Springbrook Software, Inc. v. Douglas County
Filing
95
ORDER granting in part and denying in part 50 Motion for Summary Judgment: It is DENIED as to defendants' counterclaim for breach of the covenant of good faith and fair dealing; it is GRANTED in all other respects. The remainder of the schedul ing, including the trial date, is STRICKEN. Not later than May 27, 2015, defendants shall SHOW CAUSE why this court should not dismiss their claim of breach of the covenant of good faith and dealing. Plaintiff's response is due not later than Ju ne 5, 2015. Not later than May 27, 2015, plaintiff shall submit additional evidentiary support for its request that the court award it $197,465.85. Defendants' response is due not later than June 5, 2015. Signed by Magistrate Judge Stephen L. Crocker on 5/13/2015. (kwf)
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF WISCONSIN
SPRINGBROOK SOFTWARE, INC.,
Plaintiff,
OPINION AND ORDER
v.
13-cv-760-slc
DOUGLAS COUNTY and CITY of SUPERIOR,
Defendants.
In this civil action for damages, Springbrook Software, Inc. has sued Douglas County and
the City of Superior for breach of contract, breach of good faith and fair dealing, unjust
enrichment and quantum meruit after defendants stopped paying fees owed under an agreement
for the purchase of Springbrook’s financial system software. Douglas County and the City of
Superior have counterclaimed, asserting causes of action for misrepresentation, fraudulent
inducement, false advertising, breach of the covenant of good faith and fair dealing and unjust
enrichment. Diversity jurisdiction is present under 28 U.S.C. § 1332.
Before the court is Springbrook’s motion for summary judgment, dkt. 50. Springbrook
seeks judgment dismissing defendants’ counterclaims in their entirety, as well as judgment in its
favor on its breach of contract claim.
For the reasons discussed below, I am granting Springbrook’s motion for summary
judgment on its claim that defendants breached the contract by failing to pay invoices when due.
I am also granting Springbrook’s motion with respect to defendants’ counterclaims, with one
exception: defendants’ counterclaim for breach of the duty of good faith and fair dealing.
Although this claim appears to have little merit and it is not even clear that defendants actually
are seeking to litigate it, this court cannot grant summary judgment on this counterclaim because
Springbrook has failed to present any grounds for the court to do so. In the interests of
efficiency, I am directing defendants to show cause why their sole unresolved claim should
proceed to trial. Because this appears to be a tenuous claim and because the court is entering
summary judgment on every other claim, I am striking the trial date, to be reset if necessary after
the parties have been heard on this issue.
UNDISPUTED FACTS
I note at the outset that many of defendants’ proposed findings of fact and responses to
plaintiff’s proposed findings of fact contain legal contentions or additional facts that are not
responsive to the fact proposed by plaintiff. See, e.g., Defendants’ Proposed Findings of Fact,
dkt. 73, Nos. 18, 28, 38; Responses to Plt.’s Proposed Findings of Fact Nos. 17, 18, 22-25, 3239, 89-109. In accordance with this court’s Procedure to be Followed on Motions for Summary
Judgment, I have disregarded any new facts that are not directly responsive to the proposed fact
as well as any legal arguments disguised as “facts.” See Procedure, at 8, ¶4, attached to Pretrial
Conference Order, dkt. 15.
For the purpose of deciding Springbrook’s motion for summary judgment, I find the facts
set out below to be material and undisputed. Although most of these facts are drawn from the
parties’ proposed findings and responses, I have included a few additional facts from the record
for narrative purposes.
I. The Parties
Plaintiff Springbrook Software, Inc. is an Oregon corporation that provides licensed
software applications, technology solutions and professional services to local governments,
2
utilities and special districts. Defendant Douglas County is a Wisconsin municipal corporation
located in Superior, Wisconsin. Defendant City of Superior is an incorporated Wisconsin city
located within Douglas County.
II. Pre-Contract
In 2010, defendants Douglas County and the City of Superior sought to replace their
outdated financial system software with a new system that was better equipped to meet their
needs. Douglas County was particularly interested in finding new highway department software
that could be used to report certain mandated information to the Wisconsin Department of
Transportation.
In January 2011, Douglas County and the City of Superior issued a formal Request for
Proposals (“RFP”), seeking bidders from qualified firms “to supply and install Financial System
Software.” RFP, attached to Aff. of Melissa Lauritch, dkt. 51, exh. 1, at 2. The RFP stated:
“The City and the County will collaborate with the selected vendor to create an installation plan,
configure and implement the replacement system for the current software, convert all data and
services to the new environment, and transfer knowledge and skills to system users.” Id.
According to the RFP, the bidder’s software systems should, “at a minimum,” have the ability
to perform various tasks within the following categories: Financial Management, Payroll/Human
Resources Management, Grant Management, Community Development and Inventory
Management. Id. at 14. Additional modules that were “desirable” included Fleet Management,
Utility Management, and Building Permit and Code Enforcement. Id.
3
Section 10 of the RFP, titled “Essential Functionality,” listed 361 specifications within
each of these general categories that were “either required or desirable” by the County and City.
Bidders were instructed to use a Vendor Response Key to indicate the degree to which they
could meet the specification with or without modifications to each bidder’s existing software
product, and the additional cost, if any, that would result from customization. Id. at 20.
Around this time, Springbrook was developing a one-page flyer to promote the work it
had done on its software that was specific to the needs of Wisconsin county highway
departments, work done by Springbrook with assistance from the Wisconsin Department of
Transportation. On January 24, 2011, Springbrook’s product manager, Bert Lowry, emailed
Doug Meek at the state Department of Transportation to ask if Meek “would object to
[Springbrook] including verbiage like ‘We worked closely with Doug Meek at the Wisconsin
Department of Transportation to ensure our software meets the needs of Wisconsin county
highway departments?’”
Meek responded the next day, stating: “I don’t object to your
referencing working with me, but I don’t think that ‘working closely’ is accurate.” Meek asked
that Springbrook send him a draft document prior to release or let him know how Springbrook
had ended up phrasing this thought. Lowry replied that he would be happy to share a draft
document and would use Meek’s name only in a manner that Meek approved.
On February 9, 2011, Springbrook responded to the RFP stating that it was submitting
a bid to “[c]reate an installation and replacement plan for Financial System Software, configure
and implement the replacement for the current software, convert all data and services to the new
environment, and transfer knowledge and skills to system users,” along with one year of
maintenance services. Aff. of Melissa Lauritch, dkt. 55, exh. 1 at 12. Using the Vendor
4
Response Key, Springbrook responded “F” to 305 of the 361 Essential Functionality items,
indicating that the item would be “Fully provided ‘out of the box’ for no additional charge.”
However, Springbrook added this caveat: “Many questions and requirements are listed in short
summary format only, and therefore can be interpreted differently than intended. The following
is our best effort to respond based on understanding of each stated requirement.”
RFP
Response, Section 9.0. Springbrook indicated that each project would have four major phases:
Planning and Conversion; Installation and Setup; System Parallel; and Go-live Transition
Support.
Springbrook’s 261-page RFP Response included a one-page advertisement titled
“Highway Department Solutions” in which Springbrook stated that it had “worked closely with
the Wisconsin Department of Transportation to develop a highway department solution that
is fully compliant with state requirements.” The flyer did not mention Meek by name.
III.
The County and City Choose Springbrook and Enter into a Contract
The City and County received five proposals in response to the RFP. All were evaluated
by a seven-person committee from the City and the County finance departments.
The
committee reviewed each proposer’s qualifications, including what modules they provided, the
software reporting capabilities, the essential functions of the software, compatibility with the
current system, the experience and technical support provided by the firm, and the cost. IT staff
also reviewed the submissions to ensure they would be suitable for the City and County’s specific
needs. The committee determined that Springbrook’s proposal best met the criteria, and the
price was within budget.
