A common but foreseeable frustration of modern life — the failure of new computer hardware or software to work properly — produced this commercial altercation, which the parties unfortunately failed to anticipate by a contractual dispute resolution mechanism that might have avoided their time-consuming and expensive litigation. The controversy arose out of the June, 1990, grant by VMark Software, Inc. (VMark), of a license to EMC Corporation (EMC) to use VMark’s software product, a relational database management system called “uniVerse.”
1
EMC
When uniVerse failed to function as VMark had represented and EMC had anticipated, despite at least twenty remedial efforts by VMark, EMC unilaterally declared the license agreement terminated and refused to pay the license fee. VMark’s suit to recover that fee provoked a counterclaim by EMC seeking damages for VMark’s failure to deliver a functional product, founded upon counts for breach of contract, breach of warranty, promissory estoppel, misrepresentation, and violation of G. L. c. 93A.
Following a ten-day bench trial, a judge of the Superior Court — in a fifty-five page opinion containing 144 separate findings of fact that are unchallenged by the parties — ruled against VMark on its claim for payment, against EMC on its breach of warranty, misrepresentation, and c. 93A counts, but for EMC on its breach of contract and promissory estoppel claims. The judge awarded EMC $316,901 in what he termed “reliance damages.”
2
That figure essentially reflected
Neither party was satisfied with the judge’s determinations, and both appealed. VMark challenges the judge’s award of reliance damages on either of EMC’s theories. VMark argues that the license agreement contained damage limitation provisions restricting EMC’s damages to those attributable to VMark’s negligence and that promissory estoppel recovery is inappropriate when the parties’ relationship is governed by a valid, fully integrated contract. EMC’s principal cross-appeal argument is that the judge’s adverse rulings on its misrepresentation and c. 93A charges are inconsistent with his undisputed subsidiary findings which establish the requisite elements of those claims in EMC’s favor. 3
Our analysis persuades us that the judge properly ruled in EMC’s favor but should have done so on the basis of EMC’s misrepresentation and c. 93A claims. Our conclusion makes it unnecessary to expound upon VMark’s arguments against the judgment entered in favor of EMC on its breach of contract and promissory estoppel counts.
Background Facts.
The following narrative is based upon the judge’s findings. In early 1990, EMC foresaw its imminent need for expanded computing capability. A manufacturer of add-on computer products known as “peripherals,”
EMC consequently sought a product that would enable it to retain the Madic software while using it on the DEC Ultrix hardware. VMark had developed and was licensing such a product, uniVerse, which it marketed to users, like EMC, who sought to move their applications software designed for a Prime system to other, more flexible or capacious systems. One advertised feature of the uniVerse software was its supposed ability to convert existing data files that run in a Prime environment to files that run in a uniVerse environment. UniVerse also was designed to support alternate indices and dynamic files, functions required by EMC.
In the spring of 1990, EMC approached VMark as a potential licensee of uniVerse. EMC gathered information about uniVerse and its capabilities through product demonstrations, reference checks, and a thorough review of universe’s operating manuals. During this process, EMC told VMark that its primary concerns in using uniVerse to replace its Prime system with a DEC system were processing its business data more quickly and efficiently, being able to
VMark officials assured EMC that the uniVerse product supported the use of both dynamic files and alternate indices, that the conversion from Prime to uniVerse would be straightforward and nonproblematic, and that the conversion process could be completed before the end of the summer. At one of the demonstrations, the VMark sales representative additionally assured EMC that, if uniVerse did not function as promised, VMark would be responsible for the cost of the DEC hardware. By late June, 1990, EMC, relying on VMark’s several representations as to universe’s performance and capabilities, had decided to obtain a license for uniVerse and to purchase the DEC Ultrix computer system. EMC would not have purchased the DEC hardware had it not also acquired what it perceived to be fully functional uniVerse software.
At the time VMark personnel made their several representations regarding uniVerse, they were confident of EMC’s successful application of the software but knew that there had been some prior problems with the performance of uniVerse when used with a DEC Ultrix system. They were also aware that such a combined system had thus far operated more slowly than it was designed to do; that there had been relatively little experience with universe’s ability to support the alternate indices function, which even the developer of uniVerse was concerned might not work as represented to EMC; that VMark had not actually attempted to use uniVerse to achieve compatibility between Madic application software and DEC hardware; and that difficulties had been encountered with the ability of uniVerse operationally to convert dynamic files to the DEC/uniVerse system. The necessary conversion process required, at the then-current stage of development, an extra, time-consuming step that both VMark’s creator and its engineering vice president recog
None of these problems was explicitly communicated by VMark to EMC during the demonstration and negotiation period. Instead, in keeping with VMark’s apparent general policy of not mentioning or minimizing negative factors regarding universe’s capabilities to prospective customers, VMark personnel assured EMC that there would be no serious performance or conversion problems. Nor did the manuals and technical documents supplied by VMark to EMC highlight any of these problems relating to the use of uniVerse.
