Opinion
No. CV02 006 78 14
December 2, 2003
MEMORANDUM OF DECISION
The plaintiff, David Page, has filed a five-count complaint against the defendant William Hotchkiss based upon a business relationship between the parties that commenced in 1996 and terminated in 1999. The plaintiff's complaint, in five counts, alleges that the defendant has damaged him by: (1) breach of the Uniform Commercial Code (UCC) warranty of merchantability; (2) breach of an express warranty; (3) breach of oral contract; (4) conversion; and (5) engaging in deceptive and unfair trade practices. In essence, the plaintiff claims that the defendant was engaged in the sale of computer software goods, and therefore the transactions between the parties are governed by the UCC. The defendant claims that he was a consultant hired by the plaintiff to provide services which included computer programming and therefore the UCC does not apply. He further claims that since this lawsuit was commenced more than three years after the termination of the relationship between the parties, the action is barred by the statute of limitations and or the statute of frauds.
The threshold issue presented to the court is to determine the nature of the relationship between the parties — was there a contractual relationship regarding the delivery of a product or was there an independent contractor relationship between the parties regarding the providing of computer services. If the relationship is the former, then the court will examine the plaintiff's claims pursuant to the UCC. If the relationship is the later, then the court will determine the terms of the oral contract between the parties and whether there was a breach of contract. The nature of the relationship between the plaintiff and the defendant will also implicate whether there is liability under the Connecticut Unfair Trade Practices Act (CUTPA) and the efficacy of the defendant's special defenses.
At trial, the plaintiff presented the testimony from his office employee, a computer programmer and himself. The defendant then testified on his own behalf. The parties thereafter submitted posttrial memoranda. A review of the testimony reveals the following salient facts.
The plaintiff, David Page, at all times relevant to this case has been a marshal for the State of Connecticut. In 1995, he wanted to computerize his office operations. After a number of ineffective attempts by himself to accomplish this goal, Mr. Page placed advertisements at local universities to obtain computer programming assistance. In response to the advertisement, the defendant William Hotchkiss, a former student at Eastern Connecticut University, met with Mr. Page. They discussed the problems Mr. Page had in accessing the times and dates of when he had served papers. Mr. Page also had difficulties with billing software. The parties reached an agreement which was reduced to writing. Although not introduced as an exhibit at trial, both parties testified that the written contract called for Mr. Hotchkiss to produce a computer program to track wage executions, that the defendant was authorized to work 15-20 hours on the project and that the defendant would be paid an hourly wage. By all accounts the work undertaken pursuant to this written agreement was done successfully and to the satisfaction of both parties. It was also the last time that the parties reduced an agreement to writing.
After this first programming project was successfully completed, the plaintiff and defendant discussed further computer programming assistance that the plaintiff needed. The defendant agreed to work at developing additional programs or applications that the plaintiff could use in his office. The defendant was paid by the plaintiff on an hourly basis. The defendant worked in the plaintiff's office as well as at his own house.
As the parties continued to work together, the plaintiff conceived of the idea that the software programming that the defendant was working on could be the basis of a prototype of a software application that could be sold to other marshals in the State of Connecticut. Thus, the work the defendant was performing had a dual purpose — it computerized Mr. Page's office and it was a prototype for a software package that Mr. Page wished to market to other marshals.
The plaintiff used the defendant's software programs to run his office. As bugs were discovered in the programs, the defendant debugged the program or got it back online. The defendant also set up operating systems and backup systems for the plaintiff's office. The defendant further worked on enhancements to the programs. The plaintiff discussed with the defendant a plan to market the software program. The parties, however, never reached an agreement as to a blueprint for the entire program, a timetable for the development or a cost for the development of the program. There were, however, continual problems with the program that seemed to be related to the indexing functions. Eventually the plaintiff became dissatisfied with the pace and quality of the defendant's work. He felt he was being billed for work that was not being done. The defendant disputed the assertions of the plaintiff.
