Global Crossing Telecomms., Inc. v. CCT Commc'ns, Inc. (In re CCT Commc'ns, Inc.)

• Decision Date: 22 July 2011
• Docket Number: Bankruptcy No. 07–10210 (SMB).,Adversary No. 07–1942.
• Citation: 464 B.R. 97
• Parties: In re CCT COMMUNICATIONS, INC., Former Debtor.Global Crossing Telecommunications, Inc., Plaintiff, v. CCT Communications, Inc., Defendant.
• Court: U.S. Bankruptcy Court — Southern District of New York

464 B.R. 97

In re CCT COMMUNICATIONS, INC., Former Debtor.Global Crossing Telecommunications, Inc., Plaintiff,

v.CCT Communications, Inc., Defendant.

Bankruptcy No. 07–10210 (SMB).

Adversary No. 07–1942.

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

July 22, 2011.

Robert J. Rosenberg, Esq., James Brandt, Esq., John D. Castiglione, Esq., Elizabeth R. Marks, Esq. of Counsel, Latham & Watkins LLP, New York, NY, and George Royle V, Esq., of Counsel, Drummond Woodsum & MacMahon, Portland, ME, for Plaintiff Global Crossing Telecommunications, Inc.

James A. Karamanis, Esq., of Counsel, Zane D. Smith & Associates, Ltd., Chicago, IL, for CCT Communications, Inc.

MEMORANDUM DECISION AND ORDER GRANTING IN PART AND DENYING IN PART MOTION FOR PARTIAL SUMMARY JUDGMENT

STUART M. BERNSTEIN, Bankruptcy Judge.

This litigation arises out of series of agreements under which the plaintiff, Global Crossing Telecommunications, Inc. (“Global Crossing”), agreed to provide telecommunications services to the defendant, CCT Telecommunications, Inc. (“CCT”). CCT resold the services to third parties.

After Global Crossing stopped providing some of the services, it commenced this adversary proceeding primarily seeking declaratory relief, and CCT eventually counterclaimed, inter alia, for damages arising from Global Crossing's alleged breach of contract and its violations of the Federal Communications Act of 1934, as amended, 47 U.S.C. § 151 et seq. (the “Communications Act”).

Global Crossing has now moved for partial summary judgment. The motion presents two questions: is the limitation on liability in the parties' contract enforceable, and if it is, what is the scope of the limitation? On the first point, the Court concludes that the clause is enforceable with respect to all state law and Communications Act damage claims. On the second, the Court concludes that while the clause plainly bars consequential damages, its full reach cannot be determined as a matter of law.

BACKGROUND

Unless otherwise noted, the material facts concerning the motion are not in dispute. In addition, the Court has already conducted a trial of certain of the claims asserted by the parties, and in connection with that trial, made findings of fact and conclusions of law. See Global Crossing Telecomm., Inc. v. CCT Commc'ns, Inc. (In re CCT Commc'ns), Adv. Proc. No. 07–1942, 2008 WL 2705471 (Bankr.S.D.N.Y. July 2, 2008) (“ CCT Commc'ns ”). The background discussion, which is primarily based in those findings, is limited to that necessary to understand this decision.

A. The Parties' Contract

At all relevant times, Global Crossing was a common carrier engaged in the business of providing telecommunications services. CCT was also a common carrier engaged in the business of buying and reselling telecommunications services. The parties' business relationship began in 2005, and expanded in 2006 when they signed the “Retail Customer Agreement” or RCA.¹ Under the RCA, Global Crossing levied a “per minute” usage charge based on the origin or destination of a call. The services were limited to the 50 states, the RCA ran for three years, and obligated CCT to pay a monthly usage guarantee, or MUG, of $60,000. Importantly, the RCA contained a clause (§ 6.2) limiting the types of damages that either party could recover from the other:

Exclusion of Consequential Loss. In no circumstances shall either we or you be liable for indirect, consequential, reliance, or special loss or damages or for lost revenues, lost savings, lost business opportunity or lost profits of any kind.

In December 2006, and after substantial negotiations, the parties executed an amendment to the RCA (the “Amendment”). Global Crossing agreed to provide services to CCT under its “All You Can Eat,” or AYCE program, which is discussed at length in CCT Commc'ns, 2008 WL 2705471, at *2–3. Briefly, Global Crossing charged a flat monthly fee in lieu of “per minute” usage charges for certain landline and mobile calls terminating in specific geographic areas (the “Zero–Rated Destinations”), including Europe and the Caribbean. The Amendment included a 26–page schedule (Appendix 3) which set forth the rates—zero or some other rate—that Global Crossing would charge CCT for calls terminating at a particular destination. In other words, the flat monthly fee covered certain destinations while a per-minute usage charge applied to others.

