doctrine of professional malpractice does not extend to cover business consultants), with Diversified Graphics, Ltd. v. Groves, 868 F.2d 293 (8th Cir. 1989) (applying Missouri law, the district court held a computer consultant to the standards of a professional under the common law rule that professional persons and those engaged in any work or trade requiring special skill must possess a minimum of special knowledge and ability as well as exercise reasonable care).
Restatement (Second) of Torts: Undertaking in Profession or Trade § 299A cmt. b, (1965).
Section 299A envisions that all professions and most trades acquire some special form of competence which is not part of the ordinary equipment, of the reasonable man, but which is the result of acquired learning, and aptitude developed by special training and experience. It does not follow to allow recovery, as Tennessee apparently does, against precision machinists, carpenters and blacksmiths based upon negligence but not computer consultants, who may hold themselves out as experienced in and expert with business transformation and business process reengineering. Because the Tennessee Courts have not limited their reliance on Section 299A, it will be applied to the facts in this case. Whether BFS can establish its claim of professional negligence will be determined from the evidence at trial.
Next, Gemini argues that under Tennessee law a tort claim arising under the same allegations and injuries as a breach of contract claim cannot stand. Additionally, in Tennessee economic damages alone lie solely in contract recovery not tort. Gemini argues that Count II should also be dismissed because the tort claim is duplicative of its breach of contract claim.
The major criterion under Tennessee law for ascertaining the gravamen of the action is the kind of damage alleged. In determining whether the purpose of an action is to recover damages which are personal to property or on account of a breach of contract, the Court must look to the complaint and ascertain the basis for which damages are sought. In Harvest Corp. v. Ernst Whinney, the Tennessee Court of Appeals discussed the above rules of law then went directly to the pleadings to determine the nature of plaintiff's cause of action by looking at the damages alleged. The plaintiff in that case alleged that they paid an excessive price for inventory when they had contracted with the defendant to provide an audit of its value. The Court determined that they did not own the inventory at the time of injury so the only damages were ordinary money damages that did not constitute damage to property.
Harvest Corp., v. Ernst Whinney, 610 S.W.2d 727, 729 (Tenn.Ct.App. 1980).
Id.
610 S.W.2d 727 (Tenn.Ct.App. 1980).
Looking at the complaint in this case, the language contained in paragraphs 46 through 50 (the tort claim for professional negligence) and paragraphs 51 through 53 (the breach of contract claim against Gemini) is almost word-for-word identical. If the analysis stopped there Gemini would be correct to assert that the claims are duplicative. However focusing on the type of damage, as required under Tennessee law, the inquiry becomes whether BFS's property was damaged. This claim revolves around the configuration of business systems that include computer software and hardware. At some point, all the money spent on this project, including the sum paid to purchase SAP, resulted in an asset recognized by BFS. Counts II III allege damages related to the cost to "hire additional consultants to cure the problems caused by Gemini and Cap Gemini." The complaint is not for purely economic loss but also for damage to property. This claim requires a more thorough inquiry into the facts to clarify the application of the law. Therefore, Count II will not be dismissed on the grounds that it is duplicative of the breach of contract claim.
(8) Gemini next argues that Count I, negligent misrepresentation against Gemini, should be dismissed for three reasons. First, the alleged misstatements consist of "sales talk" and soft "puffery;" therefore, they are not actionable. Second, all of the alleged misstatements relate to predictions of future events and thus fail to satisfy the crux of a viable misrepresentation claim. Third, the claim is barred as duplicative because it is derived from the same facts and injuries as the breach of contract claim. The parties have focused on two alleged misrepresentations made by Gemini: (1) that BFS was ready to proceed with the selection and later with the implementation of new technologies when it was not; and (2) that its sister company, Cap Gemini, could provide a "continuity of approach" to the Business 2000 project, and thus its selection was in BFS's best interests, and it was not.
Tennessee adopted the Restatement (Second) of Torts §§ 552 (1977) "as the guiding principle in negligent misrepresentation actions against other professionals and business persons." The misrepresentation must consist of a statement of a material fact. Thus, statements of opinion or intention are not actionable. Likewise, puffing or other sales talk is generally not actionable.
Robinson v. Omer, 952 S.W.2d 423, 427 (Tenn. 1997); Bethlehem Steel Corp. v. Ernst Whinney, 822 S.W.2d 592, 595 (Tenn. 1991).
Haynes v. Cumberland Builders, Inc., 546 S.W.2d 228, 232 (Tenn.Ct.App. 1976); See also Cumberland Portland Cement Co. v. Reconstruction Finance Corp., 140 F. Supp. 739, 751 (E.D.Tenn. 1953), aff'd 232 F.2d 930 (6th Cir. 1956).
