IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

 

RUTH H. KACZMAREK, : No. 98 C 7921

Plaintiff, :

: The Hon. Ruben Castillo

v. :

:

MICROSOFT CORPORATION, :

Defendant. :

 

MEMORANDUM OF LAW IN SUPPORT OF DEFENDANT MICROSOFT

CORPORATION’S MOTION TO DISMISS PURSUANT TO FED. R. CIV. P. 12(b)(6)

 

  1. Introduction.
  2. This is a proposed nationwide class action alleging claims for breach of warranty, negligence, deceptive business practices and consumer fraud. Plaintiff, a professional software developer, alleges that certain older versions of Microsoft’s FoxPro database development software contain "latent defects." The gravamen of plaintiff’s Complaint is that the software allegedly cannot figure out the "correct" century when a user - running a database application that the professional developer wrote with FoxPro - enters a date by typing only the last two digits of the year (as for example, by entering only "25" instead of "1925" or "2025"). Microsoft denies that there is any defect, "latent" or otherwise in FoxPro. However, even assuming the truth of plaintiff’s allegations, plaintiff’s Complaint must be dismissed in its entirety.

    First, plaintiff has stated no warranty claims against Microsoft. Plaintiff’s claim is not within the scope of the express warranty: plaintiff does not allege that Microsoft warranted that FoxPro would "know" what century a user "intended" when entering an inherently ambiguous two-digit year into a four-digit field. Even if within the scope of the express warranty, however, plaintiff’s warranty claims would be barred. Plaintiff purchased FoxPro in spring 1995, with a ninety-day express limited warranty. Plaintiff suffered no damage during the warranty period. Indeed, she did not even observe the alleged "defect" during that time. No implied warranties arose because plaintiff was not in privity of contract with Microsoft and because Microsoft validly disclaimed them. In addition, Plaintiff’s failure to follow the Uniform Commercial Code’s requirement that she give notice of breach before filing suit also bars her warranty claims. Her warranty claims must accordingly be dismissed.

    Second, plaintiff alleges negligence. This claim too must be dismissed, because plaintiff’s injury, if any, is purely economic in nature. Under the "economic loss" doctrine, claims in tort are barred when the relationship between the parties is governed by contract - here the warranty agreement between plaintiff and Microsoft.

    Finally, plaintiff alleges broad-brush claims for deceptive trade practices and consumer fraud. But plaintiff’s consumer fraud claims are beyond the statute of limitations, and her deceptive trade practice claims are barred because the sole form of relief - injunction - is unavailable to a person who is aware of (has in fact sued over) the product’s alleged defect, and is therefore unlikely to be deceived into buying it in the future. Finally, plaintiff alleges no misrepresentations by Microsoft that constitute actionable deception or consumer fraud.

  3. SUMMARY OF RELEVANT FACTS.
  4. Plaintiff alleges that she has her own software development business, and that she purchased FoxPro 2.6. Complaint 21. She does not allege a purchase date, but admits, in paragraph two of her affidavit filed with her preliminary injunction motion, that "[i]n 1995 she purchased FoxPro version 2.6 for DOS and Windows." FoxPro is a development "tool," used by software professionals to create database "applications" for clients. Complaint 9.

    Plaintiff claims that applications created with FoxPro cannot assign the correct century to a date to be stored in a database, when the user of the application enters only the last two digits of the date’s year but "intends" the date to be in the twenty-first century. Complaint 14-18. Plaintiff admits FoxPro can display date fields on-screen and in printed reports in two different styles or "modes." In "Century Off" mode, FoxPro displays only the last two digits of the year, Complaint 16, with the date displayed on-screen or in a printout in an "mmddyy" format (i.e., two digits each for month, day and year). In "Century On" mode, the Product displays or prints all four digits of the year, Complaint 17, as "mmddyyyy." FoxPro always stores dates in four digits, even if only two are entered. Plaintiff alleges that if users enter only the last two digits of a year when in the four-digit display Century On mode, FoxPro always interprets the year as in the twentieth century. Complaint 17-18. Plaintiff alleges that this "default" interpretation of ambiguous two-digit years, which the developer can change, is a Year 2000 "defect." Complaint 20.

