Del. River Waterfront Corp. v. Wellspring Software, Inc.

• Court: U.S. District Court — Eastern District of Pennsylvania
• Writing for the Court: Savage, J.
• Decision Date: 22 December 2022
• Docket Number: Civil Action 22-1905
• Citation: Del. River Waterfront Corp. v. Wellspring Software, Inc., Civil Action 22-1905 (E.D. Pa. Dec 22, 2022)
• Parties: DELAWARE RIVER WATERFRONT CORPORATION v. WELLSPRING SOFTWARE, INC. and SAGE SOFTWARE, INC.

DELAWARE RIVER WATERFRONT CORPORATION v. WELLSPRING SOFTWARE, INC. and SAGE SOFTWARE, INC.

Civil Action No. 22-1905

United States District Court, E.D. Pennsylvania

December 22, 2022

MEMORANDUM OPINION

Savage, J.

Plaintiff Delaware River Waterfront Corporation (“DRWC”) licensed accounting software from defendants Sage Software Inc. (“Sage”) and Wellspring Software, Inc. (“Wellspring”). It used Sage 300cloud as its accounts payable software system and Wellspring's PrintBoss to print checks.

DRWC brought this action to recover $2.4 million dollars that a former employee embezzled using the software. Invoking diversity jurisdiction,^[1]it asserts state law tort claims for fraudulent misrepresentation, negligent misrepresentation and negligence. It contends that Wellspring misrepresented PrintBoss's security in its marketing materials and on its website, and that Sage's software program had a security loophole that enabled the embezzlement scheme.

Each defendant has filed a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6). Wellspring contends that the parol evidence rule precludes DRWC from relying on representations in its marketing material to support its misrepresentation causes of action. Wellspring also claims that the economic loss and the gist of the action doctrines bar DRWC's tort claims.

We conclude that DRWC's claims against Wellspring are barred by the gist of the action doctrine and the parol evidence rule. Accordingly, we shall grant Wellspring's motion and dismiss the amended complaint against Wellspring.

In its motion, Sage contends that DRWC agreed to arbitrate all claims arising out of its agreement with Sage. DRWC counters that it was unaware of the terms of the Sage End User License Agreement because Sage 300cloud was installed by a third-party. Accordingly, it contends that it is not bound by the agreement's arbitration provision. DRWC adds that there is no evidence that the current Sage End User License Agreement governed the relationship between the parties when the embezzlement occurred.

We find that the arbitration provision is valid and enforceable. Therefore, we shall grant Sage's motion to compel arbitration.

Factual Background^[2]

Angela DiPietro-Sabatine, DRWC's former Accounting Administrator, who was responsible for issuing checks for accounts payable, was terminated in November 2019 for poor work performance.^[3] Two months later, DRWC's Finance Manager discovered irregularities in an account DiPietro-Sabatine had administered.^[4]An internal investigation revealed that she had issued herself at least 318 fraudulent checks totaling more than $2.4 million between January 2013 and October 2019.^[5]She pled guilty to wire fraud, bank fraud, and identity theft in February 2022 in this court.^[6]

DRWC blames the embezzlement scheme on software loopholes in Sage 300cloud and PrintBoss.^[7] It contends the software allowed DiPietro-Sabatine to convert a Sage-issued check to Word format, change the payee, and print the check with the altered payee while preserving the original payee within DRWC's accounting and vendor management records.^[8]

Sage 300cloud is an accounts payable software.^[9] It allows users to “set up and maintain a general ledger . . ., generate financial reports, set up and maintain vendor accounts, enter or import transactions from various sources, print checks, and detect unrecorded transactions with bank reconciliations.”^[10]

DRWC has licensed Sage 300cloud, and its iterations, since 1996.^[11]It has renewed the Sage End User License Agreement annually through June 2022.^[12] The most recent version of the Agreement contained an arbitration provision mandating that the parties resolve all disputes by binding arbitration.^[13]

PrintBoss is a check printing program that integrates with other accounting software. In this case, it was integrated with Sage 300cloud.^[14] It receives vendor information from Sage 300cloud and pairs that information with a vendor's bank information, and then prints checks payable to the vendor.^[15]

Wellspring advertised PrintBoss as secure. Its marketing materials stated: (1) “Print security verified signatures”; (2) “PrintBoss - Print with Quality and Security!”; (3) “Check printing made easy and secure . . .”; (4) “Either a password or a diskette makes the signature secure”; and (5) “All Wellspring Software check stock is Toner Grip paper because writing a check should never expose your money to easy fraud.”^[16]

On its website, Wellspring boasted PrintBoss's security, representing: “User permissions, encrypted bank information, and electronic signatures make your payments secure. Feel safe knowing PrintBoss is a trusted Sage Endorsed Partner.”^[17] DRWC complains that Wellspring did not disclose that PrintBoss could be used to export and alter checks in other software programs, like Microsoft Word.^[18]

DRWC contends it purchased PrintBoss relying on Wellspring's representations that it was secure.^[19] DRWC has renewed the PrintBoss Software License Agreement (“PrintBoss License”) annually from 1999 through June 2022.^[20]

