AT&T v. New York City Human Resources Admin.

• Decision Date: 06 October 1993
• Docket Number: No. 89 Civ. 4569 (PKL).,89 Civ. 4569 (PKL).
• Citation: 833 F. Supp. 962
• Parties: AMERICAN TELEPHONE AND TELEGRAPH COMPANY, Plaintiff, v. The NEW YORK CITY HUMAN RESOURCES ADMINISTRATION and The City of New York, Defendants. The CITY OF NEW YORK, Third-Party Plaintiff, v. NORTHERN TELECOM, INC., Third-Party Defendant.
• Court: U.S. District Court — Southern District of New York

833 F. Supp. 962

AMERICAN TELEPHONE AND TELEGRAPH COMPANY, Plaintiff, v. The NEW YORK CITY HUMAN RESOURCES ADMINISTRATION and The City of New York, Defendants.

The CITY OF NEW YORK, Third-Party Plaintiff, v. NORTHERN TELECOM, INC., Third-Party Defendant.

No. 89 Civ. 4569 (PKL).

United States District Court, S.D. New York.

September 7, 1993.

As Corrected September 20, 1993.

Ordered Unsealed October 6, 1993.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Kleinberg, Kaplan, Wolff & Cohen, P.C., New York City (David Parker, Monica L. Kaiser, of counsel), for American Tel. & Tel. Co.

O. Peter Sherwood, Corp. Counsel of City of New York, New York City (Barbara Yessel, Lewis S. Finkelman, of counsel), for City of New York.

Shearman & Sterling, New York City (Werner L. Polak, of counsel), for Northern Telecom, Inc.

OPINION AND ORDER

LEISURE, District Judge:

This is an action in which American Telephone & Telegraph ("AT & T") seeks to recover unpaid long distance charges from the City of New York (the "City").¹ The City has impleaded Northern Telecom, Inc. ("Northern Telecom") as a third-party defendant, alleging that Northern Telecom, as the seller of the City's phone equipment, is liable for the long distance charges in dispute.

AT & T and Northern Telecom have filed separate motions for summary judgment against the City pursuant to Rule 56 of the Federal Rules of Civil Procedure. The City has brought a cross-motion for summary judgment against AT & T. For the reasons set forth below, AT & T's motion for summary judgment against the City is granted and the City's cross-motion for summary judgment against AT & T is denied. In addition, Northern Telecom's motion for summary judgment against the City is granted.

BACKGROUND

On August 16, 1985, the City purchased a private branch exchange ("PBX") from Northern Telecom for three of the City's Human Resources Administration ("HRA") offices, including one located at 80 Lafayette Street in Manhattan. The PBX is part of HRA's Customer Premises Equipment which is under HRA's exclusive control and is not part of the public switchboard network. Its primary function is to connect HRA's internal telephone extensions, as well as to connect the offices' telephone system to outgoing trunk lines. HRA subscribed to AT & T's Long Distance Message Telecommunications Service ("LDMTS") under AT & T Tariff FCC No. 1 (the "Tariff") and, as a result, HRA's PBX was connected to AT & T's long distance service. Thus, long distance calls made from HRA's telephone numbers were carried over the AT & T network and the charges for such calls were billed to HRA.

From January to April 1986, Northern Telecom installed the PBX in a room at HRA's 80 Lafayette Street office (the "PBX room"). Northern Telecom trained certain HRA personnel, selected by the City, to operate the PBX. The PBX's operation was turned over to the City in or about April 1986.

Among other capabilities, a PBX can be equipped with a remote access feature which allows a PBX customer's selected off-premise employees to call their office's telephone number, enter a special code, and access outgoing trunk lines connected to their office's PBX. Many users of PBXs employ this feature to take advantage of the cost-savings that can be realized by having their employees make calls, including long distance calls, through a central system. The particular PBX licensed to the City and installed in HRA's 80 Lafayette Street office by Northern Telecom was not originally equipped with a remote access feature. However, as explained below, after the PBX's installation, it was manipulated by HRA employees to simulate such a remote access feature, enabling unauthorized off-premise callers to place long distance calls through HRA's PBX.

HRA's PBX was under the direct control of Gary Glaser, the Director of HRA's Division of Telecommunications Technologies, who supervised approximately twelve employees, including a technician named Everett Casazza. Casazza possessed a key to the PBX room and knew the password necessary to access the PBX.

