U.S. D.I.D. Corp. v. Windstream Commc'ns, Inc.

• Decision Date: 07 January 2013
• Docket Number: No. 12 Civ. 4023(JMF).,12 Civ. 4023(JMF).
• Citation: 916 F.Supp.2d 501
• Parties: U.S. D.I.D. CORP., Plaintiff, v. WINDSTREAM COMMUNICATIONS, INC., Defendant.
• Court: U.S. District Court — Southern District of New York

916 F.Supp.2d 501

U.S. D.I.D. CORP., Plaintiff,

v.WINDSTREAM COMMUNICATIONS, INC., Defendant.

No. 12 Civ. 4023(JMF).

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

Jan. 7, 2013.

Sanford Philip Rosen, Nancy Lynn Kourland, Sanford P. Rosen & Associates, P.C., New York, NY, Katherine Plominski–Gloede, U.S. D.I.D. Corp., Chicago, IL, for Plaintiff.

Adam P. Mastroleo, Brian J. Butler, Bond, Schoeneck & King, PLLC, Syracuse, NY, for Defendant.

OPINION AND ORDER

JESSE M. FURMAN, District Judge.

On May 21, 2012, the day this case was filed, Plaintiff U.S. D.I.D. Corporation (“U.S. D.I.D.”) obtained an ex parte temporary restraining order (“TRO”) barring Defendant Windstream Communications, Inc. (“Windstream”) from terminating its telecommunications services. Pursuant to Rule 65(c) of the Federal Rules of Civil Procedure, U.S. D.I.D. was required to post security in the amount of $314,672.80. Approximately one month later, just one day after the Court denied U.S. D.I.D.'s motion for a preliminary injunction and vacated the TRO, U.S. D.I.D. voluntarily dismissed its Complaint without prejudice pursuant to Rule 41(a) of the Federal Rules of Civil Procedure. The question presented now is whether Windstream is entitled to a portion of the injunction bond to compensate for damages it sustained as a result of the TRO—specifically, to pay for the services it continued to provide U.S. D.I.D.

The Court first addressed that question in an Opinion filed on July 13, 2012, 2012 WL 2878136 (the “July 13, 2012 Opinion”), in which it ruled that the denial of the preliminary injunction and vacatur of the TRO sufficed to show that Windstream had been “wrongfully enjoined” within the meaning of Rule 65(c) and that it was therefore entitled to recover on the bond. (Docket No. 37). Upon reconsideration, the Court concludes that that ruling was in error because an enjoined party may recover on an injunction bond only where there has been a final adjudication on the merits. Nevertheless, on the facts of this case, the Court holds that U.S. D.I.D.'s voluntary dismissal of the Complaint constitutes a final adjudication on the merits for purposes of Rule 65(c). Accordingly, the Court reaches the same conclusion that it reached in the July 13, 2012 Opinion—namely, that Windstream was “wrongfully enjoined” within the meaning of Rule 65(c) and therefore may recover a portion of the injunction bond—albeit for different reasons. To the extent the July 13, 2012 Opinion is inconsistent with this Opinion, it is hereby vacated.

BACKGROUND

On May 21, 2012, U.S. D.I.D., a reseller of interstate telecommunications services, filed this action against Windstream, a common and local exchange carrier, alleging claims for breach of contract and violations of the Communications Act, 47 U.S.C. §§ 151 et seq., based on Windstream's efforts to: (1) restrict and otherwise discriminate against the transmission of U.S. D.I.D.'s telecommunications traffic; (2) restrict U.S. D.I.D.'s ability to resell the services it purchased from Windstream; (3) increase the rates Windstream charged U.S. D.I.D. above those listed in the contract; and (4) ultimately terminate U.S. D.I.D.'s services upon insufficient notice. (Compl. ¶¶ 78–115). On the same date, U.S. D.I.D. moved for a TRO and an Order to Show Cause why a preliminary injunction should not be granted to prevent Windstream from terminating its telecommunications services effective that night at 11:59 p.m. (Docket No. 21). Windstream threatened to terminate U.S. D.I.D.'s services on the ground that U.S. D.I.D. was reselling those services in violation of an express provision prohibiting resale in the retail customer contract between the parties. Plaintiff contended that the prohibition on resale was and is unenforceable as a violation of the Communications Act or, in the alternative, on grounds of estoppel or waiver.

That same evening, the Court issued a TRO requiring Windstream to continue providing U.S. D.I.D. with telecommunications services, and subsequently scheduled a preliminary injunction hearing for June 4, 2012. (Docket Nos. 4, 51). Pursuant to Rule 65(c), the Court also required Plaintiff to post security in the amount of $314,672.80, amounting to twice the charges on the most recent monthly invoice it had received from Windstream. (Docket No. 4). On June 4, 2012, the Court began, but did not finish, the preliminary injunction hearing. At the end of that day's proceedings, the Court orally modified the TRO to permit Windstream to charge U.S. D.I.D. at the standard rates for reseller, rather than retail, customers, effective June 1, 2012 (as Windstream had previously demanded if U.S. D.I.D. had wanted to avoid termination). In addition, the Court scheduled the hearing to conclude on June 21, 2012. (Docket No. 27). These rulings were memorialized in an order the following day. (Docket No. 25).

