From Casetext: Smarter Legal Research

Wilmington Tr. v. Politzer Haney

Superior Court of Delaware, New Castle County
Apr 25, 2003
C.A. No. 02C-05-138-FSS (Del. Super. Ct. Apr. 25, 2003)

Opinion

C.A. No. 02C-05-138-FSS.

Submitted: December 2, 2002. Final Supplemental Submission: March 31, 2003.

Decided: April 25, 2003.

Upon Defendant's Motion To Dismiss — GRANTED, As to Count IV and DENIED As to Counts I through III and V through VIII.

Cathy L. Reese, Esquire, Greenberg Traurig, LLP, The Brandywine Building, Attorney for Plaintiff.

Scott Salerni, Esquire, Greenberg Traurig, LLP, Attorney for Plaintiff.

Matthew A. Porter, Esquire, Dechert Price Rhoads, Attorney for Plaintiff.

Tiffany L. Geyer, Esquire, Ashby Geddes, Attorney for Defendant.

Philip Trainer, Jr., Esquire, Ashby Geddes, Attorney for Defendant.

Kevin J. O'Connor, Esquire, Testa, Hurwitz Thibeault, LLP, Attorney for Defendant.

Amanda J. Metts, Esquire, Testa, Hurwitz Thibeault, LLP, Attorney for D efendant.


OPINION AND ORDER


This contract dispute, which will be decided under Massachusetts law, concerns what one Massachusetts court, in another case, called "[a] common but foreseeable frustration of modern life — the failure of new computer hardware or software to work properly . . . ." Wilmington Trust Company, a bank, claims it purchased custom software from Politzer Haney, Inc., which could not do what it was supposed to do, and did not work. Wilmington Trust's amended complaint contains eight causes of action against P H. Wilmington Trust seeks money damages and the contract's cancellation. Alleging various defects in the pleading, P H has moved to dismiss under Rule 12(b). Alternatively, P H asks for a stay pending the outcome of a case P H filed in federal court in the District of Massachusetts, after Wilmington Trust had started this one.

VMark Software, Inc. v. EMC Corp., 642 N.E.2d 587 (Mass.App.Ct. 1994).

The complaint asks that the contract be "rescinded." Recission, of course, is an equitable remedy. See discussion, below.

I.

Wilmington Trust filed its initial complaint on May 15, 2002. On June 24, 2002, there was a stipulation and order governing the production and exchange of confidential documents. On August 23, 2002, Wilmington Trust filed its amended complaint. Simultaneously, P H filed its complaint in the United States District Court for the District of Massachusetts. On December 2, 2002, P H filed a Motion to Dismiss or Stay this matter, which was argued. The timing of the complaints here and in Massachusetts is significant to P H's alternative Motion to Stay. As mentioned, Wilmington Trust filed this case before P H filed in federal court.

Politzer Haney, Inc. v. Wilmington Trust Company, C.A. 02-11690, JLT (D. Mass.).

II.

According to its elaborate amended complaint, in 1999 Wilmington Trust began searching for an internet banking, software vendor. Wilmington Trust put out a request for proposals inviting companies to provide software, maintenance and support for commercial on-line banking services. In its request for proposals, Wilmington Trust listed the "Required Functionality" of the internet banking solution that it sought, as well as certain "Optional Requirements." Among Wilmington Trust's requirements was that the system report transactions in "Real Time (including Automated Clearinghouse (ACH))," as well as support Commercial Tax Exchange (CTX) transactions. Wilmington Trust also included its desire to have the system implemented by the second quarter of 2000.

Several companies, including P H, responded to the initial request for proposals. P H allegedly made representations and presented what it called "Web Cash Manager." Specifically, P H said that "Politzer Haney supports both batch (file transfer) and real time (message oriented or screen scraping) interfaces to all backend processing systems," and "Politzer Haney plans to support CTX transaction in the year 2000." Additionally, in a November 23, 1999 e-mail from Bret Burton, the account executive of P H, to Wilmington Trust, P H stated:

Functionality that is in production and proven in the market is an extremely important criteria. Politzer Haney has superior functionality, such as Balance Reporting, ACH, and Wires, that have been fully tested in various financial institutions already and are being used by thousands of bank customers nationwide.