The parties had a falling out. In November 1998, the defendant wrote to the plaintiff describing, from his point of view, the current state of their relationship. Mr. Hotchkiss described the process as a "learning experience" and stated "I am not a professional developer, nor have I ever claimed to be." He offered to continue working for the plaintiff but not for free. He also provided the plaintiff with names of other consultants with whom he might work. The working relationship between the parties did not improve. On March 9, 1999 the defendant wrote again to the plaintiff "I am no longer interested or willing to work for you . . . With this letter I intend to terminate our business relations." The defendant failed to provide the plaintiff with the password to get onto the server computer at the time the defendant terminated his relationship with the plaintiff. The plaintiff through his attorney wrote to the defendant in June and July of 2000 demanding that the defendant complete the project. The defendant never responded to those letters.
Eventually the plaintiff retained a new consultant, Paul Schofield, to work with him on the project. There was no written agreement between the plaintiff and his new consultant. Mr. Schofield testified that he could have quit working on the plaintiff's project at any time.
As a result of the conduct of the defendant, the plaintiff claims he has suffered monetary damage in that he has had to pay a new software consultant almost twenty thousand ($20,000.00) dollars to complete the program. The plaintiff claims that he was not provided the password for his server computer and spent hours trying to get back onto his system. The plaintiff attributes approximately seven thousand ($7,000.00) dollars of Schofield's billings to repair the work done by the defendant. The plaintiff also claims that he spent five hundred and eighty ($580) dollars for some computer equipment, runtime modules, that he purchased at the suggestion of the defendant. The plaintiff further claimed that because of the problems with the defendant's programming, he had to pay his office staff additional salaries. No bills were produced for any of the damages claimed. The plaintiff commenced this litigation by a complaint dated March 20, 2002 and served on March 24, 2002. Throughout the decision, other findings of fact are presented as necessary.
The initial issue presented is whether the "software" that Hotchkiss developed for Page was a "good," as that term is used in article two of the UCC, or was it programming that the defendant provided as a service. The UCC is to be "liberally construed and applied to promote its underlying purposes and policies." General Statutes § 42a-1-102(1). Article two defines goods as "all things, including specially manufactured goods, which are moveable at the time of identification to the contract for sale . . ."
Article two is incorporated in the General Statutes at § 42a-2-101 et seq.
Note that "the National Conference of Commissioners on Uniform State Laws has promulgated the Uniform Computer Information Transactions Act ("UCITA"), a code resembling UCC Article 2 in many respects but drafted to reflect emergent practices in the sale and licensing of computer information. UCITA, prefatory note (rev. ed. Aug. 23, 2001) (available at www.ucitaonline.com/ucita.html). UCITA — originally intended as a new Article 2B to supplement Articles 2 and 2A of the UCC but later proposed as an independent code — has been adopted by [only] two states, Maryland and Virginia. See Md. Code Ann. Com. Law §§ 22-101 et seq.; Va. Code Ann. §§ 59.1-501.1 et seq." Specht v. Netscape Communications Corp., 306 F.3d 17, 29 n. 13 (2nd Cir. 2002).
A number of courts have addressed the question of whether `software' is a good or a service. These courts have come to differing conclusions depending upon the facts of each case. A significant factor for the courts was the degree of development and customization or programming that was required by the buyer. "At one end of the spectrum is a consumer who walks into the local electronics store, pulls a shrink-wrapped word processing program from the shelf, pays the cashier and goes home with it. Such a sale is very clearly one for a good. At the other end of the spectrum is a programmer that invents and develops new software [from scratch] for a particular customer. In that case, the contract is more like a services contract." Smart Online, Inc. v. Opensite Technologies, Inc., Superior Court of North Carolina, Wake County, Business Court, Docket No. 01 CVS 09604, 2003 NCBC 5 (June 17, 2003) (51 U.C.C. Rep. Serv.2d 47). In the middle of the spectrum is the situation "[w]here programmers are selling preexisting software albeit with custom modifications or upgrades to adapt it to the user's needs or equipment." Id. Where, as here, the facts of a case place the issue in the middle of the spectrum, the courts have explicitly or implicitly relied upon a predominate element test. D. Toedt, The Law and Business of Computer Software (Release #12 10/2001) § 13.02, p. 13-3, and a primary factor in this analysis has been whether the programmer was "paid in a manner primarily reflecting [the] sale of goods . . ." Pearl Investments v. Standard I/O, Inc., 257 F. Sup.2d 326, 353 (D.Me. 2003).
