BLAW37 Mortenson Company Inc vs Timberlake Software Corporation Case Discussion There are three issues in the attached case. Please complete 3 IRACs and tu

BLAW37 Mortenson Company Inc vs Timberlake Software Corporation Case Discussion There are three issues in the attached case. Please complete 3 IRACs and turn in by the end of the week. You are basically reporting on the Court’s decision. Good luck! M.A. MORTENSON COMPANY, INC., Petitioner, v. TIMBERLINE SOFTWARE
CORPORATION and SOFTWORKS DATA SYSTEMS, INC., Respondents.
No. 67796-4
SUPREME COURT OF WASHINGTON
998 P.2d 305; 2000 Wash. LEXIS 287
October 26, 1999, Oral Argument Date
May 4, 2000, Filed
PRIOR HISTORY: [*1] Appeal from Superior Court, King County. 95-2-31991-2.
Honorable Phillip Hubbard, Judge.
DISPOSITION: Court of Appeals affirmed, upholding trial court’s order of summary judgment
of dismissal and denial of motions to vacate and amend.
COUNSEL: For Petitioner: Bradley L. Powell, Oles Morrison Rinker & Baker Llp, Seattle, WA,
Catherine C. Clark, Williams & Williams Psc, Kenmore, WA, Theodore Russell, Sheppad
Mullin Richter & Hampton Llp, San Francisco, CA.
For Respondents: Charles E. Peery, Peery Hiscock Pierson & Ryder, Seattle, WA, Michael E.
Ricketts, Peery Hiscock Pierson Kingman & Peabody, Seattle, WA, Laura P. Knechtel, Federal
Way, WA, Michael P. Grace, Groff & Murphy Pllc, Seattle, WA.
Amicus Curiae on behalf of Business Software Alliance: Robert B. Mitchell Jr., Preston Gates &
Ellis, Seattle, WA, Mark Wittow, Preston Gates & Ellis, Seattle, WA.
JUDGES: Authored by Charles W. Johnson. Concurring: Richard P. Guy, Charles Z. Smith,
Barbara A. Madsen, Philip A. Talmadge, Faith E Ireland, Visiting Judge. Dissenting: Richard B.
Sanders, Gerry L. Alexander. Dissent by Sanders, J.
OPINIONBY: CHARLES W. JOHNSON
OPINION: En Banc
JOHNSON, J. — This case presents the issue of whether a limitation [*2] on consequential
damages enclosed in a ‘shrinkwrap license’ accompanying computer software is enforceable
against the purchaser of the licensed software. Petitioner M.A. Mortenson Company, Inc.
(Mortenson), a general construction contractor, purchased licensed computer software from
Timberline Software Corporation (Timberline) through Softworks Data Systems, Inc.
(Softworks), Timberline’s local authorized dealer. After Mortenson used the program to prepare
a construction bid and discovered the bid was $ 1.95 million less than it should have been,
Mortenson sued Timberline for breach of warranties alleging the software was defective. The
trial court granted Timberline’s motion for summary judgment. The Court of Appeals affirmed
the order of summary judgment, holding (1) the purchase order between the parties was not an
integrated contract; (2) the licensing agreement set forth in the software packaging and
instruction manuals was part of the contract between Mortenson and Timberline; and (3) the
provision limiting Mortenson’s damages to recovery of the purchase price was not
unconscionable. M.A. Mortenson Co. v. Timberline Software Corp., 93 Wn. App. 819, 826-37,
970 P.2d 803 (1999). [*3] We granted Mortenson’s petition for review and affirm the Court of
Appeals.
FACTS
Petitioner Mortenson is a nationwide construction contractor with its corporate headquarters in
Minnesota and numerous regional offices, including a northwest regional office in Bellevue,
Washington. Respondent Timberline is a software developer located in Beaverton, Oregon.
Respondent Softworks, an authorized dealer for Timberline, is located in Kirkland, Washington
and provides computer-related services to contractors such as Mortenson.
