Opinion
Civ. No. 02-1010 (JNE/JGL)
January 20, 2004
Paul R. Franke, III, Esq., and William H. Eikenberry, Esq., Murray, Franke, Greenhouse, List Lippitt, LLP, and Ethan C. Glass, Esq., Robins, Kaplan, Miller Ciresi L.L.P., appeared on brief for Plaintiff ATT Corp
ORDER
ATT Corp. (ATT) brought this action against Firmware of Minnesota, Inc., d/b/a Spacestar Communications (Spacestar) alleging breach of contract. In response, Spacestar brought six counterclaims against ATT. The matter is before the Court on ATT's unopposed motion for summary judgment on its claim and on Spacestar's counterclaims. For the reasons set forth below, the Court grants the motion in part and denies the motion in part.
I. BACKGROUND
Spacestar is an Internet services provider that uses a high-capacity T3 telecommunications circuit (T3 circuit). In March 1999, Spacestar and ATT entered into a contract (Master Agreement) in which ATT agreed to provide a T3 circuit to Spacestar. Pursuant to the Master Agreement, the monthly charge for the T3 circuit was $19,600. Although the Master Agreement was signed in March 1999, the T3 circuit was not installed and operating until October or November 1999. In May or June 2000, Spacestar began paying ATT $15,000 per month for the T3 circuit. In November 2000, ATT disconnected Spacestar's T3 circuit.
II. DISCUSSION
Summary judgment is proper "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). In determining whether summary judgment is appropriate, a court must look at the record and any inferences to be drawn from it in the light most favorable to the party opposing the motion. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986). The moving party "bears the initial responsibility of informing the district court of the basis for its motion," and must identify "those portions of [the record] which it believes demonstrate the absence of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). If the moving party satisfies its burden, Rule 56(e) requires the non-moving party to respond by submitting evidentiary materials that designate "specific facts showing that there is a genuine issue for trial." Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986).
Spacestar did not respond to ATT's summary judgment motion. As a result, ATT argues that its motion should be granted under Local Rule 7.1(d). That rule provides the Court may refuse hear oral argument, allow reasonable attorney's fees, or "proceed in such other manner as the Court deems appropriate" if a party fails to timely file a memorandum of law. D. Minn. L.R. 7.1(d) (2000). It does not, however, provide that a party is entitled to summary judgment if a motion is unopposed. Rather, even if a motion for summary judgment is unopposed, a district court must still determine whether the moving party is entitled to judgment as a matter of law. Interstate Power Co. v. Kan. City Power Light Co., 992 F.2d 804, 807 (8th Cir. 1993).
1. Contract Claims a. ATT's Claim
ATT alleges that Spacestar breached the Master Agreement. The Master Agreement provides that it should be construed according to the substantive law of the State of New York. In determining whether a choice of law provision in an agreement will be given effect, a federal court sitting in diversity looks to the choice of law principles of the forum state, which in this case is Minnesota. Fl. State Bd. of Admin, v. Law Eng'g Environ. Servs., Inc., 262 F. Supp.2d 1004, 1012 (D. Minn. 2003). Minnesota courts honor choice of law clauses. Northwest Airlines, Inc. v. Astraea Aviation Servs., Inc., 111 F.3d 1386, 1392 (8th Cir. 1997); Milliken Co. v. Eagle Pkg. Co., 295 N.W.2d 377, 380 n. 1 (Minn. 1980). Accordingly, New York law governs the Master Agreement.
Under New York law, the elements of a breach of contract claim are: (1) existence of a contract; (2) performance by the party seeking recovery; (3) non-performance by the other party; and (4) damages attributable to the breach. Marks v. N.Y. Univ., 61 F. Supp.2d 81, 88 (S.D.N.Y. 1999) (construing New York law). ATT alleges that (1) the Master Agreement is valid and requires Spacestar to pay $19,600 per month for the T3 circuit, (2) ATT provided the T3 circuit to Spacestar from November 1999 to November 2000, (3) Spacestar used but did not pay for all of the T3 circuit during that time, and (4) ATT suffered $179,800 in damages. In its Answer and Counterclaim, Spacestar denies that it breached the Master Agreement, contending that the parties orally modified the agreement.
This amount is calculated as follows: $19,600 x 13 months — $75,000 (amount paid by Spacestar) = $179,800.
Without citing any case law, ATT relies on Article 12.1 of the Master Agreement to argue that it is entitled to summary judgment on its claim. Article 12.1 provides "[a]ny supplement, modification, or waiver of any provisions of this Agreement or any Attachment must be in writing and signed by authorized representatives of both parties." Because there is no written modification, ATT asserts that there is no genuine issue of material fact that Spacestar breached the Master Agreement when it did not pay $179,800 for the T3 circuit.
