Supreme Court of the State of Washington
Opinion Information Sheet
Docket Number: 67796-4
Title of Case: M. A. Mortenson Company, Inc.
v.
Timberline Software Corp. & Softworks Data Systems
File Date: 05/04/2000
Oral Argument Date: 10/26/1999
SOURCE OF APPEAL
----------------
Appeal from Superior Court,
King County;
95-2-31991-2
Honorable Phillip Hubbard, Judge.
JUSTICES
--------
Authored by Charles W. Johnson
Concurring: Richard P. Guy
Charles Z. Smith
Barbara A. Madsen
Philip A. Talmadge
Faith E Ireland
Visiting Judge
Dissenting: Richard B. Sanders
Gerry L. Alexander
COUNSEL OF RECORD
-----------------
Counsel for Petitioner(s)
Bradley L. Powell
Oles Morrison Rinker & Baker Llp
33rd Fl. Columbia Center
701 5th Ave.
Seattle, WA 98104
Catherine C. Clark
Williams & Williams Psc
6161 NE 175th Ste 200
Kenmore, WA 98028-4800
Theodore Russell
Sheppad Mullin Richter & Hampton Llp
Four Embarcadero Ctr.
Suite 1700
San Francisco, CA 94111
Counsel for Respondent(s)
Charles E. Peery
Peery Hiscock Pierson & Ryder
505 Madison St.
Ste 300
Seattle, WA 98104-1138
Michael E. Ricketts
Peery Hiscock Pierson Kingman & Peabody
505 Madison St., #300
Seattle, WA 98104
Laura P. Knechtel
PO Box 26682
PO Box 26682
Federal Way, WA 98093-3682
Michael P. Grace
Groff & Murphy Pllc
1191 2nd Ave Ste 1900
Seattle, WA 98101
Amicus Curiae on behalf of Business Software alliance
Robert B. Mitchell Jr.
Preston Gates & Ellis
5000 Columbia Center
701 5th Ave.
Seattle, WA 98104-7078
Mark Wittow
Preston Gates & Ellis
701 5th Ave Ste 5000
Seattle, WA 98104-7078
Amicus Curiae on behalf of Washington Softwarealliance
Robert B. Mitchell Jr.
Preston Gates & Ellis
5000 Columbia Center
701 5th Ave.
Seattle, WA 98104-7078
Mark Wittow
Preston Gates & Ellis
701 5th Ave Ste 5000
Seattle, WA 98104-7078
IN THE SUPREME COURT OF THE STATE OF WASHINGTON
M.A. MORTENSON COMPANY, )
INC., )
)
Petitioner, )
) No. 67796-4
v. )
) En Banc
TIMBERLINE SOFTWARE )
CORPORATION and SOFTWORKS )
DATA SYSTEMS, INC., )
)
Respondents. )
) Filed May 4, 2000
JOHNSON, J. -- This case presents the issue of whether a limitation on
consequential damages enclosed in a 'shrinkwrap license' accompanying
computer software is enforceable against the purchaser of the licensed
software. Petitioner M.A. Mortenson Company, Inc. (Mortenson), a general
construction contractor, purchased licensed computer software from
Timberline Software Corporation (Timberline) through Softworks Data
Systems, Inc. (Softworks), Timberline's local authorized dealer. After
Mortenson used the program to prepare a construction bid and discovered the
bid was $1.95 million less than it should have been, Mortenson sued
Timberline for breach of warranties alleging the software was defective.
The trial court granted Timberline's motion for summary judgment. The
Court of Appeals affirmed the order of summary judgment, holding (1) the
purchase order between the parties was not an integrated contract; (2) the
licensing agreement set forth in the software packaging and instruction
manuals was part of the contract between Mortenson and Timberline; and (3)
the provision limiting Mortenson's damages to recovery of the purchase
price was not unconscionable. M.A. Mortenson Co. v. Timberline Software
Corp., 93 Wn. App. 819, 826-37, 970 P.2d 803 (1999). We granted
Mortenson's petition for review and affirm the Court of Appeals.
FACTS
Petitioner Mortenson is a nationwide construction contractor with its
corporate headquarters in Minnesota and numerous regional offices,
including a northwest regional office in Bellevue, Washington. Respondent
Timberline is a software developer located in Beaverton, Oregon.
Respondent Softworks, an authorized dealer for Timberline, is located in
Kirkland, Washington and provides computer-related services to contractors
such as Mortenson.
