MA Mortenson Co. v. Timberline Software Corporation

• Court: Washington Supreme Court
• Writing for the Court: JOHNSON, J.
• Citation: MA Mortenson Co. v. Timberline Software Corporation, 998 P.2d 305, 140 Wash.2d 568 (Wash. 2000)
• Decision Date: 04 May 2000
• Docket Number: No. 67796-4.
• Parties: M.A. MORTENSON COMPANY, INC., Petitioner, v. TIMBERLINE SOFTWARE CORPORATION and Softworks Data Systems, Inc., Respondents.

998 P.2d 305

140 Wash.2d 568

M.A. MORTENSON COMPANY, INC., Petitioner, v. TIMBERLINE SOFTWARE CORPORATION and Softworks Data Systems, Inc., Respondents.

No. 67796-4.

Supreme Court of Washington, En Banc.

Argued October 26, 1999.

Decided May 4, 2000.

Reconsideration Denied July 11, 2000.

Preston, Gates & Ellis, Robert B. Mitchell, Mark Wittow, Seattle, Amicus Curiae on Behalf of Business Software Alliance.

Oles, Morrison, Rinker & Baker, Bradley L. Powell, Seattle, Williams & Williams, Catherine C. Clark, Kenmore, Sheppad, Mullin, Richter & Hampton, Theodore Russell, San Francisco, CA, for Petitioner.

Peery, Hiscock, Pierson & Ryder, Charles E. Peery, Michael E. Ricketts, Groff & Murphy, Michael Porter Grace, Seattle, Laura P. Knechtel, Federal Way, for Respondents.

JOHNSON, J.

This case presents the issue of whether a limitation on consequential damages enclosed in a "shrinkwrap license" accompanying computer software is enforceable against the purchaser of the licensed software. Petitioner M.A. Mortenson Company, Inc. (Mortenson), a general construction contractor, purchased licensed computer software from Timberline Software Corporation (Timberline) through Softworks Data Systems, Inc. (Softworks), Timberline's local authorized dealer. After Mortenson used the program to prepare a construction bid and discovered the bid was $1.95 million less than it should have been, Mortenson sued Timberline for breach of warranties alleging the software was defective. The trial court granted Timberline's motion for summary judgment. The Court of Appeals affirmed the order of summary judgment, holding (1) the purchase order between the parties was not an integrated contract; (2) the licensing agreement set forth in the software packaging and instruction manuals was part of the contract between Mortenson and Timberline; and (3) the provision limiting Mortenson's damages to recovery of the purchase price was not unconscionable. M.A. Mortenson Co. v. Timberline Software Corp., 93 Wash.App. 819, 826-37, 970 P.2d 803 (1999). We granted Mortenson's petition for review and affirm the Court of Appeals.

FACTS

Petitioner Mortenson is a nationwide construction contractor with its corporate headquarters in Minnesota and numerous regional offices, including a northwest regional office in Bellevue, Washington. Respondent Timberline is a software developer located in Beaverton, Oregon. Respondent Softworks, an authorized dealer for Timberline, is located in Kirkland, Washington and provides computer-related services to contractors such as Mortenson.

Since at least 1990, Mortenson has used Timberline's Bid Analysis software to assist with its preparation of bids.¹ Mortenson had used Medallion, an earlier version of Bid Analysis, at its Minnesota headquarters and its regional offices. In early 1993, Mortenson installed a new computer network operating system at its Bellevue office and contacted Mark Reich (Reich), president of Softworks, to reinstall Medallion. Reich discovered, however, that the Medallion software was incompatible with Mortenson's new operating system. Reich informed Mortenson that Precision, a newer version of Bid Analysis, was compatible with its new operating system.

Mortenson wanted multiple copies of the new software for its offices, including copies for its corporate headquarters in Minnesota and its northwest regional office in Bellevue. Reich informed Mortenson he would place an order with Timberline and would deliver eight copies of the Precision software to the Bellevue office, after which Mortenson could distribute the copies among its offices.

After Reich provided Mortenson with a price quote, Mortenson issued a purchase order dated July 12, 1993, confirming the agreed upon purchase price, set up fee, delivery charges, and sales tax for eight copies of the software.² The purchase order indicated that Softworks, on behalf of Timberline, would "[f]urnish current versions of Timberline Precision Bid Analysis Program Software and Keys" and "[p]rovide assistance in installation and system configuration for Mortenson's Bellevue Office." Clerk's Papers at 206. The purchase order also contained the following notations:

Provide software support in converting Mortenson's existing Bid Day Master Files to a format accepted by the newly purchased Bid Day software. This work shall be accomplished on a time and material basis of $85.00 per hour. Format information of conversion of existing D-Base Files to be shared to assist Mortenson Mid-West programmers in file conversion.

-System software support and upgrades to be available from Timberline for newly purchased versions of Bid Day Multi-User.

-At some future date should Timberline upgrade "Bid Day" to a windows version, M.A. Mortenson would be able to upgrade to this system with Timberline crediting existing software purchase toward that upgrade on a pro-rated basis to be determined later.