Unaware of these difficulties, and encouraged to act quickly by VMark’s June 26, 1990, offer to give a twenty percent discount on the license fee if EMC signed up before the end of June, EMC soon thereafter executed a license agreement for the uniVerse software. This agreement contained various provisions limiting VMark’s warranties and damage liability, which VMark asserts preclude any recovery by EMC. 6
Despite VMark’s assurance that the conversion and transfer of EMC’s data stored in its Prime system to the DEC system via uniVerse would occur uneventfully, difficulties in using uniVerse to load and convert EMC’s data were encountered almost immediately. When EMC performed test functions in uniVerse on the few files that were successfully converted, the results were not uniformly complete or accurate. The DEC/uniVerse system turned out to operate much more slowly than the Prime system. None of VMark’s repeated efforts to solve the various performance problems over the summer and fall of 1990 succeeded in overcoming them. By December, 1990, EMC concluded that uniVerse was too unreliable to permit EMC to conduct business activities on it. By that time VMark, after failing to correct the defects in
• VMark told EMC at that point that its future efforts had to be directed to correcting fundamental problems with the software and that it would be unable to address EMC’s specific performance issues until sometime thereafter. Immediately following that concession by VMark of universe’s inability to perform as represented, EMC halted the uniVerse conversion effort and purchased a larger Prime system to address its computing needs. EMC communicated this action to VMark and demanded reimbursement for the cost of the DEC hardware and for the time EMC employees had spent on the failed conversion effort. VMark refused EMC’s claim, demanded payment under the license agreement, and the instant litigation ensued as described earlier. 7
The parties and the judge devoted most of their trial and appellate energies to the question of the extent to which the license agreement, particularly its liability limitation provisions, restricts EMC’s ability to recover damages for VMark’s undisputed breach of its limited contractual warranty obligations to deliver a functional product conforming to specifications and to repair any defects so that the product would work as promised. Discussion of those contractual and quasi-contractual issues is not necessary in view of our determination that the judge’s damage award in favor of EMC was correct because of VMark’s actionable misrepresentations regarding uniVerse. The damage award did not, however, go far enough, and EMC is entitled to additional recovery.
1.
Misrepresentation.
Although the judge entered judgment for VMark on count IV (intentional misrepresentation)
The judge found, on undisputed evidence (much of it from VMark’s own witnesses) that prior to execution of the license agreement: (a) VMark made glowing representations (at sales presentations, product demonstrations, and in product manuals) regarding the capabilities of the uniVerse software, particularly its supposed ability to make EMC’s Madic applications software compatible with the DEC Ultrix hardware system, to convert EMC’s data from Prime to a DEC system easily in a few weeks, and to support computer functions (including dynamic files and alternate indices) essential to EMC’s business operations; (b) EMC considered those representations to be material to its decision to license universe, purchase the DEC computer, and undertake the substantial conversion process; (c) VMark knew that EMC con
These specific findings by the judge satisfy EMC’s burden in sustaining its claim of actionable misrepresentation by
The judge should have applied the same measure of recovery with respect to the value of the lost time of EMC’s employees in the failed conversion process. He found that EMC had reasonably committed these employee resources in July, 1990, in reliance upon VMark’s assurances as to the ease of implementation of conversion and had discontinued that commitment only in December, 1990, when universe’s inability to perform as represented was acknowledged by VMark. Just as the DEC computer hardware had no value to EMC in the circumstances, the time of those EMC employees dedicated to the futile attempt to convert to the DEC
2.
Chapter 93A.
As noted, the judge viewed VMark’s representations to EMC about universe as insufficiently rascally to be deemed unfair or deceptive as between parties experienced in the computer industry and sophisticated in business matters, under the “raised eyebrow” test of
Levings
v.
Forbes & Wallace, Inc.,
VMark’s earnest efforts to make good on its contractual obligation by overcoming its product’s recognized problems and making it perform to expectations do not, of course, create a defense to the tort claim. Establishing liability for misrepresentation does not require a showing that the defendant even knew that the statements made were false, see note 9,
supra,
let alone that the defendant actually intended to deceive the plaintiff. See
Zimmerman
v.
Kent,
We do not read the c. 93A cases as mandating that the multiple damages bonus be automatically imposed for any and all forms of misrepresentation. Rather, it is only when the acts of misrepresentation amount to “intentional fraud” that the severe sanction is appropriate. See
McEvoy Travel Bureau, Inc.
v.
Norton Co.,
Delivery of a defective product without revealing the defects, to the extent they are known and material, is surely market disruptive to the same extent whether the promisor is genuinely hopeful of eventually fulfilling his contract, cf.
Logan Equip. Corp.
v.
Simon Aerials, Inc.,
Accordingly, we hold that EMC did not make out a case for multiple damages on these facts. VMark was misguidedly insincere but fundamentally well-intentioned in its inducement of EMC to purchase software of dubious reliability for the intended purpose, in misplaced reliance on its ability to perfect a product whose defects were either insolubly inherent or of such intractability as to confound VMark’s inadequate curative efforts. Such undesirable, but not reprehensible, conduct can be sufficiently deterred by the mandatory imposition on VMark of the significant c. 93A penalty of paying EMC’s reasonable attorneys’ fees and costs, as well as its actual damages.