In addition to the Amendment, the parties also prepared and signed a series of four order forms to implement the AYCE pricing. The first two entitled CCT to purchase 1,344 concurrent call sessions at a monthly recurring charge of $71 per session, or a total of $95,424 per month (plus taxes and fees). The second set of orders entitled CCT to purchase an additional 2,016 concurrent call sessions for a monthly recurring charge of $71 per session, or a total of $143,136 per month (plus taxes and fees). Each order ran for three years.

The Amendment did not affect § 6.2.

B. Global Crossing Blocks CCT's Service

Soon after the Amendment was executed, CCT began sending a volume of international calls over Global Crossing's network to zero-rated international mobile destinations, which resulted in Global Crossing incurring relatively high termination costs that it had to “eat” under the AYCE and could not pass on to CCT. Global Crossing became concerned that providing service to CCT under the AYCE plan was too costly, and looked for ways to shut down CCT's international traffic.

On or about January 10, 2007, Global Crossing sent Dean Vlahos, CCT's president, a proposed contract amendment. The amendment would have eliminated all mobile international calling areas and all calling areas in the Caribbean from the scope of the AYCE pricing plan without reducing the monthly recurring charges. Vlahos declined to sign it.

The next day, January 11th, Glenn Swartz, Global Crossing's Director of Credit and Collections, sent CCT a letter. ( Declaration of Dean S. Vlahos, dated Feb. 26, 2011 (“ Vlahos Decl.”), Ex. 17 (ECF Doc. # 228).) ² The letter stated that CCT's “calling pattern does not meet the standard profile,” and Global Crossing decided it had to change CCT's rate structure or terminate service. Because CCT refused to sign the proposed amendment (although CCT had supposedly agreed orally to discontinue and/or redirect all Caribbean international traffic and give further consideration to redirecting all international traffic), Global Crossing had “blocked international capabilities” and would continue doing so “until such time that CCT returned the executed Amendment.” The penultimate paragraph added that CCT had exceeded the credit limit granted by Global Crossing, and gave CCT notice that its services were subject to full termination at noon, EST, on January 25, 2007. The final paragraph concluded that Global Crossing was open to a mutual resolution to avoid the full termination of CCT's services and welcomed the opportunity to discuss the matter.

Vlahos responded by e-mail later that day. ( See Vlahos Decl., Ex. 18.) He disputed that CCT had exceeded its credit limit, emphasized that the Amendment provided for a fixed monthly fee, and asserted that nothing in the RCA allowed Global Crossing to terminate based on its net costs. Nevertheless, as a gesture of CCT's good faith, Vlahos stated that he might agree to voluntarily suspend international calling outside of the Caribbean while CCT attempted to resolve any issues with Global Crossing, provided that all parties acted in good faith. Otherwise, the disputes would be resolved through litigation.

Vlahos never signed the proposed amendment, the parties failed to reach an accord, and Global Crossing completed blocking CCT's international call termination capabilities, except for calls to Canada, on or about January 17, 2007. On or about January 26, 2007, Global Crossing sent a letter to Vlahos purporting to terminate the Agreement, this time asserting that CCT's resale of Enterprise VoIP Local Service “constitutes a material breach” of the parties' contract. Before Global Crossing could actually terminate all of the services, CCT commenced its chapter 11 case on January 28, 2007.

C. This Adversary Proceeding

Global Crossing eventually commenced this adversary proceeding seeking declaratory relief, and CCT counterclaimed, inter alia, for breach of contract and violations of the Bankruptcy Code and the Communications Act.³

The Communications Act claims sought damages under 47 U.S.C. § 206. ⁴ ( Answer, Affirmative Defenses, and Counterclaims of Defendant–Counterclaimant CCT Communications, Inc. to Second Amended Complaint,

dated Mar. 22, 2010 (“ Answer ”) (ECF Doc. # 161).) Count II alleged that Global Crossing's blocking, throttling and/or choking CCT's telephone call traffic were unjust and unreasonable practices under 47 U.S.C. § 201(b) ⁵ and, along with Global Crossing's failure to furnish service to CCT under CCT's orders for AYCE services and/or pricing, constituted the failure to furnish service upon reasonable request under 47 U.S.C. § 201(a).⁶ ( Answer ¶¶ 39–40.) Count III alleged that the prohibitions on resale, including the technical interconnection requirements imposed by Global Crossing on end-users, violated 47 U.S.C. §§ 201(a), 201(b), 202(a) ⁷ and 251(b)(1).⁸ ( Answer ¶¶ 49–50.)

These counts are not at issue on this motion, but a related claim, Count VII, is. In Count VII, CCT sought declaratory relief that § 6.2 of the RCA did not limit the damages it was seeking under the Communications Act and New York law. ( Answer ¶ 67.) CCT made two, alternative arguments. First, CCT alleged that § 6.2 was “invalid and unenforceable under the Communications Act because it is unjust and unreasonable and contains no exception for liability arising from violations of the Communications Act, and therefore conflicts with 47 U.S.C. § 206.” ( Answer ¶ 70.) Second, CCT argued that Global Crossing's breaches of contract and violations of the...