    Plaintiff, in essence, alleges that FoxPro is defective because it does not "know" what century the user means (i.e., nineteenth, twentieth, twenty-first, etc.) when entering only the last two digits into a four-digit field to signify the year. Complaint 14-19. This is comparable to claiming a product is defective because it does not "know" whether a user who enters "3:00" means A.M. or P.M.

  5. Argument.
  6. Assuming the accuracy of plaintiff’s allegations for purposes of this motion, the Complaint fails to state any valid causes of action.

    1. The Complaint Does Not State A Valid Warranty Claim.
      1. Plaintiff’s Express Warranty Claim Must Be Dismissed Because She Does Not Allege Any Warranty Against The Alleged Defect.
      2. As an initial matter, plaintiff’s express warranty claim must be dismissed, because nothing plaintiff alleges shows that Microsoft ever made an express warranty against her alleged FoxPro Year 2000 "defect." Plaintiff points to only two general statements by Microsoft: (1) that FoxPro 2.6 will "perform substantially in accordance with the accompanying printed materials for a period of ninety (90) days"; and (2) the description of FoxPro as an "ideal" environment for creating and maintaining databases. Complaint 45, 46.

        As to the first statement, it simply refers to the printed materials accompanying FoxPro 2.6, and says nothing at all about how FoxPro handles dates. Moreover, plaintiff nowhere cites anything in the printed materials accompanying FoxPro 2.6 that says that the software would supply the "intended" century of an ambiguous two-digit year. Microsoft made no such statement, and plaintiff’s general reference to the product documentation is not a substitute for an express warranty against the "problem" she complains of.

        As to the second statement, it is just a description or commendation that, in Microsoft’s view, FoxPro would be useful to a person wishing to develop database applications. Like the first statement, it says nothing about date processing. It is at most "puffing," see infra note 7 and accompanying text, and, as the U.C.C. makes clear, as a general recommendation of the product it creates no warranty. 810 ILCS 5/2-313(2) ("opinion or commendation of the goods does not create a warranty"); see also Adolphson v. Gardner-Denver Co., 196 Ill. App. 3d 396, 401-03, 553 N.E.2d 793, 797-98 (3d Dist. 1990) (printed statements that product was "designed for ‘quick service and lower maintenance’" was puffing and mere "commendation of the goods," and therefore did not create express warranty).

      3. Plaintiff’s Warranty Claims Must Be Dismissed Because She Does Not Allege That She Suffered Any Damage Within The Warranty Period.
      4. Nowhere in the Complaint does plaintiff allege that she suffered any damage from - or even observed - the purported defect during the ninety-day warranty period. (The Visual FoxPro 3.0 license agreement is attached to the Declaration of Ricardo Wenger attached to the Motion to Dismiss as Exhibit 2; the Fox Pro 2.5 and 2.6 license agreements, containing the limited warranties for those products, are attached to the Declaration of Judy Weston attached to the Motion to Dismiss as Exhibit 3.) Complaint 49. Based on the admissions in plaintiff’s affidavit and her lawyer’s letter, see supra note 1 and accompanying text, her warranty period ended during the summer of 1995.

        Two recent opinions from the Northern District of Illinois, and a third from the Appellate Court of Illinois, firmly establish that there can be no warranty liability for defects that do not manifest themselves during the warranty period. See Sampler v. City Chevrolet Buick Geo, Inc., 10 F. Supp. 2d 934 (N.D. Ill. 1998); Karpowicz v. General Motors Corp., No. 97 C 1390, 1998 WL 142417 (N.D. Ill. March 26, 1998); Tokar v. Crestwood Imports, Inc., 171 Ill. App. 3d 422, 532 N.E.2d 382 (1st Dist. 1988).