5
On October 5, 2011, Springbrook and Douglas County entered into a Master Client
Agreement (the “Agreement”). The Agreement speaks for itself and its contents are undisputed.
For ease of reference, I am setting forth three portions of the Agreement in the facts. First,
Section 2, titled “Scope of Agreement,” states:
This Agreement states the terms and conditions pursuant to which
Vendor will provide Products to the Client. These general terms
and conditions may be supplemented by the Product Addenda
attached hereto and identified in Table A. Client understands that
all or certain portions of the Products sold or licensed under this
Agreement may be provided by a third party service provider. Any
Client specific changes to the Products will require an addendum
as defined under section 11.3.
Any rights of Client provided under this Agreement shall also
extend to the City of Superior, WI (Superior), and Superior will be
subject to all of the restrictions, limitations and conditions
provided in this Agreement.
Client will have the same
responsibility to Vendor for the actions and omissions of Superior
as Client would have if they were Client’s actions or omissions.
The Agreement, along with various addenda and exhibits, was signed by Douglas County
Administrator Andrew Lisak. The addenda included a Professional Services exhibit, a Software
License Agreement Addendum, a Software Maintenance Addendum and a “Douglas County, WI
– Order Form.”
Section 7 of the Software License Agreement Addendum called for the parties to
complete a mutually agreed-upon Implementation Plan for the project. Section 7 provides:
7. IMPLEMENTATION PLAN
Within 10 days of the effective date of an order form, a mutually
agreeable start date for the project will be determined. Within
thirty (30) days after the start Date of an Order Form, Vendor and
Client shall complete a mutually agreed-upon implementation plan
6
(‘Implementation Plan’), which shall be incorporated into this
Agreement by this reference and deemed a part thereof. The
Implementation Plan shall include, but not be limited to, a
delivery and installation schedule, creation of custom interfaces
schedule and specifications, training schedule, testing schedules,
requirements and schedule for integration with existing Client
systems, and functional/performance specifications for the
Licensed Software Product. In the event the parties are unable to
complete a mutually-agreed upon Implementation Plan within said
time period, Client may extend the time period to complete the
Implementation Plan or Client may terminate this Agreement and
upon such termination, Vendor shall refund to Client any amounts
paid to Vendor under this Agreement. Within a reasonable period
of time after termination, Client will return any Licensed Software
Product components to Vendor. In the event the parties are able
to mutually agree upon an Implementation Plan, failure of Vendor
to perform its material obligations substantially in accordance with
the requirements set forth in an Implementation Plan shall entitle
Client, at its option, to (i) extend the time for Vendor to complete
such obligations, or (ii) terminate this Agreement and obtain a
refund of all amounts paid to Vendor hereunder provided that
Client has returned the Licensed Software Product components to
Vendor. Client’s election of option ‘(i)’ above shall not bar it from
later meeting ‘(ii)’ in the event Vendor fails to complete its
obligations within the extended completion period. The parties
may mutually agree to modify the Implementation Plan at any
time. This provision applies only to the initial purchase, and not
to optional modules or future order forms that may be executed by
the parties after one year.
Section 3.3 of the Master Client Agreement provides that payments due under the
Agreement are due 30 days from receipt of an invoice. This section further states:
No penalty and/or termination provision contained within this
Agreement shall apply if Client withholds payment because a good
faith dispute exists regarding a material duty, obligation or term
contained in this Agreement. Unless otherwise requested by
Client, Vendor shall continue to perform fully under this
Agreement while said dispute is being resolved.
7
Additional contract provisions, where relevant, will be addressed in more detail in the
opinion portion of this order.
At the time he signed the Master Client Agreement, Lisak also signed an Order Form
which provided a breakdown of amounts due for products and services under the Agreement.
Defendants agreed to pay Springbrook $399,000 at signing for the software package and
implementation services, which included training and consulting, project management and
conversion. Of the $399,000 paid at signing, $265,500 was for licensed software products.
Training and consulting and project management fees were stated as lump sum figures, with
different amounts owing for the City of Superior’s and Douglas County’s implementations,
respectively.
Douglas County’s implementation kick-off meeting was initially scheduled for
February 2, 2012, but later delayed and held on May 2, 2012.
The City of Superior’s
implementation kick-off meeting was held on August 7, 2012. The parties moved forward with
implementation and conversion throughout 2012, with both Douglas County and the City of
Superior providing “sign-offs” at various stages of the project. Although Douglas County had
been scheduled to proceed with implementation first, various delays on the County’s side
resulted in the City moving ahead with its implementation before the County.
Springbrook invoiced defendants on a monthly basis. Without offering an explanation
or otherwise disputing the invoices, defendants stopped paying Springbrook for services rendered
beginning with Invoice Nos. INV22791 and INV22792, both of which were issued on July 31,
2012.
8
IV.
Defendants Become Dissatisfied with the Springbrook Software and Stop
Working Towards Implementation
The City went live on three Springbrook software products on January 1, 2013.
Meanwhile, however, the individuals from the Douglas County Finance Department who were
working on the Springbrook implementation project developed concerns about the software’s
ability to meet their needs. Among other things, they noted that the Highway reporting system
did not yet exist and its projected date kept moving into the future; the system did not provide
timber sale tracking and it would cost an additional $100,000 for Springbrook to write a custom
program; and the system for creating certain reports in the Finance and Payroll modules was
complicated and cumbersome.
On February 27, 2013, Douglas County told Springbrook that, due to year-end close, it
was too busy to devote any time to the Springbrook implementation project or to discuss the
software. In response to emails from Springbrook expressing concern that the County not fall
behind on the implementation of the Finance and Payroll modules, on March 6, 2013, Nancy
Brown, the City’s contract analyst, emailed Christine Herb, Springbrook’s Vice President of
Implementation Services, informing her that the County was “not ready to proceed with an
implementation plan” at this time because of its concerns about the functionality of the
software. Aff. of Lauritch, dkt. 52, exh. G. In response to Herb’s request to schedule a
conference call at which Brown could provide more details about the County’s concerns, Brown
declined, stating that she was “preparing a list of issues experienced by the County” that she
would forward to Herb for her review. Id. After more than a month had elapsed, Herb emailed
Brown on April 17, 2013 and asked when the list might be available; Brown replied that she
would have something for Herb the following week. However, neither Brown nor anyone from
9
the County provided Springbrook with such a list or with any other notice claiming that
Springbrook was in breach of contract.
In mid-May 2013, the Douglas County Board of Commissioners adopted a resolution
authorizing the purchase of different replacement software. This fact, however, appears not to
have been known by Springbrook, which continued to seek the County’s cooperation in moving
forward with the implementation. But on May 14, 2013, Douglas County Finance Director Ann
Doucette emailed Springbrook’s Vice President of Business Development, expressing “doubt that
any resolution other than a full refund would satisfy Douglas County.” Dkt. 74, exh. 19.
On or about June 13, 2013, Springbrook formally notified the County that it was
$110,955.14 past due on its payments.
Meanwhile, the City of Superior decided that it did not like Springbrook’s software,
particularly the payroll module. On September 10, 2013, City Finance Director Jean Vito
emailed Springbrook’s project manager to inform him that the City had decided to “put a hold
on everything and cancel any future training events” because of its displeasure with the payroll
module. Dkt. 74, exh. 21. On September 12, 2013, Springbrook notified the City that it had
halted its work on the project and intended to shut down access to the software based on the
City’s failure to pay and intent to terminate the Agreement .
On or about November 26, 2013, Springbrook formally notified the City of Superior that
it owed approximately $158,458 to Springbrook for products, services, associated fees and
expenses.
Attempts by the parties to resolve their differences failed. This lawsuit followed.
