Compaqs Legal Woes Grow
Amid concerns about sagging PC sales and Dell Computers growing dominance, Compaq Computer has yet another worry: Wayne Reaud.
This week, according to sources close to Reaud, the Beaumont, Texas, lawyer who is already pressing a lawsuit against the computer maker for selling computers containing allegedly faulty floppy disk drives will sue Compaq again. The lawyer is expected to file lawsuits in state court in his hometown that claim the computer giant is not standing behind its warranties on its Aero, Presario, iPaq and handheld iPaq computers. The iPaq models, designed for easy Internet access, are among Compaqs most popular products.
The suits add exclamation points to what has been an awful month for Compaq. On April 20, research firm IDC reported that during the first quarter, Dell passed longtime No. 1 Compaq in sales and is now the worlds biggest computer maker. IDC found that Dells global PC shipments rose 30 percent over last years levels, while Compaqs global shipments fell 4.7 percent. On April 23, Compaq announced lower-than-expected first-quarter earnings and said it will lay off an additional 2,000 workers, raising its layoff total to 7,000.
Reauds battle with Compaq began in 1999, when he sued in state and federal courts, claiming the company sold computers equipped with floppy disk drives that it knew could corrupt or destroy user data.
A few days before Reaud sued Compaq, Toshiba agreed to settle an almost identical suit for $2.1 billion. Reauds share: $147 million. Sources close to Reaud point out that the Toshiba settlement covered about 5 million computers. They believe as many as 12 million Compaq computers may have the disk drive problem, and if Reaud is successful, the stakes could be even higher than in the Toshiba case.
Reaud is among the richest lawyers in America. In the 1980s and early 1990s, he made millions in asbestos litigation. Hes one of five lawyers sharing a $3.3 billion fee from the state of Texas 1998 settlement with cigarette makers. In addition, Reaud has the home-court advantage. Beaumont, a blue-collar refinery town, is viewed as a plaintiffs paradise, where juries frequently make multimillion-dollar awards.
The warranty lawsuits Reaud will seek class-action status for both allege Compaq is violating federal consumer laws. One will charge the company forces consumers seeking warranty work to sign releases before the work is done, a procedure he claims contradicts Compaqs written warranty.
The other will claim Compaq is misleading consumers about their rights in violation of Implied Warranty of Merchantability statutes meant to guarantee that goods sold by merchants will do what they are designed to do.
Putting Up a Fight
Compaq spokesman Arch Currid pointed out that last month, a federal court judge dismissed the disk drive claim brought by Reaud. "We feel our products work as intended and we will defend them vigorously," he said. Currid refused to comment on the warranty suits.
Compaq is avidly fighting Reaud in state court over his request for the release of 14,000 pages of documents related to the disk drive litigation. The company says the papers contain confidential business information. Reaud and his lawyers, on the other hand, believe the papers show that Compaq knew, or should have known, that its disk drives were faulty.