Jesmer v. Retail Magic, Inc.

Decision Date09 September 2008
Docket Number2007-03893.
Citation863 N.Y.S.2d 737,55 A.D.3d 171,2008 NY Slip Op 6804
PartiesSUSAN JESMER, Doing Business as FIRST AMERICANS FOOD STORES, Appellant, v. RETAIL MAGIC, INC., et al., Defendants, and AUTO-STAR COMPUSYSTEMS, INC., Respondent.
CourtNew York Supreme Court — Appellate Division

Jeffrey B. Hulse, Hauppauge, for appellant.

Kaufman Borgeest & Ryan, LLP, New York City (Jonathan B. Bruno of counsel), for respondent.

OPINION OF THE COURT

DICKERSON, J.

On this appeal, we are asked to consider whether a dissatisfied end user of a computer system may maintain a cause of action against the system's manufacturer sounding in breach of contract where the end user did not purchase the system from the manufacturer, but from an authorized dealer. We also consider whether, in the absence of privity between the end user and the manufacturer, the end user may nonetheless maintain a cause of action against the manufacturer to recover damages for breach of implied warranties, or breach of express warranties contained in the manufacturer's brochure, a written price quote, an on-line digital licensing agreement, and a seller's distribution agreement. We hold that, in the absence of privity, the end user has no cause of action against the manufacturer sounding in breach of contract or breach of implied warranty. We conclude, however, that the end user has a cause of action against the manufacturer to recover damages for breach of express warranties contained in the brochure, the price quote, and the seller's distribution agreement. Since the end user here did not personally accept, agree to, or rely upon the terms of the on-line digital licensing agreement, she has no cause of action against the manufacturer to recover damages for breach of the express warranties contained therein. For the same reason, the manufacturer may not invoke the provisions of the digital licensing agreement to limit or restrict the express warranties contained in the brochure, the price quote, or the seller's distribution agreement.

The Point of Sale System

The plaintiff, Susan Jesmer, doing business as First Americans Food Stores (hereinafter Jesmer), owns and operates a grocery store, affiliated with the IGA supermarket chain, known as First Americans IGA (hereinafter First Americans), in Hogansburg, New York, near the Canadian border. In 2004 First Americans decided to upgrade its cash registers and accounting system by purchasing a "state of the art" point of sale (hereinafter POS) system. In that regard, First Americans retained the services of a POS consultant, Bozzuto's, Inc. (hereinafter Bozzuto's), whose principal place of business is in Cheshire, Connecticut. Bozzuto's introduced several POS system vendors to First American, including a team comprised of the defendant Auto-Star Compusystems, Inc. (hereinafter Auto-Star), a developer of POS systems and retail management software for grocery stores, with its principal offices located in Medicine Hat, Alberta, Canada, and the defendant Retail Magic, Inc. (hereinafter Magic), an authorized Auto-Star distributor, whose principal office is located in Mineola.

The Presentation

According to First Americans' manager, Todd LaVigne, an Auto-Star vice-president named Michele, and Magic's principal, Jesse Lamba, met with him and made a presentation "to show us how their product would streamline and modernize our store." LaVigne "explained to [Auto-Star and Magic] all of our needs, including the requirement that the system handle multiple currencies as a result of our location [in] upstate New York, near Canada. They assured us that they could adapt the system to handle all of our requirements."

The Brochure

During the presentation, representatives of First Americans were given and read a brochure entitled "Auto-Star Seamless POS Abilities," which stated, inter alia, that Auto-Star software "is customizable to any retailer's needs" and "provides retailers with the tools that they require to reduce costs, increase efficiency, and maintain customer service satisfaction." The brochure further recited that "Auto-Star's software applications can be found in thousands of retail stores," and set forth a partial list of Auto-Star's customers. The brochure went on to state that Auto-Star "provide(s) on site trainers to lead or assist in initial installations," that Auto-Star's "knowledgeable support desk is available to help you 24 hours a day, 7 days a week and our project managers are always available to address your needs," and that Auto-Star has a "dedicated team eager to meet the task of working with your company and go beyond ordinary retail management requirements to provide a product that meets your unique requirements."