10
OPINION
I. Summary Judgment Standard
Summary judgment is proper where there is no showing of a genuine issue of material fact
in the pleadings, depositions, answers to interrogatories, admissions and affidavits, and where
the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a). “‘A genuine
issue of material fact arises only if sufficient evidence favoring the nonmoving party exists to
permit a jury to return a verdict for that party.’” Sides v. City of Champaign, 496 F.3d 820, 826
(7th Cir. 2007) (quoting Brummett v. Sinclair Broadcast Group, Inc., 414 F.3d 686, 692 (7th Cir.
2005)). In determining whether a genuine issue of material facts exists, the court must construe
all facts in favor of the nonmoving party. Squibb v. Memorial Medical Center, 497 F.3d 775, 780
(7th Cir. 2007). Even so, the nonmoving party must “do more than simply show that there is
some metaphysical doubt as to the material facts.” Matsushita Electric Indus. Co. v. Zenith Radio
Corp., 475 U.S. 574, 586 (1986). Rather, it must come forward with enough evidence on each
of the elements of his claim to show that a reasonable jury could find in its favor. Borello v.
Allison, 446 F.3d 742, 748 (7th Cir. 2006); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322-24
(1986).
The parties agree that Wisconsin law governs their dispute.
II.
Defendants’ Counterclaims for Misrepresentation, Fraudulent Inducement,
and Violation of Wis. Stat. § 100.18
Defendants assert a trio of counterclaims for misrepresentation, for fraudulent
inducement and for violation of Wisconsin’s Deceptive Practices Act, Wis. Stat. § 100.18.
According to defendants, Springbrook intentionally misrepresented the capabilities of its
11
software in its response to defendants’ RFP in order to win the job. Springbrook has moved for
summary judgment on all three claims because (1) all of the claims are barred under the plain
terms of the parties’ agreement; (2) the claims for misrepresentation and fraudulent inducement
are barred by Wisconsin’s economic loss doctrine; and (3) all three claims are meritless because
defendants have no evidence that the representations were made with intent to defraud, or that
they were material.
Before addressing these arguments, it is important to identify the allegedly false
statements underlying defendants’ misrepresentation claims. In their proposed facts, defendants
identify various alleged misrepresentations in Springbrook’s response to the defendants’ RFP,
including statements about the payroll module and the forestry module. See Defs.’ PPFOF 2226. In the argument section of their brief, however, defendants focus solely on Springbrook’s
assertion, in the one-page multicolored flyer (defendants label it an “advertisement”) included
with its RFP response, that “Springbrook worked closely with the Wisconsin Department of
Transportation to develop a highway department solution that is fully compliant with state
requirements.” Defs’ Br., dkt. 70 at 5.
Accordingly, because defendants have not developed any meaningful argument with
respect to Springbrook’s other allegedly false statements, I have disregarded them. Insofar as
defendants intended to bring misrepresentation claims on the basis of the alleged statements
regarding the payroll and forestry modules, those claims are deemed to have been waived. See
United States v. Mason, 974 F.2d 897, 901 (7th Cir.1992) (failure to cite case law or identify
facts from the record in support of argument waives an argument on appeal); United States v.
Amerson, 185 F.3d 676, 689 (7th Cir.), cert. denied, 120 S.Ct. 549 (1999) (“Given our adversarial
12
system of litigation, it is not the role of this court to research and construct the legal arguments
open to parties, especially when they are represented by counsel.”) (internal citations and
quotations omitted).1
A. The Parties’ Agreement
Citing to various provisions in the Agreement, Springbrook contends that defendants
have disclaimed their right to recover for common law and statutory misrepresentation in
exchange for negotiated contract damages. In response, defendants make the strange argument
that this court should not even consider the Agreement because there are “pivotal factual
questions as to the existence and/or terms of the parties[’] agreement.” Br. in Opp., dkt. 70, at
18. According to defendants, the Agreement is “incomplete” and is either ambiguous or
unenforceable because the parties never completed the Implementation Plan called for by
Section 7 of the Software License Agreement Addendum.
This argument is founded on defendants’ conclusory assertion that the Implementation
Plan was intended to be a “single document describing each phase of implementation of each
piece of software”— a document they say does not exist. Br. in Opp., dkt. 70, at 19. Section
7, however, does not specify any particular form that the plan had to take. Regardless whether
the parties wrote down their implementation plan, it is plain from the record that they had one.
1
As for the one-page flyer touting Springbrook’s highway reporting system, I further conclude
that defendants have waived any misrepresentation claim with respect to that statement except for the
representation that Springbrook “worked closely” with the W isconsin DOT. I discuss this finding in
section II C., below.
13
Defendants’ own evidence contains at least six emails from Springbrook to defendants
regarding calendaring various phases of the project and knowledge by defendants’ project
coordinator, Brenda Ostrander, of the project schedule. See dkt. 74, exh. 17 (Sept. 20, 2012
email from Ostrander to Heidrich noting that County did not feel it had enough time “in
between setup sessions” and would not be ready to “go live Nov 5th .”) Evidence adduced by
Springbrook contains emails between city and county financial department staff and
Springbrook that refer to conversion kick-off dates and implementation dates for various
modules, Aff. of Melissa Papaleo, dkt. 85, exhs. 8, 18-20; Douglas County’s Judy Nicoski
acknowledged having been present with several individuals at a meeting with Springbrook where
the “timeline for the conversion was all laid out.” Dep. of Judy Nicoski, dkt. 89, at 57-58. The
Douglas County Implementation Kick-Off meeting was first scheduled for February 2, 2012, but
then was pushed back to and ultimately held on May 2, 2012.
The City of Superior’s
Implementation Kick-Off meeting was held on August 7, 2012. The parties moved forward with
implementation and conversion throughout 2012 and into 2013, with both Douglas County and
the City of Superior providing “sign-offs” at various stages of the project. The City of Superior
went live on three software modules. In the face of this evidence, it is disingenuous for
defendants to assert that the parties had no implementation plan.
But even if the facts supported defendants’ “missing Implementation Plan” argument,
the law does not support their “unenforceable contract” theory. Although defendants’ position
is not entirely clear from their brief, they appear to argue that completion of the Implementation
Plan was a “condition precedent” that had to be satisfied before the Agreement took effect.
“Condition precedent” is a term sometimes used by courts, including Wisconsin courts, to
14
describe a condition placed on a contract that delays the enforceability of the contract until the
condition is fulfilled. Fox v. Catholic Knights Ins. Soc., 2003 WI 87, 263 Wis. 2d 207, 222, 665
N.W.2d 181, 188; Woodland Realty, Inc. v. Winzenried, 82 Wis.2d 218, 223, 262 N.W.2d 106
(1978). An agreement to purchase real estate contingent on the buyer’s ability to obtain
financing is an example of a condition precedent.
The language of Section 7 does not support defendants’ contention that the
enforceability of the Agreement was conditioned on the parties reaching a mutually-agreeable
Implementation Plan.
To the contrary, the fact that Section 7 allowed defendants to
“terminate” the Agreement in the event the parties could not agree on an Implementation Plan
indicates the parties’ understanding that the Agreement was in effect until such an impasse was
reached. In short, defendants were not relieved of their obligation to pay their invoices because
of the alleged lack of an Implementation Plan.
Defendants are on more solid ground insofar as they appear to argue that Section 7 is
void for indefiniteness. Management Computer Servs., Inc. v. Hawkins, Ash, Baptie & Co., 206
Wis.2d 158, 178, 557 N.W.2d 67 (1996) (contract must be definite as to the parties’ basic
commitments and obligations). As Springbrook acknowledges, Section 7 is an “agreement to
agree;” such agreements are unenforceable because there is no meeting of the minds as to the
agreement's essential terms. Dunlop v. Laitsch, 16 Wis.2d 36, 42, 113 N.W.2d 551 (1962).
