Penncro Associates, Inc. v. Sprint Spectrum, L.P.

• Decision Date: 24 August 2007
• Docket Number: No. 06-3365.,No. 06-3288.,No. 06-3296.,06-3288.,06-3296.,06-3365.
• Citation: 499 F.3d 1151
• Parties: PENNCRO ASSOCIATES, INC., Plaintiff-Appellee/Cross-Appellant, v. SPRINT SPECTRUM, L.P. d/b/a Sprint PCS, Defendant-Appellant/Cross-Appellee.
• Court: U.S. Court of Appeals — Tenth Circuit

499 F.3d 1151

PENNCRO ASSOCIATES, INC., Plaintiff-Appellee/Cross-Appellant, v. SPRINT SPECTRUM, L.P. d/b/a Sprint PCS, Defendant-Appellant/Cross-Appellee.

No. 06-3288.

No. 06-3296.

No. 06-3365.

United States Court of Appeals, Tenth Circuit.

August 24, 2007.

Russell S. Jones, Jr. (Richard M. Paul, III, with him on the briefs), Shughart Thomson & Kilroy, P.C., Kansas City, MO, for Defendant-Appellant/Cross-Appellee.

Richard P. McElroy, McElroy & Associates, LLP, Media, Pennsylvania (Sheila E. Branyan and Jason W. Norris, Blank Rome LLP, Philadelphia, PA, with him on the briefs), for Plaintiff-Appellee/Cross-Appellant.

Before KELLY, BALDOCK, and GORSUCH, Circuit Judges.

GORSUCH, Circuit Judge.

Sprint Spectrum, L.P., does not dispute that it breached its contract with its former bill collector, Penncro Associates, Inc. Still, it offers two reasons why, in its view, the district court's judgment for Penncro in excess of $17 million should be reversed. First, Sprint argues that the parties' agreement precludes the sort of damages Penncro seeks. In their contract, the parties agreed to forego "consequential damages," and Sprint urges us to find that the term, as defined by the parties's agreement, includes any and all "lost profits" — whether flowing directly or consequentially from Sprint's breach. Because all of Penncro's claimed damages are lost profits, Sprint argues the district court's judgment is fatally flawed. Secondly, and alternatively, Sprint contends that Penncro's damages should be calculated on the basis of the work it was ready and able to perform, rather than on the basis of a fixed monthly fee, as the district court found. For its part, Penncro cross-appeals, arguing that it is entitled to an additional $6.5 million in damages. Penncro submits that the district court erred when it found that the company was able, by taking on new work after Sprint's breach, to avoid losses in this amount.

We affirm the district court on all three questions presented to us. While parties to a contract may define their terms as they please — a duck may be a goose — we see no evidence that Sprint's and Penncro's definition of the term consequential damages was designed to embrace (and thus foreclose the award of) profits lost as a direct result of Sprint's breach. Likewise, the plain and unambiguous language of the parties' agreement obliged Penncro to provide Sprint with a fixed amount of available labor capacity, and required Sprint to pay for that capacity, whether utilized or not. Finally, we see no clear error in the district court's finding that Penncro managed to avoid a modicum of the losses that Sprint's breach imposed.

I

Originally, Sprint, a national telecommunications company, handled for itself the not-inconsiderable task of trying to collect from its cell phone customers behind on their monthly bills. Beginning in April 2002, however, it decided to "outsource," contracting first with Penncro and subsequently with two additional vendors to assume the job. Under the terms of the parties' agreements, customers with overdue Sprint accounts trying to make outgoing calls were automatically routed to centers run by one of the three vendors, based on which one had the shortest estimated wait time. Penncro's employees introduced themselves as Sprint's agents, informed callers that their accounts were past due, and attempted to collect monies owed to Sprint — a service known as first-party inbound collections work.¹

A

The nature of the parties' agreement was spelled out in four interrelated documents (1) a Master Services Agreement ("MSA"); (2) a Contract Order; (3) an attachment to the Contract Order ("Attachment A"); and (4) an Addendum to Attachment A.

The MSA contained certain generic terms and conditions Sprint employed with all vendors. It obligated neither party to perform and expressly indicated that the scope and specific terms of the services provided would be governed by contract orders. MSA § 2.2.

