Microsoft Corp. v. Manning

• Decision Date: 13 November 1995
• Docket Number: No. 06-95-00058-CV,06-95-00058-CV
• Citation: 914 S.W.2d 602
• Parties: 1995-2 Trade Cases P 71,212, 29 UCC Rep.Serv.2d 162 MICROSOFT CORPORATION, Appellant, v. Mark MANNING, Steve Collins, and Dana Schnitzer, on Behalf of Themselves and all Others Similarly Situated, Appellees.
• Court: Texas Court of Appeals

Page 602

914 S.W.2d 602

1995-2 Trade Cases P 71,212, 29 UCC Rep.Serv.2d 162

MICROSOFT CORPORATION, Appellant, v. Mark MANNING, Steve Collins, and Dana Schnitzer, on Behalf of Themselves and all Others Similarly Situated, Appellees.

No. 06-95-00058-CV.

Court of Appeals of Texas Texarkana.

Nov. 13, 1995.

Rehearing Overruled Dec. 5, 1995.

Harriet E. Miers, Locke Purnell Rain Harrell, Dallas, Max A. Sandlin, Jr., Sandlin & Buckner, Marshall, for appellant.

Sam Baxter, McKool Smith, Marshall, Gary Cruciani, McKool Smith, Dallas, Franklin Jones, Jr., Jones, Jones & Curry, Inc., Marshall, for appellees.

Before CORNELIUS, C.J., and BLEIL and GRANT, JJ.

OPINION

CORNELIUS, Justice.

This is an appeal of the trial court's order granting class certification to a suit by appellees against Microsoft Corporation for breach of express and implied warranty, unjust enrichment, and violations of the Magnuson-Moss Warranty--Federal Trade Commission Improvement Act and the Washington state Consumer Protection Act.

Microsoft contends that the district court abused its discretion in certifying the class because: the claims are founded on an unrecognized liability theory; the certification will result in improper claim splitting; the appellees do not meet the commonality and typicality requirements of TEX.R.CIV.P. 42(a) and (b)(4); there is not an adequate representative for the class as required by Rule 42(a)(4); the court improperly relied on the testimony of an expert witness without determining whether it was scientifically reliable; and the certification will violate Microsoft's and the class members' due process rights under the state and federal constitutions. We will affirm the certification order.

Microsoft Corporation, based in Washington state, supplies software for personal computers. At issue is its software MS-DOS 6.0, or Microsoft Disk Operating System. The disk operating system helps the user control the computer's basic functions, such as retrieving information stored in the computer's memory, writing and reading information stored on hard or floppy disks, and receiving typed characters from the keyboard.

Computer information is stored primarily on the hard drive. Users can increase their storage space by upgrading their equipment and buying newer, larger hard disks. In the late 1980s, software companies introduced disk compression software, which compresses the data on a hard disk, thereby increasing a computer's storage capacity by installing relatively inexpensive software instead of more expensive hardware.

MS-DOS 6.0, introduced in 1993, contained disk compression software. Microsoft bought the rights to Vertisoft's compression program called DoubleDisk. The appellees argue that Microsoft used the compression feature, calling it DoubleSpace, with MS-DOS 6.0 without adequate testing. The compression software was faulty, they argue, and after Microsoft released it, customers started complaining that the compression software could in some cases destroy their data. The software was sold retail by Microsoft and retail dealers, as well as by various original equipment manufacturers who sold it already installed on computers.

Appellees allege that, in order to correct the defect and provide new "data protection technology," Microsoft released an update, called MS-DOS 6.2. A reviewer's guide that Microsoft published in August 1993 stated, "We hope this new technology will not only provide extra protection for customers' data, but also increase customer's comfort in dealing with disk compression."

Appellees Mark Manning, Steve Collins, and Dana Schnitzer filed suit against Microsoft on December 6, 1993, alleging breach of express warranty, breach of implied warranty, unjust enrichment, and violations of the Magnuson-Moss Warranty--Federal Trade Commission Improvement Act, 15 U.S.C.A. § 2301, et seq. (West 1989), and the Washington Consumer Protection Act, WASH.REV.CODE § 19.86.010, et seq. (West 1989). ¹

The appellees contend that Microsoft released MS-DOS 6.2 to correct the problems associated with MS-DOS 6.0 and DoubleSpace that caused loss of data. Microsoft sold MS-DOS 6.2 retail for $9.95. The appellees argue that the company should have corrected the problems with MS-DOS 6.0 without charge. They allege that some 10.5 million computer users acquired MS-DOS 6.0 and were damaged when they received a defective product that would cost $9.95 to remedy. The appellees do not seek consequential damages, i.e., damages for lost data. They seek as damages only the $9.95 upgrade fee they would have to pay to get MS-DOS 6.2, which corrected the defect in MS-DOS 6.0.