Accordingly, the judgment dated September 28, 1992, is to be modified by striking the second and third paragraphs and inserting the following:
“That judgment enter for the defendant EMC Corporation on counts IV and VI of its counterclaim against VMark Software, Inc., in the total amount of $382,109 plus interest.
“That judgment enter for the plaintiff VMark Software, Inc., on counts I, II, III & V of EMC’s counterclaim.”
As modified, the judgment is affirmed. The case is. remanded to the Superior Court for the determination of EMC’s reasonable attorneys’ fees and costs under G. L. c. 93A, § 11.
So ordered.
Notes
The parties and the trial judge assumed, without discussion, that the parties’ computer software license agreement is governed by art. 2 of the Uniform Commercial Code, G. L. c. 106, §§ 2-101 et seq. Although the
The long-established general rule for breach of contract recovery in Massachusetts is that the wronged party should receive the benefit of his bargain, i.e., be placed in the same position as if the contract had been performed.
John Hetherington & Sons, Ltd.
v.
William Firth Co.,
EMC also contends that the judge’s award of contractual reliance damages should have included the value of the time spent by its employees in their vain struggles to convert data to the DEC/uniVerse system and otherwise utilize the defective universe product. We agree, as discussed below, although by way of a different legal analysis.
Dynamic files enable the system to run continually, continuously twenty-four hours a day, every day.
Alternate indices allow users to sort information by multiple criteria, such as name, purchase order number, or part number.
The parties addressed most of their analytical efforts here, as below, to the interaction and implications of these restrictive provisions, but they do not occupy our attention on our view of the case. See infra at 616-617 & 625.
“Experienced lawyers often caution clients not to sue customers who refuse to pay an invoice because of a reasonable complaint about the product. This case may be cited as an illustration of the soundness of that advice.”
Alcan Aluminum Corp.
v.
Carlton Aluminum of New England, Inc.,
An appellate court may reach its own ultimate conclusions based on a trial judge’s findings and may set aside a trial judge’s ultimate ruling that is inconsistent with the judge’s own subsidiary factual findings.
Simon
v.
Weymouth Agric. & Industrial Soc.,
The familiar elements of an action for misrepresentation are that the defendant made a false representation of a material fact for the purpose of inducing the plaintiff to rely upon it, and that the plaintiff did rely upon the representation as true, to his damage. See
Zimmerman
v.
Kent,
The judge expressly found that EMC performed reasonable investigations, prior to entering the license agreement, in an effort to determine the ability of uniVerse to function in conjunction with a DEC system as represented. The judge’s holding that EMC failed to establish that the withholding by VMark of material information, disclosure of which might have dissuaded it from licensing the defective uniVerse product, is logically inconsistent with his finding that EMC reasonably relied on VMark’s unqualified representations to the effect that uniVerse suffered no functional drawbacks and would satisfy EMC’s time-constrained needs.
VMark’s contentions that any misrepresentations do not aid EMC because they either contradict or are identical to an express provision of the license agreement, or amount only to a breach of contract, are not only unsupported by citation to Massachusetts authorities, but are also contrary to long-standing Massachusetts law and policy. See
Bates
v.
Southgate,
For the same reason, we need not separately address EMC’s arguments that VMark’s conduct gives rise to independent c. 93A liability for material nondisclosure. We recognize, of course, that EMC is in any event entitled, under G. L. c. 93A, § 11, par. 6, to an award of reasonable attorneys’ fees and costs incurred in the action, in addition to the amount of its actual damages.
General Laws c. 93A, § 11, par. 5, inserted by St. 1972, c. 614, § 2, states: “If the court finds for the petitioner, recovery shall be in the amount of actual damages; or up to three, but not less than two, times such amount if the court finds that the use or employment of the method of competition or the act or practice was a willful or knowing violation of said section two.” The fact that the trial judge does not make an express finding that a defendant’s violation of G. L. c. 93A, § 2, was either wilful or knowing is irrelevant if the evidence warrants such a finding.
Service Publications, Inc.
v.
Goverman,
Whether particular conduct merits c. 93A condemnation always depends on the unique facts of each case. See
Spence
v.
Boston Edison Co.,
Contrast the defendants’ attitudes in two of the cases principally relied on by EMC,
Anthony’s Pier Four, Inc.
v.
HBC Assocs.,
“The fact that the defendant was disinterested, that he had the best of motives, and that he thought he was doing the plaintiff a kindness, will not absolve him from liability” for misrepresentation if all the requisite elements are present. Prosser & Keeton, The Law of Torts, supra at 741.
EMC made a separate claim and argument that VMark’s inaccurate and incomplete representations regarding universe were at the very least negligent. Although the tort of negligent misrepresentation is recognized in Massachusetts,
Glickman
v.
Brown,