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BELL SPORTS, INC. v. SYSTEM SOFTWARE ASSOCIATES

October 18, 1999

BELL SPORTS, INC., PLAINTIFF/COUNTER-DEFENDANT,
v.
SYSTEM SOFTWARE ASSOCIATES, INC., DEFENDANT/COUNTER-PLAINTIFF.



The opinion of the court was delivered by: Spatt, District Judge.

MEMORANDUM OF DECISION AND ORDER

The plaintiff, Bell Sports, Inc. ("Bell" or the "plaintiff") initiated this action against System Software Associates, Inc. ("SSA") and SSA MidAtlantic ("SSA MidAtlantic") (collectively, the "defendants") on December 5, 1997 by filing a complaint alleging seven causes of action. These causes of action arise from Bell's acquisition of certain computer software from SSA and certain support services to run the computer software from SSA MidAtlantic.

The first cause of action sets forth a claim of fraudulent inducement against both defendants. Bell asserts that the defendants made material misrepresentations that they knew to be false to induce it to enter into a contractual relationship. The second cause of action mirrors the first and asserts a claim of common law fraud against both defendants. The third and fourth causes of action seek declaratory judgments against SSA and SSA MidAtlantic, respectively, seeking a declaration that all agreements between Bell, SSA and SSA MidAtlantic are null and void ab initio. The fifth cause of action contends that SSA intentionally breached certain warranties in connection with a Software Licensing Agreement. The sixth cause of action claims that SSA intentionally breached the Software Licensing Agreement. Finally, the seventh cause of action asserts that the conduct of both defendants in connection with the Software Licensing Agreement constituted gross negligent misrepresentation.

On April 23, 1999, the Court rendered a decision on the motions by the defendants for judgment on the pleadings pursuant to Rule 12(c) of the Federal Rules of Civil Procedure ("Fed. R. Civ.P."). The court dismissed the first, second, third, fourth and seventh causes of action. The basis for the Court's dismissal of the fraud counts was that:

  [t]he misrepresentations that Bell contends were
  fraudulently made by SSA and SSA MidAtlantic were not
  collateral to the terms of the various licensing
  agreements and contracts. In fact, the
  representations were the very essence of those
  various agreements. In short, Bell's complaint does
  not allege a claim

  of fraud that is sufficiently distinct, collateral or
  extraneous from its breach of contract claim.

Bell Sports Inc. v. System Software Associates, Inc., 45 F. Supp.2d 220, 228 (E.D.N.Y. 1999).

Pursuant to Fed.R.Civ.P. 60(b) and Local Civil Rule 6.3, Bell now moves for reconsideration of the Court's April 23, 1999 decision. In addition, Bell moves to amend its complaint pursuant to Fed. R.Civ.P. 15(a).

I. BACKGROUND

Familiarity with the facts and the Court's prior decision is presumed, and will not be reiterated here. Briefly stated, the factual background of this case as set forth in the plaintiff's complaint is as follows. Bell is in the business of designing, manufacturing and marketing bicycle helmets, bicycle accessories and auto racing helmets. SSA is in the business of developing and licensing complex computer software. SSA MidAtlantic is in the business of providing consulting and advisory services regarding the authorization and installation of the SSA licensed software. SSA owned an equity interest in SSA MidAtlantic.

In 1993, American Recreation Company Holdings, Inc. ("ARC"), the name of the company before it merged with Bell in 1995, decided to conduct a major overhaul of its business software as its then existing software was insufficient to address all of its needs. ARC's major concerns were that its new software be fully integrated so that data entered into one individual computer at one location would trigger automatic updates throughout the plants and facilities and that the new software have the capability of tracking important information.

In 1993, ARC formed a team of personnel to detail specific requirements for a new software package. As a result, ARC distributed a Request for Proposal ("RFP") to software developers, including SSA, which sought detailed information and asked specific questions regarding the features of the respective software and the capabilities of the software in relation to ARC's business and needs. Each RFP included a section that asked the software vendor whether its product had certain specific standard functions. For each specific standard function, a "Yes," answer meant that the current release of the existing software had that specific function. SSA MidAtlantic responded on behalf of SSA to ARC's RFP and provided a detailed description of its Business Planning and Control System Software ("BPCS"). SSA MidAtlantic's response contained a large number of "Yes" responses, representing to ARC that BPCS met approximately 80 percent of the specific performance criteria listed in its RFP.

In light of this favorable response, ARC commenced a series of meetings with SSA MidAtlantic to further explore BPCS's capabilities. At these meetings, ARC repeatedly stressed its business needs and what was expected of its BPCS. SSA, through SSA MidAtlantic, consistently represented to ARC that BPCS would satisfy those needs. Based upon these representations, ARC decided to select SSA as its software vendor and to license BPCS. Thereafter, SSA, SSA MidAtlantic and ARC entered into contract negotiations that culminated in the execution of several written agreements.

On April 29, 1994, SSA and ARC executed a Software Licensing Agreement that granted ARC a license to use SSA's BPCS, version 4.x, in exchange for a substantial fee. SSA assured ARC that its software package comported with SSA's representations regarding the then-current standard functions of BPCS. SSA specifically warranted that the software "shall function substantially in accordance with the related user documentation provided by SSA." In addition, the parties executed a side letter, dated April 29, 1994, that supplemented and modified the Software Licensing Agreement. The side letter provided that the limitations of liability and disclaimers of warranty set forth in the Software Licensing Agreement would not apply "in the case of gross negligence, willful misconduct, or intentional breach of contract on the part of SSA."

Contemporaneously with the execution of the aforementioned agreements, SSA MidAtlantic and ARC executed a Professional Services Agreement ("PSA"), dated April 29, 1994, ("the Service Agreement"), which set forth the training, installation services and support for BPCS that ARC would receive from SSA MidAtlantic. Bell asserts that SSA and SSA MidAtlantic knew at the time that they signed all of these agreements that BPCS could not perform in the manner represented by them and that they willfully and intentionally misled ARC, fraudulently inducing it to enter into the Licensing Agreement, the Service Agreement and the side letter dated April 29, 1994.

While negotiating the Software Licensing Agreement, it became apparent to ARC that version 4.x of BPCS was deficient in several material respects and that several critical modifications were necessary in order for BPCS to be able to perform in a manner that complied with ARC's original requirements, as well as SSA's representations. By letter dated May 2, 1994, SSA MidAtlantic agreed to make such modifications, and agreed that the software and modifications would "meet the required applications stipulated by [ARC]."

After execution of the aforementioned agreements, ARC began to implement BPCS. SSA MidAtlantic personnel conducted the training at ARC and at SSA MidAtlantic's facilities to prepare for the conversion of ARC's system to BPCS. During the process, ARC alleges that they began to discover significant shortfalls in the performance capabilities of BPCS, and many major deviations from representations made in SSA's response to ARC's RFP and throughout ARC's software vendor selection process. Once discovered, ARC repeatedly raised with SSA MidAtlantic the issue of the lack of functionality of BPCS. In January, 1995 ARC also wrote to SSA MidAtlantic expressing ...


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