IDT Corp. v. Tyco Grp., S.A.R.L.

• Decision Date: 27 December 2012
• Citation: 957 N.Y.S.2d 309
• Parties: IDT CORP., et al., Plaintiffs–Appellants, v. TYCO GROUP, S.A.R.L., et al., Defendants–Respondents.
• Court: New York Supreme Court — Appellate Division

957 N.Y.S.2d 309

IDT CORP., et al., Plaintiffs–Appellants,

v.TYCO GROUP, S.A.R.L., et al., Defendants–Respondents.

Supreme Court, Appellate Division, First Department, New York.

Dec. 27, 2012.

Robins, Kaplan, Miller & Ciresi L.L.P., New York (Hillel I. Parness, Richard A. Mescon and Oren D. Langer of counsel), for appellants.

Dewey Pegno & Kramarsky LLP, New York (Thomas E.L. Dewey of counsel), for respondents.

PETER TOM, J.P., DAVID FRIEDMAN, JAMES M. CATTERSON, ROLANDO T. ACOSTA, HELEN E. FREEDMAN, JJ.

CATTERSON, J.

The parties in this breach of contract action have been engaged in a highly contentious business relationship since they agreed to form a joint venture to build a multi-billion dollar undersea fiber optic telecommunications network almost 15 years ago. Between periods of litigation, the parties have spent the last 12 years unhappily and unsuccessfully negotiating the details of the plaintiffs' usage of such a network. We now find that the prior decisions of this Court and the Court of Appeals in favor of the defendants did not extinguish the defendants' obligation to continue negotiations with the plaintiffs in good faith.

The record reflects the following: In November 1999, IDT Corp. and IDT Europe, B.V.B.A.'s (collectively "plaintiffs") and Tyco Group, S.A.R.L., Tycom (U.S.), Inc., Tyco International, Ltd., Tyco International (U.S.) Inc., and Tycom Ltd. (collectively "defendants") agreed to form a joint venture to construct a global fiber optic telecommunications network spanning more than 70,000 undersea kilometers and connecting more than 25 cities in Europe, North America, and Asia. The efforts to form the joint venture failed, and the parties spent the next year bringing various federal and state actions against one another. In October 2000, the parties entered into a settlement agreement in which the plaintiffs agreed to release the defendants from all of their pending claims in exchange for the right to use a different undersea fiber optic network for 15 years.

The defendants agreed to provide the plaintiffs, for their exclusive use, an "indefeasible right to use" (hereinafter referred to as an "IRU") two wavelengths, free of charge, for 15 years, beginning in 2002 for one wavelength and 2003 for the second. The defendants also agreed to provide operations, administration and management (hereinafter referred to as "OAM") for the wavelengths used by the plaintiffs for the same periods.

The settlement agreement further stated that the plaintiffs' IRU "shall be documented pursuant to definitive agreements to be mutually agreed upon and, in any event, contain [ ] terms and conditions consistent with those described" in the settlement agreement (emphasis added). The future agreements were to include terms governing, among other things, resale of capacity; provisioning, installation and commissioning of wavelengths; portability of capacity; and collocation services. Those agreements, including the IRU, were to be in writing and consistent with the defendants' standard agreements (which did not yet exist) with similarly situated customers or market rates, subject to any future negotiations between the parties.

After several years of unsuccessful negotiations, on May 4, 2004, the plaintiffs commenced a breach of contract action in Supreme Court. The plaintiffs alleged that the settlement agreement was a valid contract that obligated the defendants to provide IRU and OAM, and that the defendants had failed to supply the IRU and OAM in accordance with the terms of the agreement. The plaintiffs moved for partial summary judgment on the issue of liability, and the defendants cross-moved for summary judgment dismissing the complaint.

The motion court granted the plaintiffs' motion for partial summary judgment on the issue of liability and denied that portion of the defendants' cross motion seeking dismissal of the complaint. The defendants appealed, and this Court reversed. IDT Corp. v. Tyco Group, S.A.R.L., 54 A.D.3d 273, 863 N.Y.S.2d 30 (1st Dept.2008). We reasoned that the settlement agreement was a preliminary agreement that although "incomplete" nonetheless bound the parties to "their ultimate contractual objective upon the subsequent occurrence of a contingency"—namely, "either the insistence of one party on the terms of the standard agreements after they come into existence or a resolution of the remaining terms through further negotiation" (54 A.D.3d at 275, 863 N.Y.S.2d at 33 (internal quotation marks omitted)). We further found that under this agreement the parties were obligated to negotiate the open issues in good faith "unless and until one party were to insist on the terms of the standard agreements." Id. We concluded that the plaintiffs had erroneously asserted a breach of the agreement on the ground that the defendants' proposals for an IRU were inconsistent with those contemplated by the settlement agreement. Instead, we held that because the defendants' proposals were " hardly the sort of definite and final communication of an intent to forgo their obligations that is necessary to justify a claim of anticipatory breach," the defendants did not, as a matter of law, breach the settlement agreement. 54 A.D.3d at 275, 863 N.Y.S.2d at 33 (internal quotation marks omitted).

