Peerless Wall & Window Coverings, Inc. v. Synchronics, Inc., 85 F.Supp.2d 519 (W.D. Pa.) (full-text), aff'd, 234 F.3d 1265 (Table) (3d Cir. 2000).
Plaintiff, Peerless Wall & Window Coverings, Inc. (Peerless), a small business in Pennsylvania, is a licensee of a cash register software. To run the cash registers in its stores, manage inventory, and link the stores electronically, Peerless, in 1994, installed Point of Sale V6.5 software produced by Defendant, Synchronics, Inc., a small corporation in Tennessee that develops and markets business software.
Point of Sale V6.5 was written with code that used only a two-digit year field. For example, 1999 was stored as 99. This meant that all dates were interpreted as falling within the twentieth century (2001, stored as 01, would be mistaken for 1901). In other words, Point of Sale V6.5 was not Year 2000 (Y2K) compliant.
The software was licensed under a shrink-wrap agreement printed on the envelopes containing the disks. The agreement included a clause that, among other things, limited remedies to replacement within ninety days if there was a defect in the disks. Also, the entire risk as to the quality and performance of the software was with the consumer. In 1995, Synchronics stopped selling and supporting Point of Sale V6.5. Two years later, Synchronics told Peerless that the software was not Y2K compliant and should be replaced.
Trial Court Proceedings
Peerless sued Synchronics, alleging breach of contract, breach of express and implied warranties, fraud and negligent misrepresentation. The court granted Synchronics' motion for summary judgment. The trial court held that the possibility of recovering punitive damages satisfied the amount in controversy requirement for diversity jurisdiction purposes, the implied warranties of merchantability and fitness were disclaimed, the 90-day express warranty covered only media containing the software, not the software itself, the integration clause in the license precluded the fraud claims based on sales literature; under Tennessee law as interpreted by federal court, a licensor had a duty to disclose that the software was not Y2K compliant; the fraud claims failed due to lack of showing of reliance; the economic loss doctrine precluded recovery for negligent misrepresentation; and the nominal damages showing precluded summary judgment based on an absence of damages.