Telecom Intern. America, Ltd. v. At & T Corp.
| Decision Date | 13 August 1999 |
| Docket Number | No. 96 Civ. 1366(AKH).,96 Civ. 1366(AKH). |
| Citation | 67 F.Supp.2d 189 |
| Parties | TELECOM INTERNATIONAL AMERICA, LTD., Plaintiff, v. AT & T CORP., Defendant. AT & T Corp., Counterclaim-Plaintiff, v. Telecom International America, Ltd. and Telecom International Co., Ltd., Counterclaim-Defendants. AT & T Credit Corporation, Third-Party Plaintiff, v. Telecom International America, Ltd., Third-Party Defendant. Telecom International America, Ltd., Fourth-Party Plaintiff, v. AT & T Corp., Fourth-Party Defendant. |
| Court | U.S. District Court — Southern District of New York |
Aurora Cassirer, Jaime L. Weiss, Parker Chapin Flattau & Klimpl, New York, New York, for Plaintiff and Counterclaim-Defendant, Third-Party Defendant, Fourth-Party Plaintiff Telecom International America, Ltd., and Counterclaim-Defendant Telecom International Co., Ltd.
Alan M. Unger, Elizabeth M. Sacksteder, Sidley & Austin, New York, New York; Sharon O. Gans, AT & T Corp., Liberty Corner, New Jersey for Defendant and
Counterclaim-Plaintiff, Fourth-Party Defendant AT & T Corp.
Robert Leonard, Jeffrey S. Lipkin, Shanley & Fisher, P.C., Morristown, New Jersey, for Third-Party Plaintiff AT & T Credit Corporation.
Plaintiff, Telecom International America, Ltd. ("TIA"), a reseller of long-distance "800" service, and defendant AT & T Corp. ("AT & T"), a telephone company which provides both telecommunications services and equipment, are parties to three contracts. Two of the agreements cover purchases and sales of telephone equipment manufactured and designed by AT & T, and the other covers the utilization by TIA of certain of AT & T's long-distance telephone services. TIA claims in this lawsuit that the contracts are parts of an "overarching" agreement to provide "end-to-end" service that AT & T breached, and that AT & T is liable to TIA for damages flowing from this breach and for various unfair and otherwise illegal practices. AT & T denies liability, denies the existence of any such "overarching" agreement and counterclaims for sums due under its contract tariff filed with the Federal Communications Commission (the "FCC"). The damages respectively claimed are substantial: TIA seeks an aggregate total of at least $187 million, while AT & T seeks approximately $59 million.
After eighteen months of extensive discovery, AT & T moved for summary judgment dismissing the bulk of TIA's claims, and for partial summary judgment with respect to its four counterclaims. I grant AT & T's motion in part, and deny it in part.
In early 1994, TIA's parent, Telecom International, Ltd. ("Telecom International"), undertook to provide a high quality, reliable long-distance telephone service to Japanese subscribers at lower rates than those available from other Japanese providers. The parent, Telecom International, was a reseller of telephone services and a dealer in telecommunications equipment to the Japanese market. Telecom International opened discussions with equipment manufacturers toward purchasing available and specially designed equipment to provide a "call-turnaround" application, to be marketed under the name "Diamond Net," capable of linking two telephone calls: a long-distance call over a toll-free line from Japan to a switching station in New York (the "inbound call"), with a linked call from New York to the number anywhere in the world dialed by the Japanese subscriber (the "outbound call"). (Affidavit of Eamon Joyce, dated Nov. 19, 1998 ("Joyce Aff."), at ¶ 4 n. 1; AT & T's Statement Pursuant to Local Civil Rule 56.1 ("AT & T 56.1"), at ¶¶ 5-8). Telecom International provided AT & T with projections estimating that Diamond Net would capture 15% of the Japanese long-distance market, sell over two million minutes per month of long-distance services and contract with over 2,000 customers during the first year of operations. (TIA's Statement Pursuant to Local Civil Rule 56.1 ("TIA 56.1"), at ¶¶ 8, 21).
