Henry Schein, Inc. v. Stromboe

• Decision Date: 31 October 2002
• Docket Number: No. 00-1162.,00-1162.
• Citation: 102 S.W.3d 675
• Parties: Henry SCHEIN, Inc., Easy Dental Systems, Inc., and Dentisoft, Inc., Petitioners, v. Shelly E. STROMBOE, D.D.S., Alan B. Helig, D.D.S., Bart Presti, D.D.S., Kelly Presti, and Jeanne N. Taylor, D.D.S. on behalf of themselves and all other similarly situated, Respondents.
• Court: Texas Supreme Court

Page 675

102 S.W.3d 675

Henry SCHEIN, Inc., Easy Dental Systems, Inc., and Dentisoft, Inc., Petitioners, v. Shelly E. STROMBOE, D.D.S., Alan B. Helig, D.D.S., Bart Presti, D.D.S., Kelly Presti, and Jeanne N. Taylor, D.D.S. on behalf of themselves and all other similarly situated, Respondents.

No. 00-1162.

Supreme Court of Texas.

Argued on February 6, 2002.

Delivered October 31, 2002.

Rehearing Denied May 8, 2003.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Christopher Blair Dancy, E. Lee Parsley, Austin, Kirsten M. Castaneda, Jerry K. Clements, Cynthia Keely Timms, Dallas, Locke Liddell & Sapp, LLP, Mike A. Hatchell, Molly H. Hatchell, Hatchell P.C., Tyler, Harry M. Reasoner, Charles W. Schwartz, Vinson & Elkins, Houston, for petitioners.

Joe K. Longley, Philip K. Maxwell, Longley & Maxwell, Donald R. Taylor, Karen Crook Burgess, Bruce Emory Garlick, David E. Dunham, Taylor & Dunham, Austin, for respondents.

Justice HECHT delivered the opinion of the Court, in which Chief Justice PHILLIPS, Justice OWEN, Justice JEFFERSON, and Justice RODRIGUEZ joined.

Under Rule 42(b)(4) of the Texas Rules of Civil Procedure, the district court certified a nationwide class of some 20,000 purchasers of three dental practice management software products. There are members of this class in all fifty states. The five named plaintiffs and their counsel allege that the software was defective and was sold under false pretenses on which buyers relied. Some of the causes of action they assert are breach of contract, breach of express and implied warranties, fraudulent and negligent misrepresentations, and violations of the Texas Deceptive Trade Practices — Consumer Protection Act.¹ They claim actual, special, consequential, exemplary, and statutory damages, as well as restitution of all amounts paid — up to $74,000 per purchaser or $1.48 billion overall. The district court determined to adjudicate all of these claims, including those of out-ofstate purchasers, under Texas law. On interlocutory appeal, the court of appeals affirmed.² We conclude that the representative plaintiffs have failed to demonstrate, as Rule 42(b)(4) requires they must, "that the questions of law or fact common to the members of the class predominate over any questions affecting only individual members, and that a class action is superior to other available methods for the fair and efficient adjudication of the controversy."³ Accordingly, we decertify the class and remand the case to the district court for further proceedings.

I

Henry Schein, Inc. and two subsidiaries, Easy Dental Systems, Inc. and Dentisoft, Inc. (together, "Schein"), produced and marketed three office management software applications for dental practices, one DOS-based, "Easy Dental", and two Windows-based, "Easy Dental for Windows" and "Easy Dental Lite". Shelly E. Stromboe, D.D.S., a purchaser of the Windows software, and Jeanne N. Taylor, D.D.S., a purchaser of the DOS software, sued Schein on behalf of themselves and a class of all purchasers of the software in the nation. (Taylor has been joined by Alan B. Helig, D.D.S., Bart Presti, D.D.S., and Presti's wife and office manager, Kelly Presti, to whom we refer together as "Taylor".) Stromboe and Taylor have filed separate petitions in the trial court.

Stromboe's petition alleges that in the process of opening her own dental office, she contacted Schein for advice about what management software program would be best for her. "In reliance on Schein's recommendation," Stromboe alleges, she selected "Easy Dental Lite". When she tried to use the software, she says, she found that

[t]he program had numerous defects, some of which included: (a) inability to add a new insurance carrier; (b) inability to properly print a fee list; (c) inability to delete accounts; (d) inability to activate or inactivate a patient account; (e) continual operating errors; (f) inability to completely delete an appointment, replacing an appointment with another patient's; (h) [sic] inability to add emergency information on a new patient; (i) inability to properly credit accounts on the accounting software; (j) inadequate space to fill in a treatment plan; (k) Electronic Claims processing problems; (/ ) production of error messages on the computer; (m) inability to save patient notes; (n) multiple inconveniences; (o) inability to properly age accounts receivable; and (p) a total lack of multi-tasking capabilities.