See Fowler v. Happy Goodman Family, 575 S.W.2d 496 (Tenn. 1978); Hamilton v. Galbraith, 15 Tenn. App. 158, 16 6 (1932); Cumberland Portland Cement Co. v. Reconstruction Finance Corp., 140 F. Supp. at 751.
Sunderhaus v. Perel Lowenstein, 388 S.W.2d 140 (Tenn. 1965).
"Puffing" refers to loose general statements made by sellers in commending their products. These statements embody exaggerations, the truth or falsity of which cannot be determined easily, that amount to no more than an expression of the seller's opinion about the character or quality of the product. The courts have generally been cautious about a seller's claim that its representations were mere puffing. Thus, the question of whether a particular statement amounts to an actionable misrepresentation will generally be left to the fact finder, whenever the circumstances indicate that the buyer reasonably understood that he or she was receiving something in the way of an assurance as to specific facts.
Ladd by Ladd v. Honda Motor Co., 939 S.W.2d 83, 100 (Tenn.Ct.App. 1996) (citing Loula v. Snap-On Tools Corp., 498 N.W.2d 866, 868 (Wis.Ct.App. 1993)).
Id. (citing W. Page Keeton et al., Prosser and Keeton on the Law of Torts § 109, at 757 (5th ed. 1984)).
One interpretation of the representations could be that of mere conjecture or puffing. However, as BFS argues, the statements may be part of the core of the advice and information necessary for Gemini to guide BFS through this business transformation project. Particularly, the statement that Cap Gemini would provide a "continuity of approach" may be an example of a statement that rises above simple exaggeration. The question of whether these particular statements amount to an actionable misrepresentation will be determined at trial.
Turning to the contention that the representations relate to future events, it is clear that Tennessee courts require the false information consist of statements of a material past or present fact. Similarly, conjecture or representations concerning future events are not actionable even though they may later prove to be false. In Glanton v. Beckley, the Tennessee court determined that an investor could recover from a property owner who assured her that $1,600 per month in rental fees would be available to cover renovation and maintenance costs. In analyzing this result, the concurrence discussed the requirement that the information at issue be limited to past and present facts. It explained that the investor's success hinged on her testimony that the property owner told her that he expected that their monthly rental income after renovating the house would be $1,600 because he and three of his associates had agreed to lease the space for $400 per month each. While the statements concerning the anticipated rental income involved future events, they were based on the present fact that Mr. Glanton and his three associates had already agreed to lease offices in the building once it was renovated. The representations concerning these existing agreements involved a present or past fact and, therefore, supported a claim for negligent misrepresentation.
McElroy v. Boise Cascade Corp., 632 S.W.2d 127, 130 (Tenn.Ct.App. 1982); Glanton v. Beckley, 1996 WL 709373, at * 9 (Tenn.Ct.App.).
See Brungard v. Caprice Records, Inc., 608 S.W.2d 585, 590 (Tenn.Ct.App. 1980).
Glanton, 1996 WL 709373, at *6.
See id. at *9.
Id.
The same reasoning may apply here. One inference is that Gemini's statements that BFS was ready to proceed with software selection, and later with the implementation of that software, were statements of present fact about BFS's then current readiness to move forward and to commit additional resources to the Business 2000 project, not its future readiness to do so. Because there is a dispute of fact on this issue, it is another to be decided upon the evidence at trial.
Alternatively, Gemini asserts that a tort claim cannot be duplicative of a claim sounding in contract. Rather, the claim must be anchored to a duty independent to that arising from the parties' contract. Gemini argues that BFS's negligent misrepresentation claim is duplicative and should be dismissed.
Under Tennessee law a negligent misrepresentation claim is a violation of a duty separate and distinct from any contract. Several Tennessee cases hold that a negligent misrepresentation claim can be brought regardless of whether the plaintiff is in privity of contract with the defendant. The obligation to use reasonable care in supplying information for the guidance of others in the course of their business transactions arises at law and is "independent of contract." Even so, if the same facts support a recovery in contract and tort, a plaintiff may not have but one recovery.
Kendrick v. Sonitrol Secs. Of Knoxville, Inc., 1986 WL 481, at *2 (Tenn.Ct.App.).
See Robinson v. Omer, 952 S.W.2d 423, 427 (Tenn. 1997).
Kendrick, 1986 WL 481, at *2.
Harris v. Tindall, 277 S.W.2d 374, 376 (Tenn. 1955).
When the facts are viewed in a light most favorable to BFS, a claim for negligent misrepresentation may independently exist in this case. Therefore, Count I will not be dismissed as duplicative at this time.