The PrintBoss License Agreement contains a disclaimer of all express and implied warranties other than a limited thirty-day warranty of materials and workmanship. The Limited Warranty and Disclaimer of Warranties Provisions provide:

Limited Warranty: Wellspring warrants that for a period of thirty (30) days from the date of shipment from Wellspring: (i) the media on which the Software is furnished will be free of defects in materials and workmanship under normal use; and (ii) the Software substantially conforms to its published specifications. Except for the foregoing, the Software is provided AS IS. This limited warranty extends only to Customer as the original licensee. Customer's exclusive remedy and the entire liability of Wellspring and its suppliers under this limited warranty will be, at Wellspring or its service center's option, repair, replacement, or refund of the Software if reported (or, upon request, returned) to the party supplying the Software to Customer. In no event does Wellspring warrant that the Software is error free or that Customer will be able to operate the Software without problems or interruptions.

This warranty does not apply if the software (a) has been altered, except by Wellspring, (b) has not been installed, operated, repaired, or maintained in accordance with instructions supplied by Wellspring, (c) has been subjected to abnormal physical or electrical stress, misuse, negligence, or accident, or (d) is used in ultra hazardous activities.

Disclaimer of Warranties. EXCEPT AS PROVIDED ABOVE, THIS SOFTWARE AND ANY RELATED SERVICES OR CONTENT ACCESSIBLE THROUGH THE SOFTWARE ARE PROVIDED "AS-IS", AND TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, WELLSPRING SOFTWARE INC. DISCLAIMS ALL OTHER REPRESENTATIONS AND WARRANTIES, EXPRESS OR IMPLIED, REGARDING THIS SOFTWARE, DISKS, RELATED MATERIALS AND ANY SUCH SERVICES OR CONTENT, INCLUDING THEIR FITNESS FOR A PARTICULAR PURPOSE, SECURITY, THEIR MERCHANTABILITY, OR THEIR NONINFRINGEMENT. ....

IN NO EVENT WILL WELLSPRING OR ITS SUPPLIERS BE LIABLE FOR ANY LOST REVENUE, PROFIT, OR DATA, OR FOR SPECIAL, INDIRECT, CONSEQUENTIAL, INCIDENTAL, OR PUNITIVE DAMAGES HOWEVER CAUSED AND REGARDLESS OF THE THEORY OF LIABILITY ARISING OUT OF THE USE OF OR INABILITY TO USE THE SOFTWARE EVEN IF WELLSPRING OR ITS SUPPLIERS HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. THE ENTIRE LIABILITY OF WELLSPRING OR ITS SUPPLIERS FOR ANY REASON SHALL BE LIMITED TO THE AMOUNT PAID BY THE CUSTOMER FOR THE SOFTWARE. The foregoing limitations shall apply even if the above-stated warranty fails of its essential purpose. SOME STATES DO NOT ALLOW LIMITATION OR EXCLUSION OF LIABILITY FOR CONSEQUENTIAL OR INCIDENTAL DAMAGES.^[21]

Analysis

Wellspring's Motion^[22]

The PrintBoss License appears when users open the program. The first sentence warns: “Do Not activate this Software until you have carefully read the following Software License Agreement.”^[23] It then announces “Activating the Software, opening the Software packaging, installing and using the Software certifies that you have read and understand this Agreement and consent to be bound by its terms and conditions.”^[24]

The PrintBoss License is a “clickwrap agreement.” See Specht v. Netscape Commc'ns Corp., 306 F.3d 17, 22 n.4 (2d Cir. 2002); Noble v. Samsung Elec. Am Inc., 682 Fed.Appx. 113, 117 n.5 (3d Cir. 2017); see also Chilutti v. Uber Techns., Inc., ___ A.3d ___, 2022 WL 6886984, at *8-9 (Pa. Super. Ct. 2022) (citations omitted). A clickwrap agreement “presents users with a message on his or her computer screen, requiring the user to manifest his or her assent to the terms of the . . . agreement by clicking on an icon.” Specht, 306 F.3d at 22 n.4; see also Noble, 682 Fed.Appx. at 117 n.5 (“Clickwrap agreements are terms that appear on a consumer's computer screen and to which a consumer can manifest assent by clicking on an icon indicating agreement.”) (citation omitted); see also Berman v. Freedom Fin. Network, LLC, 30 F.4th 849, 856 (9th Cir. 2022). The user is unable to access the product unless the icon is clicked, signaling that the user has agreed to the terms of the contract. Specht, 306 F.3d at 22 n.4.

Whether the user actually reads the terms to which she assents is immaterial. “Absent a showing of fraud, failure to read an enforceable clickwrap agreement, as with any binding contract, will not excuse compliance with its terms.” Feldman v. Google, Inc., 513 F.Supp.2d 229, 236 (E.D. Pa. 2007) (citing Specht, 306 F.3d at 30.).

Although DRWC acknowledges that it annually agreed to the terms of the PrintBoss License,^[25] it seeks to evade dismissal by arguing that the PrintBoss...