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.