Since at least 1990, Mortenson has used Timberline’s Bid Analysis software to assist with its
preparation of bids. n1 Mortenson had used Medallion, an earlier version of Bid Analysis, at its
Minnesota headquarters and its regional offices. In early 1993, Mortenson installed a new
computer network operating system at its Bellevue office and contacted Mark Reich (Reich),
president of Softworks, to reinstall Medallion. Reich discovered, however, that the Medallion
software was incompatible with Mortenson’s new operating system. Reich informed Mortenson
that Precision, a newer version of Bid Analysis, was compatible with its new operating system.
– – – – – – – – – – – – – – – – – -Footnotes- – – – – – – – – – – – – – – – – n1 Bid Analysis is designed for use by general contractors preparing construction bids. The
program analyzes project requirements as well as bid information from subcontractors and finds
the lowest cost combination of subcontractors to carry out the required work.
– – – – – – – – – – – – – – – – -End Footnotes- – – – – – – – – – – – – – – – – [*4]
Mortenson wanted multiple copies of the new software for its offices, including copies for its
corporate headquarters in Minnesota and its northwest regional office in Bellevue. Reich
informed Mortenson he would place an order with Timberline and would deliver eight copies of
the Precision software to the Bellevue office, after which Mortenson could distribute the copies
among its offices. After Reich provided Mortenson with a price quote, Mortenson issued a
purchase order dated July 12, 1993, confirming the agreed upon purchase price, set up fee,
delivery charges, and sales tax for eight copies of the software. n2 The purchase order indicated
that Softworks, on behalf of Timberline, would ‘furnish current versions of Timberline Precision
Bid Analysis Program Software and Keys’ and ‘provide assistance in installation and system
configuration for Mortenson’s Bellevue Office.’ Clerk’s Papers at 206. The purchase order also
contained the following notations: Provide software support in converting Mortenson’s existing
Bid Day Master Files to a format accepted by the newly purchased Bid Day software. This work
shall be accomplished on a time and material basis of $ 85.00 per [*5] hour. Format information
of conversion of existing D-Base Files to be shared to assist Mortenson Mid-West programmers
in file conversion. -System software support and upgrades to be available from Timberline for
newly purchased versions of Bid Day Multi-User. -At some future date should Timberline
upgrade ‘Bid Day’ to a windows version, M.A. Mortenson would be able to upgrade to this
system with Timberline crediting existing software purchase toward that upgrade on a pro-rated
basis to be determined later. Clerk’s Papers at 206. Below the signature line the following was
stated: ‘ADVISE PURCHASING PROMPTLY IF UNABLE TO SHIP AS REQUIRED. EACH
SHIPMENT MUST INCLUDE A PACKING LIST. SUBSTITUTIONS OF GOODS OR
CHANGES IN COSTS REQUIRE OUR PRIOR APPROVAL.’ Clerk’s Papers at 206. n3 The
purchase order did not contain an integration clause.
– – – – – – – – – – – – – – – – – -Footnotes- – – – – – – – – – – – – – – – – n2 Mortenson subsequently ordered a ninth copy of the software.
n3 Items appearing in upper case in the original documents appear in upper case in this opinion.
– – – – – – – – – – – – – – – – -End Footnotes- – – – – – – – – – – – – – – – Reich signed [*6] the purchase order and ordered the requested software from Timberline.
When Reich received the software, he opened the three large shipping boxes and checked the
contents against the packing invoice. Contained inside the shipping boxes were several smaller
boxes, containing program diskettes in plastic pouches, installation instructions, and user
manuals. One of the larger boxes also contained the sealed protection devices for the software. n4
– – – – – – – – – – – – – – – – – -Footnotes- – – – – – – – – – – – – – – – – n4 A protection device is a piece of hardware that must be affixed to a computer in order to
operate the Bid Analysis software; the program will not operate without the device. Mortenson
received one protection device for each copy of software it ordered.
