Hires Parts Service, Inc. v. NCR Corp.

• Decision Date: 05 August 1994
• Docket Number: Civ. No. 1:94cv102.
• Citation: 859 F. Supp. 349
• Parties: HIRES PARTS SERVICE, INC. d/b/a Hires Auto Parts, Plaintiff, v. NCR CORPORATION, Defendant.
• Court: U.S. District Court — Northern District of Indiana

859 F. Supp. 349

HIRES PARTS SERVICE, INC. d/b/a Hires Auto Parts, Plaintiff, v. NCR CORPORATION, Defendant.

Civ. No. 1:94cv102.

United States District Court, N.D. Indiana, Fort Wayne Division.

August 5, 1994.

Eric E. Snouffer, Snouffer and Snouffer, Fort Wayne, IN, Lynn Lincoln Sarko, Mark Griffin, Keller, Rohrback, Seattle, WA, Donald L. Perelman, Melinda L. deLisle, Jeffrey S. Istvan, Fine Kaplan and Black, Philadelphia, PA, John W. Boyd, Joseph Goldberg, Freedman Boyd Daniels Peifer, Hollander Guttman & Goldberg, Albuquerque, NM, for plaintiff.

Robert E. Connolly, O'Dowd Wyneken and Connolly, Fort Wayne, IN, for defendant.

ORDER

WILLIAM C. LEE, District Judge.

This matter is before the court on a motion for an order to compel arbitration and stay court proceedings filed on June 20, 1994 by the defendant, NCR Corporation ("NCR"). The parties finished briefing the motion on July 19, 1994.

Discussion

On April 5, 1994, the plaintiff, Hires Parts Service, Inc. d/b/a/ Hires Auto Parts ("Hires"), filed this diversity action against NCR. In its ten count complaint, Hires asserts claims for (1) fraud/negligent misrepresentation; (2) negligence; (3) breach of contract; (4) breach of contract (repudiation); (5) declaratory judgment (unconscionability); (6) fraud in inducing Hires to agree to forego certain remedies, causes of action, and forums; (7) breach of warranty; (8) intentional or negligent failure to disclose material facts and/or breach of fiduciary duty; (9) breach of implied covenant of good faith and fair dealing; and (10) punitive damages.

NCR filed its answer and affirmative defenses on April 28, 1994. NCR has asserted eight enumerated affirmative defenses including a defense that the matters in controversy in this action are subject to a written agreement to arbitrate.

The relevant factual allegations as set forth in Hires' complaint, the majority of which are denied by NCR, are as follows. Hires, which is in the business of selling auto parts, began searching in 1985 for a computer system for use primarily in inventory management, point of sale scanning, instant invoicing, purchasing, accounts payable, accounts receivable, and general ledger. NCR allegedly represented to Hires that an NCR computer system would meet Hires' needs and that this system was successfully operating at two hundred user locations. Hires alleges that in June of 1987 it agreed to purchase the NCR system, together with system support, training, and maintenance. Hires further alleges that the NCR system was continually modified and upgraded through July, 1990.

Hires alleges that the NCR system has never performed properly. Hires has allegedly experienced serious problems with the system such as locking up, lost or altered data, slow downs, insufficient memory, and inoperable functions. Hires claims that users across the country were having similar problems with the NCR system and that NCR knew, at the time it sold its system to Hires, that the system would not work properly. Hires further claims that NCR knew that the software it sold to Hires and others was not compatible with the NCR operating system and that the software had not been properly tested and debugged.

Hires claims that rather than acknowledging that the NCR system and the accompanying software were flawed or that other users of such systems were experiencing similar problems, NCR repeatedly and intentionally misrepresented to Hires that Hires was the only user experiencing such problems and/or that the problems were all caused in some way by Hires.

Count One and Count Six of Hires' complaint are central to the present motion and will thus be set out below. Count One of the complaint alleges fraud/negligent misrepresentation and states that:

32. NCR made numerous misrepresentations of fact concerning (1) NCR's intentions with respect to servicing, upgrading, and supporting the computer system it was proposing to sell to Hires; (2) NCR's true involvement with the application software, which was an important part of the system; (3) the nature and quality of the computer system sold to Hires; (4) the causes of the problems Hires experienced with the computer system from the time it was installed through the late summer of 1993; (5) Hires' need for upgrades, additions, and expansions of the computer system; (6) the extent to which NCR would "stand behind" the system and the extent to which Hires would be able to obtain effective remedies to problems with the system; and (7) the cost savings Hires would experience from using the system.

