Cause No. 97-55962

DANIEL SCHWARTZ, et al.,

Plaintiffs,

v.

COMPAQ COMPUTER CORP.,

Defendant.

IN THE 295TH

JUDICIAL DISTRICT

OF HARRIS COUNTY, TEXAS

FOURTH AMENDED PETITION

Now come plaintiffs, Daniel Schwartz, Dr. Richard C. Galperin, Dean Baines, Deborah Erney, Dale E. Johnson, David Kale, Danny L. Hines, Peter Gaeta, Stanley T. Glogoski, Ronald Swiecicki, Lionel Galperin, Susan McLean, and Willard Farris, and file this Fourth Amended Petition and for cause of action against Compaq Computer Corporation (“Compaq”) show the following:

introduction

1. This is a class action for consumer fraud, breach of warranties, and negligent misrepresentation against Compaq Computer Corporation, a large manufacturer of computer systems. Plaintiffs file this Petition individually and on behalf of purchasers of Compaq's Presario computers who reside in Texas, North Carolina, Illinois, Washington, and California.

2. This Petition is filed pursuant to a Stipulation of Settlement dated April 9, 2001 between plaintiffs and Compaq. This Petition consolidates the claims in this Court for purposes of settlement of plaintiffs from similar actions pending in Texas, North Carolina, Illinois, Washington, and California. This complaint is brought by Dr. Richard C. Galperin, Dean Baines, Deborah Erney, residents of Texas, as well as Daniel Schwartz, a resident of New Jersey, all of whom were plaintiffs in this action prior to the filing of this Petition, Dale E. Johnson, David Kale, Danny L. Hines, residents of North Carolina; Peter Gaeta and Ronald Swiecicki, residents of Illinois, and Stanley T. Glogoski, a resident of Wisconsin, all of whom were plaintiffs in a similar action to this filed in Illinois; Lionel Galperin and Susan McLean, residents of Washington; and Willard Farris, a resident of California.

3. Plaintiffs bring this suit because Compaq, beginning at least with its new 1996 product lines, has engaged in a course of unfair and deceptive conduct. Unlike manufacturers in other industries, Compaq rushed unfinished products to market and only afterwards tried to correct defendants as consumers discovered them. Compaq then charged consumers each time they requested assistance in correcting these defects.

4. This course of conduct was unfair and deceptive to consumers in several ways. First, it caused Compaq to sell products with known but undisclosed defects. These defects included “Phone Centers” that purportedly would “connect with the world without leaving your home” but did not take messages or send faxes; modems that would not connect at the speeds advertised by Compaq and did not work with other functions the computers were marketed to perform; hard drives that caused the computers to fail during operations and freeze; and computers that when placed in energy-saving “sleep mode” would actually freeze and become inoperable. In addition, Compaq's course of conduct resulted in it charging comsumers for seeking assistance for undisclosed defects that it knew about and, in many instances, knew it could not correct.

JURISDICTION AND VENUE

17. This Court has subject matter jurisdiction over this action pursuant to the Constitution and statutes of the State of Texas. Venue is proper in Harris County pursuant to Tex. Civ. Prac. & Rem. Code § 15.002(a)(3) because defendant's principal office is in Harris County and defendant is not a natural person.

PARTIES

6. Plaintiff Dale E. Johnson is a resident of the City of Charlotte and the State of North Carolina. On or about July 31, 1996, Mr. Johnson purchased a Compaq Model No. 4112 for $1,529.98 from Best Buy in Pineville, North Carolina. Immediately upon purchasing his computer, Mr. Johnson began experiencing problems in getting it to work as represented by Compaq.

7. Plaintiff David Kale is a resident of the City of Charlotte and the State of North Carolina. On or about July 3, 1996, plaintiff David Kale purchased a Compaq Model No. 4704 for $1,975.96 at CompUSA in Duluth, Georgia.

8. Plaintiff Danny L. Hines is a resident of Rougemont, North Carolina. In or about August 1997, Mr. Hines purchased a Compaq Presario Model No. 4808 from Best Buy in Durham, North Carolina. Immediately upon purchasing his computer, Mr. Hines experienced problems in getting it to work as represented by Compaq.

9. Plaintiff Dr. Richard C. Galperin is a resident of the City of Dallas and the State of Texas. On or about August 3, 1997, Dr. Galperin purchased a Compaq Presario Model No. 4504 personal computer for $999.97 from CompUSA in Addison, Texas. Within one month of purchasing his computer, Dr. Galperin began experiencing problems getting it to work as described by Compaq.

10. Plaintiff Dean D. Baines is a resident of the City of Dallas and the State of Texas. On or about February 7, 1997, Mr. Baines purchased a Compaq Presario Model No. 4770 personal computer for approximately $3,3100.00 from CompUSA in Dallas, Texas. Immediately upon purchasing his computer, Mr. Baines began experiencing problems getting it to work as described by Compaq.

11. Plaintiff Deborah A. Erney is a resident of the City of Galveston and the State of Texas. On or about November 20, 1996, Ms. Erney purchased a Compaq Presario Model No. 4716 personal computer for $2,541.00 from MicroCenter in Gainsville, Florida. Immediately upon purchasing her computer, Ms. Erney began experiencing problems getting it to work as described by Compaq.

12. Plaintiff Daniel Schwartz is a resident of the city of Passaic and the State of New Jersey. On or about March 21, 1997, Mr. Schwartz purchased a Compaq Presario personal computer for $1263.00 from J&R Computers in New York, New York. Immediately upon purchasing his computer, Mr. Schwartz began experiencing problems getting it to work as described by Compaq.

13. Plaintiff Peter Gaeta is a resident of the State of Illinois. In or about December 1996, Mr. Gaeta purchased a Compaq Model 4712 from Sears in Dundee, Illinois for approximately $2,199.00. Within two months of purchasing his computer, Mr. Gaeta began experiencing problems in getting it to work as described by Compaq.