– – – – – – – – – – – – – – – – -End Footnotes- – – – – – – – – – – – – – – – All Timberline software is distributed to its users under license. Both Medallion and Precision
Bid Analysis are licensed Timberline products. In the case of the Mortenson shipment, the full
text of Timberline’s license agreement was set forth on the outside of each diskette pouch and the
inside cover of the instruction [*7] manuals. The first screen that appears each time the program
is used also references the license and states, Sthis software is licensed for exclusive use by:
Timberline Use Only.’ Clerk’s Papers at 302. Further, a license to use the protection device was
wrapped around each of the devices shipped to Mortenson. The following warning preceded the
terms of the license agreement: CAREFULLY READ THE FOLLOWING TERMS AND
CONDITIONS BEFORE USING THE PROGRAMS. USE OF THE PROGRAMS INDICATES
YOUR ACKNOWLEDGEMENT THAT YOU HAVE READ THIS LICENSE,
UNDERSTAND IT, AND AGREE TO BE BOUND BY ITS TERMS AND CONDITIONS. IF
YOU DO NOT AGREE TO THESE TERMS AND CONDITIONS, PROMPTLY RETURN
THE PROGRAMS AND USER MANUALS TO THE PLACE OF PURCHASE AND YOUR
PURCHASE PRICE WILL BE REFUNDED. YOU AGREE THAT YOUR USE OF THE
PROGRAM ACKNOWLEDGES THAT YOU HAVE READ THIS LICENSE, UNDERSTAND
IT, AND AGREE TO BE BOUND BY ITS TERMS AND CONDITIONS. Clerk’s Papers at 305.
Under a separate subheading, the license agreement limited Mortenson’s remedies and provided:
LIMITATION OF REMEDIES AND LIABILITY NEITHER TIMBERLINE NOR ANYONE
ELSE WHO HAS BEEN INVOLVED IN THE CREATION, PRODUCTION OR DELIVERY
OF THE PROGRAMS OR USER [*8] MANUALS SHALL BE LIABLE TO YOU FOR ANY
DAMAGES OF ANY TYPE, INCLUDING BUT NOT LIMITED TO, ANY LOST PROFITS,
LOST SAVINGS, LOSS OF ANTICIPATED BENEFITS, OR OTHER INCIDENTAL, OR
CONSEQUENTIAL DAMAGES ARISING OUT OF THE USE OR INABILITY TO USE
SUCH PROGRAMS, WHETHER ARISING OUT OF CONTRACT, NEGLIGENCE, STRICT
TORT, OR UNDER ANY WARRANTY, OR OTHERWISE, EVEN IF TIMBERLINE HAS
BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES OR FOR ANY OTHER
CLAIM BY ANY OTHER PARTY. TIMBERLINE’S LIABILITY FOR DAMAGES IN NO
EVENT SHALL EXCEED THE LICENSE FEE PAID FOR THE RIGHT TO USE THE
PROGRAMS.
Clerk’s Papers at 305.
Reich personally delivered the software to Mortenson’s Bellevue office, and was asked to return
at a later date for installation. The parties dispute what happened next. According to Neal Ruud
(Ruud), Mortenson’s chief estimator at its Bellevue office, when Reich arrived to install the
software Reich personally opened the smaller product boxes contained within the large shipping
boxes and also opened the diskette packaging. Reich inserted the diskettes into the computer,
initiated the program, contacted Timberline to receive the activation codes, and wrote down the
codes for Mortenson. [*9] Reich then started the programs and determined to the best of his
knowledge they were operating properly. Ruud states that Mortenson never saw any of the
licensing information described above, or any of the manuals that accompanied the software.
Ruud adds that copies of the programs purchased for other Mortenson offices were forwarded to
those offices. Reich claims when he arrived at Mortenson’s Bellevue office he noticed the
software had been opened and had been placed on a desk, along with a manual and a protection
device. Reich states he told Mortenson he would install the program at a single workstation and
‘then they would do the rest.’ Clerk’s Papers at 176. Reich proceeded to install the software and a
Mortenson employee attached the protection device. Reich claims he initiated and ran the
program, and then observed as a Mortenson employee repeated the installation process on a
second computer. An employee then told Reich that Mortenson would install the software at the
remaining stations.
In December 1993, Mortenson utilized the Precision Bid Analysis software to prepare a bid for a
project at Harborview Medical Center in Seattle. On the day of the bid, the software [*10]
allegedly malfunctioned multiple times and gave the following message: ‘Abort: Cannot find
alternate.’ Clerk’s Papers at 60. Mortenson received this message 19 times that day.
