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Kalow & Springut, Llp, On Behalf of Itself and All Those Similarly v. Commence Corporation

February 28, 2011

KALOW & SPRINGUT, LLP, ON BEHALF OF ITSELF AND ALL THOSE SIMILARLY SITUATED, PLAINTIFF,
v.
COMMENCE CORPORATION, DEFENDANT.



The opinion of the court was delivered by: Wolfson, United State District Judge:

*FOR PUBLICATION

OPINION

Plaintiff Kalow & Springnut, LLP ("Plaintiff" or "Kalow") brings the instant putative class action suit against Defendant Commence Corporation ("Defendant" or "Commence") to recover damages arising from the alleged failure of computer software that Plaintiff purchased from Defendant. Essentially, Plaintiff alleges that Defendant intentionally placed a "time bomb" to disable the software, and as a result, Plaintiff alleges that the users of the software suffered various damages. In the instant matter, Plaintiff seeks certification of a single class of all users of networked versions of Commence's software on March 20, 2006. In the alternative, Plaintiff seeks certification of two subclasses.*fn1 For the reasons set forth below, the Court denies Plaintiff's motion to certify without prejudice.

I. BACKGROUND

The pertinent facts recounted below are derived from the Amended Complaint. Kalow, a law firm, started using Commence's software as early as 2000 for customer relationship management, timekeeping, patent docketing, and calendering. Kalow initially spent several thousand dollars for the software, version 2.1, and later purchased an upgrade. Once Kalow purchased Commence's software, it became reliant upon the software because the information entered into the program is converted into a unique proprietary format which is not easily convertible to other formats. According to Plaintiff, on March 20, 2006, all versions of Commence's Software stopped working because the software package included a computer code (referred to as a "time bomb"), which rendered the software inoperable after that date.*fn2

In that connection, Plaintiff asserts that Commence responded to the issue in two ways: first, for customers who had purchased the newest versions of its software, Commence made "a fix" available after a period of time that allowed the software to function again. However, Commence refused to fix the issue for any user who owned a version or older, such as Kalow.*fn3 The only option available to the users of older Commence software was to purchase the current software upgrade. Because Kalow, and users like Kalow, had become reliant on the software and the need to access the information stored in a unique proprietary format in the program, they were forced to purchase an upgrade. Plaintiff also claims that while some users, those with newer software with maintenance packages, did not have to purchase the upgrade, they nonetheless suffered injuries in the time and expenses necessary to diagnose the problem, as well as losses in productivity for the period that the software failed to function properly.

Defendant claims that the code that purportedly caused the software's malfunction is not a "time bomb" and such malfunction did not affect all users. See Deposition of Commence's President Larry Caretsky's at pp. 26-27. Defendant also maintains that the malfunction did not cause a total shut-down of the software or cause a total corruption of any user's entire computer system. See Deposition of Commence Chief Techology Officer Todd Pape at pp. 27-29. Rather, the malfunction affected the synchronization engine (a component of the server software) which allows for the sharing of certain data. Id.

In its Amended Complaint, Plaintiff alleges causes of action under the Computer Fraud and Abuse Act, 18 U.S.C. § 1030 ("CFAA") and the New Jersey Consumer Fraud Act, N.J.S.A. 56:8-1, et seq. ("NJCFA"). On this motion, Plaintiff requests that this case be certified as a class action on behalf of all of the networked users of Commence software who suffered damages when the software stopped working on March 20, 2006 ("All User Class"). In the alternative, Plaintiff seeks certification of two subclasses: the first subclass consists of all users of networked versions of Commence's software on March 20, 2006, who were supplied with a patch but did not have to purchase an upgrade to apply the patch ("Non-Upgrade Class"); and the second subclass consists of all users of networked versions of Commence's software on March 20, 2006, who were required to purchase an upgrade to apply the patch ("Upgrade Class").

II. STANDARD OF REVIEW

Rule 23 contains two sets of requirements. First, a party seeking class certification must demonstrate that the class satisfies the requirements of Rule 23(a): "(1) the class is so numerous that joinder of all members is impracticable [numerosity]; (2) there are questions of law or fact common to the class [commonality]; (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class [typicality]; and (4) the representative parties will fairly and adequately protect the interests of the class [adequacy]." Fed. R. Civ. P. 23(a). Second, plaintiffs must show that the requirements of one of the provisions of Rule 23(b) are met. Because Plaintiff here seeks certification under Rule 23(b)(3), the Court must find "that the questions of law or fact common to class members predominate over any questions affecting only individual members, and that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy." Fed. R. Civ. P. 23(b)(3). These requirements are known as predominance and superiority. In re Constar Int'l Inc. Sec. Litig., 585 F.3d 774, 780 (3d Cir. 2009).

