Publications International Limited v. Mindtree Limited, 2014 WL 3687316 (N.D.Ill. 2014) looks at whether a Web site developer is financially responsible for a customer’s multiple system crashes.
The plaintiff on-line consumer products reviewer sued the defendant information-technology firm after the plaintiff’s site kept malfunctioning. The plaintiff sued for breach of the parties’ written consulting agreement and joined claims for wilfull and wanton conduct and fraudulent concealment.
The plaintiff alleged that defendant’s negligence in installing and maintaining the site resulted in decreased customer traffic resulting in lost revenue. The defendant moved to dismiss all claims except for the breach of contract count.
Result: Motion granted.
Reasons:
The Court rejected plaintiff’s breach of warranty claim failed because it was premised on a warranty – to comply with the standard of care of an experienced IT company – that didn’t exist in the parties’ contract.
In Illinois, an express warranty is contractual in nature and the specific warranty text will govern the parties rights and duties. Here, the consulting contract contained broad disclaimers of express and implied warranties as well as an integration clause.
Illinois courts enforce warranty disclaimers as long as they’re conspicuous (e.g. bold, ALLCAPS language) and integration clauses are routinely applied to prevent contracting parties from trying to change a contract’s clear wording by citing prior oral statements related to the contract’s subject matter. (**2-3).
The Court struck the plaintiff’s negligence and willful and wanton counts based on the economic loss rule. The economic-loss doctrine prevents a party from suing in tort to recover economic damages that are based on a breach of contract.
So, if a contract involving a defective product exists, and the plaintiff alleges that the product defect caused disappointed commercial expectations, the plaintiff’s remedy lies in breach of contract; not in negligence or in another tort theory.
The Court found that the a contract clearly governed the parties’ relationship and the plaintiff’s claimed damages to its on-line presence, goodwill, reputation and its brand were purely intangible and economic in nature.
An exception to the economic loss rule involves an action alleging negligent misrepresentation. This exception applies where a defendant is “in the business of supplying information for the guidance of others in their business transactions.” Other economic loss exceptions include the fraud and sudden and dangerous occurrence exceptions.
Here, the negligent misrepresentation exception didn’t apply. The defendant was hired to provide a product (software) and services (tech assistance) – not information (this in spite of the ironic “information-technology” title).
Since the contract’s primary purpose was for the defendant to supply software and technical services to the plaintiff, the negligent misrepresentation exception wasn’t triggered. Any information provided by the defendant was purely tangential or “secondary” to the main purpose of the contract.
The Court also nixed the plaintiff’s “extra-contractual” duty argument: that defendant owed a duty of care outside the scope of the written contract. The only situations that an extra-contractual duty applies are in professional malpractice suits (e.g., a legal malpractice case) where the defendant owes a fiduciary duty to a comparatively vulnerable plaintiff.
The Court noted that there was no case-sanctioned practice or custom of allowing professional malpractice claims against IT developers and no law that saddled them with fiduciary duties to their customers.
Afterwords:
– Warranty disclaimers are valid and enforced so long as they’re clear and conspicuous;
– The economic loss rule bars tort claims against a defendant who provides a mix of goods and information if the information is secondary to the supplier of goods or services.