14. Plaintiff Stanley T. Glogoski is a resident of the State of Wisconsin. On or about December 16, 1996, Mr. Glogowski purchased a Compaq Model 4716 from Best Buy in Greenfield, Wisconsin. Within one week of purchasing his computer, Mr. Glogowski began experiencing problems getting it to work as described by Compaq.

15. Plaintiff Ronald Swiecicki is a resident of the State of Illinois. In or about 1997, plaintiff Ronald Swiecicki purchased a Compaq Model 4712 from Sears in St. Louis. Soon after purchasing his computer, Mr. Swiecicki began experiencing problems in getting it to work as described by Compaq.

16. Plaintiff Lionel Galperin is a resident of the State of Washington. On or about August 15, 1997, Mr. Galperin purchased a Compaq Model No. 4504 from CompUSA in Bellevue, Washington for $999.97. In June or July 1998, Mr. Galperin purchased a warranty extension from Compaq for $216.12. Immediately after purchasing his computer, Mr. Galperin began experiencing problems in getting it to work as represented by Compaq.

17. Plaintiff Susan McLean is a resident of the State of Washington. On or about January 18, 1997, Ms. McLean purchased a Compaq Model No. 4704 from Future Shop in Tacoma, WA for $2,238.00 including an extended warranty. Within one week of purchasing this computer, Mrs. McLean began experiencing problems in getting it to work as described by Compaq.

18. Plaintiff Willard Farris is a resident of Twain, California. On or about May 5, 1997, Mr. Farris purchased a Compaq Presario Model No. 4764 from Sears in Chico, California for $2,003.23. Immediately after purchasing his computer, Mr. Farris began experiencing problems in getting it to work as represented by Compaq.

19. Defendant Compaq Computer Corporation is a Delaware corporation with its principal place of business in Houston, Texas. Compaq is one of the world's largest designers, manufacturers, and distributors of personal and business computer systems. Compaq has answered in this action and is before the Court for all purposes.

class action allegations

20. Plaintiffs bring this action pursuant to Rule 42 of the Texas Rules of Civil Procedure on their own behalf and on behalf of a Settlement Class consisting of:

the named plaintiffs in this Petition and all natural persons or entities who are residents of the States of Texas, North Carolina, Illinois, Washington, and California and who purchased “Qualifying Presarios” from (1) a retail store located in the state in which they reside, or (2) a mail-order retailer for delivery into the state in which they reside. Excluded from the Settlement Class are Compaq and all of its past and present officers, directors, agents, designees, servants, sureties, attorneys, employees, associates, controlling or principal shareholders, general or limited partners or partnerships, subsidiaries, divisions, affiliates, insurers, and all successors or predecessors in interest, assigns, or legal representatives; any persons or entities that have manufactured, supplied, advertised, sold, resold, distributed, or marketed the subject computers; current or former Compaq employees; and any persons or entities that have executed releases discharging Compaq from liability concerning or encompassing any or all claims that are the subject of this action. “Qualifying Presarios” are Compaq Presario computers bearing model numbers 4122, 4706, 4710, 4712, 4714, 4716, 6704, 6708, 8702, 3020, 4112, 4402, or 8712 (models intended for sale by Compaq between July and December 1996); model numbers 4160, 4780, 4784, 4786, 8772, 3060, 4764, or 4770 (models intended for sale by Compaq between January and June 1997); model numbers 4808, 4814, 4816, 4824, 4834, 4840, 4850, 4504, 4505, 4508, 4528, or 4532 (models intended for sale by Compaq between July and December 1997); and model number 2200.

21. The Class consists of thousands of persons located throughout Texas, North Carolina, Illinois, Washington, and California. Compaq is one of the largest sellers of personal computers in the United States, with annual revenue over $14 billion in 1995. Until Compaq eliminated its message board on America Online in January 1997, Compaq was besieged with hundreds of written complaints monthly regarding undisclosed defects in its personal computers. It is apparent that thousands of consumers have experienced the same problems with Compaq's personal computers. The members of the Class are therefore so numerous that joinder of all is impracticable.

22. Plaintiffs are members of the Class. Plaintiffs' claims are substantially identical to and typical of the claims of the Class.

23. Plaintiffs and plaintiffs' counsel (who are experienced in class action litigation) will fairly and adequately protect the interests of the Class.

24. Questions of fact and law common to the Class include, inter alia:

a. whether defendant has engaged and is engaging in the unlawful, deceptive and/or misleading conduct alleged herein;

b. whether such conduct violates Texas law;

c. whether injunctive relief is appropriate and, if so, what form of injunctive relief is most appropriate; and

d. whether plaintiffs and the members of the Class have suffered damages as a result of the conduct alleged herein, and if so, the measure of such damage.

25. Defendant has acted and is acting on grounds generally applicable to the Class, thereby making appropriate final injunctive relief with respect to the Class as a whole.

26. The common questions of fact and law predominate over any individual questions.

27. A class action is superior to other available methods for the fair and efficient adjudication of this controversy.

28. There are no unusual difficulties likely to be encountered in the management of this litigation as a class action. A class action is the only feasible method by which this controversy may be resolved.

29. Notice to the Class may be accomplished cheaply, efficiently, and in a manner best designed to protect the due process rights of all Class members by means of written notices supplied as part of Compaq's communications to registered owners of its computers.

FACTUAL BACKGROUND

A. Compaq's Unfair and Deceptive Course of Conduct

30. Compaq generally introduces a new line of computers for consumers two times each year, in January and again in June. Its consumer models of personal computers are called the “Presario” line of computers. Some Presario components will change from line to line, while others will remain the same. For example, from in or about June 1996 to December 1997, the Presario's Phone Center program remained essentially the same.

31. Because of Compaq's rush to bring its products to market, Compaq ignored problems with models released in the years 1996 and 1997 when it brought them to market. Compaq knew about defects in these computers when or shortly after it initiated sales of them. Yet it continued to sell its computers without disclosing these defects.

