Cronos Grp. Ltd. v. Xcomip, LLC

• Decision Date: 19 September 2017
• Docket Number: 650187/16,3186
• Parties: Cronos Group Limited, Plaintiff-Respondent, v. XComIP, LLC, et al., Defendants-Respondents.
• Court: New York Supreme Court — Appellate Division

2017 NY Slip Op 06515

Cronos Group Limited, Plaintiff-Respondent, v. XComIP, LLC, et al., Defendants-Respondents.

650187/16

3186

SUPREME COURT, APPELLATE DIVISION First Judicial Department

Decided on September 19, 2017

Rosalyn H. Richter

Barbara R. Kapnick

David Friedman,J.P.

Marcy L. Kahn, JJ.

Defendants appeal from the order of Supreme Court, New York County (Barry Ostrager, J.), entered August 17, 2016, which denied their motion to dismiss the complaint.

The Tsang Law Firm, P.C., New York (Michael Tsang of counsel), for appellants.

Neil L. Postrygacz, Attorney at Law, P.C., New York (Yan Margolin of counsel), for respondent.

FRIEDMAN, J.P.

This appeal presents, among other issues, the recurring question of whether the facts alleged in the complaint give rise to claims for both breach of contract and fraud. We hold that the cause of action for fraud, to the extent it is based on allegations that the defendants gave false assurances that they would perform a contractual obligation, should have been dismissed on the ground that it is duplicative of the contract claim and is not supported by allegations of specific facts giving rise to an inference that defendants did not intend to honor their assurances when they were made. Because the remaining portion of the fraud cause of action is otherwise legally insufficient, that claim should have been dismissed in its entirety, although we find that the motion to dismiss was correctly denied as to the contract claim and, in part, the account stated claim. In reaching these conclusions, we explore the issues raised by the pleading of causes of action for contract and fraud based on substantially the same set of facts.

Plaintiff Cronos Group Limited and defendant XComIP, LLC are both companies in the business of supplying wholesale telecommunications services. Defendant Jay Adams is XComIP's managing member. Cronos and XComIP entered into a written Reciprocal Network Carrier Services Agreement" (RNCSA), dated May 30, 2013, which, at the relevant times, governed each party's transmission of its customers' calls on the other party's network and to the other party's international premium rate numbers (IPRNs)¹. Section 1 of the RNCSA provides that "each Party will provide international telephone communication Services to the other Party on the terms and conditions set forth in the attached Schedule(s)."

Section 4 of the RNCSA, entitled "Billing and Payment," as amended as of October 2, 2014, provides for billing every seven days, with payment due within seven days of the date of the invoice, and for a charge of 1.50% per month for late payments. In addition, Section 4 provides:

"In the event that charges due are not paid in full by the Due Date, each Party shall have the right to suspend all or any portion of the Services to the other Party after giving one (1) business day's prior notice . . . until such time as the other Party has paid in full all charges then due including late charges. . . . Further, each Party reserves the right to offset the other Party's invoice for Services in an amount corresponding to any undisputed amount owed but not received by the Due Date."

Section 5 of the RNCSA, entitled "Billing Adjustments," provides, in pertinent part:

"Any request for a billing adjustment must be made in good faith and in writing within seven (7) days of receipt of the invoice in question. Any such request shall include detailed documentation to establish the basis for any adjustment. Documentation to be provided shall include, without limitation, the country, number of minutes and/or rate that is subject to dispute and may include [call detail records] to be provided by the disputing Party in a form acceptable to the responding Party. Subject to each Party's rights under Section 26, the responding Party will determine, in its sole discretion whether any adjustment shall be made and any such adjustments will be credited against the next periodic invoice. If the responding Party, in its sole discretion, denies the billing dispute, the disputing Party agrees to pay the disputed amount with the next scheduled remittance. . . . If a request for a billing adjustment or credit is not made in writing within this seven (7) day period, the charges are deemed valid and each Party waives its rights to any credits, offsets, or adjustments with regard to them."

Section 9 of the RNCSA, entitled "Responsibilities of the Parties," provides:

"Each Party is solely responsible for collecting its charges to its customers for services it offers them utilizing the other Party's network and for preparing and mailing invoices to these customers. The Parties will indemnify each other from all costs, expenses, claims, or actions arising from allegedly fraudulent calls carried for each other through the Services. Each Party is responsible for payment of the total invoice amount from the other Party regardless of whether its customers pay for those calls or they are allegedly fraudulent calls. However, nothing contained in this Agreement prohibits either Party from immediately taking action to prevent fraudulent calls."