        In Karpowicz, the defendant expressly warranted certain vehicles against rust-through for six years or 100,000 miles. During the warranty period, paint on the plaintiffs’ vehicles began to peel off or "delaminate." Karpowicz, 1998 WL 142417, at *1. The plaintiffs claimed that "delamination inevitably leads to corrosion and rust-through," and therefore "the warranty should cover repairs to correct delamination problems." Id. at *4.

        The court rejected the plaintiff’s arguments, stating that it could not extend the warranty period simply to reach what might be thought a more equitable result. Id. The warranty was against rust-through within the warranty period, not conditions that would likely (or, as the plaintiff put it, "inevitably") lead to rust-through in the future:

        Case law uniformly holds that time-limited warranties do not protect buyers against defects that existed before but are not discovered until after the expiration of the warranty period. . . . The plaintiffs’ reading of the express warranty to include delamination that eventually leads to rust-through would render meaningless the time/mileage limitations of GM’s warranty.

        Id. (emphasis added).

        In Sampler, the plaintiff’s car required a variety of repairs, most after the thirty-day written warranty. See Sampler, 10 F. Supp. 2d at 936. The court first noted that the seller could validly limit the duration of an implied warranty. Id. at 940; see also L.S. Heath & Son v. AT & T Information Sys., Inc., 9 F.3d 561, 571 (7th Cir. 1993) (implied warranties effectively disclaimed). As here, any implied warranties were limited to the duration of the express warranty, and liability depended on manifestation of the defect within the warranty period: "A buyer may not bring an action for breach of express or implied warranty based on defects that became evident after the expiration of those warranties." Sampler, 10 F. Supp. at 941.

        In Tokar, the Illinois Appellate Court similarly held that defects that manifested themselves only after the expiration of the warranty period could not be the basis for express or implied warranty claims:

        [P]laintiff cannot base an action for breach of express or implied warranties limited to one year after purchase on defects manifesting themselves after that period. . . . [B]y limiting the duration of its warranties, [defendant], in effect, limited the time within which a claim could be asserted thereunder . . . for [defendant’s] breach of those warranties.

        Tokar, 171 Ill. App. 3d at 432-33, 532 N.E.2d at 388-89.

        In this case, plaintiff makes no allegations of any injury during the warranty period, nor does she contest that the license agreements containing the warranties are legally enforceable. See ProCD, Inc. v. Zeidenberg, 86 F.3d 1447, 1452-53 (7th Cir. 1996) (license agreements supplied with packaged software enforceable under U.C.C.). Allegations that applications she created using FoxPro may not work as she would like after her warranty has expired are plainly insufficient.

        Plaintiff would have the Court rewrite the term of an express warranty upon an allegation that a purported "defect" was not observable in the warranty period. But as then-Chief Judge Breyer stated in squarely rejecting this radical expansion of liability, even if observing a defect would have taken "heroic" efforts, the bargain struck at the time of sale is not to be undone:

        One can often imagine some kind of special inspection that might have been, but was not, made during the warranty period, say (to use an exaggerated example for illustrative purposes) the inspection of a boat’s hull by a brigade of wood-specialist Ph.D.’s armed with electron microscopes, that might have discovered a special weakness that did not, in fact, become a problem until many years later. To insist upon liability for unobserved defects that only such heroic (and hypothetical) inspections may well have found would extend a warranty’s life well beyond its specified time period, eroding its intended liability-limiting language.

        Canal Elec. Co. v. Westinghouse Elec. Co., 973 F.2d 988, 993 (1st Cir. 1992).

        In summary, if plaintiff wanted a database development tool with a longer warranty period, she could have searched for one in the marketplace, balancing price against other features, including her special requirements. See ProCD, 86 F.3d at 1453 ("adjusting terms in buyers’ favor might help [the plaintiff] today (he already has the software), but would lead to a response, such as a higher price, that might make consumers as a whole worse off"). The warranty to which plaintiff agreed ended in 1995, and the Court cannot ignore its duration simply because she did not suffer damage from - or even see - the alleged "defect" sooner. Plaintiff’s warranty claims must accordingly be dismissed.