P H also represented that its Customer Support Representatives were fully trained in supporting Web Cash Manager, and "Wilmington Trust is going to be able to get up and running on our product as quickly as you would like."

Towards the end of 1999, Wilmington Trust selected a vendor with which it already had a business relationship. That vendor, however, eventually eliminated its web-based banking solutions and it amicably ended the contract with Wilmington Trust. So, Wilmington Trust re-solicited vendors, and it began negotiating with P H in November 2000. Wilmington Trust claims it reiterated its prior requirements and concerns, and P H allegedly reaffirmed its prior representations. In an e-mail from P H to Wilmington Trust, a proposed schedule was provided implementing P H's Web Cash Manager software in five separate phases. Another e-mail was sent to Wilmington Trust setting out a proposed price plan. A third e-mail from P H again made representations that its software would include "Real-Time Functionality." Ten days later, P H sent another e-mail setting out proposed phases, as well as the fee schedule associated with each phase. And again, Real-Time Functionality was represented as part of the installation.

Wilmington Trust claims that reasonably relying upon the representations made by P H, it signed a Software License Agreement on December 22, 2000. In addition to fees, a description of the software, and an implementation schedule, the agreement included a warranty exclusion and disclaimer clause, an integration clause, and a choice of law clause.

According to Wilmington Trust's amended complaint, installation began in January 2001. Phase One was to be completed in April 2001. Phases Two and Three were to be completed during the third and fourth quarters of 2001, and Phase Four was to be completed during the first quarter of 2002.

After a three month delay, Phase One was completed on July 2, 2001. Web Cash Manager version 5.8 was installed, but without Real Time Functionality. To avoid technical breakdowns, an interim phase between Phase One and Phase Two was added to convert Web Cash Manager version 5.8 to version 6.0. This was important because version 6.0 contained the software necessary to implement Real Time Functionality. This installation began in November 2001, but was never completed. According to Wilmington Trust, version 6.0 did not contain Real Time Functionality, which Wilmington Trust required. Phases Two, Three and Four were never completed. Again, the allegations presented above come from the amended complaint, which for present purposes the court must take for fact, as explained in the next section.

III.

Delaware's standards for Rule 12(b)(6) motions to dismiss are clear. The court must accept all well-plead allegations as true. The court must then apply a broad sufficiency test: whether a plaintiff may recover under any "reasonable conceivable set of circumstances susceptible of proof under the complaint." Dismissal will not be granted if the complaint "gives general notice as to the nature of the claim asserted against the defendant." Further, a complaint will not be dismissed "unless it is clearly without merit, which may be either a matter of law or fact." "Vagueness or lack of detail," by itself, is insufficient to dismiss a claim. If there is a basis upon which the plaintiff may recover, the motion is denied.

Spence v. Funk, 396 A.2d 967, 968 (Del. 1978).

Id. citing Klein v. Sunbeam Corp., 94 A.2d 385 (Del. 1952).

Diamond State Tel. Co. v. University of Delaware, 269 A.2d 52, 58 (Del. 1970).

Id.

Id.

Id., see also Spence v. Funk, 396 A.2d 967 (Del. 1978).

Where the complaint alleges fraud, as here, the rules of this court impose a higher pleading standard requiring the circumstances to "be plead with particularity." Particularity is met where the complaint specifies "the time, place and contents of the false representations, as well as the identity of the persons making the representation and what he obtained thereby."

DEL. SUPER.CT.CIV.R. 9(b), Brown v. Robb, 583 A.2d 949, 955-956 (Del. 1990) citing Nutt v. A.C. S., Inc., 466 A.2d 18, 23 (Del Super. 1983), aff'd sub. nom., Mergenthaler v. Asbestos Corp. of America, 480 A.2d 647 (Del. 1984).

