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CAUDILL SEED AND WAREHOUSE CO., INC. v. PROPHET 21

November 22, 2000

CAUDILL SEED AND WAREHOUSE COMPANY, INC., PLAINTIFF,
V.
PROPHET 21, INC., DEFENDANT.



The opinion of the court was delivered by: Lowell A. Reed, Jr., Senior District Judge.

MEMORANDUM

Now before the Court is the motion of defendant Prophet 21, Inc., to dismiss for failure to state a claim pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure (Document No. 7), and the response of plaintiff Caudill Seed and Warehouse Company, Inc. (Document No. 10 and 11 (duplicates)). This action arises out of a licensing agreement under which defendant was to provide computer software to assist plaintiff's wholesale business.*fn1 The relationship between the parties allegedly deteriorated when the software failed to function as defendant Prophet 21 represented it would. Plaintiff Caudill claims that the software has never performed as promised, that Prophet 21 failed to fix problems with the software despite numerous requests from Caudill, and that Caudill consequently was forced to obtain software from another company.

Prophet 21 argues that all plaintiff's claims should be dismissed because the licensing agreement limits plaintiff's remedies to repair or replace measures. Prophet 21 also contends that plaintiff's has not stated a claim for breach of warranty and that plaintiff's fraud claim is merely another contract claim disguised as a tort allegation. Plaintiff counters that the limitation on liability clause does not operate to defeat its claims, and that its fraud claim is viable. Upon consideration, the motion to dismiss will be granted in part and denied in part.*fn2

Rule 12(b) of the Federal Rules of Civil Procedure provides that "the following defenses may at the option of the pleader be made by motion: . . . (6) failure to state a claim upon which relief can be granted." In deciding a motion to dismiss under Rule 12(b)(6), a court must take all well pleaded facts in the complaint as true and view them in the light most favorable to the plaintiff. See Jenkins v. McKeithen, 395 U.S. 411, 421, 89 S.Ct. 1843, 23 L.Ed.2d 404 (1969). Because the Federal Rules of Civil Procedure require only notice pleading, the complaint need only contain "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed.R.Civ.P. 8(a). A motion to dismiss should be granted only if "it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations." Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 81 L.Ed.2d 59 (1984).

Warrant Clause and Failure of Exclusive Remedy

Prophet 21 argues that all of plaintiff Caudill's claims fail because a limitation on liability clause contained in the licensing agreement restricted Caudill to the limited, exclusive remedies set forth in the warranty clause.

The licensing agreement at issue contains the following limitation clause:

LIMITATION OF LIABILITY. In no event shall Prophet 21 be liable for any direct, indirect, consequential or resulting damages or injury due to failure of, or otherwise arising out of the Software, or for any lost profits, time, business, records, or other monetary damages, nor for any claim or demand against Licensee by any other person. Licensee shall indemnify and hold Prophet 21 harmless against any claim asserted against Prophet 21 as a result of, or arising out of Licensee's use of the Software. LICENSEE'S SOLE AND EXCLUSIVE REMEDY FOR ANY FAILURE OF THE SOFTWARE SHALL BE THE WARRANTIES CONTAINED HEREIN AND THESE ARE IN LIEU OF ANY AND ALL OTHER WARRANTIES. THERE ARE NO WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE EXCEPT AS HEREIN EXPRESSLY PROVIDED. UNDER NO CIRCUMSTANCES WILL PROPHET 21'S LIABILITY EXCEED THE COST OF THE SOFTWARE SET FORTH ON THE SCHEDULE.

(Defendant's Exh. 1, Software License Agreement, at ¶ 16.)

That warranty clause referred to in the above-quoted provision provides:

WARRANTY SOFTWARE. Prophet warrants that (i) it has the right to license the Software to Licensee; (ii) the Software shall operate in conformity with the then current Documentation; (iii) if the licensed Software fails to function in accordance with this Documentation, Prophet 21 will, for a period of one (1) year from the date of shipment, without charge to Licensee, make all corrections required to make the Software operate. The Licensee is responsible for sending evidence of the nonconformity to Prophet 21. Prophet 21 will respond by finding the cause of the nonconformity and correcting the same. Licensee is responsible for installing any such Software correction. Prophet 21 does not warrant that the Software will meet all of Licensee's requirements nor that the use of the Software will be uninterrupted or error free. Warranty of the Software is separate from maintenance and support of the Software. Refer to Paragraph 7 for Software maintenance and service offerings.

(Defendant's Exh. 1, Software Licensing Agreement, at ¶ 11.) Prophet 21 argues that Caudill's only remedy under this "repair or replace" warranty clause is for Prophet 21 to "find[]" and "correct[]" the inoperative software.

Commercial contracts in Pennsylvania are governed by the Pennsylvania Commercial Code — Pennsylvania's version of the Uniform Commercial Code (UCC) — which addresses the limitation of remedies:

(a) General rule. — Subject to the provisions of subsections (b) and (c) and of section 2718 (relating to liquidation ...


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