32. Each line of Compaq's Presario computers undergoes testing by Compaq prior to release. Compaq maintains records of defects discovered during its pre-release testing.

33. Shortly after releasing its 1996 and 1997 models, Compaq received hundreds of similar postings on its America Online message board concerning repeated defects with particular components. In addition, Compaq learned of these defects in its pre-release testing.

34. Starting in or about January 1996, Compaq also initiated the practice of charging consumers who called Compaq's customer service “800” number to report these defects. Yet, in many cases, Compaq had known of and failed to disclose the defects to consumers at the time of sale. Further, Compaq had represented in its warranty and marketing materials that it would not charge consumers who called customer support for help in addressing hardware or software defects. Disregarding its own warranties and market representations to consumers, this is exactly what Compaq did.

35. Compaq made many representations concerning its computers' capabilities and its customer service. Defects contrary to Compaq's description of its computers and conduct otherwise irreconcilable with its representations emerged in many areas, including the following.

1. The “Phone Center”

36. Compaq described its computers' telephony systems as operating effectively as an answering machine and speakerphone, effectively placing telephone calls and sending and receiving facsimiles, and enabling the consumer to retrieve and delete telephone messages from remote locations. In January 1996, its telephony system was known as the “Media Pilot.” In June 1996, this program was replaced by the “Phone Center.” Compaq's representations included the following:

All Presario 7200 and 9200 Series PCs feature ... telephone answering machine functions; and a full-duplex speakerphone. The new Presario PCs also include SpeechMail voice recognition that enables the consumer to remotely retrieve voice mail messages by using natural voice commands.

Connect With The World - Without Leaving Your Home: Compaq Phone Center, complete with answering machine capabilities, up to four voice mailboxes, full-duplex speakerphone and Fax Center.

2. Modems

37. Compaq represented that the modems on its Presarios operated at the fastest speeds then available on the market. These descriptions included: “Superfast Talk and Send 33.6 Kbps DSVD modem provides the fastest access to the Internet …” and that its 1997 modems were “upgradeable to 56K” Kbps.

3. Continued Operation After “Sleep Mode”

38. With respect to the "sleep mode" capabilities of its computers, Compaq described its computers as operating effectively after being removed from “sleep mode.” “Sleep Mode” purported to reduce the energy consumption of the computer during periods of non-use while still permitting the computer to remained powered up. This was necessary to enable the “Phone Center” to operate as a voicemail system when the user was away. Compaq's descriptions included the following:

Take It Easy: Energy-saving sleep mode "powers down" your PC when not in use.

When you are ready to use your computer again, press the Easy Access Sleep button, or the Easy Access Phone or Phone Message button (not available on some models). The computer wakes up ready for use. [underlining added]

[A]lthough there are conflicting schools of thought about when and how often you should turn your computer on and off, most people agree that with desktop computers, it should be done as little as possible. Which is why Presario 3000, 4000, 6000 and 8000 series computers are equipped with a "Sleep" mode button.

4. Compaq's Advertising Promoted All of These Features

39. Compaq's promotional material, home page and advertising typically promoted all of these features, which in combination were designed to provide “The first multimedia PC smartly designed for the home.” Further, according to Compaq, “Every Presario is built with the quality of the world's number 1 computer brand.”

5. Prompt and Free Customer Service for Software Defects

40. With respect to its customer support services, Compaq stated that it provided free customer support service for software defects, and that it had prompt and responsive customer service. These statements included the following:

Technical support for hardware and software defects is provided free of charge (24 hours a day, 7 days a week) during your warranty period. [underlining added; italics in original]

The new Compaq Presario 7200, 9200 and 9600 Series PCs are backed by Compaq's award-winning service and support programs and feature a 3-year limited warranty .... Compaq provides 24-hour customer support and can be reached through the Compaq forums on America Online, CompuServe, Internet (http:\www.compaq.com), and Prodigy, or by calling 1-800-345-1518.

You can ask any type of question you want by visiting Compaq@Home .... Whether your problem involves hardware or software defects, installation, configuration or setup, even hardware and software usage, customer support will e-mail you a prompt response at no charge. You can receive free technical support for Compaq hardware or software defects by calling 1- 800-OK-COMPAQ (1-800-652-6672). [underlining added]

B. Plaintiffs Immediately Discover Defects in Their Presario Computers

41. Shortly after purchasing their computers, plaintiffs discovered that they were defective. These defects included hard drives that caused the computers to suspend operation, telephony systems that would not receive calls or send faxes, modems that would not connect at the speeds represented by Compaq, and power management systems that caused the computers to freeze and become inoperable.

C. Hundreds of Consumers Report to Compaq Identical Defects

42. For most of 1996, Compaq maintained a “message board” on America Online where consumers could post questions concerning Compaq products. Hundreds of purchasers of Compaq's Presario computers have reported identical problems on Compaq's message board.

43. For example, the following messages about non-functioning Phone Centers were posted to Compaq's America Online message board between August 1996 and January 1997:

I have a new 4112 .... I can't change the greeting, it always plays the sample greet. When a message is left the computer will not hang up. It continues to record until the phone company says receiver left off of the hook. The beep after "leave a mesg. after the beep" is only barely audiable [sic] so that caller doesn't know when to speak .... Computer only sometimes wakes up when a call is made. I cannot send a fax[.] When I attempt to[,] after the other fax [machine] answers it asks for my phone number. [message dated 8/28/96]

Dear Kim [Compaq customer support representative]: I searched the help files at the retailer before purchase to insure that the brand I purchased ... not only could ... retrieve messages from a remote location but also replay and (very important) DELETE them from a remote location .... Your help files (I can fax you a copy) specifically states that message playback as well as DELETE is available from a remote [location] .... Is this a defect of my software model 4740 ... or will the phone center not function as the company claims[?] [message dated 9/16/96]

My [model 4112] phone center was giving me problems in that it activated or deactivated on it's [sic] own. [message dated 9/27/96]

When am I going to receive an answer from you guys?? I have a business to keep up and running & your phone system is really setting me back!!!! Please[,] an answer!!!! [message dated 10/1 1/96]

