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The Legal Line
By Ed Maldonado, Esq. |
Dear Legal Line:
I would like to ask you some questions regarding problems with a
prepaid calling platform I purchased at the end of 2003. I purchased
the equipment without a full written contract with the manufacturer.
Instead, I have a series of purchase orders which are the contract,
according to them. The problems with the switch started from the
first day with non-functional third party applications that were
included on the switch. Complicating this, the manufacturer provided
very limited training (to their people and ours) on how to troubleshoot
problems. The manufacturer did eventually find another provider
of software for their switch. However, this was the first time the
manufacturer used this application, and installed it on my switch
without any testing and or monitoring of the switch traffic. A conflict
immediately arose and this started to create many other problems
between hardware and software that ended with system crashing almost
every day during a 12 month period. My business started taking big
losses because my cards were working on-and-off all that time. This
all lead to a multitude of complaints from retailers and consumers.
The problem finally seemed resolved when two months passed in which
the switch started to act more stable and did not crash entirely.
This was between March and February, when we had the longest run
without any major issues of the switch crashing. This however did
not last. The switch crashed completely again in April and this
time for almost a full week. It was a real disaster for my company.
My sales went completely down for a week. After a lot of troubleshooting
during that time, the platform eventually regained stability and
has continued to work, for now.
I have had little time to rebound financially from all these problems
and I’ve reached the point were I can only hope they have
resolved the hardware and software problems so I can recoup some
of my losses if I can. If I can’t, I would like to know more
about the other option of suing the switch manufacturer for selling
non-operational equipment. The manufacturer continues to sell this
product throughout the USA and I suspect that there may have been
similar problems for other companies that used the same switch.
Regardless of all of the manufacturer’s efforts to resolve
all these problems with the switch, including an offer to take the
switch back with a full refund, my damages have cost me far more
than the value of the switch itself with all the services packages
originally sold to me. What are my options where I have taken losses
after purchasing a not-fully-tested and not-ready-to-operate switch?
Where do I begin?
Switch Frozen Business
Dear SFB:
Initiating litigation to resolve a problem, like any other business
decision, is one in which you must take careful stock of the underlying
issues in comparison to your likelihood for success. To do this,
you must begin by evaluating the dollar value of the damages involved,
the complexity of the problem, and the potential evidence in hand,
before, not after, filing a lawsuit. From what I have read from
your question thus far, it sounds as if you were under the impression,
or perhaps a representation, that the switch was fit for a particular
purpose; it was tested; and it was purported to operate. These types
of issues generally relate to warranties of the manufacturer. Warranties
are generally wording embodied in the contract, or the bargain to
purchase. It is usually a statement or representation made by the
seller, as a part of the bargain or contract, that has reference
to the character or quality by which the seller promises or undertakes
to ensure will be true. Most often warranties are found in a particular
clause in a contract either by an expressed reference, or by and
through an Exemption of warranties where the seller states he is
not liable for a particular purpose, character or quality. From
what you have stated, there is no one contract that merges all the
terms and conditions of the sale of the switch and software into
a single document. Instead, a series of forms embodies the bargain
you made for the switch. In order to evaluate what you have, you
will need to review all the documentation of the sale to see if
there is either a clause that relates to a warranty, or some other
limitation of liability that restricts damages from damages as a
direct result of a poorly manufactured or designed product. This
process of piecing the various documents together to establish a
final agreement is called a “battle of the forms” by
legal professionals. This is because the exact terms, including
limitations of liability and warranties, are incorporated in a piecemeal
fashion and meander in meaning until all the documents are placed
together. Conceptually, one document may state one thing and another
occurring later in time, may trump it.
Your evaluation should begin by sitting down with legal counsel
and reviewing all the forms to see if the manufacturer has somehow
limited the grounds you may be able to seek recovery via contractual
limitation. One aspect working in your favor is that telecom switch
platforms for performing prepaid calling are not an ordinary good
and are generally considered to be “customized” goods
giving you more strength for a warranty claim. It will be important
to also review the e-mails and correspondence from the manufacturer’s
salespeople to see if any limitations or representations as to fitness
for a particular purpose where made during the sale. For example:
“the combination of our hardware and our software will allow
you to pass high volumes of traffic seamlessly over extended time
without maintenance or disruption over a 1,000,000 times daily.”
This is the “stuff” of representations and warranties.
Should you and your legal counsel be able to identify that a representation
or warranty was made as a part of the deal, or that a warranty for
particular purpose arises, and there are no liability limitations,
then a good review of the problem history would be wise. The reason
is to evaluate the evidence you have in hand and the complexity
of showing this to a judge or jury. My experience has been that
switch-related lawsuits often tend to be extremely complex. By complex
I mean layered with issues, not to the level that it is difficult
or impossible for a judge or jury to understand, but to the extent
that they tend to be very detailed oriented. Your legal counsel
should also be versed in these technical issues enough that he or
she is not confused as to what occurred and what effect it had on
you.
From what you have written here, it sounds as if a lawsuit may be
eminent if evidence of a warranty can be found. The fact that the
switch crashed continually over a 12 month period is also telling,
in that a major conflict existed in the applications that generally
should not be occurring. The damages also seem to far outweigh any
refund amounts offered that push litigation considerations over
settlement. I imagine that your company breached other agreements,
either with other card providers, distributors, retailers, and consumers
as a result of all of this, assuredly causing further monetary losses
to your company. These are all definitely issues to bring up with
your legal counsel in evaluating whether or not to sue and a good
place to begin.
A final point: remember that initiating litigation can be costly.
Always explore the costs and repercussions should you not prevails
with your legal counsel. Cases can be appealed should there be grounds
and anticipated recover times may be extended.
Good Luck and Success in the Industry.
Do you have questions for Legal Line? Send them to legalline@prepaid-press.com.
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