U.S. D.I.D. failed to appear at the appointed time for the continuation of the hearing, delaying the proceedings for several hours. At the conclusion of the hearing on June 21, 2012, the Court issued an oral ruling on the record denying U.S. D.I.D.'s motion for a preliminary injunction and vacating the TRO. (June 21, 2012 Tr.; see also Docket No. 31). The Court held that any harm Plaintiff faced was a result of its own failure to obtain a new service provider, and found that it was likely that the reselling prohibition in the parties' contract did not violate the Communications Act, that the reselling prohibition was a material term of the contract, that Windstream had not waived enforcement of that provision, and that Plaintiff by its own admission had breached that term. On the basis of these findings, the Court ruled that Plaintiff had failed to demonstrate either a likelihood of success on the merits or the existence of sufficiently serious questions going to the merits to make them a fair ground for litigation. (June 21, 2012 Tr. 16). The Court then asked defense counsel whether there would be any objection to return of the security posted by U.S. D.I.D. while the case continued. ( Id. at 17). Counsel responded: “No objection, your Honor, considering you are dissolving the TRO.” ( Id.). Accordingly, the Court directed Plaintiff's counsel to file a proposed order for the return of the security. ( Id.). At defense counsel's request, the Court also extended Windstream's deadline to file its Answer from that day, June 21, 2012, to the close of business the next day, because U.S. D.I.D.'s failure to appear for the hearing at the appointed hour had caused defense counsel to miss their scheduled flight home thereby precluding them from filing their Answer. ( Id. at 18).

The next day, U.S. D.I.D. submitted a proposed order for the return of the posted security. In addition, Plaintiff filed a notice of voluntary dismissal pursuant to Rule 41(a)(1)(A)(i), which it would have been unable to do but for the fact that Windstream had not yet filed its Answer. (Docket No. 34). Within an hour of Plaintiff's submission of the proposed order, however, Windstream objected, requesting that a portion of the security be applied to pay an invoice it had issued to U.S. D.I.D. on June 21, 2012, covering the period from May 14, 2012, to June 14, 2012. (Docket No. 35). The Court directed Defendant to submit a proposed order consistent with that request and allowed Plaintiff to submit a letter in response. (Docket No. 35). Plaintiff did so on June 28, 2012. (Docket No. 36).

In the July 13, 2012 Opinion, the Court ruled that the Defendant was presumptively entitled to recover a portion of the posted security on the ground that it had been “wrongfully enjoined or restrained” within the meaning of Rule 65(c). (July 13, 2012 Opinion 6 (Docket No. 37)). That conclusion, the Court reasoned, followed from the Court's denial of U.S. D.I.D.'s motion for a preliminary injunction and its vacatur of the TRO. ( Id. at 6). “The issue of whether Windstream was wrongfully enjoined,” the Court stated, “was determined when the Court ruled that U.S. D.I.D. had failed to demonstrate either a likelihood of success on the merits or the existence of sufficiently serious questions going to the merits to make them a fair ground for litigation. In light of that conclusion, Windstream should never have been enjoined.” ( Id.). The Court thus held that Windstream was entitled to a presumption in favor of recovery, which could only be rebutted by a “good reason.” ( Id. at 4 (internal quotation marks omitted)). The Court determined that U.S. D.I.D. had failed to offer a good reason. ( Id.). More specifically, the Court rejected U.S. D.I.D.'s arguments that a finding of “wrongfulness” could not be made until there had been a final decision on the merits and, that in the event that the Court did award damages, such an award would amount to a decision on the merits absent due process. ( Id. at 4–5).

Although the Court found that Windstream was entitled to a portion of the bond, it also found that Windstream had improperly calculated its damages, and therefore directed Defendant to submit a revised calculation of those damages. ( Id. at 7). Following Defendant's submission of that information, U.S. D.I.D. requested an opportunity to respond, which the Court granted, specifying that the response was to be limited to issues raised by Windstream's revised calculation. (Docket No. 39). Notwithstanding that limitation, Plaintiff submitted a responsive letter that went well beyond Windstream's revised damages calculation. (Docket No. 40). First, U.S. D.I.D. effectively reiterated its argument that the Court could not properly award damages absent a final decision on the merits of the underlying case. ( Id. at 2–3). Second, it contended that the Court lacked subject-matter jurisdiction in light of the dismissal of the underlying suit and that Windstream was required to file an independent action pursuant to Title 28, United States Code, Section 1352. ( Id. at 3).¹ And...