The Contract Order was just such a document, involving only Sprint and Penncro, and detailing the particular services, staffing levels, and compensation rates attending to the parties' relationship. Under the terms of the Contract Order, Penncro agreed, among other things, to "maintain staffing levels" sufficient to provide Sprint with "80,625 productive hours" per month. Contract Order § C. A productive hour was defined as time spent by a fully trained Penncro employee handling calls, waiting for calls, training, or waiting due to system downtime. Id. § B. This amounted, more or less, to an agreement to maintain approximately 500 full-time call center employees at Sprint's disposal.² In exchange, Sprint agreed "to pay for 80,625 productive hours per month" at a rate of $22 per hour (less for training hours, more for overtime hours). Id. §§ B, C.³

The parties' agreement anticipated a three-year commitment at these levels of service, but also anticipated that the number of "productive hours" could vary according to certain terms specified in Attachment A. In Attachment A, the parties set forth various performance metrics on which Penncro and other vendors were evaluated. Poor performance for three consecutive months could result in a reduction of "the number of productive hours requested by ... 20%." Attachment A at 3. Six months of consecutive poor performance entitled Sprint to terminate the contract for cause. Id.; Contract Order § D; MSA § 5.3.

Sprint emailed the Addendum to Attachment A to Penncro in September 2002, several months into the parties' relationship. A cover email outlined a number of changes to the parties' incentive program effected by the Addendum, and the document was included as an email attachment. One change not outlined in the cover email, but made in the Addendum, was the removal of the word "guaranteed" before the reference to the number of productive hours outlined in Section C of the Contract Order — that is, the number of call center hours that Penncro promised to supply and for which Sprint promised to pay.⁴

B

The presence or removal of the word "guaranteed" does not seem to have had much bearing on the parties' performance, which was fraught with difficulty. Penncro endured considerable staffing problems and was for many months unable to retain sufficient employees to provide the number of productive hours required by the parties' contract. The hours Penncro did provide, moreover, were of sufficiently poor quality to rank Penncro last among Sprint's three vendors in several performance-categories for a number of months. Sprint, meanwhile, did not experience the call volume it had anticipated and so never called on Penncro to provide the contracted-for number of productive hours. From the beginning, Sprint and Penncro discussed the actual number of hours that Sprint needed and Penncro could provide, agreeing, for the time being, to have Penncro bill and Sprint pay only for the hours that Penncro actually supplied. At no time did the total hours (supplied, billed, or paid for) reach the 80,625 hours for which the parties had contracted. According to Penncro's CEO, this arrangement was acceptable — neither party complained or took action under the contract — because both parties had difficulties performing, the contract was in its early stages, and the parties fully expected to meet their obligations over the contract's three-year term. In September 2002, Sprint emailed Penncro to announce a unilateral reduction in the number of FTEs (and therefore productive hours) due to "lower than expected call volume." Penncro voiced no objection.

As call volumes and the hours necessary to handle them waned, Sprint gave notice of its intent to terminate Penncro's first-party inbound collections contract by letter dated January 17, 2003. The parties then entered a four-month ramp-down period during which the number of FTEs requested of Penncro was incrementally reduced. The reason Sprint gave for its action was that Penncro was in third place or below in six agreed performance measures for the six months from July 2002 through December 2002 — an event entitling Sprint to terminate the parties' relationship for cause under Section D of the Contract Order.

As the parties were ramping down, and in spite of their prior performance problems, Sprint and Penncro entered into a new contract order for a different but related service — third-party outbound collections work (see supra note 1). Sprint asserted that it would not have given this new work to Penncro if Penncro was still performing under the parties' initial, first-party inbound contract, as Sprint did not think Penncro capable of handling both tasks. Penncro also entered into two other contracts for third-party outbound collections work during the same time-period, one with AT & T and another with a utility company, American Water.

C

In November 2004, Penncro sued Sprint for breach of the parties' first-party inbound collections contract in federal district court, invoking the court's diversity jurisdiction. Penncro claimed that Sprint was liable for breach of contract as a matter of law because Sprint's stated reason for termination was erroneous: Penncro was not in last place for the full six consecutive months necessary to justify termination under the parties' contract. The district court agreed and entered summary judgment for Penncro on the question of liability.

For its part, Sprint itself chose to pitch its battle primarily on the field of damages and a three-day trial on damages followed, after which the district court issued a detailed 45-page ruling. During trial, Sprint pointed to Section 13 of the MSA, which rules out the award of consequential damages and proceeds to define the term as "includ[ing], but ... not limited to, lost profits, lost revenues and lost business opportunities." This language, Sprint submitted, prohibited either party from obtaining recovery of any and all lost profits. The...