      5. Plaintiff’s Implied Warranty Claims Are Barred Because They Were Validly Disclaimed.
      6. The limited warranties supplied with the Products disclaim all express and implied warranties beyond ninety days. See Motion to Dismiss at Exhibits 2 & 3. Warranty disclaimers are enforceable and bar plaintiff’s implied warranty claims where, as here, the disclaimer language is conspicuous and specifically disclaims the implied warranties of merchantability and fitness for a particular purpose. 810 ILCS 5/2-316(2); Lytle v. Roto Lincoln Mercury & Subaru, Inc., 167 Ill. App. 3d 508, 517, 521 N.E.2d 201, 206 (2d Dist. 1988). A disclaimer is conspicuous if it is written in such a way that a reasonable person should have noticed it, for example if it is in larger or different type from other words. Carpenter v. Mobile World, 194 Ill. App. 3d 830, 837, 551 N.E.2d 724, 728 (4th Dist. 1990); Cole Energy Co. v. Ingersoll-Rand Co., 678 F. Supp. 208, 212 (N.D. Ill. 1988).

        In the warranty supplied with the Products, the disclaimers are in bold type, in a section titled, in bold, underlined, all capital letters, NO OTHER WARRANTIES. The disclaimers are conspicuous and therefore valid.

      7. Plaintiff’s Failure To Give Microsoft Notice Of Breach Within A Reasonable Time Precludes Her Warranty Claims.

      The U.C.C.’s pre-litigation notice requirement, 810 ILCS 5/2-607, required that plaintiff give Microsoft actual notice that there were problems with her particular transaction before suing. See Connick v. Suzuki Motor Co., Ltd., 174 Ill. 2d 482, 493, 675 N.E.2d 584, 590 (1996) (under U.C.C. notice requirement, "it is essential that the seller be notified that this particular transaction is ‘troublesome and must be watched.’") (emphasis added). This requirement is not a merely formal prerequisite to a lawsuit, to be satisfied by plaintiff’s counsel - as was attempted here - firing off a pre-litigation "notice" on the day the case was filed. See supra note 1 & Motion to Dismiss at Exhibit 1. Rather, the pre-litigation notice requirement advances the goal of encouraging the amicable resolution of disputes and avoiding the unnecessary waste of scarce judicial resources. See Perona v. Volkswagen Of Am., Inc., 292 Ill. App. 3d 59, 63, 684 N.E.2d 859, 863 (1st Dist. 1997) ("The purpose of the notice is to allow the defendant an opportunity to gather evidence, investigate facts, and negotiate a possible settlement."). Indeed, in Connick and Perona, the defendants had actually issued recall notices on the vehicles that were the subject of the lawsuits. Nevertheless, the failure of the representative plaintiffs to give notice of breach with respect to their own vehicles before commencing class actions barred their lawsuits.

      Plaintiff alleges that "[a]t all relevant times, Defendant knew, or should have known, that its FoxPro Products contained these latent Year 2000 defects." Complaint 48. This conclusory allegation of general knowledge also falls far short of the U.C.C.’s notice requirement, because it did not, in advance of litigation, apprise Microsoft that there was a problem in the particular relationship between plaintiff and Microsoft. As the Illinois Supreme Court stated in Connick, "even if a manufacturer is aware of problems with a particular product line, the notice requirement of section 2-607 is satisfied only where the manufacturer is somehow apprised of the trouble with the particular product purchased by a particular buyer." Connick, 174 Ill. 2d at 494, 675 N.E.2d at 590 (emphasis added).

      Plaintiff made no attempt to comply with the U.C.C.’s pre-litigation notice requirement until December 10, 1998, the very date this case was filed. See Motion to Dismiss at Exhibit 1. All of plaintiff’s warranty claims are accordingly barred.