Specifically, NCR made the following material misrepresentations:

a. That the NCR computer system was a "single vendor" system, meaning that NCR developed, owned, and had responsibility for all of the hardware and software that comprised the system and was fully capable and willing to support all elements of the system, including the applications software. In this regard, NCR misrepresented that TMS software was "a part of" NCR.

b. That NCR had the intent and capability to support the system, including the application software, fully and expeditiously, through its own locally situated offices and personnel.

c. That the NCR computer system was capable of meeting Hires' needs not only when sold but also for five or more years thereafter.

d. That the system was "user friendly" so that it would not need a dedicated data processing supervisor, would be subject to minimal "down time," and would be capable of being used with minimal instruction and training on Hires' site.

e. That, at the time of initial sale to Hires, the system was being used by more than 200 users in the marketplace without any substantial problems and that the experience in the marketplace was that the system was highly reliable. NCR repeated this misrepresentation throughout.

f. That the system would allow Hires to service its customers in a timely, efficient and reliable manner.

g. That the system would reasonably accomplish the tasks identified by Hires and NCR in NCR's proposal to Hires, including: complete inventory management by store and warehouse, point of scale sic scanning, instant invoicing, purchasing, accounts payable, accounts receivable, and general ledger.

h. That the problems that Hires was experiencing with the system were caused by Hires' personnel, specifically because of their lack of experience, training, and proper use of the system.

i. That the problems Hires was experiencing with the system were unique to Hires and that NCR was unaware of other users having experienced problems similar to Hires'.

j. That the problems Hires was experiencing would be cured if Hires purchased additional equipment, upgrades, and service from NCR.

k. That NCR was a reliable vendor, that NCR would be available to cure any problems with the system, that Hires would receive effective remedies to any problems Hires might have with the system, and that Hires would not be left with a defective system and no effective remedy available.

33. The representations described in paragraph 32 above were false. NCR knew that the representations were false or failed to exercise reasonable care to refrain from making the false representations.

34. NCR made the false representations described in paragraph 32 above for the purposes of inducing Hires to enter into the contract to purchase the NCR system, distracting Hires from the true causes of the problems Hires was having with the system, and deterring Hires form acting to remedy the problems with the system, including exercising legal remedies.

35. Hires justifiably believed the representations and, as a consequence, (a) purchased the system, and including the original configuration, the additional equipment, upgrades, and services; (b) expended hundreds of thousands of dollars unnecessarily and without any benefit to Hires; (c) expended hundreds of manhours attempting to cure problems in the system or performing manually functions which the system should have performed; (d) did not discover for more than six years the true cause of the problems with the system; and (e) did not exercise its remedies against NCR.

36. As a proximate result of the fraudulent and/or negligent misrepresentations made by NCR, Hires suffered economic injury, including financial expenditures and injury to its business.

Count Six of Hires' complaint alleges fraud in inducing Hires to agree to forego certain remedies, causes of action, and forums. Count Six states that:

51. NCR knew, or was chargeable with knowledge, when it sold the system to Hires, that the system would not work and would cause Hires substantial economic harm.

52. In order to mitigate NCR's exposure to liability arising from the defects known to NCR but not disclosed to Hires and to keep from Hires and others knowledge of NCR's wrongdoing, NCR required certain Hires' employees to sign NCR's so-called "Universal Agreement," which contained the following language: (a) a requirement that Hires submit any claims to arbitration; and (b) a requirement that Hires agree to forego claims for much of the damages which NCR knew Hires would suffer but which Hires had no reason reasonably to suspect it might suffer because of NCR's fraudulent misrepresentation to Hires about the quality of the computer system.

53. The insertion of the arbitration clause and limitation of remedies was a part of NCR's scheme to defraud all of NCR's customers of the system, including Hires, and was intended by NCR as a fraudulent device to escape the consequences of its misconduct.

54. As a consequence of NCR's fraud, these provisions of the Universal Agreement are void and, in addition, Hires is entitled to compensatory and punitive damages.

In support of its present motion, NCR points out that Hires purchased the computer system from NCR under the terms of a "Universal Agreement" which includes a broad arbitration clause. Specifically, Section 19 of the Universal Agreement states:

DISPUTES — Any controversy

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