See Saga Solutions v. Sherwin-Williams Co., Superior Court, judicial district of Ansonia/Milford at Milford, Docket No. CV 01 0073513 (May 8, 2002, Cutsumpas, J.), for an example of a case involving shrink-wrapped software. (At issue was whether the defendant properly rejected the purchase of a software program known as "Goldmine.") See Novacore Technologies, Inc. v. GST Communication Corp., 20 F. Sup.2d 169 (D.Mass. 1998), aff'd, 229 F.3d 1133 (1st Cir. 1999) for an example of customized, made from scratch, software. See also Pearl Investments v. Standard I/O, Inc., 257 F. Sup.2d 326 (D.Me. 2003) holding that "development of a software system from scratch primarily constitutes a service." Pearl Investments v. Standard I/O, Inc., 257 F. Sup.2d 326, 353 (D.Me. 2003).
Note that The Law and Business of Computer Software cites to numerous cases that employed the predominate element test. D. Toedt, The Law and Business of Computer Software (Release #12 10/2001) § 13.02, p. 13-3 n. 4 and 13-4 n. 6. The facts and results of each of those cases is distinguishable since they either involved custom, from scratch, software development or situations where the programmer(s) were paid in a manner reflecting the sale of goods. Nevertheless, the point is that courts across the nation have adopted the predominate element test to distinguish between the different forms of software.
"Paid in a manner primarily reflecting [the] sale of goods" means for example that the programmer was paid an up-front software licensing fee. See Pearl Investments v. Standard I/O, Inc., 257 F. Sup.2d 326, 353 (D.Me. 2003). This term can also be applied where the purchaser buys a good from a merchant and additionally has that merchant customize the good to the purchaser's needs. See Micro Data Base Systems, Inc. v. Dharma Systems, Inc., 148 F.3d 649, 655 (7th Cir. 1998).
When applying the predominant element test "the question becomes whether the dominant factor or essence of the transaction is the sale of the materials or the services." (Internal quotation marks omitted.) Incomm, Inc. v. Thermo-Spa, Inc., 41 Conn. Sup. 566, 570, 595 A.2d 954, 3 Conn. L. Rptr. 346 (1991). "[I]t is clear that where the contract is basically one for the rendition of services, and the materials are only incidental to the main purpose of the agreement, the contract is not one for the sale of goods under the UCC." (Internal quotation marks omitted.) Martisek v. Showron, Superior Court, judicial district of Fairfield at Bridgeport, Docket No. CV 98 0354780 (July 9, 2003, Doherty, J.).
"In determining whether a contract is one of sale [of goods] or to provide services, the court looks to the essence of the agreement to see whether service predominates over any sale aspect, such as supply of materials by the principal to the service entity . . . Whether a contract is one for the sale of goods, or for work and labor to be rendered may depend on whether the primary intent is merely to provide for the delivery of goods, or whether the essential consideration is work and labor to be performed at the employer's instance and for his use rather than for the producer's benefit . . . It is of no moment that the materials to be processed [were] transferred from the defendant's possession to the plaintiff's: where service predominates, and the transfer of personal property is only incidental to the transaction, it is a contract for work, labor and materials and not a sale." (Internal quotation marks omitted.) Id.
In this case the defendant advised the plaintiff to purchase an off-the-shelf database software program that could be customized. Once the database software was purchased by the plaintiff, the defendant commenced his programming work. Throughout the relationship between the parties, the defendant was paid for the number of hours that he put in on any project. At the time the defendant first started to work with the plaintiff, he was not in the software development business. He was a student. Even when the defendant started to work on putting the software into a form that could be sold by the plaintiff to other state marshals, he was paid by the hour. There never was any agreement that the defendant would be paid a user licensing fee or a project fee. Therefore, the line of cases that find that the "software" was paid for in a manner reflecting the sale of goods are factually distinguishable from the present case.
For example, the result in cases such as Micro Data Base Systems, Inc. v. Dharma Systems, Inc., 148 F.3d 649 (7th Cir. 1998); Advent Systems Ltd. v. Unisys Corp., 925 F.2d 670 (3rd Cir. 1991); RRX Industries, Inc. v. Lab-Con, Inc., 772 F.2d 543 (9th Cir. 1985); EPresence, Inc. v. Evolve Software, Inc., 190 F. Sup.2d 159 (2002) and Smart Online, Inc. v. Opensite Technologies, Inc., supra, 2003 NCBC 5 (June 17, 2003) are not applicable to the present case.