    2. Plaintiff’s Negligence Claim Is Barred By The Economic Loss Rule.
    3. Plaintiff is in the business of selling software applications that she creates using FoxPro to third parties. Complaint 1, 3. Plaintiff makes no allegations that FoxPro has caused personal injury or property damage. Plaintiff’s alleged injuries are classic "economic loss," and as a result plaintiff is precluded from recovering in tort.

      There can be no recovery for negligence where, as in the present case, the alleged damages are limited to economic loss. See, e.g., Fireman’s Fund Ins. Co. v. SEC Donohue, Inc., 176 Ill. 2d 160, 163, 679 N.E.2d 1197, 1199 (1997); Moorman Mfg. Co. v. National Tank Co., 91 Ill. 2d 69, 91, 435 N.E.2d 443, 453 (1982) ("[W]e follow the decisions of the majority of courts and commentators and hold that plaintiff cannot recover for solely economic loss under the tort theor[y] of . . . negligence"). Under Moorman, negligence claims in product liability cases may only be asserted if the product’s failure causes personal injuries or damage to "other property." Moorman, 91 Ill. 2d at 91, 435 N.E.2d at 453. In the present case, there are no such allegations.

      First, Moorman clearly states that the economic loss rule may be defeated only when personal injury or harm to "other property" is caused by a sudden and calamitous event. Moorman, 91 Ill. 2d at 83, 435 N.E.2d at 449 ("When the defect causes an accident ‘involving some violence or collision with external objects,’ the resulting loss is treated as property damage. On the other hand, when the damage to the product results from deterioration, internal breakage, or other non-accidental causes, it is treated as economic loss."); see also Trans State Airlines v. Pratt & Whitney Canada, Inc., 177 Ill. 2d 21, 41, 682 N.E.2d 45, 54 (1997) ("[W]e continue to require, for purposes of tort recovery, the coupling with a sudden and calamitous occurrence."). Plaintiff alleges no "sudden and calamitous occurrence" or "violence or collision with external objects." This is classic economic loss.

      Second, plaintiff alleges no "other property" of hers that has somehow been damaged by FoxPro. To the extent that plaintiff attempts to argue that the applications plaintiff created and sold to her clients could be considered "other property" than the FoxPro tool, plaintiff has not standing to assert claims on behalf of their clients that their "other property" was damaged. See Lujan v. Defenders of Wildlife, 504 U.S 555, 563 (1992) (plaintiff must have suffered "injury in fact," which "requires more than an injury to a cognizable interest. It requires that the party seeking [relief] be himself among the injured.") (citing Sierra Club v. Morton, 405 U.S. 727, 734-35 (1972)); accord Simmons v. Interstate Commerce Comm’n, 900 F.2d 1023, 1026 (7th Cir. 1990).

    4. No Implied Warranties Were Created Between Microsoft and Plaintiff.

An implied warranty of merchantability claim for economic loss can only be sustained where the plaintiff and defendant are in contractual privity. See Rothe v. Maloney Cadillac, Inc., 119 Ill.2d 288, 291-92, 518 N.E.2d 1028, 1029-30 (1988); Bethlehem Steel Corp. v. Chicago Eastern Corp., 863 F.2d 508, 522 (7th Cir. 1988).

An implied warranty of fitness for a particular purpose can only exist in the following three circumstances, none of which are present in this case:

      1. The plaintiff and defendant are in actual privity of contract;
      1. The plaintiff is the equivalent of a third party beneficiary to a sales contract; or
      2. The plaintiff is otherwise able to sustain a tort action against the seller.

See Banco Del Estado v. Navistar Int’l Transp. Corp., 954 F. Supp. 1275, 1285 (N.D. Ill 1997); Slate Printing Co. v. Metro Envelope Co., 532 F. Supp. 431, 434 (N.D. Ill. 1982).

In the present case, there is no allegation that Microsoft and plaintiff are in contractual privity. To the contrary, plaintiff admits she purchased FoxPro from a reseller. Complaint 1. There is similarly no allegation that plaintiff is the equivalent of a third party beneficiary to a sales contract.

