Opinion
Civil Action Number 02-10404-RGS
May 23, 2002
MEMORANDUM AND ORDER ON DEFENDANT'S MOTION TO DISMISS
This lawsuit brought by Travel Services International, Inc. (TSI), on March 8, 2002, against defendant Incentive Systems, Inc. (Incentive), asserts claims of breach of contract, breach of warranty, fraud, misrepresentation and a violation of section 11 of Chapter 93A. It is agreed for present purposes that specialty software sold by Incentive to TSI failed to perform as promised. Incentive, however, argues that TSI was obligated by the parties' contract to file suit within "one (1) year after the discovery of the events which gave rise to the cause of action." Because TSI knew as of December of 2000 that the software was defective, and yet failed to bring a lawsuit, Incentive contends that the action is time-barred in its entirety. Incentive's motion to dismiss is based solely on this argument.
When reviewing a motion to dismiss, "[w]e must accept the allegations of the complaint as true, and if, under any theory, the allegations are sufficient to state a cause of action in accordance with the law, we must deny the motion to dismiss." Vartanian v. Monsanto Company, 14 F.3d 697, 700 (1st Cir. 1994); Knight v. Mills, 836 F.2d 659, 664 (1st Cir. 1987).
DISCUSSION
The facts alleged in the Amended Complaint, which for present purposes must be deemed as true, are as follows. TSI sells travel products and services, including cruise vacations, resort packages, airline tickets, European auto rentals, and hotel bookings. In 1999, TSI concluded that its burgeoning business required an in-house software system to track compensation payments to its nationwide network of travel agents. After prospecting several vendors, TSI settled on Incentive. An agreement was negotiated whereby Incentive promised to supply software that would conform to the specifications set out in TSI's "Request for Proposal on Compensation Software." Incentive, which held itself out as a specialist in "software for automating incentive compensation," represented that its version 2.0 software was "capable of automating the complexity of existing as well as future compensation plans. . . . The target date to begin service roll out is April, 2000." Complaint ¶ 17. The contract was signed on December 23, 1999.
A critical part of TSI's decision to purchase INCENTIVE was that under the Incentive Systems Agreement, Incentive Systems was to provide TSI with a software program that had the capability to produce five different custom report types for up to six functionally separate compensation plans. Each plan represented a payment system for a different group of agents. Each report was a different calculation or presentation of information based on data fed into the Incentive software program from TSI's computer systems. . . . Incentive Systems said that it could provide a system that would allow TSI to input data on a daily basis and produce daily updates on earned compensation.
Complaint ¶¶ 21 and 22. After "TSI devoted a significant amount of resources to the implementation process," the reader will not be surprised to learn that TSI "experienced significant difficulties" with the software, including systems overload, crashes and outages. Id. at ¶¶ 23 and 24.
Among other things, TSI alleges that the program regularly took more than twenty-four hours to process one day of sales activities, thereby causing a permanent systems backlog. Id. at ¶ 24.
At a meeting held on December 12, 2000, to discuss problems with the software, Michael Byers, the President and CEO of Incentive, acknowledged that when Incentive responded to TSI's request for a proposal, it knew that its then-current release, version 2.0, was incapable of meeting TSI's specifications. According to the Complaint, "Byers said that Incentive Systems hoped that it would be able to meet TSI's needs with its new version 3.0, which was in development." Id. at ¶ 28. Byers explained that the anticipated roll-out of version 3.0 had been delayed by work Incentive was doing for another customer.
TSI maintains that had it known from the beginning that Incentive intended to supply it with yet to be developed and untested software, it would not have entered into the agreement.
Taking Byers' explanation at face value, TSI bided its time. However, Version 3.0, when eventually installed, offered scant improvement over version 2.0, even after a team of Incentive administrators took direct control of the system.
Because of the inadequacies of the INCENTIVE software, TSI's computerized compensation system was not self-sufficient, nor could it perform the tasks that TSI contracted with Incentive Systems to provide. This was finally made clear to TSI in April 2001, when Incentive Systems prepared a document entitled "Incentive System Project Plan" dated April 3, 2001 (the "Project Plan") for TSI. The purpose of the Project Plan, among other things, was to address the problem of "Establishing TSI self-sufficiency for the Administration and Maintenance of the INCENTIVE Application." (Project Plan, p. 2). It was at this point that TSI realized that no amount of effort would enable the INCENTIVE software to meet its requirements.
