Peavey Electronics Corp. v. Baan U.S.A.

• Decision Date: 07 April 2009
• Docket Number: No. 2007-CA-00341-COA.,2007-CA-00341-COA.
• Citation: 10 So.3d 945
• Parties: PEAVEY ELECTRONICS CORPORATION, Appellant v. BAAN U.S.A., INC., Appellee.
• Court: Mississippi Court of Appeals

10 So.3d 945

PEAVEY ELECTRONICS CORPORATION, Appellant v. BAAN U.S.A., INC., Appellee.

No. 2007-CA-00341-COA.

Court of Appeals of Mississippi.

April 7, 2009.

James P. Streetman, Jackson, Barbara Ellis, Susan A. Kidwell, Ronnie L. Walton, Meridian, David Lee Gladden, Jerry K. Clements, Vincent J. Hess, April R. Terry, attorneys for appellant.

William C. Hammack, Lee Thaggard, Meridian, Daniel D. Zegura, Christopher M. Golden, Robert B. Remar, attorneys for appellee.

EN BANC.

MYERS, P.J., for the Court.

¶ 1. Peavey Electronics Corporation brought suit against Baan U.S.A., Inc., seeking millions of dollars in damages for software and software support it alleges were defective. Peavey sought to recover under two theories, one based on tort and the other on breach of contract and warranty. At issue on appeal are two summary judgment motions granted in favor of Baan; the trial court entered summary judgment for Baan after dismissing Peavey's tort and services contract claims on the statute of limitations and dismissing Peavey's contract and warranty claims on the sale of goods as waived by a subsequent contract. Peavey also asserts that the trial court abused its discretion in denying two motions to compel discovery. After a thorough review of the record and the governing law, we affirm the trial court's judgment.

FACTS

¶ 2. Peavey sought to purchase an "ERP" (enterprise resource planning) computer system, which consists of a suite of interconnected software programs. It ultimately selected Baan's eponymous "BAAN ERP" ("BAAN" or "the BAAN software"), which consists of software programs and computer systems that work together to direct and coordinate the operations of a business, such as ordering, manufacturing, and shipping. Peavey wanted the software for a number of reasons, including to modernize its computer systems, streamline its operations, lower its costs, and make its operation "Y2k compliant."

¶ 3. The BAAN software does not work "out of the box," but requires significant work to implement at a business. Peavey considered two approaches to implementing the BAAN software; it could either adapt its operations to fit within the software's limits, or it could customize the software to better suit Peavey's preexisting systems and practices. Peavey chose the latter option, and its staff and third-party consultants undertook extensive customizations to the BAAN software. Peavey also took the somewhat unusual step of licensing the BAAN software's "source code," the underlying, human-readable language of computer programs, to secure its investment if Baan ceased supporting the BAAN software in the future. Peavey's customizations included extensive changes to the source code of the BAAN software.

¶ 4. In addition to licensing the software, Peavey also contracted for Baan's consultants to assist Peavey in implementing the software. Detailed contracts—styled the Software License Agreement and Services Agreement—for the BAAN software and consulting services, respectively, were executed on October 31, 1997.

¶ 5. Fearing the complexity of the project and hoping to minimize its risk, Peavey planned to implement the BAAN software in two phases. The first, "Phase I," would "go live" with the sales and distribution portions of the BAAN software, along with Peavey's customizations and interfaces to its preexisting computer systems. "Phase II" would be completed later, implementing the remainder of the BAAN software, including the manufacturing and "SCS" modules.¹

¶ 6. The "go live" occurred on July 6, 1999, and was by all accounts an immense and expensive failure. In addition to the work needed to fix the computer systems, Peavey was also late in shipping orders, and it had to do many tasks manually that had previously been automated. Following the failed "go live," Peavey suspended work on implementing Phase II. All of Baan's consultants operating under the Services Agreement left Peavey in October 1999.

¶ 7. Having worked out its issues with much of the BAAN software implemented during Phase I, Peavey continued to use it, but it never resumed implementation of Phase II. On June 20, 2003, Peavey and Baan negotiated a reduction in the licensing and maintenance fees for the BAAN software, commensurate with what was actually being used at Peavey. This was significantly less than had been planned when the original contracts were signed in 1997.

¶ 8. Peavey filed suit against Baan on February 27, 2004, asserting numerous causes of action. Following what the trial court described as an "all out war" of litigation, it dismissed Peavey's tort claims as barred by the statute of limitations. The trial court subsequently dismissed Peavey's contract and warranty claims based on the Software Agreement as waived by subsequent contract, and it dismissed Peavey's contract and warranty claims under the Services Agreement as barred by the statute of limitations. The trial court then entered summary judgment for Baan, and Peavey appeals, asserting numerous errors.

