Why the fraud claim is the lawyer’s weapon of choice in lawsuits over failed technology projects

Two recent examples

When a big technology implementation proj­ect fails, the cust­om­er’s law­yers will pretty much always try hard to find opportunities to ac­cuse the vendor of having lied.

Why do customer lawyers do this? Because it can work, sometimes spectacularly well.

We see an example in a case I blogged about a few weeks ago: British Sky Broad­casting contracted with EDS to de­vel­op a customer rela­tion­ship management (CRM) soft­ware system, and eventually filed suit when the project went seriously awry. The judge con­clu­ded that EDS made fraudulent mis­rep­re­sen­ta­tions when one of its senior UK executives lied to Sky about EDS’s analy­sis of the amount of elapsed time needed to complete the initial delivery and go-live of the system. After the de­ci­sion was handed down, Sky announced that it expected the damage award against EDS to be at least £200 million.

Another example is Waste Management, Inc.’s lawsuit against SAP over a failed enterprise resource planning (ERP) software implementation, re­por­ted earlier this week to have settled for an undisclosed sum. At the heart of Waste Management’s case was its allegation, not just that SAP had breached the contract, but that it was guilty of fraudulent in­duce­ment, fraud, and negligent mis­rep­re­sen­ta­tion.

"They lied!" is an easier sell in court

Litigation counsel know that jurors typically won’t un­der­stand whatever tech­nol­o­gy is involved.  (In fact, the customer’s lawyers might well try to exclude any prospective juror who knows even a little about the technology.)

That can make it hard for customers to win such cases on garden-variety ‘technical’ grounds such as breach of contract or breach of warranty.

Judges and jurors absolutely do get it, on the other hand, when it appears some­one lied or cheated. 

The threat of punitive damages raises the stakes

If a customer’s lawyers can prove fraud by the ven­dor, then the cust­om­er may be able to recover not just ‘benefit of the bargain’ contract dam­ag­es, but possibly punitive damages as well.  This is important because “punis” ordinarily aren’t available in garden-variety contract cases. 

For that reason, even when evidence of fraud is weak, the mere threat of punitive damages can give the customer more leverage in making set­tle­ment demands.

Related posts

• Why tech vendors should consider providing a written risk-factors disclosure sheet
• Vendors, consider a no-reliance clause for your sales contracts, to help forestall claims of fraudulent misrepresentation
• Lawsuit-defense tip for software vendors: Clearly label demos and mock-ups as such