Court of Appeals amends damage award in bench verdict in software dispute and rejects the award of sanctions
Philip Allor developed a software package called FOPS and sold it to DeClark, Inc. He was paid a monthly license fee of $985.00, with a balloon payment due at the end of the license period. DeClark, Inc., allowed the owners' son to use FOPS in operating his business called Superior Press and Automation, Inc.
Being unaware of the licensing agreement and monthly payment, younger DeClark sought help in operating the FOPS software from Mr. Allor. Not surprisingly, Allor inquired how Superior Press acquired his software and why it wasn't paying a license fee. After being told that the two companies were one entity, he filed suit on a claim of "unjust enrichment" to recover the proper fee when he learned that the companies were not the same entity.
At trial, the judge awarded him the same monthly license fee that he had charged DeClark for the months that Superior used FOPS. At the same time, the judge denied Superior's request for Case Evaluation sanctions, even though Allors had turned down a much larger recommendation. Both sides appealed.The Appellate Court ruled that while the lower court's approach to valuing damages was generally correct, it had underestimated the monthly fee by failing to include the balloon payment in the total software lease cost before computing the monthly fee. On that basis, the judgment was increased from $15,000.00 to $30,000.00, despite younger DeClark's claim that the "true value" of the software was the cost of replacing it with cheaper, simpler software.
With regard to sanctions, the lower court had deemed it inequitable to award the defendants sanctions because at the time of Case Evaluation, the defendants had not provided plaintiff with a key piece of evidence that ultimately significantly diminished the value of his case. While recognizing that the Court Rule language on sanctions is mandatory and that the denial of sanctions based on evidentiary issues should be exercised with great caution, the appellate judges considered the judge's decision to be within the court's discretion. The appeals court deemed it a reasonable exercise of discretion to refuse to award sanctions where the party's rejection of case evaluation was made in the absence of "significant" evidence that "would reasonably have made plaintiff's position appear significantly different than it turned out to be...[and which would make the case evaluation no longer] valid."