Nevertheless, Mortenson submitted a bid generated by the software. After Mortenson was
awarded the Harborview Medical Center project, it learned its bid was approximately $ 1.95
million lower than intended.
Mortenson filed an action in King County Superior Court against Timberline and Softworks
alleging breach of express and implied warranties. After the suit was filed, a Timberline internal
memorandum surfaced, dated May 26, 1993. The memorandum stated, ‘[a] bug has been found
[in the Precision software] . . . that results in two rather obscure problems,’ and explained, ‘these
problems only happen if the following [four] conditions are met.’ Clerk’s Papers at 224. The
memorandum concluded, ‘given the unusual criteria for this problem, it does not appear to be a
major problem.’ Clerk’s Papers at 224. Apparently, other Timberline customers had encountered
the same problem and a newer version of the software was sent to some of these customers. After
an extensive investigation, Timberline’s lead [*11] programmer for Precision Bid Analysis
acknowledged if the four steps identified in the memo were ‘reproduced as accurately as
possible,’ Mortenson’s error message could be replicated. Clerk’s Papers at 248.
Timberline moved for summary judgment of dismissal in July 1997, arguing the limitation on
consequential damages in the licensing agreement barred Mortenson’s recovery. Mortenson
countered that its entire contract with Timberline consisted of the purchase order and it never saw
or agreed to the provisions in the licensing agreement. The trial court granted Timberline’s
motion for summary judgment. The trial judge stated, ‘if this case had arisen in 1985 rather than
1997, I might have a different ruling’ but ‘the facts in this case are such that even construing them
against the moving party, the Court finds as a matter of law that the licensing agreements and
limitations pertaining thereto were conspicuous and controlling and, accordingly, the remedies
that are available to the plaintiff in this case are the remedies that were set forth in the licensing
agreement . . . .’ Report of Proceedings (Aug. 15, 1997) at 49.
Mortenson appealed the summary judgment order to the [*12] Court of Appeals. n5
– – – – – – – – – – – – – – – – – -Footnotes- – – – – – – – – – – – – – – – – n5 Four months after filing its notice of appeal, Mortenson moved to vacate the trial court
judgment and amend its pleadings to include tort claims. The trial court denied these motions and
the Court of Appeals affirmed. M.A. Mortenson Co., 93 Wn. App. at 837-39. While Mortenson
argues in its supplemental briefing that the Court of Appeals erred in affirming the trial court’s
denial of these motions, it fails to include this issue in its petition for review. As such, we decline
to reach it. RAP 13.7(b).
– – – – – – – – – – – – – – – – -End Footnotes- – – – – – – – – – – – – – – – The Court of Appeals affirmed the trial court and held (1) the purchase order was not an
integrated contract; (2) the license terms were part of the contract; and (3) the limitation of
remedies clause was not unconscionable and, therefore, enforceable. M.A. Mortenson Co. v.
Timberline Software Corp., 93 Wn. App. 819, 826-37, 970 P.2d 803 (1999). Mortenson
petitioned this court for review, which we granted.
ANALYSIS
In reviewing an order of summary judgment, [*13] this court engages in the same inquiry as the
trial court; summary judgment will be affirmed where there are no genuine issues of material fact
and the moving party is entitled to judgment as a matter of law. Hertog v. City of Seattle, 138
Wn.2d 265, 275, 979 P.2d 400 (1999) (citing Taggart v. State, 118 Wn.2d 195, 199, 822 P.2d
243 (1992); CR 56(c)). The facts and reasonable inferences from the facts are considered in the
light most favorable to the nonmoving party. Hertog, 138 Wn.2d at 275 (citing Taggart, 118
Wn.2d at 199). Questions of law are reviewed de novo. Hertog, 138 Wn.2d at 275 (citing
Sherman v. State, 128 Wn.2d 164, 183, 905 P.2d 355 (1995)).
