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Bhc Development, L.C. v. Bally Gaming, Inc.

United States District Court, Tenth Circuit

December 4, 2013

BHC DEVELOPMENT, L.C., et al., Plaintiffs,
v.
BALLY GAMING, INC., Defendant.

MEMORANDUM AND ORDER

KATHRYN H. VRATIL, District Judge.

BHC Development, L.C. and BHCMC, L.L.C. bring suit against Bally Gaming, Inc. for breach of contract (Count I), negligent misrepresentation (Count II), fraudulent inducement (Count III), breach of express warranty (Count IV) and breach of warranty of merchantability (Count V). All claims arise from plaintiffs' purchase of casino management hardware and software from defendant. Defendant counterclaims that plaintiffs failed to make payments due under the purchase agreement and continued to use the software after their license expired. This matter is before the Court on Defendant's Motion For Summary Judgment (Doc. #83) filed July 15, 2013. Defendant seeks summary judgment on each of plaintiffs' claims and on its counterclaim. For the following reasons the Court overrules defendant's motion in part.

Legal Standards

Summary judgment is appropriate if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law. See Fed.R.Civ.P. 56(c); Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 247 (1986); Vitkus v. Beatrice Co. , 11 F.3d 1535, 1538-39 (10th Cir. 1993). A "genuine" factual dispute is one "on which the jury could reasonably find for the plaintiff, " and requires more than a mere scintilla of evidence. Liberty Lobby , 477 U.S. at 252. A factual dispute is "material" only if it "might affect the outcome of the suit under the governing law." Id. at 248.

The moving party bears the initial burden of showing that there are no genuine issues of material fact. Celotex Corp. v. Catrett , 477 U.S. 317, 322-23 (1986); Justice v. Crown Cork & Seal Co. , 527 F.3d 1080, 1085 (10th Cir. 2008). Once the moving party meets its burden, the burden shifts to the nonmoving parties to show that a genuine issue remains for trial with respect to the dispositive matters for which they carry the burden of proof. Nat'l Am. Ins. Co. v. Am. Re-Ins. Co. , 358 F.3d 736, 739 (10th Cir. 2004); see Matsushita Elec. Indus. Co. v. Zenith Radio Corp. , 475 U.S. 574, 586-87 (1986). As to these matters, the nonmoving parties may not rest on the pleadings but must set forth specific facts. Fed.R.Civ.P. 56(e)(2); Matsushita , 475 U.S. at 586-87; Justice , 527 F.3d at 1085. Conclusory allegations not supported by evidence are insufficient to establish a genuine issue of material fact. Jarvis v. Potter , 500 F.3d 1113, 1120 (10th Cir. 2007); see Kidd v. Taos Ski Valley, Inc. , 88 F.3d 848, 853 (10th Cir. 1996).

When applying this standard, the Court must view the factual record in the light most favorable to the parties opposing the motion for summary judgment. Duvall v. Ga.-Pac. Consumer Prods., L.P. , 607 F.3d 1255, 1260 (10th Cir. 2010); see Ricci v. DeStefano , 557 U.S. 557, 586 (2009). Summary judgment may be granted if the nonmoving parties' evidence is merely colorable or is not significantly probative. Liberty Lobby , 477 U.S. at 250-51. Essentially, the inquiry is "whether the evidence presents a sufficient disagreement to require submission to the jury or whether it is so one-sided that one party must prevail as a matter of law." Id. at 251-52.

Facts

The following facts are uncontroverted or where controverted, set forth in a light most favorable to plaintiffs.

Plaintiff BHC Development, L.C. ("BHC") is a Kansas limited liability company. Plaintiff BHCMC, L.L.C. ("BHCMC") is related to BHC. In December of 2008, plaintiffs obtained a contract to manage the state-owned Boot Hill Casino in Dodge City, Kansas. Plaintiffs hired the Navegante Group to assist in that effort. Navegante in turn hired G.H.I. Solutions to assist in software selection and acquisition. G.H.I. sent vendors a request for proposal to fulfill the slot accounting and casino management software needs of the casino. The request included a spreadsheet for vendors to indicate whether their software could satisfy each of 644 distinct functionality requirements.[1] Doc. #104-9.

Bally Gaming, Inc., is a Nevada corporation which provides computer software and hardware for casino gaming and operations.[2] On April 1, 2009, Bally responded to the G.H.I. request for proposal.[3] Jeffrey Connors, Bally Vice President of Regional Sales, completed the spreadsheet for Bally with assistance from other Bally employees. In a proposal analysis which it presented to plaintiffs' management team, G.H.I. summarized all vendor responses to the spreadsheet.[4] To determine which software to purchase, Doug Smith, Casino Project Director, paid specific attention to the spreadsheet and to G.H.I.'s summary of the spreadsheet.[5]

On October 6, 2009, plaintiffs and defendant executed a Purchase and License Agreement. See Agreement (Doc. #84-1). In negotiating the agreement, all parties were represented by counsel. BHCMC executed the Agreement "solely as related to the payment obligations described in Section 21(c)" of the Agreement. See id. at 26. In entering the Agreement, plaintiffs relied on Bally's representations in the spreadsheet and on other representations by Bally.