I should never have had to spend hours finding out that the phone system should not be set to under 4 rings when in advance power management is set. That the phone system, sleep mode and virus detection software are all very tricky to figure out. [message dated 10/12/96]

I bought the 4712 .... There was pathetic little paperwork, and ... the phone center is not only useless, but dangerous. [message dated 10/14/96]

I have had a new Presario 4712 since Oct. 10th and am suffering from an advanced case of sleep deprivation trying to get it to work as advertised .... [P]hone center won't work at all .... [message dated 11/6/96]

A couple of months ago I purchased a Compaq Presario 4704 and have been totally dissatisfied with Compaq ever since .... The telephone answering function decides when it wants to answer and when it doesn't -- not good for business. [message dated 11/7/96]

[W]hen trying to call my next door neighbor, I put in the 7 numbers and dialed. I received the operator, telling [me that] I did not need to [dial] 1 and the area code. I did not dial 1 and the area code. I dialed only 7 numbers. I tried this process with four other local people. I received the operator all four times. [message dated 11/15/96]

I have posted questions regarding my phone center a couple of times with no response. I noticed that many people have posted questions with no response. I feel that if a problem is with the phone center's software why should the consumer be responsible for paying $35[?] [message dated 11/16/96]

Last night I called [C]ompaq and requested the updated phone center for my [model] 4712[. A]ll I got was they would try to get my name on the list to receive it .... Then they give me the automated order number to get the updated restore disk[.] I've tried that for 5 months. What is so hard about making something right that started out so wrong? [message dated 12/6/96]

THE DAMN PHONE CENTER WILL NOT "RESPOND"!! TECH SUPPORT LEAVES ALOT [sic] TO BE DESIRED, EMAIL GETS NO ANSWER AND THE LAST "TECH" I TALKED TO KNEW LESS THAN I DID ... (BUT HE KEPT ME ON THE LINE LONG ENOUGH TO GET THE FULL CHARGES)!!! ... JUST HELP ME GET PHONE CENTER WORKING, AND MAYBE I'LL BE HAPPY ... [message dated 12/6/96]

I have been told endless times on the help lines that all I need to know is on the technical help menus of my computer or available on the WEB and the COMPAQ Homepage.

FIDDLESTICKS!! I had to come here [the message board] TO FIND OUT THAT THERE ARE bugs IN THE Phone Center software. [message dated 12/7/96]

My phone center took a permanent dump while I was trying to receive a fax. Now it apparently doesn't exist anymore .... [message dated 12/7/96]

... the phone center is good for about nothing ... [message dated 12/8/96]

I've been having some nasty problems with my Presario 7170. I think it's absolutely horrible that the Compaq Tech Support scares you away by threatening charges .... My Speakerphone doesn't record right. It is very scratchy. I can't even recognize people I know on it. I've tried a variety of things. Volume settings, new drivers, new phone cords, etc. ... It doesn't work right. I finally gave up and deleted the thing from my hard drive. [message dated 12/22/96]

If you know you have a bad product, do as most responsible companies do: Recall or [r]epair the products at NO CHARGE. You created the problems by being negligent in your [quality control] and expect us to pay for that .... It is becoming common knowledge of your problems with the Compaq 7240[,] i.e., Audio, telephone, fax, QUICK RESTORE, etc. and that they are common problems to ALL OWNERS. [message dated 1/10/97]

I have been given the run-around for months now, my phone center does not work properly and I just keep getting promises for a fix that doesn't happen and Compaq wants to charge US $35 to talk about it. [message dated 1/14/97]

44. The following messages about computer freezes caused when the computers were removed from the “sleep mode” were posted to Compaq's America Online message board between August 1996 and January 1997:

First of all the sleep mode locks up when I try to wake it. [message dated 8/27/96]

Specific questions: ... How do I get the $35 that Compaq stole from me? ... How do I get the sleep mode to go away forever so my screen does not freeze up at all? ... How do I get a quick and honest response to my questions? [message dated 10/14/96]

I ABSOLUTELY POSITIVELY HATE MY PRESARIO 4112!!!!! IT REBOOTS EVERYTIME IT "WAKES UP".... [message dated 12/6/96]

Far from a novice, I've worked with Mac and PC systems for over 10 years. I bought a 4704 recently and have had nothing but problems with it .... I'm posting this message because I'm astounded that so many messages reference the [model] 4704 and other Presarios, the phone center [software], and the sleep mode crashes, and nothing has been done. [message dated 12/9/96]

[A] sleep button doesn't do you much good if your machine locks up every time you use it. [message dated 1/6/97]

[Model] 8702 system .... At times in sleep mode, when system comes out of sleep mode it locks up. [message dated 1/6/97]

45. The following messages about $35 charges for customer support calls to report defects already known to but not disclosed by Compaq, and for which it had no solution, were posted to Compaq's America Online message board between August 1996 and January 1997:

You just graduate from college and have debt up to your ears but are a teacher so you know that a computer will be of great importance to your students[,] so you plop down money you don't have[,] faithful [that] you are buying a great tool for your classes .... So here I sit after two months of dealing with this thing and still I have no grade book (I AM A TEACHER!), ... no functional answering machine .... [T]o get help you will be charge[d] 35 dollar[s] to your credit card .... Is this a scam you are running here? I get it. You sell people computers that are fualty [sic] and then charge them [for] fixing them. [message dated 9/24/96]

A reasonable amount of bugs is OK. But when they are known and not communicated, it's as if, well, we know there are bugs but let them find out by themselves .... Although Compaq is aware serious problems exist, have patches and downloads to correct some of these, and that some features are due to be upgraded to address these defl[c]iencies, they should, and have ability to, contact the consumer and inform them. [message dated 10/12/96]

Are you kidding? There are dozens of unanswered questions on the AOL forum alone, people begging for help. I'm glad I found it - at first I thought maybe all my years of computer experience had somehow vanished. But the problems with the phone center, the Q button, the terrible documentation (what little there is of it), the total lack of response from support@compaq.com (I have written 6 notes since 10/10 and have never heard a word), the awful tech support when you do get through ..., and ... you want to charge people for technical support needed mainly to correct your own mistakes ... ? [message dated 11/3/96]

D. Former Compaq Customer Service Technicians Confirm That Compaq Knew It Sold Defective Computers

46. Former customer service technicians for Compaq have confirmed that Compaq knew about defects but continued to sell its computers without notifying consumers of the defects. Technicians have reported that among the most repeated complaints by consumers were that Compaq's Phone Center software was defective and usually did not work; that the “sleep mode” did not function and would cause the computer to freeze when “woken up” (destroying the computer's utility as an answering machine); that the InterWave soundcard was substandard; and that the modems that Compaq provided with its computers routinely malfunctioned.

