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F. & M. SCHAEFER CORP. v. ELECTRONIC DATA SYS. COR

March 28, 1977

The F. & M. SCHAEFER CORPORATION and the F. & M. Schaefer Brewing Co., Plaintiffs,
v.
ELECTRONIC DATA SYSTEMS CORPORATION and E. D. Systems Corporation, Defendants.



The opinion of the court was delivered by: MOTLEY

MOTION FOR REPLEVIN

MOTLEY, District Judge.

 Findings of Fact and Conclusions of Law

 On September 7, 1976 the F. & M. Schaefer Corporation (Schaefer) filed this action against Electronic Data Systems Corporation (EDS) alleging breach of contract and a cause of action for rescission of another contract based on EDS' alleged fraudulent misrepresentations. Schaefer prays for $45 million compensatory damages plus punitive damages. EDS answered the complaint on November 11, 1976 and asserted numerous counterclaims against Schaefer. *fn1"

 On this same day, EDS filed its motion for replevin of Schaefer's data processing system alleging that it had previously developed this system and had turned the system over to Schaefer in stages during 1975 and 1976 pursuant to agreement. Schaefer filed a reply to the motion for replevin on November 15, 1976.

 The court held hearings on the replevin motion on March 7, 8, 9, 10, 14, 15, and 16, 1977 and now makes its findings of fact and conclusions of law with respect thereto.

 In 1969 EDS and Schaefer entered into a contract for the development and supply of data processing services. The term of the contract was seven years. Under Phase 1 of this agreement, which was to end in 1972, Schaefer turned over its old data processing system, and while EDS ran this old card system for Schaefer, EDS developed a more sophisticated, more modern and much faster tape system to meet Schaefer's data processing needs. Under Phase 2 of the contract EDS was to run the newly developed system for Schaefer until May of 1976.

 Phase 1 was essentially completed by the end of 1972, but by this time Schaefer was in severe financial difficulty and requested EDS to defer certain required payments for two years, approximately $1,507,000 in development costs and approximately $35,000 in monthly service charges. The result was a new 1973 agreement governing Phase 2 which (although not explicitly) superseded the 1969 agreement.

 Under the 1973 contract the following changes, in essence, were made:

 1. The original term of the contract would be extended for one and one-half years until the end of December, 1977, as opposed to May, 1976, the original termination date under the 1969 contract.

 2. Monthly payments under the 1969 contract were reduced for 1973 and 1974, and these deferred charges were to be recovered by increased monthly payments in 1975 through 1977.

 3. Services performed by EDS were to be reduced.

 Under the 1973 contract Schaefer could cancel the contract, which by that time was for the running of the data processing system by EDS, and elect to operate its data processing system prior to the December 1977 termination date.

 In order to terminate, two conditions had to be met: First, Schaefer had to pay a cancellation fee which was, in essence, the balance of all the deferred payments which otherwise would have been paid in monthly installments to December, 1977. Second, Schaefer and EDS had to enter into a termination agreement concerning Schaefer's use of the system developed by EDS.

 In its main suit Schaefer claims that EDS did not adhere to the contract, and that the system which EDS developed was faulty and caused great damage to Schaefer. Schaefer also claims that EDS fraudulently induced Scaefer to enter into the ...


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