Can a computer software company be liable for fraud when it didn’t actually make the fraudulent statements until after the plaintiff bought the product? In California, the answer apparently is “yes.” That is the recent ruling from a federal court in the Northern District of California.
A California plaintiff filed a lawsuit, alleging that Avanquest of North America “misrepresented the diagnostic and curative powers” of its software product. According to the complaint, Avanquest committed “fraud in the inducement” and violated California’s Unfair Competition Law.
To prove fraud in the inducement, the plaintiff had to show that Avanquest made a false statement, which it knew was false, in order to induce the plaintiff’s reliance. California’s Unfair Competition statute, which prohibits any unfair, unlawful or fraudulent business practice, is triggered by the fraud claim. The plaintiff claimed that Avanquest’s product included a diagnostic feature that spotted nonexistent system problems, which Avanquest then charged real dollars to “fix.”
Avanquest moved to dismiss the complaint on the basis of chronology. According to Avanquest, the plaintiff wouldn’t even see the allegedly rigged report until after he purchased the product. So the “fraud” couldn’t have induced the purchase. Pretty clever argument when you think about it.
But the court was unimpressed. It held that the plaintiff’s allegations that Avanquest intentionally set out to frighten customers was enough to show that Avanquest knew about the alleged deception. It also noted that the complaint alleged that Avanquest’s scam discouraged the plaintiff from returning the product, and so plaintiff could proceed on a claim for ongoing harm, as well as for being induced to buy upgrades.
The court’s ruling doesn’t mean that Avanquest lost the case. It only means that the plaintiff can continue with the proceedings. In short, much more to come.