Nutt v. A.C. S., Inc., 466 A.2d 18,23 (Del Super. 1983), aff'd sub. nom., Mergenthaler v. Asbestos Corp. of America, 480 A.2d 647 (Del. 1984).

IV.

P H argues Count I, Negligent Misrepresentation; Count II, Innocent Misrepresentation; and Count VI, Fraud, must be dismissed because Wilmington Trust cannot establish reasonable reliance. P H states:

The Disclaimers of Representations clearly preclude claims by Plaintiff for breach of alleged representations or warranties about P H's software or services that are not expressly stated in § 13 [of the Agreement]. The Merger Clause also provides that the Agreement "supercedes" all prior discussions, correspondence and agreements between the parties § 17(c). In view of the clarity and breadth of Disclaimers of Representations and the Merger Clause, any reliance by Plaintiff on the Alleged Pre-Contractual

§ 13 REPRESENTATIONS AND WARRANTIES — LIMITATIONS OF LIABILITY.

THE EXPRESS WARRANTIES SET FORTH IN THIS SECTION 13 ARE THE ONLY WARRANTIES MADE BY PH WITH RESPECT TO ANY SOFTWARE MODULE AND SERVICES PROVIDED HEREUNDER. P H MAKES NO OTHER WARRANTIES, CONDITIONS OR REPRESENTATIONS, EXPRESS, IMPLIED OR ARISING BY CUSTOM OR TRADE USAGE, AND SPECIFICALLY DISCLAIMS ANY WARRANTIES OF MERCHANTABILITY AND OF FITNESS FOR A PARTICULAR PURPOSE, TO BANK, ANY CUSTOMER OF BANK, AND/OR TO ANY OTHER THIRD PARTY.
(c) ABSENT FRAUD, OR INTENTIONAL BREACH OF A MATERIAL TERM HEREUNDER, P H WILL NOT BE LIABLE, WHETHER IN CONTRACT, TORT OR OTHERWISE, TO BANK, ANY CUSTOMER, OF BANK, AND//OR TO ANY OTHER THIRD PARTY, FOR ANY CLAIMS OR DAMAGES ARISING OUT OF OR RELATED TO THIS AGREEMENT, EXCEPT THAT P H SHALL BE LIABLE AS SPECIFICALLY SET FORTH IN SECTIONS 10, 11, 13 AND 14 OF THIS AGREEMENT. IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER FOR INCIDENTAL, CONSEQUENTIAL, SPECIAL OR PUNITIVE DAMAGES, INCLUDING WITHOUT LIMITATION, LOSS OF USE, LOSS OF DATA, LOSS OF PROFITS OR LOSS OF BUSINESS, RISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT, THE SOFTWARE MODULES, OR THE MAINTENANCE AND PRODUCT SUPPORT SERVICES, WHETHER OR NOT THE PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES . . . .

§ 17 GENERAL

(c) This Agreement, including the Exhibits, states the entire Agreement of the parties with respect to the subject matter hereof and supersedes all prior discussions, correspondence and agreements relating thereto. This Agreement may be amended only by written amendment signed by the duly authorized representative of each party. In the event of a conflict between the terms of this Agreement and any Exhibit, the Exhibit will govern.

Representations was unreasonable as a matter of law. In other words, P H contends that even if Wilmington Trust proves that during negotiations P H promised what it could not deliver, the actual contract disclaimed P H's representations, and Wilmington Trust agreed to the disclaimers. Thus, reliance by Wilmington Trust on P H's representations was unreasonable, as a matter of law.

