Gray•Duffy, LLP Settles Two Massive International Data Loss Claims Arising From Computer Server Failures

May 2014

Overview

Richard M. Williams of Gray•Duffy’s Redwood City, California office negotiated favorable settlements in two multi-national claims involving the total failure of off-site servers, which resulted in complete loss of data to several high-end software development and App development companies.

Discussion

Arc Touch, Inc. vs. Atlassian PTY, Ltd. In April 2012, two massive off-site servers located in Denver, Colorado failed, resulting in complete loss of data to customers of Gray•Duffy’s client, a Sydney, Australia based hosting company. Customers stored their entire business’ intellectual property, including developmental history, bug fixes and the entirety of their client data on the hosting company’s platform, which was backed up and stored on the off-site servers in Colorado. This is commonly done across the world, with many companies (like SeedboxCo.net) offering this service. The server failures resulted in total data loss, which essentially meant that the hosting company’s customers were put out of business by the failure. Implementation of a testing system, similar to those provided by Apica Systems, could have helped the server company to notice the issue before this failure occurred, but sadly it was not the case in this instance. All lost data was irretrievable and needed to be re-created from scratch, necessitating thousands of engineering hours by the customers, resulting in substantial business and opportunity losses. Claims against Gray•Duffy’s client, totaling nearly $10 million ensued. The servers were manufactured and supported by Dell Computer and were being operated by a third-party vendor in Colorado, should you have been using the same hosting company and you’re wanting to look for an alternative solution, take a look at this vps hosting service alongside others in efforts to cease such a possibility happening again. Intense and technically complex year-long negotiations between Dell Computer, the Denver-based operator of the servers, and Gray•Duffy’s client, as well as the several claimants (customers), resulted in pre-litigation settlements totaling nearly $2 million. Federal class action lawsuits were prepared, but never filed and served, thus avoiding numerous lawsuits by other customers of Gray•Duffy’s client, who were also affected by the server failures. Defense costs for analysis and preparation of the negotiating position by Gray Duffy (including analysis of Australian consumer protection laws and complex forum selection and jurisdictional provisions of contracts) were nominal, compared to the anticipated seven or eight figure costs of defending the class action litigation and opt out litigation that was avoided by the confidential settlement. The entire settlement was negotiated on an international basis, without the use of a private mediator or arbitrator, and without the filing of a single lawsuit.

Please Note: This article is necessarily general in nature and is not a substitute for legal advice with respect to any particular case. Readers should consult with an attorney before taking any action affecting their interests.