After Northern Telecom turned the PBX's operation over to HRA, technician Casazza entered the PBX room and manipulated the PBX, which as originally installed by Northern Telecom did not have a remote access feature, so as to simulate such a feature. Glaser has admitted that he was aware of the modification to the PBX made by Casazza. Casazza created a "phantom phone" by programming into the PBX an extension number which did not correspond to any operating telephone at 80 Lafayette Street. Casazza then call forwarded this "phantom phone's" extension to the outgoing trunk lines connected to the PBX. These trunk lines were connected to AT & T's LDMTS. By this simulated remote access feature, an off-premise caller who called the HRA office at 80 Lafayette Street and entered the "phantom phone's" extension number would be forwarded to an outgoing trunk line, enabling the off-premise caller to dial long distance calls. As a result of these alterations to the system made by the HRA employee, any individual with knowledge of the "phantom phone" extension number could make interstate and international calls through HRA's PBX. HRA, as the subscriber to AT & T's LDMTS, received the bill for any long distance calls placed through HRA's PBX by an off-premise caller.

After a series of events which are not pertinent to the resolution of the instant action, HRA's telephone number and the "phantom phone" extension were widely disseminated. As a result, HRA received a telephone bill in August 1987 for the sum of $352,142.42 and in September 1987 for the sum of $185,364.22 in connection with LDMTS charges.²

The City has refused to pay these LDMTS charges and AT & T has brought the instant suit to recover that sum pursuant to AT & T Tariff F.C.C. No. 1.³ The City has brought a third-party action against Northern Telecom, the seller and installer of the PBX system, alleging that the unauthorized LDMTS calls were caused by a defect in Northern Telecom's PBX system which allowed unauthorized persons to exploit the remote access (i.e. "Direct Inward System Access" or "DISA") capability. The City has asserted claims for breach of contract, negligent design, negligent installation, and negligent failure to warn in connection with the PBX system. The City seeks to hold Northern Telecom liable for any LDMTS charges which the City must pay to AT & T relating to the unauthorized calls.

AT & T and the HRA have cross-moved for summary judgment in the main action, and Northern Telecom has moved for summary judgment against HRA's complaint in the third-party action.

DISCUSSION

I. STANDARD FOR SUMMARY JUDGMENT

Rule 56(c) of the Federal Rules of Civil Procedure provides that summary judgment "shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247, 106 S.Ct. 2505, 2509, 91 L.Ed.2d 202 (1986); Lang v. Retirement Living Publishing Co., 949 F.2d 576, 580 (2d Cir.1991). Accordingly, "`summary judgment is appropriate when, after drawing all reasonable inferences in favor of the party against whom summary judgment is sought, no reasonable trier of fact could find in favor of the nonmoving party.'" Leon v. Murphy, 988 F.2d 303, 308 (2d Cir.1993) (quoting Lund's, Inc. v. Chemical Bank, 870 F.2d 840, 844 (2d Cir.1989)); see also United States v. Certain Funds on Deposit in Scudder Tax Free Inv. Account # XXXXXXX, 998 F.2d 129, 131 (2d Cir.1993) ("In determining whether the moving party has satisfied this burden on a summary judgment motion, the court must resolve all ambiguities in favor of the nonmoving party and draw all reasonable inferences against the moving party."); Cruden v. Bank of New York, 957 F.2d 961, 975 (2d Cir.1992) ("The nonmovant's allegations are taken as true and it receives the benefit of the doubt when its assertions conflict with those of the movant."). The substantive law governing the case will identify those facts that are material and "only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Anderson, 477 U.S. at 248, 106 S.Ct. at 2510.

The party seeking summary judgment "bears the initial responsibility of informing the district court of the basis for its motion," and identifying which materials "it believes demonstrate the absence of a genuine issue of material fact." Celotex Corp., 477 U.S. at 323, 106 S.Ct. at 2552. Once a motion for summary judgment is properly made, however, the burden then shifts to the non-moving party, which "`must set forth specific facts showing that there is a genuine issue for trial.'" Anderson, 477 U.S. at 250, 106 S.Ct. at 2511 (quoting Fed.R.Civ.P. 56(e)). However, "the mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact." Anderson, 477 U.S. at 247-48, 106 S.Ct. at 2509-10 (emphasis in original). As the Second Circuit has noted, "conclusory allegations will not suffice to create a genuine issue. There must be more than a `scintilla of evidence,' and more than `some metaphysical doubt as to the material facts.'" Delaware & Hudson Ry. Co. v. Consolidated Rail Corp., 902 F.2d 174, 178 (2d Cir.1990) (quoting Anderson, 477 U.S. at 252, 106 S.Ct. at 2512 and Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 1355, 89 L.Ed.2d 538 (1986)), cert. denied, ___ U.S....