Stromboe contends that she complained to Schein, who admitted that the software was defective but "steered" her to its more expensive product, "Easy Dental for Windows", which she purchased. Stromboe alleges that she

was required to have all of her data converted for the new program. In doing so, she lost time, records and production. Easy Dental for Windows also had bugs and defects which corrupted Plaintiff's data and made the system inoperable.

Stromboe's petition asserts the following causes of action:

• breach of contract;

• breach of express warranties — specifically, that "[d]efendants represented to Plaintiff Stromboe that its practice management software systems and products would satisfy Plaintiff's computer system and software needs to effectively manage and run a dental practice";

• breach of implied warranties — specifically, merchantability;⁴

• fraudulent misrepresentations which "Plaintiff Stromboe and the Windows Class have relied on ... to their damage, unaware of the false and misleading nature of the information provided to them by Defendants" — specifically including that the software: "is a `Comprehensive Practice' manager"; "has case of use"; "is a `state of the art' dental practice management program"; "is the perfect software to help organize your office"; "is an excellent entry level system"; "has a functional patient feature"; "has a functional appointment scheduler"; "has a functional Electronic Claims process"; "has a functional fee schedule feature"; "has a functional accounts receivable and accounting feature"; "runs seamlessly on Windows 95 and other systems"; and "can function effectively in networking and multi-tasking environments";

• negligent misrepresentations on which "Plaintiff Stromboe and the Windows Class relied ... and have been damaged as a result" — specifically including all of the misrepresentations alleged to have been fraudulent;

• promissory estoppel — that "(a) Defendants made promises; (b) it was foreseeable that Plaintiff Stromboe and the Windows Class would rely on Defendants' promises; and (c) Plaintiff Stromboe and the Windows Class substantially relied on these promises to their detriment";

• DTPA violations — specifically, by:

• "(a) causing confusion or misunderstanding as to the source, sponsorship, approval, or certification of goods or services; (b) causing confusion or misunderstanding as to affiliation, connection, or association with or certification by another; (c) representing that goods or services have sponsorship, approval, characteristics, uses, and benefits that they do not have; (d) representing the goods or services or of a particular standard quality or grade when they were of another; (e) advertising goods or services with intent not to sell them as advertised; (g) [sic] making false and misleading statements of fact concerning the reason for existence of or amount of price reductions; (h) representing that services had been performed when services were not performed; (i) failing to disclose information concerning goods or services that was known at the time of the transaction and with the intent to induce a consumer into a transaction which the consumer would not have entered into had the information been disclosed; and (j) representing an agreement confers or involves rights, remedies or obligations which it does not have or involve, or which are prohibited by law";⁵

• engaging in an unconscionable action or course of action,⁶ defined by statute as "an act or practice which, to a consumer's detriment, takes advantage of the lack of knowledge, ability, experience, or capacity of the consumer to a grossly unfair degree";⁷ and • breaching express and implied warranties;⁸ and

• unjust enrichment.

Stromboe's petition alleges damages as follows:

As a result of the actions described herein, Defendants are liable to Plaintiff Stromboe and the Windows Class and the other Class members for actual and exemplary damages under common law for Defendants' breach of contract, fraud, constructive fraud, fraud in the inducement, negligent misrepresentation and promissory estoppel.

Plaintiff Stromboe also seeks to recover for herself and other Windows Class members actual damages incurred as a result of Defendants' unlawful practices and false, misleading and deceptive acts or practices under the DTPA. All of these acts were committed knowingly and/or intentionally and Plaintiff Stromboe and the other Windows Class members are entitled to recover additional damages of not more than three (3) times the amount of actual damages under the DTPA.

The damages sought herein for each individual Plaintiff and each individual member of the Windows Class, including interest, attorney's fees, costs, actual and additional damages and exemplary damages, are less than $74,000.00. It is the specific intention of Plaintiff Stromboe and all other Windows Class members to keep all claims for relief, including all damages, pre judgment interest, post-judgment interest, attorney's fees (when calculated on a per capita basis) and other costs and expenses below the minimum jurisdictional limit for diversity jurisdiction of the United States District Court.

In the prayer of the petition, Stromboe requests for herself and all class members "actual, special and consequential damages, including attorney's fees", "exemplary damages", "actual damages" caused by the DTPA violations, "additional damages" under the DTPA, and "restitution of all money or property that Defendants have...