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Montgomery County v. Microvote Corporation

February 26, 2003

MONTGOMERY COUNTY
v.
MICROVOTE CORPORATION; CARSON MANUFACTURING COMPANY, INC.; WESTCHESTER FIRE INSURANCE CO., INC. WESTCHESTER FIRE INSURANCE COMPANY, APPELLANT IN 01-2998, MICROVOTE CORPORATION; CARSON MANUFACTURING COMPANY, INC.; WESTCHESTER FIRE INSURANCE CO., INC. MICROVOTE CORPORATION, APPELLANT IN 01-2999.



Appeal from the United States District Court for the Eastern District of Pennsylvania (D.C. Civil Action No. 97-cv-06331) District Judge: Honorable Robert F. Kelly

Before: Becker, Chief Judge, Roth and Rosenn Circuit Judges

The opinion of the court was delivered by: Roth, Circuit Judge

PRECEDENTIAL

Argued on October 15, 2002

OPINION OF THE COURT

Carson Manufacturing Company, Inc., and Microvote Corporation sold an electronic voting system to Montgomery County, Pennsylvania. Pursuant to the sales contract, Microvote obtained a performance bond from Westchester Fire Insurance Company, Inc. The voting system malfunctioned in the November 1995 general election and the April 1996 primary election. As a result, the County filed a six count diversity action, alleging negligence by Microvote and Carson, breach of warranty by Microvote and Carson, breach of contract by Microvote, fraud by Microvote, wrongful use of civil proceedings by Microvote, and breach of the performance bond by Westchester.

Carson settled with Montgomery County shortly before trial, and a jury returned a verdict against Microvote on the breach of implied warranty cause of action and against Westchester on the performance bond claim. Microvote and Westchester appealed.

On appeal, Westchester claims that the District Court erred in finding that the statute of limitations did not bar this action. Westchester also raises various other challenges to the District Court's jury charge and its denial of Westchester's post-trial motions. Both Microvote and Westchester contend that the District Court erred in its refusal to admit into evidence the videotape deposition of defendants' expert witness. They also claim that the District Court should have limited Montgomery County's remedy to repair and replacement of the defective machines and should have off-set the judgment against them by the amount of Carson's settlement with the County. For the reasons stated below, we will affirm.

I. Facts and Procedural History

On May 25, 1994, the County entered into a written contract with Microvote to purchase 900 direct recording electronic voting machines (DREs), a central computer system, computer software, and support services for a total of $3,822,000. The bid explicitly stated that it was for an "integrated voter registration and election system" and that "Microvote is bidding the entire system, as specified, including all requisite hardware and software." Microvote manufactured the system software, Microvote Election Management Software (MEMS), but it purchased the machines and their internal software from Carson. The contract required Microvote personnel to operate the system during elections through 1995.

Pursuant to the sales agreement, Microvote obtained a performance bond from Westchester. The performance bond incorporated the sales contract by reference and contained a warranty that all materials, equipment, and labor will be furnished in a "complete and workmanlike manner." The performance bond required Microvote to provide Westchester with notice of any default. It did not require the County to give Westchester notice of default. Nor, did Westchester ever ask the County to provide notice of default. Westchester's affiliate, Universal, obtained a $150,000 letter of credit as collateral on the performance bond. The letter of credit expired on June 1, 1996.

The DREs were phased in to use over the course of three elections: the November 1994 general election, the April 1995 primary election, and the November 1995 general election. The November 1995 election was the first time the County used all 900 DREs and the MEMS software. In the November 1995 general election, DREs repeatedly shut down. This resulted in long lines, in voters leaving polling stations before they voted, and in lost votes. The shutdowns occurred because the DREs would randomly turn themselves into power-fail mode. Apparently, the scroll motors were emitting power surges to the internal computer chips when the brushes in the scroll motors interacted with the casing of the motors to generate electromagnetic interference. The DREs' microcomputer chip would then shut down in order to protect the circuitry. Thus, when a voter pushed a button on a DRE to scroll to the next page, the scroll motor would activate, and the machine might randomly shut down in front of the voter. In this situation, the vote would be lost unless the voter re-voted. In addition, the MEMS software malfunctioned when counting the votes, causing Microvote employees to report the wrong "unofficial results" to the press.