P H further asserts that Counts I, II and III, Mutual Mistake; Count IV, Failure of Consideration; Count V, Breach of Contract; Count VII, Violation of Delaware Consumer Fraud Act; and Count VIII, Violation of Massachusetts General Law 93A, are expressly prohibited by the Agreement's limitation of liability clause. P H states that under Massachusetts law an express limitation of liability is fully enforceable in the context of an agreement between two "sophisticated business entities." P H states:

The Limitation of Liability in the Agreement bars Plaintiff from stating actionable non-fraud claims. Plaintiff a leading provider of financial services with a client base spanning six continents and fifty countries . . . is obviously a sophisticated commercial entity. Plaintiff stipulated in the Limitation of Liability that in the absence of fraud or intentional breach of a material term, P H shall have no liability "IN CONTRACT, TORT OR OTHERWISE" for any claims or damages "arising out of or related to" the Agreement, except as specifically set forth in §§ 10, 11, 13 and 14 of the Agreement . . . . Plaintiff's claims I-V, VII VIII are precluded by this provision because those claims sound in tort and are directly related to the Agreement . . . . Plaintiff's contract claim is also barred because Plaintiff has not alleged intentional breach of contract, and its contract claim is not based on any rights of recovery permitted in the Agreement.

In summary, P H contends that the limitation of liability clause bars Wilmington Trust from bringing any non-fraud claims, including breach of contract, negligent or innocent misrepresentation, and contract formation defenses, such as mutual mistake and failure of consideration. P H further argues that Wilmington Trust's contract claim is barred because Wilmington Trust has not alleged intentional breach of contract. Nor is the contract claim based on any right of recovery provided in the contract.

P H alternatively claims Count III, Mutual Mistake, should be dismissed for additional reasons. First, for a mutual mistake to occur, both parties have to be mistaken about a basic assumption that has a material effect on the agreed-upon exchange of performances. Second, the alleged pre-contractual representations that the parties were allegedly mistaken about are not contained in the agreement, but rather are expressly disclaimed and contradicted by the agreement. Third, the parties anticipated the possibility of a mistake by allocating the risk to Wilmington Trust under the disclaimers in the agreement.

Maloney v. Sargisson, 475 N.E.2d 296, 300 (Mass.App.Ct. 1984). See also Covich v. Chambers, 397 N.E.2d 1115, 1121 (Mass.App.Ct. 1979).

P H alternatively argues Count IV, Failure of Consideration, fails as a matter of law. P H states:

Plaintiff must demonstrate that the alleged failure of consideration "amounts to an abrogation of the contract, or goes to the essence of it, or takes away its foundation." The requirement of consideration is satisfied if there is either a benefit to the promisor or a detriment to the promisee.

Worcester Heritage Soc'y, Inc. v. Trussell, 577 N.E.2d 1009, 1010 (Mass.App.Ct. 1991).

Donovan v. Fafard Real Estate and Dev. Corp., 2000 WL 16766 (Mass. Super C t.).

And Wilmington Trust concedes that it and its customers benefitted from the software that was installed during Phase One. Count IV, therefore, should be dismissed with prejudice.

Count VIII, P H argues, cannot survive under Massachusetts General Law ch. 93A, which requires the action to occur "primarily and substantially in the Commonwealth." P H states that any alleged misrepresentations, as well as any harm, occurred in Delaware, where Wilmington Trust is incorporated and has its principle place of business.

Next, P H contends that Count VI, Fraud, be dismissed because scienter is not plead with particularity as required by Rule 9(b). P H asserts that Wilmington Trust does not satisfy that standard, offering only "boilerplate, conclusory allegations of scienter."

DEL. SUPER.CT.CIV.R. 9(b).

P H finally argues, also alternatively, that this case should stayed pending a decision on the merits in P H's later-filed, federal case. That case concerns disputes arising out of the agreement, as well as copyright claims. P H asserts that since this court does not have jurisdiction to hear P H's federal copyright claims, it would be expedient and serve judicial economy to have all claims heard in one forum.

V.

This case is strikingly similar to VMark Software, Inc. v. EMC Corp., and Zircon Company, Inc. v. Graphik Dimensions, Inc. In those Massachusetts cases, computer companies sued disappointed customers for nonpayment. The customers counterclaimed, making allegations similar to the ones in Wilmington Trust's amended complaint. To no avail, the vendors in VMark and Zircon essentially raised the same issues now advanced by P H. This case is more compelling than VMark and Zircon because they were decided, respectively, after trial and on summary judgement. Here, Wilmington Trust is only fending off a motion to dismiss based on the initial pleadings.