Complaint ¶ 30.
Incentive asserts that the one year limitations period of the contract bars TSI's action en toto. According to Incentive, TSI knew that it had a cause of action on December 12, 2000, when Byers admitted that version 2.0 was not only inadequate to meet TSI's needs, but that Incentive was aware of the fact on the date the contract was signed. TSI, for its part, alleges that it was lulled into inaction by Byers' assurances that version 3.0 would correct the problems with version 2.0, and that it only became clear in April of 2001, after the installation of version 3.0, that Byers' assurances were either hopelessly optimistic or deliberately misleading.
It is an axiom of equity that a limitations period will be tolled where a defendant, by affirmative or negligent misrepresentation, induces a plaintiff to forbear from asserting its rights. See Nuccio v. Nuccio, 62 F.3d 14, 17 (1st Cir. 1995). This case seems hardly distinguishable from Libman v. Zuckerman, 33 Mass. App. Ct. 341 (1992), where a dispute arose over defects in the ongoing installation of siding in a condominium complex, and where, after much back and forth, a lawsuit was brought and a statute of limitations defense raised. A special master sided with the plaintiff owners association on grounds that the developer's repeated promises to correct the defects in the siding had worked an estoppel. The Court of Appeals affirmed.
Here, the master had substantial material in the record to support his finding that the plaintiffs had been induced to forbear from bringing suit earlier. On June 15, 1979, Linde, in his capacity as trustee of Mainstone Villages Trust, wrote to the unit owners, "You have our guarantee that the defective areas will be corrected prior to next winter systematically and cluster by cluster." Minutes of meetings of the owners and the board of managers contain statements by Linde that replacement of defective siding is continuing and that the initial one-year warranty will be extended by another year from the time of completion of the corrective work. At a meeting of the board of managers on March 20, 1980, Linde said that the crew doing corrective work would start again with the advent of good weather. On August 19, 1981, the vice-president of construction of Boston Properties wrote to the board of managers that "[w]e had taken a position of refusing to do any further punch list work pertaining to the siding in your Village until we had received assurances that legal action would not be taken against us." Upon those elements in the record, the master was warranted in finding that the plaintiffs had delayed legal action in reliance upon repeated undertakings by the defendants that the defects in the siding would be corrected.
Id. at 346-347 (footnotes omitted). In its ruling, the Appeals Court corrected defendant's reading of New England Power Co. v. Riley Stoker Corp., 20 Mass. App. Ct. 25 (1985), as requiring "in every instance, a preemptive litigation strike within the limitations period from first discovery of injury," noting that there "'are no rigid criteria to apply in determining whether a defendant's conduct was such as to give rise to an estoppel.'" Id. at 346.
Incentive, in this equitable regard, is much too dismissive of TSI's arguments that some slack should be cut for purchasers of "complex, customized technology [which] typically requires a period of adjustment and 'debugging' after delivery to perfect," VMark Software, Inc. v. EMC Corp., 37 Mass. App. Ct. 610, 622 (1994), and that "[i]t would be anomalous, given the UCC's purpose to encourage buyers and sellers to reach reasonable accommodations to minimize losses . . . to penalize buyers . . . for . . . giving sellers the opportunity to rectify nonconformities before revoking acceptance of the goods." Fortin v. Ox-Bow Marina, Inc., 408 Mass. 310, 318-319 (1990).
TSI also presents a plausible argument that Incentive gave an express warranty of future performance (that its software program was "capable of automating the complexity of existing as well as future compensation plans") to which it should now be held. See Mass. Gen. Laws c. 106, § 2-608(1)(a); New England Power Co., 20 Mass. App. Ct. at 27 n. 4.
These are sufficient enough reasons to deny the motion to dismiss with out taking up TSI's argument that "a party cannot insulate itself from liability from its own fraud." This is true enough as a general statement of the law, but Incentive's riposte that a statute of limitations insulates a party from nothing "so long as the claim against it is brought in a timely manner," is well-taken.
ORDER
For the foregoing reasons, the motion to dismiss is DENIED. The Clerk will set the case down for a scheduling conference at the earliest practicable date.SO ORDERED.