Since at least 1990, Mortenson has used Timberline's Bid Analysis
software to assist with its preparation of bids.1 Mortenson had used
Medallion, an earlier version of Bid Analysis, at its Minnesota
headquarters and its regional offices. In early 1993, Mortenson installed
a new computer network operating system at its Bellevue office and
contacted Mark Reich (Reich), president of Softworks, to reinstall
Medallion. Reich discovered, however, that the Medallion software was
incompatible with Mortenson's new operating system. Reich informed
Mortenson that Precision, a newer version of Bid Analysis, was compatible
with its new operating system.
Mortenson wanted multiple copies of the new software for its offices,
including copies for its corporate headquarters in Minnesota and its
northwest regional office in Bellevue. Reich informed Mortenson he would
place an order with Timberline and would deliver eight copies of the
Precision software to the Bellevue office, after which Mortenson could
distribute the copies among its offices.
After Reich provided Mortenson with a price quote, Mortenson issued a
purchase order dated July 12, 1993, confirming the agreed upon purchase
price, set up fee, delivery charges, and sales tax for eight copies of the
software. 2 The purchase order indicated that Softworks, on behalf of
Timberline, would '{f}urnish current versions of Timberline Precision Bid
Analysis Program Software and Keys' and '{p}rovide assistance in
installation and system configuration for Mortenson's Bellevue Office.'
Clerk's Papers at 206. The purchase order also contained the following
notations:
Provide software support in converting Mortenson's existing Bid Day Master
Files to a format accepted by the newly purchased Bid Day software. This
work shall be accomplished on a time and material basis of $85.00 per hour.
Format information of conversion of existing D-Base Files to be shared to
assist Mortenson Mid-West programmers in file conversion.
-System software support and upgrades to be available from Timberline for
newly purchased versions of Bid Day Multi-User.
-At some future date should Timberline upgrade 'Bid Day' to a windows
version, M.A. Mortenson would be able to upgrade to this system with
Timberline crediting existing software purchase toward that upgrade on a
pro-rated basis to be determined later.
Clerk's Papers at 206. Below the signature line the following was stated:
'ADVISE PURCHASING PROMPTLY IF UNABLE TO SHIP AS REQUIRED. EACH SHIPMENT
MUST INCLUDE A PACKING LIST. SUBSTITUTIONS OF GOODS OR CHANGES IN COSTS
REQUIRE OUR PRIOR APPROVAL.' Clerk's Papers at 206.3 The purchase order
did not contain an integration clause.
Reich signed the purchase order and ordered the requested software from
Timberline. When Reich received the software, he opened the three large
shipping boxes and checked the contents against the packing invoice.
Contained inside the shipping boxes were several smaller boxes, containing
program diskettes in plastic pouches, installation instructions, and user
manuals. One of the larger boxes also contained the sealed protection
devices for the software. 4
All Timberline software is distributed to its users under license. Both
Medallion and Precision Bid Analysis are licensed Timberline products. In
the case of the Mortenson shipment, the full text of Timberline's license
agreement was set forth on the outside of each diskette pouch and the
inside cover of the instruction manuals. The first screen that appears
each time the program is used also references the license and states,
S{t}his software is licensed for exclusive use by: Timberline Use Only.'
Clerk's Papers at 302. Further, a license to use the protection device was
wrapped around each of the devices shipped to Mortenson. The following
warning preceded the terms of the license agreement:
CAREFULLY READ THE FOLLOWING TERMS AND CONDITIONS BEFORE USING THE
PROGRAMS. USE OF THE PROGRAMS INDICATES YOUR ACKNOWLEDGEMENT THAT YOU HAVE
READ THIS LICENSE, UNDERSTAND IT, AND AGREE TO BE BOUND BY ITS TERMS AND
CONDITIONS. IF YOU DO NOT AGREE TO THESE TERMS AND CONDITIONS, PROMPTLY
RETURN THE PROGRAMS AND USER MANUALS TO THE PLACE OF PURCHASE AND YOUR
PURCHASE PRICE WILL BE REFUNDED. YOU AGREE THAT YOUR USE OF THE PROGRAM
ACKNOWLEDGES THAT YOU HAVE READ THIS LICENSE, UNDERSTAND IT, AND AGREE TO
BE BOUND BY ITS TERMS AND CONDITIONS.
Clerk's Papers at 305. Under a separate subheading, the license agreement
limited Mortenson's remedies and provided:
LIMITATION OF REMEDIES AND LIABILITY
NEITHER TIMBERLINE NOR ANYONE ELSE WHO HAS BEEN INVOLVED IN THE CREATION,
PRODUCTION OR DELIVERY OF THE PROGRAMS OR USER MANUALS SHALL BE LIABLE TO
YOU FOR ANY DAMAGES OF ANY TYPE, INCLUDING BUT NOT LIMITED TO, ANY LOST
PROFITS, LOST SAVINGS, LOSS OF ANTICIPATED BENEFITS, OR OTHER INCIDENTAL,
OR CONSEQUENTIAL DAMAGES ARISING OUT OF THE USE OR INABILITY TO USE SUCH
PROGRAMS, WHETHER ARISING OUT OF CONTRACT, NEGLIGENCE, STRICT TORT, OR
UNDER ANY WARRANTY, OR OTHERWISE, EVEN IF TIMBERLINE HAS BEEN ADVISED OF
THE POSSIBILITY OF SUCH DAMAGES OR FOR ANY OTHER CLAIM BY ANY OTHER PARTY.