The plaintiffs appealed and on October 22, 2009, the Court of Appeals affirmed. IDT Corp. v. Tyco Group, S.A.R.L., 13 N.Y.3d 209, 890 N.Y.S.2d 401, 918 N.E.2d 913 (2009). The Court held that the record did not support a finding that the defendants breached any of their obligations but that "under the settlement agreement, the parties were required to negotiate the terms of the IRU and other agreements in good faith." 13 N.Y.3d at 214, 890 N.Y.S.2d at 405, 918 N.E.2d 913. The Court found that the settlement agreement was valid, but that it "contemplated the negotiation and execution of four additional agreements, most importantly the IRU." 13 N.Y.3d at 214, 890 N.Y.S.2d at 404, 918 N.E.2d 913. The Court reasoned that although there was a valid contract, the defendants "obligation to furnish capacity never became enforceable because agreed-upon conditions were not met." Thus, the Court concluded that the defendants did not "breach[ ] the settlement agreement by merely proposing an IRU which allegedly contained [three] terms inconsistent with settlement." 13 N.Y.3d at 214, 890 N.Y.S.2d at 404, 405, 918 N.E.2d 913.

Subsequently, the parties resumed negotiations, but on November 15, 2010, the plaintiffs commenced this action in Supreme Court alleging that the defendants had breached the settlement agreement and their duty to negotiate in good faith. The defendants moved to dismiss the complaint pursuant to CPLR 3211(a)(7) (failure to state a cause of action), CPLR 3211(a)(1) (documentary evidence), and 3211(a)(5)(collateral estoppel/res judicata). The defendants argued that their obligations under the settlement agreement were extinguished by the Court of Appeals decision. The motion court agreed and granted the defendants' motion.

On appeal, the plaintiffs contend that the motion court erred, and should not have dismissed their complaint. For the reasons set forth below, we agree.

The motion court misconstrued the Court of Appeals decision in favor of the defendants. Specifically, the motion court, focused on the conclusion that, "[a]lthough there was a valid settlement agreement in this case, [the defendants'] obligation to furnish capacity never became enforceable because agreed-upon conditions were not met."

IDT Corp., 13 N.Y.3d at 214, 890 N.Y.S.2d at 404, 918 N.E.2d 913 (emphasis added). It interpreted the highlighted phrase to mean that the defendants had "no further obligations under the [s]ettlement [a]greement." This was error.

The Court was simply observing that the allegations specified in the plaintiffs' first complaint did not articulate a breach at the time the action was commenced given the non-occurrence of a condition precedent: namely, the parties had not yet entered into final agreements, and the defendants had not otherwise breached their duty to negotiate.

More significantly, the cases relied upon by the motion court in which the failure to satisfy a condition precedent results in the discharge of further obligations under an agreement, are distinguishable in that they involve incidents where performance of a condition precedent was required by a date certain. See MHR Capital Partners LP v. Presstek, Inc., 12 N.Y.3d 640, 884 N.Y.S.2d 211, 912 N.E.2d 43 (2009) (plaintiff's failure to obtain a consent by close of business on June 22, 2004 relieved defendant of its obligation to perform under a stock purchase agreement); Teachers Ins. & Annuity Assoc. of Am. v. Tribune Co., 670 F.Supp. 491 (S.D.N.Y.1987) (because plaintiff failed to sell a building by the end of the calendar year 1982, defendant borrower was excused from its loan commitment). Obviously, in those cases, the defendants had no further duty to perform under the contract because, having passed the date certain, the condition precedent could never be satisfied.

On appeal, the defendants additionally argue that "a contractual obligation must be performed within a reasonable time" and that, in this case, such time has passed. They further suggest that the plaintiffs are responsible for this protracted litigation, and through the defendants' disingenuous use of block quoting,¹ imply that the Court of Appeals agreed and found that " enough was enough." There simply is no support for this proposition. The defendants' obligations in this case did not have an expiration date, nor, as the defendants urge, did one arise through the mere passage of time.

Moreover, this Court's decision, which the Court of Appeals affirmed, clarifies that the parties were obligated to continue to negotiate until either side insisted that the open terms be as set forth in the defendants' standard agreements. 54 A.D.3d at 275, 863 N.Y.S.2d at 33. Since there was no evidence that...