Diversified Environments v. Olivetti

Citation: Diversified Environments, Inc. v. Olivetti Corp., 461 F. Supp. 286 (M.D. Pa. 1978).

Factual Background
In July 1974, defendant, Olivetti Corporation of America (“Olivetti”) contacted plaintiff, Diversified Environments, Inc. (“Diversified”), for the purpose of inducing the company to buy or lease a computerized accounting system. Diversified expressed interest in the system and subsequently met with an Olivetti sales representative. Diversified explained all of the accounting procedures of the company and the necessity of the accounting records be compatible with Barber-Colman Co, a company whom Diversified represented.

Upon becoming familiar with Diversifies procedures and needs, Tim Fleegal, Olivetti’s sales representative, suggested the Olivetti P-603 Computer System (the “System”). Fleegal stated that the System would meet all necessary requirements and functions required of Diversified. In addition, Fleegal represented to Diversified that the System would save the company both time and expense by reducing manpower. In late-July 1974, Fleegal submitted a proposal to Diversified to lease the System. The proposal stated that the total cost was $9,590.00. The cost listed on the proposal included all programming, forms design, initial operator training, delivery and installation of equipment. In addition to the price, the proposal also included the assurance that “Olivetti. . . guarantees in writing the exact performance of the system both machine and program. . .” as well as a “personal assurance” that “all of [Olivetti’s] resources will be employed toward [Diversified’s] complete satisfaction.

On August 7th, a representative from Diversified signed off on two of the three sections that comprised the “Customer Software Acceptance.” Diversified refused to sign the provision that stated, “The program. . . has now been installed and the relevant personnel have been fully advised of its capabilities.” Fleegal informed Diversified that it owed absolutely no financial obligation until the third line of the form was signed and the computer was fully in operation.

Based on Fleegal’s representations, Diversified agreed to the System being placed in its business. However, on the day of its deliver, in September 1974, the System was not operational.

Shortly after the System was delivered, Olivetti contracted with leasing company, Equipment Funding, Inc. (“Equipment Funding”) and arranged for Equipment Funding to purchase the computer and software licensed to Diversified.

In mid-November 1974, Fleegal, along with a representative from Equipment Funding, went to Diversified for the purpose of obtaining the third signature needed to complete the “Acceptance Certificate.” Although Diversified initially refused due to the inoperable status of the System, Fleegal convinced Diversified to complete the agreement based on his promise that the computer would be fully functioning by January 1, 1975.

Over the following months, Fleegal made several trips to Diversified for the purpose of training employees. However, Diversified employees were never trained on any of the System’s essential functions. Instead, employees complained of Fleegal spending a “substantial amount of his time at Diversified discussing his religious beliefs." As a result, Diversified refused to allow Fleegal to return to the premises.

By January 7, 1975 the System was still incapable of performing the functions required by Diversified and was being utilized solely for its payroll base data function. Due to the lack of employee training and failure to transfer data as promised, the system had become “nearly worthless.” In addition, the System was not compatible with the Barber-Colman bookkeeping system, which was an necessity for Diversity. As a result of their “complete dissatisfaction, Diversified requested that the system be removed from the office.

Olivetti refused to remove the System, claiming that “the relevant personnel have been trained” and that Olivetti’s “only remaining obligation is to continue to assist you in the fullest implementation of this System. . . .”

Trial Court Proceedings
As a result, Diversified filed suit. They claimed that the System was incapable of performing the functions it was represented to perform and, in addition, was unable to perform word processing as required for specifications writing, which was Diversified’s primary concern. Diversified sought recovery for expenses incurred, including $15,126.00 for payments due under the lease, $145.54 for paper products and an accountant’s bill of $387.50.

At trial, the district court ruled in favor of Diversified for all costs incurred. In reaching this decision the court determined that a contractual relationship, which was comprised of both the oral agreements by Olivetti and the express promises made in the “Customer Software Acceptance” was present. Additionally, the court reasoned that the duty owed to Diversified was breached by Olivetti when they failed to carry out their obligations of transferring the base data, of training Diversified employees and of making the computer system operational. Despite the court's finding that Olivetti’s argument that they were barred from training employees was not “totally devoid of merit,” the argument failed to completely absolve the defendant of liability. Therefore, the plaintiff was entitled to the total cost of expenses incurred by the defendant’s breach.