TIMBERLINE'S LIABILITY FOR DAMAGES IN NO EVENT SHALL EXCEED THE LICENSE FEE
PAID FOR THE RIGHT TO USE THE PROGRAMS.
Clerk's Papers at 305.
Reich personally delivered the software to Mortenson's Bellevue
office, and was asked to return at a later date for installation. The
parties dispute what happened next. According to Neal Ruud (Ruud),
Mortenson's chief estimator at its Bellevue office, when Reich arrived to
install the software Reich personally opened the smaller product boxes
contained within the large shipping boxes and also opened the diskette
packaging. Reich inserted the diskettes into the computer, initiated the
program, contacted Timberline to receive the activation codes, and wrote
down the codes for Mortenson. Reich then started the programs and
determined to the best of his knowledge they were operating properly. Ruud
states that Mortenson never saw any of the licensing information described
above, or any of the manuals that accompanied the software. Ruud adds that
copies of the programs purchased for other Mortenson offices were forwarded
to those offices.
Reich claims when he arrived at Mortenson's Bellevue office he noticed the
software had been opened and had been placed on a desk, along with a manual
and a protection device. Reich states he told Mortenson he would install
the program at a single workstation and 'then they would do the rest.'
Clerk's Papers at 176. Reich proceeded to install the software and a
Mortenson employee attached the protection device. Reich claims he
initiated and ran the program, and then observed as a Mortenson employee
repeated the installation process on a second computer. An employee then
told Reich that Mortenson would install the software at the remaining
stations.
In December 1993, Mortenson utilized the Precision Bid Analysis
software to prepare a bid for a project at Harborview Medical Center in
Seattle. On the day of the bid, the software allegedly malfunctioned
multiple times and gave the following message: 'Abort: Cannot find
alternate.' Clerk's Papers at 60. Mortenson received this message 19
times that day. Nevertheless, Mortenson submitted a bid generated by the
software. After Mortenson was awarded the Harborview Medical Center
project, it learned its bid was approximately $1.95 million lower than
intended.
Mortenson filed an action in King County Superior Court against
Timberline and Softworks alleging breach of express and implied warranties.
After the suit was filed, a Timberline internal memorandum surfaced, dated
May 26, 1993. The memorandum stated, '{a} bug has been found {in the
Precision software} . . . that results in two rather obscure problems,' and
explained, '{t}hese problems only happen if the following {four} conditions
are met.' Clerk's Papers at 224. The memorandum concluded, '{g}iven the
unusual criteria for this problem, it does not appear to be a major
problem.' Clerk's Papers at 224. Apparently, other Timberline customers
had encountered the same problem and a newer version of the software was
sent to some of these customers. After an extensive investigation,
Timberline's lead programmer for Precision Bid Analysis acknowledged if the
four steps identified in the memo were 'reproduced as accurately as
possible,' Mortenson's error message could be replicated. Clerk's Papers
at 248.
Timberline moved for summary judgment of dismissal in July 1997,
arguing the limitation on consequential damages in the licensing agreement
barred Mortenson's recovery. Mortenson countered that its entire contract
with Timberline consisted of the purchase order and it never saw or agreed
to the provisions in the licensing agreement. The trial court granted
Timberline's motion for summary judgment. The trial judge stated, 'if this
case had arisen in 1985 rather than 1997, I might have a different ruling'
but 'the facts in this case are such that even construing them against the
moving party, the Court finds as a matter of law that the licensing
agreements and limitations pertaining thereto were conspicuous and
controlling and, accordingly, the remedies that are available to the
plaintiff in this case are the remedies that were set forth in the
licensing agreement . . . .' Report of Proceedings (Aug. 15, 1997) at 49.
Mortenson appealed the summary judgment order to the Court of Appeals.5
The Court of Appeals affirmed the trial court and held (1) the purchase
order was not an integrated contract; (2) the license terms were part of
the contract; and (3) the limitation of remedies clause was not
unconscionable and, therefore, enforceable. M.A. Mortenson Co. v.
Timberline Software Corp., 93 Wn. App. 819, 826-37, 970 P.2d 803 (1999).
Mortenson petitioned this court for review, which we granted.