The court finds that the essence of this transaction was a service. Page purchased Hotchkiss' work and labor. Page supplied Hotchkiss with the material, a software program, he wanted customized, and the essential consideration of the transaction was Hotchkiss' hourly labor. All Page received as a function of the transaction was modified computer code loaded on a computer hard drive. The goods, therefore, that Page received were incidental to the transaction.
In addition to the software spectrum of cases, the court finds support for its findings from other chapters of the General Statutes. First, General Statutes § 42a-9-101 et seq., which incorporates article nine of the UCC, defines "Goods" as "all things that are movable when a security interest attaches . . . The term also includes a computer program embedded in goods and any supporting information provided in connection with a transaction relating to the program if (i) the program is associated with the goods in such a manner that it customarily is considered a part of the goods, or (ii) by becoming the owner of the goods, a person acquires a right to use the program in connection with the goods. The term does not include a computer program embedded in goods that consist solely of the medium in which the program is embedded." (Emphasis added.) General Statutes § 42a-9-102(44). Applying the article nine definition to the present case would again yield a finding that what Hotchkiss provided was not goods since what was provided was a modified computer program embedded in a convenient medium for Page to access. The real object of Page's purchase was the intellectual property which had been loaded and stored on a transferable medium.
Additionally, support is found in the tax code. The tax code defines "Services" in part as: "Computer and data processing services, including, but not limited to, time, programming, code writing, modification of existing programs, feasibility studies and installation and implementation of software program and systems even where such services are rendered in connection with the development, creation or production of canned or custom software . . ." (Emphasis added.) General Statutes § 12-407(37)(A). The Supreme Court recently explained this term in Anderson Consulting, LLP v. Gavin, 255 Conn. 498, 767 A.2d 692 (2001). The trial court in Anderson Consulting, LLP v. Gavin found that Anderson provided goods to the gas and electric companies saying: Anderson "developed software programs which in and of themselves would provide [the gas company] and [the electric company] with the informational systems to allow them to operate efficiently and cost-effectively now and into the immediate future . . . [T]he object of the underlying transaction in this case was the creation of informational systems for both [the gas company] and [the electric company], not the creation of various elements necessary to reach the final product." (Internal quotation marks omitted.) Anderson Consulting, LLP v. Gavin, 255 Conn. 498, 524, 767 A.2d 692 (2001). The Supreme Court accepted these findings however it conversely held that "[t]hese findings bring the services rendered by Anderson within the clarified, expansive definition of computer and data processing services." (Internal quotation marks omitted.) Id. Thus, since the object of the Page-Hotchkiss transaction was the modification of an existing computer program, the transaction would fall within the "expansive definition of computer and data processing services" of the tax code and would not be taxed as the transfer of goods.
The "software" that Anderson Consulting provided to the gas company was a modified version of its "Customer 1" software. Anderson Consulting, LLP v. Gavin, 255 Conn. 498, 507, 767 A.2d 692 (2001). Therefore, Anderson Consulting, LLP provides a fact pattern with "software" comparable to the `software' in the present case.
In light of the foregoing, the court finds that the nature of the relationship between the plaintiff and the defendant was for the provision of a service as an independent contractor, not the sale of a good. The UCC does not apply. This purchaser contracted for a service to be performed and he carried away a tangible result of that service.
If this "software" is subsequently transferred to a third party then it should be recognized as a good since what is now being purchased is essentially off-the-shelf software.
The court now turns to the issue of what were the terms of the parties' agreement for the provision of computer services. The court finds that the parties had an agreement that the plaintiff would pay the defendant twenty ($20) dollars per hour while performing computer consulting work. The tasks or problems would be identified by the plaintiff. While the goals of the defendant's consulting services were agreed upon, no promises were made with regard to whether or when the programs could be developed or integrated. There was no agreement as to the duration of the relationship between the parties. The plaintiff was the owner of the computer hardware and the customized software that the defendant developed. The defendant agreed that while he was working for the plaintiff that he would apply himself in a diligent manner. Both the plaintiff and the defendant could have terminated their relationship at any time.