DISCUSSION

1. Whether the trial court erred in granting summary judgment on Peavey's tort claims.

¶ 9. Peavey's complaint alleged counts of fraud, fraudulent misrepresentation, negligent misrepresentation, money had and received, and breach of the duty of good faith and fair dealing. The trial court dismissed these tort claims as barred by the statute of limitations. On appeal, Peavey acknowledges that its tort claims are subject to the three-year statute of limitations provided in Mississippi Code Annotated section 15-1-49 (Rev.2003) and that, absent tolling, the statute has run on its tort claims. Peavey filed suit on February 27, 2004; thus, it must be able to show that the statute did not begin to run until at least February 27, 2001. Peavey argues that there are four bases for tolling the statute of limitations: the discovery rule, equitable estoppel, continuing tort doctrine, and fraudulent concealment. We shall address each basis individually.

A. The Discovery Rule

¶ 10. The "discovery rule" operates to toll the statute of limitations until "a plaintiff `should have reasonably known of some negligent conduct, even if the plaintiff does not know with absolute certainty that the conduct was legally negligent.'" Boyles v. Schlumberger Tech. Corp., 832 So.2d 503, 506(¶ 6) (Miss.2002) (quoting Sarris v. Smith, 782 So.2d 721, 725(¶ 13) (Miss.2001)). The statute of limitations begins to run "when the [plaintiff] can reasonably be held to have knowledge of the injury itself, the cause of the injury, and the causative relationship between the injury and the conduct of the [defendant]." Sarris, 782 So.2d at 723(¶ 9) (quoting Smith v. Sanders, 485 So.2d 1051, 1052 (Miss.1986)). In applying the discovery rule to cases such as this, the supreme court has stated:

The discovery rule's application has been greatly expanded over time. See Barnes v. Singing River Hosp. Sys., 733 So.2d 199 (Miss.1999) (Mississippi Tort Claims Act); Georgia Pacific Corp. v. Taplin, 586 So.2d 823 (Miss.1991) (workers compensation); Staheli v. Smith, 548 So.2d 1299 (Miss.1989) (defamation). At issue in all cases however, is when the plaintiff discovers their [sic] injury or disease. Sweeney v. Preston, 642 So.2d 332, 334 (Miss.1994) (quoting Williams v. Kilgore, 618 So.2d 51, 55 (Miss.1992)). In Sweeney this Court noted that, "knowledge that there exists a causal relationship between the negligent act and the injury or disease complained of is essential because `it is well-established that prescription does not run against one who has neither actual nor constructive notice of the facts that would entitle him to bring an action.'" Id. (emphasis added). Whether the plaintiff knew about the injury has typically been reserved as a jury question. Barnes, 733 So.2d at 205; [Owens-Illinois, Inc. v.] Edwards, 573 So.2d [704,] 709 [Miss. 1990].

PPG Architectural Finishes, Inc. v. Lowery, 909 So.2d 47, 50(¶ 10) (Miss.2005).

¶ 11. The supreme court has also "cautioned that the discovery rule should only be applied in `limited circumstances in [] negligence and products liability cases involving latent injury.'" Id. at (¶ 11) (quoting Schiro v. Am. Tobacco Co., 611 So.2d 962, 964 (Miss.1992); Edwards, 573 So.2d at 707). See also 54 C.J.S. Limitations of Actions § 166 (2005) ("[A] plaintiff cannot be permitted to wait until he or she knows all of the injurious effects as consequences of an actionable wrong.... [A]ccrual occurs upon notice of the injury, although the claimant does not yet know the full extent of the damages or the chances of avoiding them.") (footnotes omitted). Without a latent injury, the discovery rule cannot apply. Lowery, 909 So.2d at 50(¶ 11) (citing Chamberlin v. City of Hernando, 716 So.2d 596, 601(¶ 18) (Miss.1998)). Latent injury "is defined as one where the plaintiff will be precluded from discovering harm or injury because of the secretive or inherently undiscoverable nature of the wrongdoing in question ... [or] when it is unrealistic to expect a layman to perceive the injury at the time of the wrongful act." Id. at 50(¶ 12) (internal quotations omitted). To be latent, an injury "must be undiscoverable by reasonable methods." Id. at 51(¶ 14). "[T]o claim benefit of the discovery rule, a plaintiff must be reasonably diligent in investigating the circumstances surrounding the injury. The focus is on the time that the patient discovers, or should have discovered by the exercise of reasonable diligence, that he probably has an actionable injury." Wayne Gen. Hosp. v. Hayes, 868 So.2d 997, 1001(¶ 15) (Miss.2004) (citations and internal quotations omitted).

¶ 12. On appeal, Peavey asserts that the trial court misunderstood the nature of its injury. It argues that "[Peavey's injury] is that the software package Baan sold and agreed to implement could not be installed to function in an integrated manner because, as Peavey eventually discovered, the SCS component of the package...