Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—DNJ: Retailer States Consumer Fraud Claim Against Software Provider for Failing to Disclose Defects , (Apr 25, 2013)

By Jody Coultas, J.D.

Retailer Stockroom, Inc. stated a New Jersey Consumer Fraud Act (CFA) claim against software provider Dydacomp Development for allegedly failing to disclose defects with its software systems, according to the federal district court in Newark (Stockroom, Inc. v. Dydacomp Development Corporation, April 24, 2013, Walls, W.).

Stockroom, a retailer of adult-themed products and clothing, used Dydacomp’s Multichannel Order Manager (MOM) software system to process retail transactions at its physical and online stores. After discovering issues with credit card transactions where money was not deposited in its bank account and customer refunds were issued in error, Stockroom alleged that Dydacomp was liable.

The CFA applied to Stockroom because it was a consumer, according to the court. Courts have held that the CFA applies to the sale of merchandise for use in business operations and that a business entity can be a "consumer" as defined by the statute. Cases where a business-to-business transaction is outside the CFA involve wholesalers and distributers.

Stockroom was a consumer because it purchased the MOM for consumption, rather than resale. Stockroom needed a system that could reliably process retail transactions and credit card billing and purchased the MOM for use in its own business operations, making it just as vulnerable in its purchase as a private individual who buys a product from a store.

Stockroom alleged a plausible claim for omission under the CFA, according to the court. Dydacomp’s promotional and sales materials allegedly omitted that the MOM system continued to generate fake authorization codes. The CFA prohibits the use or employment of any unconscionable commercial practice or the knowing, concealment, suppression, or omission of any material fact with intent that others rely upon such concealment. Stockroom alleged that Dydacomp was aware of the faulty programming and/or test functions and concealed the problem. The heightened pleading standard of Federal Rule of Civil Procedure 9(b) did not require more than this at the pleadings stage.

The case is No. 11-6220 (WHW).

Attorneys: Vincent Savino Verdiramo (Verdiramo & Verdiramo) for Stockroom, Inc. David J. Shannon (Marshall, Dennehey, Warner, Coleman & Goggin) for Dydacomp Development Corporation.

Companies: Stockroom, Inc.; Dydacomp Development Corporation

Cases: StateUnfairTradePractices NewJerseyNews