47. The statements of Compaq's former technicians demonstrate that Compaq knew from the time that it first released the “Phone Center” that it did not operate as represented. In addition, Compaq knew that it had no solutions to the defects in its computers identified above. Further, Compaq instructed its technical support representatives in on-line directives to conceal this fact from consumers.

48. Former customer support technicians also have reported that Compaq maintains databases that compile all known problems with Compaq's Presario computers. Documents named Product Problem Reports — PPRs — are maintained on these databases. The databases were provided to Compaq customer service technicians at contractor sites throughout the country through a proprietary intranet site maintained by Compaq. These internal databases confirmed the problems with the Presarios identified above. Further, in certain instances, database entries explicitly stated that Compaq knew of no solution to particular problems and instructed the technicians to conceal this fact from customers.

E. Compaq Customer Service Technicians Issue a “Manifesto” Confirming the Known Defects

49. A group of customer support technicians employed by Compaq customer service contractors prepared and distributed on the Internet a document called “The Compaq Manifesto.” This document confirmed the existence of several defects in Compaq computers, and that Compaq knew about the defects but continued to sell its computers without any warning. The Manifesto evidenced that Compaq, and not the consumer, was the origin of these defects.

50. The customer support technicians began the “Manifesto” by disclosing that Compaq knew about problems with its computers and should be accountable to the public:

We, Compaq technical support workers, feel that the public has a right to know the truth about Compaq. We know that you and millions of other people have invested your hard earned money in Compaq computers, and that you deserve to be treated fairly by Compaq Corporation. It is our sincere hope that by releasing this information, Compaq will become accountable for their products and their actions.

51. The technicians stated that Compaq knowingly sold computers with two components – the Phone Center and the “Sleep Mode” function – that did not work:

KNOWN PROBLEMS AND FIXES FOR COMPAQ COMPUTERS

1. SLEEP MODE

This is a neat feature that puts your computer into a low-power “sleep” state. Unfortunately, it has a tendency not to wake up. There are fixes available for it, but most don't work. For some models, we will have you run debug to clear CMOS. Sleep Mode will work for a while, but we know you'll call us back. OUR ADVICE: Call us for help to disable SLEEP MODE….

5. PHONE CENTER

This is a program that almost never works properly. There is an inside joke that if Phone Center worked, all Compaq technicians would be out of a job. Every time a Phone Center call comes in, we just hope that [it] is so simple we can actually do something about it. The only real fix is running QUICK RESTORE, or for some models, the GOLD PHONE CENTER UPGRADE, which sometimes fixes the problems. OUR ADVICE: Save yourself the headache. Buy a Fax and Answering machine. [emphasis added]

F. The Titles of Files in Compaq's “Briefcases” Database of Known Defects Confirms the Allegations in the Petition

52. The titles of the files in one of Compaq's databases, called “Briefcases,” show that certain problems in the Presarios, which Compaq has never admitted, crop up repeatedly. Compaq's list of reported problems tracks the unsolved problems identified above, experienced by Class members, and reported by customer support technicians. These titles include:

33.6 Presario Modem fails to connect at 33.6. [Briefcase 044]

High End Audio (Interwave) on the Presario 8700 is not SoundBlaster Pro compatible. [Briefcase 024]

High End Audio (Interwave) on the Presario 8700 series could pop and crackle. [Briefcase 025]

On the Presario 4500 when the Sleep/Wake button is pushed, the computer could fail to come out of Sleep mode. [Briefcase 592]

On Presario 4500 computers, they will not automatically go to sleep. [Briefcase 590]

Presario models with the Quantum Bigfoot 1.2 GB or 2.5 GB hard drive may have lock ups when waking from sleep mode. [Briefcase 370]

Presario 1020/1030 units will not automatically go into Sleep. [Briefcase 147]

When a call is received while the computer is in sleep mode, the computer will take seven or more rings to answer, sometimes it will not answer the call at all [Briefcase 071]

Customer can send, but cannot receive faxes using the Compaq Phone Center. [Briefcase 326]

No audio with Compaq Phone Center speaker phone. The customer cannot hear the caller, and the caller cannot hear the customer. [Briefcase 325]

When calling a number that is busy, the modem may not hang up after 4 busy signals. [Briefcase 320]

After using the modem in any other application, the Phone Center will not acknowledge an incoming call (phone will not ring) or it will answer and then immediately disconnect. Restarting the computer will allow Phone Center to take messages and faxes properly until modem is used by another application. [Briefcase 316]

Unable to send faxes using the Compaq Phone Center, it does not dial out or pick up the phone when trying to send faxes. [Briefcase 209]

The customer is unable to open saved faxes through the Phone Center. [Briefcase 505]

The Compaq Phone Center will not disconnect the phone until the message length times out. [Briefcase 379]

Compaq Phone Center will not answer. [Briefcase 172]

Presario 1010 does not support the Compaq Phone Center software. [Briefcase 148]

The Phone Center will not receive faxes from older fax machines that do not initiate a CNG tone [Briefcase 143]

Compaq Phone Center does not always stop recording after the caller has left a message and hung up. [Briefcase 067]

G. Even After Suit Is Filed, Thousands of Dissatisfied Customers Contact Plaintiff Johnson's Website On the Internet and Continue to Report Identical Product Defects

53. Since plaintiff Dale Johnson filed suit, he has established a website reporting on consumers' battles with Compaq. Since its inception, consumers have visited this site over 56,000 times. In addition, since this suit was filed, consumers have continued to post messages concerning the failure of Compaq's Presario computers to operate as represented. A sample of these postings include:

I have a $2000 white elephant [C]ompaq [P]resario 4764 that has never worked. The phone center is useless …. I bought this computer for the integrated phone center. I am still using my old answering machine. It still works and I only paid about $30 for it 10 years ago …. I wish that there was a way to warn others about buying a Compaq computer. All I can do is say “you'll be sorry.”