Nonetheless, maintains Springbrook, the unenforceability of Section 7 has no bearing on the
remainder of the agreement because the Agreement contains a severability clause. It states:
If any part of this agreement is held to be invalid or unenforceable
for any reason . . . then . . . such provision shall be deemed omitted
from this Agreement, and the remaining provisions will continue
in full force without being impaired or invalidated in any way.
Master Client Agreement, Section 11.5.
15
In Wisconsin, a severability clause itself is not controlling, but is entitled to “great
weight” in determining whether the remainder of a contract is enforceable. In re F.T.R., 2013
WI 66, ¶ 58, 349 Wis. 2d 84, 119-20, 833 N.W.2d 634, 651. “If a contract contains an illegal
clause, the remaining portions of the contract can be enforced if severing the illegal portion does
not defeat the primary purpose of the bargain.” Id.
As will be discussed in more detail below in the context of the economic loss doctrine,
the primary purpose of the Agreement in this case was to provide Springbrook’s licensed
software products to defendants.
Even without the Implementation Plan provision, the
Agreement’s remaining provisions are adequate to further this purpose. These provisions include
a license to the software, maintenance service and a warranty by Springbrook that it would
provide the consulting and other services specified in the Order Form in a workmanlike manner,
and with professional diligence and skill. See Agreement, Exhibit B–Professional Services;
Springbrook Software License Agreement Addendum; Springbrook Software Maintenance
Addendum, attached to Amended Complaint, dkt. 16, at Exh. A. Giving the severability clause
the “great weight” to which it is entitled, I conclude that the remainder of the Agreement is
enforceable notwithstanding the unenforceability of the Implementation Plan provision.
Having found the Agreement enforceable, I return to Springbrook’s contention that its
terms bar defendants’ misrepresentation claims. Wisconsin courts will enforce an exculpatory
contract provision where it is specific as to the tort being disclaimed. Peterson v. Cornerstone Prop.
Dev., LLC, 2006 WI App 132, ¶ 36, 294 Wis. 2d 800, 819, 720 N.W. 2d 716 (where a contract
includes a disclaimer that is specific as to the tort that is being disclaimed and disclaimer makes
it “apparent that an express bargain was struck to forego the possibility of tort recovery in
16
exchange for negotiated alternative economic damages,” disclaimer is enforceable). In Peterson,
for example, the contract had “three different provisions [which] expressed that all prior
negotiations were excluded and that only the text of the written documents constituted the
contract.” Peterson, 294 Wis.2d 800, ¶ 37, 720 N.W.2d 716. One of the three clauses stated:
The Buyer acknowledges, subject to the Limited Warranty
contained in Exhibit E . . . (c) other than those written
representations concerning the condition of the Property
contained in the Condominium Offer to purchase, including the
Exhibits annexed thereto, she has not relied on any representations
made by the Seller in entering into the Condominium Offer to
Purchase . . .
Id., ¶ 37 (emphasis in original). The Wisconsin Court of Appeals concluded that the quoted
integration clause “specifically disclaims the purchaser's right to rely on any alleged fraudulent
misrepresentations” and that “the three provisions . . . provide exactly the kind of specific
disclaimer that makes it apparent that an express bargain had been struck.” Id. (citation
omitted). Accordingly, it held that the integration clauses barred a claim under Wis. Stat.
§ 100.18. Id., ¶ 40.
None of the provisions that Springbrook identifies here, whether considered separately
or together, are equivalent to the specific disclaimer in Peterson. Springbrook first points to
section 11.2, which states:
This Agreement, including the Product Addenda and any Order
Forms or Statements of Work, constitutes the entire Agreement
between the parties and supersedes all previous and
contemporaneous agreements, understandings and arrangements
with respect to the subject matter hereof, whether oral or written.
This is nothing more than a typical integration clause, providing that all discussions prior to
entering into the written agreement were negotiations and the written agreement constitutes the
17
final agreement between the parties. Section 11.2 does not mention disclaiming liability, nor
does it specify any tort or cause of action.
Next, Springbrook points to section 6.2, a disclaimer provision that states:
VENDOR M AKES N O W ARRANTY THAT THE PRODUCTS W ILL
. . . M EET THE NEEDS OR REQUIREM ENTS OF CLIENT OR ITS
USERS, OR W ILL OPERATE IN THE COM BINATIONS THAT M AY
BE SELECTED FOR USE BY CLIENT OR ITS USERS.
Springbrook also points out that under section 6.1, defendants “assume[d] all responsibility for
the selection of, appropriateness of, use of, and results obtained from the Products and
Output . . .”.
Again, however, neither sections 6.1 or 6.2 contains language that would put defendants
on notice that they were waiving liability for any tort or statutory claim, nor does either section
specifically provide that the defendants disclaim reliance on any prior representations by
Springbrook. These sections amount to an “as is” clause, which the Wisconsin Court of Appeals
has held does not shield the seller from tort claims based upon affirmative misrepresentations.
Grube v. Daun, 173 Wis. 2d 30, 60, 496 N.W. 2d 106, 117 (Ct. App. 1992).
Finally, Springbrook points to section 8.3, which states:
THE FOREGOING LIM ITATIONS APPLY TO ALL CAUSES OF
ACTION IN THE AGGREGATE, INCLUDING W ITHOUT
LIM ITATION, . . . M ISREPRESENTATION AND OTHER TORTS,
AND STATUTORY CLAIM S.
EACH OF THE PARTIES
ACKNOW LEDGES THAT IT UNDERSTANDS THE LEGAL AND
ECO N O M IC
RAM IFICA T IO N S
OF
THE
FO REG O IN G
LIM ITATIONS, AND THAT THE FO REGOING LIM ITATIONS
ALLOCATE THE VARIOUS RISKS BETW EEN THE PARTIES AN D
FO RM AN ESSENTIAL PART OF THE AGREEM ENT OF THE
PARTIES . . .
Section 8.3 is specific about the types of claims that it covers, among which are
“misrepresentation” and “statutory claims.” Nevertheless, it is not an “unequivocal disclaimer”
18
by Springbrook of responsibility for misrepresentations about its software. Springbrook ignores
the context in which section 8.3 appears. Contrary to Springbrook’s suggestion, the “foregoing
limitations” referenced in section 8.3 cannot be reasonably read as referring to either section 6.2
or 11.2. Rather, the “foregoing limitations” to which 8.3 refers are those set forth in sections
8.1 and 8.2, which appear under section 8's heading titled “Limitation of Liability.” Section 8.1
is titled “Waiver of Consequential Damages” and is what it says: a waiver by both parties of any
right to recover punitive or consequential damages. Section 8.2 is titled “Cap on Liability” and
provides that
IN NO EVENT W ILL THE TOTAL LIABILITY OF EITHER PARTY
ARISING OUT OF OR IN CONNECTION W ITH THIS AGREEM ENT
EXCEED TW O(2) TIM ES TH E TOTAL AGGREGATE FEES PAID
AND OW ING BY CLIENT UNDER THIS AGREEM ENT . . . .”
Read in context, it is plain that these two limitations, the waiver of consequential damages and
the cap on liability, are the “foregoing limitations” to which section 8.3 refers.
So understood, section 8.3 actually defeats Springbrook’s contention that defendants
specifically disclaimed their right to bring any common law or statutory misrepresentation
claims. By specifying that “misrepresentation and other torts, and statutory claims” would be
subject to the waiver of consequential damages and cap on liability, it seems clear enough that
the parties contemplated the possibility that such claims could be brought, notwithstanding the
various contract provisions which make clear that Springbrook was not guaranteeing that its
software would meet defendants’ needs. Finding nothing in the contract provisions cited by
Springbrook to indicate otherwise, I find that defendants’ misrepresentation claims are not
barred by the Agreement.