Microsoft argues that relatively few people, about three in 1,000, lost data after using MS-DOS 6.0. It alleges that most users lost no data and thus sustained no damage.

The district court held a class certification hearing February 8-10, 1995. In an order signed May 31, 1995, the district court, finding that the appellees had met the requirements of Rule 42(a) and (b)(4), certified as a class "all persons and entities in the United States of America who have purchased or licensed MS-DOS 6.0 with DoubleSpace ("MS-DOS 6.0") sold separately and not pre-installed in any computer hardware and sold pre-installed in a computer's hardware." The certified causes of action are claims for economic damages, excluding consequential damages such as those resulting from alleged data loss. On June 8, 1995, the court entered findings of fact and conclusions of law. Microsoft appeals pursuant to TEX.CIV.PRAC. & REM.CODE ANN. § 51.014(3) (Vernon Supp.1995), allowing the appeal of interlocutory class certification orders, and TEX.R.CIV.P. 42, alleging the district court abused its discretion by misapplying Rule 42, relating to class action certification.

I.

Microsoft argues that the district court abused its discretion in certifying the class because the claims are founded on an unrecognized liability theory tailored to exclude the essential elements of individual causation and damages. It argues that the appellees, by excluding consequential damages and seeking only the upgrade price as damages, seek to certify a class of plaintiffs who have suffered no damages because they have lost no data. Without a common actual damage, Microsoft says, the appellees' case shatters into countless individual questions of law and fact not suitable for class action treatment.

One or more class members may sue as representative parties on behalf of all only if (1) the class is so numerous that joinder is impracticable, (2) the class has common questions of law or fact, (3) the representatives' claims are typical of the class claims, and (4) the representatives will fairly and adequately protect the class interests. TEX.R.CIV.P. 42(a).

Parties may maintain a class action if they and the action meet the stated requirements and the court finds that questions of law or fact common to the class members predominate over questions affecting individuals only, and that a class action is superior to other available methods for the fair and efficient adjudication of the controversy. The matters pertinent to the findings include: (1) the interest of the class members in individually controlling the prosecution of separate actions; (2) the extent and nature of any litigation concerning the controversy already commenced by the members; (3) the desirability of concentrating the litigation of the claims in the particular forum; and (4) the difficulties likely to be encountered in the management of a class action. TEX.R.CIV.P. 42(b)(4).

It is not necessary for the plaintiffs to prove a prima facie case of liability to be entitled to certification. Clements v. League of United Latin American Citizens (LULAC), 800 S.W.2d 948, 951 (Tex.App.--Corpus Christi 1990, no writ); Wiggins v. Enserch Exploration, Inc., 743 S.W.2d 332, 336-37 (Tex.App.--Dallas 1987, writ dism'd w.o.j.). The probability of the plaintiffs' success on the merits of their claims is an improper standard by which to measure class certification. Clements v. League of United Latin American Citizens (LULAC), supra.

A trial court has broad discretion in determining whether a lawsuit should be maintained as a class action. Dresser Indus., Inc. v. Snell, 847 S.W.2d 367, 371 (Tex.App.--El Paso 1993, no writ). Where the court considers class certification early in a proceeding, before supporting facts are fully developed, it should favor maintaining the class action. Id. at 376. The court may always subsequently modify or decertify the class. Id.

A trial court abuses its discretion when it acts arbitrarily or unreasonably, or without reference to any guiding principles. Downer v. Aquamarine Operators, Inc., 701 S.W.2d 238, 242 (Tex.1985), cert. denied, 476 U.S. 1159, 106 S.Ct. 2279, 90 L.Ed.2d 721 (1986). A court does not abuse its discretion if the relevant evidence is conflicting. Vinson v. Texas Commerce Bank--Houston, N.A., 880 S.W.2d 820, 823 (Tex.App.--Dallas 1994, no writ). It does abuse its discretion when it misapplies the law to undisputed facts. Id.

Microsoft contends that, by including in the class individuals whose only injury was purchasing the software, the trial court relied on a novel and improper theory of liability. It argues that appellees have structured their class to eliminate two essential elements of their claims, causation and damages. Without this improper theory, it alleges, the class members would be only those individuals who actually lost data. Microsoft argues that including all purchasers as class members will lead to a proliferation of individual fact questions, such as whether individual class members lost data, whether the product caused the data loss, and what actual damages the user suffered.

Microsoft contends that other courts have rejected the theory that a defect that does not manifest itself by causing consequential damages nevertheless damages the individual who purchases the defective...