Does any know … anything about software that I can purchase to run phone and voicemail from my computer? I'm tired of dealing with Compaq. I have numerous CD's for Compaq Phone Center, none of which work …. I can't make my phone center work and neither can they. Is there some way to make this thing work right? Based on the nearly 1400 postings on this board relevant to the 4700 series, I doubt it. I will never buy [C]ompaq again, and will certainly tell others about this experience. I have a $2000 white elephant, already obsolete.

I purchased a Compaq Presario 8760 in March 1997. To say I have been disappointed would be minimizing the problems. From the day I brought it home I could not use the Phone Center. (I could call and hear people but they could not hear me.)

Ordered, received and installed “Phone Center Update” (271629-001) about 4 to 6 weeks ago on my 4770 …. End result is, Phone Center still is not reliable. Sometimes it answers the incoming call, sometimes it doesn't. More often than not, it “hangs” and ties up my phone line until someone can get home and do a reboot on the 4770 …. (After it “answers” the incoming call with no response, just dead airspace, and the caller hangs up their phone, callers thereafter just get a busy signal ….)

I work at Sears & the Phone Center has been one of the most important features in customers' decisions to choose Compaq …. I have been telling people that the Phone Center software is all preloaded ….

The Compaq features/specifications appear to be impressive until you get down to using them. For example, I have a [Presario] 4814. It is advertised as having “awesome 3D and video” and that is the main reason I bought it. In reality, it does not even have a 3D accelerator card and uses software 3D only. If you read any review of this system in any PC or game related magazine, you will see that the reviewers consider this approach to be a joke. In my opinion, it is intentionally false and misleading …. The point is this, [C]ompaq's are marketed … as having “awesome 3D and video,” “blazing fast 56K modems,” etc. (I am reading the [C]ompaq stickers on my PC). They do not. It is a lie.

[T]he 4508 … was advertised to have “64[-bit] 3D graphics.” I had gone [to] the S3 webpage … and pulled up the information on this video card. It says it is only a 2D board …. I asked a tech about it …. First[, h]e said “that the board was modified to include a special chip.” When I asked by who he responded by saying “he was not sure, but he was positive about the chip” …. I told him I was going to contact S3 about this chip. He told me to hold for a few minutes. He came back and told me that there was no chip and that it is NOT a 3D board but has DirectX software which is “kind of like 3D[.]” I told him that this is not what Compaq had advertised on the box and on displays. He said “I understand” [and] “[t]hat Compaq does not accept returns and to go back to where it was sold[.]”

Am trying out a Compaq 4504 (which we also bought for our daughter @ college) and have noticed that the modem always connects to AOL @ 14.4 and never any higher. My son's AST 33.6 modem always connects @ 38.4 using the same phone line.

[W]hy can't you guys just admit that your modems are lous[y?] It's not the phone line/server/[etc.] My [D]ell connects every time @ 33.6 on same jack as [the Presario] 4784[,] which always goes in @ 28.8.

[L]et's just say that my presario 4808 will NOT under any circumstances hookup to AOL, [M]indspring, or [C]ompaq's own bulletin board at a speed above 26.2K. The problem IS the modem. No one at [C]ompaq will admit that …. My [other] dinosaur system here hooks up to all [Internet Service Providers] at 33.6 or better … There is very good reason for the class action suit. The modem installed simply DOESN'T WORK as advertised.

[E]ven with the newest upgrade, the 56kflex modem in my Presario 4814 never connects to the 56K lines of AOL or my [Internet Service Provider] above 26400, and never connects to other lines above 28800. I just connected an external Motorola ModemSurf 56k to the COM 1 serial port of the 4814 and immediately got 44000 with AOL and the [Internet Service Provider]. Just like others are observing here, it is not the [phone] lines, it is not AOL's fault, the Presario 56k modem simply is junk!

A Case manager called to say my modem connection problems are due to my phone line. Except that my husband's Compaq connects at 33.6 from that same line. We were told the 3060 works at 33.6 when we bought it, and I expect it to [do] just that. Compaq really needs to address this issue and stop making excuses. How can everyone be having [the] same problem …[?]

AOL – I connect at 26.4 (rarely I get 28.8). I tried MSN – connected at 26.4. AT&T also 26.4. Connect through Hyperterminal to another computer – connected at 26.4. Phone lines tested for noise (found to be clean). [R]un new phone lines & added new phone jacks. Took my computer to my friend[']s house, connected at 26.4 (his is always 33.6 and above). Tried his computer at my house and got a connection at 33.6 on AOL. It is not my phone lines, and in my case it is not AOL. Compaq, I rest my case ….

H. Compaq Forces Customers to Use Its Fee-Based Customer Support Service

54. In addition to selling computers with known and undisclosed defects, Compaq deceived consumers with its customer support practices. Compaq represented in its marketing materials that it provided free customer support through an 800 number for software defects, yet it charged customers who reported such defects $30-$35 per call. In addition, Compaq charged consumers for reporting software defects despite the fact that, in many cases, it knew of the defects and had not disclosed them to the consumer at the time of purchase. Further, Compaq falsely claimed to have alternatives to its fee-based telephone customer support service that would allow customers to obtain "prompt" technical support.