19
B.
Economic Loss Doctrine
Springbrook contends that, even if not specifically disclaimed, defendants’ fraudulent
inducement and misrepresentation claims are barred by Wisconsin’s economic loss doctrine.
(Springbrook concedes that the economic loss doctrine does not apply to false advertising claims
under Wis. Stat. § 100.18. Below v. Norton, 310 Wis.2d 713, 720, 751 N.W.2d 351 (2008);
Kailin, 643 N.W. 2d 132, 149 (Wis. Ct. App. 2002).) The economic loss doctrine is a judicially
created doctrine that seeks to preserve the distinction between contract and tort. Daanen &
Janssen, Inc. v. Cedarapids, Inc., 216 Wis.2d 395, 403-04, 573 N.W.2d 842 (1998). From its
inception, the doctrine has been based on the understanding that contract law, and particularly
the law of warranty, is better suited than tort law for dealing with purely economic loss in the
commercial arena. Id.
Three principles generally underlie the application of the economic loss doctrine to tort
actions between commercial parties: “(1) to maintain the fundamental distinction between tort
law and contract law; (2) to protect commercial parties' freedom to allocate economic risk by
contract; and (3) to encourage the party best situated to assess the risk [of] economic loss, the
commercial purchaser, to assume, allocate, or insure against that risk.” 1325 N. Van Buren, LLC
v. T-3 Grp., Ltd., 2006 WI 94, ¶ 25, 293 Wis. 2d 410, 428-29, 716 N.W.2d 822, 831 (quoting
Daanen & Janssen, 216 Wis. 2d at 403, 573 N.W.2d 842). Where, as in this case, the parties
are sophisticated and have entered into a written, bargained-for agreement that allocates risk and
provides available remedies, the case is “tailor made” for the application of traditional contract
law. Id. at ¶28.
20
Defendants do not dispute that their loss is economic in nature. They contend, however,
that their tort claims are not barred because they meet one of two exceptions to the economic
loss doctrine: (1) the exception for claims of fraudulent inducement; and (2) the exception for
service contracts.
1. The Fraudulent Inducement Exception
The fraudulent inducement exception applies in situations where parties to a contract
may appear to be negotiating freely, but one party's fraudulent behavior results in the other
party's inability to negotiate fair terms and make an informed decision. See Van Lare v. Vogt, Inc.,
2004 WI 110, ¶ 30, 274 Wis.2d 631, 683 N.W.2d 46. For the fraudulent inducement
exception to apply, the alleged fraud must be extraneous to the agreement; that is, it must not
concern a matter that is interwoven with the contract. Kaloti Enterprises, Inc. v. Kellogg Sales Co.,
2005 WI 111, at ¶42, 283 Wis. 2d 555, 585, 699 N.W. 2d 205 (citing Digicorp, Inc. v. Ameritech
Corp., 2003 WI 54, ¶ 2, 262 Wis.2d 32, 662 N.W.2d 652). A misrepresentation that is
“interwoven” with the contract is one concerning “matters whose risk and responsibility relate
to the quality or the characteristics of the goods for which the parties contracted or otherwise
involved performance of the contract.” Id. at ¶34. Misrepresentations about the quality or
character of goods sold are misrepresentations that are either (1) dealt with expressly under the
contract’s terms; or (2) “go to the reasonable expectations of the parties to the risk of loss in the
event the good purchased did not meet the purchaser’s expectations.” Id. at ¶45 (citations
omitted).
21
Here, any representations by Springbrook about the capabilities of its software are
interwoven with the Agreement. As Springbrook points out, the Agreement contains various
provisions that address the quality and character of the purchased software. In particular,
Section 6 of the Master Client Agreement states, at Section 6.1, that defendants “assume[d] all
responsibility for the selection of, appropriateness of, use of, and results obtained from the
Products and Output.” Section 6.2 is a Disclaimer provision, which states as follows:
EXCEPT AS EXPRESSLY W ARRANTED IN THIS AGREEMENT, THE
PRODUCTS ARE PROVIDED “AS IS,” W ITHOUT ANY W ARRANTY
OF ANY KIND, W HETHER EXPRESS, IM PLIED, OR STATUTORY,
INCLUDING BUT NOT LIM ITED TO ANY IM PLIED W ARRANTIES
OR CONDITIONS OF FITNESS FOR A PARTICULAR PURPOSE,
TITLE NON-INFRINGEM ENT OR NON-M ISAPPROPRIATION OF
INTELLECTUAL
CUSTOM ,
PROPERTY
TRADE,
INFORM ATIONAL
INTEGRATION,
RIGHTS
QUIET
ANY
A
ENJOYM ENT,
CONTENT
OR
OF
OR
THIRD
ACCURACY
RESULTS,
W ARRANTIES
PARTY,
OR
OR
OF
SYSTEM
CONDITIONS
ARISING UNDER ANY OTHER LEGAL REQUIREM ENT. EXCEPT
AS EXPRESSLY W ARRANTED IN THIS AGREEM ENT, VENDOR
M AKES NO W ARRANTY TH AT THE PRODUCTS W ILL RUN
PROPERLY
ON
ALL
HARDW ARE,
THAT
THE
LICENSED
SOFTW ARE, HOSTED SERVICES OR OTHER PRODUCTS W ILL
M EET TH E NEEDS OR REQUIREM ENTS OF CLIENT OR ITS
USERS, OR W ILL OPERATE IN THE COM BINATIONS THAT M AY
BE SELECTED FOR USE BY CLIENT OR ITS USERS, OR THAT THE
LICENSED
SOFTW ARE
OR
HOSTED
SERVICES
W ILL
BE
UNINTERRUPTED OR ERRO R FREE.
In a similar vein, section 3.1 of the Software License Agreement Addendum provides that,
after going “live” with a particular Springbrook software product, defendants had a 60-day
acceptance period within which to validate that the software was performing in accordance with
the functional criteria set forth in various documents, including Springbrook’s response to the
RFP. Section 3.1 goes on to provide that:
22
Both parties understand that disagreements may arise based on the
client’s understanding of the information being requested in the
[RFP] and the Vendor’s understanding of the request and its
corresponding response. In such case both parties will work
together on a mutually agreeable solution. Disagreements of this
nature shall not be considered a breach of this agreement.
[possessive apostrophes added]
Finally, section 8.3 of the Master Client Agreement
specifically identifies
“misrepresentation and other torts” as causes of action subject to the Agreement’s cap on
liability and limitations on consequential damages.
These provisions clearly establish that the parties intended the Agreement to address and
allocate risk in the event the software did not meet defendants’ expectations. Therefore, any
alleged misrepresentations relating to the performance and capabilities of Springbrook’s software
are interwoven with the Agreement and subject to the economic loss doctrine.
Indeed, defendants fail to develop any meaningful argument to the contrary. The only
alleged misrepresentation that they have identified as being “extraneous” to the Agreement is
Springbrook’s statement that it worked “closely” with the Wisconsin Department of
Transportation. Defendants assert that this statement “has no bearing on the performance of
the contract or the quality of the services provided in the contract.” Br. in Opp., dkt. 70, at 14.