Importantly, the Third Circuit has instructed that "each Rule 23 component [must] be satisfied" in order for a court to certify a class. In re Hydrogen Peroxide, 552 F.3d 305, 310 (3d Cir. 2008) (citing Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 630 (1997) (Breyer, J., concurring in part and dissenting in part) (stating that Rule 23 decisions implicate "highly fact-based, complex, and difficult matters")). In that regard, "[c]lass certification is an especially serious decision, as it 'is often the defining moment in class actions (for it may sound the 'death knell' of the litigation on the part of plaintiffs, or create unwarranted pressure to settle [non-meritorious] claims on the part of defendants)." Newton v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 259 F.3d 154, 162 (3d Cir. 2001). In Hydrogen Peroxide, the Third Circuit urged district courts, where appropriate, to "'delve beyond the pleadings to determine whether the requirements for class certification are satisfied.'" 552 F.3d at 316 (quoting Newton, 259 F.3d at 167). An overlap between a class certification requirement and the merits of a claim is no reason to decline to resolve relevant disputes when necessary to determine whether a class certification requirement is met." Id. The predominance inquiry is especially dependent upon the merits of a plaintiff's claim, since "the nature of the evidence that will suffice to resolve a question determines whether the question is common or individual." Id. at 310-11 (citations and quotations omitted). "'If proof of the essential elements of the cause of action requires individual treatment,'" then predominance is defeated and a class should not be certified. Id. (quoting Newton, 259 F.3d at 172); see In re Constar, 585 F.3d at 780.

As a preliminary matter, Defendant takes issues with the definition of the class or the subclasses Plaintiff proposes on this motion. Commence argues that Plaintiff's request for certification of a single class of all users, or the subclasses, of networked versions of Commence software is improper because Plaintiff failed to plead these classes in its Amended Complaint. Defendant maintains that Plaintiff only defined the class as "[a]ll persons who purchased Commence Corporation software and were using it as of March 20, 2006." Amended Complaint at ¶ 25. Defendant's position that Plaintiff is confined to its proposed class definition as pled in the Amended Complaint is not supported by the case law. Indeed, Plaintiff is not bound by the class definitions proposed in its Amended Complaint, and the Court can consider Plaintiff's revised definitions, albeit those revisions are made in its motion for class certification. Weisfeld v. Sun Chem. Corp., 84 Fed. Appx. 257, 259 (3d Cir. 2004)("a court is not bound by the class definition proposed in the complaint.")(citations and quotations omitted); Gates v. Rohm & Hass Co., 265 F.R.D. 208, 215 n.10 (E.D. Pa. 2010); Robidoux v. Celani, 987 F.2d 931, 937 (2d Cir. 1993). Accordingly, the Court will consider Plaintiff's definitions of the class and the subclasses proposed in its motion. With this background, the Court will discuss each element for class certification below.

A. Numerosity

A class may not be certified unless the representative class members "will fairly and adequately protect the interests of the class." Fed. R. Civ. P. 23(a)(4). "Rule 23(a)'s adequacy of representation requirement 'serves to uncover conflicts of interest between named parties and the class they seek to represent.'" In re Pet Food Prods. Liab. Litig., No. 08-4741, 2010 U.S. App. LEXIS 25628, at *26-27 (3d Cir. Dec. 16, 2010) (quoting Amchem, 521 U.S. at 625). Class representatives "must be part of the class and possess the same interest and suffer the same injury as the class members." Id. (citation and internal quotation marks omitted). "No minimum number of plaintiffs is required to maintain a suit as a class action, but generally if the named plaintiff demonstrates that the potential number of plaintiffs exceeds 40, the first prong of Rule 23(a) has been met." Stewart v. Abraham, 275 F.3d 220, 226-27 (3d Cir. 2001) (citing 5 James Wm. Moore et al., Moore's Federal Practice S 23.22[3][a] (Matthew Bender 3d ed. 1999); Leeseberg v. Converted Organics, Inc., No. 08-926, 2010 U.S. Dist. LEXIS 124845, at *5 (D. Del. Nov. 22, 2010); Moskowitz v. Lopp, 128 F.R.D. 624, 628 (E.D. Pa. 1989).

Here, Defendant does not dispute that the number of class members in the All User Class and each of the proposed subclasses exceeds 40. Indeed, the number of customers in the All User Class is approximately 15,000. See Van Tine Dec. Ex. C at 47-48; Defendant's Opposition at 6.