The court now turns to theories of recovery plead by the plaintiff. In the first count, the plaintiff claims that the defendant breached a statutory UCC warranty of merchantability. This theory must fail based upon the determination that the nature of the relationship between the parties was for the provision of services rather than the sale of goods.
In the second count of his complaint, the plaintiff claims that the defendant violated express warranties. Generally, "in order to sustain an action for breach of express or implied warranty there has to be evidence of a contract between the parties . . ." Hamon v. Digliani, 148 Conn. 710, 712, 174 A.2d 294 (1961). "Absent a statutory warranty or definitive contract language, the determination of what the parties intended to encompass in their contractual commitments is a question of the intention of the parties, and an inference of fact." Torosyan v. Boehringer Ingelheim Pharmaceuticals, Inc., 234 Conn. 1, 15, 662 A.2d 89 (1995); see also Bead Chain Mfg. Co. v. Saxton Products, Inc., 183 Conn. 266, 274-75, 439 A.2d 314 (1981).
"An express warranty has been defined as a positive representation of fact which induces a bargain." (Internal quotation marks omitted.) Albrecht v. Rubinstein, 135 Conn. 243, 246, 63 A.2d 158 (1948). The court finds that the plaintiff did not provide any evidence that the defendant made express warranties. The defendant was a former student at a local university who responded to an ad to provide computer consulting. He was not in the business of software development or computer consulting.
The third count of the complaint asserts liability based upon a claim of a breach of contract. "The existence of a contract is a question of fact to be determined by the trier on the basis of all of the evidence." (Internal quotation marks omitted.) Senco, Inc. v. Fox-Rich Textiles, Inc., 75 Conn. App. 442, 445, 816 A.2d 654, cert. denied, 263 Conn. 916, CT Page 13557 821 A.2d 770 (2003). Contracts can be either express or implied. "An express agreement may be either written or oral." New York Bakery, Inc. v. Downtown Bakery Inc., 19 Conn. Sup. 388, 390, 115 A.2d 467 (1955). The court has previously described the terms of the oral agreement between the parties. "It is an implied condition of every service contract that the service will be performed in a workmanlike manner." Ferrigno v. Pep Boys-Manny, Joe Jack of Delaware, Inc., 47 Conn. Sup. 580, 582, 818 A.2d 903 (2003). The words workmanlike manner "implicate negligence principles in that the defendant had a duty to the plaintiff and allegedly failed to perform its duties under the proper standard of care." Bonan v. Goldring Home Inspections, Inc., 68 Conn. App. 862, 871, 794 A.2d 997 (2002). Furthermore, it has been held that "professional services are best measured by a negligence standard rater than an implied warranty theory." (Internal quotation marks omitted.) Lavy v. WM Construction Corp., Superior Court complex litigation docket at Stamford-Norwalk at Stamford, Docket No. X08 CV 01 0187185 (June 10, 2003, Adams, J.) ( 34 Conn. L. Rptr. 721). "Negligence occurs where one under a duty to exercise a certain degree of care to avoid injury to others fails to do so . . . The essential elements of a cause of action in negligence are well established: duty; breach of that duty; causation; and actual injury." (Citation omitted; internal quotation marks omitted.) Stokes v. Lyddy, 75 Conn. App. 252, 257, 815 A.2d 263 (2003).
The duties that Hotchkiss owed Page were defined in their agreement, principally, Hotchkiss was to set up the plaintiff's office computer system and was to work on developing a software program that performed certain specified functions and he was implicitly to use the skill and knowledge possessed by those ordinarily employed in the trade. As to whether Hotchkiss breached his duties to Page, the court finds that since the Page-Hotchkiss contract was terminable at-will, Hotchkiss did not have a duty to finish the project. Rather, he had a duty to work on the project with the skill and competence and diligence until such time that either party elected to terminate the relationship. Once Hotchkiss elected to terminate the relationship he had a duty to turn over information such as the server password, to allow the plaintiff continued access to his computer system. The sole area where the court finds that Mr. Hotchkiss failed to act in accordance with his contractual obligations is his failure to provide the plaintiff with the password for the server computer. As a result of the defendant's failure the plaintiff was damaged in that he had to spend a substantial period of time to gain access to the server computer. The court finds that the plaintiff has been damaged by the defendant's conduct in the amount of $1000.