ANALYSIS
In reviewing an order of summary judgment, this court engages in the same
inquiry as the trial court; summary judgment will be affirmed where there
are no
genuine issues of material fact and the moving party is entitled to
judgment as a matter of law. Hertog v. City of Seattle, 138 Wn.2d 265,
275, 979 P.2d 400 (1999) (citing Taggart v. State, 118 Wn.2d 195, 199, 822
P.2d 243 (1992); CR 56(c)). The facts and reasonable inferences from the
facts are considered in the light most favorable to the nonmoving party.
Hertog, 138 Wn.2d at 275 (citing Taggart, 118 Wn.2d at 199). Questions of
law are reviewed de novo. Hertog, 138 Wn.2d at 275 (citing Sherman v.
State, 128 Wn.2d 164, 183, 905 P.2d 355 (1995)).
Applicable Law
Article 2 of the Uniform Commercial Code (U.C.C.), chapter 62A RCW, applies
to transactions in goods. RCW 62A.2-102. The parties agree in their
briefing that Article 2 applies to the licensing of software, and we accept
this proposition. See, e.g., Aubrey's R.V. Ctr., Inc. v. Tandy Corp., 46
Wn. App. 595, 600, 731 P.2d 1124 (1987) (accepting agreement of parties
that U.C.C. Article 2 applied to transaction involving defective software);
Advent Sys. Ltd. v. Unisys Corp., 925 F.2d 670, 675-76 (3d Cir. 1991)
(holding that computer software falls within definition of a 'good' under
U.C.C. Article 2).6
Integration of the Contract
Mortenson contends because the purchase order fulfilled the basic
requirements of contracting under the U.C.C., it constituted a fully
integrated contract. As a result, Mortenson argues the terms of the
license, including the limitation of remedies clause, were not part of the
contract and, thus, are not enforceable. Timberline counters that the
parties did not intend the purchase order to be an exclusive recitation of
the contract terms, and points to the absence from the purchase order of
several key details of the agreement. Timberline argues, and the trial
court and Court of Appeals agreed, that the purchase order did not prevent
the terms of the license from becoming part of the contract or render the
limitation of remedies clause unenforceable.
Whether the parties intend a written document to be a final expression of
the terms of the agreement is a question of fact. Emrich v. Connell, 105
Wn.2d 551, 556, 716 P.2d 863 (1986). In determining whether an agreement
is integrated, 'the
court may consider evidence of negotiations and circumstances surrounding
the
formation of the contract.' Denny's Restaurants, Inc. v. Security Union
Title Ins. Co., 71 Wn. App. 194, 202, 859 P.2d 619 (1993) (citing
Restatement (Second) of Contracts sec. 216 (1981)). '{I}f reasonable minds
can reach but one conclusion' on an issue of fact, it may be determined on
summary judgment. Allen v. State, 118 Wn.2d 753, 760, 826 P.2d 200 (1992).
RCW 62A.2-204(1) provides, '{a} contract for sale of goods may be made in
any manner sufficient to show agreement, including conduct by both parties
which recognizes the existence of such a contract.' Whether the purchase
order qualifies as a contract at all does not resolve the issue of whether
it is an integrated contract. Even if we assume the purchase order could,
standing alone, constitute a complete contract under the U.C.C., such was
not the case here. The language of the purchase order makes this clear.
For example, the purchase order sets an hourly rate for Timberline's
provision of 'software support,' but does not specify how many hours of
support Timberline would provide. The purchase order also states: '{a}t
some future date should Timberline upgrade 'Bid Day' to a windows version,
M.A. Mortenson would be able to upgrade to this system with Timberline
crediting existing software purchase toward that upgrade on a pro-rated
basis to be determined later.' Clerk's Papers at 206 (emphasis added).
Finally, the purchase order does not contain an integration clause. The
presence of an integration clause 'strongly supports a conclusion that the
parties' agreement was fully integrated . . . .' Olsen Media v. Energy
Sciences, Inc., 32 Wn. App. 579, 584, 648 P.2d 493 (1982). Here, the
absence of such a clause further supports the conclusion that the purchase
order was not the complete agreement between the parties. The trial court
and the Court of Appeals correctly determined the purchase order did not
constitute an integrated contract.
Terms of the Contract
Mortenson next argues even if the purchase order was not an integrated
contract, Timberline's delivery of the license terms merely constituted a
request to add additional or different terms, which were never agreed upon
by the parties. Mortenson claims under RCW 62A.2-207 7 the additional
terms did not become part of the contract because they were material
alterations. Timberline responds that the terms of the license were not a
request to add additional terms, but part of the contract between the
parties. Timberline further argues that so-called 'shrinkwrap' software
licenses have been found enforceable by other courts, and that both trade
usage and course of dealing support enforcement in the present case.