Accordingly, the proposed class meets the numerosity requirement.*fn4

B. Commonality

Commonality requires that "there are questions of law or fact common to the class." Fed. R. Civ. P. 23(a)(2). The threshold for establishing commonality is straightforward: "The commonality requirement will be satisfied if the named plaintiffs share at least one question of fact or law with the grievances of the prospective class." In re Schering Plough Corp. ERISA Litig., 589 F.3d 585, 596-97 (3d Cir. 2009) (quoting Baby Neal v. Casey, 43 F.3d 48, 56 (3d Cir. 1994)) (emphasis added). Indeed, as the Third Circuit pointed out, "[i]t is well established that only one question of law or fact in common is necessary to satisfy the commonality requirement, despite the use of the plural 'questions' in the language of Rule 23(a)(2)." In re Schering Plough, 589 F.3d at 97 n.10. Thus, there is a low threshold for satisfying this requirement. Newton, 259 F.3d at 183; In re Sch. Asbestos Litig., 789 F.2d 996, 1010 (3d Cir. 1986) (highlighting that the threshold of commonality is not high (quotations and citations omitted)).*fn5

Indeed, the requirements of commonality and typicality are broadly defined and tend to merge. Baby Neal, 43 F.3d at 56. "Both criteria seek to assure that the action can be practically and efficiently maintained and that the interests of the absentees will be fairly and adequately represented." Id.; see General Tel. Co. of Southwest v. Falcon, 457 U.S. 147, 157 n.13 (1982). Despite their similarity, commonality -- like numerosity -- evaluates the sufficiency of the class itself, and typicality -- like adequacy of representation -- evaluates the sufficiency of the named plaintiff. See Hassine v. Jeffes, 846 F.2d 169, 177 n.4 (3d Cir. 1988); Weiss v. York Hosp., 745 F.2d 786, 810 (3d Cir. 1984), cert. denied, 470 U.S. 1060 (1985). More importantly, neither of these requirements mandates that all putative class members share identical claims, see Hassine, 846 F.2d at 176-77, and that "factual differences among the claims of the putative class members do not defeat certification." Baby Neal, 43 F.3d at 56. In that regard, class members can assert a single common complaint even if they have not all suffered actual injury; demonstrating that all class members are subject to the same harm will suffice. Hassine, 846 F.2d at 177-78; cf. Riley v. Jeffes, 777 F.2d 143, 147 (3d Cir. 1985) (finding constitutional violation in prisoners' being subject to constant threat of violence and sexual assault and rejecting contention that plaintiff must actually be assaulted before obtaining relief). "Even where individual facts and circumstances do become important to the resolution, class treatment is not precluded." Baby Neal, 43 F.3d at 56.

In this case, Plaintiff asserts one count each under the CFAA and NJCFA. The CFAA provides that any person "who knowingly causes the transmissions of a program, information, code, or command, and as a result of such conduct intentionally causes damage without authorization, to a protected computer," shall be subject to certain sanctions and punishments. 18 U.S.C. § 1030(a)(5)(A). To state a claim under the NJCFA, a plaintiff must allege each of three elements (1) unlawful conduct by the defendants; (2) an ascertainable loss on the part of the plaintiff; and (3) a causal relationship between the defendants' unlawful conduct and the plaintiff's ascertainable loss. Frederico v. Home Depot, 507 F.3d 188, 202 (3d Cir. 2007)(citing Cox v. Sears Roebuck & Co., 138 N.J. 2 (1994)). Here, Plaintiff has met the second requirement of identifying common questions of law and fact among Plaintiff and putative class members. Plaintiff alleges that Commence intentionally transmitted a software code to Kalow's computer system and that the software code caused damage to it and to other users of the software. In the same vein, Plaintiff alleges that by transmitting the defective software code, Defendant engaged in unfair, false, deceptive, and misleading practices. More particularly, Plaintiff alleges that Defendant represented that it produced good quality software and businesses relied upon that representation to their detriment when the software stopped working. These claims arise from the same conduct by Commence. In that respect, whether Commence's conduct is fraudulent and/or violates the CFAA involves common questions of fact and law. For example, these questions of fact include whether Commence intentionally inserted a "time bomb" and/or a code which caused the software to fail; whether Commence knowingly and intentionally distributed the software with the knowledge of the defective code or "time bomb"; whether Commence intended to cause harm as a result of these alleged actions; and whether the members of the class have sustained injury as a result of Commence's acts.

Nevertheless, Defendant claims that commonality has not been met in this case since there are divergent factual issues affecting the proposed class. Rather than disputing that there are no common issues of law and fact shared by the proposed class, Defendant raises issues of fact that it contends would destroy commonality. For example, Defendant claims that not all users of the software were necessarily networked users; not all networked users were affected by the problem; and not all users of the software were affected the same way as Plaintiff. Furthermore, Defendant submits that Plaintiff has failed to provide any evidence of ascertainable loss for the class; in particular, a lack of evidence to substantiate Plaintiff's allegations of the "incidental loss" suffered by users who did not have to purchase an upgrade. Defendant maintains that if those users have no recoverable ...


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