The Agreement provides that plaintiffs pay Bally $1, 582, 475.00 for hardware, software licenses and professional services, plus monthly maintenance fees of $12, 246.88. See Ex. A to Agreement. The Agreement grants BHC "the non-exclusive right and perpetual license... to use each program in the Software solely as described in this Agreement." See Agreement at ¶ 1. The Agreement provides that BHC is in default if "[BHC] breaches any condition... or fails for any reason to make payment... when due." See Agreement at ¶ 12(b). The Agreement provides that Bally is in default if, among other things, it breaches any condition of the Agreement and fails to cure such breach after written notice, or if "[a]ny representation or warranty made by Bally herein or in any other document or certificate furnished by Bally to [BHC] is incorrect in any material respect and Bally knew of such error when made." See Agreement at ¶ 15.[6]

The Agreement provides a 90-day limited warranty on hardware. See id. at ¶ 18.[7] Paragraph 19 of the Agreement, titled "WARRANTY DISCLAIMER AND LIMITATION OF LIABILITY, " states that "[e]xcept as otherwise expressly stated herein, Bally disclaims any and all express or implied warranty, condition, or guaranty, including any implied warranty of merchantability or fitness for a particular purpose and other obligations on the part of Bally for or with respect to the Software." Id. at ¶ 19.[8] It also provides that the parties waive all special, indirect, consequential, economic, exemplary and punitive damages, and limits Bally's cumulative liability for all claims arising out of the Agreement to the amount paid by plaintiffs for the products from which such any claim arises. Id.

The Agreement includes an integration clause which provides in part that "[t]his Agreement and its Exhibits and Addendum, if any, shall constitute the entire understanding and contract between the parties hereto and supersedes any and all prior contemporaneous oral or written representations or communications with respect to the subject matter hereof, and all of which communications are merged herein." Id. at ¶ 43.[9]

Exhibit A to the Agreement provides that BHC pay Bally $127, 380.00 for a slot monitoring system license, $110, 330.00 for a casino management system license and $43, 425.00 for a promotion license, for a total of $281, 135.00 for software.

When the casino opened on December 15, 2009, plaintiffs immediately encountered problems with the software. Some of the problems continued until June of 2012. Among others, the issues were that (1) the software did not generate accurate reports for progressive meters; (2) the software resulted in awards of reward points that players did not earn; (3) upgrades or patches to the software introduced defects not disclosed in release notes; (4) the software produced revenue figures which did not match revenue figures reported by the Kansas Lottery "GTECH" system;[10] (5) when time changed to or from daylight-saving time, the software "lost" transactions; (6) the software could not update the casino player database with information from the national change of address registry; (7) the software could not cause player reward points to expire on certain inactive accounts; (8) the software did not produce monthly reports to compare the actual hold percentage and theoretical hold percentage of every gaming machine, as required by Kansas state regulations; (9) the software frequently produced reports that could not be reconciled with other reports; (10) the software frequently caused the casino to be out of compliance with its own internal controls or with Kansas state regulations; and (11) the software did not generate accurate reports on progressive slot meters.

From 2008 until May of 2012, Joe Sellens was Director of Gaming Enforcement and Audit at the Kansas Lottery. He was responsible to determine whether the casino complied with its internal controls. On several occasions, the Bally software caused the casino to be out of compliance with Kansas state regulations or its own internal controls. When Sellens raised software issues with Bally, Bally sometimes gave him the impression that his expectations were unreasonable.

Ramesh Srinivasan was Senior Vice President of Systems for Bally in 2009 and Chief Operating Officer from late 2010 to late 2012. He is now Bally's Chief Executive Officer. In March or April of 2010, Srinivasan told Sellens that the software for the casino had been rushed out to market too soon and contained inherent flaws.

On March 30, 2011, Srinivasan met with plaintiffs' representatives concerning their frustration that the software was not performing as expected. Srinivasan stated that when Bally first proposed the software, he committed that Bally would do whatever it took to make the software successful for the casino. He told plaintiffs that they did not need to pay any of the balance due on the software until they were happy with it.[11] He said that Bally would send a team to them to review all outstanding issues, and assured plaintiffs that Bally would solve them.

After the meeting on March 30, 2011, Srinivasan sent an email to Bally employee Tom Doyle, stating that he was "quite shocked how the Services teams have not done a better job of REALLY working through [the casino's] issues. It is quite amazing how everyone at Bally loves to operate at 30, 000 feet and not trouble themselves with working out real solutions for customers." See Doc. #104-20 at 2-3.[12]

On April 18, 2011, Bally personnel went to the casino to observe the software issues that plaintiffs had been reporting.[13] Doyle later reported to Srinivasan that as a result, Bally employees identified "critical bugs" that needed corrective action. Plaintiffs continued to work with Bally to resolve issues with the software, but became frustrated that their issues were not being successfully resolved.

On June 10, 2011, Bally Credit and Collections Manager Patrick Spargur wrote Srinivasan. He asked, "Sharon Stroburg states that you said until they were happy with the system they don't have to pay for it, is this the case?" Doc. #104-25 at 2. Srinivasan responded: "Unfortunately true, Patrick. Our Systems teams have done a very poor job with this customer so far. Fixing their pending issues has been very slow to move forward with very little sense of urgency. Our team of so-called experts went there 2 months ago - and very little seems to have happened to fix their issues since then. They have exposed many fundamental weaknesses in CMP that we are making slow progress with." Id.

On October 11, 2011, representatives of plaintiffs met with Srinivasan in Las Vegas to discuss ongoing problems with the software. Srinivasan told them that "I cannot make you happy. There's nothing in the world I can do to make you happy." Doc. #104-8.[14]

After the meeting in Las Vegas, plaintiffs evaluated alternative software options. In July and August of 2012, they ...


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