AT & T negotiated to provide both the telecommunications services and the equipment that were needed for Diamond Net, representing that its equipment, combined with its international long-distance network services, could provide the efficiency of "end-to-end" service, linking and completing the envisioned calls in "less than a nanosecond." (TIA 56.1, at ¶ 12). AT & T promised better service and benefits than competitors like Northern Telecom, even though the equipment available from such other companies was also compatible with AT & T telecommunications services, and there was no technological reason forcing TIA to purchase both equipment and long-distance services from one company. (Affidavit of Jacques Richard, dated May 8, 1997 ("Richard May 8 Aff."), at ¶ 6). Thus, AT & T represented in its effort to obtain TIA's business:
When Telecom International selects Megacom 800 International and Megacom Wats Services [the AT & T services to be utilized for the inbound call to New York, and the switched outbound call], you are selecting a solution that is "all AT & T" from design through delivery. AT & T Bell Laboratories designed these services and engineered its software. AT & T Network Systems, which won the 1992 Malcolm Baldridge Quality Award, manufactures the network's components. The AT & T Business Network Sales Division installs and maintains Megacom 800 International and Megacom Wats to AT & T's rigorous standards.
(TIA 56.1, at ¶¶ 12-17). Furthermore, AT & T represented that its equipment had been utilized previously in conjunction with its network services in similar configurations as contemplated by TIA. (Id. at ¶ 3).
AT & T recommended the network services and the use of customized equipment to be purchased: AT & T's Megacom 800 service for the incoming call from Japan to the U.S.; AT & T's Megacom service for the outbound call; a customized G3r switch to bridge the calls; a Conversant Series 4.0 automated voice response system to couple the inbound to the outbound call; and a T-45 cable to connect the Megacom 800 and Megacom services to the switching equipment. (TIA 56.1, at ¶ 24). AT & T's materials stated that the configuration could support call volumes of up to 1775 calls per busy hour with an average duration of 3.5 minutes. (TIA 56.1, at ¶ 7). AT & T recommended that Tapestry Computing Co. ("Tapestry"), a company comprised mostly of former AT & T employees, design and write the software necessary to implement the application. (Id. at ¶ 25). At the time of contracting, AT & T did not provide a single long-distance tariffed service, which could carry both the inbound and outbound calls without requiring a switch to connect the calls. (Richard May 8 Aff., at ¶ 7). A separate service and corresponding tariff would have had to have been developed and filed.
On May 3, 1994, AT & T and TIA (which by then had been incorporated by Telecom International) entered into a written equipment purchase and service agreement (the "Equipment Agreement") providing for the sale by AT & T to TIA of approximately 150 items of equipment for an aggregate price of $527,916.17.1 The Equipment Agreement, a form contract used by AT & T for many years, provided the terms and conditions of the contractual relationship between AT & T and TIA with regard to these items of equipment. (Kelly Aff., at ¶ 10). The Equipment Agreement, however, did not incorporate the representations made by AT & T during the period of negotiations and in their proposals; indeed, it largely excluded them. In capital letters, the Equipment Agreement excluded any warranty of merchantability or fitness; Section 8 provided:
A. Except as stated in Sections 6 and 7, AT & T, its subsidiaries and their affiliates, subcontractors and suppliers make no warranties, express or implied, and specifically disclaim any warranty of merchantability or fitness for a particular purpose.
(Equipment Agreement, at § 8(A)).2 Moreover, AT & T disclaimed any warranty of error-free operation, or that the equipment would meet TIA's specific requirements. Section 8 thus continued:
D. AT & T does not warrant uninterrupted or error free product operation or that the software functions will meet your requirements. Although AT & T has used reasonable efforts to minimize defects or errors in the software except as stated in Sections 6 and 7, you assume the risk of any damage or loss from the use of or inability to use the software.
(Id. at § 8(D)). The single warranty provided by the Equipment Agreement was that the equipment sold by AT & T would perform in accordance with AT & T's standard specifications. Thus, in Section 6, AT & T warranted that:
... on the Delivery or In-Service Date, whichever is applicable, and during the warranty period, the equipment and associated operating system software (basic software acquired with the equipment that enables it to function) will operate in accordance with AT & T's standard specifications.
(Id. at § 6). The warranty period was to last one year and AT & T agreed to provide maintenance service at no additional cost for the warranty period; TIA could receive post-warranty period maintenance at additional cost. (Id. at §§ 6, 9).
The Equipment Agreement also limited the remedies available to TIA as well as the extent of liability to which AT & T could be held. In particular, the terms of the Equipment Agreement asserted that:
... AT & T shall not be liable for incidental, indirect, special or consequential damages, or for lost profits, savings or revenues of any kind, including but not limited to charges for common carrier telecommunication services or facilities accessed through or connected to products, whether or not AT & T has been advised of the possibility of such damages.
(Id. at § 17(C)). This clause, like the others detailed above, was also in all capital letters.
In addition, the Equipment Agreement contained an integration clause, which in capital...
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