For its section 2-207 analysis, Mortenson relies on Step-Saver Data Sys.,
Inc. v. Wyse Tech., 939 F.2d 91 (3d Cir. 1991). There, Step-Saver, a value
added
retailer,8 placed telephone orders for software and confirmed with purchase
orders. The manufacturer then forwarded an invoice back to Step-Saver.
The software later arrived with a license agreement printed on the
packaging. Step-Saver, 939 F.2d at 95-96. Finding the license 'should
have been treated as a written confirmation containing additional terms,'
the Third Circuit applied U.C.C. section 2-207 and held the warranty
disclaimer and limitation of remedies terms were not part of the parties'
agreement because they were material alterations. Step-Saver, 939 F.2d at
105-06. Mortenson claims Step-Saver is controlling, as 'virtually every
element of the transaction in the present case is mirrored in Step-Saver.'
Br. of Appellant at 26. We disagree.
First, Step-Saver did not involve the enforceability of a standard license
agreement against an end user of the software, but instead involved its
applicability to a value added retailer who simply included the software in
an integrated system sold to the end user. In fact, in Step-Saver the
party contesting applicability of the licensing agreement had been assured
the license did not apply to it at all. Step-Saver, 939 F.2d at 102. Such
is not the case here, as Mortenson was the end user of the Bid Analysis
software and was never told the license agreement did not apply.
Further, in Step-Saver the seller of the program twice asked the buyer to
sign an agreement comparable to their disputed license agreement. Both
times the buyer refused, but the seller continued to make the software
available. Step-Saver, 939 F.2d at 102-03. In contrast, Mortenson and
Timberline had utilized a license agreement throughout Mortenson's use of
the Medallion and Precision Bid Analysis software. Given these
distinctions, we find Step-Saver to be inapplicable to the present case. 9
We conclude this is a case about contract formation, not contract
alteration. As such, RCW 62A.2-204, and not RCW 62A.2-207, provides the
proper framework for our analysis.
RCW 62A.2-204 states:
(1) A contract for sale of goods may be made in any manner sufficient to
show agreement, including conduct by both parties which recognizes the
existence of such a contract.
(2) An agreement sufficient to constitute a contract for sale may be found
even though the moment of its making is undetermined.
(3) Even though one or more terms are left open a contract for sale does
not fail for indefiniteness if the parties have intended to make a contract
and there is a reasonably certain basis for giving an appropriate remedy.
(Emphasis added.)
Although no Washington case specifically addresses the type of contract
formation at issue in this case, a series of recent cases from other
jurisdictions have analyzed shrinkwrap licenses under analogous statutes.
See Brower v. Gateway 2000, Inc., 246 A.D.2d 246, 250-51, 676 N.Y.S.2d 569
(1998); Hill v. Gateway 2000, Inc., 105 F.3d 1147 (7th Cir.), cert. denied,
522 U.S. 808 (1997); ProCD, Inc. v. Zeidenberg, 86 F.3d 1447 (7th Cir.
1996).
In ProCD, which involved a retail purchase of software, the Seventh Circuit
held software shrinkwrap license agreements are a valid form of contracting
under Wisconsin's version of U.C.C. section 2-204, and such agreements are
enforceable unless objectionable under general contract law such as the law
of unconscionability. ProCD, 86 F.3d at 1449-52. The court stated,
'{n}otice on the outside, terms on the inside, and a right to return the
software for a refund if the terms are unacceptable (a right that the
license expressly extends), may be a means of doing business valuable to
buyers and sellers alike.' ProCD, 86 F.3d at 1451.
In Hill, the customer ordered a computer over the telephone and received
the computer in the mail, accompanied by a list of terms to govern if the
customer did not return the product within 30 days. Hill, 105 F.3d at
1148. Relying in part on ProCD, the court held the terms of the 'accept-or-
return' agreement were effective, stating, '{c}ompetent adults are bound by
such documents, read or unread.' Hill, 105 F.3d at 1149 (emphasis added).
Elaborating on its holding in ProCD, the court continued:
The question in ProCD was not whether terms were added to a contract after
its formation, but how and when the contract was formed--in particular,
whether a vendor may propose that a contract of sale be formed, not in the
store (or over the phone) with the payment of money or a general 'send me
the product,' but after the customer has had a chance to inspect both the
item and the terms. ProCD answers 'yes,' for merchants and consumers
alike.
Hill, 105 F.3d at 1150 (emphasis added).
Interpreting the same licensing agreement at issue in Hill, the New York
Supreme Court, Appellate Division concluded shrinkwrap license terms
delivered following a mail order purchase were not proposed additions to
the contract, but part of the original agreement between the parties.
