VMark Software, Inc. v. EMC Corp.

• Decision Date: 18 November 1994
• Docket Number: No. 92-P-1825,92-P-1825
• Citation: 642 N.E.2d 587,37 Mass.App.Ct. 610
• Parties: , 38 A.L.R.5th 799 VMARK SOFTWARE, INC. v. EMC CORPORATION.
• Court: Appeals Court of Massachusetts

Page 587

642 N.E.2d 587

37 Mass.App.Ct. 610, 38 A.L.R.5th 799

VMARK SOFTWARE, INC. v. EMC CORPORATION.

No. 92-P-1825.

Appeals Court of Massachusetts,

Middlesex.

Argued Jan. 7, 1994.

Decided Nov. 18, 1994.

Anthony A. Bongiorno, Boston, for plaintiff.

James C. Burling, Boston, for defendant.

Before FINE, PORADA and LAURENCE, JJ.

LAURENCE, Justice.

A common but foreseeable frustration of modern life--the failure of new computer hardware or software to work properly--produced this commercial altercation, which the parties unfortunately failed to anticipate by a contractual dispute resolution mechanism that might have avoided their time-consuming and expensive litigation. The controversy arose out of the June 1990 grant by VMark Software, Inc. (VMark), of a license to EMC Corporation (EMC) to use VMark's software product, a relational database management system called "uniVerse." ¹ EMC looked upon uniVerse as a vital product for its expanding business. According to VMark's representations, UniVerse would enable EMC to replace existing computer hardware that no longer had the capacity to meet its computing needs, while allowing it to retain its valuable application software, which UniVerse would render compatible with many different types of more efficient or versatile hardware.

When uniVerse failed to function as VMark had represented and EMC had anticipated, despite at least twenty remedial efforts by VMark, EMC unilaterally declared the license agreement terminated and refused to pay the license fee. VMark's suit to recover that fee provoked a counterclaim by EMC seeking damages for VMark's failure to deliver a functional product, founded upon counts for breach of contract, breach of warranty, promissory estoppel, misrepresentation, and violation of G.L. c. 93A.

Following a ten-day bench trial, a judge of the Superior Court--in a fifty-five page opinion containing 144 separate findings of fact that are unchallenged by the parties--ruled against VMark on its claim for payment, against EMC on its breach of warranty, misrepresentation, and c. 93A counts, but for EMC on its breach of contract and promissory estoppel claims. The judge awarded EMC $316,901 in what he termed "reliance damages." ² That figure essentially reflected the net cost to EMC of certain Digital Equipment Corporation (DEC) computer hardware EMC had purchased in reliance on VMark's supplying it with a software product that would be fully functional in conjunction with that hardware.

Neither party was satisfied with the judge's determinations, and both appealed. VMark challenges the judge's award of reliance damages on either of EMC's theories. VMark argues that the license agreement contained damage limitation provisions restricting EMC's damages to those attributable to VMark's negligence and that promissory estoppel recovery is inappropriate when the parties' relationship is governed by a valid, fully integrated contract. EMC's principal cross-appeal argument is that the judge's adverse rulings on its misrepresentation and c. 93A charges are inconsistent with his undisputed subsidiary findings which establish the requisite elements of those claims in EMC's favor. ³

Our analysis persuades us that the judge properly ruled in EMC's favor but should have done so on the basis of EMC's misrepresentation and c. 93A claims. Our conclusion makes it unnecessary to expound upon VMark's arguments against the judgment entered in favor of EMC on its breach of contract and promissory estoppel counts.

Background Facts. The following narrative is based upon the judge's findings. In early 1990, EMC foresaw its imminent need for expanded computing capability. A manufacturer of add-on computer products known as "peripherals," EMC sought an improved software product for managing its financial reporting, order management, production, and inventory tracking. At that time, EMC used a Prime computer system for those needs, but that system had become "saturated," forcing EMC to investigate various alternative systems to handle its expanding business data more quickly and efficiently. EMC required a system that would support both dynamic files ⁴ and alternate indices, ⁵ standard features of EMC's original Prime system. After a preliminary exploration of alternatives, EMC became interested in the possibility of replacing its Prime system with a "DEC Ultrix" system. EMC, however, used and wanted to continue to use a business applications software called "Madic" for its accounting, inventory, manufacturing, and financial needs, which was incompatible with the DEC Ultrix system.