I disagree. Springbrook’s claim of having worked closely with the Department of Transportation
regarding the highway reporting program bears directly on Springbrook’s ability to deliver a
software program that met Douglas County’s needs with respect to the State’s highway reporting
requirements. The parties accounted in their Agreement for the risk that the highway program
would not perform as expected. Accordingly, Springbrook’s statement that it worked “closely”
23
with the WisDOT does not qualify for the fraudulent inducement exception to the economic
loss doctrine.2
2. The Service Contract Exception
Taking a different tack, defendants argue that their contract with Springbrook was a
service contract and therefore the economic loss doctrine does not apply. See, e.g., Insurance Co.
of North America v. Cease Electric Inc., 2004 WI 139, ¶ 29–32, 276 Wis.2d 361, 688 N.W.2d
462, 467–72 (2004). In Wisconsin, the purpose of this exception stems from the inapplicability
of the Uniform Commercial Code (U.C.C.) to contracts for services. See id., 2004 WI 139, ¶
29–32, 276 Wis.2d 361, 688 N.W.2d 462. The Wisconsin Supreme Court reasoned that, while
the U.C.C.'s built-in warranty provisions provide adequate remedies for breach of contract for
the sale of goods, it does not contain similar provisions for service contracts. Id. ¶¶ 31, 35.
Springbrook does not dispute that it was to provide certain services under the Agreement,
including software design, data conversion and training. As it points out, however, the mere fact
that certain services were encompassed by the Agreement does not automatically trigger the
services contract exception to the economic loss doctrine. Rather, when a contract encompasses
both products and services, Wisconsin uses the “predominant purpose” test to determine
whether a mixed contract for products and services is predominantly a sale of a product and
therefore subject to the economic loss doctrine, or predominantly a contract for services and
therefore not subject to the economic loss doctrine. Linden v. Cascade Stone Co., 2005 WI 113,
2
Even if this alleged misrepresentation survived application of the economic loss doctrine,
Springbrook still would be entitled to summary judgment for the reasons discussed in section II C,
infra.
24
¶ 8, 283 Wis. 2d 606, 614, 699 N.W.2d 189, 193. See also Schreiber Foods, Inc. v. Lei Wang, 651
F.3d 678, 684 (7th Cir. 2011).
In determining a contract’s predominant purpose or “thrust,” courts are to “examine all
the factors before them, both objective and subjective, to determine the predominant purpose
of a contract.” Id. at ¶22, 283 Wis. 2d 606, 621, 699 N.W.2d 189, 196. Specific factors
typically examined include “the language of the contract, the nature of the business of the
supplier, the intrinsic worth of the materials, the circumstances of the parties, and the primary
objective they hoped to achieve by entering into the contract.” Id. at ¶21, 283 Wis. 2d 606, 699
N.W. 2d 189 (internal citations omitted).
Applying these factors in Linden, the Wisconsin Supreme Court determined that a
contract to build a new house was predominantly for a product. Although the contract contained
a mix of service and product words, the court concluded after examining the entire document
that the primary reason the Lindens entered into the contract was to have a house custom built
for them. Id.,¶ 25, 699 N.W.2d 189. The court noted that the contract began by outlining the
specifications of the project, namely a two-story home and garage with certain square footage.
Id. Furthermore, the project was billed as a “‘fixed price contract,’ not changing based on the
hours worked, but only on changes in the specifications . . .. This shows that the parties
bargained for costs based on the specifications of the house, not the amount of work put into
completion of the project.” Id. Considering the totality of these circumstances, the court found
that the predominant purpose of the contract was for a product—a new house. Id.
Applying these principles to the parties’ Agreement in this case, I find the contract to be
predominantly for a product, namely, licensed software. As the RFP makes clear, defendants’
25
predominant goal was to find a software package that met various, pre-determined specifications.
Although bidders were asked to provide information about their support services, the thrust of
the RFP was to obtain detailed information about a bidder’s software and the functions it could
perform.
The language of the Agreement contains a mix of product and service terms, with certain
addenda focused specifically on services that Springbrook would provide under the contract.
However, Section 2 of the Master Client Agreement, titled “Scope of Agreement,” states: “this
Agreement states the terms and conditions pursuant to which the Vendor will provide products
to the Client.” The term “Products” is defined as “items purchased by Client as set forth in an
Order Form in accordance with applicable addendum: Licensed Software Products, Subscription
Services, Support Services, Professional Services, and Product Customization.” The term
“Licensed Software Products” is defined as:
the machine readable, object-code version of the software licensed
by Vendor, including all related Documentation and any modified,
updated, or enhanced versions of the program that Vendor may
provide to Client, as set forth in the appropriate Order Form and
under the terms and conditions of this Agreement and attached
addenda.
The parties also negotiated a detailed Software License Agreement Addendum setting
forth various terms and conditions of defendants’ license to Springbrook’s software. Reading
the Agreement as a whole, it supports the conclusion that the parties’ primary goal was to
contract for the sale of a software package as opposed to services.
The parties’ billing arrangement also supports the conclusion that the predominant
purpose of the Agreement was the provision of a good. Springbrook did not bill defendants on
an hourly basis but rather charged a lump sum for each software module, with additional sums
26
due for software maintenance fees, project management and training services. The first Order
Form signed by the parties on October 5, 2011 shows that of the $399,000 in fees payable by
defendants on that date, two-thirds— $265,500—was for software licenses.
To be sure, a significant amount of the fees owed under the Agreement are for
Springbrook’s services.
Among other things, Springbrook’s employees consulted with
defendants, developed time lines, customized certain aspects of its software, installed the
software and trained defendants’ users. Like the builder’s services in constructing the house in
Linden, however, Springbrook’s services were incidental to and supportive of the primary purpose
of the Agreement . As observed by another court in this circuit, “[a]ny supplier of a specially
designed item must necessarily perform whatever work is required to create or produce the item.
But this does not make the undertaking a ‘service’ to the purchaser of the item.” Analysts Int'l
Corp. v. Recycled Paper Products, Inc., No. 85 C 8637, 1987 WL 12917, at *3 (N.D. Ill. June 19,
1987). As in Analysts Int’l and Linden, the thrust of what the parties contracted for in this case,
although requiring some work on the part of the supplier, was the end-product of that work.
The cases cited by defendants do not warrant a different conclusion. In Micro-Managers,
Inc. v. Gregory, 147 Wis. 2d 500, 434 N.W.2d 97 (Ct. App. 1988), for example, the court
examined a contract for the development of custom software. The plaintiff had been hired to
design and develop software to operate a new programmable controller that was to replace
equipment used by an industrial manufacturing company. Id. at 504, 434 N.W. 2d at 98-99.
In concluding that the contract was primarily for services, the court focused on how plaintiff
billed the defendant for its work, noting that the contract provided that defendant would be
charged on the basis of time, at stated rates, and materials. Id. at 508, 434 N.W. 2d at 100.
27
The court also noted that the contract spoke in terms of “man-days,” “development,” “time,”
and “design,” all of which connoted the rendition of services as opposed to a sale of goods. Id.
at 509. Finally, the court pointed to a letter between the parties stating that, of the $59,828
projected total, $55,968 was for labor. Id.
In contrast to the contract at issue in Micro-Managers, the parties’ billing arrangement in
this case is consistent with a conclusion that the Agreement primarily is a contract for goods.
As noted above, the bulk of the fees owed by defendants were for the licensed software products
and their maintenance fees. Where services were called for, such as training and consulting, they
were charged as a flat fee, not on the basis of time.
Racine Cnty. v. Oracular Milwaukee, Inc., 2009 WI App 58, ¶ 1, 317 Wis. 2d 790, 793, 767
N.W.2d 280, 281-82 aff'd on other grounds, 2010 WI 25, ¶ 1, 323 Wis. 2d 682, 781 N.W.2d 88,
also does not help the defendants. In that case, no one disputed that the Consulting Service
Agreement at issue was a contract for services. The question before the court was whether the
computer consulting services that were to have been provided under the contract were
“professional” services and if so, whether expert testimony was required to establish a standard
of care. Id. at ¶¶10-16. (The court answered “no” to both questions.) Oracular is therefore not
on all fours with this case.