Brower, 246 A.D.2d at 250-51. The court held U.C.C. section 2-207 did not
apply because the contract was not formed until after the period to return
the merchandise. Brower, 246 A.D.2d at 250.10
We find the approach of the ProCD, Hill, and Brower courts persuasive
and adopt it to guide our analysis under RCW 62A.2-204. We conclude
because RCW 62A.2-204 allows a contract to be formed 'in any manner
sufficient to show agreement . . . even though the moment of its making is
undetermined,' it allows the formation of 'layered contracts' similar to
those envisioned by ProCD, Hill, and Brower. See ProCD, 86 F.3d at 1452-53
(holding shrinkwrap license agreement was a valid form of contracting under
U.C.C. section 2-204). We, therefore, hold under RCW 62A.2-204 the terms
of the license were part of the contract between Mortenson and Timberline,
and Mortenson's use of the software constituted its assent to the
agreement, including the license terms.
The terms of Timberline's license were either set forth explicitly or
referenced in numerous locations. The terms were included within the
shrinkwrap packaging of each copy of Precision Bid Analysis; they were
present in the manuals accompanying the software; they were included with
the protection devices for the software, without which the software could
not be used. The fact the software was licensed was also noted on the
introductory screen each time the software was used. Even accepting
Mortenson's contention it never saw the terms of the license, as we must do
on summary judgment, it was not necessary for Mortenson to actually read
the agreement in order to be bound by it. See Yakima County Fire
Protection Dist. No. 12 v. City of Yakima, 122 Wn.2d 371, 389, 858 P.2d 245
(1993) (citing Skagit State Bank v. Rasmussen, 109 Wn.2d 377, 381-84, 745
P.2d 37 (1987)); Hill, 105 F.3d at 1148; Kaczmarek v. Microsoft Corp., 39
F. Supp. 2d 974, 977 (N.D. Ill. 1999).11
Furthermore, the U.C.C. defines an 'agreement' as 'the bargain of the
parties in fact as found in their language or by implication from other
circumstances including course of dealing or usage of trade or course of
performance . . . .' RCW 62A.1-201(3) (emphasis added). Mortenson and
Timberline had a course of dealing; Mortenson had purchased licensed
software from Timberline for years prior to its upgrade to Precision Bid
Analysis. All Timberline software, including the prior version of Bid
Analysis used by Mortenson since at least 1990, is distributed under
license. Moreover, extensive testimony and exhibits before the trial court
demonstrate an unquestioned use of such license agreements throughout the
software industry. Although Mortenson questioned the relevance of this
evidence, there is no evidence in the record to contradict it. While trade
usage is a question of fact, undisputed evidence of trade usage may be
considered on summary judgment. Graaff v. Bakker Bros. of Idaho, Inc., 85
Wn. App. 814, 818, 934 P.2d 1228 (1997).
As the license was part of the contract between Mortenson and Timberline,
its terms are enforceable unless 'objectionable on grounds applicable to
contracts in general . . . .' ProCD, 86 F.3d at 1449.
Enforceability of Limitation of Remedies Clause
Mortenson contends even if the limitation of remedies clause is part of its
contract with Timberline, the clause is unconscionable and, therefore,
unenforceable.
Limitations on consequential damages are generally valid under the U.C.C.
unless they are unconscionable. RCW 62A.2-719(3). Whether a limitation on
consequential damages is unconscionable is a question of law. RCW 62A.2-
302(1); American Nursery Prods., Inc. v. Indian Wells Orchards, 115 Wn.2d
217, 222, 797 P.2d 477 (1990) (citing Schroeder v. Fageol Motors, Inc., 86
Wn.2d 256, 262, 544 P.2d 20 (1975)). 'Exclusionary clauses in purely
commercial transactions . . . are prima facie conscionable and the burden
of establishing unconscionability is on the party attacking it.' American
Nursery Prods., 115 Wn.2d at 222. If there is no threshold showing of
unconscionability, the issue may be determined on summary judgment. Nelson
v. McGoldrick, 127 Wn.2d 124, 132-33, 896 P.2d 1258 (1995).
Washington recognizes two types of unconscionability--substantive and
procedural--which we will now address in turn.
1. Substantive Unconscionability.
Mortenson asserts Timberline's failure to inform it of the 'defect' in the
software prior to its purchase renders the licensing agreement
substantively unconscionable.
''Substantive unconscionability involves those cases where a clause or term
in the contract is alleged to be one-sided or overly harsh . . . .''