New York law permits parties to a written contract to agree that modification of that contract must be in writing. Village on Canon v. Bankers Trust Co., 920 F. Supp. 520, 526-27 (S.D.N.Y. 1996) (construing New York law). There are, however, two exceptions to the no-oral-modification rule: partial performance and equitable estoppel. Towers Charter Marine Corp. v. Cadillac Ins. Co., 894 F.2d 516, 522 (2d Cir. 1990) (construing New York law); Rose v. Spa Realty Assocs., 366 N.E.2d 1279, 1283 (N.Y. 1977); Village on Canon, 920 F. Supp. at 527. Neither party addresses these exceptions in their pleadings, and ATT does not discuss them in its memoranda.
To determine whether summary judgment is appropriate, the Court must consider the parties' pleadings and affidavits submitted in conjunction with this motion to determine whether ATT is entitled to judgment as a matter of law. See Fed.R.Civ.P. 56(c). Those documents provide the following information. In its answer and counterclaim, Spacestar asserts that the parties agreed that ATT would provide Spacestar with a six-month billing credit and that the credit was applied to Spacestar's bill for service provided during November 1999 through April 2000. Spacestar also contends that ATT agreed that the monthly fee would be lowered to $15,000 because certain services were not being provided. In portions of deposition testimony attached to the Affidavit of William H Eikenberry, Edward Deppe, a director of Spacestar, testifies that he and Jon Day, an ATT employee, agreed to orally modify the Master Agreement to give Spacestar a six-month credit. In an exhibit that purports to be "the [Spacestar] payment register" attached to the Affidavit of Lisa Romero-Smith, the register shows payments of $15,000 beginning in June 2000, and it shows six credits of $19,600. In an affidavit, Day avers that "ATT never promised Defendant a 6 month free service credit."
Viewing this evidence in the light most favorable to Spacestar, the Court concludes that there are genuine issues of material fact that preclude summary judgment. A reasonable fact-finder could conclude that one of the exceptions to the no-oral-modification rule applies. Accordingly, ATT's motion with respect to its breach of contract claim is denied. b. Spacestar's Counterclaims
Given this conclusion, the Court also denies ATT's motion with respect to its claim for attorney's fees.
Spacestar alleges breach of contract, breach of express warranty, and breach of implied warranty counterclaims against ATT. Under New "York law, "[i]t is well established that allegations of a breach of contract are not sufficient to sustain a complaint in the absence of allegations of fact showing damage." Ryan Ready Mixed Concrete Corp. v. Coons, 267 N.Y.S.2d 627, 630 (N.Y. 1966). For all three of these counterclaims, Spacestar seeks "damages `. . . in an amount to be proven at trial." In deposition testimony, Deppe explained that the only damages Spacestar seeks are those flowing from lost profits and Spacestar's loss of reputation in the Minnesota business community.
ATT asserts that summary judgment should be entered in its favor on all three counterclaims because Spacestar is precluded under Article 9.3 of the Master Agreement from seeking damages for lost profits and loss of reputation. Article 9.3 provides:
IN NO EVENT SHALL ATT BE LIABLE FOR ANY INDIRECT, INCIDENTAL, CONSEQUENTIAL, PUNITIVE, RELIANCE OR SPECIAL DAMAGES, INCLUDING WITHOUT LIMITATION, DAMAGES FOR LOST PROFIT, ADVANTAGE, SAVINGS OR REVENUES OF ANY KIND OR INCREASESD COST OF OPERATIONS, WHETHER OR NOT ATT HAS BEEN ADVISED OF THE POSSIBLITY OF SUCH DAMAGES.
Such a limitation of liability is permissible under New York law. See e.g., Metropolitan Life Ins. v. Noble Lowndes Int'l, Inc., 643 N.E.2d 504, 507 (N.Y. 1994).
Article 9.3 is unambiguous. It precludes Spacestar from recovering lost profits and consequential or special damages. A claim for loss of reputation constitutes a claim for consequential or special damages. See Brancaleone v. Mesagna, 736 N.Y.S.2d 685, 687 (N.Y. 2002). The evidence before the Court includes the parties' pleadings, Article 9.3 of the Master Agreement, and Deppe's testimony in which he states that Spacestar only seeks damages for lost profits and loss of reputation.
Viewing this evidence in the light most favorable to Spacestar, the Court concludes that there are no genuine issues of material fact with respect to whether Spacestar has stated viable damage theories for its contract counterclaims. Accordingly, ATT's motion with respect to Spacestar's breach of contract, breach of express warranty, and breach of implied warranty counterclaims is granted. See Nycal Corp. v. Inoco PLC, 988 F. Supp. 296, 298 (S.D.N.Y. 1997) (construing New York law and noting that summary judgment is "clearly permissible when the language of the contract provision in question is unambiguous"), aff'd, 166 F.3d 1201 (2d Cir. 1998).
