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May 15, 2005

The Legal Line

Ed Maldonado, Esq.

Dear Legal Line:

I would like to ask you some questions regarding problems with a prepaid calling platform I purchased at the end of 2003. I purchased the equipment without a full written contract with the manufacturer. Instead, I have a series of purchase orders which are the contract, according to them. The problems with the switch started from the first day with non-functional third party applications that were included on the switch. Complicating this, the manufacturer provided very limited training (to their people and ours) on how to troubleshoot problems. The manufacturer did eventually find another provider of software for their switch. However, this was the first time the manufacturer used this application, and installed it on my switch without any testing and or monitoring of the switch traffic. A conflict immediately arose and this started to create many other problems between hardware and software that ended with system crashing almost every day during a 12 month period. My business started taking big losses because my cards were working on-and-off all that time. This all lead to a multitude of complaints from retailers and consumers.



The problem finally seemed resolved when two months passed in which the switch started to act more stable and did not crash entirely. This was between March and February, when we had the longest run without any major issues of the switch crashing. This however did not last. The switch crashed completely again in April and this time for almost a full week. It was a real disaster for my company. My sales went completely down for a week. After a lot of troubleshooting during that time, the platform eventually regained stability and has continued to work, for now.

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I have had little time to rebound financially from all these problems and I’ve reached the point were I can only hope they have resolved the hardware and software problems so I can recoup some of my losses if I can. If I can’t, I would like to know more about the other option of suing the switch manufacturer for selling non-operational equipment. The manufacturer continues to sell this product throughout the USA and I suspect that there may have been similar problems for other companies that used the same switch. Regardless of all of the manufacturer’s efforts to resolve all these problems with the switch, including an offer to take the switch back with a full refund, my damages have cost me far more than the value of the switch itself with all the services packages originally sold to me. What are my options where I have taken losses after purchasing a not-fully-tested and not-ready-to-operate switch? Where do I begin?



Switch Frozen Business







Dear SFB:



Initiating litigation to resolve a problem, like any other business decision, is one in which you must take careful stock of the underlying issues in comparison to your likelihood for success. To do this, you must begin by evaluating the dollar value of the damages involved, the complexity of the problem, and the potential evidence in hand, before, not after, filing a lawsuit. From what I have read from your question thus far, it sounds as if you were under the impression, or perhaps a representation, that the switch was fit for a particular purpose; it was tested; and it was purported to operate. These types of issues generally relate to warranties of the manufacturer. Warranties are generally wording embodied in the contract, or the bargain to purchase. It is usually a statement or representation made by the seller, as a part of the bargain or contract, that has reference to the character or quality by which the seller promises or undertakes to ensure will be true. Most often warranties are found in a particular clause in a contract either by an expressed reference, or by and through an Exemption of warranties where the seller states he is not liable for a particular purpose, character or quality. From what you have stated, there is no one contract that merges all the terms and conditions of the sale of the switch and software into a single document. Instead, a series of forms embodies the bargain you made for the switch. In order to evaluate what you have, you will need to review all the documentation of the sale to see if there is either a clause that relates to a warranty, or some other limitation of liability that restricts damages from damages as a direct result of a poorly manufactured or designed product. This process of piecing the various documents together to establish a final agreement is called a “battle of the forms” by legal professionals. This is because the exact terms, including limitations of liability and warranties, are incorporated in a piecemeal fashion and meander in meaning until all the documents are placed together. Conceptually, one document may state one thing and another occurring later in time, may trump it.



Your evaluation should begin by sitting down with legal counsel and reviewing all the forms to see if the manufacturer has somehow limited the grounds you may be able to seek recovery via contractual limitation. One aspect working in your favor is that telecom switch platforms for performing prepaid calling are not an ordinary good and are generally considered to be “customized” goods giving you more strength for a warranty claim. It will be important to also review the e-mails and correspondence from the manufacturer’s salespeople to see if any limitations or representations as to fitness for a particular purpose where made during the sale. For example: “the combination of our hardware and our software will allow you to pass high volumes of traffic seamlessly over extended time without maintenance or disruption over a 1,000,000 times daily.” This is the “stuff” of representations and warranties.



Should you and your legal counsel be able to identify that a representation or warranty was made as a part of the deal, or that a warranty for particular purpose arises, and there are no liability limitations, then a good review of the problem history would be wise. The reason is to evaluate the evidence you have in hand and the complexity of showing this to a judge or jury. My experience has been that switch-related lawsuits often tend to be extremely complex. By complex I mean layered with issues, not to the level that it is difficult or impossible for a judge or jury to understand, but to the extent that they tend to be very detailed oriented. Your legal counsel should also be versed in these technical issues enough that he or she is not confused as to what occurred and what effect it had on you.



From what you have written here, it sounds as if a lawsuit may be eminent if evidence of a warranty can be found. The fact that the switch crashed continually over a 12 month period is also telling, in that a major conflict existed in the applications that generally should not be occurring. The damages also seem to far outweigh any refund amounts offered that push litigation considerations over settlement. I imagine that your company breached other agreements, either with other card providers, distributors, retailers, and consumers as a result of all of this, assuredly causing further monetary losses to your company. These are all definitely issues to bring up with your legal counsel in evaluating whether or not to sue and a good place to begin.

A final point: remember that initiating litigation can be costly. Always explore the costs and repercussions should you not prevails with your legal counsel. Cases can be appealed should there be grounds and anticipated recover times may be extended.



Good Luck and Success in the Industry.



Do you have questions for Legal Line? Send them tolegalline@prepaid-press.com.

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