CCT Commc'ns, Inc. v. Zone Telecom, Inc.

• Decision Date: 21 November 2017
• Docket Number: SC 19574
• Court: Connecticut Supreme Court
• Parties: CCT COMMUNICATIONS, INC. v. ZONE TELECOM, INC.

327 Conn. 114

172 A.3d 1228

CCT COMMUNICATIONS, INC.

v.ZONE TELECOM, INC.^*

SC 19574

Supreme Court of Connecticut.

Argued November 7, 2016

Officially released November 21, 2017

Joseph K. Scully, with whom was Jeffrey P. Mueller, for the appellant (plaintiff).

William M. Murphy, for the appellee (defendant).

Rogers, C.J., and Palmer, Eveleigh, McDonald, Espinosa, Robinson, and D'Auria, Js.^**

EVELEIGH, J.

The plaintiff, CCT Communications, Inc., appeals from the judgment of the trial court rendered in favor of the defendant, Zone Telecom, Inc.,¹ on the plaintiff's complaint and the defendant's counterclaim for damages and declaratory judgment. The case arises from a purchase agreement entered into by the parties in which the plaintiff was to provide various equipment, software, and services to the defendant for a telecommunications switch room located in Los Angeles, California. On appeal, the plaintiff claims that the trial court incorrectly rendered judgment in favor of the defendant on the plaintiff's complaint and the defendant's counterclaim. Specifically, the plaintiff asserts that the trial court incorrectly (1) concluded that it breached the purchase agreement by filing a petition for bankruptcy protection under chapter 11 of the United States Bankruptcy Code (bankruptcy code); see 11 U.S.C. § 1101 et seq. (2012) ; (2) determined that a letter from the defendant dated February 5, 2007, was an effective exercise of the defendant's right to terminate the purchase agreement, (3) failed to award the plaintiff certain damages on count one of its complaint, and (4) awarded the defendant damages, costs, and attorney's fees in excess of a limitation of liability clause in the purchase agreement. We agree that the trial court incorrectly concluded that the plaintiff's bankruptcy petition constituted a breach of the purchase agreement and permitted the defendant to terminate that agreement.² We therefore reverse the judgment of the trial court.

The following facts and procedural history, as found by the trial court and supplemented by the undisputed facts contained within the record, are relevant to our resolution of this appeal. The defendant provides long-distance telephone and other telecommunications services to independent local exchange carriers, which in turn sell the services to commercial and residential end users. In 2005, the plaintiff began providing various equipment, software, and services for use in the defendant's switch room.

By September, 2006, the relationship between the parties had begun to deteriorate. Following a heated meeting and further communications, the plaintiff, represented by its president, Dean Vlahos, and the defendant, represented by its senior vice president, Daniel Boynton, and its then vice president and chief legal counsel, Eamon Egan, ultimately agreed to continue to do business together on a restructured basis. The parties' new relationship was memorialized in the purchase agreement, which became effective on November 1, 2006. This is the operative legal document governing the present dispute.

A third, nonparty entity, Global Crossing Telecommunication, Inc. (Global), also was involved in the activities that underlie this case. Global supplies long-distance telephone service, including national and international long-distance calling as well as toll-free service, to commercial resellers. When a customer contracts for Global's services, calls made under that contract are run through a level three digital signal circuit (circuit), which is capable of carrying a large volume of telephone calls. The consumer normally purchases a circuit as part of an agreement to use Global's long-distance services and rates.

Under the purchase agreement, the plaintiff essentially acted as a middle man, buying Global's long-distance services and reselling them to the defendant. Prior to the purchase agreement, the plaintiff owned a circuit that was located in the defendant's switch room. Under the purchase agreement, the plaintiff sold that circuit to the defendant.³ This circuit enabled clients of the defendant to place calls through Global's long-distance network. In return, the defendant agreed to purchase long-distance service from the plaintiff at rates enumerated in the purchase agreement for certain specified geographical areas. Ultimately, Global was to sell long-distance service to the plaintiff at a fixed rate per minute, and the plaintiff was to resell that service to the defendant at a marked up rate. The defendant, in turn, would provide long-distance service to its own customers at a further markup.

