If you are dealing with an ERP implementation train wreck, you generally have two options: (1) do everything you can to get the software vendor to live up to its contractual obligations and make the software work; or (2) cut your losses and file a lawsuit.
Failed ERP implementation lawsuits are almost always expensive and the outcome uncertain. Making the decision to file a lawsuit usually means abandoning the current implementation and starting over with a new ERP vendor and a new software product. The cost and burden of doing both at the same time is high, to say the least.
Doing everything you can to get the software to work is usually preferable to filing suit. Spending more money on vendor consultants, dedicating more customer resources to the implementation, reducing scope and extending deadlines are tactics you should consider before initiating a lawsuit. Only after exhausting all reasonable options should you give serious consideration to litigation.
ERP software licensing and implementation lawsuits are complex and consist of issues not always seen in other commercial litigation. While no two ERP lawsuits are the same, the following 8 steps give you a basic understanding of the process that is in front of you if you decide to sue your software vendor for a failed ERP implementation:
Step 1: Investigating Your Claims: Prior to filing any ERP lawsuit, you will work with your attorney to conduct a fact-intensive investigation to determine possible causes of action to bring against your software vendor. Typical causes of action in ERP litigation are: breach of contract; breach of fiduciary duty; breach of the duty of good faith and fair dealing; breach of warranty; fraud; fraudulent inducement; negligent misrepresentation; and unjust enrichment. Not all of these causes of action are applicable to every situation. Having a solid understanding of the viability of potential claims and causes of action you may or may not plead at the onset of litigation allows you to focus on developing a solid litigation strategy from the beginning.
Step 2: Filing and Serving Your Complaint: After the investigatory phase, your attorney will draft a well-pled complaint that sets out the factual pleadings and claims. Strategically, you and your attorney should also decide in which court you will file the lawsuit. This decision may be limited by law (i.e. personal jurisdiction or subject matter jurisdiction) or by the ERP software license or software implementation contract (e.g. if the parties agreed to mandatory arbitration).
After filing the complaint, your attorney will then serve the ERP vendor with the complaint. Each jurisdiction has different rules regarding service, and using a reputable local process server will help expedite this process.
Step 3: Defendant’s Motion to Dismiss or Answer: After serving the ERP vendor with the complaint, the software vendor will file either a Motion to Dismiss or an Answer. The purpose of a Motion to Dismiss is to request the court to “throw out” all or parts of the case because of various deficiencies or issues. In the event the Motion to Dismiss is denied by the court, the software vendor will file an Answer to the complaint, pleading its defenses and/or counterclaims (if any).
Step 4: Pre-Trial Conference: Assuming that the parties have not reached a settlement and the court has not dismissed the case, the court will hold a Pre-Trial Conference with both parties in order to impose a Scheduling Order. The Scheduling Order will set out the “rules” of the case, such as the number of depositions the parties may take, the dates and deadlines for discovery, whether expert witnesses may be used, and the date of trial. While the Scheduling Order may be amended as the case progresses—in fact it usually is for ERP litigations due to the complexity and unforeseen issues involved—the Scheduling Order will bind the parties to its contents.
Step 5: Experts: Due to the complexity of ERP litigation, experts are usually used in order to either create expert reports or serve as expert witnesses. Technical experts who specialize in evaluating and rescuing failed ERP projects will be able to explain reasons for the failure to laypersons. By having an expert assist in examining the case, technical details previously lost in translation will serve as important support for your claims.
Step 6: Discovery: Discovery is the pre-trial procedure during which each party will obtain evidence for its claims or defenses, and is oftentimes the lengthiest part of the entire ERP litigation process. From the onset, initial disclosures will have to be exchanged to the other party before any discovery devices are used. Initial disclosures include basic information such as the name of any persons likely to have discoverable information in the case, and a computation of each category of damages claimed by the disclosing party. After initial disclosures are exchanged, the parties will use discovery devices to obtain evidence. The following lists some examples of the most common discovery devices for ERP litigation:
- Requests for Documents, e.g. “Provide all documents concerning the functionalities or gaps in functionalities of the software.”
- Interrogatories, e.g. “Identify the person or persons with knowledge of the discontinuation, cessation, modification, or interruption of the software at any time during the implementation.”
- Request for Admissions, e.g. “Admit that you stated that the software was ready for go-live.”
Depositions are also another useful discovery device, though they can be costly if witnesses are either hard to locate because they are not working with the company anymore or if witnesses are not in the local area anymore.
In ERP lawsuits, discovery can be very complex and strategically taxing, due to potentially hundreds of thousands of documents that must be reviewed and the numerous issues that must be analyzed.
Step 7: Motion Practice: Throughout discovery and leading up to trial, both parties will file extensive motions. While in an ideal world, the attorneys will work together to resolve any issues before asking the court to rule, oftentimes there are some issues that cannot be conceded. Therefore, expect motion practice to take up a lot of time and resources for both parties.
Step 8: Settlement or Trial: Settlement should always be considered due to the unpredictability of trial. If settlement is unsuccessful or simply not an option, the parties will prepare their cases and proceed to trial. During trial, your attorney will try the case based on the themes and claims established throughout discovery.
While the 8 steps detailed above are not the be all and end all of every ERP litigation process, they are typical of most cases. By knowing what you are getting yourself into, you will have a greater chance of success in your lawsuit against your ERP vendor. If you have questions regarding ERP litigation and software license disputes, please feel free to call our office at 312-263-0570.