Clerk's Papers at 206. Below the signature line the following was stated: "ADVISE PURCHASING PROMPTLY IF UNABLE TO SHIP AS REQUIRED. EACH SHIPMENT MUST INCLUDE A PACKING LIST. SUBSTITUTIONS OF GOODS OR CHANGES IN COSTS REQUIRE OUR PRIOR APPROVAL." Clerk's Papers at 206.³ The purchase order did not contain an integration clause.

Reich signed the purchase order and ordered the requested software from Timberline. When Reich received the software, he opened the three large shipping boxes and checked the contents against the packing invoice. Contained inside the shipping boxes were several smaller boxes, containing program diskettes in plastic pouches, installation instructions, and user manuals. One of the larger boxes also contained the sealed protection devices for the software.⁴

All Timberline software is distributed to its users under license. Both Medallion and Precision Bid Analysis are licensed Timberline products. In the case of the Mortenson shipment, the full text of Timberline's license agreement was set forth on the outside of each diskette pouch and the inside cover of the instruction manuals. The first screen that appears each time the program is used also references the license and states, "[t]his software is licensed for exclusive use by: Timberline Use Only." Clerk's Papers at 302. Further, a license to use the protection device was wrapped around each of the devices shipped to Mortenson. The following warning preceded the terms of the license agreement:

CAREFULLY READ THE FOLLOWING TERMS AND CONDITIONS BEFORE USING THE PROGRAMS. USE OF THE PROGRAMS INDICATES YOUR ACKNOWLEDGEMENT THAT YOU HAVE READ THIS LICENSE, UNDERSTAND IT, AND AGREE TO BE BOUND BY ITS TERMS AND CONDITIONS. IF YOU DO NOT AGREE TO THESE TERMS AND CONDITIONS, PROMPTLY RETURN THE PROGRAMS AND USER MANUALS TO THE PLACE OF PURCHASE AND YOUR PURCHASE PRICE WILL BE REFUNDED. YOU AGREE THAT YOUR USE OF THE PROGRAM ACKNOWLEDGES THAT YOU HAVE READ THIS LICENSE, UNDERSTAND IT, AND AGREE TO BE BOUND BY ITS TERMS AND CONDITIONS.

Clerk's Papers at 305. Under a separate subheading, the license agreement limited Mortenson's remedies and provided:

LIMITATION OF REMEDIES AND LIABILITY

NEITHER TIMBERLINE NOR ANYONE ELSE WHO HAS BEEN INVOLVED IN THE CREATION, PRODUCTION OR DELIVERY OF THE PROGRAMS OR USER MANUALS

SHALL BE LIABLE TO YOU FOR ANY DAMAGES OF ANY TYPE, INCLUDING BUT NOT LIMITED TO, ANY LOST PROFITS, LOST SAVINGS, LOSS OF ANTICIPATED BENEFITS, OR OTHER INCIDENTAL, OR CONSEQUENTIAL DAMAGES ARISING OUT OF THE USE OR INABILITY TO USE SUCH PROGRAMS, WHETHER ARISING OUT OF CONTRACT, NEGLIGENCE, STRICT TORT, OR UNDER ANY WARRANTY, OR OTHERWISE, EVEN IF TIMBERLINE HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES OR FOR ANY OTHER CLAIM BY ANY OTHER PARTY. TIMBERLINE'S LIABILITY FOR DAMAGES IN NO EVENT SHALL EXCEED THE LICENSE FEE PAID FOR THE RIGHT TO USE THE PROGRAMS.

Clerk's Papers at 305.

Reich personally delivered the software to Mortenson's Bellevue office, and was asked to return at a later date for installation. The parties dispute what happened next. According to Neal Ruud (Ruud), Mortenson's chief estimator at its Bellevue office, when Reich arrived to install the software Reich personally opened the smaller product boxes contained within the large shipping boxes and also opened the diskette packaging. Reich inserted the diskettes into the computer, initiated the program, contacted Timberline to receive the activation codes, and wrote down the codes for Mortenson. Reich then started the programs and determined to the best of his knowledge they were operating properly. Ruud states that Mortenson never saw any of the licensing information described above, or any of the manuals that accompanied the software. Ruud adds that copies of the programs purchased for other Mortenson offices were forwarded to those offices.

Reich claims when he arrived at Mortenson's Bellevue office he noticed the software had been opened and had been placed on a desk, along with a manual and a protection device. Reich states he told Mortenson he would install the program at a single workstation and "then they would do the rest." Clerk's Papers at 176. Reich proceeded to install the software and a Mortenson employee attached the protection device. Reich claims he initiated and ran the program, and then observed as a Mortenson employee repeated the installation process on a second computer. An employee then told Reich that Mortenson would install the software at the remaining stations.

In December 1993, Mortenson utilized the Precision Bid Analysis software to prepare a bid for a project at Harborview Medical Center in Seattle. On the day of the bid, the software allegedly malfunctioned multiple times and gave the following message: "Abort: Cannot find alternate." Clerk's Papers at 60. Mortenson received this message 19 times that day. Nevertheless, Mortenson submitted a bid generated by the software. After Mortenson was awarded the Harborview Medical Center project, it learned its bid was approximately $1.95...