Integrated Consulting Serv. V. Ldds Communications

• Decision Date: 30 January 1998
• Docket Number: No. Civ.A. AW-95-1707.,Civ.A. AW-95-1707.
• Citation: 996 F.Supp. 470
• Parties: INTEGRATED CONSULTING SERVICES, INC., Plaintiff, v. LDDS COMMUNICATIONS, INC., Defendant. LDDS COMMUNICATIONS, INC., Counterclaim Plaintiff, v. INTEGRATED CONSULTING SERVICES, INC., Counterclaim Defendant.
• Court: U.S. District Court — District of Maryland

Page 470

996 F.Supp. 470

INTEGRATED CONSULTING SERVICES, INC., Plaintiff, v. LDDS COMMUNICATIONS, INC., Defendant.

LDDS COMMUNICATIONS, INC., Counterclaim Plaintiff, v. INTEGRATED CONSULTING SERVICES, INC., Counterclaim Defendant.

No. Civ.A. AW-95-1707.

United States District Court, D. Maryland.

January 30, 1998.

COPYRIGHT MATERIAL OMITTED

Sheldon N. Jacobs, Andrew George Slutkin, Stephen L. Snyder, Baltimore, MD, for plaintiff Integrated Consulting Services, Inc.

William D. Nussbaum, David G. Leitch, Richard Henry Gordin, Washington, D.C., for defendant LDDS Communications, Inc.

MEMORANDUM DECISION

WILLIAMS, District Judge.

I

Presently before the Court is defendant's motion for summary judgment. In ruling on the motion, the Court has considered the briefs of the parties, the arguments of counsel at a hearing in open court, and the entire record. For the reasons that will follow, the Court will grant the motion.

II

Erwin Aguayo, Jr., ("Aguayo") and Robert Post ("Post") decided in late 1993 to form a business soliciting long-distance telephone customers through advertising on cable television. Their new business, Integrated Consulting Services ("ICS"), would persuade cable T.V. operators to air advertisements soliciting viewers to subscribe to the telephone service being offered. The cable companies would also insert mailers into their monthly bills encouraging customers to sign up for long distance service. The cable operators would be compensated by receiving a percentage of the revenue generated through long-distance subscriptions resulting from the campaign. ICS was to provide long-distance telephone service through LDDS Communications ("LDDS").

ICS did not deal directly with LDDS in securing the provision of long-distance service. ICS dealt with Net-Tel Management Group ("Net-Tel"). Net-Tel contracts with LDDS to provide long-distance subscribers in exchange for a percentage of revenues. By the terms of its agreement with LDDS, Net-Tel was to be paid a percentage of the long-distance revenues generated by any customer Net-Tel brought in. Net-Tel was specifically prohibited from entering into agreements on LDDS' behalf or obligating LDDS in any way. (See Def.'s Ex. I.) However, Michael Clifford ("Clifford"), Net-Tel's president, told Aguayo that Net-Tel had express authority from LDDS to develop programs for them. (Aguayo Dep., Pl.'s Ex. B, p. 59.)

On October 23, 1993, after a period of negotiations, ICS signed an agreement with Net-Tel. The agreement, entitled Master Independent Distributor Agreement ("MIDA") was a standard contract that Net-Tel entered into with all of its distributors. The agreement simply detailed ICS' role as an independent contractor to Net-Tel, and explained that Net-Tel's only obligation was to remit to ICS a percentage of revenue for all sales generated by ICS. LDDS was not mentioned in the agreement. (Def's Ex. J.) On October 28, 1993, ICS and Net-Tel entered into another contract — this time drafted by ICS. This contract, the Master Corporate Distributor ("MCD") agreement, provided that "Net-Tel is an agent of [LDDS]" and that "[LDDS] has authorized Net-Tel to enter into independent distributor agreements with third parties, for the marketing and sales of [LDDS'] telephone services." Most of the obligations under the agreement, including "marketing assistance in the form of pre-recorded television advertising spots, and creative work for printed advertising pieces," were to be provided by Net-Tel. (Def.'s Ex. K.) Though the contract stated that the billing for the long-distance service was to be done by LDDS, the agreement further provided that "Net-Tel will pay ICS" all earned commissions. (Def.'s Ex. K, MCD Agreement, Schedule 1.) The contract was signed by representatives of ICS and Net-Tel. LDDS was unaware of the agreement when it was executed.