Nelson, 127 Wn.2d at 131 (quoting Schroeder, 86 Wn.2d at 260). ''Shocking
to the conscience', 'monstrously harsh', and 'exceedingly calloused' are
terms sometimes used to define substantive unconscionability.' Nelson, 127
Wn.2d at 131 (quoting Montgomery Ward & Co. v. Annuity Bd. of S. Baptist
Convention, 16 Wn. App. 439, 444, 556 P.2d 552 (1976)).
As an initial matter, it is questionable whether clauses excluding
consequential damages in a commercial contract can ever be substantively
unconscionable. See American Nursery Prods., 115 Wn.2d at 237-38 (Utter,
J., concurring) (citing Tacoma Boatbuilding Co. v. Delta Fishing Co., 28
U.C.C. Rep. Serv. 26, 35 (W.D. Wash. 1980)). Even if the doctrine is
applicable, however, the clause here is conscionable because substantive
unconscionability does not address latent defects discovered after the
contracting process. RCWA 62A.2-302(1) & cmt. 1; American Nursery Prods.,
115 Wn.2d at 237 (Utter, J., concurring).
In Tacoma Boatbuilding, the Western District of Washington considered
whether a contractual clause limiting consequential damages was
substantively unconscionable under Washington law, where mechanical
problems developed in several boat engines after the contracting process.
Like Mortenson, the purchaser in Tacoma Boatbuilding argued because the
product did not work properly, the limitation clause was unconscionable.
The court rejected this theory:
Comment 3 to {U.C.C.} sec.2-719 generally approves consequential damage
exclusions as 'merely an allocation of unknown or undeterminable risks.'
Thus, the presence of latent defects in the goods cannot render these
clauses unconscionable. The need for certainty in risk-allocation is
especially compelling where, as here, the goods are experimental and their
performance by nature less predictable.
Tacoma Boatbuilding, 28 U.C.C. Rep. Serv. at 35 (citation omitted).
We find the result in Tacoma Boatbuilding an accurate analysis of
Washington's law of substantive unconscionability and adopt it here. In a
purely commercial transaction, especially involving an innovative product
such as software, the fact an unfortunate result occurs after the
contracting process does not render an otherwise standard limitation of
remedies clause substantively unconscionable.
An example of the proper focus of the substantive unconscionability
doctrine is found in Brower v. Gateway 2000, Inc., 246 A.D.2d 246, 254, 676
N.Y.S.2d 569 (1998). There, a shrinkwrap software license similar to the
license in the present case included a mandatory arbitration clause, which
required the use of a French arbitration company, payment of an advance fee
of $4,000 (half which was nonrefundable), significant travel fees borne by
the consumer, and payment of the loser's attorney fees. Brower, 246 A.D.2d
at 249. The Brower court found this clause substantively unconscionable.
Brower, 246 A.D.2d at 254.
In contrast, Timberline's consequential damages clause, when examined at
the time the contract was formed, does not shock the conscience in the
manner of the Brower mandatory arbitration clause; it is not substantively
unconscionable.
2. Procedural Unconscionability.
Mortenson also contends the licensing agreement is procedurally
unconscionable because 'the license terms were never presented to Mortenson
in a contractually-meaningful way.' Supplemental Br. of Pet'r at 17.
Procedural unconscionability has been described as the lack of a meaningful
choice, considering all the circumstances surrounding the transaction
including ''{t}he manner in which the contract was entered,' whether each
party had 'a reasonable opportunity to understand the terms of the
contract,' and whether 'the important terms {were} hidden in a maze of fine
print . . . .''
Nelson, 127 Wn.2d at 131 (alterations in original) (quoting Schroeder, 86
Wn.2d at 260).
Examining the contracting process between the parties based on the above
factors, we hold the clause to be procedurally conscionable. The clause
was not hidden in a maze of fine print. Nelson, 127 Wn.2d at 131. The
license was set forth in capital letters on each diskette pouch and on the
inside cover of the instruction manuals. A license to use the protection
device was wrapped around each such device. The license was also
referenced in the opening screen of the software program. This gave
Mortenson more than ample opportunity to read and understand the terms of
the license. Mortenson is also not an inexperienced retail consumer, but a
nationwide construction contractor that has purchased licensed software
from Timberline in the past. See Northwest Acceptance Corp. v. Hesco
Constr., Inc., 26 Wn. App. 823, 830-31, 614 P.2d 1302 (1980) (finding
liquidated damages clause conscionable in part because parties were
commercially experienced).12
Unconscionability 'was never intended as a vortex for elements of fairness
specifically embodied in other Code provisions.' Tacoma Boatbuilding, 28
U.C.C. Rep. Serv. at 33. We find Mortenson's unconscionability claim
unpersuasive and, therefore, find the limitation of remedies clause to be
enforceable.
