Software Bug

Dallas Appraisal District battles a software developer over property rights

At six stories high and with just more than 95,000 square feet, the beige box of a building that houses the Dallas Central Appraisal District on Stemmons Freeway is, at best, uninspiring. You get the impression that what goes on inside isn't unlike certain scenes in Mike Judge's film Office Space--guys moping around in short-sleeved button-down shirts with too-short ties, muttering terms like "tax exemption" and "low-income housing cap rate." The building is a bland, imposing shell that houses a government agency that one Dallas software developer says is intent on becoming the Wal-Mart of the public sector, putting little guys out of business for its own financial gain.

Government agencies, by nature, aren't typically in the business of making money. Most times, they do the exact opposite, spending it, much better. But in a recent lawsuit, the AppLogix Development Group and one of its founders, Scott Baller, have accused DCAD of wrongfully attempting to compete with AppLogix in the private sector in the sale of a mass appraisal records system, a piece of software referred to as "MARS." AppLogix, which specializes in the development of appraisal software, signed an agreement in 2002 with DCAD to upgrade the agency's antiquated computer appraisal system for $2.5 million. Baller says that AppLogix was also authorized to sell and market MARS to other counties outside Dallas but that when they did, DCAD and its then-executive director Foy Mitchell attempted to foil the negotiations. The appraisal district intended to sell MARS itself. Then, when DCAD hired one of AppLogix's founding employees and another worker to help maintain MARS at the DCAD offices, Baller filed suit against the district in hopes of officially obtaining the intellectual property both AppLogix and DCAD claim is theirs.

"They're pretty much going to put us out of business," Baller says of DCAD's efforts to sell the software. For example, according to Baller, both Tarrant and Ector counties in Texas have purchased versions of MARS from Dallas County without the sales process being opened to any other bids. "You don't have to be a brain surgeon to know that the private sector is 'best man wins.' The problem with the public sector doing this is it doesn't matter if our product's better. They can put every company that's doing this in Texas out of business. It's not right in any way."

MARS was launched in February 2003 after DCAD recruited AppLogix to help develop it in conjunction with DCAD employees, rather than taking the typical route of buying a ready-made software and support package. Despite claims to the contrary by DCAD officials, the resulting in-house software had a number of bugs and defects that slowed the system down and made it inefficient, according to employees interviewed for a March 13, 2003, Dallas Observerarticle ("Hard Words for Software" by Charles Siderius). The problem, according to Baller, was DCAD's insistence on using their old computer mainframe rather than a Windows platform, and AppLogix later helped correct the problem.

But conflicts arose even before the software went live. In June 2002, Baller says, AppLogix asked DCAD to be a "champion" of the program and help AppLogix sell MARS. According to Baller, "in that same meeting [Mitchell] said, 'You're not going to sell this. This is ours.'" In court documents, AppLogix says that "Mitchell specifically declared that he had 'deep pockets' with the taxpayers' money" and could use that money to "sue [AppLogix] into the ground" if they did not abandon their claims of ownership to MARS.

Lawyers for DCAD have declined to comment on the suit and deny AppLogix's claims in their response and counterclaims. In court documents, DCAD asserts that it is the "sole and exclusive original owner of all copyrights and all other intellectual property rights in MARS." Dallas County Judge Margaret Keliher, who serves on the DCAD board of directors, noted that the district maintains a good relationship with technology company Beyond Appraisal, which served DCAD in a similar capacity to AppLogix in MARS development. "It's been a good deal for both DCAD and the other company," says Keliher. (The firm of Dallas attorney Jim Coleman, Keliher's father, is representing DCAD, but Keliher says they were involved in the AppLogix contract before she was elected to the board and has removed herself from decisions involving the case.)

Keith Squires, another software developer who helped in the early stages of DCAD's MARS development in 1999 and 2000, says he walked away from the project when "relationships got too strained" between AppLogix, Beyond Appraisal and DCAD. "I didn't want to continue with the arrangement," Squires says. "I was out of the picture." Ownership of the intellectual property grew more contentious between AppLogix and DCAD with each stage of development and modification.

At least six different consulting, assignment and license agreements were drafted during the more than five-year working relationship between AppLogix and DCAD. With each new agreement, more stipulations were added with regard to ownership, copyright and royalty dues when the software was sold to other counties; as a result, everybody wants a piece of the MARS pie and the right to profit from it. Part of profiting, however, is maintaining the software to keep it current with yearly tax law changes, something Baller says DCAD is incapable of doing.

"The amount of money that this thing is costing the county for the incompetency of some of the people around there is shocking," Baller says. He claims two of his employees, co-founder John Milam and Edward Jorge, were hired away from AppLogix to maintain MARS when DCAD employees weren't up to the job. One aspect of the various contracts between AppLogix and DCAD was a noncompete agreement.

"We had a contract with them that said we weren't able to hire each other's employees," Baller says. "If they didn't take our people, I would say there's a good chance that they wouldn't be getting tax rolls out."

DCAD doesn't deny hiring Milam and Jorge. (In attempts to contact both developers at the appraisal district's offices, Milam was unavailable and Jorge declined to comment on his move from AppLogix to DCAD in 2003.) According to court documents, DCAD asserts that AppLogix, which has sold versions of MARS to counties in New Mexico, has in turn violated the terms of their agreements by not remitting royalty fees to DCAD on those sales. Baller says the fees aren't due until those projects are completed, which he says they aren't.

All told, Baller says AppLogix stands to lose about $10 million in personnel costs and sales to DCAD, which Baller also says has interfered with potential clients in other Texas counties by questioning AppLogix's ability to support its software, something DCAD denies. Baller says that, so far, settlement offers have been rejected by DCAD, but the district's executive director, Ken Nolan, says that DCAD hopes to resolve the conflict in court-ordered mediation. Even if AppLogix loses the current suit, Baller says other software vendors have considered joining in a class-action suit against DCAD's attempt to compete with their products.

"Regardless of what happens with ours," says Baller, "this isn't going to go away for them."

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