642 N.E.2d 5 87 (Mass. A pp. Ct. 1994).

1996 WL 1186866 (M ass. Super.).

Under our contract's choice of laws clause, this case must be decided under Massachusetts law. VMark and Zircon clearly explain the limits of exculpatory provisions and limitations of liability clauses in software contracts in Massachusetts. Relying on Bates v. Southgate, VMark and Zircon hold that a party to a contract "may not escape liability for misrepresentation by resort to [damage limitation and integration clauses]." Nor may a party "insulate itself from liability for damages by resort to an exculpatory provision in a contract when the claim is founded on a tort-based theory of fraud."

31 N.E.2d 55 1 (Mass. 1941).

VMark Software, Inc. v. EMC Corp., 642 N.E.2d 5 87, 594 (Mass.App. Ct. 1994).

Zircon Company, Inc. v. Graphik Dimensions, Inc., 1996 WL 1186866 (Mass.Super.).

P H places too much emphasis on the fact that Wilmington Trust merely alleges misrepresentation, while the just-quoted language from VMark and Zircon speaks of "fraud." The disappointed customers in VMark and Zircon, however, were actually pursuing misrepresentation claims much like Wilmington Trusts'. And analytically, whether it amounts to fraud or not, a misrepresentation is a misrepresentation. If Wilmington Trust establishes that it was misled by P H, there is no reason why P H should be insulated simply because it believed its own hype. Finally on this point, Count VI accuses P H of "knowingly and falsely" misrepresenting the software's state of development and its expected performance. That is fraud's essence. Therefore, despite the contract's various disclaimers and limitations clauses, Wilmington Trust's Counts I, II and VI survive, at least for now.

RESTATEMENT (SECOND) OF CONTRACTS § 164(b) (1979).

At this stage of the litigation, VMark and Zircon also protect Wilmington Trust's claim under Massachusetts' unfair or deceptive business practices law, Count VIII. The only twist this case presents is P H's claim that any prohibited acts occurred mainly in Delaware, which means the Massachusetts law cannot apply. That claim is fact-based. For present purposes, P H mostly can establish that Wilmington Trust's damages occurred in Delaware. Of course, even that ignores the suggestion that Wilmington Trust's payments ended up in Massachusetts. The important point is that according to the amended complaint, several potentially serious misrepresentations were made in Massachusetts and the parties agreed that Massachusetts law would govern their dealings. That, the court holds, is enough to allow Wilmington Trust to plead the Massachusetts business practices statute. As with all the claims that survive this motion to dismiss, it remains to be seen whether the Massachusetts statute-based claim will survive summary judgment and be proved at trial.

P H's challenge to Wilmington Trust's mutual mistake claim, Count III, is grounded in the contractual limitation and disclaimer of liability clauses that P H has thrown up against Wilmington Trust's misrepresentation claims. While VMark and Zircon do not directly address whether a mutual mistake claim is viable in the face of contractual limitations and disclaimers, VMark's and Zircon's reasoning applies with equal force to a case of mutual mistake. If both sides honestly, but erroneously, believed in the P H product's promised performance, how can Wilmington Trust's agreement to limitations and disclaimers be held against it? The court rejects P H's further contention that by agreeing to limitations and disclaimers, Wilmington Trust knowingly accepted all financial risk that P H's product would not work. P H is asking the court to read too much into the contract.

RESTATEMENT (SECOND) OF CONTRACTS § 154 (1979).

If it turns out that both sides were wrong about a material fact upon which their bargain relied, or upon a fact that went to the deal's essence, the deal is voidable. By the same token, if the contract's formation was fatally flawed, that kills all the promises in the contract. Both parties will resume their original positions, and bear their own losses. This court of law cannot order recission, as such. It can, however, declare the contract void, and in lieu of entering an in personam order restoring the parties to the status quo ante, award damages on a restitutionary basis.