Applicable Law
Article 2 of the Uniform Commercial Code (U.C.C.), chapter 62A RCW, applies to transactions
in goods. RCW 62A.2-102. The parties agree in their briefing that Article 2 applies to the
licensing of software, and we accept this proposition. See, e.g., Aubrey’s R.V. Ctr., Inc. v. Tandy
Corp., 46 Wn. App. 595, 600, 731 P.2d 1124 (1987) (accepting agreement of parties that U.C.C.
Article 2 applied to [*14] transaction involving defective software); Advent Sys. Ltd. v. Unisys
Corp., 925 F.2d 670, 675-76 (3d Cir. 1991) (holding that computer software falls within
definition of a ‘good’ under U.C.C. Article 2). n6
– – – – – – – – – – – – – – – – – -Footnotes- – – – – – – – – – – – – – – – – n6 In 1999 the National Conference of Commissioners on Uniform State Laws promulgated the
Uniform Computer Information Transactions Act (UCITA) to cover agreements to ‘create,
modify, transfer, or license computer information or informational rights in computer
information.’ UCITA sec. 102(a)(12), U.L.A. (2000); see also UCITA sec. 103, U.L.A. (2000).
The UCITA, formerly known as proposed U.C.C. Article 2B, was approved and recommended
for enactment by the states in July 1999.
– – – – – – – – – – – – – – – – -End Footnotes- – – – – – – – – – – – – – – – Integration of the Contract
Mortenson contends because the purchase order fulfilled the basic requirements of contracting
under the U.C.C., it constituted a fully integrated contract. As a result, Mortenson argues the
terms of the license, including the limitation of remedies clause, were not part of the contract
[*15] and, thus, are not enforceable. Timberline counters that the parties did not intend the
purchase order to be an exclusive recitation of the contract terms, and points to the absence from
the purchase order of several key details of the agreement. Timberline argues, and the trial court
and Court of Appeals agreed, that the purchase order did not prevent the terms of the license
from becoming part of the contract or render the limitation of remedies clause unenforceable.
Whether the parties intend a written document to be a final expression of the terms of the
agreement is a question of fact. Emrich v. Connell, 105 Wn.2d 551, 556, 716 P.2d 863 (1986). In
determining whether an agreement is integrated, ‘the court may consider evidence of negotiations
and circumstances surrounding the formation of the contract.’ Denny’s Restaurants, Inc. v.
Security Union Title Ins. Co., 71 Wn. App. 194, 202, 859 P.2d 619 (1993) (citing Restatement
(Second) of Contracts sec. 216 (1981)). ‘If reasonable minds can reach but one conclusion’ on an
issue of fact, it may be determined on summary judgment. Allen v. State, 118 Wn.2d 753, 760,
826 P.2d 200 (1992). [*16] RCW 62A.2-204(1) provides, ‘[a] contract for sale of goods may be
made in any manner sufficient to show agreement, including conduct by both parties which
recognizes the existence of such a contract.’ Whether the purchase order qualifies as a contract at
all does not resolve the issue of whether it is an integrated contract. Even if we assume the
purchase order could, standing alone, constitute a complete contract under the U.C.C., such was
not the case here. The language of the purchase order makes this clear. For example, the purchase
order sets an hourly rate for Timberline’s provision of ‘software support,’ but does not specify
how many hours of support Timberline would provide. The purchase order also states: ‘at some
future date should Timberline upgrade ‘Bid Day’ to a windows version, M.A. Mortenson would
be able to upgrade to this system with Timberline crediting existing software purchase toward
that upgrade on a pro-rated basis to be determined later.’ Clerk’s Papers at 206 (emphasis added).
Finally, the purchase order does not contain an integration clause. The presence of an integration
clause ‘strongly supports a conclusion that the parties’ agreement was [*17] fully integrated . . . .’
Olsen Media v. Energy Sciences, Inc., 32 Wn. App. 579, 584, 648 P.2d 493 (1982). Here, the
absence of such a clause further supports the conclusion that the purchase order was not the
complete agreement between the parties. The trial court and the Court of Appeals correctly
determined the purchase order did not constitute an integrated contract.
Term…
Purchase answer to see full
attachment