The DRE malfunctions were haphazard. William Carson, the President and CEO of Carson, wrote to the County after the November 1995 general election that "the problem seems to appear and disappear for no particular reason." Carson admitted in an internal memorandum, and in his trial testimony, that the DREs had problems in the November 1995 election. Microvote's on-site manager in an internal memorandum also noted "serious problems" with the MEMS software. The software problems were not detected by pre-election testing because Microvote was making changes in the software up to the day before the election. Under the contract and Pennsylvania law, the system, including the software, should have been tested and certified prior to the election. MEMS, however, was not certified in Pennsylvania.

After the November 1995 election, County officials met with representatives from Microvote. At the meeting, the County expressed its intention to return the defective system and seek a refund. Microvote's Sales Director responded that Microvote will "make certain that in April of next year we don't face any machine down time at all." On March 1, 1996, the Solicitor of Montgomery County notified Microvote that the County "considers you in default of your contract." Microvote claimed that additional machines would cure the problem and offered to provide the County with 390 additional "loaner" machines free of charge for the April 1996 primary election. The County agreed to give the DREs another chance. On March 13, 1996, the parties entered into an agreement under which the County maintained its position that Microvote was in breach of the May 25, 1994, sales contract but would use the 900 DREs the County owned, along with the 390 additional DREs on loan from Microvote, in the April 1996 election to determine if the system could function properly with additional DREs. Microvote made several attempts to cure the problems, including working on the motor brushes and retrofitting the machines with less sensitive computer chips. Nevertheless, the system failed again in the April 1996 primary election.

On June 28, 1996, the County replaced the DREs with 1,050 machines from another manufacturer that the County purchased for $5,617,500, less a $1,350,000 trade-in allowance for the Microvote machines.*fn1 Neither the County, nor Microvote, notified Westchester of the default and Universal's Letter of Credit expired. Nor, however, did Westchester obtain a release from the County despite the fact that Westchester's policy required a completion letter from the County before allowing the Letter of Credit to expire. Moreover, Westchester twice attempted unsuccessfully to obtain written releases from the County.

On July 1, 1996, Microvote filed an action against the County in the United States District Court for the Eastern District of Pennsylvania. The complaint alleged that the County had breached an oral agreement to purchase 350 of the 390 DREs that Microvote had loaned the County. The District Court dismissed the action pursuant to Fed. R. Civ. P. 12(b)(6) on the ground that Pennsylvania law requires all contracts with local governments to be in writing. We affirmed that decision in Microvote v. Montgomery County, 124 F.3d 187 (3d Cir. 1997).

On October 10, 1997, the County brought this diversity action, alleging breach of contract, of warranty, and of the performance bond, as well as negligence, fraud, and wrongful use of civil process. Microvote moved to dismiss on grounds that the County should have raised the claims as compulsory counterclaims in Microvote v. Montgomery County, that the complaint was untimely, and there was a lack of personal jurisdiction. Alternatively, Microvote moved for a transfer of venue. The District Court denied the motions.

Following discovery, defendants moved for summary judgment. The District Court granted summary judgment to defendants on the negligence claim, the fraud claims arising prior to the November 1995 election, and the wrongful use of civil proceedings claim, but denied defendants' motion for summary judgment with respect to the remaining fraud claims, the breach of contract claim, the breach of warranty claim, and the performance bond claim. One week prior to the start of trial, Carson entered into a Covenant Not to Sue with the County.*fn2

The jury trial commenced against Microvote and Westchester on October 18, 2000. At the close of the County's case, Microvote and Westchester moved for judgment as a matter of law pursuant to Fed. R. Civ. P. 50(a). The District Court reserved ruling on the motions. At the close of evidence, Microvote and Westchester renewed their motions, which the Court denied. On November 1,

2000, the jury returned a verdict. The jury found in favor of Microvote on the breach of contract, the breach of express warranties, and the fraud counts. However, the jury found that Microvote had breached implied warranties of merchantability and fitness for a particular purpose and that Westchester had violated ...


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