Finally, plaintiff is not within the broad category of persons "otherwise able to sustain a tort action." Consistent with the economic loss rule, this exception to privity is strictly limited to cases of personal injury, Navistar, 954 F. Supp. at 1286, and there is no allegation of personal injury in the Complaint. There are, therefore, no viable claims for breach of implied warranties.

    1. Plaintiff’s ICFA And IDTPA Claims Fail As A Matter Of Law.
      1. The Statute of Limitations Bars Plaintiff’s ICFA Claim.
      2. The statute of limitations for the ICFA is three years from the time of accrual, defined as "the date when the plaintiff ‘knows or reasonably should know of his injury and also knows or reasonably knows that it was wrongfully caused.’" Midland Mgmt. Corp. v. Computer Consoles, Inc., 837 F. Supp. 886, 887 (N.D. Ill. 1993) (Posner, C.J., sitting by designation) (citing Knox v. Celotex Corp., 88 Ill. 2d 407, 415, 430 N.E.2d 976, 980 (1982)).

        Plaintiff filed the present action on December 10, 1998, more than three years after purchasing FoxPro 2.6 in the spring of 1995. Because the plaintiff has no alleged no factual basis for asserting that her claim accrued significantly later than her purchase, her untimely filed ICFA claim must be dismissed. See Chicago Bd. Options Exch., Inc. v. Connecticut Gen. Life Ins. Co., 553 F. Supp. 125, 129 (N.D. Ill. 1982), rev’d on other grounds, 713 F.2d 254 (7th Cir. 1983) (no factual basis shown for delaying accrual of ICFA claim).

        Indeed, plaintiff’s substantive allegations contradict her conclusory assertion, Complaint 49, that no reasonable person in her shoes could have known in 1995 how FoxPro handles two-digit date data, suggesting that her claim therefore did not accrue until recently. Plaintiff complains that if only two digits are entered for the year, FoxPro interprets that ambiguous entry as a twentieth-century year and stores it as such. Complaint 18. But in the same paragraph, plaintiff admits that this allegedly "defective" behavior occurs in Century On mode - that is, when FoxPro explicitly displays on the screen all four digits as actually stored. Any professional software developer who, in 1995, was writing and testing a database application that might require the entry of dates after 1999 - a mortgage amortization program, for example - would regularly have seen the purported "defect" in action. All plaintiff had to do was type "01" with Century On to see that FoxPro displayed "1901." She does not explain why this functionality could not reasonably be discovered then but is apparent now. As a matter of law, her failure to see what was there to be observed cannot justify delaying the accrual of her cause of action.

        Finally, plaintiff’s allegation of concealment is totally at odds with paragraph 20 of her Complaint, where she alleges that "[t]he computer industry has been aware of the Millennium Bug since the early 1980s." Plaintiff, a professional programmer, is part of the computer industry herself. She cannot allege that in 1995 - fifteen years after she admits the industry was aware of Year 2000 issues - no reasonable professional programmer, let alone one whose applications regularly involve date data, could have observed how FoxPro dealt with dates, particularly when all she had to do was look at the screen. Plaintiff has simply sued too late.

      3. The Complaint Does Not Allege Cognizable Misrepresentation Claims under the ICFA or IDTPA.
      4. Plaintiff claims that Microsoft misrepresented that the Products were Year 2000 compliant, and concealed or failed to timely disclose the Products' alleged Year 2000 defect. Complaint 35. Plaintiff’s Complaint, however, contains no factual allegations that support claims under the ICFA or the IDTPA.

        1. Microsoft Made No Representation That The Products Are Year 2000 Compliant.
        2. The first ground can be quickly addressed. As with her express warranty claim, plaintiff nowhere points to any actual representations by Microsoft about Year 2000 compliance. The only representations alleged are that FoxPro would "perform substantially in accordance with the accompanying printed materials for a period of ninety (90) days," Complaint 45, and that "FoxPro is an ideal bus