In sum, the court finds that the parties’ Agreement is predominantly a contract for
licensed software, a product. Accordingly, the economic loss doctrine applies. Therefore,
plaintiff’s motion for summary judgment dismissing defendants’ claims for fraudulent
inducement and misrepresentation will be granted.
28
C. Wisconsin Deceptive Trade Practices Act, Wis. Stat. § 100.18
As noted above, defendants’ claim under the Wisconsin Deceptive Trade Practices Act,
Wis. Stat. § 100.18, survives the economic loss doctrine. To succeed on this claim, defendants
must adduce evidence from which a jury could find that: (1) Springbrook made a representation
to the public with the intent to induce an obligation; (2) the representation was untrue; and (3)
it caused defendants a pecuniary loss. K & S Tool & Die Corp. v. Perfection Mach. Sales, Inc., 2007
WI 70, ¶ 19, 301 Wis.2d 109, 732 N.W.2d 792 (quoting Wis. Stat. § 100.18).
The sole alleged misrepresentation on which defendants’ § 100.18 claim rests is
Springbrook’s statement, on its one-page flyer (or advertisement) submitted with its February
2011 RFP response, that Springbrook had “worked closely” with the Wisconsin Department of
Transportation to develop a highway department solution that was fully compliant with state
reporting requirements. For reasons I will explain in a moment, I set out defendants’ argument
in full, verbatim:
The evidence shows that Springbrook made a representation with
the intent to win the RFP process. When Springbrook learned on
January 24, 2011 that the County and City’s RFP was on the
verge of release, that same day Springbrook sought approval from
Wisconsin Department of Transportation Senior Auditor Doug
Meek to advertise and tout that it had “worked closely” with the
Wisconsin Department of Transportation to develop a highway
department solution that is fully compliant with state
requirements. Springbrook’s representation was untrue, deceptive
and misleading, as Springbrook had not “worked closely” with the
Department and instead had merely received information from
WisDOT months and years prior–back in 2008. Because there
had been no collaboration between Springbrook and Doug Meek,
he refused to approve Springbrook’s draft advertisement regarding
the close relationship between Springbrook and WisDOT.
Regardless of this fact, and knowing the importance of a fully
29
compliant “highway department solution” to Wisconsin counties,
Springbrook published the advertisement in its RFP response
anyway. Springbrook won selection in the RFP based on that
advertisement.
Br. in Opp., dkt. 70, at 12.
Defendants support this last assertion with affidavits from the City and County finance
directors, both of whom were on the selection committee and who have declared that the
advertisement was the “tipping point and the reason Springbrook was selected.” Dec. of Ann
Doucette, dkt. 79, at ¶7; Dec. of Jean Vito, dkt. 80, at ¶7.
Springbrook is entitled to summary judgment on this claim. First, the testimony from
two members of the selection committee is not specific enough to create a genuine dispute on
the element of causation. The only thing that Springbrook supposedly misrepresented is the
closeness of its working relationship with the Wisconsin DOT. After all, Meek did not deny that
he had worked with Springbrook; he took issue only with the adverb “closely.” Neither
Doucette nor Vito asserts that she would have voted against awarding the bid to Springbrook
if she had been told simply that Springbrook had “worked with” WisDOT, rather than “worked
closely” with it.3 Absent a causal connection between the untrue, deceptive, or misleading
representation and the pecuniary loss, defendants cannot maintain their § 100.18 claim. Tim
Torres Enters., Inc. v. Linscott, 142 Wis.2d 56, 70, 416 N.W.2d 670 (Ct. App. 1987); Wis JI-Civil
2418.1516.
This segues to a related problem with defendants’ claim: Springbrook’s use of the phrase
“worked closely” is not legally actionable. The adverb “closely” is not a term of art and it can
3
In their affidavits, Doucette and Vito complain about problems with other modules of
Springbrook’s software, but defendants are not alleging these in their deceptive trade practices claim.
30
mean different things to different people; was Meek’s definition of “closely” tighter,
looser or the same as Doucette or Vito’s–or Springbrook’s–definition? To be actionable under
Wis. Stat. § 100.18, a statement must constitute a misrepresentation of fact. United Concrete &
Const., Inc. v. Red-D-Mix Concrete, Inc., 2013 WI 72, ¶ 28, 349 Wis. 2d 587, 607, 836 N.W.2d
807, 817. This means that the speaker must make a representation about the nature or quality
of a product that is specific enough that its truth or falsity can be determined. Id. at ¶ 25-26.
In contrast, vague statements or exaggerations that “convey only the seller’s opinion” and are
of the sort “reasonably to be expect of a seller as to the degree of quality of his product”— a.k.a.
puffery— are not actionable because they cannot be substantiated or refuted. Id. at ¶ 25.
Springbrook’s amorphous statement that it worked “closely” with the Wisconsin DOT
falls into this latter category. Like a seller’s representation that his product had a “long
equipment life,” Consol. Papers, Inc. v. Dorr–Oliver, Inc., 153 Wis.2d 589, 594, 451 N.W.2d 456
(Ct. App. 1989), Springbrook’s general representation that it had worked “closely” with the
Wisconsin DOT expresses only Springbrook’s judgment as to the nature of the relationship, not
a specific fact that can be substantiated or refuted. In fact, even Meek has acknowledged that
the question was a matter of opinion. Dec. of Douglas Meek, dkt. 76, at ¶7 (“I would not
characterize my involvement as ‘working closely’ with Springbrook.....[l]imited emails and phone
calls answering questions is not my definition of ‘working closely’”). The mere fact that
Springbrook published the advertisement notwithstanding this difference of opinion does not
subject it to liability for false advertising.
In sum, Springbrook is entitled to summary judgment on defendants’ false advertising
claim. For completeness’s sake, however, I note that defendants proposed a number of facts and
31
adduced evidence calling into question a different statement in Springbrook’s highway flyer:
namely, its representation that it had a highway department solution that was “fully compliant”
with state reporting requirements. See Defs.’ PPFOF #s 4-6, 18, 20. Unlike the “worked
closely” statement, the “fully compliant” statement arguably could be substantiated or refuted
and therefore would seem to be actionable under § 100.18. However, defendants have advanced
this claim only in the shadows, mentioning it only in their proposed finding of fact and then in
the fact section of their brief. Out in the light of their argument, defendants fail to articulate
any legal theory or devote any analysis to the “fully compliant” statement, focusing solely on the
alleged falsity of the “worked closely” statement. Not surprisingly, Springbrook has followed
suit, addressing only the “worked closely” statement on reply.
This court does not consider arguments “camouflaged” as disputed facts or raised in the
facts section of a party’s brief. Williams v. Eastside Lumberyard & Supply Co., 190 F. Supp. 2d
1104, 1114 (S.D. Ill. 2001) (“A plaintiff's recital of the facts of the case triggers no duty on the
part of the judge to research, construct, and further research the best legal arguments he can for
that fact-reciting party.”). Nor is it this court’s role to attempt to divine the parties’ legal
theories or make arguments on their behalf. United States v. Dunkel, 927 F.2d 955, 956 (7th Cir.
1991) (“Judges are not like pigs, hunting for truffles buried in briefs” or in the record). A party
wishing to be heard on the legal merits of its claims cannot merely recite facts, but must develop
an argument by identifying the claim, citing relevant legal authority and explaining why that
authority supports his claim. Defendants have failed to do this with respect to any other
statement by Springbrook apart from the “worked closely” statement. Thus, to the extent that
32
defendants may have wished to press a false advertising claim based upon other statements, they
have waived their opportunity to do so.
III. Breach of Contract Claims
Springbrook contends that defendants breached the Agreement by failing to pay invoices
when due. Defendants do not deny that they withheld payment, but contend that they were
justified in doing so because of Springbrook’s failure to provide software and services “in
accordance with the requirements set forth in the Agreement.” Defendants have asserted their
own claim for breach of contract based upon these alleged failures. Springbrook asks the court
to dismiss defendants’ counterclaim and grant its claim for breach of contract.