55. Compaq customer service technicians were told by their supervisors to conceal that they did not know how to solve consumers' problems and to take standard, ineffective steps to placate consumers. This resulted in consumers being charged $30-$35 for taking steps that Compaq's customer service technicians knew normally were ineffective, and then incurring additional charges when they called back to report that these steps had not corrected the problem. Customer service technicians reported that they were instructed by their supervisors to recommend repeatedly that consumers run “Quick Restore,” which would re-install all of Compaq's proprietary software onto the computer system and not correct any defects in that software. Technicians also reported that they were instructed to replace the motherboard, which would replace the pre-installed modem, sound card, and other hardware components but again would not correct any defects in Compaq's proprietary software.

56. Compaq established an Internet address for technical support requests, which it marketed as an alternative to its fee-based customer support. However, Compaq did not adequately staff this service, so some customers would have to wait 5 to 7 days to receive a response. During this time, important functions on their computers, and sometimes the entire computer itself, would be useless.

57. For example, on September 4, 1996, one consumer wrote:

I am getting quite frustrated and angry considering that I have been requesting a reply to my question for a week ... now and can't seem to get a response from you. If I had knowledge that I would be ignored when I needed technical assistance, I would not have purchased this machine .... Should I call the 800 number to spend MORE money on this machine even though it is a problem I have no control over ... ?

58. On November 6, 1996, another customer complained that he had received "no response of any kind ever to 6 or more messages to support@compaq.com." On October 10, 1996, another customer wrote: “If I had read this message board prior to my purchase, which is exactly what I will recommend anyone inquiring, I would have never invested thousands of dollars….”

59. Compaq also established a message board on America Online for its customers to report problems they experienced with Compaq's computers. The posts on this message board could be viewed by any Compaq computer purchaser. On September 11, 1996, one dissatisfied customer reported on the message board that in ten days more than 3,000 consumer complaints had been posted. Several customers stated that they were shocked to discover all the similar complaints on the America Online message board. In January 1997, Compaq eliminated its America Online message board.

60. Before eliminating its America Online message board, Compaq attempted to censor consumers who tried to notify others on-line of the problems with Compaq's computers. In fall 1996, plaintiff Johnson posted a message in several "folders" in Compaq's America Online message board suggesting that consumers report their "opinions (good and bad)" in a customer service survey being conducted by the magazine PC World. Compaq then warned plaintiff that his message was not "appropriate" because it did not involve "technical" problems and removed it from all folders on the message board. It also reported plaintiff to America Online, for which he was given a "first warning" for "vulgar or sexually oriented language, harassment, discussion of illegal activities, and any other activities that may impair the enjoyment of our members." When plaintiff notified America Online of the circumstances, it agreed that he had not violated any of the service's rules and determined that his "account was issued a warning in error."

COUNT I

Violation of TEXAS BUS. & COM. CODE ANN. §§ 17.46 AND 17.50

(FALSE, MISLEADING, OR DECEPTIVE ACTS)

61. Plaintiffs incorporate by reference the preceding paragraphs as if fully set forth herein.

62. Plaintiffs and the other members of the Class are consumers as defined in the Texas Deceptive Trade Practices Act.

63. Starting at least with its 1996 line of Presario computers, Compaq engaged in an unfair and deceptive course of conduct. This course of conduct included: selling computers to members of the Class that had defects known to it but not disclosed to Class members; charging Class members who sought assistance with these defects from Compaq's customer support, in some instances where it knew that it had no solution to the problems; offering an on-line alternative to fee-based customer support but then not staffing it adequately; making numerous factual representations and statements designed to promote its computers which were false, misleading, and/or deceptive; and omitting material information known to it that would have disclosed these defects to consumers, in order to induce Class members to purchase its computers.

64. Compaq followed this unfair and deceptive course of conduct in connection with plaintiffs' (and the Class's) transactions in goods or services and in commerce.

65. Compaq committed these violations knowingly and intentionally, entitling plaintiffs and the Class to treble damages.

66. Compaq's unfair and deceptive course of conduct was the producing and proximate cause of the injuries of plaintiffs and the other members of the Class.

COUNT II

Violation of TEXAS BUS. & COM. CODE ANN. § 17.50

(Unconscionable Course of Action)

67. Plaintiffs incorporate by reference the preceding paragraphs as if fully set forth herein.

68. Compaq sold defective computers to plaintiffs and the members of the Class. Compaq also imposed a charge on Class members who reported software defects by telephone. Compaq knew of the defects at the time it sold the computers to plaintiffs and members of the Class, did not disclose the existence of these defects, and nevertheless charged plaintiffs and the Class members when they called in to report the defects. In many cases, Compaq charged for these support calls despite the fact that it knew that it lacked any workable solution.

69. Compaq took advantage of the lack of knowledge of plaintiffs and the members of the Class, and its own superior knowledge, to a grossly unfair degree. Compaq's conduct constitutes an unconscionable course of action. In continuing to misrepresent and omit facts concerning the defects after receiving hundreds of messages reporting them while selling its computers, Compaq's conduct was intentional.

70. Compaq's unconscionable conduct was the producing cause of the injuries of plaintiffs and the other members of the Class.

COUNT III

VIOLATION of TEXAS BUS. & COM. CODE ANN. § 17.50

(Breach of Express Warranties)

71. Plaintiffs incorporate by reference the preceding paragraphs as if fully set forth herein.

72. Compaq issues a Program License Agreement applicable to Compaq software to purchasers of its computers. In the Program License Agreement issued to plaintiffs and the members of the Class, Compaq expressly warranted that its software was “free from defects in materials or workmanship under normal use for a period of one year from the date of delivery to you as evidenced by a copy of your receipt.”

73. Compaq also issues a Warranty applicable to Compaq hardware to purchasers of its computers. The Warranty states that “Compaq warrants that the Hardware Product you have purchased from Compaq or a Compaq authorized reseller is free from defects in materials or workmanship under normal use during the warranty period.”

