American Audio Service Bureau Inc. v. At & T Corp.

• Decision Date: 19 October 2006
• Docket Number: 7745.,7744.
• Citation: 33 A.D.3d 473,823 N.Y.S.2d 25,2006 NY Slip Op 07580
• Parties: AMERICAN AUDIO SERVICE BUREAU INC., Appellant, v. AT & T CORP., Respondent.
• Court: New York Supreme Court — Appellate Division

33 A.D.3d 473

823 N.Y.S.2d 25

2006 NY Slip Op 07580

AMERICAN AUDIO SERVICE BUREAU INC., Appellant, v. AT & T CORP., Respondent.

7744.

7745.

Appellate Division of the Supreme Court of the State of New York, First Department.

Decided October 19, 2006.

Order, Supreme Court, New York County (Richard B. Lowe, III, J.), entered January 11, 2005, which, to the extent appealable, denied plaintiff's motion for renewal with respect to an earlier order dismissing plaintiff's cause of action in contract and limiting its damages to $50,000, unanimously affirmed, without costs. Order, same court and Justice, entered March 15, 2005, which denied plaintiff's motion to vacate an earlier order dismissing the remainder of the complaint, unanimously reversed, on the law, without costs, the motion granted and the remainder of the complaint reinstated.

Plaintiff American Audio Service Bureau is a company that provides transmission services for content providers through pay-per-call or "900" services. Between 1992 and 2002, plaintiff entered into numerous successive billing service agreements (BSAs) with defendant (AT & T), whereby defendant billed customers who called the 900 numbers and then passed on the payments less its fees to plaintiff. If a customer failed to make full payment to defendant, defendant would "charge back" plaintiff for the unpaid amount.

Sometime in 2002, plaintiff received a statement from defendant indicating that plaintiff had a negative balance of $45,163.05, and learned that this was due to the fact that certain individual customers had built up excessive charges that were uncollectible. For example, one customer incurred charges in excess of $160,000. Plaintiff also learned that defendant did not monitor or block customers who carried excessive balances (abusive callers), but merely passed the losses on to plaintiff.

In February 2003, plaintiff commenced this action by service of an amended complaint seeking damages in excess of $4 million. It alleged that, by failing to block access to the 900 numbers for those customers with excessive unpaid balances, defendant had breached the contract, the covenant of good faith and its fiduciary duty, and had been grossly negligent. In lieu of an answer, defendant moved to dismiss the complaint pursuant to CPLR 3211. Defendant included documentary evidence in the form of a BSA, which contained a statement that defendant's liability for any damages caused by its performance under the agreement was limited to $50,000. The BSA also contained the following language: "[Defendant] reserves the right to block access to all AT & T 900 numbers from the telephone stations of any Caller who, in AT & T's sole discretion, is carrying an excessive unpaid balance of charges for calls made to Programs billed by AT & T, or appears to be engaged in any fraudulent or abusive practice."

By order entered October 18, 2004, the court dismissed plaintiff's breach of contract claim, on the ground that the "sole discretion" language in the BSA gave defendant the right to block calls but did not impose a duty to do so. It found, however, that the question of whether defendant's inaction constituted a breach of the implied covenant of good faith and fair dealing was a "subtler" issue, and that plaintiff had stated a claim in this regard by alleging that defendant had done nothing to aid collection other than billing the clients. The court also found that the breach of fiduciary duty and gross negligence claims were viable in light of defendant's acknowledgment that it had a fiduciary relationship with plaintiff. The court also found, based on the documentary evidence produced by defendant, that all claims arising from calls made after November 19, 2000 were time-barred, and that a $50,000 contractual limit on damages applied.

On November 24, 2004, plaintiff moved for renewal and reargument of the motion resulting in the court's October 18, 2004 order. It purported to present new facts found in two documents which plaintiff acknowledged having in its possession, but whose contents were not known at the time of the prior motion. Plaintiff argued that these documents, a 1992 form letter and a settlement and release for $194,000, proved that there was no $50,000 limitation on defendant's liability, and that plaintiff had reasonably relied on defendant's representation that it was in fact blocking abusive callers.

The court denied plaintiff's motion to renew, ruling that plaintiff had not articulated a legal justification to renew. Denial of reargument is not appealable and is not before us.

On or about January 26, 2005, defense counsel learned that the court had scheduled a status conference for the next day, January 27, 2005. When plaintiff's counsel failed to appear at the conference, the court's law secretary adjourned the conference to January 31, 2005. She directed defense counsel to advise plaintiff's counsel that if he failed to appear, defendant would move to dismiss. When plaintiff's counsel failed to appear on January 31, 2005, defendant's motion to dismiss the action was granted by the court.

On February 23, 2005, plaintiff moved by order to show cause to vacate the court's January 31, 2005 order. The court declined to vacate the dismissal of the complaint, observing that there was a pattern of noncompliance on plaintiff's part.

On April 7, 2005, plaintiff filed two notices of appeal; one appeals the denial of plaintiff's motion to vacate the order of January 31, 2005 dismissing the complaint; the second appeals the denial of plaintiff's motion to renew and for reconsideration of the court's order of October 18, 2004, which dismissed plaintiff's breach of contract cause of action and imposed a $50,000 contractual limitation on damages.

At the outset we note that there is no pending appeal from the underlying order of October 18, 2004, which dismissed plaintiff's breach of contract cause of action. Consequently, we do not address the substance of the underlying order as to...