Disclaimer in software license agreement protected vendor from liability

A recent federal court case alleging breach of contract over failure of software to perform highlights the importance of careful drafting and review of disclaimer and other language in technology contracts.

Loss of livelihood

In 2021, a federal court entered an order that permanently barred plaintiff from preparing tax returns for other people. The court’s order apparently addressed past deficiencies in plaintiff’s past tax filings. In 2017, when using TaxWise software, plaintiff did not attach certain required forms to the tax returns.

No doubt this caused extreme hardship for plaintiff, so he sought to recover by blaming the software company – the defendant in this case – for a malfunction in the software that caused the required forms to be omitted.

He sued for breach of contract. Defendant moved to dismiss. The court granted the motion.

The lawsuit was too late

It held that plaintiff’s suit was untimely because the software license agreement contained a provision saying that any such claim had to be commenced within one year from the date such claim or cause of action first arose. The court rejected plaintiff’s argument that by bringing suit in January 2023, he was within the one year period because his first payment of a fine to the IRS was due in January 2022. Instead, the court held that the one year period for bringing suit began to run when the alleged breach occurred, i.e., in 2017 when the software allegedly malfunctioned.

Disclaimers knocked out the complaint

The court also held that certain disclaimer language in the software agreement served to defeat plaintiff’s claims as to the software’s performance. The agreement stated that plaintiff “expressly disclaim[ed] any representations or warranties that [his] use of the Products will satisfy any statutory or regulatory obligations, or will assist with, guarantee or otherwise ensure compliance with any applicable laws or regulations.” Moreover, the contract stated that plaintiff bore “THE ENTIRE RISK AS TO THE QUALITY AND PERFORMANCE OF THE PRODUCT(S), INCLUDING ELECTRONIC FILING” and so the court found that this eliminated plaintiff’s ability to shift that responsibility to the software provider.

Diedrich v. Wolters Kluwer, 2024 WL 291156 (S.D.N.Y., January 25, 2024)

See also:

• Failure to pay software license fees was breach of contract, not copyright infringement
• Limitation of liability clause in software license agreement did not excuse customer from paying fees
• What is a copyright license and why do you need one?
• Software contractor not bound by EULA it clicked on behalf of client