The Price Quote

On or about May 9, 2005, Auto-Star and Magic prepared a "Quote For Software, Equipment, Installation, Training & Support" for First Americans (hereinafter the Quote) which described in great detail the steps they would take in connection with the creation, delivery, and installation of a POS system comprised of a "backend" system ("Server & Workstations Total $41,988.20"), a "lanes" system ("Wired lane, Wireless Lane, RF Total $173,275.40"), and support ("Misc Costs, Support, Extended Installation & Business Setup Support Total $29,976.17"), for a "Total Extended Price" of $245,239.77, of which the sum of $230,000 was eventually paid by First Americans before the Auto-Star POS system was rejected as inoperable.

The Problems

In June 2005 Auto-Star's POS system was installed at First Americans. According to the complaint, the POS system never functioned properly and was never fully operational. Specifically, the complaint alleged that the POS system was deficient in that it

"(a) Produced erroneous cash, credit & debit sales at registers and customer service;

"(b) Produced sales at registers which were closed and which were not being operated;

"(c) Produced different `senior discounts' at different registers;

"(d) Caused alcohol and tobacco sales [to] ring up differently between registers;

"(e) Caused registers to erroneously report errors of large amounts of cash;

"(f) Failed to finalize sales causing system and accounting errors;

"(g) Validated checks and yet failed to finalize the sale "(h) Caused system freezes/lock-ups during credit/debit authorizations;

"(i) Failed to be set up for dual currency, causing irate customers to go to customer services in order to make exchanges;

"(j) Caused PC crashes regularly, averaging 5-10 times per day;

"(k) When entering cashier totals in cash management, the system often took hours to catch up. Some entries did not show up in the system until the following day."

Demands To Cure Default

First Americans made oral and written demands upon Auto-Star and Magic "to cure the defaults and provide us with a functional system." According to First Americans, "[t]hey never cured." Although First Americans alleged that representatives of Auto-Star "resolved a few of our complaints," it asserted that the POS system was never fully operational and that it formally rejected the POS system "as a result of serious defects which render the system of no value." Auto-Star's POS system was removed from the First Americans grocery store, replaced by an IBM POS system. First Americans thereafter stored the Auto-Star POS system, purportedly on behalf of Auto-Star and Magic.

The Action

On February 2, 2006, Jesmer commenced this action against Auto-Star and Magic, alleging that First Americans had entered into a contract with them, whereby they agreed to design and install a fully-integrated, fully-functional POS system in the First Americans store, including support for store setup, initial operation, and annual support for a total price of $245,239.77. Jesmer alleged that the defendants installed the POS system in June 2005, and that she paid the defendants a total sum of $230,000, but that the POS system failed to perform properly from the outset of its installation.

Jesmer alleged in her complaint that the installation of the defendants' POS system "rendered Plaintiff unable to conduct her business thereby resulting [in] the loss of sales and customers." The first cause of action seeks rescission of the contract and the return of the sum of $230,000 Jesmer paid to the defendants. The second, third, and fourth causes of action allege breach of express warranties (UCC 2-313) and breach of implied warranties (UCC 2-314), breach of warranty of fitness for a particular purpose, and breach of contract, respectively, and demand damages in the sum of $1,000,000.

The Motion To Dismiss

Auto-Star moved pursuant to CPLR 3211 (a) (1) and (7) to dismiss the complaint insofar as asserted against it. First, Auto-Star asserted that documentary evidence conclusively established that there was never any contract between Auto-Star and First Americans, that Magic was never Auto-Star's agent, that there is no evidence to support a finding of apparent authority, and that First Americans was not in privity with Auto-Star. Hence, Auto-Star argued that the first and fourth causes of action, based upon a breach of contract, should have been dismissed.

Second, Auto-Star contended that the second and third causes of action, based upon breach of warranty, should have been dismissed since Magic was First Americans' agent, and Auto-Star disclaimed all such warranties (see UCC 2-316) in both a confidential quotation it provided to Magic regarding the POS system ultimately sold to First Americans and a Digital License Agreement (hereinafter DLA) which appeared on a computer screen on Magic's computer prior to installation of the POS system. In opposition to Auto-Star's motion, First Americans' manager LaVigne averred, in an affidavit, that Magic was not First Americans' agent, but rather was Auto-Star's agent. Moreover, LaVigne asserted that no one affiliated with First Americans was privy to either disclaimer, and that First...

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