On April 19, 2019, Hertz Corporation (of rental car fame) filed a lawsuit in excess of $32 million in the United States District Court for the Southern District of New York (SDNY) for breach of contract in connection with Hertz’s website redesign project. If you’re a software developer in the United States, this is a case you should pay close attention to for a few reasons. If you provide subcontracting services for large consulting shops like Accenture, there’s a real possibility you could be pulled into such a lawsuit.

It’s not often that we see suits like this reaching the filing stage. Typically, such disputes settle before an actual suit gets filed. For that reason, I’m going to outline for you how to make sense of the filed complaint. Cases like this affect our industry and whether you provide consulting services or work for an organization that consumes consulting services, it’s good for software development professionals to have a working knowledge of the legal landscape that software development contracts rely upon for enforcement. To that end, I’ll review the Hertz v. Accenture complaint in a way that non-lawyers can understand.

What’s the Beef?

By way of background, Hertz agreed to pay money to Accenture for services that included, among other things, a redesign of Hertz’s website and mobile applications. The complaint can be found here: https://www.courtlistener.com/recap/gov.uscourts.nysd.514124/gov.uscourts.nysd.514124.1.0.pdf. Hertz and Accenture executed an agreement (a contract) in July 2004 (paragraph 18). Hertz’s "beef" is simple, despite Accenture accepting money for services, Accenture failed to deliver the agreed upon services. In other words, Hertz alleges that Accenture is liable for breach of contract. Breach of contract is one of two legal causes of action in this case. The second cause of action is a violation of Florida’s deceptive trade practices act. I’ll talk more about why that count was included toward the end of this article. The only count I’m going to discuss in detail is count 1: breach of contract.

If Accenture thinks your work contributed to the legal exposure, Accenture could cross-claim and join you in as a codefendant. That’s why consultants should carry liability insurance!

The Law vs. the Facts

As you examine the case, put what you know about developing software to the side and think abstractly about what a contract is. A contract in this context is an agreed upon bargained exchange of a promise for a promise. Hertz promised to pay money in exchange for a new website and mobile applications and Accenture promised to deliver a new website and mobile applications in exchange for money. Whether we’re talking about software or a home renovation project, at a fundamental level, a contract is a contract. The legal question is whether there’s a legally enforceable contract.

If what Hertz claims is true, and there is no reason to suggest it isn’t true, there’s a legally enforceable contract. What if there wasn’t? Then the suit gets dismissed because, without a contract, there can be no breach and if there’s no breach, there‘s no cause of action. It’s that simple. Assuming there was a contract, the factual question is whether the contract was breached.

What did each party do? Did Hertz perform its obligations? Accenture, in its defense, will likely claim that Hertz failed to do something.

At this point, you may be thinking about a difficult client you’ve had in your career. The dispute of material fact in cases like this is simple: The plaintiff (Hertz in this case) claims breach and the defendant (Accenture) will deny the breach. What do we do when there’s a dispute in the facts? We have a trial! Resolving facts that are in dispute is what trials are for.

In this dispute, Hertz is demanding a jury trial. What does the jury get to consider? That’s where the law and rules of evidence come into play. C’mon, you’ve seen Law and Order, where someone says "I object, hearsay, argumentative, leading, asked and answered, etc." The facts about which a jury considers the weight and credibility of and what the actual truth of what happened are often not the same thing. As the old saying goes, what you think you know and common sense don’t matter.

The only thing that matters is what you can prove and that depends on what you can get entered into evidence. In a case like Hertz v. Accenture, assuming that the case goes to trial, it will boil down to a battle of expert witnesses. What requires expert testimony and who qualifies as an expert, that’s way beyond the scope of this article. If you’re interested, it’s the Daubert Standard (which more than a few Trump judicial nominees didn’t have the first clue about).

The Complaint Doesn’t Seem that Complicated

Rule 8 of the Federal Rules of Civil Procedure (FRCP) sets forth the following basic requirements for a complaint:

  • A short and plain statement of the grounds for the court's jurisdiction, unless the court already has jurisdiction and the claim needs no new jurisdictional support
  • A short and plain statement of the claim showing that the pleader is entitled to relief
  • A demand for the relief sought, which may include relief in the alternative or different types of relief

In other words, all you need is to say why you are entitled to relief, why the court is empowered to give you relief, and what relief you want. For a $32 million suit over a contract breach for what appears to be complex systems, you might think the complaint has to go into a lot of detail. As it turns out, filing a lawsuit isn’t that complicated. Keeping a lawsuit alive to the point that it settles favorably or goes to trial, that’s a bit more complicated.