Section 26 of the RNCSA provides that the agreement is "in all respects governed by the laws of the State of New York, without regard to choice of laws." Section 27 designates New York City as the venue for the resolution of any disputes arising from the RNCSA, and further provides that "[a]ttorneys [sic] and paralegal fees, expert fees and costs shall be paid to the prevailing Party."

The complaint alleges that, by email messages sent on October 22 and December 4, 2015, Cronos notified XComIP that Cronos had been informed by two of its customers (in the first case, a Portugese retail service provider; in the second, a German retail service provider) of fraudulent calls that had gone from Cronos's network to XComIP's IPRNs, thereby automatically generating charges to Cronos's account with XComIP². Cronos alleges that, in response to each of these notifications, XComIP, through Adams, promptly gave Cronos oral assurances that Cronos "would not need to compensate XComIP for these fraudulent calls." Cronos further alleges that, in reliance on these assurances, it continued to allow XComIP to transmit its customers' calls over Cronos's network, which resulted in XComIP continuing to incur charges owed to Cronos. However, on December 7, 2015, an employee of XComIP notified Cronos that XComIP would not reverse the charges for the fraudulent calls. Thereafter, until December 17, Cronos continued to demand that the charges for the fraudulent calls be annulled, while continuing to allow XComIP access to its network in response to continued alleged promises from Adams that XComIP would " handle' or deal with' the problem." Finally, on December 17, Cronos terminated XComIP's access to Cronos's services. Through that date, XComIP used the charges for the allegedly fraudulent calls, totaling $54,926.84, to offset the same amount of charges that XComIP owed to Cronos for the use of Cronos's network.

In January 2016, Cronos commenced this action against XComIP and Adams, asserting the following eight causes of action: (1) breach of contract; (2) declaratory judgment; (3) account stated; (4) fraud; (5) quantum meruit; (6) conversion; (7) tortious interference with advantageous business relations; and (8) unjust enrichment. The fraud and tortious interference claims are asserted against both XComIP and Adams; the remaining claims are asserted against XComIP only. In lieu of answering, XComIP and Adams moved to dismiss the complaint pursuant to CPLR 3211(a)(1) and (7), CPLR 3016(b) and CPLR 3013. Supreme Court denied the motion in its entirety. XComIP and Adams have appealed.

We turn first to the cause of action for breach of contract. In support of its contract claim, Cronos alleges, in sum, that, in refusing to annul the charges for the fraudulent calls, XComIP breached its obligation to "indemnify" Cronos against the costs of fraudulent calls under the above-quoted section 9 of the RNCSA. The loss alleged to have resulted from this breach of contract is XComIP's nonpayment of $54,926.84 of charges for use of Cronos's network, against which XComIP offset the charges for the fraudulent calls. In addition, the complaint alleges that XComIP refused to pay an outstanding invoice from Cronos for $34,158.40, an amount "above and beyond the $54,926.84 owed under the indemnity provision for the fraudulent calls." The breach of contract claim seeks to recover damages in the total principal amount of $89,085.24 (the sum of $54,926.84 and $34,158.40), plus the late fee under section 4 of the RNCSA, legal fees recoverable under section 27 of the RNCSA, and interest.

In support of its contention that Cronos's contract claim should be dismissed as legally insufficient, XComIP argues that the indemnification provision of section 9 of the RNCSA, on which Cronos relies, entitles each party to be indemnified by the other only against "claims made by third-parties [sic] arising from allegedly fraudulent calls" (as stated in XComIP's appellate brief). Cronos, on the other hand, construes section 9 to relieve each party of the obligation to pay for fraudulent calls transmitted over the other party's network. Supreme Court correctly discerned an ambiguity in section 9, in that Cronos's construction finds support in the second sentence of the section, while XComIP's construction finds support in the third sentence. Because section 9 of the RNCSA, on its face, is reasonably susceptible of more than one interpretation, the provision cannot be construed as a matter of law, the documentary evidence on which XComIP relies does not conclusively dispose of Cronos's claim, and dismissal under CPLR 3211(a)(1) and (7) is not appropriate (see New York Univ. v Pfizer Inc., 151 AD3d 42, 44 [1st Dept 2017]; U.S. Bank N.A. v Lightstone Holdings LLC, 103 AD3d 458, 459 [1st Dept 2013]; Telerep, LLC v U.S. Intl. Media, LLC, 74...