See Concrete Spaces, Inc. v. Sender, 2 S.W.3d 901 (Tenn. 1999).
(9) Finally, Gemini contends that Counts I, II, and III should be dismissed as time barred. All parties agree that the applicable statute of limitations is three years for both the tort and contract claims. Pursuant to the parties' Mediation and Standstill Agreement, the running of the statute of limitations was tolled as of March 15, 2000. Any claims that were not time-barred as of March 15, 2000, were not time-barred when BFS filed its Complaint on October 6, 2000. Therefore, for the claims to be valid the discovery of the alleged tort or actual contractual breach must have occurred subsequent to March 15, 1997.
Generally, the statute of limitations begins to run when a tort cause of action arises, even when ignorance of the facts exists. Under the discovery rule, a statute of limitations period is tolled only if the cause of action is inherently unknowable and the plaintiff was blamelessly ignorant that the cause of action existed. An act or omission is inherently unknowable "when there are no observable or objective factors which put laymen on notice of a problem, such as in a title defect or certain medical malpractice actions." Similarly, in Tennessee, a cause of action accrues under the statute when a plaintiff discovers, or in the exercise of reasonable care and diligence, should have discovered, his injury and the cause thereof. The statute is tolled only during that period of time when the plaintiff had no actual knowledge of the wrong and, as a reasonable person, was not placed on inquiry notice.
Began v. Dixon, 547 A.2d 620, 623 (Del.Super.Ct. 1988).
Fooks v. Del. Health Soc. Servs., 1999 WL 743916, at *3 (Del.Super.Ct.).
Began, 547 A.2d at 623.
See Med. Educ. Assistance Corp. v. Tenn. ex rel. E. Tenn. State Univ. Quillen Coll. Of Med., 19 S.W.3d 803, 817 (Tenn.Ct.App. 1999); City State Bank v. Dean Witter Reynolds, Inc., 948 S.W.2d 729, 735 (Tenn.Ct.App. 1996).
Potts v. Celotex Corp., 796 S.W.2d 678, 680-81 (Tenn. 1990).
The parties take opposing positions on the date the alleged injury occurred. Additionally, they disagree on whether the type of injury was "inherently unknowable." Ordinarily, the question of whether a plaintiff discovered, or in the exercise of reasonable diligence, should have discovered an injury resulting from a defendant's act creates a genuine issue of fact, precluding disposition by summary judgment. The Tennessee court stated in Hathaway v. Middle Tennessee Anesthesiology, P.C., "The question of whether due diligence under the circumstances required . . . any other particular form of investigation is properly a question for the trier of fact after hearing all of the evidence, rather than a question of law to be determined by summary judgment based upon the . . . record." The question of when the injury occurred or when BFS knew or should have known about the injury is a question of fact to be determined at trial.
Caledonia Leasing and Equip. Co. v. Armstrong, Allen, Braden, Goodman, McBride Prewitt, 865 S.W.2d 10, 18 (Tenn.Ct.App. 1992); Nat'l Mortgage Co. v. Washington, 744 S.W.2d 574, 580 (Tenn.Ct.App. 1987); Gosnell v. Ashland Chem., Inc., 674 S.W.2d 737, 739 (Tenn.Ct.App. 1984).
724 S.W.2d 355, 360 (Tenn.Ct.App. 1986)
Regarding a breach of contract action, the limitations period commences once the cause of action accrues. Gemini contends that any breach of contract occurred at the expiration of each of the individual four contracts. BFS disagrees, and asserts that the parties' four letter agreements constitute a single continuous contract, which continued until late 1997, when BFS terminated its relationship with Gemini.
Matter of Burger, 125 B.R. 894, 901 (Bankr.D.Del. 1991).
"[T]he statute of limitations does not typically run against a continuing cause of action until the termination of the contract." Also, in cases of continuous contract and continuing breach, the statute begins to run only when full damages can be ascertained and recovered. Whether a contract is continuous or severable is a question of fact. This also must be determined at trial.
Id. at 902 (citing Thorpe v. Schoenbrun, 195 A.2d 870 (Pa.Super.Ct. 1963).
Id. (citing Oliver B. Cannon Son, Inc. v. Fidelity Casualty Co. of New York, 484 F. Supp. 1375, 1390 (D.Del. 1980)).
Joseph Rizzo Sons v. Christina Momentum, L.P., 1992 WL 51850, at *4 (Del.Super.Ct.) (citing Kahle v. McClary, 96 N.W.2d 243, 245-46 (Minn. 1959)).
NOW, THEREFORE, IT IS ORDERED that Cap Gemini America, Inc.'s Motion for Summary Judgment is DENIED.