RESTATEMENT (SECOND) OF CONTRACTS § 152 (1979).

RESTATEMENT (SECOND) OF CONTRACTS § 158 (1979).

See Alejandro Reinholz v. Hornung, 1992 WL 200608 (Del.Ch.); See also Salih v. Carr, 1999 WL 183427 (Del.Ch.).

In summary, VMark and Zircon directly shelter Counts I, II, VI and VIII. And they shelter Count III, in part, by implication. That leaves for consideration Count IV, Failure of Consideration; Count V, Breach of Contract; and Count VII, Breach of Delaware's Consumer Fraud Act.

P H is right about Wilmington Trust's Failure of Consideration claim,

Count IV.

Even assuming that P H's performance came up short, it can be seen from Wilmington Trust's complaint that there was not a failure of consideration. Basically, Wilmington Trust merely is alleging breach of contract, which is covered specifically by Count V. Count IV will not be missed, and the case will go on without it.

P H attacks Count V, Breach of Contract, only in passing. And its cursory argument is unfocussed. For example, P H mis-characterizes the amended complaint as alleging fraud in the inducement. Actually, Count V concerns specific products and services that P H allegedly failed to deliver as called for by the contract, and for which Wilmington Trust paid.

The problem with Wilmington Trust's claim under Delaware's Consumer Fraud statute, according to P H, is that it alleges fraud, but without sufficient particularity. In this instance, P H sets the bar too high. The elements of common law fraud are:

DEL. SUPER.CT.CIV.R. 9(b).

1. a false representation, usually one of fact, made by the defendant;
2. the defendant's knowledge or belief that the representation was false or made with reckless indifference to the truth;
3. an intent to induce the plaintiff to act or refrain from acting;
4. the plaintiff's action or inaction taken in justifiable reliance on the representation; and
5. damage to the plaintiff as a result of such reliance.

Stephenson v. Capano Development, Inc., 462 A.2d 1069, 1074 (Del. 1983).

Plaintiff's amended complaint hits all the elements. It sets out P H's false representations, at least in part who made them and when, P H's scienter and Wilmington Trusts reliance on the misrepresentations. For example, as presented above, Wilmington Trust specifically refers to certain e-mails from P H. The amended complaint is far from conclusory. It provides, however, enough detail to pass muster as a pleading.

VI.

For now, the court will not stay this litigation in favor of P H's later-filed, federal suit. While it is true that the federal case includes a federal law claim that this court cannot resolve, P H cannot chose for Wilmington Trust where Wilmington Trust's claims will be litigated. Wilmington Trust filed suit first and Wilmington Trust chose this forum. Not only that, the claims in both Wilmington Trust's and P H's cases occurred primarily in Delaware, and most of the witness's are in Delaware. Finally, even taking P H's March 31, 2003 progress report into account, this litigation is moving forward and the federal case is not making much headway.

VII.

For the foregoing reasons, defendants' motion to dismiss is GRANTED, As to Count 4 and DENIED As to Counts 1 through 3 and 5 through 8.


Summaries of

Wilmington Tr. v. Politzer Haney

Superior Court of Delaware, New Castle County
Apr 25, 2003
C.A. No. 02C-05-138-FSS (Del. Super. Ct. Apr. 25, 2003)
Case details for

Wilmington Tr. v. Politzer Haney

Case Details

Full title:WILMINGTON TRUST COMPANY, Plaintiff, v. POLITZER HANEY, INC., Defendant

Court:Superior Court of Delaware, New Castle County

Date published: Apr 25, 2003

Citations

C.A. No. 02C-05-138-FSS (Del. Super. Ct. Apr. 25, 2003)

Citing Cases

Janeve Co., Inc. v. City of Wilmington

Sterling Network Exchange, LLC v. Digital Phoenix Van Buren, LLC, 2008 WL 2582920, at *4 (Del.Super. Mar. 28,…