Whether it’s about software or a home renovation project, at a fundamental level, a contract is a contract.

Why New York and Why Federal Court?

Most likely, Hertz found New York and, specifically, the Southern District of New York (SDNY) to be the most convenient forum. Going back to Federal Rule 8 regarding pleadings, Hertz must claim that New York has what is known as subject matter jurisdiction. In this case, it’s based on the complete diversity of the parties (see Hertz v. Accenture Complaint Paragraph 19). Complete diversity means that neither party shares a common state and that the amount in controversy is greater than $75,000. Per the complaint, Hertz is from Delaware and Florida and Accenture is from Illinois.

Keep in mind, Accenture is a limited liability partnership, not a corporation. What if Accenture could show that it has some form of citizenship in Delaware or Florida? Diversity would be broken, and the case would have to be dismissed for lack of subject-matter jurisdiction. Jurisdiction founded on diversity is necessary to stay in federal court in this case because there’s no claim of federal law. If a claim is based on some federal statute or constitutional provision, the door is open to the federal courts.

Whether to try and defeat diversity, that’s a procedural tactic that the Accenture lawyers are no doubt thinking about. For sure, Accenture has personal jurisdiction in New York because of its presence. Hertz is free to file in another jurisdiction such as New York State Court. That option was always open to Hertz and, for reasons that only it knows, it chose to go directly to federal court and presumably, it chose that option because it knows it can stay in federal court.

Procedural considerations like this are akin to a chess game between litigants. Why federal court and not state court? Generally, litigants who opt to go to federal court believe they will get a more level playing field. Presumably, this is what Hertz thinks.

What’s Up with the Florida Deceptive Trade Practices Statute?

A breach of contract claim is based on what is known as Common Law. Common law is the law of court cases.

The law around contracts can trace its roots back to the time of Plato. In his dialog, The Laws, Plato wrote (Book 11 §23, Contracts):

"If a man fails to fulfill an agreed contractunless he had contracted to do something forbidden by law or decree, or gave his consent under some iniquitous pressure, or was involuntarily prevented from fulfilling his contract because of some unlooked-for accidentan action for such an unfulfilled agreement should be brought in the tribal courts, if the parties have not previously been able to reconcile their differences before arbitrators (their neighbors, that is)."

Although there are statutes that govern some commercial and consumer transactions, the law of contracts is based entirely on case law, which is based on hundreds of years of precedent. A basic tenant of contact law is that only terms in the contract can be enforced. This question always arises with attorneys’ fees. Some contracts have provisions for dealing with attorneys’ fees. I think it’s safe to conclude that the Hertz/Accenture contract was silent on the matter. This is why Hertz brought in the Florida statute.

The other body of law is statutory law. These are laws passed by legislatures and administrative bodies. It’s quite common for statutes, especially ones in the public interest, to award reasonable attorneys’ fees. Paragraph 4 in the Prayer for Relief (Hertz’s claimed damages) makes Hertz’s strategy clear: Enter judgment awarding Hertz its attorneys’ fees and costs pursuant to F.S.A.§501.201.

Is including the Florida Statute appropriate? In my opinion, it’s not, for the simple and most basic reason that the contract specifies that New York Law applies. If New York has a similar statute, that would be appropriate to include. It will be interesting to see how this count progresses and whether the complaint will be amended. As a matter of strategy, if you’re going to sue somebody, if your contract doesn’t make such a provision for attorneys’ fees, try to find an applicable statute that does award attorneys’ fees.

What’s Next?

In May 2019, pre-trial activities began. Does this mean the case will go to trial? Given that 96% of civil cases settle, most likely, this case will not go to trial. My guess is that this case is eventually going to go away. And by "go away", I mean it either is dismissed by the court or the case lapses due to the parties reaching a private settlement.

Then again, it might go to trial. As of May 23, 2019, orders were granted to allow three Hertz out-of-state lawyers to appear in this case. With that in mind, it appears that Hertz is serious about prosecuting this case against Accenture. It’s also important to note that as of May 23, 2019, Accenture hasn’t filed a responsive pleading (either a motion or answer) within the required 21-day time period. For reasons that I won’t go into here, that time frame can be extended. If things continue, this will be an important case to watch. Imagine if you were a contractor on this project. You could very well be somebody called as a witness. If Accenture thinks your work contributed to the legal exposure, Accenture could cross-claim and join you in as a co-defendant.

And that is why consultants should carry liability insurance.

Stay tuned to this space for updates.