CONCLUSION
Mortenson has failed to set forth any material issues of fact on the
issue of contract formation, and has also failed to make a threshold
showing of unconscionability sufficient to avoid summary judgment.
We affirm the Court of Appeals, upholding the trial court's order of
summary judgment of dismissal and denial of the motions to vacate and
amend.
WE CONCUR:
1Bid Analysis is designed for use by general contractors preparing
construction bids. The program analyzes project requirements as well as
bid information from subcontractors and finds the lowest cost combination
of subcontractors to carry out the required work.
2Mortenson subsequently ordered a ninth copy of the software.
3Items appearing in upper case in the original documents appear in upper
case in this opinion.
4A protection device is a piece of hardware that must be affixed to a
computer in order to operate the Bid Analysis software; the program will
not operate without the device. Mortenson received one protection device
for each copy of software it ordered.
5Four months after filing its notice of appeal, Mortenson moved to vacate
the trial court judgment and amend its pleadings to include tort claims.
The trial court denied these motions and the Court of Appeals affirmed.
M.A. Mortenson Co., 93 Wn. App. at 837-39. While Mortenson argues in its
supplemental briefing that the Court of Appeals erred in affirming the
trial court's denial of these motions, it fails to include this issue in
its petition for review. As such, we decline to reach it. RAP 13.7(b).
6In 1999 the National Conference of Commissioners on Uniform State Laws
promulgated the Uniform Computer Information Transactions Act (UCITA) to
cover agreements to 'create, modify, transfer, or license computer
information or informational rights in computer information.' UCITA sec.
102(a)(12), U.L.A. (2000); see also UCITA sec. 103, U.L.A.
(2000). The UCITA, formerly known as proposed U.C.C. Article 2B, was
approved and recommended for enactment by the states in July 1999.
7RCW 62A.2-207 states:
'(1) A definite and seasonable expression of acceptance or a written
confirmation which is sent within a reasonable time operates as an
acceptance even though it states terms additional to or different from
those offered or agreed upon, unless acceptance is expressly made
conditional on assent to the additional or different terms.
'(2) The additional terms are to be construed as proposals for addition to
the contract. Between merchants such terms become part of the contract
unless:
'(a) the offer expressly limits acceptance to the terms of the offer;
'(b) they materially alter it; or
'(c) notification of objection to them has already been given or is given
within a reasonable time after notice of them is received.
'(3) Conduct by both parties which recognizes the existence of a contract
is sufficient to establish a contract for sale although the writings of the
parties do not otherwise establish a contract. In such case the terms of
the particular contract consist of those terms on which the writings of the
parties agree, together with any supplementary terms incorporated under any
other provisions of this Title.'
8A 'value added retailer' evaluates the needs of a particular group of
potential computer users, compares those needs with the available
technology, and develops a package of hardware and software to satisfy
those needs. Step-Saver, 939 F.2d at 93.
9We also note the contract here, unlike the contract in Step-Saver, was not
'between merchants' because Mortenson does not deal in software. See RCW
62A.2-104 (merchant is person who deals in or has particular skill with
respect to the kind of goods involved in the transaction). RCW 62A.2-207
does not specify when additional terms become part of a contract involving
a nonmerchant.
10The fact the approach utilized by the ProCD, Hill, and Brower courts
represents the overwhelming majority view on this issue is further
demonstrated by its adoption into the UCITA. See UCITA sec. 208 cmt. 3
(Approved Official Draft), U.L.A. (2000) (noting intent to adopt the
rule in these cases). The UCITA embraces the theory of 'layered
contracting,' which acknowledges while 'some contracts are formed and their
terms fully defined at a single point in time, many transactions involve a
rolling or layered process. An agreement exists, but terms are clarified
or created over time.' UCITA sec. 208 cmt. 3 (Approved Official Draft).
11We note even if Mortenson's Bellevue employees never saw a copy of the
license terms, Mortenson does not dispute that additional copies of the
software were forwarded to its other offices. Even had Reich completed the
entire installation process at the Bellevue office, he did not install the
software at Mortenson's other offices.
12Furthermore, we note a party defending a limitation on consequential
damages 'may prove the clause is conscionable regardless of the surrounding
circumstances if the general commercial setting indicates a prior course of
dealing or reasonable usage of trade as to the exclusionary clause.'
American Nursery Prods., 115 Wn.2d at 223 (emphasis added); see also Cox v.
Lewiston Grain Growers, Inc., 86 Wn. App. 357, 369, 936 P.2d 1191, review
denied, 133 Wn.2d 1020 (1997). The same uncontradicted evidence of trade
usage and course of dealing noted in our analysis of contract formation
supports the conclusion that the clause is procedurally conscionable.