The purchase agreement included a minimum usage guarantee, pursuant to which the defendant obtained long-distance services from the plaintiff on a " ‘take or pay’ " basis. This meant that the defendant was required to pay a minimum amount each month for the plaintiff's services, even if it did not run any calls through the circuit. Any usage exceeding the minimum would be billed to the defendant at an agreed upon rate per minute. This clause of the purchase agreement was to have run through December, 2009.

As we have indicated, the purchase agreement became effective on November 1, 2006. Long-distance service under the purchase agreement commenced on December 1, 2006, and the defendant ran enough long-distance service through the circuit in the month of December, 2006, to meet its minimum usage requirement. During that month, the plaintiff and Global also amended their retail customer agreement. After executionof this amendment, the plaintiff began to run a higher volume of long-distance service through Global.

By mid-January, 2007, a dispute had arisen between Global and the plaintiff about the terms of their amended retail customer agreement and, specifically, about the amount and scope of the long-distance service that the plaintiff was sending through Global's network. See generally In re CCT Communications, Inc., United States Bankruptcy Court, Docket No. 07–10210 (SMB), 2008 WL 2705471 (S.D.N.Y. July 2, 2008). Global was of the opinion that the plaintiff was violating the amended retail customer agreement and taking unfair advantage of Global by reselling certain services.⁴ Id.

In any event, the result of the plaintiff's routing so many long-distance calls through Global was that the defendant's clients and their customers encountered an increasing number of service problems. Calls would not complete, would continue to ring, or would result in a fast busy signal or dead air. These issues were brought to Global's attention by way of trouble tickets filed by the defendant. The purchase agreement authorized the defendant to open such trouble tickets directly with Global if the defendant had service problems. During January, 2007, the defendant filed a number of trouble tickets with Global because of service problems with calls being routed through the circuit.

In addition to the service problems that arose after the plaintiff attempted to run an increasing number of calls through Global's network, Global grew concerned by January, 2007, because the plaintiff was not current with its payments. By that time, the plaintiff owed Global approximately $2 million and had exceeded its credit limits with Global. These issues were memorialized in a letter from Global to Vlahos on January 11, 2007. At that time, Global put the plaintiff on notice that, if a resolution of these problems was not achieved, Global would terminate all services to the plaintiff on January 25, 2007.

Between January 11, 2007, and January 25, 2007, the plaintiff continued to increase international and domestic long-distance traffic through Global, which resulted in additional service problems. In response, Global began to throttle down the plaintiff's access to its service. By January 17, 2007, Global had blocked international long-distance calling service to the plaintiff. After that date, the plaintiff continued to push through domestic, long-distance calls at what the trial court characterized as "an excessive rate." But see footnote 4 of this opinion. This influx of domestic, long-distance calls caused major service issues for Global. For example, 192,000 calls would not complete on January 19, 2007, and 142,000 calls would not complete on January 20 and 21, 2007.

On January 25, 2007, Egan, who had since become the defendant's chief financial officer, sent a letter to the plaintiff advising it of multiple service issues for long-distance calls being transmitted through the circuit. The defendant requested assistance from the plaintiff to resolve these issues. The defendant stated that if assistance was not forthcoming, the defendant would not be committed by the purchase agreement to pay the minimum usage charge for January, 2007, due to unacceptable service quality.

The following day, on January 26, 2007, Global blocked all calls generated through the plaintiff. Global also sent a letter to the plaintiff on that date terminating their relationship and claiming that the plaintiff was in breach of contract because it was reselling the services in alleged contravention of the amended retail customer agreement. A copy of this termination notice was inadvertently faxed to the defendant's switch room by Global, making the defendant aware of the seriousness of the dispute between Global and the plaintiff.

As a result of the termination of service by Global, which shut down all of the Global circuits operated by the plaintiff, on January 29, 2007, the plaintiff filed its bankruptcy petition in the United States Bankruptcy Court for the Southern District of New York. Because of the automatic stay provisions that come into effect upon filing of a bankruptcy petition; see 11 U.S.C. § 362 (a) (3) (2012) ; Global concluded that it was compelled to reconnect the circuits.

Although service was restored to the Global circuit by January 31, 2007, on February 5, 2007, the defendant notified the plaintiff by letter that it was exercising its right to...