Shortly after entering into the agreement, On November 16, 1993, Aguayo, along with Net-Tel representatives Clifford, Roger Depew and Mark Bronkowski, met with two executives from LDDS. The LDDS representatives were H. Trezvant Moore, Vice-President in Charge of Alternate Channel Marketing, and George Hampton, Manager of Marketing Programs. At the meeting, Aguayo explained the cable T.V. program to the LDDS executives. The LDDS executives explained that they had failed in a previous attempt to develop a cable T.V. marketing campaign. Aguayo attempted to persuade the executives that the ICS marketing program was different and would be successful. According to Aguayo, the LDDS representatives affirmed to him that Net-Tel was authorized to enter into the agreement with ICS. Mr. Aguayo further stated that Mr. Moore led him to believe that he had reviewed the "cable affiliate thing," and told Aguayo that "it was fine." (Aguayo Dep., Pl.'s Ex. B, p. 83.)

Less than a month after the meeting, ICS sent a marketing plan the Net-Tel, which was forwarded to LDDS. Mr. Moore reviewed the plan. The plan read, in part, "[LDDS], using its existing agency agreement with Net-Tel Telecommunications Management Group, has secured the services of Integrated Consulting Services, Inc., as a qualified organization to provide the cable marketing expertise needed to implement the elements of this plan." When asked if anyone at LDDS had disagreed with Aguayo's remarks, Moore could not recall.

ICS subsequently proceeded with its attempts to develop the plan. ICS contacted LDDS to attempt to secure marketing materials for the proposed solicitations. LDDS sent the marketing materials. ICS contacted LDDS 4-10 more times to keep them updated ICS' progress. After persuading cable operators to go along with the campaign, ICS ran into financial difficulties in producing the commercial. ICS attempted to convince Net-Tel to pay for the production expenses. When Net-Tel refused, ICS attempted to renegotiate the contract to receive a higher percentage of the commission revenue in exchange for bearing the production costs of the commercial. Shortly thereafter, Net-Tel notified ICS that it was terminating its contract because of ICS' continued direct contact with LDDS.

In mid-April of 1994, Aguayo wrote to Hampton, the LDDS officer, summarizing the events up to that point and explaining that ICS had relied on the representations of LDDS and Net-Tel, spending many months and thousands of dollars fulfilling its obligations under the agreement. In the letter Aguayo explained that "it appears that it would be better if our agreement is directly with [LDDS] as opposed to our existing agreement with Net-Tel." (Def's Ex. M, ¶ 1.) In reply, Hampton wrote Mr. Aguayo emphasizing that LDDS had no previous formal relationship with ICS. Shortly thereafter, plaintiff brought the instant suit against LDDS.¹ The suit claims breach of contract, breach of covenant of good faith and fraud.

ICS' agreement with Net-Tel gives ICS the right to review Net-Tel's contract with LDDS, but ICS never requested the opportunity to review the agreement. ICS concedes that had it reviewed the agreement between Net-Tel and LDDS, it would not have entered into the agreement.

III

A.

Summary judgment is appropriate where there is no genuine dispute of material fact and when the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). The evidence of the non-movant is to be believed and all justifiable inferences drawn in his favor, but a party cannot create a genuine dispute of material fact through mere speculation or compilation of inferences. Runnebaum v. NationsBank of Md., N.A., 123 F.3d 156, 164 (4th Cir.1997) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Beale v. Hardy, 769 F.2d 213, 214 (4th Cir.1985)).

B.

In its complaint, ICS advanced claims of breach of contract (Count I), breach of covenant of good faith (Count II), fraud in the inducement (Count III), and constructive fraud (Count IV). In its briefing and at oral argument, ICS has abandoned its fraud claims. Based on this, and the absence of any evidence in the record to support such claims, the Court will grant LDDS' motion for summary judgment with respect to Counts III and IV.

C.

LDDS contends that there are no disputes of material issues of fact and that it is entitled to judgment as a matter of law on the contract claims as well. The contract at issue here is the MCD agreement, executed by representatives of ICS and Net-Tel. ICS contends that LDDS is responsible for the obligations of Net-Tel under the contract because Net-Tel entered the contract as LDDS' agent.

Agency is "the fiduciary relation which results from the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control, and consent by the other so to act." Restatement (Second) of Agency, § 1(1) (1958). The existence of an actual agency relationship may be established by written agreement or inference. Patten v. Board of Liquor, 107 Md.App. 224, 238, 667 A.2d 940 (1995). In this case, there was no written agreement creating an agency relationship. Indeed, the agreement between LDDS and Net-Tel specifically provides that Net-Tel is cannot act on LDDS' behalf. ICS is thus left to argue that an agency relationship was created by inference. To establish a principal-agent relationship by inference, it must be shown that 1) the agent was subject to the principal's right of control; 2) the agent had a duty to primarily act for the benefit of the principal; and 3) the agent held the power to alter the legal relations of the principal. Schear v. Motel Management Corp., 61 Md. App. 670, 687, 487 A.2d 1240 (1985), quoting Restatement (Second) of Agency, §§ 12-14 (1958).

In support of its argument, ICS points to statements of a Net-Tel representative that Net-Tel was LDDS' "number one agent," as well as contractual language in ICS' agreement with Net-Tel...