EMC consequently sought a product that would enable it to retain the Madic software while using it on the DEC Ultrix hardware. VMark had developed and was licensing such a product, uniVerse, which it marketed to users, like EMC, who sought to move their applications software designed for a Prime system to other, more flexible or capacious systems. One advertised feature of the uniVerse software was its supposed ability to convert existing data files that run in a Prime environment to files that run in a uniVerse environment. UniVerse also was designed to support alternate indices and dynamic files, functions required by EMC.

In the spring of 1990, EMC approached VMark as a potential licensee of uniVerse. EMC gathered information about uniVerse and its capabilities through product demonstrations, reference checks, and a thorough review of uniVerse's operating manuals. During this process, EMC told VMark that its primary concerns in using uniVerse to replace its Prime system with a DEC system were processing its business data more quickly and efficiently, being able to continue to use dynamic files and alternate indices in its database, and being able to convert to the DEC system by October, 1990, because of the limitations of its Prime system.

VMark officials assured EMC that the uniVerse product supported the use of both dynamic files and alternate indices, that the conversion from Prime to uniVerse would be straightforward and nonproblematic, and that the conversion process could be completed before the end of the summer. At one of the demonstrations, the VMark sales representative additionally assured EMC that, if uniVerse did not function as promised VMark would be responsible for the cost of the DEC hardware. By late June, 1990, EMC, relying on VMark's several representations as to uniVerse's performance and capabilities, had decided to obtain a license for uniVerse and to purchase the DEC Ultrix computer system. EMC would not have purchased the DEC hardware had it not also acquired what it perceived to be fully functional uniVerse software.

At the time VMark personnel made their several representations regarding uniVerse, they were confident of EMC's successful application of the software but knew that there had been some prior problems with the performance of uniVerse when used with a DEC Ultrix system. They were also aware that such a combined system had thus far operated more slowly than it was designed to do; that there had been relatively little experience with uniVerse's ability to support the alternate indices function, which even the developer of uniVerse was concerned might not work as represented to EMC; that VMark had not actually attempted to use uniVerse to achieve compatibility between Madic application software and DEC hardware; and that difficulties had been encountered with the ability of uniVerse operationally to convert dynamic files to the DEC/uniVerse system. The necessary conversion process required, at the then-current stage of development, an extra, time-consuming step that both VMark's creator and its engineering vice president recognized would make it difficult to meet EMC's initially desired timetable.

None of these problems was explicitly communicated by VMark to EMC during the demonstration and negotiation period. Instead, in keeping with VMark's apparent general policy of not mentioning or minimizing negative factors regarding uniVerse's capabilities to prospective customers, VMark personnel assured EMC that there would be no serious performance or conversion problems. Nor did the manuals and technical documents supplied by VMark to EMC highlight any of these problems relating to the use of uniVerse.

Unaware of these difficulties, and encouraged to act quickly by VMark's June 26, 1990, offer to give a twenty percent discount on the license fee if EMC signed up before the end of June, EMC soon thereafter executed a license agreement for the uniVerse software. This agreement contained various provisions limiting VMark's warranties and damage liability, which VMark asserts preclude any recovery by EMC. ⁶

Despite VMark's assurance that the conversion and transfer of EMC's data stored in its Prime system to the DEC system via uniVerse would occur uneventfully, difficulties in using uniVerse to load and convert EMC's data were encountered almost immediately. When EMC performed test functions in uniVerse on the few files that were successfully converted, the results were not uniformly complete or accurate. The DEC/uniVerse system turned out to operate much more slowly than the Prime system. None of VMark's repeated efforts to solve the various performance problems over the summer and fall of 1990 succeeded in overcoming them. By December, 1990, EMC concluded that uniVerse was too unreliable to permit EMC to conduct business activities on it. By that time VMark, after failing to correct the defects in the software despite delivering over twenty different but equally unsatisfactory versions of uniVerse to EMC, also conceded that uniVerse was not yet a fully functional product for EMC's purposes.

VMark told EMC at that point that its future efforts had to be directed to correcting fundamental problems with the software and that it would be unable to address EMC's specific performance issues until sometime thereafter. Immediately following that...