Fidelity Deposit v. IBM

Citation: Fidelity Deposit Co. of Md. v. IBM Corp., 2005 WL 2665326 (M.D. Pa. 2005).

Factual Background
Computers can break down and data can be lost. This apparently happened to the Waypoint Bank in Pennsylvania. Its IBM AS400, the complaint alleges, shut down on October 8, 2002, and the data stored in it was lost:


 * ”IBM acknowledged that the computer was defective and replaced it. Waypoint incurred service charges of $178,728.72 for restoration of data. Fidelity and Deposit of Maryland made payment, under Waypoint’s policy of insurance . . . of $173,728,72, Waypoint sustained its (deductible) loss of $5,000.”

Fidelity and Waypoint sued IBM, averring that plaintiff’s loss was caused by “negligence, carelessness and other liability producing conduct of the defendant.”

Trial Court Decision
The complaint had three counts: negligence, strict liability, and breach of implied and express warranties. IBM moved to dismiss the first two counts “on the grounds that only economic damages are involved here and on the grounds that the gist of this civil action is a breach of contract.”

IBM argued that economic loss bars tort claims “where the product injures only itself, and not any person or other property. . . that the lost electronic data was integrated into the computer system so as to be part of the computer itself and not other property.”

Plaintiffs claimed that no Pennsylvania appellate division held the data was integrated into the computer itself. To which Judge Smyser responded, “No Pennsylvania decision is cited, however, that hold that computer retained data is not ‘integrated’ or that it is not a part of the product itself. We view the data entered into the computer to be a part of the computer and not a separate item of property.”

Plaintiffs analogized the situation to the contents of a building, such as boxes in a warehouse. But, the court noted, such boxes “can be objectively defined and described as entities separate from the defective product.” And, he continued:


 * ”Computer retained data and programming has no tangible physical character and so can not be described in tangible physical terms. Unlike tangible and separable physical property, data entered into the computer is entered in to the computer to become in a significant way a part of the computer. (The data in its form prior to entry, we note, may also be maintained in duplicate outside of the computer.) We consider the application of the economic loss doctrine to be correct because there is no way to establish the exact nature of the “other property” insofar as the “other property” is data stored in the computer. This means that litigation involving the valuation of the lost property could be boundless and burdensome.”

IBM’s motion was granted.