L.S. Heath & Sons v. AT&T Information Systems

L. S. Heath & Sons (Heath) (plaintiff) needed a new computer network and telecommunications system. Heath chose to go with AT&T Information Systems (AT&T) (defendant) after a bidding process. During this process, AT&T presented a final recommendation and proposal (the recommendation), which laid out a process for building a network over time that met all of Heath’s needs. The recommendation explicitly stated that AT&T could meet all of Heath’s needs. The recommendation outlined a phased implementation schedule for assembling the system. Heath agreed to the proposal, and a master agreement was signed. The two-page master agreement made no mention of prices, product specifics, services, or software applications but provided that it would cover all future purchases. Additionally, the master agreement contained a disclaimer as to all express and implied warranties. Over time, AT&T installed the system, and Heath purchased new pieces of equipment per AT&T’s recommendations. Amid the project’s initial success, AT&T touted the project in advertising materials, which included brochures stating that AT&T was designing a system custom tailored to Heath’s needs. Eventually, the project went off-track, resulting in the system not working as Heath had expected. AT&T was unable to resolve the issues, and Heath revoked acceptance. Heath filed suit, alleging: (1) breach of implied warranty of fitness for a particular purpose; (2) breach of implied warranty of merchantability; and (3) breach of express warranties. The district court granted AT&T’s motions for summary judgment on all the warranty claims, concluding that the master agreement disclaimed all express and implied warranties, and that the master agreement was an integrated document because it contained a merger clause. Because the master agreement only guaranteed that the equipment would be in good working order, Heath could not bring claims for other warranties. Heath appealed, arguing that the recommendation was part of the agreement and contained additional express warranties, namely that the network would meet all of Heath’s needs.