Reynolds sues dealer over computer upgrade

An arbitration panel awarded a Connecticut Ford dealership nearly $300,000 in damages and costs after concluding that a unit of Reynolds and Reynolds Co. breached its contract with the retailer by requiring it to buy a new computer system to run upgraded software.

Now the Reynolds unit has filed a lawsuit in federal court to toss out the award.

Reynolds requires its dealership customers to resolve disputes through arbitration. But it chose to go to court after the arbitration panel ruled against the Reynolds subsidiary.

"This is a classic example of an arbitration panel exceeding its authority and really disregarding established law," says Tom Schwartz, a Reynolds spokesman. "That would be the basis for why we are going forward. I'd go so far as to say the panel appeared to ignore the terms of the contract."

The arbitration panel's ruling was encouraging news to 70 dealerships involved in a class-action lawsuit challenging Reynolds, one of the two largest suppliers of dealership management systems in the United States. These dealers don't want to buy a new $100,000 computer system from the Reynolds unit to run the latest version of software.

Another 70 dealerships are embroiled in arbitration hearings and individual lawsuits over the mandatory upgrade, say attorneys representing the dealerships.

Based on just the 70 dealerships in the class-action lawsuit, the Reynolds unit, Dealer Computer Services Inc., could lose potential sales of about $7 million.

Escalating dispute
Dealer Computer Services, a unit of Reynolds and Reynolds, is rejecting an arbitration panelís ruling in its dispute with a dealership. Here is a timeline.
- August 2006: Dealer Computer Services tells dealership that it must upgrade to a new $100,000 computer system.
- November 2006: Dealership says no, seeks arbitration as mandated by contract.
- January 2008: Arbitration panel holds hearing in Houston.
- March: Panel rules for dealership, awards nearly $300,000 in damages and costs.
- June: Dealer Computer Services sues to vacate panelís ruling.
Source: American Arbitration Association ruling and court documents

Typically, arbitration panel deliberations are private. But this panel's findings and award became public June 10 when Dealer Computer Services sued in U.S. District Court in Houston to vacate the award.

Hammonasset Ford-Lincoln-Mercury Inc., of Madison, Conn., contended that Dealer Computer Services breached its contract by demanding that the dealership replace its 7000 MP computer system with a 9000 MPX2 system at a cost of $100,000, in exchange for continued service and maintenance. The dealership also asserted that Dealer Computer Services has no right to charge an unreasonable price for the 9000 MPX2 system.

The panel awarded the dealership $297,568 in damages, attorney fees and arbitration costs.

Hammonasset has since contracted with AutoSoft International Inc., a Reynolds competitor, for its dealership management system.

Dealer Computer Services countered that Hammonasset was using a 13-year-old computer server. In accordance with the contract, Dealer Computer Services had asked the dealership to upgrade its server to accommodate the latest upgrade in dealership software.

In its lawsuit, Dealer Computer Services claims that Hammonasset stopped paying its invoices, contracted with a competitor and sought to rescind the contract in arbitration.

A pretrial conference is scheduled for Sept. 15 in Houston. 

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