74. Compaq's warranties cover Compaq hardware or software defects.

75. Compaq breached its express warranty to plaintiffs and members of the Class as set forth above.

76. Hundreds of purchasers of Presario computers have notified Compaq of the failure of the computers to perform free from defects.

77. As a result of the failure of Compaq's products to perform as promised, plaintiffs and members of the Class will have to repair or replace their computer systems and have incurred or will incur expenses for removing and/or disposing of the defective product, installing a replacement product, and will incur consequential damages from the failure of the computers.

78. Compaq's warranty promises to repair or replace its computers in certain circumstances. However, the warranty purports to limit damages to an amount that does not approach the actual damages necessary to compensate for repair or replacement of the computers and consequential damages.

79. Throughout the Class Period, Compaq has concealed the defects in its computers described above. It has failed to disclose these defects, and instead it has marketed its products as state-of-the-art, superior, sophisticated, and improved. Consumers would have no way of knowing at the time they purchased their computers from Compaq that they are defective.

80. The cap on remedies in the Compaq express warranty and license agreement is unconscionable and unenforceable.

81. The cap on remedies in the Compaq express warranty and license agreement is unreasonable and unenforceable as a liquidation or limitation of damages in light of the harm actually caused by the breach, which Compaq could reasonably have foreseen, and in light of the ease of ascertaining the amount of actual damages.

82. The limitations on remedies and caps on damages in the Compaq express warranty and license agreement should be declared null and void.

83. Because plaintiffs' claims for breach of the express warranty amounts to a breach of contract, plaintiffs are entitled to recover reasonable attorneys' fees pursuant to Tex. Civ. Prac. & Rem. Code § 38.001 et seq. in addition to the DTPA.

COUNT IV

VIOLATION of TEXAS BUS. & COM. CODE ANN. § 17.50

(Breach of Implied Warranties)

84. Plaintiffs incorporate by reference the preceding paragraphs as if fully set forth herein.

85. Compaq is a merchant with respect to computers. The computers that Compaq sold with the features and defects described herein were not merchantable within the meaning of the Uniform Commercial Code in that they would not pass without object in the trade with which they are involved, they are no fit for the ordinary purposes for which such goods are used, and they do not conform to the promises and affirmations of fact made in or on the containers, labels, or documents which were utilized in selling and shipping the goods. In addition, Compaq at the time it sold the computers with the features and defects had reason to know that several of the particular purposes for which the goods were required by Class members were not going to be satisfied and as such the goods were not fit for such purposes. Further, Compaq had reasons to know that Class members would rely on Compaq's skill, judgment and knowledge to furnish suitable goods sufficient to meet such purposes.

COUNT V

Negligent Misrepresentation

86. Plaintiffs incorporate by reference the preceding paragraphs as if fully set forth herein.

87. Compaq made a series of misrepresentations and material omissions as identified above. Its statements were material, false, deceptive, and misleading and omitted material facts necessary to make the statements not misleading. Such material misrepresentations and omissions were a result of the negligence of Compaq. Compaq knew or should have known that its computers contained the defects and would not operate as represented.

88. Compaq owed a duty to Class members to exercise reasonable care in making representations about its computers.

89. Class members relied (or should be presumed to have relied) on Compaq's material misrepresentations in purchasing its products. As a result of their justifiable reliance, plaintiffs and the other members of the Class were induced to and did purchase such computers. Class members' reliance was reasonably foreseeable by Compaq.

90. As a result of negligent misrepresentations made by Compaq, Class members have incurred or will incur expenses for repairing or disposing of their computers, as well as any consequential damage that results from the failure or replacement of the computers. The full amount of these damages will be proved at trial.

PRAYER FOR RELIEF

WHEREFORE, plaintiffs demand judgment against defendant Compaq as follows:

A. Certifying this action as a class action with plaintiffs and their counsel as representatives of the Class;

B. Declaring the conduct of defendant Compaq to be unlawful;

C. An injunction in favor of the Class requiring Compaq to publish notice of known hardware or software defects that plaintiffs and members of the Class are experiencing or may experience, in a manner reasonably sufficient to notify current and prospective customers of such defects; prohibiting Compaq from charging customers for technical assistance in connection with known hardware or software defects in Compaq's computers; and requiring Compaq to extend, for a one-year period starting from the date of the Court's order, its warranty to customers who purchased Presario computers between July 1, 1996 and the date of the notice referred to above;

D. Awarding treble economic damages and treble damages for mental anguish to plaintiffs and the other members of the Class under Texas Bus. & Com. Code Ann. § 17.50(b), including their actual out-of-pocket losses and expenses and any consequential damages, together with interest until paid;

E. Declaring that any limitations on warranties or the type of relief available are null void, unconscionable, and unenforceable;

F. Awarding plaintiffs the costs of this action, including reasonable attorneys' and expert and accounting fees and expenses; and

H. Such other and further relief as is appropriate.

JURY DEMAND

Plaintiffs demand a trial by jury of all issues so triable.

Dated this _____ day of June, 2001.

CLAXTON & HILL, PLLC

____________________________

Roger F. Claxton

State Bar No. 04329000

Robert J. Hill

State Bar No. 09652100

700 McKinney Place

3131 McKinney Avene, LB 103

Dallas, Texas 75204-2471

(214) 969-9099

HAGENS BERMAN, LLP

_______________________________

Steve W. Berman

Jeffrey T. Sprung

1301 Fifth Avenue, Suite 2900

Seattle, WA 98101

(206) 623-7292

THE BLOUNT LAW FIRM, P.L.L.C.

Marvin K. Blount, Jr.

State Bar No. 5243

P.O. Drawer 58

Greenville, NC 27835-0058

FUTTERMAN & HOWARD

Ronald L. Futterman

122 South Michigan Avenue, Suite 1850

Chicago, Illinois 60603

STULL, STULL & BRODY

Jules Brody

Aaron Brody

Michael Swick

6 East 45th St.

New York, NY 10017

Attorneys for Plaintiffs