The plaintiff has withdrawn his claim for relief under a theory of conversion as pleaded in the fourth count of the complaint.
The plaintiff's claim under the Connecticut Unfair Trade Practices Act (CUTPA) is barred by the statute of limitations. "Where . . . a specific time limitation is contained within a statute that creates a right of action that did not exist at common law, then the remedy exists only during the prescribed period and not thereafter . . . In such cases, the time limitation is not to be treated as an ordinary statute of limitation, but rather is a limitation on the liability itself, and not the remedy alone . . . [U]nder such circumstances, the time limitation is a substantive and jurisdictional prerequisite, which may be raised [by the court] at any time, even by the court sua sponte, and may not be waived." (Internal quotation marks omitted.) Williams v. Commission on Human Rights Opportunities, 257 Conn. 258, 294, 777 A.2d 645 (2001). Actions brought under the CUTPA are created by statute, General Statutes § 42-110a et seq., therefore the statute of limitations established in CUTPA is a limitation on both the liability and remedy for such actions.
"Since CUTPA violations are defined in General Statutes § 42-110b to include deceptive acts or practices in the conduct of any trade or commerce, it is evident that the legislature intended that the perpetrators of such fraudulent practices, as well as other CUTPA violators, should be permitted to avail themselves of the statute of limitations defense provided by § 42-110g(f)." (Internal quotation marks omitted.) Willow Springs Condominium Assn., Inc. v. Seventh BRT Development Corp., 245 Conn. 1, 45-46, 717 A.2d 77 (1998). Furthermore, "[d]espite the existence in other states of statutes of limitation applicable to unfair trade practices establishing a limitation period for bringing an action that begins after discovery of the violation, our legislature has failed to create such an option for victims of CUTPA violations in this state . . . Therefore, if the deceptive acts that the [trier of fact] reasonably could have found form the basis of the CUTPA claim occurred more than three years prior to the commencement of the action, that claim is time barred." (Citation omitted; internal quotation marks omitted.) Id., 45-46. In Connecticut an action is brought once the writ, summons and complaint have been served upon a defendant. See General Statutes § 52-45a; Practice Book § 8-1; Hillman v. Greenwich, 217 Conn. 520, 527, 587 A.2d 99 (1991). In the present case the action was served on March 24, 2002. The last act initiated by Hotchkiss was his letter of March 9, 1999 terminating his contract with Page. Because Page did not bring his action until three years and two weeks after Hotchkiss' last act, the CUTPA claim is barred by the statute of limitations.
Finally, the last issue to be addressed is whether the plaintiff's recovery under the third count is barred by the applicable statute of limitations or the statute of frauds. The defendant will not prevail by asserting a statute of limitations defense under § 52-581. First, "[§] 52-581 is confined to express oral agreements. It does not reach implied contracts which are governed by [a six-year statute of limitations under] § 52-576." Abou-Saif v. Cedarcrest Condominium Association, Superior Court, judicial district of New Haven at New Haven, Docket No. CV 95 0375338S (November 1, 2000, Licari, J.). Second, "[o]ur Supreme Court has distinguished the statutes . . . by construing § 52-581, the three year statute of limitations, as applying only to executory contracts [and § 52-576 to executed contracts] . . . A contract is executory when neither party has fully performed its contractual obligations and is executed when one party has fully performed its contractual obligations." (Citations omitted; internal quotation marks omitted.) John H. Kolb Sons, Inc. v. G and L Excavating Inc., 76 Conn. App. 599, 610, 821 A.2d 774 (2003). Since the court has already found that Page and Hotchkiss had entered into and performed a contract for hourly services, § 52-576 establishes the applicable limitation period. The statute of limitations is therefore six years; the claim was not barred by the statute.
The statute of frauds, General Statutes § 52-550, is inapplicable to the present case. The court has found that there was no agreement between the parties that created a contract for future performance.
Accordingly, judgment may enter in favor of the plaintiff in the amount of $1000, plus costs.
COSGROVE, JUDGE.