A breach of contract claim has three elements: (1) a valid contract; (2) a violation or
breach of the terms of that contract; and (3) damages. Riegleman v. Krieg, 2004 WI App 85, ¶20,
271 Wis. 2d 798, 679 N.W. 2d 857. It is well-settled that, when a party materially breaches
a contract, the non-breaching party is excused from further performance. Mgmt. Computer Servs.,
Inc. v. Hawkins, Ash, Baptie & Co., 206 Wis. 2d 158, 183, 557 N.W. 2d 67 (1996). A breach is
material when it is “so serious as to destroy the essential object of the agreement.” Ranes v. Am.
Family Mut. Ins. Co., 219 Wis. 2d 49, 57, 580 N.W. 2d 197, 200 (1998). The question here is
whether defendants have adduced sufficient evidence from which a jury could find that
Springbrook breached the Agreement first.
The answer is no. In spite of all their complaints about Springbrook’s performance, the
only provision of the agreement that defendants mention in their brief is the Implementation
Plan provision. According to defendants, “the repeated failure of Springbrook to provide viable,
33
agreeable Implementation Plans constitutes a breach and justifies termination.” Br. in Opp. dkt.
70, at 20. As discussed previously, however, there are no facts to support defendants’ claim and
in any case, Section 7 is unenforceable.
Even if Section 7 were enforceable and even if defendants had facts to support their claim
that no mutually-agreeable implementation plan was created, defendants have waived their right
to contend that the provision was breached or to terminate the Agreement on that basis.
Defendants have adduced no evidence showing that they actually took any steps to terminate
the Agreement based on the lack of an implementation plan. To the contrary, the record shows
that defendants continued towards implementation despite their alleged belief that no
implementation plan had ever been agreed to. By choosing this course of action, defendants
waived any right they might have had to terminate the Agreement for the parties’ failure to reach
a mutually-agreed upon implementation plan. See, e.g., Fun-N-Fish v. Parker, 10 Wis. 2d 385,
390 (1960) (where offer to purchase resort gave plaintiff right to set aside contract upon failure
to obtain necessary licenses, plaintiff waived such condition by electing to purchase and assume
control of land before ascertaining whether licenses would be issued); Atwell Building Corp. v.
Sound, 171 F.2d 253, 254 (7th Cir. 1948) (by accepting rent after learning that bankruptcy
proceeding had been instituted against tenant, landlord elected to ignore breach and thereby
waived right to contend that the lease had been terminated by the institution of the bankruptcy
proceeding).
Having found there to be no genuine dispute that defendants breached the Agreement
first by failing to pay invoices when due, and that their own breach of contract claim has no
34
merit, I conclude that Springbrook is entitled to summary judgment on its breach of contract
claim and to dismissal of defendants’ counterclaim.
IV. Breach of Covenant of Good Faith and Fair Dealing
In their Counterclaim, defendants allege that Springbrook breached the implied covenant
of good faith and fair dealing by “violating the spirit of the Agreement, even if Springbrook did
not violate the express terms of the Agreement.” Counterclaim, dkt. 18, at ¶143. Although
Springbrook identifies this claim as subsumed within its all-inclusive request for summary
judgment, it has not advanced any grounds for obtaining summary judgment. By the same
token, defendants have not pressed this claim in their response, so it is unclear whether they still
intend to litigate it.
Wisconsin construes the duty of good faith and fair dealing to cover acts of constructive
bad faith, failure to act, carelessness, neglect and other actions that frustrate the purpose of the
agreement. N. Crossarm, Inc. v. Chem. Specialties, Inc., 332 F. Supp. 2d 1181, 1188 (W.D. Wis.
2004). As the Wisconsin Court of Appeals explained in Foseid v. State Bank of Cross Plains, 197
Wis.2d 772, 797, 541 N.W.2d 203, 213 (App.1995) (quoting the Restatement (Second) of
Contracts § 205 cmt. d):
“[s]ubterfuges and evasions violate the obligation of good faith in
performance even the actor believes his conduct to be justified....
A complete catalogue of types of bad faith is impossible, but the
following types are among those that have been recognized in
judicial decisions: evasion of the spirit of the bargain, lack of
diligence and slacking off, willful rendering of imperfect
performance, abuse of a power to specify terms, and interference
with or failure to cooperate in the other party's performance.”
35
In their Counterclaim, defendants allege only that Springbrook’s software products did
not function as Springbrook said they would. Defendants allege no acts by Springbrook during
its performance of the Agreement that might be described as careless or neglectful. In fact, the
various communications between defendants and Springbrook presently in the record show that
Springbrook attended diligently to its obligations under the Agreement and stood ready to work
with defendants to solve the difficulties they were encountering with the software.
Simply put, this court sees no evidence in the existing record from which a jury could
infer that Springbrook violated its duty of good faith and fair dealing. It would be improper to
dismiss this claim, however, without providing defendants the opportunity to be heard.
Accordingly, not later than May 27, 2015, defendants should inform the court whether they still
intend to litigate this claim, and if so, what evidence they will introduce at trial to establish it.
Springbrook may file a response to defendants’ submission not later than June 5, 2015.
Meanwhile, given this claim’s bleak prospects, the court will strike the other dates
remaining on the calendar, including the trial date. If it appears from the parties’ submissions
that this claim is viable, then the court will reschedule a date for trial in consultation with the
parties.
V. Damages
Springbrook asks the court to enter judgment against defendants in the amount of
$197,465.85 plus interest for unpaid invoices. Springbrook has supported its request with
copies of unpaid invoices and letters sent to defendants notifying them of their amounts past
due. Although defendants have not disputed the invoices, by the court’s tally, the invoices total
36
only $157,806.41, leaving approximately $40,000 of Springbrook’s damages request
unaccounted for.
This court is not prepared to award Springbrook the full amount it seeks based on the
current evidentiary record. Therefore, unless defendants stipulate to the amount of damages
owed, Springbrook must submit documentary support, with foundational affidavits that
establish that the additional $40,000 it seeks are due and owing by one or both defendants.
Copies of letters notifying defendants that certain amounts were owed will not suffice.
Additionally, Springbrook should make clear against whom judgment should be entered.
Although it appears that most of the unpaid invoices are for products and services supplied to
the City, the parties agree that Douglas County is responsible for any payment default of the
City of Superior. In their supplemental submissions, Springbrook should make clear from whom
it is seeking damages and in what amounts.
Springbrook’s supplemental materials on damages are due on the same date as
defendants’ response to the order to show cause, May 27, 2015, with responsive briefing by
defendants due on June 5, 2015. If there appears to be a triable question as to damages, then
the court will hold a telephone conference to schedule the matter for a trial on damages.
37
ORDER
IT IS ORDERED THAT:
1. The motion of plaintiff Springbrook Software, Inc. for summary judgment, dkt.
50, is GRANTED in part and DENIED IN PART:
(a) It is DENIED as to defendants’ counterclaim for breach of
the covenant of good faith and fair dealing.
(b) It is GRANTED in all other respects.
2. The remainder of the scheduling, including the trial date, is STRICKEN.
3. Not later than May 27, 2015, defendants shall SHOW CAUSE why this court
should not dismiss their claim of breach of the covenant of good faith and
dealing. Plaintiff’s response in opposition is due not later than June 5, 2015.
4. Not later than May 27, 2015, plaintiff shall submit additional evidentiary
support for its request that the court award it $197,465.85. Defendants’ response
in opposition is due not later than June 5, 2015.
Entered this 13th day of May, 2015.
BY THE COURT:
/s/
STEPHEN L. CROCKER
Magistrate Judge
38
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?