2. Tort and Unjust Enrichment Claims a. Choice of Law Provision
ATT does not address whether New York law governs Spacestar's statutory fraud, common law fraud, and unjust enrichment claims. Instead, it simply cites to Minnesota law during its discussion of these claims. In its Answer and Counterclaims, Spacestar also does not address the choice-of-law issue, though it does plead its statutory fraud claim under Minnesota law. Normally, parties approach such issues by looking at the language of a choice-of-law clause and addressing whether a particular claim falls within the scope of that language. See e.g., Fl. State Board of Admin., 262 F. Supp.2d at 1012. Because the parties appear to agree that Minnesota law applies, the Court will address the remaining counterclaims under Minnesota law.
b. Fraud
Spacestar alleges common law and statutory fraud claims against ATT. The required elements of common law fraud in Minnesota are: (1) there was a false representation by a party of a past or existing material fact susceptible of knowledge; (2) made with knowledge of the falsity of the representation or made as of the party's own knowledge without knowing whether it was true or false; (3) with the intention to induce another to act in reliance thereon; (4) that the representation caused the other party to act in reliance thereon; and (5) that the party suffered pecuniary damage as a result of the reliance. Specialized Tours, Inc. v. Hagen, 392 N.W.2d 520, 532 (Minn. 1986). To sustain a claim under the Minnesota Consumer Fraud Act, "a plaintiff must demonstrate that the defendant made a false promise or misrepresentation with the intent that others rely thereon regardless of whether any person has, in fact, been misled, deceived, or damaged." Alsides v. Brown Inst., Ltd., 592 N.W.2d 468, 474 (Minn.Ct.App. 1999); see also
Minn. Stat. § 325 F.69, subd. 1.
ATT asserts that it is entitled to summary judgment because Spacestar cannot prove the requisite intent or damages elements of its fraud counterclaims. With respect to its intent argument, ATT relies on one question and one answer from Deppe's deposition:
Q: Are you claiming that Jon Day intentionally did this to you?
A: I have no idea what Jon Day intentionally did or did not do.
The defendant in this case is ATT, not Day. While the record reveals that the majority of Spacestar's interaction was with Day, it also reveals that Spacestar had contact with other individuals at ATT. Viewing the record as a whole, this one question/one answer exchange does not support an entry of summary judgment because a reasonable fact-finder could still conclude that ATT had the requisite intent for the common law and statutory fraud counterclaims.
With respect to its damages argument, ATT relies on the limitation of liability clause in Article 9.3 to assert that Spacestar cannot show damages for its fraud claims because the type of damages Spacestar seeks are precluded under the Master Agreement. As discussed above, Deppe testified in his deposition that the only damages Spacestar seeks are those for lost profits and loss of reputation. In advancing this argument, ATT does not reconcile why it relies on Minnesota law for its fraud discussion while at the same time basing its lack-of-damages argument on a contract provision governed by New York Law. Moreover, ATT does not discuss the impact, if any, of the economic loss doctrine on its lack-of-damages argument. That doctrine addresses whether parties to a contract can recover in a tort action for purely economic loss. See generally Marvin Lumber Cedar Co. v. PPG Indus., Inc., 223 F.3d 873, 882-87 (8th Cir. 2000) (discussing Minnesota law); see also Shred-It USA Inc. v. Mobile Data Shred, 222 F. Supp.2d 376, 379-80 (S.D.N.Y. 2002) (discussing New York law). Without more support, the Court will not speculate if the economic loss doctrine has any impact on fraud claims between parties to a telecommunications services contract. For these reasons, the Court concludes that genuine issues of material fact remain. Accordingly, ATT's motion with respect to the fraud counterclaims is denied.
c. Unjust Enrichment
In order to establish a claim for unjust enrichment, the party must show that another party knowingly received something of value to which he or she was not entitled and that the circumstances are such that it would be unjust for that person to retain the benefit. ServiceMaster of St. Cloud v. GAB Bus. Servs., Inc., 544 N.W.2d 302, 306 (Minn. 1996). Spacestar alleges that ATT " would be unjustly enriched if were permitted to extract payment from Spacestar for services [that] were not provided." Spacestar cannot rely upon conjecture about future events to support an claim of unjust enrichment. Rather, Spacestar must show that ATT received something of value in the past. See id. It has failed to do so. Accordingly, the Court grants ATT's motion with respect to the unjust enrichment counterclaim.
III. CONCLUSION
Based on the foregoing, and all the files, records and proceedings herein, IT IS ORDERED that:
1. ATT's Motion for Summary Judgment [Docket No. 20] is GRANTED IN PART AND DENIED IN PART.
2. Counterclaims Three, Four, Five, and Six are DISMISSED WITH PREJUDICE.