Small Firms Win Big In Computer Fraud Cases

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Spurred by recent court decisions against giant computer makers, more and more small firms are suing computer vendors on charges ranging from fraud and misrepresentation to failure to meet warranty and service obligations.

Three recent court cases have found the vendors to be at least partly liable. In July, a federal district court in New York ruled against Detroit-based Burroughs Corp., finding it guilty of fraud and three other charges, and awarding the plaintiff, a vitamin distributor in Farmingdale, N.Y., $250,000 in damages. In June, a wholesale floral company in Mobile, Ala., won $500,000 in a misrepresentation case, also against Burroughs.

Last spring, Steven Depper, vice-president of a wholesale suede and leather cleaning company in Oakland, Calif., was awarded $2.3 million by a San Francisco jury. the court concluded that NCR Corp., of Dayton, Ohio, had sold Depper a minicomputer that NCR knew wouldn't work.

It took Depper four years to decide to file suit against NCR. "We couldn't afford to buy a new system," he says. "They didn't leave us any alternative. When the NCR regional manager said, 'You can sue us,' that was the last straw. I don't think he'll ever forget those words."

The decision to sue led to a costly search for people who would testify against NCR. "One of the problems I had initially was finding people to say something in court," says Depper's attorney, Richard Perez. "Most of them still had service contracts with that vendor."

NCR has appealed the case and is confident that the verdict will be overturned. That leaves open the possibility of protracted litigation, adding to the more than $60,000 in legal fees Depper has already spent, but he vows to stick it out.

"The chances of obtaining successful remedy through the courts seem to have improved over the past 5 or 10 years," says Richard Raysman, chairman of the New York State Bar Association's computer law subcommittee. "The courts are getting more and more sophisticated with regard to the technical aspects of computer cases."

According to industry sources, several hundred small firms have sued computer vendors as a result of data processing problems. MIS Week, a trade journal, reports that court cases against the Burroughs Corp. alone could easily reach 100.

Small firms are particularly vulnerable to computer problems because vendors are less likely to spend time tailoring software and hardware to the needs of small clients. And limited resources and the lack of in-house experts to eeal with malfunctions make it difficult for small companies to absorb the costs that arise from computer breakdowns.